Income Tax Appellate Tribunal - Mumbai
Jiten S. Mottta, Mumbai vs Ito 29(1)(5), Mumbai on 23 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " SMC" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM
ITA No.759/Mum/2017
(A.Y:2009-10)
Shri Jiten S. Motta Income Tax Officer
Prop. Of M/s Shanti 29(1)(5)
Enterprises c-10, 1 S T Floor, Room No.
1 s t Floor, Vimal Vihar, W alji Vs. 107, Pratyakshakar Bhavan,
Ladha Road, Mulund (W est), BKC, Bandra (E),
Mumbai-400 080 Mumbai-400 051
P AN No. AATPM2080M
Appellant .. Respondent
Assessee by .. None
Revenue by .. Shri T.A. Khan, DR
Date of hearing .. 16-08-2017
Date of pronouncement .. 23-08-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-40, Mumbai, in appeal No. CIT(A)-40/IT-731/2014-15 dated 30-05-2016. The Assessment was framed by ITO Ward-29(1)(5) Mumbai for the A.Y. 2009- 10 vide order dated 03-02-2015 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter 'the Act').
2. At the outset, it is noticed that this appeal is time barred by 89 days and assessee has filed affidavit along with application for condonation of delay stating the reason as under: -
"2. Appellate order was received by me on 06-09-2016 and appeal against the same was required to be filled before Honorable tribunal on or before 5th November, 2016 I being a layman entrusted the work of filing appeal to my Chartered Accountant and genuinely believed that he would do the necessary paper work for ITA No . 75 9 / Mu m/ 2 01 7 Sh ri Jit en S . Mo tta ( A .Y : 20 0 9 - 1 0) filing the appeal in due course and within the time prescribed.
4. I am informed by my Chartered Accountant that he was busy due to enormous work pressure (a) on account of Income Disclosure Scheme 2016 till 30 September 2016 and (b) thereafter on account of tax audit assignments till 17' October 2016 and (c) on account of demonetization from V November 2016 and as a result of the said enormous work pressure he completely lost sight of the pending task of filing my appeal and could not look into the matter of studying the appellate order and filing the appeal before honorable Tribunal before the prescribed date On noticing the accidental lapse on his part he hastened to prepare and file the appeal on 03/02/2017.
5. I humbly submit that the delay has occurred by inadvertence and tremendous work pressure on my Chartered Accountant and there was absolutely no willful intention in not filing the appeal in time I am thus prevented by sufficient cause in not filing the appeal in time and hence pray for condonation of delay of 89 days and further request that I may be given the opportunity of being heard on merits and on legal grounds in the interest of justice"
3. In view of the above reasons and the concession given by the learned Sr. DR, I am of the view that the Chartered Accountant could not filed the appeal due to in-operation of Income Disclosure Scheme-2016 Page 2 of 9 ITA No . 75 9 / Mu m/ 2 01 7 Sh ri Jit en S . Mo tta ( A .Y : 20 0 9 - 1 0) and on account of tax audit assignments. I find that the cause is reasonable and hence the delay is condoned and appeal is admitted.
4. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in treating the sales of shop as short term capital gain as against long term capital gain declared by assessee. For this assessee has raised following ground No.1: -
"1. The ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as "Ld. CIT(A)"] has erred in upholding the order of the Ld. Assessing Officer and treating the long Term capital Gain on sale of capital asset as short term Capital Gain and making addition 12,47,074/- to the total income."
5. The facts relating to this issue are that the assessee sold shop at Mulund for a total consideration of Rs. 25 lakhs. The assessee declared long term capital gain as the property was purchased on 02-06-2003 at a total cost of Rs. 12,28,670/-. The assessee computed the long term capital gain and declared in the return of income. According to AO, this shop is forming part of block of assets and accordingly, he invoked the provisions of section 50 of the Act by treating the asset as deemed depreciable asset under section 32 of the Act and computed the capital gains under the head of short term at Rs. 12,71,330/- Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO vide Para 6.2 of his appellate order as under: -
"6.2 I have considered the reasoning of the Ld. AO in the assessment order and the submission of the appellant. As per explanation 5 inserted to section 32 with effect from AY 2002-03 depreciation shall be allowed whether or not the assessee has claimed the deduction in respect Page 3 of 9 ITA No . 75 9 / Mu m/ 2 01 7 Sh ri Jit en S . Mo tta ( A .Y : 20 0 9 - 1 0) of depreciation in computing his total income. Since the appellant has purchased the shop on 2.6.2003 and has shown it as business asset by including it in the Schedule of Fixed asset of his proprietary concern, depreciation is deemed to have been allowed. Provision of section 50 will be attracted if the capital asset sold is an asset forming pan of the block of asset in respect of which depreciation has been allowed. As per section 2(11) the block of asset means a group of assets falling within a class of assets comprising of various assets in respect of which same percentage of depreciation has been prescribed. Classes of assets are tangible assets and intangible assets. Tangible asset class includes building, machinery, plant or furniture. Thus any building, machinery, plant or furniture in respect of which same percentage of depreciation has been prescribed would form a block of asset. As per rule 5(I) of the Income Tax Rules and appendix thereto building used for the purpose of business and furniture and fittings are entitled to depreciation @10%. There are no furniture and fixtures in the Schedule of fixed assets of the appellant. Thus in the present case the shop would in itself constitute a block of asset. Thus in this case the entire block of asset being tangible asset, on which depreciation is allowable 10% has ceased to exist after the sale of the shop, therefore provisions of section 50(2) are attracted, and therefore the Ld. AO has correctly computed the Page 4 of 9 ITA No . 75 9 / Mu m/ 2 01 7 Sh ri Jit en S . Mo tta ( A .Y : 20 0 9 - 1 0) income from sale of the shop as Short term capital Gain. Hence the action of the Ld. AO of taxing the sale proceeds of the shop as Short term capital Gain as per provisions of section 50 is upheld, and the ground of appeal is dismissed. In the calculation of Short term capital Gain the IA. AO is required to deduct the written dot value of the asset at the beginning of the previous year. The LA. AO is directed to verify if the written down value of the asset at the beginning of the previous year has been correctly taken considering explanation 5 to section 32, or not, and if not then the same may be correctly computed."
Aggrieved, now assessee is in second appeal before Tribunal.
6. I have heard the learned Sr. DR and gone through the facts and circumstances of the Case. I find from the facts of the case that the assessee purchased shop at Mulund for a sum of Rs.12,71,330/- on 26- 03-2003 and sold for a consideration of 25 lakhs on 21-11-2008. The assessee from the very beginning kept in the i.e. schedule of fixed assets, as per schedule to the balance sheet as on 31-03-2009 and this shop remain at the same value as was purchased from the very beginning and even now, the declared value was at Rs. 12,28,670/-. Now I have to examine whether this gain is long term or short term? I find that as per Section 2 of the Act various terms used in the Act, Section 2(14) of the Act defines capital asset' and section 2(29A) of the Act defines "long term capital asset and section 2(29B) of the Act defines long term capital gain' Similarly section 2(42A) of the Act defines "short term capital asset' and section 2(42) of the Act defines 'short term capital gain'. As per S.2(42A) of Act states, unless the context otherwise requires, the term 'short-term capital asset" means a capital asset held by an assessee for not more Page 5 of 9 ITA No . 75 9 / Mu m/ 2 01 7 Sh ri Jit en S . Mo tta ( A .Y : 20 0 9 - 1 0) than thirty-six months immediately preceding the date of its transfer. The AO was of the view that it is a business asset and forming pan of block of assets, sale consideration of asset (shop) cannot be treated as long term capital gains arising out of sale of long term capital asset and held that it is to be treated as short term capital gain in terms of section 50 of the Act. Considering this AO proceeded to treat the income from capital gains arising out of sale of asset (shop) as short term capital gain in terms of Section 50 of the Act. Sec. 50 of the Act deals with the special provisions for computation of capital gain in respect of depreciable assets. According to section 50 of act if an assessee has sold a capital asset forming part of block of assets (building, machinery etc) on which the depreciation has been allowed under Act, the income arising from such capital asset is treated as short term capital gain. Once the asset has been subjected to depreciation in the hands of the owner, the provisions of section 50 of the Act squarely apply. However in the present case it can be seen that the assessee has not claimed any depreciation on the asset (shop) in any of the previous year from the year of purchase thus the applicability of provisions of Sec 50 of the Act does not arises Similarly be observed that the schedule of Fixed assets forming part of the audited balance sheet also reflected that no deduction of depreciation from the Gross Block of Assets towards shop has been claimed by the assessee The purchase price of the shop as per the Purchase agreement and the cost as shown in the Balance Sheet in the year of purchase i.e. Rs. 12,28.670/- is same as the figure reflected in the Balance Sheet in the year of Sale. Thus there is no reduction in the value of the asset. I find that Hon'ble High Court of Punjab & Haryana in the case of CIT v. Santosh Structural & Alloys Ltd. [2012] 251 CTR 53 (Punjab & Haryana) has considered the issue that the assessee had sold the plant and machinery in the AY 2006- 07 and claimed the same as assessable as long term capital gain. The plant and machinery was acquired partly in the financial year 1997-98 and partly in the year 1998-99. The assessee contended that as the plant and machinery was not in use, the assessee had not claimed depreciation Page 6 of 9 ITA No . 75 9 / Mu m/ 2 01 7 Sh ri Jit en S . Mo tta ( A .Y : 20 0 9 - 1 0) The AO held that the section 50 of the Act is applicable hence assessable as short term capital gain. The CIT(A) also confirmed the order of Assessing Officer On appeal to the Tribunal, the Tribunal held that section 50 of the Act did not apply and plant and machinery which was not in use had to be regarded as long term capital gain. On appeal by revenue the Court held that once Tribunal had recorded a finding of fact that plant and machinery, which is covered by section 50 of the Act, would be a depreciable asset and not one on which no depreciation was ever claimed, then such assets, which were not depreciable, could riot ever be assessed under section 50 of the Act. Since assessee held assets as defined under section 2(28A) of the Act and capital gain arising on transfer is required to be assessed as long term capital gain.
7. Similarly, jurisdictional High Court in the case of CIT vs. Ace Builders Pvt. Ltd. [2006] 281 ITR 210 (Bombay), it is held that section 54E of the Act grants exemption from payment of capital gains tax, where the whole or pan of the net consideration received from the transfer of a long term capital asset is invested or deposited in a specified asset within a period of six months after the date of such transfer. It is true that section 50 of the Act is enacted with the object of denying multiple benefits to the owners of depreciable assets. However, that restriction is limited to the computation of capital gains and not to the exemption provisions In other words, where the long term capital asset has availed depreciation, then the capital gain has to be computed in the manner prescribed under Section 50 of the Act and the capital gains tax will be charged as if such capital gain has arisen out of a short term capital asset but if such capital gain is invested in the manner prescribed in Section 54E of the Act. Then the capital gain shall not be charged under Section 45 of the Act. To put it simply, the benefit of section 54E of the Act will be available to the assessee irrespective of the fact that the computation of capital gains is done either under sections 48 & 49 or under section 50 of the Act. The contention of the revenue that by amendment to section 50 of the Act the long term capital asset has been converted into to short term capital asset Page 7 of 9 ITA No . 75 9 / Mu m/ 2 01 7 Sh ri Jit en S . Mo tta ( A .Y : 20 0 9 - 1 0) is also without any merit. Therefore, it cannot be said that section 50 of the Act converts long term capital asset into a short term capital asset.
8. Based on the above facts and decision, even though depreciation is claimed the asset is considered as Long term capital asset and also exemption was granted. But the fact ultimately remains the same that asset is Long term capital asset. In the present case of the Assessee has not charged depreciation on the asset (shop) and the asset is held for more than 36 months, this asset to be considered as long term capital asset. Further even though the asset is shown under the block of asset in the Balance sheet it is not a business asset and the depreciation rate is shown as 0% which implies that no depreciation has been charged on the asset. Just by mentioning in block of asset that too with Zero depreciation rate should not change nature of the asset. Ultimately the facts remain that no benefit of Depreciation is claimed and the asset is held for more than 3 years then the same should be treated as Long term capital and the gain on sale of such asset should be treated as Long term capital gains. The intention of Section 50 of the Act is clear to tax the business asset for which benefit has been claimed by way of depreciation. Accordingly, I allow the claim of the assessee.
9. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 23-08-2017.
Sd/-
(MAHAVIR SINGH) JUDICIAL MEMBER Mumbai, Dated: 23-08-2017 Sudip Sarkar /Sr.PS Page 8 of 9 ITA No . 75 9 / Mu m/ 2 01 7 Sh ri Jit en S . Mo tta ( A .Y : 20 0 9 - 1 0) Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy// BY ORDER, Assistant Registrar ITAT, MUMBAI Page 9 of 9