IMTIAZ HUSAIN SHAIKH, MUMBAI V. ITO 20(1)(3), MUMBAI

ITA 1155/MUM/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9472 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 03-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 20-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: GAJENDRA GOLCHHA
• Keywords: Capital asset; Business income; Depreciation

Judgement Text

. , IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI , BEFORE SHRI R.K.GUPTA , J M ITA NO. 1155 / MUM/ 20 1 2 ( ASSESSMENT YEA R : 200 7 - 20 0 8 ) SHRI IMTIAZ HUSSAIN SHAIKH, 75/5, MITTAL INDUSTRIAL ESTATE, ANDHERI - KURLA ROAD, ANDHERI EAST, MUMBAI - 400 059. VS. ITO 20(1)(3) , MUMBAI PAN/GIR NO. : AAVPS 1424 R ( APPELLANT ) .. ( RESPONDEN T ) /ASSESSEE BY : MR. GAJENDRA GO L CHHA /REVENUE BY : MR. MOHIT JAIN DATE OF HEARING : 3 RD DEC . , 2012 DATE OF PRONOUNCEMENT : 5 TH DEC. ,2012 O R D E R T HIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 4 - 8 - 2011 OF LEANED CIT(A) - 31 , MUMBAI RELATING TO THE ASSESSMENT YEAR 200 7 - 0 8 . 2. TH E FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS AGAINST CONFIRMATION OF ADDITION OF RS. 29,50,000/ - UNDER S ECTION 41(1) OF THE ACT. 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF RUNNING OFFSET PRINTING PRESS CATERING ITA NO. 1155 /20 1 2 2 SERVICES TO ALL TYPES OF INDUSTRIES. DURING THE ASSESSMENT PROCEEDINGS, ON PERUSAL OF BALANCESHEET , THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN A SUM OF RS. 29,50,000/ - UNDER THE HEAD CURRENT LIABILITIES IN THE NAME OF M/S PLANOGRAPHY. ON FURTHER VERIFICATION AND EXPLANATION SOUGHT FROM THE APPELLANT, THE ASSESSING OFFICER AGAIN FOUND TH AT THE ASSESSEE HAS RECEIVED THIS AMOUNT IN THE YEAR 1994 FOR SUPPLY OF MACHINERY. THE ORDER WAS SUBSEQUENTLY CANCELLED AND THE AMOUNT HAS BEEN SHOWN AS LIABILITY. IN SUPPORT OF THAT LIABILITY CEASED TO EXIST, THE ASSESSEE HAS FILED CONFIRMATION LETTER O F M/S PLANOGRAPHY SHOWING THE SAME AS ASSET . IT WAS ALSO EXPLAINED THAT THE AMOUNT WAS RECEIVED IN FIRM M/S ELECTROGRAPHICS IN THE YEAR OF 1994, HOWEVER, FOR THE LAST 10 YEARS, THE CONCERN WAS CLOSED AND ACCORDINGLY THE LIABILITY WAS SHOWN IN HIS PERSONAL BALANCESHEET. THE ASSESSING OFFICER WAS NOT SATISFIED AS IN HIS VIEW SINCE THE LIABILITY IS COMING FOR MORE THAN 10 YEARS AND THERE IS NOTHING ON RECORD THAT THE ASSESSEE HAS TO PAY THE SAME, NEITHER THERE WAS ANY CORRESPONDENCE NOR THERE WAS ANY LITIGATIO N. ACCORDINGLY, BY INVOKING THE SECTION 41(1) OF THE ACT, THE ASSESSING OFFICER MADE AN ADDITION OF RS. 29,50,000/ - . 4 . LEARNED CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 5 . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON REC ORD, I FOUND THAT THE ASSESSING OFFICER AND LD. CIT(A) WERE JUSTIFIED IN MAKING AND CONFIRMING THE ADDITION . TILL DATE, THE ASSESSEE HAS ITA NO. 1155 /20 1 2 3 SHOWN THE LIABILITY OF THIS AMOUNT, NEITHER THERE IS ANY CORRESPONDENCE NOR THERE IS ANY LITIGATION PENDING AS CONCEDED BY THE LEARNED AR, WHO APPEARED BEFORE THE TRIBUNAL. MORE THAN 18 YEARS HAVE BEEN PASSED AND THE ASSESSEE SHOWN THE LIABILITY IN HIS PERSONAL ACCOUNT IN STEAD OF SHOWING IN THE NAME OF CONCERNS IN WHICH THE AMOUNT WAS RECEIVED. THEREFORE, I FEEL THAT THE L IABILITY HAS ALREADY BEEN CEASED. THERE IS NOTHING ON RECORD THAT HOW THIS LIABILITY HAS BECOME PERSONAL LIABILITY OF THE ASSESSEE AS THE AMOUNT WAS RECEIVED BY M/S ELECTROGRAPHICS. THE CIT(A) HAS ALSO PLACED RELIANCE ON VARIOUS DECISION I.E. IN THE CASE O F T.V.S.SUNDARAM IYENGAR & SONS LTD. VS. CIT, 222 ITR 344 (SC) , WHERE IN IT WAS HELD THAT UNCLAIMED SECURITY DEPOSITS RECEIVED FROM TRADE CUSTOMERS AND ULTIMATELY APPORTIONED BY THE ASSESSEE TO HIMSELF WERE LIABLE TO BE TAXED AS BUSINESS INCOME. SIMILAR VIE W HAS BEEN EXPRESSED IN THE CASE OF SOLID CONTAINERS LTD. VS. DCIT, 308 ITR 417 (BOM) . THE ABOVE DECISION RELIED UPON BY HE LEARNED CIT(A) COULD NOT BE DISTINGUISHED BY THE LEARNED AR, NEITHER THERE WAS ANY OTHER MATERIAL TO CONTROVERT THE FINDING OF THE L EARNED CIT(A) . IN VIEW OF THE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE REASONING GIVEN BY THE LEARNED CIT(A) , I CONFIRM THIS ISSUE . 6 . THE NEXT ISSUE IS AGAINST RECALCULATING THE CAPITAL GAIN OF ASSESSEE AT RS. 15, 13, 746/ - AGAINST THE LONG TERM CAPITAL LOSS SHOWN BY THE ASSESSEE AT RS. 51, 582/ - . ITA NO. 1155 /20 1 2 4 7 . DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO HOW HE HAS COMPUTED THE LOSS OF RS. 51,852/ - ON SALE OF GALLA , WHICH WERE PURCHASED IN THE YEAR 1991 - 92 AND WERE SOLD DURING THE REL EVANT YEAR. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE SALE OF GALLA SHOULD NOT BE TREATED AS SHORT TERM CAPITAL GAIN UNDER SECTION 50 OF THE ACT. IT WAS EXPLAINED BEFORE THE ASSESSING OFFICER THAT GALLA WAS PURCHASED DURING THE YEAR 1991 - 92 ON WHI CH NO DEPRECIATION WAS CLAIMED BY THE ASSESSEE. IT WAS ALSO SUBMITTED THAT AS THE GALLA WAS HELD BY THE ASSESSEE FOR MORE THAN 3 YEARS , THEREFORE, LONG TERM CAPITAL GAIN HAS TO BE COMPUTED AFTER TAKING THE DEDUCTION ON ACCOUNT OF INDEXATION. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE E XPLANATION 5 TO SECTION 32(1) OF THE ACT IS APPLICABLE BY WHICH THE ASSESSEE IS REQUIRED TO CLAIM DEPRECIATION. ACCORDINGLY, HE WORKED OUT THE SHORT TERM CAPITAL GAIN ON WDV OF THE GALLA BY INVOKING PROVISION OF SECTION 50 . ACCORDINGLY , HE COMPUTED THE CAPITAL GAIN AT RS. 15,13, 796/ - AGAINST LOSS SHOWN BY THE ASSESSEE. 8 . LEARNED CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 9 . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, I FOUND THA T THE ASSESSEE DESERVES TO SUCCEED ON THIS ISSUE. THE GALLA WAS NOT USED FOR THE LAST SO MANY YEARS AND NO DEPRECIATION WAS CLAIMED AGAINST THE COST OF GALLA PURCHASED IN THE YEAR 1991 - 92 . NO DOUBT THE PROVISION OF SECTION 32(1) PROVIDES BY EXPLANATION 5, THAT ITA NO. 1155 /20 1 2 5 IF THE SAME IS USED FOR BUSINESS PURPOSE, THEN DEPRECIATION HAS TO BE ALLOWED BY TREATING THE SAME AS BUSINESS ASSET. AS PER THE CONTENTION OF THE LEARNED AR, THE GALLA WAS SHOWN AS CAPITAL ASSET IN THE BALANCE SHEET AND NO DEPRECIATION WAS CLAIMED, T HEREFORE, THE SAME HAS TO BE TREATED AS CAPITAL ASSET. RELIANCE HAS BEEN PLACED ON THE DECISION OF MUMBAI BENCH IN THE CASE OF M/S DIVINE CONSTRUCTION COMPANY VS. ACIT, PASSED IN IT A NO. 5396/M/2009 , VIDE ORDER DATED 20 TH DECEMBER, 2010 . COPY OF THE SAME IS PLACED ON RECORD. THE FINDING OF THE TRIBUNAL ARE RECORDED IN PARA 4 OF THE ORDER, WHICH ARE AS UNDER : - 4. ON GOING THROUGH THE MANDATE OF THIS SECTION IT CAN BE EASILY NOTICED THAT IN ORDER TO TREAT CAPITAL GAIN ARISING FROM THE TRANSFER OF CAPITAL ASS ETS IN THE CIRCUMSTANCES MENTIONED IN THE SECTION AS SHORT TERM CAPITAL GAIN, IT IS NECESSARY THAT THE CONDITIONS MENTIONED IN THE OPENING LINES OF SECTION 50 BE FULFILLED VIZ. (I) THE CAPITAL ASSET SHOULD BE AN ASSET FORMING PART OF BLOCK OF ASSET AND ( II) DEPRECIATION SHOULD HAVE BEEN ALLOWED ON IT UNDER THIS ACT OR UNDER THE INDIAN INCOME TAX ACT, 1922. IT IS ONLY ON THE FULFILLMENT OF THESE TWIN CONDITIONS THAT THE PRESCRIPTION OF SECTION 50 GETS ACTIVATED. ADVERTING TO THE FACTS OF THE INSTANT CASE IT IS NOTED THAT THE ASSESSEE INCLUDED THE PROPERTY IN ITS SCHEDULE OF FIXED ASSETS FOR THIS YEAR AT RS.8,91,460. NO DEPRECIATION WAS CLAIMED IN THIS YEAR. WE ARE IN AGREEMENT WITH THE LD. DR THAT MERELY NOT CLAIMING DEPRECIATION IN ONE YEAR IS NOT SUFFIC IENT TO PUSH A CASE OUT OF THE PURVIEW OF SECTION 50. IT IS NECESSARY THAT THE DEPRECIATION SHOULD HAVE NEVER BEEN ALLOWED ON SUCH CAPITAL ASSET. THE LEARNED A.R. WAS DIRECTED TO FILE PURCHASE DEED OF THIS PREMISES IN 1999 AND SUBSEQUENT BALANCE SHEETS. TO DAY SUCH DETAILS HAVE BEEN PLACED ON RECORD. IT CAN BE NOTICED THAT THE VALUE OF THIS PROPERTY AS APPEARING IN THE BALANCE SHEET FOR ASSESSMENT YEAR UNDER CONSIDERATION AT RS.8,91,460 CONTINUES TO REMAIN THE SAME SINCE ITS PURCHASE IN 1999. IT SHOWS THAT NO DEPRECIATION WAS EVER CLAIMED OR ALLOWED ON THIS PROPERTY. IN THAT VIEW OF THE MATTER THE PROVISIONS OF SECTION 50 CANNOT BE APPLIED. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON THIS ISSUE AND HOLD THAT THE LONG TERM CAPITAL GAIN DECLARED BY THE ASSES SEE BE ACCEPTED AS SUCH, SINCE NO INFIRMITY WAS POINTED OUT BY THE ASSESSING OFFICER IN THE CALCULATION SHOWN BY THE ASSESSEE. ITA NO. 1155 /20 1 2 6 10 . THE ABOVE FINDING S OF THE TRIBUNAL ARE SQUARELY APPLICABLE IN FACTS OF THE PRESENT CASE AS IN THIS CASE ALSO THE ASSESSEE NEVER CLAIMED DEPRECIATION. THEREFORE, THE PROVISION OF SECTION 50 IS NOT APPLICABLE. ACCORDINGLY, I DIRECT THE ASSESSING OFFICER TO ACCEPT THE COMPUTATIONS SHOWN BY THE ASSESSEE AFTER VERIFYING THE INDEXATION COST WHETHER THE SAME HAS BEEN CORRECTLY COMP UTED OR NOT. THIS GROUND OF THE ASSESSEE IS ALLOWED. 11 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF DEC . 2012. 2012 SD/ - ( ) ( R.K.GUPTA ) / JUDICIAL MEMBER MUMBAI ; DATED : 05 / 1 2 / 2012 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR , ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( DY./ASSTT. REGISTRAR) / ITAT, MUMBAI