ITO- 20(1)(3), R. No. 607, Piramal Chambers, Lal Baug, Mumbai-400012 Vs. M/s Innovative Metal Arts, 22, Aghadi Industrial Estate, Marol Maroshi Road, Marol Village, Mumbai-400059.
November, 24th 2015
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "I", MUMBAI
BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND
SHRI PAWAN SINGH, JUDICIAL MEMBER
Assessment Year: 2011-12
ITO- 20(1)(3), M/s Innovative Metal Arts,
R. No. 607, Piramal Chambers, 22, Aghadi Industrial Estate,
Lal Baug, Mumbai-400012 Vs. Marol Maroshi Road, Marol Village,
Revenue by : Shri Premanand J. (DR)
Assessee by : Shri K.P.Kapadia
Date of hearing : 24.08.2015
Date of Pronouncement : 20.11.2015
PER PAWAN SINGH, JM:
1. The present appeal has been filed by the Revenue against the order of CIT(A)-31,
Mumbai dated 09.12.2013 in respect of Assessment Year (AY) 2011-12 on the
following grounds of appeal:
I. The Ld. CIT(A) has erred on the facts and circumstances of the case and in law
in directing the AO to allow deduction u/s 54 EC against the Short Term
Capital Gain arised on sale of depreciable asset.
II. The Ld. CIT(A) has erred on the facts and circumstances of the case and in law
in relying on the decision of ITO v ACE Builders reported in 281 ITR 210
without appreciating that the facts in the instant case are different. In the
instant case the assessee has erroneously claimed deduction u/s 54EC against
the Short Term Capital Gain arised on sale of depreciable asset and the same
was rightly shown in the Return of Income e-filed originally.
III. The appellant prays that the order of the CIT(Appeal) on the above grounds be
set aside and that of the AO be restored.
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IV. The appellant craves leave to amend or alter any ground or to submit
additional new ground which may be J1.ecessary.
2. The brief facts of the case are that the assessee filed its return of income through CPC
on 14.07.2011 declaring total income of Rs. 1,64,280/-. The return was processed by
ACIT, CPC vide order dated 05.01.2012 determining the income of assessee at Rs.
94,74,070/- and calculated the payable tax of Rs. 32,71,850/-.
3. Against the determination of income, the assessee filed application under section 154
of ITAct for rectification in the application assessee urged he is entitled to deduction
u/s 54EC for investment made in NHAI Bond of Rs. 100,00,000/- however the
application of assessee was rejected vide order dated 16.08.2012 against which an
appeal was filed before the CIT(A) and, ld. CIT(A) allowed the appeal of assessee in
the impugned order dated 09.12.2013 against which the present appeal is filed before
4. We have heard both the parties and gone through the material available on record.
5. We have seen that the assessee has invested Rs. 50 Lakhs on 31.12.2010 and Rs. 50
Lakhs on 30.04.2011 in NHAI bonds as prescribed u/s 54EC of the Act
6. The Authorised Representative (AR) of the assessee relied upon the judgment of
Hon'ble Bombay High Court in CIT vs. ACE Builders Pvt. Ltd. , judgment of Co-
ordinate Bench of Mumbai Tribunal in ITA No. 6619/13 titled as Mrs. Lilavati M.
Sayani vs. ITO , ITAT Bench Panji in ITA No. 9/PNJ/13 titled as ITO vs. Rania
Faleiro and ITAT Jaipur Bench ITA No. 648/11 titled as ACIT vs. Raj Kumar Jain &
7. The Hon'ble jurisdictional High Court in CIT vs. ACE Builders Pvt. Ltd. has held as
"The assessee cannot be denied exemption under s.54E, because, firstly, there is
nothing in s.50 to suggest that the fiction created in s. 50 is not only restricted
to ss. 48 and 49 but also applies to other provisions. On the contrary, s. 50
makes it explicitly' clear that the deemed fiction created in sub-ss. (1) and (2) of
s. 50 is restricted only to the mode of computation of capital gains contained in
ss. 48 and 49. Secondly, it is well established in law that a fiction created by the
legislature has to be confined to the purpose for which it is created. The fiction
created under s. 50 is confined to the computation of capital gains only and
cannot be extended beyond that: Thirdly, s. 54E does not make any distinction
between depreciable asset and non-depreciable asset and, therefore, the
exemption available to the depreciable asset under s. 54E cannot be denied by
referring to the fiction created under s. 50. Sec. 54E
specifically provides that where capital gain arising on transfer of a long-term
capital asset is invested or deposited (whole or any part of the net
consideration) in the specified assets, the assessee shall not be charged to
capital gains. Therefore, the exemption under s. 54E cannot be denied to the
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assessee on' account of the fiction created in s. 50. It is true that s. 50 is enacted
with the object of denying multiple benefits to the owners of depreciable assets.
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 s. 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 s. 45. To put it 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 ss. 48 and 49 or under. s. 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. The Tribunal was justified in allowing the benefit of
exemption under s. 54E to the assessee in respect of the capital gains arising on
the transfer of a capital asset on which depreciation has been allowed.
8. Further the Co-ordinate Bench of Mumbai Tribunal in case of Mrs. Lilavati M. Sayani
vs. ITO reported viz. (2014) (32) ITR (Tribunal) 0174 Mumbai has held as under:
"Capital gains-Not to be charged on investment in certain bonds-assessee
derived long term capital gain of Rs. 84,59,538 from sale of her new office
premises and claimed same to be exempt u/s 54EC on ground that investment of
Rs. 85 lacs was made in bonds issued by Rural Electrification Corporation Ltd.
amounting to Rs. 50 lacs on 25-3-2008 and in bonds issued by National
Highways Authority amounting to Rs. 35 lacs on 30-6-2008-AO observed that
assessee was entitled to claim u/s 54EC upto maximum exemption to the extent
of Rs. 50 lacs for investment made in specified bonds and made disallowance of
Rs. 35 Lacs-CIT(A) confirmed disallowance m de by AO-Held, if Assessee
transferred capital asset after 30th September of financial year, he could make
investment of Rs. 50 lacs each in two different financial years-Assessee could
also claim exemption upto Rs.1 crore u/s 54EC-Benefits which were available
to Assessee could not be denied-ITAT directed AO to allow claim of Assessee
for exemption u/s 54EC- Asessee's appeal allowed".
9. We have further seen that assessee has claimed deduction of Rs. 1 Crore in column 3F
of Schedule CG against an amount of Rs. 93,09,792/- which was declared as deemed
STCG on depreciable assets which was also shown in the computation of income from
business or profession in the P&L A/C, thus, a clear exemption was claimed by the
assessee in his e-return.
10. The ld. CIT(A) while disposing of the appeal of the assessee in paragraph no. 5.4 and
5.5 of its order has observed as under:
"5.4 As per the provisions of section 143( ), the A.O. is empowered to make
only the following adjustments: -
i. Any arithmetical error in the return; or
ii. An incorrect claim, if such incorrect 'claim is apparent from any
information in the, return
4 ITA No. 1522/M/2014 M/s Innovative Metal Arts.
5.5 In the remand report, the A.O. has submitted that the capital gain on sale of
fixed asset as per section 50(2) of the, I T Act is short term capital gain and
assessee is not entitled to claim deduction of Rs 93,09,792 u/s 54EC against
short term capital gain. This view of Assessing Officer is one view. The other
view is that the claim of deduction u/s 54EC is allowed on transfer of a long
term capital asset and it is immaterial whether the corresponding gain is a
short term capital gain by virtue of deeming fiction under section 50 of the IT.
Act. This view is supported by the decision of jurisdictional High Court of
Bombay in the case of ITA Vs ACE Builders
reported in 281 ITR 210 and therefore is the law applicable on the issue at hand
to the authorities functioning within the territorial jurisdiction under the
Hon'ble Court. Therefore, the issue is debatable or rather, the law as it stands
after the decision of the jurisdictional High Court, is against the view taken by
the Assessing Officer, therefore the adjustment made is beyond the scope of
section u/s 143(1). The claim of deduction u/s 54EC is against a deemed short
term capital gain u/s 50 of the LT. Act. It is material to note that as per the
provisions of section 50, only the gains resulting from sale of assets on which
depreciation is claimed, are deemed to be short term capital gains. The
provision does not stipulate that the asset on the sale of which, the said, gains
arise will be considered as a 'short term capital asset' (regardless of the period
of its holding by the assessee). The information in the e-return filed by the
appellant nowhere indicates that the fixed asset sold was a short term asset and
therefore the return did not contain data, which could have enabled the
Assessing Officer to make adjustment appealed against from the details
available on the face of the record. The view taken by the Assessing Officer that
the sale of asset resulted in a deemed short term gain and therefore deduction
u/s· 54EC is not an allowable deduction is not a satisfactory reason for
adjustment u/s 143(1) because as stated earlier it is debatable or incorrect as
per the decision of Hon'ble Bombay High Court. Therefore, on appreciation of
the facts of the instant case and the position of law as discussed above, the
adjustment is beyond the scope of section 143(1) and adjustment made u/s
143(1) as well as rejection or subsequent application u/s 154 cannot be upheld.
Accordingly, the ground raised by the appellant is allowed".
11. In the above discussion, we do not find any infirmity or illegality in the order passed by
CIT(A) and the case of assessee is squarely covered by the case of ACE Builders Pvt.
Ltd. And Mrs. Lilavati M. Sayani case as stated above.
12. In the result the appeal filed by the Revenue is dismissed.
13. Order pronounced in the open court on this 20th November 2015.
(R.C.SHARMA) (PAWAN SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai; Dated 20/11/2015
/Copy of the Order forwarded to :
1. / The Appellant
2. ×/ The Respondent.
5 ITA No. 1522/M/2014 M/s Innovative Metal Arts.
3. È() / The CIT(A), Mumbai.
4. È/ CIT
5. , , /
DR, ITAT, Mumbai
6. [ / Guard file. /BY ORDER,
× //True Copy/
, / ITAT, Mumbai