M/s Hariyali Rural Ventures Ltd., New Delhi V. ITO, New Delhi

ITA 6327/DEL/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7984 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-03-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 30-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V R SONBHA DRA SENIOR
• Keywords: Capital asset; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H : NEW DELHI) BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.6327/DEL./2015 (ASSESSMENT YEAR : 2012-13) M/S. HARIYALI RURAL VENTURES LTD., VS. ITO, WARD 11 (1), 5 TH FLOOR, KANCHENJUNGA BUILDING, NEW DELHI. 18, BARAKHAMBA ROAD, NEW DELHI. (PAN : AABCH9851J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRADEEP DINODIA, CA AND SHRI V.P. GUPTA, ADVOCATE REVENUE BY : SHRI V.R. SONBHADRA, SENIOR DR DATE OF HEARING : 09.03.2016 DATE OF ORDER : 10.05.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. HARIYALI RURAL VENTURES LIMITED (H EREINAFTER REFERRED TO AS THE ASSESSEE), BY FILING THE PRESE NT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 29.10.2015 PASSE D BY THE CIT (A)-4, NEW DELHI QUA THE ASSESSMENT YEAR 2012-13 ON THE GROUNDS INTER ALIA THAT :- 1. THAT THE CIT(A) ERRED IN PASSING THE ORDER DATE D 29.10.2015 IN THE CASE OF THE APPELLANT COMPANY UPH OLDING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.4,14,1 0,000/- AS ITA NO.6327/DEL./2015 2 'SHORT TERM CAPITAL GAIN' WITHOUT APPRECIATING THE FACTS AND THE LEGAL POSITION AND EVEN WITHOUT ADJUDICATING THE GROUNDS OF APPEAL AS WERE RAISED BY THE APPELLANT IN THE APPEAL. 2. THAT THE CIT(A) ALSO ERRED IN UPHOLDING THE AMOU NT OF COMPENSATION OF RS.4,14,10,000/- AS SHORT TERM CAPI TAL GAIN WITHOUT APPRECIATING THAT COMPENSATION WAS RECEIVED FROM DCM SHRIRAM LTD., THE HOLDING COMPANY AGAINST THE CAPIT AL LOSS SUFFERED BY THE APPELLANT COMPANY IN RESPECT OF PREMISES MAD E AVAILABLE TO ABOVE NAMED COMPANY FOR THE PURPOSE OF RUNNING RETA IL STORES AND THE LOSS WAS SUFFERED BY THE APPELLANT COMPANY IN T HE COST OF PREMISES ON ACCOUNT OF CLOSURE OF THESE STORES DURI NG THE YEAR UNDER APPEAL. 3. THAT THE CIT(A) ALSO FAILED TO APPRECIATE THAT T HE ASSESSING OFFICER HAD WRONGLY TREATED THE AMOUNT OF COMPENSAT ION AS SHORT TERM CAPITAL GAIN U/S 50 OF THE ACT WHEREAS PROVISI ONS OF ABOVE SECTION WERE NOT APPLICABLE. 4. THAT THE CIT(A) FAILED TO APPRECIATE THAT COST O F ACQUISITION/VALUE IN THE BOOKS FOR THE RELEVANT PRE MISES WAS HIGHER THAN THE AMOUNT OF COMPENSATION RECEIVED BY THE APP ELLANT COMPANY FROM DCM SHRIRAM LTD., AND, ACCORDINGLY, TH ERE WAS NO CAPITAL GAIN AND INFACT THERE WAS LOSS SUFFERED BY THE COMPANY IN RESPECT OF PREMISES AND, THEREFORE, THERE WAS NO QU ESTION OF CONSIDERING THE AMOUNT OF COMPENSATION AS SHORT TER M CAPITAL GAIN. 5. THAT THE CIT(A) ALSO ERRED IN UPHOLDING THE INIT IATION OF PENALTY PROCEEDINGS U/S 271 (1 )(C) OF THE INCOME-T AX ACT WITHOUT APPRECIATING THE FACTS OF THE CASE OF THE APPELLANT . 6, THAT, THE APPELLANT COMPANY CRAVES LEAVE TO AMEN D, ALTER, WITHDRAW AND/OR ADD ANYONE OR MORE GROUNDS OF APPEA L BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. BRIEFLY STATED THE FACTS OF THIS CASE ARE : DURI NG SCRUTINY PROCEEDINGS, SHRI A.K. JAIN, CA/AR PUT IN APPEARAN CE, FILED REQUISITE DETAILS AND ALSO DISCUSSED THE CASE. THE ASSESSEE COMPANY HAS BEEN RECEIVING RENTAL INCOME AND DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT A COMPE NSATION OF RS.4,14,10,000/- WAS RECEIVED BY THE ASSESSEE FROM ITS HOLDING COMPANY ON ACCOUNT OF SCRAPPING OF COST INCURRED BY THE ASSESSEE ITA NO.6327/DEL./2015 3 COMPANY FOR CONSTRUCTION IN THE BUILDING USED BY TH E HOLDING COMPANY FOR THE PURPOSE OF RUNNING ITS RETAIL STORE S. ASSESSING OFFICER TREATED THE COMPENSATION AS CAPITAL INCOME IN NATURE UNDER SECTION 2 (24) OF THE INCOME-TAX ACT, 1961 (HEREINA FTER THE ACT) ON ACCOUNT OF TRANSFER OF CAPITAL ASSETS INCLUDING GIVING UP THE RIGHTS THEREON AND CALLED UPON THE ASSESSEE TO EXPL AIN AS TO WHY THE SAID COMPENSATION OF RS.4,14,10,000/- BE NOT TREAT ED AS ITS INCOME FOR TAX PURPOSES. ASSESSEE ADMITTED THAT THE COST INCURRED BY IT FOR MAKING STORES WAS CAPITALIZED IN ITS BOOKS OF ACCOU NTS UNDER THE HEAD BUILDING AND AS SUCH, THIS COMPENSATION HAS TO BE ADJUSTED AND SET OFF AGAINST THE COST OF BUILDING. FINDING THE EXPLANATION FURNISHED BY THE ASSESSEE NOT TENABLE, AO TREATED T HE COMPENSATION AMOUNT RECEIVED BY ASSESSEE ON ACCOUNT OF CAPITAL A SSET AND ACCORDINGLY, TAXED THE SAME AS CAPITAL GAIN OF THE ASSESSEE AND THEREBY MADE AN ADDITION OF RS.4,14,10,000/-. 3. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) WHO HAS PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PR ESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.6327/DEL./2015 4 5. UNDISPUTEDLY, THE ASSESSEE COMPANY IS A WHOLLY O WNED SUBSIDIARY COMPANY OF M/S. DCM SHRIRAM LIMITED AND HAS CONSTRUCTED THE BUILDINGS TO BE USED AS RETAIL STOR ES IN RURAL AREAS BY ITS HOLDING COMPANY (M/S. DCM SHRIRAM LTD.). 6. LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUGNED ORDER CONTENDED THAT THE ASSESSEE COMPANY BEING A SUBSIDI ARY COMPANY OF M/S. DCM SHRIRAM LIMITED RECEIVED THE AMOUNT OF RS.4,14,10,000/- BEING THE REIMBURSEMENT OF THE COS T INCURRED BY IT FOR CONSTRUCTION OF THE BUILDINGS TO BE USED AS RET AIL STORES IN THE RURAL AREAS AND IT HAS NEVER CLAIMED ANY DEPRECIATI ON OR DEDUCTION UNDER THE ACT. IT WAS FURTHER CONTENDED THAT THE A O/CIT(A) HAVE ERRED IN HOLDING THAT THE COMPENSATION RECEIVED BY THE ASSESSEE FROM THE HOLDING COMPANY AGAINST THE CAPITAL LOSS B Y TREATING THE SAME AS SHORT TERM CAPITAL GAIN. 7. AO AT PAGE 2 OF THE ASSESSMENT ORDER CATEGORICAL LY RECORDED THAT, ASSESSEE HAD STATED AND DULY ADMITTED THAT COST AD MITTED BY IT FOR MAKING STORES WAS CAPITALIZED IN ITS BOOK S OF ACCOUNTS UNDER THE HEAD BUILDING. BUT THESE OBSERVATIONS MADE BY THE ASSESSEE ARE FACTUALLY INCORRECT, WHEN EXAMINED IN THE LIGHT OF THE COMPUTATION OF TAXABLE INCOME FILED BY THE ASSESSEE ALONG WITH RETURN OF INCOME, AVAILABLE AT PAGE 1 TO 4 OF THE P APER BOOK. SO, BARE PERUSAL OF THE TOTAL COMPUTATION GOES TO PROVE THAT THE ITA NO.6327/DEL./2015 5 ASSESSEE HAS NEVER CAPITALIZED THE COST INCURRED BY IT FOR CONSTRUCTING STORES IN ITS BOOKS OF ACCOUNT UNDER T HE HEAD BUILDING. SO, FROM THE VERY OUTSET, THE AO HAS P ROCEEDED ON THE BASIS OF FACTUALLY INCORRECT FACTS. 8. NOW, THE NEXT QUESTION ARISES FOR DETERMINATION IN THIS CASE IS AS TO WHETHER THE ASSESSEE COMPANY HAS RECEIVED TH E AMOUNT AS COMPENSATION FROM ITS HOLDING COMPANY FOR SUFFERING LOSS IN RESPECT OF BUILDING MADE AVAILABL E TO THE HOLDING COMPANY FOR THE PURPOSE OF RUNNING RETAIL S TORES. 9. UNDISPUTEDLY, THE ASSESSEE COMPANY HAS SUFFERED LOSSES IN THE COST OF PREMISES ON ACCOUNT OF CLOSURE OF THESE STORES DURING THE YEAR UNDER ASSESSMENT. IT IS ALSO NOT DISPUTED THAT THERE WAS NO TRANSFER OF ASSETS BY THE ASSESSEE COMPANY TO ITS H OLDING COMPANY, RATHER ASSESSEE COMPANY HAS MERELY PROVIDED THE BUI LDING FOR RUNNING THE RETAIL STORES TO THE HOLDING COMPANY AN D WHEN THERE IS NO TRANSFER OF ASSETS, THERE IS NO QUESTION OF MAKI NG ADDITION ON ACCOUNT OF SHORT TERM CAPITAL GAIN. 10. WHEN UNDISPUTEDLY HOLDING COMPANY (DCM SHRIRAM LIMITED) HAS CLOSED THE BUSINESS ON 31.03.2012 BEIN G NOT COMMERCIALLY VIABLE, THE RETAIL OUTLETS HAVE BEEN V ACATED AND LEASE ARRANGEMENT ENTERED INTO BETWEEN THE ASSESSEE COMPA NY AND VARIOUS OTHER PARTIES FOR TAKING THE PREMISES ON LE ASE WERE ITA NO.6327/DEL./2015 6 TERMINATED. WHEN THE ASSESSEE COMPANY HAS UNDISPUT EDLY INCURRED THE CONSTRUCTION COST/MODIFICATION COST IN ORDER TO MAKE PREMISES SUITABLE FOR OPERATION, THE SAME WAS CAPITALIZED IN THE BOOKS OF ACCOUNT UNDER THE HEAD FIXED ASSETS / LEASE HOLDIN G IMPROVEMENTS. COST OF CONSTRUCTION IS SHOWN TO HA VE BEEN ADJUSTED BY THE ASSESSEE AGAINST THE COST APPEARING IN THE SCHEDULE OF FIXED ASSETS. 11. MOREOVER, WHEN THE COMPENSATION RECEIVED BY THE ASSESSEE COMPANY IS LESS THAN THE COST INCURRED BY IT, THE S AME IS NOT TO BE TREATED AS SHORT TERM CAPITAL GAIN. EVEN OTHERWISE , WHEN THE AMOUNT OF COMPENSATION RECEIVED BY THE ASSESSEE COM PANY WAS LESS THAN THE BOOK VALUE AND ASSETS IN THE BOOKS OF ACCOUNT, AS IS APPARENT FROM THE NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR UNDER CONSIDERATION AND AUDITED BALANCE SHEET, THER E HAS TO BE NO CAPITAL GAIN U/S 50 OF THE ACT. 12. SO, AFTER ADJUSTING THE AMOUNT OF COMPENSATION RECEIVED BY THE ASSESSEE COMPANY, BOOK VALUE/WRITTEN DOWN VALUE IN THE BOOKS HAS BECOME NIL AND IN THESE CIRCUMSTANCES, AMOUNT I S NOT CHARGEABLE TO TAX AS SHORT TERM CAPITAL GAIN. AO, WITHOUT DISPUTING THE BOOKS OF ACCOUNT AND AUDITED BALANCE SHEETS, CA ME TO THE CONCLUSION THAT THE ASSESSEE COMPANY RECEIVED THE C OMPENSATION ITA NO.6327/DEL./2015 7 AGAINST SCRAPPING OF THE CAPITAL ASSETS AND HAS NOT BEEN ADDED BACK AS COMPENSATION OF INCOME. 13. EVEN OTHERWISE, WHEN THE ASSESSEE COMPANY HAS C ONSTRUCTED CUSTOM MADE BUILDING AS PER REQUIREMENT OF THE DCM SHRIRAM LIMITED HOLDING COMPANY FOR RUNNING THE RETAIL OUTL ETS IN RURAL AREA AND ON CLOSURE OF THE SAME DUE TO COMMERCIAL NON-VI ABILITY, THE ASSESSEE COMPANY HAS CERTAINLY SUFFERED LOSS FOR WH ICH HE HAS RECEIVED THE COMPENSATION WHICH CANNOT BE TREATED A S SHORT TERM CAPITAL GAIN BECAUSE OF NON-TRANSFER OF CAPITAL ASS ETS. 14. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, W E ARE OF THE CONSIDERED VIEW THAT THIS IS A CASE OF PURE REIMBUR SEMENT OF COST INCURRED BY THE HOLDING COMPANY FOR THE ASSESSEE, A SUBSIDIARY COMPANY, WHICH HAS NEVER CLAIMED ANY DEPRECIATION O R DEDUCTION UNDER THE ACT AND AS SUCH, REIMBURSED AMOUNT CANNOT BE TREATED AS SHORT TERM CAPITAL GAIN IN ANY MANNER WHATSOEVER. CONSEQUENTLY, THE PRESENT APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 10 TH DAY OF MAY, 2016. SD/- SD/- (J.S. REDDY) (KULDIP SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 10 TH DAY OF MAY, 2016 TS ITA NO.6327/DEL./2015 8 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-4, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.