M/s Santosh Structural & Alloys Ltd., Mandi Gobindgarh V. DCIT, Mandi Gobindgarh

ITA 1397/CHANDI/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5417 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 18-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: H R SALDI
• Keywords: Capital asset; Business income; Depreciation; Rectification of order; Bonafide belief; Cost of acquisition; Condonation of delay
• Section: 143(3); 72(1); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH SMC, CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER ITA NOS.1397 & 1398/CHD/2010 (ASSESSMENT YEAR : 2006-07) SANTOSH STRUCTURAL & ALLOYS LTD., VS. THE D.C.I.T ., G.T. ROAD, MANDI GOBINDGARH. MANDI GOBINDGARH. PAN: AACCS4078B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.R.SALDI RESPONDENT BY : SHRI N.K.SAINI, DR O R D E R BOTH THE APPEALS BY THE ASSESSEE ARE AGAINST THE S EPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX (A), BOTH DATED 30.9 .2010, ONE AGAINST THE ORDER PASSED U/S 143(3) AND THE OTHER AGAINST THE ORDER PASSED U/S 154 OF THE INCOME-TAX ACT, RELATING TO ASSESSMENT Y EAR 2006-07. 2. THE ASSESSEE IN I.T.A. NO. 1397/CHD/2010 HAS RAI SED FOLLOWING GROUNDS OF APPEAL : 1. THAT THE LD.CIT (A) HAS WRONGLY AND ARBITRARILY TREATED THE APPEAL AS NON-EST ALTHOUGH THE APPLICATION FOR CONDONATION OF DELAY WAS FILED ALONGWITH APPEAL. 2. THAT THE LD.CIT (A) HAS NOT GIVEN ANY FINDING ON THE APPLICATION FOR CONDONATION OF DELAY. 3. THAT THE LD.CIT (A) HAS WRONGLY DISMISSED THE APPEAL WITHOUT GIVING ANY FINDINGS ON THE GROUNDS OF APPEAL OF THE APPELLANT. 2 3. THE ASSESSEE IN I.T.A.NO. 1398/CHD/2010 HAS RAIS ED FOLLOWING GROUNDS OF APPEAL : 1. THAT THE LD. CIT (APPEALS) HAS WRONGLY AND ARBITRARILY DISMISSED THE APPEAL OF THE APPELLANT WHICH IS ILLEGAL AND AGAINST THE FACTS OF THE CASE. 2. THAT THE LD. CIT (APPEALS) HAS WRONGLY HELD THAT THE A.O. HAS RIGHTLY DISALLOWED THE CLAIM OF THE APPELLANT THAT THE MISTAKE IS COVERED FOR RECTIFICATION U/S 154. IT IS A LEGAL MISTAKE AND I S RECTIFIABLE U/S 154. 3. THAT LD. CIT (APPEALS) ON MERITS HAS WRONGLY HEL D THAT THE ASSETS SOLD IS PART OF BLOCK OF ASSETS, WHEREAS THIS PLANT AND MACHINERY WAS KEPT SEPARATE AND WAS NOT INSTALLED AND WAS NEVER PUT TO USE AND AS SUCH NO DEPRECIATION WAS EVER CLAIMED OR ALLOWED. IN THE DEPRECIATION CHART IT WAS CLEARLY MENTIONED THAT NOT PUT TO USE THUS THE LD. CIT (APPEALS) HAS WRONGLY HELD THAT IT WAS PART OF DEPRECIATION ASSETS. 4. THAT ASSETS SOLD NEVER LOST ITS IDENTITY AS THRO UGH OUT IT WAS KEPT SEPARATE FROM THE DEPRECIABLE ASSETS. 5. LD. CIT (APPEALS) HAS WRONGLY HELD THAT SECTION 50 IS APPLICABLE WHEREAS SECTION 50 IS ONLY APPLICABLE WHERE THE DEPRECIATION ON THE ASSET HAS BEEN ALLOWED. 6. THAT THE ORDER OF THE LD. CIT (APPEALS) IS LIABL E TO BE CANCELLED AND THE LD.A.O. BE DIRECTED TO ALLOW THE INDEXATION BEING LONG TERM ASSET. 3. BOTH THE APPEALS RELATING TO THE SAME ASSESSEE O N SAME ISSUES, WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FILED THE RETURN OF INCOME DECLARING NIL INCOME ON 30.11.2006. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE SAID UNIT WAS OUT OF PRODUCTION SINCE MARCH, 1998. THE CLAIM OF THE ASSESSEE IN RESPECT OF DEPRECIATION ON PLANT & MACHINERY AMOUNT ING TO RS.4,04,340/- WAS DISALLOWED BY THE ASSESSING OFFICER AS THE MACH INERY WAS NOT PUT TO USE FOR THE BUSINESS PURPOSES AND AS NO PRODUCTION WAS CARRIED OUT. FURTHER, THE ASSESSEE HAD SHOWN INCOME OF RS.1,10,1 8,360/- FROM SALE OF PLANT & MACHINERY. THE ASSESSEE HAS SOLD THE PLANT & MACHINERY FOR A TOTAL CONSIDERATION OF RS.2,33,25,415/- THE VALUE O F WHICH WAS SHOWN IN THE DEPRECIATION CHART AT RS.1,23,07,055/-. THE S AID PROFIT ON SALE OF PLANT & MACHINERY WAS ADJUSTED AGAINST BROUGHT FORW ARD BUSINESS LOSSES. THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE AS T O HOW THE SAID INCOME IS TO BE ADJUSTED AGAINST THE BROUGHT FORWAR D BUSINESS LOSSES IN VIEW OF THE PROVISIONS OF SECTION 72(1) OF THE ACT. IN REPLY THE ASSESSEE ADMITTED THAT THE CAPITAL GAIN DURING THE YEAR WAS INADVERTENTLY ADJUSTED AGAINST THE BROUGHT FORWARD BUSINESS LOSSES. FURTH ER SUBMISSION WAS MADE THAT THE SAME MAY BE ADJUSTED AGAINST THE BROU GHT FORWARD DEPRECIATION AMOUNTING TO RS.1,49,54,585/-. THE AS SESSEE FURNISHED THE DETAILS OF BROUGHT FORWARD DEPRECIATION TOTALING RS .1,07,86,719/-. THE ASSESSING OFFICER ASSESSING THE PROFIT ON SALE OF A SSETS AS BUSINESS INCOME, ALLOWED THE BENEFIT OF BROUGHT FORWARD DEPR ECIATION LOSS AND COMPUTED THE INCOME AT RS.3,51,608/-. THE ASSESSEE FILED A RECTIFICATION APPLICATION DATED 27.1.2009 IN WHICH HE CLAIMED THA T THE INCOME UNDER THE HEAD CAPITAL GAINS REQUIRES RECTIFICATION I.E. AS THE PLANT & MACHINERY ACQUIRED BY THE ASSESSEE IN TWO FINANCIAL YEARS I.E . 1997-98 AND 1998-99 WAS NEVER PUT TO USE BY THE ASSESSEE, THE COST OF P LANT & MACHINERY IS REQUIRED TO BE INDEXED BEFORE ARRIVING AT THE FIGUR E OF CAPITAL GAINS. THE COMPUTATION OF CAPITAL GAINS IS INCORPORATED AT PAG E 2 OF THE ORDER 4 PASSED UNDER SECTION 154 OF THE ACT DATED 2.6.2009. THE ASSESSING OFFICER NOTED THE ASSESSEE NOT TO HAVE MADE ANY CLA IM IN ITS RETURN OF INCOME OR DURING THE COURSE OF ASSESSMENT PROCEEDI NGS IN RESPECT OF THE COST INFLATION INDEX OF THE PLANT & MACHINERY SOLD BY IT. THE ASSESSEE HAD SHOWN INCOME FROM BUSINESS AND PROFESSION. IN THE RETURN OF INCOME AND AS PER SCHEDULE-G OF THE BALANCE SHEET THE ASSE SSEE HAD SHOWN PROFIT ON SALE OF FIXED ASSETS UNDER THE HEAD OTHER INCOM E. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PROVISIONS OF SECT ION 50 OF THE ACT ARE TO BE APPLIED ON TRANSFER OF ASSETS WITHIN BLOCK OF ASSETS IN CASE THE SALE VALUE EXCEEDS THE WRITTEN DOWN VALUE OF THE ASSETS. THE ASSESSING OFFICER THUS HELD THAT THE ASSESSEE WAS NOT ENTITLE D TO THE BENEFIT OF INDEXATION OF COST OF THE ASSETS. THE ASSESSING OF FICER FURTHER HELD THAT EVEN OTHERWISE THE ISSUE RAISED BY THE ASSESSEE BY WAY OF RECTIFICATION COULD NOT BE SAID TO BE A MISTAKE APPARENT FROM REC ORD AS THE SAME COULD NOT BE DECIDED WITHOUT DETAILED DELIBERATIONS. TH E RECTIFICATION APPLICATION MOVED BY THE ASSESSEE UNDER SECTION 154 OF THE ACT WAS THUS DISMISSED. 5. IN APPEAL THE CIT(A) VIDE PARA 4.5 CONFIRMED THE ORDER OF THE ASSESSING OFFICER THAT THERE WAS NO ERROR APPARENT FROM RECORD OF THE PROCEEDINGS AND THE CLAIM OF THE ASSESSEE WAS AN AF TER-THOUGH ATTEMPT TO CLAIM THE BENEFIT OF COST OF INDEXATION AND TREATIN G THE SAME AS LONG TERM CAPITAL GAIN. THE CIT(A) VIDE PARA 4.6 HELD A S UNDER : 4.6. EVEN ON MERIT IT HAS BEEN HELD IN THE CASE OF CHABRIA TRUST VS. ACIT (2003) 264 ITR (AT) 12 (BOM) THAT EVEN A SINGLE ASSET CAN FROM A BLOCK OF ASSETS WITHIN THE MEANING OF SECTION 2(11) OF THE INCOME TAX ACT DEFINING THE CONCEPT OF BLOCK OF ASSETS. IN THIS CASE THE APPELLANT STATING THAT TH E PLANT AND MACHINERY UNDER CONSIDERATION DID NOT FORM PART OF BLOCK OF ASSETS AND WAS SHOWN 5 SEPARATELY IN THE RETURN OF INCOME DOES HELP TO SETTLE THE MATTER. EVEN ACCEPTING THIS PLEA OF THE APPELLANT THEE IS NOTHING ON RECORD TO SHOW THAT TH E PLANT AND MACHINERY IN QUESTION DID NOT CONSTITUTE A SINGLE ASSET AND FORM A SEPARATE BLOCK OF ASSETS. NOW FURTHER, THE CONTENTION OF THE APPELLANT THAT T HE USE OF THE ASSET IS AN IMPORTANT POINT FOR THE PURPOSE OF DETERMINING DEPRECIATION AND NOT FOR THE APPLICATION OF SECTION 50. HERE, IT MUST BE UNDERSTOOD THAT ONCE THE ASSET ENTERS THE BLOCK ITS IDENTITY GETS SUBMERGED IN THE BLOCK IDENTITY AND I T WOULD NOT BE NECESSARY OR POSSIBLE TO INFER THAT TH IS PARTICULAR SET IN THE BLOCK IS BEING USED OR NOT. IT CAN BE SAFELY PRESUMED THAT THE BLOCK HAS BEEN USED BECAUSE THERE IS NOTHING ON RECORD TO SHOW THE CONTRARY. THE ALLOWABILITY OF SHORT TERM CAPITAL GAINS ON THE SURPLUS OVER THE W.D.V. CAN NOT BE AVOIDED AS LONG AS THE ASSET HAS BEEN SUBJECTED TO DEPRECIATION AT ANY TIME EARLIER. EVEN THE AO IN HIS ORDER HAS ALLOWED ADJUSTMENT OF BROUGHT FORWARD DEPRECIATION LOSSES OF THE EARLIER YEARS. ALSO FURTHER THAT THE BUSINESS FUNCTION DISCONTINUE D AND THE ASSETS STATED TO HAVE BEEN LYING IDLE DOES NOT MAKE ANY DIFFERENCE. THE RESULT WOULD BE THAT SECTION 50 WOULD APPLY ON THE GAIN ON THE SALE OF THIS PLANT AND MACHINERY AND HAS RIGHTLY BEEN ASSESSED AS SHORT TERM CAPITAL GAIN BY THE A.O. 6. THE ABOVE SAID PROPOSITION WAS PROPOUND BY THE C IT(A) IN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER UNDER SECTI ON 154 OF THE ACT. IN THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF ASSESSMENT UNDER SECTION 143(3) THE CIT(A) OBSERVED THE ASSESSEE TO HAVE FILED AN APPLICATION FOR CONDONATION OF DELAY IN FILING THE APPEAL BEFORE THE CIT(A). THE CONTENTION OF THE ASSESSEE IN THIS REG ARD WAS THAT THE APPEAL COULD NOT BE FILED IN TIME AS THE ASSESSEE W AS UNDER THE BONAFIDE 6 BELIEF THAT THE APPLICATION FOR RECTIFICATION UNDER SECTION 154 SHALL BE ALLOWED BY THE ASSESSING OFFICER. 7. BEFORE THE CIT(A) THE LEARNED COUNSEL FOR THE AS SESSEE STATED THAT THE MAIN APPEAL WAS FILED AGAINST THE ORDER PASSED UNDER SECTION 154 OF THE INCOME-TAX ACT AND THE MAIN GROUND WAS CONTESTE D IN THE SAID APPEAL. THE CIT(A) VIDE PARA 3 NOTED AS UNDER: 3. IN THE CASE OF HEARING THE LD.CONSEL FOR THE APPELLANT HAS STATED THAT THE MAIN APPEAL HAS BEEN FILED IN A.NO.26/IT/CIT(A)/09-10, IN WHICH THE APPELLANT HAS CONTESTED THE ORDER OF THE A.O. PASSE D U/S 154 OF THE I.T.ACT. HE STATES THAT THE MAIN GROUND HAS ALREADY BEEN CONTESTED IN THAT APPEAL WHICH WAS ALSO FIXED FOR HEARING TODAY. THE OUTCOME IN THAT APPEAL DECIDES THE ISSUE AND IF THE SAME IS IN HIS FAVOUR, HE DOES NOT PRESS FOR THIS APPEAL. IN SUCH AN EVENTUALITY HE HAS REQUESTED THAT THE SAME MAY BE TREATED AS WITHDRAWN. THE ASSESSEE STATED THAT THE MAIN GROUND HAD ALRE ADY BEEN CONTESTED IN THE APPEAL FILED AGAINST THE ORDER UND ER SECTION 154 OF THE ACT, WHICH HAS BEEN HEARD AND THE OUTCOME IN THE SA ID APPEAL WOULD DECIDE THE ISSUE AND IF THE SAME IS IN FAVOUR OF TH E ASSESSEE, THE APPEAL IS NOT PRESSED. THE CIT(A) THUS HELD THAT THE ISSU E HAS BEEN ADJUDICATED IN ANOTHER APPEAL FILED BY THE ASSESSEE UNDER SECTI ON 154 OF THE ACT AND IN CASE HE WAS NOT SATISFIED WITH THE RELIEF IN THA T APPEAL HE WAS AT LIBERTY TO SEEK ANY FURTHER REDRESSAL FOR THE PRESE NT APPEAL. THE ASSESSEE HAS FILED TWO APPEALS AGAINST THE ORDER PA SSED BOTH AGAINST THE ORDER OF ASSESSMENT AND THE ORDER OF RECTIFICATION PASSED BY THE ASSESSING OFFICER. 7 8. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RECORD. THE APPEAL IN I.T.A.NO. 1397/CHD/2010 IS AGAINST THE OR DER OF THE CIT(A) PASSED AGAINST THE ORDER PASSED BY THE ASSESSING OF FICER UNDER SECTION 143(3) OF THE ACT. THE APPEAL IN I.T.A.NO. 1398/CH D/2010 IS AGAINST THE ORDER PASSED BY THE CIT(A) IN TURN AGAINST THE ORDE R PASSED UNDER SECTION 154 OF THE ACT. 9. IN THE FACTS OF THE PRESENT CASE THE ASSESSEE HA D SHOWN THE PROFITS ON SALE OF ASSETS AS PART OF ITS INCOME, AGAINST WH ICH IT HAD CLAIMED SET OFF OF BROUGHT FORWARD BUSINESS LOSS. HOWEVER, DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS THE SAID INCOME WAS CLAIMED TO BE SET OFF AGAINST THE BROUGHT FORWARD DEPRECIATION LOSS. THE ASSESS ING OFFICER ACCEPTING THE PLEA OF THE ASSESSEE COMPUTED THE INCOME AND AF TER SETTING OFF THE BROUGHT FORWARD DEPRECIATION LOSS, THE INCOME WAS A SSESSED AT RS.3,51,608/-. THE ASSESSEE THEREAFTER MOVED AN AP PLICATION FOR RECTIFICATION UNDER SECTION 154 OF THE INCOME-TAX A CT IN WHICH IT IS CLAIMED THAT THE INCOME UNDER THE HEAD CAPITAL GAIN S REQUIRED RECTIFICATION I.E. THE ASSESSEE WAS ENTITLED TO DED UCTION ON ACCOUNT OF INDEXED COST OF ACQUISITION OUT OF THE SALE CONSIDE RATION AND THE CAPITAL GAINS COMPUTATION WAS REWORKED AND INCOME WAS ADJUS TED AGAINST THE BROUGHT FORWARD DEPRECIATION LOSSES. THE CALCULAT ION FILED BY THE ASSESSEE IS INCORPORATED AT PAGES 2 AND 3 OF THE OR DER PASSED BY THE ASSESSING OFFICER UNDER SECTION 154 OF THE ACT DATE D 2.6.2009. AFTER THE AFORESAID ADJUSTMENT AGAINST THE BROUGHT FORWARD DE PRECIATION LOSSES, THE NET INCOME WAS COMPUTED AT NIL. THE CONTENTION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER AS THE ASSESSEE H AD NEITHER IN THE RETURN OF INCOME, NOR DURING THE COURSE OF ASSESSM ENT PROCEEDINGS MADE ANY CLAIM FOR APPLICATION OF COST INFLATION INDEX T O THE COST OF PLANT AND MACHINERY. THE SAID CLAIM OF THE ASSESSEE WAS REJE CTED BY THE ASSESSING 8 OFFICER HOLDING THE TRANSACTION TO BE TRANSFER OF S HORT TERM CAPITAL ASSETS, AGAINST WHICH THE ASSESSEE WAS NOT ENTITLED TO THE BENEFIT OF COST INDEXATION. THE ASSESSING OFFICER ALSO HELD THAT T HE ISSUE RAISED BY THE ASSESSEE COULD NOT BE SAID TO BE A MISTAKE APPARENT FROM RECORD AND HENCE, COULD NOT BE RECTIFIED UNDER SECTION 154 OF THE ACT. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AGAINST THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) OF THE ACT AND ANOTHER APPEAL AGAINST THE ORDER PASSED UNDER SECTION 154 OF THE A CT. THE CIT(A) IN THE QUANTUM APPEAL NOTED THE ASSESSEE TO HAVE FILED THE APPEAL AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT BELATE DLY AND THE SAME WAS INTIMATED TO THE ASSESSEE. IN RESPONSE THEREOF, AN APPLICATION FOR CONDONATION OF DELAY WAS MOVED BEFORE THE CIT(A) ST ATING THE REASON FOR THE LATE FILING OF APPEAL; THAT THE ASSESSEE WAS UN DER THE BONAFIDE BELIEF THAT APPLICATION MOVED BY IT FOR RECTIFICATION UNDE R SECTION 154 OF THE ACT SHALL BE ALLOWED BY THE ASSESSING OFFICER AND O NCE THE SAME WAS REJECTED, THE PRESENT APPEAL IN ADDITION TO THE APP EAL FILED AGAINST THE ORDER UNDER SECTION 154 OF THE ACT WAS FILED. THE CIT(A) VIDE PARA 3.1 OBSERVED AS UNDER : 3.1 THE MERITS OF THE APPELLANTS CASE HAVE BEEN DISCUSSED BY ME IN THE MAIN APPEAL NO.26/IT/CIT(A)/PTA/09-10 FOR THE A/.Y.2006-07 AND ISSUE HAS BEEN ADJUDICATED THERE. IN CASE HE I S NOT SATISFIED WITH RELIEF IN THAT APPEAL HE IS AT LIBERTY TO SEEK ANY FURTHER REDRESSAL FOR THIS APPEAL 10. HOWEVER, THE APPEAL OF THE ASSESSEE WAS TREATED AS NON-EST AND DISMISSED. THE CIT(A) WHILE DECIDING THE APPEAL A GAINST THE ORDER PASSED UNDER SECTION 154 OF THE ACT VIDE PARA 4.5 H ELD THAT THERE WAS NO ERROR APPARENT FROM RECORD AND THE ORDER OF THE ASS ESSING OFFICER IN THIS 9 REGARD WAS UPHELD. HOWEVER, VIDE PARA 4.6 THE CIT( A) ADDRESSED THE ISSUE ON THE MERITS OF THE ADDITION. 11. THE ASSESSEE IN THE FIRST INSTANCE IS AGGRIEVED BY THE ORDER OF THE CIT(A) IN THE QUANTUM PROCEEDINGS WHEREIN THE APPEA L OF THE ASSESSEE WAS TREATED TO BE NON-EST THOUGH AN APPLICATION FOR CONDONATION OF DELAY WAS FILED ALONGWITH THE APPEAL. I FIND THAT THE CI T(A) HAD FAILED TO GIVEN ANY FINDING ON THE APPLICATION MOVED BY THE A SSESSEE REGARDING THE CONDONATION OF DELAY IN FILING THE APPEAL BEFOR E THE CIT(A). THE CONTENTION OF THE ASSESSEE IN THIS REGARD WAS THAT AFTER THE ORDER PASSED BY THE ASSESSING OFFICER, IT HAD MOVED AN APPLICATI ON UNDER SECTION 154 OF THE ACT AND WAS UNDER THE BONAFIDE BELIEF THAT H IS CLAIM VIDE THE SAID APPLICATION UNDER SECTION 154 WOULD BE ALLOWED AND CONSEQUENTLY THERE WOULD ARISE NO OCCASION TO FILE AN APPEAL AGAINST T HE QUANTUM ORDER. HOWEVER, ONCE THE CLAIM OF THE ASSESSEE IS REJECTED UNDER SECTION 154 OF THE ACT, THE ASSESSEE FILED TWO APPEALS, ONE AGAINS T QUANTUM ORDER PASSED UNDER SECTION 143(3) OF THE ACT AND ANOTHER AGAINST THE RECTIFICATION ORDER PASSED UNDER SECTION 154 OF THE ACT. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE I AM OF THE VIEW THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE IN NOT F ILING THE APPEAL IN TIME BEFORE THE CIT(A), CONSEQUENTLY THE CONDONATIO N APPLICATION MOVED BY THE ASSESSEE MERITS TO BE ALLOWED. THE CIT(A) HAD ADJUDICATED UPON THE ISSUE RAISED ON THE MERITS OF THE CASE IN THE A PPEAL AGAINST THE ORDER UNDER SECTION 154 OF THE ACT. THE CIT(A) AFTER HOL DING THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM THE BENEFIT OF RECTIFICAT ION UNDER SECTION 154 OF THE ACT, IN THE FACTS AND CIRCUMSTANCES OF THE PRES ENT CASE, HOWEVER, DECIDED THE ISSUE ON MERITS. IN THE QUANTUM ORDER ALSO THE CIT(A) REFERRED TO THE SAID ISSUE DECIDED ON MERITS AND AL SO OBSERVED THAT WHEREIN THE ASSESSEE HAS TO ASK FOR FURTHER RELIEF, HE WAS AT LIBERTY TO 10 SEEK ANY FURTHER REDRESSAL. THE ISSUE REGARDING TH E MERITS OF THE ADDITION HAVING BEEN ADJUDICATED BY THE CIT(A) IS N OW IN FURTHER APPEAL BEFORE US. 12. THE ASSESSEE CLAIMS THAT WHILE COMPUTING THE IN COME FROM CAPITAL GAINS THE COST OF ACQUISITION OF THE ASSETS HAD TO BE INDEXED AS THE ASSESSEE HAD PURCHASED THE SAID ASSETS IN THE EARLI ER YEARS AND THE ASSETS SOLD BY THE ASSESSEE IS A LONG TERM CAPITAL ASSETS, ENTITLED TO THE BENEFIT OF COST INFLATION INDEX OF THE COST OF ACQUISITION OF THE ASSETS SOLD BY THE ASSESSEE. ADMITTEDLY, THE ASSET SOLD BY THE ASSESS EE WAS ACQUIRED PARTLY IN FINANCIAL YEAR 1997-98 AND PARTLY IN ASSESSMENT YEAR 1998-99 AND HAD BEEN SOLD IN THE FINANCIAL YEAR 2005-06. THE ISSUE RAISED IN CONNECTION WITH THE COMPUTATION OF THE GAINS ON THE SALE OF TH E SAID CAPITAL ASSET REVOLVES AROUND WHETHER THE ASSET SOLD BY THE ASSES SEE IS A LONG TERM CAPITAL ASSET OR A SHORT TERM CAPITAL ASSET. THE ASSESSEE CLAIMS THAT THE SAID ASSET OWNED BY IT WAS NEVER PUT TO USE AND NO DEPRECIATION WAS CLAIMED ON THE SAID ASSET EVER AND WAS DISTINGUISHE D FROM THE OTHER PLANT AND MACHINERY REFLECTED BY THE ASSESSEE IN THE LIST OF FIXED ASSET, ON WHICH DEPRECIATION WAS ALLOWED FROM YEAR TO YEAR. HOWEVER, THE CASE RAISED BY THE ASSESSING OFFICER WAS THAT THE SAID A SSET IS PART OF BLOCK OF ASSET EVEN IF NO DEPRECIATION IS CLAIMED ON THE SAI D ASSET, THE SAME MERGES WITH THE OTHER ASSET UNDER THE HEAD PLANT & MACHINERY ON WHICH DEPRECIATION IS CLAIMED AND HENCE THE ASSESSE E IS NOT ENTITLED TO ANY CLAIM OF INDEXED COST OF ACQUISITION, AS THE TR ANSACTION STANDS COVERED BY THE PROVISIONS OF SECTION 50 OF THE INCO ME-TAX ACT. UNDER SECTION 50 OF THE ACT WHERE ANY ASSET ON WHICH DEPR ECIATION HAS BEEN CLAIMED BY THE ASSESSEE, IS SOLD BY THE ASSESSEE, T HE GAIN ARISING ON SAID SALE OF ASSET MINUS THE WDV OF THE ASSET IS SHORT T ERM CAPITAL GAIN IN THE 11 HANDS OF THE ASSESSEE, IN VIEW OF THE PROVISIONS OF SECTION 50 OF THE INCOME-TAX ACT. 13. UNDER SECTION 50 OF THE INCOME-TAX ACT THE SPEC IAL PROVISIONS FOR COMPUTATION OF CAPITAL GAINS IN CASE OF DEPRECIABLE ASSETS ARE ENSHRINED . IT IS PROVIDED UNDER THE ACT THAT WHERE AN ASSET IS AN ASSET FORMING PART OF BLOCK OF ASSET, IN RESPECT OF WHICH DEPRECIATION HAD BEEN ALLOWED UNDER THE ACT OR UNDER THE INDIAN INCOME-TAX ACT, T HE PROVISIONS OF SECTIONS 48 & 49 SHALL BE SUBJECT TO THE MODIFICATI ON PROVIDED I.E. WHERE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACC RUING AS A RESULT OF TRANSFER OF THE ASSET TOGETHER WITH THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING ON ACCOUNT OF TRANSFER OF OTHE R CAPITAL ASSET, FALLING WITHIN THE BLOCK OF ASSET DURING THE PREVIOUS YEAR, EXCEEDS THE AGGREGATE OF THE FOLLOWING AMOUNTS I.E. EXPENDITURE INCURRED IN CONNECTION WITH SUCH TRANSFER PLUS THE WRITTEN DOWN VALUE OF BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS AND THE ACTUAL COST OF AN Y ASSETS ACQUIRED DURING THE YEAR FALLING WITHIN THE BLOCK OF YEARS, AND EXCESS SHALL BE DEEMED TO THE CAPITAL GAIN ARISING FROM TRANSFER OF SHORT TERM CAPITAL ASSET. 14. NOW COMING TO THE FACTS OF THE PRESENT CASE THE ASSESSEE HAD SOLD THE PLANT AND MACHINERY FOR A TOTAL CONSIDERATION O F RS.2.35 CRORES. THE SAID MACHINERY WAS ACQUIRED PARTLY IN FINANCIAL YEA R 1997-98 OF THE VALUE OF RS.43.03 LACS AND THE BALANCE IN FINANCIAL YEAR 1998-99 OF THE VALUE OF RS.80.03 LACS, TOTALING RS.1.23 CRORES. T HE ASSESSEE HAS FILED ON RECORD THE LIST OF ASSETS STARTING FROM THE YEAR ENDING 31.3.1998 TO 31.3.2006. THE ASSESSEE HAD CLAIMED DEPRECIATION O N PLANT AND MACHINERY HAVING WRITTEN DOWN VALUE OF RS.1.19 CROR ES FOR THE FINANCIAL YEAR 1997-98. THE ADDITION IN THE PLANT AND MACHIN ERY OF 43.03 LACS WAS REFLECTED SEPARATELY UNDER THE HEAD PLANT & MACHIN ERY (NOT IN USE) ON 12 WHICH NO DEPRECIATION WAS CLAIMED. IN THE SUCCEED ING YEAR I.E. YEAR ENDING 31.3.2009 THE ASSESSEE HAD CLAIMED DEPRECIAT ION @ 25% ON PLANT AND MACHINERY. HOWEVER, THOUGH AN ADDITION OF RS.8 0.03 LACS WAS MADE TO THE PLANT AND MACHINERY (NOT IN USE) BUT NO DEPR ECIATION WAS CLAIMED ON THE TOTAL MACHINERY OF RS.1.23 CRORES UNDER THIS HEAD. THEREAFTER FROM YEAR TO YEAR THE ASSESSEE WAS CLAIMING DEPRECI ATION @ 25% ON THE FIRST HEAD ON PLANT AND MACHINERY IN ADDITION TO TH E OTHER ASSETS OWNED BY THE ASSESSEE, ON WHICH DEPRECIATION WAS CLAIMED, BUT NO DEPRECIATION WAS CLAIMED ON THE PLANT AND MACHINERY CAPITALIZED UNDER THE HEAD PLANT MACHINERY (NOT IN USE). EVEN FOR THE ASSESSMENT YE AR 2005-06 THE VALUE OF THE SAID PLANT AND MACHINERY (NOT IN USE) IS REF LECTED AT RS.1.23 CRORES. ONLY IN THE FINANCIAL YEAR 2005-06 THE SAI D PLANT AND MACHINERY HAS BEEN REFLECTED TO HAVE BEEN SOLD FOR RS.2.33 CR ORES, RESULTING IN PROFIT OF RS.1.10 CRORES. THE ABOVE-SAID FACTS REV EALS THAT THE ASSESSEE FOR ALL THE EARLIER YEARS HAD REFLECTED IN ITS LIST OF FIXED ASSETS PLANT AND MACHINERY UNDER TWO SEPARATE HEADS; ONE THE PLANT A ND MACHINERY PER SE ON WHICH DEPRECIATION HAS BEEN CLAIMED IN THE YEAR PRIOR TO FINANCIAL YEAR 1996-97, ANOTHER ASSET WAS CREATED I.E. PLANT AND MACHINERY (NOT IN USE) FOR FINANCIAL YEAR 1997-98 AND AFTER ADDITION IN THE SUCCEEDING YEAR THE TOTAL VALUE OF THE ASSET UNDER THE HEAD PLANT A ND MACHINERY (NOT IN USE), NO DEPRECIATION WAS CLAIMED ON THE ADDITION O F PLANT AND MACHINERY TOTALING RS.1.23 CRORES. ADMITTEDLY, THE SAID ASSE T HAS BEEN HELD BY THE ASSESSEE FOR A PERIOD OF MORE THAN 36 MONTHS AND AS SUCH THE ASSET HELD BY THE ASSESSEE IS A LONG TERM CAPITAL ASSET AS DEF INED UNDER SECTION 2(28A) OF THE ACT; THE CAPITAL GAIN ARISING ON TRAN SFER OF WHICH IS TO BE ASSESSED A LONG TERM CAPITAL GAIN AS PER THE DEFINI TION IN SECTION 2(29B) OF THE INCOME-TAX ACT. THE PROVISIONS OF SECTION 5 0 ENSHRINED SPECIAL PROVISIONS FOR COMPUTATION OF CAPITAL GAIN IN CASE OF DEPRECIABLE ASSET. THE CONDITIONS TO BE FULFILLED FOR THE APPLICABILIT Y OF THE SAID SECTION 50 13 ARE THAT THE CAPITAL ASSET, ON WHICH DEPRECIATION H AD BEEN ALLOWED TO THE ASSESSEE, THEN, IN SUCH CASES, THE COST OF ACQUISIT ION IS THE WRITTEN DOWN VALUE OF THE ASSET PLUS ANY OTHER EXPENDITURE INCU RRED IN CONNECTION WITH ITS TRANSFER OR ANY ADDITION MADE DURING THE P REVIOUS YEARS. THE SAID PROVISIONS ARE OVERRIDING THE PROVISIONS CONTA INED IN SECTION 2(42A) OF THE INCOME-TAX ACT, WHICH DEFINES SHORT TERM CAP ITAL ASSET. 15. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAD REFLECTED THE SAID ASSET AS PART OF ITS LIST OF ASSETS BUT THE BLOCK O F ASSETS ON WHICH DEPRECIATION WAS CLAIMED BY THE ASSESSEE WAS PLANT AND MACHINERY PER SE. WHEREAS THE PRESENT ASSETS WHICH HAVE BEEN TRA NSFERRED DURING THE YEAR UNDER CONSIDERATION WERE PART OF ANOTHER BLOCK OF ASSETS TERMED AS PLANT AND MACHINERY (NOT IN USE). ADMITTEDLY, NO D EPRECIATION HAD EVER BEEN CLAIMED ON THE AFORESAID ASSETS AND WERE CAPIT ALIZED SEPARATELY BY THE ASSESSEE. IN SUCH CIRCUMSTANCES WHERE THE ASSE SSEE HAS SHOWN TWO BLOCK OF ASSETS SEPARATELY I.E. THE ONE ON WHICH DE PRECIATION WAS CLAIMED @ 25% AND THE OTHER ON WHICH NO DEPRECIATION WHATSO EVER WAS CLAIMED IN ANY OF THE PREVIOUS YEARS, THE TWO ASSETS ARE DI FFERENT FROM EACH OTHER AND PLANT AND MACHINERY ACQUIRED IN SUCCEEDING YEAR S DO NOT MERGE WITH THE EARLIER BLOCK OF ASSETS OF PLANT AND MACHINERY. THE ASSESSEE HAVING NOT CLAIMED ANY DEPRECIATION ON THE SAME CANNOT BE BURDENED WITH THE PROVISIONS OF SECTION 50 OF THE INCOME-TAX ACT AS T HE BASIC REQUIREMENT FOR THE APPLICABILITY OF SECTION 50 OF THE ACT IS T HE ASSETS FORMING PART OF BLOCK OF ASSETS IN RESPECT OF DEPRECIATION HAD BEEN ALLOWED UNDER THE ACT. IN THE ABSENCE OF ANY DEPRECIATION BEING ALLO WED TO THE ASSESSEE IN ANY OF THE PREVIOUS YEARS ON THE SAID PLANT AND MAC HINERY (NOT IN USE), THE GAIN ARISING ON THE TRANSFER OF THE SAID ASSET BEING A LONG TERM CAPITAL ASSET IN TURN IS LONG TERM CAPITAL GAIN. W HILE COMPUTING THE LONG TERM CAPITAL GAIN ON THE SALE OF THE ASSET, THE PRO VISIONS OF SECTION 48 14 ARE APPLICABLE FOR COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS AND THE ASSESSEE IS ENTITLED TO THE BENEFIT OF INDEXED COST OF ACQUISITION, WHICH WORKING OUT THE GAIN ARISING ON THE TRANSFER OF THE SAID CAPITAL ASSET. ACCORDINGLY THE ORDER OF THE C IT(A) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAI M OF THE ASSESSEE BY ADOPTING THE INDEXED COST OF ACQUISITION IN DETERMI NING THE INCOME FROM LONG TERM CAPITAL GAIN ON SALE OF PLANT AND MACHINE RY (NOT IN USE) THUS GROUNDS OF APPEAL RAISED BY THE ASSESSEE ON THE MER ITS OF THE ADDITION ARE ALLOWED. IN VIEW THE SAME, THERE IS NO MERIT IN TH E GROUNDS OF APPEAL RAISED BY THE ASSESSEE AGAINST THE REJECTION OF CLA IM UNDER SECTION 154 OF THE INCOME-TAX ACT. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I. T.A.NO.1397/CHD/2010 IS ALLOWED AND THE APPEAL IN I.T.A.NO.1398/CHD/2010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF MAY, 2011. SD/- (SUSHMA CHOWLA) JUDICIAL MEMBER DATED : 31 ST MAY, 2011 RATI COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH +