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2016 (2) TMI 270 - ITAT MUMBAI

2016 (2) TMI 270 - ITAT MUMBAI - TMI - Addition on account of short term capital on sale of gala - Held that:- The factory gala sold by the assessee was part of the blocked assets in the business of the assessee who was engaged in the business of manufacturing of self adhesive labels and stickers. The said gala remained the part of the block of fixed assets of the assessee. However, the assessee did not claim and depreciation on the said gala because the same was given on rent during the 2 years .....

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We also find that the ld. AO treated the sale of gala as sale of short term asset and denied the benefit of blocked of assets u/s 43(6) and of special provisions u/s 50 for calculating capital gain in case of depreciable assets. The short term capital gain was calculated at ₹ 60,42,693/- by applying the provision of 50C of the Act. In our opinion the ld. CIT(A) had rightly reversed the action of AO by holding that sale of gala was part of relevant block of assets as per the provisio .....

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: This appeal by the assessee is directed against the order dated 22.12.2011 of Commissioner of Income Tax (Appeals)-31, Mumbai (hereinafter called as the CIT(A) ) for assessment year 2009-10.The assessee has raised following grounds of appeal: 1. On the facts of the case and in law, the learned CIT (A) has erred in directing the A.O to delete the addition made as short term capital gain on sale of gala. 2. On the facts of the case and in law, the learned CIT (A) has erred in not considering the .....

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he benefit of Section 43(6) and to get away from the clutches of tax liability by virtue of Section 50 of the Incometax Act, 1961. 3. The sole issue raised by the Revenue in all the grounds of appeal is against the deletion of addition made by CIT(A) on account of short term capital on sale of gala. The brief facts of the case are that the assesse filed his return of income for the AY 2009-10 declaring total income of ₹ 29,48,080/- on 26.09.2009. The assessee had purchased a factory gala b .....

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block of assets of factory gala prior to the date of sale. The sale proceeds of the said gala was dealt with in accordance with the provisions of section 50 of the Act by reducing the same from the block of asset namely factory gala and the WDV at the end of the year as on 31.03.2009 was worked out at ₹ 29,33,290/- after making all the necessary adjustments in respect of opening balance, additions during the year and sales of factory gala. As a result there was no short term capital gain .....

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he fruit of rental income and deduction u/s 24 of the Act. The assessee could not be gala by virtue of section 50 of the Income Tax Act. The AO computed the short term capital gain by taking the stamp value of ₹ 66,41,733/- as sale price and reduced the purchased price of ₹ 5,99,040/- thereby workout the gain at ₹ 60,42,693/- which was incorporated in para 5 of the assessment order dated 02.12.2011. 4. The ld. CIT(A) allowed the appeal of the assessee by rejecting the conclusio .....

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e of factory gala by the AO in the impugned assessment order. During assessment proceedings the AO observed that the appellant had claimed depreciation on the said factory gala till A.Y. 2006 - 07 and that rental income from the letting out of this gala had been offered to tax under the head' 'income from house property" for the subsequent A.Yrs. 2007 - 08 and 2008 - 09. Accordingly the AO held that the said factory gala ceased to be part of the block of assets for the year under co .....

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lock were as follows: Opening Balance : ₹ 18,39,880/- Added - Purchases : ₹ 73,68,410/- Reduced - Sales : ₹ 62,75,000/- Closing Balance : ₹ 29,33,290/- Thus it is clear that the block of "factory building/gala" was in existence during the relevant financial period. The AO has held that by virtue of the appellant having offered rental income from the same factory gala to tax under the head "income from house property" the said asset cannot be held to ha .....

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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) th .....

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e 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 shortterm capital assets. " 5.4 The term 'block of assets' is defined in section 2(11) as follows: 2(11) "block of a .....

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a block of assets on which depreciation had been claimed, will be excluded from the: said block merely because it has subsequently given rise to income assessable under another head. 5.6 In the decision rendered in the case of CIT v Mis Sakthi Metal Depot reported at 333 ITR 492, the Kerala High Court adjudicated upon a case where the appellant has purchased a. flat in 1974 and used it as an office. Depreciation on the asset was claimed till A.Y. 1995-96. No depreciation was claimed for A.Yrs. 1 .....

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a long-term capital asset. The High Court held as follows: "In our view Section 50 has to be understood with reference to the general scheme of assessment on sale of capital assets. The scheme of the Act is to categorise assets between short term capital assets and long term capital assets. Section, 2(42A) defines short term capital asset as an asset held for not more than 36 months. The non- obstante clause with which Section 50 opens makes it clear that it is an exception to the definiti .....

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to be assessed to capital gains. The Section mandates that a depreciable asset in respect of which depreciation has been allowed when sold should be assessed to tax as short term capital asset. The other purpose of Section 50 is to provide cost of acquisition and other items of expenditure which are otherwise allowable as deduction in the computation of capital gains and covered by Sections 48 and 49 of the Act. Here again Section 50 provides an exception for deduction of cost of acquisition an .....

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t term capital' gains and it actually supplements Section 50. In our view, the purpose of Section 50A is to enable the assessee to claim deduction of the written down value of the asset in respect of which depreciation was claimed in any year as defined under Section 43(6) of the Act towards cost of acquisition within the meaning of sections 48 and 49 of the Act. The condition for computation of short term capital gains in the way it is stated in Section 50A is that the assessee should have .....

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upto the assessment year 1995- 96, still continued to be part of the business asset and depreciable asset, no matter the non-user disentitles the assessee for depreciation for two years prior to the date of sale. We do not know how a depreciable asset forming part of block of assets within the meaning Section 2(11} of the' Act can cease to be art of block of assets. The description of the asset by t e assessee in the Balance Sheet as an investment asset in our view is meaningless and is only .....

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nue to claim depreciation based on the written down value available as on the date of ending of the previous year in which depreciation was allowed last. " 5.7 As noted earlier, in the present case, the block of factory building/gala has continued to exist during the year under consideration. The fact that depreciation has also been claimed on the said block is also not controverted by the AO. In view of these reasons, I find that the conclusion of the AO that the factory gala in question g .....

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he ld. DR further submitted that the assessee let out the gala and income conceived from by way rent was offered as income from house property and deduction u/s 24 of the Act was claimed accordingly. Consequently the said factory gala ceased to be part of the blocked assets the moment it was given on rent and said income was shown as property income. Moreover, no depreciation was claimed for 2 years during the period the gala was given on rent and therefore the assesse could not be allowed the b .....

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