SMITA CONDUCTORS LTD, MUMBAI V. DCIT RG 3(3), MUMBAI

ITA 4004/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71150 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 17-09-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL HIRAWAT IZRFKHZ DH LS
• Keywords: Sale consideration of property below Jantri Value; Capital asset
• Section: 50C; 12

Judgement Text

M/S SMITA CONDUCTORS LTD - 1 - VK;DJ VIHYH; VF/KDJ.K BZ U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI JH JKTSUNZ FLAG YS[KK LNL; ,OA JH VFER 'KQDYK] U;KF ;D LNL; DS LE{K BEFORE SHRI RAJENDRA SINGH ACCOUNTANT MEMBER AND SH RI AMIT SHUKLA JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO. 4004/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2006-07 M/S SMITA CONDUCTORS LTD C/0. KARNAVAT & CO. 2A KITAB MAHAL, 1 ST FLOOR 192 DR D.N. ROAD MUMBAI;- 400 001. CUKE@ VS. THE DY. COMMISSIONER OF INCOME TAX RANGE -3(3), MUMBAI. PAN:- AAACS5379K VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI VIJAY MEHTA & SHRI SUNIL HIRAWAT IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI ASHUTOSH RAJHANS VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25.3.2011 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07 . THE ASSESSEE IN THIS APPEAL HAS RAISED DISPUTES ON TWO DIFFERENT GROUNDS WHICH RELATE TO ADDITION TO CAPITAL GAIN U/S 50C OF THE IT ACT AND ADDITION ON ACCOUNT OF BAD DEBT WRITTEN OFF. LQUOKBZ DH RKJH[K @ DATE OF HEARING 17-09-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 17-09-2013 M/S SMITA CONDUCTORS LTD - 2 - 1.1 THE ASSESSEE SUBSEQUENTLY VIDE LETTER DATED 17. 3.2012 ALSO FILED AN ADDITIONAL GROUND REGARDING TAX RATE TO BE APPLIED IN CASE OF CAPITAL GAIN COMPUTED U/S 50 R.W.S 50C OF THE INCOME TAX ACT. TH E ADDITIONAL GROUND BEING A LEGAL GROUND WHICH DOES ARISE ON THE BASIS OF FACTS ON RECORD WAS ADMITTED BY THE TRIBUNAL FOR ADJUDICATION. 2. WE FIRST TAKE UP THE DISPUTE RELATING TO COMPUTA TION OF CAPITAL GAIN U/S 50 R.W.S 50C OF THE INCOME TAX ACT AND THE APPLICAT ION OF TAX RATE AS RAISED IN THE ADDITIONAL GROUND. THE ASSESSEE DURING THE RELE VANT YEAR HAD SOLD A FLAT AT KHAR FOR RS. 35,00,000/-. SINCE THE FLAT WAS A B USINESS ASSET AND HAD BEEN SHOWN AS PART OF THE BLOCK OF ASSETS, THE ASSESSEE COMPUTED THE CAPITAL GAIN U/S 50 OF THE IT ACT AT RS. 12,52,111/- AFTER DEDUC TING THE WDV OF BLOCK OF ASSETS OF RS. 22,47,889/- FROM THE SALE PRICE. AO F URTHER NOTED THAT STAMP VALUE OF THE FLATS SOLD WAS RS. 5927784/-. AO, THE REFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE STAMP DUTY VALUE SHOULD NO T BE SUBSTITUTED FOR THE SALE CONSIDERATION WHILE COMPUTING THE CAPITAL GAIN U/S 50C OF THE IT ACT. THE ASSESSEE SUBMITTED THAT THE PROVISION OF SECTION 50 C WAS NOT APPLICABLE. AO HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISED AND O BSERVED THAT PROVISIONS OF SECTION 50C WERE ALSO APPLICABLE IN CASE OF DEPR ECIABLE ASSETS. HE, THEREFORE, ADOPTED THE STAMP DUTY VALUE OF RS. 5927 794/- AS THE SALE CONSIDERATION AND COMPUTED THE CAPITAL GAIN AT RS. 2427784/- WHICH WAS TREATED AS SHORT TERM CAPITAL GAIN U/S 50 OF THE IN COME TAX ACT. 2.1 THE ASSESSEE DISPUTED THE DECISION OF AO AND SU BMITTED BEFORE CIT(A) THAT PROVISIONS OF SECTION 50C WERE NOT APPLICABLE IN CASE OF DEPRECIABLE ASSETS. CIT(A) HOWEVER REJECTED THE ARGUMENTS ADVAN CED AND CONFIRMED THE ORDER OF AO TREATING THE STAMP DUTY VALUE AS THE SA LE VALUE U/S 50C OF THE IT ACT. AGGRIEVED BY THE DECISION OF CIT(A) THE ASSESS EE IS IN APPEAL BEFORE M/S SMITA CONDUCTORS LTD - 3 - TRIBUNAL IN WHICH THE ADDITIONAL GROUND AS MENTIONE D EARLIER HAS ALSO BEEN RAISED REGARDING RATE OF TAX TO BE APPLIED IN CASE OF CAPITAL GAIN COMPUTED U/S 50 OF THE IT ACT. 2.2 BEFORE US THE LEARNED AR FOR THE ASSESSEE FAIRL Y CONCEDED THAT ISSUE WHETHER THE PROVISIONS OF SECTION 50C WOULD APPLY I N CASE OF CAPITAL GAIN COMPUTED U/S 50 OF THE IT ACT HAS BEEN DECIDED BY T HE SPECIAL BENCH OF TRIBUNAL IN CASE OF UNITED MARINE ACADEMY (130 ITD 113) IN WHICH IT HAS BEEN HELD THAT PROVISIONS OF SECTION 50C WOULD ALSO APPLY IN CASE OF COMPUTATION OF CAPITA GAIN FROM DEPRECIABLE ASSETS U/S 50 OF THE IT ACT. THE LEARNED AR FURTHER SUBMITTED THAT THE FLAT SOLD BY THE ASSESSEE HAD BEEN HELD FOR A LONG TIME EXCEEDING MORE THAN THREE YEARS AND , THEREFORE, THE CAPITAL GAIN THOUGH IT WAS REQUIRED TO BE COMPUTED U/S 50 O F THE IT ACT, IT HAS TO BE TREATED AS LONG TERM CAPITAL GAIN IN VIEW OF THE JU DGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF ACE BUILDERS LTD. (281 I TR 410) IN WHICH IT HAS BEEN HELD THAT THE FACTUM OF DEEMED SHORT TERM CAPI TAL GAIN U/S 50 OF THE IT ACT WAS APPLICABLE ONLY TO COMPUTATION OF CAPITAL G AIN AND FOR THE PURPOSE OF OTHER PROVISIONS OF THE ACT SUCH AS 54EC THE CAPITA L GAIN HAD TO BE TREATED AS LONG TERM CAPITAL GAIN IF THE ASSET WAS HELD FOR MO RE THAN THREE YEARS. THE LEARNED AR POINTED OUT THAT SECTION 50(1) MADE IT Q UITE CLEAR THAT THE CAPITAL GAIN IN RESPECT OF DEPRECIABLE ASSET WAS DEEMED AS SHORT TERM CAPITAL GAIN FOR THE PURPOSES OF SECTION 48 AND 49 OF THE IT ACT WHICH RELATED TO COMPUTATION OF CAPITAL GAIN. THEREFORE, THE DEEMING PROVISION WAS ONLY LIMITED TO THE PROVISIONS FOR COMPUTATION OF CAPITA L GAIN. HE ALSO REFERRED TO THE DECISION OF THE MUMBAI BENCH OF TRIBUNAL IN CAS E OF MAHINDRA FREIGHT CARRIERS VS. DCIT (139 TTJ 422) IN WHICH IT HAS BE EN HELD THAT PRESCRIPTIONS OF SECTION 50 ARE TO BE EXTENDED ONLY TO STAGE OF COMP UTATION OF CAPITAL GAIN AND, THEREFORE, CAPITAL GAIN RESULTING FROM TRANSFE R OF DEPRECIABLE ASSET WHICH M/S SMITA CONDUCTORS LTD - 4 - WAS HELD FROM MORE THAN PERIOD OF THREE YEARS WOULD RETAIN THE CHARACTER OF LONG TERM CAPITAL GAIN FOR ALL OTHER PROVISIONS OF THE ACT AND CONSEQUENTLY QUALIFY FOR SET OFF AGAINST BROUGHT FORWARD LOSS OF LONG TERM CAPITAL GAIN. REFERENCE WAS ALSO MADE TO ANOTHER DECISION OF MUMB AI BENCH OF TRIBUNAL IN CASE OF PRABODH INVESTMENT & TRADING COMPANY VS. IT O IN (ITA NO. 6557/MUM/2008) IN WHICH FOLLOWING THE JUDGMENT OF H ONBLE HIGH COURT OF BOMBAY IN CASE OF ACE BUILDERS P. LTD, (SUPRA) THE TRIBUNAL HELD THAT SECTION 50 CREATED A LEGAL FICTION ONLY FOR A LIMITED PURPO SE I.E. FOR THE PURPOSE OF SECTION 48 AND 49 AND FOR THE PURPOSES OF SECTION 5 4E, THE CAPITAL HAS TO BE TREATED AS LONG TERM CAPITAL GAIN. THE TRIBUNAL ALS O ACCEPTED THE ARGUMENTS OF THE ASSESSEE THAT IN CASE CAPITAL GAIN IS ASSESS ED AS LONG TERM CAPITAL GAIN THE RATE OF TAX WOULD APPLY AS PROVIDED IN SECTION 112 OF THE IT ACT. IT WAS, THEREFORE, ARGUED THAT IN CASE OF ASSESSEE, RATE OF TAX APPLICABLE TO LONG TERM CAPITAL GAIN HAD TO BE APPLIED AS PER THE PROVISION S OF SECTION 112 OF THE IT ACT. 2.3 THE LEARNED DR ON THE OTHER HAND PLACED RELIANC E ON THE ORDERS OF AUTHORITIES BELOW. 2.4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING APPLICABILITY OF PROVISIONS OF SECTION 50C TO THE COMPUTATION OF CAPITAL GAIN IN CASE OF DEPRECIABLE ASSET U/S 50 OF THE IT ACT. AS PER THE PROVISIONS OF SECTION 50C IN CASE OF CO MPUTATION OF CAPITAL GAIN FROM SALE OF BUILDING AND LAND APPURTMENT THEREOF, THE VALUE OF THE PROPERTY ASSESSED FOR STAMP DUTY PURPOSE HAS TO BE ADOPTED A S THE SALE CONSIDERATION. THE AUTHORITIES BELOW HAVE TAKEN THE VIEW THAT PROVISIONS OF SECTION 50C WOULD ALSO APPLY IN CASE OF COMPUTATION OF CAPITAL GAIN FROM DEPRECIABLE ASSETS. THE VIEW TAKEN BY THE AUTHORITI ES BELOW IS SUPPORTED BY M/S SMITA CONDUCTORS LTD - 5 - THE SPECIAL BENCH OF TRIBUNAL IN CASE OF UNITED MAR INE ACADEMY (130 ITD 113). THEREFORE, WE CONFIRM THE ORDER OF CIT (A) HO LDING THAT THE STAMP DUTY VALUE ASSESSED BY THE STAMP DUTY AUTHORITIES IS REQ UIRED TO BE ADOPTED AS SALE CONSIDERATION IN CASE OF SALE OF THE FLAT UNDE R REFERENCE IN THIS CASE. 2.5 THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROU ND THAT FOR THE PURPOSE OF APPLICATION OF TAX RATE, THE CAPITAL GAIN IN CAS E OF THE ASSESSEE HAS TO BE ASSESSED AS LONG TERM CAPITAL GAIN AS THE FLAT HAD BEEN HELD BY THE ASSESSEE FOR MORE THAN THREE YEARS. IT HAS BEEN ARGUED THAT PROVISIONS OF SECTION 50 DEEMING THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN IS ONLY FOR THE PURPOSES OF SECTION 48 AND 49 WHICH RELATE TO COMPUTATION OF CA PITAL GAIN. THE DEEMING PROVISIONS HAS, THEREFORE, TO BE RESTRICTED ONLY TO COMPUTATION OF CAPITAL GAIN AND FOR THE PURPOSE OF OTHER PROVISIONS OF THE ACT, THE CAPITAL GAIN HAS TO BE TREATED AS LONG TERM CAPITAL GAIN. THE VIEW CANVASS ED BY THE LEARNED AR IS SUPPORTED BY THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF ACE BUILDERS P. LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT FOR THE PURPOSE OF OTHER PROVISIONS OF THE ACT SUCH AS SECTION 54EC TH E CAPITAL GAIN HAS TO BE TREATED AS LONG TERM CAPITAL GAIN, IF THE ASSET IS HELD FOR MORE THAN THREE YEARS. THE SAME VIEW HAS BEEN TAKEN BY THE MUMBAI B ENCH OF TRIBUNAL IN CASE OF MANALI INVESTMENTS VS. ASSISTANT COMMISSIO NER OF INCOME TAX (139 TTJ 411) IN WHICH IT HAS BEEN HELD THAT THE PRESCRI PTIONS OF SECTION 50 ARE TO BE EXTENDED ONLY TO THE STAGE OF COMPUTATION OF CAP ITAL GAIN AND, THEREFORE, CAPITAL GAIN RESULTING FROM TRANSFER OF DEPRECIABLE ASSET WHICH WAS HELD FOR MORE THAN THREE YEARS WOULD RETAIN THE CHARACTER O F LONG TERM CAPITAL GAIN FOR THE PURPOSE OF ALL OTHER PROVISIONS OF THE ACT . IN THIS CASE THE LD. AR FOR THE ASSESSEE SUBMITTED THAT FLAT HAD BEEN HELD FOR 15 TO 20 YEARS WHICH IS SUPPORTED BY THE FACT THAT COST OF THE FLAT AS SHOW N IN THE BALANCE SHEET WAS ONLY RS. 1,30,000/-. THEREFORE, IF THE FLAT IS HELD FOR MORE THAN THREE YEARS THE M/S SMITA CONDUCTORS LTD - 6 - TAX RATE HAS TO BE APPLIED AS PROVIDED IN SECTION 1 12 OF THE IT ACT APPLICABLE IN RESPECT OF CAPITAL GAIN ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSET. 2.6 WE, THEREFORE, HELD THAT, FOR THE PURPOSE OF CO MPUTATION OF CAPITAL GAIN, THE FLAT HAS TO BE TREATED AS SHORT TERM CAPI TAL GAIN U/S 50 OF THE IT ACT, BUT FOR THE PURPOSE OF APPLICABILITY OF TAX RATE IT HAS TO BE TREATED AS LONG TERM CAPITAL GAIN IF HELD FOR MORE THAN THREE YEARS . WE ACCORDINGLY DIRECT THE AO TO COMPUTE THE CAPITAL GAIN FROM THE SALE OF FLA T AND APPLY THE APPROPRIATE TAX RATE AFTER NECESSARY VERIFICATION I N THE LIGHT OF OBSERVATIONS MADE IN THIS ORDER. 3. THE SECOND DISPUTE IS REGARDING ADDITION OF RS. 59,373/- CONFIRMED BY THE CIT(A) ON ACCOUNT OF BAD DEBT. AO IN THE ASSESS MENT ORDER OBSERVED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.11,08,930/ - ON ACCOUNT OF BAD DEBT. AO ALSO OBSERVED THAT ANY CLAIM OF BAD DEBT C ANNOT BE ALLOWED AND THE ASSESSEE HAS TO ESTABLISH THAT THE DEBT HAS ACTUALL Y BECOME BAD. FURTHER IT WAS ALSO REQUIRED TO BE SHOWN THAT THE DEBT HAD BEE N TAKEN IN TO ACCOUNT IN COMPUTATION OF THE INCOME OF EARLIER YEARS. THE AO, THEREFORE, DISALLOWED THE CLAIM TO THE TUNE OF RS. 5,94,454/- 3.1 IN APPEAL, CIT(A) OBSERVED THAT IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF T.R.F LTD. (323 ITR 397), THE ASSESSEE WAS NO LONGER REQUIRED TO PROVE THAT THE BAD HAS ACTUALLY BECOME IRRECOVERABLE. THE CLAIM HAD TO BE ALLOWED IF THE DEBT IS ACTUALLY WRI TTEN OFF AND HAD BEEN TAKEN INTO ACCOUNT IN THE COMPUTATION OF INCOME OF THE EA RLIER YEARS. CIT(A), THEREFORE, ALLOWED THE CLAIM OF THE ASSESSEE EXCEPT TO THE TUNE OF RS. 59,373/- AS PER DETAILS GIVEN BELOW WHICH ACCORDING TO HIM HAD NOT BEEN TAKEN INTO ACCOUNT IN THE COMPUTATION OF INCOME OF EARLIER YEARS. M/S SMITA CONDUCTORS LTD - 7 - (I) DEPOSIT WITH INDIAN STANDARD INSTITUTE:- RS. 2 6,200/- (II) DEPOSIT WITH ULHASNAGAR MUNICIPAL CORP:- RS. 10,500/- (III) DEPOSIT WITH CENTRAL EXCISE:- RS. 2,000/- (IV) DEPOSIT FOR GAS CYLINDER:- RS. 6,00/- (V) KAMLESH ENTERPRISES LTD;- RS. 20,000/- (VI) KALINGA CABLES & CONDUIT CO. LTD;- RS. 70/- (VII) MAHARASHTRA METAL DISTRIBUTORS LTD:- RS. 3/ -_____ TOTAL RS. 59,373/- AGGRIEVED BY THE DECISION OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 4.2 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THE SUM OF RS. 59,373/- WHICH HAS BEEN DISALLOWED BY CIT(A) AS BAD DEBT HAS TO BE CONSIDERED AS BUSINESS LOSS AS VARIOUS AMOUNTS HAD BEEN DEPOSITED/ADVANCED TO PARTIES IN CONNECTION WITH BU SINESS. THESE AMOUNTS HAVE NOT BEEN RECOVERED EVEN TILL NOW AND IT WAS NO T COST EFFECTIVE TO FILE LEGAL CASES FOR RECOVERY OF THE AMOUNTS. THE AMOUNT S HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND, THEREFORE, THE SAME H AD TO BE ALLOWED AS BUSINESS LOSS. THE LEARNED DR PLACED RELIANCE ON TH E ORDERS OF AUTHORITIES BELOW. 3.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE AO HAD MADE ADDITION OF RS. 5,94,454/- ON ACCOUNT O F BAD DEBT. IN APPEAL CIT(A) HAS CONFIRMED THE ADDITION TO THE EXTENT OF RS. 59,373/- WHICH CONSISTED OF SEVERAL ITEMS OF DEPOSITS/ADVANCES GIV EN IN CONNECTION WITH BUSINESS. THESE AMOUNTS THOUGH COULD NOT BE ALLOWED AS BAD DEBT HAVE TO BE CONSIDERED AS BUSINESS LOSS. IT HAS BEEN SUBMITT ED THAT THE DEPOSITS/ M/S SMITA CONDUCTORS LTD - 8 - ADVANCES GIVEN IN CONNECTION WITH BUSINESS ARE VERY OLD AND HAVE NOT BEEN RECOVERED TILL NOW. THE ASSESSEE HAD, THEREFORE, WR ITTEN OFF THE AMOUNTS IN THE BOOKS OF ACCOUNTS. IT IS NOT COST EFFECTIVE TO ENFORCE RECOVERY BY FILING SUITS. IN OUR VIEW, CONSIDERING THE SMALLNESS OF AM OUNTS AND THE FACTS AND CIRCUMSTANCES OF THE CASE, CLAIM HAS TO BE ALLOWED AS BUSINESS LOSS. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE. 4. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 17-9-2013 SD/- SD/- (AMIT SHUKLA) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 17.9.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI