Capital Gains Tax Limited to Firm-Owned Assets | ITAT

Case Details: Deputy Commissioner of Income-tax vs. Shree Bhawani Mills - [2025] 174 taxmann.com 38 (Lucknow-Trib.)

Judiciary and Counsel Details

• Sudhanshu Srivastava, Judicial Member & Nikhil Choudhary, Accountant Member
• Manu Chaurasia, CIT DR. for the Appellant.
• P.K. Kapoor, C.A. for the Respondent.

Facts of the Case

In this case, Punjab National Bank auctioned immovable property to recover a loan from the assessee firm. The secured assets included the firm’s building, structure, and plant & machinery, along with land owned by the partner, Smt. Shakuntla Devi.

The auction was held on 26.04.2016, fetching ?5,28,97,000. The Assessing Officer treated the entire amount as long-term capital gains of the firm, since no return had been filed for that year.

The assessee appealed, arguing that the land did not belong to the firm, so proceeds related to it couldn’t be taxed in the firm’s hands. It also claimed depreciation and WDV weren’t deducted for the firm-owned assets. The assessee submitted land ownership proof to show that the land belonged to the partner.

The CIT(A) accepted this and held that only proceeds related to the building and machinery could be taxed after proper deductions. The matter reached before the Tribunal.

ITAT Held

The Tribunal held that the sale deed showed that the land in question, which formed part of the auctioned assets, belonged to Smt. Shakuntla Devi, the partner of the firm and not to the firm. In view of this, the firm could not be charged with long-term capital gain on the alienation of an asset that did not belong to it.

The only gains attributable to the firm could be on account of building structure and plant and machinery, which were owned by the firm and depicted in its schedule of fixed assets. For the same, the AO was required to arrive at the figures of amounts realised on sale of building structure and plant and machinery and compute the profits on the sale of the same after deducting the written down value as it stood in the books of the assessee.

No other amount could be taxed in the hands of the assessee as capital gains, for assets which did not belong to it. In the circumstances, ITAT were inclined to agree with the ultimate decision of the CIT(A) in granting relief to the assessee.