M/s Ultimate Investments Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 5777/DEL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73997 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 24-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 20-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Assessee Lawyers: SATYAM SETHI
• Keywords: Business income; Depreciation; Cost of acquisition; Revised return
• Section: 32; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: H NEW DELHI BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A .NO.-5777/DEL/ 2010 (ASSESSMENT YEAR-2006-07) ULTIMATE INVESTMENTS PVT. LTD. B-44, MAHARANI BAGH NEW DELHI P AN-AAACU0955H (APPELLANT) VS ADDL. CIT RANGE-18 NEW DELHI (RESPONDENT) APPELLANT BY SH. SATYAM SETHI & SH. A. T. PANDA, ADV RESPONDENT BY SH. SAMEER SHARMA, DR ORDER PER I. C. SUDHIR, JM THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER O N THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS OF THE APPELLANTS CASE IN UPHOLDING THE ORDER OF THE A.O IN CONFIRMING THE ADDITION OF RS.1,97,008/- ON ACCOUNT OF GAIN ON SALE OF ONE OF THE SHOPS FROM THE BLOCK OF ASSETS. 2. THAT THE CIT(A)/A.O FAILED TO APPRECIATE THAT NO GAIN OR LOSS IS TAXABLE ON AN ASSET FORMING BLOCK OF ASSETS UNLE SS THE BLOCK CEASES TO EXIST. 3. THAT THE CIT(A)/A.O HAS MADE AN ERRONEOUS INTERP RETATION OF SECTION 50(1), SECTION 50A OF THE IT ACT READ WITH SECTION 48 & 49 OF THE I.T ACT. 4. THAT WITHOUT PREJUDICE IF THE PROFIT ON SALE OF ONE OF THE SHOPS IN THE BLOCK OF ASSET WAS TO BE TREATED AS A CAPITA L ASSSET THEN THE I.T.A .NO.-5777/DEL/2010 2 LONG TERM CAPITAL LOSS OF RS.415135/- SHOULD HAVE BEEN ALLOWED TO THE ASSESSEE. 5. THAT BY DENYING LONG TERM CAPITAL LOSS OF RS.415 135/- AND TAXING THE PROFIT ON SALE OF ONE OF THE SHOPS FROM BLOCK OF ASSETS, THE A.O/CIT(A) HAVE MISAPPLIED THE PROVISIONS OF LAW. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVAN CED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW AND MATERIA L AVAILABLE ON RECORD, AND THE DECISIONS RELIED UPON. GROUND NOS. 1 TO 3 3. THE AO MADE ADDITION OF RS.1,97,008/- ON ACCOUNT OF CAPITAL GAIN ON SALE OF A SHOP. THE AO HELD THAT WHERE THE CAPITAL ASSE T IS AN ASSET IN RESPECT OF WHICH A DEDUCTION ON ACCOUNT OF DEPRECIATION UNDER CLAUSE (I) OF SUB-SECTION(1) OF SECTION 32 HAS BEEN OBTAINED BY THE ASSESSEE IN ANY PREVIOUS YEAR, THE PROVISIONS OF SECTION 48 & 49 SHALL APPLY TO THE MO DIFICATION THAT THE WRITTEN DOWN VALUE AS DEFINED IN CLAUSE (6) OF SECTION 43 O F THE ASSET AS ADJUSTED SHALL BE TAKEN AS THE COST OF ACQUISITION OF THE ASSET. NOT ING THE DETAILS AS RS.45 LAC TOWARDS SALE CONSIDERATION, RS.43,02,998/- TOWARDS COST OF ACQUISITION, THE AO WORKED OUT PROFIT AT RS. 1,97,002/- THUS THE AO APP LIED SPECIAL PROVISION U/S 50A FOR COST OF ACQUISITION IN CASE OF DEPRECIABLE ASSE T FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF COMMON WEALTH TRUST LTD. VS. CIT, 228 ITR 1(SC). THE LD. CIT(A) HAS UPHELD THIS ACTION O F THE AO AGAISNT WHICH ASSESSEE IS IN APPEAL. 4. IN SUPPORT OF THE GROUND, THE LD. AR SUBMITTED T HAT DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y 2004-05, THE ASSESSEE HAD PURCHASED TWO SHOPS (NO. 46 & 47) IN CENTRE STAGE MALL FOR THE CONSIDERATION OF RS.45,78,888/- EACH. IN THE BOOKS OF ACCOUNTS FOR THE A.Y 2004-05, THE SHOPS WE RE SHOWN AS FIXED ASSETS AND DEPRECIATION WAS CLAIMED IN THE RETURN FOR THE A.Y 2004-05. HOWEVER, THE CLAIM OF DEPRECIATION WAS DISALLOWED BY THE ASSESSI NG OFFICER. IN THE FIRST APPEAL I.T.A .NO.-5777/DEL/2010 3 DEPRECIATION WAS ALLOWED BY THE LD. CIT(A) VIDE ORD ER DATED 12/2/2007. THE SAID FIRST APPELLATE ORDER WAS ACCEPTED BY THE DEPA RTMENT IN AS MUCH AS, NO SECOND APPEAL WAS FILED. THE LD. AR REFERRED PAGE NO. 1 TO 5 OF THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE WHEREIN COPY OF THE SAID FIRST APPELLATE ORDER DATED 12/2/2007 HAS BEEN MADE AVAILABLE. HE SUBMIT TED FURTHER THAT IN THE SUCCEEDING ASSESSMENT YEAR I.E 2005-06, IN THE ORIG INAL RETURN FILED ON 28/10/2005, DEPRECIATION ON THE SHOPS WAS CLAIMED ( PAGE NOS. 6 &7 OF THE PAPER BOOK). HOWEVER, IN THE REVISED RETURN FILED ON 10/ 1/2006 DEPRECIATION WAS ADDED BACK AS WAS ADVISED BY ITS CHARTERED ACCOUNTANT (PA GE NOS. 8 & 9 OF THE PAPER BOOK). THOUGH IN THE A.Y 2004-05 DEPRECIATION WAS ALLOWED, HOWEVER, SINCE THE SHOPS WERE NOT BEING USED FOR THE PURPOSE OF BUSINE SS BUT WERE LET OUT, THE ASSESSEE HAS ADVISED DID NOT CLAIM DEPRECIATION IN THE A.Y 2005-06. THE RETURN WAS AGAIN REVISED ON 14/5/2007 AND BY THE SECOND RE VISED RETURN, EVEN THE BROKERAGE OF RS.16,50,960/- WAS ADDED BACK (PAGE NO S. 10 & 11 OF THE PAPER BOOK). 5. THE LD. AR POINTED OUT FURTHER THAT IN THE A.Y 2 006-07 UNDER CONSIDERATION, ONE SHOP (NO. 47) WAS SOLD FOR RS.45 LAC AND THE OTHER SHOP WAS LET OUT. IN THE ACCOUNTS FOR THE A.Y 2006-07 TWO E NTRIES WERE MADE. FIRSTLY, IN SO FAR AS DIFFERENCE BETWEEN SALE PRICE OF RS.45LAC AND WDV AS PER BOOKS, THE SAME WAS SHOWN AS OTHER INCOME IN THE PROFIT AND LO SS ACCOUNT (SALE PRICE OF RS.45 LAC-43,02,998/- EQUAL TO RS.1,97,002/-). SEC ONDLY, SO FAR AS THE ENTRY AS TO SALE OF SHOP IS CONCERNED, ENTIRE COST OF THE SHOP SOLD WAS REDUCED FROM THE CROSS BLOCKS (PAGE NO. 15 OF THE PAPER BOOK). IN COMPUTI NG THE INCOME FROM BUSINESS, (I) DEPRECIATION AND (II) MAINTENANCE CHARGES OF TH E SHOPS WERE ADDED BACK IN THE COMPUTATION OF INCOME FOR THE A.Y 2006-07. PROFIT OF RS.1,97,002/- ON SALE OF ASSET (SHOP) WAS NOT SHOWN UNDER THE HEAD BUSINESS INCOME BUT WAS SHOWN UNDER THE HEAD CAPITAL GAINS FOR THE REASON THAT THOUGH THE SHOPS WERE SHOWN I.T.A .NO.-5777/DEL/2010 4 IN THE BALANCE-SHEET BUT THE SAME WERE NOT BEING US ED FOR THE PURPOSE OF BUSINESS. IT WAS FOR THIS REASON THAT THE DEPRECIA TION ON SHOP SOLD WAS ADDED BACK BOTH IN THE A. YS 2005-06 AND 2006-07. THE LD . AR CONTENDED THAT SINCE SECTION 50 WAS NOT APPLICABLE, THEREFORE, CAPITAL G AIN WAS COMPUTED ON THE BASIS OF INDEXED COST. BASED ON INDEXED COST, THE ASSESS EE INCURRED CAPITAL LOSS OF RS.4,15,135/- (PAGE NO. 20 OF THE PAPER BOOK). THE LD. AR CONTENDED THAT BOTH THE ADDITIONS ARE INTER-LINKED AND ARISE FROM THE S AME TRANSACTION OF SALE OF SHOP NO. 47. THE SAID SHOP WAS SOLD FOR RS. 45 LAC. TH ERE IS NO DISPUTE ON THE ISSUE OF SALE CONSIDERATION. HE SUBMITTED THAT WHILE MAK ING FIRST ADDITION OF RS.1,97,008/-, IT WAS NOT APPRECIATED BY THE ASSESS ING OFFICER THAT THE TAXABILITY OF IN INCOME IS DIFFERENT FROM THE ACCOUNTING TREAT MENT. SINCE AN ASSET (SHOP) APPEARING IN THE BALANCE-SHEET WAS SOLD, THEREFORE, THE SAME WAS TO BE REFLECTED IN THE ACCOUNTS. THE PROFIT ON SALE OF ASSETS AT R S.1,97,008/- REPRESENTS THE PROFIT ON SALE OF ONE OF THE SHOPS SITUATED AT CENTRE STAG E MALL. IN-FACT THE ASSESSEE HAD REQUIRED THESE TWO SHOPS IN THE FINANCIAL YEAR ENDI NG 31/3/2004 FOR ITS OWN OFFICE USE ETC. AND THEREFORE, DEPRECIATION WAS ALSO CLAI MED IN THE A.Y 2004-05. THE DEPRECIATION WAS INITIALLY DISALLOWED BY THE A.O BU T ALLOWED BY THE LD. CIT(A). THE COST OF THE SHOPS WERE THEREBY REDUCED AND SHOW N AS WDV. THEREAFTER, ALTHOUGH ASSESSEE CHARGED DEPRECIATION IN BOOKS BUT THE SAME WAS NOT CLAIMED AS ALLOWABLE UNDER THE I.T ACT AS THE PROPERTIES WERE LET OUT AND NOT USED FOR OWN BUSINESS. THE AMOUNT OF RS.1,97,008/- REPRESENTS G AIN ON SALE OF ONE OF THE SHOPS OVER ITS WDV AS PER BOOKS. THUS, IT IS CLEAR THAT THE SUBMISSION MADE WAS TO EXPENDITURE THE ACCOUNTING TREATMENT GIVEN IN TH E BOOKS. IT WAS NOT AN INDEPENDENT INCOME DE-HORS THE CAPITAL LOSS DECLARE D UNDER THE HEAD CAPITAL GAINS. THEREFORE, FIRST ADDITION OF RS.1,97,008/- WAS NOT CALLED FOR AS THE ASSESSEE HAD SHOWN CAPITAL GAIN/LOSS ON SALE OF SHOP. I.T.A .NO.-5777/DEL/2010 5 6. COMING TO THE SECOND ADDITION OF RS.1,97,002/- M ADE U/S 50 OF THE ACT, THE LD. AR SUBMITTED THAT IT WAS NOT APPRECIATED THAT P RE-CONDITION FOR APPLICATION OF SECTION 50 IS THAT THE BLOCK OF ASSETS MUST SEIZED TO EXIST. IN SUPPORT HE PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. ANSAL PROPERTIES AND INFRASTRUCTURE LTD (2012) 20 T AXMAN. COM 770 (DELHI) ON APPLICATION OF THE PROVISIONS OF SECTION 50 OF THE ACT. 7. THE LD. AR SUBMITTED THAT SINCE IN THE PRESENT C ASE BLOCK OF ASSETS CONTINUED TO EXCEED EVEN IF THE SALE OF ONE SHOP, T HEREFORE, THE ASSESSEE HAD RIGHTLY SUBMITTED THAT IT SHOULD HAVE REDUCED THE S ALE CONSIDERATION FROM THE BLOCK OF ASSETS INSTEAD OF TREATING AS A SEPARATE A SSET. HE SUBMITTED THAT PROVISIONS OF SECTION 50A ARE APPLICABLE ONLY IF SE CTION THE PROVISIONS U/S 50 ARE APPLICABLE. 8. WITHOUT PREJUDICE THE ABOVE SUBMISSION, THE LD. AR SUBMITTED FURTHER THAT IN CASE IT IS HELD THAT SECTION 50 WAS NOT APPLICAB LE BECAUSE THE SHOP SOLD WAS NOT A BUSINESS ASSET AND DEPRECIATION WAS NOT BEING CLA IMED/ALLOWED, THEN THE SALE OF THE SHOP CAN BE TAXED ONLY UNDER THE HEAD CAPITAL GAIN AND IN THAT CASE ALSO, THE ADDITION MADE DESERVES TO BE DELETED BECAUSE AC TUAL THERE WAS NO CAPITAL GAIN. 9. THE LD. DR ON THE OTHER HAND TRIED TO JUSTIFY TH E ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE RAISED IN THE GROUNDS. 10. HAVING GONE THROUGH THE DECISION OF HONBLE DEL HI HIGH COURT IN THE CASE OF CIT VS. ANSAL PROPERTIES AND INFRASTRUCTURE LTD (SUPRA)(2012) 20 TAXMAN.COM 770 (DELHI), WE FIND THAT IN THAT CASE T HE HONBLE HIGH COURT HAS BEEN PLEASED TO HOLD AS 18. SECTION 50(2) APPLIES WHEREIN BLOCK OF ASSETS CEASES TO EXIST. THE TERM BLOCK OF ASSETS THEREI N WILL MEANS THE ASSETS CARRYING SAME RATE OF DEPRECIATION FIXED IN THE SCHEDULE. I N CASE THE BLOCK OF ASSETS I.E OF ASSETS EXCISABLE TO SAME RATE OF DEPRECIATION IN TH E SCHEDULE CEASES TO EXIST BECAUSE OF TRANSFER/SALE, SUB SECTION (2) TO SECTIO N 50 GETS INITIATED AND IS I.T.A .NO.-5777/DEL/2010 6 ACCORDINGLY APPLIED. THE REQUIREMENT AND PRE-CONDI TION STIPULATED IS THAT THE BLOCK OF ASSET SHOULD CEASES TO EXIST. THE BLOCK O F ASSET SHOULD STAND COMPLETELY DEPLETED AND NO ASSET SHOULD REMAIN IN THE BLOCK. WHEN WE EXAMINE THE PRESENT CASE IN VIEW OF THE ABOVE RATIO OF THE CITED DECISI ON, WE FIND THAT IN THE PRESENT CASE THE BLOCK OF ASSETS CONTINUED TO EXIST EVEN AF TER THE SALE OF ONE SHOP, THEREFORE, THE ASSESSEE HAS RIGHTLY SUBMITTED THAT IT SHOULD HAVE REDUCED THE SALE CONSIDERATION FROM THE BLOCK OF ASSETS INSTEAD OF T REATING AS THE SEPARATE ASSET. THERE IS NO DISPUTE THAT THE ROLE OF APPLICATION OF SECTION 50A WILL COME IN OPERATION ONLY WHEN SECTION 50 IS APPLICABLE. IN O THER WORDS, WHEN PROVISIONS U/S 50 ARE NOT APPLICABLE IN THE FACTS AND CIRCUMST ANCES OF THE PRESENT CASE, THERE IS NO QUESTION OF APPLICATION OF SECTION 50A ON THE ISSUE. IN THE PRESENT CASE REGARDING THE FIRST ADDITION OF RS.1,97,008/-, THE EXPLANATION OF THE ASSESSEE REMAINED THAT THE PROFIT ON SALE OF ASSETS AT RS.1, 97,008/- REPRESENTED THE PROFIT ON SALE OF ONE OF THE SHOP SITUATED AT CENTRE STAGE MALL. THE ASSESSEE HAD ACQUIRED TWO SHOPS IN THE FINANCIAL YEAR ENDING ON 31/3/2004 FOR ITS OWN OFFICE USE ETC AND THEREFORE, DEPRECIATION WAS ALSO CLAIME D IN THE A.Y 2004-05. THE DEPRECIATION WAS INITIALLY DISALLOWED BY THE A.O BU T WAS ALLOWED BY THE LD. CIT(A). THE COST OF THE SHOPS WHERE THEREBY REDUCE D AND SHOWN AS WDV. THEREAFTER ALTHOUGH THE ASSESSEE HAD CHARGED DEPREC IATION IN BOOKS BUT THE SAME WAS NOT CLAIMED AS ALLOWABLE UNDER THE I.T ACT AS T HE PROPERTIES WERE LET OUT AND NOT USED FOR OWN BUSINESS. IT WAS SUBMITTED THAT THE AMOUNT OF RS.1,97,008/- REPRESENTS GAIN ON SALE OF ONE OF THE SHOPS OVER IT S WDV AS PER BOOKS. IT WAS SUBMITTED THAT THE TAXABILITY OF AN INCOME IS DIFFE RENT FROM THE ACCOUNTING TREATMENT. SINCE AN ASSET (SHOP) APPEARING IN THE BALANCE-SHEET WAS SOLD, THE SAME WAS TO BE REFLECTED IN THE ACCOUNTS. IT WAS N OT AN INDEPENDENT INCOME DE- HORS THE INCOME UNDER THE HEAD CAPITAL GAINS. WE T HUS, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE HIGH COURT ON TH E APPLICABILITY OF THE I.T.A .NO.-5777/DEL/2010 7 PROVISIONS LAID DOWN U/S 50(2) IN THE CASE OF CIT V S. ANSAL PROPERTIES AND INFRASTRUCTURES LTD (SUPRA) HOLD THAT THE ASSESSEE HAS RIGHTLY SUBMITTED THAT IT SHOULD HAVE REDUCED THE SALE CONSIDERATION FROM THE BLOCK OF ASSETS INSTEAD OF TREATING IT AS A SEPARATE ASSET. THE PROVISIONS OF SECTION 50 OF THE ACT ARE ALSO NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE SHOP SOL D WAS NOT A BUSINESS ASSET AND DEPRECIATION WAS NOT BEING CLAIMED/ALLOWED AND IN S UCH A SITUATION THE SALE OF THE SHOP CAN BE TAXED ONLY UNDER THE HEAD CAPITAL GAIN . THUS, THE ADDITION ALSO DESERVES TO BE DELETED BECAUSE REAL SENSE THERE WAS NO CAPITAL GAIN. BOTH THE ADDITIONS IN QUESTION ARE ACCORDINGLY DELETED. HAV ING TAXED THE GAIN OF RS.1,97,008/-, THE SAME WAS AGAIN TAXED U/S 50 READ WITH SECTION 50A OF THE ACT FOR THE REASON THAT GAIN ON SALE OF DEPRECIABLE ASS ET WAS TAXABLE UNDER THE HEAD CAPITAL GAIN. IT IS THE SECOND ADDITION WHICH HAS BEEN QUESTIONED BY THE ASSESSEE ON THE BASIS THAT WHEN PROVISIONS SECTION 50 OF THE ACT ARE NOT APPLICABLE, THERE IS NO QUESTION OF APPLICATION OF SECTION 50A OF THE ACT. WE FULLY AGREE WITH THIS CONTENTION OF THE LD. AR. THE GROUNDS ARE THUS AL LOWED. 10. IN RESULT, APPEAL IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 3RD OF JANUARY, 2014. SD/- SD/- (SHAMIM YAHYA) (I. C. SUDHIR) ACCOUNTANT MEMBER JUD ICIAL MEMBER DATED: 03/01/2014 R.NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT RE GISTRAR I.T.A .NO.-5777/DEL/2010 8 ITAT NEW DELHI