2019 (1) TMI 1414 - HC - Income Tax

Nature of loss - capital loss or business loss - company in liquidation - assesssee claimed the same as business loss - Tribunal allowed the same as capital loss - Held that - the assessee having made investment and suffered losses in the process, had claimed such loss as a business loss. The Tribunal instead treated such loss on capital account and was urged to examine the alternative contention of the assessee that such loss in any case, would be recognized as a capital loss. The Tribunal merely accepted the same making reference to the decisions of the Supreme Court and also referring to Section 46(2) of the Act. No error in the view of the Tribunal. If the loss suffered by the assessee was treated as capital loss, there is nothing on record to hold that the assessee was not entitled to claim the same as such. Claim of the assessee would also get support from Section 46(2) of the Act. Section 46(1) of the Act provides that notwithstanding anything contained in Section 45, where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of Section 45. Disallowance of depreciation by adjusting the Written Down Value (WDV) of certain assets of the company - Held that - The assessee has pointed out that in any case, such adjustment was carried out in the subsequent year. The Tribunal noted that in the later year, the assessee had suomoto made necessary adjustment and reduced its cost of depreciable asset. The Tribunal, therefore, held that there would be no revenue loss. The Tribunal, therefore, while accepting the assessee s contention, directed the Assessing Officer to verify necessary facts before granting relief. We do not find any reason to interfere. The Revenue does not dispute that the assessee had made adjustment in the claim of its depreciable asset in the later year. In the later year, the Revenue having accepted such adjustment, enforcing such adjustment in the present year also may amount to taxation the same income twice. In any case, the Tribunal recorded the issue is remained neutral. No question of law arises. - Revenue appeal dismissed.

Summary

Issues:
1. Whether the Tribunal was right in allowing a sum of ?5,17,29,000 as a capital loss?
2. Whether the Tribunal was right in deleting disallowance of a claim under Section 80IA of the Income Tax Act, 1961?
3. Whether the Tribunal was right in deleting disallowance of depreciation of ?1.07 crores made by the Assessing Officer by adjusting the Written Down Value (WDV) of certain assets of the company?

Analysis:

1. The first issue revolves around the appellant's claim of ?5.17 crores as a business loss due to the diminishing value of shares in a company. The Tribunal rejected the claim, stating the loss was on a capital account. The appellant argued for the recognition of the loss as a capital loss, which the Tribunal accepted. The Tribunal's decision was supported by Section 46(2) of the Income Tax Act, 1961. The High Court found no error in the Tribunal's view, upholding the decision that the loss was a capital loss and the appellant was entitled to claim it as such.

2. The second issue concerns the deletion of disallowance of a claim under Section 80IA of the Income Tax Act, 1961. The Tribunal remanded the issue for fresh consideration by the Assessing Officer, as done in earlier years. The High Court noted that no question of law arose in this respect, as the issue was remanded for verification.

3. The third issue involved the rejection of a claim for depreciation of ?1.07 crores by the Assessing Officer, which was confirmed by the CIT(A). The appellant argued that the adjustment was made in a subsequent year, and the Tribunal observed that the appellant had adjusted the cost of depreciable assets in the later year, leading to no revenue loss. The High Court agreed with the Tribunal's decision, stating that the Assessing Officer needed to verify the facts before granting relief. The High Court found no reason to interfere, noting that the issue remained neutral, and no question of law arose. The appeal was dismissed accordingly.