ACIT,Cir.9, Pune, V. Kinetic Eng.Ltd.,

ITA 617/PUN/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7500 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 20-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Opportunity of being heard; Valuation report; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV,JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 617/PN/2009 (ASSESSMENT YEAR: 2005-06) ASSTT. COMMISSIONER OF INCOME-TAX, CIR.9, PUNE .. APPELLANT VS. KINETIC ENGG. LTD., .. RESP ONDENT PLOT NO 18/2 BLOCK NO D-1, MIDC, CHINCHWAD, PUNE PAN AABCK1299B APPELLANT BY: SHRI S. SINGH RESPONDENT B Y: SHRI NANIWADEKAR ORDER PER D. KARUNAKARA RAO, A.M: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, PUNE DATE D 27.2.2009 WHICH, IN TURN, AROSE FROM AN ORDER DATED 31.12.2007 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHOR T THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2005-06. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE CIT (A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS 2,56,6 7,604/- ON ACCOUNT OF SALE PROCEEDS OF RESEARCH AND DEVELOPMENT ASSETS WHEN THE SAME HAS RIGHTLY TREATED AS BUSINESS INCOME AND TAXED ACCORDINGLY BY THE AO. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS 20,35,000/- MADE ON ACCOUNT OF DIFFERENCE IN SALE CONSIDERATION OF THE R & D BUILDINGS, WHEN THE AO H AS RIGHTLY ADOPTED VALUE OF THESE BUILDINGS AS PER THE VALUATION REPORT SUBMITT ED BY THE ASSESSEE AND THE SAID REPORT DOES NOT REFLECT ANY ASSET/BUILDING HAV ING ORIGINAL COST/REPLACEMENT VALUE OF RS 10,35,000/- AND RS 10,00,000/-. 2 3. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE AO BE RESTORED. 2. DURING THE PROCEEDINGS BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE STATED THAT R & D ASSETS WERE SOLD DURING THE YEAR FOR A SUM OF RS 3,99,76,000/-. THE COST OF THESE ASSETS WHICH WAS CLAIMED AS A DED UCTION UNDER SECTION 35 OF THE ACT IS RS 143.08 LAKHS (ROUNDED OFF). AS PER TH E REVENUE, THE DIFFERENCE AMOUNT, I.E. RS 3,99,76,000/- MINUS RS 1,43,08,396/ - IS TAXABLE RECEIPT AS AGAINST THE ASSESSEES OFFER OF RS 4,42,927/-. FURT HER, THE COUNSEL MENTIONED THAT PROVISIONS OF SECTION 41(3) ARE WRONGLY INTERP RETED BY THE ASSESSING OFFICER. HE IS ALSO CRITICAL OF THE WAY THE COMMISSIONER OF INCOME-TAX (APPEALS) GAVE A FINDING THAT THE DIFFERENCE OF RS 2,56,67,604/- CON STITUTES INCOME FROM CAPITAL GAINS AND NOT THE BUSINESS INCOME ON THE REASONING THAT THE SAID PROFIT IS INCIDENTAL TO THE CAPITAL ASSET AND NOT THE STOCK-I N-TRADE. IN THIS REGARD, THE COUNSEL POINTED OUT THE FINDINGS OF THE COMMISSIONE R OF INCOME-TAX (APPEALS) FROM PARA 7.3 OF THE ORDER. HE FURTHER TOOK US THRO UGH SUB-SECTION (3) OF SECTION 41 OF THE ACT AND DEMONSTRATED THAT WHAT WAS OFFERE D BY THE ASSESSEE IS AS PER THE SAID PROVISIONS AND THE REVENUE AUTHORITIES HAV E FAILED TO UNDER THE SAID SUBSECTION (3) OF THE SECTION 35 OF THE ACT. ON TH E OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE RELIED ON THE ORDERS OF THE REVENUE. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AND THE DETAILS FILED BEFORE US. THERE IS NO DISPUT E ON FACTS RELATING TO SALE CONSIDERATION AND COST OF THE ASSETS IN QUESTION AS WELL AS THE EXTENT OF DEDUCTION CLAIMED UNDER SECTION 35 OF THE ACT. HOWE VER, THE DISPUTE IS ONLY RESTRICTED TO EXPLAINING OF THE PROVISIONS OF SECTI ON 41(3) OF THE ACT. THEREFORE, WE PROCEED TO REPRODUCE THE RELEVANT SUB-SECTION AS UN DER: 41(3): WHERE AN ASSET REPRESENTING EXPENDITURE OF A CAPITAL NATURE ON SCIENTIFIC RESEARCH WITHIN THE MEANING OF CLAUSE (IV) OF SUB-SECTION (1 ), (OR CLAUSE (C) OF SUB-SECTION (2B) OF SECTION 35, READ WITH CLAUSE (4) OF SECTION 43, IS SOLD , WITHOUT HAVING BEEN USED FOR OTHER PURPOSES, AND THE PROCEEDS OF THE SALE TOGETHER WIT H THE TOTAL AMOUNT OF THE DEDUCTIONS 3 MADE UNDER CLAUSE (I) (OR, AS THE CASE MAY BE, THE AMOUNT OF THE DEDUCTION UNDER CLAUSE (IA) OF SUB-SECTION (2), (OR CLAUSE (C) OF SUB-SECT ION (2B) OF SECTION 35 EXCEED THE AMOUNT OF THE CAPITAL EXPENDITURE, THE EXCESS OR THE AMOUN T OF THE DEDUCTIONS SO MADE, WHICHEVER IS THE LESS, SHALL BE CHARGEABLE TO INCOM E-TAX AS INCOME OF THE BUSINESS OR PROFESSION OF THE PREVIOUS YEAR IN WHICH THE SALE T OOK PLACE. FROM THE ABOVE PROVISIONS, IT IS EVIDENT THAT IN TH E CIRCUMSTANCES, WHERE THE PROCEEDS OF THE SALE TOGETHER WITH THE TOTAL AMOUNT OF DEDUCTIONS, EXCEED THE COST OF THE ASSETS SOLD, WHAT IS CHARGEABLE TO INCO ME-TAX AS INCOME OF THE BUSINESS OR PROFESSION OF THE PREVIOUS YEAR IN WHIC H THE SALE TOOK PLACE IS THE EXCESS OR THE AMOUNT OF THE DEDUCTION SO MADE, WHIC H EVER IS LESS. IN THE INSTANT CASE THE AMOUNT OF THE DEDUCTIONS IS THE LE SSER FIGURE. THEREFORE, THE ASSESSEE HAS COMPUTED THE SAID CHARGEABLE INCOME OF THE BUSINESS OR PROFESSION AS PER THE SECTION 41(3) OF THE ACT. CONSIDERING THE ABOVE POSITION OF LAW, WE FIND NO MISTAKE IN THE WAY THE ASSESSEE HAS OFFERED THE INCOME IN THIS REGARD. THEREFORE, THE COMMISSIONER OF INCOME-TAX (APPEALS) S ORDER IN THIS REGARD IS IN ORDER AND DOES NOT CALL FOR ANY INTERFERENCE. ACCOR DINGLY RELEVANT GROUND IS DISMISSED. 4. COMING TO THE OTHER GROUNDS RELATING TO A SUM OF RS 2,35,86,000/-, WE FIND THAT THE SUM OF RS 10 LAKHS RELATING TO SALE CONSID ERATION IN RESPECT OF ELEVATOR IN R & D IS FORMING PART OF THE AMOUNT OF RS 399.76 LA KHS RELATING TO SALE PROCEEDS OF THE IMPUGNED R& D ASSETS. THEREFORE, THE ORDER O F THE COMMISSIONER OF INCOME-TAX (APPEALS) DOES NOT CALL FOR ANY INTERFER ENCE ON THIS ISSUE. RELEVANT GROUND IS DISMISSED. 5. SO FAR AS THE SUM OF RS 10,35,000/- IS CONCERNED , THE ASSESSEE IS OF THE VIEW THAT IT IS INCLUDED IN THE GROSS SALE PROCEEDS OF RS 3,99,76,000/-, BUT THE SAME IS NOT DEMONSTRATED BEFORE US WITH THE FACTS A ND THE FIGURES. THEREFORE, WE ARE OF THE OPINION THAT THIS PART OF THE ISSUE MUST BE REFERRED TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERATION AFRESH. ACCORDI NGLY, THE ASSESSING OFFICER IS 4 DIRECTED TO GIVE AN OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE ON THIS ISSUE AND DECIDE THE ISSUE AFRESH AFTER GIVING REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, RELEVENT GROUND IS SET ASIDE. 6. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 28TH DAY OF FE BRUARY, 2011. SD/- SD/- (SHAILENDRA KUMAR YADAV) (D. KARUNAKAR A RAO) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED:28TH FEBRUARY, 2011 COPY TO:- 1) KINETIC ENGG. LTD.PUNE 2) THE ACIT, CIR.9, PUNE 3) THE CIT (A)-III, PUNE 4) THE CIT-V, PUNE 5) THE DEPARTMENTAL REPRESENTATIVE, B BENCH, I.T.A.T., PUNE. BY ORDER TRUE COPY ASST. REGISTRAR, I.T.A.T., PUNE B