ITO 16(3)(2), MUMBAI V. LALBHAI KALIDAS & CO., MUMBAI

ITA 6052/MUM/2011

• Counselvise Citation: 605219914 RSA 2011
• Duration Of Justice: 2 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 30-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY SINGH
• Assessee Lawyers: JAVED AKHATAR
• Keywords: Capital asset; Depreciation; Tax effect
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND RAJENDRA (AM) . . , , ./I.T.A. NO.5832/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) M/S LALBHAI KALIDAS & CO. OFFICE NO.7, FATEH MANZIL 2 457-459, D.B.MARG, OPERA HOUSE, MUMBAI-400004 / VS. INCOME TAX OFFICER 16(3)(2), MATRU MANDIR, 2 ND FLOOR, TARDEO ROAD, MUMBAI-400007 ( & / APPELLANT) .. ( ' & / RESPONDENT) ITA NO.6052/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) INCOME TAX OFFICER 16(3)(2), MATRU MANDIR, 2 ND FLOOR, TARDEO ROAD, MUMBAI-400007 / VS. M/S LALBHAI KALIDAS & COMPANY, OFFICE NO.7, FATEH MANZIL 2, 2 ND FLOOR, 457-459, D.B.MARG, OPERA HOUSE, MUMBAI-400004 ( & / APPELLANT) .. ( ' & / RESPONDENT) ./ ./PAN/GIR NO. : AAAFL0582E & / ASSESSEE BY : SHRI AJAY SINGH ' & * /RESPONDENT BY : SHRI JAVED AKHATAR * - / DATE OF HEARING : 31.10.2013 * - /DATE OF PRONOUNCEMENT : 08.11.2013 / O R D E R PER B.R.MITTAL, JM: THESE CROSS-APPEALS ARE FILED BY ASSESSEE AS WELL A S DEPARTMENT AGAINST ORDER OF LD. CIT(A) DATED 30.5.2011 FOR ASSESSMENT YEAR 2 007-08. 2. RELEVANT FACTS GIVING RISE TO THESE APPEALS AR E THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF BUSINESS OF IMPORT, BUY ING, MANUFACTURING AND EXPORTING AND SELLING OF DIAMONDS. ASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 30.8.2007 DECLARING TOTAL INCOME O F RS.2,50,630/-. AO MADE I.T.A. NO.5832/MUM/2011 & ITA NO.6052/MUM/2011 2 ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961(T HE ACT) BY AN ORDER DATED 29.12.2009 AT A TOTAL INCOME OF RS.69,56,990/-. 3. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION T HE ASSESSEE SOLD ITS OFFICE PREMISES NO.1307, SITUATED AT 13 TH FLOOR, PRASAD CHAMBERS AT SWADESHI MILL COMPOUND, OPERA HOUSE, MUMBAI-400004 FOR RS.67,68,750/- VID E AGREEMENT DATED 2.5.2006. THE SAID OFFICE PREMISES WAS PURCHASED BY ASSESSEE ON 9.9.1992 FOR RS.41,28,500/-, WHICH WAS USED FOR ITS BUSINESS PURPOSES. THAT TH E ASSESSEE CLAIMED DEPRECIATION ON THE ABOVE PREMISES AND ITS WRITTEN DOWN VALUE (WDV) AS ON 31.3.2006 WAS NIL. THAT THE ASSESSEE HAS SHOWN RECEIPT OF SHORT TERM CAPI TAL GAIN (STCG) OF RS.67,89,750/-. 4. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE STATED THAT IT SPENT AN AMOUNT OF RS.54,82,250/- TO PURCHASE NEW OFFICE PREMISES (I) VIDE AGREEMENT DATED 20.3.2007 BEING FLAT NO.704, 7 TH FLOOR OF JOGANI APARTMENT AT VILLAGE KOLE KALYAN, KALINA, MUMBAI FOR RS.14,00,000/- AND (II ) VIDE AGREEMENT DATED 8.3.2007 BEING FLAT NO.806 AT 8 TH FLOOR, JEWEL TOWER, KALINA CST ROAD, OPP. VIDYA NA GRI UNIVERSITY, MANIPADA ROAD, SANTACRUZ (W), MUMBAI-40 0098 FOR RS.37,15,000/-. THAT THE ASSESSEE PAID TOTAL STAMP DUTY OF RS.2,20,950/ - AND OTHER EXPENSES. THUS, THE ASSESSEE CLAIMED THAT ACTUAL COST OF NEW OFFICE PR EMISES PURCHASED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION WAS RS.54,82,5 00/- (RS.14,00,000 + RS.37,15,000/- + RS.2,20,950/- ) AND FORMED PART OF THE SAME BLOCK ASSETS. THUS, THE SAID COST OF NEW OFFICE PREMISES ACQUIRED DURING THE YEAR AT RS.54,82,250/- IS ADJUSTABLE AGAINST THE SALE OF OFFICE PREMISES AT PRASAD CHAMBERS (IBID). THE ASSESSEE COMPUTED CAPITAL GAIN OF RS. 12,86,500/- U/S 50(1) OF THE ACT. (RS. 67,68,750/- - RS.54,82,500/- ). 5. HOWEVER, THE AO REJECTED THE CLAIM OF ASSESSEE O F DEDUCTING ACTUAL COST OF NEW OFFICE PREMISES ACQUIRED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION FROM THE FULL VALUE OF CONSIDER ATION RECEIVED ON SALE OF OFFICE PREMISES AT PRASAD CHAMBER (IBID) WHILE COMPUTING THE CAPITAL GAIN ON THE GROUND THAT THE NEW OFFICE PREMISES CANNOT FORM PART OF BLOCK OF ASSETS (I) THAT THE ASSESSEE FAILED TO TAKE POSSESSION OF THE NEW OFFICE PREMISES (II) THAT THE SAID PREMISES WERE RESIDENTIAL PROPERTY AND REQUIRED TO BE UTILIZED FO R THAT PURPOSE ONLY AND THEREBY NOT FORMING PART OF BLOCK OF ASSETS. 6. ASSESSEE ALSO INVESTED RS.12,86,500/- IN REC BO NDS AND CLAIMED BENEFIT OF INVESTMENT U/S 54EC IN REC BONDS. AO ASKED THE A SSESSEE TO SHOW AS TO HOW SECTION 54EC EXEMPTION IS AVAILABLE TO THE ASSESSEE AS THE SAID EXEMPTION IS AVAILABLE ONLY TO I.T.A. NO.5832/MUM/2011 & ITA NO.6052/MUM/2011 3 CAPITAL GAIN ARISING FROM TRANSFER OF LONG TERM CA PITAL ASSETS. SINCE ASSESSEE HAS TRANSFERRED THE DEPRECIABLE ASSETS AND IT HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN (STCG) AS PER THE PROVISIONS OF SECTION 50 OF THE A CT, THE EXEMPTION U/S 54EC IS NOT AVAILABLE TO THE ASSESSEE. 6.1 ASSESSEE RELYING ON THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT V/S ACE BUILDERS (P.) LTD.(2006) 281 ITR 210 ( BOM) SUBMITTED THAT THEIR LORDSHIPS HAVE HELD THAT SECTION 50 DOES NOT HAVE AN OVERRI DING EFFECT OVER SECTION 54E OF THE INCOME TAX ACT AND WHERE LTCG ARISES ON TRANSFER O F DEPRECIABLE ASSETS, ASSESSEE CANNOT BE DENIED EXEMPTION U/S 54E OF THE ACT MEREL Y BECAUSE SECTION 50 PROVIDES THAT THE COMPUTATION OF SUCH CAPITAL GAINS SHOULD BE DON E AS IF ARISING FROM THE TRANSFER OF SHORT-TERM CAPITAL ASSET. HOWEVER, AO STATED THAT THE SAID ISSUE HAS NOT REACHED FINALITY BY THE DECISION OF HONBLE APEX COURT AS N O APPEAL WAS FILED AGAINST THE ABOVE DECISION OF HONBLE JURISDICTIONAL HIGH COURT BECAU SE OF SMALLNESS OF TAX EFFECT. THEREFORE, AO DID NOT ACCEPT THE SUBMISSIONS OF A SSESSEE AND DENIED EXEMPTION CLAIMED BY ASSESSEE U/S 54EC OF THE ACT ON TRANSFER OF DEPRECIABLE ASSETS. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 7. IN REGARD TO ASSESSEES CLAIM OF AVAILING DEDUCT ION U/S 54EC OF THE ACT, THE LD. CIT(A) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY H OLDING THAT THE SAID ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF BOMBA Y HIGH COURT IN THE CASE OF CIT V/S ACE BUILDERS (P.) LTD (SUPRA) AND ACCORDINGLY, HEL D THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 54EC OF THE ACT IN RESPECT OF INVES TMENT OF RS.12,86,500/- MADE IN REC BONDS. HOWEVER, IN RESPECT OF THE ISSUE OF CLA IM OF ASSESSEE IN DEDUCTING THE COST OF NEW OFFICE PREMISES OF RS.54,82,500/- FROM THE VALUE OF CONSIDERATION RECEIVED OF RS.67,68,750/- ON SALE OF OFFICE PREMISES AT PRASA D CHAMBERS (IBID), LD. CIT(A) AFTER SEEKING REMAND REPORT FROM AO AND ALSO AFTER CONSID ERING THE SUBMISSIONS OF THE ASSESSEE HAS HELD THAT THE SAID NEW PREMISES PURCHA SED BY ASSESSEE HAD NOT BEEN OCCUPIED BY ASSESSEE BEFORE 31.3.2007. HE HAS STA TED THAT THE AO WHILE SUBMITTING THE REMAND REPORT HAS ALSO EXAMINED ONE MR. JAYESH A ICHHAPORIA WHO CLAIMED TO HAVE TRANSPORTED THE ASSESSEES FURNITURE INTO THE IMPUG NED PREMISES BEFORE 31.3.2007, ON WHICH THE ASSESSEE RELIED UPON TO SHOW THAT THE PRO PERTY WAS NOT ONLY TAKEN POSSESSION BUT WAS ALSO OCCUPIED BEFORE 31.3.2007 A ND STATED THAT HE DID NOT REMEMBER EXACT DATE OF TRANSPORTATION OF FURNITURE INTO THE IMPUGNED NEW PREMISES. THUS VITAL LINK IS MISSING AS TO ACTUAL DATE OF T RANSPORT. THE LD. CIT(A) HAS FURTHER STATED THAT THE ASSESSEE ITSELF INFORMED THE REGIS TRAR OF FIRMS TO CARRY-ON BUSINESS FROM THE NEW PREMISES WITH EFFECT FROM 1.06.2008. THUS, THE ASSESSEE HAD NOT PUT TO I.T.A. NO.5832/MUM/2011 & ITA NO.6052/MUM/2011 4 USE THE SAID NEW PREMISES BEFORE 31.3.2007 FOR TH E PURPOSE OF BUSINESS. HENCE, PURCHASE VALUE OF THE SAID ASSETS CANNOT GO TO RED UCE THE CAPITAL GAINS ARISING ON SALE OF OTHER ASSETS IN THE BLOCK, IN THE YEAR OF ACQ UISITION OF NEW ASSET ITSELF. IN VIEW OF ABOVE, LD. CIT(A) HAS CONFIRMED THE ACTION OF AO F OR THE PURPOSE OF COMPUTING CAPITAL GAINS U/S 50 OF THE ACT IN NOT REDUCING THE COST O F ACQUISITION OF TWO NEW IMPUGNED PREMISES OF RS.54,82,500/- FROM THE SALE CONSIDERA TION OF RS.67,68,750/-. 8. IN VIEW OF ABOVE, THE DEPARTMENT AS WELL AS ASSE SSEE ARE IN APPEALS BEFORE THE TRIBUNAL. 9. FIRSTLY, WE TAKE UP THE APPEAL FILED BY ASSESSEE BEING ITA NO.5832/MUM/2011. 10. IN THE APPEAL, FILED BY THE ASSESSEE, THE ORDER OF LD. CIT(A) IS DISPUTED BY TAKING FOLLOWING GROUNDS : 1. THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ITO (AO) REJECTING THE CLAIM OF THE APPELLANT DEDUCTING THE ACTUAL COS T OF THE NEW PREMISES (RS.54,82,500/-) FALLING WITHIN THE BLOCK OF ASSETS ACQUIRED DURING THE PREVIOUS YEAR FROM THE FULL VALUE OF CONSIDERATION RECEIVED (RS.67,68,750/-) ON TRANSFER OF PREMISES WHILE COMPUTING THE CAPITAL GAINS UNDER S ECTION 50 OF THE INCOME TAX ACT, 1961; 2. THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO HOLDING THAT THE PREMISES ACQUIRED DURING THE PREVIOUS YEAR CANNOT FORM PART OF THE BLOCK OF ASSETS. 3. THE CIT(A) ERRED IN HOLDING THAT NOTICE UNDER SE CTION 143(2) OF THE ACT WAS A VALID SERVICE; 4. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER, AMPLIFY, ABROGATE, OR SUBSTITUTE ALL OR ANY OF THE ABOVE GROUNDS OF APPEA L AT OR ANYTIME BEFORE THE HEARING OF THE PRESENT APPEAL 11. IN RESPECT OF GROUND NO.3, IT IS STATED THAT THERE WAS NO SUBMISSION MADE BEFORE US AND HENCE GROUND NO.3 OF THE APPEAL TAKEN BY ASSESSEE IS REJECTED. HOWEVER, GROUND NO.4 OF THE AS APPEAL IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 12. IN GROUND NOS.1 AND 2, ONLY ISSUE IS AS TO WHE THER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE IS ENTITLE D TO CLAIM DEDUCTION OF THE COST OF THE NEW PREMISES ACQUIRED DURING THE PREVIOUS YEAR RELE VANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION OF RS.54,82,500/- FROM THE FULL VALU E OF CONSIDERATION RECEIVED OF RS.67,68,750/- ON TRANSFER OF THE SAID PREMISES WHI LE COMPUTING CAPITAL GAINS U/S 50 OF THE ACT AS IT FORMS PART OF BLOCK OF ASSETS. I.T.A. NO.5832/MUM/2011 & ITA NO.6052/MUM/2011 5 13. AT THE TIME OF HEARING, LD. AR SATED THE FACTS, MENTIONED BEFORE THE AUTHORITIES BELOW, WHICH WE HAVE ALREADY STATED HEREINABOVE. HE SUBMITTED THAT THE LD. CIT(A) ASKED THE REMAND REPORT FROM THE AO AND THE AO IN HIS REMAND REPORT ITSELF CONFIRMED THAT THE BUILDER HANDED OVER THE POSSESSION OF THE PREMISES TO THE ASSESSEE BEFORE 31.3.2007 AND ENTERED INTO AN AGREEMENT, COPIES O F WHICH ARE PLACED AT PAGES 63 TO 151 OF THE PAPER BOOK IN RESPECT OF AGREEMENT ENTER ED INTO ON 20.3.2007 AND COPIES PLACED AT PAGES 152 TO 176 OF THE PAPER BOOK OF T HE AGREEMENT DATED 8.3.2007 (SUPRA). HE SUBMITTED THAT ASSESSEE PUT TO USE THE SAID NEWLY ACQUIRED PREMISES BEFORE 31.3.2007 FOR ITS BUSINESS PURPOSES. HE SUBMITTED THAT EVEN IF THE PREMISES WERE NOT PUT TO USE, AS PER CLAUSE (III) OF SECTION 50(1) O F THE ACT, THE ONLY REQUIREMENT IS TO ACQUIRE THE ASSETS DURING THE PREVIOUS YEAR AND THE ACTUAL COST OF ACQUIRING OF SUCH ASSETS WHICH FALL WITHIN THE BLOCK OF ASSETS IS ENT ITLED TO BE SET OFF AGAINST THE SALE PROCEEDS WHILE COMPUTING THE CAPITAL GAIN. HE SUBM ITTED THAT AS PER SECTION 50(1) OF THE ACT, THERE IS NO REQUIREMENT TO USE THE SAID PR EMISES FOR BUSINESS PURPOSE TO CLAIM THE BENEFIT OF SECTION 50(1) OF THE ACT. TO SUBSTA NTIATE HIS ABOVE SUBMISSIONS, LD. AR SUBMITTED THAT SAME VERY ISSUE HAD BEEN CONSIDERED BY MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CHHABRIA TRUST V/S ACIT [2 003] 87 ITD 181 (MUM.) (SB), WHEREIN IT WAS HELD THAT FOR THE PURPOSE OF ADJU STMENT UNDER SECTION 50 IT IS NOT NECESSARY THAT NEWLY ACQUIRED ASSET MUST HAVE BEEN USED FOR PURPOSES OF BUSINESS DURING THE RELEVANT ASSESSMENT YEAR. HE SUBMITTED THAT THE SAID DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL WAS FOLLOWED BY ITAT, MUMBAI BENCH IN THE CASE OF FLUORESCENT FIXTURES (P.) LTD. V/S INCOME-TAX OFFIC ER [2009] 34 SOT 48 (MUM) AND THE TRIBUNAL HAS HELD THAT USE OF AN ASSET IS NOT COND ITION PRECEDENT FOR MAKING ADJUSTMENT IN BLOCK OF ASSETS. HE SUBMITTED THAT SIMILAR ISS UE WAS ALSO CONSIDERED BY ITAT, MUMBAI IN ARTIC V/S ACIT [1999] 68 ITD 462 (MUM.) , WHEREIN IT WAS ALSO HELD THAT IT IS NOT A REQUIREMENT OF SECTION 50 WHILE CLAIMING DEDU CTION IN RESPECT OF COST OF NEW ASSETS ACQUIRED DURING THE PREVIOUS YEAR THAT THE ASSESSEE SHOULD USE THE SAME FOR BUSINESS PURPOSES. HE SUBMITTED THAT MUMBAI BENCH OF THE TRIBUNAL ALSO HELD IN THE ABOVE CASE THAT EVEN IF THE ASSESSEE HAD STOPPED TO CARRY ON THE BUSINESS IN THE YEAR IN WHICH THE NEW ASSET WAS PURCHASED, DEDUCTION WOULD BE ALLOWED TO THE ASSESSEE IN RESPECT OF NEW ASSETS ACQUIRED WHILE COMPUTING THE CAPITAL GAIN IN CASE OF DEPRECIABLE ASSETS UNDER SECTION 50 OF THE ACT. HE SUBMITTED THAT THE ASSESSEE HAS ACQUIRED THE NEW ASSETS AND THEREFORE, THE COST OF NEW ASSETS AC QUIRED BY THE ASSESSEE SHOULD BE BENEFITED OUT OF SALE PROCEEDS WHILE COMPUTING THE CAPITAL GAIN U/S 50 OF THE ACT. I.T.A. NO.5832/MUM/2011 & ITA NO.6052/MUM/2011 6 14. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT NEWLY ACQUIRED PREMISES BY THE ASSES SEE ARE RESIDENTIAL PREMISES AND IT IS ALSO NECESSARY TO PUT TO USE FOR THE BUSINESS PU RPOSES IN THE PREVIOUS YEAR FOR CLAIMING DEDUCTION OUT OF SALE PROCEEDS WHILE COMPU TING THE DEDUCTION U/S 50 OF THE ACT. HOWEVER, LD. DR HAS NOT CITED ANY DECISION TO SUBSTANTIATE HIS ABOVE SUBMISSION NOR HE WAS ABLE TO CONTROVERT THE CASE LAW CITED BY LD AR (SUPRA). 15. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES AND ORDERS OF AUTHORITIES BELOW. WE OBSERV E THAT THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE SOLD ITS OFFICE PREMISES IN THE A SSESSMENT YEAR UNDER CONSIDERATION AT A COST OF RS.67,68,750/-, WHICH WAS PURCHASED ON 9 .9.1992 AND WAS USED FOR ITS BUSINESS PURPOSE. THE ASSESSEE WAS ADMITTEDLY CLAI MING DEPRECIATION THEREON AND THE WDV OF THE BLOCK ASSETS AT THE BEGINNING OF THE ASS ESSMENT YEAR UNDER CONSIDERATION VIZ ASSESSMENT YEAR 2007-08 WAS NIL. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAS ACQUIRED TWO FLATS BEING (I) FLAT NO.704, 7 TH FLOOR OF JOGANI APARTMENT AT VILLAGE KOLE KALYAN, KALINA, MUMBAI VIDE AGREEMENT DATED 20.3.2 007 AND (II) FLAT BEING FLAT NO.806 AT 8 TH FLOOR, JEWEL TOWER, KALINA CST ROAD, OPP. VIDYA NA GRI UNIVERSITY, MANIPADA ROAD, SANTACRUZ (W), MUMBAI-400098 VIDE AGREEMENT DATED 8 .3.2007 DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDE RATION AT A TOTAL COST OF RS.54,84,500/- AND IT FORMS PART OF BLOCK OF ASSET S. THUS, THERE IS NO DISPUTE THAT THE ASSESSEE HAD PURCHASED TWO NEW PREMISES DURING THE PREVIOUS YEAR. WE OBSERVE THAT THE ASSESSEE CLAIMED SET OFF OF THE COST OF NEWLY A CQUIRED PREMISES OUT OF THE SALE CONSIDERATION WHILE COMPUTING CAPITAL GAINS U/S 50 OF THE ACT. THE AO DENIED ADJUSTMENT OF THE COST OF NEWLY ACQUIRED PREMISES O N THE GROUND THAT ASSESSEE FAILED TO TAKE POSSESSION OF THE NEWLY PURCHASED PREMISES AN D PUT TO USE FOR ITS BUSINESS PURPOSES. HOWEVER, WE OBSERVE THAT THE LD. CIT(A) AFTER SEEKING REMAND REPORT FROM THE AO AND CONSIDERING THE DOCUMENTS FILED BEFORE HIM HAS ADMITTED THAT THE ASSESSEE HAS PURCHASED/ACQUIRED TWO NEW PREMISES AT A TOTAL COST OF RS.54,82,500/- BUT CONFIRMED THE ACTION OF AO IN NOT ADJUSTING THE PU RCHASE AMOUNT AGAINST THE SALE PROCEEDS WHILE COMPUTING THE CAPITAL GAINS U/S 50 O F THE ACT, ON THE GROUND THAT THE ASSESSEE COULD NOT ESTABLISH THAT IT PUT TO USE TH E SAID PREMISES FOR ITS BUSINESS PURPOSES IN THE AY-2007-08. WE ARE OF THE CONSIDER ED VIEW THAT THE LD. CIT(A) IS NOT JUSTIFIED TO DENY THE CLAIM OF THE ASSESSEE TO ALLO W ADJUSTMENT OF COST OF NEW PREMISES ACQUIRED AS HE HAS NOT CONSIDERED THE PROVISIONS O F SECTION 50(1) OF THE ACT CORRECTLY. WE OBSERVE THAT AS PER CLAUSE (III) TO SECTION 50( 1) OF THE ACT, ONLY REQUIREMENT IS THAT THE ASSESSEE MUST ACQUIRE THE ASSETS WHICH FORM PAR T OF THE BLOCK ASSETS DURING THE PREVIOUS YEAR AND IF SO THE ACTUAL COST OF THE SA ID ACQUIRED ASSETS HAS TO BE DEDUCTED I.T.A. NO.5832/MUM/2011 & ITA NO.6052/MUM/2011 7 FROM THE SALE PROCEEDS RECEIVED BY ASSESSEE ON TRAN SFER OF THE ASSETS WHILE COMPUTING THE CAPITAL GAINS U/S 50 OF THE ACT. THE SAID ISSU E HAS BEEN CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CHHABRIA TRUS T V/S ACIT (SUPRA) AND AFTER FOLLOWING THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF OCEANIC INVESTMENT LTD. V. ASSTT. CIT [1997] 57 TTJ (MUM.) 549, IT WAS HELD THAT FOR THE PURPOSE OF SECTION 50, IT IS NOT NECESSARY THAT THE NEWLY ACQUIRED ASSETS MUST BE US ED FOR THE PURPOSE OF BUSINESS DURING THE YEAR UNDER CONSIDERATION. THE ITAT, MU MBAI BENCH BY FOLLOWING THE SAID DECISION OF SPECIAL BENCH AND ALSO THE EARLIER DE CISION OF ITAT MUMBAI IN ARTIC (SUPRA) HAS HELD THAT USE OF AN ASSET WHICH HAS BEEN ACQUIR ED OUT OF TRANSFER PROCEEDINGS OF THE DEPRECIABLE ASSETS FORMING PART OF BLOCK OF AS SETS IS NOT CONDITION PRECEDENT FOR MAKING ADJUSTMENT IN BLOCK OF ASSETS. IN VIEW OF A BOVE DECISIONS OF ITAT AND IN THE ABSENCE OF ANY OTHER DECISION BROUGHT ON RECORD BY LD. DR CONTRARY TO ABOVE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO TAKE ACTUAL COST O F NEW PREMISES AGGREGATING TO RS.54,82,500/- WHICH FALLS WITHIN THE BLOCK OF ASSE T DURING THE PREVIOUS YEAR TO BE DEDUCTED FROM THE VALUE OF CONSIDERATION RECEIVED O F RS.67,68,750/- ON TRANSFER OF EARLIER BUSINESS PREMISES WHOSE WDV WAS NIL, WHILE COMPUTING THE CAPITAL GAINS U/S 50 OF THE ACT. THEREFORE, GROUNDS NO.1 AND 2 OF THE APPEAL TAKEN BY ASSESSEE ARE ALLOWED BY REVERSING THE ORDERS OF AUTHORITIES BELOW. 16. NOW, WE TAKE UP THE APPEAL FILED BY REVENUE BE ING ITA NO.6052/MUM/2011. 17. THE DEPARTMENT HAS TAKEN FOLLOWING GROUNDS OF A PPEAL. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 54EC IGNORING THE FACT THAT THE CAPITAL GAINS AROSE FROM SHORT TERM C APITAL GAIN AND THE EXEMPTION U/S 54EC IS AVAILABLE ONLY FOR LONG TERM CAPITAL GA IN; 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RELYING ON THE DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT V/S ACE BUILDERS PVT LTD, WHEREIN IT WAS HELD THAT EVEN IF THE ASSETS WERE DEPRECIABLE, BUT HELD FOR MORE THAN 36 MONTHS, THE SALE PROCEEDS COULD BE INVESTED UNDER THE PROVISION OF THE SEC 54EC OF TH E IT ACT, 1961, IGNORING THE FACT THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT WAS NOT ACCEPTED BY THE DEPARTMENT, IN PRINCIPLE, AS THE DECISION OF TH E HIGH COURT WAS NOT IN CONSONANCE WITH THE SCHEME ENVISAGED IN SECTION 50 OF THE IT ACT, 1961 18. AT THE TIME OF HEARING, LD. DR MERELY RELIED O N THE ORDER OF AO AND WHEREAS LD. AR SUBMITTED THAT LD. CIT(A) HAS GRANTED EXEMPTION U/S 54EC OF THE ACT IN RESPECT OF REC BONDS BY RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ACE BUILDERS PVT. LTD. (SUPRA). I.T.A. NO.5832/MUM/2011 & ITA NO.6052/MUM/2011 8 19. CONSIDERING, THE FACTS THAT THE ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT (SUPRA), WE D O NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). HENCE, WE UPHOLD THE ORDER OF LD. CIT(A) BY REJECTING THE GROUNDS OF APPEAL TAKEN BY DEPARTMENT. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART, WHEREAS, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 8TH NOVEMBER, 2013 * 1 2 8 TH NOVEMBER, 2013 * SD SD ( / RAJENDRA) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2 DATED 8/ 11/2013 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. & / THE APPELLANT 2. ' & / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- CONCERNED 4. 6 / CIT CONCERNED 5. 7 '9 , - 9 , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) - 9 , /ITAT, MUMBAI