Dilip Manhar Parekh vs. DCIT (ITAT Mumbai)

(i) The demolition of the structure would not constitute a transfer of the assets in terms of Section 54(3) of the Act in view of the decision of the Apex Court in the matter of Vania Silk Mills P. Ltd. v. CIT, reported in 191 ITR 647. In the above case, the Apex Court has held that when an asset is destroyed, there is no question of transfer taking place under the Act. The Apex court held that in terms of the Act that the words ‘Extinguishment of any right’ in Section 2(47) of the Act, does not include an extinguishment of right on account of destruction. It has to be an extinguishment of right on account of transfer. Thus, a destruction of assets when not on account of any transfer would not be hit by Section 54F(3) of the Act. Counsel for the revenue seeks to distinguish the decision of the Apex Court in the matter of Vania Silk Mills P. Ltd. (Supra) that the destruction in that case took place because of fire and hence it was involuntary. This distinction is of no consequence. In our view of the decision of the Apex Court in Vania Silk Mills (Supra) would squarely apply to the facts of the present case;

(ii) The CIT(A) had the benefit of afore stated judgment of Bombay High Court in the case of Mrs Chhaya B. Parekh and the CIT(A) fell into an error by making an attempt to distinguish the judgment of Hon’ble Bombay High Court by holding that judgment of Hon’ble Apex Court in the case of CIT v. Mrs Grace Collis (2001) 248 ITR 323(SC) was not brought to the notice of Hon’ble Bombay High Court while judgment of Vania Silk Mills Limited (supra) was brought to the notice of Hon’ble Bombay High Court, which judgment of Vania Silk Mills stood overruled by Hon’ble Supreme Court by three member bench of Hon’ble Supreme Court in the case of Grace Collis (supra). The judgment of Hon’ble Supreme Court in Grace Collis has been considered and distinguished by Hon’ble Madras High Court in the case of Neelamalai Agro Industries Ltd. v. CIT (2003) 259 ITR 651 whereby it has held by the Hon’ble Madras High Court that the law laid down in Vania Silk Mills (P.) Ltd.’s case (supra), that extinguishment of rights in a capital asset as a necessary consequence of destruction of the asset does not amount to transfer, has not been overruled by the Apex Court in the case of Mrs. Grace Collis;

(iii) Judicial discipline and rule of law demand and requires that lower judicial authorities should and must follow the decisions/judgment of higher judicial authorities on identical facts. Thus, the CIT(A) was bound by law to follow the jurisdictional High Court judgment in the case of Mrs Chhaya B. Parekh (supra). In our considered view that this instant case is squarely covered by the decision of Hon’ble Bombay High Court in the case of Mrs Chhaya B. Parekh (supra) and hence the assessee is entitled for his claim of deduction u/s 54 F of the Act as claimed in the return of income filed with the Revenue.