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TMI Blog2019 (6) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of cost of improvement to the property and difference in cost of acquisition. For this assessee has raised the following two grounds: - "1. The Hon'ble Commissioner of Income Tax(A) -17, Mumbai erred in confirming the addition made by the ld. AO in treating the capital gain amounting to Rs. 2.61,71,50() arising on sale of office premises as short term capital gain instead of long term capital gain without appreciating the fact that appellant company had treated such asset as an Investment in its books of accounts and had never claimed depreciation on such asset under section 32 of the Income Tax Act,1961 and 2. The learned CIT(A) further erred in confirming the action of the AO of in disallowing expenses amounting to Rs. 46,65,700 on account of cost of improvement to the property and Rs. 2,87,800 on account of difference in cost of acquisition." 3. Briefly stated facts relating to this issue are that the assessee company has purchased four immovable properties, being office nos. 301,302,303 and 304 in building "center point" situated at Santa Cruz, West, Mumbai in the year 1998 for an amount of Rs. 1,86,62,800/-. The assessee in the balance sheet has shown these pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05. Upon show cause, no evidence of incurring of such cost of improvement was filed. Even during the appellate proceedings. Such claim has not been supported by any documentary evidence, in absence of which such claim cannot be allowed. Hence, the disallowance made by the AO is upheld and ground of appeal is dismissed." Aggrieved, assessee came in appeal before Tribunal. 6. We have heard rival contentions and gone through the facts and circumstances of the case. We noted from the facts of the case that the facts are admitted as narrated above. The first dispute is regarding computation of capital gains. Admittedly, the assessee has sold four office premises for a sum of Rs. 4.50 crores which was purchased for a sum of Rs. 1,86,62,800/- in 1998. In the balance sheet, the assessee has disclosed this office as investment under the head of fixed assets. The assessee claimed the gain arising out of the sale as long term and computed the long term capital loss and claimed in the return of income. The AO and the CIT(A) both treated the gain arising out of the above transactions as short term capital gain in view of the provisions of section 50 and 50A of the Act. We noted that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was admitted by the assessee vide letter dated 17.11.2016. We noted that the assessee was using the said office premises as its registered office. Addition made by disallowing expenses on account of cost of improvement and difference in cost of acquisition. 8. The learned Counsel for the assessee relied on the decision of co-ordinate Bench of this Tribunal in the case of Prabodh Investment & Trading Co. V. ITO in ITA No 6557/Mum/2008 order dated 28.02.2011 for AY 2004-05. The learned Counsel drew our attention to Para 6 of the order wherein, the Tribunal held that Section 50 of the Act creates a legal fiction only for the purposes of section 48 and 49 of the Act but it cannot restrict the applicability of section 54 of the Act. The Tribunal has discussed the entire provisions and held that once the asset is held for more than 36 months, even though in some earlier years the assessee used the asset for the business purposes or rental income was assessed as business income, the same cannot be held against the assessee. The Tribunal has considered this issue elaborately by considering the decision of another co-ordinate bench of Kochi Tribunal in Sakthi Metal Depot vs. ITO (2005) 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applicable to section 54E of the Act as well? We accordingly hold that the assessee cannot rely on the judgment of the Hon'ble Bombay High Court in the case of Ace Builders P. Ltd. (supra) to contend that the cost indexation benefit should be given even in the case of computation of short term capital gains under section 50 of the Act. 7. The next contention of the assessee is the one based on the order of the Cochin Bench of the Tribunal cited supra. In that case the assessee stopped claiming depreciation on the flat from the assessment year 1995-96 onwards on the ground that it was no more used for the purpose of the business. In the books of account the flat was shown as an investment from 01.04.1995. In the previous year relevant to the assessment year 1998-99, the flat was sold and the surplus was declared as long term capital gains. The income tax authorities held that the capital gains should be assessed as short term capital gains on the footing that the flat might have been used for business purposes even in the assessment years 1996-97 and 1997-98. On further appeal to the Tribunal, it was held that the flat ceased to be a business asset or depreciable asset on and wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he asset had been acquired beyond the period of thirty six months from the date of sale, it would be a case of long term capital gains. In our humble understanding, the ratio of the order appears to be that the asset had ceased to be a business asset and had become an investment. 8. The order of the Cochin Bench in the case of Sakthi Metal Depot (supra) has been distinguished by the CIT(A) on the ground that in that case the property was specifically treated in the books as an investment whereas in the assessee's case the flat has been shown in the Balance Sheet as a fixed asset and not as an investment. This however does not make any difference to the ratio of the said order for the reason that in the case before the Cochin Bench the assessee was a partnership firm and could therefore show the asset as an investment in the Balance Sheet whereas in the case before us the assessee is a private limited company and the Companies Act provides that the flat should be shown as fixed asset, even if it is not held as a business asset and is held as an investment. The character of the asset has been changed from that of a business asset to an investment shown as fixed asset in the Balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed by the Tribunal on the ground that since the user of the flats was changed, the character of the assets also underwent a change and they can no longer be considered as business assets. The principle of this order, though laid down in a different context would support the assessee in the sense that it is possible for a business asset to change its character into that of a fixed asset or investment. 10. In the present case there is also no dispute that the flat under consideration was purchased by the assessee in the year 1987. It was thus held for a period of more than thirty six months and therefore a long term capital asset. Accordingly, the capital gains is directed to be assessed as long term capital gains after allowing the benefit of cost indexation as claimed by the assessee." 9. We noted from the above that the assessee's gain is arising out of sale of office premises is to be assessed as long term capital gain and consequential relief is to be allowed. 10. As regards to the aspect of allowance of cost of improvement claimed by assessee, we noted that the assessee is unable to file any evidence before the lower authorities regarding incurring of cost of improvem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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