OUR LADY OF BAND ENGG. P.LTD, MUMBAI V. ASST CIT 10(3), MUMBAI

ITA 3109/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93066 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 24-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 07-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: N R AGARWAL
• Keywords: Capital asset; Depreciation; Additional evidence; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI , , BEFORE SHRI SANJAY ARORA , A M AND SHRI SANJAY GARG , J M ./ I.T.A. NO. 3109/MUM/2012 ( / ASSESSMENT YEAR: 2009 - 10 ) OUR LADY OF BAND ENGG. PVT. LTD. C/O. VIDYA & CO., 27 SHAGUN ARCADE, GOREGAON EAST, MUMBAI - 400 063 / VS. ASST. CIT - 10(3), MUMBAI ./ ./ PAN/GIR NO. AAACO 5804 B ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI N. R. AGARWAL / RESPONDENT BY : SHRI JEETENDRA K UMAR / DATE OF HEARING : 30.03.2015 / DATE OF PRONOU NCEMENT : 29 .0 6 .2015 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 22 , MUMBAI (CIT(A) FOR SHORT) DATED 13.03.2012 , DISMISSING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2009 - 10 VIDE ORDER DATED 24.12.2011 . 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY RETURNED LONG TERM CAPITAL GAIN (LTCG) FOR THE YEAR AT RS. 1,35,96,138/ - . THE SAME WAS ON SALE OF FACTORY LAND AND BUILDING, AGAINST WHICH EXEMPTION U/S.54 FOR INVESTMENT IN REC BONDS AT RS. 50 LACS (ON 2 ITA NO. 3109/MUM/2012 (A.Y. 2009 - 10 ) OUR LADY OF BAND ENGG. PVT. LTD. VS. ASST. CIT 31.12.2008), WAS CLAIMED. WHILE THE LAND (1,000 SQ.MTS), WHICH WAS ON LEASE - HOLD BASIS FROM MID C SINCE 1992, WAS A LONG - TERM CAPITAL ASSET, THE FACTORY BUILDING (ADMEASURING 340 SQ MTS.), BEING A DEPRECIABLE ASSET, CAPITAL GAIN THEREON WOULD HAVE TO BE COMPUTED U/S.50 OF THE ACT AS SHORT TERM CAPITAL GAIN (STCG). THUS, IN THE VIEW OF THE ASSESSING O FFICER (AO), THE CAPITAL GAIN SHALL HAVE TO BE COMPUTED FOR LAND & BUILDING SEPARATELY, REQUIRING ASCRIBING THE SALE CONSIDERATION, RECEIVED IN THE COMPOSITE SUM OF RS. 2 CRORES, TO EACH. THE FACTORY BUILDING WAS SUBJECT TO DEPRECIATION @ 10% P.A. WORKING BACKWARD ON THE BASIS OF ITS WRITTEN DOWN VALUE (WDV) AS AT THE END OF THE IMMEDIATELY PRECEDING YEAR (RS. 3 LACS), HE COMPUTED ITS COST AT RS. 1 4 . 5 7 LACS, WHILE THAT OF THE LEASEHOLD LAND WAS AT RS. 3.04 LACS, YIELDING A COST RATIO OF RS. 17.25: 82.75. T HE CAPITAL GAIN FOR THE TWO ASSETS WAS WORKED OUT ACCORDINGLY , AS: LTCG (AT RS. 26,57,723) AND STCG (AT RS. 1,62,50,0230). THE ASSESSEE DISPUTED THE SAME, STATING THAT THE FACTORY BUILDING HAD IN FACT BEEN CONSTRUCTED AT A COST OF RS. 6,30,433/ - , WITH MAJO R RENOVATION CARRIED OUT (AT RS. 4,20,300/ - ) IN F.Y.1994 - 9 5 . THE AO WAS THUS WRONG IN WORKING THE ORIGINAL COST OF THE FACTORY BUILDING AT RS. 14.57 LACS. FURTHER, THE SALE VALUE OF THE FACTORY WAS IN FACT THAT OF THE PLOT OF LAND ALONE, THE MARKET NOT PLA CING ANY VALUE OF THE SUPERSTRUCTURE, ALSO SEEKING TO PLACE ON RECORD THE MARKET VALUE OF THE PLOT AS PER THE STAMP VALUATION AUTHORITY. THE SAME, HOWEVER, DID NOT FIND FAVOUR WITH THE LEARNED CIT(A). THE ASSESSEE HAD CLEARLY SOLD LAND AND BUILDING, SO THA T THE TOTAL SALE VALUE HAD TO BE ALLOCATED TO BOTH, FOR WHICH A REASONABLE BASIS IS TO BE, AND IN FACT STOOD, ADOPTED. NO SUFFICIENT CAUSE HA D BEEN SHOWN BY THE ASSESSEE FOR NOT FURNISHING THE MATERIALS BEING NOW SOUGHT TO BE RELIED UPON, SO THAT THE SAME WERE NOT ADMITTED. THE ASSESSMENT OF THE CAPITAL GAINS BEING CONFIRMED THUS, THE ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. IN OUR CLEAR VIEW, FIRSTLY, BOTH THE PARTIES ARE AT FAULT. THE ASSESSEE, ON I T S PART, HAD NOT FURNISHED THE RELEVANT MATERIALS SO AS TO ENABLE PROPER ESTIMATION OF THE SALE VALUE TO BE IMPUTED TO EACH OF THE TWO ASSETS AND, THUS, A PROPER ASSESSMENT OF LTCG AND STCG. THIS, DESPITE BEING REPRESENTED BEFORE BOTH THE REVENUE AUTHORIT IES TO WHOM THE MATTER 3 ITA NO. 3109/MUM/2012 (A.Y. 2009 - 10 ) OUR LADY OF BAND ENGG. PVT. LTD. VS. ASST. CIT HAD TRAVELLED PRIOR HERETO . WE, THUS, DO NOT S ET MUCH STORE FOR ITS PLEA FOR ADMISSION OF ADDITIONAL EVIDENCE/S. AT THE SAME TIME, IT IS UNDENIABLE THAT WHILE LAND DOES NOT DEPRECIATE, BUILDING DOES, AND WHICH IS PRECISELY THE REASON FOR TREATING THE TWO ASSETS SEPARATELY, EVEN AS THE TWO FORM AN INTEGRAL PART OF THE SAME COMMERCIAL ASSET, I.E., AN INDUSTRIAL UNIT (REFER: CIT V. ALPS THEATRE [1967] 65 ITR 377 (SC) AND CIT V. CITI BANK N.A . [2003] 261 ITR 570 (BOM)). HOW COULD THEN, ON E MAY ASK, THE AO TREAT THE TWO AT PAR, WHICH ASSUMPTION UNDERLIES HIS APPROPRIATION ALGORITHM OR FORMULAE, I.E., BY TREATING THEIR RESPECTIVE COSTS (AT A PARTICULAR POINT OF TIME) AS THE BASIS. THIS REPRESENTS THE BASIC FALLACY IN THE REVENUES CASE . THE SAME PRESUMES THAT THE SAME FORCE S IMPINGE ON THE TWO, RESULTING IN THE SAME MARK UP OR INFLATION IN THEIR COST (PRICE) OVER TIME. LAND, BEING NOT SUBJECT TO DEPRECIATION, THE SOLE BASIS FOR THE MOVEMENT IN ITS PRICE WOULD BE THE MARKET, WHICH REPRESENTS T HE EQUILIBRIUM OF DEMAND AND SUPPLY FORCES, UNLESS AND TO THE EXTENT REGULATED, AS WHERE THE GOVERNMENT ACQUIRES AND PROVIDES LAND ON FREEHOLD OR LEASEHOLD BASIS; THE INSTANT BEING A CASE OF THE LATTER. BUILDING OR THE CIVIL CONSTRUCTION, IS, FIRSTLY, SUBJ ECT TO DEPRECIATION IN - AS MUCH IT HAS A DEFINED LIFE, WHICH COULD BE ASSESSED FAIRLY AND ACCURATELY ON THE BASIS OF THE TECHNICAL ANALYSIS OF THE STRUCTURE . T WO , THE BUILDING COST WOULD WITNESS VARIATION IN PRICE ALSO FOR THE R E ASON OF THE INCREASE IN THE PRICE OF THE VARIOUS INPUT MATERIALS WHICH TURN DEPEND S ON THE MARKET PRICE OF I T S FACTORS OF PRODUCTION , INCLUDING DIRECT LABOUR OF DIFFERENT TYPES, INVOLVING DIFFERENT SKILL SETS, THAT IS ENGAGED . WE ARE, HOWEVER, I N AGREEMENT WITH THE REVENUE THAT IT IS BOTH THE LAND AND BUILDING THAT CAN BE CONSIDERED AS HAVING BEEN SOLD TOGETHER FOR A COMPOSITE PRICE. THIS IS AS THERE IS NOTHING ON RECORD TO SHOW THAT THE SALE CONSIDERATION WAS ONLY TOWARDS LAND. THE PROPER BASIS , THEREFORE, FOR ARRIVING AT A FAIR R ATIO BETWEEN, OR THE COMPARATIVE WEIGHTS TO BE ASSIGNED TO, THE TWO ASSETS SOLD TOGETHER (AS A UNIT) , IS TO VALUE THEM INDEPENDENTLY AT THEIR RESPECTIVE MARKET PRICES. THE ASSESSEE HAS IN THIS REGARD ADDUCED THE SALE VALUE OF LAND. THIS MAY BE RELEVANT, TH OUGH MAY HAVE TO BE FACT OR ED FOR THE UNEXPIRED PERIOD OF LEASE INASMUCH THE RIGHTS I N LAND ARE FOR A DEFINED PERIOD. AGAIN , THE BUILDING VALUE AT CURRENT PRICES SHALL HAVE TO BE DISCOUNTED FOR THE DEPRECIATION FOR THE 4 ITA NO. 3109/MUM/2012 (A.Y. 2009 - 10 ) OUR LADY OF BAND ENGG. PVT. LTD. VS. ASST. CIT EXPIRED PERIOD OF ITS LIFE (AT THE TIM E OF TRANSFER). THE CAPITAL GAIN SHALL HAVE TO BE COMPUTED BY ALLOCATING THE SALE CONSIDERATION IN THE RATIO SO ARRIVED AT, YIELDING LTCG AND STCG QUA THE TRANSFER OF LAND AND BUILDING RESPECTIVELY. WE MAY ALSO CLARIFY ON THE APPLICATION OF THE DECISION B Y THE H ONBLE JURISDICTIONAL H IGH C OURT IN THE CASE OF CIT VS. ACE BUILDERS PVT. LTD . [2006] 286 ITR 210 (BOM), RELIED UPON BY THE ASSESSEE. IT, ON ITS BASIS, CLAIMS TO BE ENTITLED TO EXEMPTION U/S. 54EC (WRONGLY STATED IN THE ASSESSMENT ORDER AS U/S. 54) FOR INVESTMENT IN REC BONDS FOR RS . 50 LACS ON THE STCG IN - AS - MUCH AS IT ARISE S ON THE TRANSFER OF A LONG - TERM CAPITAL ASSET. AS EXPLAINED BY THE H ONBLE C OURT, THE DEEMING OF SECTION 50 IS LIMITED ONLY TO THE MANNER OF COMPUTING CAPITAL GAINS QUA DEPRECIA BLE ASSETS AND, TWO, IN ITS CATEGORIZATION AS STCG, I.E., IRRESPECTIVE OF THE PERIOD OF HOLDING. TRUE, THE PROVISION (SECTION 50) SPECIFICALLY SPEAKS OF OVERRIDING SECTION 2(42A), DEFINING SHORT - TERM CAPITAL ASSET . AS SUCH , WHERE AND TO THE EXTENT INCONSIS TENT, S .50 SHALL PREVAIL. SECTION 54EC, HOWEVER, SPEAKS OF LONG - TERM CAPITAL ASSET , AND WHICH DEFINITION IS NOT IMPACTED BY THE DEEMING OF SECTION 50. THE ASSESSEE SHALL, ACCORDINGLY, BE ENTITLED TO EXEMPT ION U/S. 54EC, SUBJECT TO THE TOTAL AT RS . 50 LACS , ALSO AGAINST THE STCG COMPUTED U/S. 50. THE MATTER SHALL TRAVEL BACK TO THE FILE OF THE AO FOR COMPUTING LTCG AND STCG ARISING ON THE TRANSFER OF THE ASSESSEES INDUSTRIAL UNIT DURING THE YEAR, ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY TO PRESENT I TS CASE BEFORE HIM, BY ISSUING DEFINITE FINDINGS OF FACT, IN ACCORDANCE WITH LA W . THE ASSESSEE SHALL BE ENTITLED TO RELY ON ANY MATERIALS IT MAY DEEM FIT FOR THE PURPOSE, AND THE AO, SIMILARLY, ON MATERIALS, IF ANY, THAT MAY BE GATHERED BY THE LATTER IN RE BUTTAL OR TO MEET THE ASSESSEES CASE , AND SO ON . IN OTHER WORDS, THE ADJUDICATION QUA THE SAID ISSUE IS OPEN. ONE MAY BE TEMPTED , ON OUR SO DIRECTING, TO SUGGEST THAT WE HAVE THEREFORE INDIRECTLY ADMITTED THE ASSESSEES PLEA QUA ADMISSION OF ADDITIONAL EV IDENCES , I.E., IN - SO - FAR AS THEY RELATE TO THE MERITS OF THE CLAIM. BE THAT AS IT MAY , THE TRIBUNAL IS NOT CONSTRAINED NOT TO SET ASIDE THE MATTER UNDER REFERENCE, FOR JUSTIFIABLE REASONS - AS FOUND BY US , FOR FRESH CONSIDERATION . THE ADMISSION OF ADDITION AL EVIDENCE/S, IN VIEW THEREOF, LOSES SIGNIFICANCE, EVEN AS RULE 29 OF THE APPELLATE TRIBUNAL RULES, 1963 ITSELF PROVIDE S FOR ADMISSION OF ADDITIONAL EVIDENCES FOR 5 ITA NO. 3109/MUM/2012 (A.Y. 2009 - 10 ) OUR LADY OF BAND ENGG. PVT. LTD. VS. ASST. CIT ANY SUBSTANTIAL CAUSE. ALSO, IT BEING AN OPEN SET ASIDE, THE RELIANCE BY THE ASSESSEE IS NOT LIMITED TO THE MATERIALS SOUGHT TO BE ADMITTED AS EVIDENCES . IT WOULD, IN FACT, EXTEND ALSO TO EVIDENCES THAT MAY BE ADDUCED TO MEET THE REVENUES CASE. WE DECIDE ACCORDINGLY. 4. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND, FILING A REVISED FORM 36 (PB PGS. 93 - 94), AND WHICH ONLY WAS CONSIDERED AT THE TIME OF HEARING. VIDE GROUND 3 THEREOF, THE ASSESSEE SEEKS SET OFF OF THE BROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE (FROM A.YS. 1998 - 99 TO A.Y. 2008 - 09/PB PG. 95) AGAINST THE STCG OR, AS THE CASE MA Y BE, LTCG. THE ISSUE RAISED BEING LEGAL, WITH ALL THE RELEVANT FACTS ON RECORD; THE ASSESSEE HAVING IN FACT CLAIMED THE UNABSORBED DEPRECIATION AND LOSS FROM A.YS. 1998 - 99 TO A.Y. 2004 - 05 PER THE RETURN OF INCOME ITSELF (PB PG. 76), THE ADDITIONAL GROUND (NUMBERED AS GROUND 3 OF THE REVISED MEMO OF APPEAL) IS ADMITTED. AS REGARDS THE MERITS, THE ISSUE IS NO LONGER RES INTEGRA , HAVING BEEN CLARIFIED BY THE APEX COURT AS FAR BACK AS IN CIT VS. VIRMANI INDUSTRIES P. LTD. [1995] 216 ITR 607 (SC), SO THAT THE U NABSORBED DEPRECIATION WOULD STAND TO BE SET OFF AGAINST THE INCOME ASSESSABLE UNDER ANY OTHER HEAD OF INCOME. THIS WOULD BE SO EVEN WHERE THE BUSINESS TO WHICH THE DEPRECIATION PERTAINS STANDS DISCONTINUED, OR THERE IS NO BUSINESS ACTIVITY, AS CLARIFIED I N, AMONG OTHERS, CIT VS. KRITI RESORTS P. LTD. [2011] 243 CTR 341 (HP) AND CIT VS. GTM SYNTHETICS [2012] 347 ITR 458 (HP). FURTHER, THE AMENDMENT TO SECTION 32(2) BY FINANCE ACT, 2001 RESTORING THE PROVISION TO THAT AS EXISTED PRIOR TO THE AMENDMENT BY FIN ANCE (NO. 2) ACT, 1996 (AND FURTHER AMENDED BY FINANCE ACT, 2000), PROVIDING FOR A TIME LIMIT FOR THE CARRY FORWARD OF UNABSORBED DEPRECIATION ALLOWANCE, HAS BEEN INTERPRETED IN GENERAL MOTORS INDIA (P.) LTD. VS. DY. CIT [2013] 354 ITR 244 (GUJ) TO MEAN TH AT THE UNABSORBED DEPRECIATION FROM AY 1997 - 98 ONWARDS, WHI CH HAS NOT BEEN ABSORBED TILL AY 2002 - 03, SHALL BE CARRY FORWARD TO THE SUCCEEDING YEARS, I.E., AY 2003 - 04 ONWARDS , TILL FINAL SET OFF. WE ACCORDINGLY DIRECT FOR THE ALLOWANCE OF THE BROUGHT FORWA RD UNABSORBED DEPRECIATION ALLOWANCE U/S. 32(2) AGAINST THE STCG OR LTCG, IF ANY, ASSESSABLE FOR THE CURRENT YEAR, WITH THE BALANCE BEING CARRY FORWARD AD INFITIM . WE DECIDE ACCORDINGLY, ALLOWING THE ASSESSEES CLAIM. 6 ITA NO. 3109/MUM/2012 (A.Y. 2009 - 10 ) OUR LADY OF BAND ENGG. PVT. LTD. VS. ASST. CIT 5. IN THE RESULT, THE ASSESSEES APPEA L IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 29 , 201 5 SD/ - SD/ - ( SANJAY GARG ) (S ANJAY ARORA) / J UDICI AL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 29 . 0 6 .201 5 SHARWAN KUMAR, PS & ROSHANI, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) - 22, MUMBAI 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI