Windston Springs Private Limited Vs DCIT (ITAT Mumbai)
Block of Assets Survives If New Asset Added Before Year-End: Mumbai ITAT Deletes STCG and Section 14A Disallowance
The Mumbai Bench of the ITAT allowed the appeals of Windston Springs Pvt. Ltd. for AYs 2014-15 and 2015-16, granting comprehensive relief on capital gains, depreciation, interest disallowance and section 14A issues.
For AY 2014-15, the Tribunal held that section 50 (short-term capital gain) was wrongly invoked. Although the assessee sold an old residential building during the year, a new residential building was completed and added to the block of assets before 31.03.2014, supported by engineer’s completion certificate and ledger records. Since the block of assets must be examined as on the last day of the previous year, it had not ceased to exist, and hence no STCG could be charged. Consequently, the ITAT also directed allowance of depreciation, and deleted interest disallowance under section 36(1)(iii) after noting that construction was funded out of sale proceeds and not borrowed funds.
For AY 2015-16, the ITAT deleted the section 14A read with Rule 8D disallowance relating to exempt share of profit from a partnership firm. The Tribunal found that the AO had failed to record mandatory satisfaction under section 14A(2) and that the assessee possessed substantial interest-free funds far exceeding the investment. It further held that earning share of profit from a firm does not involve active management, making administrative expense disallowance unjustified.
Accordingly, both appeals were allowed in full, reiterating that mechanical application of section 50 and Rule 8D is impermissible when statutory conditions are not met.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
