MAGUMPS, MUMBAI V. ACIT 17(2), MUMBAI

ITA 2184/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5933 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 09-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R W RAHEJA
• Keywords: Depreciation; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI RAVISH SOOD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2184 /MUM/2018 ASSESSMENT YEAR: 2010 - 1 1 MAGUMPS, TRISANDHYA A, 2 ND FLOOD, 97 D.S. PHALKE, ROAD, DADAR, EAST, MUMBAI - 400014. VS. ACIT - 17(2), PIRAMAL CHAMBERS, PAREL, MUMBAI - 400012. PAN NO. AAAFM6077D APPELLANT RESPONDENT ASSESSEE BY : MR. R.W. RAHEJA , AR REVENUE BY : MR. RAJESH OJHA, DR DATE OF HEARING : 23/07/2019 DATE OF PRONOUNCEMENT : 29/07/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 201 0 - 1 1 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF T HE COMMISSIONER OF INCOME TAX - 32 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE 1 ST GROUND OF APPEAL THE LD. CIT HAS ERRED IN UPHOLDING THE ADDITION OF RS.11,74,789/ - BEING WDV OF OFFICE PREMISES AS A SHORT TERM CAPITAL GAIN AS HELD BY THE ACIT MAGUMPS TRISANDHYA ITA NO. 2184 /MUM/2018 2 AND IN NOT CONSIDERING THE SAME IN WDV OF BUILDING BLOCK. HE HAS MISCONSTRUED THAT THERE ARE WHO BLOCKS ONE OF T HE WAREHOUSE AND THE OTHER OF OFFICE PREMISES WITHIN THE SAME BLOCK OF BUILDINGS. THE APPELLANTS SUBMIT THAT THESE ARE TWO CLASS OF ASSETS WITHIN THE BLOCK OF BUILDING AND THE WDV OF RS.14,84,322/ - OF WAREHOUSE AND OFFICE PREMISES HAS BEEN RIGHTLY DEDUCTED FROM THE SALE PRICE OF THE WAREHOUSE WHILE CALCULATING THE SHORT TERM CAPITAL GAIN. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE - COMPANY IS A DEALER IN PHARMACEUTICAL MACHINERY AND EQUIPMENTS. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2010 - 11 ON 01.10.2010 DECLARING TOTAL INCOME OF RS.66,98,983/ - . DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE SOLD THE WAREHOUSE FOR RS.65,68,800/ - , WHICH WAS PURCHASED BY THEM SEVERAL YEARS BACK AND FORMED ONE OF THE ASSETS IN THE BLOCK OF BUILD ING ALONG WITH AN OFFICE PREMISE, ON WHICH IT WAS CLAIMING DEPRECIATION YEAR AFTER YEAR @ 10%. THE WDV OF THE OFFICE PREMISES AS ON 31.04.2009 WAS RS.11,74,789/ - AND THE WDV OF THE WAREHOUSE (WHICH WAS SOLD) WAS RS.3,09,533/ - AGGREGATING TO RS.14,824,322/ - . THE ASSESSEE, WHILE CALCULATING THE SHORT TERM CAPITAL GAIN OF THE WAREHOUSE SOLD, DEDUCTED THE ENTIRE WDV OF RS.14,84,322/ - WHICH WAS THE AMOUNT UNDER THE BLOCK BUILDINGS FROM THE SALE PRICE OF RS.65,68,800/ - AND ARRIVED AT THE SHORT TERM CAPITAL GAI NS OF RS.50,19,478/ - . HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE CALCULATION OF THE ASSESSEE AND DEDUCTED THE WDV OF WAREHOUSE ONLY FROM THE SALE PRICE OF WAREHOUSE AND NOT DEDUCTE D THE WDV OF THE ENTIRE BLOCK O N THE GROUND THAT (I) EVEN THOUGH BOTH OFFICE PREMISES AND WAREHOUSE ARE MAGUMPS TRISANDHYA ITA NO. 2184 /MUM/2018 3 ENTITLED FOR THE SAME RATE OF DEPRECIATION I.E. 10%, THE ASSESSEE HAS SHOWN THEM FORMING TWO SEPARATE BLOCKS TREATING OFFICE PREMISES AND WAREHOUSE AS DIFFERENT CLASS OF ASSETS, (II) ONLY TO GAIN BENEFIT OF PROVISIONS OF SECTION 50 WHICH ALLOWS FOR DEDUCTION OF OPENING WDV OF THE ENTIRE BLOCK, IF A DEPRECIABLE ASSET IS SOLD, FROM THE SALE CONSIDERATION AND CONSEQUENTLY REDUCED THE SHORT TERM CAPITAL GAIN, THE ASSESSEE IS ATTEMPTING TO TREAT OFFICE PREMISES AND WAREHOUSE AS CONSTITUTING THE SAME BLOCK, WHICH IS AN ATTEMPT TO AVOID THE TAX LIABILITY, (III) THE FACT THAT OFFICE PREMISES AND WAREHOUSE HAVE BEEN TREATED AS TWO SEPARATE BLOCKS BY THE ASSESSEE IS CLEAR FROM THE FACT THAT IN PRIOR YEARS ALSO OFFICE PREMISES AND WAR EHOUSE HAVE BEEN SHOWN SEPARATELY AND ANY ADDITION ON ACCOUNT OF OFFICE PREMISES OR WAREHOUSE IS NOT MADE TO A CONSOLIDATED BLOCK BUT TO THEIR RESPECTIVE BLOCKS, AND (IV) THE DEPRECIATION SCHEDULE FILED BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR SHOW S THAT WHILE THE BLOCK CONSISTING OF THE WAREHOUSE CEASES TO EXIST AT THE END OF THE YEAR, THE BLOCK CONTAINING OFFICE PREMISES IS STILL SHOWN AT THE END OF THE YEAR WITH CLOSING WDV AT RS.10,57,310/ - AND EVEN IN THE FIXED ASSET SCHEDULE FOR AY 2011 - 12, TH E BLOCK CONSISTING OF OFFICE PREMISES CONTINUES TO EXIST AND DEPRECIATION ON THE SAME HAS BEEN SHOWN BY THE ASSESSEE. THEREFORE, THE AO CONCLUDED THAT THE SUBMISSION OF THE ASSESSEE WAS INCORRECT AND THUS MADE AN ADDITION OF RS.11,74,789/ - TO THE CAPITAL GAIN SHOWN BY THE ASSESSEE. IN APPEAL, THE LD. CIT(A) AGREED WITH THE REASONS GIVEN BY THE AO AND DISMISS ED THE APPEAL FILED BY THE ASSESSEE. MAGUMPS TRISANDHYA ITA NO. 2184 /MUM/2018 4 4. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILE S A PAPER BOOK (P/B) CONTAINING INTER ALIA (I) COMPUTATION OF INCOME FOR ASST. YEAR 2003 - 04 TO 2010 - 11 TOGETHER WITH PROFIT AND LOSS A/C , BALANCE SHEET, FIXED ASSET SCHEDULE SHOWING DEPRECIATION EACH YEAR, (II) SCHEDULE DOA DEPRECIATION ON OTHER ASSETS AS IN THE RETURN OF INCOME FOR ASST. YEAR 2008 - 09, 2009 - 10 & 2 010 - 11, (III) STATEMENT OF DEPRECIATION SHOWING NON - CLAIM OF DEPRECIATION ON BUILDING BLOCK OF ASST. YEAR 2010 - 11, (IV) WORKING OF WDV WAREHOUSE AND COMPUTATION OF INCOME FOR ASST. YEARS 2008 - 09 AND 2009 - 10, (V) STATEMENT OF DEPRECIATION AND FIXED ASSET SCHEDULE FOR ASST. YEAR 1999 - 2000 TO ASST. 2010 - 11, (VI) STATEMENT OF DEPRECIATION AND COMPUTATION OF INCOME FOR ASST. YEAR 2016 - 17, 2017 - 18 & 2018 - 19 SHOWING DEPRECIATION NOT CLAIMED ON OFFICE PREMISES AND (VII) DIRECT TAXES LAW & PRACTISE PROFESSIONAL EDITION COMMENTARY ON BLOCK OF ASSETS AND COST OF ACQUISITION ON DEPRECIATION ASSETS BY DR. VINOD K. SINGHANIA. THE LD. COUNSEL FURTHER SUBMITS THAT THE AO HAS ERRED IN DEDUCTING THE WDV OF WAREHOUSE ONLY FROM THE SALE PRICE OF WAREHOUSE, WHICH IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 50(1) OF THE ACT. IT IS STATED THAT THE ASSESSEE BEFORE FILING THE RETURN OF INCOME HAD WHILE DETERMINING THE DEEMED SHORT - TERM GAIN ONLY TOOK INTO CONSIDERATION THE WDV OF THE WAREHOUSE AS APPEARING IN THE BOOKS OF ACCOUNTS AND PAID SELF - ASSESSMENT TAX ACCORDINGLY. SUBSEQUENTLY, BEFORE FILING THE RETURN OF INCOME, THE ASSESSEE REALIZED THE MISTAKE AND DEDUCTED THE WDV OF THE ENTIRE BLOCK OF BUILDINGS AND CLAIMED REFUND OF RS.3,94,861/ - PAID IN EXCESS OF SELF - ASS ESSMENT . IT IS STATED THAT THE AO MISCONSTRUED THAT THE BLOCK IS OF BUILDINGS, IN WHICH IS COMPRISED THE MAGUMPS TRISANDHYA ITA NO. 2184 /MUM/2018 5 WDV OF OFFICE PREMISES OF RS.11,74,789/ - AND WAREHOUSE OF RS.3,09,533/ - . IT IS FURTHER STATED THAT BOTH ARE CLASS OF ASSETS IN THE SAME BLOCK OF BUI LDING. ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE INSTANT CASE, THE ASSESSEE SOLD THE WAREHOUSE DURING THE IMPUGNED ASSESSMENT YEAR FO R RS.65,68,800/ - WHICH WAS PURCHASED SEVERAL YEARS BACK AND FORMED ONE OF THE ASSETS IN THE BLOCK OF BUILDING ALONG WITH AN OFFICE PREMISE ON WHICH IT WAS CLAIMING DEPRECIATION @ 10%. THE WDV OF THE OFFICE PREMISES AS ON 01.04.2009 WAS RS.11,74,789/ - AND WDV OF THE WAREHOUSE (WHICH WAS SOLD) WAS RS.3,09,533/ - AGGREGATING TO RS.14,84,322/ - . THE ASSESSEE, WHILE CALCULATING THE SHORT TERM CAPITAL GAINS OF THE WAREHOUSE SOLD, DEDUCTED THE ENTIRE WDV OF RS.14,84,322/ - WHICH WAS THE AMOUNT UNDER THE BLOCK BUIL DINGS FROM THE SALE PRICE OF RS.65,68,800/ - AND ARRIVED AT SHORT TERM CAPITAL GAINS OF RS.50,19,478/ - . HOWEVER, THE AO HAS DEDUCTED THE WDV OF WAREHOUSE ONLY FROM THE SALE PRICE OF WAREHOUSE AND NOT DEDUCTED THE WDV OF THE ENTIRE BLOCK. WE ARE OF THE CONS IDERED VIEW THAT SINCE THE BLOCK OF ASSETS UNDER THE BLOCK BUILDINGS COMPRISED OF OFFICE AND THE WAREHOUSE, THE ASSESSEE HAS RIGHTLY DEDUCTED THE WDV COMPRISED IN THE ENTIRE BLOCK OF BUILDINGS AS PER SECTION 50(1) OF THE ACT. AS PER SECTION 32 OF THE A CT, THE DEPRECIATION IS ALLOWABLE ON ENTIRE BLOCK @ 10% ON BUILDINGS. THUS WE FIND THAT THE TREATMENT GIVEN BY THE AO IN DEDUCTING THE WDV FROM THE SALE PRICE OF MAGUMPS TRISANDHYA ITA NO. 2184 /MUM/2018 6 WAREHOUSE IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 50(1) OF THE ACT. IN VIEW OF THE ABOVE POSITION OF LAW, WE DELETE THE ADDITION OF RS.11,74,789/ - MADE BY THE AO ,SUBSEQUENTLY CONFIRMED BY THE LD. CIT(A). THUS THE 1 ST GROUND OF APPEAL IS ALLOWED. 6. THE 2 ND GROUND OF APPEAL THE LD. CIT HAS ERRED IN UPHOLDING THE WDV OF THE WAREHOUSE AT RS.2,50,721/ - AND IN NOT ACCEPTING THE OPENING WDV AT RS.3,09,533/ - AND IN THUS ADDING RS.58,812/ - TO THE CAPITAL GAINS ACCOUNT OF INCORRECT DEPRECIATION CLAIM. THE APPELLANTS SUBMIT THAT THEY HAD NOT CLAIMED THE DEPRECIATION FOR ASSESSMENT YE AR 2008 - 09 AND 2009 - 10 WHILE CALCULATING THE INCOME FROM HOUSE PROPERTY HENCE THE OPENING WDV OF RS.3,09,533/ - IS CORRECT. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IN RESPONSE TO A QUERY RAISED BY THE AO, THE ASSESSEE FILED COPIES OF PURCHASE AND SALE AGREEMENT OF THE WAREHOUSE SOLD DURING THE YEAR. THE WAREHOUSE WAS PURCHASED ON 17.02.1993 FOR A CONSIDERATION OF RS.5,86,500/ - . THE AO OBSERVED THAT EVEN WHEN ADDITION OF RS.2,67,750/ - IS MADE TO THE BLOCK OF WAREHOUSE IN AY 2001 - 02, THE OPENING WDV OF RS.3,09,533/ - AS ON 01.04.2009 SHOWN BY THE ASSESSEE APPEARS TO BE LESS. THE ASSESSEE SUBMITTED BEFORE THE AO THAT IT MIGHT NOT HAVE CLAIMED DEPRECIATION FOR SOME YEARS AS THE SAME IS OPTIONAL. HOWEVER, THE AO FOUND THE EXPLANATION NOT SATISFACTORY BEC AUSE AS PER EXPLANATION 5 TO SECTION 32(1)(III), DEPRECIATION HAS TO BE NECESSARILY ACCOUNTED FOR IN THE COMPUTATION OF INCOME, WHETHER THE ASSESSEE HAS CLAIMED IT OR NOT FOR MAGUMPS TRISANDHYA ITA NO. 2184 /MUM/2018 7 AY 2003 - 04 I.E. W.E.F. 01.04.2002. THE ASSESSEE HAS SHOWN OPENING WDV ON 01.04.20 09 AS RS.3,09,533/ - WHEREAS AS PER THE COMPUTATION BY THE AO THE ACTUAL SHOULD HAVE BEEN RS.2,50,721/ - . THE AO THUS BROUGHT TO TAX RS.58,812/ - (RS.3,09,533/ - MINUS RS.2,50,721/ - ). IN APPEAL, THE LD. CIT(A) AGREED WITH THE ORDER OF THE AO. 8. BEFORE US, T HE LD. COUNSEL SUBMITS THAT THE ASSESSEE HAD SHOWN WDV OF WAREHOUSE AT RS.3,09,533/ - AS ON 01.04.2009 BUT THE AO HAS TAKEN THE SAME AT RS.2,50,921/ - AND ADDED BACK THE DIFFERENCE OF RS.58,812/ - AS CAPITAL GAIN. IT IS EXPLAINED THAT THE ASSESSEE HAD RENTED OUT THE WAREHOUSE IN THE FY 2007 - 08 AND 2008 - 09 AND HENCE NOT CLAIMED THE DEPRECIATION OF RS.58,812/ - FOR THOSE YEARS. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THERE IS MERIT IN THE CONTENTIONS OF THE LD. COUNSEL THAT THE ASSESSEE HAD RENTED OUT THE WAREHOUSE IN FINANCIAL YEAR 2007 - 08 AND 2008 - 09 AND HENCE NOT CLAIMED DEPRECIATION O F RS.58,812/ - FOR THOSE YEARS. THIS IS EVIDENT FROM THE RECORD. THEREFORE, WE DELETE THE ADDITION OF RS.58,812/ - MADE BY THE AO AND ALLOW THE 2 ND GROUND OF APPEAL. MAGUMPS TRISANDHYA ITA NO. 2184 /MUM/2018 8 10. THE 3 RD GROUND OF APPEAL THE LD. CIT HAS ERRED IN UPHOLDING THE ADDITION OF RS.1,06 ,687/ - ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK AND IN NOT ACCEPTING THE SUBMISSION MADE BY THE APPELLANTS. 11 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS MADE PURCHASES OF RS.1,32,82,970/ - , OPENING STOCK OF RS.5,40,733/ - AND CLOSING STOCK OF RS.3,11,198/ - . FURTHER, THE ASSESSEE HAS MADE PURCHASES OF RS.43,52,485/ - DURING JANUARY 2010 TO MARCH 2010. THE AO FOUND FROM ITEM WISE VERIFICATION OF SALES AND CLOSING STOCK THAT THERE ARE CERTAIN ITEMS WHICH HAVE BEEN PURCHASED DURING JANUARY 2010 TO MARCH 2010, HOWEVER, THOSE ITEMS ARE NEITHER REFLECTED IN SALES NOR IN CLOSING STOCK. AS THE ASSESSEE FAILED TO EXPLAIN THE ABOVE DISCREPANCY, THE AO MADE AN ADDITION OF RS.1,06,687/ - . IN APPEAL, THE LD. CIT( A) AGREED WITH THE REASONS GIVEN BY THE AO AND CONFIRMED THE ADDITION OF RS.1,06,687/ - . 12. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS A LIST OF PURCHASES AND CORRESPONDING SALE AND PURCHASE REGISTER SUMMARY FOR JANUARY 2010 TO MARCH 2010, DETAILS OF PURCHASES FROM JANUARY 2010 TO MARCH 2010 AND COPIES OF THREE BILLS OF STANDARD PACKERS & MOVERS AND LIST OF BUYERS AND SUPPLIERS FOR WHOM STANDARD PACKERS & MOVERS DID PACKING. THE LD. COUNSEL SUBMITS THAT THE AO FAILED TO APPRECIATE THAT THESE COMP RISE OF PETTY ITEMS TOTALLING TO RS.9791/ - WHICH ARE CONSUMED OR USED IN SERVICE WARRANTIES. THE BALANCE AMOUNT OF RS.96,896/ - PERTAINS MAGUMPS TRISANDHYA ITA NO. 2184 /MUM/2018 9 TO PACKING CHARGES/MATERIALS FROM STANDARD PACKERS & MOVERS WHICH IS CONSUMED IN THE PACKING OF THE GOODS SOLD. IT IS ST ATED THAT SUCH ITEMS CANNOT BE BUILT SEPARATELY TO CUSTOMERS AND HENCE NOT REFLECTED IN SALES AND FURTHER SINCE THESE ARE ALREADY CONSUMED IN THE SALES OF THE GOODS, THEY DO NOT APPEAR IN THE CLOSING STOCK EITHER. ON THE OTHER HAND, THE LD. DR SUPPORTS T HE ORDER PASSED BY THE LD. CIT(A). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IT IS FOUND THAT PETTY ITEMS TOTALLING TO RS.9,791/ - WERE CONSUMED OR USED IN SERVICE WARRANTIES. THE BALANCE AMOUNT OF RS.96,896/ - PER TAINS TO PACKING CHARGES/MATERIALS FROM STANDARD PACKERS & MOVERS, WHICH IS CONSUMED IN THE PACKING OF THE GOODS SOLD. THERE IS MERIT IN THE CONTENTIONS OF THE LD. COUNSEL THAT SUCH ITEMS CANNOT BE BILLED SEPARATELY TO CUSTOMERS AND HENCE NOT REFLECTED IN SALES. FURTHER, SINCE THESE ARE ALREADY CONSUMED IN THE SALES OF GOODS, THEY DO NOT APPEAR IN THE CLOSING STOCK EITHER. CONSIDERING THE ABOVE FACTS, WE DELETE THE DISALLOWANCE OF RS.1,06,687/ - MADE BY THE AO AND ALLOW THE 3 RD GROUND OF APPEAL. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/07/2019. SD/ - SD/ - (RAVISH SOOD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; MAGUMPS TRISANDHYA ITA NO. 2184 /MUM/2018 10 DATED: 29/07/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI