AVIN PUMPS P.LTD, MUMBAI V. JCIT (OSD) RG 8(1), MUMBAI

ITA 3840/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4082 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-06-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 30-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: FIROZE ANDHYARUJINA
• Keywords: Capital asset; Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 3840/MUM/2012 ASSESSMENT YEAR : 2009-10 AVIN PUMPS PRIVATE LTD. D-4/95, BHARUCHA BAUG, S.V. ROAD ANDHERI (W) MUMBAI-400 058. PAN NO. AAACA 4004 H VS. JCIT (OSD) RANGE-8(1) AAYAKAR BHAVAN 2 ND FLOOR, M.K. ROAD MUMBAI-400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI FIROZE ANDHYARUJINA R EVENUE BY : SHRI MANOJ KUMAR DATE OF HEARING : 26/06/2013 DATE OF PRONOUNCEMENT : 31 / 07/2013 O R D E R PER B. RAMAKOTAIAH, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER S OF THE CIT(A)- 16, MUMBAI DATED 6.3.2012. THE ISSUE IN THE APPEAL IS WITH REFERENCE TO THE DEDUCTION OF NEW ASSET PURCHASED UNDER SECTION 50(I)(III). 2. WE HAVE HEARD THE LD. COUNSEL AND THE LD. DR. 3. BRIEFLY STATED, THE ASSESSEE SOLD ITS FACTORY PR EMISES DURING THE YEAR AT A TOTAL CONSIDERATION OF RS.1,05,60,046/-. THE ASSESSEE ALSO PURCHASED AN APARTMENT FOR TOTAL CONSIDERATION OF R S.89,06,394/- AND AFTER ADJUSTING THE COST OF NEW FLAT AGAINST THE SA LE CONSIDERATION OF ITA NO.3840/M/12 A.Y.09-10 M/S. A VIN PUMPS PVT. LTD. 2 FACTORY PREMISES UNDER SECTION 50(I)(III), ASSESSE E COMPUTED SHORT TERM CAPITAL GAIN AT RS.12,52,974/-. RELYING ON THE DEFI NITION OF BLOCK OF ASSETS UNDER SECTION 2(11) OF THE ACT AND DEFINITIO N OF WDV OF BLOCK OF ASSETS UNDER SECTION 43(6) R.W. 32(1), AO CONSIDERE D THAT THE APARTMENT PURCHASED WAS A RESIDENTIAL APARTMENT ON WHICH DEPR ECIATION WAS ALLOWABLE @ 5%. SINCE FACTORY BUILDING WAS ELIGIBLE FOR DEPRECIATION @10% THE AO WAS OF THE OPINION THAT SINCE THE ASSET PURC HASED DOES NOT BELONG TO THE SAME BLOCK, THE DEDUCTION CANNOT BE ALLOWED IN THE WORKING OF CAPITAL GAIN. ACCORDINGLY, HE COMPUTED CAPITAL GAIN OF FACTORY PREMISES WITHOUT REDUCING COST OF NEW ASSET. HE ALSO DID NO T MAKE ANY ADJUSTMENT FOR THE DEPRECIATION ON NEW ASSET IN THE COMPUTATION OF INCOME. THE MATTER WAS CARRIED TO THE LD. CIT(A) WH O RELYING ON THE FINDINGS OF THE AO AND DISTINGUISHING THE CASE LAW RELIED UPON BY THE ASSESSEE, UPHELD THE ACTION OF THE AO. FURTHER HE W AS OF THE OPINION THAT PROPERTY IS IN THE NATURE OF RESIDENTIAL ACCOMMODAT ION AND CANNOT BE USED AS OFFICE PREMISES. 4. IT WAS THE SUBMISSION BEFORE US THAT THE PROPERT Y EVENTHOUGH PURCHASED IN RESIDENTIAL BUILDING, ASSESSEE HAS OBT AINED PERMISSION TO USE FOR OFFICE PREMISES AND IN FACT OFFICE IS WORKI NG FROM THE SAME PLACE. IN SUPPORT OF THE CONTENTION THAT THEY HAVE TAKEN P ERMISSION FOR USE OF THE OFFICE PREMISES THE ASSESSEE SUBMITTED NO OBJEC TION CERTIFICATE FROM THE BUILDER WHICH WAS ALSO CONSIDERED BY THE CIT(A) IN HIS ORDER. HOWEVER, IT WAS SUBMITTED THAT CIT(A) WRONGLY CONSI DERED THAT THE PREMISES IS RESIDENTIAL PREMISES AND CANNOT BE USED AS OFFICE PREMISES WHEREAS THE ASSESSEE IS USING THE PREMISES AS OFFIC E PREMISES AND SUBMITTED THAT AT PRESENT ALSO, THE SAME IS THE OFF ICE PREMISES OF THE ASSESSEE. FURTHER, IT WAS ALSO SUBMITTED THAT THE A O ALLOWED DEPRECIATION OF 10% ON THE SAID PREMISES IN THE LAT ER YEARS. THEREFORE, THE FINDINGS OF THE AUTHORITIES ARE NOT CORRECT AND THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION. THE LD. COUNSEL RELIED ON THE DECISION OF ITA NO.3840/M/12 A.Y.09-10 M/S. A VIN PUMPS PVT. LTD. 3 ITAT, MUMBAI IN THE CASE OF ARTIC VS. ACIT (68 ITD 462)(MUM.) . THE LD. DR HOWEVER REFERRED TO THE PROVISIONS OF THE ACT AND R ELIED ON THE FINDINGS OF THE AUTHORITIES. 5. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RI VAL CONTENTIONS. AS FAR AS LEGAL PRINCIPLES ARE CONCERNED, THE CO-OR DINATE BENCH IN THE CASE OF ARTIC (SUPRA), HELD THAT THE ASSESSEE WOULD BE ENTITLED TO CLAIM SET OFF OF COST OF NEW ASSET ACQUIRED IN THE PREVIOUS Y EAR, EVEN IF THE ASSESSEE WAS NOT CARRYING ON SAME BUSINESS OR OTHER BUSINESS . THIS IS ALSO ONE OF THE CONTENTIONS OF THE AO THAT THE ASSESSEE STOPPED BUSINESS, WHICH WAS ALSO CONTESTED BY ASSESSEE. THE CO-ORDINATE BENCH I N THE ABOVE REFERRED CASE HELD AS UNDER :- SECTION 50 MAKES SPECIAL PROVISION FOR THE COMPUTA TION OF CAPITAL GAINS IN THE CASE OF DEPRECIABLE ASSETS. THE EFFECT , IN BRIEF, OF THE SECTION IS TO MAKE CERTAIN MODIFICATIONS IN THE DE DUCTIONS TO BE ALLOWED UNDER SECTIONS 48 AND 49 FROM THE CONSIDERA TION RECEIVED AS A RESULT OF THE TRANSFER. THUS, IN THE CASE OF D EPRECIABLE ASSETS, INSTEAD OF THE DEDUCTIONS ALLOWED BY SECTIONS 48 AN D 49, THE DEDUCTIONS PERMITTED UNDER SECTION 50(1)(I), (II) A ND (III) WOULD BE ALLOWABLE. THE SECTION ALSO SAYS THAT EVEN THOUGH T HE PARTICULAR DEPRECIABLE ASSET HAS BEEN HELD BY THE ASSESSEE FOR MORE THAN 36 MONTHS, STILL THE CAPITAL GAINS WOULD BE CONSIDERED AND DEALT WITH AS SHORT-TERM CAPITAL GAINS ONLY AND NOT AS LONG TE RM CAPITAL GAINS. THAT IS THE EFFECT OF THE NON OBSTANTE CLAUSE WHICH RULES OUT THE APPLICABILITY OF SECTION 2(42A). THOUGH SOME MODIFI CATIONS OR CHANGES HAVE BEEN MADE IN THE COMPUTATION OF THE CA PITAL GAINS ON TRANSFER OF DEPRECIABLE ASSETS, THE NATURE AND CONT ENT OF THE SUBJECT MATTER OF TAXATION REMAINS THE SAME, VIZ., CAPITAL GAINS. THE RULES RELATING TO THE COMPUTATION OF BUSINESS INCOME ARE NOT INCORPORATED OR WORKED INTO THE RULES RELATING TO THE COMPUTATIO N OF CAPITAL GAINS. THEREFORE WHILE EXAMINING THE APPLICABILITY OF THE PROVISIONS OF SECTION 50, THE TRIBUNAL IS NOT TO BE INFLUENCED BY THE RULES RELATING TO THE COMPUTATION OF THE BUSINESS INCOME. SECTION 2(11) DEFINES BLOCK OF ASSETS WHICH DOES NOT SPEAK OF DEPRECIATION HAVING BEEN ALLOWED IN THE ASSESSMENTS IN RESPECT OF ANY ASSET FALLING WITHIN THE BLOCK OF ASSETS BUT RE FERS ONLY TO THE ITA NO.3840/M/12 A.Y.09-10 M/S. A VIN PUMPS PVT. LTD. 4 DEPRECIATION RATES BEING PRESCRIBED IN THE RULES. S ECTION 50 REFERS TO A CAPITAL ASSETS FORMING PART OF A BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED. THIS MEANS THAT THE ASSET WHICH IS SOLD AND THE CAPITAL GAINS RELATING TO WHICH IS THE SUBJECT-MATTER OF COMPUTATION MUST HAVE BEEN USED IN A BUSINESS CARRI ED ON BY THE ASSESSEE. THAT CONDITION WAS SATISFIED IN THE PRESE NT CASE AND THERE WAS NO DISPUTE ABOUT THE SAME. THE REQUIREMENT FOR ALLOWING DEDUCTION IN RESPECT OF THE NEW ASSET UNDER SECTION 50(1)(III) IS THAT IT SHOULD BE AN ASSET FALLING WITHIN THE BLOCK OF ASSE TS WHICH MEANS THAT IT SHOULD BE AN ASSET WHICH FALLS WITHIN A CLA SS OF BUILDINGS IN RESPECT OF WHICH THE SAME PERCENTAGE OF DEPRECIATIO N IS PRESCRIBED. THERE IS NO EXPLICIT REQUIREMENT IN THE STATUTORY P ROVISION TO THE EFFECT THAT THE NEW ASSET SHOULD ALSO BE USED IN A BUSINESS CARRIED ON BY THE ASSESSEE AND IF THERE IS NO BUSINESS CARR IED ON BY HIM, THE DEDUCTION CANNOT BE GIVEN. KEEPING IN MIND THE DIFF ERENCE BETWEEN THE PROVISIONS RELATING TO THE COMPUTATION OF THE B USINESS INCOME AND THOSE RELATING TO THE COMPUTATION OF CAPITAL GA INS, AS BROUGHT OUT BY THE SUPREME COURT IN THE CASE OF CIT V. EXPRESS NEWSPAPERS LTD. [1964]53 ITR 250 IT WOULD BE CLEAR THAT THE COURT S HOULD NOT ALLOW THE PROVISIONS RELATING TO SECTION 50(1)(III) TO BE INTERPRETED IN THE MANNER SUGGESTED BY THE REVENUE. THERE IS NO EXPLIC IT OR EXPRESS REQUIREMENT THAT THE NEW ASSET SHOULD BE PUT TO USE IN ANY BUSINESS CARRIED ON BY THE ASSESSEE. THE CBDT CIRCULAR NO. 469, DATED 23-9-1986 SHOWS TH AT THE MAIN OBJECT OF INTRODUCING THE BLOCK OF ASSETS CONCEPT W AS ONLY TO REDUCE TIME AND EFFORT SPENT IN DETAILED RECORD MAINTENANC E. WHILE GIVING EFFECT TO THIS OBJECT, THERE COULD HAVE BEEN NO JUS TIFICATION OR WARRANT FOR PRESCRIBING A CONDITION THAT THE NEW ASSET, IN ADDITION TO BEING AN ASSET IN RESPECT OF WHICH THE SAME RATE OF DEPRE CIATION IS PRESCRIBED AS IN THE CASE OF THE OTHER ASSETS WITHI N THE CLASS, SHOULD ALSO BE USED IN A BUSINESS CARRIED ON BY THE ASSESS EE. IN THE CASE OF A BUILDING, THE NEW BUILDING PURCHASED SHOULD BE ON E IN RESPECT OF WHICH THE SAME RATE OF DEPRECIATION, AS IS PRESCRIB ED IN RESPECT OF THE OTHER BUILDINGS, HAS BEEN PRESCRIBED BY THE RUL ES. IF THE ASSESSEE CARRIES ON A BUSINESS, IN THAT CASE HE WOULD ALSO B E ELIGIBLE FOR AN ALLOWANCE ON ACCOUNT OF DEPRECIATION AT THAT RATE. IN THE CASE OF AN ASSESSEE WHO DOES NOT CARRY ON A BUSINESS, THE RESU LT WOULD BE THAT HE WOULD NOT BE ENTITLED TO ANY ALLOWANCE ON ACCOUN T OF DEPRECIATION IN RESPECT OF THE ASSET. IF AT A FUTURE DATE HE DEC IDES TO COMMENCE A BUSINESS, HE WOULD BE ENTITLED TO THE DEPRECIATION ALLOWANCE IN RESPECT OF THE NEW ASSET, PROVIDED HE SATISFIES THE AUTHORITIES THAT THE NEW ASSET WAS USED IN THAT BUSINESS. IN THE ABS ENCE OF ANY EXPRESS REQUIREMENT IN THE STATUTORY PROVISION OR T HE JUSTIFICATION TO READ INTO IT A BUILT IN REQUIREMENT, IT IS NOT POSS IBLE TO UPHOLD THE ITA NO.3840/M/12 A.Y.09-10 M/S. A VIN PUMPS PVT. LTD. 5 CONTENTION OF THE DEPARTMENT THAT THE ASSESSEE SHOU LD BE FOUND TO HAVE BEEN CARRYING ON A BUSINESS IN THE YEAR IN WHI CH THE NEW ASSET WAS PURCHASED. FOR THE AFORESAID REASONS, IT WAS TO BE HELD THAT T HE ASSESSEE WAS ENTITLED TO THE DEDUCTION OF THE COST OF THE FLAT IN NEW BOMBAY UNDER SECTION 50(1)(III) IN THE COMPUTATION OF THE CAPITA L GAINS IN RESPECT OF THE SALE OF THE PUNE PROPERTY. IN THIS CASE AS SEEN FROM THE ORDERS OF THE AUTHORI TIES, THE ASSESSEE HAS NOT STOPPED BUSINESS, THEREFORE, AS RIGHTLY HELD BY CO-ORDINATE BENCH THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 50 (I)(III) IF THE NEW ASSET IS FALLING UNDER SAME BLOCK OF ASSETS. 6. THE ASSESSEES CONTENTIONS WITH REFERENCE TO USA GE OF OFFICE PREMISES FOR BUSINESS PURPOSES AND ALSO ALLOWANCE O F DEPRECIATION IN LATER YEAR REQUIRES VERIFICATION. EVENTHOUGH THE PR OPERTY MAY BE SITUATED IN RESIDENTIAL PREMISES, THE SAME IF USED AS OFFICE PREMISES, THERE CANNOT BE ANY OBJECTION FOR ALLOWING DEPRECIATION AT 10%. THEREFORE, WHAT IS REQUIRED TO BE EXAMINED IS WHETHER THE ASSESSEE IS USING PREMISES FOR OFFICE PURPOSES. AS SEEN FROM THE APPEAL MEMO AND A DDRESS GIVEN AS ADDRESS OF THE ASSESSEE, IT IS D-4/95, BHARUCHA BAU G, S.V. ROAD, ANDHERI WHICH SEEMS TO BE DIFFERENT FROM THE PROPER TY WHICH ASSESSEE PURCHASED AND CLAIMED AS OFFICE PREMISES. THE ASSES SEE PURCHASED PROPERTY IN AKRUTI ARCADE PARK, FLAT 804 ON 8 TH FLOOR OF THE BUILDING IN WING-1. THEREFORE, THIS ASPECT WHETHER THE PROPERTY IS USED AS OFFICE PREMISES REQUIRES EXAMINATION BY THE AO NOT ONLY WI TH REFERENCE TO ACTUAL USAGE BUT ALSO WITH REFERENCE TO TAXES PAID TO MUNICIPAL AUTHORITIES AND PERMISSIONS IF ANY REQUIRED FROM SO CIETY IF ANY. IN CASE THE PROPERTY IS USED AS OFFICE PREMISES, THE DEPREC IATION ALLOWABLE IS AT 10%. THEREFORE, THE SAID ASSET FALLS IN THE SAME BL OCK OF ASSET FOR DEDUCTION UNDER SECTION 50(I)(III). IN THAT CASE TH E WRITTEN DOWN VALUE OF ITA NO.3840/M/12 A.Y.09-10 M/S. A VIN PUMPS PVT. LTD. 6 THE BUSINESS PREMISES MAY BECOME ZERO, IF THE ADJUS TMENT SOUGHT BY THE ASSESSEE WAS ALLOWED IN THE COMPUTATION OF CAPITAL GAINS. THIS ASPECT REQUIRED TO BE CONSIDERED WHILE WORKING CAPITAL GAI NS. CONSEQUENTIAL ADJUSTMENT FOR ALLOWANCE OF DEPRECIATION IN LATER Y EAR(S) MAY REQUIRE MODIFICATION. IN CASE THE PROPERTY IS NOT USED AS O FFICE PREMISES, THEN THE ASSESSEE MAY NOT BE ENTITLED FOR DEPRECIATION, UNLE SS ASSET IS USED FOR BUSINESS PURPOSES. THIS ASPECT ALSO REQUIRES EXAMIN ATION. THEREFORE, IN THE INTEREST OF JUSTICE WE RESTORE THE MATTER TO TH E FILE OF AO TO EXAMINE THE EXACT USAGE OF THE PROPERTY PURCHASED AND THEN WORK OUT CAPITAL GAINS/DEPRECIATION ACCORDINGLY. FOR THIS PURPOSE, T HE ORDER TO THAT EXTENT, IS SET ASIDE TO THE FILE OF THE AO. THE AS SESSEE SHOULD BE GIVEN DUE OPPORTUNITY TO PLACE NECESSARY EVIDENCE/ CONTEN TIONS. 7. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2013. SD/- SD/- (VIVEK VARMA) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 31/07/2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.