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TMI Blog2016 (8) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 54G of the Act to the assessee. The common grievance in both these appeals is allowed in favour of the assessee and against the revenue. Disallowance u/s. 14A - Held that:- We find that at clause (i), the A.O has himself mentioned that the amount of expenditure directly relating to income which does not form part of total income as Nil which means that there is no element of borrowed funds. However, in clause (ii), the A.O. has computed the disallowance of expenditure by way of interest during the previous year. This stand of the A.O. is contradictory. Therefore, in our considered opinion, the element of interest taken for consideration of the disallowance for computing ₹ 2.04.538/- is uncalled for and deserves to be deleted. The balance amount remains is ₹ 37,699/-. Since, admittedly the assessee has suo motu disallowed ₹ 1,81,902/-, no further disallowance is required. We accordingly direct the A.O. to delete the addition of ₹ 60,335/-. - Decided in favour of the assessee - ITA. No: 2932/AHD/2011 & 2482/AHD/2012 - - - Dated:- 22-6-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER For The Appellant : Shri Ashw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation 21905070 6. The assessee was asked to justify its claim of deduction u/s. 54G of the Act. Assessee filed a detailed reply to substantiate its claim of deduction stating that it has complied with the conditions of Section 54G, the relevant part of assessee s reply read as under:- 3.3 Vide this office letter dated 16.12.2010, the assessee was requested to give justification for the assessee s claim of deduction u/s. 54G of the Income-tax Act, 1961 at ₹ 2,97,69,350/-. In response, the assessee has filed its written submission. It was stated by the assessee that the assessee has complied with the provisions of section 54G. The assessee has purchased a land in village Duttpura in 1995. The assessee applied for electric connection in 1999. The factory license was obtained in July, 1999. The factory license No. is 13650. The electric connection was given on June, 1999. The first electricity bill was of June, 1999. The factory started production of MS pipe on small scale during FY.1999- 2000. The small scale operation continued upto FY. 2005-2006. The assessee company decided to shift the existing factory at Jamuna Baug, Baroda urban area to village Duttpura - Rur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the provisions of Section 54G, the shifting of the industrial undertaking to non-urban area was required to be completed within three years of the transfer of the land or building or machinery used in the industrial undertaking. The First Appellate Authority was of the view that in the case of the assessee, the date of transfer is 10.04.2006 and since the assessee has not complied the mandatory conditions for the eligibility u/s. 54G of the Act from this date of transfer. The ld. CIT(A) confirmed the findings of the A.O. 10. Aggrieved by this, the assessee is before us. The ld. counsel for the assessee vehemently stated that the lower authorities have not appreciated the provisions of the Act in the true spirit. It is the say of the ld. counsel that the assessee has fulfilled all the mandatory conditions making it eligible for deduction u/s. 54G of the Act and the facts have not been properly appreciated by the revenue authorities. The ld. counsel for the assessee brought to our notice, CBDT Circular No. 791, dated 02.06.2000 and in support reliance was placed on the decision of the Hon ble Supreme Court in the case of Sanjeev Lal and Smt. Shail Motilal 365 ITR 389. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost and expenses incurred in relation to all or any of the purposes mentioned in clauses (a) to (d) (such cost and expenses being hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its being purchased acquired, constructed or transferred, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to, or less than, the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its being purchased, acquired, constructed or transferred, as the case may be the cost shall be reduced by the amount of the capital gain. Explanation.-In this sub-section, urban area means any such area within the limits of a municipal corporation or municipality as the Central Government may, having regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of transfer. 16. The bone of contention is the date of transfer u/s.2(47)(iv), it is provided- transfer in relation to a capital asset includes- (iv) in case where the asset is converted by the owner thereof into or is treated by him as, stock-in-trade of a business carried on by him, of such conversion or treatment. 17. Section 45(1) reads as under:- 45(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections [***] [54b, [***] 54D, [54EA, 54EB,] 54F [ 54G and 54H]]], be chargeable to income-tax under the head Capital gains , and shall be deemed to be the income of the previous year in which the transfer took place. 18. And Section 45(2) reads as under:- 45(2)- Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by his as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year in which such conversion takes place and, accordingly, capital gain would normally arise in that very year. However, section 45(2) of the Act postpones the assessment of such capital gains to the year in which the stock-intrade is actually sold or otherwise transferred by the assessee. 2. In order to qualify for deduction under section 54E of the Act, the investment in specified assets was required to be made within six months from the date of transfer. A question had arisen as to whether the date of transfer, as referred to in section 54E of the Act, is the date of conversion of the capital asset into stockin- trade or the date on which the stock-in-trade is sold .or otherwise transferred by the assessee. 3. The Board had earlier issued a Circular No. 560, dated 18th May, 19901, in consultation with the Ministry of Law, clarifying that for purposes of section 54E of the Act, the date of transfer in such cases is the date on which the capital asset is converted by the assessee into stock-in-trade and not the date on which such stock-in-trade is sold or otherwise transferred by the assessee. Section 54E became inoperative for transfers made on or after 1st A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of factory building. Similarly the assessee has incurred expenditure of ₹ 65,85,913 in acquiring plant and machinery and construction of factory building for the period from 01-04-2008 to 31-03-2009. The said amount is utilized within three years from the date of transfer i.e. from 10-04-2006 to 31-03- 2009. Therefore, since the assessee has purchased the machinery or constructed the factory building before 31-03-2009. He is eligible to get deduction under Section 54G in respect of the cost incurred during A.Y. 2008-2009 and A.Y. 2009-2010. The learned CIT(A) in A.Y. 2008-2009 mis-appreciated the facts to the effect that the assessee has not purchased or constructed the factory building within the time allowed under Section 54G. In fact the assessee has purchased the machinery and constructed the factory building upto 31-03-2008 and 31-03-2009 i.e. within three years from 10-04-2006. Further, the CIT(A) for A.Y. 2009- 2010 held that the utilization as stated above is not available since the shifting is not completed within time allowed [Please refer Para No. 4.4 on Page No. 24 of CIT(A) Order for A.Y. 2009-2010]. The learned CIT(A) misappreciated the law. Section 54G does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts have been made out of own funds. Therefore, there cannot be any disallowance u/s. 14A of the Act, the A.O. denied the claim of the assessee and proceeded by computing the disallowance u/s. 14A read with Rule 8D of the Act. The disallowance so computed was at ₹ 2,42,237/- and after deducting the suo motu disallowance of the assessee at ₹ 1,81,902/-, the A.O. added an amount of ₹ 60,335/-. 31. Assessee carried the matter before the ld. CIT(A) but without any success. 32. Before us, the ld. counsel for the assessee reiterated that the entire investments have been made out of own funds and none of the investments have been made out of borrowed funds. Therefore, there is no question of any involvement of interest on borrowed funds. 33. Per contra, the ld. D.R. supported the findings of the lower authorities. 34. We have given a thoughtful consideration to the computation of disallowance made by the A.O. on page 12 of the assessment order. We find that at clause (i), the A.O has himself mentioned that the amount of expenditure directly relating to income which does not form part of total income as Nil which means that there is no element of borrowed fund ..... X X X X Extracts X X X X X X X X Extracts X X X X
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