The ACIT,B.K.Circle, Palanpur V. M/s. Neelkamal Cables Pvt.Ltd., Ahmedabad

ITA 1831/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72902 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 03-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-08-2012
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Keywords: Capital asset; Depreciation

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N. S. SAINI, ACCOUNTANT MEMBER ITA NO. 1831/AHD/2012 ASSESSMENT YEAR 2008-09 ACIT, B.K. CIRCLE, PALANPUR VS. M/S NEELKAMAL CABLES PVT. LTD., AHMEDABAD. PAN: AAACN6583E (APPELLANT) (RESPONDENT) REVENUE BY : SH. O.P. BATHEJA, SR. D.R. ASSESSEE(S) BY : SH. SAKAR SHARMA, AR / // / DATE OF HEARING : 03/02/2014 !'# / DATE OF PRONOUNCEMENT : 06/02/2014 $% $% $% $%/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-I, AHMEDABAD DATED 29.05.2012. 2. THE SOLE GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSIN G OFFICER TO ALLOW CAPITAL GAINS AS CLAIMED BY THE ASSESSEE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN T HE INSTANT CASE, THE ASSESSEE SOLD ITS FACTORY LAND AND FACTORY BUILDING FOR A COMPOSITE ITA NO. 1831/AHD/2012 MS/ NEELKAMAL CABLES P. LTD., AHD VS. ACIT, B.K. CI R.,PALANPUR FOR A.Y. 2008-09 - 2 - CONSIDERATION OF RS 22,00,000/- AND THE ASSESSEE DI SCLOSED RS 55,815/- AS LONG TERM CAPITAL GAINS DERIVED THEREFROM. 4. THE ASSESSING OFFICER OBSERVED THAT ON FACTORY B UILDING, DEPRECIATION WAS CLAIMED BY THE ASSESSEE AND AS THE TRANSACTION WAS SALE OF A DEPRECIABLE ASSET, HE TREATED CAPITAL GAINS DERIVED THEREFROM AS SHORT TERM CAPITAL GAINS AND COMPUTED AT RS 10,13,110/- I .E. RS 22,00,000 RS 3,20,000 RS 44,834 RS 8,22,056/-. 5. ON APPEAL, THE LD. CIT(A) HELD THAT THE TRANSFER OF CAPITAL ASSET IN QUESTION CAN BE TREATED AS TRANSFER OF AN UNDERTAKI NG AND THEREFORE, THE CAPITAL GAINS DERIVED THEREFROM IS TO BE TREATED AS LONG TERM CAPITAL GAINS AND DIRECTED THE ASSESSING OFFICER ACCEPT THE LONG TERM CAPITAL GAINS AS DISCLOSED BY THE ASSESSED IN THE RETURN. 6. THE LD. DR CONTENDED BEFORE US THAT THE SALE MAD E BY THE ASSESSEE WAS OF FACTORY LAND ALONGWITH FACTORY BUILDING AND BORE WELL. AS IT WAS NOT A CASE OF SALE OF ANY UNDERTAKING, THEREFORE, HE SUBM ITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE CAPITAL ASSET AS LONG TERM CAPITAL GAIN. HE SUBMIT TED THAT AS THE TRANSFER INVOLVED TRANSFER OF DEPRECIABLE ASSET ON WHICH DEP RECIATION WAS CLAIMED BY THE ASSESSEE REGULARLY, THEREFORE, THE P ROFIT THEREON WAS RIGHTLY TREATED BY ASSESSING OFFICER AS SHORT TERM CAPITAL GAIN. HE PLACED RELIANCE ON THE DECISION OF HONBLE ITAT, CA LCUTTA BENCH IN THE CASE OF ACIT VS. SEKHAR GUPTA (2001) 79 ITD 192 (CAL.), DEC ISION OF ITAT, DELHI BENCH IN THE CASE OF RAJ WOOLEN INDUSTRIES VS. ACIT (2012) 20 TAXMANN.COM 267 (DELHI), DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. DR. D.L. RAMACHAN DRA RAO (1999) 236 ITR 51 (MAD.) AND THE DECISION OF HONBLE RAJAS THAN HIGH COURT IN THE CASE OF CIT VS. VIMAL CHAND GOLECHA (1993) 201 ITR 442 (RAJ.). ITA NO. 1831/AHD/2012 MS/ NEELKAMAL CABLES P. LTD., AHD VS. ACIT, B.K. CI R.,PALANPUR FOR A.Y. 2008-09 - 3 - 7. ON THE OTHER HAND, THE LD. AR SUPPORTED THE ORDE R OF THE LD. CIT AND PLACED RELIANCE ON THE DECISION OF HONBLE MADRAS H IGH COURT IN THE CASE OF ACIT VS. RAKA FOOD PRODUCTS (2005) 271 ITR 261 (MAD.). THE LD. AR CONTENDED THAT AS MORE THAN ONE ASSET WAS SO LD FOR A COMPOSITE CONSIDERATION AS A SINGLE TRANSACTION, THEREFORE IT WAS A CASE OF SALE OF AN UNDERTAKING. 8. WE FIND THAT THE ASSESSEE IN REPLY TO SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER SUBMITTED BEFORE THE ASSESSING OF FICER AS UNDER: VIDE LETTER DATED 10.12.2010 THE ASSESSEE FURNISHED EXPLANATION IN THIS REGARD. THE RELEVANT PORTION O F THE SAME IS REPRODUCED HERE FOR REFERENCE:- YOUR GOODSELF HAS CALLED FOR TO SUBMIT DETAILS REGARDING SALE OF FACTORY LAND & BUILDING DURING TH E YEAR AND APPLICABILITY OF PROVISIONS OF SEC.50 OF T HE I.T. ACT ON THE SAID TRANSACTION. IN THIS REGARD, WE WOULD LIKE TO SUBMIT THAT DURING THE YEAR, THE COMPANY HAS SOLD ITS FACTORY LAND ALONGWI TH FACTORY BUILDING STOOD THEREON AT RS 21,00,000/- TO SHRI PRABHUDAS PATEL & SHRI RAMESH PATEL ON 13.09.07. THE COPY OF THE SALE DEED IS ENCLOSED. THE VALUE OF LAND AS ON THE DATE OF SALE IN THE BOO KS WAS RS 3,20,000/- AND BOREWELL WAS RS 44,834/-. TH E WRITTEN DOWN VALUE OF FACTORY BUILDING WAS RS 8,22,056/-. THEREFORE, WE HAVE SHOWN COST OF THE L AND & BUILDING AT RS 11,86,890/- AND AS IT WAS NOT POSSIBLE TO BIFURCATE THE COST OF LAND AND BUILDING , WE HAVE CLAIMED INDEXATION FOR THE ENTIRE AMOUNT IN OU R RETURN OF INCOME AND CALCULATED LONG TERM CAPITAL GAIN OF RS 55,815/-. WE HAVE RELIED UPON THE HONB LE MADRAS HIGH COURT JUDGEMENT IN THE CASE OF ACIT VS RAKA FOOD PRODUCTS (205) 277 ITR 261 [MAD]. ITA NO. 1831/AHD/2012 MS/ NEELKAMAL CABLES P. LTD., AHD VS. ACIT, B.K. CI R.,PALANPUR FOR A.Y. 2008-09 - 4 - WITHOUT PREJUDICE, WE WOULD LIKE TO SUBMIT THAT THE COST OF FACTORY LAND WAS RS 3,20,000/- PURCHASED IN THE F.Y. 1997 ON WHICH NO DEPRECIATION WAS CLAIMED AND ACCORDINGLY LAWFUL INDEXATION SHALL BE ALLOWED TO WORKOUT THE FINAL CAPITAL GAIN IN THE CASE AND THAT INDEXED COST OF LAND SHALL BE DEDUCTED WHILE ARRIVI NG AT THE SHORT TERM CAPITAL GAIN U/S 50 ON THE SALE V ALUE OF FACTORY BUILDING. 9. THUS, ON PERUSAL OF THE RECORDS AVAILABLE BEFORE US, WE FIND THAT IT IS A CASE OF SALE OF FACTORY LAND AND FACTORY BUILD ING ALONGWITH BOREWELL AND THE SAME CANNOT BE CONSTRUED AS SALE O F AN UNDERTAKING. NO MATERIAL WAS BROUGHT BEFORE US TO SHOW THAT ANY BUSINESS AS SUCH WAS TRANSFERRED BY THE ASSESSEE. THE HONBLE MADRAS HIGH COURT IN THE CASE OF RAKA FOOD PRODUCTS (SUPRA) HAS HELD AS UNDER: 9. IT MAY BE NOTED THAT THE COMMISSIONER OF INCOME -LAX (APPEALS) IN PARAGRAPH 12 OF HIS ORDER HAS OBSERVED: 'IT IS NOT A CASE OF TRANSFER OF SERIES OF ASSETS I NDIVIDUALLY BUT A TRANSFER OF THE ENTIRE BUSINESS UNDERTAKING AS A WH OLE.' 10. THE TRIBUNAL HAS NOT INTERFERED OR SET ASIDE TH E AFORESAID FINDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS) . ALL THAT THE TRIBUNAL HAS OBSERVED IN ITS ORDER (IN PARAGRAPH 5) WAS THAT 'THE SALE IN QUESTION WAS NOT AS A RUNNING BUSINESS'. THUS, A LL THAT THE TRIBUNAL HAS HELD WAS THAT THE BUSINESS RELATING TO THE CAPI TAL ASSET IN QUESTION, I.E., THE 'BAKERY' WAS NOT RUNNING WHEN IT WAS SOLD , BUT WAS CLOSED. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS CLEARL Y HELD THAT IT WAS THE ENTIRE CONCERN WHICH WAS SOLD. NO DOUBT THE SALE WAS DONE THROUGH TWO SEPARATE DOCUMENTS IN RESPECT OF MOVABL E AND IMMOVABLE ASSETS, BUT EVIDENTLY THIS WAS DONE ONLY BECAUSE IM MOVABLE PROPERLY CAN ONLY BE SOLD THROUGH A REGISTERED SALE DEED. 11. IN PARAGRAPH 12 OF HIS ORDER, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS OBSERVED: 'IN ANY EVENT IN THE INSTANT CASE THE LETTER OF UND ERSTANDING BETWEEN THE APPELLANT AND THE BUYER SHOWS THAT THE INTENTION WAS TO SELL THE ENTIRE BAKERY BUSINESS WITH LAND, B UILDING, PLANT ITA NO. 1831/AHD/2012 MS/ NEELKAMAL CABLES P. LTD., AHD VS. ACIT, B.K. CI R.,PALANPUR FOR A.Y. 2008-09 - 5 - AND MACHINERY AND THE CLOSING STOCK AS A GOING CONC ERN FOR A TOTAL AND LUMP SUM CONSIDERATION OF RS. 25,55,555. THOUGH THE IMMOVABLES HAD TO BE REGISTERED AND FOR THAT PURPOS E THE GUIDELINE VALUATION HAD BEEN ADOPTED BY THE REGISTR AR, IT IS NOT A CASE OF TRANSFER OF SERIES OF ASSETS INDIVIDUALLY , BUT A TRANSLER OF THE ENTIRE BUSINESS UNDERTAKING AS A WHOLE. IN S UCH AN EVENT, IT IS NOT POSSIBLE TO DETERMINE AT WHAT CONSIDERATI ON INDIVIDUAL ASSETS MOVABLE OR IMMOVABLE WERE TRANSFERRED. THE S AME IS TRUE OF DEPRECIABLE AND NON-DEPRECIABLE ASSETS ALSO .' 12. THE AFORESAID FINDING OF THE COMMISSIONER OF IN COME-TAX (APPEALS) IN PARAGRAPH 12 OF HIS ORDER HAS NOT BEEN SET ASIDE BY THE TRIBUNAL. ALL THAT THE TRIBUNAL HAS HELD WAS THAT T HE BUSINESS OF THE BAKERY WAS CLOSED WHEN IT WAS SOLD. HENCE, IT CANNO T BE SAID THAT THE TRIBUNAL HAS REVERSED THE FINDING OF THE COMMISSION ER OF INCOME-TAX (APPEALS) WHO HELD THAT IT WAS A TRANSFER OF THE EN TIRE BUSINESS UNDERTAKING AS A WHOLE. 13. LAND IS NOT A DEPRECIABLE ASSET. SECTION 50 OF THE ACT DEALS ONLY WITH TRANSFER OF DEPRECIABLE ASSETS. ONCE THE LAND FORMS PART OF THE ASSETS OF THE UNDERTAKING, AND THE TRANSFER IS OF THE ENTIRE UNDERTAKING AS A WHOLE, IT IS NOT POSSIBLE TO BIFUR CATE THE SALE CONSIDERATION TO A PARTICULAR ASSET. AS ALREADY OBS ERVED ABOVE, SECTION 50 OF THE ACT APPLIES ONLY WHEN DEPRECIABLE ASSETS ALONE ARE TRANSFERRED. 14. THE DECISION OF THIS COURT IN M. RAGHAVAN VS. A SSTT. CIT (2004) 266 ITR 145 RELIED ON BY THE LEARNED COUNSEL FOR THE DEPARTMENT IS CLEARLY DISTINGUISHABLE BECAUSE THAT WAS A CASE WHERE THE ASSET IN QUESTION WAS A DEPRECIABLE ASSET. IN THE PRESENT CASE, IT HAS BEEN FOUND THAT THE WHOLE UNDERTAKING WAS TRANS FERRED INCLUDING LAND WHICH IS NOT A DEPRECIABLE ASSET. 15. FOR THE SAME REASON, THE OTHER DECISIONS RELIED ON BY THE REVENUE, NAMELY KALI AERATED WATER WORKS VS. CIT (2 000) 242 ITR 79 (MAD.) AND COMMONWEALTH TRUST LTD. VS. CIT (1997 ) 228 ITR 1 (SC) ARE ALSO DISTINGUISHABLE. 16. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY FORCE IN THIS APPEAL AND IT IS, ACCORDINGLY, DISMISSED. 10. THUS, THE FACTS OF THE INSTANT CASE ARE FOUND T O BE DISTINGUISHABLE FROM THE FACTS WHICH WERE BEFORE THE HONBLE MADRAS HIGH COURT IN THE ABOVE CASE. IN THAT CASE, IT WAS FOUND THAT THE ASSESSEE HAD SOLD HIS BAKERY INCLUDING THE LAND, BUILDING AND MA CHINERY AND ITA NO. 1831/AHD/2012 MS/ NEELKAMAL CABLES P. LTD., AHD VS. ACIT, B.K. CI R.,PALANPUR FOR A.Y. 2008-09 - 6 - THEREFORE, IT WAS FOUND THAT THE ASSESSEE SOLD AN U NDERTAKING WHEREAS IN THE INSTANT CASE, ONLY FACTORY LAND, FAC TORY BUILDING ALONGWITH BOREWELL WAS SOLD AND IT IS NOT A CASE WH ERE AN ENTIRE BUSINESS UNDERTAKING AS SUCH WAS SOLD BY THE ASSESS EE. THE ABOVE FACTS ARE ALSO ESTABLISHED FROM THE SUBMISSIONS MAD E BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AS EXTRACTED HEREINABOVE. THEREFORE, WE FIND THAT THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF RAKA FOOD PRODUCTS (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. 11. IN THE INSTANT CASE, WE FIND THAT THE ASSESSEE SOLD FOR A COMPOSITE CONSIDERATION OF RS 22,00,000/- FACTORY LAND ON WHI CH NO DEPRECIATION WAS CLAIMED AND ALLOWED, ALONGWITH FAC TORY BUILDING AND BOREWELL ON WHICH DEPRECIATION WAS CLAIMED AND ALLOWED TO THE ASSESSEE IN EARLIER YEARS. THE GAIN WHICH THE ASSESSEE DERIVED ON SALE OF FACTORY LAND IS THEREFORE, TO BE TREATED AS LONG TERM CAPITAL GAINS AND THE PROFIT WHICH THE ASSESSEE DER IVED ON SALE OF FACTORY BUILDING AND BOREWELL IS TO BE TREATED AS S HORT TERM CAPITAL GAIN IN VIEW OF SPECIAL PROVISIONS CONTAINED IN SEC TION 50 OF THE ACT. FOR THE ABOVE PURPOSES, CONSIDERATION RECEIVE D SHOULD BE BIFURCATED IN RESPECT OF EACH OF THE ASSETS ON REAS ONABLE BASIS. CONSEQUENTLY, WE FIND THAT THE LD. ASSESSING OFFICE R WAS NOT JUSTIFIED IN TREATING THE ENTIRE CAPITAL GAINS AS S HORT TERM CAPITAL GAINS NOR THE LD. CIT(A) WAS JUSTIFIED IN TREATING THE ENTIRE CAPITAL GAINS AS LONG TERM CAPITAL GAINS AS CLAIMED BY THE ASSESSEE. 12. WE, THEREFORE, SET ASIDE THE ORDERS OF THE LOWE R AUTHORITIES ON THIS ISSUE AND RESTORE THE ISSUE BACK TO THE FILE OF ASS ESSING OFFICER FOR ITA NO. 1831/AHD/2012 MS/ NEELKAMAL CABLES P. LTD., AHD VS. ACIT, B.K. CI R.,PALANPUR FOR A.Y. 2008-09 - 7 - RECOMPUTING THE CAPITAL GAINS AS DISCUSSED ABOVE AF TER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THE GROUND OF APPEAL OF THE REVENUE IS ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON THURSDAY, THE 6 TH FEBRUARY, 2014 AT AHMEDABAD. SD/- SD/- (MUKUL KR. SHRAWAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 06/02/2014 GHANSHYAM MAURYA GHANSHYAM MAURYA GHANSHYAM MAURYA GHANSHYAM MAURYA, SR. P , SR. P , SR. P , SR. P. .. .S SS S. .. . TRUE COPY $% $% $% $% &' ($'# &' ($'# &' ($'# &' ($'#/ COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. &+)* / THE RESPONDENT. 3. ,, - / CONCERNED CIT 4. -() / THE CIT(A)-III, AHMEDABAD 5. '01 & , , / DR, ITAT, AHMEDABAD 6. 123 4 / GUARD FILE. $% $% $% $% / BY ORDER, 5 55 5/ // / ,6 ,6 ,6 ,6 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD