SONIA PATHAK KHANNA, MUMBAI V. INCOME TAX OFFICER-25(1)(2), MUMBAI

ITA 1193/MUM/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0950 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 12-06-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 13-03-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R R MAKWANA
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Set aside
• Section: 54; 143(3); 54F; 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM ITA No.1193/ Mu m/ 2024 (Assess ment Yea r: 2014-15) Sonia Pathak Kha nna, Flat No.14, 5 th Floor, Kodina r, Model Town, Off J.P. Road, Four B ungal ows, Andheri ( W), Mumbai-400 053 Vs. Inc o me Ta x Offic er, Ward 25( 1) (2) Roo m No. 204, 2 nd Floor, Kautil ya B ha van, C-41 to C- 43 G Block, Bandra Kurla co mple x, Bandra( E), Mu mbai-051 (Appellant) (Respondent) PAN No. AABPP6359C Assessee by : Sh r i K G o p a l , A R Revenue by : Sh r i R . R . M a k w a n a , D R D a t e o f h e a r i n g : 1 3 . 0 6 . 2 0 2 4 Date of pronouncement : 1 2 . 0 7. 2 0 24 O R D E R PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by Ms. Sonia Pathak Khanna (assessee / appellant) against the appellate order passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)], for A.Y. 2014-15 dated 6 th February, 2024, wherein the appeal filed by the assessee against the assessment order dated 9 th November, 2016, passed by the Income Tax Officer, Ward 25(1)(2), Mumbai (the learned Assessing Officer) under Section 143(3) of the Income-tax Act, 1961 (the Act), was dismissed. Page | 2 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 02. Assessee is aggrieved with that has preferred this appeal raising following grounds:- “General Ground: 1. The National Faceless Appeal Centre [hereinafter referred to as "the NFAC] has erred in confirming the assessment order passed u/s 143(3) determining the total income at Rs.42,13,130/- as against returned income of Rs.1,84,310/- declared by the Appellant without appreciating the facts and circumstance of the case. This action of the NFSC is unjustified and the same may be set aside. Disallowance of an additional claim made by NFAC is unjustified: 2. The NFAC has erred in confirming the action of the Assessing Officer (AO) in denying the benefit of an exemption u/s 54F of the Act merely relying on the decision of M/s. Goetze (India) Ltd. vs. CIT [284 ITR 323] (SC) and thereby holding the Appellant is not entitled for any claim which is not made in the original return of income, though, the same was subsequently made by filing a revised computation in the assessment proceedings without appreciating that the Appellant has duly satisfied all the conditions precedent to claim the benefit u/s 54F. Thus, the disallowance of the claim made u/s 54F of the Act is unjustified and the same may be deleted. Page | 3 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 3. The NFAC failed to appreciate that, the appellate authority has got powers to entertain the additional claims which are not made in the original return of income and the said contention is supported by the decision of Hon'ble Bombay high Court in the case of CIT vs. Pruthvi Brokers & Shareholders [2012] 349 ITR 336 (Bom). Thus, the action of NFAC in disallowing the claim of an exemption u/s 54F is not at all justified and the same may be quashed and set aside. Disallowance of an exemption u/s 54F of the Act is unjustified. 4. The NFAC has erred in denying the benefit of an exemption u/s 54F of the Act without appreciating that all the conditions precedent to claim the benefit of section 54F have duly been satisfied by the Appellant. Thus, the disallowance of the claim u/s 54F is unjustified and the same may be deleted. 5. The NFAC failed to appreciate that on sale of the business premises being Gala No.6, sold by the Appellant on 17.05.2013, the Appellant has purchased a residential flat within the time limit as prescribed u/s 541 for total consideration of Rs.96,93,400/- and also obtained the possession of the said flat. Thus, the Appellant has satisfied all the conditions to claim the benefit of section 54F. Hence, the disallowance u/s 54F made by the AO and confirmed by NFAC is unjustified and the same may be deleted. Page | 4 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 6. The NAFC failed to appreciate that the business premises sold by the Appellant were originally purchased by her on 09.03.2010. Therefore, the holding period of the said asset is more than 36 months, and the nature of the said asset is Long Term Capital Asset. Though the said asset was forming part of the a block of asset and the depreciation was claimed on the same for one year, the nature of the said asset was always remained as Long Term Capital Asset. Thus, the Appellant is entitled to claim the benefit of section 54F in respect of the capital gains arising from the sale of the said asset. Hence, the disallowance made by the AO and confirmed by the NFAC u/s 54F is unjustified and the same may be deleted. 7. The NFAC is not justified in relying on the decision in the case of Commissioner of Income Tax vs Sakthi Metal Depot Citation (2010) 232 CTR 279 (Ker) to confirm the disallowance of the claim u/s54F of the Act without appreciating that the facts of that case are distinguishable from the facts of the present case. Thus, the said action of the NFAC is unjustified and the same may be set aside.” 03. The brief fact of the case shows that the assessee is a Fashion Designer earning income from manufacturing of garments and interest income. The assessee filed return of income on 17 th July 2014, at a total income of ₹1,84,310/-. This return was picked up for scrutiny by issue of notice under Section 143(2) of the Act on 28 th August 2015. Page | 5 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 04. During the year,the assessee has claimed exemption under Section 54F of the Act on sale of property and consequent investment in residential property. 05. The fact shows that the assessee has sold an industrial gala on which assessee has claimed depreciation in earlier years, the capital gain arising on sale of depreciable asset was utilized by the assessee in purchase of a house property and claimed exemption under Section 54/54F of the Act, same was denied. 06. The assessee has sold one-office premises at Industrial Unit no.6, ground floor, A wing, Oshiwara Industrial Centre, Plot No. D/11, Survey No.161, Goregaon West, Mumbai on 13 th May 2013 for Rs 57 lakhs to Mrs Ratna Pathak Shah. 07. This property was purchases on 9 th March 2010, From Mr. Dilip Chimanlal Solanki for Rs 20,00,000/-. Depreciation on the same was claimed upto 31 st March 2012. 08. Assessee states that she has made investment in a new Residential House property 34,42215/- at Flat no T 21- 201, 2nd Floor, Blue Ridge Township, Hinjewadi, Pune and claimed the deduction thereof from capital gain based on letter of allotment dated 12/08/2017. 09. Capital gain computed by the assessee was sales consideration of Rs 57 lakhs, less indexed cost of acquisition of Rs 32,01663/-, resulting into capital gain of s 24,98,337/-. From this it claimed deduction of Rs 3442,215/- for new house and did not offer any capital Page | 6 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 gain in the ROI. Thus,the assessee sold a depreciable immovable property, on which depreciation is claimed since 2009-10 and considered gain arising therefore as Long Term Capital gain and claimed exemption u/s 54 F of the Act. 010. Against this, the learned Assessing Officer has computed the short term capital gain of ₹40,28,824/- and thus, did not grant exemption under Section 54/ 54F of the Act as it is computed as short term capital gain. 011. Alternatively, he held that net sale consideration is ₹57 lacs and only ₹44,31,840/- were invested for purchase of new house property by the assessee before due date of filing of the return, thus, ₹12,68,186/- was required to be deposited in capital gain account scheme which is not been deposited and therefore, the only proportionate exemption of capital gain is allowable to the assessee. 012. Further, the claim of the learned Assessing Officer is that as assessee has not shown any capital gain in the return of income and further has not claimed such exemption in the return, the deduction is not allowable. In view of the decision of Hon'ble Supreme Court in case of Goetze (India) Ltd. vs CIT 284 ITR 323. 013. Consequently, the assessment order under Section 143(3) of the Act was passed on 9 th November 2016, determining the total income of the assessee at ₹42,13,130/-. 014. On appeal before the first appellate authority, detailed submissions were made. The learned CIT (A) held that Page | 7 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 assessee has not claimed deduction under Section 54F of the Act in the original return of income but claimed through revised computation. Therefore, the learned Assessing Officer is correct in not admitting the fresh claim which was not in the return of income. On merits of the case, he considered the provisions of Section 50 and stated that assessee has earned short term capital gain and therefore, the assessee is not entitled to exemption / deduction under Section 54/ Section 54F of the Act. The learned CIT (A) relied on the decision of the Hon'ble Supreme Court in the case of Sakthi Metal Depot Vs. CIT. 232 CTR 279 (ker). Accordingly, the appeal of the assessee was dismissed. 015. On appeal before us, the brief facts of the case are reiterated and submitted that though assessee has sold her office on which depreciation is claimed, the capital gain arising there from is a short term capital gain in view of provisions of Section 50, however, the assessee is entitled to deduction under Section 54F of the Act or Section 54 of the Act as the original property sold was held for more than 36 months and is a long term capital asset. He relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Ace Builders Pvt. Ltd. 281 ITR 210 Bombay, decision of the Hon'ble Supreme Court in case of CIT vs. Dempo Company Ltd. 387 ITR 354. On the issue of the decision relied upon by the learned CIT (A) in case of Sakthi Metal Depot (supra) of Hon'ble Kerala High Court 333 ITR 492, he submits that in that judgment the deduction for section 54/54F of the Act Page | 8 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 was not an issue. He submitted that the facts of the case are whether on sale of building on which depreciation was allowed for several years where the capital gain is chargeable to tax as short term capital gain. It is not in dispute that assessee has earned profit on sale of long term capital asset by virtue of Section 50 of the Act is chargeable to tax as short term capital gain. However, the assessee has claimed a deduction under Section 54 or 54F of the Act which has arisen from the transfer of long term capital asset. 016. The learned Departmental Representative vehemently supported the order of the learned lower authorities. He submitted that if the assessee has earned short term capital gain on sale of property which is chargeable to tax as short term capital gain under Section 50 of the Income- tax Act, 1961 (the Act), the assessee is not entitled to deduction under Section 54F of the Act. It was further submitted that when the assessee has not claimed deduction in the original return of income but has claimed deduction merely by way of computation such claim is rightly denied by lower authorities. Thus, the order of the learned lower authorities is in accordance with the law. 017. We have carefully considered the rival contentions and perused the orders of the lower authorities. It is a fact that on sale of property, assessee did not disclose deemed capital gain in Schedule DEP of the return of income under capital gain was also not disclosed in the ITR filed by the assessee on 17 th July 2014. As sale deed Page | 9 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 was executed of the property on 13 th March 2013, according to the version of the assessee up to 26 th February 2014, assessee has invested ₹33,52,825/- in purchase of under construction flat at Pune. Therefore, capitalgain is not chargeable to tax. It is also apparent that the assessee did not disclose any such information in Return of income. The capital gain is nil as well as any capital loss was not shown. However, the assessee submitted to the learned Assessing Officer that the impugned property sold on 13 th May 2013, for ₹57 lacs sold to M/s Sonai Pathak Khanna was purchased in A.Y. 2009- 10 at a cost of ₹21,54,900/-. The index cost of acquisition is ₹32,01,663/- and therefore, capital gain of ₹24,98,337/- is derived. The assessee has made an investment in new house property of ₹34,42,215/- and therefore, there is a long term capital loss of ₹9,43,878/-. According to us, this computation of total income is incorrect for the reason that the assessee has claimed depreciation on this property and provision of section 41 (2) of the Act applies. Therefore, the profit or loss on this property is required to be computed under the provisions of Sections 41 (2) and 50 of the Act. 018. Accordingto section 41 (2) of the Act where the building which is owned by the assessee in respect of which depreciation is claimed is sold, the excess of sale price over the written down value to the difference between actual cost and written down value shall be chargeable to income tax as income of the business of the previous year in which sale consideration is due. Therefore, to the extent Page | 10 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 of depreciation already allowed to the assessee shall be chargeable to tax as business income. 019. According to Section 50, excess realized by the assessee against Written-down value of the block of asset shall be deemed to be the capital gain arising from the short term capital asset. Thus, the benefit of indexation is not allowable to the assessee. Further, the assessee is allowed deduction only to the extent of Written-down value of the asset transferred. 020. In this case the learned Assessing Officer has held that assessee has the Written-down value of the asset as on 1 st April 2013, of only ₹ 16,70,176/-. Therefore, only this sum is allowable to the assessee as deduction. Thus, the assessee has income which is chargeable to tax as business income as well as short-term capital gain. 021. Thus, the assessee has two components of income chargeable to tax in this case, (1) as business income under section 41 (2) of the act and (2) short-term capital gain under section 50 of the act. 022. Now, the question arises is that though the capital gain shall be deemed to be the capital gain arising from the transfer of short term capital gain asset, but still can assessee claim exemption under Section 54F of the Act on such capital gain. According to Section 54F of the Act, wherein the case of the assessee capital gain arises from the transfer of any long term capital asset other than a residential house and if assessee purchase or construct a Page | 11 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 residential house than such to certain terms and conditions. The capital gain so arose is granted as exemption in proportion to net consideration to the amount of investment in new house property. Section 50 determines the gain arising from any asset as short term capital gain. Thus, it characterizes the gain and not the capital asset. Undoubtedly, the capital gain on by the assessee under section 50 C may be chargeable to tax as short term capital gain however as the impugned building was held for more than 36 months, the transfer of long- term capital asset has resulted into the above gain. Thus, the deeming fiction under section 50 may be restricted to the chargeability of gain as short-term capital gain but the asset remains a long-term capital asset and does not become a short-term capital asset by virtue of section 50 C of the act. 023. This aspect has been considered by the honourable Bombay High Court in case of CIT versus Ace builders private limited 281 ITR 210 with respect to exemptions under section 54E and decision of the honourable Supreme Court in case of CIT versus V S Dempo Co Ltd in 387 ITR 354. 024. Reliance by the learned CIT – A on the decision of honourable Kerala High Court in case of CIT Shakthi Metal Depot 333 ITR 492 deals with the fact that when a depreciable asset is sold, the gain arising to the assessee shall be chargeable to tax as short-term capital gain as deeming fiction of section 50 C applies to the transaction. Page | 12 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 Here the claim of the assessee is that even if the capital gain is recharacterised by virtue of the deeming fiction as short-term capital gain but still the asset remains a long- term capital asset. Therefore, this decision does not prevent the assessee from claiming exemption under section 54F of the act if the relevant conditions of that section are satisfied. 025. No doubt, the assessee is precluded in making the about them without making any claim in the return of income or revised return of income before the assessing officer however the appellate authorities are not barred from considering the claim of the assessee. This is so because of the reason that decision of the honourable Supreme Court in case of Goetze India limited (supra) restricts the power of the AO but not the power of appellate authorities. Therefore, the learned CIT – A should have granted the claim of the assessee under section 54F of the act. 026. Accordingly we restore the whole issue back to the file of the learned assessing officer to compute the income of the assessee considering the provisions of section 41 (2) of the act and section 50 C of the act, and thereafter from the capital gain, allow the claim of the assessee under section 54F of the act, if the other conditions are satisfied. Accordingly ground number 2 – 7 of the appeal of the assessee are restored back to the file of the learned AO to give the fact accordingly. Those grounds are allowed with above directions. Page | 13 ITA No.1193/Mum/2024 Sona Pathak Khanna; A.Y. 2014-15 027. Ground number 1 is general in nature and therefore same is dismissed. 028. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 12.07.2024. Sd/- (PRAS HANT MAHAR ISHI) (ACC OUNTANT MEMB ER) Mumbai, Dated: 12.07.2024 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai