ALL INDIA MEDICAL CORPORATION, MUMBAI V. ACIT RG 19(2), MUMBAI

ITA 1586/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55921 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 02-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHUSARTHI NAIK
• Assessee Lawyers: VIPUL JOSHI
• Keywords: Capital asset; Depreciation; Fair market value

Judgement Text

1 ITA NO.1586/M/2010 M/S. ALL INDIA MEDICAL CORPORATION IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A : MUMBAI BEFORE SHRI D.K. AGARWAL, (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.1586/MUM/2010 ASSESSMENT YEAR : 2006-07 M/S. ALL INDIA MEDICAL CORPORATION AKHAND JYOTI, 8 TH ROAD, SANTACRUZ EAST, MUMBAI 400 055 PAN NO: AAAFA 8547 Q VS. A.C.I.T. CIRCLE 19(2) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIPUL JOSHI DEPARTMENT BY : SHRI PARTHUSARTHI NAIK DATE OF HEAR ING : 0 3.11 .2011 DATE OF PRONOUNCEMENT : 16.11.2011 O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 14.12.2009 OF THE LD. CIT(A)-30 FOR THE ASSESSMENT YEAR 2006-07. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING COMPUTAT ION OF CAPITAL GAIN FROM SALE OF LAND AND BUILDING. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE HAD SOLD FACTORY SHED ALONG WITH THE LAND FOR A SUM OF `. 45 LACS, OUT OF WHICH A SUM OF `. 40 LACS HAD BEEN ATTRIBUTED TOWARDS LAND AND `. 5 LACS TOWARDS FACTORY SHED. 2 ITA NO.1586/M/2010 M/S. ALL INDIA MEDICAL CORPORATION THE ASSESSEE HAD ACQUIRED THE FACTORY SHED VIDE AGR EEMENT DATED 14.09.1974 FROM NECTILES (P) LTD. FOR A TOTAL SUM O F `. 1,60,000/-. SINCE THE FACTORY SHED WAS USED FOR THE PURPOSE OF BUSINESS, THE ASSESSEE HAD CLAIMED DEPRECIATION UPTO YEAR 1999. THE ASSESSEE C OMPUTED THE CAPITAL GAIN FROM THE SALE OF LAND AS LONG TERM CAPITAL GA IN BY ADOPTING THE FAIR MARKET VALUE OF THE LAND AS ON 01.04.1981 AS COST O F ACQUISITION AND SHORT TERM CAPITAL GAIN DECLARED IN RESPECT OF SALE OF S HED U/S.50 OF THE I.T. ACT AS THE SAME WAS ON DEPRECIABLE ASSET. THE AO ASKED THE ASSESSEE TO GIVE THE DETAILS OF DEPRECIATION CLAIMED IN RESPECT OF T HE LAND AND THE FACTORY SHED IN THE EARLIER YEARS. BUT NO SEPARATE DETAILS COULD BE GIVEN, AS LAND AND SHED WERE SHOWN TOGETHER IN THE BALANCE SHEET. THE AO OBSERVED THAT THE ASSESSEE HAD BEEN CLAIMING THE DEPRECIATION ON THE FIXED ASSET AS PER THE RATE PRESCRIBED IN THE INCOME TAX ACT AND, THER EFORE, HE CONCLUDED, IN THE ABSENCE OF DETAILS, THAT THE ASSESSEE HAD BEEN CLAIMING THE DEPRECIATION ON THE ENTIRE FACTORY PREMISES INCLUDING THE LAND A ND, THEREFORE, ENTIRE GAIN WAS REQUIRED TO BE SHOWN AS SHORT TERM CAPITAL GAI N U/S.50 OF THE I.T. ACT. HE NOTED FROM THE SCHEDHULE OF ASSETS THAT OPENING WDV OF THE FIXED ASSETS FOR THIS YEAR WAS `. 1,81,779/- AND, THEREFORE, SALE CONSIDERATION ABOVE THE WDV AMOUNTING TO `. 43,18,221/- WAS TAXED BY HIM AS SHORT TERM CAPITAL GAIN. 2.1 THE ASSESSEE DISPUTED THE DECISION OF THE AO AN D SUBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESSEE HAD NOT CLAIMED AN Y DEPRECIATION ON THE 3 ITA NO.1586/M/2010 M/S. ALL INDIA MEDICAL CORPORATION LAND AND THAT THE DEPRECATION HAD BEEN CLAIMED ONLY IN RESPECT OF THE FACTORY SHED. BUT SINCE THE LAND HAD GOT MERGED WIT H THE FACTORY SHED, NO SEPARATE DETAILS WERE AVAILABLE IN THE ACCOUNTS. IT WAS ALSO SUBMITTED THAT IN THE AGREEMENT WITH THE BUYER OF THE LAND AND FAC TORY SHED I.E. M/S. MAJESTY AGRO FOOD PVT. LTD, THE CONSIDERATION IN RE SPECT OF THE LAND HAD BEEN SHOWN SEPARATELY AT `. 40 LACS AND THAT IN RESPECT OF BUILDING WAS SHOWN AT `. 5 LACS. THE LAND WAS NOT A DEPRECIABLE ASSET AND, T HEREFORE, GAIN COULD NOT BE ASSESSED AS SHORT TERM CAPITAL GAIN U/S.50 OF THE I.T. ACT. THE LD. CIT(A), HOWEVER, WAS NOT SATISFIED BY THE E XPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT SEPARATE DETAILS OF LAND AND F ACTORY SHED WERE NOT AVAILABLE IN THE ACCOUNTS OF THE EARLIER YEAR AND, THEREFORE, IT CANNOT BE CONCLUDED THAT THE ASSESSEE HAD NOT CLAIMED DEPRECI ATION ON THE LAND. THE ASSESSEE HAD CLAIMED DEPRECIATION ON ALL THE FIXED ASSETS UNDER THE ACT AND, THEREFORE, THE LD. CIT(A) AGREED WITH THE FIND ING OF THE AO THAT GAIN HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN U/S. 50 OF THE I.T. ACT. AGGRIEVED BY THE SAID DECISION THE ASSESSEE HAS AN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AR FOR THE ASSESSEE REITERATE D THE SAME SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITIES TH AT THE LAND WAS NOT A DEPRECIABLE ASSET AND, THEREFORE, CAPITAL GAIN HAD TO BE ASSESSED AS LONG TERM CAPITAL GAIN. IT WAS SUBMITTED THAT, IN ANY C ASE, NO DEPRECIATION HAD BEEN CLAIMED IN RESPECT OF THE FIXED ASSETS AFTER 0 1.09.1999 AND, THEREFORE, 4 ITA NO.1586/M/2010 M/S. ALL INDIA MEDICAL CORPORATION AT THE TIME OF THE SALE, THE LAND WAS NOT A DEPRECI ABLE ASSET AND INCOME FROM THE SAME, THEREFORE, HAS TO BE TREATED AS LON G TERM CAPITAL GAIN. HE PLACED RELIANCE FOR THE SAID PROPOSITION ON THE DEC ISION OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF SAKTHI METAL DEPORT VS. ITO (03 SOT 368). THE LD. DR ON THE OTHER HAND, STRONGLY SUPPORTED TH E AUTHORITIES BELOW AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THE RE SPECTIVE ORDERS. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE COMPUTATION OF CAPITAL GAIN FROM SALE OF FACTORY SHED INCLUDING THE LAND. THE FACTORY SH ED ALONG WITH THE LAND HAD BEEN ACQUIRED IN 1974, ABOUT WHICH THERE IS NO DISPUTE. THE FACTORY SHED ALONG WITH THE LAND HAD BEEN SOLD DURING THE Y EAR TO M/S. MAJESTY AGRO FOOD PVT. LTD. VIDE AGREEMENT DATED 13.02.2006 AND IN THE AGREEMENT CONSIDERATION IN RESPECT OF LAND AND FACTORY SHED H AD BEEN SHOWN SEPARATELY AMOUNTING TO `. 40 LACS AND `. 5 LACS RESPECTIVELY. IT IS SETTLED LEGAL QUESTION THAT LAND IS NOT A DEPRECIABLE ASSET AND DEPRECIATION COULD BE CLAIMED ONLY IN RESPECT OF THE FACTORY SHED. IN THE EARLIER YEARS, DEPRECIATION HAS BEEN ALLOWED IN RESPECT OF THE FAC TORY SHED WHICH ALSO INCLUDES LAND, BUT FULL DETAILS ARE NOT AVAILABLE T O SHOW WHETHER ANY DEPRECIATION HAD BEEN CLAIMED IN RESPECT OF THE LAN D WHICH HAD GOT MERGED WITH THE FACTORY SHED. THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE HAD NOT CLAIMED ANY DEPRECIATION ON THE LAND AND THE DEPREC IATION CLAIMED AND ALLOWED IN THE EARLIER YEARS WAS ONLY IN RELATION T O SHED. THE AO HAS NOT 5 ITA NO.1586/M/2010 M/S. ALL INDIA MEDICAL CORPORATION ACCEPTED THE CLAIM OF THE ASSESSEE IN THE ABSENCE O F DETAILS AND HAS CONCLUDED THAT DEPRECIATION HAS BEEN CLAIMED IN RES PECT OF THE LAND ALSO AND ACCORDINGLY, COMPUTED THE CAPITAL GAIN AS SHOR T TERM CAPITAL GAIN U/S.50 OF THE I.T. ACT WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A). 4.1 IN OUR VIEW, THE ORDERS OF THE AUTHORITIES BELO W CANNOT BE SUSTAINED. THE LAND IS NOT A DEPRECIABLE ASSET AND, THEREFORE, WHATEVER DEPRECIATION HAS BEEN CLAIMED AND ALLOWED IN THE EARLIER YEARS H AS ONLY TO BE TREATED AGAINST THE FACTORY SHED. IF THE DEPRECIATION ALLOW ED IN THE EARLIER YEAR WAS MORE THAN THE DEPRECIATION ALLOWABLE IN RESPECT OF FACTORY SHED, THIS WILL ONLY GO TO REDUCE THE WDV OF THE FACTORY SHED IN TH E YEAR OF THE SALE WHICH WILL RESULT INTO ENHANCED VALUE OF SHORT TERM CAPIT AL GAIN. THE LAND WHICH IS NOT A DEPRECIABLE ASSET WHICH WAS ADMITTEDLY ACQUIR ED IN THE YEAR 1974 HAS TO BE TREATED AS LONG TERM CAPITAL ASSET, AS PROVISIONS OF SECTION 50 WHICH ARE APPLICABLE TO DEPRECIABLE ASSETS CANNOT B E APPLIED TO THE SALE OF LAND. THEREFORE, THE GAIN ARISING FROM THE SALE OF THE LAND HAS TO BE TREATED AS LONG TERM CAPITAL GAIN AND GAIN FROM THE FACTO RY SHED HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. AS REGARDS, THE SALE CONSIDERATION, THE SAME HAS BEEN SHOWN SEPARATELY IN RESPECT OF THE LAND AN D SHED IN THE AGREEMENT AND THERE IS NO MATERIAL PLACED ON RECORD TO SHOW THAT THE SALE CONSIDERATIONS WERE LOWER OR THAT ASSESSEE HAD RECE IVED MORE THAN WHAT HAD BEEN STATED IN THE AGREEMENT FOR SALE. AS REGAR DS THE COST OF THE ACQUISITION, FACTORY SHED ALONG WITH LAND HAD BEEN PURCHASED FOR A 6 ITA NO.1586/M/2010 M/S. ALL INDIA MEDICAL CORPORATION CONSIDERATION OF `. 1,60,000. THE ASSESSEE HAS TAKEN THE COST OF ACQUIS ITION OF THE LAND AS THE FAIR MARKET VALUE OF THE LAND AS ON 01.04.1981 WHICH HAS NOT BEEN VERIFIED BY THE LOWER AUTHORITIES AS THEY PROCEEDED FROM A DIFFERENT ASPECT TREATING THE ENTIRE GAIN AS SHORT TERM CAPI TAL GAIN. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HE MATTER TO THE FILE OF THE AO FOR PASSING A FRESH ORDER AFTER NECESSARY VERIFI CATION IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THIS 16 TH DAY OF NOVEMBER, 2011 SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 16.11.2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI