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2016 (8) TMI 684 - ITAT AHMEDABAD

2016 (8) TMI 684 - ITAT AHMEDABAD - TMI - Denial of deduction u/s. 54G - Held that:- The capital gains have to be utilized for the claim of deduction within a specified period. Since the capital gains has to be utilized, the logical conclusion would be the capital gains arising on the date of sale, therefore, in our understanding of the law, although the transfer took place on 10.04.2006 but the capital gain arose on the date of sale of the capital asset. - The capital gains so arose was uti .....

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e Act. We accordingly set aside the findings of the ld. CIT(A) and direct the A.O. to allow deduction u/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 .....

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e 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 Ashwin. C. Shah, AR For The Respondent : Smt. Sonia Kumar, Sr. D.R. PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA No. 2932/Ahd/2011 & 2482/Ahd/2012 are appeals by the assessee directed against two separate .....

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.O. noticed that the assessee has shown capital gains arising out of the sale of factory land. Assessee has taken the impugned land on rent since 1945 and in the year 1994, the impugned land was purchased. The area of the factory land is 36272 sq. mtr. [ i.e. 390000 sq. ft.]. Out of which, land admeasuring 25282 sq. mtr. [ i.e. 272000 sq. ft.] was converted into stock-in-trade on 10.04.2006. Subsequently, the assessee entered into agreement with Spun Conart Developers for the development of the .....

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, land and building at Duttpura, Waghodia on shifting of factory building at Jamuna Baug i.e. Urban Area to Duttpura, Waghodia as per section 54G [as per the fixed asset schedule to the balance sheet as on 31.03.2008] 29769530 34769530 Long term capital gain offered for taxation 21905070 Long term capital gain offered for 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 statin .....

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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 D .....

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rted additional new areas during FY. 2007-2008 is (i) RCC pipe by vertical casting method [by vibration process] and (ii) manufacturing and supply of bar / wire wrapped steel cylinders (BWSC) pipes. The attention is drawn to para No. 3 of the director's report for the F.Y. 2006-2007 and 2007-2008. The directors have given complete information about the shifting. The assessee constructed the factory building and purchased the plant and machinery during FY. 2006-2007 and 2007-2008 worth about .....

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ut was converted into stock-in-trade in respect of its business as developer. 8. The A.O. further observed that out of capital gains, the assessee ought to have purchased new machinery or plant or building or land etc. for the purpose of shifting of industrial undertaking to new area and such acquisition has to be within a period of one year before or three years after the date on which the transfer took place and since the assessee has not fulfilled these conditions, it is not eligible for dedu .....

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a 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. couns .....

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on of the Hon ble Supreme Court in the case of Sanjeev Lal and Smt. Shail Motilal 365 ITR 389. Further, reliance were placed on the decision of the Tribunal Mumbai Benches in the case of Enpro Finance Ltd. in ITA No. 4428/Mum/2008 and on the decision of the Hon ble Supreme Court in the case of Fibre Boards (P.) Ltd. 376 ITR 596. 11. Per contra, the ld. D.R. strongly supported the orders of the lower authorities. 12. Having heard the rival contentions, we have given a thoughtful consideration to .....

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of the Act which reads as under:- 54G. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset, being machinery or plant or building or land or any rights in building or land used for the purposes of the business of an industrial undertaking situate in an urban area, effected in the course of, or in consequence of, the shifting of such industrial undertaking (hereinafter in this section referred to as the original asset) to any area ( .....

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and (d) incurred expenses on such other purpose as may be specified in a scheme framed by the Central Government for the purposes of this section. then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,- (i) if the amount of the capital gain is greater than the cost and expenses incurred in relation to all or any of the purpos .....

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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" .....

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in clauses (d) to (d) of sub-section (1) within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for all or any of the purposes aforesaid before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of sectio .....

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et: Provided if the amount deposited under this sub-section is not utilized wholly or partly for all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within the period specified in that sub-section, then,- (i) the amount not so utilized shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and (ii) the assessee shall be entitled to withdraw such amount in accor .....

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te 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 sect .....

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l 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 fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. 19. Reading all the aforementioned sections together, in our understanding of the law, means that capital gains arising o .....

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of the law, although the transfer took place on 10.04.2006 but the capital gain arose on the date of sale of the capital asset. 21. The capital gains s0 arose was utilized by the assessee for the purpose of business of industrial undertaking and, therefore, the assessee fulfils the mandatory condition. The assessee purchased the land at village Duttpura which is a non-urban area, put up the factory and purchased new plant and machinery before one year of date of transfer. The assessee has utili .....

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DGITs Subject: Tax exemption on the sale of capital assets converted into stockin- trade- Clarification regarding section 45(2) read with sections 54E, 54EA, 54EB and 54EC of the Income-tax Act, 1961 Sir, Section 2(47) of the Income-tax Act provides that any conversion of capital assets into stock-in-trade shall be regarded as a transfer. This transfer arises in the year in which such conversion takes place and, accordingly, capital gain would normally arise in that very year. However, section 4 .....

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r 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 .....

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arises only at the point of sale or transfer otherwise of stock-in-trade. The Board has considered the matter afresh in consultation with the Ministry of Law and has decided that the period of six months for making investments in specified assets for the purpose of sections 54EA, 54EB and 54EC should be taken from the date such stock-in-trade is sold or otherwise transferred, in terms of section 45(2) of the Act. 5. This may be brought to the knowledge of all officers of your region. (Sd.) Kamle .....

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appellants were entitled to relief under section 54 of the Act in respect of the long term capital gains which they had earned in pursuance of transfer of their residential property and used for purchase of a new asset/residential house. Decision of the Punjab and Haryana High Court (printed below) reversed. A purposive interpretation should be given to the provisions of the Act while considering a claim for exemption from tax. 24. Assuming, yet not accepting, that the date of transfer is 10.04 .....

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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-appreciat .....

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CIT(A) Order for A.Y. 2009-2010]. The learned CIT(A) misappreciated the law. Section 54G does not require to complete shifting in a specified time limit. What is required is that the capital gain should be utilized in purchase of new plant and machinery or construction of factory building. Therefore the assessee is entitled to deduction under Section 54G. 25. Another objection for denying the claim is that the assessee has not opened capital gain account and deposited the proceeds before the due .....

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on 54G does not bar from acquiring any other assets in urban area. 27. Even, if the entire operations have not been shifted the CBDT Circular No. 495 dated 22.09.1987 clearly mentioned that it is not necessary to shift the entire operation. 28. Considering the aforementioned facts in totality in conjunction with the relevant provisions of the Act discussed hereinabove, in our considered opinion, the assessee has fulfilled the mandatory conditions making itself eligible for deduction u/s. 54G of .....

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dend ₹ 77,211/-, Share of income from partnership firm of ₹ 31,94,459/- and tax free interest from US-64 Bond of ₹ 5,996/-. The A.O. found that the assessee has suo motu disallowed a sum of ₹ 1,81,902/- u/s. 14A of the Act. 30. The assessee was asked to show cause as to why the disallowance u/s. 14A read with Rule 8D should not be made. The assessee claimed that it has not incurred any expenses on borrowing from the investment as the investments have been made out of own .....

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