2017 (11) TMI 56 - AT - Income Tax

Tribunal rules in favor of assessee on capital gains, depreciation, interest disallowance

The Tribunal allowed the assessee's appeal on the issues of Short Term Capital Gain (STCG), Long Term Capital Gain (LTCG), depreciation, unabsorbed ... Assessment of short term capital gain on consideration received on sale of factory building with furniture and fixture - Held that:- Recent decision of Hon’ble Bombay High Court in the case of Chaturbhuj Dwaarakadas Kapadia vs. CIT (2003 (2) TMI 62 - BOMBAY High Court) has compelled many assessee's to rethink as to the correct interpretation of clause (v) of section 2(47) whether transaction of possession or whether transaction means transaction of possession or whether transaction means act of entering into an agreement laying down the terms and conditions about possession of immovable properties. In view of the above facts and circumstances, we are of the considered view that the AO as well as CIT(A) has gone wrong in interpreting the facts of the case and hence, we are of the view that the transfer of the above stated property took place only in AY 2011-12, when assessee has declared the capital gain accordingly and paid the taxes. Consequently, the assessee is also entitled for depreciation on the factory and its machinery in this year i.e. AY 2010-11. Accordingly, we allow this inter-connected issue of the assessee’s appeal. Disallowing unabsorbed depreciation carried forward/ brought forward - Held that:- This issue is squarely covered by the decision of Hon’ble Gujarat High Court in the case of General Motors India (P.) Limited Vs. DCIT [2012 (8) TMI 714 - GUJARAT HIGH COURT] wherein the issue regarding unabsorbed depreciation available to assessee as on 01-04-2002 will be dealt in accordance with provisions of section 32(2) as amended by the Finance Act 2001 and not by the provisions of Section 32(2) of the Act as it stood before the amendment. Thus we direct the AO to re-compute the unabsorbed depreciation without any limitation in term of the decision. This issue of the assessee’s appeal is remanded back to the file of the AO and allowed for statistical purposes. Disallowance of interest on bank loan u/s 43B - Held that:- It is not justifiable to say that no payment has been made towards outstanding interest. Further, we find that the interest of ₹ 11,53,110/- is pertaining to the A.Y. 2007-08 which was disallowed in that year and hence, the same cannot be disallowed in this year also. Further, the reliance placed on CBDT circular no. 07/2006 by the learned Counsel for the assessee, we find that the circular very categorically lays down that the amount of unpaid interest, which has been converted by the bank as the loan, is allowable as deduction in the year in which the said loan is repaid. In the present case the assessee has repaid the entire amount of interest and loan to the bank in the A.Y. 2010-I1. Thus, the amount of interest of ₹ 8,62,448/- which is included in amount of ₹ 11,53,110/- is allowable as the deduction in this assessment year. Accordingly, we allow this claim of the assessee and direct the AO to compute the income accordingly. Additions under section 41(1) - Held that:- We find that the assessee has not written off the said liability in the current year, nor Agarwal plastics has waived off the same. Thus, no disallowance is warranted merely because the liability is outstanding since several years. This issue of the assessee’s appeal is also allowed. Issues Involved:1. Assessment of Short Term Capital Gain (STCG) on sale of factory building with furniture and fixtures.2. Addition on account of Long Term Capital Gain (LTCG) on sale of factory land.3. Disallowance of depreciation.4. Disallowance of unabsorbed depreciation carried forward from AY 1999-2000 to 2001-02.5. Disallowance of business loss set off.6. Disallowance of expenses under section 40(a)(ia) for non-deduction of TDS.7. Disallowance of interest on bank loan under section 43B.8. Addition under section 41(1) for cessation of liability.9. Re-computation of book profit under section 115JB.Detailed Analysis:1. Assessment of Short Term Capital Gain (STCG) on Sale of Factory Building with Furniture and Fixtures:The assessee challenged the addition of Rs. 22,06,779 as STCG on the sale of factory building with furniture and fixtures. The assessee argued that the sale was completed in the subsequent financial year, relevant to AY 2011-12, and thus should be considered as LTCG. The Tribunal found that the actual transfer took place on 09.12.2010, and the capital gains were rightly offered in AY 2011-12. The Tribunal concluded that the AO and CIT(A) erred in assessing the gains in AY 2010-11 and allowed the assessee's appeal on this issue.2. Addition on Account of Long Term Capital Gain (LTCG) on Sale of Factory Land:The assessee contended that the sale of factory land was completed in the subsequent financial year, relevant to AY 2011-12, and thus the LTCG of Rs. 24,32,370 should be considered in that year. The Tribunal agreed with the assessee, noting that the sale deed was executed and registered on 09.12.2010, and the capital gains were correctly declared in AY 2011-12. The Tribunal allowed the appeal on this issue.3. Disallowance of Depreciation:The assessee claimed depreciation of Rs. 2,27,513 for the factory and machinery, which was disallowed by the AO and CIT(A). The Tribunal found that since the transfer took place in AY 2011-12, the depreciation claim for AY 2010-11 was justified. The Tribunal allowed the appeal on this issue.4. Disallowance of Unabsorbed Depreciation Carried Forward from AY 1999-2000 to 2001-02:The AO disallowed the unabsorbed depreciation carried forward from AY 1999-2000 to 2001-02, following the decision of the Mumbai Special Bench of ITAT in Times Guaranty Limited. The Tribunal, however, relied on the Gujarat High Court's decision in General Motors India (P.) Limited, which allowed the carry forward of unabsorbed depreciation without any time limit. The Tribunal remanded the issue back to the AO for re-computation in line with this decision.5. Disallowance of Business Loss Set Off:The assessee did not press this ground, and hence, it was dismissed as not pressed.6. Disallowance of Expenses under Section 40(a)(ia) for Non-Deduction of TDS:The assessee did not press this ground, and hence, it was dismissed as not pressed.7. Disallowance of Interest on Bank Loan under Section 43B:The AO disallowed interest expenses of Rs. 19,23,194 under section 43B, arguing that the interest was not paid but settled with the bank. The Tribunal found that the assessee had paid the entire amount of Rs. 65 lakhs received from the sale of land and factory building to the bank, which included the outstanding interest. The Tribunal allowed the claim of Rs. 8,62,448 as deduction and directed the AO to re-compute the income accordingly.8. Addition under Section 41(1) for Cessation of Liability:The AO added Rs. 6,88,237 under section 41(1) for interest waiver by the bank, considering it as a cessation of liability. The Tribunal found that the assessee had not claimed this interest in the current assessment year and thus, no disallowance could be made under section 41(1). The Tribunal allowed the appeal on this issue.9. Re-computation of Book Profit under Section 115JB:The assessee did not press this ground, and hence, it was dismissed as not pressed.Conclusion:The Tribunal allowed the assessee's appeal on the issues of STCG, LTCG, depreciation, unabsorbed depreciation, and interest disallowance under section 43B. The issues of business loss set off, expenses under section 40(a)(ia), and re-computation of book profit under section 115JB were dismissed as not pressed. The issue of addition under section 41(1) for cessation of liability was also decided in favor of the assessee. The appeal was partly allowed for statistical purposes.