2014 (5) TMI 467 - AT - Income Tax

Disallowance of assets written off depreciation has been claimed on those assets in the past - The auditors categorized the amount under the head assets written off and classified it under capital nature Held that - CIT(A) was of the view that the schedule of fixed assets annexed with the B/sheet that the assets which has been written off are depreciable assets and depreciation has been claimed on those assets in the past and allowed and the amount of deficiency/ difference is written off in the books of accounts by the assessee company during the year under question which is clearly allowable u/s 32(ii)/ iii of the Act AO has not doubted the fact that assessee had to vacate the premises due to expiry of lease and closure of business - premises were to be vacated, the question of any portion of block of assets remaining with the assessee does not arise - the disallowance has been made after accepting the loss but on the ground that the claim of the assessee is capital in nature, therefore what is to be decided is whether the CIT(A) was correct in holding that the amount was allowable to the assessee in view of the clear provisions of sec. 32(1)(ii)/(iii). There was no infirmity in the order of CIT(A) - the claim of the assessee clearly falls within the scope of sec. 32(1)(iii) - The part of the amount realized by the assessee has been offered to tax - The balance of the amount pertaining to the block had no realizable value, has not been disputed by the assessing officer - The difference is allowable u/s 32(1)(iii) AO has not doubted the genuineness of the claim and disallowed it only holding the loss to be capital in nature - part of the sale proceeds have been accepted and there is no allegation that the assessee s business was not conducted in this year the order of the CIT(A) upheld Decided against Revenue.

Summary

Issues:
Revenue's appeal against deletion of addition made on account of disallowance of assets written off.

Analysis:
The case involved an appeal by the revenue against the deletion of an addition made on account of disallowance of assets written off. The appellant, a public limited company listed on the Bombay Stock Exchange, had filed a return declaring a loss for the assessment year in question. The assessing officer disallowed an amount of Rs. 71,12,659/- claimed by the appellant on the grounds that it was of capital nature. The appellant contended that the assets were not capable of sale and had no realizable value, leading to the write-off in the books of accounts and the debiting to the Profit and Loss account.

The assessing officer's disallowance was based on the categorization of the amount under "assets written off" by the appellant's auditor, indicating a capital nature. However, the Commissioner of Income Tax (Appeals) found merit in the appellant's explanation. The CIT(A) held that the amount written off was allowable under Section 37 of the Income Tax Act, as it was not of capital nature and was a business expenditure. The CIT(A) also noted that the assets in question were depreciable assets on which depreciation had been claimed and allowed in the past.

The CIT(A) referred to relevant provisions of the Act and case law to support the decision to delete the addition. The appellant argued that the assessing officer had not disputed the fact that the assets were part of the block of assets and that the loss was incurred due to circumstances beyond the appellant's control. The appellant relied on specific provisions of Section 32(1)(iii) to support the claim for the write-off. The Tribunal upheld the CIT(A)'s order, noting that the claim fell within the scope of Section 32(1)(iii) and that the assessing officer had not raised doubts on the genuineness of the claim. The Tribunal dismissed the revenue's appeal, affirming the deletion of the addition made by the assessing officer.

In conclusion, the Tribunal upheld the decision of the CIT(A) to delete the addition of Rs. 71,12,659/-, finding that the claim of the appellant was allowable under the provisions of the Income Tax Act and was not of capital nature. The Tribunal dismissed the revenue's appeal, pronouncing the order in open court on 25-04-2014.