2021 (8) TMI 117 - AT - Income Tax

Computation of short-term capital gains from shed - assessee deducted not only the WDV of shed but also deducted WDV of other assets and deposits as per MIDC (authority) - HELD THAT - The cost of removing would be more than cost of scrap. Since these assets were discarded, the deduction of the same should be allowed u/s 32(1)(iii). Though Ld. CIT(A) concurred that the deduction could be allowed u/s 32(1)(iii) but the same could not be a part of cost of acquisition. Aggrieved, the assessee is in further appeal before us. So far as the write-off of deposits is concerned, we find that the rights in land and shed have been assigned along with all the rights, privileges etc. through composite agreement. The deposits have been paid to MIDC for various purposes in connection with lease of land and therefore, these form part parcel of the land shed. Since, the rights have been transferred, these would also stand transferred to the assignee. This being so, there is no reason as to why the deduction of the same is not available to the assessee while computing the capital gains - we direct Ld. AO to allow the deduction of the same. So far as the write-off of other assets is concerned, we find that fixed assets have been reduced to nil at year-end which is evident from assessee s Balance Sheet as placed on record. Hence, the fixed asset block has ceased to exist. Therefore, the deduction of WDV of assets as attached to above land shed would be available to the assessee

Summary

Issues:
Computation of capital gains involving the cost of assets transferred, deposits for water and electricity supply, deduction of written down value (WDV) of fixed assets, and deduction of other assets written-off.

Analysis:

1. Cost of Assets Transferred:
The appeal involved the computation of capital gains for the Assessment Year (AY) 2015-16. The assessee sold a plot and shed for a total consideration of ?225 Lacs. The agreement encompassed the transfer of land and built-up shed along with various attached facilities. The dispute arose regarding the inclusion of deposits paid to MIDC for water and electricity supply in the cost of assets transferred. The assessee contended that these deposits were integral to the assigned property and should be considered as part of the cost. The tribunal agreed with the assessee's argument, directing the Assessing Officer (AO) to allow the deduction of these deposits in the computation of capital gains.

2. Deduction of WDV of Fixed Assets:
The assessee claimed a deduction for the written down value (WDV) of fixed assets, including assets written-off and deposits made to MIDC. The AO denied the deduction of these components. During the appellate proceedings, the assessee argued that the discarded assets were outdated or immovable, justifying their write-off. The tribunal concurred that the deduction under section 32(1)(iii) should be allowed for these assets, as they were no longer part of the fixed asset block. The tribunal directed the AO to permit the deduction of the WDV of assets attached to the land and shed, as presented in the balance sheet.

3. Other Assets Written-Off:
The case also involved the deduction of other assets written-off, such as air conditioners, computers, and vehicles. The tribunal analyzed each asset's remaining useful life and scrap value to determine the eligibility for deduction. The tribunal found that these assets were either outdated, embedded, or had a remaining useful life that justified their write-off. Consequently, the tribunal directed the AO to allow the deduction of the WDV of these assets, as the fixed asset block had ceased to exist.

In conclusion, the appellate tribunal allowed the appeal, emphasizing the inclusion of deposits paid to MIDC in the cost of assets transferred and permitting the deduction of written down value of fixed assets and other assets written-off in the computation of capital gains for the relevant assessment year.