Income Tax Appellate Tribunal - Mumbai
Offshore Marinetech Private Limited ... vs Dcit, 14(1)(1), Mumbai on 17 March, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL, 'C' BENCH
MUMBAI
BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER
&
SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER
ITA No.7232/Mum/2025
(Assessment Year :2023-24)
Offshore Marinetech Private Vs. Assessment Unit, National
Limited, 51/2421, Nishigandha Faceless Assessment Centre
Gandhinagar, Bandra (East), [JAO:DCIT-14(1)(1)
Mumbai, Maharashtra - 400051, Mumbai], 432, Aayakar
India. Bhawan, Maharshi Karve
Road, New Marine Lines,
Mumbai, Maharashtra -
400020.
PAN/GIR No. AWCPP 3922 E
(Appellant) .. (Respondent)
Assessee by Shri Shashank Mehta, CA
Revenue by Shri Virabhadra Mahajan,
(Sr. DR).
Date of Hearing 12/03/2025
Date of Pronouncement 17/03/2025
आदे श / O R D E R
PER AMIT SHUKLA, JUDICIAL MEMBER:
1. The aforesaid appeal has been filed by the assessee against the appellate order dated 29.09.2025 passed by the National Faceless Appeal Centre, Delhi, arising out of the assessment framed under section 143(3) of the Income Tax Act, 1961 for the assessment year 2023-24. The principal grievance raised by the 2 ITA No. 7232/Mum/2025 Offshore Marinetech Private Limited assessee is against the action of the Assessing Officer, as affirmed by the learned CIT(A), in invoking the provisions of section 50 in respect of one of the factory buildings, namely Plot No. R-54, even though, according to the assessee, the said property had never entered the block of depreciable assets, was never put to use, and no depreciation under section 32 had ever been claimed thereon. The assessee is further aggrieved by the sustenance of the addition on account of deemed short term capital gain, whereby the computation of short term capital gain of Rs. 47,802/- made by the assessee under the normal provisions of section 48 in respect of R-54 was disregarded, and a much higher figure of short term capital gain came to be worked out by applying the deeming fiction contained in sections 50 and 50A.
2. The facts, in brief, are that during the relevant previous year the assessee sold two factory buildings, namely R-321 and R-54. In so far as R-321 is concerned, there appears to be no real dispute on the foundational factual position that the said building had been acquired in the year 2009, had undergone structural changes and further construction, had been put to use, and had admittedly formed part of the block of assets on which depreciation under section 32 had been claimed by the assessee. The controversy, however, primarily centres around R- 54, which, as borne out from the material placed on record, was acquired in the financial year 2021-22 relevant to assessment year 2022-23 vide assignment deed dated 01.12.2021, and was thereafter subjected to further structural changes and 3 ITA No. 7232/Mum/2025 Offshore Marinetech Private Limited construction. It is the consistent case of the assessee that this property was still under construction or under structural modification, was never put to use, and for that reason was never included in the block of assets and no depreciation thereon was ever claimed either in the preceding year or in the year under appeal. The said building was sold vide assignment deed dated 21.11.2022, i.e. within a short span of time from the date of acquisition.
3. In the return of income, the assessee treated the transfer of R-54 as transfer of an ordinary capital asset and, applying the normal provisions contained in section 48, computed short term capital gain at Rs. 47,802/-. In respect of R-321, the assessee worked out the capital gain by accepting the applicability of the block concept, since that asset had indisputably formed part of the block of depreciable assets. The assessee's computation with regard to R-321, as placed in the paper book, reflected full value of consideration at Rs. 6,21,00,000/- and, after reducing the written down value of the block as on 01.04.2022 together with actual cost incurred during the relevant financial year, the short term capital gain was shown at Rs. 1,42,23,058/-. Thus, the assessee's case throughout has been that R-321 and R-54 stood on entirely different factual and legal footings and, therefore, could not have been clubbed together mechanically for the purpose of invoking section 50.
4 ITA No. 7232/Mum/2025Offshore Marinetech Private Limited
4. The Assessing Officer, however, did not accept the distinction sought to be drawn by the assessee. From the scanned portion of the assessment order placed before us, it is seen that the Assessing Officer proceeded on the premise that during the assessment year 2023-24 the assessee had sold a block of assets, namely two factory buildings, and had offered short term capital gain on one asset while claiming long term capital loss or differential capital treatment on the other by treating it according to the holding period. According to the Assessing Officer, since the assets sold were factory buildings constituting depreciable assets, the capital gain had necessarily to be computed in terms of sections 50 and 50A of the Act. The Assessing Officer reproduced the provisions of section 50 and section 50A in the assessment order and then proceeded on the assumption that once the building fell within the category of a depreciable asset, the gain on transfer could not be determined under the ordinary provisions depending upon the holding period, but had to be treated as short term capital gain by applying the statutory fiction embedded in those provisions.
5. The reasoning of the Assessing Officer, as emerging from the relevant pages of the assessment order, was that the entire sale consideration of the two factory buildings had to be aggregated. The total sale consideration was taken at Rs. 23.41 crores, being Rs. 17.20 crores for one factory building and Rs. 6.21 crores for the other. Against this, the cost of acquisition was worked out by taking the opening written down value as on 01.04.2022 and adding the cost of assets added during the year, while also 5 ITA No. 7232/Mum/2025 Offshore Marinetech Private Limited factoring accumulated depreciation and depreciation relatable to additions. At one place in the assessment order, the Assessing Officer appears to have taken the opening WDV as on 01.04.2022 after considering accumulated depreciation and then added the cost of assets acquired during the year, and on that basis computed short term capital gain at Rs. 2.99 crores. Elsewhere, in the assessee's synopsis and in the appellate material, the working of the Assessing Officer and the learned CIT(A) has been shown in a slightly expanded form by taking total sale consideration at Rs. 23.41 crores and reducing therefrom cost of acquisition of Rs. 20.10 crores, with opening WDV, additions, accumulated depreciation, and depreciation on additions all entering the computational matrix, culminating in short term capital gains of about Rs. 3.31 crores. Be that as it may, the essential thrust of the Assessing Officer's case is not so much the minor numerical variation in computation, but the legal premise that both the factory buildings were to be subsumed within the block of depreciable assets, and once that premise was assumed, the entire gain had to be taxed as deemed short term capital gain.
6. The assessment order further reveals that the Assessing Officer issued a show cause notice to the assessee requiring it to explain why the capital gains on sale of these properties should not be assessed in accordance with sections 50 and 50A. The assessee, in response, appears to have filed written submissions and documentary material. However, the Assessing Officer drew a conclusion that since one of the assets had been treated by the 6 ITA No. 7232/Mum/2025 Offshore Marinetech Private Limited assessee itself as a depreciable asset and another had been treated as non depreciable merely on the footing that it had not been put to use, such bifurcation was not acceptable. The Assessing Officer thus concluded that the gain on transfer of depreciable asset was liable to be arrived at under section 50 and section 50A and accordingly proposed the variation. The learned CIT(A), in the impugned appellate order, has essentially concurred with this approach.
7. Before us, the learned counsel for the assessee submitted that the entire controversy in truth lies in a narrow compass and turns on a fundamental jurisdictional fact for invoking section 50, namely, whether the asset in question formed part of a block of assets in respect of which depreciation had been allowed. He submitted that in so far as R-321 is concerned, the assessee has no quarrel with the proposition that section 50 would apply, because the building had been acquired long ago, had been put to use, and had admittedly formed part of the depreciable block. His emphatic grievance, however, is that R-54 stands on a completely different pedestal. It was submitted that R-54 was acquired only on 01.12.2021, was subjected to structural changes and further construction, was never put to use, was never added to the block of assets in the return of income or tax audit report, and no depreciation under section 32 was ever claimed. The learned counsel drew our attention to the fact that even during the immediately preceding assessment year 2022- 23, the Assessing Officer had specifically inquired into this very aspect and the assessee had furnished details of purchase and 7 ITA No. 7232/Mum/2025 Offshore Marinetech Private Limited construction; yet no addition or disallowance was made and the treatment adopted by the assessee was not disturbed. Thus, according to him, it is not even the Revenue's case that depreciation was actually allowed on R-54 in any year.
8. The learned counsel further submitted that the deeming fiction contained in section 50 is a special computational provision and cannot be triggered merely because the asset transferred is, in a generic sense, a building capable of being depreciated. The statute does not use such broad and abstract language. Rather, section 50 comes into play only where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed. He submitted that these are not ornamental words but constitute the very gateway condition for the provision to operate. If an asset never entered the block and depreciation was never claimed or allowed, then the fiction cannot be set in motion on an assumption that the asset ought to have been treated as part of the block. He submitted that this distinction has been clearly recognised in judicial precedents and that the legal fiction of section 50 must be confined strictly to its statutory field.
9. In support of the aforesaid proposition, reliance was placed on the authorities noted in the synopsis placed before us, including the decision in PCIT vs. Swetha Realmart LLP, the decision of the Mumbai Tribunal in Computer Media Dealers Association vs. CIT, the decision in Divine Construction Co. vs. 8 ITA No. 7232/Mum/2025 Offshore Marinetech Private Limited ACIT, and the judgment in CIT vs. Santosh Structural & Alloys Ltd.. The thrust of these authorities, according to the learned counsel, is that the machinery of section 50 or section 50A becomes applicable only when the transferred asset is one on which depreciation was in fact obtained and which formed part of the depreciable block. He thus submitted that the short term capital gain of Rs. 47,802/- as computed by the assessee in respect of R-54 under section 48 ought to be accepted, and the addition sustained by the lower authorities deserves to be deleted. Without prejudice, it was also submitted that even on the numerical aspect the computation adopted by the Assessing Officer suffers from lack of consistency, because in one part the short term capital gain is proposed at Rs. 2.99 crores while elsewhere the working has been shown at Rs. 3.31 crores, thereby demonstrating that the entire computation has proceeded on a somewhat uncertain footing.
10. The learned Departmental Representative, on the other hand, relied upon the orders of the authorities below. It was submitted that the assets sold were factory buildings and that the assessee itself had accepted the depreciable character of one of them. According to the Revenue, once the assets constituted part of the factory premises and structural assets of the business, the gains therefrom could not be dissected into two separate compartments merely because the assessee chose not to claim depreciation on one of them. The stand of the Revenue, in essence, is that since the property was of a nature on which 9 ITA No. 7232/Mum/2025 Offshore Marinetech Private Limited depreciation was allowable, the gain had rightly been computed under sections 50 and 50A.
11. We have carefully considered the rival submissions, perused the impugned orders, and examined the material placed before us including the relevant scanned portions of the assessment order, the synopsis of facts, the computation statements, and the documentary assertions of the assessee. In our considered opinion, the controversy must be resolved by returning to the plain language of the statute rather than by proceeding on general impressions about the character of the asset. Section 50 is indeed a special provision for computation of capital gains in case of depreciable assets, and section 50A similarly provides for determination of cost of acquisition in the case of a depreciable asset. But the legislative device embodied therein is a deeming fiction and, as is well settled, a deeming fiction must operate within the discipline of the statutory language and cannot be expanded merely because such expansion may appear convenient from the standpoint of revenue collection.
12. The provision does not say that every capital asset capable of being depreciated, or every business asset of a depreciable character, would automatically fall within section 50. What it says, in substance and in unmistakable terms, is that where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed, then the normal provisions shall stand modified in the manner stipulated therein.
10 ITA No. 7232/Mum/2025Offshore Marinetech Private Limited Therefore, the two conditions, namely, that the asset must form part of the block and that depreciation must have been allowed, are not incidental or peripheral. They are the very jurisdictional facts without which the computation machinery of section 50 does not start. A legal fiction is not an unruly horse to be ridden beyond its course; it is a carefully cabined statutory instrument whose amplitude cannot exceed the purpose and language for which Parliament has enacted it.
13. Tested on this touchstone, the case of R-54 clearly falls outside the statutory field of section 50. The record, as placed before us, consistently shows that R-54 was acquired on 01.12.2021 and was thereafter subjected to structural modification and further construction. The assessee's case that it was never put to use has not been shown to be factually false. More importantly, the Revenue has not brought any material to show that the said property was ever included by the assessee in the block of assets in any return of income, tax audit report, fixed asset schedule for tax purposes, or depreciation schedule under the Act. There is equally no finding that depreciation on R-54 was in fact claimed or allowed under section 32. In fact, the assessee has specifically pointed out that even in assessment year 2022- 23, when the matter was examined by the Assessing Officer, no objection was taken to its treatment as an asset outside the block. These facts, taken together, constitute a formidable evidentiary foundation in favour of the assessee's stand.
11 ITA No. 7232/Mum/2025Offshore Marinetech Private Limited
14. The Assessing Officer, in our opinion, has conflated two distinct concepts. One is the theoretical eligibility of an asset for depreciation if it were to be put to use and brought within the tax depreciation schedule. The other is the actual legal and factual position whether such asset did enter the block of assets and whether depreciation thereon was in fact obtained. Section 50 operates only in the second situation. The Assessing Officer appears to have proceeded on the former assumption and thereby telescoped R-54 into the depreciable block merely because it was a factory building. Such an approach not only blurs the distinction embedded in the statute but, if accepted, would amount to rewriting section 50 by replacing the words "forming part of a block of assets in respect of which depreciation has been allowed" with the words "being an asset of a kind on which depreciation could have been claimed". That, plainly, is not the law.
15. The matter can also be viewed from another angle. The block of asset concept under the Act is not a matter of loose commercial description; it is a defined tax concept with specific computational consequences. Once an asset enters the block, its individual identity may, for certain purposes, recede and the written down value of the block assumes significance. Conversely, if an asset never enters that block, it retains its independent identity as a capital asset and its transfer must ordinarily be governed by the normal computation provisions. Therefore, before depriving an assessee of the right to compute gain under section 48 in relation to a particular asset, the 12 ITA No. 7232/Mum/2025 Offshore Marinetech Private Limited Revenue must first demonstrate with cogent material that the asset stood absorbed into the block and that depreciation was allowed thereon. In the present case, that foundational exercise is entirely absent.
16. We are also unable to countenance the reasoning that because one of the assets, namely R-321, was a depreciable asset and formed part of the block, the other asset, namely R-54, must necessarily be dragged into the same tax treatment. Each asset has to be examined on its own factual and legal attributes. If R- 321 was part of the depreciable block, section 50 will undoubtedly apply to that asset. But that cannot, by some contagion of classification, convert R-54 into a depreciable block asset when the admitted factual position is otherwise. Law does not permit such transference of character by association.
17. The judicial authorities cited by the assessee also lend support to the principle that where depreciation has not been claimed or allowed and the asset has not formed part of the block, the deeming provision cannot be mechanically invoked. Without reproducing those authorities at length, we may only observe that the consistent thread running through the jurisprudence is that the fiction created by section 50 is limited to assets actually falling within the depreciable block framework. We are in respectful agreement with that principle. To apply section 50 to an asset which never entered the block would be to enlarge the fiction beyond its legitimate orbit, which is impermissible in law.
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18. Once this central premise is accepted, the assessee's computation in respect of R-54 under section 48 cannot be discarded. The short term capital gain of Rs. 47,802/- shown by the assessee on the transfer of R-54 has been computed on the footing that the said asset was an independent capital asset and not part of the block. Since the Revenue has failed to demolish the basic factual predicates of that position, we see no justification to reject that computation merely by invoking the abstract notion that the asset was of a depreciable nature. What section 50 taxes is not a depreciable nature in the abstract, but gain arising from transfer of an asset actually forming part of a block in respect of which depreciation has been allowed.
19. In so far as R-321 is concerned, the position is materially different. The property was acquired in 2009, was put to use after suitable structural changes and further construction, and depreciation under section 32 was claimed thereon. Therefore, the applicability of section 50 to R-321 is not in serious dispute. The assessee itself, in its working, has accepted the block concept for R-321 and has computed short term capital gain by taking the written down value of the block and the actual cost incurred during the year into account. Thus, the legal controversy before us is really not about the applicability of section 50 to R-321, but about the impermissible clubbing of R- 54 with R-321 for the purpose of computing one composite deemed short term capital gain.
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20. It is here that the assessment order reveals a further difficulty for the Revenue. The Assessing Officer's working, as noticed from the scanned copies and the assessee's synopsis, does not appear to maintain computational consistency. At one place the proposed variation on this issue is shown at Rs. 2,99,00,000/-, whereas elsewhere the overall computation after considering total sale consideration and cost parameters throws up a figure of Rs. 3.31 crores. Even assuming that such arithmetical discrepancy may be capable of explanation, the larger point remains that the entire exercise has proceeded upon a legally unsustainable assumption by merging R-54 into the depreciable block. Once that premise is removed, the superstructure built thereon necessarily fails.
21. In view of the foregoing discussion, we hold that the action of the Assessing Officer in invoking sections 50 and 50A in respect of Plot No. R-54 is untenable both on facts and in law. The property R-54, on the material available before us, was never put to use, never formed part of the block of assets, and no depreciation thereon was ever claimed or allowed. Consequently, the capital gain arising from its transfer could not have been brought within the deeming fiction of section 50. The computation made by the assessee under the normal provisions of section 48, resulting in short term capital gain of Rs. 47,802/-, deserves to be accepted.
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22. We further hold that while section 50 would apply in principle to the transfer of R-321, the Revenue was not justified in clubbing R-54 along with R-321 and computing a composite deemed short term capital gain by treating both assets as part of the same taxable fiction. Accordingly, the addition sustained by the learned CIT(A) on account of deemed short term capital gain, to the extent it arises from inclusion of R-54 within the section 50 framework, cannot be sustained. The consequential enhancement in taxable short term capital gain by adopting the figure of Rs. 2.99 crores or the higher derived figure in the appellate workings is therefore liable to be deleted insofar as it rests on that erroneous premise.
23. Since the assessee has accepted the application of section 50 to R-321 and has already furnished a separate computation in respect thereof, the Assessing Officer shall, while giving effect to this order, recompute the capital gain only in relation to R-321 strictly in accordance with law and on the basis of the written down value and actual additions relatable to that asset or block, after excluding R-54 altogether from the section 50 computation. In respect of R-54, the computation returned by the assessee under section 48 shall stand accepted.
24. Thus, the grievance of the assessee succeeds. The impugned order of the learned CIT(A), insofar as it affirms invocation of section 50 in relation to R-54 and sustains the resultant addition on that footing, is set aside. The Assessing Officer is directed to 16 ITA No. 7232/Mum/2025 Offshore Marinetech Private Limited modify the assessment in terms indicated above. In the result, the appeal of the assessee is allowed in the aforesaid terms.
Order pronounced in the open court on 17th March, 2026.
Sd/- Sd/-
(ARUN KHOPDIA) (AMIT SHUKLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai
Dated: 17/03/2026
Ranganath Vithal
Sr. PS.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.
//True Copy//
BY ORDER,
(Asstt. Registrar)
ITAT, Mumbai