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TMI Blog2018 (11) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... tal Gain for ₹ 6.50 Crs. is deleted. - Decided in favour of assessee. Difference in the capital account balance of the assessee who is partner in partnership firm in the books of accounts of the assessee vis-a-vis balance of capital account of the assessee in the Balance Sheet of the partnership firm - Held that:- The said partnership firm namely M/s. Pregnancy Advice & Services is also assessed to income-tax within Indian tax Jurisdiction and all the information/ data’s of the said firm was already on record with Revenue in its data base as it filed its return of income on 12-03-2013 while assessment is framed on 30-03-2015 and Revenue could have easily cross verified and reconciled the said differential from its own data base to verify the veracity and validity of the contentions of the assessee more so Revenue is now well equipped with advanced technological platforms available at its disposal. Coming back to issue in hand, CIT(A) has passed well reasoned order granting relief to the assessee with which we fully concur which is re-produced by us in preceding para’s of this order and the same is not reproduced again. We have carefully gone through the entire material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to alter any of the ground of appeal, if need be. (iv) The appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)51, Mumbai, may be set aside and that of the Assessing Officer restored. 3. The brief facts of the case are that the assessee is a Doctor by profession and has earned income from Salaries , Profits and Gains of Business or Profession and Income from other Sources. 4. The Revenue has filed this appeal with tribunal late by 27 days beyond the time stipulated under Section 253(3) of the 1961 Act. The Revenue has submitted an application dated 01-08-2018 praying for condoning delay in filing this appeal with tribunal late by 27 days beyond the time stipulated u/s. 253(3) of the 1961 Act. The Revenue has explained the delay in filing this appeal late with tribunal mainly due to interpretation of law of limitation for computing period of limitation effective from date of service of order of learned CIT(A) to the office of learned Principal CIT(Central)-2, Mumbai who presently hold charge over the assessee and who received the order on transfer from learned Pr. CIT-16,Mumbai who earlier held charge over the assessee. It is praye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated at 114 situated at 4/11, Avanti Apartments , S B Marg, Dadar, Mumbai . The AO observed that the first set of immovable properties sold being units 24-26 at Pearl Center, Dadar, Mumbai were all commercial properties used by the assessee for the purpose of his clinic and depreciation on the same was claimed by the assessee. The AO observed that the second immovable property sold being flat at 114,Avanti Apartments, Dadar was used for residential premises . It is an undisputed fact between rival parties that both these set of immovable properties which were sold during the year under consideration were held by the assessee for a period of more than thirty six months before being sold . It is also undisputed between rival parties that the assessee has purchased a new residential flat at Beau Monde, Prabhadevi for ₹ 20,63,72,233. The assessee has claimed deduction u/s 54F of the 1961 Act for making reinvestment in new residential flat even with respect to sale of commercial units located at Pearl Center, Dadar, Mumbai which was used by the assessee for commercial purposes for his clinic and on which the assessee even claimed depreciation u/s 32 of the 1961 Act , wherein asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant's submissions. Appellant had sold commercial and residential property totalling to ₹ 10.5 Crs. and purchased a residential house at Beau Monde, Prabhadevi for ₹ 20,63,72,233/-. Appellant had claimed a deduction of 54F from the sale consideration received from the sale of commercial and residential property. However, AO had denied appellant's claim u/s 54F on sale of commercial property on observing that as appellant had claimed depreciation for commercial property, hence section 50 of the Income Tax Act is applied in the appellant's case. According to the AO, if section 50 is applied in capital gain received from sale of any depreciable asset, it is to be computed as short term capital gain. Hence, AO treated the capital gain as short term capital gain. According to AO section 54 clearly states that capital gain arising from the transfer of any long term capital asset is exempt if the same is invested in residential property. As appellant's asset is to be treated as short term capital asset, AO denied the exemption claim of the appellant u/s 54F. Even, AO was of the view that decision of Bombay High Court in the case of CIT vs ACE Builders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT vs. Rajiv Shukla [334 ITR 138] where it is held as under : The AO took the view that the capital gains arising from transfer of a depreciable asset shall be deemed to be capital gains arising from transfer of a short term capital asset and deduction u/s 54F was not available. The Commissioner (Appeals) deleted the addition of ₹ 91,77,118/- made by the Assessing Officer under the head Short-term Capital gain . This was confirmed by the Tribunal, on appeal: Held, dismissing the appeal, that the income earned by the assesse on sale of property was to be treated as long-term capital gains entitling him to the benefit of deduction u/s 54F. In the above Delhi High Court case it was held that when a depreciable asset has to be treated as Long term capital asset, it is entitled to the benefit of section 54F of the Act. In the above case, Delhi High Court had relied on the case of CIT vs. ACE Builders [281 ITR 210 (Bom), CIT vs Assam Petroleum Industries (P) Ltd. [262 ITR 587] Ld. CIT vs. Delite Tin Industries , I.T. Act, 1961 No. 1118/2008. If we apply the above case laws to our case here also appellant sold commercial property which is held for more than 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Order of Mumbai Bench of the Hon'ble Tribunal in the case of ACIT v. Kiran G Gadhia for A.Y. 2010-11 in ITA No. 4021/Mum/2015 dated 22.03.2017 7. Judgment of Hon'ble Supreme Court in the case of CIT v. V.S. Dempo Company Ltd. (2016) 387 ITR 354(SC) It was submitted by Ld. Counsel for the assessee that deeming fiction of Section 50 is to be restricted only for the limited purpose of modification of provisions of Section 48 and 49 of the 1961 Act as is stipulated in Section 50 of the 1961 Act and it cannot be extended further beyond than what is stipulated in Section 50 of the 1961 Act. It was submitted by learned counsel for the assessee that it is only for the purposes of computing deduction from full value of consideration, section 48 and 49 of the 1961 Act stood modified and capital gains arising thereof shall be deemed to be from the transfer of short term capital assets. It was submitted that since asset being commercial units no. 24-26 situated at Pearl Center , Dadar were held for a period of more than thirty six months, it is to be deemed to be long term capital gains enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f provisions of Section 50 of the 1961 Act by holding that the gains on sale of commercial property to be short term capital gains on sale of short term capital asset depriving assessee benefit of deduction u/s 54F on reinvestment in new residential flat as the said section stipulated that only long term capital gains are entitled for deduction u/s 54F of the 1961 Act for reinvestment made in new residential properties We have observed the Section 50 creates a deeming fiction by modifying provisions of Section 48 and 49 of the 1961 Act for the purposes of computation of capital gains chargeable to tax under Section 45 of the 1961 Act with respect of the depreciable assets forming part of block of assets and there is nothing in Section 50 which could suggest that deeming fiction is to be extended beyond what is stated in provisions of Section 50 of the 1961 Act and it cannot be extended to deduction allowable to the assessee u/s 54F of the 1961 Act which is an independent Section operating in altogether different field . The issue in no more res-integra as the issue is now been settled by Hon ble Supreme Court in the case of V. S. Dempo Company Limited(supra).The assessee has rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal allowed the appeal of the assessee herein holding that the assessee shall be entitled for exemption under Section 54E of the Act. The High Court has confirmed the view of the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue. While doing so the High Court has relied upon its own judgment in the case of CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210/[2005] 144 Taxman 855 (Bom.). The High Court has observed that Section 50 of the Act which is a special provision for computing the capital gains in the case of depreciable assets is not only restricted for the purposes of Section 48 or Section 49 of the Act as specifically stated therein and the said fiction created in sub-section (1) (2) of Section 50 has limited application only in the context of mode of computation of capital gains contained in Sections 48 and 49 and would have nothing to do with the exemption that is provided in a totally different provision i.e. Section 54E of the Act. Section 48 deals with the mode of computation and Section 49 relates to cost with reference to certain mode of acquisition. This aspect is analysed in the judgment of the Bombay High Court in the case of ACE Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uahati High Court have also taken the same view in the following cases: 1. CIT v. Polestar Industries [2014] 41 taxmann.com 237/221 Taxman 423 (Guj.) 2. CIT v. Assam Petroleum Industries (P.) Ltd. [2003] 262 ITR 587/131 Taxman 699 (Gau.). 4. We are also informed that against the aforesaid judgments no appeal has been filed. 5. In view of the foregoing, we do not find any merit in the instant appeal which is, accordingly, dismissed. The Mumbai-tribunal in the case of ACIT v. Shri Kiran G Gadhia(supra) of which one of us i.e. Accountant Member was part of the Division Bench has under similar circumstances allowed the deduction u/s 54/54F of the 1961 Act in para 11 and 12 of the said order by holding in favour of tax-payer as under: 11. With regard to the contention of the Assessing Officer that since the Assessee has claimed depreciation on one of the properties and therefore by virtue of the provisions of Section 50 gain arising from the transfer of such asset should be considered as short term capital gain, we find that this issue has been decided by the Jurisdictional High Court in the case of CIT Vs. Ace Builders Pvt. Ltd. [281 ITR 210] wherein t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of service to those appointed prior to 19/7/1969. The respondent therein who had joined the bank on 1/7/1972 claimed extention of service because he was deemed to be appointed in the bank with effect from 26/10/1965 for the purpose of seniority, pay and pension on account of his past service in the army as Short Service Commissioned Officer. In that context, the Apex Court has held that the legal fiction created for the limited purpose of seniority, pay and pension cannot be extended for other purposes. Applying the ratio of the said Judgment, we are of the opinion, that the fiction created under section 50 is confined to the computation of capital gains only and cannot be extended beyond that. Thirdly, section 54E does not make any distinction between depreciable asset and non depreciable asset and, therefore, the exemption available to the depreciable asset under section 54E cannot be denied by referring to the fiction created under section 50. Section 54E specifically provides that where capital gain arising on transfer of a long term capital asset is invested or deposited (whole or any part of the net consideration) in the specified assets, the assessee shall not be charged to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s 54EC of the Act. Respectfully following the decision of the Jurisdictional High Court, we hold that the Assessee is entitled for deduction u/s 54/54F in respect of both the properties. Thus the grounds 1 to 4 raised by the revenue are rejected. Thus keeping in view aforesaid decisions, we are of the considered view that the assessee will be entitled for deduction u/s. 54F of the Act on the capital gains arising on the sale of depreciable assets being commercial flats situated at unit no. 24-26, Pearl Center, Dadar, Mumbai computed in the manner laid down in Section 50 of the 1961 Act read with Section 48, 49 and 45 of the 1961 Act as these assets which were sold by the assessee during the year under consideration were held for a period of more than thirty six months , on the reinvestment made by the assessee in new residential property being flat at Beau Monde. We have no hesitation in upholding/confirming the well reasoned appellate order dated 05.12.2016 passed by Ld.CIT(A) which is reproduced here under:- 3.3 1 have considered the appellant's submissions. Appellant had sold commercial and residential property totalling to ₹ 10.5 Crs. and purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 50 of the Act is a deemed provision. In case of a deemed provision its applicability cannot be extended to other sections. Even Supreme Court in the case of CIT vs Amarchand N. Shroff [48 ITR 59 ] held that deeming provision is a fiction of law, it cannot be extended beyond the object for which it was enacted. By the above Supreme Court case, it is clear that in deeming provision fiction cannot be extended to other sections of the Act. Hence, appellant is correct in stating that deeming provision u/s 50 were for computation of capital gain under depreciable assets is treated as Short term capital gain, but if the asset is held for more than 3 years, the character of the assets will not change from Long term to Short term assets just because it is computed under section 50 of the Act. As deeming provision section cannot be extended for other sections, by this way appellant is eligible even for claiming section 54F of the Act for sale of commercial property on which it claimed depreciation. This issue was further resolved by Delhi High Court in the case of CIT vs. Rajiv Shukla [334 ITR 138] where it is held as under : The AO took the view that the capital gains arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the said partnership firm namely M/s. Pregnancy Advice and Services as at 31-03-2012 of ₹ 7,72,965/- , leading to differential of ₹ 1,89,97,538/- in the books of accounts maintained by the assessee vis-a-vis the Balance Sheet of the partnership firm of which the assessee is partner as at 31-03-2012. The assessee as per AO submitted explanations vide letters dated 14.03.2015 that the assessee did not receive any Remuneration/interest on capital or any other taxable income from the said firm namely M/s. Pregnancy Advice Services during the relevant assessment year and secondly , it was submitted that accounts of the firm M/s. Pregnancy Advice Services for AY 2011-12 and AY 2012-13 were finalised after the submission of return of income by the assessee for those respective years and hence share of profit of the assessee from said firm for AY 2011-12 was accounted for in the books of accounts of the assessee in AY 2012-13 , and further share of profit of the assessee from said firm for AY 2012-13 was accounted for in the books of accounts of the assessee for AY 2013-14 and hence this differential is only due to non accounting of share of profit from par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l No. 3 reads as under: On the facts and circumstances of the case and in law the Ld AO erred in making addition of ₹ 1,89,97,538/- u/s.69B of the Act being unexplained difference in capital balance with a partnership firm in spite of the fact that Appellant had submitted all the related documents to explain the said difference, It is respectfully submitted before Your Honour that the Appellant is a partner in a Registered Firm named Pregnancy Advice Services. The Appellant is having a profit sharing ratio of 55% during the year under consideration. It is submitted before Your Honour that the Appellant does not derive any taxable income such as remuneration or interest on capital or any other income from the said firm. We would like to submit that the Appellant has not received any taxable income from the firm during the year under consideration. The Appellant filed his Return of Income for AY 2012-13 on 30.09.2012. The accounts of the Partnership firm for the A.Y. 2012-13 were finalized in March 2013 and Return of Income of the firm for AY 2012-13 was filed on 12.03.2013. Thus, the accounts of firm were finalized after 30.09.2012 (due date of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Pregnancy Advice Services for A.Y. 2011-12 and A.Y. 2012-13. v) Computation of Income and copy of ITR Acknowledgement of the firm M/s Pregnancy Advice Services for A.Y. 2011-12 2012-13. We would like to submit that all the above statements submitted during the assessment proceedings substantiate and prove that neither there are any unexplained differences nor there are any unmatched entries. A copy of the above submission is enclosed for Your Honour's reference. Therefore, the Appellant has no undisclosed Income from the said partnership firm. We would further like to draw Your Honour's attention to the provisions of Section 69B of the Income Tax Act, 1961 under which the addition has been made by the Ld. Assessing Officer. The Section states as under:- Amount of investments, etc., not fully disclosed in books of account. 69B. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45,290/- Total 4,29,99, 262/- Appellant's share of profit is as under: Share of profit in firm exempted u/s. 10(2A) for A.Y. 2012-13 2,42,61,741/- Less: Firm Tax (52,64,203) Net share of profit 1,89,97,538/- According to the appellant the reconciliation of account is as under : Reconciliation of Account DR. HRISHIKESH D. PAI Closing Balance of Pregnancy Advice Services (as per Appellants' books) 7,72,965.99 . Add : Profit Tax Accounted in A.Y. 2013-14 Accounts of Dr. Hrishikesh D. Pai * * ',, ** Share of Profit for AY 12-13 2,42,61,740.96 Share of Firm Tax for AY 12-13 (52,64,203.00) 1,89,97,537.96 Capital A/c Balance in the books of Pregnancy Advice Services 1,97,70,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings and also during appellate proceedings that this amount was not Included in his Capital because there was a timing difference for filing of return of the appellant and finalization of accounts of the firm as appellant filed the return of income before finalization of accounts. When we examine the facts of the case this appears to be a reasonable explanation and further the amount which was added by AO was on which already appellant had paid tax and which is also an exempt income as per section 10(2A) of the Act. So AO's addition of ₹ 1,89,97,538/- u/s 69B is erroneous. In view of the above discussion, this mismatch of balance of the appellant's regular capital of the firm is only due to timing difference of filing of return of the firm and finalization of accounts of the firm. Hence this amount cannot be treated as income u/s 69B of the Act as it is exempt income. Hence AO's addition of ₹ 1,89,97,538/- is deleted. Ground of appeal is allowed. 11. The matter is now before us at the behest of revenue as appeal has been filed by the Revenue with the tribunal challenging the relief granted by learned CIT(A). The matter was first part heard by the Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has reiterated its stand that every explanation along with evidences were submitted before the AO which is completely ignored/brushed aside by the AO. It is submitted that it is merely due to late finalisation of accounts by the firm namely M/s. Pregnancy Advice Services for AY 2012-13 which were ultimately finalised the month of March 2013 that the share of profit of the assessee could not be included in the assessee s books of accounts for AY 2012-13 while the assessee filed its return of income with in due time prescribed u/s 139(1) on 30-09-2012. It is submitted by learned counsel for the assessee that share of profit of the assessee from partnership firm is exempt from tax u/s 10(2A) of the 1961 Act and also that no remuneration, interest on capital or any other taxable income was received by the assessee from the said partnership firm . Thus it is claimed that no prejudice is caused to the Revenue due to this mismatch in the capital account in assessee s books of accounts vis-a-vis books of accounts maintained by the said partnership firm as at 31-03-2012 , as the revenue impact is tax-neutral because share of profit of the assessee from the said partnership firm M/s Pregn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm, interest on capital or any other taxable income which remained to be accounted for or brought to tax in the return of income filed by the assessee with Revenue. Perusal of the accounts of the partnership firm namely M/s. Pregnancy Advice Services will reveal that it had received business income, capital gain and interest totaling to ₹ 4,29,99,262/- for the year and appellant's share of profit was ₹ 2,42,61,741/-. After deducting tax paid by the firm for ₹ 52,64,203/- appellant's net share of profit is ₹ 1,89,97,538/-, which if accounted for in assessee s books of account will result in no differential between capital account of the assessee in its books of accounts vis- -vis books of accounts of the partnership firm namely M/s. Pregnancy Advice Services . It is only share of profit of the assessee from partnership firm namely M/s. Pregnancy Advice Services for AY 2012-13 which was not included in books of accounts as well in the return of income filed by the assessee which in any case is exempt from income-tax by virtue of provisions of Section 10(2A) of the 1961 Act in the hands of the assessee who is partner in said firm. Thus, the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt balance. We have called for the assessment records as well asked for all these details from learned DR in writing in the form of facts/material as available on assessment record because the AO while framing an assessment order has only referred to selective portion of the reply dated 14-03-2015 filed by the assessee to prejudice assessee and there is no reference in the assessment order to several evidences/ documents filed by the assessee in its defence . It appears that the learned AO has chosen to adopt pick and chose strategy from the replies submitted by the assessee in its defence in a manner to ambush assessee despite all the material on record before him vide letters dated 09.02.2015, 14-03-2015 and 20-03-2015 which go on to prove that no addition whatsoever was warranted on this ground. The learned CIT(A) granted relief to the assessee vide detailed order but still the Revenue chose to file an appeal on this ground. Further , perusal of record before the tribunal revealed that the AO while filing appeal before the tribunal did not attached/enclosed Statement of Fact filed by assessee along with form no 35 before learned CIT(A) while filing first appeal, which statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. It is more unfortunate that despite learned CIT(A) passing a well reasoned appellate order granting relief to the assessee based on comprehensive analysis of material/evidences on record , still the Revenue had chosen to proceed with further litigation on this issue of differential in capital account balance. The said partnership firm namely M/s. Pregnancy Advice Services is also assessed to income-tax within Indian tax Jurisdiction and all the information/ data s of the said firm was already on record with Revenue in its data base as it filed its return of income on 12-03-2013 while assessment is framed on 30-03-2015 and Revenue could have easily cross verified and reconciled the said differential from its own data base to verify the veracity and validity of the contentions of the assessee more so Revenue is now well equipped with advanced technological platforms available at its disposal . Coming back to issue in hand, the learned CIT(A) has passed well reasoned order granting relief to the assessee with which we fully concur which is re-produced by us in preceding para s of this order and the same is not reproduced again. We have carefully gone through the entire material ..... X X X X Extracts X X X X X X X X Extracts X X X X
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