2013 (1) TMI 44 - HC - Income Tax

Loss on written down value of fixed assets - assets got vested in Nigerian company due to certain restrictions imposed by the Government of Nigeria - a capital loss or trading loss? - Held that - The impugned order passed by the Tribunal allowing the claim of bad debt does not speaks about the core issue that how there exists an element of bad debt in whole of the transaction. Tribunal has not decided as to for what reasons the reasons given by the appellate authority ware found to be wrong and virtually it is a nonspeaking order deciding nothing. This appeal is allowed on this ground as Tribunal has not applied its mind to the question referred which should be answered by the Tribunal. Therefore the matter is remanded to the Tribunal back to decide the appeal in accordance with law after considering the reasons given by the appellate authority as well as submissions made by both the parties by giving reasons.

Summary

Issues:
Whether the loss of Rs.8,35,483/-, representing the written down value of fixed assets of the assessee company vested in a Nigerian company due to government restrictions, is a capital loss or trading loss.

Analysis:
The High Court observed that the core issue of whether the loss in question was a capital loss or trading loss had not been properly decided in the impugned order by the Tribunal. The Assessing Officer had made additions to the assessee's claim of bad debt amounting to Rs.2,28,57,374/-. The assessee's contention was that assets and liabilities were vested in a Nigerian company as per the Federal Decree, leading to the claimed bad debt. However, the Assessing Officer noted discrepancies and disallowed the bad debt claim. The Commissioner of Income Tax (Appeals) held that the claim could not be considered as bad debt but as a trading loss under section 29 of the Income Tax Act. The appellate authority allowed relief for trading loss but not for the written down value of fixed assets.

The Tribunal considered the issue of alleged bad debt due to the acquisition of assets by the Nigerian company. The Tribunal's order was criticized for being non-speaking and not providing reasons for disagreeing with the appellate authority. The High Court allowed the appeal, setting aside the Tribunal's order and remanding the matter back to the Tribunal for a proper decision. The Tribunal was directed to consider the reasons given by the appellate authority and the submissions of both parties, with a mandate to decide the appeal within six months.

In conclusion, the High Court found that the Tribunal had not adequately addressed the crucial question of whether the loss should be treated as a capital loss or trading loss. The matter was remanded back to the Tribunal for a fresh decision, emphasizing the need for a reasoned judgment based on the submissions and applicable legal provisions.