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TMI Blog2015 (3) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... r 49 or 50 of the Act. Since we do not find any infirmity in the order of the ld. CIT(A), we confirm the same. - Decided against revenue. - ITA No.620/LKW/2013 - - - Dated:- 26-2-2015 - Shri Sunil Kumar Yadav And shri. A. K. Garodia JJ. For the Appellant : Smt. Pinki Mahavar, D.R. For the Respondent : Shri. Vivek Mehrotra, C.A. ORDER Per Sunil Kumar Yadav: This appeal is preferred by the Revenue against the order of the ld. CIT(A) pertaining to assessment year 2010-11, inter alia, on various grounds which are as under:- 1. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts of the case in deleting the addition made by the Assessing Officer of ₹ 3,68,696/- u/s 41(2) of the Income-tax Act, 1961. 2. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts of the case in deleting the addition made by the Assessing Officer of ₹ 51,44,800/- under head short term capital gain. 3. The Ld. CIT(A) failed to observe the provisions made in Rule 46A of the Income-tax Rules, while admitting additional evidences without giving on opportunity of being heard to the assessing officer and/or for filing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made, which includes ₹ 3,68,696/- as taxable profit under section 41(2) of the Act and ₹ 51,44,800/- as short term capital gain. 5. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) with the submission that section 41(1) and 41(2) of the Act are not applicable in the assessee s case, as the condition precedent for invoking the said provisions are that building, machinery, plant or furniture must be owned by the assessee and in respect of which depreciation is claimed under clause (i) of sub-section (1) of section 32; and the said assets has been used for the purpose of business. The last two conditions are not satisfied, as the assessee never claimed any depreciation in any of the years nor the Assessing Officer has allowed any depreciation in any of the preceding year in the assessment order. It was also contended that provisions of section 50(2) of the Act cannot be invoked, as it can only be invoked where the assets forming part of the block of assets in respect of which depreciation has been allowed under the Income-tax Act. Therefore, computation of short term capital gain made as per provisions of section 50(2) of the Act was incorrect. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant. The facts of the case are that during the year under consideration the assessee sold shop no. UGF-2 for ₹ 40,20,000/- and shop no. UGF-34 for ₹ 18,76,000/- which were shown as shop and godown respectively in the schedule of fixed assets. The cost of acquisition of the two is ₹ 3,02,500/- and ₹ 4,48,700/- respectively. The assessee treated the capital gain as long term capital gain and after indexation computed long term capital gain of ₹ 48,32,031/-, which was claimed as exempt under section 54EC of the Act and section 54F of the Act, as the assessee had invested ₹ 48,50,000/- in National Highway Bond and in residential house. The AO did not accept the claim of the assessee and computed the short term capital gains on transfer of the above assets at ₹ 51,44,800/- and calculated the taxable profit under section 41(2) of the Act at ₹ 3,68,696/-. The issue is whether relief under section 54EC and section 54F of the Act is allowable to the appellant on investment in National Highway Bond/residential house out of sale proceeds of sale of depreciable asset in view of section 50 of the Act. 4(5) It is imperative to refer to sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922) the provisions of sections 48 and 49 shall be subject to the following modifications:- (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (Hi) the actual cost of any asset falling within the1 block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets; (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esidential asset. The provisions above do not provide any prohibition in claim of exemption under section 54EC of the Act in respect of depreciable assets. The deeming provision in section 50 of the Act talks of calculation of short term capital gains but provision of section 54EC of the Act does not prohibit exemption in case the assets sold is a long term capital assets whether depreciable or not. On the contrary in the instant case, the two shops were treated as personal assets on which neither was any depreciation claimed nor the shops used in business. 4(6)(iii) Section 50 of the Act nowhere says that depreciated asset shall be treated as short-term assets, whereas section 54EC of the Act has an application where long-term capital asset is transferred and the amount received is invested or deposited in the specified assets as required under section 54EC of the Act. For application of section 54EC of the Act the necessary pre-requisite condition and enquiry would be, whether the assessee has transferred long-term capital asset and whether the consideration so received is invested or deposited-within the time-limit in specified asset. Capital gain may have been received by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrespective of the fact that the computation of capital gains is done either under section 48 and 49 or under section 50. The contention of the revenue that by amendment to section 50, the long-term capital asset has been converted into a short-term capital asset is also without any merit. As stated hereinabove, the legal fiction created by the statute is to deem the capital gain as shortterm capital gain and not to deem the asset as short-term capital asset. Therefore, it cannot be said that section 50 converts long-term capital asset into a short-term capital asset. 4(7)(ii) Similar issue was also considered by High Court of Gauhati in the case of CIT Vs Assam Petroleum Industries (P.) Ltd [2003] 131 Taxman 699 (Gau.). The head note reads as under - Section 54E, read with section 50, of the Income-tax Act, 1961 - Capital gains - Not to be charged in certain cases - Assessment year 1991-92 - Whether section 50 nowhere says that depreciable asset shall be treated as short-term capital asset and section 54E has an application where long-term capital asset is transferred - Held, yes - Whether capital gain may have been received by assessee on depreciable asset, and if conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the shops transferred were not to be taken as depreciable assets. Even so the exemption under section 54EC of the Act or under section 54F of the Act cannot be denied to the appellant. 4(10) Thus, respectfully following the decisions of the Hon'ble High Court and the Hon'ble ITAT, the Assessing Officer is directed to allow exemption under section 54EC of the Act on investment in eligible bonds out of the sale proceeds from the transfer of the long term capital asset. The AO is directed to allow exemption under section 54EC of the Act of ₹ 46,50,000/- for investment made in National Highway Bonds and ₹ 2,00,000/- for investment in residential house under section 54F of the Act. The additions of ₹ 3,68,696/- and ₹ 51,44,800/- made by the AO are deleted giving consequential relief to the appellant. 7. Aggrieved, the Revenue has preferred an appeal before the Tribunal with the submission that since the assessee has shown the impugned properties as part of block of assets, provisions of section 50(2) of the Act were rightly invoked by the Assessing Officer. It is irrelevant whether the assessee has claimed depreciation or not. While computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year. Therefore, requisite conditions for applicability of aforesaid provisions are not fulfilled. For the sake of reference, we extract the provisions of sections 41(1); 41(2) and 50(2) of the Act as under:- SECTIONS 41(1) 41(2): (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the firstmentioned person) and subsequently during any previous year,-- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications:- xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets. 10. Though the assets were shown in the category of fixed assets, but no depreciation was claimed. Therefore, the provisions of section 41(2) and 50(2) of the Act cannot be invoked for the purpose of computation of short term capital gain. In that eventuality, the normal long term capital gain was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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