The ITO, Ward-2(3),, Ahmedabad v. Shri Prahlad Vinubhai Panchal, Ahmedabad

ITA 2187/AHD/2010 | 2006-2007
Pronouncement Date: 07-01-2011 | Result: Dismissed

Appeal Details

RSA Number 218720514 RSA 2010
Assessee PAN ABRPP6148E
Bench Ahmedabad
Appeal Number ITA 2187/AHD/2010
Duration Of Justice 6 month(s) 9 day(s)
Appellant The ITO, Ward-2(3),, Ahmedabad
Respondent Shri Prahlad Vinubhai Panchal, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 07-01-2011
Date Of Final Hearing 31-12-2010
Next Hearing Date 31-12-2010
Assessment Year 2006-2007
Appeal Filed On 28-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI MUKUL SHRAWAT JM & SHRI A N PAHUJA AM ITA NO.2187/AHD/2010 (ASSESSMENT YEAR:-2007-08) INCOME-TAX OFFICER WARD- 2(3) 2 ND FLOOR INSURANCE BUILDING ASHRAM ROAD AHMEDABAD V/S SHRI PRAHLAD VINUBHAI PANCHAL PROP. OF JAYSHREE ENGINEERING WORKS 8/2 PATEL SOCIETY OPP. POLICE COMMISSIONERS OFFICE SHAHIBAUG AHMEDABAD PAN: ABRPP 6148 E [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI S S SHUKLA DR ASSESSEE BY:- SHRI R C SHAH AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 12- 04-2010 OF THE LD. CIT(APPEALS)-XIV AHMEDABAD RAI SES THE FOLLOWING GROUNDS:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE CAPITAL GAINS ARISEN FROM THE SALE OF THE GODOWN(IN FACT OLD MACHINERY) IS LONG TERM IN NATURE AND ELIGIBLE FOR DEDUCTION U/S. 54EC OF THE ACT DESPITE THE FACT THAT THE ASSESSEE HAS BEEN CLAIMING DEPRECIATION ON THIS ASSET. 2. THE LD. CIT(A) ERRED IN LAW BY IGNORING THE SPEC IFIC PROVISIONS IN SUB-SECTION(2) OF SECTION 50 OF THE I.T. ACT WHICH DEALS WITH THE CAPITAL GAINS ON TRANSFER OF DEPRECIABLE ASSETS. ON THE ABOVE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF T HE ASSESSING OFFICER SINCE THE ASSESSEE HAS FAILED TO DISCLOSE H IS TRUE INCOME. THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON TH E ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GRO UND WHICH MAY BE NECESSARY. 2 ADVERTING TO GROUND NOS. 1 & 2 IN THE APPEAL . FA CTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INC OME OF RS.2 15 130/- FILED ON 31-03-2009 BY THE ASSESSEE AFTER BEING ITA N O.2187/AHD/2010 2 PROCESSED U/S 143(1)(A) OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT] WAS SELECTED FOR SCRUTIN Y WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 14-09-2009.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT ASSESSEE CLAIMED DEDUCTION OF RS.10 39 362/- U/S. 54EC OF THE ACT ON SALE OF OLD MACHINERY USED IN BUSINESS BY INVESTING AN AMOUNT OF RS.12 00 000/- ON 28.2.2007 IN REC CAPITA L GAIN BONDS EVEN THOUGH DEPRECIATION WAS CLAIMED ON THE MACHIN ERY AND THE RESULTANT GAIN WAS TAXABLE AS SHORT TERM CAPITAL GA IN. THE AO NOTICED THAT THE ASSESSEE IN FACT SOLD OLD MACHI NERIES FOR RS.13 01 052/- WHILE ITS WDV WAS RS.1 74 165/- RE SULTING IN SHORT TERM CAPITAL GAIN OF RS.11 26 887/- IN TERMS OF PRO VISIONS OF SEC. 50 OF THE ACT. THE ASSESSEE HAD PURCHASED THE MACHINER IES VIZ.W-100 TYPE BORING MACHINE FOR RS.2 25 000 ON 5-7-1995 AND GEAR SHAPING MACHINE FOR RS.50 000 ON 16-05-2004 . THESE WERE S OLD ON 21-9- 2006 AND 15-11-2006 RESPECTIVELY FOR A CONSIDERATIO N OF RS.12 48 000 AND RS.53 000. SINCE THE ASSESSEE INVE STED AN AMOUNT OF RS.12 00 000/- IN REC CAPITAL GAIN BONDS THE ASSESSEE REFLECTED SHORT TERM CAPITAL GAIN OF ONLY RS. 87 5 25/-. TO A QUERY BY THE AO THE ASSESSEE RELIED UPON DECISIONS IN THE C ASE OF CIT VS. ASSAM PETROLEUM INDUSTRIES PVT. LTD. 262 ITR 587 (G AUHATI) AND ACIT VS. RAKA FOOD PRODUCTS (277 ITR 261) (MAD) IN HIS SUPPORT WHILE THE AO RELYING UPON DECISION IN THE CASE OF M. RAGHAVAN VS ACIT (2004) 266 ITR 145(MAD.) TAXED THE ENTIRE CA PITAL GAINS EARNED BY THE ASSESSEE ON THE TRANSFER OF MACHINERY A DEPRECIABLE ASSET AS SHORT TERM CAPITAL GAINS U/S 50(2) OF THE ACT AND DENIED DEDUCTION U/S 54EC OF THE ACT. 3. ON APPEAL THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 2.2 DURING THE COURSE OF APPELLATE PROCEEDINGS TH E AR OF THE APPELLANT ATTENDED AND DISCUSSED THE ISSUE IN DETAIL. THE APP ELLANT HAS REITERATED THE SAME ARGUMENTS AS WERE RAISED BEFORE THE AO AND CONTENDED THAT THE ITA N O.2187/AHD/2010 3 CLAIM OF APPELLANT IS COVERED BY SECTION 54EC OF TH E IT ACT. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION S OF THE APPELLANT ALONG WITH THE CASE LAWS AS RELIED UPON. IT IS SEEN THAT THE HON. BOMBAY HIGH COURT IN THE CASE OF CIT VS. ACE BUILDERS P. L TD. (2006) 281 ITR 210 HAS CONSIDERED ALL THE POINTS RAISED BY THE A. O. AND ALSO THE RATIO OF HON'BLE MADRAS HIGH COURT IN THE CASE OF M. RAGHAVA N VS. CIT 266 ITR 145 AND IT WAS HELD THAT - 'THERE WAS NOTHING IN SECTION 50 TO SUGGEST THAT THE FICTION CREATED IN SECTION 50 IS NOT ONLY APPLI CABLE TO SECTIONS 48 & 49 BUT ALSO APPLIES TO OTHER PROVISIONS. ON THE CONTRA RY THIS SECTION MAKES IT EXPLICITLY CLEAR THAT THE DEEMING FICTION CREATED I N SUB. SECTIONS (1) AND (2) IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CA PITAL GAINS CONTAINED IN SECTIONS 48 & 49. THE LEGAL FICTION IS TO DEEM THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET AS SHOR T TERM CAPITAL ASSET. SECTION 50 DID NOT CONVERT A LONG TERM CAPITAL ASSE T INTO A SHORT TERM CAPITAL ASSET. THOUGH SECTION 50 WAS ENACTED WITH T HE OBJECT OF DENYING MULTIPLE BENEFITS TO OWNERS OF DEPRECIABLE ASSETS YET THAT RESTRICTION WAS LIMITED TO THE COMPUTATION OF CAPITAL GAINS AND NOT THE EXEMPTION PROVISIONS. THUS THE EXEMPTION UNDER SECTION 54E C OULD NOT BE DENIED TO THE ASSESSEE ON ACCOUNT OF THE FICTION CREATED IN S EC. 50.' IN VIEW OF CLEAR FINDINGS GIVEN BY HON. BOMBAY HIGH COURT I HOLD TH AT THE ACTION OF A.O. IN DENYING EXEMPTION U/S. 54EC TO THE APPELLANT IS NOT JUSTIFIED AND HE IS DIRECTED TO ALLOW THE CLAIM OF THE APPELLANT. THERE FORE THIS GROUND STANDS ALLOWED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUP PORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE. WE FIND THAT WHILE TAXING CAPITAL GAINS ARISING ON SA LE OF OLD MACHINERY (INCORRECTLY MENTIONED AS GODOWN IN THE GROUND NO.1 OF THE APPEA L) U/S 50 OF THE ACT THE AO DENIED THE CLAIM FOR DEDUCTION U/S 54EC OF THE ACT ON THE GROUND THAT THE GAIN WAS TAXABLE AS SHORT TERM CAPITAL GAIN AND NOT LON G TERM CAPITAL GAIN. WHILE ADJUDICATING A SIMILAR ISSUE IN THE CONTEXT OF PROV ISIONS OF SEC. 54E OF THE ACT HONBLE GAUHATI HIGH COURT IN ASSAM PETROLEUM INDUS TRIES (P.) LTD.(SUPRA) HELD THAT EVEN IN RESPECT OF CAPITAL GAIN RECEIVED BY T HE ASSESSEE ON DEPRECIABLE ASSETS IF THE CONDITIONS NECESSARY UNDER SECTION 5 4E ARE COMPLIED WITH BY THE ASSESSEE HE WILL BE ENTITLED TO THE BENEFIT ENVISA GED IN SECTION 54E OF THE INCOME-TAX ACT SINCE FOR APPLICATION OF SECTION 54E OF THE ACT THE NECESSARY PRE- REQUISITE CONDITION AND ENQUIRY IS AS TO WHETHER THE ASSESSEE TRANSFERRED LONG- ITA N O.2187/AHD/2010 4 TERM CAPITAL ASSET AND WHETHER THE CONSIDERATION SO RECEIVED IS INVESTED OR DEPOSITED WITHIN THE TIME LIMIT IN SPECIFIED ASSET. FOLLOWING THIS DECISION HONBLE BOMBAY HIGH COURT IN CIT VS. ACE BUILDERS P. LTD. [ 2006] 281 ITR 210 (BOM) WHILE CONSIDERING THE ISSUE AS TO WHETHER TH E DEEMING FICTION CREATED UNDER SECTION 50 IS RESTRICTED TO SECTION 5 0 ONLY OR IS IT APPLICABLE TO SECTION 54E OF THE ACT AS WELL HELD AS UNDER: IN OUR OPINION THE ASSESSEE CANNOT BE DENIED EXEM PTION UNDER SECTION 54E BECAUSE FIRSTLY THERE IS NOTHING IN SECTION 50 TO SUGGEST THAT THE FICTION CREATED IN SECTION 50 IS NOT ONLY RESTRICTED TO SECTIONS 48 AN D 49 BUT ALSO APPLIES TO OTHER PROVISIONS. ON THE CONTRARY SECTION 50 MAKES IT EX PLICITLY CLEAR THAT THE DEEMED FICTION CREATED IN SUB-SECTIONS (1) AND (2) OF SECT ION 50 IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAINS CONTAINED IN S ECTIONS 48 AND 49. SECONDLY IT IS WELL ESTABLISHED IN LAW THAT A FICTION CREATE D BY THE LEGISLATURE HAS TO BE CONFINED TO THE PURPOSE FOR WHICH IT IS CREATED. IN THIS CONNECTION WE MAY REFER TO THE DECISION OF THE APEX COURT IN THE CASE OF STATE BANK OF INDIA V. D. HANUMANTHA RAO REPORTED IN [1998] 6 SCC 183. IN THA T CASE THE SERVICE RULES FRAMED BY THE BANK PROVIDED FOR GRANTING EXTENSION OF SERVICE TO THOSE APPOINTED PRIOR TO JULY 19 1969. THE RESPONDENT THEREIN WHO HAD JOINED THE BANK ON JULY 1 1972 CLAIMED EXTENSION OF SERVICE BECAUSE HE WAS D EEMED TO BE APPOINTED IN THE BANK WITH EFFECT FROM OCTOBER 26 1965 FOR THE PURPOSE OF SENIORITY PAY AND PENSION ON ACCOUNT OF HIS PAST SERVICE IN THE ARMY AS SHORT SERVICE COMMISSIONED OFFICER. IN THAT CONTEXT THE APEX COU RT HAS HELD THAT THE LEGAL FICTION CREATED FOR THE LIMITED PURPOSE OF SENIORIT Y PAY AND PENSION CANNOT BE EXTENDED FOR OTHER PURPOSES. APPLYING THE RATION OF THE SAID JUDGMENT WE ARE OF THE OPINION THAT THE FICTION CREATED UNDER SECTION 50 IS CONFINED TO THE COMPUTATION OF CAPITAL GAINS ONLY AND CANNOT BE EXT ENDED BEYOND THAT. THIRDLY SECTION 54E DOES NOT MAKE ANY DISTINCTION BETWEEN D EPRECIABLE ASSET AND NON- DEPRECIABLE ASSET AND THEREFORE THE EXEMPTION AVA ILABLE TO THE DEPRECIABLE ASSET UNDER SECTION 54E CANNOT BE DENIED BY REFERRI NG TO THE FICTION CREATED UNDER SECTION 50. SECTION 54E SPECIFICALLY PROVIDES THAT WHERE CAPITAL GAIN ARISING ON TRANSFER OF LONG-TERM CAPITAL ASSET IS INVESTED OR DEPOSITED (WHOLE OR ANY PART OF THE NET CONSIDERATION) IN THE SPECIFIED ASSETS THE ASSESSEE SHALL NOT BE CHARGED TO CAPITAL GAINS. THEREFORE THE EXEMPTION UNDER SECTION 54E OF THE INCOME-TAX ACT CANNOT BE DENIED TO THE ASSESSEE ON ACCOUNT OF THE FICTION CREATED IN SECTION 50. IT IS TRUE THAT SECTION 50 IS ENACTED WITH THE OBJE CT OF DENYING MULTIPLE BENEFITS TO THE OWNERS OF DEPRECIABLE ASSETS. HOWEVER THAT RES TRICTION IS LIMITED TO THE COMPUTATION OF CAPITAL GAINS AND NOT TO THE EXEMPTI ON PROVISIONS. IN OTHER WORDS WHERE THE LONG-TERM CAPITAL ASSET HAS AVAILED OF DE PRECIATION THEN THE CAPITAL GAIN HAS TO BE COMPUTED IN THE MANNER PRESCRIBED UN DER SECTION 50 AND THE CAPITAL GAINS TAX WILL BE CHARGED AS IF SUCH CAPITA L GAIN HAS ARISEN OUT OF A SHORT- TERM CAPITAL ASSET BUT IF SUCH CAPITAL GAIN IS INVE STED IN THE MANNER PRESCRIBED IN SECTION 54E THEN THE CAPITAL GAIN SHALL NOT BE CHA RGED UNDER SECTION 45 OF THE INCOME-TAX ACT. TO PUT IT SIMPLY THE BENEFIT OF SE CTION 54E WILL BE AVAILABLE TO THE ITA N O.2187/AHD/2010 5 ASSESSEE IRRESPECTIVE OF THE FACT THAT THE COMPUTAT ION OF CAPITAL GAINS IS DONE EITHER UNDER SECTIONS 48 AND 49 OR UNDER SECTION 50 . THE CONTENTION OF THE REVENUE THAT BY AMENDMENT TO SECTION 50 THE LONG-TE RM CAPITAL ASSET HAS BEEN CONVERTED INTO A SHORT-TERM CAPITAL ASSET IS ALSO W ITHOUT ANY MERIT. AS STATED HEREINABOVE THE LEGAL FICTION CREATED BY THE STATU TE IS TO DEEM THE CAPITAL GAIN AS SHORT-TERM CAPITAL GAIN AND NOT TO DEEM THE ASSET A S SHORT-TERM CAPITAL ASSET. THEREFORE IT CANNOT BE SAID THAT SECTION 50 CONVER TS A LONG-TERM CAPITAL ASSET INTO A SHORT-TERM CAPITAL ASSET. FOR ALL THE AFORESAID REASONS WE CONCUR WITH THE D ECISION OF THE GAUHATI HIGH COURT IN THE CASE OF CIT V. ASSAM PETROLEUM INDUSTR IES (P.) LTD. [2003] 262 ITR 587 AND HOLD THAT THE TRIBUNAL WAS JUSTIFIED IN ALLOWI NG THE BENEFIT OF EXEMPTION UNDER SECTION 54E OF THE INCOME-TAX ACT TO THE ASSE SSEE IN RESPECT OF THE CAPITAL GAINS ARISING ON THE TRANSFER OF A CAPITAL ASSET ON WHICH DEPRECIATION HAS BEEN ALLOWED. 5.1 IN THE LIGHT OF VIEW TAKEN IN THE AFORESAI D DECISIONS ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US ANY CONTRARY DECISION WE ARE OF THE OPINION THAT THE A SSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 54EC OF TH E ACT IN RESPECT OF THE CAPITAL GAINS ARISING ON THE TRANSFER OF A CAPITAL ASSET ON WHICH DEPRECIATION HAS BEEN ALLOWED THEREBEING NO DISPUTE THAT THE ASSESSEE FU LFILLED THE CONDITIONS STIPULATED U/S 54EC OF THE ACT. CONSEQUENTLY WE HAVE NO HESIT ATION IN UPHOLDING THE ORDER OF THE LD. CIT(A).THEREFORE GROUND NOS.1 &2 IN THE APPEAL ARE DISMISSED 6. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TER MS OF THE RESIDUARY GROUND NOR ANY OTHER PLEA OR SUBMISSIONS ACCORDINGLY THE REMAINING GROUNDS ARE DISMISSED. 7. IN THE RESULT APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 7-1-2011 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 7-1-2011 ITA N O.2187/AHD/2010 6 COPY OF THE ORDER FORWARDED TO: 1. SHRI PRAHLAD VINUBHAI PANCHAL PROP. OF JAYSHREE ENGINEERING WORKS 8/2 PATEL SOCIETY OPP. POLICE COMMISSIONERS OFFICE SHAHIBAUG AHMEDABAD 2. ITO WARD-2(3) 2 ND FLOOR INSURANCE BUILDING ASHRAM ROAD AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XIV AHMEDABAD 5. DR ITAT AHMEDABAD BENCH-D AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD