Parachem Agro Chemicals Pvt. Ltd., Bangalore V. ITO, Bangalore

ITA 1462/BANG/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6934 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P H NARGUNDKAR
• Assessee Lawyers: H N KHINCHA
• Keywords: Capital asset; Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.1462(BANG)/2010 (ASSESSMENT YEAR: 2005-06) M/S.PARACHEM AGRO CHEMICALS PVT. LTD. NO.47, E PLOT, NO.89/3, 2 ND CROSS, POST OFFICE ROAD, RMS LAYOUT SANJAYNAGAR, BANGALORE-560094. APPELLANT PAN:AABCM3262B VS. INCOME-TAX OFFICER, WARD-12(1), BANGALORE. RESPONDENT APPELLANT BY: SHRI H.N.KHINCHA. RESPONDENT BY : SHRI P.H.NARGUNDKAR. DATE OF HEARING: 30-11-2011 DATE OF PRONOUNCEMENT: 02-12-2011 O R D E R PER GEORGE GEORGE, K, JM: THIS APPEAL IS INSTITUTED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-III, BANGALORE, DATED 13-8-2010 . THE RELEVANT ASSESSMENT YEAR IS 2005-06. THE GROUNDS R AISED READ AS UNDER: ITA 1462(BANG)/2010 PAGE 2 OF 7 1. THE LEARNED ASSESSING OFFICER HAD ERRED IN PASSING THE ORDER IN THE MANNER PASSED BY HIM AND THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) HAS ERRED IN CONFIRMING THE SAME. THE ORDER PASSED IS BAD IN LAW AND IS LIABLE TO BE QUASHED. 2. THE LEARNED ASSESSING OFFICER HAD ERRED IN: A) TREATING THE LAND AS DEPRECIABLE ASSET; B) APPLYING THE PROVISIONS OF SECTION 50 OF IT ACT,1961 FOR CONSIDERATION RECEIVED FOR SALE OF LAND. C) COMPUTING THE LONG TERM CAPITAL GAIN ON SALE OF LAND AS SHORT TERM CAPITAL GAIN. D) NOT APPRECIATING THE FACT THAT THE APPELLANT HAD NOT CLAIMED ANY DEPRECIATION ON LAND. E) DENYING THE EXEMPTION U/S 54EC OF THE IT ACT, 1961 HOLDING THAT THE GAIN ON SALE OF LAND IS SHORT TERM CAPITAL GAIN. 3. ON PROPER APPRECIATION OF FACTS AND EVIDENCE AVAILABLE THE COMPUTATION AS DONE BY THE AO BEING CONTRARY TO BOTH FACTS AND LAW IS TO BE DELETED/DISREGARDED. 4. THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) THOUGH ADMITTING THE FACT THAT LAND IS NOT A DEPRECIABLE ASSET AND THE APPELLANT HAD NOT CLAIMED ANY DEPRECIATION ON LAND HAS ERRED IN CONCLUDING ERRONEOUSLY THAT THE PROVISIONS OF SECTION 50 OF THE IT ACT 1961 ARE APPLICABLE TO THE CASE OF THE APPELLANT THEREBY CONFIRMING THE ORDER PASSED U/S 143(3) OF THE IT ACT,1961. THE ORDER PASSED BEING CONTRARY TO THE FINDINGS MADE IN THE ORDER IS LIABLE TO BE QUASHED. 5. THE APPELLANT HAVING RIGHTLY COMPUTED THE LONG TERM CAPITAL GAIN AVAILING EXEMPTION U/S 54EC OF THE IT ACT,1961 IS TO BE ACCEPTED AS SUCH. 6. THE APPELLANT ALSO DENIES THE LIABILITY TO PAY INTEREST. THE INTEREST HAVING BEEN LEVIED ERRONEOUSLY IS TO BE DELETED. ITA 1462(BANG)/2010 PAGE 3 OF 7 7. IN VIEW OF THE ABOVE AND ON OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING, IT IS REQUESTED THAT THE ORDER PASSED BE QUASHED OR AT LEAST THE RECOMMENDATION OF SHORT TERM CAPITAL GAIN AS DONE BY AO BE DELETED, THE COMPUTATION AS DONE BY THE APPELLANT BE ACCEPTED AND INTEREST LEVIED BE DELETED. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT W AS ENGAGED IN THE MANUFACTURING OF CHEMICALS. THERE W AS NO BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE DURING THE YEAR. THE ASSESSEE WAS ALLOTTED AN INDUSTRIAL SHED IN THE YEAR 1983 BY THE KARNATAKA STATE SMALL-SCALE INDUSTRIAL DEVEL OPMENT CORPORATION (KSSIDC). FOR THE CONCERNED ASSESSMENT YEAR, RETURN OF INCOME WAS FILED ON 31-3-2006 DECLARING L OSS OF ` .32,771/-. THE ASSESSEE HAD SOLD THE INDUSTRIAL SH ED ALLOTTED TO THE ASSESSEE WAY BACK IN 1983 BY KSSIDC FOR A SA LE CONSIDERATION OF ` .8 LAKHS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR. IN COMPUTING INCOME FROM CAPITAL GAINS ON ACCOUNT OF SALE OF ABOVE-MENTIONED INDUSTRIAL SHED, THE ASSESSEE HAD BIFURCATED THE SALE CONSIDERATION BETW EEN LAND AND BUILDING AND HAD COMPUTED CAPITAL GAINS AS UNDE R: GAIN ON SALE OF LAND GAIN ON SALE OF BUILDING SALE CONSIDERATION 7,78,000 22,000 LESS: BROKERAGE 25,000 ---------- 7,53,000 2,000 --------- 20,000 LESS: COST/WDV 61,895 ---------- 26,910 ---------- GAIN OFFERED 6,91,105 ====== LONG TERM 6,910 ===== SHORT TERM ITA 1462(BANG)/2010 PAGE 4 OF 7 THE ASSESSEE HAD CLAIMED EXEMPTION U/S 54EC IN RESP ECT OF LONG TERM CAPITAL GAIN, BY INVESTING THE SALE PROCE EDS IN NABARD TO THE EXTENT OF ` .6,80,000/-. THE AO, WHILE COMPLETING THE ASSESSMENT, HELD THAT SALE WAS OF AN ASSET WHICH IS WHOLLY COMPRISED IN THE BLOCK OF ASSET ON WHICH DEPRECIATION WAS CLAIMED AND HENCE THE AO HAS REDUC ED THE WDV AS PER BLOCK OF ASSET FROM THE TOTAL SALE CONSI DERATION AND ARRIVED AT THE RESULTANT GAIN AS SHORT TERM CAPITAL GAIN TO THE TUNE OF ` .7,40,512/- BY INVOKING THE PROVISIONS OF SEC.50 OF THE IT ACT, 1961. IN THE RESULT, THE ASSESSEES CLAIM OF EXEMPTION U/S 54EC WAS ALSO NOT ALLOWED. 3. AGGRIEVED BY THE ASSESSMENT IN TREATING THE SALE OF LAND AS A SHORT TERM CAPITAL GAINS BY INVOKING THE PROVISIONS OF SEC.50 OF THE ACT, THE ASSESSEE CARRIED THE MATTER IN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE FIRST APPELLATE AUTHORITY AFFIRMED THE VIEW OF THE AO. THE FINDING OF THE LD. CIT(A) READS AS UNDER: 5.0 I HAVE CONSIDERED THE ARGUMENT OF TH E APPELLANT; I HAVE ALSO PERUSED THE ASSESSMENT ORDER AND OTHER RELEVANT RECORDS. THE POINT FOR CONSIDERA TION IS WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN T AKING THE ENTIRE SALE CONSIDERATION AS FOR SALE OF BUILDI NG AND IN TAKING THE GAIN AS SHORT TERM CAPITAL GAIN. 5.1 IT IS A TRITE LAW THAT LAND AND BUILDIN G ARE TWO SEPARATE ASSETS. FURTHER A BUILDING CANNOT EXIST WI THOUT LAND. ALSO THAT WHENEVER A PROPERTY IS SOLD, THE CONSIDERATION RECEIVED ON SALE OF PROPERTY IS ATTRI BUTABLE TO BOTH THE LAND AND BUILDING. A PERUSAL OF BALANC E SHEET AND DEPRECIATION SCHEDULE ALSO SHOWS THAT THE DEPRECIATION WAS CLAIMED BY APPELLANT ON BUILDING O NLY AND IN ANY CASE LAND IS NOT DEPRECIABLE AND IN THE BLOCK OF ASSETS THE DEPRECIATION CANNOT BE CLAIMED ON LAN D. THERE IS A SPECIAL PROVISION FOR COMPUTATION OF CAP ITAL ITA 1462(BANG)/2010 PAGE 5 OF 7 GAINS IN CASE OF DEPRECIABLE ASSETS OUTLINED IN SEC TION 50 WHICH IS AS FOLLOWS: SECTION 50: NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (42A) OF SECTION 2, WHERE THE CAPITAL ASSET IS AN ASSET FORMING PART OF A BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED UNDER THE ACT OR UNDER THE INDIAN INCOME TAX ACT, 1922), THE PROVISIONS OF SECTIONS 48 AND 49 SHALL BE SUBJECT TO THE FOLLOWING MODIFICATIONS:- 5.2 THUS, IT CAN BE SEEN THAT THIS SECTION STARTS WITH THE NOTWITHSTANDING WITH THE OVERRIDING THE OT HER PROVISIONS OF THE INCOME-TAX ACT. THE APPELLANT COMPANY HAS BEEN CLAIMING THE DEPRECIATION OVER A PERIOD OF TIME FOR DIFFERENT ASSESSMENT YEARS AND T HE BLOCK OF ASSETS CONSISTS OF BUILDING ON WHICH DEPRECIATION AS PER THE RATE APPLICABLE HAS BEEN CLAIMED. ON LAND NO DEPRECIATION IS ALLOWABLE. IN VIEW OF THIS, I ENDORSE THE ACTION OF THE ASSESSING OFFI CER IN APPLYING THE PROVISIONS OF SECTION 50 OF THE ACT IN THE APPELLANTS CASE AND TREATING THE SALE CONSIDERATIO N AS SHORT TERM CAPITAL GAIN AFTER REDUCING THE WDV OF T HE BLOCK OF ASSET AS ON 1-4-2004 AS WELL AS THE BROKER AGE ON THE SAID TRANSACTION. 5.3 HOWEVER, THE APPELLANT HAS RELIED ON THE TWO JUDGMENTS OF THE HONBLE KARNATAKA HIGH COURT IN TH E CASE OF CIT VS. SMT. C.SHAKUNTALA AND VENKATESWARAN VS. ACIT . THE FACTS IN THE SAID CASE ARE CLEARLY DISTINGUISHABLE FROM THE FACTS OF THE INSTANT CASE AS THE APPELLANTS CASE IS COVERED BY THE PROVISIONS OF SE CTION 50 OF THE INCOME-TAX ACT. 4. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO DEPRECIATION IS CLAIMED ON LAND AND THEREFORE INVOK ING SEC.50 WITH RESPECT TO SALE OF LAND IS BAD IN LAW. IT WAS SUBMITTED THAT WHEN THE PROPERTY WAS SOLD DURING THE RELEVANT YEAR , THE CONSIDERATION WAS TOWARDS BOTH LAND AND BUILDING AN D THEREFORE, BIFURCATION OF SALE CONSIDERATION BETWEEN LAND AND BUILDING IS PERFECTLY JUSTIFIED. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE WAS DOING BUSINESS OF CHEMICALS AND ENTIRE BUILDING WAS IN ITA 1462(BANG)/2010 PAGE 6 OF 7 DILAPIDATED CONDITION. AFTER PROVIDING FOR DEPRECI ATION FROM YEAR TO YEAR THE WDV WAS VERY NEGLIGIBLE. THEREFORE, IT WAS CONTENDED THAT SALE CONSIDERATION WAS MAINLY FOR TH E LAND FOR WHICH ADMITTEDLY NO DEPRECIATION WAS ALLOWED. LEAR NED COUNSEL RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. C.R.SUBRAMANIAN (2000)(243 ITR 342) AND THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF CIT VS. LAKSHMI B.MENAN & ANOTHER (2003)(264 ITR 76) FOR THE PROPOSITION THAT SALE CONSIDERATION CAN BE BIFURCATED AND CAN BE ATT RIBUTED TO LAND AND BUILDING SEPARATELY. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE INCOME-TAX AUTHOR ITIES. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED MAT ERIAL ON RECORD. IN VIEW OF THE ABOVE CITED DECISION OF THE JURISDICTIONAL HIGH COURT AND THE KERALA HIGH COURT , IT IS CLEAR THAT LAND AND BUILDING ARE TWO SEPARATE ASSETS AND CONSIDERATION RECEIVED CAN BE ATTRIBUTED TO LAND AS WELL AS BUILDING SEPARATELY. THE CIT(A) IN PARA 5.1 OF HI S IMPUGNED ORDER, HAD CANDIDLY ADMITTED THAT LAND AND BUILDING ARE TWO SEPARATE ASSETS AND THE CONSIDERATION RECEIVED ON T HE SALE OF PROPERTY IS ATTRIBUTABLE TO BOTH LAND AND BUILDING . THE CIT(A) HAS ALSO ADMITTED THAT ON PERUSAL OF BALANCE SHEET AND DEPRECIATION SCHEDULE, IT IS SEEN THAT DEPRECIATION IS ONLY CLAIMED ON THE BUILDING. THE RATIO OF THE JUDGMENT S CITED SUPRA IS RELEVANT TO THE ISSUE IN HAND. THE CIT(A) SHALL CONSIDER THE RATIO OF JUDGMENTS OF THE HONBLE HIGH COURT OF KAR NATAKA AND ITA 1462(BANG)/2010 PAGE 7 OF 7 KERALA AND CONCLUDE WHETHER SALE CONSIDERATION CAN BE BIFURCATED BETWEEN LAND AND BUILDING AND DETERMINE WHETHER THE CONSIDERATION ATTRIBUTABLE TO LAND COULD BE ASS ESSED UNDER LONG TERM CAPITAL GAINS. THEREFORE, THIS ISSUE IS R ESTORED TO THE FILE OF THE CIT(A) AND HE SHALL DISPOSE OF THE MATT ER AS EXPEDITIOUSLY AS POSSIBLE AFTER AFFORDING A REASONA BLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2-12-2011. SD/- SD/- (N.K. SAINI) ACCOUNTANT MEMBER (GEORGE GEORGE K) JUDICIAL MEMBER PLACE: BANGALORE DATE: 2-12-2011 EKS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE