ACIT 24(1), Mumbai V. M/S GANDHI PLASTIC INDUSTRIES, Mumbai

ITA 4032/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3393 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 05-06-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Cost of acquisition; Set aside; Capital Gains
• Section: 28; 143(3); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI BEFORE SHRI PRASHANT MAHARSHI (ACCOUNTANT MEMBER) & SMT. KAVITHA RAJAGOPAL (JUDICIAL MEMBER) ITA No. 4032/MUM/2019 (A.Y.2014-15) The Assistant Commissioner of Income-tax-24(1), Mumbai Room No.604, Piramal Chambers Jeejeebhoy Lane, Lalbaug, Parel Mumbai vs M/s Gandhi Plastic Industries 5-D, 1 st Floor, Mogra Village, Mogra Village Road, Andheri Mumbai-400 069 PAN : AACFG6912F APPELLANT RESPONDENT Assessee represented by Shri Aditya Ajgaonkar Department represented by Shri Hoshang B Irani – (DR) Date of hearing 31/05/2022 Date of pronouncement 25/08/2022 ORDER Per Kavitha Rajagopal (JM): This appeal has been filed by the assessee as against the order of the Ld.Commissioner of Income-tax (Appeals)-36, Mumbai, dated 29/03/2019 passed under section 250 of the I.T. Act, 1961 pertaining to assessment year 2014-15. 2. The grounds of appeal are as follows:- “1. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee that gain on sale of godown as the Long Term Capital Gains, without considering the following factual aspects: a) The assessee submitted before the Assessing Officer that godown was used as the business asset which was used for storage of raw materials and finished goods. 2 ITA No. 4032/MUM/2019 b) When the asset is used as business asset, whether the depreciation is claimed by the assessee or not, the business asset is to be treated as depreciable asset and any gain on the sale of depreciable asset is to be assessed as Short Term Capital Gains. 2. That gain on sale of right on the property as the Long Term Capital Gains, without considering the factual aspects: a) The assessee was being engaged in dealing in sale of immovable properties and TDR. b) The part of sale consideration received of Rs. 12,00,0007- was offered as business income in the AY 2013-14. c) The facts of the case laws, which are relied upon, are entirely different from the assessee's case. d) The interest cost, which has been claimed as cost of acquisition, was claimed as business expenditure in the previous year and if the assessee had been allowed to claim as the cost of acquisition, the same interest had been allowed as expenditure twice. 3. The appellant prays that the order of the CIT(Appeals) on the above grounds be set aside and that of the AO be restored.” 3. The brief facts of the case are that the assessee is a firm engaged in the business of manufacturing of plastic products, dealing in immovable properties & TDR and carrying on financing activities. The assessee, by an agreement dated 28/03/2005 had purchased an industrial gala / godown I admeasuring about 1068 sq.ft. of built up area at Samhita Premises co-operative Society Ltd for a consideration of Rs.19 lakhs. Thereafter, the assessee had sold the said godown to one, M/s Gulbirkaur Bhatia and Shri Manpreet Singh Bhatia by an agreement dated 03/12/2013 for a sale consideration of Rs.75 lakhs during the assessment year 2014-15. The assesse filed its return of income for the impugned year declaring total income at Rs.3,28,93,492/- on 30/09/2014. The assessee’s case was selected for scrutiny and assessment order dated 29/12/2016 was passed under section 143(3) determining total income at Rs.6,04,11,070/-. During the assessment proceedings, the Assessing Officer 3 ITA No. 4032/MUM/2019 had examined the claim of assessee from long term capital gain of Rs.3,28,82,422/- and questioned the assessee as to why the claim of capital gain should not be treated as “Income from business or profession”. Further to this, the assessee was also asked to explain why the sale of TDR should not be treated as the ‘profit and gains from business or profession’ under section 28 of the I.T. Act. In response to the said query, the assessee submitted that it had offered Rs,12,00,000/- in assessment year 2013-14 under the head “Income from business or profession” and that the same was charged in P&L Account of the same year which evidenced that the assessee has accepted this income from compensation as “Income from business or profession” under section 28 of the I.T. Act. It is evident that in the subsequent year for assessment year 2014-15, the assessee has offered the same income under the head “Income from capital gains” by changing the assessee’s stand for previous year. This contention of the assessee was not accepted by the Assessing Officer on the ground that as per the method of accounting, the said income should have been charged under the head of ‘business income’ by considering the nature of business of the assessee, the same should have been treated as “Income from business or profession”. Further to this, it is observed that the assessee has claimed Rs.1 crore as cost of assets and Rs.2,21,475/-, Rs,12,00,000/-, Rs,12,00,000/-, Rs,12,00,000/-, Rs,12,00,000/- and Rs.11,93,425/- as improvement costs which, according to the assessee, was only interest costs which was already claimed in the P&L Account. This was disallowed by the Assessing Officer on the ground that the assessee had failed to provide any supporting documents to prove the said cost and interest expenditure. The Assessing Officer had treated the godown premises as business assets and thereby assessed the profits on sale of godown as short 4 ITA No. 4032/MUM/2019 term capital gain and the sale proceeds of right in a flat as business income which was obtained from a developer for allotment of a flat in the property to be developed on land which was fully encroached and for which the assessee had paid an advance of Rs.1 crore. Aggrieved by this, the assessee was in appeal before the Ld.CIT(A), who allowed the claim of the assessee as long term capital gain and also the sale of right on the property as long term capital gain. The Revenue is in appeal before us as against the order of the Ld.CIT(A). 4. The Ld.Departmental Representative contended that the Ld.CIT(A) has erred in allowing the claim of the assessee on sale of godown as long term capital gain. The Ld.DR further stated that the interest costs claimed by the assessee as cost of acquisition was also claimed as business expenditure in the previous year which will amount to claiming the expenditure twice on the same cost. The Ld.DR relied on the order of the Assessing Officer. 5. The Ld.AR, on the other hand, relied on the order of the Ld.CIT(A). 6. We have heard both the learned representatives and perused the materials on record. 6.1 Ground 1 pertains to the issue whether the godown sold by the assessee was used as business asset for storage of raw materials and finished goods by the assessee and that the depreciation on the said property was not claimed by the assessee as it was not treated as business asset, was not accepted by the Assessing Officer. The assessee’s contention that the said property was given on rent and the income therefrom was declared as “Income from house property” for which the assessee has also paid maintenance charges of Rs.31,191/- to the society was also not considered by the Assessing Officer. The assessee also contended that the said amount was debited to the P&L Account but was also added back to the total income of the assessee as 5 ITA No. 4032/MUM/2019 expenses incurred with regard to the letting out of the property cannot be claimed as deduction under the head “Profits and gains of business or profession”. The assessee had also stated that even for assessment year 2013- 14, the maintenance charges of Rs.41,588/- which was debited to the P&L Account was added back to the total income of the assessee thereby disallowing the same. Upon perusal of the facts and circumstances of the case, it is evident that the rental income from the said godown has been offered to tax under the head “Income from house property”. The Ld.CIT(A) in the appellate order has considered the same and has held that the assessee has disallowed the expenses incurred in the said property during the years in which it did not receive any rental income. And further to this, the financial statements of the assessee has reflected it to be as investment and not as fixed asset. The Ld.CIT(A) has held that the assessee has proved beyond doubt that the said godown was not used for the purpose of business and has directed the Assessing Officer to treat the godown as investment and the profit arising out of the sale of the said property as long term capital gain. From the above observation, we do not find any infirmity in the decision of the Ld.CIT(A) thereby dismissing this ground of appeal filed by the revenue. 6.2 Ground 2 pertains to the sale of right on the property claimed as long term capital gain. The facts with regard to the said ground is that M/s Akshaya Sthapaty Pvt Ltd had allotted a flat in proposed “West Tower” building to be developed into a complex by name “47 Race Course” to the assessee company through its managing partner for his official residential purpose by way of allotment letter dated 16/01/2008 by which the assessee paid Rs.1 crore towards initial payment for booking the flat to the developer. This amount paid by the assessee was shown as advance payment in the balance-sheet 6 ITA No. 4032/MUM/2019 since assessment year 2008-09. As there was undue delay from the developer in completing the said work, the assessee cancelled the said agreement and was paid Rs.5,60,00,000/- as compensation as against the advance payment of Rs.1 crore. The assessee had inadvertently offered Rs.12,00,000/- in A.Y. 2013- 14 under the head “Income from business or profession”. The Assessing Officer during the assessment proceedings confirmed the same as “Income from business or profession” on the ground that the assessee had voluntarily accepted the said compensation under the head “Income from business or profession”. The Assessing Officer had denied to accept the change of stand by the assessee for the impugned year. The Assessing Officer failed to concur with the view of the assessee that the was compensation was to be treated as capital gain received by way of relinquishment of right and not as business income which was erroneously offered to tax by the assessee under the head ‘business income. The Ld.CIT(A) differed from the Assessing Officer on the ground that since the assessee was dealing in immovable property and TDR, the same was to be treated as business income. The Ld.CIT(A) held that the Assessing Officer’s decision was not supported by any documentary evidence and that the assessee had committed a mistake in the earlier years by offering it as business income. From the above observation it is evident that the assessee has received the said compensation only on relinquishment of his right to receive the residential flat as per the allotment letter dated 16/01/2008. On perusal of the documents available on record, we infer that the Ld.CIT(A) has rightly assessed the income under the head “Income from capital gain” and we hold that there is no infirmity in the decision of the Ld.CIT(A) in this context. This ground of appeal filed by the Revenue is also dismissed. 7 ITA No. 4032/MUM/2019 6.3 Ground 2(d) raised by the revenue pertaining to the interest cost claimed as cost of acquisition was claimed as business expenditure in the previous year in which if the assessee had to claim the same as cost of acquisition, the same will be allowed as expenditure twice. The Ld.CIT(A) has held that the claim of interest expenses as part of cost of acquisition by the assessee has been allotted by the Ld.CIT(A) for earlier years. We direct the Assessing Officer to re-compute the indexed cost of acquisition as per the letter of allotment as held by the Ld.CIT(A) and to determine whether the interest cost was claimed as cost of acquisition or as business expenditure in order to prevent the assessee from claiming the said expenditure twice on different grounds. Further, it may also be examined, whether interest cost is cost of acquisition of a capital asset or not. This ground of appeal is partly allowed. 7. In the result, appeal filed by the Revenue is partly allowed. Order pronounced in the open Court on 25 th August, 2022. Sd/- sd/- (PRASHANT MAHARSHI) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 25/08/2022 Pavanan 8 ITA No. 4032/MUM/2019 Copy of the Order forwarded to : 1. The Appellant , 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai