Rumans Industrial Chemical Corporation, V. The Income Tax Officer, Ward-4, Anand

ITA 973/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9108 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 07-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T P HEMANI
• Keywords: Sale consideration of property below Jantri Value; Depreciation; Unabsorbed depreciation
• Section: 143(3); 50C; 32; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA NOS.973 & 974/AHD/2014 (ASSESSMENT YEAR:2008-09) RUMAN INDUSTRIAL CHEMICAL CORPORATION, 4/119, KRUSHNAKUNJ BUNGLOW, NEXT TO AMRAKUNJ SOCIETY, OPP. KALHAR SOCIETY, KARAMSAD VIDYANAGAR ROAD, KARAMSAD APPELLANT VS. THE INCOME TAX OFFICER, WARD 4, AAYAKAR BHAVAN, ANAND RESPONDENT PAN: AACFR2154G /BY ASSESSEE : SHRI T. P. HEMANI, A.R. /BY REVENUE : SHRI PRASOON KABRA, SR. D.R. /DATE OF HEARING : 07.02.2017 /DATE OF PRONOUNCEMENT : 13.02.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THESE TWO ASSESSEES APPEALS FOR ASSESSMENT YEAR 20 08-09 ARISE AGAINST CIT(A)-I, BARODAS ORDERS; BOTH DATED 03.02.2014, I N CASES NOS. CAB/I- 168/13-14 & CAB/I-169/13-14 RESPECTIVELY, IN PROCEE DINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN S HORT THE ACT AND U/S.271(1)(C) OF THE ACT. ITA NOS. 973 & 974/AHD/4 (RUMANS INDUSTRIAL CHEMICA L CORP. VS. ITO) A.Y. 2008-09 - 2 - 2. WE FIRST COME TO ASSESSEES PLEADINGS. ITS FORM ER APPEAL RAISES TWO SUBSTANTIVE GROUNDS INTER ALIA CHALLENGING VALIDITY OF REOPENING AND ACTION OF BOTH THE LOWER AUTHORITIES IN TREATING ITS LONG TER M CAPITAL GAINS ARISES FROM SALE OF BUILDING AS SHORT TERM CAPITAL GAINS BY INV OKING SECTION 50 OF THE ACT. THIS FOLLOWS ASSESSEES ALTERNATIVE PLEA RAISING CL AIM OF INDEXATION BENEFIT ON THE ABOVESTATED FACTORY BUILDING SOLD. THE ASSESSE ES LATTER APPEAL SEEKS TO DELETE SECTION 271(1)(C) PENALTY OF RS.5,52,290/- I MPOSED BY BOTH THE LOWER AUTHORITIES IN VIEW OF THE ABOVE QUANTUM ADDITION. LEARNED COUNSEL REPRESENTING ASSESSEE STATES VERY FAIRLY THAT HE DOES NOT WISH TO PRESS FOR ITS LEGAL PLEA CHALLENGING VA LIDITY OF THE OPENING. WE THUS PROCEED TO DEAL WITH MERITS OF THE CASE. 3. THE ASSESSEE COMPANY IS STATED TO BE A CHEMICAL MANUFACTURER. IT HAD SOLD ITS FACTORY BUILDING AT NANDESARI IN THE RELEV ANT PREVIOUS YEAR SO AS TO DECLARE LONG TERM CAPITAL LOSS OF RS.3,24,114/-. I T ADJUSTED THE SAME AGAINST LONG TERM CAPITAL GAINS OF RS.32.29 LACS ARISING FR OM SALE OF PLOT OF LAND AT THE SAID PLACE. THE ASSESSING OFFICER FORMED REASO N TO BELIEVE THAT ASSESSEES TAXABLE INCOME LIABLE TO BE ASSESSED HAD ESCAPED ASSESSMENT SINCE ITS ABOVE STATED FACTORY BUILDING SOLD WAS A DEPREC IABLE ASSET GIVING RISE TO APPLICATION OF SECTION 50 OF THE ACT PRESCRIBING SP ECIAL TREATMENT FOR COMPUTATION OF CAPITAL GAINS IN SUCH CASES. THE AS SESSEE APPEARS TO HAVE STRONGLY CONTESTED THE SAID REASON BY PLEADING THAT IT HAD NOT CARRIED OUT ANY BUSINESS ACTIVITY SINCE ASSESSMENT YEAR 2000-01. I TS BUILDING SOLD WAS ALSO NOT INCLUDED IN THE BLOCK OF ASSETS FOR CLAIMING DE PRECIATION EVEN BEFORE SETTING DOWN ITS ABOVE STATED BUSINESS. THE ASSESS EE THUS EXPLAINED THAT SECTION 50 OF THE ACT WOULD NOT APPLY IN GIVEN FACT S OF THE CASE. IT FURTHER HIGHLIGHTED THAT IT HAD CLOSED THE FACTORY PREMISES IN QUESTION SINCE 1996-97 AND ALSO THAT IT HAD NEVER CLAIMED ANY DEPRECIATION QUA THE SAME. THE ASSESSING OFFICER FRAMED THE IMPUGNED RE-ASSESSMENT ON 18.11.2011. HE ITA NOS. 973 & 974/AHD/4 (RUMANS INDUSTRIAL CHEMICA L CORP. VS. ITO) A.Y. 2008-09 - 3 - TOOK NOTE OF A PARTNERSHIP RETIREMENT DEED DATED 12 .04.2004 AS WELL AS THE FACT THAT THE ASSESSEES BUSINESS IN THE NAME OF M/ S. RIC CORPORATION WAS VERY MUCH IN EXISTENCE FROM 01.04.1993 WITH FOUR PA RTNERS UP TO THE ABOVESTATED RETIREMENT DEED. HE THEN OBSERVED THAT ASSESSEES RETURNS HAD BEEN FILED FROM 1997-98. WE NOTICE FROM PAGE 3 OF THE ASSESSING OFFICERS ORDER THAT ASSESSEES FACTORY BUILDING IN QUESTION WAS IN FACT USE FOR THE PURPOSE OF ITS BUSINESS AND ALSO INCLUDED IN THE AS SETS RELEVANT FOR THE PURPOSE OF CLAIMING DEPRECIATION. HE FURTHER DECLI NED TO ACCEPT ASSESSEES PLEA THAT ITS UNABSORBED DEPRECIATION BROUGHT FORWA RD FROM ALL PRECEDING ASSESSMENT YEARS PERTAINED TO PLANT AND MACHINERY, ELECTRIC FITTING ALONG WITH FURNITURE AND FIXTURES. THE ASSESSING OFFICER ACCO RDINGLY TREATED ASSESSEES ABOVE STATED LONG TERM CAPITAL GAIN AS SHORT TERM C APITAL GAINS U/S.50 OF THE ACT. 4. THE CIT(A) CONFIRMS ASSESSING OFFICERS ACTION A S FOLLOWS: 5.1 THE GROUND OF APPEAL NO. 2.01 OF THE APPELLANT IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LAW, THE LD. AO HAS ER RED IN TREATING CAPITAL GAIN ARISING FROM SALE OF FACTORY BUILDING AS SHORT TERM CAPITAL GAIN AS AGAINST LONG TERM CAPITAL GAIN AS THE SAID ASSET IS NOT SUBJECT TO DEPRECIATION AS BUSINESS ACTIVITIES ARE CLOSED SINCE MANY YEARS. THE GROUND OF APPEAL NO. 2.02 OF THE APPELLANT IS THAT THE AO BE DIRECTED TO TREAT CAPIT AL GAIN AS LONG TERM CAPITAL GAIN. WITH REGARD TO THESE GROUNDS OF APPEAL, THE SUBMISS ION OF THE APPELLANT AS FILED VIDE LETTER DATED 27/01/2014 AS REPRODUCED IN PRECE DING PARAGRAPHS OF THIS APPELLATE ORDER IS NOT FOUND TO BE ACCEPTABLE. IN T HE CASE OF APPELLANT, THE RETURNS OF INCOME HAVE BEEN FILED FOR A.YRS FROM 1997-98 TO AY 2008-09. THE AO IN THE ASSESSMENT ORDER U/S 143(3) R.W.S. 147 HAS MENTIONE D THAT THE FACTORY BUILDING (I.E. THE FACTORY BUILDING ON WHICH LONG TERM CAPITAL GAI N HAS BEEN CLAIMED BY THE APPELLANT) WAS USED FOR THE PURPOSE OF BUSINESS OF THE APPELLANT AND THE DEPRECIATION WAS CLAIMED AS APPLICABLE TO THE BUSIN ESS TILL 1999-2000. AS PER THE AO THEREAFTER NO DEPRECIATION WAS CLAIMED, BUT THE ASSET SHOWN IN THE BALANCE SHEET WAS AS IT IS, I.E. AT RS. 4,62,822/-. THE AO DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS ASKED THE APPELLANT TO PRODUCE NECESSAR Y DETAILS IN SUPPORT OF ITS CLAIM THAT THE FACTORY BUILDING WAS NOT CONSIDERED AS DEPRECIABLE ASSET WHEREAS IT HAS CLAIMED PLANT AND MACHINERY AND FIXTURES AS DEP RECIABLE ASSETS. THE APPELLANT REPLIED TO THE AO THAT ALL IN THE PAST YEARS DEPREC IATION HAS BEEN CLAIMED ONLY ON PLANT AND MACHINERY, ELECTRIC FITTINGS AND FURNITUR E AND FIXTURES. AS PER THE APPELLANT NO DEPRECIATION WAS CLAIMED ON FACTORY BU ILDING. HOWEVER, THE APPELLANT COULD NOT PRODUCE ANY DOCUMENTARY EVIDENCES AND DET AILS IN SUPPORT OF ITS CLAIM. ITA NOS. 973 & 974/AHD/4 (RUMANS INDUSTRIAL CHEMICA L CORP. VS. ITO) A.Y. 2008-09 - 4 - THE REPLY OF THE APPELLANT WAS THAT SINCE THE MATTE R WAS OLD AND THEREFORE IT WAS NOT ABLE TO PRODUCE THE INCOME TAX RETURN AND EVIDE NCES ETC. BUT THE FACT TO BE CONSIDERED IS THAT THE MANUFACTURING WAS CARRIED OU T BY THE APPELLANT IN THE FACTORY PREMISE AND IT HAS CLAIMED DEPRECIATION ON PLANT AND MACHINERY AND FURNITURE ETC. IN MY OPINION IF THE FACTORY PREMISE WAS USED BY THE APPELLANT ALONG WITH PLANT AND MACHINERY, ELECTRICAL FITTINGS AND F URNITURE ETC. FOR MANUFACTURING ACTIVITIES, THEN IT CANNOT BE SAID THAT THE DEPRECI ATION WAS CLAIMED BY THE APPELLANT ON ONLY PLANT AND MACHINERY AND ELECTRICAL FITTINGS AND FURNITURE ETC. AND NOT ON FACTORY PREMISES. THE FACTORY PREMISE WAS USED FOR MANUFACTURING ACTIVITIES AS PLANTS AND MACHINERY ETC. WERE INSTALLED IN SUCH FA CTORY PREMISE AND THE FACTORY PREMISE CAN BE SAID TO BE PART OF BLOCK OF ASSETS E LIGIBLE FOR DEPRECIATION. THE APPELLANT HAS NOT BEEN ABLE TO FURNISH DETAILS AND EVIDENCES TO SHOW THAT THE DEPRECIATION WAS NOT CLAIMED ON SUCH FACTORY PREMIS E. NON FILING OF EVIDENCES AND DETAILS WOULD LEAD TO THE CONCLUSION THAT THE TREAT MENT OF THE ASSET I.E. FACTORY BUILDING BY THE APPELLANT AS LONG TERM CAPITAL GAIN WAS NOT LOGICALLY CORRECT. THE MAIN CONTENTION OF THE APPELLANT IS THAT IT HAD CLO SED DOWN FACTORY AND THERE WAS NO MANUFACTURING ACTIVITY SINCE LONG TIME AND IT ST OPPED CLAIMING DEPRECIATION ON IT AS IT IS NOT ALLOWABLE U/S 32 OF THE ACT. AS PER THE APPELLANT NOW THAT SINCE IT DID NOT CLAIM DEPRECIATION ON THE FACTORY PREMISE SINCE 1999-2000, IT SHOULD NOT BE CLASSIFIED AS DEPRECIABLE ASSET AND HENCE, PROVISIO NS OF SECTION 50 OF THE ACT SHOULD NOT BE IMPLIED. FROM THIS SUBMISSION OF THE APPELLANT, THE FACT WHICH IS COMING OUT IS THAT IT HAD CLAIMED DEPRECIATION ON T HE FACTORY PREMISE IN INITIAL YEARS AND SINCE 1999-2000 IT DID NOT CLAIM DEPRECIA TION ON SUCH FACTORY PREMISE. BUT THE FACT IS THAT ONCE THE DEPRECIATION ON FACTO RY PREMISE HAS BEEN CLAIMED BY THE APPELLANT IN THE VERY BEGINNING OF THE YEAR, TH EN THIS FACTORY PREMISE HAS TO BE TREATED AS DEPRECIABLE ASSET AND IF THE SAME IS SOL D IN ANY OF THE SUBSEQUENT YEARS, THE CAPITAL GAIN ARISING ON ACCOUNT OF THE SAME WILL HAVE TO BE TREA TED AS SHORT TERM CAPITAL GAIN AS PER PROVISIONS OF SECTION 50 O F THE IT ACT. THE APPELLANT ITSELF HAS ADMITTED THAT IT STOPPED CLAIMING DEPRECIATION ON FACTORY PREMISE SINCE 1999- 2000 AS ITS BUSINESS WAS CLOSED DOWN AND DEPRECIATI ON WAS NOT ALLOWABLE U/S 32 OF THE IT ACT. IN MY OPINION IF DEPRECIATION HAS BEEN CLAIMED ON THE FACTORY PREMISE FOR ANY OF THE YEAR, THE SAME HAS TO BE TREATED AS DEPRECIABLE BUSINESS ASSET. IN THIS REGARD SUPPORT IS DRAWN FROM THE DECISION OF H ON'BLE HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF CIT VS SANTOSH STRUCTURA L & ALLOYS LTD. 251 CTR 53 AND FROM THE DECISION OF HON'BLE HIGH COURT DELHI I N THE CASE OF CIT VS I.K. INTERNATIONAL (P) LTD. 206 TAXMANN, 622. THUS, THE LEGAL POSITION WHICH IS CLEARLY EMERGING OUT FROM THE DECISION OF THESE TWO HON'BLE COURTS AND ALSO FROM THE DECISIONS OF MANY OTHER HON'BLE COURTS THAT IF THE DEPRECIATION IS CLAIMED ON THE ASSETS AND SUCH ASSET IS SOLD SUBSEQUENTLY, THE CAP ITAL GAIN ARISING ON ACCOUNT OF SUCH SALE HAS TO BE TREATED AS SHORT TERM CAPITAL G AIN IN TERMS OF PROVISIONS OF SECTION 50C OF THE IT ACT. ON THIS ISSUE I AGREE WI TH THE STAND OF THE AO. CONSIDERING ALL THESE FACTS, IT IS HELD THAT THE AO HAS CORRECTLY TREATED THE LONG TERM CAPITAL GAIN SHOWN BY THE APPELLANT ON SALE OF FACTORY PREMISE AS SHORT TERM CAPITAL GAIN. THUS, THE ACTION OF THE AO IS CONFIRM ED AND GROUND OF APPEAL NO. 2.01 AND 2.02 OF THE APPELLANT ARE DISMISSED. 5. WE HAVE HEARD BOTH THE PARTIES. CASE FILE PERUS ED. THERE CAN HARDLY BE ANY DISPUTE SO FAR AS SECTION 50 OF THE ACT IS C ONCERNED THAT THE SAME ITA NOS. 973 & 974/AHD/4 (RUMANS INDUSTRIAL CHEMICA L CORP. VS. ITO) A.Y. 2008-09 - 5 - APPLIES IN THE NATURE OF A SPECIAL PROVISION FOR CO MPUTATION OF CAPITAL GAINS ARISING FROM SALE OF DEPRECIABLE ASSETS. THIS SPEC IAL PROVISION RE-COMPUTES LONG TERM CAPITAL GAINS ARISING FROM TRANSFER OF CA PITAL ASSETS FORMING PART OF A BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED EITHER UNDER 1961 ACT OR EVEN 1992 ACT AS SHORT TERM CAPIT AL GAINS. THE DISPUTE HOWEVER BETWEEN THE PARTIES IS MORE A FACTU AL ONE WHEREIN THE ASSESSEE STRONGLY CLAIMS THROUGHOUT THAT IT HAS NEV ER SOUGHT DEPRECIATION RELIEF QUA THE FACTORY BUILDING IN QUESTION. IT HA S FURTHER ELABORATED TO HAVE CARRIED FORWARD ITS UNABSORBED DEPRECIATION NOT INC LUDING THE FACTORY BUILDING IN QUESTION IN THE RELEVANT BLOCK OF ASSETS. IT EM ERGES THAT NEITHER OF THE LOWER AUTHORITIES HAS CONTROVERTED THE SAME BY QUOT ING ANY FACTUAL EVIDENCE. THEY RATHER PROCEED ON ASSUMPTIONS AND PRESUMPTIONS THAT ASSESSEE MUST HAVE CLAIMED DEPRECIATION RELIEF QUA ITS FACTORY BU ILDING SOLD. THE ASSESSEES EVIDENCE QUOTING ALL THE ABOVE NARRATED MATERIAL AN D FACTS STANDS SIMPLY BRUSHED ASIDE WITHOUT ANY MATERIAL TO THE CONTRARY. WE OBSERVE IN THIS BACKDROP OF FACTS THAT THE ASSESSING OFFICER AS WEL L AS THE CIT(A) HAVE ERRED IN REJECTING ASSESSEES STAND AS NOT TO HAVE CLAIME D DEPRECIATION ON THE ABOVE STATED FACTORY BUILDING SINCE ITS ACQUISITION IN FI NANCIAL YEAR 1984-85 FOR A SUM OF RS.4,61,822/-. MOREOVER, WE FIND THAT THE A SSESSEE HAS HIGHLIGHTED ALL BLOCKS OF ASSETS WITH SPECIFIC PLEA TO HAVE NEVER I NCLUDED THE FACTORY BUILDING IN QUESTION THEREIN. NEEDLESS TO SAY, THE SAME HAS ALSO GONE UNREBUTTED EXCEPT THE FACT THAT BOTH THE LOWER AUTHORITIES HAV E DRAWN THEIR RESPECTIVE CONCLUSIONS ONLY ON PRESUMPTIVE BASIS. WE THUS CON CLUDE THAT THE ASSESSING OFFICER AS WELL AS CIT(A) HAVE ERRED IN INVOKING SE CTION 50C OF THE ACT QUA ASSESSEES FACTORY BUILDING SOLD GIVING RISE TO THE LONG TERM CAPITAL LOSS IN QUESTION WITHOUT PROVING THAT THE SAME EVER FOUND P ART OF A BLOCK OF ASSETS SO AS TO BE GRANTED DEPRECIATION RELIEF THEREUPON. TH AT BEING THE CASE, ALL OTHER OBSERVATIONS OF BOTH THE LOWER AUTHORITIES STAND RE NDERED ACADEMIC. THE ITA NOS. 973 & 974/AHD/4 (RUMANS INDUSTRIAL CHEMICA L CORP. VS. ITO) A.Y. 2008-09 - 6 - ASSESSEES SECOND SUBSTANTIVE GROUND ON MERITS IN I TS QUANTUM APPEAL ITA NO.973/AHD/2014 SUCCEEDS. 6. WE NOW ADVERT TO ASSESSEES PENALTY APPEAL ITA N O.974/AHD/2014. IT IS NOW CLEAR IN VIEW OF OUR FINDINGS ON MERITS THAT THE IMPUGNED SECTION 271(1)(C) PENALTY HAS NO LEGS TO STAND SINCE THE QU ANTUM DISALLOWANCE/ADDITION ARISING FROM RE-COMPUTATION O F LONG TERM CAPITAL GAINS/LOSS BY APPLYING SECTION 50 OF THE ACT ITSELF STANDS DELETED. 7. THE ASSESSEES FORMER APPEAL ITA NO.973/AHD/2014 IS PARTLY ACCEPTED AND LATTER APPEAL ITA NO.974/AHD/2014 IS ALLOWED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 13 TH DAY OF FEBRUARY, 2017.] SD/- SD/- ( N. K. BILLAIYA ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 13/02/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0