Stamp duty valuation under Section 50C or 43CA cannot be substituted & only the actual sale consideration should be reduced from WDV for depreciation purposes
The ITAT Mumbai in the case of 3A Composites India Pvt. Ltd. vs. ACIT, No.- ITA No. 4096/Mum/2024 vide its order dated.- November 21, 2024, has clarified a significant aspect of the interplay between Sections 32, 43(6)(c)(i)(B), 50C, and 43CA of the Income Tax Act, 1961. The key issue revolves around whether the stamp duty valuation (as per Section 50C or 43CA) should be substituted for the actual sale consideration when determining the “written down value” (WDV) for depreciation purposes under Section 32.
It has been concluded that only the actual sale consideration received for the asset should be reduced from the opening WDV of the block for depreciation purposes. Stamp duty valuation under Section 50C or 43CA cannot be substituted in this context unless all assets in the block are sold, triggering Section 50.
Key Points of the Judgment:
1. Dispute on WDV Computation:
• The assessee argued that for calculating WDV under Section 43(6)(c)(i)(B), only the actual sale consideration received for a property (part of a block of assets) should be reduced.
• The Revenue contended that the stamp duty value, as determined under Section 50C, should replace the actual sale consideration for reducing the WDV.
2. Depreciation and Written Down Value (WDV):
• Section 32 allows depreciation based on the WDV of a block of assets.
• Explanation 2 to Section 32(1) refers to Section 43(6)(c), which defines WDV for a block of assets as the opening WDV adjusted for:
• Actual cost of assets acquired during the year.
• “Moneys payable” for assets sold during the year.
3. Legal Fiction under Sections 50C and 43CA:
• Section 50C applies to capital gains computation by substituting the actual sale consideration with the stamp duty valuation for immovable property.
• Section 43CA applies a similar rule for business transactions involving transfer of stock-in-trade.
• However, these legal fictions are limited to their specific purposes and do not explicitly apply to depreciation computation under Section 32.
4. Tribunal’s Observations:
• No Extension of Legal Fiction: The Tribunal held that the legal fictions in Sections 50C and 43CA are restricted to capital gains or business income computations and cannot be extended to the calculation of WDV for depreciation under Section 32.
• Purpose of Fiction: Referring to the Supreme Court decision in Mancheri Puthusseri Ahmed vs. Kuthiravattam Estate Receiver ([1996] 6 SCC 185), the Tribunal emphasized that legal fictions must be limited to their intended purpose.
• No Deeming Fiction in Section 32: Unlike Sections 50C and 43CA, Section 32 does not contain any provision requiring the use of stamp duty value instead of actual sale consideration for WDV computation.
5. Conclusion:
• The Tribunal concluded that only the actual sale consideration received for the asset should be reduced from the opening WDV of the block for depreciation purposes.
• Stamp duty valuation under Section 50C or 43CA cannot be substituted in this context unless all assets in the block are sold, triggering Section 50.
Case References:
• Supreme Court Decision in Mancheri Puthusseri Ahmed: Legal fiction must be confined to the specific purpose for which it is created.
The copy of the Appellate is as under:
