Case Law Details
DCIT Vs Bharti Realty Holdings Ltd (ITAT Delhi)
Introduction: The recent case of DCIT Vs Bharti Realty Holdings Ltd, brought before the Income Tax Appellate Tribunal (ITAT) Delhi, revolves around the allowance of losses that were initially disallowed. This disallowance stemmed from an alleged incorrect comprehension of Section 43(6) provisions. The appeal, directed against the Commissioner of Income Tax (Appeals)-2, New Delhi’s order for the Assessment Year 2016-17, prompted a detailed examination by the ITAT.
Detailed Analysis: The Revenue raised specific grounds of appeal, primarily contesting the deletion of disallowance totaling Rs.5,36,65,783/- for short-term capital loss on the sale of depreciable assets. The Assessing Officer’s stance was that the ‘mutual adjustment’ between the assessee and its group entity led to a short-term capital loss. The AO substituted the Written Down Value (WDV) with Fair Market Value (FMV) and rejected the claimed loss. The Learned CIT(A), however, deleted the addition, emphasizing the incorrect comprehension of Section 43(6) and the absence of a valid basis for substituting ‘money payable’ with WDV.
In response, the Assessee’s Representative argued that the assets were sold to the group entity due to the assessee no longer requiring them. The AR highlighted the lack of reasoning by the AO in substituting ‘money payable’ with WDV and questioned the prevailing ‘mutual understanding theory.’ The AR presented detailed financials, demonstrating the disclosed values matching the sale value. The ITAT, after careful consideration, upheld the CIT(A)’s decision, dismissing the Revenue’s appeal.
Another ground of appeal focused on the disallowance of depreciation of Rs.6,20,107/- on part of the third block of assets. The AO’s position was challenged by the AR, asserting the absence of a sale and disputing the ‘mutual understanding’ value. The CIT(A) granted relief, emphasizing the AO’s failure to deny the actual sale consideration. The ITAT concurred with the CIT(A)’s decision, dismissing the Revenue’s appeal on this ground as well.
Conclusion: In its judgment pronounced on 19.10.2023, the ITAT Delhi dismissed the Revenue’s appeal in the case of DCIT Vs Bharti Realty Holdings Ltd. The tribunal upheld the CIT(A)’s decision, allowing losses previously disallowed under Section 43(6). The verdict stressed the incorrect comprehension of the provisions and the lack of a valid basis for the AO’s actions. This case highlights the importance of a thorough understanding of tax provisions and adherence to procedural fairness in assessments.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-2, New Delhi dated 26.06.2019 for Assessment Year 2016-17
2. The Revenue has raised following grounds of appeal :
1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs.5,36,65,783/- made on account of short term capital loss on sale of depreciable assets, without appreciating the findings given by the Assessing Officer in the assessment order that the assessee had sold the assets at a value less than wdv to its sister concern.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance made on account of depreciation of Rs.6,20,107/- even through the block of assets ceased to exist.”
Ground No.1 of Revenue for A.Y. 2016-17
3. Apropos Ground No.1, the Learned CIT-D.R. submitted that the Assessing Officer rightly made addition in the hands of assessee by observing that the ‘mutual adjustment’ between the assessee and its other group entity M/s. Bharti Realty Holdings Ltd. reveals that the assets sold have been transferred at price below Fair Market Value (FMV) of the assets. The Learned CIT-D.R. further submitted that the said arrangement between assessee and other group entity has resulted into Short Term Capital Loss (STCL) of Rs.5,36,65,783/- to the assessee company. Learned CIT-D.R. submitted that the AO rightly took appropriate sale consideration at Written Down Value (WDV) as per Income-tax Act. The Learned CIT-D.R. further submitted that the AO rightly held that the assessee has managed its affairs so as to claim Short Term Capital Loss by not taking Fair Market Value as per Income-tax Act and consequently, the AO rightly made addition on account of Short Term Capital Loss accrued to the assessee. The Learned CIT-D.R. thus submitted that the Learned CIT(A) granted the relief without any basis by considering irrelevant factual position and value of asset transferred by assessee to its group entity. Therefore, impugned appellate order may kindly be set aside by restoring that AO on this issue.
4. On the other hand, the Learned Assessee’s Representative (AR) supporting the First Appellate order submitted that the assets were sold to the group entity as the assessee no longer requiring the same. The Learned AR further submitted that the AO has not given any basis or reason on the ‘money payable’ has been substituted by Written Down Value (WDV) and how the ‘mutual understanding theory’ prevails upon the provision of this Act. The Learned AR vehemently pointed out that before the authorities below, the assessee filed details showing the disclosed value of assets matching with the sale value of appellant wherein all details of its financials of assessee and transferee entity were available in the record of the AO, which could be verified. The Learned AR also submitted that the disallowance of loss has been made due to incorrect comprehension of the provision of Section 43(6) of the Act which provides reduction of written down value by the ‘money payable’ in case of sold assets.
5. The Learned AR also submitted that the same Assessing Officer has passed order in the case of sister concern and all details and financials were available with the AO in the relevant assessment records. The Learned AR submitted that as per Section 43(6)(c)(i) of the Act, the written down value is to be adjusted by reduction of ‘money payable’ with regard to the sold assets falling within that block. He further contended that the money payable as defined in Section 43(6) Explanation 4 r.w.s 41(4) means the price for which it is sold. The Learned AR submitted that the substitution of Written Down Value as Fair Market Value was incorrect, unjustified and wrong and similarly, reducing the Written Down Value of the third block and making it nil when actually it was partly sold, was also against the provisions of the Act. The Learned AR submitted that the Learned CIT(A) has rightly granted relief to the assessee by considering the totality of the facts and considering the relevant provisions of the Act. Therefore, no interference was called for therein.
6. On careful consideration and submissions, we find it appropriate to reproduce the relevant para of First Appellate order, wherein the Learned CIT(A) has recorded his findings before deleting the addition made by AO on account of disallowance of Short Term Capital Loss on sale of assets to the group entity, as follows:
“6.1 Ground no 1 & 3: These grounds are directed against addition of Rs.5,36,65,783/-on account of disallowance of short-term capital loss on sale of assets. During the year, the appellant sold 2 blocks of assets and part of 3 block of assets to its sister concern. Sale price of two blocks resulted in Nil WDV (no depreciation was claimed) and also resulted in loss of Rs.5,36,65,783/-.
6.2 The AO noticed that the appellant has sold the assets to its sister concern for a low price and presumed that it is, in fact, a mutual adjustment for claiming huge loss. He substituted WDV of the two blocks as fair market value (FMV) and rejected the loss figure.
6.3 During the appellate proceedings, it was submitted that as per Sec. 43(6)(c)(i), the WDV is to be adjusted by reduction of ‘money payable’ w.r.t. sold/discarded/destroyed assets falling within that block. The ‘money payable’ as defined in Sec. 3(6) expl. 4 r. w.s. 41(4) means the price for which it is sold. The substituting of WDV as FMV by the AO is entirely wrong. Similarly, reducing the WDV of the third block and making it nil when actually it was part sold, was against the provisions.
6.4 The appellant has contended that selling at a lower value then WDV was due to leasing of these assets to sister concern for many years. It has been sold now as appellant no longer requires it. Moreover, low sale value resulted in lower depreciation claimed by the sister concern and these assets and nil depreciation claimed by appellant. Hence, it does not gain anything either individually or as a group. The tax effect would be nil on this transfer.
6.5. The AO has not given the reason why ‘money payable’ has been substituted by WDV and how the ‘mutual understanding theory ‘ prevails upon the provisions of this Act.
6.6 The appellant was asked to show the financials of sister concern to which assets were sold. The same has been filed showing the disclosed values of assets matching with the sale value of appellant. Order in case of sister concern has also been passed by the same AO. Hence, all details of its financials were available in his record. He could verify The disallowance of loss is due to incorrect comprehension of the provision of Sec. which provides reduction of WDV by the ‘money payable’ in case of sold assets. In view of the facts above, the addition is deleted. The grounds are allowed.”
7. In view of above from the assessment order, we note that the Assessing Officer noted that during the year the appellant sold two blocks of assets and a part of third block of assets to its sister concern. Sale price of two blocks resulted into nil Written Down Value as no depreciation was claimed thereon and also resulted into Short Term Capital Loss of 5,36,65,783/-. The AO noticed that the appellant has sold the assets to its sister concern for a low price and presumed that it is, in fact, a mutual adjustment for claiming huge Short Term Capital Loss. With these observations, the AO substituted the Written Down Value of two blocks as Fair Market Value and rejected the loss figure claimed by the assessee.
8. From relevant part of First Appellate order, we note that the Learned CIT(A) after considering the basis taken by AO and explanation of assessee held that the AO has not given the reason why the ‘money payable’ has been substituted by Written Down Value and how the ‘mutual understanding theory’ prevails upon the provision of the Act. The Learned CIT(A) after evaluating the financials of sister concerns as well as assessee observed that the same has been showing the disclosed value of assets matching with the sale value declared by the appellant. The Learned CIT(A) also noted that the same Assessing Officer has passed assessment order in the case of sister concern and thus all details of its financials were available with the AO in his record. Finally, the Learned CIT(A) rightly held that the disallowance of loss was due to incorrect comprehension of the provisions of Section 43(6) of the Act which provides reduction of Written Down Value by the ‘money payable’ in the case of sold assets. Keeping in view relevant facts that the assessee has sold two blocks of assets and part of three blocks to its sister concern by ‘mutual fixing’ sale price resulted into nil Written Down Value and Short Term Capital Loss of Rs.5,36,65,783/-. In view of above, we are unable to see any valid reason to interfere with the findings and conclusion drawn by the Learned CIT(A) while granting relief to the assessee. Accordingly, Ground No.1 of Revenue is dismissed.
Ground No.2 of Revenue for A.Y. 2016-17
9. We have heard the arguments of both the sides and Carefully perused the assessment as well as First Appellate order along with material available on record. The AO disallowed depreciation of Rs.6,20,107/- on part of third blocks of assets. The Learned AR contended that there is no sale of assets to the sister concern and ‘mutual understanding’ value does not have any real basis. The Learned CIT(A) granted relief to the assessee by observing that the AO has not brought any fact to deny the actual sale consideration instead of reducing the Written Down Value by sale price (money payable) and he has reduced the Written Down Value from Written Down Value itself. With these observations, the Learned CIT(A) granted relief to the assessee by holding that the disallowance of depreciation on part of third block has to be allowed and addition on this account was rightly deleted being non sustainable. We are unable to see any ambiguity, perversity or any other valid reason to interfere with the order of Learned CIT(A) and thus we upheld the same. Accordingly, ground no.2 of Revenue is also dismissed.
10. In the result, appeal of Revenue is dismissed.
Order pronounced in the open court on 19.10.2023
