M/s M Veeranjaneyulu & Son (HUF), Narsaraopet, Visakhapatnam V. The ITO, Ward-1, Narasaraopeta

ITA 389/VIZ/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56766 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 22-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B BABU RAO
• Assessee Lawyers: C SUBRAMANYAM
• Keywords: Capital asset

Judgement Text

ITA NO 389 OF 2010 M VEERANJANEYULU AND SON HUF N ARSARAOPET PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.389/VIZAG/2010 ASSESSMENT YEAR: 2004 - 05 M. VEERANJANEYULU & SON (HUF) NARSARAOPET VS. ITO WARD-1, NARSARAOPET (APPELLANT) PAN NO: AADHM 5862 M (RESPONDENT) APPELLANT BY: SHRI C. SUBRAMANYAM, CA RESPONDENT BY: SHRI B. BABU RAO, SR.DR ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.4.2010 PASSED BY LEARNED CIT(A), GUNTUR AND IT R ELATES TO THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE IS ASSAILING THE DECISION OF THE LE ARNED CIT (A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN R E-COMPUTING THE CAPITAL GAIN DECLARED BY THE ASSESSEE. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE WAS ONE OF THE PARTNERS WITH A SHARE OF 20% IN A PARTNE RSHIP FIRM, WHICH OWNED A CINEMA THEATRE LOCATED IN A VILLAGE. IT WAS STATE D THAT THE SAID PARTNERSHIP FIRM NEVER FILED ITS RETURN OF INCOME, AS IT WAS INCURRING LOSSES CONTINUOUSLY. THE DEPARTMENT ALSO DID NOT INITIATE ANY PROCEEDING AGAINST THE SAID PARTNERSHIP FIRM. IT WAS STATED THAT THE C INEMA THEATRE WAS SOLD IN FEB., 2004 AND THE ASSESSEE RECEIVED A SUM OF RS.5, 70,000/- AS HIS SHARE IN THE SAID SALE CONSIDERATION. THE ASSESSEE COMPUTED LONG TERM CAPITAL GAIN BY TAKING THE SAID AMOUNT OF RS.5,70,000/- AS THE S ALE CONSIDERATION AND FURTHER TAKING THE MARKET VALUE AS ON 1.4.1981 AT R S.1,20,000/-. HOWEVER, ITA NO 389 OF 2010 M VEERANJANEYULU AND SON HUF N ARSARAOPET PAGE 2 OF 4 CONSEQUENT TO A SURVEY OPERATION IN THE ASSESSEES HANDS, IT CAME TO LIGHT THAT THE ASSESSEE HAD ACTUALLY RECEIVED A SUM OF RS .9,50,000/- AS HIS SHARE IN THE SALE CONSIDERATION. ACCORDINGLY, THE ASSESSE E OFFERED THE DIFFERENCE BETWEEN RS.9,50,000/- AND RS.5,70,000/- AS THE LONG TERM CAPITAL GAIN. HOWEVER, THE ASSESSING OFFICER NOTICED THAT THE ITE MS THAT WERE SOLD CONSISTED OF THEATRE SITE, THEATRE BUILDING AND MAC HINERY. SINCE THE THEATRE BUILDING AND MACHINERY ARE DEPRECIABLE BUSINESS ASS ETS, THE ASSESSING OFFICER OPINED THAT THE CAPITAL GAIN RELATING TO TH EM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN ONLY UNDER SECTION 50 OF TH E ACT. THE ASSESSING OFFICER ACCORDINGLY COMPUTED THE WDV OF THE BUILDIN G AND MACHINERY FROM THE VALUE OF THE RESPECTIVE ASSETS AS ON 1.4.1981, AS ESTIMATED BY HIM. THE ASSESSING OFFICER ALSO APPORTIONED THE AMOUNT O F RS.9,50,000/-, BEING THE ASSESSEES SHARE IN PROPORTION TO THE VALUE OF SITE, BUILDING AND MACHINERY AS DETERMINED BY SUB-REGISTRAR OFFICE. A CCORDINGLY THE ASSESSING OFFICER COMPUTED THE SHORT TERM CAPITAL GAIN ON THE SALE OF BUILDING AND MACHINERY AT RS.6,55,600/- AND LONG TERM CAPITAL GA IN ON SALE OF SITE AT RS.64,880/-. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE LEARNED CIT (A) BUT COULD NOT SUCCEED. H ENCE THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED AUTHORISED REPRESENTATIVE RELIED ON THE WRITTEN SUBMISSIONS FILED BY HIM AND THE LEARNED DEPARTMENT AL REPRESENTATIVE PLACED RELIANCE ON THE ORDER OF THE LEARNED CIT (A) . 5. WE HAVE HEARD THE CONTENTIONS AND PERUSED THE RE CORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE IMPUGNED S ALE CONSIDERATION OF RS.9,50,000/- RECEIVED BY THE ASSESSEE IS ONLY HIS SHARE IN THE SALE VALUE OF CINEMA THEATRE. THERE IS ALSO NO DISPUTE THAT THE SAID CINEMA THEATRE ACTUALLY BELONGED TO A PARTNERSHIP FIRM. SINCE THE SAID PARTNERSHIP FIRM WAS NOT ASSESSED TO INCOME TAX, THE ASSESSEE HAS CHOSEN TO OFFER THE GAIN RELATING TO HIS SHARE AS LONG TERM CAPITAL GAIN IN HIS HAND. HOWEVER, THE ASSESSING OFFICER PROCEEDED TO COMPUTE THE SHORT TE RM CAPITAL GAIN AND ITA NO 389 OF 2010 M VEERANJANEYULU AND SON HUF N ARSARAOPET PAGE 3 OF 4 LONG TERM CAPITAL GAIN AS THE BUILDING AND MACHINER Y SOLD WERE DEPRECIABLE ASSETS. 6. HOWEVER, THERE CANNOT BE ANY DISPUTE THAT THE CA PITAL GAIN ARISING ON TRANSFER OF CAPITAL ASSETS BELONGING TO A FIRM HAS TO BE ASSESSED IN THE HANDS OF THE FIRM ONLY. IN THE INSTANT CASE, SINCE THE IMPUGNED CINEMA THEATRE ACTUALLY BELONGED TO A PARTNERSHIP FIRM, TH E GAIN ARISING ON SUCH SALE HAS TO BE ASSESSED IN THE HANDS OF THE FIRM ON LY. HOWEVER, THE ASSESSEE HAS PREFERRED TO OFFER THE CAPITAL GAIN ON THE SHARE OF SALE CONSIDERATION RECEIVED BY HIM, SINCE THE SAID FIRM WAS NOT ASSESSED TO INCOME TAX. THE ASSESSING OFFICER ALSO PROCEEDED T O RE-COMPUTE THE CAPITAL GAIN BY FORGETTING THE FACT THAT THE SAID ADJUSTMEN TS, IF ANY, HAVE TO BE CARRIED OUT ONLY IN THE HANDS OF THE PARTNERSHIP FI RM. HENCE IN OUR VIEW, THE ACTION OF BOTH THE ASSESSEE AS WELL AS THE ASSE SSING OFFICER IS NOT IN ACCORDANCE WITH THE LAW. SINCE THE ASSESSEE HAS VO LUNTARILY OFFERED INCOME FROM LONG TERM CAPITAL GAIN, IN OUR VIEW, NO ADJUST MENT IS REQUIRED TO BE MADE IN RESPECT OF SAID VOLUNTARY OFFER. HOWEVER, THE ASSESSING OFFICER IS NOT LEGALLY ENTITLED TO MAKE ADJUSTMENTS IN THE HAN DS OF THE ASSESSEE IN RESPECT OF CAPITAL GAIN BELONGING TO A PARTNERSHIP FIRM. SINCE THE LEARNED CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OF FICER, HER ORDER IS ALSO NOT IN ACCORDANCE WITH THE LAW. ACCORDINGLY, WE SE T ASIDE THE ORDER OF LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO ACCEPT THE INCOME RETURNED BY THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED. PRONOUNCED IN THE OPEN COURT ON 4 TH AUGUST, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:04-08-2011 ITA NO 389 OF 2010 M VEERANJANEYULU AND SON HUF N ARSARAOPET PAGE 4 OF 4 COPY TO 1 M. VEERANJANEYULU & SON C/O SRI C. SUBRAMANYAM, 1 02 LAKSHMI APARTMENTS, FACOR LAYOUT, WALTAIR UPLANDS, VISAKHAP ATNAM 2 THE ITO WARD-1, NARSARAOPET 3 4. THE CIT GUNTUR THE CIT(A), GUNTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM