INDIA SECURITIES LTD, MUMBAI V. ACIT RG 5(2), MUMBAI

ITA 2591/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8628 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 27-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 22-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRITAM SINGH
• Keywords: Capital asset; Depreciation; Rule of consistency; Earning of tax free income; Cost of acquisition; Bad and doubtful debts
• Section: 14A; 6; 15

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI BEFORE SHRI RAJENDRA SINGH , AM AND SHRI VIJAY PAL RAO , JM ITA NO. 2591 / MUM/ 20 09 ( ASSESSMENT YEAR : 200 5 - 200 6 ) INDIA SECURITIES LTD., ESSAR HOUSE, K.K. MARG, MAHALAKSHMI, MUMBAI - 400 034. VS. D CIT RG. 5 ( 2 ), MUMBAI PAN/GIR NO. : AAA C I 9010 K ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO.2 818 /MUM/2009 ( ASSESSMENT YEAR : 200 5 - 200 6 ) D CIT RG.5 ( 2 ), MUMBAI VS. INDIA SECURITIES LTD., ESSAR HOUSE, K.K. MARG, MAHALAKSHMI, MUMBAI - 400 034. PAN/GIR NO. : AAA CI 9010 K ( APPELLANT ) .. ( RESPONDENT ) /A SSESSEE BY : MR. VIJAY MEHTA /RE VENUE BY : MR. PRITAM SINGH DATE OF HEARING : 2 7 TH SEPT.2 012 DATE OF PRONOUNCEMENT : 10 TH OCT.,2012 O R D E R PER VIJAY PAL RAO J M : THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 25 - 2 - 2009 OF CIT (A) FOR THE ASSESSMENT YEAR 2005 - 0 6 . 2 ITA NO S . 2591&2818 /20 09 2 . IN ITA NO.2591/MUM/2009 , T HE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : - 1. DISALLOWANCE OF BAD DEBTS : RS.1,09,15, 879/ - 1. THE LEARNED CIT - (A) ERRED IN PARTLY CONFIRMING THE DISALLOWANCE OF BAD DEBTS WRITTEN OFF TO THE EXTENT OF RS.1,09,15,879 REPRESENTING INTEREST FEE LOANS WHICH HAD BEC OME IRRECOVERABLE. 2. DISALLOWANCE U/S 14A - INTEREST PAYMENT: RS.38,77,405 2. THE LEARNED CIT(A) - V ERRED IN DIRECTING THE ASSESSING OFFICER TO RE - COMPUTE THE DISALLOWANCE U/S 14A OF RS.38,77,405/ - IN ACCORDANCE WITH THE PROVISIONS OF RULE 8D WITHOUT APPR ECIATING THE FACT THAT THE APPELLANT COMPANY WAS ENGAGED IN INDIVISIBLE BUSINESS ACTIVITIES. 3. DISALLOWANCE OF PRIOR PERIOD EXPENSES : RS.47,970 3. THE LEARNED CIT - (A) ERRED IN CONFIRMING THE DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.47,970. 3 . TH E ASSESSEE HAS RAISED GROUND NO.1 IN REGARD TO DISALLOWANCE OF BAD DEBTS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE WRITTEN OFF BAD DEBTS OF RS.6,07,94,350/ - DURING THE YEAR UNDER CONSIDERATION OUT OF WHICH AMOUNT OF RS.5,53,94,320/ - HAS BEEN ADJUSTED AGAINST THE PROVISION FOR THE BAD DEBTS. THE ASSESSEE CLAIMED THE ENTIRE AMOUNT AS ALLOWABLE DEDUCTION AS PER THE PROVISION UNDER SECTION 36(1)(VII) OF THE INCOME TAX ACT. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE CLAIM OF BA D DEBT S WRITTEN OFF CAN BE ALLOWED. THE ASSESSEE FILED ITS WRITTEN SUBMISSION AND CONTENDED THAT AFTER THE AMENDMENT TO SECTION 36(1)(VII) OF THE ACT, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT DEBTS HAVE BECOME BAD BEFORE THE SAME CAN BE WRITTEN OFF BY THE ASSESSEE. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HELD THAT MERELY WRITING OFF 3 ITA NO S . 2591&2818 /20 09 THE DEBTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IS NOT SUFFICIENT TO MAKE THE CLAIM UNDER SECTION 36(1)(VII) OF THE ACT. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT ESTABLISHED THE NEXUS BETWEEN DEBTS AND DISCLOSURE OF INCOME IN THE EARLIER YEARS . FURTHER , NO EVIDENCE O R DETAILS OF THE DEBTORS WERE FILED TO SHOW THE STATUS OF VIABILIT Y OF RECOVERY. 3.1 ON APPEAL, THE CIT(A) HELD THAT THE DEBTS OF RS.3,98,89,572/ - AROSE IN THE BUSINESS OF LEASING AND HIRE PURCHASE. SIMILARLY, THE DEBTS OF RS.1,00,00,868/ - AROSE ON VARIOUS AMOUNTS ADVANCED BY THE ASSESSEE COMPANY DURING ITS BILL DISCOU NTING BUSINESS OR ADVANCES GIVEN ON INTEREST. THEREFORE, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS.4,98,78,440/ - . FURTHER, IT WAS FOUND BY THE CIT(A) THAT THE AMOUNT OF RS.1,09,15,879/ - PERTAINING TO EIGHT PARTIES WERE GIVEN BY THE A SSESSEE ON ACCOUNT OF INTEREST FREE FUNDS. THE CIT(A) HELD THAT THE ADVANCING INTEREST FREE LOAN CANNOT BE THE BUSINESS OF THE ASSESSEE AND ACCORDINGLY THE SAID AMOUNT OF RS.1,09,15,879/ - WRITTEN OFF BY THE ASSESSEE CANNOT BE ALLOWED AS DEDUCTION AS PER TH E PROVISIONS OF SECTION 36(1)(VII) OF THE ACT. SINCE THE CIT(A) HAS GIVEN PARTIAL RELIEF TO THE ASSESSEE, THEREFORE, BOTH THE ASSESSEE AS WELL AS REVENUE ARE AGGRIEVED BY THE ORDER OF CIT(A) ON THIS ISSUE. SINCE THIS ISSUE IS COMMON IN BOTH THE APPEALS , BE ING GROUND NO.1, THEREFORE, WE TAKE THE GROUND NO.1 IN BOTH THE APPEALS TOGETHER. 4 ITA NO S . 2591&2818 /20 09 3.2 BEFORE US, THE LEANED AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF LEASING, HIRE , PURCHASE, MONEY LENDING AND BUSINESS OF FINANCE, WHICH HAS BEEN ACCEPTED BY THE CIT(A) AS WELL AS BY THE ASSESSING OFFICER. HE HAS REFERRED COLUMN NO.10 OF THE PROFORMA OF THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSEES BUSINESS HAS BEEN SOWN AS LEASING, HIRE, PURCHASE, INVESTMENT ETC. HE HAS FURTHER POINTE D OUT THAT THE CIT(A) IN PARA 6 OF THE IMPUGNED ORDER HAS ACCEPTED THAT THE ASSESSEE IS ENGAGED IN MONEY LENDING BUSINESS AND BUSINESS OF FINANCE. LEARNED AR OF THE ASSESSEE HAS REFERRED THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IN P ARA 5.2 OF THE ASSESSMENT ORDER AND SUBMITTED THAT WHERE POSSIBLE THE ASSESSEE HAS RECOVERED MONEY EITHER AS PART SETTLEMENT OR FULL SETTLEMENT AND RETURN THE SAME FOR TAX UNDER SECTION 41. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE SERVED LEGAL NOTICE TO ALL THE DEFAULTED PARTIES AND ALSO FILED CASE S BEFORE THE COURTS, ARBITRATION PROCEEDINGS INITIATED ALONG WITH POLICE COMPLAINT AND IN SOME CASES IT WAS ALSO FOUND THAT THE DIRECTORS OF THE COMPANIES WERE ALREADY PUT BEHIND BARS FOR SUCH DEFAULTS. THUS, TH E LEARNED AR HAS SUBMITTED THAT THE ASSESSEE MADE ALL POSSIBLE EFFORTS TO RECOVER THE AMOUNT AND ACCORDINGLY CONSIDERED THESE AMOUNTS AS IR RECOVERABLE AND THE DECISION TO WRITE OFF AS BAD DEBTS WAS TAKEN BY THE BOARD OF DIRECTORS IN CONSULTATION WITH THE L EGAL ADVISORS AND AUDITORS OF THE ASSESSEE COMPANY. LEARNED AR HAS POINTED OUT THAT THE FIRST CATEGORY OF THE 5 ITA NO S . 2591&2818 /20 09 DEBTORS IS IN RESPECT OF THE LEASING TRANSACTIONS AMOUNTING TO RS.3,98,89,572/ - , WHICH IS COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES O WN CASE FOR THE ASSESSMENT YEAR 2002 - 03 & 2004 - 05. HE HAS FURTHER SUBMITTED THAT THE SECOND CATEGORY OF THE DEBTORS REPRESENTING THE LOAN AND ADVANCES ON WHICH THE INTEREST WAS CHARGED AND, THEREFORE, THE CONDITIONS AS PRESCRIBED UNDER SECTION 36(2) ARE FU LFILLED. THUS, THE LEARNED AR HAS SUBMITTED THAT THIS CATEGORY OF DEBTORS IS ALSO COVERED BY THE ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEAR S 2001 - 02, 2002 - 03 & 2004 - 05. THE THIRD CATEGORY OF THE DEBTORS REPRESENTING THE ADVANCE AMOUNT ON WHICH NO INTER EST OR LEASE RENT WAS RECEIVED B Y THE ASSESSEE. LEARNED AR HAS SUBMITTED THAT THE ADVANCE WAS GIVEN BY THE ASSESSEE IN THE COURSE OF THE BUSINESS. SINCE THE PRINCIPAL WAS ITSELF DOUBTFUL, THEREFORE, THERE WAS NO PURPOSE OF BOOKING THE INTEREST OR LEASE REN T AS INCOME. LEARNED AR HAS FURTHER SUBMITTED THAT THE CIT(A) HAS DISALLOWED THE CLAIM IN RESPECT OF EIGHT ITEMS/PARTIES OUT OF WHICH THE ADVANCE IN RESPECT OF FIRST THREE PARTIES, NAMELY, KARVIV A RSHINI INVESTMENTS LIMITED, ATIPURA INVESTMENTS AND VLS CAPI TAL LIMITED, REPRESENTING THE BEING CORPORATE DEPOSIT AVAILED BY THE FIRST AND SECOND PARTY, WHEREAS THE AMOUNT DUE AGAINST THE THIRD PARTY IS WITH RESPECT OF THE LEASE RENTALS FOR PHYSICAL FITNESS EQUIPMENTS WERE LEASED OUT TO THE EXTENT OF RS.75,33,000/ - . THEREFORE, IT IS CLEAR THAT ALL THESE ADVANCES/LEASE RENTAL/EQUIPMENTS WERE GIVEN TO THE PARTIES IN THE ORDINARY COURSE OF THE BUSINESS OF THE 6 ITA NO S . 2591&2818 /20 09 ASSESSEE. LEARNED AR HAS FURTHER CONTENDED THAT WITH RESPECT TO THE ICD AVAILED BY THE FIRST TWO PARTIES, THIS TRIBUNAL HAS ALREADY ALLOWED THE CLAIM OF THE ASSESSEE. LEARNED AR HAS REFERRED THE DETAILS OF ALL THE EIGHT PARTIES AT PAGE NO.48 OF THE PAPER BOOK. THUS, THE LEARNED AR HAS SUBMITTED THAT SINCE THE CIT(A) HAS NOT EXAMINED THIS FACT THAT THIS AMOUNTS WER E GIVEN BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS OF MONEY LENDING AND FINANCING AS PER THE DETAILS GIVEN AT PAGE NO.48, THEREFORE, T HE ISSUE OF CLAIM OF BAD DEBTS IN RESPECT OF FIRST THREE PARTIES MAY BE REMITTED TO THE CIT(A) FOR EXAMINATION. 3 .3 ON THE OTHER HAND, LEARNED DR, HAS SUBMITTED THAT THE ASSESSING OFFICER HAS GIVEN A FINDING THAT THE ASSESSEE HAS NOT PRODUCED THE DETAILS IN RESPECT OF STATUS OF THE DEBTORS AND EVEN THE ASSESSEE FAILED TO SHOW AS TO WHAT STEPS WERE TAKEN FOR RECOVERY OF THESE AMOUNTS. EVEN THE CONDITIONS AS PRESCRIBED UNDER SECTION 83(2) HAS NOT BEEN COMPLIED WITH BY THE ASSESSEE. HE HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 3.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AS WELL AS RELEVANT MATE RIAL ON RECORD. THE ASSESSEE HAS WRITTEN OFF BA D DEBTS, DETAILS OF WHICH ARE AS UNDER : - DEBTS ARISING OUT OF LEASING TRANSACTIONS RS.3,98,89,572/ - LOANS AND ADVANCES ON WHICH INTEREST WAS CHARGED RS.1,00,08,868/ - LOANS AND ADVANCES GIVEN WITHOUT INTERES T RS.1,09,15,879/ - RS.6,07,94,319/ - 7 ITA NO S . 2591&2818 /20 09 THE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM OF THE ASSESSEE ON THE GROUND THAT NO EVIDENCE HAS BEEN PRODUCED TO SHOW THE SERIOUS STEPS OR EFFORTS FOR RECOVERY HAVE BEEN MADE. THE ASSESSING OFFICER FURTHER OBSERV ED THAT THE EARLIER YEARS ADDITION MADE ON ACCOUNT OF BAD DEBTS, HAVE BEEN ALLOWED BY THE CIT(A) BUT SINCE THE DEPARTMENT HAS ALREADY FILED FURTHER APPEALS, THEREFORE, THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. THE CIT(A) FOUND TH AT OUT OF THE TOTAL WRITTEN OFF AMOUNT OF RS.6,7,94,319/ - , THE AMOUNT OF RS.3,98,89,572/ - AROSE IN THE BUSINESS OF LEASING AND HIRE PURCHASE AND AMOUNT OF RS.1,00,00,868/ - AROSE ON VARIOUS AMOUNTS ADVANCED BY THE ASSESSEE DURING ITS BILL DISCOUNTING BUSINE SS OR ADVANCES GIVEN ON INTEREST. THERE IS NO DISPUTE ON THIS FINDING OF FACT BY THE CIT(A). SINCE THESE DEBTS ARE REPRESENTING THE AMOUNT WHICH WERE GIVEN BY THE ASSESSEE IN THE COURSE OF BUSINESS OF THE ASSESSEE, THEREFORE, IF THESE AMOUNTS ARE WRITTEN O FF BY THE ASSESSEE AS BAD DEBTS BY TREATING THE SAME AS BECOME IRRECOVERABLE THEN IN VIEW OF THE SETTLED LEGAL PRINCIPLE AFTER THE AMENDMENT IN THE PROVISIONS OF SECTION 36(1)(VII), THE ASSESSEE IS NOT LIABLE TO ESTABLISH THAT THE AMOUNT H AS ACTUALLY GONE BA D FOR CLAIMING DEDUCTION OF BAD DEBTS. EVEN OTHERWISE, IDENTICAL ISSUE HA VE BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001 - 02 & 2003 - 04 VIDE ORDER DATED 28 - 5 - 2009, WHICH HAS BEEN FOLLOWED BY THIS TRIBUNA L FOR THE 8 ITA NO S . 2591&2818 /20 09 ASSESSMENT YEAR 2004 - 05 IN ITA NO.2781/2007 AND ITA NO.3223/2007, VIDE ORDER DATED 30 - 9 - 2010 IN PARA 11 & 12 AS UNDER : - 11. BRIEFLY THE FACTS NOTED BY THE ITAT, IN THIS REGARD, IN ITS ORDER IN THIS YEAR ARE THAT THE AMOUNT OF BAD DEBTS REPRESEN TS THE AMOUNTS GIVEN DURING THE BILL DISCOUNTING BUSINESS AND ALSO THE AMOUNTS GIVEN BY WAY OF INTER - CORPORATE DEPOSITS TO CERTAIN PARTIES AND SAID AMOUNTS WERE OUTSTANDING FOR QUITE SOME TIME AND THEREFORE, THESE AMOUNTS WERE WRITTEN OFF AS BAD DEBTS AS T HE RECOVERY EFFORTS FAILED IN REALIZING THE SAID DEBTS. CERTAIN AMOUNTS NOTED WHICH IS AN INTER - CORPORATE DEPOSIT I.E. ICD AND ICD IS PART AND PARCEL OF THE BUSINESS OF THE ASSESSEE. ITAT IN PARA 6 OF ITS ORDER, NOTED VARIOUS ISSUES, WHICH REQUIRE ATTENTIO N AND DELIBERATIONS IN DETAILS TO ADJUDICATE THE GROUND, WHICH ARE I) SCOPE OF THE PROVISIONS OF SECTION 36(2)(I), (II) NATURE OF THE BUSINESS ACTIVITIES OF THE ASSESSEE, AND III) WHETHER THE FINANCING BYWAYS OF INTER - CORPORATE DEPOSITS & BILL DISCOUNTING ARE THE BUSINESS ACTIVITIES OF THE ASSESSEE OR NOT. THE ITAT AFTER DETAILED DISCUSSION HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION FOR BAD DEBTS WITH REGARD TO THE AMOUNTS REPRESENTING THE FINANCING THE ENTERPRISES BY WAY OF INTER - CORPORATE DEPOSIT. FO R THE PURPOSE OF READY REFERENCE, THE FINDINGS OF ITAT ARE REPRODUCED BELOW : - 10. REGARDING THE OTHER LIMB OF THE CLAIM OF BAD DEBT I.E AMOUNTS REPRESENTING THE BILL DISCOUNTING ACTIVITY OF THE BUSINESS, CONSIDERING THE FACT THAT THE ASSESSEE IS UNDOUBT EDLY ENGAGED IN THE BUSINESS OF NBFC AND LENDING ACTIVITY, WE FIND IT IS NECESSARY TO UNDERSTAND THE ACTIVITY OF THE LENDING OR FINANCING OR ADVANCING TO THE ENTERPRISE/UNDERTAKING. ESSENTIALLY, THIS ACTIVITY IS PART AND PARCEL OF THE CORPORATE OR NON CORP ORATE FINANCING. SUCH LENDING/FINANCING HAS A BROAD SPECTRUM AND IT HAS VARIETY OF MODES AND METHODS. IT MAY BE SHORT TIME OR LONG TERM LENDING/FINANCING . WHILE TAKING THE SURETIES OR GUARANTEES IS THE COMMON IN THESE TRANSACTIONS, THE ACTIVITY OF LENDING TO THE ENTERPRISE/UNDERTAKING BY WAY OF BILL DISCOUNTING IS ONE OF THE MODES OF LENDING/FINANCING THEM. SO LONG AS THESE BUSINESS ACTIVITIES ARE BONA FIDE ACTIVITIES OF THE ASSESSEE AND AMOUNTS ARE GIVEN IN THE NORMAL COURSE OF THE BUSINESS, AS WE HAVE ALR EADY HELD SO, MODES OF FINANCING WHETHER IT BE BY WAY OF BILL DISCOUNTING OR INTER CORPORATE DEPOSIT WOULD NOT MAKE ANY DIFFERENCE. THEREFORE, THE PRINCIPLES ESTABLISHED BY THE AFORESAID DECISION IN THE CASE OF GOETZE INDIA LTD (SUPRA) HAS APPLICATION TO T HE AMOUNTS REPRESENTING THE LENDING BY WAY OF BILL DISCOUNTING TOO. 11. THUS, CONSIDERING THE (I) SCOPE OF THE PROVISIONS OF SECTION 36(2)(I), (II) NATURE OF THE BUSINESS ACTIVITIES OF THE ASSESSEE, (III) THE LENDING OR FINANCING BY WAYS OF INTERCORPORATE DEPOSITS & BILL DISCOUNTING, AND (IV) THE DECISION OF THE DELHI BENCH DECISION IN THE CASE OF GOETZE INDIA LTD. (SUPRA), WE ARE OF THE CONSIDERED OPINION THAT BAD 9 ITA NO S . 2591&2818 /20 09 DEBTS AMOUNTING TO RS.2,06,39,000/ - CLAIMED IN AY 01 - 02 INVOLVING M/S RAJENDRA PIPES LTD AND M/S ALDRICH PHARMA LTD IN THE EXCEPTIONS TO THE RULE SPECIFIED IN SECTION 36(2)(I). FURTHER, THE AMOUNTS OF BAD DEBTS WRITTEN OFF ON ACCOUNT OF BILL DISCOUNTING AND ICDC REPRESENT MONEY LENT IN THE ORDINARY COURSE OF THE NON BANKING FINANCING OR MONEY LEN DING. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE CLAIM OF THE ASSESSEE MUST BE ALLOWED. ACCORDINGLY, ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE IN THIS REGARD. ACCORDINGLY, GROUND 1 IS DISMISSED. 12. IN AY 2002 - 03, T HE ITAT FOLLOWED THEIR DISCUSSION MADE IN AY 2001 - 02 AS ITAT PASSED COMMON ORDER. THE ADMITTED FACTS OF THE CASE ARE THAT THE AO AND CIT(A) HAVE FOLLOWED THEIR RESPECTIVE EARLIER ORDERS; THEREFORE, THERE IS NO DISPUTE AS REGARDS THE FACTS OF THE CASE UNDER CONSIDERATION AND FACTS OF THE CASE IN EARLIER YEARS. IN EARLIER YEARS THE ITAT IN ITS ORDER CITED ABOVE HAS DELETED THE ADDITION AFTER DETAILED DISCUSSION. WE RESPECTFULLY FOLLOW THE ORDER OF ITAT AND IN THE LIGHT OF THAT WE UPHOLD THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF BAD DEBTS. 3.5 SINCE THE ISSUE OF BAD DEBTS WITH RESPECT TO THE ICD , BILL DISCOUNTING BUSINESS ARE COVERED IN FAVOUR OF THE ASSESSEE BY EARLIER ORDERS OF THIS TRIBUNAL, THEREFORE, FOLLOWING THE EARLIER ORDERS, WE FIND NO ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A) IN DELETING THE ADDITION ON THIS AC COUNT TO THE EXTENT OF RS.4,98,78,440/ - . 3.6 AS REGARDS THE AMOUNT OF RS.1,09,15,579/ - , THE DISALLOWANCE OF WHICH HAS BEEN CONFIRMED BY THE CIT( A) AND THE DETAILS OF WHICH HAS BEEN GIVEN IN PARA 1.6 OF THE ORDER OF THE CIT(A), AS UNDER : - 1.6 .. IT IS FOUND THAT DEBTS OF RS.3,98,89,572/ - AROSE IN BUSINESS OF LEASING AND HIRE PURCHASE. SIMILARLY, DEBTS OF RS.1,00,00,868/ - AROSE ON VARIOUS AMOUNTS ADVANCE D BY THE APPELLANT COMPANY DURING ITS BILL DISCOUNTING BUSINESS OR ADVANCES GIVEN ON INTEREST. HOWEVER, IT IS FOUND THAT THE FOLLOWING AMOUNTS WERE GIVEN BY THE APPELLANT FREE OF INTEREST NAME OF THE PARTIES AMOUNT WRITTEN OFF KARVIVRSHINI INVESTMENTS L IMITED 7,50,000 ATIPURA INVESTMENTS 5,00,000 VLS CAPITAL LIMITED 75,33,081 10 ITA NO S . 2591&2818 /20 09 DR. RAMANI 12,00,000 SHRI SURESH KHEMKA 4,24,000 SHRI JAYA SEELAN 4,00,000 SHRI VINEET KUMAR 17,130 OTHERS 91,668 TOTAL 1,09,15,879 3.7 LEARNED AR HAS POINTED OUT THAT THE FIRST TWO ITEMS OF THE BAD DEBTS ARE THE AMOUNTS WHICH REPRESENTING THE ICD AVAILED BY THE PARTIES WHEREAS THE THIRD ITEM IS REPRESENTING THE PHYSICAL FITNESS EQUIPMENT LEASED OUT TO THE PARTY. PRIMA FACIE, IT APPEARS THAT THESE AMOUNTS TO FIRST TWO PARTI ES WERE ADVANCED AND THE EQUIPMENTS TO THIRD PARTY WERE GIVEN ON LEASE IN THE ORDINARY COURSE OF THE BUSINESS OF THE ASSESSEE. SINCE THIS ASPECT HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW, THEREFORE, IN THE INTEREST OF JUSTICE, WE REMIT THIS ISSUE IN R ESPECT OF FIRST THREE PARTIES, NAMELY, KARVIV A RSHINI INVESTMENTS LIMITED, ATIPURA INVESTMENTS AND VLS CAPITAL LIMITED TO THE RECORD OF THE CIT(A) FOR EXAMINATION AND VERIFICATION AND THEN DECIDE THE SAME AS PER LAW . 3.8 AS REGARDS, THE REMAINING FIVE ITEM S, THE ASSESSEE HAS FAILED TO SHOW THAT THESE AMOUNTS WERE GIVEN IN THE COURSE OF THE BUSINESS OF THE ASSESSEE, THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHEREBY THE DISALLOWANCE WAS CONFIRMED. THUS, WE CONFIRM THE DI SALLOWANCE TO THE EXTENT OF RS . 21,32,798/ - ON ACCOUNT OF BAD DEBTS. 11 ITA NO S . 2591&2818 /20 09 4. GROUND NO.2 TAKEN BY THE ASSESSEE IN ITS APPEAL IS WITH REGARD TO DISALLOWANCE UNDER SECTION 14A OF THE ACT. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.2,67,284/ - AND THE SAME HAS BEEN CLAIMED AS EXEMPT INCOME. THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD INVESTMENTS OF RS.8.79 CRORES CONSISTING OF EQUITY SHARES OF VARIOUS COMPANIES, DEBENTURES AND GOVERNMENT SECURITIES, WHICH HAVE YIELDED DIVIDEND INCOME WHICH IS EXEMPT FROM TAX. THE ASSESSING OFFICER FURTHER NOTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD INCURRED INTEREST AND FINANCE CHARGES OF RS.10,95,69,333/ - . ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PROVISION OF SECTION 14A SHOULD NOT BE APPLIED. THE ASSESSEE FILED A DETAIL REPLY VIDE LETTER DATED 12 - 7 - 2007 AND MAINLY CONTENDED THAT THE ASSESSEE HAS USED ITS OWN INTEREST FREE FUND FOR THE PURPOSE OF INVESTMENT. THE ASSE SSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND MADE DISALLOWANCE OF RS.38,72,405/ - BY INVOKING THE PROVISION OF SECTION 14A OF THE ACT. THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS NOT ABLE TO SHOW THAT THE INTEREST FREE FUND OF THE ASS ESSEE HAS BEEN USED FOR MAKING INVESTMENT. 4.1 ON APPEAL, THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO RECOMPUTED THE DISALLOWANCE AS REQUIRED TO BE MADE UNDER SECTION 14A OF THE ACT IN ACCORDANCE WITH THE PROVISIONS OF RULE 8D BY 12 ITA NO S . 2591&2818 /20 09 FOLLOWING THE DECISI ON OF SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD., 26 SOT 603 . 4.2 BEFORE US, LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT RULE 8D IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. PVT. LTD. , REPORTED IN 328 ITR 81 (BOM) . HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS ITS OWN INTEREST FREE FUND, WHICH IS SUFFICIENT FOR INVESTMENT MADE IN THE SECURITIES, THEREFORE, NO DISALLOWANCE IS CALLED FOR UNDER SECTION 14A. HE HAS RELIED UPON THE DECISION OF THE HONBL E JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES LIMITED, REPORTED IN 313 ITR 340. 4.3 ON THE OTHER HAND, LEARNED DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMI TTED THAT SINCE THE CIT(A) HAS APPLIED THE RULE 8D, THEREFORE, THE ASSESSEES CLAIM OF ITS OWN INTEREST FREE FUNDS HAS NOT BEEN PROPERLY EXAMINED IN VIEW OF DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF DAGA CAPITAL (SUPRA) . 4.4 WE HAVE C ONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AS WELL AS RELEVANT MATERIAL ON RECORD. THERE IS NO QUARREL ON THE POINT THAT THE RULE 8D IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIG H COURT IN THE CASE OF GODREJ BOYCE (SUPRA) . THE ASSESSING OFFICER MADE DISALLOWANCE HOLDING THAT BORROWED FUND WAS USED BY THE ASSESSEE TO 13 ITA NO S . 2591&2818 /20 09 MAKE INVESTMENT, WHEREAS THE CIT(A) HAS NOT GONE INTO THE AVAILABILITY OF THE ASSESSEES OWN FUND USED FOR INVESTMEN T BUT APPLIED RULE 8D BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL, WHICH HAS BEEN REVERSED BY THE HONBLE JURISDICTIONAL HIGH COURT. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE CIT(A) FOR EXAMINING THE ISSUE ON MERITS WITHOUT APPLYING THE RULE 8D AND IN THE LIGHT OF DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE (SUPRA) AS WELL AS THE CONTENTION OF THE ASSESSEE REGARDING AVAILABILITY OF INTEREST FREE FUNDS FO R INVESTMENT. 5. GROUND NO.3 , IS REGARDING DISALLOWANCE OF PRIOR PERIOD EXPENSES. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED TO THE PROFIT AND LOSS ACCOUNT EXPENSES RELATING TO EARLIER YEARS OF RS. 47,970/ - . THE ASSESSING OFFICER ASKED THE A SSESSEE TO FILE THE DETAILS AND JUSTIFICATION FOR THE CLAIM OF THE SAID EXPENSES. IN RESPONSE, THE ASSESSEE FILED LETTER DATED 21 - 12 - 2007 A ND SUBMITTED THAT THESE EXPENSES WERE PAID DURING THE YEAR UNDER CONSIDERATION, THOUGH THE SAME PERTAINS TO LISTING F EES TO STOCK EXCHANGES AT CHENNAI AND NEW DELHI FOR THE ASSESSMENT YEARS 2004 - 05. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED THE SAID AMOUNT OF RS.47,970/ - BEING PRIOR PERIOD EXPENSES AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. BEFORE US, THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THESE EXPENSES ARE RELATED TO THE FEE FOR LISTING IN THE 14 ITA NO S . 2591&2818 /20 09 STOCK EXCHANGES AT CHENNAI AND NEW DELHI AND THE ASSESSEE HAS RECEIVED THE B ILL FOR THE SAME ONLY DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THE EXPENSES HAVE CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. ON THE OTHER HAND, LEARNED DR SUBMITTED THAT THE ASSESSEE HAS NOT FILED ANY RECORD TO SHOW THAT THESE EXPENSES HAVE CRYST ALLIZED IN THE YEAR UNDER CONSIDERATION. HE HAS FURTHER SUBMITTED THAT THERE IS NO DISPUTE THAT THESE EXPENSES ARE RELATED TO ASSESSMENT YEAR 2004 - 05 AND, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE SAME. 5.1 WE HAVE CONSIDERED THE RIVAL S UBMISSIONS OF THE PARTIES AS WELL AS RELEVANT MATERIAL ON RECORD. THOUGH THE ASSESSEE HAS CLAIMED THAT THE BILL FOR LISTING FEE IN THE STOCK EXCHANGE AT CHENNAI AND NEW DELHI HAVE RECEIVED DURING THE YEAR UNDER CONSIDERATION, HOWEVER, NO RECORD HAS BEEN FI LED BEFORE US IN THIS ASPECT. LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THE COPIES OF THE BILLS RAISED BY THE STOCK EXCHANGE AT CHENNAI AND NEW DELHI HAVE BEEN FILED BEFORE THE ASSESSING OFFICER. HENCE, IN THE INTEREST OF JUSTICE, WE REMIT THIS ISSUE T O THE RECORD OF THE ASSESSING OFFICER FOR LIMITED PURPOSE TO VERIFY AS TO WHETHER THE BILLS BY THE STOCK EXCHANGES IN RESPECT OF THESE EXPENDITURES WERE RAISED AND RECEIVED BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY DECIDE THE ISSUE . 15 ITA NO S . 2591&2818 /20 09 6. IN ITA NO. 2818 /MUM/2009 , T HE REVENUE HAS RAISED THE FOLLOWING GROUNDS : - 1. THE LEARNED CIT (A) ERRED IN ALLOWING THE DEDUCTION OF THE CLAIM BY THE ASSESSEE IN RESPECT OF BAD DEBTS WRITTEN OFF TO THE EXTENT OF RS.4,98,78,440/ - . EVEN THOUGH ASSESSEE HAS FAILED TO PROVE THE DISCLOSURE OF INCOME IN THE EARLIER YEARS AND WRITING OF THE UNRECOVERABLE PORTION OF BAD DEBTS WHICH IS A CONDITION AS PER SECTION 36(2) OF THE IT ACT AS THE EARNING INTEREST FROM ADVANCE LOAN CANNOT BE BUSINESS OF THE ASSESSEE. 2. TH E LEARNED CIT(A) ERRED IN ALLOWING DEPRECIATION OF THE RS.7,99,343/ - ON NON PERFORMING ASSETS EVEN THOUGH THE EXPENSES CLAIMED BY THE ASSESSEE ARE NOT INCIDENTAL TO INCOME OFFERED TO TAX. 3. THE LEARNED CIT (A) ERRED IN ALLOWING THE SET OFF OF PROFIT ON S ALE OF DEPRECIABLE ASST OF RS.1.13 CRORES AGAINST LONG TERM CAPITAL LOSS WHICH AROSE TO THE ASSESSEE ON INDEXATION METHOD AND ALSO ALLOWING BROUGHT FORWARD LONG TERM CAPITAL LOSS AGAINST THE SAID PROFIT ON SALE OF DEPRECIABLE ASST. EVEN THOUGH PROVISION OF SECTION 70(3) R.W.S. 50 OF IT ACT ARE CLEAR THAT SUCH PROFIT ARE SHORT TERM CAPITAL GAIN AND ALSO IF LOSS IS DUE TO INDEXATION METHOD THEN SUCH LOSS CAN BE SET OF AGAINST THE INCOME IF ANY AS ARRIVED AT UNDER SIMILAR COMPUTATION MADE. 7. GROUND NO.1 RAI SED BY THE REVENUE REGARDING BAD DEBTS WRITTEN OFF, WHICH IS COMMON TO THE GROUND NO.1 OF THE ASSESSEES APPEAL AND WE HAVE ALREADY DECIDE THIS ISSUE WHILE ALONG WITH GROUND NO.1 OF THE ASSESSEES APPEAL. ACCORDINGLY, GROUND NO.1 RAISED BY THE REVENUE IN ITS APPEAL IS DISMISSED . 8 . IN GROUND NO.2 , THE REVENUE HAS RAISED THE GROUND WITH REGARD TO DEPRECIATION O N NON PERFORMING ASSET (NPA) . 8.1 WE HAVE HEARD LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. LEARNED AR OF THE ASSESSEE HAS POINTED OUT THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT 16 ITA NO S . 2591&2818 /20 09 YEAR S 2001 - 02 , 2002 - 03, 2003 - 04, 2004 - 05 & 206 - 07 . AT THE OUTSET, WE NOTE THAT THIS ISSUE HAS BEEN REPEATEDLY CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESEES OWN CASE . F OR THE ASSESSMENT YEAR 2006 - 07 IN ITA NO.805/2010 , THIS TRIBUNAL HAS DECIDED THIS ISSUE IN PARA 3 AND 4 OF ORDER DATED 30 - 9 - 2010 , AS UNDER : - 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT ON IDENTICAL SET OF FACTS HT ISSUE HAS BEEN DECIDED IN AY 2004 - 05 BY THE ITAT IN ASSESSEES OWN CASE IN ITA NOS.2781/M/2007 (ASSESSEES APPEAL) & 3223/M/07 (REVENUES APPEAL) EVEN DATED. FOR THE SAKE OF CLARITY, THE GROUND, FACTS AND FINDINGS OF THE ITAT IN AY 2004 - 05 ARE REPRODUCED BELOW : - 13. GROUND NO.2 OF THE REVENUE IS THAT THE CIT(A) ERRED IN DELETING THE DEPRECIATION AMOUNTING TO RS.11,18,833/ - BEING DEPRECIATION PROVIDED ON NON - PERFORMING ASSETS. 14. BRIEFLY THE FACTS RELATING TO THIS GROUND ARE THAT THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.11,18,883/ - IN RESPECT OF ASSETS AGAINST WHICH NO INCOME HAS BEEN ACCOUNTED FOR. THE AO DID NOT ACCEPT THE ASSESEES SUBMISSION THAT DEPRECIATION ON THES E ASSES IS ADMISSIBLE EVEN IN THE EVEN OF BEING NO INCOME IN THE YEAR UNDER CONSIDERATION. THE CIT(A) FOLLOWED HIS PREDECESSORS DECISION IN AY 2002 - 03 AND ALLOWED THE DEPRECIATION CLAIM OF THE ASSESSEE OBSERVING THAT FACTS ARE IDENTICAL AND THERE IS NO RE ASON DEVIATE FROM THE FINDING GIVEN BY HIS PREDECESSOR. 15. THE LEARNED AR HAS SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE IN REVENUES APPEAL FOR AY 2001 - 02. THE RELEVANT FINDING OF ITAT IS REPRODUCED BELOW : - 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE PAPER BOOK FILED BEFORE US. THE AO HAS FAILED TO DISTINGUISH THE CONCEPT OF THE USE OF THE ASSET BY MAKING THE SAME AS SUBJECT MATT ER OF THE LEASE TRANSACTION FROM THE ACTUAL USE OF THE ASSET BY THE LESSEE, WHO PAYS THE LEASE RENTALS. CIT(A) HAS RIGHTLY RECTIFIED THE ORDER AS DISCUSSED IN THE IMPUGNED ORDER. FACTUALLY , THE ASSESSEE CLAIMED DEPRECIATION UNDOUBTEDLY I RESPECT OF THE LEA SE ASSETS LEASED OUT BY THE ASSESSEE TO THE LESSEES DESPITE THE FAILURES BY THE LESSEES IN MATTERS OF THE PAYMENT OF THE LEASE RENTALS AND ALSO DESPITE ASSESSEES DECISION TO NOT TO RECOGNIZE THE INCOME IN VIEW OF THE REAL INCOME 17 ITA NO S . 2591&2818 /20 09 CONCEPT. ASSESSEE CLAIMED THE SAME IN VIEW OF THE FACT OF EXISTENCE OF LEASE AND A L SO THE NON TERMINATION OF LEASE AGREEMENTS, WHICH IS STILL IN FORCE. WHEN THE ASSETS ARE THE SUBJECT MATTER OF THE L EASE TRANSACTIONS, THE ALLEGED ASSETS ARE IN USE BY THE ASSESSEE IN ANY CASE, THERE IS NO DISPUTE ABOUT THE OWNERSHIP OF THE SAID ASSETS. UNDER THESE CIRCUMSTANCES, THE CLAIM OF DEPRECIATION MUST NOT BE LINKED TO THE RECOGNIZING OF THE LEASE INCOME IN RESPECT OF THE SAID LEASE ASSETS. THEREFORE, WE ARE OF THE CONSIDERED OPINION THA T T H E ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY GROUND NO.4 OF THE REVENUE IS DISMISSED. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE AO. 17. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PE RUSED THE RECORD. WE FIND THAT ON IDENTICAL SET OF FACTS THE ITAT HAS ALREADY DECIDED THE ISSUE IN AY 2001 - 02 IN ASSESSEES OWN CASE CITED SUPRA, THEREFORE, WE RESPECTFULLY FOLLOW THE DECISION OF ITAT IN THAT YEAR AND IN THE LIGHT OF THAT WE HEREBY CONFIRM THE ORDER OF CIT(A). ACCORDINGLY, GROUND NO.2 IS DISMISSED. 4. SINCE THE FACTS OF THE UNDER CONSIDERATION ARE IDENTICAL TO THAT OF AY 2004 - 05, WE FOLLOW THE ORDER OF ITAT IN AY 2004 - 05 AND IN THE LIGHT OF THAT WE CONFIRM THE ORDER OF CIT(A) IN THIS REGA RD AND DISMISS GROUND OF APPEAL RAISED BY THE REVENUE. 8.2 THUS, TO MAINTAIN THE PRINCIPLE OF CONSISTENCY AND UNIFORMITY, WE FOLLOW THE EARLIER ORDERS OF THIS TRIBUNAL AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 9 . GROUND NO. 3 TAKEN BY THE DEPARTMEN T IS REGARDING SET OFF OF PROFIT IN SALE OF DEPRECIABLE ASSET AGAINST LONG TERM CAPITAL LOSS. THE ASSESSEE HAS SET OFF PROFIT ON SALE OF DEPRECIABLE ASSET OF RS.1.13CRORES AGAINST THE CARRY FORWARD LONG TERM CAPITAL LOSSES ON SALE OF INVESTMENTS. APART FRO M THIS, THE ASSESSEE HAS CLAIMED LONG TERM CAPITAL LOSS OF RS. 46,98,757/ - ON SALE OF INVESTMENTS DURING THE YEAR WHICH HAS BEEN INDEXED AND SET OFF AGAINST THE SAID SHO R T TERM CAPITAL GAIN. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE 18 ITA NO S . 2591&2818 /20 09 ASSESSEE AND HEL D THAT AS PER THE PROVISION OF SECTION 70(3) OF THE ACT, THE CAPITAL LOSS ARISING FROM THE SHO R T TERM CAPITAL ASSET, SHALL BE ENTITLED TO HAVE SET OFF AGAINST THE INCOME IF ANY ARRIVED UNDER SIMILAR COMPUTATION. THE ASSESSING OFFICER WAS OF THE VIEW THAT A S PER SECTION 50, THE PROFIT ON SALE OF ANY DEPRECIABLE ASSET SHALL BE DEEMED AS SHO R T TERM CAPITAL GAIN AND, THEREFORE, THE ASSESSEE IS NOT ENTITLED TO SET OFF THE GAIN ON SALE OF DEPRECIABLE ASSET AGAINST THE LONG TERM CAPITAL LOSS FROM SALE OF SHARES. 9.1 ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ACE BUILDERS (P) LTD., REPORTED IN 281 ITR 210 . 9.2 BEFORE US, LEARNED DR HAS RELIED UPON THE ORDER OF TH E AO AND SUBMITTED THAT THE DECISION IN THE CASE OF ACE BUILDERS (SUPRA) IS ON THE POINT OF EXEMPTION UNDER SECTION 54, THEREFORE, THE SAME IS NOT APPLICABLE ON THE FACT OF THE PRESENT CASE. ON THE OTHER HAND, LEARNED AR HAS SUBMITTED THAT AN IDENTICAL ISS UE HAS BEEN CONSIDERED AND DECIDED BY THE COORDINATE BENCH OF THIS TRIBUNAL BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ACE BUILDERS(SUPRA) . HE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF KOMAC INVESTMENTS & FINANCE (P.) LTD. VS. ITO, REPORTED IN 132 ITD 290 AS WELL AS IN THE CASE OF MANALI INVESTMENT VS. ACIT, REPORTED IN (2011) 139 TTJ (MUM) 411 . 19 ITA NO S . 2591&2818 /20 09 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AS WELL AS RELEVANT MATERIAL ON RECORD . THOUGH AS PER THE PROVISIONS OF SECTION 50, THE GAIN ON TRANSFER OF DEPRECIABLE ASSET IS DEEMED TO BE SHORT T ERM CAPITAL GAIN, HOWEVER, THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ACE BUILDERS(SUPRA) HELD THAT SECTION 50 IS ENACTED WITH THE OBJECT OF DENYING MULTIPLE BENEFITS TO THE OWNERS OF THE DEPRECIABLE ASSET. HOWEVER, THAT RESTRICTION IS LIMITED TO THE COMPUTATION OF CAPITAL GAIN AND NOT TO THE EXEMPT PROVISION ; IT HAS BEEN OBSERVED BY THE H ONBLE HIGH COURT THAT THE LEGAL FICTION C REATED BY THE STATUTE IS TO DEEM THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT TERM CAPITAL ASSET. THEREFORE, IT CANNOT BE SAID THAT THE SECTION 50 CONVERTS A LONG TERM CAPITAL ASSET INTO A SHORT TERM CAPITAL ASSET. FOLLOWI NG THE DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ACE BUILDERS (SUPRA) , THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF KOMAC INVESTMENTS & FINANCE (P.) LTD. (SUPRA) , HAS CONSIDERED AND DECIDED AN IDENTICAL ISSUE IN PARA 11 & 12 AS UNDER : - 11. WE FIND THE HONBLE BOMBAY HIGH COURT IN CASE OF ACE BUILDERS (P.) LTD. (SUPRA) AT PAGES 219 AND 220 HAS HELD AS UNDER : - IT IS TRUE THAT SECTION 50 IS ENACTED WITH THE OBJECT OF DENYING MULTIPLE BENEFITS TO THE OWNERS OF DEPRECIABLE ASSE TS. HOWEVER, THAT RESTRICTION IS LIMITED TO THE COMPUTATION OF CAPITAL GAINS AND NOT TO THE EXEMPTION PROVISIONS. IN OTHER WORDS, WHERE THE LONG - TERM CAPITAL ASSET HAS AVAILED OF DEPRECIATION, THEN THE CAPITAL GAIN HAS TO BE COMPUTED IN THE MANNER PRESCRIB ED UNDER SECTION 50 AND THE CAPITAL GAINS TAX WILL BE CHARGES AS IF SUCH CAPITAL GAIN HAS ARISEN OUT OF A SHORT - TERM CAPITAL ASSET BUT IF SUCH CAPITAL GAIN IS INVESTED IN THE MANNER PRESCRIBED IN SECTION 54E, THEN THE CAPITAL GAIN SHALL NOT BE CHARGED UNDE R SECTION 45 OF THE INCOME - TAX ACT. TO PUT IT SIMPLY, THE BENEFIT OF SECTION 54E WILL BE AVAILABLE TO THE ASSESSEE IRRESPECTIVE OF THE FACT THAT THE COMPUTATION OF CAPITAL GAINS IS DONE 20 ITA NO S . 2591&2818 /20 09 EITHER UNDER SECTIONS 48 AND 49 OR UNDER SECTION 50. THE CONTENTION OF THE REVENUE THAT BY AMENDMENT TO SECTION 50 THE LONG - TERM CAPITAL ASSET HAS BEEN CONVERTED INTO A SHORT - TERM CAPITAL ASSET IS ALSO WITHOUT ANY MERIT. AS STATED HEREINABOVE, THE LEGAL FICTION CREATED BY THE STATUTE IS TO DEEM THE CAPITAL GAIN AS SHORT - TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT TERM CAPITAL ASSET. THEREFORE, IT CANNOT BE SAID THAT SECTION 50 CONVERTS A LONG - TERM CAPITAL ASSET INTO A SHORT TERM CAPITAL ASSET. 12. FROM THE ABOVE IT IS CLEAR THAT ALTHOUGH THE GAIN IS SHORT TERM CAPI TAL GAIN DUE TO THE FICTION CREATED BY PROVISIONS OF SECTION 50(2), THE ASSET REMAINED AS LONG TERM CAPITAL ASSET. THEREFORE, IN VIEW OF THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT, THE BROUGHT FORWARD LONG TERM CAPITAL LOSS CAN BE SET OFF AGAIN ST THE CAPITAL GAIN ON ACCOUNT OF TRANSFER OF THE DEPRECIABLE ASSET WHICH HAS BEEN HELD BY THE ASSESSEE FOR MORE THAN 36 MONTHS THEREBY MAKING THE ASSET ALONG TERM CAPITAL ASSET. IN THIS VIEW OF THE MATTER, WE HOLD THAT UNDER SECTION 74(1)(B) THE ASSESSEE IS ENTITLED TO THE CLAIM OF SET OFF OF LONG TERM CAPITAL LOSS AGAINST THE INCOME ARISING FROM THE SALE OF OFFICE PREMISES, THE GAIN OF WHICH IS SHORT TERM DUE TO THE DEEMING PROVISION BUT THE ASSET IS LONG TERM. THE GROUND RAISED BY THE ASSESSEE ACCORDINGL Y ALLOWED. 10.1 SIMILARLY, IN THE CASE OF MANALI INVESTMENTS (SUPRA) , THE TRIBUNAL HAS AGAIN DECIDED THE ISSUE IN PARA 12 & 13 AS UNDER : - 12. THE CORE OF CONTROVERSY IS ABOUT THE DETERMINATION OF THE CHARACTER OF RS.145.99 LAKHS FOR THE PURPOSE OF S.74 AS TO WHETHER IT IS A SHORT TERM CAPITAL GAIN OR LONG - TERM CAPITAL GAIN. THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ACE BUILDERS (SUPRA) IN WHICH THAT ASSESSEE WAS A PARTNER IN FIRM WHICH WAS D ISSOLVED IN THE YEAR 1984 AND THE ASSESSEE WAS ALLOTTED A FLAT TOWARDS ITS CREDIT IN THE CAPITAL ACCOUNT WITH THE FIRM. THE ASSESSEE SHOWED THE FLAT AS CAPITAL ASSET IN ITS BOOKS OF ACCOUNT AND DEPRECIATION WAS CLAIMED AND ALLOWED FROM YEAR TO YEAR. IN THE PREVIOUS YEAR RELEVANT TO THE ASST. YR. 1992 - 93 THE ASSESSEE SOLD THE FLAT AND INVESTED THE NET SALE PROCEEDS IN A SCHEME ELIGIBLE UNDER S.54E OF THE ACT AND ACCORDINGLY DECLARED NIL INCOME UNDER THE HEAD CAPITAL GAINS. THE AO OPINED THAT SINCE THE BLOC K OF BUILDINGS CEASED TO EXIST ON ACCOUNT OF SALE OF FLAT DURING THE YEAR, THE WDV OF THE FLAT WAS LIABLE TO BE TAKEN AS COST OF ACQUISITION UNDER S.50(2) OF THE ACT. HE FURTHER HELD THAT SINCE THE ASSESSEE HAD AVAILED DEPRECIATION ON SUCH ASSET, WHICH WAS OTHERWISE A LONG - TERM CAPITAL ASSET, THE DEEMING PROVISION UNDER S.50 WOULD APPLY AND IT WOULD BE TREATED AS CAPITAL GAIN ON THE SALE OF SHORT - TERM CAPITAL ASSET AND RESULTANTLY NO BENEFIT UNDER S.54E WAS ADMISSIBLE. WHEN THE MATTER CAME UP BEFORE THE HON BLE BOMBAY HIGH COURT IT WAS NOTED THAT S.50 CONTAINS A DEEMING PROVISION AND SUCH FICTION WAS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAIN CONTAINED IN SS.48 AND 49 AND HENCE IT DID NOT APPLY TO OTHER PROVISIONS. 21 ITA NO S . 2591&2818 /20 09 CONSEQUENTLY THE ASSESSEE W AS HELD TO BE ELIGIBLE FOR EXEMPTION UNDER S.54E IN RESPECT OF CAPITAL GAIN ARISING ON TRANSFER OF CAPITAL ASSET ON WHICH DEPRECIATION WAS ALLOWED. THE RELEVANT OBSERVATIONS OF THE HONBLE HIGH COURT ARE AS UNDER : - IT IS TRUE THAT S.50 IS ENACTED WITH TH E OBJECT OF DENYING MULTIPLE BENEFITS TO THE OWNERS OF DEPRECIABLE ASSETS. HOWEVER, THAT RESTRICTION IS LIMITED TO THE COMPUTATION OF CAPITAL GAINS AND NOT TO THE EXEMPTION PROVISIONS. IN OTHER WORDS, WHERE THE LONG - TERM CAPITAL ASSET HAS AVAILED DEPRECIAT ION, THEN THE CAPITAL GAIN HAS TO BE COMPUTED IN THE MANNER PRESCRIBED UNDER S.50 AND THE CAPITAL GAINS TAX WILL BE CHARGED AS IF SUCH CAPITAL GAIN HAS ARISEN OUT OF A SHORT TERM CAPITAL ASSET BUT IF SUCH CAPITAL GAIN IS INVESTED IN THE MANNER PRESCRIBED I N S.54E, THEN THE CAPITAL GAIN SHALL NOT BE CHARGED U N DER S.45 OF THE IT ACT. TO PUT IT SIMPLY, THE BENEFIT OF S.54E WILL BE AVAILABLE TO THE ASSESSEE IRRESPECTIVE OF THE FACT THAT THE COMPUTATION OF CAPITAL GAINS IS DONE EITHER UNDER SS.48 AND 49 OR UNDER S.50. THE CONTENTION OF THE REVENUE THAT BY AMENDMENT TO S.50, THE LONG - TERM CAPITAL ASSET HAS BEEN CONVERTED INTO A SHORT - TERM CAPITAL ASSET IS ALSO WITHOUT ANY MERIT. AS STATED HEREINABOVE, THE LEGAL FICTION CREATED BY THE STATUTE IS TO DEEM THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT - TERM CAPITAL ASSET. THEREFORE, IT CANNOT BE SAID THAT S.50 CONVERTS LONG TERM CAPITAL ASSET INTO A SHORT - TERM CAPITAL ASSET. (EMPHASIS, ITALICIZED IN PRINT, SUPPLIED BY US) 13. FROM THE ABOVE EXTRACTED PORTION OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IT IS DISCERNIBLE THAT THE PROVISIONS OF S.50 ARE APPLICABLE ONLY UPTO THE STAGE OF COMPUTATION OF CAPITAL GAIN IN CASE OF DEPRECIABLE ASSETS. HENCE WHERE DEPRECIATION HAS BEEN ALLOWED ON A LONG - TERM CAPITAL ASSET , THE CAPITAL GAIN SHALL BE CONSIDERED AS ARISING OUT OF A SHORT - TERM CAPITAL ASSET. ONCE CAPITAL GAIN IS COMPUTED ON DEPRECIABLE ASSET AS PER S.50, WHICH IS A LONG TERM CAPITAL ASSET, THE OPERATION OF SUCH SECTION IS OUSTED. IF THE ASSESSEE IS OTHERWISE ELIGIBLE FOR ANY BENEFIT UNDER THE ACT WHICH IS ATTACHED TO A LONG - TERM CAPITAL ASSET, THE SAME SHALL REMAIN INTACT. IT CANNOT BE DENIED SIMPLY FOR THE REASON THAT, ON THE TRANSFER OF SUCH A LONG - TERM CAPITAL ASSET, THE SHORT - TERM CAPITAL GAIN HAS BEEN COMPUTED AS PER S.50. IN THE CASE OF ACE BUILDERS (SUPRA), THE ASSESSEE HAS BEEN ALLOWED THE BENEFIT UNDER S.54E, WHICH IS OTHERWISE AVAILABLE ONLY AGAINST LONG - TERM CAPITAL GAIN. IN THE SAME MANNER THERE CANNOT BE ANY REJECTION OF ANY BENEFIT WHICH IS ASSOCIATED WITH THE CHARACTER OF OTHERWISE LONG - TERM CAPITAL GAIN NOTWITHSTANDING THE FACT THAT CAPITAL GAIN ON ITS TRANSFER HAS BEEN COMPUTED UNDER S.50 BY DEEMING IT AS A SHORT - TERM CAPITAL GAIN. 10.2 FOLLOWING THE CO NSISTENT VIEW TAKEN BY THE COORDINATE BENCH OF THIS TRIBUNAL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND 22 ITA NO S . 2591&2818 /20 09 AGAINST THE REVENUE. ACCORDINGLY, THE ORDER OF CIT(A) QUA THIS ISSUE, IS UPHELD. 11 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AN D APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED ON THIS 10 TH DAY OF OCTOBER , 2012. OCTOBER, 2012 SD/ - SD/ - ( ) (RAJENDRA SINGH) ( ) (VIJAY PAL RAO) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 10 TH OCTOBER , 2012. P KM , SR. PS COPY OF THE ORDER FO RWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, (DY./ASSTT. REGISTRAR) / ITAT, MUMBAI