Nutech Engineering Technologies Ltd. Vs DCIT (ITAT Mumbai)
We noted that the assessee has claimed depreciation on the property sold as Lunkard Sky Max of 17 units in AYs 2010-11 and 2011-12. But from AY 2012-13 i.e. Financial Year 2011-12 out of 17 units 7 units were given on rent and accordingly rental income was shown as income from house property and no depreciation was claimed on this property. As argued by the learned Counsel for the assessee that once the property let out it loses its character as a business asset and no depreciation was allowable on it. This fact has not been denied by the Revenue.
Once, this is a fact that the moment assessee stopped claiming depreciation in respect of property and let out the same for rent, it ceases to be a business asset and thus, the profit or gain arising out of sale of property is to be considered as long term capital gain after Indexation.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal of assessee is arising out of the order of the Commissioner of Income Tax (Appeals)]-17, Mumbai, [in short CIT(A)], in ITA No. CIT(A)-17/IT-196/10878/16-17 dated 14.03.2018. The assessment was framed by the Asst. Commissioner of Income Tax, Circle 10(3)91) Mumbai (in short ACIT/ITO/ AO) for the A.Y. 2014-15 vide order dated 19.12.2016 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
2. At the outset, the learned Counsel for the assessee has raised the additional ground in regard to computation of capital gains under section 50 of the Act which is a legal ground and goes to the route of the matter. The relevant ground raised read as under: –
“1. The Ld. CIT(A) as well Assessing Officer failed to appreciate the computation of capital gain to be made under sec. 50 of the Act i.e. on Sale of any asset falling in the block of assets, the same has to be reduced for the WDV of the said block of Asset any not from the individual asset as done by Assessing Officer.
2. The Ld. CIT(A) as well Assessing Officer failed to appreciate that under section 50 of the Act the STCG arises only when the status of the block is ”
3. When these facts were confronted that the above ground relates to computation of capital gains under section 50C of the Act, this is purely a legal ground and goes to the route of the matter, the learned Sr. DR has not contested the admissibility of additional ground. Hence, we admit the ground and
4. The brief facts are that the assessee is engaged in the business of manufacturing of Air Handling Units, Air Washers, Dampers, Pre- fabricated Ducts and other Metal parts. The assessee has sold one unit out of seventeen units situated at Lunkard Sky Max, plot No. 94M, Viman Nagar, Village Lohengaon, Taluka Haveli. The assessee has acquired this property known as Lunkard Sky Max of 17 units. During the financial years 2009-10 & 2010-11, depreciation at the rate of 10% was claimed and allowed for AYs 2010-11 and 2011-12. Further, the assessee from Financial Year 2012-13, out of 17 units, 7 units were given on rent and accordingly, rental income was shown as income from house property. The assessee has not claimed depreciation for & from Financial Year 2012-13 on this property, out of those 17 let out units. Since, Financial Year 2011-12, One unit was sold during the Financial Year 2013-14 relevant to AY 2014-15 for a sum of Rs. 90 lacs and long term capital gain of Rs.45,22,358/- was declared. The assessee before Assessing Officer claimed that the property was held for more than 3 years and rental income was declared under the income from house property, hence, the assessee has rightly claimed the gain arising out of sale proceeds after indexation as Long Term Capital It was also submitted that no deprecation was claimed on these 17 units since Financial Year 2011-12. But the Assessing Officer treated the gain on sale of these units as short term capital gain under section 50C of the Act and computed the capital gain as Rs.63,93,920/- by observing in Para 3.5 as under : –
“3.5 Considering the above mentioned facts, as assessee has claimed depreciation till 31.03.2011 @ 10% on this property. Hence, WDV of the property of Rs.26,06,080/- {1,27,86,502 X 39/191.35} as on 31.03.2011 shall be the cost of acquisition of the said property for the purpose of calculation of Capital Gain thereon and as the asset is a depreciable asset, hence the nature of Capital Gain will be „Short Term Capital Gain‟ rather than „Long Term Capital Gain‟. Penalty proceedings u/s 271(1)(c) of I.T. Act 1961 are initiated separately for filing of inaccurate particulars of income /concealment of income. The working of Capital Gain is as under:
