LAWS(DLH)-2016-1-40

COMMISSIONER OF INCOME TAX Vs. DHARAMPAL SATYAPAL

Decided On January 06, 2016
COMMISSIONER OF INCOME TAX Appellant
V/S
Dharampal Satyapal Respondents

JUDGEMENT

(1.) The Revenue has preferred this appeal under Sec. 260A of the Income Tax Act, 1961 (hereafter 'Act') impugning an order dated 29th October, 2010 passed by the Income Tax Appellate Tribunal (hereafter 'ITAT') whereby the Assessee's appeal against an order dated 1st October, 2004 passed by the Commissioner of Income Tax (Appeals) [hereafter 'CIT(A)'], was allowed. By the aforesaid order dated 1st October, 2004, the CIT(A) rejected the Assessee's appeal against an assessment order dated 30th January, 2004 in respect of the assessment year (hereafter 'AY') 2001 -02.

(2.) The controversy involved in the present appeal relates to the computation of the net worth of the business transferred by the Assessee by way of a slump sale. The Assessee transferred its entire business by way of a slump sale to M/s. Dharampal Satyapal Ltd. on 12th February, 2001 (during the previous year relevant to the AY 2001 -02) at a net consideration of Rs. 2.75 crores. The Assessee had established the said business in the preceding financial year i.e. 1999 -2000, and had commenced commercial production in March 2000. Admittedly, the Assessee had not claimed any depreciation on its assets for the previous year ended 31st March, 2000. Accordingly, the block of assets was reflected by the Assessee in its books of accounts at the actual cost of acquisition. The Assessee had also capitalised the indirect expenditure incurred prior to the commencement of commercial production and the same was included in the cost of plant and machinery. The Assessee computed the capital gains arising under Sec. 50B of the Act by calculating the net worth of the business undertaking on the basis of the cost of assets as on 31st March, 2000 without accounting for any depreciation, as none had been claimed.

(3.) The Assessing Officer (hereafter 'AO') did not accept the capitalisation of indirect expenses and reduced the same from the cost of assets. The AO was also of the view that for the purposes of calculating the net worth of the undertaking, depreciation allowable under sub -item (C) of item (i) of sub -clause (c) of clause (6) of Sec. 43 of the Act (hereafter, for the sake of brevity, referred to as 'Clause C') for the AY 2000 -01 would have to be deducted even though no such depreciation had been claimed by the Assessee or allowed by the AO. Accordingly, the AO calculated short term capital gains arising out of the slump sale under Sec. 50B of the Act at Rs. 2,26,89,866/ -.