DCIT, New Delhi V. M/s. I.K. International (P) Ltd., New Delhi

ITA 3375/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6785 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 09-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIS GILL
• Keywords: Capital asset; Depreciation; Additional evidence; Cost of acquisition; Valuation report
• Section: 201; 54EC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI C.L. SETHI AND SHRI SHAMIM YAHYA I.T.A. NO.3375/DEL/2010 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF IT, VS. M/S I.K. INTERNAT IONAL CIRCLE 11(1) PVT. LTD., S-25, NEW DELHI. GREEN PARK EXT. N.DELHI. (PAN: AAAC18546E) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RIS GILL CI T(DR) RESPONDENT BY: SHRI AJ AY WADHWA, CA ORDER PER SHAMIM YAHYA: ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) DATED 06.05.2010 AND PERTAINS TO ASSES SMENT YEAR 2006-07. THE ISSUE RAISED BY THE REVENUE READS AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(APPEALS) ERRED IN HOLDING THE SALE OF T HE ASSET AS RESULTING INTO LONG TERM CAPITAL GAIN WHEN THE ASSE T SO SOLD WAS CLEARLY ESTABLISHED TO BE PART OF THE DEPRECIAB LE ASSETS ON WHICH DEPRECIATION HAD BEEN CLAIMED RESULTING INTO INVOCATION OF THE PROVISIONS OF SEC. 50(2) OF THE IT ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(APPEALS) ERRED IN DIRECTING THE A.O. TO ALLOW EXEMPTION TO THE ASSESSEE UNDER SEC.54EC OF THE ACT HOLDING THE SALE OF THE ASSET AS LONG TERM CAPITAL GAIN. 2 2. THE ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSI NESS OF TRADING AND PUBLISHING OF EDUCATIONAL BOOKS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. OBSERVED THAT ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN OF RS.2,83,99,571. THE SAME HAS BEEN CLAIMED UNDER SECTION 54EC OF THE INCOME-TAX ACT, 1961 AS THE INVESTMENT HAS BEEN MAD E IN BONDS TO THE EXTENT OF RS.2,90,00,000. THE ASSESSEE HAD ALSO SHO WN SHORT TERM CAPITAL GAIN TO THE EXTENT OF RS.86,28,216. THE ASSESSING O FFICER ASKED THE ASSESSEE TO JUSTIFY THE LONG TERM CAPITAL GAIN AND FURNISH E VIDENCE REGARDING THE SAME. ASSESSEE RESPONDED THAT THE LOSS IS ON ACCOUNT OF P ROPERTY AT S-7 & S-8, GREEN PARK, NEW DELHI. ASSESSEE ALSO SUBMITTED PHOT OCOPY OF PURCHASE AND SALE DEED. IT WAS FURTHER SUBMITTED THAT ASSESSEE H AD PURCHASED THE PROPERTY AT S-7 & S-8, GREEN PARK, NEW DELHI FOR RS.2,16,00, 000 INCLUDING STAMP DUTY OF RS.16,00,000 ON 30.03.2001, 25.04.2001 AND 03.07.2001 SHOWN UNDER THE HEAD FIXED ASSETS LAND RS.1,48,00,000 AN D BUILDING RS.68,00,000. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS MADE CON STRUCTION/ALTERATION DURING THE YEAR AS PER REQUIREMENT AND CHARGED DEPR ECIATION ACCORDINGLY YEAR TO YEAR. IT WAS FURTHER SUBMITTED THAT ASSESSE E HAD NEVER CHARGED DEPRECIATION ON LAND. THE PROPERTY WAS SOLD FOR RS. 5,75,00,100 UNDER THE BIFURCATION LAND RS.4,72,00,000 AND BUILDING RS.1,0 3,00,000. THE CAPITAL 3 GAIN ARISING FORM THE SALE OF THE ASSETS WAS INVEST ED IN THE BONDS RURAL ELECTRIFICATION CORPORATION LTD. UNDER SEC. 54EC. 3. ASSESSING OFFICER FURTHER OBSERVED THAT PROPERTY WAS PURCHASED FOR RS.2,16,00,000 INCLUDING STAMP DUTY CHARGES. HE FUR THER OBSERVED THAT BUILDING HAS BEEN PURCHASED AND THERE IS NO WORKING LOST OF LAND OR CONSTRUCTION. HE HELD THAT NO EVIDENCE HAD BEEN GIV EN BY THE ASSESSEE TO JUSTIFY ADOPTING THE COST OF LAND AT RS.1,48,00,000 . HE OBSERVED THAT THE ASSESSEE HAD SOLD THE ENTIRE BUILDING AS WELL AS FU RNITURE AND FIXTURE HENCE HE OBSERVED THAT ASSESSEES CLAIM THAT IT HAS SOLD LAN D BUILDING AND OTHER ASSETS SEPARATELY IS NOT CORRECT. ASSESSING OFFICER HELD T HAT ASSESSEE HAS NEVER PURCHASED THE LAND AND BUILDING SEPARATELY AND IT I S NOT POSSIBLE TO BIFURCATE THE VALUE AS SHOWN BY THE ASSESSEE IN THE BALANCE S HEET OR IN THE CALCULATION OF CAPITAL GAIN. THE CLAIM OF ASSESSEE TREATING THE LAND AS LONG TERM ASSETS IS, THEREFORE, NOT CORRECT AND ACCEPTABLE. THUS, ASSESS ING OFFICER REJECTED THE CLAIM OF LONG TERM CAPITAL GAIN AND PROCEEDED TO CO MPUTE THE CAPITAL GAIN BY APPLYING THE PROVISIONS OF SEC. 50(2) OF THE ACT. I N HIS COMPUTATION, HE CAME TO A FIGURE OF RS.4,30,40,600 AS SHORT TERM CAPITAL GAIN IN VIEW OF THE PROVISIONS OF SECTION 50(2) OF THE ACT. 4. ASSESSING OFFICER FURTHER HELD THAT ASSESSEES C LAIM OF DEDUCTION UNDER SECTION 54EC OF THE ACT IS NOT ALLOWABLE BECA USE THE DEPRECIABLE 4 ASSETS I.E. BUILDING HAS BEEN PURCHASED ON WHICH TH ERE ARE ADDITIONS UP TO 31.3.2003. SINCE THE BUILDING ALONG WITH FURNITURE AND FIXTURES HAS BEEN SOLD ON 19.8.2005 I.E. WITHIN A PERIOD OF THREE YEARS. H ENCE ASSESSING OFFICER HELD THAT ASSESSEES CLAIM OF LONG TERM CAPITAL GAI N IS NOT CORRECT AND, THEREFORE, THE CLAIM OF DEDUCTION UNDER SEC.54EC OF THE ACT IS NOT ALLOWABLE. 5. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) CON SIDERED THAT ARGUMENTS AND SUBMISSIONS FILED IN THIS REGARD. HE OBSERVED THAT ASSESSEE HAD PURCHASED PROPERTY SITUATED AT S-7 AND S-8, GRE EN PARK, NEW DELHI COMPRISING OF LAND AND TWO AND HALF STORIED BUILDIN G PURCHASED VIDE SALE DEED EXECUTED ON 30.3.2001 AND 25.4.2001 RELEVANT T O THE ASSESSMENT YEAR 2001-02 AND 2002-03 FOR A CONSIDERATION OF RS.2,16, 00,000 AND A FURTHER SUM OF RS.24,64,243 WAS SPENT ON COST OF CONSTRUCTI ON WHICH WAS COMPLETED ON 24.11.2001. IN THE BALANCE SHEET, FOR THE YEAR E NDED ON 31.3.2001, 31.3.2002, THE VALUE OF LAND WAS SEPARATELY SHOWN A T RS.1.48 CRORES AND THE VALUE OF THE BUILDING WAS SHOWN AT RS.92,64,243 IN THE SCHEDULE OF INTEREST ASSETS FORMING PART OF THE BALANCE SHEET. THE BREAK UP OF THE VALUE OF LAND AND BUILDING IN RESPECT OF S-7 & S-8, GREEN PARK, N EW DELHI SOLD DURING THE YEAR WAS DONE ON THE BASIS OF TWO VALUATION REPORTS , ONE CLOSE TO THE DATE OF PURCHASE AND ANOTHER CLOSE TO THE DATE OF SALE VIDE VALUATION REPORT DATED 30.6.2001 AND 31 ST JULY 2005 RESPECTIVELY. THE SAID PROPERTY WAS SOLD ON 5 29 TH AUGUST 2005 AS PER THE SALE DEED FILED. HENCE, THE ASSESSEE SUBMITTED THAT ASSESSING OFFICER WAS NOT AT ALL JUSTIFIED IN TREATING THE HOLDING PERIOD OF LAND AND BUILDING AS LESS THAN 36 MONTHS AND THE REBY TREATING THE CAPITAL GAIN AS SHORT TERM AND DENIED THE EXEMPTION UNDER S EC. 54EC OF THE ACT. 6. SINCE THE VALUATION REPORTS WERE NOT FILED BEFOR E THE ASSESSING OFFICER, A REMAND REPORT WAS CALLED FOR BY THE ASSE SSING OFFICER. VIDE HIS REPORT DATED 8.4.2010 SUBMITTED THAT VALUATION REPO RT OF THE APPROVED VALUER MAY NOT BE ADMITTED AS THE CONDITIONS LAID DOWN UND ER RULE 46A OF THE INCOME-TAX RULES ARE NOT FULFILLED BY THE ASSESSEE COMPANY. ON MERIT, ASSESSING OFFICER SUBMITTED THAT THE TRANSACTION FO R SALE WAS COMPOSITE IN NATURE AND THE RESULTANT GAIN WAS SHORT TERM IN NAT URE. LEARNED CIT(APPEALS) HELD THAT HE WAS OF THE OPINION THAT ASSESSING OFFI CER WAS NOT JUSTIFIED IN SAYING THAT VALUATION REPORT NOW SUBMITTED BY THE A SSESSEE ARE NOT ADMISSIBLE EVIDENCE UNDER RULE 46A OF THE INCOME-TA X RULES. LEARNED CIT(APPEALS) GAVE A FINDING THAT ON PERUSAL OF THE EXTRACT OF ORDER SHEET ENTRY FILED BY THE ASSESSEE HE FOUND THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NEVER ASKED THE ASSE SSEE TO PRODUCE THE VALUATION REPORTS WHICH WERE AVAILABLE WITH THE ASS ESSEE. HE NOTED THAT IN FACT NO NOTICE TO EXPLAIN THE VALUATION BASIS OF TH E PROPERTY OR THE INTENT COMPOSITE SALE WAS GIVEN TO THE ASSESSEE HENCE LEAR NED CIT(APPEALS) HELD 6 THAT ADDITIONAL EVIDENCE WAS ADMISSIBLE UNDER RULE 46A OF THE IT RULES. THE ASSESSEE FURTHER SUBMITTED A CHART SHOWING COMPUTAT ION OF CAPITAL GAIN AND SUBMITTED AS UNDER: SALES CONSIDERATION OF LAND S-7 & S-8, GREEN PARK, NEW DELHI 4,72,00,000 LESS: - TRANSFER EXPENSES - INDEX COST OF ACQUISITION 2000- 200290,00,000X(497/406) 2001-2002 58,00,000X(497/426) 10,16,521 1,10,17,241 67,66,667 1,88,00,429 LONG-TERM CAPITAL GAIN 2,83.99.571 7. FURTHER ASSESSEE RELIED UPON HON'BLE MADRAS HIGH COURTS DECISION IN THE CASE OF CIT VS. D.L. RAMCHANDRA REASSESSMENT OR DER 236 ITR 51. SEVERAL OTHER DECISIONS WERE ALSO RELIED UPON INCLU DING THE CASE OF CIT VS. VIMAL CHAND CULECHA 201 ITR 442, SMT. LAXMI B. MENO N AND ANOTHER 204 ITR 76 (KER.), CIT VS. CITI BANK 261 ITR 571 (BOM) AND CIT VS. ACE BUILDERS 281 ITR 210. CONSIDERING THE ABOVE, LEARNE D CIT(APPEALS) HELD THAT HE WAS OF THE VIEW THAT ASSESSING OFFICER WAS NOT AT ALL JUSTIFIED IN TREATING THE HOLDING PERIOD OF LAND AT LESS THAN 36 MONTHS AND THEREBY DENYING THE EXEMPTION CLAIMED UNDER SEC. 54EC OF TH E ACT ON SALE OF LAND. 7 HENCE, HE DIRECTED THE ASSESSING OFFICER TO ALLOW E XEMPTION UNDER SECTION 54EC AS CLAIMED BY THE ASSESSEE COMPANY. 8. AGAINST THIS ORDER, REVENUE IS IN APPEAL BEFORE US. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORD. WE FIND THAT T HE VALUATION REPORTS OF THE LAND AND BUILDING WHICH IS THE BASIS OF ASSESSEES CLAIM WAS NEVER SUBMITTED BEFORE THE ASSESSING OFFICER. LEARNED CIT(APPEALS) HAS ADMITTED THE SAME AS ADDITIONAL EVIDENCE UNDER RULE 46A HOLDING THAT ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FOR FILING THE VALUATION REPORT S. WE FIND THAT AS PER ASSESSEES SUBMISSIONS, THE TOTAL PURCHASE VALUE WA S RS.2,16,00,000 ON WHICH COST OF IMPROVEMENT COMPLETED ON 24.11.2001, AMOUNTING TO RS.24,64,243 WAS ADDED AND THE TOTAL COST OF THE PR OPERTY WAS RS.2,40,64,243. FURTHER IN THE BOOKS OF ACCOUNT, TH E LAND AND BUILDING WAS SAID TO HAVE BEEN SEPARATELY SHOWN AS UNDER: PROPERTY DESCRIPTION PROPERTY YEAR OF CAPITALIZATION LAND BUILDING TOTAL A S-7, GREEN PARK, NEW DELHI. F.Y. 2000-01 90,00,000 49,32,000 1,39,32,000 B S-8, GREEN PARK, NEW DELHI. F.Y. 2001-02 58,00,000 18,68,000 76,68,000 A&B COST IMPROVEMENT F.Y. 2001-02 24,64,243 24,64,342 TOTAL CAPITALIZATION ON ACCOUNT OF A&B (S-7 & S-8) 1,48,00,000 92,64,243 2,40,64,243 C A-06 GROUND FLOOR, ROYAL F.Y.2002-03 NIL 31,83,038 31,83,038 8 IND.ESTATE, WADALS, MUMBAI-400 031 D UNIT NO.G3 & G4, EMBASSY CENTRE, CRESCENT ROAD, BANGALORE- 560 001 F.Y. 2002-03 NIL 30,71,144 30,71,144 TOTAL CAPITALIZATION ON A/C OF PROPERTIES C & D NIL 62,54,182 62,54,182 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT ASSESSEE HAS PRODUCED VALUATION REPORT AT THE TIME OF PURCH ASE AS WELL AS SALE. IN REMAND, ASSESSING OFFICER HAS NOT POINTED OUT ANY LACUNAE IN THE SAME. MOREOVER, THE COST OF LAND SO BIFURCATED WAS BEIN G ALREADY REFLECTED IN THE BOOKS OF ACCOUNTS AND NO DEPRECIATION WAS CLAIMED O N THAT ACCOUNT. IN THE CASE OF C.I.T. VS. D.C. RAMACHANDRA RAO 236 ITR 51, HONBLE MADRAS HIGH COURT HAS HELD THAT IT IS POSSIBLE TO BIFURCATE THE CAPITAL GAIN ARISING OUT OF SELL OF LAND AND BUILDING, EVEN IF, THEY ARE SOLD A S ONE UNIT. LAND IS AN INDEPENDENT AND IDENTIFIABLE CAPITAL ASSET AND IT C ONTINUES TO REMAIN SO, EVEN AFTER CONSTRUCTION OF BUILDING THEREON. IT WAS F URTHER HELD THAT LAND HELD BY THE ASSESSEE FOR A PERIOD EXCEEDING 36 MONTHS BUI LDING CONSTRUCTED LATER AND HELD BY THE ASSESSEE FOR A SHORTER PERIOD, LAN D CANNOT BE TREATED AS SHORT TERM CAPITAL ASSETS. THIS CASE LAW CLEARLY APPLI ES TO THE FACTS OF THE PRESENT CASE. OTHER CASE LAW REFERRED BY THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) ALSO SUPPORTS THE ASSESSEES PROPOSITION . 9.1 THUS, WHEN THE VALUE OF THE LAND AND BUILDING H AS BEEN BIFURCATED AT THE TIME OF PURCHASE AND SO REFLECTED IN THE BOOKS OF ACCOUNTS, ANY 9 CONSTRUCTION IN BUILDING CANNOT LINK TO THE LAND AT THE TIME OF SALE ALSO. ASSESSEE HAS SUBMITTED A VALUATION REPORT BIFURCAT ED THE SALE VALUE BETWEEN LAND AND BUILDING. NO INFIRMITY IN THIS BIFURCATION HAS ALSO BEEN POINTED OUT. IN SUCH CIRCUMSTANCES, REVENUES PLEA THAT SALE OF LAND CANNOT BE BIFURCATED FROM THE SALE OF BUILDING CANNOT BE A CCEPTED. ADMITTEDLY, ASSESSEE HAS HELD THE LAND FOR A PERIOD EXCEEDING 3 6 MONTHS. IN SUCH CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE LD. COMMISSIONER OF INCOME TAX (APPEALS)S ORDER ACCEPTING LONG TERM C APITAL GAIN ARISING OUT OF THE SALE OF LAND. HENCE, THERE IS ALSO NO INFIR MITY IN LD. COMMISSIONER OF INCOME TAX (APPEALS)S DIRECTIONS TO ALLOW EXEMPTI ON U/S 54EC. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. COMMISS IONER OF INCOME TAX (APPEALS). 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 12.11.2 010 SD/- SD/- ( C.L. SETHI ) ( SHAMIM YAHYA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12/11/2010 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR