2018 (1) TMI 1081 - AT - Income Tax

Capital gain on transfer of the depreciable long term capital assets - rectification of mistake - Tax income from STCG @ 20% instead of regular tax rate - whether the rate of 20% is applicable to the gains earned on transfer of the depreciable long term capital assets within the meaning of section 50 of the Act? - Held that - The applicable rate of tax on the deemed short term capital gains generated out of depreciable long term capital assets is the matter of debate. The judgment of jurisdictional High Court in the case of Ace Builders Pvt. Ltd. (2005 (3) TMI 36 - BOMBAY High Court ) is on the facts of reinvestment of such long term capital assets-linked deemed short term capital gains; whereas in the assessee s case, it is not a case of reinvestment. This makes the difference. Therefore, we are of the opinion that the order of CIT(A) should be confirmed on the ground of debatability linked to the jurisdiction of AO u/s.154 of the Act. As we have considered the arguments of the Ld. Counsel for the assessee that the CIT(A) allowed the appeal of the assessee basing on the arguments that revolve around the debatability on this issue. Explaining the same, Ld. Counsel submitted that, for the rate purposes, the applicable tax rate on the capital gains relatable to sale of transfer of the depreciable long term capital assets and which are not reinvested u/s.54E of the Act constitute long term capital gains or short term capital gains is a matter of debate. On seeing the debatability, CIT(A) granted relief. On considering the same, we are of the opinion that the AO invalidly invoked the provisions of section 154 of the Act in this case. Accordingly, the relevant ground raised by the Revenue are dismissed. Suppressed production of TMT bars - CIT-A deleting the addition - Held that - CIT(A) has considered all the aspects which led the assessee to disclose 982.82 units per MT which include that the assessee maintained the records properly and the books of accounts have been audited, no method for recorded day-to-day electricity consumption, declaration of 7% burning loss by various steel manufacturing units in Jalna & surrounding area, reports of Excise Department that for 1 MT of MS Ingots/Billets, 1026 electricity units are required, etc., and the decision of Hon ble CE&S Tribunal and the Pune Bench of the Tribunal in the case of SRJ Peety Steels Pvt. Ltd. (2015 (1) TMI 1228 - ITAT PUNE) etc. Nothing incriminating material has been brought by the Revenue authorities to take a contrary view against the findings of CIT(A). We therefore find the order of the CIT(A) to be a reasoned one and accordingly affirm the same

Summary

Issues Involved:
1. Applicable tax rate on short term capital gains linked to depreciable long term capital assets.
2. Addition on account of suppressed production of TMT bars.

Issue-wise Detailed Analysis:

1. Applicable Tax Rate on Short Term Capital Gains Linked to Depreciable Long Term Capital Assets:

The Revenue filed ITA No.990/PUN/2015 against the CIT(A)’s order directing the AO to tax short term capital gains (STCG) at 20% instead of the regular tax rate of 30%. The assessee sold depreciable assets, resulting in capital gains under section 50 of the I.T. Act, which deems such gains as STCG. Initially, the AO taxed these gains at 30%, but the CIT(A) reduced this to 20%, citing the Bombay High Court decision in CIT Vs. Ace Builders Pvt. Ltd.

The Revenue argued that the Ace Builders case was misapplied as it dealt with reinvestment of gains under section 54E, which was not the case here. The Revenue also cited the Pune Bench decision in Rathi Brothers Madras Ltd., supporting a 30% tax rate on such gains. Conversely, the assessee relied on the Mumbai Bench decision in Smita Conductors Ltd., which supported a 20% tax rate for gains on long-term depreciable assets.

The Tribunal concluded that the issue was debatable, noting divergent judicial opinions. It held that the AO improperly invoked section 154 for rectification, as the matter was not free from doubt. Consequently, the Tribunal upheld the CIT(A)’s order on the ground of debatability, dismissing the Revenue’s appeal.

2. Addition on Account of Suppressed Production of TMT Bars:

In ITA No.991/PUN/2015, the Revenue contested the CIT(A)’s deletion of an addition of ?67,58,301/- for alleged suppressed production of TMT bars. The AO had noted significant deviations in electricity consumption per MT of production, suggesting underreported production. The AO rejected the assessee’s books under section 145(3) and estimated suppressed production based on a comparable case, Jailaxmi Casting and Alloys Pvt. Ltd.

The CIT(A) found the AO’s objections unsubstantiated, noting that the assessee’s books were audited and no specific discrepancies were identified. The CIT(A) also referenced the CE&S Appellate Tribunal’s decision in SRJ Peety Steels Pvt. Ltd., which held that variations in electricity consumption could be due to multiple factors and did not necessarily indicate suppression of production.

The Tribunal affirmed the CIT(A)’s decision, finding it well-reasoned and supported by relevant judicial precedents. It noted that the Revenue failed to provide contrary evidence against the CIT(A)’s findings. Thus, the Tribunal dismissed the Revenue’s appeal.

Conclusion:

Both appeals by the Revenue were dismissed. The Tribunal upheld the CIT(A)’s decisions on the grounds of debatability regarding the applicable tax rate on STCG from depreciable assets and lack of substantiated evidence for the addition on account of suppressed production. The judgments emphasized the importance of thorough and substantiated assessments and the necessity of clear legal grounds for invoking rectification provisions.