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M/s Poddar Brothers Investment Pvt. Ltd. Versus DCIT 7 (1) , Aayakar Bhavan, Mumbai

2015 (3) TMI 1299 - ITAT MUMBAI

Applicability of section 50C - issue of rate of tax while computing the capital gains - Held that:- We direct the AO to compute the capital gain from sale of industrial units and apply the appropriate tax rate after necessary verification, as the assets have been claimed to have been owned for more than three years. Ground no.1 is decided against the assessee. - Interest under section 220(2) - Held that:- In view of the circular of CBDT vide Circle No.334 Dt.3.4.1982, the interest can be lev .....

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: Shri Premanand J. Order u/s.254(1)of the Income- tax Act,1961(Act) Per Rajendra, AM Challenging the order dated 19.10.2009 of the CIT(A)-13,Mumbai the Assessing Officer(AO) has raised following ground of appeal: 1.The Learned CIT(A) has grossly erred in conf irming stamp duty valuation of ₹ 70,14,442/- u/s.50C for the sale of depreciable assets instead of adopting agreement value of ₹ 46,53,000/- u/s.50 and the reasons assigned by him in doing so are wrong and are contrary to the p .....

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nterest u/s.220(2) of ₹ 10,60,465/- from 7th October, 1997 which is totally wrong instead of order u/s. 143(3) r.w.s.263 passed on30-1 1-2011 and the reasons assigned by him in doing so are wrong and are contrary to the provisions of the Income Tax Act, 1961 and rules made there under. 4.The appellant craves leave to add, amend or alter any of the above grounds on or before the date of hearing of the appeal. 5.All the aforesaid grounds of appeal are independent, in the alternative and with .....

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e aforesaid additional ground of appeal. iii).The aforesaid additional ground of appeal is without prejudice to the original grounds of appeal. As the additional ground is a purely legal nature and arising out of the order of the First Appellate Authority(FAA),therefore same is being admitted. During the course of hearing the Authorised Representative(AR)of the assessee stated that considering the smallness of tax effect, ground no.2 was not being pressed. Hence, ground no.2 stands dismissed. 2. .....

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case of M/s Ace builders, that that in the working of short-term capital gain(STCG),it had adopted the sale value as per sale agreement at R.46,53,000/-. Assessee's return of income was selected for scrutiny and vide his assessment order, dated 26-12-2008,the AO disallowed assessee's claim of exemption u/s.54 EC of the Act. However, on appeal, the First Appellate Authority(FAA),vide order, dated 19-10-2009,directed AO to allow exemption u/s 50 EC of the Act. Thereafter, the CIT-7 Mumbai .....

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h was taken by the assessee as sale price for computation of capital gain instead of the market value of the property as per section 50C. It was also seen from the return of income that while computing the taxable gain u/s 50 the cost of purchase i.e. ₹ 4,87,034/- was deducted from the sale consideration of ₹ 46,53,000/- when it was the WDV of ₹ 74,902/-which only deserved to be reduced. In view of those facts, the CIT-7 Mumbai passed order u/s.263 on 01.02.2011 with direction .....

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; (2) instead of deduction of actual cost of ₹ 4,87,034/-.However, in its exhaustive submissions, the assessee argued that while computing the capital gain u/s 50 of the Act, the provisions of section 50 C were not applicable. In its submissions before AO, the assessee reiterated the above facts stating that section 50 and section 50C both have independent applications. The assessee also relied on the provisions of section 43 (6) (c) defining block of assets. The assessee also relied on th .....

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s submissions that provision of section 50C were not applicable on sale of depreciable assets. He relied on the decision of ITAT Mumbai bench in the case of United Marine Academy(ITA/968/Mum/2007)wherein the bench held that the AO was right in applying the provisions of section 50C to the transfer of depreciable capital assets covered by section in computing the capital gains arising from the said transfer by adopting the stamp duty valuation. In the facts and circumstances, the AO computed the .....

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n ₹ 16,39,540/- less Deduction u/s 54 EC Rs.40,92,965/- Taxable STCG Rs.28,46,575/- 4.Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. During appellate proceedings the assessee reiterated its argument taken before AO during re-assessment proceedings and also relied on the decisions of tribunals as mentioned above.It was argued that the sale price of depreciable assets should be taken as per the agreement for sale for computing the capital gains u/s.50 of t .....

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70, 14, 442/-,that the capital gain on sale of those depreciable assets was to be computed as per provisions of section 50 of the Act, that the cost of acquisition of the depreciable assets was admittedly at ₹ 74,902/- i.e. WDV of assets, that as per the assessee, the sale consideration was required to be considered the value as per sale agreement i.e. at ₹ 46,53,000/-.Referring to the decision of the ITAT Mumbai bench in the case of ETC Industries Ltd.(79 DTR-Ind, Trib 391)order da .....

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ine Academy(130ITD113)the Tribunal has decided the issue in favour of the department. However, he contended that the AO should be directed to apply the rate for tax applicable to Long Term Capital Gains(LTCG)instead of Short Term Capital Gains (STCG )while computing capital gains tax concerning depreciable asset in question. He relied upon the decision of Smita Conductor.(ITA/4004/mum/2011,AY.2006-06,dated-17.09.22013). Department -al Representative(DR)left the issue to the discretion of the Ben .....

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o apply in case of computation of capita gain from depreciable assets u/s 50 of the IT Act. The learned AR further submitted that the flat sold by the assessee had been held for a long time exceeding more than three years and, therefore, the capital gain though it was required to be computed u/s 50 of the IT Act, it has to be treated as long term capital gain in view of the judgment of Hon'ble High Court of Bombay in case of Ace Builders Ltd. (281 ITR 410) in which it has been held that the .....

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ch related to computation of capital gain. Therefore, the deeming provision was only limited to the provisions for computation of capital gain. He also referred to the decision of the Mumbai bench of Tribunal in case of Mahindra Freight Carriers Vs. DCIT (139 TTJ 422) in which it has been held that prescriptions of section 50 are to be extended only to stage of computation of capital gain and, therefore, capital gain resulting from transfer of depreciable asset which M/s Smita Conductors Ltd was .....

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unal held that section 50 created a legal fiction only for a limited purpose i.e. for the purpose of section 48 and 49 and for the purposes of section 54E, the capital has to be treated as long term capital gain. The Tribunal also accepted the arguments of the assessee that in case capital gain is assessed as long term capital gain the rate of tax would apply as provided in section 112 of the IT Act. It was, therefore, argued that in case of assessee, rate of tax applicable to long term capital .....

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tment thereof, the value of the property assessed for stamp duty purpose has to be adopted as the sale consideration. The authorities below have taken the view that provisions of section 50C would also apply in case of computation of capital gain from depreciable assets. The view taken by the authorities below is supported by M/s Smita Conductors Ltd the special bench of Tribunal in case of United Marine Academy (130 ITD 113). Therefore, we confirm the order of CIT (A) holding that the stamp dut .....

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apital gain is only for the purposes of section 48 and 49 which relate to computation of capital gain. The deeming provisions has, therefore, to be restricted only to computation of capital gain and for the purpose of other provisions of the Act, the capital gain has to be treated as long term capital gain. The view canvassed by the learned AR is supported by the judgment of Hon'ble High Court of Bombay in case of Ace Builders P. Ltd. (Supra) in which it has been held that for the purpose of .....

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able asset which was held for more than three years would retain the character of long term capital gain for the purpose of all other provisions of the Act. In this case the Ld. AR for the assessee submitted that flat had been held for 15 to 20 years which is supported by the fact that cost of the flat as shown in the balance sheet was only ₹ 1,30,000/-. Therefore, if the flat is held for more than three years the M/s Smita Conductors Ltd tax rate has to be applied as provided in section 1 .....

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ate after necessary verification in the light of observations made in this order. Respectfully, following the above we direct the AO to compute the capital gain from sale of industrial units and apply the appropriate tax rate after necessary verification,as the assets have been claimed to have been owned for more than three years. Ground no.1is decided against the assessee. Additional ground stands decided in favour of the assessee, in part. 7. Last ground of appeal is about charging of interest .....

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the H. Bench of Mumbai Tribunal in the case of Narad Investments and Trading P. Ltd.(ITA/3360/Mum/2010-AY-1996-97, dt. 19.10.2011).The DR supported the order of the FAA . 8.We have heard the rival submissions and perused the material before us.We find that in the case Narad Investments and Trading P. Ltd.(supra)the matter has been discussed and decided as under: 3.2 We have perused the records and considered the rival contentions carefully. The dispute is regarding levy of interest u/s. 220(2) .....

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fresh assessment order. We find that this issue has already been examined by the CBDT who had clarified the issue vide Circle No.334 Dt.3.4.1982, the relevant portion of which is reproduced below for ready reference : " (2) These issues were comprehensively examined in consultation with the Ministry of Law and the Board has been advised : (i) Where an assessment order is cancelled under section 146 or cancelled / set aside by an appellate/revisional authority and the cancellation / setting .....

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n set aside by one appellate authority but, on appeal, the original order of the Income Tax Officer is restored either in part or wholly, the interest payable under section 220(2) will be computed with reference to the due date reckoned from the original demand notice and with reference to the tax finally determined. The fact that during an intervening period, there was no tax payable by the assessee under any operative order would make no difference to this position. (3) The foregoing legal pos .....

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sing Officer either in part or wholly, the interest payable under section 220(2) will be computed with reference to the due date reckoned from original demand notice and with reference to the tax finally determined in the assessment. In the present case, the original order of assessment was confirmed by CIT(A) but on further appeal, the Tribunal set aside the order of CIT(A) and the issue restored to the Assessing Officer. Therefore in terms of the Circular of CBDT (supra), the interest under se .....

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order of CIT(A) is set aside and the order of Assessing Officer is restored, then, the demand raised on the basis of original assessment order will get revived and the assessee is liable to pay interest on that demand from the date of original order. Obviously, the case is not applicable to the present situation as the assessment order in this case has not been restored by the Tribunal but the matter has been sent back to the Assessing Officer for fresh assessment and therefore the demand in ter .....

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