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TMI Blog2018 (7) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the Ld. CIT(A) has erred in directing that claim regarding deduction of 1.04 crore paid as settlement to the employees is to be allowed overlooking the fact that the assessee had no business activity during the previous year and therefore, such expenditure cannot be allowed." 3. The brief facts relating to the disputed issue are that the assessee company for the assessment year under dispute filed its return of income on 24.09.2009 declaring Nil income. During the assessment proceedings, from the information and material available on record, the Assessing Officer(AO) found that the assessee was owner of a closed textile mill. After settling the legal disputes and proceedings before the BIFR assessee got possession of the assets of the company. Thereafter, the assessee entered into agreement with different builders for selling the immovable property of the closed textile mill. On verifying the Profit & Loss Account and computation of income the AO found that in the relevant previous year assessee has executed a sale deed with a builder, M/s. Sanghvi Premises P. Ltd. for sale of the property. The AO noticed that the assessee has offered long term capital gain from sale of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement dated 29.10.2005 and the assessee has handed over physical possession in February, 2009. Ultimately,the AO observed that short term capital gain arising from sale of the property is to be assessed on protective basis in the impugned assessment year, whereas, substantive addition will be made in A.Y. 2006- 07. Accordingly, he made addition of Rs. 2,90,04,307/- on account of short term capital gain on protective basis. Assessee challenged the aforesaid addition before the learned CIT(A). 4. The learned CIT(A), after considering the submissions of the assessee and perusing the development agreement between the parties executed on 29.10.2005, observed that as per the terms of development agreement assessee was responsible for vacating the employees from the staff quarters at his own cost and risk and hand over the vacant possession of the land to the developer. He observed, since, the assessee could not get the staff quarters vacated, finally the developer has to step in to get the staff quarters vacated by paying an amount of Rs. 1,04,00,000/- to various employees of the assessee by issuing cheques to them over a period from 26.11.2007 to 25.02.2009 and reduced the said am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the recitals of the development agreement does not mention anything about the quarters standing over the land and it is not clear whether the property was given for development with quarters or whether the assessee has demolished the quarters and sold the land only. Thus, it was submitted that the addition made by the AO should be restored. 6. The learned A.R. strongly relied upon the finding of the learned CIT(A) and submitted that as per the recitals of the development agreement the property transferred is only land. He submitted that the capital asset transferred as per the deed of recitals is only land and the AO was wholly misconceived in treating the gain as short term capital gain. He submitted that even in response to the notice issue under Section 133(6) of the Act the buyer has confirmed that it has only purchased the land from the assessee. The sale deed further enjoins upon the assessee to get the staff quarters vacated at its own cost and since the assessee failed to get it vacated even after considerable lapse of time, the buyer took it upon itself to vacate the property by paying an amount of Rs. 1.04 crores to the employees of the assessee, which was adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration before us are twofold. Firstly, whether the gain from the immovable property sold by the assessee is to be treated as long term capital gain or short term capital gain and secondly, the assessment year in which such gain is taxable. In so far as the first issue relating to the nature of capital gain is concerned, it is to be seen that the AO has assessed it as short term capital gain on the reasoning that the property sold by the assessee comprises of staff quarters on which assessee had claimed depreciation. Therefore, it has to be treated as short term capital gain as per Section 50(1) of the Act. Per contra, it is the claim of the assessee that the property sold is land, hence it has to be assessed as long term capital gain. Though, it is a fact that in the schedule of fixed assets forming part of the Balance Sheet assessee has shown the value of staff quarters at Rs. 12,26,193/- and it is also a fact that these staff quarters were standing over the land sold by the assessee,however, after going through the recitals of the registered agreement dated 29.10.2005 it is very much clear that the intention of the parties was to sell the land as the value offered under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2006-07 in terms of section 2(47)(v) of the Act, it cannot be assessed in the impugned assessment year. As could be seen from the facts on record, assessee has entered into a registered development agreement with M/s. Sanghvi Premises P. Ltd. on 29.10.2005. As per the terms of the agreement, transfer of the land should be concluded on the date of execution of the deed. Thus, in terms of Section 2(47)(v) of the Act there was transfer of capital asset in so far as it relates to the land in question. The ratio laid down by the Hon'ble Jurisdictional High Court in the case of Chaturbhuj DwarkadasKapaida (supra) supports this view. In fact, the AO himself relying on the aforesaid decision has held that the capital gain should have been taxed in A.Y. 2006-07, since, the transfer of the capital asset in terms of Section 2(47)(v) of the Act has taken place in that assessment year. In view of the aforesaid, we hold that the gain derived from transfer of capital asset was to be assessed in A.Y. 2006-07 and not in the impugned assessment year. Further, considering the fact that this without prejudice argument was made by the assessee under Rule 27 of the Income Tax Appellate Tribunal R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term capital gain, it was submitted by the assessee that similar transaction undertaken by the assessee in A.Y. 2009-10 was allowed as long term capital gain and the same treatment has to be given in the impugned assessment year also. The AO, however, was not convinced with the explanation of the assessee. He observed that the decision of the CIT(A) in A.Y. 2009-10 has not been accepted by the Department and proceeded to assess the gain derived from sale of assets as short term capital gain by treating the asset as depreciable asset. 13. Assessee challenged the addition made the AO before the CIT(A). The CIT(A), after perusing the material on record, held that as per the Schedule of fixed assets there was no mention of land. On the contrary the staff quarters of Simplex House has been shown as depreciable asset. Further, in the return of income for the impugned assessment year, the assessee has claimed depreciation on the opening written down value of the asset. Thus, the learned CIT(A) held that the assets sold being a depreciable asset the gain derived from sale of asset has to be treated as short term capital gain under Section 50(1) of the Act. 14. The learned A.R. submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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