2015 (3) TMI 534 - AT - Income Tax

Tribunal rules no depreciation claimed, gain as capital, Revenue appeal dismissed

The Tribunal upheld the CIT(A)'s decision, ruling that the assets were not depreciable as no depreciation was claimed or allowed. Consequently, Sections ... Addition made by the Assessing Officer u/s 41(2) - computation of short term capital gain - CIT(A) deleted the addition - application of provisions of section 50 for the purpose of computation of capital gain and claim of deduction raised under section 54EC - Held that:- Though the assets were shown in the category of fixed assets, but no depreciation was claimed. Therefore, the provisions of section 41(2) and 50(2) of the Act cannot be invoked for the purpose of computation of short term capital gain. In that eventuality, the normal long term capital gain was accrued to the assessee and the assessee has claimed exemption under section 54EC of the Act by making investment in National Highway Bonds. Therefore, the assessee would be entitled for exemption under section 54EC of the Act. CIT(A) has appreciated the legal provisions in the light of various judicial pronouncements before concluding that the benefit of section 54EC of the Act are available to the assessee irrespective of the fact that computation of capital gain is done either under section 48 or 49 or 50 of the Act. Since we do not find any infirmity in the order of the ld. CIT(A), we confirm the same. - Decided against revenue. Issues Involved:1. Deletion of addition made under Section 41(2) of the Income-tax Act, 1961.2. Deletion of addition made under the head short term capital gain.3. Admittance of additional evidence by CIT(A) without following Rule 46A of the Income-tax Rules.Issue-wise Detailed Analysis:1. Deletion of Addition Made Under Section 41(2) of the Income-tax Act, 1961:The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 3,68,696/- made under Section 41(2) of the Income-tax Act, 1961. The Assessing Officer (AO) had invoked Section 41(2) on the grounds that the assets in question were business assets and depreciation should have been allowed. However, the CIT(A) found that the conditions for invoking Section 41(2) were not met as the assets were never depreciated. The CIT(A) noted that for Section 41(2) to apply, the assets must be depreciable, and depreciation must have been claimed in earlier years, which was not the case here. Therefore, the addition under Section 41(2) was deleted.2. Deletion of Addition Made Under the Head Short Term Capital Gain:The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 51,44,800/- under the head short term capital gain. The AO had treated the sale of two shops as short term capital gain under Section 50(2) of the Act, arguing that the assets formed part of a block of assets and depreciation should have been allowed. The CIT(A) disagreed, stating that Section 50(2) applies only when depreciation has been allowed on the assets. Since no depreciation was claimed or allowed on these assets, they were not considered depreciable assets, and the gain was treated as long term capital gain. The CIT(A) also referenced judicial pronouncements to support that Section 54EC exemptions apply irrespective of Section 50's deeming provisions.3. Admittance of Additional Evidence by CIT(A) Without Following Rule 46A:The Revenue claimed that the CIT(A) failed to observe Rule 46A while admitting additional evidence without giving the AO an opportunity to be heard. The CIT(A) examined the facts, legal provisions, and judicial pronouncements and concluded that the assessee's claim for long term capital gain and exemption under Section 54EC was valid. The Tribunal found no infirmity in the CIT(A)'s order and confirmed the decision.Conclusion:The Tribunal upheld the CIT(A)'s decision, confirming that the assets in question were not depreciable as no depreciation was claimed or allowed. Consequently, Sections 41(2) and 50(2) were not applicable, and the gain was treated as long term capital gain eligible for exemption under Section 54EC. The Tribunal also dismissed the Revenue's appeal, finding no procedural error in the CIT(A)'s admittance of additional evidence. The appeal of the Revenue was dismissed.