ITO 29(1)(3), MUMBAI V. DEVYANI R DOSHI, MUMBAI

ITA 3576/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8953 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 11-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: BHADRESH K DOSHI
• Keywords: Capital asset; Depreciation
• Section: 143(3); 54F; 2

Judgement Text

1 ITA NO.3576/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.3576/MUM/2015 (ASSESSMENT YEAR 2011-12) ITO-29(1)(3), MUMBAI VS SHRI DEVYANI R DOSHI PROP OF M/S DREAMWORKS) C/S. JHULELAL MARG, JAI BHARAT SCHOOL MULUND (W), MUMBAI 400 082 PAN : AERPD7039M APPELLANT RESPONDEDNT APPELLANT BY SHRI RAM TIWARI RESPONDENT BY SHRI BHADRESH K DOSHI DATE OF HEARING 24-10-2017 DATE OF PRONOUNCEMENT 27-10-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-40, MUMBAI DATED 30-03-2015 AND IT PERTAINS TO AY 2011- 12. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.8,21,842. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICES U/S 143(2) AND 142 (1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATI VE OF THE ASSESSEE APPEARED AND FILED THE DETAILS, AS CALLED FOR. THE ASSESSME NT WAS COMPLETED U/S 143(3) 2 ITA NO.3576/MUM/2015 ON 16-01-2014 DETERMINING THE TOTAL INCOME AT RS.83 ,82,365 BY RE-WORKING CAPITAL GAIN U/S 50 OF THE I.T. ACT, 1961 FOR SALE OF DEPRECIABLE ASSETS. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PRE FERRED APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A), THE ASSESSEE HAS RAISED A FRESH CLAIM OF EXEMPTION U/S 54F OF THE ACT FOR RE-INVESTMENT OF CAPITAL GAIN IN PURCHASE OF NEW RESIDENTIAL HOUSE PROPERTY. THE CIT(A), FOR THE DETAILED DISCU SSION IN HIS ORDER DATED 29- 01-2014 ALLOWED EXEMPTION CLAIMED U/S 54F; HOWEVER, DIRECTED THE AO TO RE- WORK THE AMOUNT OF EXEMPTION ON TOTAL AMOUNT SPENT BY THE ASSESSEE TOWARDS PURCHASE OF NEW HOUSE PROPERTY UPTO 30-09-2011. AG GRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE ONLY ISSUE THAT CAME UP FOR OUR CONSID ERATION IS EXEMPTION CLAIMED U/S 54F OF THE INCOME-TAX ACT, 1961 IN RESP ECT OF RE-INVESTMENT OF CAPITAL GAIN DERIVED FROM SALE OF DEPRECIABLE ASSET S. THE ISSUE IS NO LONGER RES INTEGRA. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS ACE BUILDERS PVT LTD REPORTED IN 144 TAXMAN 855 HAS HELD THAT THE LE GAL FICTION CREATED IN SECTION 50 IS TO DEEM CAPITAL GAIN AS SHORT TERM CA PITAL GAIN AND NOT TO DEEM AN ASSET AS A SHORT TERM CAPITAL ASSET AND, THEREFO RE, IT CANNOT BE SAID THAT SECTION 50 CONVERTS LONG TERM CAPITAL ASSET INTO SH ORT TERM CAPITAL ASSET, AND 3 ITA NO.3576/MUM/2015 THEREFORE, EXEMPTION U/S 54F IS AVAILABLE TO DEPREC IABLE ASSET AS SECTION 54F DOES NOT MAKE ANY DISTINCTION BETWEEN DEPRECIABLE A SSET AND A NON DEPRECIABLE ASSET. THE CIT(A), AFTER CONSIDERING R ELEVANT PROVISIONS OF THE ACT AND ALSO RELYING UPON THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF ACIT VS ACE BUILDERS PVT LTD (SUPRA) HAS DIRECTED T HE AO TO ALLOW EXEMPTIONS CLAIMED U/S 54F OF THE INCOME-TAX ACT, 1961. THE R ELEVANT PORTION OF THE ORDER OF CIT(A) IS EXTRACTED BELOW:- 5.4 I HAVE CONSIDERED THE SUBMISSION OF THE AUTHOR ISED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER AS WELL AS THE CASE LAWS CITED. IT IS SEEN THAT THE HONBLE BOMBA Y HIGH COURT HAS IN THE CASE OF CIT VS ACE BUILDERS (P) LTD. 144 TAXMAN 855 (BORN) HAS HELD THAT THE LEGAL FICTION .CREATED IN SECTION 50 IS TO DEEM CAPITAL GAIN AS SHORT TERM CAPITAL GAIN AND NOT TO DEEM AN ASSET AS SHORT TERM CAPITAL ASSET AND THEREFORE IT CANNOT BE SAID THAT SECTION 50 CONVERTS LONG TERM CAPITAL ASSET INTO A SHORT TERM CAPITAL ASSET AND THEREFORE EXEMPTION U/S.54E IS AVAILABLE TO DEP RECIABLE ASSETS AS SECTION 54E DOES NOT MAKE ANY DISTINCTION BETWEEN DEPRECIABLE ASSET AND A NON DEPRECIABLE ASSET. EXEM PTION U/S.54E CANNOT BE DENIED BY REFERRING TO THE FICTION CREATE D U/S.50. 5.5 THE RATIO OF THIS DECISION HAS BEEN FOLLOWED BY .OTHER COURTS AS CITED BY THE ASSESSEE AND ALSO BY HON'BLE ITAT, MUM BAI 'E' BENCH IN THE CASE OF DR. SUDHA TRIVEDI 315 SOT 38 (MUM). THE HEAD NOTES OF THIS CASE ARE AS UNDER: I 'SECTION 50, READ WITH SECTION 54EC, OF THE INCOME- TAX ACT, 1961 - CAPITAL GAINS - COMPUTATION IN CASE OF DEPRECIABL E ASSETS - ASSESSMENT YEAR 2002-03 - ASSESSEE, A DOCTOR, HAD S OLD HER BUSINESS PREMISES FOR CERTAIN CONSIDERATION - ASSES SEE HELD SAID PREMISES FOR AROUND 14 YEARS BEFORE ITS TRANSFER AN D SHE HAD NOT CLAIMED DEPRECIATION ON THIS PREMISES IN PAST - SHE HAD INVESTED CAPITAL GAIN ARISING FROM TRANSFER OF SAID PREMISES ON RURAL ELECTRIFICATION CORPORATION BONDS [REC BONDS] - FOR 4 ITA NO.3576/MUM/2015 RELEVANT ASSESSMENT YEAR 2002-03, ASSESSEE DECLARED LONG-TERM CAPITAL GAIN AT CERTAIN AMOUNT AND CLAIMED SAME TO BE EXEMPT FROM TAX UNDER SECTION 54EC - ASSESSING OFFI CER DENIED EXEMPTION UNDER SECTION 54EC ON PLEA THAT EV EN IF NO DEPRECIATION WAS ALLOWED TO ASSESSEE IZ EARLIER YEARS, MANDATE OF EXPLANATION 5 TO SECTION 32(1) WOULD BE ATTRACTED TO BUILDING-IN-QUESTION AND RESULTANT CAPITAL GAIN WOULD BE COVERED UNDER SECTION 50 AND TAXABLE AS SHORT-TERM CAPITAL GAIN - WHETHER TWIN CONDITIONS SHOULD BE SIMULTANEO USLY SATISFIED SO AS TO FALL WITHIN AMBIT OF SECTION 50, VIZ., FALLING OF CAPITAL ASSET IN A BLOCK OF ASSETS AND ACTUAL ALLOW ING OF DEPRECIATION ON SUCH AN ASSET - HELD, YES - WHETHER SINCE ASSESSEE HAD NOT CLAIMED DEPRECIATION ON BUILDING I N ANY OF EARLIER YEARS, IT COULD BE SAID THAT SECOND CONDITI ON OF SECTION 50, HAD NOT BEEN FULFILLED IN INSTANT CASE - HELD, YES - WHETHER THEREFORE, ASSESSING OFFICER WAS NOT JUSTIFIED IN I NVOKING SECTION 50 FOR TAKING AWAY ASSESSEE 'S CLAIM OF EXE MPTION - HELD, YES SECTION 54EC READ WITH SECTION 50, OF INCOME-TAX A CT 1961 - CAPITAL GAINS NOT TO BE CHARGED ON INVESTMENT IN CERTAIN BONDS - ASSESSMENT YEAR 2002-03 - WHETHER SECTION 5 4EC IS AN INDEPENDENT PROVISION NOT CONTROLLED BY SECTION 50 - FIELD, YES - WHETHER WHAT IS RELEVANT FOR CLAIMING EXEMPTION UND ER SECTION 54EC IS THAT WHOLE OR ANY PART OF CAPITAL GAIN SHO ULD BE INVESTED IN LONG-TERM SPECIFIED ASSETS - FIELD, YES - WHETHER IN VIEW OF FACTS STATED UNDER HEADING 'CAPITAL GAIN S - COMPUTATION IN CASE OF DEPRECIABLE ASSETS' SINCE AS SESSEE HAD MADE INVESTMENT IN ELIGIBLE BONDS OUT OF SALE PROCE EDS FROM TRANSFER OF LONG-TERM CAPITAL ASSET, IT COULD BE SA ID THAT ASSESSEE HAD SATISFIED REQUIREMENT OF SECTION 54EC AND, ACCO RDINGLY, WAS ENTITLED TO EXEMPTION UNDER SAID SECTION - HELD , YES' 5.6 RESPECTFULLY FOLLOWING THE DECISIONS OF JURISDI CTIONAL ITAT AND JURISDICTIONAL HIGH COURT, IT IS HELD THAT THE ASSE SSEE IS ENTITLED TO DEDUCTION U/S 54F IN RESPECT OF CAPITAL GAINS ASSES SED U/S.50 IN THE HANDS OF THE ASSESSEE. IN THIS VIEW OF THE MATTER, IT IS SEEN THAT THE AUTLIORISED REPRESENTATIVE HAS FINALLY RESTRICTED T HE CLAIM OF THE DEDUCTION U/S.54F IN RESPECT OF INVESTMENT IN THE HOUSE PROPE RTY PURCHASED IN ZIRCON PROJECT OF NIRMAL LIFESTYLE. THE TOTAL COST PRICE O F THE HOUSE PROPERTY WAS 5 ITA NO.3576/MUM/2015 RS.1,18,99,616/- TOWARDS WHICH THE ASSESSEE HAS PAI D A SUM OF RS.47,19,884/- TILL 30-09-2011. ALTHOUGH FURTHER PAYMENT HAS BEEN MADE AFTER THIS DATE, NO COGNIZANCE THEREOF CAN BE TAKEN WHILE CALCULATING T HE DEDUCTION ALLOWABLE U/S.54F, AS THE ASSESSEE HAS NOT INVESTED THE REMAI NING SALE PROCEEDS OF THE TO SHOPS IN THE CAPITAL GAIN A/C SC HEME, AS PROVIDED IN SECTION 54F(4). IT IS TO BE MENTIONED H ERE THAT DEDUCTION U/S.54F IS NOT RESTRICTED TO ONLY ONE LON G TERM CAPITAL ASSET AS HELD BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS GITA DUGGAL AND MUMBAI ITAT IN THE CASE OF RAJESH KESHAV PILLAL VS ITO WD 19(3)(2), MUMBAI 44 SOT 617 (MUM) AND DCIT VS RANJIT VITHALDA S 23 TAXMAN- CORN 226 (MUM).THE AMOUNT OF DEDUCTION U/S.54F WORK S OUT TO RS.42,16,417/- AS UNDER:- DEDUCTION U/S 54F = INVESTMENT IN NEW ASSET X CAPITAL GAIN NET CONSIDERATION = 47,19,884 X 69,67,980 78,00,000 = 42,16,427 THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTIO N OF RS.42,16,417/- U/S.54F FROM THE CAPITAL GAINS OF RS .69,67,980/- BROUGHT TO TAX U/S.50 IN THE ASSESSMENT. GROUND OF APPEAL NO.2 IS PARTLY ALLOWED TO THE ABOVE EXTENT. 5. THE FACTS REMAIN UNCHANGED. THE REVENUE FAILED TO BRING ON RECORD ANY CONTRARY DECISIONS AGAINST THE FINDINGS OF FACT REC ORDED BY THE LD.CIT(A). THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A|) WAS RIGHT IN ALLOWING EXEMPTION CLAIMED U/S 54F IN RESPECT OF CAPITAL GAIN DERIVED FROM SALE OF DEPRECIABLE ASSETS. HENCE, WE ARE INCLINED TO UPHOLD THE ORDER OF CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. 6 ITA NO.3576/MUM/2015 ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH OCTOBER, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 27 TH OCTOBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI