M/S. VELVET HOLDINGS PVT.LTD., MUMBAI V. DCIT, CC 31,

ITA 6810/MUM/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79217 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 17-07-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 26-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P DE NIAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Depreciation; Cost of acquisition
• Section: 50C; 115JB; 148

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - F BENCH. . , !'# !'# !'# !'# !$%&' !$%&' !$%&' !$%&' , %! %! %! %! () () () () BEFORE S/SH.D.MANMOHAN, VICE-PRESIDENT & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.6810/MUM/2008, ! ! ! ! * * * * / ASSESSMENT YEAR-2004-05 M/S. VELVET HOLDINGS PVT. LT D. 32, MADHULI, DR. ANNIE BESANT ROAD, WORLI, MUMBAI-400 018 V/S. ACIT CENTRAL CIRCLE 31, MUMBAI-400 020 PAN: AAACF2166P ( !+, / APPELLANT) ( -.+, / RESPONDENT) !/0 1 % / ASSESSEE BY : SHRI VIJAY MEHTA !$) 2 1 % / REVENUE BY : SHRI DR. P. DE NIAL ! ! ! ! 2 22 2 0! 0! 0! 0! / DATE OF HEARING : 26-06-2014 3* ! 2 0! / DATE OF PRONOUNCEMENT : 26-06-2014 , 1961 2 22 2 !! !! !! !! 254 )1( % %% % &040 &040 &040 &040 (%5 (%5 (%5 (%5 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM %! %! %! %! () () () () !$%&' !$%&' !$%&' !$%&' % %% % ! ! ! ! : IN THE RECALLED MATTER BEFORE US,WE HAVE TO ADJUDIC ATE ONLY ONE ISSUE.WHILE PASSING ORDER DATED 23.08.2013(ITA/6810/MUM/2008-AY.2004-05),TRIBUNAL H AD NOT DECIDED THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE.THE ASSESSEE-COMPANY HAD RAISED THE ISSUE OF APPLICABILITY OF THE TAX RATE WITH REGARD TO THE SALE OF A CAPITAL ASSET THAT WAS HELD AS A BUSINESS ASSET AND DEPRECIATION WAS CLAIMED ON IT.ADDITIONAL GROUND RAISED BY THE A SSESSEE,READ AS UNDER : THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) H AS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THAT THE TAX ON CAPITAL GAIN OUGHT TO HAVE BEEN CHARGED AT 20% AND NOT AT THE NORMAL TAX RATE. AS THE ABOVE ADDITIONAL GROUND REMAINED UNDECIDED,S O,ALLOWING THE MISCELLANEOUS APPLICATION FILED BY THEASSESSEE,MATTER WAS RECALLED FOR THAT L IMITED PURPOSE. 2. ASSESSEE-COMPANY IS A NOTIFIED PERSON UNDER THE SPE CIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) ACT,1992 AND PART OF HA RSHAD MEHTA GROUP.ALL ITS ASSETS AND BANK ACCOUNTS WERE ATTACHED AND VESTED IN THE HANDS OF T HE CUSTODIAN APPOINTED UNDER THE SAID ACT. ASSESSEE FILED ITS RETURN ON 22.01.2007 DECLARING T OTAL INCOME OF RS.17.03 LAKHS U/S. 115JB OF THE ACT.IN THE MEANWHILE,THE ASSESSING OFFICER (AO),AFT ER RECORDING REASONS,ISSUED A NOTICE U/S. 148 OF THE ACT AND DIRECTED THE ASSESSEE TO FILE RETURN .DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE CUSTODIAN HAD SOLD ASSESSEES PROPERTY AT GOPAL MANSION FOR RS. 6.61 CRORES,THAT THE ASSESSEE HAD ACCOUNTED FOR RS. 6.41 CRORES IN THE COMPUTATION OF INCOME WITH REGARD TO THE ABOVEMENTIONED PROPERTY, THAT ASSESSE E HAD NOT SHOWED THE ADVANCED RECEIPT OF RS. 20 LAKHS IN THE COMPUTATION OF INCOME, THAT ASSESSE E HAD WORKED OUT THE INDEXATION ON THE PURCHASE COST INCLUDING STAMP DUTY AND REGISTRATION CHARGES OF RS.5.34 CRORES,THAT SALE-DEED WAS EXECUTED IN THE AY 1994-95, THAT FOR THE FIRST TIME IN 1993-94 PREMISES WAS SHOWN FOR AS COMPANYS FIXED ASSET,THAT IT HAD CLAIMED DEPRECIAT ION FROM THE AY.S. 1994-95 TO AY.1999- 2000,THAT IT WAS ALLOWED DEPRECIATION IN THE YEAR 1 994-95 AND 1999-2000.CONSIDERING THE ABOVE FACTS,AO HELD THAT AS THE ASSESSEE HAD CLAIMED DEPR ECATION ON THE PROPERTY CAPITAL GAINS ARISING 2 ITA NO. 6810/MUM/2008 M/S. VELVET HOLDINGS PVT. LTD . FROM IT HAD TO BE ASSESSED AS STCG,THAT THE ASSESSE E WAS NOT ENTITLED TO INDEXATION. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA),BUT THE ISSUE OF RATE APPLICABLE FO R CAPITALS GAINS WAS NOT RAISED BEFORE HIM.AS STATED EARLIER,AN ADDITIONAL GROUND WAS RAISED BY T HE ASSESSEE BEFORE THE TRIBUNAL ABOUT APPLICABLE TAX RATE.AT THE TIME OF HEARING BEFORE US, AUTHORIS ED REPRESENTATIVE(AR)ARGUED THAT IF FOR THE PURPOSE OF SECTION 48 OR 49 AN ASSET IS ASSESSED IN A PARTICULAR MANNER EVEN THEN FOR THE PURPOSE OF CALCULATING TAX IT HAS TO BE TREATED AS LONG TERM C APITAL ASSETS,THAT AO SHOULD TAXED THE @ 20% INSTEAD OF NORMAL TAX RATE FOR THE TRANSACTION IN Q UESTION.HE RELIED UPON MATTERS OF SMITA CONDUCTORS LTD.(ITA NO. 4004/MUM/2011-AY 2006-07-DA TED 17.09.2013) AND PRABODH INVEST - MENT & TRADING COMPANY (ITA/6557/MUM/2008) DECIDED BY THE MUMBAI TRIBUNAL.HE ALSO REFERRED TO THE CASE OF A.A.BUILDERS LTD.(281 ITR 4 10).DEPARTMENTAL REPRESENTATIVE (DR) STATED THAT PROVISIONS RELATED WITH EXEMPTIONS COULD NOT B E ENLARGED TO SECTIONS DEALING WITH CALCULATION OF TAXES. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ISSUE IS ONLY ABOUT RATE TO BE APPLIED FOR THE TRANSACTIO N IN QUESTION. WE ARE OF THE OPINION THAT WHENEVER DEPRECIATION IS CLAIMED ON AND ASSESSED IT HAS TO BE TREATED AS STCG AS PER THE PROVISIONS OF THE ACT. BUT WHILE CALCULATING THE TA X LIABILITY OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 112 OF THE ACT THE ASSET HAS TO BE TAKEN AS LONG TERM ASSET, IF SAME IS HOLD FOR MORE THAN THREE YEARS BY THE ASSESSEE IN THE CASE OF SMITA CO NDUCTORS LTD. (SUPRA) SIMILAR ISSUE HAD ARISEN BEFORE THE TRIBUNAL AND IT HAD DISCUSSED THE FACTS AND ISSUE AS UNDER: 2.WE FIRST TAKE UP THE DISPUTE RELATING TO COMPUTA TION OF CAPITAL GAIN U/S 50 R.W,S 50C OF THE INCOME TAX ACT AND THE APPLICATION OF TAX RATE AS R AISED IN THE ADDITIONAL GROUND. THE ASSESSEE DURING THE RELEVANT YEAR HAD SOLD A FLAT AT KHAR FO R RS.35,00,000/-.SINCE THE FLAT WAS A BUSINESS ASSET AND HAD BEEN SHOWN AS PART OF THE BLOCK OF AS SETS, THE ASSESSEE COMPUTED THE CAPITAL GAIN U/S 50 OF THE IT ACT AT RS. 12,52,111/- AFTER DEDUCTING THE WDV OF BLOCK OF ASSETS OF RS. 22,47,889/- FROM THE SALE PRICE. X X X 2.1 THE ASSESSEE DISPUTED THE DECISION OF AO AND SU BMITTED BEFORE CIT(A) THAT PROVISIONS OF SECTION 50C WERE NOT APPLICABLE IN CASE OF DEPRECIA BLE ASSETS. CIT(A) HOWEVER REJECTED THE ARGUMENTS ADVANCED AND CONFIRMED THE ORDER OF AO TR EATING THE STAMP DUTY VALUE AS THE SALE VALUE U/S 5CC OF THE IT ACT. AGGRIEVED BY THE DECISION OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL IN WHICH THE ADDITIONAL GROUND AS MENTIONE D EARLIER HAS ALSO BEEN RAISED REGARDING RATE OF TAX TO BE APPLIED IN CASE OF CAPITAL GAIN COMPUT ED U/S. 50 OF THE IT ACT. X X X 2.5 THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROU ND THAT FOR THE PURPOSE OF APPLICATION OF TAX RATE,THE CAPITAL GAIN IN CASE OF THE ASSESSEE HAS T O BE ASSESSED AS LONG TERM CAPITAL GAIN AS THE FLAT HAD BEEN HELD BY THE ASSESSEE FOR MORE THAN THREE Y EARS.IT HAS BEEN ARGUED THAT PROVISIONS OF SECTION 50 DEEMING THE CAPITAL GAIN AS SHORT TERM C APITAL GAIN IS ONLY FOR THE PURPOSES OF SECTION 48 AND 49 WHICH RELATE TO COMPUTATION OF CAPITAL GA IN.THE DEEMING PROVISIONS HAS, THEREFORE, TO BE RESTRICTED ONLY TO COMPUTATION OF CAPITAL GAIN AND FOR THE PURPOSE OF OTHER PROVISIONS OF THE ACT, THE CAPITAL GAIN HAS TO BE TREATED AS LONG TERM CAP ITAL GAIN. THE VIEW CANVASSED BY THE LEARNED AR IS SUPPORTED BY THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF ACE BUILDERS P. LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT FOR THE PURP OSE OF OTHER PROVISIONS OF THE ACT SUCH AS SECTION 54EC THE CAPITAL GAIN HAS TO BE TREATED AS LONG TER M CAPITAL GAIN, IF THE ASSET IS HELD FOR MORE THAN THREE YEARS. THE SAME VIEW HAS BEEN TAKEN BY THE MU MBAI BENCH OF TRIBUNAL IN CASE OF MANALI INVESTMENTS VS. ASSISTANT COMMISSIONER OF INCOME TA X(139 TTJ 411) IN WHICH IT HAS BEEN HELD THAT THE PRESCRIPTIONS OF SECTION 50 ARE TO BE EXTE NDED ONLY TO THE STAGE OF COMPUTATION OF CAPITAL GAIN AND, THEREFORE, CAPITAL GAIN RESULTING FROM TR ANSFER OF DEPRECIABLE ASSET WHICH WAS HELD FOR MORE THAN THREE YEARS WOULD RETAIN THE CHARACTER OF LONG TERM CAPITAL GAIN FOR THE PURPOSE OF ALL OTHER PROVISIONS OF THE ACT. IN THIS CASE THE LD. A R FOR THE ASSESSEE SUBMITTED THAT FLAT HAD BEEN 3 ITA NO. 6810/MUM/2008 M/S. VELVET HOLDINGS PVT. LTD . HELD FOR 15 TO 20 YEARS WHICH IS SUPPORTED BY THE F ACT THAT COST OF THE FLAT AS SHOWN IN THE BALANCE SHEET WAS ONLY RS. 1,30,000/-. THEREFORE, IF THE FL AT IS HELD FOR MORE THAN THREE YEARS THE TAX RATE HAS TO BE APPLIED AS PROVIDED IN SECTION 112 OF THE IT ACT APPLICABLE IN RESPECT OF CAPITAL GAIN ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSET. 2.6. WE, THEREFORE, HELD THAT,FOR THE PURPOSE OF CO MPUTATION OF CAPITAL GAIN, THE FLAT HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN U/S 50 OF THE IT ACT, BUT FOR THE PURPOSE OF APPLICABILITY OF TAX RATE IT HAS TO BE TREATED AS LONG TERM CAPITAL GAIN IF HELD FOR MORE THAN THREE YEARS.WE ACCORDINGLY DIRECT THE AO TO COMPUTE THE CAPITAL GAIN FROM THE SALE OF FLAT AND APPLY THE APPROPRIATE TAX RATE AFTER NECESSARY VERIFICATION IN THE LIGHT OF OBSERV ATIONS MADE IN THIS ORDER. RESPECTFULLY,FOLLOWING THE ABOVE ORDER OF THE COORD INATING BENCH,WE DECIDE THE EFFECTIVE GROUND OF APPEAL RAISED BY THE ASSESSEE-COMPANY, IN ITS FA VOUR. AS A RESULT, APPEAL F ILED BY THE ASSESSEE STANDS ALLOWED. 06 !/0 8!! (!9 2 4 ):0 2 $!0 ; . ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH ,JUNE, 2014 . (%5 2 3* ! % &!! < =(! 26 $> , 201 4 2 4 ? SD/- SD/- ( . / D.MANMOHAN) ( !$%&' !$%&' !$%&' !$%&' / RAJENDRA) !'# / VICE PRESIDENT %! %! %! %! () () () () /ACCOUNTANT MEMBER / MUMBAI, =(! /DATE:26.06.2014. SK (%5 (%5 (%5 (%5 2 22 2 -0@ -0@ -0@ -0@ A%@*0 A%@*0 A%@*0 A%@*0 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / !+, 2. RESPONDENT / -.+, 3. THE CONCERNED CIT(A)/ B C , 4. THE CONCERNED CIT / B C 5. DR F BENCH, ITAT, MUMBAI / @D!4 -0 , . . &!! . 6. GUARD FILE/ 4! ! .!@0 .!@0 .!@0 .!@0 -0 -0-0 -0 //TRUE COPY// (%5!! / BY ORDER, / ! $! DY./ASST. REGISTRAR , /ITAT, MUMBAI