The Spunpipe & Construction Co.(Baroda)Pvt.Ltd., Baroda V. The ACIT.,Circle-4, Baroda

ITA 2932/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1254 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 09-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 25-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: ASHWIN C SHAH
• Keywords: Capital asset; Cost of acquisition; Date of conversion
• Section: 45(2); 54F; 14A; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 2932/AHD/2011 & 2482/AHD/2012 (ASSESSMENT YEAR: 2008-09 & 2009-10) THE SPUNPIPE & CONSTRUCTION CO. [BARODA] PVT. LTD., A/505-506, 5 TH FLOOR, ALKAPURI ARCADE, OPP. HOTEL WELCOME GROUP, RC DUTT ROAD, BARODA-390007 THE SPUNPIPE & CONSTRUCTION CO. [BARODA] PVT. LTD., A/505-506, 5 TH FLOOR, ALKAPURI ARCADE, OPP. HOTEL WELCOME GROUP, RC DUTT ROAD, BARODA-390007 V/S V/S THE ACIT, CIRCLE-4, BARODA THE DCIT, CIRCLE-4, BARODA (APPELLANT) (RESPONDENT) PAN: AAACT6738R APPELLANT BY : SHRI ASHWIN. C. SHAH, AR RESPONDENT BY : SMT. SONIA KUMAR, SR. D.R. ( )/ ORDER ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 2 DATE OF HEARING : 09-05-201 6 DATE OF PRONOUNCEMENT : 22 -06-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NO. 2932/AHD/2011 & 2482/AHD/2012 ARE APPEALS B Y THE ASSESSEE DIRECTED AGAINST TWO SEPARATE ORDERS OF THE LD. CIT (A)-III, BARODA DATED 14.10.2011 & 20.09.2012 PERTAINING TO A.Y. 2008-09 & 2009-10 RESPECTIVELY. 2. AS BOTH THESE APPEALS HAVE COMMON GRIEVANCE, THEREF ORE, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. 3. THE COMMON GRIEVANCE IN BOTH THESE APPEALS RELATES TO THE DENIAL OF DEDUCTION U/S. 54G OF THE ACT. 4. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT DURIN G THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE A.O. NOTICED T HAT THE ASSESSEE HAS SHOWN CAPITAL GAINS ARISING OUT OF THE SALE OF FACT ORY LAND. ASSESSEE HAS TAKEN THE IMPUGNED LAND ON RENT SINCE 1945 AND IN T HE YEAR 1994, THE IMPUGNED LAND WAS PURCHASED. THE AREA OF THE FACTOR Y LAND IS 36272 SQ. MTR. [ I.E. 390000 SQ. FT.]. OUT OF WHICH, LAND ADM EASURING 25282 SQ. MTR. [ I.E. 272000 SQ. FT.] WAS CONVERTED INTO STOC K-IN-TRADE ON 10.04.2006. SUBSEQUENTLY, THE ASSESSEE ENTERED INTO AGREEMENT WITH SPUN CONART DEVELOPERS FOR THE DEVELOPMENT OF THE L AND SO CONVERTED INTO STOCK-IN-TRADE. ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 3 5. DURING THE ASSESSMENT YEAR 2008-09, 42 PLOTS ADMEAS URING 1,64,619 SQ. FT. WERE SOLD FOR A CONSIDERATION OF RS. 5,77,81,26 9/-. THE ASSESSEE COMPUTED THE CAPITAL GAINS AS UNDER:- SALE PRICE 57781269 LESS: INDEX COST [COST PRICE RS. 5,20,193 INDEX OF THE YEAR OF SALE OF RS. 551, INDEX OF THE YEAR OF PURCHASE OF RS. 259 1106665 56674604 LESS:- INVESTED AS PER SECTION 54EC 5000000 LESS:- THE AMOUNT UTILIZED IN INVESTMENT IN PLANT AND MACHINERY, LAND AND BUILDING AT DUTTPURA, WAGHODIA ON SHIFTING OF FACTORY BUILDING AT JAMUNA BAUG I.E. URBAN AREA TO DUTTPURA, WAGHODIA AS PER SECTION 54G [AS PER THE FIXED ASSET SCHEDULE TO THE BALANCE SHEET AS ON 31.03.2008] 29769530 34769530 LONG TERM CAPITAL GAIN OFFERED FOR TAXATION 21 905070 6. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF DEDU CTION U/S. 54G OF THE ACT. ASSESSEE FILED A DETAILED REPLY TO SUBSTANTIAT E ITS CLAIM OF DEDUCTION STATING THAT IT HAS COMPLIED WITH THE CONDITIONS OF SECTION 54G, THE RELEVANT PART OF ASSESSEES REPLY READ AS UNDER:- 3.3 VIDE THIS OFFICE LETTER DATED 16.12.2010, THE A SSESSEE WAS REQUESTED TO GIVE JUSTIFICATION FOR THE ASSESSEES CLAIM OF DEDUCTION U/S. 54G OF THE INCOME-TAX ACT, 1961 AT RS. 2,97,69,350/-. IN RESPONSE, THE ASSESSE E HAS FILED ITS WRITTEN SUBMISSION. IT WAS STATED BY THE ASSESSEE THAT THE ASSESSEE HAS COMPLIED WITH ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 4 THE PROVISIONS OF SECTION 54G. THE ASSESSEE HAS PUR CHASED A LAND IN VILLAGE DUTTPURA IN 1995. THE ASSESSEE APPLIED FOR ELECTRIC CONNECTION IN 1999. THE FACTORY LICENSE WAS OBTAINED IN JULY, 1999. THE FACTORY LICENSE NO. IS 13650. THE ELECTRIC CONNECTION WAS GIVEN ON JUNE, 1999. THE FI RST ELECTRICITY BILL WAS OF JUNE, 1999. THE FACTORY STARTED PRODUCTION OF MS PIPE ON SMALL SCALE DURING FY.1999- 2000. THE SMALL SCALE OPERATION CONTINUED UPTO FY. 2005-2006. THE ASSESSEE COMPANY DECIDED TO SHIFT THE EXISTING FACTORY AT JA MUNA BAUG, BARODA URBAN AREA TO VILLAGE DUTTPURA - RURAL AREA. THE CERTIF ICATE FROM DUTTPURA GRAM PANCHAYAT TO THE EFFECT THAT THE DUTTPURA IS A RURA L AREA IS ALREADY FURNISHED AND TO MALE EXPANSION AT VILLAGE DUTTPURA FACTORY OUT O F THE SALE PROCEEDS THAT MAY BE RECEIVED ON SALE OF FACTORY LAND. THE ASESSEE STARTED MANUFACTURING DURING FY. 2006-2007 IN TWO NEW AREAS (I) MANUFACTURING OF SEAMLESS AND WELDED PIPE FITTINGS AND (II) MANUFACTURING OF ENGINEERING GOOD S LIKE M.S. TANKS, TRANSFORMER TANKS, STRUCTURES, ETC. THE COMPA NY HAS STARTED ADDITIONAL NEW AREAS DURING FY. 2007-2008 IS (I) RCC PIPE BY VERTI CAL CASTING METHOD [BY VIBRATION PROCESS] AND (II) MANUFACTURING AND SUPPL Y OF BAR / WIRE WRAPPED STEEL CYLINDERS (BWSC) PIPES. THE ATTENTION IS DRAWN TO P ARA NO. 3 OF THE DIRECTOR'S REPORT FOR THE F.Y. 2006-2007 AND 2007-2008. THE DI RECTORS HAVE GIVEN COMPLETE INFORMATION ABOUT THE SHIFTING. THE ASSESSEE CONSTR UCTED THE FACTORY BUILDING AND PURCHASED THE PLANT AND MACHINERY DURING FY. 2006-2007 AND 2007-2008 WORTH ABOUT RS.305 LAKHS WHICH IS FUNDED OUT OF CAP ITAL GAIN THAT HAS ARISEN ON SALE OF FACTORY LAND. THE SHIFTING IS CARRIED OUT A S A RESULT OF BOARD RESOLUTION PASSED IN JANUARY, 2006. COPY OF CAPITALIZED STATEM ENT, INVOICES FOR BUILDING, PLANT AND MACHINERY ARE FILED. 7. THE REPLY FILED BY THE ASSESSEE DID NOT FIND ANY FA VOUR WITH THE A.O. THE A.O. WAS OF THE FIRM BELIEF THAT THE LAND SOLD BY T HE ASSESSEE WAS NOT A LAND USED BY THE ASSESSEE FOR THE PURPOSE OF ITS BU SINESS OF INDUSTRIAL UNDERTAKING BUT WAS CONVERTED INTO STOCK-IN-TRADE I N RESPECT OF ITS BUSINESS AS DEVELOPER. ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 5 8. THE A.O. FURTHER OBSERVED THAT OUT OF CAPITAL GAINS , THE ASSESSEE OUGHT TO HAVE PURCHASED NEW MACHINERY OR PLANT OR BUILDING O R LAND ETC. FOR THE PURPOSE OF SHIFTING OF INDUSTRIAL UNDERTAKING TO NE W AREA AND SUCH ACQUISITION HAS TO BE WITHIN A PERIOD OF ONE YEAR B EFORE OR THREE YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE AND SINCE THE ASSESSEE HAS NOT FULFILLED THESE CONDITIONS, IT IS NOT ELIGI BLE FOR DEDUCTION U/S. 54G OF THE ACT AND ACCORDINGLY THE A.O. DENIED THE CLAI M. 9. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT MUCH SUCCESS. AFTER CONSIDERING THE FACTS AND THE SUBMIS SIONS AND THE RESOLUTION OF THE BOARD OF DIRECTOR, THE LD. CIT(A) WAS OF THE OPINION THAT THE ASSESSEE HAS NOT TRANSFERRED THE ORIGINAL ASSET S TO THE NEW PLACE RATHER ORIGINAL ASSETS HAD BEEN DEMOLISHED. FURTHER , AS PER THE PROVISIONS OF SECTION 54G, THE SHIFTING OF THE INDUSTRIAL UNDE RTAKING TO NON-URBAN AREA WAS REQUIRED TO BE COMPLETED WITHIN THREE YEAR S OF THE TRANSFER OF THE LAND OR BUILDING OR MACHINERY USED IN THE INDUS TRIAL UNDERTAKING. THE FIRST APPELLATE AUTHORITY WAS OF THE VIEW THAT IN T HE CASE OF THE ASSESSEE, THE DATE OF TRANSFER IS 10.04.2006 AND SINCE THE AS SESSEE HAS NOT COMPLIED THE MANDATORY CONDITIONS FOR THE ELIGIBILI TY U/S. 54G OF THE ACT FROM THIS DATE OF TRANSFER. THE LD. CIT(A) CONFIRME D THE FINDINGS OF THE A.O. 10. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE L D. COUNSEL FOR THE ASSESSEE VEHEMENTLY STATED THAT THE LOWER AUTHORITI ES HAVE NOT APPRECIATED THE PROVISIONS OF THE ACT IN THE TRUE S PIRIT. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE HAS FULFILLED ALL THE MANDATORY CONDITIONS MAKING IT ELIGIBLE FOR DEDUCTION U/S. 54G OF THE AC T AND THE FACTS HAVE NOT BEEN PROPERLY APPRECIATED BY THE REVENUE AUTHORITIE S. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE, CBDT CIRCULAR N O. 791, DATED ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 6 02.06.2000 AND IN SUPPORT RELIANCE WAS PLACED ON TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SANJEEV LAL AN D SMT. SHAIL MOTILAL 365 ITR 389. FURTHER, RELIANCE WERE PLACED ON THE DECISION OF THE TRIBUNAL MUMBAI BENCHES IN THE CASE OF ENPRO FINANC E LTD. IN ITA NO. 4428/MUM/2008 AND ON THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF FIBRE BOARDS (P.) LTD. 376 ITR 596. 11. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE ORD ERS OF THE LOWER AUTHORITIES. 12. HAVING HEARD THE RIVAL CONTENTIONS, WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE LOWER AUTHORITIE S AND HAVE CAREFULLY PERUSED THE JUDICIAL DECISIONS BROUGHT TO OUR NOTIC E. 13. THE ENTIRE DISPUTE REVOLVES AROUND THREE FACTS:- (I) WHETHER THE IMPUGNED LAND WHICH GAVE RISE TO CA PITAL GAINS WAS A CAPITAL ASSET USED IN THE BUSINESS OF INDUSTRIAL UN DERTAKING. (II) WHETHER THE DATE OF TRANSFER HAS TO BE CONSTRU ED AS 10.04.2006. (III) WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTIO N U/S. 54G OF THE ACT. 14. LET US FIRST CONSIDER THE RELEVANT PROVISIONS OF SE CTION 54G OF THE ACT WHICH READS AS UNDER:- 54G. (1) SUBJECT TO THE PROVISIONS OF SUB-SECTION ( 2), WHERE THE CAPITAL GAIN ARISES FROM THE TRANSFER OF A CAPITAL ASSET, B EING MACHINERY OR PLANT OR BUILDING OR LAND OR ANY RIGHTS IN BUILDING OR LAND USED FOR THE PURPOSES OF THE BUSINESS OF AN INDUSTRIAL UNDERTAKING SITUATE I N AN URBAN AREA, EFFECTED IN THE COURSE OF, OR IN CONSEQUENCE OF, THE SHIFTING OF SU CH INDUSTRIAL UNDERTAKING (HEREINAFTER IN THIS SECTION REFERRED TO AS THE ORI GINAL ASSET) TO ANY AREA ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 7 (OTHER THAN AN URBAN AREA) AND THE ASSESSEE HAS WIT HIN A PERIOD OF ONE YEAR BEFORE OR THREE YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE, (A) PURCHASED NEW MACHINERY OR PLANT FOR THE PURPOS ES OF BUSINESS OF THE INDUSTRIAL UNDERTAKING IN THE AREA TO WHICH THE SAI D UNDERTAKING IS SHIFTED; (B) ACQUIRED BUILDING OR LAND OR CONSTRUCTED BUILDI NG FOR THE PURPOSES OF HIS BUSINESS IN THE SAID AREA; (C) SHIFTED THE ORIGINAL ASSET AND TRANSFERRED THE ESTABLISHMENT OF SUCH UNDERTAKING TO SUCH AREA; AND (D) INCURRED EXPENSES ON SUCH OTHER PURPOSE AS MAY BE SPECIFIED IN A SCHEME FRAMED BY THE CENTRAL GOVERNMENT FOR THE PUR POSES OF THIS SECTION. THEN, INSTEAD OF THE CAPITAL GAIN BEING CHARGED TO INCOME-TAX AS INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE, IT SHALL BE DEALT WITH IN ACCORDANCE WITH THE FOLLOWING PROVISIONS OF THIS SE CTION, THAT IS TO SAY, (I) IF THE AMOUNT OF THE CAPITAL GAIN IS GREATER TH AN THE COST AND EXPENSES INCURRED IN RELATION TO ALL OR ANY OF THE PURPOSES MENTIONED IN CLAUSES (A) TO (D) (SUCH COST AND EXPE NSES BEING HEREAFTER IN THIS SECTION REFERRED TO AS THE NEW AS SET), THE DIFFERENCE BETWEEN THE AMOUNT OF THE CAPITAL GAIN AND THE COST OF THE NEW ASSET SHALL BE CHARGED UNDER SECTION 45 AS THE INCO ME OF THE PREVIOUS YEAR; AND FOR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISING FROM ITS TRANSFE R WITHIN A PERIOD OF THREE YEARS OF ITS BEING PURCHASED ACQUIRED, CON STRUCTED OR TRANSFERRED, AS THE CASE MAY BE, THE COST SHALL BE NIL; OR (II) IF THE AMOUNT OF THE CAPITAL GAIN IS EQUAL TO, OR LESS THAN, THE COST OF THE NEW ASSET, THE CAPITAL GAIN SHALL NOT BE CHARGE D UNDER SECTION 45; AND FOR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISING FROM ITS TRANSFER WITHIN A PERIOD OF THREE YEARS OF ITS BEING PURCHASED, ACQUIRED, CONSTRUCTED OR TRANSFERRED, ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 8 AS THE CASE MAY BE THE COST SHALL BE REDUCED BY THE AMOUNT OF THE CAPITAL GAIN. EXPLANATION.IN THIS SUB-SECTION, 'URBAN AREA' MEAN S ANY SUCH AREA WITHIN THE LIMITS OF A MUNICIPAL CORPORATION OR MUN ICIPALITY AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE POPULATION, CO NCENTRATION OF INDUSTRIES, NEED FOR PROPER PLANNING OF THE AREA AN D OTHER RELEVANT FACTORS, BY GENERAL OR SPECIAL ORDER, DECLARE TO BE AN URBAN AREA 32 FOR THE PURPOSES OF THIS SUB-SECTION. (2) THE AMOUNT OF CAPITAL GAIN WHICH IS NOT APPROPR IATED BY THE ASSESSEE TOWARDS THE COST AND EXPENSES INCURRED IN RELATION TO ALL OR ANY OF THE PURPOSES MENTIONED IN CLAUSES (D) TO (D) OF SUB-SEC TION (1) WITHIN ONE YEAR BEFORE THE DATE ON WHICH THE TRANSFER OF THE ORIGIN AL ASSET TOOK PLACE, OR WHICH IS NOT UTILIZED BY HIM FOR ALL OR ANY OF THE PURPOSES AFORESAID BEFORE THE DATE OF FURNISHING THE RETURN OF INCOME UNDER S ECTION 139, SHALL BE DEPOSITED BY HIM BEFORE FURNISHING SUCH RETURN [SUC H DEPOSIT BEING MADE IN ANY CASE NOT LATER THAN THE DUE DATE APPLICABLE IN THE CASE OF THE ASSESSEE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139] IN AN ACCOUNT IN ANY SUCH BANK OR INST ITUTION AS MAY BE SPECIFIED IN, AND UTILIZED IN ACCORDANCE WITH, ANY SCHEME WHICH THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFF ICIAL GAZETTE, FRAME IN THIS BEHALF AND SUCH RETURN SHALL BE ACCOMPANIED BY PROOF OF SUCH DEPOSIT; AND, FOR THE PURPOSES OF SUB-SECTION (1), THE AMOUN T, IF ANY, ALREADY UTILISED BY THE ASSESSEE FOR ALL OR ANY OF THE PURP OSES AFORESAID TOGETHER WITH THE AMOUNT, SO DEPOSITED SHALL BE DEEMED TO BE THE COST OF THE NEW ASSET: PROVIDED IF THE AMOUNT DEPOSITED UNDER THIS SUB-SEC TION IS NOT UTILIZED WHOLLY OR PARTLY FOR ALL OR ANY OF THE PURPOSES MEN TIONED IN CLAUSES (A) TO (D) OF SUB-SECTION (1) WITHIN THE PERIOD SPECIFIED IN THAT SUB-SECTION, THEN, ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 9 (I) THE AMOUNT NOT SO UTILIZED SHALL BE CHARGED UNDER S ECTION 45 AS THE INCOME OF THE PREVIOUS YEAR IN WHICH THE PERIOD OF THREE YEARS FROM THE DATE OF THE TRANSFER OF THE ORIGINAL ASSET EXPI RES ; AND (II) THE ASSESSEE SHALL BE ENTITLED TO WITHDRAW SUCH AMO UNT IN ACCORDANCE WITH THE SCHEME AFORESAID. 15. A PERUSAL OF THE AFOREMENTIONED SECTION SHOWS THAT CAPITAL ASSETS SHOULD BE MACHINERY OR PLANT OR BUILDING OR LAND US ED FOR THE PURPOSE OF BUSINESS OF INDUSTRIAL UNDERTAKING SITUATE IN AN UR BAN AREA AND THE TRANSFER SHOULD BE EFFECTED IN THE COURSE OF, OR IN CONSEQUENCES OF, THE SHIFTING OF SUCH INDUSTRIAL UNDERTAKING TO NON-URBA N AREA AND THE LONG TERM CAPITAL GAIN SHOULD BE UTILIZED BEFORE ONE YEA R FROM THE DATE OF TRANSFER OR WITHIN THREE YEARS FROM THE DATE OF TRA NSFER. 16. THE BONE OF CONTENTION IS THE DATE OF TRANSFER U/S. 2(47)(IV), IT IS PROVIDED- TRANSFER IN RELATION TO A CAPITAL ASSET INCLUDES- (IV) IN CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF I NTO OR IS TREATED BY HIM AS, STOCK-IN-TRADE OF A BUSINESS CARRIED ON BY HIM, OF SUCH CONVERSION OR TREATMENT. 17. SECTION 45(1) READS AS UNDER:- 45(1) ANY PROFITS OR GAINS ARISING FROM THE TRANSFE R OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL, SAVE AS OTHERW ISE PROVIDED IN SECTIONS [***] [54B, [***] 54D, [54EA, 54EB,] 54F [ 54G AND 54H]]], BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD CAPITAL GAINS, AND SHAL L BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER T OOK PLACE. 18. AND SECTION 45(2) READS AS UNDER:- 45(2)- NOTWITHSTANDING ANYTHING CONTAINED IN SUB-S ECTION (1), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY OF CONVE RSION BY THE OWNER OF A ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 10 CAPITAL ASSET INTO, OR ITS TREATMENT BY HIS AS STOC K-IN-TRADE OF A BUSINESS CARRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME-TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM AND, FOR THE PURPOSES OF SECTION 48, THE FAI R MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT S HALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACC RUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. 19. READING ALL THE AFOREMENTIONED SECTIONS TOGETHER, I N OUR UNDERSTANDING OF THE LAW, MEANS THAT CAPITAL GAINS ARISING OUT OF THE CONVERSION OF A CAPITAL ASSET AS STOCK-IN-TRADE, NO DOUBT THE TRANSFER WOULD TAKE PLACE ON THE DATE OF CONVERSION BUT THE LIABILITY TO PAY CAPITAL GAINS TAX WILL ARISE ONLY IN THE YEAR OF SALE. 20. COMING BACK TO THE PROVISIONS OF SECTION 54G, THE C APITAL GAINS HAVE TO BE UTILIZED FOR THE CLAIM OF DEDUCTION WITHIN A SPECIFIED PERIOD. SINCE THE CAPITAL GAINS HAS TO BE UTILIZED, THE LOGICAL C ONCLUSION WOULD BE THE CAPITAL GAINS ARISING ON THE DATE OF SALE, THEREFOR E, IN OUR UNDERSTANDING OF THE LAW, ALTHOUGH THE TRANSFER TOOK PLACE ON 10. 04.2006 BUT THE CAPITAL GAIN AROSE ON THE DATE OF SALE OF THE CAPITAL ASSET . 21. THE CAPITAL GAINS S0 AROSE WAS UTILIZED BY THE ASSE SSEE FOR THE PURPOSE OF BUSINESS OF INDUSTRIAL UNDERTAKING AND, THEREFOR E, THE ASSESSEE FULFILS THE MANDATORY CONDITION. THE ASSESSEE PURCHASED THE LAND AT VILLAGE DUTTPURA WHICH IS A NON-URBAN AREA, PUT UP THE FACT ORY AND PURCHASED NEW PLANT AND MACHINERY BEFORE ONE YEAR OF DATE OF TRANSFER. THE ASSESSEE HAS UTILIZED THE LTCG FOR THE PERIOD FROM 06.08.2006 TO 31.03.2008 AS UNDER:- (I ) PURCHASE OF NEW PLANT AND MACHINERY RS. 1 ,93,94,933/- ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 11 (II) CONSTRUCTION OF NEW FACTORY BUILDING RS. 1,0 3,74,597/- TOTAL RS. 2,97,69,530/- 22. SINCE THE FIRST SALE DEED WAS EXECUTED ON 06.08.200 6, IT IS THIS DATE WHICH HAS TO BE TAKEN INTO CONSIDERATION AND NOT TH E DATE OF CONVERSION AS HELD BY THE LOWER AUTHORITIES. IT WOULD BE WORTH MENTIONING HERE, THE CBDT CIRCULAR NO. 791, DATED 02.06.2000. TO ALL CCITS AND DGITS SUBJECT: TAX EXEMPTION ON THE SALE OF CAPITAL ASSET S CONVERTED INTO STOCK- IN-TRADE- CLARIFICATION REGARDING SECTION 45(2) REA D WITH SECTIONS 54E, 54EA, 54EB AND 54EC OF THE INCOME-TAX ACT, 1961 SIR, SECTION 2(47) OF THE INCOME-TAX ACT PROVIDES THAT A NY CONVERSION OF CAPITAL ASSETS INTO STOCK-IN-TRADE SHALL BE REGARDED AS A T RANSFER. THIS TRANSFER ARISES IN THE YEAR IN WHICH SUCH CONVERSION TAKES PLACE AND, ACCORDINGLY, CAPITAL GAIN WOULD NORMALLY ARISE IN THAT VERY YEAR. HOWEVER, SE CTION 45(2) OF THE ACT POSTPONES THE ASSESSMENT OF SUCH CAPITAL GAINS TO T HE YEAR IN WHICH THE STOCK-IN- TRADE IS ACTUALLY SOLD OR OTHERWISE TRANSFERRED BY THE ASSESSEE. 2. IN ORDER TO QUALIFY FOR DEDUCTION UNDER SECTION 54E OF THE ACT, THE INVESTMENT IN SPECIFIED ASSETS WAS REQUIRED TO BE MADE WITHIN SIX MONTHS FROM THE DATE OF TRANSFER. A QUESTION HAD ARISEN AS TO WHETHER THE D ATE OF TRANSFER, AS REFERRED TO IN SECTION 54E OF THE ACT, IS THE DATE OF CONVERSIO N OF THE CAPITAL ASSET INTO STOCK- IN-TRADE OR THE DATE ON WHICH THE STOCK-IN-TRADE IS SOLD .OR OTHERWISE TRANSFERRED BY THE ASSESSEE. 3. THE BOARD HAD EARLIER ISSUED A CIRCULAR NO. 560, DATED 18TH MAY, 1990 1 , IN CONSULTATION WITH THE MINISTRY OF LAW, CLARIFYING T HAT FOR PURPOSES OF SECTION 54E OF THE ACT, THE DATE OF TRANSFER IN SUCH CASES IS T HE DATE ON WHICH THE CAPITAL ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 12 ASSET IS CONVERTED BY THE ASSESSEE INTO STOCK-IN-TR ADE AND NOT THE DATE ON WHICH SUCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRE D BY THE ASSESSEE. SECTION 54E BECAME INOPERATIVE FOR TRANSFERS MADE ON OR AFTER 1 ST APRIL, 1992. 4. SECTIONS 54EA, 54EB AND 54EC ALSO PROVIDE DEDUCT ION FROM LONG-TERM CAPITAL GAIN IF THE SALE PROCEEDS/LONG-TERM CAPITAL GAIN IS INVESTED IN SPECIFIED ASSETS WITHIN A PERIOD OF SIX MONTHS FROM THE DATE OF TRAN SFER. IT IS NOT POSSIBLE FOR AN ASSESSEE TO MAKE THE REQUIRED INVESTMENT UNDER THE AFORESAID SECTIONS AT THE POINT OF CONVERSION OF CAPITAL ASSET INTO STOCK-IN- TRADE BECAUSE THE RIGHT TO COLLECT SALES CONSIDERATION IN SUCH CASES ARISES ONLY AT TH E POINT OF SALE OR TRANSFER OTHERWISE OF STOCK-IN-TRADE. THE BOARD HAS CONSIDER ED THE MATTER AFRESH IN CONSULTATION WITH THE MINISTRY OF LAW AND HAS DECID ED THAT THE PERIOD OF SIX MONTHS FOR MAKING INVESTMENTS IN SPECIFIED ASSETS F OR THE PURPOSE OF SECTIONS 54EA, 54EB AND 54EC SHOULD BE TAKEN FROM THE DATE S UCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED, IN TERMS OF SECTION 45(2) OF THE ACT. 5. THIS MAY BE BROUGHT TO THE KNOWLEDGE OF ALL OFFI CERS OF YOUR REGION. (SD.) KAMLESH C. VARSHNEY, UNDER SECRETARY TO GOVERNM ENT OF INDIA. [F. NO. 225/98/2000/ITA -II] 23. FURTHER, IT CAN BE SEEN THAT SINCE SECTION 54G IS A BENEFICIAL PROVISION AND, THEREFORE, IT HAS TO BE INTERPRETED LIBERALLY. THE OBSERVATIONS OF THE HONBLE SUPREME COURT IN THE CASE OF SANJEEV LAL AN D SMT. SHAIL MOTILAL (SUPRA) ARE PERTINENT TO MENTION HERE.:- THE INTENTION OF THE LEGISLATURE IN ENACTING SECTI ON 54 IS TO GIVE THE ASSESSEE RELIEF IN THE MATTER OF PAYMENT OF TAX ON LONG-TERM CAPITAL GAINS. THE APPELLANTS WERE ENTITLED TO RELIEF UNDER SECTIO N 54 OF THE ACT IN RESPECT OF THE LONG TERM CAPITAL GAINS WHICH THEY HAD EARNE D IN PURSUANCE OF TRANSFER OF THEIR RESIDENTIAL PROPERTY AND USED FOR PURCHASE OF A NEW ASSET/RESIDENTIAL HOUSE. DECISION OF THE PUNJAB AND HARYANA HIGH COURT ( PRINTED BELOW) REVERSED. ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 13 A PURPOSIVE INTERPRETATION SHOULD BE GIVEN TO THE PROVISIONS OF THE ACT WHILE CONSIDERING A CLAIM FOR EXEMPTION FROM TAX. 24. ASSUMING, YET NOT ACCEPTING, THAT THE DATE OF TRANS FER IS 10.04.2006 AS HELD BY THE LOWER AUTHORITIES:- PRESUMING THAT THE DATE OF TRANSFER IS 10-04-2006 AS HELD BY CIT(A) THAN THE COST OF ACQUISITION OF PLANT & MACHINERY AND CO NSTRUCTION OF FACTORY BUILDING MADE UP TO 10-04-2009 ARE ELIGIBLE FOR DED UCTION UNDER SECTION 54G. THE ASSESSEE HAS UTILIZED RS. 2.97 CRORE DURIN G A.Y. 2008-2009 IN ACQUIRING NEW PLANT AND MACHINERY AND COST OF CONST RUCTION OF FACTORY BUILDING. SIMILARLY THE ASSESSEE HAS INCURRED EXPEN DITURE OF RS. 65,85,913 IN ACQUIRING PLANT AND MACHINERY AND CONSTRUCTION O F FACTORY BUILDING FOR THE PERIOD FROM 01-04-2008 TO 31-03-2009. THE SAID AMOUNT IS UTILIZED WITHIN THREE YEARS FROM THE DATE OF TRANSFER I.E. F ROM 10-04-2006 TO 31-03- 2009. THEREFORE, SINCE THE ASSESSEE HAS PURCHASED T HE MACHINERY OR CONSTRUCTED THE FACTORY BUILDING BEFORE 31-03-2009. HE IS ELIGIBLE TO GET DEDUCTION UNDER SECTION 54G IN RESPECT OF THE COST INCURRED DURING A.Y. 2008-2009 AND A.Y. 2009-2010. THE LEARNED CIT(A) IN A.Y. 2008-2009 MIS-APPRECIATED THE FACTS TO THE EFFECT THAT THE AS SESSEE HAS NOT PURCHASED OR CONSTRUCTED THE FACTORY BUILDING WITHI N THE TIME ALLOWED UNDER SECTION 54G. IN FACT THE ASSESSEE HAS PURCHAS ED THE MACHINERY AND CONSTRUCTED THE FACTORY BUILDING UPTO 31-03-200 8 AND 31-03-2009 I.E. WITHIN THREE YEARS FROM 10-04-2006. FURTHER, THE CI T(A) FOR A.Y. 2009- 2010 HELD THAT THE UTILIZATION AS STATED ABOVE IS N OT AVAILABLE SINCE THE SHIFTING IS NOT COMPLETED WITHIN TIME ALLOWED [PLEA SE REFER PARA NO. 4.4 ON PAGE NO. 24 OF CIT(A) ORDER FOR A.Y. 2009-2010]. TH E LEARNED CIT(A) MIS- APPRECIATED THE LAW. SECTION 54G DOES NOT REQUIRE T O COMPLETE SHIFTING IN A SPECIFIED TIME LIMIT. WHAT IS REQUIRED IS THAT TH E CAPITAL GAIN SHOULD BE UTILIZED IN PURCHASE OF NEW PLANT AND MACHINERY OR CONSTRUCTION OF FACTORY BUILDING. THEREFORE THE ASSESSEE IS ENTITLED TO DED UCTION UNDER SECTION 54G. ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 14 25. ANOTHER OBJECTION FOR DENYING THE CLAIM IS THAT THE ASSESSEE HAS NOT OPENED CAPITAL GAIN ACCOUNT AND DEPOSITED THE PROCE EDS BEFORE THE DUE DATE OF FILING OF THE RETURN. HOWEVER, WE FIND THA T THE ASSESSEE HAS CLAIMED UTILIZATION ONLY UP TO THE END OF THE FINAN CIAL YEAR 31.03.2008 AND 31.03.2009 AND THE UNUTILIZED AMOUNT HAS BEEN O FFERED FOR LONG TERM CAPITAL GAIN, THEREFORE, THE QUESTION OF OPENING OF LTCG ACCOUNT AND DEPOSITING BALANCE FUNDS DOES NOT ARISE. 26. ANOTHER OBJECTION RELATES TO THE ACQUISITION OF THE OFFICE IN ALKAPURI ARCADE BUT THEN THE COST OF ALKAPURI ARCADE OFFICE IS NOT CLAIMED AS DEDUCTION. EVEN, OTHERWISE SECTION 54G DOES NOT BAR FROM ACQUIRING ANY OTHER ASSETS IN URBAN AREA. 27. EVEN, IF THE ENTIRE OPERATIONS HAVE NOT BEEN SHIFTE D THE CBDT CIRCULAR NO. 495 DATED 22.09.1987 CLEARLY MENTIONED THAT IT IS NOT NECESSARY TO SHIFT THE ENTIRE OPERATION. 28. CONSIDERING THE AFOREMENTIONED FACTS IN TOTALITY IN CONJUNCTION WITH THE RELEVANT PROVISIONS OF THE ACT DISCUSSED HEREINABOV E, IN OUR CONSIDERED OPINION, THE ASSESSEE HAS FULFILLED THE MANDATORY C ONDITIONS MAKING ITSELF ELIGIBLE FOR DEDUCTION U/S. 54G OF THE ACT. WE ACCO RDINGLY SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO A LLOW DEDUCTION U/S. 54G OF THE ACT TO THE ASSESSEE. THE COMMON GRIEVANCE IN BOTH THESE APPEALS IS ALLOWED IN FAVOUR OF THE ASSESSEE AND AGAINST TH E REVENUE. ITA NO. 2482/AHD/2012 PERTAINING TO A.Y. 2009-10 . ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 15 29. ONE MORE GRIEVANCE OF THE ASSESSEE RELATES TO THE A DDITIONS MADE U/S. 14A OF THE ACT. WHILE SCRUTINIZING THE RETURN OF IN COME, THE A.O. NOTICED THAT THE ASSESSEE HAS EARNED TAX EXEMPTED INCOME OF DIVIDEND RS. 77,211/-, SHARE OF INCOME FROM PARTNERSHIP FIRM OF RS. 31,94,459/- AND TAX FREE INTEREST FROM US-64 BOND OF RS. 5,996/-. T HE A.O. FOUND THAT THE ASSESSEE HAS SUO MOTU DISALLOWED A SUM OF RS. 1,81, 902/- U/S. 14A OF THE ACT. 30. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE DISALLOWANCE U/S. 14A READ WITH RULE 8D SHOULD NOT BE MADE. THE ASSES SEE CLAIMED THAT IT HAS NOT INCURRED ANY EXPENSES ON BORROWING FROM THE INVESTMENT AS THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS. THEREF ORE, THERE CANNOT BE ANY DISALLOWANCE U/S. 14A OF THE ACT, THE A.O. D ENIED THE CLAIM OF THE ASSESSEE AND PROCEEDED BY COMPUTING THE DISALLOWANC E U/S. 14A READ WITH RULE 8D OF THE ACT. THE DISALLOWANCE SO COMPUT ED WAS AT RS. 2,42,237/- AND AFTER DEDUCTING THE SUO MOTU DISALLO WANCE OF THE ASSESSEE AT RS. 1,81,902/-, THE A.O. ADDED AN AMOUNT OF RS. 60,335/-. 31. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 32. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED THAT THE ENTIRE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS AND NON E OF THE INVESTMENTS HAVE BEEN MADE OUT OF BORROWED FUNDS. T HEREFORE, THERE IS NO QUESTION OF ANY INVOLVEMENT OF INTEREST ON BORRO WED FUNDS. 33. PER CONTRA, THE LD. D.R. SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. ITA NOS. 293 2/AHD/11 & 2482/AHD/12 . A.YS. 2008-0 9 & 2009-10 16 34. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE COM PUTATION OF DISALLOWANCE MADE BY THE A.O. ON PAGE 12 OF THE ASS ESSMENT ORDER. WE FIND THAT AT CLAUSE (I), THE A.O HAS HIMSELF MENTIO NED THAT THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME AS NIL WHICH MEANS THAT THERE IS NO ELEMENT OF BORROWED FUNDS. HOWEVER, IN CLAUSE (II), THE A.O. HAS COMPUTED THE DISALLOWANCE OF EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR. THIS STAND OF THE A.O. IS CONTRADICTORY. THEREFORE, IN OUR CONSIDERED OPINION, THE ELEMENT OF INTEREST TAKEN FOR CONSIDERATION OF THE DISALLOWANC E FOR COMPUTING RS. 2.04.538/- IS UNCALLED FOR AND DESERVES TO BE DELET ED. THE BALANCE AMOUNT REMAINS IS RS. 37,699/-. SINCE, ADMITTEDLY T HE ASSESSEE HAS SUO MOTU DISALLOWED RS. 1,81,902/-, NO FURTHER DISALLOW ANCE IS REQUIRED. WE ACCORDINGLY DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 60,335/-. THE SECOND GRIEVANCE IN A.Y. 2009-10 IN ITA NO. 2482/AH D/2012 IS ALLOWED. 35. IN THE RESULT, THE IMPUGNED APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 22 - 06 - 2016. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD