TMI Blog2018 (1) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments that revolve around the” debatability” on this issue. Explaining the same, Ld. Counsel submitted that, for the rate purposes, the applicable tax rate on the capital gains relatable to sale of transfer of the depreciable long term capital assets and which are not reinvested u/s.54E of the Act constitute long term capital gains or short term capital gains is a matter of debate. On seeing the debatability, CIT(A) granted relief. On considering the same, we are of the opinion that the AO invalidly invoked the provisions of section 154 of the Act in this case. Accordingly, the relevant ground raised by the Revenue are dismissed. Suppressed production of TMT bars - CIT-A deleting the addition - Held that:- CIT(A) has considered all the aspects which led the assessee to disclose 982.82 units per MT which include that the assessee maintained the records properly and the books of accounts have been audited, no method for recorded day-to-day electricity consumption, declaration of 7% burning loss by various steel manufacturing units in Jalna & surrounding area, reports of Excise Department that for 1 MT of MS Ingots/Billets, 1026 electricity units are required, etc., and the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le assets which gave rise to the capital gains within the meaning of section 50 of the I.T. Act. As per the provisions, the said gains are required to be deemed as short term capital gains . This is not the case of re-investment of such gains in any specified assets for claiming the exemption/deduction. During the assessment proceedings, the AO erroneously applied 30% rate of tax on the long term capital gains and 20% rate of tax on the short term capital gains. Therefore, the AO passed the rectification order dt. 27-06-2014 u/s.154 of the Act by applying the tax rate of 30% in respect of the short term capital gains and 20% in respect of the long term capital gains. The reasons given by the AO read as under : In this case, assessment u/s.143(3)(ii) of the Income Tax Act, 1961, has been completed by the Joint Commissioner of Income Tax, Range-1, Aurangabad on 14-03-2013 at a total assessed income at ₹ 8,72,07,945/- including LTCG of ₹ 1,16,65,065/- and STCG of ₹ 4,36,31,242/-. During the verification of the record it is found that there is a mistake in calculation of tax in LTCG and STCG. Tax on LTCG of ₹ 1,16,65,065/- has been wrongly calculated @30% a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more than 3 years. While giving the relief to the assessee, the CIT(A) also considered the fact that the issue raised by the assessee is certainly debatable one and there exists two views in that case. The provisions of section 154 of the Act has no application. He relied on the judgment of Hon ble Supreme Court in the case of T.S. Balaram, ITO Vs.Volkart Bros. 82 ITR 50 (SC) for this proposition. 8. Before us, Ld. DR for the Revenue submitted that the judgment of Hon ble Bombay High Court in the case of CIT Vs. Ace Builders Pvt. Ltd. 28 ITR 2010 (Bom.) is not relevant for the proposition which the CIT(A) mistakenly believed in. Brining our attention to the relevant paragraphs of the judgment, Ld. DR submitted that the said judgment is relevant for the legal fiction created in section 50 is to deem the capital gains as short term capital gain and not to deem an asset as a short term capital asset and, therefore, it cannot be stated that section 50 converts the long term capital asset into short term capital asset . Further, Ld. DR mentioned that the said ratio was delivered in the context of the fact that gains were re-invested in eligible new assets u/s.54E of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to short term capital gains. However, the Revenue has not raised any ground on the decision of CIT(A) in granting relief to the assessee on the argument relatable to the debatability of the issue which is outside the scope of provisions of section 154 of the Act. In effect, the Revenue accepted the finding of the CIT(A) so far as the allowability of the relief to assessee on the ground of jurisdiction. Normally, the jurisdiction goes to the rest of the proceedings u/s.154 of the Act. 12. Per Contra, Shri J.P. Bairagra, Ld. Counsel for the assessee submitted that the order of CIT(A) is fair and reasonable and the same should not be disturbed. The CIT(A) has rightly granted relief to the assessee on account of applicable ratio of Hon ble Bombay High Court in the case of Ace Builders Pvt. Ltd. (supra) and also on account of debatability of the issue in dispute. Bringing our attention to the decision of Mumbai Bench of the Tribunal in the case of Smita Conductors Ltd. Vs. DCIT, Range-3(3), Mumbai order dated 17- 09-2013, Ld. Counsel for the assessee submitted that the gains relatable to the transfer of depreciable long term capital assets would retain the character of long term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on the decision of Hon ble Bombay High Court in the case of Ace Builders Pvt. Ltd. (supra) and held that the issue in question is debatable in nature. In the process, CIT(A) ignored the facts of the present case that the said gains were not reinvested u/s.54 or other provisions for claim of deduction by the present assessee. To that extent, the order of the CIT(A) is incorrect and therefore the Revenue is justified. 15. However, coming to the applicability of the jurisdictional High Court in the case of Ace Builders Pvt. Ltd. (supra) is concerned, we are of the view that the CIT(A) has not appropriately applied the said judgment to the facts of the present case. We proceed to extract Para Nos. 20 to 22 of the judgment which reads as under : 20. Section 50 is a special provision for computing the capital gains in the case of depreciable assets and the same being relevant for the purpose herein, is quoted herein below : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21. On perusal of the aforesaid provisions, it is seen that section 45 is a charging section and sections 48 and 49 are the machinery sections for computation of capital gains. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to pay the taxed on the gains earned by him on transfer of the depreciable long term capital assets. Therefore, the facts of Ace Builders Pvt. Ltd. (supra) are different as it was a case of claiming of deduction u/s.54E of the Act. The Hon ble High Court has allowed such exemption in that case. Therefore, the judgment of Ace Builders Pvt. Ltd. (supra) is not applicable to the facts of the present case. In the present case, the question for adjudication revolves around the applicable rate of tax on the short term capital gains linked to the depreciable long term capital assets u/s.50 of the Act. 17. Against the assessee, the decision of the Pune Bench of the Tribunal is relevant. In this case, when it comes to the Coordinate Bench decision of the Tribunal in the case of Rathi Brothers Madras Limited Vs. ACIT, Circle-6, Pune dated 30-10-2014, decided against the assessee and in favour of 30% on applicable tax rate. We proceed to extract Para No.5.3 which reads as under 5.3 It is clear from the language used by the legislature that if the long term capital gain is computed then it will suffer the tax @20% as against the normal rate of income- tax. Moreover, in the Ace Bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in the case of Smita Conductors Ltd. (supra) is in tune with another decision of the Tribunal in the case of Manali Investments 45 SOT 128. It is also relevant to mention that the said decision in the case of Manali Investments is approved by the jurisdictional High Court. Then, two views exists on the same issue of applicable tax rate on the long term capital assets linked short term capital gains. Therefore, the existence of debate is evident on this issue. Further, it is decided issue that the arguments relating to debatability goes to the root of the matter and the jurisdiction of the AO in invoking the provisions of section 154 of the Act. In our view, the applicable rate of tax on the deemed short term capital gains generated out of depreciable long term capital assets is the matter of debate. The judgment of jurisdictional High Court in the case of Ace Builders Pvt. Ltd. (supra) is on the facts of reinvestment of such long term capital assets-linked deemed short term capital gains; whereas in the assessee s case, it is not a case of reinvestment. This makes the difference. Therefore, we are of the opinion that the order of CIT(A) should be confirmed on the ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugust, 2010 to December, 2010. In August, 2010, the assessee has shown @1130 units per MT whereas in December, 2010 the assessee has shown @869 units per MT., the variation is about 30%. The AO held that the assessee has not disclosed the consumption of material as well as production of finished goods accurately. The AO called for the day-to-day stock register, day-to-day electricity consumption register and day-to-day production register to assess the manufacturing results. The explanation offered by the assessee and the logic behind its production claiming overall 7% burning loss were not accepted by the AO. Based on the comparable instance adopted by the AO in the case of assessee named Jailaxmi Casting and Alloys Pvt. Ltd., Paithan, Aurangabad, which is in the similar line of business, the AO came to the conclusion that electricity consumption shown by the assessee is too high. Rejecting the books of accounts of the assessee u/s.145(3) of the Act, the AO adopted the electricity consumption @944 per MT as adopted in the case of Jailaxmi Casting and Alloys Pvt. Ltd., (supra) and computed the income of the assessee at ₹ 2,19,34,872/- as suppressed production . 24. Bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umption of material as well as production of finished goods. The objection of the AO. is not supported by any corroborative evidence. The books of accounts of the appellant have been regularly maintained and audited and the same have been certified to be reflecting true and fair view of its financial position by a Chartered Accountant. The second objection raised by the A.O. is therefore not justified. (iii) The third objection raised by the AO. is that the assessee company has not maintained day to day register for production, day to day electricity consumption and break down register, though it is mandatory for the appellant company to maintain such record. In this regard it has been noticed that the appellant has filed day to day stock register and day to day production register with the AO. during the assessment proceedings. As regards day to day electricity consumption register, the appellant has reasonably pointed out that in view of paper seal attested by Electricity department on the electric meter and also for safety reasons, day to day electricity consumption cannot be noted. The third objection raised by the AO. is therefore not justified. (iv) The fourth objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in estimating suppressed production by presuming that 944 electricity units are required for producing 1 MT finished goods. In this regard it has been noticed that in the cases of various steel manufacturing units of Jalna and surrounding area, including the appellant company, the Assessing Officers have held upto A.Y.2010-11, on the basis of various technical reports and investigation and study by Excise Department that for producing 1 MT of MS ingots/billets 1026 electricity units are required. It has also been mentioned in the said technical reports and study papers that the requirement of electricity units for production of MS billets depends upon raw material used and also various other factors. The various manufacturers of steel located at Jalna and surrounding area including the appellant have preferred appeal in Tribunal against the decision of Commissioner of Central Excise, Aurangabad that 1026 units of electricity are required for producing 1 MT ingots/billets. The Hon'ble CE S Tax Appellate Tribunal vide order 28/07/2014 in the case of SRJ Peety Steels Pvt. Ltd. has held that the Excise Department is not justified in holding that for manufacturing of 1 MT of MS i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted. The AO, is directed accordingly. Ground No.1 is allowed. 28. From the above, we find the CIT(A) has considered all the aspects which led the assessee to disclose 982.82 units per MT which include that the assessee maintained the records properly and the books of accounts have been audited, no method for recorded day-to-day electricity consumption, declaration of 7% burning loss by various steel manufacturing units in Jalna surrounding area, reports of Excise Department that for 1 MT of MS Ingots/Billets, 1026 electricity units are required, etc., and the decision of Hon ble CE S Tribunal and the Pune Bench of the Tribunal in the case of SRJ Peety Steels Pvt. Ltd. (supra) etc. Nothing incriminating material has been brought by the Revenue authorities to take a contrary view against the findings of CIT(A). We therefore find the order of the CIT(A) to be a reasoned one and accordingly affirm the same. Therefore, the grounds raised by the Revenue are dismissed. 29. In the result, the appeal of the Revenue is dismissed. 30. To sum up, revenue s appeal in ITA No.990/PUN/2015 is dismissed as above and ITA No.991PUN/2015 is dismissed. Order pronounced in the open court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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