2016 (12) TMI 1351 - AT - Income Tax

Addition on account of Profit on Sale of office premises as Short Term Capital Gain - Held that - The assessee has brought on record affidavit of Mr. Vinod Shankar More, Peon stating that the files have been transferred by him to the afore-stated office premises i.e. shop No. 8(A), Plot No. 260, Sector 10, Kharghar, Navi Mumbai during the previous year and the asset was put to use. The A.O. wanted to verify the said contentions of the assessee and accordingly issued summons to said Sh. Vinod Shankar More,Peon to appear before him , but the said person Sh. Vinod Shankar More did not appeared before the AO and also could not be produced by the assessee before the A.O. No evidence has been brought on record that the assessee has put the said office premises to use prior to end of the financial year, hence, we reject the contentions of the assessee. With respect to the finding of the ld. CIT(A) that the assessee has added ₹ 16,27,010/- to the block of assets which are in the nature of repairs, this is a new claim made by the assessee before the learned CIT(A) which was never claimed before the A.O. during assessment proceedings. In fact no application u/r 46A of Income Tax Rules, 1962 has been filed before the learned CIT(A) with respect to said claim of ₹ 16,27,010/-. The assessee has only stated that they were repairs by nature and the learned CIT(A) rejected the contentions of the assessee for inclusion of ₹ 16,27,010/- to the block of asset, and hence short term capital gain of ₹ 9,25,880/- was brought to tax by the ld. CIT(A) while the assessee has contended that the same being the payment of stamp duty for purchase of office, this has to be further enquired and verified by the authorities below and finding of the facts has to be recorded by the A.O. on merits after due enquiry /verifications for which we deem it fit and proper to set aside and restore this issue back to the file of the A.O. for necessary verification and enquiry so that the AO can record his finding of fact. Needless to say proper and adequate opportunity of hearing shall be provided by the AO to the assessee in accordance with the principles of natural justice and in accordance with law. We also direct the A.O. to compute the short term capital gain , if any chargeable on the sale of office premises No. 605, 6th Floor, Maithili s Signet, Plot No.39/4, Sector-30A, Vashi, Navi Mumbai being depreciable asset in accordance with provisions and scheme of Act in accordance with the directions as contained in this order.

Issues Involved:
1. Classification of the sale of office premises as Short Term Capital Gain.
2. Determination of whether the office premises were part of the block of assets.
3. Consideration of whether the new office premises were put to use and included in the block of assets.
4. Verification of the addition of ?16,27,010 to the block of assets.

Issue-wise Detailed Analysis:

1. Classification of the Sale of Office Premises as Short Term Capital Gain:
The primary issue was whether the profit from the sale of office premises should be classified as Short Term Capital Gain. The Assessing Officer (AO) observed that the assessee sold office premises for ?25,25,000, which were purchased for ?15,99,120, resulting in a profit of ?9,25,880. The AO concluded that since the premises were not used for business purposes, the profit should be taxed as Short Term Capital Gain.

2. Determination of Whether the Office Premises Were Part of the Block of Assets:
The assessee argued that the office premises were part of the block of assets and claimed depreciation at 10%. The CIT(A) and the Tribunal had previously accepted that the office premises were put to use in the assessment year 2007-08 and allowed depreciation. The Tribunal upheld that the office premises were part of the block of assets and depreciation was correctly claimed. The Tribunal followed its earlier order, confirming that the office premises were used for business purposes and should be included in the block of assets.

3. Consideration of Whether the New Office Premises Were Put to Use and Included in the Block of Assets:
The assessee claimed that they had taken forceful possession of new office premises and included it in the block of assets. However, the AO found that the building's commencement certificate was received only on 19th March 2008, and the premises were not constructed by the end of the financial year. The Tribunal rejected the assessee's contention, stating that the new office premises were not proven to be constructed or put to use before the end of the financial year. Therefore, it could not be included in the block of assets.

4. Verification of the Addition of ?16,27,010 to the Block of Assets:
The assessee claimed an addition of ?16,27,010 to the block of assets, which was not presented during the assessment proceedings. The CIT(A) rejected this claim, as no application under Rule 46A of the Income Tax Rules, 1962, was filed. The Tribunal directed the AO to verify and inquire about this addition, considering it as a new claim that needed proper verification. The case was remanded back to the AO for further examination and to compute any chargeable Short Term Capital Gain in accordance with the Act's provisions.

Conclusion:
The Tribunal partly allowed the appeal, confirming that the office premises sold were part of the block of assets and depreciation was correctly claimed. However, the new office premises were not included in the block of assets as they were not proven to be constructed or used before the financial year-end. The Tribunal remanded the issue of the ?16,27,010 addition back to the AO for verification and proper inquiry. The AO was directed to compute the Short Term Capital Gain, if any, as per the Act's provisions.

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