Income Tax Appellate Tribunal - Mumbai
Lalbhai Kalidas & Co., Mumbai vs Department Of Income Tax on 31 October, 2013
ुं ई यायपीठ "ए" मब
आयकर अपील य अ धकरण, मब ुं ई
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI
BEFORE S/SHRI B.R.MITTAL,(JM) AND RAJENDRA (AM)
सव ी बी.आर. म तल, या यक सद य एवं राजे , लेखा सद य के सम
आयकर अपील सं./I.T.A. No.5832/Mum/2011
( नधारण वष / Assessment Year : 2007-08)
M/s Lalbhai Kalidas & Co. बनाम/ Income Tax Officer 16(3)(2),
Office No.7, Fateh Manzil 2 Vs. Matru Mandir, 2 n d floor,
457-459, D.B.Marg, Tardeo Road,
Opera House, Mumbai-400007
Mumbai-400004
(अपीलाथ /Appellant) .. ( यथ / Respondent)
ITA No.6052/Mum/2011
( नधारण वष / Assessment Year : 2007-08)
Income Tax Officer बनाम/ M/s Lalbhai Kalidas & Company,
16(3)(2), Vs. Office No.7, Fateh Manzil 2, 2nd floor,
Matru Mandir, 2 n d floor, 457-459, D.B.Marg,
Tardeo Road, Opera House,
Mumbai-400007 Mumbai-400004
(अपीलाथ /Appellant) .. ( यथ / Respondent)
थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. : AAAFL0582E
अपीलाथ ओर से / Assessee by : Shri Ajay Singh
यथ क ओर से/Respondent by : Shri Javed Akhatar
सन
ु वाई क तार ख / Date of Hearing : 31.10.2013
घोषणा क तार ख /Date of Pronouncement : 08.11.2013
आदे श / O R D E R
Per B.R.Mittal, JM:
These Cross-appeals are filed by assessee as well as department against order of ld. CIT(A) dated 30.5.2011 for assessment year 2007-08.
2. Relevant facts giving rise to these appeals are that the assessee is a firm engaged in the business of business of import, buying, manufacturing and exporting and selling of diamonds. Assessee filed return of income for the assessment year under consideration on 30.8.2007 declaring total income of Rs.2,50,630/-. AO made I.T.A. No.5832/Mum/2011 & 2 ITA No.6052/Mum/2011 assessment u/s 143(3) of the Income Tax Act, 1961(the Act) by an order dated 29.12.2009 at a total income of Rs.69,56,990/-.
3. During the assessment year under consideration the assessee sold its Office Premises No.1307, situated at 13th floor, Prasad Chambers at Swadeshi Mill Compound, Opera House, Mumbai-400004 for Rs.67,68,750/- vide agreement dated 2.5.2006. The said office premises was purchased by assessee on 9.9.1992 for Rs.41,28,500/-, which was used for its business purposes. That the assessee claimed depreciation on the above premises and its Written Down Value (WDV) as on 31.3.2006 was Nil. That the assessee has shown receipt of Short Term Capital Gain (STCG) of Rs.67,89,750/-.
4. During the assessment year under consideration, the assessee stated that it spent an amount of Rs.54,82,250/- to purchase new office premises (i) vide agreement dated 20.3.2007 being Flat No.704, 7th floor of Jogani Apartment at Village Kole Kalyan, Kalina, Mumbai for Rs.14,00,000/- and (ii) vide agreement dated 8.3.2007 being Flat No.806 at 8th Floor, Jewel Tower, Kalina CST Road, Opp. Vidya Nagri University, Manipada Road, Santacruz (W), Mumbai-400098 for Rs.37,15,000/-. That the assessee paid total stamp duty of Rs.2,20,950/- and other expenses. Thus, the assessee claimed that actual cost of new office premises purchased during the assessment year under consideration was Rs.54,82,500/- (Rs.14,00,000 + Rs.37,15,000/- + Rs.2,20,950/- ) and formed part of the same block assets. Thus, the said cost of new office premises acquired during the year at Rs.54,82,250/- is adjustable against the sale of office premises at Prasad Chambers (ibid). The assessee computed capital gain of Rs. 12,86,500/- u/s 50(1) of the Act. (Rs. 67,68,750/- - Rs.54,82,500/- ).
5. However, the AO rejected the claim of assessee of deducting actual cost of new office premises acquired during the previous year relevant to the assessment year under consideration from the full value of consideration received on sale of office premises at Prasad Chamber (ibid) while computing the capital gain on the ground that the new office premises cannot form part of block of assets (i) that the assessee failed to take possession of the new office premises (ii) that the said premises were residential property and required to be utilized for that purpose only and thereby not forming part of block of assets.
6. Assessee also invested Rs.12,86,500/- in REC Bonds and claimed benefit of investment u/s 54EC in REC Bonds. AO asked the assessee to show as to how section 54EC exemption is available to the assessee as the said exemption is available only to I.T.A. No.5832/Mum/2011 & 3 ITA No.6052/Mum/2011 capital gain arising from transfer of long term capital assets. Since assessee has transferred the depreciable assets and it has to be treated as Short Term Capital Gain (STCG) as per the provisions of section 50 of the Act, the exemption u/s 54EC is not available to the assessee.
6.1 Assessee relying on the decision of Hon'ble Bombay High Court in the case of CIT V/s ACE Builders (P.) Ltd.(2006) 281 ITR 210 (Bom) submitted that Their Lordships have held that section 50 does not have an overriding effect over section 54E of the Income Tax Act and where LTCG arises on transfer of depreciable assets, assessee cannot be denied exemption u/s 54E of the Act merely because section 50 provides that the computation of such capital gains should be done as if arising from the transfer of short-term capital asset. However, AO stated that the said issue has not reached finality by the decision of Hon'ble Apex Court as no appeal was filed against the above decision of Hon'ble Jurisdictional High Court because of smallness of tax effect. Therefore, AO did not accept the submissions of assessee and denied exemption claimed by assessee u/s 54EC of the Act on transfer of depreciable assets. Being aggrieved, assessee filed appeal before the First Appellate Authority.
7. In regard to assessee's claim of availing deduction u/s 54EC of the Act, the ld. CIT(A) decided the issue in favour of assessee by holding that the said issue is covered in favour of the assessee by the decision of Bombay High Court in the case of CIT V/s ACE Builders (P.) Ltd (supra) and accordingly, held that the assessee is entitled for exemption u/s 54EC of the Act in respect of investment of Rs.12,86,500/- made in REC Bonds. However, in respect of the issue of claim of assessee in deducting the cost of new office premises of Rs.54,82,500/- from the value of consideration received of Rs.67,68,750/- on sale of office premises at Prasad Chambers (ibid), ld. CIT(A) after seeking remand report from AO and also after considering the submissions of the assessee has held that the said new premises purchased by assessee had not been occupied by assessee before 31.3.2007. He has stated that the AO while submitting the remand report has also examined one Mr. Jayesh A Ichhaporia who claimed to have transported the assessee's furniture into the impugned premises before 31.3.2007, on which the assessee relied upon to show that the property was not only taken possession but was also occupied before 31.3.2007 and stated that he did not remember exact date of transportation of furniture into the impugned new premises. Thus vital link is missing as to actual date of transport. The ld. CIT(A) has further stated that the assessee itself informed the Registrar of Firms to carry-on business from the new premises with effect from 1.06.2008. Thus, the assessee had not put to I.T.A. No.5832/Mum/2011 & 4 ITA No.6052/Mum/2011 use the said new premises before 31.3.2007 for the purpose of business. Hence, purchase value of the said assets cannot go to reduce the capital gains arising on sale of other assets in the block, in the year of acquisition of new asset itself. In view of above, ld. CIT(A) has confirmed the action of AO for the purpose of computing capital gains u/s 50 of the Act in not reducing the cost of acquisition of two new impugned premises of Rs.54,82,500/- from the sale consideration of Rs.67,68,750/-.
8. In view of above, the department as well as assessee are in appeals before the Tribunal.
9. Firstly, we take up the appeal filed by assessee being ITA No.5832/Mum/2011.
10. In the appeal, filed by the assessee, the order of ld. CIT(A) is disputed by taking following grounds :
"1. The ld. CIT(A) erred in confirming the order of the ITO (AO) rejecting the claim of the appellant deducting the actual cost of the new premises (Rs.54,82,500/-) falling within the block of assets acquired during the previous year from the full value of consideration received (Rs.67,68,750/-) on transfer of premises while computing the capital gains under section 50 of the Income Tax Act, 1961;
2. The ld. CIT(A) erred in confirming the order of the AO holding that the premises acquired during the previous year cannot form part of the block of assets.
3. The CIT(A) erred in holding that notice under section 143(2) of the Act was a valid service;
4. The appellant reserves the right to add, alter, amplify, abrogate, or substitute all or any of the above grounds of appeal at or anytime before the hearing of the present appeal"
11. In respect of Ground No.3, it is stated that there was no submission made before us and hence Ground No.3 of the appeal taken by assessee is rejected. However, Ground No.4 of the as appeal is general in nature and does not require any specific adjudication.
12. In Ground Nos.1 and 2, only issue is as to whether on the facts and circumstances of the case, the assessee is entitled to claim deduction of the cost of the new premises acquired during the previous year relevant to the assessment year under consideration of Rs.54,82,500/- from the full value of consideration received of Rs.67,68,750/- on transfer of the said premises while computing capital gains u/s 50 of the Act as it forms part of block of assets.
I.T.A. No.5832/Mum/2011 & 5 ITA No.6052/Mum/2011
13. At the time of hearing, ld. AR sated the facts, mentioned before the authorities below, which we have already stated hereinabove. He submitted that the ld. CIT(A) asked the remand report from the AO and the AO in his remand report itself confirmed that the builder handed over the possession of the premises to the assessee before 31.3.2007 and entered into an agreement, copies of which are placed at pages 63 to 151 of the paper book in respect of agreement entered into on 20.3.2007 and copies placed at pages 152 to 176 of the paper book of the agreement dated 8.3.2007 (supra). He submitted that assessee put to use the said newly acquired premises before 31.3.2007 for its business purposes. He submitted that even if the premises were not put to use, as per Clause (iii) of section 50(1) of the Act, the only requirement is to acquire the assets during the previous year and the actual cost of acquiring of such assets which fall within the block of assets is entitled to be set off against the sale proceeds while computing the capital gain. He submitted that as per section 50(1) of the Act, there is no requirement to use the said premises for business purpose to claim the benefit of section 50(1) of the Act. To substantiate his above submissions, ld. AR submitted that same very issue had been considered by Mumbai Special Bench of the Tribunal in the case of Chhabria Trust V/s ACIT [2003] 87 ITD 181 (MUM.) (SB), wherein it was held that for the purpose of adjustment under section 50 it is not necessary that newly acquired asset must have been used for purposes of business during the relevant assessment year. He submitted that the said decision of the Special Bench of the Tribunal was followed by ITAT, Mumbai Bench in the case of Fluorescent Fixtures (P.) Ltd. V/s Income-tax Officer [2009] 34 SOT 48 (MUM) and the Tribunal has held that use of an asset is not condition precedent for making adjustment in block of assets. He submitted that similar issue was also considered by ITAT, Mumbai in Artic V/s ACIT [1999] 68 ITD 462 (MUM.), wherein it was also held that it is not a requirement of section 50 while claiming deduction in respect of cost of new assets acquired during the previous year that the assessee should use the same for business purposes. He submitted that Mumbai Bench of the Tribunal also held in the above case that even if the assessee had stopped to carry on the business in the year in which the new asset was purchased, deduction would be allowed to the assessee in respect of new assets acquired while computing the capital gain in case of depreciable assets under section 50 of the Act. He submitted that the assessee has acquired the new assets and therefore, the cost of new assets acquired by the assessee should be benefited out of sale proceeds while computing the capital gain u/s 50 of the Act.
I.T.A. No.5832/Mum/2011 & 6 ITA No.6052/Mum/2011
14. On the other hand, ld. DR relied on the orders of authorities below and submitted that newly acquired premises by the assessee are residential premises and it is also necessary to put to use for the business purposes in the previous year for claiming deduction out of sale proceeds while computing the deduction u/s 50 of the Act. However, ld. DR has not cited any decision to substantiate his above submission nor he was able to controvert the case law cited by ld AR (supra).
15. We have carefully considered the submissions of ld. Representatives of the parties and orders of authorities below. We observe that there is no dispute to the fact that the assessee sold its office premises in the assessment year under consideration at a cost of Rs.67,68,750/-, which was purchased on 9.9.1992 and was used for its business purpose. The assessee was admittedly claiming depreciation thereon and the WDV of the block assets at the beginning of the assessment year under consideration viz assessment year 2007-08 was nil. There is also no dispute that the assessee has acquired two flats being (i) Flat No.704, 7th floor of Jogani Apartment at Village Kole Kalyan, Kalina, Mumbai vide agreement dated 20.3.2007 and (ii) Flat being flat No.806 at 8th Floor, Jewel Tower, Kalina CST Road, Opp. Vidya Nagri University, Manipada Road, Santacruz (W), Mumbai-400098 vide agreement dated 8.3.2007 during the previous year relevant to the assessment year under consideration at a total cost of Rs.54,84,500/- and it forms part of block of assets. Thus, there is no dispute that the assessee had purchased two new premises during the previous year. We observe that the assessee claimed set off of the cost of newly acquired premises out of the sale consideration while computing capital gains u/s 50 of the Act. The AO denied adjustment of the cost of newly acquired premises on the ground that assessee failed to take possession of the newly purchased premises and put to use for its business purposes. However, we observe that the ld. CIT(A) after seeking remand report from the AO and considering the documents filed before him has admitted that the assessee has purchased/acquired two new premises at a total cost of Rs.54,82,500/- but confirmed the action of AO in not adjusting the purchase amount against the sale proceeds while computing the capital gains u/s 50 of the Act, on the ground that the assessee could not establish that it put to use the said premises for its business purposes in the AY-2007-08. We are of the considered view that the ld. CIT(A) is not justified to deny the claim of the assessee to allow adjustment of cost of new premises acquired as he has not considered the provisions of section 50(1) of the Act correctly. We observe that as per Clause (iii) to section 50(1) of the Act, only requirement is that the assessee must acquire the assets which form part of the block assets during the previous year and if so the actual cost of the said acquired assets has to be deducted I.T.A. No.5832/Mum/2011 & 7 ITA No.6052/Mum/2011 from the sale proceeds received by assessee on transfer of the assets while computing the capital gains u/s 50 of the Act. The said issue has been considered by the Special Bench of the Tribunal in the case of Chhabria Trust V/s ACIT (supra) and after following the decision of ITAT Mumbai Bench in the case of Oceanic Investment Ltd. v. Asstt. CIT [1997] 57 TTJ (Mum.) 549, it was held that for the purpose of section 50, it is not necessary that the newly acquired assets must be used for the purpose of business during the year under consideration. The ITAT, Mumbai Bench by following the said decision of Special Bench and also the earlier decision of ITAT Mumbai in Artic (supra) has held that use of an asset which has been acquired out of transfer proceedings of the depreciable assets forming part of block of assets is not condition precedent for making adjustment in Block of assets. In view of above decisions of ITAT and in the absence of any other decision brought on record by ld. DR contrary to above, we hold that the assessee is entitled to take actual cost of new premises aggregating to Rs.54,82,500/- which falls within the block of asset during the previous year to be deducted from the value of consideration received of Rs.67,68,750/- on transfer of earlier business premises whose WDV was NIL, while computing the capital gains u/s 50 of the Act. Therefore, Grounds No.1 and 2 of the appeal taken by assessee are allowed by reversing the orders of authorities below.
16. Now, we take up the appeal filed by Revenue being ITA No.6052/Mum/2011.
17. The department has taken following grounds of appeal.
"1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in holding that the assessee is entitled for deduction u/s 54EC ignoring the fact that the capital gains arose from short term capital gain and the exemption u/s 54EC is available only for long term capital gain;
2. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in relying on the decision of the Hon'ble Bombay High Court in the case of CIT V/s ACE Builders Pvt Ltd, wherein it was held that even if the assets were depreciable, but held for more than 36 months, the sale proceeds could be invested under the provision of the sec 54EC of the IT Act, 1961, ignoring the fact that the decision of the Hon'ble Bombay High Court was not accepted by the department, in principle, as the decision of the High Court was not in consonance with the scheme envisaged in section 50 of the IT Act, 1961"
18. At the time of hearing, ld. DR merely relied on the order of AO and whereas ld. AR submitted that ld. CIT(A) has granted exemption u/s 54EC of the Act in respect of REC Bonds by relying on the decision of the Hon'ble Bombay High Court in the case of ACE Builders Pvt. Ltd. (supra).
I.T.A. No.5832/Mum/2011 & 8 ITA No.6052/Mum/2011
19. Considering, the facts that the issue is covered in favour of the assessee by the decision of Hon'ble Bombay High Court (supra), we do not find any reason to interfere with the order of ld. CIT(A). Hence, we uphold the order of ld. CIT(A) by rejecting the grounds of appeal taken by department.
20. In the result, the appeal of the assessee is allowed in part, whereas, the appeal of the department is dismissed.
Order pronounced in the open court on the 8th November, 2013 आदे श क घोषणा खल ु े यायालय म दनांकः 8 th November, 2013 को क गई ।
Sd sd
(राजे /RAJENDRA) (बी.आर. म तल/B.R.MITTAL)
लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER
मब
ुं ई Mumbai; दनांक Dated 8/ 11/2013
व. न.स./ SRL , Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु त(अपील) / The CIT(A)- concerned
4. आयकर आयु त / CIT concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मब
ुं ई /
DR, ITAT, Mumbai concerned
6. गाड फाईल / Guard file.
आदे शानस
ु ार/ BY ORDER,
True copy
सहायक पंजीकार (Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai