The ACIT, Circle-4, Ahmedabad V. Gujarat Aceytylene Pvt.Ltd., Ahmedabad

ITA 708/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60420 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 26-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESHCHANDRA SHARMA
• Keywords: Capital asset; Depreciation; Valuation report

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE SHRI D.K.TYAGI , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 708/AHD/2012 ASSESSMENT YEAR :2005-06 THE ACIT, CIR-4, AHMEDABAD. NAVJIVAN TRUST BLDG. OFF. ASHRAM ROAD, AHMEDABAD 380014. V/S . GUJARAT ACEYTYLENE PVT. LTD., 5001/A, GIDC PHASE- IV, VATAVA, AHMEDABAD- 382445 PAN NO. AA ACG 7544C (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI DINESH CHANDRA SHARMA, SR.D.R. /BY RESPONDENT SHRI TEJ SHAH, A.R. /DATE OF HEARING 17.05.2012 /DATE OF PRONOUNCEMENT 25.05.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT (A)- VIII, AHMEDABAD, ORDER DATED 30.01.2012 FOR ASSESS MENT YEAR 2005-06 AND THE MAIN GROUND OF APPEAL IS AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO TREAT GAIN OF RS. 21,65,616/- ON SALE OF LAND, A S LONG TERM CAPITAL GAIN WITHOUT APPRECIATING THE FACT THAT THE PERMANENT ST RUCTURE HAD BEEN BUILT ITA NO. 708/AHD/2012 A.Y.2005-06 PAGE 2 ON A LAND AND PLANT AND MACHINERY HAD BEEN ERECTED THEREON, THE PLOT AND THE STRUCTURE BUILT THEREON BECOME INSEPARABLE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS SHOWN CAPITAL GAIN OF RS. 5,79,174/- ON ACCOUNT OF SALE OF LAND FOR SA LE CONSIDERATION OF RS. 25,25,000/-. THE VALUATION CERTIFICATE OF THE LAND REVEALS THAT LAND INCLUDES MAIN FACTORY BUILDING AND PLANT & MACHINERY. THE A .O. FOUND THAT THE DEPRECIATION WAS CLAIMED ON FACTORY BUILDING AND PL ANT & MACHINERY IN THE PREVIOUS YEARS SINCE THE FACTORY BUILDING AND PLANT CANNOT BE SEPARATED FORM THE LAND AND THE DEPRECIATION WAS ALREADY CLAIMED I N EARLIER YEARS. THE GAIN FROM SALE OF LAND RESULTED IN SHORT TERM CAPITAL GA IN TO THE ASSESSEE AS AGAINST ALONG LONG TERM CAPITAL DECLARED BY THE ASS ESSEE. THE A.O. HELD THAT ONCE PERMANENT STRUCTURE HAVE BEEN BUILD ON A PLOT OF LAND AND PLANT AND MACHINERIES HAVE BEEN ERECTED THEREON, THE PLOT AND THE STRUCTURES BUILT THEREON BECOME INSEPARABLE. EVEN THOUGH, THE ASSES SEE HAD FURNISHED SEPARATE VALUATION REPORTS IN THE ORIGINAL ASSESSME NT PROCEEDING FOR LAND AND BUILDING, THE SAME HAD BEEN SOLD IN TOTALITY. ACCO RDINGLY, IT WAS HELD THAT THE DIVISION OF SALE CONSIDERATION HAD BEEN MADE ONLY A S A TOOL OF TAX PLANNING. ACCORDINGLY, IT WAS HELD THAT THE GAIN FROM SALE OF LAND AND BUILDING RESULTED IN SHORT TERM CAPITAL GAIN TO THE ASSESSEE AS AGAINST LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE BECAUSE THE ASSETS WERE SO LD IN TOTALITY. THUS, HE CONCLUDED SHORT TERM CAPITAL GAIN ON SALE OF LAND A ND BUILDING ETC. AT RS. 2165616/-. ITA NO. 708/AHD/2012 A.Y.2005-06 PAGE 3 3. BEING AGGRIEVED BY THE ORDER OF A.O., HE FILED A PPEAL BEFORE THE LD. CIT(A), WHO HAS DISCUSSED IN DETAIL FROM PAGE NO. 2 TO 11 AND ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE AND CONCLUDED AS U NDER:- THE APPELLANT HAS SUBMITTED THAT IN THE INSTANT CA SE THE APPELLANT HAS SHOWN THE AMOUNT OF FACTORY LAND, FACTORY BUILDING AND PLANT & MACHINERY SEPARATELY IN HIS BOOKS OF ACCOUNT AND CA LCULATED DEPRECIATION ON FACTORY BUILDING AND PLANT & MACHIN ERY ONLY. NO DEPRECIATION HAS BEEN CLAIMED ON FACTORY LAND BEING THE LAND AS A NON DEPRECIABLE ASSET WHICH IS EVIDENT FROM THE SCHEDUL E OF FIXED ASSETS IN BALANCE SHEET FILED WITH THE RETURN OF INCOME. IT MAY BE NOTED THAT NO DEPRECIATION IS ALLOWABLE IN RESPECT OF LAND AS HEL D BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. ALPS THEATRE 65 ITR 377. HENCE, SECTION 50 SHALL BE NOT APPLICABLE IN CASE OF COMPU TING CAPITAL GAIN ON SALE OF LAND. AFTER GOING THROUGH THE DETAILS OF T HE SUBMISSION AND CASE LAWS CITED BY THE APPELLANT AND THE FINDING OF THE AO, IT BECOMES EVIDENT THAT APPELLANT HAS NOT CLAIMED DEPRECIATION ON THE LAND. THEREFORE, LAND IS A CAPITAL ASSET FORMING PART OF A BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS NOT BEEN CLAIMED OR ALLOWED UNDER THE INDIAN INCOME TAX ACT 1961. IN VIEW OF THIS FA CT, SECTION 50 OF THE IT ACT SHALL BE NOT APPLICABLE IN CASE OF COMPUTING CAPITAL GAIN ON SALE OF LAND. THEREFORE, AO IS DIRECTED TO DELETE THE A DDITION MADE ON THIS POINT. THE GROUND OF THE APPELLANT IS ALLOWED. ITA NO. 708/AHD/2012 A.Y.2005-06 PAGE 4 4. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE IS BEFORE US AND THE LD. D.R. VEHEMENTLY ARGUED THAT THE A.O.S ORDER SHOULD BE UPHELD AS LAND ALONG WITH PLOT AND MACHINERY BUILDING WAS IN SEPARABLE ON WHICH DEPRECIATION HAS BEEN CLAIMED BY THE ASSESSEE. ANO THER SIDE, THE A.R. OF THE ASSESSEE RELIED UPON THE CASE OF CIT VS. M/S I.K. INTERNATIONAL PVT. LTD. IN ITA NO. 791/2011 OF DELHI HIGH COURT, WHERE THE SALE TRANSACTION OF LAND AND BUILDING WAS REFERRED IN THIS DECISION ON WHICH DEP RECIATION @ 10% WAS CLAIMED ON BUILDING. THE PROPERTY WAS SOLD ON 29.0 8.2005 COMPRISES OF LAND AND BUILDING, NAMELY, S-7 & 8, GREEN PARK, NEW DELH I FOR CONSIDERATION OF RS. 7,25,00,000/-. THIS PRICE INCLUDED RS. 1.5 CRORE FOR FIXTURES AND FURNITURE IN THE BUILDING AND SALE CONSIDERATION FOR THE LAND AN D BUILDING WAS RS. 5,75,00,000/- OUT OF THIS CONSOLIDATED SALE PRICE O F RS. 5,75,00,000/-, RS. 4,72,00,000/- WAS FOR THE LAND AND RS. 1,03,00,000 /- FOR BUILDING. THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN ON LAND, THE A.O. DID NOT ALLOW THE BENEFIT OF SECTION 54EC, WHICH WAS ALLOWED ONLY FOR IN CASE OF LONG TERM CAPITAL GAIN, WHERE CAPITAL ASSETS HELD BY THE A.O. AS SHORT TERM CAPITAL GAIN. FINALLY, HONBLE DELHI HIGH COURT HELD AS UN DER:- WE FELT THE NEED TO REFER TO THE LEGAL POSITION BE CAUSE OF THE ARGUMENTS ADDRESSED BEFORE US ON BEHALF OF THE REVENUE THAT T HE COST ATTRIBUTED TO THE BUILDING WHEN IT WAS PURCHASED WAS ONLY RS. 68, 00,000/- DIVIDED AS RS. 49,32,000/- FOR S-7, GREEN PARK, NEW DELHI AND RS. 18,68,000/- FOR S-8, GREEN PARK, NEW DELHI, WHEREAS THE ASSESSEE HA D INCURRED EXPENDITURE ON ADDITIONS TO THE BUILDING IN THE AMO UNT OF RS. 1,58,16,423/- UP TO 31.03.2003 AND RECKONED FROM TH IS DATE, THE ASSESSEE DID NOT HOLD THE PROPERTY FOR MORE THAN 3 YEARS AND, THEREFORE, ITA NO. 708/AHD/2012 A.Y.2005-06 PAGE 5 THE SALE OF LAND CANNOT BE CONSIDERED AS A SALE OF A LONG TERM CAPITAL ASSET. FROM THIS IT WAS SOUGHT TO BE ARGUED, AS WA S OBSERVED IN PARA 3.3 OF THE ASSESSMENT ORDER, THAT THE LAND IS NOT A LONG TERM CAPITAL ASSET BECAUSE THE ASSESSEE NEVER REALLY PURCHASED T HE LAND BUT IT ACTUALLY PURCHASED THE READY BUILT BUILDING. THE AS SESSING OFFICER AS WELL AS THE LEARNED SR. STANDING COUNSEL PERHAPS IN TEND TO CONVEY THAT WHAT ATTRACTED THE ASSESSEE TO THE PROPERTY WAS THE FACT THAT THERE WAS A BUILDING ON THE LAND AND NOT THE LAND ITSELF, SIN CE A SUBSTANTIAL AMOUNT OF RS. 1,54,16,423/- WAS INVESTED IN PUTTING UP ADD ITIONS TO THE BUILDING TO WHICH THE ASSESSEE HAD ONLY ASCRIBED A COST OF R S. 68,00,000/- WHEN IT PURCHASED THE PROPERTY. APART FROM THE FACT THAT THIS LINE OF REASONING APPEARS TO US, WITH RESPECT, TO BE SOMEWHAT CONVOLU TED, IT ALSO DOES NOT APPEAR TO TAKE NOTE OF CONSIDERATIONS THAT DRIV E PEOPLE TO PURCHASE LANDED PROPERTY. WHAT ATTRACTS THEM, AS IS COMMON K NOWLEDGE, IS THE LAND WHICH APPRECIATES PHENOMENALLY, DEPENDING UPON THE LOCATION AND NOT THE BUILDING WHICH IS ON THE LAND. THE FACT THA T THE ASSESSEE INCURRED SUBSTANTIAL EXPENDITURE ON ADDITIONS TO TH E BUILDING COULD WELL HAVE BEEN BECAUSE OF THE COMPULSIONS OF ITS BUSINES S AND NOT BECAUSE IT CONSIDERED THE LAND TO BE OF CONSIDERABLY LOW WO RTH COMPARED TO THE WORTH OF THE BUILDING. WE ARE UNABLE TO APPRECIATE OR ACCEPT THE LINE OF ARGUMENT ADOPTED BY THE ASSESSING OFFICER AS WELL A S THE LEARNED SR. STANDING COUNSEL. IN VIEW OF THE ABOVE DISCUSSION, WE ANSWER BOTH THE SUBSTANTIAL QUESTIONS OF LAW IN THE AFFIRMATIVE AND IN FAVOUR O F THE ASSESSEE. THE APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSE D WITH NO ORDER AS TO COSTS. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS OF BOTH THE SIDES AND GONE THROUGH THE CASE LAW REFERRED BY THE A.R. OF THE AS SESSEE. IT IS FOUND THAT SECTION 50 DOES NOT APPLY IN CASE OF LAND AS NO DEP RECIATION IS ALLOWABLE ON THE LAND WHEN SPECIFIC CONSIDERATION FOR LAND HAS BEEN PROVIDED IN AGREEMENT ITA NO. 708/AHD/2012 A.Y.2005-06 PAGE 6 FOR SALE. THE APPELLANT HAS NOT CLAIMED ANY DEPREC IATION ON LAND. THEREFORE, WE CONFIRM THE ORDER OF THE LD. CIT (A). 6. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- ( D.K.TYAGI) (T.R. MEENA) JUDICIAL MEMBER ACCOU NTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ; STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 21.05.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 22.05.2012 4) DATE OF CORRECTION 23.05.2012 5) DATE OF FURTHER CORRECTION 6) DATE OF INITIAL SIGN BY MEMBERS 25.05.2012 7) ORDER UPLOADED ON 25.05.2012 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 25.05.2012 ITA NO. 708/AHD/2012 A.Y.2005-06 PAGE 7