2016 (6) TMI 968 - AT - Income Tax

Disallowance of loss claimed by the assessee on sale of assets - sale of assets was partly made to one of the sister concerns i.e. concern in which one of the partners had more than 33% share - business shut down - Held that - There are two aspects to the claim of loss by the assessee on sale of its assets. First of all, all these assets were used in chemical industry carried on by the assessee and had its wear and tear. Where the plant has been closed down by the assessee, the whole plant & machinery which was part of fixed assets owned by the assessee and was classified in the block of assets as plant & machinery had been disposed of by the assessee, partly, the assets have been sold to the sister concern and partly to the others. The first aspect of the issue is the sale price of assets which was received by the assessee which has been declared under section 50 of the Act. We find no merit in the orders of authorities below in not accepting the sale value shown by the assessee in the absence of any evidence found to the contrary that the sale value shown by the assessee in its books of account was understated and not correct. The said sale value cannot be disturbed. Further, the assessee has sold the total plant & machinery and while computing income / loss under section 50 of the Act, since each asset under the head plant & machinery forms part of block of assets, the WDV of the whole block is to be considered for computing short term capital loss in the hands of assessee. In this regard, we find no merit in the objections of Assessing Officer that where the assessee has failed to give break up of WDV of assets sold, the said claim cannot be allowed to the assessee. Reversing the order of CIT(A), we direct the Assessing Officer to allow the short term capital loss of ₹ 8,03,896/- in the hands of assessee. - Decided in favour of assessee

Summary

Issues:
Disallowance of short term capital loss on sale of assets.

Analysis:
The appeal was filed against the order of CIT(A)-V, Pune, regarding the disallowance of short term capital loss on the sale of assets for assessment year 2007-08 under section 143(3) of the Income-tax Act, 1961. The assessee raised several grounds of appeal challenging the disallowance of the claimed loss. The main contention was that the loss claimed on the sale of assets was genuine and should not have been disallowed. The Assessing Officer disallowed the short term capital loss as the assessee had not obtained a valuation report before selling the assets, alleging that the assets were sold at a throwaway price. The CIT(A) upheld the disallowance, stating that the assessee failed to provide evidence supporting the market price of the assets sold. The appeal focused on the addition of ?8,03,896/- on account of the disallowed loss claimed by the assessee on the sale of assets.

The assessee, a chemical manufacturer, sold plant & machinery during the relevant year, declaring income from business and capital gains. The Assessing Officer contended that the assets were sold to a sister concern without a valuation, leading to the disallowance of the claimed short term capital loss. The CIT(A) supported this decision, emphasizing the lack of asset valuation and the significant portion of assets sold to entities related to a partner of the assessee. The Authorized Representative argued that the sale was legitimate, emphasizing the continuous use of assets in manufacturing activities and challenging the application of market value principles to related-party transactions.

The Tribunal analyzed the sale price of the assets and the computation of short term capital loss under section 50 of the Act. It found no basis to reject the sale value declared by the assessee, noting the absence of evidence contradicting the declared value. The Tribunal disagreed with the Assessing Officer's stance that the lack of a detailed WDV breakdown of assets sold justified disallowance. Consequently, the Tribunal allowed the appeal, directing the Assessing Officer to accept the short term capital loss claimed by the assessee. The decision was made on May 20, 2016, in favor of the assessee, overturning the previous disallowance of the claimed loss on the sale of assets.