AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 246
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....the action of the Assessing Officer in disallowing the appellant's claim for deduction of a sum of Rs. 2,73,866 being bad Other Current Assets written off in its profit & loss A/c for the year under consideration. 3. That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in not appreciating that the aforesaid amounts of Rs. 4,15,63,688 and Rs. 2,73,866 written off in its Profit & Loss A/c represent trading loss incurred by the appellant in the course of carrying on its business and are thus deductible under section 28 of the Income-tax Act, 1961 while computing its total income for the subject year. 4. That the appellant craves leave to add to and/or amend, alter, modify or rescind the grounds hereinabove before or at the hearing of the appeal." 3. The Assessee is a company engaged in the business of manufacturing and sale of various industrial and medical gases. The Assessee claimed deduction of a sum of Rs. 4,15,63,688 on account of bad advances written off and another sum of Rs. 2,73,866 on account of Bad other current assets written off. The Assessee explained the nature of the aforesaid sums written off in the books of accounts and claim....
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....legally to be treated as a part of the trading loss and is deductible as such under the provisions of Section 28 of the Income Tax Act in arriving at the true profits. 4. The AO did not dispute the fact that the loss in question was directly connected with the business operations and incidental to the carrying on of the business of the Assessee. According to him such losses could be allowed only when the amounts written off as loss have become irrecoverable. He was of the view that the Assessee had written off these losses in the books of accounts only for the reason of lack of information and non-availability of old records and therefore the loss in question cannot be allowed. He was of the view that the loss in question had occasioned owing to negligence of the Assessee and poor record keeping and cannot therefore be considered as incidental to the carrying on of business. The deduction claimed was not allowed by the AO. 5. On appeal by the Assessee the CIT(A) confirmed the action of the AO agreeing with the reasons given by the AO for not allowing the claim of the Assessee for deduction of the loss in question. Aggrieved by the order of the CIT(A), the Assessee is in appeal be....
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....hat the Ghatkopar unit of the Assessee was sold during the previous year due to several problems including labour problems and the advances and expenses written off related to this unit and this unit remained closed for a long time prior to its closure. We are satisfied that on the facts as pleaded by the Assessee before the AO which were not controverted by the AO/CIT(A), the loss in question was incidental to the business of the Assessee. The reason assigned by the AO was that there was negligence on the part of the Assessee in not keeping proper records and this fact influenced his decision in not allowing the claim of the Assessee. In our view once the fact that the loss is incidental to Assessee's business is accepted than the strict evidence of irrecoverability of the losses in question cannot be insisted upon. The circumstances of the case show that the Assessee made a provision in the books of accounts in the year 2000 and claimed the loss only in the year 2004. The company after review of the books of accounts and after due diligence and discussion with the statutory auditors came to the conclusion that detailed reconciliation and accounting adjustments of these advances w....
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....ffect offering to tax the amount of Rs. 1,029,375/- in the subsequent financial year." 12. On the above facts, the question before the AO was as to whether the sum of Rs. 10,29,375 which was excess liability claimed in the present Assessment year can be allowed as a deduction. The AO was of the view that the amount of Rs. 10,29,375 was not a liability of the Assessee during the previous year relevant to AY 04-05 and therefore ought not to have been claimed as a deduction in AY 04-05. The discounting with Citi Bank NA took place on 22.10.2003 and as on that date the Assessee ought to have written back the sum of Rs. 10,29,375 which was liability provided in excess in the books of accounts. He therefore disallowed a sum of Rs. 10,29,375. 13. On appeal by the Assessee, the CIT(A) allowed the claim of the Assessee observing as follows: "I have gone through the documents submitted by the appellant in regard to the reversal made in the books in the subsequent financial year of the excess amount of Rs. 10,29,375/- provided. I have also perused the assessment order of the subsequent assessment year, i.e. 2005-06 and found that the amount of Rs. 10,29,375/- has been offered to tax by th....
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.... the facts." 16. The facts relevant for decision on ground no.2 are the Assessee had a factory at Ghatkopar which was situated at Lal Bahadur Shastri Marg, Ghatkopar, Greater Mumbai. This was closed down on 1/4/1999. There was no ongoing business activity & the factory was not in operation. Subsequently the Assessee decided to sell the Ghatkopar land to Kalpataru Homes Ltd and entered into an Agreement for Development dated 31st October 2003 whereby the land at Ghatkopar was transferred to Kalpataru Homes Limited for a total consideration of Rs. 305,000,000/- (Rupees Thirty crores fifty lacs only). No other assets or liabilities of the erstwhile Ghatkopar factory were transferred to them. The old scrqapped and junded plant & machinery, furniture & fixtures & stores items lying in the said Ghatkopar property were removed & disposed off for a consideration of Rs. 5,480,769/- to M/s Asiad Trading & Mfg. Co., Santacruz, Mumbai. This amount was grouped, together with sale of various scrap materials (other than relating ot Ghatkopar property) and considered as income aggregating to Rs. 5,486,966/- under the head 'Miscellaneous Income' in the accounts and offered to tax also. According ....
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.... be regarded as assignment of values to individual assets or liabilities." "50B: Special provision for computation of capital gains in case of slump sale. (1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place : Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the date of its transfer shall be deemed to be the capital gains arising from the transfer of short-term capital assets. (2) In relation to capital assets being an undertaking or division transferred by way of such sale, the "net worth" of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 and no regard shall be given to the provisions contained in the second proviso to section 48. (3) Every assessee, in the ....
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....documents submitted by the appellant, that the old scrapped & junked items of plant & machinery, furniture & fixtures and stores items of the erstwhile Ghatkopar unit were sold to a third party and not to Kalpataru Homes Limited. Accordingly, the consideration of Rs. 30,50,00,000 does not include amount of Rs. 54,80,769/- received from M/s. Asiad Trading & Mfg. Co. Towards sale of old scrapped & junked items of plant & machinery, furniture & fixtures and stores items, as held by A.O. The action of the appellant in not reducing such sale proceeds of Rs. 54,80,769/- from the W.D.V. of the block of capital assets is not detrimental to revenue, as the appellant ahs offered the entire sale proceeds of Rs. 54,80,769/- to tax under 'business income'. More importantly, from the facts of the appellant's case it is abundantly clear that no business activity was carried on at the Ghatkopar premises at the time of sale in October 2003. The factory was closed w.e.f. 1/4/99 and the appellant was not claiming any income-tax depreciation also on the capital assets thereafter. Based on the facts & circumstances of the appellant's case, the A.O. was not correct in considering the sale of Land to Kal....