National Dairy Development Board, Anand V. The Pr. CIT-1, Vadodara

ITA 215/AHD/2022

AI Insights

The case involves the National Dairy Development Board (appellant) contesting an order by the Principal Commissioner of Income-tax, Vadodara-1 (respondent), which set aside the AO's assessment order for the Assessment Year 2017-18. The PCIT had invoked his revisionary powers under Section 263, claiming the AO's order was erroneous and prejudicial to the interest of the revenue as it did not properly examine the set off of brought forward long-term capital loss against short-term capital gain on the sale of a depreciable asset. The Tribunal, after reviewing the submissions and relevant judicial precedents, concluded that the AO's decision was correct and in line with the law, thus setting aside the PCIT's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133678 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-04-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 26-05-2022
• Other Referred Cases: CIT v. Polestar Industries, CIT v VS Dempo Company Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Revision of order; Opportunity of being heard; Right to appeal; Set aside; Capital Gains
• Section: 263; 2; 143(3)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘बी बीबी बी’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE MRS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No. 215/Ahd/2022 िनधा榁रणवष榁/Assessment Year: 2017-18 National Dairy Development Board, Post Box No. 40, Nr. Jagnath Mahadev Mandir, Anand-388001 PAN : AABCN 2029 C Vs. Principal Commissioner of Income-tax-1, Vadodara अपीलाथ牸 अपीलाथ牸अपीलाथ牸 अपीलाथ牸/ (Appellant) 灹瀄 灹瀄 灹瀄 灹瀄 यथ牸 यथ牸यथ牸 यथ牸/ (Respondent) Assessee by : Shri S.N. Soparkar, Sr. Advocate & Shri Parin Shah, AR Revenue by : Shri Sudhendu Das, CIT-DR सुनवाई क琉 तारीख/Date of Hearing : 13.04.2023 घोषणा क琉 तारीख /Date of Pronouncement: 12.07.2023 आदेश आदेशआदेश आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order passed by the learned Principal Commissioner of Income-Tax, Vadodara-1 [hereinafter referred to as “PCIT”] dated 31.03.2022, in exercise of his revisionary powers under Section 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year 2017-18. 2. The grounds raised by the assessee read as under: “1. The order passed by the Hon’ble PCIT is erroneous on facts and contrary to the provisions of law and therefore requires to be quashed. It is submitted that it be so held now. 1.1 The Hon’ble PCIT erred on facts and in law in holding that the order passed by the Assessing officer under section 143(3) of the Act was erroneous and in so far as it is prejudicial to the interest of revenue, thereby setting aside the aforesaid order with direction to pass fresh assessment order in respect of capital gain from sale of depreciable asset. It is submitted it be so held now. 2 ITA No. 215/Ahd/2022 National Dairy Development Board Vs. PCIT AY : 2017-18 1.2 The Hon’ble PCIT erred in facts and in law in invoking Explanation 2 to sub section (1) of section 263 of the Act even though the assessment order was passed after verification of facts and due application of mind in the assessment proceedings. It is submitted it be so held now. 1.3 The Hon’ble PCIT erred in not appreciating the fact that absence of discussion in does not tantamount non-verification of facts to make the order erroneous and in so far as it is prejudicial to the interest of revenue. It is submitted it be so held now. 1.4 The Hon’ble PCIT erred in not appreciating the fact that the view taken by the AO was a possible view supported by the Jurisdictional High Court order. It is submitted that it be so held now. 1.5 The Hon’ble PCIT erred in not appreciating the fact that the AO’s applying tax rate of 20% in the assessment order as against tax rate of 30% in the tax return, demonstrates AO’s application of mind. It is submitted that it be so held now. 2. The Hon’ble PCIT erred in facts and in law in not appreciating that deeming provision under section 50 of the Act has applicability only for computation of capital gain and such capital gain retains the character of long- term capital gain if conditions thereof are satisfied. It is submitted that it be so held now. 3. The Hon’ble PCIT erred in not following decision of Jurisdictional High Court in case of CIT v. Polestar Industries 221 Taxman 423 which is also affirmed by Supreme Court in case of CIT v VS Dempo Company Ltd 242 Taxman 434.” 3. As transpires from the order of the ld. PCIT, the revisionary power under Section 263 of the Act was exercised by him on noting the error in the order passed by the Assessing Officer that a palpable incorrect claim of set off of brought forward Long Germ Capital Loss against Short Term Capital Gain earned by the assessee during the year was not duly examined and verified during the assessment proceedings. 4. The Short Term Capital Gain related to that earned on sale of depreciable asset i.e. building (residential flat) forming part of the block of assets “Building-Residential in the fixed assets” and net capital gain was 3 ITA No. 215/Ahd/2022 National Dairy Development Board Vs. PCIT AY : 2017-18 returned by the assessee under Section 50 of the Act amounting to Rs.2,96,48,487/- .The brought forward Long Term Capital Loss set off against the same is Rs.93,63,291/-. These facts emanate from paragraph no. 2 of the ld. PCIT’s order as under:- “2. Subsequently, on verification of the case records, it was noticed that the assessee has sold depreciable asset i.e. building (residential flat) forming part of the Block of Assets “Building-Residential in the fixed assets” for a consideration of Rs.3,45,76,499/- during the F.Y. 2016-17 relevant to A.Y. 2017-18. On perusal of the computation of total income for the year under consideration, it was noticed that the assessee has worked out short-term capital gain on sale of depreciable assets (Building - Residential flat) at Rs.2,96,48,487/- and after claiming set off of brought forward long-term capital loss of Rs.93,63,291/-, the net taxable capital gain is shown at Rs.2,02,85,196/- . However, on perusal of the assessment order u/s 143(3) of the I.T. Act passed by the Assessing Officer on 22/11/2019, it was noticed that while computing the total income for the year under consideration, the Assessing Officer has taken the above mentioned short-term capital gain of Rs.2,02,85,196/- worked out on the sale of depreciable assets (building - residential flat) as Long-term Capital Gain. As per the provisions of Section 50 of the I.T. Act, the gain arising on transfer of depreciable assets shall be deemed to be the capital gain arising from the transfer of short-term capital assets. However, while finalizing the assessment, the Assessing Officer has taken the gain arisen on sale of the depreciable asset i.e. building (residential flat) as Long-term capital gain instead of Short-term capital gain as per the provisions of Section 50 of the I.T. Act. From the above facts, it was noticed that the Assessing Officer has not made verification of the above issue which should have been made during the course of assessment proceedings.” 5. On going through the contents of the order of the ld. PCIT and after hearing the arguments of the ld. Counsel for the assessee before us, we find that the exercise of power by the ld. PCIT for revising the order of the Assessing Officer was not in accordance with law as there was no error as such in the order of the Assessing Officer. 6. We have noted that the assessee had explained to the ld. PCIT during the revisionary proceedings that the facts relating to the issue had been completely disclosed to the Assessing Officer pointing out that the set off of 4 ITA No. 215/Ahd/2022 National Dairy Development Board Vs. PCIT AY : 2017-18 Long Term Capital Loss against Short Term Capital Gain was in accordance with judicially settled proposition of law in this regard by the Hon’ble jurisdictional High Court in the case of Polestar Industries in Tax Appeal No. 747 of 2013 and in the case of Aditya Medisales Ltd. in tax Appeal No. 730 of 2013. The assessee had explained that courts had held that section 50 creates a deeming fiction, treating depreciable assets as short term capital gains, and this deeming fiction is only for mode of computation of capital gain. That such depreciable assets, which otherwise qualify as long term assets cannot be denied other benefits due to long term capital assets. That accordingly the short term capital gain returned by the assessee, relating to depreciable assets was in the nature of long term capital gain and thus entitled to set off of brought forward long term capital losses against the same. That, therefore, the Assessing Officer had taken a plausible view in accepting the claim of the assessee. This contention was also made by the assessee before the ld. PCIT while stating that there was no error in the order of the Assessing Officer accepting assessee’s claim of set off of brought forward Long Term Capital Loss against Short Term Capital Gain earned by the assessee since it was in consonance with the decisions of the Hon’ble jurisdictional High Court on this issue. The ld. PCIT, we find, though takes note of these contentions of the assessee at paragraph nos. 7 & 8 of the order, however, still goes on to hold the assessment order passed to be erroneous on account of the fact that the Assessing Officer did not verify the claim of the assessee considering the relevant provisions of the Act and also keeping in view the decisions of the Hon’ble jurisdictional High Court. 6.1 Paragraph No.9 of ld. PCIT’s order reveals that, after holding the assessment order to be erroneous on this count, he restored the issue back to the Assessing Officer for verification of the claim of the assessee. The contents of paragraph No. 9 of the order of the ld. PCIT are as under:- 5 ITA No. 215/Ahd/2022 National Dairy Development Board Vs. PCIT AY : 2017-18 “9. Keeping in view of the specific facts of the case and submissions of the assessee, it is seen that the Assessing Officer has not verified the claim of the assessee considering the relevant specific provisions of the Act and also keeping in view of the decision of the Hon'ble Jurisdictional High Court. It is also seen that the Assessing Officer has not made any verification in respect of the correctness of the claim of the assessee regarding technical difficulties in the utility while filing the return of income as pointed out by the assessee and consequent claims made in the computation of income filed during the course of assessment proceedings. Accordingly, it is found that these issues needs verification and inquiries before allowing the claim which should have been made during the course of assessment proceedings. Therefore, the Assessing Officer in the assessment order u/s 143(3) of the I.T. Act for Asst. Year 2017- 18 has allowed the claim of the assessee without making inquiries or verification which should have been made in this regard and has thereby allowed relief without inquiring into the claim. Accordingly such assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, in terms of clause (a) of explanation 2 to Section 263(1) of the Income Tax Act. Therefore, the said assessment order is set aside with a direction to the Assessing Officer to pass a fresh assessment order after taking into consideration the issues as may have been already considered together with the issue discussed herein above also. The Assessing Officer is also directed verify as to whether the facts of the case are identical to the facts of the cases decided by the jurisdictional Hon'ble Gujarat High Court while passing the fresh assessment order. Needless, to mention that while passing the fresh assessment order, consequent to this order being passed under Section 263 of the I.T. Act, the Ld. AO shall grant reasonable and sufficient opportunity of being heard to the assessee.” 6.2 It is clearly evident that the ld. PCIT has recorded no infirmity in the contentions made by the assessee before him that there was no error in the assessment order in allowing set off of brought forward Long Germ Capital Loss against Short Term Capital Gain returned u/s 50 of the Act since it was accordance with law. For that matter even the Ld. DR was unable to contradict the contention of the assessee that its claim was in accordance with law as interpreted by the Hon’ble jurisdictional High Court. 6.3 Besides the Ld. Counsel for the assessee has placed before us copies of the decision of the hon’ble Jurisdictional High Court in the case of Aditya Sales (supra) and Polestar Industries(supra) relied upon by the assessee in 6 ITA No. 215/Ahd/2022 National Dairy Development Board Vs. PCIT AY : 2017-18 support of its contention that its claim of set off of brought forward long term capital loss against short term capital gain returned u/s 50 of the Act was in accordance with law. We have gone through the same and we agree with the Ld. Counsel for the assessee that it has been held in the said decisions that section 50 of the Act is a deeming fiction treating capital gains on sale of depreciable assets as short term capital gains irrespective of their period of holding which otherwise qualifies assets as long term/short term. The Hon’ble jurisdictional high Courts has categorically held that the fiction created in the said section cannot be extended to deny benefit to which assets qualifying as long term are otherwise entitled on account of their said status. Besides copy of the decision of the Hon’ble apex court affirming this proposition of law in the case of Commissioner of Income Tax vs V.S. Dempo Company Ltd.(2016) 74 taxmann.com 15 (SC), was also placed before us, along with other decisions of High Courts and the ITAT holding so. 6.4 Surely therefore there is complete absence of finding of any error by the Ld. PCIT in the order of the AO with respect to the issue involved. Also the assessee has demonstrated before us its claim being in accordance with law, which has remained uncontroverted by the Ld. DR. Therefore we are in agreement with the Ld. Counsel for the assessee that the AO had allowed the claim taking a plausible view on the issue and in such circumstances there is no scope for invocation of revisionary powers u/s 263 of the Act by the Ld.PCIT, since the finding of error is essential for invoking the said power and AO taking a plausible view on the matter, his order cannot be said to be erroneous so as to cause prejudice to the Revenue. The Hon’ble apex court has laid down that where AO takes a plausible view there cannot be said to be any error in his order so as to invoke revisionary powers u/s 263 of the Act in the case of Kwality Steels 395 ITR 1(SC). 7 ITA No. 215/Ahd/2022 National Dairy Development Board Vs. PCIT AY : 2017-18 6.5 For this reason alone, the order passed by the ld. PCIT needs to be set aside being not in accordance with the powers given to him under Section 263 of the Act ,having been exercised without finding any error in the order of the Assessing Officer. 7. We have noted that ld. PCIT has exercised his revisionary power only for the purpose of verifying the claim of the assessee. It is settled law that powers under Section 263 of the Act cannot be exercised for verification purposes. Section 263 of the Act gives special powers to Commissioners / PCITs to correct the errors in the orders of the Assessing Officer since the Revenue has no right of appeal against the order passed by the Assessing Officer. Therefore, this power clearly can be exercised only when there is an error noted in the order of the Assessing Officer. It cannot be exercised for verification purposes dehors finding of any error. Our view is supported by the decision of the Hon’ble Allahbad High Court in the case of Meerut Flour Mills (P) (Ltd. Vs CIT (2020) 420 ITR 216. 8. In view of the same, we unhesitatingly hold that the present order passed by the ld. PCIT is not tenable in law and we direct the same to be set aside. 9. In effect, the appeal of the assessee is allowed. Order pronounced in the open Court on 12/07/2023 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 12/07/2023 **bt 8 ITA No. 215/Ahd/2022 National Dairy Development Board Vs. PCIT AY : 2017-18 आदेश आदेशआदेश आदेश क琉 क琉क琉 क琉 灹ितिलिप 灹ितिलिप灹ितिलिप 灹ितिलिप अ灡ेिषत अ灡ेिषतअ灡ेिषत अ灡ेिषत/Copy of the Order forwarded to : 1. अपीलाथ牸 अपीलाथ牸अपीलाथ牸 अपीलाथ牸 / The Appellant 2. 灹瀄यथ牸 灹瀄यथ牸灹瀄यथ牸 灹瀄यथ牸 / The Respondent. 3. संबंिधत संबंिधतसंबंिधत संबंिधत आयकर आयकरआयकर आयकर आयु猴 आयु猴आयु猴 आयु猴 / Concerned CIT 4. आयकर आयकरआयकर आयकर आयु猴 आयु猴आयु猴 आयु猴)अपील अपीलअपील अपील (/ The CIT(A)- 5. िवभागीय िवभागीयिवभागीय िवभागीय 灹ितिनिध 灹ितिनिध灹ितिनिध 灹ितिनिध ,आयकर आयकरआयकर आयकर अपीलीय अपीलीयअपीलीय अपीलीय अिधकरण अिधकरणअिधकरण अिधकरण,/DR,ITAT, Ahmedabad, 6. गाड榁 गाड榁गाड榁 गाड榁 फाईल फाईलफाईल फाईल /Guard file. आदेशानुसार आदेशानुसारआदेशानुसार आदेशानुसार/ BY ORDER, TRUE COPY सहायक सहायकसहायक सहायक पंजीकार पंजीकारपंजीकार पंजीकार (Asstt. Registrar) आयकर आयकरआयकर आयकर अपीलीय अपीलीयअपीलीय अपीलीय अिधकरण अिधकरणअिधकरण अिधकरण ITAT, Ahmedabad 1. Date of dictation ......12.07.2023........ 1. Date on which the typed draft is placed before the Dictating Member :..... 12.07.2023...... 2. Other Member...12.07.2023... 3. Date on which the approved draft comes to the Sr.P.S./P.S....12.07.2023................ 4. Date on which the fair order is placed before the Dictating Member for pronouncement...12.07.2023... 5. Date on which the fair order comes back to the Sr.P.S./P.S......12.07.2023............. 6. Date on which the file goes to the Bench Clerk......12.07.2023.......... 7. Date on which the file goes to the Head Clerk....... 8. The date on which the file goes to the Assistant Registrar for signatureon the order............ 9. Date of Despatch of the Order..................