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TMI Blog2010 (5) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... 003. Subsequently on perusal of the records it was noticed that the assessee had shown the long-term capital gains on the depreciable assets after applying the cost inflation index method after claiming exemption under section 54EC of the Income tax Act instead of the short-term capital gains as per the provisions of section 50 of the Income-tax Act. Accordingly, the notice to reassess the income was issued under section 148 of the Act on August 3, 2006. In the course of assessment the Assessing Officer observed that the assessee is a manufacturer of carpet yarn and shoddy yarn. He further observed that on perusal of the records it was noticed that the assessee has returned long-term capital gains of Rs. 18,292 on the sale of depreciable assets namely shed godown BMK premises, which were sold for Rs.9,00,000 on March 7, 2002, by applying the cost inflation index method and after claiming exemption under section 54EC of the Income-tax Act. As the sale/transfer of depreciable assets results in short-term capital gains as per the provisions of section 50 of the Income-tax Act and exemption under section 54EC of the Income-tax Act is not allowable from such short-term capital gains, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 4,37,675 is the short-term capital gains in the hands of the assessee on which no exemption under section 54EC of the Income-tax Act is allowable as exemption under section 54EC of the Income-tax Act is allowable in respect of the capital gains arising from the transfer of long-term capital assets. Further, depreciation of Rs. 20,978 claimed by the assessee at 5 percent on shopwool market account in the financial year 2001-02 is not allowable as the written down value of the block of assets consisting of shopwool market account and shed godown BMK premises as on March 31, 2002 is nil as already discussed above. Subject to discussion above, short-term capital gains of Rs.4,37,675 is to be taxed in the hands of the assessee instead of long-term capital gain of Rs. 8,292 as returned by the assessee in its return of income and depreciation of Rs. 20,978 claimed by the assessee on shopwool market account in the financial year 2001-02 is to be disallowed." The assessee appealed before the learned Commissioner of Income-tax (Appeals) challenging the jurisdiction as well as the merits of the case. The assessee claimed that the findings of the Assessing Officer were contrary to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 54EC is not admissible since there is short-term capital gains on depreciable item, which rebutted in short computation of capital gains. The same is proposed to be added back along with interest chargeable under section 234B." Learned counsel for the assessee submitted that the proceedings under section 154 were later on dropped and for the same reason the reassessment was reopened. Hence he claimed that in these circumstances as held by the jurisdictional High Court in 321 ITR 526 in the case of CIT v. Batra Bhatta Company and the hon'ble High Court of Calcutta in the case of Berger Paints India Ltd. v. Asst. CIT [2010] 322 ITR 369 the reopening is not justified. The learned Departmental representative on the other hand submitted that the return was initially processed under section 143(1) of the Incometax Act, wherein there was no question of formation of opinion. The learned Commissioner of Income-tax (Appeals) in this regard relied upon the case law of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 from the apex court. We have heard both counsel and perused the records. We can gainfully refer to the provisions of section 147 of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessment year has escaped assessment. The word "reason" in the phrase "reason" to believe will mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income has escaped assessment, it can be said to have reason to believe that an income has escaped assessment. The said expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. In CIT v. Batra Bhatta Company [2010] 321 ITR 526 (Delhi) the jurisdictional High Court had held that it is not a just belief of the Assessing Officer that there is material for invoking section 147. But such a belief must be based upon certain reasons ; merely because the Assessing Officer feels that the issue requires much deeper scrutiny is not enough ground for invoking section 147. In Berger Paints India Ltd. v. Asst. CIT [2010] 322 ITR 369 the hon'ble Calcutta High Court has held that in that case the reassessment notice has been issued for virtually the same reason for which rectification proceedings had earlier been initiated but dropped. The Assessing Officer had not disclosed any material for reopening assessment. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bit of section 50 of the Income-tax Act and hence the claim of the assessee for exemption under section 54EC should also not be denied. The learned Departmental representative on the other hand submitted that the assessee had purchased shed godown originally and was claiming depreciation on the same. There was no bifurcation of the value of land and building in the assessee's books and the assessee was claiming depreciation on the same from earlier years. He claimed that there was no evidence that the assessee has sold land alone. Hence, he claimed, when admittedly the assessee had claimed depreciation on the said asset on the anvil of section 50 of the Income-tax Act, the assessee cannot claim the long-term capital gains on the same. He further submitted that the order of the Assessing Officer holding that the said asset fell under the group of 5 percent depreciation was correct and should be sustained. As per the submission before us, the assessee had shown the impugned asset as shed godown BMK premises. The impugned asset was purchased on February 26, 1992 for Rs. 87,755 and the assessee has claimed depreciation on the same at 10 percent from the assessment year 1993-94 up t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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