2001 (1) TMI 201 - AT - Income Tax

Appeal partly allowed; deletion of addition on capital gain; disallowance of car expenses, unexplained credit, and depreciation upheld.

Industrial Machinery Associates. Versus Commissioner Of Income Tax.

The appeal was partly allowed, with the deletion of the addition of Rs. 1,02,97,689 on account of short-term capital gain on the sale of the business ... Capital Gains, Chargeable As Issues Involved:1. Addition of Rs. 1,02,97,689 on account of short-term capital gain on the sale of business undertaking.2. Disallowance of 1/5th of car expenses.3. Addition of Rs. 6,500 u/s 68 for unexplained credit.4. Disallowance of depreciation claim of Rs. 3,32,951.Summary:1. Addition of Rs. 1,02,97,689 on account of short-term capital gain on the sale of business undertaking:The assessee sold its entire business undertaking as a going concern for a slump price of Rs. 1.25 crores. The Assessing Officer computed short-term capital gain of Rs. 1,02,97,689 based on the net asset value. The CIT(A) upheld this computation. The assessee argued that the transaction, being a slump sale, should be beyond the purview of taxation u/s 45, as section 50B, introduced w.e.f. 1-4-2000, was not applicable for the assessment year 1993-94. The Tribunal held that section 50B is prospective and does not apply to the assessment year 1993-94. It was further held that the computation provisions under section 48 fail in the case of slump sale as the essential elements like cost of acquisition and date of acquisition are not ascertainable. Therefore, no capital gain is exigible u/s 45, and the addition of Rs. 1,02,97,689 was deleted.2. Disallowance of 1/5th of car expenses:No arguments were addressed on this ground. The disallowance upheld by the CIT(A) was found to be fair and reasonable and was confirmed. This ground was dismissed.3. Addition of Rs. 6,500 u/s 68 for unexplained credit:The CIT(A) confirmed the addition on the ground that no confirmation from the creditor was furnished. The assessee merely filed a copy of the account signed by the son of the assessee. No arguments were addressed before the Tribunal on this ground. The Tribunal saw no reason to interfere with the conclusion of the CIT(A) on the issue.4. Disallowance of depreciation claim of Rs. 3,32,951:The claim of depreciation was disallowed by the revenue authorities as the entire block of assets had been sold during the year, and there was no occasion for allowing any depreciation to the assessee. The assessee's representative conceded the position before the CIT(A). This ground was dismissed.Conclusion:The appeal was partly allowed, with the deletion of the addition of Rs. 1,02,97,689 on account of short-term capital gain, while the other grounds were dismissed.