2018 (11) TMI 274 - HC - Income Tax

Gain on account of sale of land - LTCG or STCG - Held that - CIT(Appeals) granted relief to the assessee by treating the sale consideration arising out of the land as long term capital gain and that arising out of the sale of building as short term capital gain. He, therefore, restricted the addition made by the Assessing Officer. The Tribunal confirmed the view of the CIT(Appeals) observing that he has rightly treated the sale consideration arising out of the sale of land as long term capital gain. With this view, we are in broadly agreement. No question of law therefore arises. Disallowance of provision of Warranty expenses - Held that - Tribunal noted that the assessee had been making such claim consistent with the past which was never disallowed by the assessing officer in scrutiny the assessment order except the one which was reversed by the CIT(Appeals). The Tribunal relied on the decision of the Supreme Court in the case of Rotork Controls India Private Limited v. Commissioner of Income Tax 2009 (5) TMI 16 - SUPREME COURT OF INDIA and Bharat Earth Movers v. Commissioner of Income Tax 2000 (8) TMI 4 - SUPREME COURT and observed that the provision for the warranty was estimated by the assessing officer by scientific basis and was therefore allowable. - Decided in favour of assessee.

Summary

Issues:
1. Whether the Appellate Tribunal erred in deleting the addition on account of Short Term Capital gain on the sale of land and building.
2. Whether the Appellate Tribunal erred in upholding the decision on the disallowance of provision of Warranty expenses.

Analysis:

Issue 1:
The first issue revolves around the assessment of Short Term Capital Gain on the sale of land and building during the relevant period for Assessment Year 2009-10. The assessee sold a factory building for a total consideration of &8377; 5.75 crores, declaring the proceeds as long term capital gain. However, the Assessing Officer considered the property as a depreciable asset and assessed the tax based on short term capital gain. The CIT(Appeals) differentiated between the sale consideration arising from land and building, treating the former as long term capital gain and the latter as short term capital gain. The Tribunal upheld this decision, stating that the sale consideration from land should be treated as long term capital gain. The High Court agreed with this view, finding no legal question to be addressed.

Issue 2:
The second issue concerns the disallowance of a provision of warranty expenses amounting to &8377; 20.10 lakhs. Both the CIT(Appeals) and the Tribunal observed that the assessee had consistently claimed such expenses in the past, which were not disallowed by the Assessing Officer except for one instance reversed by the CIT(Appeals). The Tribunal referred to the Supreme Court cases of Rotork Controls India Private Limited and Bharat Earth Movers, emphasizing that the provision for warranty was estimated scientifically and hence allowable. Consequently, the Tax Appeal challenging this issue was dismissed by the High Court.

In conclusion, the High Court upheld the decisions of the CIT(Appeals) and the Tribunal regarding both the Short Term Capital Gain on the sale of land and building, as well as the provision of warranty expenses, dismissing the Tax Appeal filed by the Revenue.