2016 (4) TMI 1115 - AT - Income Tax

Long term capital gain - apportionment of WDV - Held that - Assessing Officer had made this addition on protective basis however, since this addition was not made in Asst. Year 2010-11, therefore, the addition was treated as substantive in the year under consideration. The facts in this regard are that the assessee had declared sale of land and building at ₹ 1.20 croes. The Assessing Officer held that since building was a depreciable asset, therefore, sale value is to be reduced from block of assets and land being a non depreciable asset. The long term capital gain is to be computed on sale of such land. The Assessing Officer while computing the long term capital gain apportioned the sale consideration of ₹ 1.20 crores between the land and building wherein he took the estimated value of building at ₹ 20 lac and assigned value of ₹ 1 Crore to land. The Assessing Officer held that since cost of acquisition of property was taken by assessee towards building on which depreciation was claimed in earlier years, therefore, the cost of acquisition of land was taken as Nil and thereby he calculated long term capital gain to the tune of ₹ 1 Crore. The learned CIT(A), on the other hand, apportioned the written down value of land and building as on 31.3.2008 between land and building on the same ratio on which Assessing Officer had apportioned the sale consideration between land and building and therefore, cost of acquisition of land was calculated and after applying indexed of cost of acquisition long term capital gain was calculated. We find that learned CIT(A) has taken a reasoned view and has rightly apportioned the WDV as on 31.03.2008 between land and building and we do not find any infirmity in the same.

Summary

Issues Involved:
1. Addition under Section 14A of the Income Tax Act, 1961.
2. Addition on account of opening stock.
3. Addition on account of site expenses.
4. Addition on account of depreciation.
5. Disallowance of medical expenses.
6. Determination of long-term capital gain on land.

Detailed Analysis:

1. Addition under Section 14A of the Income Tax Act, 1961:
The assessee contested the addition of Rs. 6,74,210/- under Section 14A, arguing that no borrowed funds were used for purchasing shares and no expenses were incurred to earn exempt income. The assessee cited several judicial precedents, including CIT vs. Hero Cycles Limited and Dy. CIT vs. Jindal Photo Ltd., to support their claim. The Tribunal noted that it was unclear whether any exempt income was received during the year. Referring to the Delhi High Court's decision in CIT vs. Holcim India Pvt. Ltd., the Tribunal remitted the issue back to the Assessing Officer to ascertain if there was any exempt income. If no exempt income was found, no disallowance under Section 14A could be made. This ground was allowed for statistical purposes.

2. Addition on account of opening stock:
The assessee argued that the difference in opening and closing stock had already been considered in the assessment year 2008-09, leading to double addition. The Tribunal remitted the issue back to the Assessing Officer to verify whether the difference had been accounted for in the previous year. This ground was allowed for statistical purposes.

3. Addition on account of site expenses:
The Assessing Officer had disallowed Rs. 2,40,490/- being 1/3 of the total site expenses due to lack of supporting bills/vouchers. The CIT(A) reduced the disallowance to Rs. 80,163/-. The Tribunal found the CIT(A)'s decision reasonable and upheld it. This ground was dismissed.

4. Addition on account of depreciation:
The assessee claimed depreciation of Rs. 7,50,000/- on a property, arguing it was acquired and put to use during the relevant year. The Assessing Officer disallowed the claim, noting the sale deed was executed in the next financial year and the property was occupied by security forces. The CIT(A) upheld this disallowance. The Tribunal agreed with the lower authorities, finding no evidence to counter their findings. This ground was dismissed.

5. Disallowance of medical expenses:
The Assessing Officer disallowed Rs. 1,50,000/- incurred on medical expenses, which the CIT(A) reduced to Rs. 30,000/- due to lack of supporting bills. The Tribunal found the CIT(A)'s decision reasonable and upheld it. This ground was dismissed.

6. Determination of long-term capital gain on land:
The Revenue contested the CIT(A)'s reduction of long-term capital gain from Rs. 1 crore to Rs. 42,48,533/-. The Assessing Officer had apportioned the sale consideration of Rs. 1.20 crores between land and building, assigning Rs. 1 crore to land and calculating the gain with a nil cost of acquisition. The CIT(A) apportioned the written-down value (WDV) of land and building as on 31.03.2008, applying the indexed cost of acquisition to determine the gain. The Tribunal found the CIT(A)'s approach reasonable and upheld the decision. Grounds 2 and 3 of the Revenue's appeal were dismissed.

Conclusion:
The appeals filed by the Revenue were dismissed, while the appeals filed by the assessee were partly allowed for statistical purposes and partly dismissed. The Tribunal's order was pronounced in the open Court on 18th February, 2016.