2017 (12) TMI 599 - AT - Income Tax

Gain on sale of land/factory shed - Revenue contends that the original factory shed never formed part of the block of asset as no depreciation has been admittedly claimed on the factory shed in transfer nor has been allowed - section 50 Applicability - Held that - It is an admitted position that the assessee has never claimed any depreciation on the asset under transfer. Therefore the very premise for claiming the same to be part of block of asset for the purpose of s.50 is a damp squib. Secondly the benefit of section 50 is available only when the depreciation has been allowed on the asset under transfer. It is an admitted position that no such depreciation has been either claimed or allowed on factory shed in transfer. The assets sold is thus not a depreciable asset in so far as provisions of s.50 is concerned. Admittedly assessee has claimed indexation benefit as per its submission before the CIT(A). Thus the asset in transfer was also not understood to be a Short Term Capital Asset as contemplated under s.50 of the Act by the assessee himself. Therefore we do not in totality see any substance in the plea of the assessee. A reading of the order of the CIT(A) shows that action of the CIT(A) is in confirmity with law and does not call for any modification. - Decided against assessee.

Summary

Issues:
Challenge of chargeability of Long Term Capital Gains (LTCGs) on sale of land determined by CIT(A).

Analysis:
The appeal was filed by the assessee against the CIT(A)'s appellate order regarding the assessment order under s.143(3) of the Income Tax Act, 1961, for the Assessment Year (AY) 2010-11. The assessee contested the chargeability of Long Term Capital Gains (LTCGs) on the sale of land. The Assessing Officer (AO) determined a Long Term Capital Gain (LTCG) on the sale of land/factory shed at &8377; 26,42,620/- and included this income in the assessed income. The CIT(A) partially granted relief to the assessee but upheld the AO's decision to bifurcate the sale consideration between land and building for tax calculation purposes.

The main contention of the assessee was that the factory shed was sold as a composite and single unit, and no separate sale consideration was received for land and structure. The assessee argued that the AO wrongly assumed that the factory shed would depreciate and not appreciate, leading to an incorrect bifurcation of the sale price. The assessee presented evidence to establish that the possession of the old shed was not entirely handed over at the time of the sale deed, and operations continued until the new factory premises were occupied. The assessee claimed that since no depreciation was claimed on the factory shed, the cost for calculating capital gains should be based on the purchase cost in 2006 without apportioning it between land and building.

During the appeal before the ITAT, the assessee's representative argued that the factory shed and land were purchased for &8377; 16 lakhs, and the new factory shed and land were bought for &8377; 33.10 lakhs, falling under the same block of assets. The representative contended that no tax liability should be imposed on the assessee for capital gains due to the substitution of assets within the same block. However, the ITAT upheld the CIT(A)'s order, stating that the asset under transfer was not depreciable, as no depreciation had been claimed or allowed on the factory shed. The ITAT found no merit in the assessee's argument and dismissed the appeal.

In conclusion, the ITAT dismissed the appeal of the assessee, upholding the decision of the CIT(A) regarding the computation of capital gains on the sale of land and factory shed.