Case Law Details

Case Name : Asst. Commissioner of Income Vs M/s. SKF Bearings India Ltd. (ITAT Mumbai) ITA No. 616/Mum./2006
Appeal Number : 29/12/2011
Date of Judgement/Order : 2001- 02
Related Assessment Year :
Courts : All ITAT (5321) ITAT Mumbai (1660)

Concessional rate of 20% applicable to long term capital gains cannot be applied for gain on depreciable asset held for more than 36 months

ACIT Vs. SKF Bearings India Ltd. (ITAT Mumbai) –  Sections 54EC and 74 refer to capital gain arising from the transfer of a long term capital asset and not with respect to a short term capital asset. Further, section 112(1 )(b)(i) and (ii) specifically refers to only long term capital gains. Hence, where section 50 by a legal fiction, deems the income earned from a depreciable asset as short term capital gain, applying the tax rate specified for long term capital gains in section 112(1) would not arise. On a plain reading of section 50, the excess shall be deemed to be the capital gains arising from the transfer of a short term capital asset. The beneficial rate of tax @ 20% would not be applicable to capital gains arising on transfer of depreciable asset even though the asset was held for more than thirty-six months.

INCOME TAX APPELLATE TRIBUNAL, MUMBAI

Asst. Commissioner of Income

v/s

M/s. SKF Bearings India Ltd.

ITA No. 616/Mum./2006 – (Assessment Year: 2001- 02)

ITA No. 720/Mum./2006 – (Assessment Year: 2001- 02)

ITA No. 617/Mum./2006 -(Assessment Year: 2002- 03)

ITA no. 721/Mum./2006 – (Assessment Year: 2002- 03)

ITA No. 2640/Mum./2007 -(Assessment Year: 2003- 04)

ITA No. 2660/Mum./2007 – (Assessment Year: 2003- 04

ITA No. 4625/Mum./2008 -(Assessment Year : 2004- 05)

Date of Order – 29.12.2011

ORDER

PER BENCH

Cross appeals for assessment year 2001-02, are directed against the impugned order dated 28th October 2005, cross appeals for assessment year 2002- 03, are directed against the impugned order dated 31st October 2005, cross appeals for assessment year 2003-04, are directed against the impugned order dated 11th January 2007, passed by the Commissioner (Appeals)-XIV, Mumbai, and the appeal preferred by the assessee for assessment year 2004- 05, is directed against the impugned order dated 29th April 2008, passed by the Commissioner (Appeals)-XV, Mumbai, respectively. As the issues arising in all these appeals are common, for the sake of convenience, these appeals were heard together and are being disposed off by way of this consolidated order.

2. Facts in brief:- The assessee is engaged in the business of manufacture in ball and roller bearings and textile components. The assessee company is also engaged in marketing of SKF imported bearing accessories and maintenance products.

3. We have heard the learned Counsels, Mr. Kanchan Kaushal a/w Mr. Dhanesh Bafna & Ors., representing the assessee and Mrs. Malathi Sridharan, representing the Revenue.

We first take up assessee’s appeal in ITA No. 720/Mum./2006, for assessment year 2001- 02.

4. Grounds no.1 and 2, are on the issue of valuation of closing stock under section 145A of the Income Tax Act, 1961 (for short “the Act”)

5. Learned Counsel for the assessee submitted before us that the Assessing Officer has, at Para-5.2 / Pg.3 of his order, agreed with the assessee that the opening stock for the accounting year should be increased by the MODVAT element in it. He submitted that the Commissioner (Appeals) confirmed this and, hence, he has no grievance and did not wish to press these grounds. Consequently, grounds no.1 and 2, are dismissed as “not pressed”.

6. Ground no.3, is on the issue of dis allowance under section 14A of the Act.

7. Learned Counsel submits that the assessee has sufficient surplus funds which he had invested in investments and the dis allowance of interest of ~ 52,95,600, is bad-in-law. A statement is filed at Pg.110, which gives the value of investments during the year and the profits earned by the assessee company during the year. On a query from the bench, the learned Counsel admitted that this document is not before the authorities below. He relied on a number of decisions for the proposition that the presumption should be, that when interest free funds were available with the assessee, it should be held as that which is utilized for investment purpose.

8. Learned Departmental Representative, on the other hand, agreed that the issue should be restored to the file of Assessing Officer, as the ground on rate of interest has been taken by the Revenue.

9. After hearing the rival contentions, we restore this issue to the file of Assessing Officer for adjudication afresh in line with the judgment of Hon’ble Jurisdictional High Court in CIT Vs. Reliance Utilities & Power Ltd., [2009] 313 ITR 0340 (Bom.) and other decisions of the Tribunal on the issue. Thus, ground no.3, is allowed for statistical purposes.

10. Ground no.4, is on the issue of dis allowance under section 40A(9) of the Act in respect of contribution of 50,000, made to SKF Christian Employee Association.

11. Learned Counsel submitted that he has not pressed a similar issue in the earlier assessment year due to smallness of the amount. In view of this, we dismiss ground no.4, as “not pressed”.

12. Ground no. 5, reads as follows:-

“5. on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming that the capital gains of r 19,72,77,000, under section 50 of the Act, arising on sale of long term capital asset, is chargeable to tax at the rate applicable to short term capital gains instead of the rate applicable to long term capital gain.”

13. The facts, as brought out by the Assessing Officer in his assessment order vide Para-11 and 11.1 / Page-9, are extracted below:-

“11. Capital Gains

In return of income assessee has offered capital gains of Ps. 19,57,77,000/- as long term capital gains computed as per section 50 and long term capital gains of Rs. 63,87,664/-. The assessee has relied on the decision of Ace Builders (P) Limited V/s ACIT, (2001) 76 ITD 389 and considered capital gains in respect of depreciable assets computed under section 50 as Long term capital gains instead of Short terms capital gains. In support of their contention, assessee has given following note in return of income.

“In the case of Ace Builders (P) Lid. V/s ACIT (2001) 76 lTD 389, the ITAT Mumbai Bench has observed that the assumption of treating/deeming any capital gain arising on transfer of a depreciable asset as short-term capital gain, uncle,- section 50, is for the purpose of section 48 mid 49 only and therefore it cannot be extended to other provisions of the income-tax Act, as if it is so extended, it would amount to extending the deeming provisions beyond its legitimate field. It has, further, been observed that the specialty attached to Section 50 is to be restricted to only for the method of computing the capital gain and not for determining the nature gain. in view of the above decision of the ITAT Mumbai Bench, and facts in our case, the capital gain computed vide Annexure—I as per provisions of section 50, have been treated as long term capital gains and accordingly taxed at 20% as per section 1 12(I)(‘b,).

Without prejudice to above, in case it is held that capital gains under section 50 should be treated as short term capital gains, then deduction under chapter VIA should be granted to the Company and accordingly, gross total income mentioned in the above computation should be reduced by the amount of Chapter VIA deductions, which are mentioned below:

Deduction under section 80G: Rs.850,625 (as per clause 26 of form No.3CD) Deduction under section 8OHHC: Rs. 712,011 (as per clause 26 of form No.3CD and Report in form no.10CCAC, enclosed in original).”

11.1 Further, the assessee has given its submissions in support of their above contention vide their letter dtd. 21.11.2002 and 27.11.2002. In its letter dated. 21.11.2002 the assessee has submitted the following:-

“Capital gains computed as per section 50 of the Income-tax Act, in respect of sale of non-residential building, are treated as long term capital gains, for the following reasons:- Section 2(29B,) defines ‘Long term capital gain’ as the capital gain arising from the transfer of a long-term capital asses. Section 2(29A) defines ‘long term capital asset’ as a capital asset held by an assessee for more than thirty six months immediately preceding the date of its transfer. Thus, capital gains arising on transfer of a capital asset held by an assessee for more than thirty six months immediately preceding the date of its transfer, are ‘long-term capital gains’. During the previous. year ended 31st March 2001, following non-residential properties, depreciable assets, were sold:-

1. Ground floor and first floor in in Udyog Bhavan, which acquired on 2nd February, 1994

2. 11th and 12th floor of Hoechst House, which was acquired on 12th April 1985.

Thus, both the above capital assets were held by the company for more than thirty six months before their transfer / sale, hence, were   “long term capital assets” and accordingly, gain on their transfer, computed as per provisions of section 50, is long term capital gain.

It may be noted that the case of Ace Builders (P) Ltd. v/s ACIT, (2001) 76 ITD 389, the ITAT Mumbai Bench has observed that the assumption of treating/ deeming any capital gain arising on transfer of a depreciable asset as short term capital gain, under section 48 and 49 only and therefore it cannot be extended to other provisions of the Act, as if it is so extended, it would amount to extending the deeming provisions beyond its legitimate field. It has further been observed that the specialty attached to section 50 is to be restricted to only for the method of computing the capital gain and not for determining the nature gain.

In view of the above decision of the ITAT Mumbai Bench, and facts in our case, the capital gain of r 19,57,77,000 computed as per provisions of section 50, have been treated as long term capital gain, and accordingly taxed at 20% (plus applicable surcharge) as per section 112(1)(b).”

14. The Assessing Officer did not agree with the contention of the assessee. He held that the amount should be taxed as short term capital gain.

15. When the matter was carried before the Commissioner (Appeals), the findings of the Assessing Officer that the amount in question has to be taxed as short term capital gain was upheld. As there were certain investments, the first appellate authority granted part relief under section 54EC. Aggrieved, the assessee is in appeal before the Tribunal.

16. Before us, the learned Counsel relied on the wordings in section 54EC, and submitted that the legislature used the words “where the capital gains arises from the transfer of a long term capital assets” and submitted that similar wordings has been used in section 74, as well as in section 112 of the Act. He relied on the following decisions for the proposition that the provisions of section 50 of the Act are applicable only up to the stage of computation assets and once capital gains is computed on depreciable assets, as per section 50, which is in this case a long term capital asset, the operation of such section is ousted. His case is that, if the assessee is otherwise eligible for any benefit under the Act, which is attached to the long term capital asset, the same shall remain intact.

  • ‘ Manali Investments v/s ACIT, 56 DTR (Mum.) (Trib.) 218;
  • Weikfield Products Co. I.P. Ltd. v/s DCIT, 71 TTJ (Pune) 518; V’ Ace Builders P. Ltd. v/s CIT, 71 TTJ 188 (Mum.);
  • CIT v/s Assam Petroleum Industries P. Ltd., 262 ITR 587 (Gau.); V’ CIT v/s Rajiv Shukla, 334 ITR 138 (Del.);
  • CIT v/s Delite Tin Industries, ITA no.1118 of 2008 (Bom.); V’ CIT v/s Delite Tin Industries, CC 11431 of 2009 (SLP-SC).

17. Specific reliance is placed at Para-25 of the judgment of Hon’ble Jurisdictional High Court in Ace Builders Pvt. Ltd. (supra) as well as in the case of Manali Investments (supra).

18. Learned Departmental Representative, on the other hand, strongly relied at Para-26 of the judgment of Hon’ble Jurisdictional High Court in Ace Builders (supra) and submitted that the issue is no more resintegra. She distinguished the other case laws by submitting that they dealt with exemption provisions but not the rate of taxation. She argued that if tax is levied under section 112, then the wording under section 50 deeming the tax as short term capital gain would have no meaning.

19. Learned Counsel submits that the question before the High Court is whether the assessee is entitled to deduction under section 54E and that the issue of rate of tax was not before the High Court and, hence, the issue cannot be taken as having been decided by the High Court.

20. We have heard the rival contentions. Section 50 of the Act, reads as follows:-

SECTION 50

769 [Special provision for computation of capital gains in case of depreciable assets.

Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications:—

(1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of assets during the previous year, exceeds the aggregate of the following amounts, namely:—

(i) expenditure incurred wholly and exclusively in connection with such transfer or transfers;

(ii) the written down value of the block of assets at the beginning of the previous year; and

(iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;

(2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.]

769. Subs. by Taxation Laws (Amendment and Misc. Provisions) Act, 1986, s. 9 (w.e.f. 1-4 -1 986). Prior to that, it stood as under:

“50. Special provision for computing cost of acquisition in the case of depreciable assets.— Where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by the assessee in any previous year either under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act or under executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force, the provisions of sections 48 and 49 shall be subject to the following modifications:—

(1) The written down value, as defined in clause (6) of section 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the asset.

(2) Where under any provision of section 49 read with sub-section (2) of section 55, the fair market value of the asset on the *[1st day of April, 1974,] is to be taken into account at the option of the assessee, then, the cost of acquisition of the asset shall, at the option of the assessee, be the fair market value of the asset on the said date, as reduced by the amount of depreciation, if any, allowed to the assessee after the said date, and as adjusted.”.

21. On plain reading of the above section shows that the excess in question shall be deemed to be the capital gains arising from the transfer of a short term capital asset. Both the section 54EC and section 74, do not  speak about short term capital gain or long term capital gain. These sections deal with capita gains / loss arising from transfer of long term capital assets. Section 112, also deals with income arising from transfer of long term capital assets. Section 112(b)(i) and (ii) specifically mentions “long term capital gain”. When section 50 deems that income earned from a depreciable asset has to be deemed as short term capital gain, the question of applying the rate of tax specified in section 112(1) does not arise. This is what the Hon’ble Jurisdictional High Court stated at para-26 of its judgment in the case of Ace Builders (supra). We extract the same for ready reference:-

“26. It is true that s. 50 is enacted with the object of denying multiple benefits to the owners of depreciable asset. However, that restriction is limited to the computation of capital gains and not to the exemption provisions. In other words, where the long term capital asset has availed depreciation, then the capital gain has to be computed in the manner prescribed under section 50 and the capital gains tax will be charged as if such capital gain has arisen out of a short term capital asset but if such capital gain is invested in the manner prescribed in s. 54E, then the capital gain shall not be charged under section 45 of the Act. To put is simply, the benefit of s. 54E will be available to the assessee irrespective of the fact that the computation of capital gains is done either under section 48 and 49 or under section 50. The contention of the Revenue that by amendment to s. 50, the long term capital asset has been converted into a short term capital asset is also without any merit. As stated hereinabove, the legal fiction created by the statute is to deem the capital gain as short term capital gain and not to deem the asset as short term capital asset. Therefore, it cannot be said that s. 50 converts long term capital asset into a short term capital asset.” [emphasis own]

22. Respectfully following the aforesaid judgment of the Hon’ble Jurisdictional High Court, the ground raised by the assessee is dismissed.

23. The last ground is on the issue of relief claimed under section 8OHHC of the Act.

24. Learned Counsel submitted that the issue is presently covered against the assessee but in case, the computation of income after the decision on certain issues by the Tribunal results in the profit, then the matter may be considered by the Assessing Officer as per law.

25. Learned Departmental Representative has no objection.

26. In view of the rival submissions, we dispose off this matter with a rider that in case the computation of income of the assessee is a positive figure, then the claim of deduction under section 80HHC may be considered by the Assessing Officer in accordance with law. This ground is, thus, allowed for statistical purpose.

27. In the result, assessee’s appeal is partly allowed.

We now take up Revenue’s appeal in ITA No. 616/Mum./2006, for assessment year 2001- 02.

28. Ground no.1, is on the issue of allow ability of claim of interest paid by the assessee on funds borrowed for the purpose of acquiring capital assets.

29. The first appellate authority, at Para-4.2 of its order, held as follows.

“4.2 Besides above, the appellant also relies on the decision of the Hon ‘ble Gujarat High Court in the case of Core Health Care Ltd. (251 ITR 61). A copy of this decision is also placed on my record. The issue being exhaustively dealt with and covered by earlier year’s appellate orders as also by a recent decision of the Jurisdictional High Court in the case of CIT V. Tata Chemicals Ltd. (256 ITR 395), which has approved the detailed decision by the Tribunal in the same case (72 lTD 1), I delete the addition of Rs.46,21,997 made by the A.O. This ground of appeal stands accordingly allowed.”

30. Both the parties submitted that the very same issue has come up before the Tribunal in assessee’s own case for assessment years 1994-95, 1995-96, 1997-98 and 1999-2000. The Tribunal allowed the claim of the assessee. In view of the co-ordinate bench decision of the Tribunal, we dismiss this ground of the Revenue.

31. Ground no.2, is on the issue of restricting disallowance under section 14A of the Act.

32. While disposing off ground no.3 in assessee’s appeal in ITA No. 720/ Mum./2006, we restored the matter to the file of Assessing Officer. Consistent with the view taken therein, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of Assessing Officer for re adjudication in accordance with law.

33. Ground no.3, is on the issue of allowance of benefit of exemption under section 54EC of the Act on the gains arising out of transfer of long term capital asset, which are subject matter of taxation under section 50 of the Act. The assessee has invested an amount of 2,13,30,000, in capital gain bonds issued by NABARD which is eligible for exemption under section 54EC. Out of this amount, investment to the tune of 1,32,63,017, claimed against long term capital gains earned on sale of shares of HDFC Limited under section 54EC. Further, an amount of 80,66,983, was claimed as deduction under section 54EC on capital gains earned on sale of shares of HDFC Bank. While so, the Commissioner (Appeals) came to a conclusion that an amount of 62,25,381, is the balance unutilised investment made in capital gain bonds issued by NABARD and this can be exempt under section 54EC against the gains received by the assessee on transfer of long term capital assets, which were also depreciable assets. Reliance was placed on the judgment of Hon’ble Jurisdictional High Court in Ace Builders (supra).

34. The Commissioner (Appeals), at Paras-9 and 10 of the impugned order, held as follows:-

“It is submitted that a residential property situate at Koraman gala Extension Building. Ban galore acquired on 6” February 1989 was sold on 141 February, 2001.

The opening WDV of the residential building block was NIL and the net sale proceeds realized is Rs. 62,2 5,381 and accordingly capital gains of Rs. 62.25.381 arises from sale of residential property.

A copy of total income filed by the appellant including this calculation of capital gains is included at Paper Book pages Li to L9 filed before me.

It is pointed out that on 31st May, 2001, appellant has invested a sum of Ps 2,13,30,000 in capital gains bonds issued by National Bank for Agricultural and Rural Development (NABARD). which are eligible for exemption under Section 54EC of IT Act and, therefore, the excess of entire sale proceeds of Rs. 62,25,381 giving rise to deemed short term gains under Section 50 would get fully and wholly sheltered by the investment in capital gains bonds and the benefit of Section 54EC would be available to the appellant.

In assessment proceedings, the A.O. negated this contention and held that provisions of Section 54EC cannot be applied to actual long term capital gains deemed to be short term capital gains under the deeming provision of Section 50 and, therefore, denied the exemption under Section 54EC and assessed the entire gain of Ps 62,25.38 1 as short term capital gains.

It is submitted before me that identical issue came up tbr consideration before the Hon’ble Bombay Tribunal in the case of Ace Builders (76 ITD 389), copy whereof is placed at Paper Book pages Ml to M14 as well as before Gauhati High court in the case of CIT V. Assam Petroleum industries (P.) Ltd. (262 ITP 587). copy whereof is placed at paper Book pages N1 to N6 and it was contended ‘that the fiction of deemed short term gains created by Section 50 should be restricted and confined only and only to Sections 48 and 49 and not carried beyond these express provisions and the appellant should not be denied benefit of Section 54EC.

9.2 I find that this decision of the Hon’ble Tribunal in the case of Ace Builders was carried to High Court and the Hon’ble Jurisdictional High Court has affirmed this aspect of the decision viz., granting of relief, This High Court decision is reported in 195 CTR 1.

Respectfully following decision of the Jurisdictional High Court, I delete the addition of deemed short term capital gains of r 62,2 5,381, made in the assessment order and allow the appellant to appropriate like amount out of its investments of Rs. 2,13,30,000 in NABARD bonds and allow the balance investment of Ps 1,51.04,619 against other long term capital gains during this year. This ground is, therefore, allowed.

10. The next sub-ground relates to applicability of concessional rate under section 112 to long term capital gains deemed short term under provisions of Section 50.

10.1 At the time of hearing before my predecessor, the appellant has pressed into service the decision of the Hon’ble Tribunal in the case of Ace Builders. However, today, I have the benefit of the very same decision as decided by the Hon’ble Jurisdictional High Court, wherein for rate purposes, the fiction of law stands applied for rate purposes.

10.2 The appellant before me therefore has to pay tax at the rate applicable to short term capital gains on long term gains deemed short term under section 50 this sub-ground is, therefore, rejected.”

35. After hearing rival contentions, we are of the considered opinion that, in principle, the assessee should be entitled to exemption under section 54EC, on gains earned on transfer of long term capital assets though they are depreciable assets. This issue is covered in its favour by the judgment of Hon’ble Jurisdictional High Court in Ace Builders (supra). Nevertheless, the details of the bonds invested are not clear. Thus, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of Assessing Officer for denovo adjudication in accordance with law. We also direct the Assessing Officer to verify as to whether the assessee has sufficient investments in NABARD capital bonds to cover the capital gain arising out of sale of depreciable assets i.e., residential property situated in Koramangala, Bangalore, as well as capital gains on sale of shares. He shall also examine as to whether the other conditions specified in section 54EC are satisfied or not. According, this ground is allowed for statistical purposes.

36. Ground no. 4, is on the issue as to whether the Commissioner (Appeals) was justified in allowing the addition claim of the assessee for deduction of 5,75,725.

37. The Commissioner (Appeals), at Pages-9 (last para) and 10 (first para) of the impugned order, stated as follows:-

“It is submitted that a claim was made in the course of assessment proceedings for this year and copy of this letter filed before the A.O. in the course of assessment proceedings was shown to me.

This appears to be an inadvertent omission to consider the claim of the appellant, which according to me, is justified on the facts and the merits of the matter. The A.O. is directed to allow the deduction of a sum of Rs. 4,75,725. This ground is, therefore, allowed.”

38. The case of Revenue is that the judgment of Hon’ble Supreme Court in Goetze (India) Ltd. 284 ITR 323, applies. The assessee’s case is that the facts are on record and the Commissioner (Appeals)’s powers are not affected by the judgment of Hon’ble Supreme Court in Goetze (India) Ltd. (supra).

39. After hearing both the parties, we uphold the findings of the Commissioner (Appeals). The facts are on record. The Commissioner (Appeals) has powers to entertain a claim for deduction made for the first time before him, provided the facts are on record. The learned Counsel rightly relied on the following case laws:-

” CIT v/s Prabhu Steel Industries Pvt. Ltd., [1988] 171 ITR 0530 (Born);

” CIT v/s Jai Parabolic Springs Ltd., [2008] 306 ITR 042 (Del);

40. Respectfully following the propositions laid down in the aforesaid case laws, we dismiss this ground of the Revenue.

41. Ground no.5, is on the issue of computation of book profits under section 115JB of the Act, in respect of provisions made for doubtful debts.

42. As admitted by both the parties in view of retrospective amendment to clause (i) of Explanation-1 to section 115JB, the issue has to be decided in favour of the Revenue. This ground of the Revenue is allowed.

43. Grounds no.6 and 7, are on the issue of valuation of closing stock under section 145A of the Act.

44. This issue is covered by the decision of Mumbai Bench of the Tribunal in assessee’s own case in ITA no.5993/Mum./ 2002, for assessment year 1999-2000, order dated 26th August 2009, wherein the Tribunal, vide Para-10.7 / Page-12, held as follows:-

“10.7 We have considered the rival submissions made by both the sides, perused the orders of the Assessing Officer and the learned CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. We find the Assessing Officer rnade an addition of r 4,93,22,786 to the closing stock of account of MOD VA T excise duty credit in view of section 145A of the Act which was introduced by the Finance Act with effect frorn 1.4.1999. We find the learned CIT(A) upheld the action of the Assessing Officer by following the decision of the Hon’ble Jurisdictional High Court in the case of Melrnould Corporation supra. We find the rnatter needs to be re adjudicated in the light of the recent decision of Hon ‘ble Jurisdictional High Court in the case of CIT v/s Mahalaxrni Glass Works P. Ltd. vide ITA No. 192 of 2009, order dated 1st April 2009, which was neither available at the tirne of assessrnent proceedings nor available at the tirne of appeal proceedings before the learned CIT(A). We, therefore, restore this matter back to the file of the Assessing Officer with a direction not adjudicate the issue afresh in the light of the recent decision of the Hon ‘ble Jurisdictional High Court and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. This ground by the assessee is accordingly allowed for statistical purposes.”

45. Consistent with the view taken therein, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of the Assessing Officer for re adjudication in accordance with law. This ground is, thus, allowed for statistical purposes.

46. In the result, Revenue’s appeal is partly allowed.

We now take up assessee’s appeal in ITA No. 721/Mum./2006, for assessment year 2002-03.

47. Grounds no. 1 and 2, are on the issue of valuation of closing stock with reference to section 145A of the Act.

48. Consistent with the view taken in Para-6 above in assessee’s own case for assessment year 2001- 02, we dismiss these grounds as “not pressed”.

49. Ground no. 3, is on the issue of rate of tax applicable for capital gains arising out of transfer of depreciable assets which was a long term asset. We have dealt with the issue in ground no.5 in assessee’s own case for assessment year 2001- 02, consistent with the view taken therein, we dismiss this ground raised by the assessee.

50. Ground no.4, is on the issue of dis allowance under section 14A of the Act.

51. Consistent with the view taken by us in this order vide Para-8 to 10, in assessee’s own case for assessment year 2001-02, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of the Assessing Officer for re adjudication in accordance with law.

52. Grounds no. 5 and 6, are on the issue of tax ability of interest income and deduction under section 57(iii) of the Act.

53. Learned Counsel for the assessee did not wish to press this ground. Learned Departmental Representative has no objection. Consequently, these grounds are dismissed.

54. Ground no. 7, is on the issue of dis allowance of claim under section 80HHC of the Act as the assessee has no positive income.

55. This issue has been decided by us in assessee’s own case for assessment year 2001- 02, vide Paras-25, 26 and 27 above, similar directions are issued on this ground also. Thus, this ground is allowed for statistical purposes.

56. Ground no. 8, is against levy of interest under section 234D of the Act.

57. The refund herein was granted on 12th May 2003. The learned Counsel relied on the judgment of Hon’ble Jurisdictional High Court in CIT v/s Bajaj Hindustan Ltd., ITA no.198 of 2009, judgment dated 15th April 2009, and other case laws wherein it has been held that interest under section 234D cannot be charged in respect of refund granted prior to 1st June 2003.

58. Learned Departmental Representative, on the other hand, relies on the judgment of Hon’ble Kerala High Court in CIT v/s Kerala Chemicals and Proteins Ltd., [2010] 323 ITR 0584, (Ker.), wherein it is held that interest under section 234D has to be charged from 1st June 2003.

59. After hearing the rival contentions, we find that the Hon’ble Jurisdictional High Court in Bajaj Hindustan Ltd. (supra) has held as follows:-

“Q. Whether in the facts and circumstances of the case and in law, the Tribunal was right in holding that the interest under section 234D cannot be charged in respect of refund granted prior to 1.6.2003.”

60. The Hon’ble Jurisdictional High Court answered this question at Para-5 of its judgment dated 15th April 2009 (supra), which reads as follows:-

“5. So far as the last question is concerned, it is seen that the subject provision came on statute book w.e.f. 1.6.2003. If that be so, the said provision does not have retrospective effect. In this view of the matter, we do not see appeal giving raise to any substantial question of law. Appeal is, therefore, dismissed in limini with no order as to cost.”

61. Respectfully following the aforesaid judgment of the Hon’ble Jurisdictional High Court, we allow the ground raised by the assessee.

62. In the result, assessee’s appeal is partly allowed.

We now take up Revenue’s appeal in ITA no.617/Mum./2006, for assessment year 2002-03

63. Grounds no.1 to 4, read as follows:-

“1. Allowance of claim of interest paid on borrowed funds taken fo acquisition of capital asset.

2. Restricting dis allowance of assessee under section 14A based on the working given by the assessee which was never field before the Assessing Officer. In contravention of Rule-46A.

3. Allowance of benefit of exemption under section 54EC to the short term capital gain under section 50.

4. Claim in respect of prior period expenses, which was not claimed by the assessee in its return of income.

64. Ground no.1, is covered against the Revenue and in favor of the assessee, by the decision of the Tribunal in assessee’s own case for assessment year 1994- 95, 1995- 96, 19997- 98, 1998- 99 and 1999- 2000, wherein the Tribunal has allowed similar grounds raised by the assessee. Consistent with the view taken therein, we dismiss this ground raised by the Revenue.

65. Ground no.2, consistent with the viw taken in assessee’s own case for assessment year 2001-02, at paras-32 above, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of Assessing Officer for adjudication afresh.

66. Insofar as ground no. 3, is concerned, identical issue as has been decided by us in assessee’s own case for assessment year 2001-02, vide Paras-33 to 35 above. Similar directions are issued on this ground also. Thus, we set aside the impugned order passed by the Commissioner  (Appeals) and allow the ground raised by the Revenue for statistical purpose.s

67. As regards ground no. 4, is concerned, after hearing both the parties, we find that the case laws relied upon by the learned Departmental Representative are distinguishable in nature. Similarly, isuue was decided by us in the assessment year 2001-02, at Para-37 to 40 of this order. Consistent with the view taken therein, we dismiss the ground raised by the Revenue.

68. In the result, Revenue’s appeal is partly allowed.

We now take up assessee’s appeal in ITA No. 2660/Mum./2007, for assessment year 2003- 04

69. Grounds no.1 and 2, read as follows:-

“1. Addition on account of closing stock of MOD VAT – under section

145A.

2. Without prejudice to ground no.1, to make consequential adjustments in the purchases.’

70. Before us, the learned Counsel for the assessee did not wish to press these grounds. Learned Departmental Representative has no objection. Consequently, these grounds are dismissed as “not pressed’.

71. Ground no.3, is on the issue of taxing the gain from depreciable lon term capital asset at a rate applicable to short term capital gain.

72. After hearing both the parties, we find that identical issue has been decided by us in assessee’s own case for assessment year 2001-02, vide Paras-20 to 22 above, wherein the ground raised by the assessee is dismissed. The rate of tax applicable is what is applicable to short term capital gain. Consistent with the view taken therein, this ground raised by the assessee is dismissed.

73. Ground no.4, is with reference to computation of relief under section 8OHHC.

74. After hearing rival contentions, we find that the assessee was not in a position to furnish details as well explain the nature of income earned by way of spindle service charges and miscellaneous income by way of sale of catalogue. Thus, as the nature of income and its nexus with the operations of the assessee have not been established, the decision of the Revenue authorities on the matter is upheld.

75. Coming to the issue of sale of scrap and cash discount on purchases, we are of the considered opinion that the Assessing Officer has not adjudicated the matter in accordance with law.

76. The Commissioner (Appeals) has also not applied his mind to the issue. The assessee, in this case, has rightly relied on the decision of the Hon’ble Madras High Court in Fenner (I) Ltd. v/s CIT, 241 ITR 803 (Mad.) and CIT v/s Kar Mobiles Ltd. 333 ITR 478 (Ker.), and other judgments.

77. In our opinion, as the facts have to be verified, both these issues are restored to the file of Assessing Officer for adjudication afresh in accordance with law. This ground is, thus, allowed for statistical purposes.

78. Coming to alternate contentions of the assessee in ground no.6, is that only 90% of the spindle service charges and miscellaneous income has to be excluded in terms of clause (baa) to Explanation to section 8OHHC, we hold that these are independent streams of income and are not items which were excluded by invoking clause (vaa) to Explanation to section 8OHHC. Hence, the claim for dis allowance of 90% only is devoid of merit. Thus, ground no.4, is allowed partly and ground no.6 is dismissed.

79. Ground no.5, is on the issue of reducing gross interest income instead of net interest income for the purposes of computing deduction under section 8OHHC.

80. This issue is covered in favour of the Revenue and against the assessee by the judgment of Hon’ble Jurisdictional High Court in CIT v/s Asian Star Co. Ltd., 326 ITR 056 (Bom.). Respectfully following the same, we dismiss this ground of the assessee.

81. Ground no.7, is on the issue of computation of relief under section 80HHC.

82. Admittedly, the issue is covered against the assessee and in favour of the Revenue by the judgment of Hon’ble Supreme Court in IPCA Laboratory Ltd. v/s DCIT, [2004] 266 ITR 0521 (SC), wherein it has been held that If the computation of profits after excluding the export incentives results into negative profits, then deduction U/s 80-HHC cannot be allowed to the assessee. Respectfully following the same, we dismiss this ground of the assessee.

83. In the result, assessee’s appeal is partly allowed.

We now take up Revenue’s appeal in ITA No. 2640/Mum./2007, for assessment year 2003- 04.

84. Ground no.1, relates to computation of relief under section 80HHC with reference to fee for technical service and sale of scrap.

85. As far as fee for technical service is concern, both the parties agree that the issue is covered in favour of the assessee against the Revenue by the decision of the Tribunal in assessee’s own case for assessment years 1995-96 to 1998-99. Consistent with the view taken therein, we dismiss this part of the ground relating to fee for technical services vis-à-vis computation of relief under section 80HHC.

86. The second part of the ground relates to sale of scrap.

87. Consistent with the view taken on this issue while disposing off ground no.4, in assessee’s appeal for assessment year 2003-04, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of Assessing Officer for re-adjudication in accordance with law. This ground is allowed is partly allowed.

88. The next ground is on the issue of computation of relief under section 80HHC of sales tax set-off amounting to 15,60,668.

89. After hearing both the parties, we find that the Tribunal in assessee’s own case for assessment years 1997-98 and 1998-99, decided similar issue in favor of the assessee. The Revenue has taken a wrong ground. The Assessing Officer while proposing the appeal and the Commissioner while approving the ground of appeal, have not applied their mind resulting in confusion and wastage of time. In any event, as the issue is decided in favor of the assessee, the ground raised by the Revenue is dismissed.

90. In the result, Revenue’s appeal is partly allowed.

We now take up assessee’s appeal in ITA no.4625/Mum./2008, for assessment year 2004-05.

91. Ground no. 1, is on the rate of tax applicable on capital gains, which is arising on sale of depreciable assets which is a long term capital assets.

92. After hearing both the parties, we find that identical issue has been decided by us in assessee’s own case for assessment year 2001- 02, vide Paras-20 to 22 above, wherein the ground raised by the assessee is dismissed. It was held that the rate of tax applicable is that which is applicable to short term capital gain. Consistent with the view taken therein, the ground raised by the assessee is dismissed.

93. Ground no. 2, is on the issue of reducing gross interest income instead of net interest income for the purposes of computing deduction under section 80HHC.

94. This issue is covered against the assessee and in favour of the Revenue by the judgment of Hon’ble Jurisdictional High Court in CIT v/s  Asian Star Co. Ltd., 326 ITR 056 (Born.). Respectfully following the sarne, we disrniss this ground of the assessee.

95. Grounds no.3 and 4, are alternative grounds vide which the assessee seeks reduction of only 90% of interest incorne frorn profits as per clause (baa) to Explanation to section 80HHC.

96. In our opinion, as the dis allowance was made by invoking the provisions of clause (baa) to Explanation-i to section 80HHC, only 90% of the interest income has to be disallowed as per the Act. We order accordingly. Thus, these grounds are allowed.

97. Grounds no.5, 6 and 7, read as follows:-

“5. On the facts and in the circumstances of the case, the Hon ‘ble CIT(A) has legally erred in confirming the action of the learned AO regarding addition of Ps. 1,54,64,391, being balance of CENVAT credit as on March 31, 2004 as per excise records at the Ban galore factory, to the closing stock of the Appellant, by applying provisions of section 1 45A of the the Act. It is prayed that the addition of Ps. 1,54,64,391 should be deleted from the income of the Appellant.

6. Without prejudice to the 5 above and on the facts and in the circumstances of the case, the Hon’ble CIT(A) has legally erred in confirming the action of the learned AO of not making consequential adjustment to the purchases, sales and opening stock made during the year, which are accounted under exclusive method and need to be enhanced so as to confirm to the inclusive method forced on the Appellant by the learned AO.

7. Without prejudice to Grounds No. 5 and 6 above and on the facts and in the circumstances of the case, in any event of the matter, the figure of opening stock of this year ought to be enhanced by Ps. 4,85,4 7,928, being the amount of similar addition made to the closing stock of previous year on account of MOD VA T adjustment.”

98. Insofar as the aforesaid grounds are concerned, the learned Counsel did not wish to press. Learned Departrnental Representative has no objection. Consequently, these grounds are dismissed.

99. Ground no.8, reads as follows.

“8. On the facts and in the circumstances of the case, the Hon’ble CIT(A) has erred in confirming the action of the learned AO in disallowing Rs. 6,95,37,531 instead of Rs. 6,95,27,531, being the amount relating to the Voluntary Retirement Scheme debited to profit and loss account, for the purposes of granting deduction as per section 35DDA of the Act.”

100. Before us, learned Counsel for the assessee, submitted that due to smallness of the amount i.e., only 10,000, did not wish to press this ground. Learned Departmental Representative has no objection. Consequently, this ground is dismissed as “not pressed”.

101. In the result, assessee’s appeal is partly allowed.

Order pronounced in the open Court on 29.12.2011

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Category : Income Tax (27907)
Type : Judiciary (12080)
Tags : ITAT Judgments (5503) section 54EC (87)

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