RAMESH N. PARDIWALA, MUMBAI V. JCIT 24(1)(1), MUMBAI

ITA 1732/MUM/2013

• Counselvise Citation: 173219914 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 01-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Assessee Lawyers: DR K SHIVARAM; NEELAM C JADHAV
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Period of limitation; Cost of acquisition; Time period of passing order
• Section: 14A; 54

Judgement Text

, MH MHMH MH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH , ! ' ' ' ' #$ , # ! BEFORE S/SH.JOGINDER SINGH, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.1732/MUM/2013, % % % % & & & & / ASSESSMENT YEAR-2008-09 SHRI RAMESH N. PARDIWALA, 218, HIGH TECH INDUSTRIAL ESTATE, CAVES ROAD, JOGESHWARI(E), MUMBAI-400060 PAN: AABPP3977A % VS. ACIT, 24(1), C-13, R.NO. 503, PRATYAKSH KAR BHAVAN, BANDRA(E), MUMBAI-400051 ( '( / APPELLANT) ( )*'( / RESPONDENT) /. ITA NO.6777/MUM/2012, % % % % & & & & / ASSESSMENT YEAR-2009-10 ACIT, 24(1), C-13, R.NO. 503, PRATYAKSH KAR BHAVAN, BANDRA(E), MUMBAI-400051 % VS. SHRI RAMESH N. PARDIWALA, 218, HIGH TECH INDUSTRIAL ESTATE, CAVES ROAD, JOGESHWARI(E), MUMBAI-400060 PAN: AABPP3977A ( '( / APPELLANT) ( )*'( / RESPONDENT) /. ITA NO.1733/MUM/2013, % % % % & & & & / ASSESSMENT YEAR-2009-10 SHRI RAMESH N. PARDIWALA, 218, HIGH TECH INDUSTRIAL ESTATE, CAVES ROAD, JOGESHWARI(E), MUMBAI-400060 PAN: AABPP3977A % VS. ACIT, 24(1), C-13, R.NO. 503, PRATYAKSH KAR BHAVAN, BANDRA(E), MUMBAI-400051 ( '( / APPELLANT) ( )*'( / RESPONDENT) % +, % +, % +, % +, - - - - # ## # / ASSESSEE BY : DR. K. SHIVARAM & MS. NEELAM C. JADHAV (AR) ! . - # / REVENUE BY : SHRI AKHILENDRA YADAV (DR) % % % % . .. . , / , / , / , / / DATE OF HEARING : 01 -01-2015 0& . , / / DATE OF PRONOUNCEMENT : 05 -01-2015 % % % % , 1961 . .. . 254(1) # ## # ,, ,, ,, ,, #1 #1 #1 #1 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. # ! #$ # % : CHALLENGING THE ORDERS OF THE CIT(A)-34,MUMBAI THE ASSESSING OFFICER (AO) AND THE ASSESSEE HAVE FILED APPEALS.FOR THE YEAR 2008-09 THE ASSESSE E HAS FILED APPEAL,WHEREAS FOR THE NEXT AY. BOTH HAVE FILED CROSS APPEALS.GROUNDS OF APPEAL FOR THE AY.2008-09 READ AS UNDER: ITA/1732//MUM/2013,AY.2008-09: I.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ASSESSING OFFICER HAS ERRED BY MAKING AN DISALLOWANCE U/S 14A READ WITH R ULE 8D OF RS. 6,46,015/-. II :THE APPELLANT CRAVE LEAVE TO SUBSTANTIATE THE G ROUNDS AT THE TIME OF HEARING OF THE APPEAL. III:THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR MODIFY THE ABOVE GROUNDS BEFORE OR AT THE TIME OF HEARING. THE ASSESSEE HAS ALSO FOLLOWING ADDITIONAL GROUNDS OF APPEAL FOR THE YEAR UNDER APPEAL: II:THE LEARNED CIT(A) ERRED IN DISALLOWING THE EXPE NDITURE OF RS. 6,46,015/- U/S. 14A AT RATE OF 2% OF THE EXEMPT INCOME AS AGAINST RS. 3,51,375/- DISA LLOWED BY THE ASSESSING OFFICER, WITHOUT GIVING 2 ITA NO. 6777/M/2012 SHRI RAMESH N. PARDIWALA ANY NOTICE OF ENHANCEMENT, THE ORDER IS BAD IN LAW. III:THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. ITA/1733/MUM/2013-AY.2009-10 I : DISALLOWANCE U/S. 14A ON THE FACTS AND IN THE C IRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ASSESSING OFFICER HAS ERRED BY MAKING AN DI SALLOWANCE U/S 14A READ WITH RULE 8D OF RS. 20,03,668/-. II :THE APPELLANT CRAVE LEAVE TO SUBSTANTIATE THE G ROUNDS AT THE TIME OF HEARING OF THE APPEAL. III:THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR MODIFY THE ABOVE GROUNDS BEFORE OR AT THE TIME OF HEARING. ITA NO. 6777/MUM/2012 AY.2009-10 '1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION OF RS. 38,58,511/- MADE BY THE AO U/S. 14A R.W.S. 8 D ON THE EXEMPTED INCOME TO 2% OF THE DISALLOWANCE WHEN THE RELIEF ALLOWED TO THE ASSESSEE WAS NOT IN CONFORMITY WITH SECTION 14A R.W.R.8D. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 10,00,0001- MADE IN RESPECT OF EXPENSES ON ACCOUNT OF PORTFOLIO MANAGEMENT FEES AGAINST THE STCG INCOME FROM SHARES MUTUAL FUN DS AND SALE OF BONDS WHEN THE CONDITIONS LAID DOWN U/S.48 WERE NOT FULFILLED FOR ALLOWING TH E EXPENSE; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DEDUCTION CLAIMED U/S. 54 EC ON SUMS ARISING ON TRANSFER OF BLOCK OF ASSETS (STCG) WHILD 54 EC ALLOWABLE ONLY ON THE LTCG.' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND MATTER BE DECIDED ACCORDING TO LAW. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER A NY GROUND OR ADD NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE,AN INDIVIDUAL AND AN INDENTING AGENT FILED HIS RETURN OF INCOME ON 19.09.2008,DECLARING INCOME OF RS.4,88,61,420/-THE AO COMPLETED THE ASSE SSMENT FOR THE AY.2008-09 ON 16.11.2010 DETERMINING THE INCOME OF THE ASSESSEE,U/S.143(3)OF THE ACT, AT RS.4,90,12,790/-. VIDE HIS APPLICATION DATED 29.08.2014,THE ASSESSEE HAS STATED THAT THERE WAS DELAY OF 139 DAYS IN FILING THE APPEAL FOR THE AY.2008-09,THAT THE FAA H AD ENHANCED THE INCOME BY PASSING AN ORDER U/S.154 OF THE ACT WITHOUT ISSUING HEARING OF NOTI CE,THAT HE WAS UNDER THE BONA FIDE BELIEF THAT THE LIMITATION PERIOD WILL START FROM THE DATE OF RECTI FICATION AND NOT FROM THE ORIGINAL ORDER,THAT DELAY SHOULD BE CONDONED.THE APPLICATION IS ACCOMPANIED B Y AN AFFIDAVIT OF THE ASSESSEE.BEFORE US,ON BEHALF OF THE ASSESSEE SAME ARGUMENTS WERE REITERAT ED.AFTER CONSIDERING THE APPLICATION AND THE AFFIDAVIT WE ARE OF THE OPINION THAT THERE WAS A RE ASONABLE CAUSE FOR NOT FILING THE APPEAL IN TIME.THEREFORE, DELAY OF 139 DAYS IS CONDONED CONSI DERING THE FACT THAT THE ASSESSEE IS AN INDIVIDUAL AND IN HIS APPLICATION MENTIONED THE REA SONS OF DELAY. ITA/1732//MUM/2013,AY.2008-09: 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE MA DE U/S.14A OF THE ACT.R.W.RULE 8D OF THE INCOME-TAX RULES,1962(RULES).DURING THE ASSESSMENT PROCEEDINGS,THE AO MADE DISALLOWANCE OF RS.3.51 LAKHS U/S.14A OF THE ACT.THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA),WHO HELD THAT DISALLOWANCE SHOULD BE RESTRICTED TO 2% OF THE EXEMPT INCOME I.E.TO RS.64,600/- 3. BEFORE US, THE AUTHORISED REPRESENTATIVE (AR) STATE D THAT THE AO HAD MADE A DISALLOWANCE OF RS. 3.51 LAKHS,THAT DURING THE APPELLATE PROCEEDING S THE FAA HAD HELD THAT DISALLOWANCE SHOULD BE @ 2% OF TOTAL IS EXEMPT INCOME I.E. RS. 3.23 CRORES ,THAT THUS HE HAD MADE AN ADDITION OF RS. 6.46 LAKHS, THAT IN THE ORDER THE AMOUNT OF ADDITION HAD BEEN MENTIONED AS RS.64,000/-, THAT 2% OF THE EXEMPT INCOME WORKED OUT TO RS. 6.64 LAKHS,THAT THE ORDER OF THE FAA HAD RESULTED IN ENHANCE - MENT OF THE DISALLOWANCE FROM RS. 3.51 LAKHS TO 6.6 4 LAKHS, THE FAA HAD NOT ISSUED NOTICE U/S 251(2) OF THE ACT BEFORE ENHANCING THE INCOME OF TH E ASSESSEE.THE DEPARTMENTAL REPRESENTATIVE 3 ITA NO. 6777/M/2012 SHRI RAMESH N. PARDIWALA (DR) LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 4. AFTER HEARING THE RIVAL SUBMISSIONS,WE FIND THAT OR DER OF THE FAA HAD RESULTED IN ENHANCEMENT OF INCOME,THOUGH HE WANTED TO RESTRICT THE DISALLOW ANCE.IN OUR OPINION A REASONABLE DISALLOWANCE COULD BE MADE ABOUT THE EXPENDITURE INCURRED FOR EA RNING EXEMPT INCOME.CONSIDERING THE FACTS OF THE CASE,WE ARE OF THE OPINION THAT,IN THE INTEREST OF JUSTICE,MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE FAA FOR FRESH ADJUDICATION,WHO WILL DEC IDE THE ISSUE AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. EFFECTIVE GROUND OF APPEAL AND THE ADDITIONAL GROUN DS OF APPEAL RAISED BY THE ASSESSEE ARE DECIDED IN ITS FAVOUR, IN PART. ITA/1733/MUM/2013-AY.2009-10 : 5. THE EFFECTIVE GROUND OF APPEAL FILED BY THE ASSESSE E FOR THE YEAR UNDER APPEAL ALSO DEALS WITH THE DISALLOWANCE MADE UNDER SECTION 14A R.W.R.8D OF THE RULES.DURING THE ASSESSMENT PROCEEDINGS, THE AO MADE A DISALLOWANCE OF RS.35.58 LAKHS UNDER THE ABOVE REFERRED SECTION AND THE ASSESSEE CHALLENGED THE ORDER OF THE AO BEFORE THE FAA.FOLLO WING HIS ORDER FOR THE EARLIER YEAR,THE FAA DIRECTED THE AO TO WORK OUT 2% OF DISALLOWANCE ON T HE ENTIRE EXEMPTED INCOME EARNED. 6. BEFORE US,THE AR STATED THAT ASSESSEE HAD INCURRED NO EXPENDITURE DURING THE YEAR UNDER CONSIDERATION FOR EARNING EXEMPT INCOME, THAT IT HA D NOT BORROWED ANY FUND, THAT AS DIRECT/INDIRECT EXPENDITURE WERE NOT INCURRED BY IT SO NO DISALLOWA NCE COULD BE MADE,THAT THE FAA HAD AGREED WITH THE CONTENTION OF THE ASSESSEE BUT FOLLOWING T HE EARLIER YEARS ORDER DIRECTING TO RESTRICT THE DISALLOWANCE @ 2% OF ENTIRE EXEMPT INCOME.HE REFERR ED TO THE CASES OF IQBAL CHAGLA (34 ITR- TRIB, 636) AND RELAXO FOOFWARE (50 SOT 102).DR SUPP ORTED THE ORDER OF THE AO. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAS SIMPLY FOLLOWED THE ORDER FOR THE EARLIER YEAR, WHILE DECIDING THE APPEAL FOR THE YEAR UNDER APPEAL.IN OUR OPINION,EVEN IF SOME REASONABLE DISAL LOWANCE HAS TO BE MADE FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF GODREJ BOYCE & CO.,THE AO OR THE FAA TO CONSIDER ALL THE NECESSARY FACTS IN TO CONSIDERATIO N LIKE EXPENDITURE INCURRED AND CLAIMED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS,UTILISATION OF B ORROWED FUNDS IF ANY,RATION OF DIRECT AND INDIRECT EXPENSES ETC.IF THE ASSESSEE NOT CLAIMED ANY EXPEND ITURE THEN THE SITUATION WILL BE TOTALLY DIFFERENT FROM A CASE WHERE IT HAD CLAIMED SOME EXPENDITURE.T HE FAA HAS NOT CONSIDERED ALL THESE ASPECTS,WHILE DECIDING THE APPEAL.IN OUR OPINION,TH ESE FACTORS PLAY CRUCIAL ROLE IN DECIDING THE ISSUE OF DISALLOWANCE.THEREFORE,IN THE INTEREST OF JUSTICE WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE FAA TO DECIDE THE ISSUE AFRESH AFTER AF FORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. ITA/6777/MUM/2012 AY.2009-10: 8. NOW,WE WOULD TAKE UP THE APPEAL FILED BY THE AO.FIR ST GROUND OF APPEAL DEALS WITH DISALLOWANCE MADE BY THE AO AND REDUCED BY THE FAA. AS STATED EARLIER,THE AO HAD MADE DISALLOWANCE OF RS.35.58 LAKHS AND THAT WAS RESTRIC TED TO 2% OF THE EXEMPT INCOME.THE DR SUPPORTED THE ORDER OF THE AO.AR MADE THE SAME SUBM ISSIONS THAT WERE MADE WHILE ARGUING THE APPEAL FILED BY THE ASSESSEE. WHILE DECIDING THE APPEAL OF THE ASSESSEE,WE HAVE R ESTORED BACK THE MATTER TO THE FILE OF THE FAA FOR FRESH ADJUDICATION.AS THE GROUND RAISED BY THE AO IS DIRECTLY RELATED TO THE GROUND OF THE ASSESSEE,SO,IN THE INTEREST OF JUSTICE,WE DIRECT TH E FAA TO DECIDE THE ISSUE AFRESH AFTER HEARING THE AO AND THE ASSESSEE. FIRST GROUND OF APPEAL FILED B Y THE AO IS PARTLY ALLOWED. 9. NEXT GROUND IS ABOUT DISALLOWANCE OF A SUM OF RS.10 ,00,000/- BEING PORTFOLIO MANAGEMENT 4 ITA NO. 6777/M/2012 SHRI RAMESH N. PARDIWALA FEES PAID TO FUND MANAGERS WHILE COMPUTING THE SHOR T TERM CAPITAL GAINS. RELYING ON THE DECISION OF ARUN KUMAR AND ORS.(286 ITR 89) AND RADHAKRISHNA N & ORS.(2SCC249),THE AO DISALLOWED THE SUM OF 10,00,000/- TOWARDS PMF. 10. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER THE FAA HELD THAT TRANSACTIONS WERE CARRIED OUT VIA PORTFOLIO MANAGEM ENT SCHEME,THAT SAME WERE CLEARLY IN THE NATURE OF TRANSACTIONS MEANT FOR MAXIMIZATION OF WE ALTH RATHER ENCASHING THE PROFITS ON APPRECIATION IN VALUE OF SHARES,THAT THE VERY NATUR E OF PORTFOLIO MANAGEMENT SCHEME WAS SUCH THAT THE INVESTMENTS MADE BY THE ASSESSEE WERE PROT ECTED AND ENHANCED,THAT PORTFOLIO MANAGE - MENT WAS NOT A SCHEME OF TRADING IN SHARES AND STOC K,THAT WHERE THE ASSESSEE WAS ENGAGED IN SYSTEMATIC ACTIVITIES OF HOLDING PORTFOLIO THROUGH A PMS MANAGER IT COULD NOT, BY ANY STRETCH OF IMAGINATION,BE SAID THAT THE MAIN OBJECT OF HOLDING THE PORTFOLIO WAS TO MAKE PROFIT BY SALE OF SHARES DURING THE COURSE OF MAINTAINING THE PORTFOL IO INVESTMENT OVER THE PERIOD.HE FURTHER HELD THAT THE ISSUE OF PAYMENT ON PORTFOLIO MANAGEMENT F EES WHETHER ALLOWABLE AS DEDUCTION WHILE COMPUTING THE STCG HAD BEEN EXHAUSTIVELY DISCUSSED IN THE CASE OF KRA HOLDING & TRADING PVT. LTD.(ITA/356/PN/2011 & ITA/240/PN/2011 DATED 2 5/07/2012),THAT THE TRIBUNAL HAS HELD THAT THE PORTFOLIO MANAGEMENT ACTIVITY WAS ONLY AN INVES TMENT ACTIVITY AND IT DID NOT AMOUNT TO EITHER BUSINESS ACTIVITY OR ACTIVITY AMOUNTING TO ADVENTUR E IN THE NATURE OF TRADE.HE ALSO REFERRED TO THE CASE OF RADHA BIRJU PATEL (ITA./5382/MUM/09)AND WHE REIN IT HAS BEEN HELD THAT THE TRANSACTIONS CARRIED OUT BY A PORTFOLIO MANAGER FOR ITS C1IENT C ANNOT BE SAID TO BE THE BUSINESS INCOME OF THE CLIENT,THAT SINCE TRANSACTIONS CARRIED OUT BY THE P ORTFOLIO MANAGER WERE CLEARLY IN THE NATURE OF TRANSACTIONS MEANT FOR MAXIMISATION OF WEALTH RATHE R ENCASHING THE PROFITS ON APPRECIATION IN VALUE OF SHARES,THAT PORTFOLIO MANAGEMENT WAS NOT S CHEME OF TRADING IN SHARES AND STOCK,THAT GAINS FROM INVESTMENTS MADE BY A PORTFOLIO MANAGER ON BEHALF OF ITS CLIENTS (ON A DISCRETIONARY BASIS) COULD NOT BE SAID TO BE BUSINESS INCOME IN T HE HANDS OF THE TAXPAYER AND MUST BE TREATED AS CAPITAL GAINS.FINALLY,HE ALLOWED THE APPEAL FILED B Y THE ASSESSEE. 11. BEFORE US,THE DR SUPPORTED THE ORDER OF THE AO. THE DR ARGUED THAT ASSESSEE HAD AVAILED THE SERVICES OF THE FUND MANAGER FOR THE PURPOSE OF INV ESTMENT AND EARNING TAX FREE INCOME, THAT HE DID NOT HAVE ANY STAFF FOR HANDLING PORTFOLIOS, THA T INCOME EARNED OUT OF PORTFOLIO MANAGER AS STCG WAS NEVER DISPUTED,THAT PORTFOLIO ANALYSIS WAS MADE BY THE FUND MANAGER, THAT FEES WAS PAID TO MANAGE THE FUND PROFESSIONALLY. HE RELIED U PON THE ORDERS OF KRA HOLDING & TRADING PVT. LTD. (54 SOT 493) AND SMT. NALINI NAVAIN BHAGW ATI (ITA/ 53/MUM/2010-DATED 5.8.11. 12. WE FIND THAT THE ASSESSEE HAD AVAILED THE SERVICES OF PORTFOLIO MANAGERS TO MANAGE HIS ACCOUNTS, THAT CHARGES PAID TO PORTFOLIO MANAGER WA S CLAIMED AGAINST STCGS,THAT HE HAD DECLARED STCG OF RS. 20.92 LAKHS,THAT HE HAD CLAIMED AN EXPE NDITURE OF RS. 10 LAKHS TOWARDS FUND MANAGERS FEES.IT WAS CLAIMED THAT EXPENDITURE WAS WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH TRANSFER AND COST OF ACQUISITION OF THE ASSET. IT IS FOUND THAT THE AO HAD ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE INCOME EARNED OUT OF THE PORT FOLIO MANAGER WAS STCG AND THE ONLY DISPUTE WAS WITH REGARD TO THE ALLOWABILITY OF EXPENDITURE. IN VIEW OF THE ABOVE DECISIONS OF THE ITAT,WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES N OT SUFFER FROM ANY LEGAL INFIRMITY.GROUND NO.2 IS DECIDED AGAINST THE AO. 13. LAST GROUND OF APPEAL PERTAINS TO CLAIM OF DEDUCTIO N U/S 54EC OF THE ACT, AGAINST THE STCG EARNED IN RESPECT OF DEPRECIABLE ASSETS.DURING THE YEAR UNDER CONSIDERATION,THE ASSESSEE HAD SOLD THE OFFICE PREMISES FOR RS.31,11,000/-.SINCE HE HAD CLAIMED DEPRECIATION ON THE ABOVE ASSETS, SO, HE DECLARED STCG OF RS.26,30,474/-.HE DEPOSITED THE ENTIRE CONSIDERATION AND CLAIMED DEDUCTION U/S.54EC OF THE ACT.THE AO DENIED THE CLAIM MADE BY THE ASSESSEE AND BROUGHT THE ENTIRE GAIN OF STCG TO TAX. 14. IN THE APPELLATE PROCEEDINGS THE FAA HELD THAT THE ISSUE WAS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JURISDICTIONAL HIGH COURT DECISION DELIVERED IN THE CASE OF M/S.ACE BUILDERS (P) LTD.(281 ITR210). 5 ITA NO. 6777/M/2012 SHRI RAMESH N. PARDIWALA THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENC H.THE AR ARGUED THAT THE ASSESSEE HAD SOLD OFFICE PREMISES WHICH WAS HELD BY HIM FOR MORE THAN 3 YEARS,THAT THE ASSESSEE HAD CLAIMED DEPRECIATION THEREON, THAT THE SALE PROCEED WERE IN VESTED WITHIN THE PRESCRIBED TIME LIMIT OF 6 MONTHS FROM THE DATE OF SALE OF OFFICE PREMISES IN RURAL ELECTRIFICATION CORPORATION AND A DEDUCTION U/S 54EC WAS CLAIMED, THAT SECTION 50 DEE MED THE CAPITAL GAIN AS STCG BUT IT DID NOT DEEM THE ASSET AS SHORT TERM CAPITAL ASSET, THAT TH E RESTRICTION WAS LIMITED ONLY TO THE COMPUTATI - ON OF CAPITAL GAINS AND IT HAD NOTHING TO DO WITH T HE EXEMPTION PROVISO.HE REFERRED TO THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT DELIVERED IN T HE CASE OF ACE BUILDERS (SUPRA). 15. WE FIND THAT THE HON'BLE BOMBAY HIGH COURT HAS DELI BERATED UPON THE ISSUE AND HAS DECIDED IT IN THE MATTER OF ACE BUILDER(SUPRA)AS UNDER: SECTION 50 OF THE INCOME-TAX ACT, 1961, CARVES OUT AN EXCEPTION IN RESPECT OF DEPRECIABLE ASSETS AND PROVIDES THAT WHERE DEPRECIATION HAS BEEN CLAIM ED AND ALLOWED ON THE ASSET, THEN THE COMPUTATION OF CAPITAL GAIN ON TRANSFER OF SUCH ASS ET UNDER SECTIONS 48 AND 49 SHALL BE AS MODIFIED UNDER SECTION 50. THE EFFECT OF SECTION 50(2) IS TH AT WHERE THE CONSIDERATION RECEIVED ON TRANSFER OF ALL THE DEPRECIABLE ASSETS IN THE BLOCK EXCEEDS THE WRITTEN DOWN VALUE OF THE BLOCK, THEN THE EXCESS IS TAXABLE AS A DEEMED SHORT-TERM CAPITAL GAINS. TH E FICTION CREATED UNDER SECTION 50 IS CONFINED TO THE COMPUTATION OF CAPITAL GAINS ONLY AND CANNOT BE EXTENDED BEYOND THAT. HOWEVER, THE BENEFIT OF SECTION 54E WILL BE AVAILABLE TO THE ASSESSEE IRRES PECTIVE OF THE FACT THAT THE COMPUTATION OF CAPITAL GAINS IS DONE EITHER UNDER SECTIONS 48 AND 49 OR UN DER SECTION 50.. THERE WAS NOTHING IN SECTION 50 TO SUGGEST THAT THE FICTION CREATED IN S ECTION 50 IS NOT ONLY APPLICABLE TO SECTIONS 48 AND 49 BUT ALSO APPLIES TO OTHER PROVISIONS. ON THE CON TRARY, THIS SECTION MAKES IT EXPLICITLY CLEAR THAT THE DEEMING FICTION CREATED IN SUB-SECTIONS (1) AND (2) IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAINS CONTAINED IN SECTIONS 48 AND 49. THE LEGAL FICTION IS TO DEEM THE CAPITAL GAIN AS SHORT-TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT-TERM CAPITAL ASSET. SECTION 50 DID NOT CONVERT A LONG-TERM CAPITAL ASSE T 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 WAS LIMITED TO THE COMPUTATION OF CAPITAL GAINS AND NOT THE EXEMPTION PROVISIONS. THUS, THE EXEMPTION UNDER SECTION 54E COULD NOT BE DENIED TO THE ASSESSEE ON ACCOUNT OF THE FICTION CREATED IN SECTION 50. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT,WE DECIDE GROUND NO.3 AGAINST THE AO AS A RESULT,APPEALS FILED BY TH E AO AND THE ASSESSEE STANDS PARTLY ALLOWED. 2,3 % +, 4 % +, / 5 6 . 7 VA'KR% VA'KR% VA'KR% VA'KR% 8 . , 9 . ORDER PRONOUNCED IN THE OPEN COURT ON 5TH,JANUARY,2 015. #1 . 0& # 7 :% 5 %/ , ,, , 201 5 . > SD/- SD/- ( / JOGINDER SINGH) ( #$ / RAJENDRA) ! ! ! ! / JUDICIAL MEMBER # # # # ! ! ! ! / ACCOUNTANT MEMBER / MUMBAI, :% /DATE:05.01.2015 SK #1 #1 #1 #1 . .. . ),? ),? ),? ),? @#?&, @#?&, @#?&, @#?&, / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '( 2. RESPONDENT / )*'( 3. THE CONCERNED CIT(A)/ A B , 4. THE CONCERNED CIT / A B 5. DR D BENCH, ITAT, MUMBAI / ?C ),% MH MHMH MH , . . . 6. GUARD FILE/ 2 * ?, ), //TRUE COPY// #1 % / BY ORDER, 6 ITA NO. 6777/M/2012 SHRI RAMESH N. PARDIWALA D / DY./ASST. REGISTRAR , /ITAT, MUMBAI