ITO 16(2)(2), MUMBAI V. RATNAKAR Y SOHONI, MUMBAI

ITA 6715/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75239 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 02-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAIN
• Assessee Lawyers: ANIL SATHE
• Keywords: Capital asset; Depreciation; Difference of opinion; Tax effect; Benefit of exemption; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL MUMB AI - D BENCH MUMBAI . . , / !' !' !' !' , ! ! ! ! BEFORE S/SH.B.R.MITTAL,JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 6715/MUM/2012, # # # # $ $ $ $ / ASSESSMENT YEAR 2006-07 ITO 16(2)(2) 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI-400007 VS. RATNAKAR Y SOHONI, B-504 MANOJ CHS, LTD. SHANKAR GHANEKAR MARG, PRABHADEVI, MUMBAI-400025 PAN: AAFPS6768L ( %& / REVENUE ) ( '(%& / RESPONDENT) %& %& %& %& ) )) ) * * * * ! !! ! / REVENUE BY : SANJEEV JAIN '(%& ) * ! / RESPONDENT BY : SHRI ANIL SATHE # # # # ) )) ) , , , , / DATE OF HEARING : 07 . 01 .201 4 -.$ ) , / DATE OF PRONOUNCEMENT : 08 . 01 .201 4 # # # # , 1961 ) )) ) 254 )1( ! !! ! ,/, ,/, ,/, ,/, !0 !0 !0 !0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER DATED 23.08.2012 OF THE CIT(A )-27,MUMBAI,ASSESSING OFFICER (AO) HAD HAS RAISED FOLLOWING GROUNDS OF APPEAL. 1.WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THE RE- OPENING OF THE ASSESSMENT BAD IN LAW AND ASSESSMENT PROCEEDINGS VOID-AB-INITIO. 2.WHETHER IN FACTS AND CIRCUMSTANCES THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THE DEPARTMENT HAS NOT ACCEPTED ON MERITS THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF ACE BUILDERS P . LTD. 281 ITR 210. 3.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) O N THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2 .ASSESSEE,AN INDIVIDUAL,FILED HIS RETURN OF INCOME ON 25.09.2006 DECLARING TOTAL INCOME AT RS.6, 64,276/-.DURING THE YEAR THE ASSESSEE HAD PROFESSIO NAL INCOME FROM ART WORK, SHORT TERM CAPITAL GAIN (STCG) FROM SALE OF OFFICE PREMISES AND INCOME FROM OTHER SOURCES.DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD SOLD OF HIS LONG TERM BUSINESS ASSETS BEING OFFICE PREMISES, OFFICE FURNITURE AND EQUIPMENTS,THAT THE TOTAL OPENING WDV OF THE DEPRECIABLE ASSETS AS ON 01.04.2005 WAS RS.3,22,332/-,THAT THE AGGREGA TE SALE CONSIDERATION(AS PER STAMP DUTY VALUATION)/FULL VALUE OF CONSIDERATION FROM THE DEP RECIABLE ASSETS AMOUNTED TO RS.37,55,606/-, THAT THE ASSESSEE HAD CLAIMED BROKERAGE OF RS.27,00 0/-.THE DETAILED BREAK-UP OF THE OPENING 2 ITA NO. 6715/MUM/2012 RATNAKAR Y SOHONI WDV OF RS.3,22,332/- AND THE FULL VALUE OF CONSIDER ATION OF RS.37,55,606/- WAS SUBMITTED BEFORE THE AO. 2.1 .OUT OF THE STCG FROM SALE OF THE DEPRECIABLE ASSET S OF RS.34,06,274/-(37,28,606/- (-)3,22,332/-), RS.18,00,000/-WERE INVESTED IN NABA RD BONDS AND RS.10,00,000/ WAS INVESTED IN REC BONDS AND THE AGGREGATE AMOUNT OF RS.28,00,0 00/- (18,00,000 + 10,00,000) WAS CLAIMED AS EXEMPTION U/S 54EC AND THE BALANCE STCG OF RS.6, 06,274/- (34,06,274-28,00,000) WAS SUBMITTED TO TAX IN THE RETURN OF INCOME.AO FINALIS ED THE REGULAR ASSESSMENT U/S.143(3) WAS COMPLETED IN NOV. 2008 ACCEPTING THE APPELLANTS CO MPUTATION OF CAPITAL GAIN AND ASSESSING THE TOTAL INCOME AT RS.6,84,230/-.HOWEVER, SUBSEQUENTLY THE CASE WAS RE-OPENED U/S.147 ON THE GROUND THAT THE BENEFIT OF EXEMPTION UNDER SECTION 54EC WAS APPLICABLE ONLY FOR LONG TERM CAPITAL ASSETS AND THAT THE BENEFIT OF EXEMPTION WA S NOT ALLOWABLE AGAINST THE STCG ARISING FROM DEPRECIABLE ASSETS UNDER SECTION 50 OF THE ACT. 2.2 IN RESPONSE TO THE NOTICE U/S.148,THE ASSESSEE REQ UESTED THE AO TO TREAT THE ORIGINAL RETURN AS A RETURN IN RESPONSE TO THE SAID NOTICE.HE FILED DE TAILED REPLY IN THIS REGARD SUBMITTING THAT THE ASSESSEES CONTENTION IN REGARD TO THE CAPITAL GAIN WAS DISCUSSED AT THE ORIGINAL ASSESSMENT STAGE AND THE BENEFIT OF EXEMPTION WAS ALLOWED AFTER COMP LETE APPLICATION OF MIND.IN ADDITION THE APPELLANT PLACED ON RECORD THE JUDICIAL PRONOUNCEME NTS -VIZ. ACE BUILDERS P. LTD.(281 ITR 210) AND OTHERS TO RELY ON HIS CONTENTION THAT THE FICTI ON CREATED UNDER SECTION 50 WAS RESTRICTED ONLY TO THE EXTENT TO DEEM THE GAIN FROM DEPRECIABLE ASS ETS AS STCG AND NOT TO DEEM THE ASSET AS SHORT TERM CAPITAL ASSET.IN SHORT THE ASSESSEE SU BMITTED THAT SINCE SECTION 54EC DOES NOT MAKE ANY DISTINCTION BETWEEN DEPRECIABLE AND NON-DEPRECI ABLE ASSETS, THE EXEMPTION UNDER SECTION 54EC WAS ALSO APPLICABLE FOR GAIN ARISING FROM LONG TERM DEPRECIABLE ASSETS.IT WAS ALSO ARGUED BY THE ASSESSEE THAT THE EXEMPTION U/S.54EC WAS ALL OWED AGAINST THE STCG FROM DEPRECIABLE ASSETS IN THE COURSE OF REGULAR ASSESSMENT PROCEEDI NG U/S.143(3) AFTER COMPLETE VERIFICATION OF FACTS AND FIGURES, THE RE-OPENING OF THE ASSESSMENT U/S.147 ON THE SAME ISSUE PURELY AMOUNTED TO CHANGE OF OPINION WITHOUT ANY REASON TO BELIEVE AND THE REASSESSMENT ORDER WAS BAD IN LAW. 3 .AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, AO HELD THAT THOUGH THE DECISION OF THE JURISDICTIONAL HIGH COURT IN CASE OF ACE BUILDERS P . LTD. (SUPRA) WAS BINDING ON HER BUT SINCE THE ISSUE INVOLVED THEREIN HAD NOT REACHED FINALITY I.E . AS THE DECISION OF BOMBAY HIGH COURT WAS NOT APPEALED AGAINST BY THE DEPARTMENT BEFORE HONB LE SUPREME COURT DUE TO SMALLNESS OF TAX EFFECT, IN ORDER TO KEEP THE ISSUE ALIVE AND TO PRO TECT THE INTEREST OF REVENUE THE CLAIM OF EXEMPTION U/S 54EC ON TRANSFER OF LONG TERM DEPRECI ABLE ASSET WAS TO BE DISALLOWED. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPE LLATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,HE HELD THAT FROM THE A SSESSMENT ORDER U/S.143(3) OF THE ACT PASSED IN NOVEMBER, 2008,IT WAS CLEAR THAT CLAIM MADE BY T HE ASSESSEE,U/S.54EC OF THE ACT,WAS SPECIFICALLY DISCUSSED THEREIN AND WAS ALLOWED,THAT THERE WAS NO FRESH MATERIAL OR NEW FACTS BROUGHT ON RECORD JUSTIFYING THE REOPENING OF THE A SSESSMENT U/S.147 OF THE ACT.ACCORDINGLY,HE HELD THAT THE REOPENING OF THE ASSESSMENT WAS BAD I N LAW AND THE ASSESSMENT REASSESSMENT- PROCEEDINGS WERE VOID-AB-INITIO.HE FURTHER RELIED U PON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT DELIVERED IN THE CASE OF ACE BUILDERS(SU PRA) AND ALLOWED THE APPEAL OF THE ASSESSEE. 5. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUPPOR TED THE ORDER OF THE AO.AUTHORISED REPRESENTATIVE (AR) RELIED UPON THE ORDER OF THE JU RISDICTIONAL HIGH COURT DELIVERED IN THE CASE OF ACE BUILDERS (281 ITR 201). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US. WE FIND THAT HONBLE BOMBAY HIGH COURT HAS, IN THE CASE OF ACE BUILDERS, HELD AS UNDER: THE QUESTION REQUIRED TO BE CONSIDERED IN THE PRES ENT CASE IS, WHETHER THE DEEMING FICTION CREATED UNDER S. 50 IS RESTRICTED TO S. 50 ONLY OR IS IT APPLICABLE TO S. 54E OF THE IT ACT AS WELL ? IN OTHER WORDS, THE QUESTION IS, WHETHER THE LONG-T ERM CAPITAL GAIN ARISES ON TRANSFER OF A DEPRECIABLE LONG-TERM CAPITAL ASSET, WHETHER THE AS SESSEE CAN BE DENIED EXEMPTION UNDER S. 54E 3 ITA NO. 6715/MUM/2012 RATNAKAR Y SOHONI MERELY BECAUSE S. 50 PROVIDES THAT THE COMPUTATION OF SUCH CAPITAL GAINS SHOULD BE DONE AS IF ARISING FROM THE TRANSFER OF SHORT-TERM CAPITAL ASS ET ? 24. SEC. 54E OF THE IT ACT GRANTS EXEMPTION FROM PAYMEN T OF CAPITAL GAINS TAX, WHERE THE WHOLE OR PART OF THE NET CONSIDERATION RECEIVED FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET IS INVESTED OR DEPOSITED IN A SPECIFIED ASSET WITHIN A PERIOD O F SIX MONTHS AFTER THE DATE OF SUCH TRANSFER. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASS ESSEE FULFILS ALL THE CONDITIONS SET OUT IN S. 54E TO AVAIL EXEMPTION, BUT THE EXEMPTION IS SOUGHT TO BE DENIED IN VIEW OF FICTION CREATED UNDER S. 50. 25. IN OUR OPINION, THE ASSESSEE CANNOT BE DENIED EXEMP TION UNDER S. 54E, BECAUSE, FIRSTLY, THERE IS NOTHING IN S. 50 TO SUGGEST THAT THE FICTION CRE ATED IN S. 50 IS NOT ONLY RESTRICTED TO SS. 48 AND 49 BUT ALSO APPLIES TO OTHER PROVISIONS. ON THE CONTRA RY, S. 50 MAKES IT EXPLICITLY CLEAR THAT THE DEEMED FICTION CREATED IN SUB-SS. (1) AND (2) OF S. 50 IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAINS CONTAINED IN SS. 48 AND 49. SECOND LY, IT IS WELL ESTABLISHED IN LAW THAT A FICTION CREATED BY THE LEGISLATURE HAS TO BE CONFINED TO TH E PURPOSE FOR WHICH IT IS CREATED. IN THIS CONNECTION, WE MAY REFER TO THE DECISION OF THE APE X COURT IN THE CASE OF STATE BANK OF INDIA VS. D. HANUMANTHA RAO 1998 (6) SCC 183. IN THAT CASE, T HE SERVICE RULES FRAMED BY THE BANK PROVIDED FOR GRANTING EXTENTION OF SERVICE TO THOSE APPOINTED PRIOR TO 19TH JULY, 1969. THE RESPONDENT THEREIN, WHO HAD JOINED THE BANK ON 1ST JULY, 1972 CLAIMED EXTENSION OF SERVICE BECAUSE HE WAS DEEMED TO BE APPOINTED IN THE BANK W .E.F. 26TH OCT., 1965 FOR THE PURPOSE OF SENIORITY, PAY AND PENSION ON ACCOUNT OF HIS PAST S ERVICE IN THE ARMY AS SHORT SERVICE COMMISSIONED OFFICER. IN THAT CONTEXT, THE APEX COU RT HAS HELD THAT THE LEGAL FICTION CREATED FOR THE LIMITED PURPOSE OF SENIORITY, PAY AND PENSION C ANNOT BE EXTENDED FOR OTHER PURPOSES. APPLYING THE RATIO OF THE SAID JUDGMENT, WE ARE OF THE OPINION, THAT THE FICTION CREATED UNDER S. 50 IS CONFINED TO THE COMPUTATION OF CAPITAL GAINS ONL Y AND CANNOT BE EXTENDED BEYOND THAT. THIRDLY, S. 54E DOES NOT MAKE ANY DISTINCTION BETWEEN DEPREC IABLE ASSET AND NON-DEPRECIABLE ASSET AND, THEREFORE, THE EXEMPTION AVAILABLE TO THE DEPRECIAB LE ASSET UNDER S. 54E CANNOT BE DENIED BY REFERRING TO THE FICTION CREATED UNDER S. 50. SEC. 54E SPECIFICALLY PROVIDES THAT WHERE CAPITAL GAIN ARISING ON TRANSFER OF A LONG-TERM CAPITAL ASSET IS INVESTED OR DEPOSITED (WHOLE OR ANY PART OF THE NET CONSIDERATION) IN THE SPECIFIED ASSETS, THE ASS ESSEE SHALL NOT BE CHARGED TO CAPITAL GAINS. THEREFORE, THE EXEMPTION UNDER S. 54E OF THE IT ACT CANNOT BE DENIED TO THE ASSESSEE ON ACCOUNT OF THE FICTION CREATED IN S. 50. 26. IT IS TRUE THAT S. 50 IS ENACTED WITH THE OBJECT OF DENYING MULTIPLE BENEFITS TO THE OWNERS OF DEPRECIABLE ASSETS. HOWEVER, THAT RESTRICTION IS LI MITED TO THE COMPUTATION OF CAPITAL GAINS AND NOT TO THE EXEMPTION PROVISIONS. IN OTHER WORDS, WH ERE THE LONG-TERM CAPITAL ASSET HAS AVAILED DEPRECIATION, THEN THE CAPITAL GAIN HAS TO BE COMPU TED IN THE MANNER PRESCRIBED UNDER S. 50 AND THE CAPITAL GAINS TAX WILL BE CHARGED AS IF SUCH CA PITAL GAIN HAS ARISEN OUT OF A SHORT-TERM CAPITAL ASSET BUT IF SUCH CAPITAL GAIN IS INVESTED IN THE M ANNER PRESCRIBED IN S. 54E, THEN THE CAPITAL GAIN SHALL NOT BE CHARGED UNDER S. 45 OF THE IT ACT. TO PUT IT SIMPLY, THE BENEFIT OF S. 54E WILL BE AVAILABLE TO THE ASSESSEE IRRESPECTIVE OF THE FACT THAT THE COMPUTATION OF CAPITAL GAINS IS DONE EITHER UNDER SS. 48 AND 49 OR UNDER S. 50. THE CONT ENTION OF THE REVENUE THAT BY AMENDMENT TO S. 50, THE LONG-TERM CAPITAL ASSET HAS BEEN CONVERTED INTO A SHORT-TERM CAPITAL ASSET IS ALSO WITHOUT ANY MERIT. AS STATED HEREINABOVE, THE LEGAL FICTION CREATED BY THE STATUTE IS TO DEEM THE CAPITAL GAIN AS SHORT-TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHORT-TERM CAPITAL ASSET. THEREFORE, IT CANNOT BE SAID THAT S. 50 CONVERTS LONG-TERM CAP ITAL ASSET INTO A SHORT-TERM CAPITAL ASSET. 27. FOR ALL THE AFORESAID REASONS, WE CONCUR WITH THE D ECISION OF THE GAUHATI HIGH COURT IN THE CASE OF CIT VS. ASSAM PETROLEUM INDUSTRIES (SUPRA) AND HOLD THAT THE TRIBUNAL WAS JUSTIFIED IN ALLOWING THE BENEFIT OF EXEMPTION UNDER S. 54E OF T HE IT ACT TO THE ASSESSEE IN RESPECT OF THE CAPITAL GAINS ARISING ON THE TRANSFER OF A CAPITAL ASSET ON WHICH DEPRECIATION HAS BEEN ALLOWED. SECONDLY,FROM THE ORDER OF THE FAA,IT IS CLEAR THAT WHILE PASSING THE ORDER U/S. 143(3) OF THE ACT IN NOVEMBER, 2008,AO HAD DELIBERATED UPON THE ISSUE OF CLAIM MADE BY THE ASSESSEE UNDER SECTION 50EC OF THE ACT.HE DECIDED THE ISSUE IN FAV OUR OF THE ASSESSEE AND ALLOWED THE CLAIM 4 ITA NO. 6715/MUM/2012 RATNAKAR Y SOHONI MADE BY THE ASSESSEE.WE FIND THAT THE AO HAS NOT BR OUGHT ANY FRESH MATERIAL OR FACTS ON RECORD TO RE-OPEN THE ASSESSMENT U/S.147 OF THE ACT.THEREF ORE, FAA HAD HELD THAT REASSESSMENT PROCEEDINGS WERE VOID AB INITIO . WE ARE OF THE OPINION THAT THE ORDER OF THE FAA D OES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY. 7. RESPECTFULLY, FOLLOWING THE ORDER OF THE HONBLE B OMBAY HIGH COURT PRONOUNCED IN THE CASE OF ACE BUILDERS (SUPRA), WE DECIDE THE EFFECTIVE GR OUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED. 1 2 #1, 3 4 5, ) , 67. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JANUARY, 2014. !0 ) -.$ ! 9 8 # , 2014 . ) /. SD/- SD/- ( . . . B.R.MITTAL ) ( !' !' !' !' / RAJENDRA ) / JUDICIAL MEMBER ! ! ! ! /ACCOUNTANT MEMBER / MUMBAI, ;# /DATE: 08.01.2014 SK !0 !0 !0 !0 ) )) ) ',< ',< ',< ',< =!<$, =!<$, =!<$, =!<$, / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / %& 2. RESPONDENT / '(%& 3. THE CONCERNED CIT(A)/ > ? , 4. THE CONCERNED CIT / > ? 5. DR D BENCH, ITAT, MUMBAI / <@/ ',# , . . . 6. GUARD FILE/ / A . (<, ', //TRUE COPY// !0# / BY ORDER, B / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI.