Page 27 - DTPA Journal Aug 18

DTPA - J | 2017-18 | Volume 3 | August 2018

favour of the assessee. rejected.
Cases referred to : In the impugned order the only reason given by the
(i) M/s. Venkateswara Hatcheries Pvt Ltd (237 Principal Commissioner for not accepting the cost of
ITR 174) acquisition of capital WIP was required to be reduced
from the sale consideration for arriving at the taxable
(ii) Chander Mohan v. ITO [52 taxmann.com 203]
capital gain/loss was that no evidence was furnished to
(Chandigarh- Trib)
show that the consideration was also received towards
(iii) CIT v. Raja Benoy Kumar Sahas Roy [1957] [32 ITR the capital WIP and not the plant and machinery alone.
466]
In this regard, it is, however, found that the terms of the
(iv) CIT v. K.E. Sundara Mudaliar [1950] 18 ITR 259 agreement between the appellant and ASPL sufficiently
(MAD.) establish that the assessee had in fact sold the plant
(v) Panadai Pathan v. Ramasami Chetti [1922] ILR 45 and machinery along with the capital WIP as can be
Mad seen from the subject agreement. This
contemporaneous piece of evidence clearly goes on to
(vi) Commissioner of Income-tax v. Soundarya Nursery
[2000] 241 ITR 530 (Madras) show that the sale consideration of Rs. 27.50 crores
was paid for purchasing the plant and machinery and
(vii) CIT, Chennai v. K.N. Pannerselvam [2016] 75
the capital WIP lying at the assessee's factory. There is
taxmann.com 98 (Madras)
sufficient merit in the assessee's submission that no
(viii) DCIT v. Best Roses Biotech Ltd. (2012)17 prudent businessman would spend Rs. 27.50 crores to
taxmann.com 56 (Ahd.) purchase fixed assets whose useful value as per the
11) Titagarh Industries Ltd. vs. DCIT, Circle- 4(1), provisions of the Companies Act, 1956 was Rs.
Kolkata 3,04,49,393 and the WDV for tax purpose was only Rs.
5,38,761. In fact the original cost of the fixed assets at
[2018] 95 taxmann.com 288 (Kolkata - Trib.)
the time of purchase by the appellant/assessee was Rs.
IT APPEAL NO. 1052 (KOL.) OF 2017 4,12,55,831.
Order Dated : 04.07.2018 In the circumstances, by no stretch of imagination one
RATIO : Sec. 50- When assessee had sold plant and can argue that any blind person would pay a
machinery along with capital WIP, cost incurred on consideration of almost seven times of the actual cost at
capital WIP was required to be reduced as 'cost of which the machinery was originally acquired but at the
acquisition' while arriving at taxable amount of relevant time of sale have been used, old, depreciated
capital gain/loss under sec. 50. and worn out scrap item. Indeed therefore, the
FACTS : During the relevant year, the assessee had assertion of assessee that the capital WIP was sold
along with the plant and machinery which were lying idle
sold its scrap paper manufacturing plant including
capital work-in-progress ('Capital WIP') for in the appellant/assessee's factory whose business
consideration of Rs. 27.50 crores to M/s. Ajmera Steels was under suspension is correct. Accordingly, both the
assessee as well as the Assessing Officer were right on
Pvt. Ltd. (ASPL). The Commissioner took a view that in
the facts and in law in taking into account the cost of
terms of section 50(2), capital WIP did not form part of
block of assets and for that reason did not qualify to be acquisition of capital WIP for computing the overall loss
called capital asset. In his opinion the cost of capital accruing on sale of fixed assets including capital WIP.
For the reasons set out above, the Principal
WIP would not be taken into account in arriving at short-
term capital gain chargeable under section 50. In his Commissioner's finding in the impugned order that no
opinion the subject matter of sale to ASPL was only evidence was furnished before him satisfying the claim
raised by the assessee is not tenable and, therefore, the
scarp paper machinery and not capital WIP. He thus
passed a revisional order under section 263 directing jurisdiction invoked for exercising his revision
A.O. to compute short-term capital gain after excluding jurisdiction is not tenable in the eyes of law and,
therefore, the impugned order passed by the Principal
cost of acquisition of capital WIP.
Commissioner is quashed.
FINDINGS : On the facts of the case, since the
assessee had sold the plant and machinery along with In the result, appeal of the assessee was allowed.
the capital WIP, the cost incurred on capital WIP was Cases referred to :
required to be considered and reduced as and by way of (i) Malabar Industrial Ltd. v. CIT [2000] 243 ITR 83/109
'cost of acquisition' while arriving at the taxable amount Taxman 66 (SC)
of capital gain/loss. On this count also the Principal
(ii) CIT v. J.L. Morrison (India) Ltd. [2014] 366 ITR
Commissioner's allegation in the show cause notice
that the cost of acquisition of capital WIP could not be 593/225 Taxman 17/46 taxmann.com 215 (Cal.)
considered for computing the short-term capital loss is (iii) Jt. CIT v. Graphite India Ltd. [2004] 89 ITD 415 (Kol.)

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