Deputy Commissioner of Income-tax, V. M/s. Demech Heavy Equipment Pvt. Ltd., Pune

ITA 1377/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1865 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 04-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJAY DHOKE
• Assessee Lawyers: R G NAHAR
• Keywords: Capital asset; Invalid notice; Business income; Depreciation; Audit objection; Cost of acquisition; Unabsorbed depreciation; Reassessment proceedings

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.1377/PN/2014 % % / ASSESSMENT YEAR : 2006-07 DCIT, CIRCLE - 8, PUNE . / APPELLANT V/S M/S. DEMECH HEAVY EQUIPMENTS PVT. LTD., T-78, MIDC, BHOSARI, HAVELI, PUNE - 411028 PAN NO.AAACD7372H . / RESPONDENT C.O. NO.16/PN/2016 % % / ASSESSMENT YEAR : 2006-07 M/S. DEMECH HEAVY EQUIPMENTS PVT. LTD., C/O. KHANDELWAL JAIN & ASSOCIATES, ALANKAR CINEMA BUILDING, IST FLOOR, ABOVE UNITED BANK, PUNE - 411001 PAN NO.AAACD7372H CROSS OBJECTOR V/S ACIT, CIRCLE-8, PUNE APPELLANT IN THE APPEAL / ASSESSEE BY : SHRI R.G. NAHAR / REVENUE BY : SHRI AJAY DHOKE / DATE OF HEARING :09.05.2016 / DATE OF PRONOUNCEMENT:13.05.2016 2 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE AND THE CO FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 14-03-2 014 OF THE CIT(A)-V, PUNE RELATING TO ASSESSMENT YEAR 2006-07. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE CO MPANY WHICH WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MACHINERIES AND SERVICES THEREOF FILED ITS RETURN OF INCOME ON 24- 11-2006 SHOWING TOTAL INCOME OF NIL. ORDER U/S.143(3) IN TH IS CASE WAS PASSED ON 22-10-2008 BY DETERMINING THE TOTAL INCOM E AT RS.8,16,390/-. SUBSEQUENTLY, THE AO NOTICED THAT THE ASSESSEE WA S WRONGLY ALLOWED SET OFF OF BROUGHT FORWARD BUSINESS LOSS AG AINST SHORT TERM CAPITAL GAINS ON ACCOUNT OF SALE OF LEASEHOLD LAN D. ACCORDINGLY NOTICE U/S.148 WAS ISSUED ON 28-03-2011. IN RESPONSE TO THE NOTICE U/S.148 OF THE I.T. ACT THE ASSESSEE VIDE LETTER DATED 07-04-2011 STATED THAT THE RETURN FILED EARLIER MAY BE T REATED AS RETURN FILED IN RESPONSE TO NOTICE U/S.148 OF THE I.T. ACT . THE ASSESSEE ALSO ASKED FOR THE REASONS OF REOPENING OF THE ASSESSMENT WHICH WAS DULY PROVIDED TO THE ASSESSEE. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE STATED THAT THE COMPANY WAS DISSOLVED ON 03-03-2011 A ND THEREFORE THE NOTICE U/S.148 WHICH WAS ISSUED AFTER THE DISSOLUTION OF THE COMPANY, I.E. ON 28-03-2011 IS VOID AND NO PROCEEDIN GS COULD BE INITIATED IN RESPECT OF THE ASSESSEE WHICH WAS N OT IN EXISTENCE. HOWEVER, THE AO REJECTED THE ABOVE CONTENT ION OF THE ASSESSEE. ACCORDING TO HIM, THE PROCEEDINGS U/S.147 WAS INITIATED 3 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 FOR A.Y. 2006-07 DURING WHICH PERIOD THE ASSESSEE WAS IN E XISTENCE. THE DISSOLUTION DOES NOT MEAN THAT ALL IRREGULARITIES/DEFAULTS COMMITTED DURING THE PERIOD OF EXISTENCE HAVE BEEN EXPUN GED. HE THEREFORE HELD THAT THE PROCEEDINGS INITIATED U/S.147 IS VA LID AND AS PER LAW. 4. SO FAR AS THE MERIT OF THE CASE IS CONCERNED, IT WAS S UBMITTED THAT THE FICTION CREATED U/S.50 CANNOT BE EXTENDED TO T HE PROVISIONS OF SECTION 72 OF THE I.T. ACT. IT WAS ARGUED THAT CARRIE D FORWARD BUSINESS LOSS CAN VERY MUCH BE SET OFF AGAINST INCOME U/S .50 OF THE I.T. ACT. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXP LANATION GIVEN BY THE ASSESSEE. HE REFERRED TO PROVISIONS OF SECT ION 72 OF THE I.T. ACT WHICH CLEARLY SAYS THAT BUSINESS LOSS CAN BE CA RRIED FORWARD FOR 8 SUBSEQUENT YEARS AND CAN ONLY BE SET OFF FROM THE INCOME FROM BUSINESS AND PROFESSION. NOWHERE IT IS MENTIONED THAT THE CARRIED FORWARD BUSINESS LOSS CAN BE SET OFF FROM THE INCOM E SHOWN U/S.50 OF THE I.T. ACT. HE FURTHER NOTED THAT THE INCOME SHOWN U/S.50 DOES NOT FALL UNDER THE COMPUTATION OF INCOME FOR BU SINESS AND PROFESSION AND IT FALLS UNDER THE HEAD CAPITAL GAINS. HE THEREFORE REJECTED THE ARGUMENTS OF THE ASSESSEE FOR S ETTING OFF OF SUCH CAPITAL GAIN FROM THE BUSINESS INCOME. THE AO ACCORD INGLY WITHDREW SETTING OFF OF BUSINESS LOSS OF RS.45,62,557/- FROM T HE SHORT TERM CAPITAL GAIN AS ALLOWED IN THE EARLIER YEAR AND MADE ADDITION OF THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. BEFORE CIT(A) THE ASSESSEE CHALLENGED THE VALIDITY OF NOT ICE ISSUED U/S.148 OF THE ACT AFTER THE DISSOLUTION OF THE COMP ANY. SO FAR AS MERIT OF THE CASE IS CONCERNED, THE ASSESSEE RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DIGITAL 4 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 ELECTRONICS LTD. VS. ACIT REPORTED IN 135 TTJ 419 (MUM) WHE RE IT HAS BEEN HELD THAT INCOME EARNED BY THE ASSESSEE IN TH E RELEVANT YEAR ON SALE OF FACTORY BUILDING, PLANT AND MACHINERY, ALTHOU GH NOT TAXABLE AS PROFIT AND GAINS OF BUSINESS OR PROFESSION, IS AN INCOME IN THE NATURE OF INCOME OF BUSINESS THOUGH ASSESSED AS C APITAL GAIN U/S.50 OF THE I.T. ACT. IT WAS ACCORDINGLY ARGUED THAT THE ASSESSEE IS ENTITLED TO SET OFF OF BROUGHT FORWARD LOSS AGAINST THE SAID CAPITAL GAINS. 6. SO FAR AS THE VALIDITY OF ISSUE OF NOTICE U/S.148 IS CONC ERNED, THE LD.CIT(A) DIRECTED THE ASSESSEE TO FILE A COPY OF GAZET TE NOTIFICATION EVIDENCING THE FACT THAT THE COMPANY WAS DISSO LVED. HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE EXPRESSED HIS INABILITY TO PRODUCE THE SAME. SINCE THE ASSESSEE FAILED TO PRODUCE EVIDENCE THAT THE ORDER OF ROC WAS PUBLISHED IN THE GAZETTE OF IN DIA BEFORE ISSUE OF NOTICE U/S.148 OF THE I.T. ACT ON 28-03-2011, TH E CIT(A) HELD THAT THE GROUND TAKEN BY THE ASSESSEE IS WITHOUT ANY MERIT. FURTHER THE COMPANY WAS VERY MUCH IN EXISTENCE IN A.Y. 2 006-07 AND THEREFORE HE HELD THAT THE NOTICE U/S.148 OF THE I. T. ACT CAN BE ISSUED AT ANY TIME WITHIN THE FRAMEWORK OF THE I.T. ACT. HE ACCORDINGLY REJECTED THE ISSUE OF VALIDITY OF REOPENING OF THE ASSESSMENT U/S.148 IN CASE OF THE COMPANY WHICH IS DISSOLVED. 7. SO FAR AS MERIT OF THE CASE IS CONCERNED THE LD.CIT(A ) FOLLOWING THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN T HE CASE OF DIGITAL ELECTRONICS LTD. (SUPRA) DIRECTED THE AO TO A LLOW SET OFF OF BROUGHT FORWARD BUSINESS LOSS AMOUNTING TO RS.45,62,567/-. 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUND : 5 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN ALLOWING THE SET OFF OF CA RRIED FORWARD BUSINESS LOSSES AGAINST THE CAPITAL GAINS COMPUTED U/S.50 OF THE ACT IN VIEW OF PROVISIONS OF SECTION 72 OF THE I.T. ACT. 9. THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS BY TAKING THE FOLLOWING GROUNDS : 1. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE A ND AS PER THE PROVISIONS OF THE LAW, IT BE HELD THAT, ISSUE OF THE N OTICE U/S.148 AFTER COMPANY WAS DISSOLVED AND ITS NAME STRUCK OFF OF REGISTRA R OF COMPANIES IS WITHOUT JURISDICTION, INVALID AND UNLAWFU L IN THE EYES OF LAW. THE NOTICE AND THE PROCEEDINGS IN PURSUANCE OF SAID NOTICE ARE NOT TENABLE. JUST IN PROPER RELIEF MAY GRANTED TO T HE APPELLANT ON THIS SCORE. 2. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER THE PROVISIONS OF THE LAW, IT BE HELD THAT THE ISSUE OF NOT ICE U/S.148 ISSUED ONLY ON THE BASIS OF AUDIT OBJECTION IS ALSO UNWARRAN TED, UNLAWFUL & NOT TENABLE IN THE EYES OF LAW. THE PROCEEDINGS U/S.1 43(3) R.W.S. 147 BE CANCELLED. 3. THE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, MODIFY, RECTIFY, DELETE, RAISE ANY GROUNDS OF APPEAL AT THE T IME OF HEARING. 10. THE LD. DEPARTMENTAL REPRESENTATIVE AT THE OUTSET RELIED ON THE ORDER OF THE AO. HE SUBMITTED THAT THE INCOME EAR NED BY WAY OF SALE OF FACTORY BUILDING, PLANT AND MACHINERY SHOWN U/S.50 DOES NOT FALL UNDER THE BUSINESS INCOME AND IT FALLS UNDER THE HE AD CAPITAL GAINS. THERE IS NO PROVISION IN THE ACT THAT CARRY FORWARD BUSINESS LOSSES CAN BE SET OFF AGAINST INCOME SHOWN U/S.5 0 OF THE I.T. ACT. AS PER SECTION 72 OF THE ACT BUSINESS LOSS CAN BE CARRIED FORWARD FOR SUBSEQUENT YEARS AND CAN ONLY BE SET OFF FRO M INCOME FROM BUSINESS AND PROFESSION. HE SUBMITTED THAT THE DECI SION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DIGITAL ELECTRON ICS LTD. (SUPRA) RELIED ON BY THE CIT(A) HAS NOT BEEN ACCEPTE D BY THE DEPARTMENT AND APPEAL IS PENDING BEFORE HONBLE BOMBAY H IGH COURT. REFERRING TO THE DECISION OF THE BANGALORE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NANDI STEELS LTD. VS. ACIT REPO RTED IN 6 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 134 ITD 73 HE SUBMITTED THAT THE SPECIAL BENCH OF THE T RIBUNAL HAS HELD THAT BROUGHT FORWARD UNABSORBED BUSINESS LOSS CAN BE SET OFF ONLY AGAINST THE BUSINESS INCOME OF THE ASSESSEE U/S.7 2, BE IT FROM THE SAME BUSINESS OR PROFESSION OR FROM ANY OTHER B USINESS AND NOT AGAINST CAPITAL GAINS. HE ACCORDINGLY SUBMITTED T HAT THE ORDER OF THE CIT(A) BE REVERSED ON THIS ISSUE AND THAT OF THE AO BE RESTORED. 11. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A) ON THE ISSUE OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS FROM THE SHORT TERM CAPITAL GAIN. RE FERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PARRYS (EASTERN) PVT. LTD. REPORTED IN 238 TAXMANN 14 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISIO N HAS HELD THAT WHERE DEEMED SHORT TERM CAPITAL GAIN AROSE ON ACC OUNT OF SALE OF DEPRECIABLE ASSETS THAT WAS HELD FOR A PERIOD TO WHICH THE LONG TERM CAPITAL GAIN WOULD APPLY, SAID GAIN WOULD BE SET OFF AG AINST BROUGHT FORWARD LONG TERM CAPITAL LOSSES AND UNABSORBE D DEPRECIATION. REFERRING TO THE DECISION OF THE HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. ACE BUILDERS PVT. LTD. REPOR TED IN 281 ITR 210 AND WHICH HAS BEEN RELIED ON BY THE HONBLE BOM BAY HIGH COURT IN THE CASE OF PARRYS (EASTERN) PVT. LTD. (SUPRA) H E SUBMITTED THAT THE HONBLE HIGH COURT HAS HELD THAT PROVISIONS OF S ECTION 50 MAKES IT EXPLICITLY CLEAR THAT THE DEEMING FICTION CREATED I N SUB- SECTION (1) AND (2) IS RESTRICTED ONLY TO THE MODE OF COMP UTATION OF CAPITAL GAINS CONTAINED IN SECTION 48 AND 49. THE LEGAL FICTIO N IS TO DEEM THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT TERM CAPITAL ASSET. SECTION 50 DOE S NOT CONVERT A LONG TERM CAPITAL ASSET INTO A SHORT TERM CAPITAL ASSET . THOUGH 7 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 SECTION 50 WAS ENACTED WITH THE OBJECT OF DENYING MULTIPLE BENEFITS TO OWNERS OF DEPRECIABLE ASSET YET THAT RESTRICTION WA S LIMITED TO THE COMPUTATION OF CAPITAL GAINS AND NOT THE EXEMPTION PROVISIO NS. ACCORDINGLY, IT WAS HELD THAT THE EXEMPTION U/S.54E COULD NOT BE DENIED TO THE ASSESSEE ON ACCOUNT OF THE FICTION CREATED IN SECTION 50. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT (A) ON THE ISSUE OF SET OFF BROUGHT FORWARD BUSINESS LOSS FROM THE SHO RT TERM CAPITAL GAIN SHOULD BE UPHELD. 12. SO FAR AS THE VALIDITY OF REOPENING U/S.148 AFTER THE C OMPANY WAS DISSOLVED AND ITS NAME STRUCK OFF THE REGISTER OF RE GISTRAR OF COMPANIES AS PER THE GROUND IN THE CO IS CONCERNED, TH E LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF IMPSAT PVT. LTD. VS . ITO REPORTED IN 276 ITR 136 (AT) SUBMITTED THAT THE TRIBUNA L IN THE SAID DECISION HAS HELD THAT THERE IS NO PROVISION IN INCOME -TAX TO ASSESS A COMPANY WHICH HAS BEEN DISSOLVED. WHEN A COMP ANY IS NOT IN EXISTENCE AT THE TIME OF MAKING ASSESSMENT, THERE IS NO QUESTION OF ASSESSING IT FOR INCOME-TAX. THE DISSOLVED COM PANY FILING RETURN AND PARTICIPATING IN ASSESSMENT PROCEEDINGS DO ES NOT CONFER JURISDICTION UPON THE AO TO ASSESS IT. HE ACCORDIN GLY SUBMITTED THAT THE NOTICE ISSUED U/S.148 AFTER THE COMPA NY WAS DISSOLVED AND ITS NAME WAS STRUCK OFF AS PER THE REGISTE R OF REGISTRAR OF COMPANIES IS NOT PERMISSIBLE AND SUCH NOTICE IS WITHOUT JURISDICTION, INVALID AND UNLAWFUL IN THE EYES OF LAW. 13. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED T HE 8 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 VARIOUS DECISIONS CITED BEFORE US. WE WOULD LIKE TO FIRST DEC IDE THE VALIDITY OF REASSESSMENT PROCEEDINGS WHICH HAS BEEN CHALLEN GED BY THE ASSESSEE IN THE IST GROUND OF CROSS OBJECTIONS. IT IS AN ADMITTED FACT THAT THE ASSESSMENT WAS REOPENED BY INITIATING PROC EEDINGS U/S.147 OF THE I.T. ACT AND A NOTICE U/S.148 WAS ISSUED O N 28-03- 2011. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PR OCEEDINGS HAD CHALLENGED THE REASSESSMENT PROCEEDINGS ON THE GRO UND THAT THE COMPANY WAS DISSOLVED ON 03-03-2011 AND THEREFORE THE NOTICE ISSUED AFTER THE DISSOLUTION OF THE COMPANY IS INVALID. WE FIN D THE AO REJECTED THE ABOVE CONTENTION OF THE ASSESSEE ON T HE GROUND THAT THE PROCEEDINGS U/S.147 WAS INITIATED FOR A.Y. 2006-07 DURING WHICH THE ASSESSEE WAS IN EXISTENCE AND THE DISSOLUTION D OES NOT MEAN THAT ALL IRREGULARITIES/DEFAULTS COMMITTED FROM THE PERIO D OF EXISTENCE HAVE BEEN EXPUNGED. WE FIND THE LD.CIT(A) ALSO DE CIDED THE ISSUE AGAINST THE ASSESSEE ON THE GROUND THAT THE ASSESSEE WAS UNABLE TO FILE THE GAZETTE NOTIFICATION EVIDENCING THE FACT TH AT THE COMPANY WAS DISSOLVED. ACCORDING TO HIM IT IS ESTABLISHED LAW THAT ANY NOTIFICATION BECOMES VALID ONLY WHEN THE SAME IS PUBLISH ED IN THE GAZETTE OF INDIA. SINCE THE ASSESSEE FAILED TO PRODU CE THE EVIDENCE THAT THE ORDER OF ROC WAS PUBLISHED IN THE GAZE TTE OF INDIA BEFORE ISSUE OF NOTICE U/S.148 OF THE I.T. ACT ON 28 -01-2011 HE HELD THAT THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS WITHOUT ANY MERIT. 14. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSES SEE THAT AFTER COMPANY IS DISSOLVED AND ITS NAME IS STRUCK OFF THE R EGISTER OF THE REGISTRAR OF COMPANIES, NO CORPORATE EXISTENCE CONTIN UES AND THERE IS NO PROVISION IN INCOME-TAX TO ASSESS A COMPANY WHICH IS DISSOLVED. THE AO HAS NO JURISDICTION TO ASSESS A DISSOLVE D 9 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 COMPANY MERELY BECAUSE IT HAS FILED THE RETURN OF INCOME AND PARTICIPATED IN THE ASSESSMENT PROCEEDINGS. 15. WE FIND MERIT IN THE ABOVE SUBMISSION OF THE LD. COUNSE L FOR THE ASSESSEE. WE FIND THE DELHI BENCH OF THE TRIBUNAL IN T HE CASE OF IMPSAT PVT. LTD. (SUPRA) HAD AN OCCASION TO DECIDE SUCH AN ISSUE. IN THAT CASE, THE ASSESSEE WAS A PRIVATE LIMITED COMPANY INCORPORATED TO IMPLEMENT THE V-SAT PROJECT IN INDIA, IN COLLABORATION WITH CORPORATION IMPSA S.A. OF ARGENTINA. VIDE ORDER DATED 18-09-2001 THE NAME OF THE COMPANY WAS STRUCK OFF THE REGISTER OF THE REGISTRAR OF COMPANIES. ON 29-10-2001 T HE ASSESSEE FILED RETURN OF INCOME DECLARING A LOSS OF RS.84,29 0/-. THE AO PASSED THE ORDER U/S.143(3) AND MADE CERTAIN ADD ITIONS WHICH WAS UPHELD BY THE CIT(A). BEFORE THE TRIBUNAL THE AS SESSEE TOOK A GROUND THAT THE REVENUE AUTHORITIES HAVE ERRE D IN FRAMING AN ASSESSMENT OF THE COMPANY WHICH HAD BEEN DISSOLVED O N 18-09- 2001. IT WAS ARGUED THAT THE ASSESSEE DID NOT EXIST IN THE EYES OF LAW ON THE DATE WHEN THE ASSESSMENT ORDER WAS PASSED AND ALSO DID NOT EXIST WHEN THE CIT(A) PASSED THE IMPUGNED ORDER. THE TRIBUNAL ACCEPTED THE ABOVE PLEA OF THE ASSESSEE. THE R ELEVANT OBSERVATIONS OF THE ORDER OF THE TRIBUNAL IS AS UNDER : 12. SECTION 178 OF THE 1961 ACT DEALS WITH A COMPA NY THAT HAS GONE INTO LIQUIDATION. THE GENERAL PRINCIPLE IN LAW IS TH AT A COMPANY UNDER LIQUIDATION IS STILL A COMPANY WITHIN THE CHARGING P ROVISIONS OF THE AT, THOUGH IT WILL BE REPRESENTED BY THE LIQUIDATOR. HE IS ONLY AN AGENT OF THE COMPANY; THE PROPERTY OF THE COMPANY DOES NOT VE ST IN HIM. THE LEGAL POSITION IS THAT THE LIQUIDATOR WILL HAVE TO AC T IN REGARD TO THE FILING OF THE RETURN AFTER THE COMPANY GOES INTO LIQ UIDATION. IN HARI PRASAD JAYANTILAL V. V.S. GUPTA, ITO, AHMEDABAD AND ANR. (59 ITR 794) THE SUPREME COURT HELD SO. 13. FROM THE ABOVE, THE POSITION THAT EMERGES IS THAT BOTH UNDER THE OLD ACT AND THE NEW ACT IT IS ABSOLUTELY ESSENTIAL THA T THE PERSON SOUGHT TO BE ASSESSED SHOULD BE IN EXISTENCE AT THE TIME OF MAK ING THE ASSESSMENT AND THAT ELABORATE PROVISIONS WERE MADE IN THE ACTS TO 10 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 ENSURE THAT IF THE PERSON SOUGHT TO BE ASSESSED IS NOT IN E XISTENCE AT THE TIME OF MAKING THE ASSESSMENT, SOME OTHER PERSON OR BODY OR ENTITY WAS EXPRESSLY FASTENED WITH THE LIABILITY TO BE ASSESSED. 14. THE CONTENTION IS THAT THE ASSESSEE-COMPANY WAS NOT IN EXISTENCE AFTER 18-9-2001 ON WHICH DATE IT WAS DISSOLV ED UNDER SECTION 560 OF THE COMPANIES ACT, 1956. IN ORDER TO APPRECIA TE THE CONTENTION, WE NEED TO TAKE A LOOK AT SECTION 560 OF THE COMPAN IES ACT. IT PROVIDES FOR A SUMMARY PROCEDURE FOR PUTTING AN END TO THE CO RPORATE EXISTENCE WITHOUT GOING THROUGH THE CUMBERSOME PROCEDURE OF LI QUIDATION. IT CONFERS POWERS UPON THE REGISTRAR OF COMPANIES TO STRIKE THE NAME OF THE COMPANY OFF THE REGISTER, IF IT IS A DEFUNCT. THE REGISTRAR HAS TO FOLLOW A PRESCRIBED PROCEDURE SUCH AS GIVING AN OPPORT UNITY TO THE COMPANY, NOTIFICATION IN THE GAZETTE AND SO ON. SUB- SECTION (5) PROVIDES THAT AFTER THE EXPIRY OF THE PRESCRIBED TIME , AFTER THE PUBLICATION IN THE GAZETTE OF HIS INTENTION TO STRIKE OFF THE NAME OF THE COMPANY FROM HIS REGISTER, DURING WHICH HE HAS NOT REC EIVED ANY REPRESENTATION FROM THE COMPANY, THE REGISTRAR MAY STR IKE THE NAME OF THE COMPANY OFF THE REGISTER AND SHALL PUBLISH A NOTIF ICATION TO THAT EFFECT IN THE OFFICIAL GAZETTE AND 'ON THE PUBLICAT ION IN THE OFFICIAL GAZETTE OF THIS NOTICE, THE COMPANY SHALL STAND DISSOLVE D'. THERE IS PROVISION FOR RESTORATION OF THE NAME OF THE COMPANY AND IF THE NAMES IS RESTORED, SUB-SECTION (7) SAYS THAT THE 'COMPANY SHALL BE DEEMED TO HAVE CONTINUED IN EXISTENCE AS IF ITS NAME HAD NOT BEE N STRUCK OFF'. 15. THERE IS A DISTINCTION UNDER THE COMPANY LAW BET WEEN WINDING UP OR LIQUIDATION ON THE ONE HAND AND DISSOLUTION OF THE COMPANY ON THE OTHER. THIS HAS BEEN BROUGHT OUT BY THE SUPREME COURT IN HARI PRASAD JAYANTILAL'S CASE (SUPRA). AT PAGE 798, HON'BLE JUSTICE SHAH, SPEAKING FOR THE COURT OBSERVED: 'ON THE PASSING OF A SPECIAL RESOLUTION BY THE COMPANY THAT IT BE WOULD UP VOLUNTARILY UNDER THE COMPANIES ACT, 1956 ( 1 OF 1956), THE COMPANY DOES NOT STAND DISSOLVED. THAT IS SO EXPRESSLY PROVIDED BY SECTION 487 OF THE COMPANIES ACT . A COMPANY WHICH HAS RESOLVED TO BE VOLUNTARILY WOUND UP MAY BE DISSOLVED IN THE MANNER PROVIDED BY SECTION 497(5) : TILL THEN THE COMPANY HAS CORPORATE EXISTENCE AND CORPORATE POW ERS. THE PROPERTY OF THE COMPANY DOES NOT VEST IN THE LIQU IDATOR; IT CONTINUES TO REMAIN VESTED IN THE COMPANY.' 16. THE QUOTED OBSERVATIONS SHOW THAT DISSOLUTION IS A S TAGE SUBSEQUENT TO THE WINDING UP OR LIQUIDATION, THE END OF THE EXISTENCE OF THE COMPANY. TILL DISSOLUTION, THE CORPORATE EXISTENC E CONTINUES. IT FOLLOWS, PER CONTRA, THAT ONCE A COMPANY IS DISSOLVED, ITS CORPORATE EXISTENCE COMES TO AN END. IT IS NO LONGER IN EXISTENCE ; IT IS DEAD. 17. A REFERENCE TO PAGE 1901 OF A. RAMAIYA'S COMMEN TARY ON THE COMPANIES ACT, 1956 (12TH EDITION BY HON'BLE JUST ICE Y.V. CHANDRACHUD (FORMER CHIEF JUSTICE OF INDIA) SHOWS THE FOLLOWING EXTRACT FROM HALSBURY'S LAWS OF ENGLAND, FOURTH EDITIO N, VOL.7, PARA 1448, PAGE 809 UNDER THE HEADING 'EFFECT OF DISSOLUTI ON'- 'THE DISSOLUTION PUTS AN END TO THE EXISTENCE OF THE CO MPANY. UNLESS AND UNTIL IT HAS BEEN SET ASIDE, IT PREVENTS ANY PROCEEDINGS BEING TAKEN AGAINST PROMOTERS, DIRECTORS OR OFFICERS 11 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 OF THE COMPANY TO RECOVER MONEY OR PROPERTY DUE OR BELONGING TO IT OR TO PROVE A DEBT DUE FROM IT. WHEN THE COMP ANY IS DISSOLVED, THE LIQUIDATOR'S STATUTORY DUTY TOWARDS THE C REDITORS AND CONTRIBUTORIES IS GONE; BUT, IF HE HAS COMMITTED A BREACH OF HIS DUTY TO ANY CREDITOR BY DISTRIBUTING THE ASSETS WITH OUT COMPLYING WITH THE REQUIREMENTS OF THE COMPANIES ACT, 1948, HE IS LIABLE IN DAMAGES TO HIM'. 18. AT PAGE 1930 OF THE SAME TREATIES, UNDER THE HEA DING 'PROPERTY AFTER DISSOLUTION', IT HAS BEEN STATED THAT THE PROPERT Y OF THE COMPANY AFTER DISSOLUTION IS BONA VACANTIA AND ESCHEATS TO THE S TATE. THERE IS ALSO A REFERENCE TO THE JUDGMENT OF THE SUPREME COUR T IN NARENDRA BAHADUR TANDON V. SHANKAR LAL (1982) 52 COMP. CAS. 6 2, IN WHICH IT HAS BEEN HELD THAT ONCE A COMPANY IS DISSOLVED IT CEASES TO EXIST AND THEREAFTER A LIQUIDATOR CANNOT REPRESENT THE COMPANY , SINCE IT IS NON- EXISTENT. 19. IT IS THUS CLEAR THAT IN THE PRESENT CASE THE ASSESSE E-COMPANY CEASED TO EXIST AFTER BEING DISSOLVED UNDER SECTION 560 . ONCE IT CEASED TO EXIST, THERE WAS NO QUESTION OF ASSESSING IT FOR INCOME -TAX, AS IT APPEARS THAT THERE IS NO PROVISION IN THE PRESENT ACT T O ASSESS A COMPANY WHICH IS DISSOLVED. OUR ATTENTION WAS NOT DRAW N TO ANY PROVISION IN THE ACT ENABLING THE AO TO DO SO. SECTIO N 159 OF THE PRESENT ACT DOES NOT CURE THE LACUNA. IT CORRESPONDENT TO SECTION 24B OF THE 1922 ACT. SUB-SECTION (1) SAYS THAT WHERE A PERSON DIES, HIS LEGAL REPRESENTATIVES SHALL BE LIABLE TO PAY ANY SUM W HICH THE DECEASED WOULD HAVE BEEN LIABLE TO PAY IF HE HAD NOT DIED, I N THE LIKE MANNER AND TO THE SAME EXTENT AS THE DECEASED. SUB-SECTION (2)(B) ENABLES THE AO TO TAKE ANY PROCEEDING AGAINST THE LEGAL REPRESENTATI VE OF A DECEASED PERSON, WHICH HE COULD HAVE TAKEN AGAINST THE DECEASED HIMSELF IF HE HAD NOT DIED AND CLAUSE (C) OF THE SUB-SECTION SAYS THAT THE OTHER PROVISIONS OF THE ACT SHALL APPLY ACCORDINGLY. SUB-SEC TION (3) SAYS THE LEGAL REPRESENTATIVE OF THE DECEASED SHALL, FOR THE PU RPOSES OF THIS ACT, BE DEEMED TO BE AN ASSESSEE. SUB-SECTION (4) MAKES EACH AND EVERY LEGAL REPRESENTATIVE PERSONALLY LIABLE FOR THE TAX PA YABLE BY HIM IN SUCH CAPACITY AND SUB-SECTION (6) SAYS THAT SUCH LIABILITY W ILL HOWEVER BE LIMITED TO THE EXTENT TO WHICH THE ESTATE IS CAPABLE OF MEETING THE LIABILITY. THIS SECTION, IN THE VERY NATURE OF THINGS AND CONSIDERING THE LANGUAGE EMPLOYED IN SUB-SECTION (1), CAN APPLY ONLY TO INDIVIDUALS OR NATURAL PERSONS. IN CWT V. G.E. NARAYANA (193 ITR 41 @ 49) THE KARNATAKA HIGH COURT HELD, WHILE INTERPRETING SECTI ON 19 OF THE WEALTH TAX ACT WHICH IS IN PARI MATERIAL WITH SECTION 159 O F THE IT ACT, THAT THE WORD 'DIES' IS NORMALLY REFERRABLE TO THE LIFE OF A L IVING PERSON, ANIMAL OR PLANT AND IN THE ABSENCE OF ANY STATUTORY FICTION CANNOT BE EXTENDED TO COVER A CASE OF A DISRUPTION OF A JOINT FAMILY. SI MILARLY, IT CANNOT ALSO COVER A CASE OF A DISSOLUTION OF A COMPANY, AND THERE IS NO STATUTORY FICTION EXTENDING SECTION 159 TO A CASE OF DISSOLUTIO N OF A COMPANY UNDER SECTION 560 OF THE COMPANIES ACT. IN THE ABOVE JUDGMENT, IT WAS HELD (@ PAGE 48 THAT 'A SPECIFIC PROVISION IS NECESSARY TO MAKE AN ORDER OF ASSESSMENT AGAINST A TAXABLE ENTITY WHICH DOES N OT EXIST ON THE DATE OF THE ASSESSMENT EVEN THOUGH THE SAID ENTITY W AS IN EXISTENCE WHEN THE LIABILITY TO TAX AROSE'. 20. THE LD. DR REFERRED TO TWO JUDGMENTS OF THE SUP REME COURT, ONE IN S.V. KONDASKAR, OFFICIAL LIQUIDATOR AND LIQUI DATOR OF THE COLABA LAND AND MILLS CO. LTD. (IN LIQUIDATION) V. V.M. DESH PANDE, ITO AND ANR., 12 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 83 ITR 685 AND IMPERIAL CHIT FUNDS PVT. LTD. V. ITO, 219 ITR 498. THESE TWO JUDGMENTS, IN OUR OPINION, DO NOT AFFECT THE POI NT WHICH HAS ARISEN IN THE PRESENT CASE. IN S.V. KONDASKAR (SUPRA), IT WAS H ELD THAT THE LIQUIDATION COURT CANNOT PERFORM THE FUNCTIONS OF TH E ITO WHILE ASSESSING THE AMOUNT OF TAX PAYABLE BY THE COMPANY, EVE N IF THE ASSESSEE IS A COMPANY WHICH IS BEING WOUND UP UNDER ORDER S OF THE COURT. THE LIQUIDATION COURT IS NOT VESTED WITH THE P OWERS TO STOP THE ASSESSMENT PROCEEDINGS FOR DETERMINING THE TAX PAYABLE B Y THE COMPANY WHICH IS BEING WOUND UP. IT WILL HAVE FULL P OWER TO SCRUTINIZE THE CLAIM OF THE I.T. DEPARTMENT AFTER THE TAX HAS B EEN DETERMINED AND THE PAYMENT THEREOF IS DEMANDED FROM THE LIQUIDATOR. AT THIS STAGE, IT WOULD BE OPEN TO THE LIQUIDATION COURT TO DECIDE HO W FAR UNDER THE LAW, THE INCOME-TAX ASSESSED BY THE DEPARTMENT SHOULD BE ACCEPTED AS A LAWFUL LIABILITY ON THE FUNDS OF THE COMPANY UNDER LIQUIDATION. AT THIS STAGE, THE WINDING UP COURT CAN FULLY SAFEGUARD THE I NTEREST OF THE COMPANY AND ITS CREDITORS. IN THE CASE OF IMPERIAL CHI T FUNDS PVT. LTD. (SUPRA), IT WAS HELD THAT WHILE DETERMINING THE PRIOR ITY OF DEBTS IN THE CASE OF A COMPANY WHICH IS BEING WOULD UP, THE IT. DE PARTMENT IS TO BE TREATED AS A SECURED CREDITOR. NO DOUBT, THE PROVISION S OFSECTION 178 OF THE I.T. ACT WERE REFERRED TO, BUT THEY WERE REFERR ED TO IN AN ENTIRELY DIFFERENT CONTEXT, A CONTEXT WHICH IS NOT SIMILAR AS I N THE PRESENT CASE. THE SUPREME COURT IN THIS CASE POINTED OUT THE DIFFER ENCE BETWEEN THE SECTION 530 OF THE COMPANIES ACT AND SECTION 178 OF THE I.T. ACT, A DISTINCTION WHICH IS NOT RELEVANT AND DOES NOT ARISE FO R CONSIDERATION IN THE CASE BEFORE USE. BASICALLY, WHAT WAS DECIDED IN THE JUDGMENT WAS THE QUESTION OF PRIORITY OF DEPARTMENT HAVE NOTHING TO DO WITH THE CONTROVERSY THAT ARISES IN THE PRESENT CASE. 21. THAT TAKES US TO THE NEXT QUESTION REGARDING THE VALIDITY OF AN ASSESSMENT ON A NON-EXISTENT PERSON. IT IS A NULLITY. REFE RENCE MAY BE MADE TO THE JUDGMENTS OF THE SUPREME COURT IN CIT V. AMARCHAND N. SHROFF (48 ITR 59) AND ITO V. RAM PRASAD AND ORS. (8 6 ITR 145). THESE ARE CASES OF AN INDIVIDUAL AND A JOINT FAMILY RESPECTI VELY, BUT THE RATIO IS THAT THERE CAN BE NO ASSESSMENT ON A DEAD PERSON. JUST AS AN INDIVIDUAL CEASES TO EXIST ON DEATH AND A JOINT HINDU FAMILY CEASES TO EXIST ON BEING DISRUPTED, A COMPANY CASES TO EXIST ON B EING DISSOLVED UNDER SECTION 560 OF THE COMPANIES ACT. WE HAVE ALRE ADY NOTED THE JUDGMENT OF THE SUPREME COURT IN HARI PRASAD JAYANTI LAL (SUPRA) AS TO THE EFFECT OF DISSOLUTION AND THE TREATISE OF A. RAMAI YA ON COMPANY LAW IN THIS BEHALF. IF THE COMPANY IS NOT IN EXISTENCE AT THE TIME OF MAKING THE ASSESSMENT, NO ORDER OF ASSESSMENT CAN BE VALIDL Y PASSED UPON IT UNDER THE INCOME TAX ACT AND IF ONE IS PASSED, IT MUST BE A NULLITY. 22. THE NEXT QUESTION FOR OUR CONSIDERATION IS WHETHE R BY FILING THE RETURN OF INCOME IN OCTOBER 2001 THE ASSESSEE-COMPANY C AN BE SAID TO HAVE ADMITTED THAT IT CONTINUED TO BE IN EXISTENCE SO THAT THE ASSESSMENT MADE UPON IT MAY BE HELD TO BE VALID. THIS RA ISES THE QUESTION WHETHER THE ASSESSEE CAN CONSENT TO THE AO MAKIN G AN ASSESSMENT UPON IT, THOUGH THERE IS NO PROVISION IN THEIN COME TAX ACT TO DO SO. IN ASIT KUMAR GHOSE V. COMMISSIONER OF AGR ICULTURAL INCOME TAX (22 ITR 77) THE CALCUTTA HIGH COURT HELD THAT SHOULD AN ASSESSEE FILE A RETURN OR INTERVENE IN AN ASSESSMENT PROCEE DING PENDING AGAINST AN EXECUTOR OF AN ESTATE UNDER THE IM PRESSION THAT HE IS LIABLE TO BE CHARGED AS BENEFICIARY OF THE ESTATE, IT IS OPEN TO HIM, IF HE NOT REALLY LIABLE AT LAW, TO APPEAL IN PROPER TI ME AGAINST THE ORDER OF 13 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 ASSESSMENT AGAINST HIM AND POINT OUT THE INVALIDITY OF T HE ASSESSMENT THOUGH HE MIGHT HAVE, BY HIS CONDUCT, ACQUIESCED IN T HE ASSESSMENT PROCEEDINGS. THERE CAN BE NO ESTOPPEL AGAINST STATUTE. AN ASSESSMENT IS TO BE GOVERNED BY THE PROVISIONS OF THE ACT AND NOT ON THE VIEW WHICH THE PARTIES MAY TAKE AS TO THEIR RIGHTS AND LIA BILITIES. IN CIT V. BHARAT GENERAL REINSURANCE CO. LTD. (81 ITR 303), TH E HON'BLE DELHI HIGH COURT HELD, WHERE THE ASSESSEE ITSELF INCLUDED THE DIVIDEND IN HIS RETURN BUT LATER CHALLENGED THE ASSESSMENT OF THE SAME I N THE YEAR IN QUESTION, THAT IT MUST BE TAKEN THAT THE ASSESSEE HAD RE SILED FROM THE POSITION WHICH IT HAD WRONGLY TAKEN WHILE FILING THE RETURN. INT EH LIGHT OF THESE AUTHORITIES, THE CONDUCT OF THE ASSESSEE BEFORE US IN FILING THE RETURN OF INCOME AND IN PARTICIPATING IN THE PROCEE DINGS FOR ASSESSMENT DO NOT CONFER JURISDICTION UPON THE AO TO ASSE SS IT, WHICH MUST REALLY DEPEND UPON THE EFFECT OF THE PROVISIONS O F THE INCOME TAX ACT. IN THE ABSENCE OF ANY PROVISION INT EH ACT TO ASSE SS A COMPANY THAT HAS BEEN DISSOLVED AND THUS CEASED TO EXIST, NO ASSESSMENT OR DER CAN BE MADE AGAINST IT BY THE AO. THE ABSENCE OF A PROV ISION ENABLING THE AO TO DO SO CANNOT BE SUPPLIED BY THE ASSESSEE BY MERELY FILING A RETURN AND PARTICIPATING IN THE PROCEEDINGS. 23. FOR THE ABOVE REASONS, WE ACCEPT THE FIRST CONTEN TION AND HOLD THAT THE ASSESSMENT ORDER PASSED ON THE ASSESSEE-COMPANY IS A NULLITY. 16. SINCE IN THE INSTANT CASE ALSO THE COMPANY WAS NOT IN EXISTENCE AT THE TIME WHEN THE NOTICE WAS ISSUED U/S.14 8, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE DELHI BEN CH OF THE TRIBUNAL CITED (SUPRA) WE HOLD THAT THE ISSUE OF NOTICE U/S.148 AFTER THE COMPANY WAS DISSOLVED AND ITS NAME STRUCK OFF T HE REGISTER OF THE REGISTRAR OF COMPANIES IS WITHOUT JURISDICTIO N, INVALID AND UNLAWFUL IN THE EYES OF LAW. THE SUBSEQUENT PROCEEDINGS ON THE BASIS OF SUCH INVALID NOTICE ARE ALSO NO T TENABLE, THEREFORE, GROUND OF CROSS OBJECTION NO.1 RAISED B Y THE ASSESSEE IS ALLOWED. 17. EVEN ON MERIT WE FIND THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ACE BUILDERS PVT. LTD. REPORTED IN 281 ITR 210 HAS HELD THA T THERE WAS NOTHING IN SECTION 50 TO SUGGEST THAT THE FIC TION CREATED IN SECTION 50 IS NOT ONLY RESTRICTED TO SECTIONS 48 AND 49 BUT ALSO 14 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 APPLIES TO OTHER PROVISIONS. ON THE CONTRARY THIS SECTION MAKES IT EXPLICITLY CLEAR THAT THE DEEMING FICTION CREATED IN SUB-SEC TION (1) AND (2) IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF C APITAL GAINS CONTAINED IN SECTION 48 AND 49. THE LEGAL FICTION IS TO DEEM THE CAPITAL GAIN AS SHORT-TERM CAPITAL GAIN AND NOT TO DE EM THE ASSET AS SHORT-TERM CAPITAL ASSET. SECTION 50 DOES NOT CONVERT A LONG-TERM CAPITAL ASSET INTO A SHORT-TERM CAPITAL ASSET. THOUGH SECTION 50 WAS ENACTED WITH THE OBJECT OF DENYING MULTIPLE BENEFITS TO OWNERS OF DEPRECIABLE ASSETS, YET THAT RESTRICTION WA S LIMITED TO THE COMPUTATION OF CAPITAL GAINS AND NOT THE EXEMPTION PR OVISIONS. THUS, THE HONBLE HIGH COURT HELD THAT EXEMPTION UNDER S ECTION 54E CANNOT BE DENIED TO THE ASSESSEE ON ACCOUNT OF T HE FICTION CREATED IN SECTION 50. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT FROM PARA 22 TO 26 READ AS UNDER : 22. UNDER THE MACHINERY SECTIONS THE CAPITAL GAINS AR E COMPUTED BY DEDUCTING FROM THE CONSIDERATION RECEIVED ON TRANSFER OF A CAPITAL ASSET, THE COST OF ACQUISITION, THE COST OF IMPROVEMENT AND T HE EXPENDITURE INCURRED IN CONNECTION WITH THE TRANSFER. THE MEANIN G OF THE EXPRESSIONS COST OF IMPROVEMENT AND COST OF ACQUISITION USED IN SECTIONS 48 AND 49 ARE GIVEN IN SECTION 55. AS THE DEPRECIABLE CAPITAL A SSETS HAVE ALSO AVAILED OF DEPRECIATION ALLOWANCE UNDER SECTION 32, SECTION 5 0 PROVIDES FOR A SPECIAL PROCEDURE FOR COMPUTATION OF CAPITAL GAINS IN THE CASE OF DEPRECIABLE ASSETS. SECTION 50(1) DEALS WITH THE CASES WH ERE ANY BLOCK OF DEPRECIABLE ASSETS DOES NOT CEASE TO EXIST ON ACCOUNT OF TRANSFER AND SECTION 50(2) DEALS WITH CASES WHERE THE BLOCK OF DEPR ECIABLE ASSETS CEASES TO EXIST IN THAT BLOCK ON ACCOUNT OF TRANSFER DU RING THE PREVIOUS YEAR. IN THE PRESENT CASE, ON TRANSFER OF A DEPRECIABL E CAPITAL ASSET THE ENTIRE BLOCK OF ASSETS HAS CEASED TO EXIST AND, THEREFORE , SECTION 50(2) IS ATTRACTED. THE EFFECT OF SECTION 50(2) IS THAT WHERE THE CONSIDERATION RECEIVED ON TRANSFER OF ALL THE DEPRECIABLE ASSETS IN T HE BLOCK EXCEEDS THE WRITTEN DOWN VALUE OF THE BLOCK, THEN THE EXCESS IS TA XABLE AS A DEEMED SHORT-TERM CAPITAL GAINS. IN OTHER WORDS, EVEN THOUGH THE ENTIRE BLOCK OF ASSETS TRANSFERRED ARE LONG-TERM CAPITAL ASSETS AND THE CO NSIDERATION RECEIVED ON SUCH TRANSFER EXCEEDS THE WRITTEN DOWN VAL UE, THE SAID EXCESS IS LIABLE TO BE TREATED AS CAPITAL GAIN ARISING OUT OF A SHORT-TERM CAPITAL ASSET AND TAXED ACCORDINGLY. 23. THE QUESTION REQUIRED TO BE CONSIDERED IN THE PR ESENT CASE IS, WHETHER THE DEEMING FICTION CREATED UNDER SECTION 50 IS RESTRICTED TO SECTION 50 ONLY OR IS IT APPLICABLE TO SECTION 54E OF THE INCOME-TAX ACT AS WELL ? IN OTHER WORDS, THE QUESTION IS, WHERE THE LONG -TERM CAPITAL GAIN 15 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 ARISES ON TRANSFER OF A DEPRECIABLE LONG-TERM CAPITAL ASSET, WHETHER THE ASSESSEE CAN BE DENIED EXEMPTION UNDER SECTION 54E MEREL Y BECAUSE, SECTION 50 PROVIDES THAT THE COMPUTATION OF SUCH CAPIT AL GAINS SHOULD BE DONE AS IF ARISING FROM THE TRANSFER OF SHORT-TERM CAPI TAL ASSET ? 24. SECTION 54E OF THE INCOME-TAX ACT GRANTS EXEMPTI ON FROM PAYMENT OF CAPITAL GAINS TAX, WHERE THE WHOLE OR PAR T OF THE NET CONSIDERATION RECEIVED FROM THE TRANSFER OF A LONG-TE RM CAPITAL ASSET IS INVESTED OR DEPOSITED IN A SPECIFIED ASSET WITHIN A PERI OD OF SIX MONTHS AFTER THE DATE OF SUCH TRANSFER. IN THE PRESENT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE FULFILS ALL THE CONDITIONS SET OUT IN SECTION 54E TO AVAIL OF THE EXEMPTION, BUT THE EXEMPTION IS SOUGHT TO BE DENIED IN VIEW OF FICTION CREATED UNDER SECTION 50. 25. IN OUR OPINION, THE ASSESSEE CANNOT BE DENIED EXEMP TION UNDER SECTION 54E, BECAUSE, FIRSTLY, THERE IS NOTHING IN SECTI ON 50 TO SUGGEST THAT THE FICTION CREATED IN SECTION 50 IS NOT ONLY RESTRICT ED TO SECTIONS 48 AND 49 BUT ALSO APPLIES TO OTHER PROVISIONS. ON THE CONTRA RY, SECTION 50 MAKES IT EXPLICITLY CLEAR THAT THE DEEMED FICTION CREATED IN SUB-SECTIONS (1) AND (2) OF SECTION 50 IS RESTRICTED ONLY TO THE MODE OF CO MPUTATION OF CAPITAL GAINS CONTAINED IN SECTIONS 48 AND 49. SECONDLY, IT IS WELL ESTABLISHED IN LAW THAT A FICTION CREATED BY THE LEGISLATURE HAS TO BE CONFINED TO THE PURPOSE FOR WHICH IT IS CREATED. IN THIS CONNECTION, W E MAY REFER TO THE DECISION OF THE APEX COURT IN THE CASE OF STATE BANK OF INDIA V. D. HANUMANTHA RAO REPORTED IN [1998] 6 SCC 183. IN THA T CASE, THE SERVICE RULES FRAMED BY THE BANK PROVIDED FOR GRANTING EXTEN SION OF SERVICE TO THOSE APPOINTED PRIOR TO JULY 19, 1969. THE RESPONDEN T THEREIN WHO HAD JOINED THE BANK ON JULY 1, 1972, CLAIMED EXTENSION O F SERVICE BECAUSE HE WAS DEEMED TO BE APPOINTED IN THE BANK WITH EFFECT F ROM OCTOBER 26, 1965, FOR THE PURPOSE OF SENIORITY, PAY AND PENSION ON ACCOUNT OF HIS PAST SERVICE IN THE ARMY AS SHORT SERVICE COMMISSIONED OFFIC ER. IN THAT CONTEXT, THE APEX COURT HAS HELD THAT THE LEGAL FICT ION CREATED FOR THE LIMITED PURPOSE OF SENIORITY, PAY AND PENSION CANNOT B E EXTENDED FOR OTHER PURPOSES. APPLYING THE RATIO OF THE SAID JUDGMEN T, WE ARE OF THE OPINION, THAT THE FICTION CREATED UNDER SECTION 50 I S CONFINED TO THE COMPUTATION OF CAPITAL GAINS ONLY AND CANNOT BE EXTE NDED BEYOND THAT. THIRDLY, SECTION 54E DOES NOT MAKE ANY DISTINCTION BET WEEN DEPRECIABLE ASSET AND NON-DEPRECIABLE ASSET AND, THEREFORE, THE EXE MPTION AVAILABLE TO THE DEPRECIABLE ASSET UNDER SECTION 54E CANNOT BE DENI ED BY REFERRING TO THE FICTION CREATED UNDER SECTION 50. SECTION 54E SPE CIFICALLY PROVIDES THAT WHERE CAPITAL GAIN ARISING ON TRANSFER OF A LONG-TERM CAPITAL ASSET IS INVESTED OR DEPOSITED (WHOLE OR ANY PART OF THE NET C ONSIDERATION) IN THE SPECIFIED ASSETS, THE ASSESSEE SHALL NOT BE CHARGED TO CAPI TAL GAINS. THEREFORE, THE EXEMPTION UNDER SECTION 54E OF THE IN COME-TAX ACT CANNOT BE DENIED TO THE ASSESSEE ON ACCOUNT OF THE FICTION CR EATED IN SECTION 50. 26. IT IS TRUE THAT SECTION 50 IS ENACTED WITH THE OB JECT OF DENYING MULTIPLE BENEFITS TO THE OWNERS OF DEPRECIABLE ASSETS. H OWEVER, THAT RESTRICTION IS LIMITED TO THE COMPUTATION OF CAPITAL GAINS AND NOT TO THE EXEMPTION PROVISIONS. IN OTHER WORDS, WHERE THE LONG- TERM CAPITAL ASSET HAS AVAILED OF DEPRECIATION, THEN THE CAPITAL GAIN H AS TO BE COMPUTED IN THE MANNER PRESCRIBED UNDER SECTION 50 AND THE CAPITA L GAINS TAX WILL BE CHARGED AS IF SUCH CAPITAL GAIN HAS ARISEN OUT OF A SHOR T-TERM CAPITAL ASSET BUT IF SUCH CAPITAL GAIN IS INVESTED IN THE MANNER PRE SCRIBED IN SECTION 54E, THEN THE CAPITAL GAIN SHALL NOT BE CHARGED UNDE R SECTION 45 OF THE INCOME-TAX ACT. TO PUT IT SIMPLY, THE BENEFIT OF SECT ION 54E WILL BE 16 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 AVAILABLE TO THE ASSESSEE IRRESPECTIVE OF THE FACT TH AT THE COMPUTATION OF CAPITAL GAINS IS DONE EITHER UNDER SECTIONS 48 AND 49 O R UNDER SECTION 50. THE CONTENTION OF THE REVENUE THAT BY AMENDMENT TO SECTION 50 THE LONG- TERM CAPITAL ASSET HAS BEEN CONVERTED INTO A SHORT-TERM CAPITAL ASSET IS ALSO WITHOUT ANY MERIT. AS STATED HEREINABOVE, THE LEG AL FICTION CREATED BY THE STATUTE IS TO DEEM THE CAPITAL GAIN AS SHORT-TERM C APITAL GAIN AND NOT TO DEEM THE ASSET AS SHORTTERM CAPITAL ASSET. THEREFORE, IT CANNOT BE SAID THAT SECTION 50 CONVERTS A LONG-TERM CAPITAL ASSET INTO A SHO RT-TERM CAPITAL ASSET. 18. WE FIND FOLLOWING THE ABOVE DECISION, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PARRYS (EASTERN) PVT. LTD. HAS H ELD THAT WHERE DEEMED SHORT TERM CAPITAL GAIN AROSE ON ACCOUNT OF SALE OF DEPRECIABLE ASSETS THAT WAS HELD FOR A PERIOD TO WHICH T HE LONG TERM CAPITAL GAIN WOULD APPLY, SAID GAIN WOULD BE SET OFF AG AINST BROUGHT FORWARD LONG TERM CAPITAL LOSSES AND UNABSORBED DEPRECIATION. SINCE THE HONBLE HIGH COURT HAS ALREADY HE LD THAT PROVISIONS OF SECTION 50 MAKES IT EXPLICITLY CLEAR THAT THE DEEMED FICTION CREATED IN SUB-SECTION (1) AND (2) IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAINS CONTAINED IN SECTION 48 AND 49 AND THAT THE LEGAL FICTION IS TO DEEM THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT T ERM CAPITAL ASSET AND ACCORDINGLY HAS HELD THAT THE EXEMPTION U/S.5 4E COULD NOT BE DENIED TO THE ASSESSEE ON ACCOUNT OF THE DEEMIN G FICTION CREATED IN SECTION 50, THEREFORE, IN VIEW OF THE ABOVE RATIO LAID DOWN BY THE HONBLE HIGH COURT THE DECISION OF THE BANGALORE S PECIAL BENCH OF THE TRIBUNAL IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE ASSESSEE IN OUR OPINION IS ENTITLED TO SET OFF TH E BROUGHT FORWARD BUSINESS LOSS FROM THE DEEMED SHORT TERM CAPITAL GAIN. THEREFORE, THE ORDER OF THE CIT(A) IS UPHELD AND THE GROUN D RASIED BY THE REVENUE IS DISMISSED. 17 ITA NO.1377/PN/2014 & CO NO.16/PN/2016 19. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMIS SED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13-05-2016. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; DATED :13 TH MAY , 2016. LRH'K ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - THE CIT(A)-V, PUNE 4. % S / THE CIT-V, PUNE 5. ( ++, , , , IQ.KS / DR, ITAT, A PUNE; 6. 0 / GUARD FILE. / BY ORDER , // ( + //TRUE COPY// 23 + , / SR. PRIVATE SECRETARY ,, IQ.KS / ITAT, PUNE