TaxTMI 
TaxTMI 
2018 (11) TMI 198
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....nces of the case, the CIT(A) erred in allowing the claim of deduction u/s 54F of the IT Act ignoring the fact that the assets in question were commercial assets and in view of provisions of section 50 of the IT Act, the gain arising out of sale of said depreciable assets was rightly treated as short term capital gain by the Assessing Officer and disallowed the claim of deduction u/s 54F of the IT Act, 1961" (ii) "On the facts and circumstances of the case, the CIT(A) was erred in deleting the addition made by the Assessing Officer under section 69B of the IT Act amounting to Rs. 1,89,97,538/- ignoring the fact that the assessee could not explain the difference in the said capital account balance as shown by the assessee and that of the firm M/s Pregnancy Advices and Services, wherein assessee was a partner". (iii) The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be. (iv) The appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)51, Mumbai, may be set aside and that of the Assessing Officer restored." 3. The brief facts of the case are that the assessee is a Doctor by p....
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....substantial justice vis-a-vis technicalities are inclined to condone the aforesaid delay of 27 days in filing late this appeal by Revenue beyond the time stipulated u/s 253(3) of the 1961 Act and admit this appeal to be adjudicated on merits in accordance with law in succeeding para's of this order. The judgment of Hon'ble Supreme Court in the case of Collector, Land Acquisition v. Mst Katiji (1987) 167 ITR 471(SC) is relevant. We admit this appeal and condonation application filed by Revenue stand allowed. We order accordingly. 5. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act, the AO observed that the assessee has earned capital gains on sale of immovable properties , the first set of immovable properties sold being units no. 24-24 situated at Pearl Centre, S B Marg , Dadar, Mumbai and Second immovable property sold being residential flat situated at 114 situated at 4/11, Avanti Apartments , S B Marg, Dadar, Mumbai . The AO observed that the first set of immovable properties sold being units 24-26 at Pearl Center, Dadar, Mumbai were all commercial properties used by the assessee for the purpose of his clinic and depreciation on the same wa....
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....on'ble Bombay High Court in the case of CIT v. Ace Builders (2006)281 ITR 201(Bom.) but the AO rejected the contentions of the assessee by holding that said decision is only relevant for claiming deduction u/s. 54E of the 1961 Act and additions of Rs. 6,50,00,000/- were made by the AO to the income of the assessee by denying deduction u/s 54F of the 1961 Act, vide assessment order dated 30.03.2015 passed u/s 143(3) of the 1961 Act despite the fact that reinvestment to the tune of Rs. 20,63,72,233/- was made by the assessee in new residential flat situated at 114, Beau Monde Prabhadevi . 6. Aggrieved by the assessment order dated 30.03.2015 passed by the AO u/s 143(3) of the 1961 Act, the assessee filed first appeal before Ld. CIT(A) which was allowed by Ld. CIT(A) vide appellate order dated 05.12.2016 wherein learned CIT(A) held as under:- " 3.3 1 have considered the appellant's submissions. Appellant had sold commercial and residential property totalling to Rs. 10.5 Crs. and purchased a residential house at Beau Monde, Prabhadevi for Rs. 20,63,72,233/-. Appellant had claimed a deduction of 54F from the sale consideration received from the sale of commercial and res....
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....R 59 ] held that deeming provision is a fiction of law, it cannot be extended beyond the object for which it was enacted. By the above Supreme Court case, it is clear that in deeming provision fiction cannot be extended to other sections of the Act. Hence, appellant is correct in stating that deeming provision u/s 50 were for computation of capital gain under depreciable assets is treated as Short term capital gain, but if the asset is held for more than 3 years, the character of the assets will not change from Long term to Short term assets just because it is computed under section 50 of the Act. As deeming provision section cannot be extended for other sections, by this way appellant is eligible even for claiming section 54F of the Act for sale of commercial property on which it claimed depreciation. This issue was further resolved by Delhi High Court in the case of CIT vs. Rajiv Shukla [334 ITR 138] where it is held as under : The AO took the view that the capital gains arising from transfer of a depreciable asset shall be deemed to be capital gains arising from transfer of a short term capital asset and deduction u/s 54F was not available. The Commissioner (Appeals) de....
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....y High Court in the case of Ace Builders (P.) Ltd. (supra) 2. Judgment of Hon'ble Bombay High Court in the case of CIT v. Delite Tin Industries [ITA No. 1118 of 2008 dated 26.09.2008] - SLP dismissed by Hon'ble Supreme Court on 21.08.2009 reported in (2010) 322 ITR (St) 8(SC) 3. Judgment of Hon'ble Bombay High Court in the case of CIT v. Bharat Enterprises [ITA No. 224 of 2012 dated 21.01.2013] 4. Judgment of Hon'ble Bombay High Court in the case of CIT v. United Paper Industries [2014] 42 taxmann.com 79(Bom.) 5. Judgment of Hon'ble Delhi High Court in the case of CIT v. Rajiv Shukla (2011) 334 ITR 138(Delhi) 6. Order of Mumbai Bench of the Hon'ble Tribunal in the case of ACIT v. Kiran G Gadhia for A.Y. 2010-11 in ITA No. 4021/Mum/2015 dated 22.03.2017 7. Judgment of Hon'ble Supreme Court in the case of CIT v. V.S. Dempo Company Ltd. (2016) 387 ITR 354(SC) It was submitted by Ld. Counsel for the assessee that deeming fiction of Section 50 is to be restricted only for the limited purpose of modification of provisions of Section 48 and 49 of the 1961 Act as is stipulated in Section 50 of the 1961 Act and it cannot be ....
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....e intended to claim deduction u/s 54F of the 1961 Act with respect to capital gains arising from the sale of commercial flats being unit numbers 24-26 situated at Pearl Center , Dadar which were used by the assessee for running his clinic and on which depreciation u/s 32 of the 1961 Act was also claimed by the assessee by treating the same as long term capital gains entitled for deduction u/s 54F of the 1961 Act on reinvestment made in new residential flat at Beau Monde, while the Revenue on the other hand treated the same as short term capital gains in the teeth of provisions of Section 50 of the 1961 Act by holding that the gains on sale of commercial property to be short term capital gains on sale of short term capital asset depriving assessee benefit of deduction u/s 54F on reinvestment in new residential flat as the said section stipulated that only long term capital gains are entitled for deduction u/s 54F of the 1961 Act for reinvestment made in new residential properties We have observed the Section 50 creates a deeming fiction by modifying provisions of Section 48 and 49 of the 1961 Act for the purposes of computation of capital gains chargeable to tax under Section 45 of ....
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....ted the claim for exemption under Section 54E of the Act on the ground that the assessee had claimed depreciation on this asset and, therefore, provisions of Section 50 were applicable. Though this was upheld by the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal allowed the appeal of the assessee herein holding that the assessee shall be entitled for exemption under Section 54E of the Act. The High Court has confirmed the view of the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue. While doing so the High Court has relied upon its own judgment in the case of CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210/[2005] 144 Taxman 855 (Bom.). The High Court has observed that Section 50 of the Act which is a special provision for computing the capital gains in the case of depreciable assets is not only restricted for the purposes of Section 48 or Section 49 of the Act as specifically stated therein and the said fiction created in sub-section (1) & (2) of Section 50 has limited application only in the context of mode of computation of capital gains contained in Sections 48 and 49 and would have nothing to do with the exemption that is pr....
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....refore, the exemption under Section 54E of the I.T. Act cannot be denied to the assessee on account of the fiction created in Section 50." 2. We are in agreement with the aforesaid view taken by the High Court. 3. We are informed that the Gujarat High Court as well as Guahati High Court have also taken the same view in the following cases: 1. CIT v. Polestar Industries [2014] 41 taxmann.com 237/221 Taxman 423 (Guj.) 2. CIT v. Assam Petroleum Industries (P.) Ltd. [2003] 262 ITR 587/131 Taxman 699 (Gau.). 4. We are also informed that against the aforesaid judgments no appeal has been filed. 5. In view of the foregoing, we do not find any merit in the instant appeal which is, accordingly, dismissed." The Mumbai-tribunal in the case of ACIT v. Shri Kiran G Gadhia(supra) of which one of us i.e. Accountant Member was part of the Division Bench has under similar circumstances allowed the deduction u/s 54/54F of the 1961 Act in para 11 and 12 of the said order by holding in favour of tax-payer as under: 11. With regard to the contention of the Assessing Officer that since the Assessee has claimed depreciation on one of the p....
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....n law that a fiction created 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 . In that case, the Service Rules framed by the bank provided for granting extention of service to those appointed prior to 19/7/1969. The respondent therein who had joined the bank on 1/7/1972 claimed extention of service because he was deemed to be appointed in the bank with effect from 26/10/1965 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 Court has held that the legal fiction created for the limited purpose of seniority, pay and pension cannot be extended for other purposes. Applying the ratio 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 extended beyond that. Thirdly, section 54E does not make any distinction between depreciable asset and non depreciable asset and, therefore, the exemption available to the depreciable asset under section....
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....ether the income earned by the Assessee on sale of factory shed is to be treated as long term capital gains eligible for deduction u/s 54EC or not. In this case, the Jurisdictional High Court held that the income earned by the Assessee on sale of factory shed should be treated as long term capital gains and is eligible for deduction u/s 54EC of the Act. Respectfully following the decision of the Jurisdictional High Court, we hold that the Assessee is entitled for deduction u/s 54/54F in respect of both the properties. Thus the grounds 1 to 4 raised by the revenue are rejected. Thus keeping in view aforesaid decisions, we are of the considered view that the assessee will be entitled for deduction u/s. 54F of the Act on the capital gains arising on the sale of depreciable assets being commercial flats situated at unit no. 24-26, Pearl Center, Dadar, Mumbai computed in the manner laid down in Section 50 of the 1961 Act read with Section 48, 49 and 45 of the 1961 Act as these assets which were sold by the assessee during the year under consideration were held for a period of more than thirty six months , on the reinvestment made by the assessee in new residential property being flat....
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....the view that character of the assets will not change because of computation of capital gain u/s 50 of the Act. Hence, appellant states that as the assets were held for more than 3 years, appellant is eligible for long term capital gain and hence eligible for deduction u/s 54 f the Act. It is true that section 50 of the Act is a deemed provision. In case of a deemed provision its applicability cannot be extended to other sections. Even Supreme Court in the case of CIT vs Amarchand N. Shroff [48 ITR 59 ] held that deeming provision is a fiction of law, it cannot be extended beyond the object for which it was enacted. By the above Supreme Court case, it is clear that in deeming provision fiction cannot be extended to other sections of the Act. Hence, appellant is correct in stating that deeming provision u/s 50 were for computation of capital gain under depreciable assets is treated as Short term capital gain, but if the asset is held for more than 3 years, the character of the assets will not change from Long term to Short term assets just because it is computed under section 50 of the Act. As deeming provision section cannot be extended for other sections, by this way appe....
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....et of M/s. Pregnancy Advice & Services filed by the assessee as at 31.03.2012 reflected capital account invested by the assessee (including share of profits less withdrawals) to be Rs. 1,97,70,503/- , while the balance of assessee's capital account as per assesee's books of account reflected capital invested by the assessee in the said partnership firm namely M/s. Pregnancy Advice and Services as at 31-03-2012 of Rs. 7,72,965/- , leading to differential of Rs. 1,89,97,538/- in the books of accounts maintained by the assessee vis-a-vis the Balance Sheet of the partnership firm of which the assessee is partner as at 31-03-2012. The assessee as per AO submitted explanations vide letters dated 14.03.2015 that the assessee did not receive any Remuneration/interest on capital or any other taxable income from the said firm namely M/s. Pregnancy Advice & Services during the relevant assessment year and secondly , it was submitted that accounts of the firm M/s. Pregnancy Advice & Services for AY 2011-12 and AY 2012-13 were finalised after the submission of return of income by the assessee for those respective years and hence share of profit of the assessee from said firm for AY 2011-12 was ....
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....lier to the account finalization of the above firm. However, AO had rejected the appellant's submissions and added the difference of Rs. 1,89,97,538/-to the total income of the appellant u/s 69B of the Act. 4.2 Appellant's submissions are as under: The ground of appeal No. 3 reads as under: "On the facts and circumstances of the case and in law the Ld AO erred in making addition of Rs. 1,89,97,538/- u/s.69B of the Act being "unexplained difference" in capital balance with a partnership firm in spite of the fact that Appellant had submitted all the related documents to explain the said difference," It is respectfully submitted before Your Honour that the Appellant is a partner in a Registered Firm named Pregnancy Advice & Services. The Appellant is having a profit sharing ratio of 55% during the year under consideration. It is submitted before Your Honour that the Appellant does not derive any taxable income such as remuneration or interest on capital or any other income from the said firm. We would like to submit that the Appellant has not received any taxable income from the firm during the year under consideration. The Appellan....
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....11 & 31/03/2012. iv) The copies of accounts of the partnership firm M/s Pregnancy Advice & Services for A.Y. 2011-12 and A.Y. 2012-13. v) Computation of Income and copy of ITR Acknowledgement of the firm M/s Pregnancy Advice & Services for A.Y. 2011-12 & 2012-13. We would like to submit that all the above statements submitted during the assessment proceedings substantiate and prove that neither there are any unexplained differences nor there are any unmatched entries. A copy of the above submission is enclosed for Your Honour's reference. Therefore, the Appellant has no undisclosed Income from the said partnership firm. We would further like to draw Your Honour's attention to the provisions of Section 69B of the Income Tax Act, 1961 under which the addition has been made by the Ld. Assessing Officer. The Section states as under:- "Amount of investments, etc., not fully disclosed in books of account. 69B. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or....
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.... 4,29,99, 262/- Appellant's share of profit is as under: Share of profit in firm exempted u/s. 10(2A) for A.Y. 2012-13 2,42,61,741/- Less: Firm Tax (52,64,203) Net share of profit 1,89,97,538/- According to the appellant the reconciliation of account is as under : Reconciliation of Account DR. HRISHIKESH D. PAI Closing Balance of Pregnancy Advice & Services (as per Appellants' books) 7,72,965.99 . Add : Profit & Tax Accounted in A.Y. 2013-14 Accounts of Dr. Hrishikesh D. Pai * * ',, ** Share of Profit for AY 12-13 2,42,61,740.96 Share of Firm Tax for AY 12-13 (52,64,203.00) 1,89,97,537.96 Capital A/c Balance in the books of Pregnancy Advice & Services 1,97,70,503.95 In the appellant's submissions appellant states that accounts of the partnership firm for the A.Y. 2012-13 were finalized in March 2013 and the return of the firm for A.Y. 2012-13 was filed on 12.03.2013. Thus, the accounts were finalized after the date of filing of return of income by appellant i.e. 30.09.2012. Therefore appellant states that share of profit of the firm and tax show....
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....ch is also an exempt income as per section 10(2A) of the Act. So AO's addition of Rs. 1,89,97,538/- u/s 69B is erroneous. In view of the above discussion, this mismatch of balance of the appellant's regular capital of the firm is only due to timing difference of filing of return of the firm and finalization of accounts of the firm. Hence this amount cannot be treated as income u/s 69B of the Act as it is exempt income. Hence AO's addition of Rs. 1,89,97,538/- is deleted. Ground of appeal is allowed." 11. The matter is now before us at the behest of revenue as appeal has been filed by the Revenue with the tribunal challenging the relief granted by learned CIT(A). The matter was first part heard by the Bench on 14-08-2018 on this issue and the hearing got finally concluded on 23-08-2018. The learned DR during hearing on 14-08-2018 before the Bench pleaded that the Ld. CIT(A) erred in granting relief to the assessee and additional evidences were filed by the assessee before the Ld. CIT(A) for the first time which were not sent by learned CIT(A) to the AO for seeking remand report on these additional evidences infringing Rule 46A of the Income-tax Rules , 1962. The learn....
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....iled its return of income with in due time prescribed u/s 139(1) on 30-09-2012. It is submitted by learned counsel for the assessee that share of profit of the assessee from partnership firm is exempt from tax u/s 10(2A) of the 1961 Act and also that no remuneration, interest on capital or any other taxable income was received by the assessee from the said partnership firm . Thus it is claimed that no prejudice is caused to the Revenue due to this mismatch in the capital account in assessee's books of accounts vis-a-vis books of accounts maintained by the said partnership firm as at 31-03-2012 , as the revenue impact is tax-neutral because share of profit of the assessee from the said partnership firm M/s Pregnancy Advices and Service for AY 2012-13 is in any case exempt from income-tax. 10. We have observed that the assessee is doctor by profession . The assessee is partner in partnership firm namely M/s Pregnancy Advices and Service . As per material available on record, the assessee did not received any remuneration , interest on capital and other taxable income from the said partnership firm namely M/s. Pregnancy Advice & Services which is not disputed by Revenue. The assess....
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..../- appellant's net share of profit is Rs. 1,89,97,538/-, which if accounted for in assessee's books of account will result in no differential between capital account of the assessee in its books of accounts vis-à-vis books of accounts of the partnership firm namely M/s. Pregnancy Advice & Services . It is only share of profit of the assessee from partnership firm namely M/s. Pregnancy Advice & Services for AY 2012-13 which was not included in books of accounts as well in the return of income filed by the assessee which in any case is exempt from income-tax by virtue of provisions of Section 10(2A) of the 1961 Act in the hands of the assessee who is partner in said firm. Thus, the revenue impact of afore-said non-inclusion of share of profits of the assessee from partnership firm namely M/s. Pregnancy Advice & Services so far as assessee is concerned is tax-neutral and no prejudice is caused to Revenue by its non inclusion in return of income filed by the assessee with Revenue. The assessee has duly filed copy of income-tax return dated 12-03-2013 filed by the said partnership firm namely M/s Pregnancy Advices and Service for AY 2012-13. Even copy of earlier year return o....
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....hosen to adopt pick and chose strategy from the replies submitted by the assessee in its defence in a manner to ambush assessee despite all the material on record before him vide letters dated 09.02.2015, 14-03-2015 and 20-03-2015 which go on to prove that no addition whatsoever was warranted on this ground. The learned CIT(A) granted relief to the assessee vide detailed order but still the Revenue chose to file an appeal on this ground. Further , perusal of record before the tribunal revealed that the AO while filing appeal before the tribunal did not attached/enclosed Statement of Fact filed by assessee along with form no 35 before learned CIT(A) while filing first appeal, which statement of fact was found to be part of the said appeal memo as seen during inspection of assessment record as well as confirmed by learned DR in its letter dated 23-08-2018. Grounds of Appeal were only attached by AO along with Form No. 35 while filing appeal before the tribunal. If AO would have attached Statement of Fact filed by the assessee along with Form No. 35 it would have unravelled the true facts as to the assessee having filed all relevant documents/ evidences before the AO . The AO did not ....
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....ady on record with Revenue in its data base as it filed its return of income on 12-03-2013 while assessment is framed on 30-03-2015 and Revenue could have easily cross verified and reconciled the said differential from its own data base to verify the veracity and validity of the contentions of the assessee more so Revenue is now well equipped with advanced technological platforms available at its disposal . Coming back to issue in hand, the learned CIT(A) has passed well reasoned order granting relief to the assessee with which we fully concur which is re-produced by us in preceding para's of this order and the same is not reproduced again. We have carefully gone through the entire material on record as well appellate order passed by Ld. CIT(A) and we affirm/concur with the view of learned CIT(A) that differential in capital account balance of the assessee in its books of accounts vis-a-vis books of accounts of the partnership firm M/s. Pregnancy Advice & Services stood duly and fully explained and reconciled backed with bonafide reasons/evidences and we have no hesitation in confirming/affirming the well reasoned appellate order passed by learned CIT(A). The Revenue fails on this ....