2017 (2) TMI 726 - AT - Income Tax

Penalty u/s.271(1)(c) - addition u/s 50 - Held that - The assessee has highlighted all blocks of assets with specific plea to have never included the factory building in question therein. Needless to say, the same has also gone unrebutted except the fact that both the lower authorities have drawn their respective conclusions only on presumptive basis. We thus conclude that the Assessing Officer as well as CIT(A) have erred in invoking Section 50C of the Act qua assessee s factory building sold giving rise to the long term capital loss in question without proving that the same ever found part of a block of assets so as to be granted depreciation relief thereupon. It is now clear in view of our findings on merits that the impugned Section 271(1)(c) penalty has no legs to stand since the quantum disallowance/addition arising from re-computation of long term capital gains/loss by applying Section 50 of the Act itself stands deleted. - Decided in favour of assessee

Summary

Issues:
Validity of reopening and treatment of long term capital gains as short term capital gains under Section 50 of the Income Tax Act, 1961; Challenge against penalty under Section 271(1)(c).

Analysis:
1. The assessee's appeals challenged the validity of reopening and the treatment of long term capital gains as short term capital gains under Section 50 of the Income Tax Act, 1961. The Assessing Officer believed that the taxable income had escaped assessment due to the sale of a depreciable asset, the factory building. The assessee argued that it had not conducted any business activity since 2000-01 and had not claimed depreciation on the building. The Assessing Officer re-assessed the income, treating the long term capital gain as short term capital gains under Section 50 of the Act.

2. The CIT(A) upheld the Assessing Officer's decision, stating that if depreciation had been claimed on an asset and it was subsequently sold, the capital gain must be treated as short term. However, the assessee contended that it had not claimed depreciation on the factory building and provided evidence to support this claim. The lower authorities did not provide any factual evidence to contradict the assessee's position, leading to the conclusion that the Assessing Officer and CIT(A) erred in applying Section 50C without proving the inclusion of the building in the block of depreciable assets.

3. The Tribunal found in favor of the assessee, stating that the Assessing Officer and CIT(A) had wrongly assumed the depreciation claim on the factory building without factual basis. As the building was not part of the block of depreciable assets, the application of Section 50C was incorrect. Consequently, the quantum addition was deleted, rendering the penalty under Section 271(1)(c) baseless. The Tribunal partially accepted the former appeal and allowed the latter appeal, leading to the dismissal of the penalty.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved, the arguments presented, and the final decision rendered by the Tribunal.