TMI Blog2011 (12) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... negated this contention and held that provisions of Section 54EC cannot be applied to actual long term capital gains deemed to be short term capital gains under the deeming provision of Section 50 and, therefore, denied the exemption under Section 54EC and assessed the entire gain of Rs 62,25.38 as short term capital gains - held that:- Respectfully following decision of the Jurisdictional High Court in in the case of Ace Builders (2005 -TMI - 9448 - BOMBAY High Court), I delete the addition of deemed short term capital gains of Rs.62,25,381, made in the assessment order and allow the appellant to appropriate like amount out of its investments of Rs 2,13,30,000 in NABARD bonds and allow the balance investment of Rs 1,51.04,619 against other long term capital gains during this year. - Appeal is allowed Regarding applicability of concessional rate under section 112 to LTCG deemed STCG under provisions of Section 50 - in principle, the assessee should be entitled to exemption under section 54EC, on gains earned on transfer of long term capital assets though they are depreciable assets - Appeal is allowed by way of remand to AO for de novo decision - ITA No. 616/Mum./2006, ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vested in investments and the disallowance of interest of Rs.52,95,600, is bad-in-law. A statement is filed at Pg.110, which gives the value of investments during the year and the profits earned by the assessee company during the year. On a query from the bench, the learned Counsel admitted that this document is not before the authorities below. He relied on a number of decisions for the proposition that the presumption should be, that when interest free funds were available with the assessee, it should be held as that which is utilised for investment purpose. 8. Learned Departmental Representative, on the other hand, agreed that the issue should be restored to the file of Assessing Officer, as the ground on rate of interest has been taken by the Revenue. 9. After hearing the rival contentions, we restore this issue to the file of Assessing Officer for adjudication afresh in line with the judgment of Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Powers Ltd., [2009] 313 ITR 0340 (Bom.) and other decisions of the Tribunal on the issue. Thus, ground no.3, is allowed for statistical purposes. 10. Ground no.4, is on the issue of disallowance under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as short term capital gains, then deduction under chapter VIA should be granted to the Company and accordingly, gross total income mentioned in the above computation should be reduced by the amount of Chapter VIA deductions, which are mentioned below: Deduction under section 80G: Rs.850,625 (as per clause 26 of form No.3CD) Deduction under section 8OHHC: Rs.712,011 (as per clause 26 of form No.3CD and Report in form no.10CCAC, enclosed in original)." 11.1 Further, the assessee has given its submissions in support of their above contention vide their letter dtd. 21.11.2002 and 27.11.2002. In its letter dtd. 21.11.2002 the assessee has submitted the following:- "Capital gains computed as per section 50 of the Income-tax Act, in respect of sale of non-residential building, are treated as long term capital gains, for the following reasons:- Section 2(29B,) defines 'Long term capital gain' as the capital gain arising from the transfer of a long-term capital asses. Section 2(29A) defines 'long term capital asset' as a capital asset held by an assessee for more than thirty six months immediately preceding the date of its transfer. Thus, capital gains arising on transfer of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een used in section 74, as well as in section 112 of the Act. He relied on the following decisions for the proposition that the provisions of section 50 of the Act are applicable only upto the stage of computation assets and once capital gains is computed on depreciable assets, as per section 50, which is in this case a long term capital asset, the operation of such section is ousted. His case is that, if the assessee is otherwise eligible for any benefit under the Act, which is attached to the long term capital asset, the same shall remain intact. Manali Investments v/s ACIT, 56 DTR (Mum.) (Trib.) 218; Weikfield Products Co. I.P. Ltd. v/s DCIT, 71 TTJ (Pune) 518; Ace Builders P. Ltd. v/s CIT, 71 TTJ 188 (Mum.); CIT v/s Assam Petroleum Industries P. Ltd., 262 ITR 587 (Gau.); CIT v/s Rajiv Shukla, 334 ITR 138 (Del.); CIT v/s Delite Tin Industries, ITA no.1118 of 2008 (Bom.); CIT v/s Delite Tin Industries, CC 11431 of 2009 (SLP-SC). 17. Specific reliance is placed at Para-25 of the judgment of Hon'ble Jurisdictional High Court in Ace Builders Pvt. Ltd. (supra) as well as in the case of Manali Investments (supra). 18. Learned Departmental Representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.] 769. Subs. by Taxation Laws (Amendment and Misc. Provisions) Act, 1986, s. 9 (w.e.f. 1-4-1986). Prior to that, it stood as under: "50. Special provision for computing cost of acquisition in the case of depreciable assets.-Where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by the assessee in any previous year either under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act or under executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force, the provisions of sections 48 and 49 shall be subject to the following modifications:- (1) The written down value, as defined in clause (6) of section 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the asset. (2) Where under any provision of section 49 read with sub-section (2) of section 55, the fair market value of the asset o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short term capital asset. Therefore, it cannot be said that s. 50 converts long term capital asset into a short term capital asset." [emphasis own] 22. Respectfully following the aforesaid judgment of the Hon'ble Jurisdictional High Court, the ground raised by the assessee is dismissed. 23. The last ground is on the issue of relief claimed under section 80HHC of the Act. 24. Learned Counsel submitted that the issue is presently covered against the assessee but in case, the computation of income after the decision on certain issues by the Tribunal results in the profit, then the matter may be considered by the Assessing Officer as per law. 25. Learned Departmental Representative has no objection. 26. In view of the rival submissions, we dispose off this matter with a rider that in case the computation of income of the assessee is a positive figure, then the claim of deduction under section 80HHC may be considered by the Assessing Officer in accordance with law. This ground is, thus, allowed for statistical purpose. 27. In the result, assessee's appeal is partly allowed. We now take up Revenue's appeal in ITA no.616/Mum./2006, for assessment year 2001-02. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilised investment made in capital gain bonds issued by NABARD and this can be exempt under section 54EC against the gains received by the assessee on transfer of long term capital assets, which were also depreciable assets. Reliance was placed on the judgment of Hon'ble Jurisdictional High Court in Ace Builders (supra). 34. The Commissioner (Appeals), at Paras-9 and 10 of the impugned order, held as follows:- "It is submitted that a residential property situate at Koramangala Extension Building. Bangalore acquired on 6" February 1989 was sold on 141 February, 2001. The opening WDV of the residential building block was NIL and the net sale proceeds realised is Rs 62,25,381 and accordingly capital gains of Rs.62.25.381 arises from sale of residential property. A copy of total income filed by the appellant including this calculation of capital gains is included at Paper Book pages Li to L9 filed before me. It is pointed out that on 31st May, 2001, appellant has invested a sum of Rs 2,13,30,000 in capital gains bonds issued by National Bank for Agricultural and Rural Development (NABARD). which are eligible for exemption under Section 54EC of IT Act and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein for rate purposes, the fiction of law stands applied for rate purposes. 10.2 The appellant before me therefore has to pay tax at the rate applicable to short term capital gains on long term gains deemed short term under section 50 this sub-ground is, therefore, rejected." 35. After hearing rival contentions, we are of the considered opinion that, in principle, the assessee should be entitled to exemption under section 54EC, on gains earned on transfer of long term capital assets though they are depreciable assets. This issue is covered in its favour by the judgment of Hon'ble Jurisdictional High Court in Ace Builders (supra). Nevertheless, the details of the bonds invested are not clear. Thus, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of Assessing Officer for denovo adjudication in accordance with law. We also direct the Assessing Officer to verify as to whether the assessee has sufficient investments in NABARD capital bonds to cover the capital gain arising out of sale of depreciable assets i.e., residential property situated in Koramangala, Bangalore, as well as capital gains on sale of shares. He shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um./2002, for assessment year 1999-2000, order dated 26th August 2009, wherein the Tribunal, vide Para- 10.7/Page-12, held as follows:- "10.7 We have considered the rival submissions made by both the sides, perused the orders of the Assessing Officer and the learned CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. We find the Assessing Officer made an addition of Rs.4,93,22,786 to the closing stock of account of MODVAT excise duty credit in view of section 145A of the Act which was introduced by the Finance Act with effect from 1.4.1999. We find the learned CIT(A) upheld the action of the Assessing Officer by following the decision of the Hon'ble Jurisdictional High Court in the case of Melmould Corporation supra. We find the matter needs to be readjudicated in the light of the recent decision of Hon'ble Jurisdictional High Court in the case of CIT v/s Mahalaxmi Glass Works P. Ltd. vide ITA no.192 of 2009, order dated 1st April 2009, which was neither available at the time of assessment proceedings nor available at the time of appeal proceedings before the learned CIT(A). We, therefore, restore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so. Thus, this ground is allowed for statistical purposes. 56. Ground no.8, is against levy of interest under section 234D of the Act. 57. The refund herein was granted on 12th May 2003. The learned Counsel relied on the judgment of Hon'ble Jurisdictional High Court in CIT v/s Bajaj Hindustan Ltd., ITA no.198 of 2009, judgment dated 15th April 2009, and other case laws wherein it has been held that interest under section 234D cannot be charged in respect of refund granted prior to 1st June 2003. 58. Learned Departmental Representative, on the other hand, relies on the judgment of Hon'ble Kerala High Court in CIT v/s Kerala Chemicals and Proteins Ltd., [2010] 323 ITR 0584, (Ker.), wherein it is held that interest under section 234D has to be charged from 1st June 2003. 59. After hearing the rival contentions, we find that the Hon'ble Jurisdictional High Court in Bajaj Hindustan Ltd. (supra) has held as follows:- "Q. Whether in the facts and circumstances of the case and in law, the Tribunal was right in holding that the interest under section 234D cannot be charged in respect of refund granted prior to 1.6.2003." 60. The Hon'ble Jurisdictional High Court answ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the case laws relied upon by the learned Departmental Representative are distinguishable in nature. Similarly, issue was decided by us in the assessment year 2001-02, at Para-37 to 40 of this order. Consistent with the view taken therein, we dismiss the ground raised by the Revenue. 68. In the result, Revenue's appeal is partly allowed. We now take up assessee's appeal in ITA no.2660/Mum./2007, for assessment year 2003-04 69. Grounds no.1 and 2, read as follows:- "1. Addition on account of closing stock of MODVAT under section 145A. 2. Without prejudice to ground no.1, to make consequential adjustments in the purchases." 70. Before us, the learned Counsel for the assessee did not wish to press these grounds. Learned Departmental Representative has no objection. Consequently, these grounds are dismissed as "not pressed". 71. Ground no.3, is on the issue of taxing the gain from depreciable long term capital asset at a rate applicable to short term capital gain. 72. After hearing both the parties, we find that identical issue has been decided by us in assessee's own case for assessment year 2001-02, vide Paras-20 to 22 above, wherein the ground rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80HHC. 82. Admittedly, the issue is covered against the assessee and in favour of the Revenue by the judgment of Hon'ble Supreme Court in IPCA Laboratory Ltd. v/s DCIT, [2004] 266 ITR 0521 (SC), wherein it has been held that If the computation of profits after excluding the export incentives results into negative profits, then deduction U/s 80-HHC cannot be allowed to the assessee. Respectfully following the same, we dismiss this ground of the assessee. 83. In the result, assessee's appeal is partly allowed. We now take up Revenue's appeal in ITA no.2640/Mum./2007, for assessment year 2003-04. 84. Ground no.1, relates to computation of relief under section 80HHC with reference to fee for technical service and sale of scrap. 85. As far as fee for technical service is concern, both the parties agree that the issue is covered in favour of the assessee against the Revenue by the decision of the Tribunal in assessee's own case for assessment years 1995-96 to 1998-99. Consistent with the view taken therein, we dismiss this part of the ground relating to fee for technical services vis- -vis computation of relief under section 80HHC. 86. The second part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made by invoking the provisions of clause (baa) to Explanation-1 to section 80HHC, only 90% of the interest income has to be disallowed as per the Act. We order accordingly. Thus, these grounds are allowed. 97. Grounds no.5, 6 and 7, read as follows:- "5. On the facts and in the circumstances of the case, the Hon'ble CIT(A) has legally erred in confirming the action of the learned AO regarding addition of Rs.1,54,64,391, being balance of CENVAT credit as on March 31, 2004 as per excise records at the Bangalore factory, to the closing stock of the Appellant, by applying provisions of section 1 45A of the the Act. It is prayed that the addition of Rs.1,54,64,391 should be deleted from the income of the Appellant. 6. Without prejudice to the 5 above and on the facts and in the circumstances of the case, the Hon'ble CIT(A) has legally erred in confirming the action of the learned AO of not making consequential adjustment to the purchases, sales and opening stock made during the year, which are accounted under exclusive method and need to be enhanced so as to confirm to the inclusive method forced on the Appellant by the learned AO. 7. Without prejudice to Grounds No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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