2020 (4) TMI 222 - AT - Income Tax

Addition of long term capital gain u/s. 50C - transfer of land as capital contribution to a Limited Liability Partnership by invoking section 50C - capital contribution u/s 45(3) - determination of full value of consideration received or accrued as a result of transfer of capital asset - HELD THAT - We find that the issue is covered in favour of the assessee by the ITAT decision for the A.Y. 2012-13 2017 (12) TMI 1677 - ITAT MUMBAI . Provisions of section 45(3) is not a specific provision overrides the other provisions of the Act, importing a deeming fiction provided in section 50C of the Act cannot be extended to another deeming fiction created by the statute by way of section 45(3) to deal with special cases of transfer. Since the Act itself is provided for deeming consideration to be adopted for the purpose of section 48 of the Act, another deeming fiction provided by way of section 50C cannot be extended to compute deemed full value of consideration as a result of transfer of capital asset. We are of the considered view that the profits or gains arising from the transfer of a capital asset by a partner to a firm in which he is or becomes a partner by way of capital contribution, then for the purpose of section 48, the amount recorded in the books of account of the firm shall be deemed to be full value of consideration received or accruing as a result of transfer of a capital asset. AO cannot import another deeming fiction created for the purpose of determination of full value of consideration as a result of transfer of a capital asset by importing the provisions of section 50C. Therefore, we reverse the finding of the CIT(A) and delete the addition made towards recomputation of long term capital gain on account of transfer of capital asset into partnership firm.- Decided against revenue Depreciation of block of assets, building as claimed by the assessee prevailing over the provisions of section 45 over the provision of section 50C - HELD THAT - As ground 1 is decided in favour of the assessee consequentially provisions of 45(3) would prevail over the provisions of section 50C. Hence, ground 5 becomes infructurous and the value as deducted from the block of asset by the appellant holds true along with the depreciation claimed thereon. Disallowance u/s. 14A - HELD THAT - As relying on the decision of CIT vs. Delite Enterprises 2009 (2) TMI 498 - BOMBAY HIGH COURT , Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT and ACIT vs. Vireet Investments (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI . Following the above case laws, the ld. CIT(A) correctly upheld that the disallowance only to the extent of exempt income earned.

Summary

Issues:
1. Addition made by the Assessing Officer under section 50C of the Income Tax Act, 1961 for long term capital gain.
2. Allowance of depreciation of block of assets by the Commissioner of Income Tax (Appeals) prevailing over the provisions of section 50C.
3. Disallowance under section 14A r/w Rule 8D and interpretation of CBDT Circular No. 5 of 2014.

Issue 1: Addition under Section 50C for Long Term Capital Gain:
The appeals by the Revenue were consolidated and heard together concerning the addition made by the Assessing Officer in respect of long term capital gain under section 50C of the Income Tax Act, 1961 for the assessment years 2010-11 and 2014-15. The Assessing Officer observed discrepancies in the valuation of land transferred by the assessee company to a partnership firm and invoked section 50C to recompute the long term capital gains. However, the Commissioner of Income Tax (Appeals) referred to a previous ITAT decision in the assessee's own case and decided in favor of the assessee, holding that the deeming provision in section 50C cannot be extended to another deeming provision in section 45(3) for the purpose of computing capital gains. The Tribunal upheld the Commissioner's decision, citing legal precedents and distinguishing a decision of the Lucknow Bench. Consequently, the addition made by the Assessing Officer was deleted for both assessment years.

Issue 2: Depreciation of Block of Assets:
Another issue raised was whether the depreciation claimed by the assessee on a block of assets, specifically a building, should be restricted by the provisions of section 50C. The Assessing Officer restricted the depreciation claimed by the assessee based on the increased deemed value of the building. However, the Commissioner of Income Tax (Appeals) ruled in favor of the assessee, stating that the reduction in depreciation made by the Assessing Officer using the provisions of section 50C was unjustified. The Tribunal upheld the Commissioner's decision, as it was consistent with the earlier issue regarding section 50C and section 45(3).

Issue 3: Disallowance under Section 14A r/w Rule 8D:
The third issue involved the disallowance under section 14A r/w Rule 8D and the interpretation of CBDT Circular No. 5 of 2014. The Assessing Officer computed the disallowance under section 14A, but the Commissioner of Income Tax (Appeals) limited the disallowance to the extent of exempt income earned, relying on various case laws. The Tribunal upheld the Commissioner's decision, citing precedents and referring to a previous decision in the assessee's case for the assessment year 2012-13. The appeals by the Revenue were dismissed accordingly.

In conclusion, the Tribunal upheld the decisions of the Commissioner of Income Tax (Appeals) in all three issues, deleting the additions made by the Assessing Officer and dismissing the appeals by the Revenue.