Deduction u/s 54F allowed for Capital Gain on Sale of Depreciable Commercial asset if held for more than 3 years :ITAT

This appeal, filed by Revenue, being ITA No. 2766/Mum/2017, is directed against appellate order dated 05.12.2016 passed by learned Commissioner of Income Tax (Appeals)-5, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2012-13, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 30.03.2015 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 2012-13.

2. The grounds of appeal raised by Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-

(i) “On the facts and circumstances of the case, the CIT(A) erred in allowing the claim of deduction u/s 54F of the IT Act ignoring the fact that the assets in question were commercial assets and in view of provisions of section 50 of the IT Act, the gain arising out of sale of said depreciable assets was rightly treated as short term capital gain by the Assessing Officer and disallowed the claim of deduction u/s 54F of the IT Act, 1961”

(ii) “On the facts and circumstances of the case, the CIT(A) was erred in deleting the addition made by the Assessing Officer under section 69B of the IT Act amounting to Rs. 1,89,97,538/-ignoring the fact that the assessee could not explain the difference in the said capital account balance as shown by the assessee and that of the firm M/s Pregnancy Advices and Services, wherein assessee was a partner”.

(iii) The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be.

(iv) The appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)51, Mumbai, may be set aside and that of the Assessing Officer restored.”

3. The brief facts of the case are that the assessee is a Doctor by profession and has earned income from Salaries , Profits and Gains of Business or Profession and Income from other Sources.

4. The Revenue has filed this appeal with tribunal late by 27 days beyond the time stipulated under Section 253(3) of the 1961 Act. The Revenue has submitted an application dated 01-08-2018 praying for condoning delay in filing this appeal with tribunal late by 27 days beyond the time stipulated u/s. 253(3) of the 1961 Act. The Revenue has explained the delay in filing this appeal late with tribunal mainly due to interpretation of law of limitation for computing period of limitation effective from date of service of order of learned CIT(A) to the office of learned Principal CIT(Central)-2, Mumbai who presently hold charge over the assessee and who received the order on transfer from learned Pr. CIT-16,Mumbai who earlier held charge over the assessee. It is prayed that the erstwhile jurisdictional learned Pr. CIT-16 received the appellate order of learned CIT(A) on 20.01.2017 which was transferred to present jurisdictional Pr. CIT(Central)-2, Mumbai who received the same on transfer on 17.02.2017 from Pr. CIT-16,Mumbai. It was submitted that the Revenue erred in calculating the period of limitation provided u/s 253(3) from date of receipt of order by learned Pr. CIT(Central)-2, Mumbai on 17.02.2017 while it ought to have calculated period of limitation as provided u/s 253(3) from the receipt of appellate order of learned CIT(A) by learned Pr. CIT-16,Mumbai.It is submitted that this position was clarified by Hon’ble Delhi High Court in the case of CIT v. Odeon Builders (ITA no. 52/2015 , 755/2015 dated 24-03-2017 which was the intervening period as the appeal was ultimately filed on 17-04-2017 which was late by 27 days and it is prayed before the Bench to condoned this delay. The Ld. Counsel for the assessee submitted that the assessee has no objection if the Bench condone this delay of 27 days in filing of this appeal late by Revenue beyond the time stipulated u/s 253(3) of the 1961 Act. After hearing both the rival parties and keeping in view bonafide of sufficient cause shown in the Prayer made for condonation of delay by Revenue in filing this appeal late by 27 days beyond the time stipulated u/s 253(3) and also keeping in view that opposite party has no objection to the admission of this appeal , we keeping in view the interest of substantial justice vis-a-vis technicalities are inclined to condone the aforesaid delay of 27 days in filing late this appeal by Revenue beyond the time stipulated u/s 253(3) of the 1961 Act and admit this appeal to be adjudicated on merits in accordance with law in succeeding para’s of this order. The judgment of Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst Katiji (1987) 167 ITR 471(SC) is relevant. We admit this appeal and condonation application filed by Revenue stand allowed. We order accordingly.

5. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act, the AO observed that the assessee has earned capital gains on sale of immovable properties , the first set of immovable properties sold being units no. 24-24 situated at Pearl Centre, S B Marg , Dadar, Mumbai and Second immovable property sold being residential flat situated at 114 situated at 4/11, Avanti Apartments , S B Marg, Dadar, Mumbai . The AO observed that the first set of immovable properties sold being units 24-26 at Pearl Center, Dadar, Mumbai were all commercial properties used by the assessee for the purpose of his clinic and depreciation on the same was claimed by the assessee. The AO observed that the second immovable property sold being flat at 114,Avanti Apartments, Dadar was used for residential premises . It is an undisputed fact between rival parties that both these set of immovable properties which were sold during the year under consideration were held by the assessee for a period of more than thirty six months before being sold . It is also undisputed between rival parties that the assessee has purchased a new residential flat at Beau Monde, Prabhadevi for Rs. 20,63,72,233. The assessee has claimed deduction u/s 54F of the 1961 Act for making reinvestment in new residential flat even with respect to sale of commercial units located at Pearl Center, Dadar, Mumbai which was used by the assessee for commercial purposes for his clinic and on which the assessee even claimed depreciation u/s 32 of the 1961 Act , wherein assessee treated capital gains arising thereof from sale of units located at Pearl Center as long term capital gains. A short question which has arisen before us is whether the assessee is entitled for deduction u/s. 54F of the 1961 of the Act by making reinvestment in new residential flat , with respect to capital gains arisen on sale of commercial flat used by assessee for clinic on which even depreciation u/s 32 of the 1961 Act was claimed by the assessee and which was undisputedly held by the assessee for a period of more than thirty six months. The AO has disallowed deduction u/s. 54F to the tune of Rs. 6.5 crores by holding that sale of units 24, 25 and 26 at Pearl Center, Dadar, Mumbai which were used by the assessee for commercial purposes for his clinic and on which depreciation was also claimed by the assessee u/s 32 of the 1961 Act is to be treated as short term capital asset within the deeming provision of Section 50 of the 1961 Act which stipulates that the capital gains arising from the transfer of depreciable assets shall be deemed to be the capital gains arising from the transfer of short term capital assets and the AO ultimately held that assessee is not entitled for deduction u/s. 54F of the Act with respect to short term capital gains arising on sale of such short term capital assets , as the said deduction u/s 54F is available only on the long term capital gains arising from transfer of long term capital assets. The assessee before the AO had relied upon decision of Hon’ble Bombay High Court in the case of CIT v. Ace Builders (2006)281 ITR 201(Bom.) but the AO rejected the contentions of the assessee by holding that said decision is only relevant for claiming deduction u/s. 54E of the 1961 Act and additions of Rs. 6,50,00,000/- were made by the AO to the income of the assessee by denying deduction u/s 54F of the 1961 Act, vide assessment order dated 30.03.2015 passed u/s 143(3) of the 1961 Act despite the fact that reinvestment to the tune of Rs. 20,63,72,233/- was made by the assessee in new residential flat situated at 114, Beau Monde Prabhadevi .

6. Aggrieved by the assessment order dated 30.03.2015 passed by the AO u/s 143(3) of the 1961 Act, the assessee filed first appeal before Ld. CIT(A) which was allowed by Ld. CIT(A) vide appellate order dated 05.12.2016 wherein learned CIT(A) held as under:-

“ 3.3 1 have considered the appellant’s submissions. Appellant had sold commercial and residential property totalling to Rs.10.5 Crs. and purchased a residential house at Beau Monde, Prabhadevi for Rs.20,63,72,233/-. Appellant had claimed a deduction of 54F from the sale consideration received from the sale of commercial and residential property. However, AO had denied appellant’s claim u/s 54F on sale of commercial property on observing that as appellant had claimed depreciation for commercial property, hence section 50 of the Income Tax Act is applied in the appellant’s case. According to the AO, if section 50 is applied in capital gain received from sale of any depreciable asset, it is to be computed as short term capital gain. Hence, AO treated the capital gain as short term capital gain. According to AO section 54 clearly states that capital gain arising from the transfer of any long term capital asset is exempt if the same is invested in residential property. As appellant’s asset is to be treated as short term capital asset, AO denied the exemption claim of the appellant u/s 54F. Even, AO was of the view that decision of Bombay High Court in the case of CIT vs ACE Builders P. Ltd.[281 ITR 210(Bom)] is not applicable as the above decision deals with exemption u/s 54E of the Act.

In the submissions appellant states that properties which appellant had sold was held for more than 3 years which even AO has not disputed and the consideration received was Rs. 10.5 Crs. Consideration received from sale of commercial property is Rs.6.5 Crs. As this property is also held for more than 3 years, according to the appellant it is to be treated as long term capital gain. Further, section 50 of the Act which is for computation of capital gains arising from transfer of depreciable assets is a deeming provision. According to the appellant this deemed provision cannot be extended more than what is intended. Further appellant states that as appellant had held the property for more than 3 years though by deeming section, short term capital gain has to be computed u/s. 50 of the Act for depreciable assets, it cannot be considered as short term capital asset. Appellant is of the view that character of the assets will not change because of computation of capital gain u/s 50 of the Act. Hence, appellant states that as the assets were held for more than 3 years, appellant is eligible for long term capital gain and hence eligible for deduction u/s 54 f the Act.

It is true that section 50 of the Act is a deemed provision. In case of a deemed provision its applicability cannot be extended to other sections. Even Supreme Court in the case of CIT vs Amarchand N. Shroff [48 ITR 59 ] held that deeming provision is a fiction of law, it cannot be extended beyond the object for which it was enacted. By the above Supreme Court case, it is clear that in deeming provision fiction cannot be extended to other sections of the Act. Hence, appellant is correct in stating that deeming provision u/s 50 were for computation of capital gain under depreciable assets is treated as Short term capital gain, but if the asset is held for more than 3 years, the character of the assets will not change from Long term to Short term assets just because it is computed under section 50 of the Act. As deeming provision section cannot be extended for other sections, by this way appellant is eligible even for claiming section 54F of the Act for sale of commercial property on which it claimed depreciation. This issue was further resolved by Delhi High Court in the case of CIT vs. Rajiv Shukla [334 ITR 138] where it is held as under :

The AO took the view that the capital gains arising from transfer of a depreciable asset shall be deemed to be capital gains arising from transfer of a short term capital asset and deduction u/s 54F was not available. The Commissioner (Appeals) deleted the addition of Rs.91,77,118/- made by the Assessing Officer under the head “Short-term Capital gain”. This was confirmed by the Tribunal, on appeal:

Held, dismissing the appeal, that the income earned by the assesse on sale of property was to be treated as long-term capital gains entitling him to the benefit of deduction u/s 54F.

In the above Delhi High Court case it was held that when a depreciable asset has to be treated as Long term capital asset, it is entitled to the benefit of section 54F of the Act. In the above case, Delhi High Court had relied on the case of CIT vs. ACE Builders [281 ITR 210 (Bom), CIT vs Assam Petroleum Industries (P) Ltd. [262 ITR 587] Ld. CIT vs. Delite Tin Industries , I.T. Act, 1961 No. 1118/2008. If we apply the above case laws to our case here also appellant sold commercial property which is held for more than 3 years and from the consideration received from sale of the property he purchased new property. Hence appellant is eligible for exemption u/s 54F of the Act. AO’s addition of Short Term Capital Gain for Rs.6.50 Crs. is deleted. Ground of appeal is allowed.

7. The Revenue being aggrieved by the appellate order dated 05.12.2016 passed by Ld. CIT(A) has filed an appeal with the tribunal. The Ld. DR opened the argument by submitting that deduction u/s. 54F cannot be allowed to the assessee as the immovable properties which were sold being units 24-26 at Pearl Center , Dadar , Mumbai were used by assessee for commercial purposes for running his clinic and the assessee had claimed deprecation u/s 32 of the 1961 Act on said commercial flats used as his clinic , so the said assets shall be deemed to be short term capital assets within the provision of Section 50 of the Act and hence gains arising from the sale of said commercial flats were short term capital gains , thus consequently no deduction u/s. 54F of the 1961 Act is allowable on short term capital gains on reinvestment made in new residential flat at Beau Monde, Prabhadevi. The Ld. Counsel for the assessee on the other hand submitted that that issue is covered by the decision(s) of Hon’ble Supreme Court as well as Hon’ble High Courts including jurisdictional High Court as well tribunal and following case laws were relied upon by the assessee to support its contentions:-

It was submitted by Ld. Counsel for the assessee that deeming fiction of Section 50 is to be restricted only for the limited purpose of modification of provisions of Section 48 and 49 of the 1961 Act as is stipulated in Section 50 of the 1961 Act and it cannot be extended further beyond than what is stipulated in Section 50 of the 1961 Act. It was submitted by learned counsel for the assessee that it is only for the purposes of computing deduction from full value of consideration, section 48 and 49 of the 1961 Act stood modified and capital gains arising thereof shall be deemed to be from the transfer of short term capital assets. It was submitted that since asset being commercial units no. 24-26 situated at Pearl Center , Dadar were held for a period of more than thirty six months, it is to be deemed to be long term capital gains entitled for deduction u/s 54F of the 1961 Act.. Our attention was drawn to the relevant provisions of the statute vide Section 50, 2(42A), 48 , 49 and 45 of the 1961 Act as well to the aforesaid case laws relied upon by the assessee to support its contentions.

8. We have considered rival contentions and perused the material on record including relied upon case laws , We have observed that the assessee is Doctor by profession. The assessee earned income from Salaries, Profits and Gain from Business or Profession, Capital Gains and income from other sources. We have observed that the assessee has sold immovable properties during the year under consideration, firstly residential flat no. 114 situated at 4/11, Avanti Apartments, S B Marg, Dadar, Mumbai which was sold for Rs. 3.55 crores and which was used by assessee for residential purposes . The second set of immovable properties sold by the assessee consisted of units number 24, 25 and 26 being located at Pearl Center, S B Marg, Dadar, Mumbai which were sold for Rs. 6.50 crores and were used by the assessee undisputedly for commercial purposes for running his clinic on which the assessee also claimed depreciation u/s 32 of the 1961 Act. The assessee has undisputedly purchased a new residential flat situated at Beau Monde , Prabhadevi for Rs. 20.64 crores. The aforesaid immovable properties which were sold during the year under consideration were undisputedly held by the assessee for a period of more than thirty six months before being sold in the year under consideration before us. There is no dispute between rival parties so far as long term capital gains arising from the sale of residential flat no. 114 situated at 4/11, Avanti Apartments, S B Marg, Dadar, Mumbai is concerned. The dispute has arisen between rival parties as the assessee intended to claim deduction u/s 54F of the 1961 Act with respect to capital gains arising from the sale of commercial flats being unit numbers 24-26 situated at Pearl Center , Dadar which were used by the assessee for running his clinic and on which depreciation u/s 32 of the 1961 Act was also claimed by the assessee by treating the same as long term capital gains entitled for deduction u/s 54F of the 1961 Act on reinvestment made in new residential flat at Beau Monde, while the Revenue on the other hand treated the same as short term capital gains in the teeth of provisions of Section 50 of the 1961 Act by holding that the gains on sale of commercial property to be short term capital gains on sale of short term capital asset depriving assessee benefit of deduction u/s 54F on reinvestment in new residential flat as the said section stipulated that only long term capital gains are entitled for deduction u/s 54F of the 1961 Act for reinvestment made in new residential properties We have observed the Section 50 creates a deeming fiction by modifying provisions of Section 48 and 49 of the 1961 Act for the purposes of computation of capital gains chargeable to tax under Section 45 of the 1961 Act with respect of the depreciable assets forming part of block of assets and there is nothing in Section 50 which could suggest that deeming fiction is to be extended beyond what is stated in provisions of Section 50 of the 1961 Act and it cannot be extended to deduction allowable to the assessee u/s 54F of the 1961 Act which is an independent Section operating in altogether different field . The issue in no more res-integra as the issue is now been settled by Hon’ble Supreme Court in the case of V. S. Dempo Company Limited(supra).The assessee has rightly relied upon following judicial precedents detailed as hereunder:-

We are also reproducing relevant extract of decision of Hon’ble Supreme Court in the case of V. S. Dempo and Company Limited(supra) which has settled this issue in favour of tax-payer, wherein Hon’ble Supreme Court held as under:-

“1. In the return filed by the respondent/assessee for the Assessment Year 1989-90 the assessee had disclosed that it had sold its loading platform M.V. Priyadarshni for a sum of Rs. 1,37,25,000/- on which it had earned some capital gains. On the said capital gains the assessee had also claimed that it was entitled for exemption under Section 54E of the Income Tax Act. Admittedly, the asset was purchased in the year 1972 and sold sometime in the year 1989. Thus, the asset is almost 17 years old. Going by the definition of long term capital asset contained in Section 2(29B) of the Income Tax Act, 1995 (hereinafter referred to as ‘the Act’), it was admittedly a long-term capital asset. Further the Assessing Officer rejected the claim for exemption under Section 54E of the Act on the ground that the assessee had claimed depreciation on this asset and, therefore, provisions of Section 50 were applicable. Though this was upheld by the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal allowed the appeal of the assessee herein holding that the assessee shall be entitled for exemption under Section 54E of the Act. The High Court has confirmed the view of the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue. While doing so the High Court has relied upon its own judgment in the case of CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210/[2005] 144 Taxman 855 (Bom.). The High Court has observed that Section 50 of the Act which is a special provision for computing the capital gains in the case of depreciable assets is not only restricted for the purposes of Section 48 or Section 49 of the Act as specifically stated therein and the said fiction created in sub-section (1) & (2) of Section 50 has limited application only in the context of mode of computation of capital gains contained in Sections 48 and 49 and would have nothing to do with the exemption that is provided in a totally different provision i.e. Section 54E of the Act. Section 48 deals with the mode of computation and Section 49 relates to cost with reference to certain mode of acquisition. This aspect is analysed in the judgment of the Bombay High Court in the case of ACE Builders (P.) Ltd. (supra) in the following manner:

“In our opinion, the assessee cannot be denied exemption under Section 54E, because, firstly, there is nothing in Section 50 to suggest that the fiction created in Section 50 is not only restricted to Sections 48 and 49 but also applies to other provisions. On the contrary, Section 50 makes it explicitly clear that the deemed fiction created in sub-section (1) & (2) of Section 50 is restricted only to the mode of computation of capital gains contained in Section 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. In this connection, we may refer to the decision of the Apex Court in the case of State Bank of India v. D. Hanumantha Rao 1998 (6) SCC 183. In that case, the Service Rules framed by the bank provided for granting extension of service to those appointed prior to 19.07.1969. The respondent therein who had joined the bank on 1.7.1972 claimed extension of service because he was deemed to be appointed in the bank with effect from 26.10.1965 for the purpose of seniority, pay and pension on account of his past service in the army as Short Service Commissioned Officer. In that context, the Apex Court has held that the legal fiction created for the limited purpose of seniority, pay and pension cannot be extended for other purposes. Applying the ratio of the said judgment, we are of the opinion, that the fiction created under Section 50 is confined to the computation of capital gains only and cannot be extended beyond that. Thirdly, Section 54E does not make any distinction between depreciable asset and non-depreciable asset and, therefore, the exemption available to the depreciable asset under Section 54E cannot be denied by referring to the fiction created under Section 50. Section 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 Section 54E of the I.T. Act cannot be denied to the assessee on account of the fiction created in Section 50.”

2. We are in agreement with the aforesaid view taken by the High Court.

3. We are informed that the Gujarat High Court as well as Guahati High Court have also taken the same view in the following cases:

1. CIT v. Polestar Industries[2014] 41 taxmann.com 237/221  Taxman 423 (Guj.)

2. CIT v. Assam Petroleum Industries (P.) Ltd.[2003] 262 ITR 587/131 Taxman 699 (Gau.).

4. We are also informed that against the aforesaid judgments no appeal has been filed.

5. In view of the foregoing, we do not find any merit in the instant appeal which is, accordingly, dismissed.”

The Mumbai-tribunal in the case of ACIT v. Shri Kiran G Gadhia(supra) of which one of us i.e. Accountant Member was part of the Division Bench has under similar circumstances allowed the deduction u/s 54/54F of the 1961 Act in para 11 and 12 of the said order by holding in favour of tax-payer as under:

11. With regard to the contention of the Assessing Officer that since the Assessee has claimed depreciation on one of the properties and therefore by virtue of the provisions of Section 50 gain arising from the transfer of such asset should be considered as short term capital gain, we find that this issue has been decided by the Jurisdictional High Court in the case of CIT Vs. Ace Builders Pvt. Ltd. [281 ITR 210] wherein the Hon’ble High Court answered the following question in favour of the Assessee as under.

” Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to deduction under section 54E in respect of the capital gain arising on the transfer of a capital asset on which depreciation has been allowed and which is deemed as short term capital gain under section 50 of the Income-tax Act, 1961“

“23. The question required to be considered in the present case is, whether the deeming fiction created under Section 50 is restricted to section 50 only or is it applicable to section 54E of the Income Tax Act as well ? In other words, the question is, where the long term capital gain arises on transfer of a depreciable long term capital asset, whether the assessee can be denied exemption under section 54E merely because, section 50 provides that the computation of such capital gains should be done as if arising from the transfer of short term capital asset ?

24. Section 54E of the Income Tax Act grants exemption from payment of capital gains tax, where the whole or part of the net consideration received from the transfer of a long term capital asset is invested or deposited in a specified asset within a period of six months after the date of such transfer. In the present case it is not in dispute that the assessee fulfills all the conditions set out in section 54E to avail exemption, but the exemption is sought to be denied in view of fiction created under section 50.

25. In our opinion, the assessee cannot be denied exemption under section 54E, because, firstly, there is nothing in section 50 to suggest that the fiction created in Section 50 is not only restricted to sections 48 and 49 but also applies to other provisions. On the contrary, Section 50 makes it explicitly clear that the deemed fiction created in sub-section (1) & (2) of section 50 is restricted only to the mode of computation of capital gains contained in Section 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. In this connection, we may refer to the decision of the Apex Court in the case of State Bank of India v. D. Hanumantha Rao . In that case, the Service Rules framed by the bank provided for granting extention of service to those appointed prior to 19/7/1969. The respondent therein who had joined the bank on 1/7/1972 claimed extention of service because he was deemed to be appointed in the bank with effect from 26/10/1965 for the purpose of seniority, pay and pension on account of his past service in the army as Short Service Commissioned Officer. In that context, the Apex Court has held that the legal fiction created for the limited purpose of seniority, pay and pension cannot be extended for other purposes. Applying the ratio of the said Judgment, we are of the opinion, that the fiction created under section 50 is confined to the computation of capital gains only and cannot be extended beyond that. Thirdly, section 54E does not make any distinction between depreciable asset and non depreciable asset and, therefore, the exemption available to the depreciable asset under section 54E cannot be denied by referring to the fiction created under section 50. Section 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 section 54E of the I.T.Act cannot be denied to the assessee on account of the fiction created in section 50.

26. It is true that section 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 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 Section 54E, then the capital gain shall not be charged under Section 45 of the Income Tax Act. To put it simply, the benefit of section 54E will be available to the assessee irrespective of the fact that the computation of capital gains is done either under sections 48 & 49 or under section 50. The contention of the revenue that by amendment to section 50 the long term capital asset has been converted into to 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 section 50 converts long term capital asset into a short term capital asset.

27. For all the aforesaid reasons, we concur with the decision of the Gauhati High Court in the case of C.I.T. V/s. Assam Petroleum Industries (supra) and hold that the Tribunal was justified in allowing the benefit of exemption under section 54E of the I.T.Act to the assessee in respect of the capital gains arising on the transfer of a capital asset on which depreciation has been allowed.”

12. The SLP filed by the revenue on similar question has been dismissed by the Supreme Court in the case of CIT vs. Delite Tin Industries reported in 322 ITR (ST) 8 on the question as to whether the income earned by the Assessee on sale of factory shed is to be treated as long term capital gains eligible for deduction u/s 54EC or not. In this case, the Jurisdictional High Court held that the income earned by the Assessee on sale of factory shed should be treated as long term capital gains and is eligible for deduction u/s 54EC of the Act. Respectfully following the decision of the Jurisdictional High Court, we hold that the Assessee is entitled for deduction u/s 54/54F in respect of both the properties. Thus the grounds 1 to 4 raised by the revenue are rejected.

Thus keeping in view aforesaid decisions, we are of the considered view that the assessee will be entitled for deduction u/s. 54F of the Act on the capital gains arising on the sale of depreciable assets being commercial flats situated at unit no. 24-26, Pearl Center, Dadar, Mumbai computed in the manner laid down in Section 50 of the 1961 Act read with Section 48, 49 and 45 of the 1961 Act as these assets which were sold by the assessee during the year under consideration were held for a period of more than thirty six months , on the reinvestment made by the assessee in new residential property being flat at Beau Monde. We have no hesitation in upholding/confirming the well reasoned appellate order dated 05.12.2016 passed by Ld.CIT(A) which is reproduced here under:-

“ 3.3 1 have considered the appellant’s submissions. Appellant had sold commercial and residential property totalling to Rs.10.5 Crs. and purchased a residential house at Beau Monde, Prabhadevi for Rs.20,63,72,233/-. Appellant had claimed a deduction of 54F from the sale consideration received from the sale of commercial and residential property. However, AO had denied appellant’s claim u/s 54F on sale of commercial property on observing that as appellant had claimed depreciation for commercial property, hence section 50 of the Income Tax Act is applied in the appellant’s case. According to the AO, if section 50 is applied in capital gain received from sale of any depreciable asset, it is to be computed as short term capital gain. Hence, AO treated the capital gain as short term capital gain. According to AO section 54 clearly states that capital gain arising from the transfer of any long term capital asset is exempt if the same is invested in residential property. As appellant’s asset is to be treated as short term capital asset, AO denied the exemption claim of the appellant u/s 54F. Even, AO was of the view that decision of Bombay High Court in the case of CIT vs ACE Builders P. Ltd.[281 ITR 210(Bom)] is not applicable as the above decision deals with exemption u/s 54E of the Act.

In the submissions appellant states that properties which appellant had sold was held for more than 3 years which even AO has not disputed and the consideration received was Rs. 10.5 Crs. Consideration received from sale of commercial property is Rs.6.5 Crs. As this property is also held for more than 3 years, according to the appellant it is to be treated as long term capital gain. Further, section 50 of the Act which is for computation of capital gains arising from transfer of depreciable assets is a deeming provision. According to the appellant this deemed provision cannot be extended more than what is intended. Further appellant states that as appellant had held the property for more than 3 years though by deeming section, short term capital gain has to be computed u/s. 50 of the Act for depreciable assets, it cannot be considered as short term capital asset. Appellant is of the view that character of the assets will not change because of computation of capital gain u/s 50 of the Act. Hence, appellant states that as the assets were held for more than 3 years, appellant is eligible for long term capital gain and hence eligible for deduction u/s 54 f the Act.

It is true that section 50 of the Act is a deemed provision. In case of a deemed provision its applicability cannot be extended to other sections. Even Supreme Court in the case of CIT vs Amarchand N. Shroff [48 ITR 59 ] held that deeming provision is a fiction of law, it cannot be extended beyond the object for which it was enacted. By the above Supreme Court case, it is clear that in deeming provision fiction cannot be extended to other sections of the Act. Hence, appellant is correct in stating that deeming provision u/s 50 were for computation of capital gain under depreciable assets is treated as Short term capital gain, but if the asset is held for more than 3 years, the character of the assets will not change from Long term to Short term assets just because it is computed under section 50 of the Act. As deeming provision section cannot be extended for other sections, by this way appellant is eligible even for claiming section 54F of the Act for sale of commercial property on which it claimed depreciation. This issue was further resolved by Delhi High Court in the case of CIT vs. Rajiv Shukla [334 ITR 138] where it is held as under :

The AO took the view that the capital gains arising from transfer of a depreciable asset shall be deemed to be capital gains arising from transfer of a short term capital asset and deduction u/s 54F was not available. The Commissioner (Appeals) deleted the addition of Rs.91,77,118/- made by the Assessing Officer under the head “Short-term Capital gain”. This was confirmed by the Tribunal, on appeal:

Held, dismissing the appeal, that the income earned by the assesse on sale of property was to be treated as long-term capital gains entitling him to the benefit of deduction u/s 54F.

In the above Delhi High Court case it was held that when a depreciable asset has to be treated as Long term capital asset, it is entitled to the benefit of section 54F of the Act. In the above case, Delhi High Court had relied on the case of CIT vs. ACE Builders [281 ITR 210 (Bom), CIT vs Assam Petroleum Industries (P) Ltd. [262 ITR 587] Ld. CIT vs. Delite Tin Industries , I.T. Act, 1961 No. 1118/2008. If we apply the above case laws to our case here also appellant sold commercial property which is held for more than 3 years and from the consideration received from sale of the property he purchased new property. Hence appellant is eligible for exemption u/s 54F of the Act. AO’s addition of Short Term Capital Gain for Rs.6.50 Crs. is deleted. Ground of appeal is allowed.

Thus, based on our detailed reasoning as set out above, the Revenue fails on ground no. 1 raised in memo of appeal filed with the tribunal. Thus, the ground no. 1 raised by Revenue stood dismissed. We order accordingly.

9. The second issue in this appeal filed by the revenue is with respect to difference in the capital account balance of the assessee who is partner in partnership firm M/s. Pregnancy Advice & Services in the books of accounts of the assessee as at 31-03-2012 vis-a-vis balance of capital account of the assessee in the Balance Sheet of the partnership firm M/s. Pregnancy Advice & Services as at 31.03.2012. The assessee is partner in the said partnership firm namely M/s. Pregnancy Advice and Services. The balance sheet of M/s. Pregnancy Advice & Services filed by the assessee as at 31.03.2012 reflected capital account invested by the assessee (including share of profits less withdrawals) to be Rs. 1,97,70,503/- , while the balance of assessee’s capital account as per assesee’s books of account reflected capital invested by the assessee in the said partnership firm namely M/s. Pregnancy Advice and Services as at 31-03-2012 of Rs. 7,72,965/- , leading to differential of Rs.1,89,97,538/- in the books of accounts maintained by the assessee vis-a-vis the Balance Sheet of the partnership firm of which the assessee is partner as at 31-03-2012. The assessee as per AO submitted explanations vide letters dated 14.03.2015 that the assessee did not receive any Remuneration/interest on capital or any other taxable income from the said firm namely M/s. Pregnancy Advice & Services during the relevant assessment year and secondly , it was submitted that accounts of the firm M/s. Pregnancy Advice & Services for AY 2011-12 and AY 2012-13 were finalised after the submission of return of income by the assessee for those respective years and hence share of profit of the assessee from said firm for AY 2011-12 was accounted for in the books of accounts of the assessee in AY 2012-13 , and further share of profit of the assessee from said firm for AY 2012-13 was accounted for in the books of accounts of the assessee for AY 2013-14 and hence this differential is only due to non accounting of share of profit from partnership firm which got adjusted in immediately succeeding year in the books of accounts of the assessee. The AO while framing assessment order referred to part of reply dated 14-03-2015 filed by the assessee which was extracted by the AO in its order to come to conclusion that the explanation given by the assessee was unsatisfactory and additions were made by the AO to the tune of Rs. 1,89,97,538/- to the income of the assessee u/s 69B of the 1961 Act on account of differential on the balance in the capital account of the assessee in its books of account as at 31.03.2012 and the balance of assessee’s capital account as per the Balance Sheet of M/s. Pregnancy Advice & Services as at 31.03.2012 , vide assessment order dated 30-03-2015 passed by the AO u/s 143(3) of the Act.

10. Aggrieved by the assessment order dated 30-03-2015 passed by the AO u/s 143(3) of the 1961 Act, the assessee filed first appeal with the learned CIT(A). The Ld. CIT(A) after considering the replies of the assessee accepted the contentions of the assessee vide appellate order dated 05-12-2016 and deleted the additions of Rs. 1,89,97,538/- as were made by the AO, by holding as under:-

“4. In Ground No.3 appellant challenges making addition of Rs.1,89,97,538/- u/s 69B of the Act being “unexplained difference” in capital balance with a partnership firm.

4.1 AO had noticed from Balance sheet of the appellant that the capital of the appellant in the firm M/s Pregnancy Advices and Service as on 31.3.2012 was Rs.7,72,965/- whereas in the Balance sheet of M/s Pregnancy Advices and Service the capital of appellant is shown as Rs.1,97,70,503/-. The appellant in his explanation had stated that appellant is a partner in the firm of M/s Pregnancy Advices and Service. He receives only share of profit from the firm. As the accounts of the firm for the year ended 31.3.2011 and 31.3.2012 were finalized after the assessee had filed his return of income, so appellant states that they have not shown the share of profit of that year while filing his return of income as it was filed earlier to the account finalization of the above firm. However, AO had rejected the appellant’s submissions and added the difference of Rs.1,89,97,538/-to the total income of the appellant u/s 69B of the Act.

4.2 Appellant’s submissions are as under:

The ground of appeal No. 3 reads as under:

“On the facts and circumstances of the case and in law the Ld AO erred in making addition of Rs.1,89,97,538/- u/s.69B of the Act being “unexplained difference” in capital balance with a partnership firm in spite of the fact that Appellant had submitted all the related documents to explain the said difference,”

It is respectfully submitted before Your Honour that the Appellant is a partner in a Registered Firm named Pregnancy Advice & Services. The Appellant is having a profit sharing ratio of 55% during the year under consideration. It is submitted before Your Honour that the Appellant does not derive any taxable income such as remuneration or interest on capital or any other income from the said firm.

We would like to submit that the Appellant has not received any taxable income from the firm during the year under consideration. The Appellant filed his Return of Income for AY 2012-13 on 30.09.2012.

The accounts of the Partnership firm for the A.Y. 2012-13 were finalized in March 2013 and Return of Income of the firm for AY 2012-13 was filed on 12.03.2013. Thus, the accounts of firm were finalized after 30.09.2012 (due date of filing of Return of Income of assessee). Therefore, the Share of Profit of the firm and and tax as shown herein below were not included in Capital Balance in the Balance Sheet of the Appellant as on 31.03.2012.

We would like to respectfully submit before Your Honour that during the course of assessment proceedings, the above effect was explained to the Ld. AO. It was duly submitted that the Appellant is a Partner in firm M/s Pregnancy Advice & Services. He does not get Remuneration / Interest on capital nor any Taxable Income from Firm. Also, it was submitted that the Accounts of the firm for year ended 31/03/2011 & 31/03/2Q12 were finalized after Appellant had filed his Return of Income for the aforesaid years. Therefore, the share of Profit for the years ending 31/03/2011 and 31/03/2012 were shown in the appellant’s accounts in A.Y. 2012-13 and A.Y. 2013-14 respectively.

Also, during the course of assessment proceedings the following documents have been submitted:

i) Appellant’s ledger in the Books of the Partnership Firm.

ii) Partnership Firm’s A/Cs in the Books of the Appellant.

iii) Reconciliation of accounts as on 31/03/2011 & 31/03/2012.

iv) The copies of accounts of the partnership firm M/s Pregnancy Advice & Services for A.Y. 2011-12 and A.Y. 2012-13.

v) Computation of Income and copy of ITR Acknowledgement of the firm M/s Pregnancy Advice & Services for A.Y. 2011-12 & 2012-13. We would like to submit that all the above statements submitted during the assessment proceedings substantiate and prove that neither there are any unexplained differences nor there are any unmatched entries. A copy of the above submission is enclosed for Your Honour’s reference. Therefore, the Appellant has no undisclosed Income from the said partnership firm.

We would further like to draw Your Honour’s attention to the provisions of Section 69B of the Income Tax Act, 1961 under which the addition has been made by the Ld. Assessing Officer. The Section states as under:-

“Amount of investments, etc., not fully disclosed in books of account.

69B. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in tin opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.”

On perusal of the above, it is understood that addition under the aforesaid section can be made when some investment is made by any person and is not disclosed in his books of accounts, further, when the assessee is unable to offer any explanation regarding the said investments, addition is to be made in the hands of the assessee.

In the case of the appellant, it is clearly visible that

a) no investment is made by him; and

b) appellant has made his detailed submission alongwith supporting to prove his stand.

Therefore, the provisions of Section 69B of the Act shall not apply to the appellant.

The Ld, AO has ignored the submissions made by Appellant and has added the difference of Rs.189,97,538/- as Unexplained Investments as per the provisions of section 69B of the Income Tax Act,1961. Therefore, on the detailed submission made herein above it is urged that the said addition made by the Ld. AO be deleted.

4.3 I have considered the appellant’s submissions. Here, in this case AO noticed that in the Balance Sheet of the appellant, appellant had shown capital in the firm of M/s Pregnancy Advices and Service for the year ended 31.3.2011 is Rs,7,72,965/- whereas in the balance sheet of M/s Pregnancy Advices and Service the capital of the appellant is Rs.1,97,70,503/-. During the assessment proceedings and appellant submitted that this mismatch had arisen because the return of income was filed earlier to the finalization of accounts of the firm which AO has rejected and added the difference of Rs.1,89,97,538/- to the total income u/s 69B of the Act.

When we examine the appellant’s submissions, appellant is a partner of the firm M/s Pregnancy Advices and Service with a sharing ratio of 55%. The income of the firm for the year is as under :

Appellant’s share of profit is as under:

According to the appellant the reconciliation of account is as under :

In the appellant’s submissions appellant states that accounts of the partnership firm for the A.Y. 2012-13 were finalized in March 2013 and the return of the firm for A.Y. 2012-13 was filed on 12.03.2013. Thus, the accounts were finalized after the date of filing of return of income by appellant i.e. 30.09.2012. Therefore appellant states that share of profit of the firm and tax shown was not included in the balance sheet of the appellant on 31.3.2012. When we examine the details of the income of M/s Pregnancy Advices and Service , the firm had received business income, capital gain and interest totaling to Rs.4,29,99,262/- for the year and appellant’s share of profit is Rs.2,42,61,741/-. After deducting tax paid by the firm for Rs.52,64,203/- appellant’s net share of profit is Rs.1,89,97,538/-. When we examine the reconciliation table appellant had included this amount at the end of A.Y. 2012-13. Appellant’s capital balance in the books of M/s Pregnancy Advices and Services is Rs.1,97,70,503/-. It is clear from the accounts above that appellant had earned the share of profit from the firm after deduction of tax paid by the firm. This amount was shown as transferred to Capital Account in the firm M/s Pregnancy Advices and Services, that is why included in the original capital of Rs.7,72,965.99. Appellant’s balance in the firm is Rs. 1,97,70,503.95. AO is of the view that this amount of Rs.1,89,97,537.96 is a mismatch and AO has added it u/s 69B of the Act. When we examine the provision of the Act, this amount of Rs.2,42,61,740.96 which appellant had received during the year is share of profit of the appellant and share of tax paid is Rs.52,64,203/-.

So balance amount of Rs.1,89,97.,538/- which is the share of profit after deduction of tax is exempt u/s 10(2A) of the I.T. Act. This exempt income cannot be treated as income under section 69B. Section 69B deals with amount of investments not fully disclosed in the books of accounts. Here this amount was fully disclosed in the books of accounts of the firm on which tax was also paid and after paying the tax this amount of Rs. 1,89,97,537/- was transferred to capital balance of the appellant in the firm which is an exempt income u/s 10(2A) of the Act. Appellant had given an explanation during the assessment proceedings and also during appellate proceedings that this amount was not Included in his Capital because there was a timing difference for filing of return of the appellant and finalization of accounts of the firm as appellant filed the return of income before finalization of accounts. When we examine the facts of the case this appears to be a reasonable explanation and further the amount which was added by AO was on which already appellant had paid tax and which is also an exempt income as per section 10(2A) of the Act. So AO’s addition of Rs.1,89,97,538/- u/s 69B is erroneous. In view of the above discussion, this mismatch of balance of the appellant’s regular capital of the firm is only due to timing difference of filing of return of the firm and finalization of accounts of the firm. Hence this amount cannot be treated as income u/s 69B of the Act as it is exempt income. Hence AO’s addition of Rs.1,89,97,538/- is deleted. Ground of appeal is allowed.”

11. The matter is now before us at the behest of revenue as appeal has been filed by the Revenue with the tribunal challenging the relief granted by learned CIT(A). The matter was first part heard by the Bench on 14-08-2018 on this issue and the hearing got finally concluded on 23-08-2018. The learned DR during hearing on 14-08-2018 before the Bench pleaded that the Ld. CIT(A) erred in granting relief to the assessee and additional evidences were filed by the assessee before the Ld. CIT(A) for the first time which were not sent by learned CIT(A) to the AO for seeking remand report on these additional evidences infringing Rule 46A of the Income-tax Rules , 1962. The learned DR referred to assessment order wherein only reference by the AO was to the letter dated 14-03-2015 filed by the assessee, while learned CIT(A) has elaborately dealt with several evidences/ explanations to come to conclusion that the differential in capital account balances in its books vis-a-vis books of account of the partnership firm M/s Pregnancy Advices and Service are satisfactorily explained by the assessee. The learned counsel for the assessee objected and stated that no additional evidences were filed before learned CIT(A) rather the AO brushed aside/ignored all the evidences which were placed before him. At this point of time during the course of hearing on 14-08-2018, the Bench asked Revenue to produce assessment records which were in-fact later produced by learned DR before the Bench on 23-08-2018 when the matter was finally heard. The AO who is currently holding the charge was also present before the Bench on the final date of hearing on 23-08-2018. The Bench inspected the assessment records and found that there are three letters/replies date 09.02.2015, 14.03.2015 and 20.02.2015 which were filed by the assessee during assessment proceedings before the AO. The directions were issued by Bench to learned DR to file status report in writing based on the facts/material on record in the assessment records as to filing of letter/reply’s dated 09.02.2015, 20.02.2015 and 14.03.2015 by the assessee before the AO and also to file status report of the facts from the assessment record as to filing of statement of facts along with Form no. 35 by the assessee w.r.t. first appeal filed before Ld. CIT(A) . The Ld. DR in compliance of the directions of the Bench has filed letter dated 23-08-2018 along with enclosures which is self explanatory and is reproduced here under:-

Office of the
SR. AR.,ITAT ‘H’ Bench
Room No.338, Old COO Building,
Pratishtha Bhavan, M.K.Road, Mumbai-400020

No.SR. AR/ITAT/’I’ Bench/2018-19

Date: 23.08.2018

To

The Hon’ble Members,
ITAT, ‘H’ Bench,
Mumbai

Respected Sir,

Sub: ITA No. 2766/M/2017 in the case of Shri Hrishikesh D. Pal, for A.Y. 2012-13 — reg.

Kindly refer to the above.

2. The captioned case was heard today i.e. on 23.08.2018. As directed, the Assessing Officer was present along with relevant assessment records. On examination of the assessment record, it was found that the assessee has filed the submissions vide letters dated 09.02.2015, 20.02.2015 and 14.03.2015 before the A.O. in the course of assessment proceedings.

3. As directed, the copies of the said letters along with enclosures are being annexed herewith for your kind perusal. The copy of Form No. 35 along with Grounds of Appeal and Statement of Facts is also annexed herewith for your kind perusal.

Yours sincerely,

(MANOJ KUMAR SHING)

SR. AR,ITAT, ‘H’ Bench ,Mumbai.

The learned counsel for the assessee on the other hand relied upon the appellate order passed by learned CIT(A) and has reiterated its stand that every explanation along with evidences were submitted before the AO which is completely ignored/brushed aside by the AO. It is submitted that it is merely due to late finalisation of accounts by the firm namely M/s. Pregnancy Advice & Services for AY 2012-13 which were ultimately finalised the month of March 2013 that the share of profit of the assessee could not be included in the assessee’s books of accounts for AY 2012-13 while the assessee filed its return of income with in due time prescribed u/s 139(1) on 30-09-2012. It is submitted by learned counsel for the assessee that share of profit of the assessee from partnership firm is exempt from tax u/s 10(2A) of the 1961 Act and also that no remuneration, interest on capital or any other taxable income was received by the assessee from the said partnership firm . Thus it is claimed that no prejudice is caused to the Revenue due to this mismatch in the capital account in assessee’s books of accounts vis-a-vis books of accounts maintained by the said partnership firm as at 31-03-2012 , as the revenue impact is tax-neutral because share of profit of the assessee from the said partnership firm M/s Pregnancy Advices and Service for AY 2012-13 is in any case exempt from income-tax.

10. We have observed that the assessee is doctor by profession . The assessee is partner in partnership firm namely M/s Pregnancy Advices and Service . As per material available on record, the assessee did not received any remuneration , interest on capital and other taxable income from the said partnership firm namely M/s. Pregnancy Advice & Services which is not disputed by Revenue. The assessee did had claim to share in profits of the said partnership firm namely M/s Pregnancy Advices and Service for AY 2012-13 which was not accounted for in the books of accounts of the assessee for the year ended 31.03.2012 . As per 1961 Act, the share of partner in profits of the partnership firm is exempt from income-tax by virtue of provisions of Section 10(2A) of the 1961 Act. The AO observed during the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act that there is differential in the amounts of capital account of the assessee invested in partnership firm namely M/s Pregnancy Advices and Service as per assessee’s books of accounts as at 31-03-2012

which stood at Rs. 7,72,965.99 while on the other hand the capital account of the assessee as is appearing in the Balance Sheet of the said partnership firm namely M/s Pregnancy Advices and Service as at 31-03-2012 stood at Rs. 1,97,70,503.95. The assessee explained that it filed return of income on 30-09-2012 i.e. the due date of filing of return of income u/s 139(1) for AY 2012-13 while the said partnership firm namely M/s Pregnancy Advices and Service finalised its return of income only in the month of March 2013 which was filed belatedly on 12-03-2013. The assessee submitted that when the assessee was filing its return of income within due date prescribed under the 1961 Act on 30-09-2012, the accounts of the aforesaid partnership firm namely M/s. Pregnancy Advice & Services were not finalised and hence the assessee filed its return of income on 30-09-2012 within due date prescribed u/s 139(1) of the 1961 Act without including share of profit for the AY 2012-13 from said partnership firm namely M/s. Pregnancy Advice & Services in its books of accounts for which effect was given in subsequent year i.e. AY 2013-14. It is also undisputed that the assessee did not receive any income such as remuneration form the firm, interest on capital or any other taxable income which remained to be accounted for or brought to tax in the return of income filed by the assessee with Revenue. Perusal of the accounts of the partnership firm namely M/s. Pregnancy Advice & Services will reveal that it had received business income, capital gain and interest totaling to Rs.4,29,99,262/- for the year and appellant’s share of profit was Rs.2,42,61,741/-. After deducting tax paid by the firm for Rs.52,64,203/- appellant’s net share of profit is Rs.1,89,97,538/-, which if accounted for in assessee’s books of account will result in no differential between capital account of the assessee in its books of accounts vis-à-vis books of accounts of the partnership firm namely M/s. Pregnancy Advice & Services . It is only share of profit of the assessee from partnership firm namely M/s. Pregnancy Advice & Services for AY 2012-13 which was not included in books of accounts as well in the return of income filed by the assessee which in any case is exempt from income-tax by virtue of provisions of Section 10(2A) of the 1961 Act in the hands of the assessee who is partner in said firm. Thus, the revenue impact of afore-said non-inclusion of share of profits of the assessee from partnership firm namely M/s. Pregnancy Advice & Services so far as assessee is concerned is tax-neutral and no prejudice is caused to Revenue by its non inclusion in return of income filed by the assessee with Revenue. The assessee has duly filed copy of income-tax return dated 12-03-2013 filed by the said partnership firm namely M/s Pregnancy Advices and Service for AY 2012-13. Even copy of earlier year return of income for AY 2011-12 filed by said partnership firm namely M/s. Pregnancy Advice & Services is also placed on record which again was filed belatedly on 26-03-2012 i.e. beyond the time prescribed u/s 139(1) of the 1961 Act. The assessee has also filed copy of Balance Sheet and Profit and Loss Account as well computation of income of the said firm namely M/s Pregnancy Advices and Service for AY 2012-13 as well AY 2011-12 . The assessee has also filed confirmation from said partnership firm as well reconciliation statement reconciling the said differential , which are all placed in file. All these evidences/documents were filed before the AO and are part of the assessment records. The learned DR has also confirmed that all these documents were filed by the assessee before the AO vide letters dated 09-02-2015, 20-2-2015 and 14-03-2015 , which were all part of assessment record before the AO. It is a matter of record that in statement of fact filed before learned CIT(A) along with Form No. 35 by the assessee at that point of time, the assessee has raised all these contentions of having filed all these documents/evidences before the AO to justify its stand that its accounts with the partnership firm all fully reconciled with differences duly explained and effectively there is no differential as it is merely non inclusion of share of profit of the assessee from said partnership firm namely M/s M/s. Pregnancy Advice & Services for AY 2012-13 in its books of accounts vis-a-vis books of accounts of the said partnership firm namely M/s. Pregnancy Advice & Services which led to this differential . The learned CIT(A) appreciated the contentions and bonafide of the assessee in context of material on record and gave relief to the assessee by deleting the additions as were made by the AO of Rs. 1,89,97,538/- to the income of the assessee owing to said differential in capital account balance. We have called for the assessment records as well asked for all these details from learned DR in writing in the form of facts/material as available on assessment record because the AO while framing an assessment order has only referred to selective portion of the reply dated 14-03-2015 filed by the assessee to prejudice assessee and there is no reference in the assessment order to several evidences/ documents filed by the assessee in its defence . It appears that the learned AO has chosen to adopt pick and chose strategy from the replies submitted by the assessee in its defence in a manner to ambush assessee despite all the material on record before him vide letters dated 09.02.2015, 14-03-2015 and 20-03-2015 which go on to prove that no addition whatsoever was warranted on this ground. The learned CIT(A) granted relief to the assessee vide detailed order but still the Revenue chose to file an appeal on this ground. Further , perusal of record before the tribunal revealed that the AO while filing appeal before the tribunal did not attached/enclosed Statement of Fact filed by assessee along with form no 35 before learned CIT(A) while filing first appeal, which statement of fact was found to be part of the said appeal memo as seen during inspection of assessment record as well as confirmed by learned DR in its letter dated 23-08-2018. Grounds of Appeal were only attached by AO along with Form No. 35 while filing appeal before the tribunal. If AO would have attached Statement of Fact filed by the assessee along with Form No. 35 it would have unravelled the true facts as to the assessee having filed all relevant documents/ evidences before the AO . The AO did not commented on these evidences on merits while framing assessment order which caused prejudice to the assessee . The perusal of assessment records clearly revealed that all evidences/documents were on record in assessment file . The AO only referred to portion of reply dated 14-03-2015 to come to conclusion while adding said differential in capital account balance to income of the assessee which caused serious prejudice to the assessee . The authorities must understand that it is not easy for tax-payers to fight against the might of the State and if the assessments are not based on comprehensive and complete appreciation on merits of facts and material on record submitted by tax-payers in its defence in accordance with law, it could have disastrous and wide ranging impact on lives and livelihood of tax-payers which also directly will infringe Article 21 of the Constitution of India. This trend of framing of assessment by authorities without considering entire material/evidences on record to prejudice taxpayers while framing high pitched assessment is to be nipped at the bud . The State while discharging its duties need to work on meritocracy without any fear or favour. The AO ought to have considered all the contentions/evidences of the assessee comprehensively on merits in accordance with law and then would have proceeded to adjudicate the issue on merits in accordance with law . But to consider merely portion of replies and then to prejudice the tax-payer while ignoring all other evidences / replies which were filed by the assessee before the AO is against the spirit and mandate of the 1961 Act as well is against Article 265 of the Constitution of India. This also lead to wastage of Resources both time and money of the State as well of the tax-payer. The same resources could have been used for other productive purposes instead of being wasted in un-necessary litigations. It is more unfortunate that despite learned CIT(A) passing a well reasoned appellate order granting relief to the assessee based on comprehensive analysis of material/evidences on record , still the Revenue had chosen to proceed with further litigation on this issue of differential in capital account balance. The said partnership firm namely M/s. Pregnancy Advice & Services is also assessed to income-tax within Indian tax Jurisdiction and all the information/ data’s of the said firm was already on record with Revenue in its data base as it filed its return of income on 12-03-2013 while assessment is framed on 30-03-2015 and Revenue could have easily cross verified and reconciled the said differential from its own data base to verify the veracity and validity of the contentions of the assessee more so Revenue is now well equipped with advanced technological platforms available at its disposal . Coming back to issue in hand, the learned CIT(A) has passed well reasoned order granting relief to the assessee with which we fully concur which is re-produced by us in preceding para’s of this order and the same is not reproduced again. We have carefully gone through the entire material on record as well appellate order passed by Ld. CIT(A) and we affirm/concur with the view of learned CIT(A) that differential in capital account balance of the assessee in its books of accounts vis-a-vis books of accounts of the partnership firm M/s. Pregnancy Advice & Services stood duly and fully explained and reconciled backed with bonafide reasons/evidences and we have no hesitation in confirming/affirming the well reasoned appellate order passed by learned CIT(A). The Revenue fails on this ground also. We order accordingly.

11. In the result , the appeal of the Revenue in ITA no.2766/Mum/2017 for AY 2012-13 on both the substantive grounds raised before us stand dismissed.The other grounds being ground no. 3 and 4 are infructuous and are dismissed. The appeal of the Revenue on all grounds stand dismissed. We order accordingly.

Order pronounced in the open court on 26.09.2018.

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