DCIT CC 41, MUMBAI V. CLASSIC ELECTIRCALS LTD, MUMBAI

ITA 4085/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2890 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 04-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Keywords: Reopening of assessment; Revised return
• Section: 143(3); 32; 147; 148; 139

Judgement Text

, LH LHLH LH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH , IOU FLAG IOU FLAG IOU FLAG IOU FLAG BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBE R & PAWAN SINGH,JUDICIAL MEMBER /.ITA NO.4085/MUM/2014, /ASSESSMENT YEAR-2007-08 DCIT CC-41, R.NO.655, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 VS M/S CLASSIC ELECTRICALS LTD. 33-HUGES, 3 RD FLOOR, N.S. PATKAR MARG, GRANT ROAD (W), MUMBAI-400007 PAN:AAACC5735F ( / ASSESSEE) ( / RESPONDENT) / REVENUE BY :SHRI NAVEEN GUPTA (DR) /ASSESSEE BY :MS. AARTI SATHE (AR) ' / DATE OF HEARING : 20 - 06 -2016 / DATE OF PRONOUNCEMENT : 24 -06-2016 , 1961 ' 254(1) +, -. ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) + -/ IOU FLAG IOU FLAG IOU FLAG IOU FLAG PER PAWAN SINGH, JM - THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A)-38, MUMBAI DATED 10.02.2014 FOR ASSESSMENT YEAR (AY) 2007-08. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READS AS UNDER: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE ADDITION IN RESPECT OF CAPITAL GAIN AR ISING ON ACCOUNT OF SLUMP SALE, BY ACCEPTING THE CONTENTION OF THE ASSESSEE THAT THE L IABILITY OF RS. 3,22,40,330/- PERTAINS TO UNITS OTHER THAN MOTIWADA UNIT, AND HENCE COMING TO THE CONCLUSION THAT THE ALLOCATION OF PROPORTIONATE LIABILITY AGAINST THE NET WORTH CO MPUTATION OF CAPITAL GAIN ARISING ON ACCOUNT OF SLUMP SALE OF MOTIWADA UNIT DOES NOT ARI SE, WITHOUT VERIFYING THE GENUINENESS OF THE CLAIMS MADE BY THE ASSESSEE.' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED RETURN OF INCOME FOR RELEVANT AY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 1 0.12.2009 DETERMINING THE TOTAL INCOME OF ASSESSEE AT RS. 70,62,837/-. THE ASSESSMENT PROCEED INGS WERE RE-OPENED U/S 147 OF THE ACT BY RECORDING THE REASONS FOR RE-OPENING OF ASSESSMENT. THE REASONS WERE RECORDED AS UNDER: THE ASSESSEE M/S. CLASSIC ELECTRICALS LTD IS ENGAG ED IN MANUFACTURING OF MOULDING AND FILED RETURN OF INCOME ON 29.10.2007 DECLARING LOSS OF RS. 7062837. THE SCRUTINY OF RECORDS REVEALED THAT ASSESSEE SOLD ITS MOTIWADA UD ARVA DIVISION AS SLUMP SALE AND LOSS WORKS OUT ON THIS ACCOUNT WAS AS UNDER: SALE CONSIDERATION (SLUMP SALE) RS. 1,10,00,00 0 LESS VALUE OF NET WORTH RS. 1,17,22,687 LOSS OF RS. RS. 7,72,687 VALUE OF NET WORTH ARRIVED AS UNDER: WDV OF ASSET OF THE DIVISION = RS. 95,02,737 ITA/4085/MUM//2014,AY.2007-08 2 ADD: BOOK VALUE OF OTHER ASSET = RS. 56,01,544 LESS: VALUE OF OTHER LIABILITIES = RS. 33,81,59 4 NET WORTH = RS. 1,17,22,687 THE SCRUTINY OF THE BALANCE SHEET AS ON 31.03.2006 REVEALED THAT ASSESSEE HAS SHOWN LOAN LIABILITY OF RS. 3,60,83,554/- WHICH HAS BEEN REDUC ED TO RS. 3,24,40,330/- AS ON 31.03.2007. AS THIS LIABILITY WAS FOR THE ENTIRE BU SINESS OF ASSESSEE, THE PROPORTIONATE AMOUNT THAT PERTAINED TO MOTIWADA UDARVA DIVISION W AS ALSO TO BE TAKEN FOR THE PURPOSE OF REDUCTION TOWARDS LIABILITIES FOR ARRIVING AT NE T WORTH AND THE SAME SHOULD HAVE BEEN WORKED AS UNDER: AMOUNT OF LOAN = (3,60,83,554 + 3,22,40,330)/2 = 3, 41,61,942 DEPRECIATED VALUE OF UDARVA DIVISION = 95,02,737 DEPRECIATED VALUE OF THE UNIT = 3,80,63,701 TOTAL 4,75,66,438 PROPORTIONATE AMOUNT OF LOAN LIABILITY FOR MOTIWADA UDARVA = 95,02,737 X 3,41,61,942 4,75,66,438 THE VALUE OF NET WORTH WOULD CHANGE AS UNDER AFTER TAKING THE LOAN LIABILITY VALUE OF NET WORTH AS TAKEN = 1,17,22,687 LESS: LOAN LIABILITY = 68,24,811 VALUE OF NET WORTH = 48,97,876 STCG = 11000000 48,97,876 = 61,02,124 IN VIEW OF THE ABOVE, THERE WOULD BE STCG OF RS. 61 ,02,124. IN VIEW OF THE ABOVE, I BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147. NOTICE U/S. 148 ISSUED. 3. A NOTICE U/S 148 DATED 26.03.2012 WAS SERVED UPO N THE ASSESSEE. IN RESPONSE TO THE NOTICE, THE ASSESSEE FILED ITS REPLY DATED 18.07.2012 AND R EQUESTED THAT RETURN FILED U/S 139 MAY BE TREATED AS REVISED RETURN. AFTER REPLY OF ASSESSEE, NOTICE U/S 143(2) DATED 24.07.2012 WAS SERVED UPON THE ASSESSEE. DURING THE RE-OPENING ASSESSMENT PROCEEDI NG, THE AO OBSERVED THAT ASSESSEE SOLD ITS MOTIWADA UDARVA DIVISION AS SLUMP SALE AND THE ASSE SSEE HAS SHOWN LOSS IN HIS ACCOUNTS. ACCORDINGLY, THE ASSESSEE WAS ASKED TO SUBMIT DETAI LS OF PROFIT & GAINS ARISING FROM SLUMP SALE AFFECTED DURING THE PREVIOUS YEAR. ASSESSEE FILED I TS REPLY DATED 14.08.2012 AND SUBMITTED THAT ASSESSEE HAS LOAN LIABILITY OF RS. 3,22,40,330/- AS ON 31.03.2007 AND RS. 38,83,554/- AS ON 30.03.2006 PERTAINING TO PLAST CHEM (DIV OF CLASSIC ELECTRICALS LTD.) WHICH WAS NOT SOLD AS SLUMP SALE DURING THE ABOVE AY, THE CONTENTION OF ASSESSE E WAS NOT ACCEPTED BY THE AO. AO CONCLUDED THAT ASSESSEE ERRED IN VALUING THE NET WORTH IN CAL CULATION OF CAPITAL GAIN OF SLUMP SALE. THE AO FURTHER CONCLUDED THAT ON 31.03.2007, THE ASSESSEE HAS LOAN LIABILITY OF RS. 3,24,40,330/-, THIS LIABILITY WAS FOR ENTIRE BUSINESS OF ASSESSEE, THE PROPORTIONATE AMOUNT THAT PERTAINS TO MOTIWADA UNIT WAS ALSO BE TAKEN FOR THE PURPOSE OF DEDUCTION TOWARDS LIABILITY, ARISING THE NET WORTH AND CALCULATED THE SHORT TERM CAPITAL GAIN (STCG) IN TH E FOLLOWING MANNER: AMOUNT OF LOAN = (3,60,83,554 + 3,22,40,330)/2 = 3,41,61,942 DEPRECIATED VALUE OF UDARVA DIVISION = 95,02 ,737 DEPRECIATED VALUE OF THE UNIT = 3,80,63,701 TOTAL 4,75,66,438 PROPORTIONATE AMOUNT OF LOAN LIABILITY FOR MOTIWADA UDARVA ITA/4085/MUM//2014,AY.2007-08 3 = 95,02,737 X 3,41,61,942 4,75,66,438 THE VALUE OF NET WORTH WOULD CHANGE AS UNDER AFTER TAKING THE LOAN LIABILITY VALUE OF NET WORTH AS TAKEN = 1,17,22,687 LESS: LOAN LIABILITY = 68,24,811 VALUE OF NET WORTH = 68,97,876 STCG = 11000000 48,97,876= 61,02,124 4. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). IN APPEAL, THE CIT(A) DELETED THE ADDITION OF CAPITAL GAIN ALLEGED LY ARISING ON ACCOUNT OF SLUMP SALE OF MOTIWADA UNIT. AGGRIEVED BY THE ORDER OF CIT(A), TH E REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 5. WE HAVE HEARD THE DEPARTMENTAL REPRESENTATIVE (D R) FOR REVENUE AND AUTHORISED REPRESENTATIVE (AR) FOR ASSESSEE AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. DR FOR REVENUE ARGUED THAT ASSESSEE HAS THREE UNITS OUT OF WHICH O NE UNIT WAS SOLD AND THE AO PROPORTIONATELY WORKED OUT THE CAPITAL GAIN. NO EVIDENCE WAS GIVEN BY THE ASSESSEE BEFORE THE CIT(A) THAT ASSESSEES LIABILITY WAS NOT AGAINST THE MOTIWADA U NIT AND PRAYED THAT ORDER OF AO BE RESTORED AND THE CIT(A) MAY BE REVERSED. AR OF THE ASSESSEE ARGUED THAT ASSESSEE SUBMITTED LETTER DATED 14.08.2012 BEFORE THE AO ON 16.08.2012 WHEREIN IT W AS MADE CLEAR THAT THE LIABILITY OF RS. 3,22,40,330/- DOES NOT PERTAIN TO MOTIWADA UNIT. TH E AO FAILED TO MENTION THE REASONS THAT WHY HE MADE THE ADDITION DESPITE THE SUBMISSION THAT LI ABILITY PERTAINS TO THE UNITS OTHER THAN THE MOTIWADA UNIT. THE ALLOCATION OF PROPORTIONATE LIAB ILITY AGAINST NET WORTH, OF CAPITAL GAIN ARISING ON ACCOUNT OF SLUMP SALE DOES NOT ARISE. 6. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE P ARTIES AND GONE THROUGH THE RECORD OF THE CASE, THE ASSESSEE IS CARRYING HIS BUSINESS ACTIVIT IES FROM THREE UNITS (1) MUMBAI BRANCH- ENGAGED IN BUSINESS OF LEASING & INVESTMENTS (2) PLAST CHEM UNIT CHIKLI VALSAD- ENGAGED IN THE BUSINESS OF MANUFACTURING OF U.F. MOLDING POWER. (3) MOTIWAD A UNIT UDVADA- ENGAGED IN BUSINESS OF FABRICATION OF CRC SHEETS & BRASS CUTTING ON LABOUR JOB BASIS AND REPAIRING OF MOULDS & DIES. ASSESSEE SOLD MOTIWADA UNIT FOR CONSIDERATION OF RS . 1,10,00,000/- AND SUFFERED CAPITAL LOSS OF RS. 7,72,687/-. HOWEVER, THE AO WHILE FRAMING THE A SSESSMENT ORDER MENTIONED THAT THE ASSESSEE HAS LIABILITY AS ON 31.03.2006 OF RS. 3,60,83,554/- WHICH WAS REDUCED TO 3,24,40,330/- AS ON 31.03.2007, THE AO ALSO MENTIONED IN THE ASSESSMENT ORDER THAT THE VALUE OF NET WORTH OF RS. 1,17,22,687/- HAS SHOWN IN THE COMPUTATION OF CAPIT AL LOSS OF RS. 7,72,687/- AND DID NOT INCLUDE PROPORTIONATE LIABILITY PERTAINING TO MOTIWADA UNIT . THE ASSESSEE VIDE HIS LETTER DATED 14.08.2012 TO AO CLEARLY STATED THAT THE LIABILITY OF RS. 3,22 ,40,330/- DOES NOT PERTAIN TO MOTIWADA UNIT. THIS REPLY/LETTER WAS FURNISHED BY ASSESSEE DURING THE C OURSE OF RE-OPENING OF ASSESSMENT PROCEEDING, THE AO FAILED TO TAKE THE NOTICE OF CONTENTS OF LET TER DATED 14.08.2012 AND NO REASON FOR DISCARDING THE CONTENTS OF LETTER OF ASSESSEE DATED 14.08.2012 IN ITS FINDING. THE CIT(A) CORRECTLY APPRECIATED THE FACT THAT THE LIABILITIES PERTAINS TO THE UNIT OTHER THAN THE MOTIWADA UNIT. AND THE ALLOCATION OF PROPORTIONATE LIABILITY AGAINST THE NET WORTH COMPU TATION OF CAPITAL GAIN ARISING ON ACCOUNT OF SLUMP SALE OF MOTIWADA UNIT WAS CORRECTLY DELETED B Y CIT(A). 7. WITH THESE OBSERVATIONS, WE DO NOT FIND ANY ILLE GALITY, PERVERSITY OR INFIRMITY IN THE IMPUGNED ORDER DATED 10.02.2014 PASSED BY CIT(A). ITA/4085/MUM//2014,AY.2007-08 4 AS A RESULT,APPEAL FILED BY THE AO STAN DS DISMISSED. #$ %&' (& ) * +, %- . / 01. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE,2016. 4 5 -6 7%. 24 TWU TWUTWU TWU ,20 16 +, ; SD/- SD/- ( /RAJENDRA) ( IOU FLAG IOU FLAG IOU FLAG IOU FLAG / PAWAN SINGH) -/ / ACCOUNTANT MEMBER / JUDICIAL MEMBER - 5 ., /MUMBAI, 7%. /DATE: 24.06.2016 SK -. ' 012 32 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ .)& 5 = , 4. THE CONCERNED CIT / .)& 5 = 5. DR C BENCH, ITAT, MUMBAI / >?+ %(& , LH LHLH LH . , . . . - 5 ., 6. GUARD FILE/ + #, > //TRUE COPY// 4% 5 / BY ORDER, / 0 . DY./ASST. REGISTRAR (& , - 5 ., /ITAT, MUMBAI.