THE issues before the Bench are - Whether for the purpose of computation of capital gains u/s 5OC on sale of industrial galas, the expenses like licence fees, property tax paid in advance do not form part of cost of such asset and Whether if the deposits and expenses are not treated as a part of the cost of the industrial galas, in such circumstances these deposits and expenses will have to be allowed as business loss as these deposits and expenses paid in advance are required to be allowed as revenue expenses on closure of the unit. And the verdict goes against the assessee.
4. In the course of assessment proceedings, the AO called for the detailed break up of the claim of capital gains at Rs. 2,06,67,083. In the reply to this query from the AO, the assessee submitted that, (i) the cost of Galas at Rs. 6,80,65,202 and sale consideration of galas at Rs. 8,93,32,268 should be adopted, (ii) the WDV on the other block of assets should be included in the cost of the galas and (iii) deposits of Rs. 72,60,184, made by the assessee to the various government departments should be included in costs of the galas, or, alternatively, these deposits be allowed as business loss.
The AO concluded that since the assessee itself had gone on the WDV on different assets separately and sequentially, there was no reason why the values of the other assets not to be excluded. He, therefore, excluded the values of other assets and arrived at the capital gains.
The AO thus, did not agree with the submissions made by the assessee and examined the two sales, with reference to section 50C and arrived at the figures of Rs. 5,37,64,000 for Galas no. 601 & 602, and Rs. 5,83,17,000 for Galas no. 603 & 604, aggregating to Rs. 11,20,81,000. He, reduced from the amount so arrived at by the assessee, the WDV on Galas (factory shed) at Rs. 4,83,42,826 and computed the capital gains at Rs. 6,37,38,174 and treated the same as STCG. The AO, finally taxed not only the STCG already declared by the assessee at Rs. 2,06,67,083 but also brought to tax Rs. 4,30,71,091 additionally. In the process, he also did not allow the deposits at Rs. 72,60,184 and WDV on other blocks to be included to the cost, for the purposes of arriving at the short term capital gains of Rs. 6,37,38,174. The CIT(A) partly allowed the appeal of the assessee.
On further appeal by the assessee, held that,
++ from the material, it is found that none of the grounds, as agitated by the assessee is/are particularly and specifically against the valuation difference of Rs. 2,27,48,713 (Rs. 11,20,81,000 – Rs. 8,93,32,286). Therefore, there in no issue relating to the valuation of sale consideration of the Galas. However, the AR, maintains that the sale consideration includes the value relating to other blocks and deposits. However, assesse/AR did not file any evidence to substantiate the same. Therefore, in these circumstances, the arguments advanced by the assessee, primarily based on the valuation of the galas are non maintainable, hence we are not going into the valuation aspect. Nevertheless, there is not one clue, which points towards lump sum sale, as has been reiterated by the AR at every stage. Lump sum sale would, under all circumstance give one single comprehensive figure, not exact figure, going down to rupees and paise, like for example, the value of machinery taken, is shown at Rs. 1,61,43,858. Under no circumstance, even a presumption can be made that it was a lump sum sale. Adverting attention towards grounds no. 1, 2 & 3, we find that the assessee had pleaded that advances to the tune of Rs. 72,60,184 should be included in the cost of the industrial galas or alternatively to be allowed as business as loss. It is an admitted fact that the deposits in question are not referred to valuation. Assessee has also not filed any evidence to suggest that the deposits are part of the cost of the assets in various blocks, therefore, both the pleas of the AR has to be rejected. As such, neither there is any clarity as to what is the nature of the advances, as to when and in what head these advances were paid or whether these were principal amounts or were in the nature of penalties/fee/fines, nothing had been brought on record, neither before the revenue authorities and nor before us. Even in the alternative, all these advances are supposed to be Balance Sheet items, which, under no circumstance could be allowed as business loss. Therefore, the arguments of the AR on both the alternative grounds was rejected;
++ Ground no 4 pertains to non allowance of the write off of WDV on safes at Rs. 23,290, on computer programme on jewellery, on CPU at Rs. 1,39,379, office equipments connecting TV monitoring etc. at Rs. 1,47,913. In our considered opinion, the assessee has not at any stage, discharged its onus to prove the correctness and justification for write off. Even before us, the AR, simply produces some photographs, showing the interiors done somewhere, i.e. no authentication, that those photographs pertained to the demised galas. Even if those were presumed and accepted to be of the demised galas, even then, those photographs do not prove anything with regard to the impugned items. In these circumstances, we can only sustain the views taken by the revenue authorities. Therefore, order of the CIT(A) does not call for any interference;
++ Apropos grounds no. 5, 6, 7 & 8, we find that the AO rejected the claim of the assessee to add the values of office equipments and fixtures, whereas, the CIT(A) allowed 50% of the WDV to be added to the cost as determined by the AO on furniture & fixtures and allowed the whole of WDV to be added for electric fittings and gas pipe lines to the cost of the galas;
++ The AR reiterated the arguments, whereas, the DR submitted that the CIT(A) was more then reasonable to allow the WDV of the items mentioned in the grounds to be added to the cost, which had been reduced by the AO. The DR further submitted that these items should not be allowed to be added as per the normal principles of sale of galas, which, even as per clause (t) of the agreement, the demised gala(s) had to be handed over as vacant premises;
++ After perusing the grounds, the orders of the revenue authorities and the relevant clause in the tripartite agreement, we find that the CIT(A) had been reasonable. As seen from the photographs, produced before us, which we are only presuming to be taken of the demised galas, the fittings and glass facade/partitions were intricately fixed and a fair presumption can be made that, if the assessee vacated the premises and new entrants took over the possessions of the galas immediately, these fittings would have gone with the possession as well. In these circumstances, we fairly think that the values adopted by the CIT(A) are very reasonable. Therefore, there is no reason to disturb the findings of the CIT(A), which was sustain. These grounds were therefore, rejected.
Facts of the case
The assessee firm is in the business of manufacture and export of studded gold, platinum jewellery, palladium, silver and gold jewellery. In the current year, the assessee sold the entire manufacturing facility belonging to it, located at SEEPZ, Mumbai, bearing Galas no. 601 & 602
and 603 & 604 to Dania Oro Jewellery Pvt. Ltd. (Dania) and Yash Jewellery Pvt. Ltd. (Yash) for a total consideration of Rs. 8,93,32,286. In the return of income, the assessee declared net capital gains at Rs. 2,06,67,083. This was the residue of sale consideration at Rs. 8,93,32,286 minus WDV at Rs. 6,14,05,018 on all assets and deposits with various government departments at Rs. 72,60,184.The assessee firm is in the business of manufacture and export of studded gold, platinum jewellery, palladium, silver and gold jewellery. In the current year, the assessee sold the entire manufacturing facility belonging to it, located at SEEPZ, Mumbai, bearing Galas no. 601 & 602
4. In the course of assessment proceedings, the AO called for the detailed break up of the claim of capital gains at Rs. 2,06,67,083. In the reply to this query from the AO, the assessee submitted that, (i) the cost of Galas at Rs. 6,80,65,202 and sale consideration of galas at Rs. 8,93,32,268 should be adopted, (ii) the WDV on the other block of assets should be included in the cost of the galas and (iii) deposits of Rs. 72,60,184, made by the assessee to the various government departments should be included in costs of the galas, or, alternatively, these deposits be allowed as business loss.
The AO concluded that since the assessee itself had gone on the WDV on different assets separately and sequentially, there was no reason why the values of the other assets not to be excluded. He, therefore, excluded the values of other assets and arrived at the capital gains.
The AO thus, did not agree with the submissions made by the assessee and examined the two sales, with reference to section 50C and arrived at the figures of Rs. 5,37,64,000 for Galas no. 601 & 602, and Rs. 5,83,17,000 for Galas no. 603 & 604, aggregating to Rs. 11,20,81,000. He, reduced from the amount so arrived at by the assessee, the WDV on Galas (factory shed) at Rs. 4,83,42,826 and computed the capital gains at Rs. 6,37,38,174 and treated the same as STCG. The AO, finally taxed not only the STCG already declared by the assessee at Rs. 2,06,67,083 but also brought to tax Rs. 4,30,71,091 additionally. In the process, he also did not allow the deposits at Rs. 72,60,184 and WDV on other blocks to be included to the cost, for the purposes of arriving at the short term capital gains of Rs. 6,37,38,174. The CIT(A) partly allowed the appeal of the assessee.
On further appeal by the assessee, held that,
++ from the material, it is found that none of the grounds, as agitated by the assessee is/are particularly and specifically against the valuation difference of Rs. 2,27,48,713 (Rs. 11,20,81,000 – Rs. 8,93,32,286). Therefore, there in no issue relating to the valuation of sale consideration of the Galas. However, the AR, maintains that the sale consideration includes the value relating to other blocks and deposits. However, assesse/AR did not file any evidence to substantiate the same. Therefore, in these circumstances, the arguments advanced by the assessee, primarily based on the valuation of the galas are non maintainable, hence we are not going into the valuation aspect. Nevertheless, there is not one clue, which points towards lump sum sale, as has been reiterated by the AR at every stage. Lump sum sale would, under all circumstance give one single comprehensive figure, not exact figure, going down to rupees and paise, like for example, the value of machinery taken, is shown at Rs. 1,61,43,858. Under no circumstance, even a presumption can be made that it was a lump sum sale. Adverting attention towards grounds no. 1, 2 & 3, we find that the assessee had pleaded that advances to the tune of Rs. 72,60,184 should be included in the cost of the industrial galas or alternatively to be allowed as business as loss. It is an admitted fact that the deposits in question are not referred to valuation. Assessee has also not filed any evidence to suggest that the deposits are part of the cost of the assets in various blocks, therefore, both the pleas of the AR has to be rejected. As such, neither there is any clarity as to what is the nature of the advances, as to when and in what head these advances were paid or whether these were principal amounts or were in the nature of penalties/fee/fines, nothing had been brought on record, neither before the revenue authorities and nor before us. Even in the alternative, all these advances are supposed to be Balance Sheet items, which, under no circumstance could be allowed as business loss. Therefore, the arguments of the AR on both the alternative grounds was rejected;
++ Ground no 4 pertains to non allowance of the write off of WDV on safes at Rs. 23,290, on computer programme on jewellery, on CPU at Rs. 1,39,379, office equipments connecting TV monitoring etc. at Rs. 1,47,913. In our considered opinion, the assessee has not at any stage, discharged its onus to prove the correctness and justification for write off. Even before us, the AR, simply produces some photographs, showing the interiors done somewhere, i.e. no authentication, that those photographs pertained to the demised galas. Even if those were presumed and accepted to be of the demised galas, even then, those photographs do not prove anything with regard to the impugned items. In these circumstances, we can only sustain the views taken by the revenue authorities. Therefore, order of the CIT(A) does not call for any interference;
++ Apropos grounds no. 5, 6, 7 & 8, we find that the AO rejected the claim of the assessee to add the values of office equipments and fixtures, whereas, the CIT(A) allowed 50% of the WDV to be added to the cost as determined by the AO on furniture & fixtures and allowed the whole of WDV to be added for electric fittings and gas pipe lines to the cost of the galas;
++ The AR reiterated the arguments, whereas, the DR submitted that the CIT(A) was more then reasonable to allow the WDV of the items mentioned in the grounds to be added to the cost, which had been reduced by the AO. The DR further submitted that these items should not be allowed to be added as per the normal principles of sale of galas, which, even as per clause (t) of the agreement, the demised gala(s) had to be handed over as vacant premises;
++ After perusing the grounds, the orders of the revenue authorities and the relevant clause in the tripartite agreement, we find that the CIT(A) had been reasonable. As seen from the photographs, produced before us, which we are only presuming to be taken of the demised galas, the fittings and glass facade/partitions were intricately fixed and a fair presumption can be made that, if the assessee vacated the premises and new entrants took over the possessions of the galas immediately, these fittings would have gone with the possession as well. In these circumstances, we fairly think that the values adopted by the CIT(A) are very reasonable. Therefore, there is no reason to disturb the findings of the CIT(A), which was sustain. These grounds were therefore, rejected.
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