2020 (11) TMI 370 - AT - Income Tax

Revision u/s 263 - loss on sale of shares - HELD THAT - As during the assessment proceedings u/s 143(3) of the Act, vide notice u/s 142(1) AO had required the assessee to furnish the details of loss on sale of shares. The assessee vide letter dated 29.2.2016 had explained that the loss is on account of sale of shares and vide letter dated 14.3.2016, the circumstances under which such loss was incurred was explained. It appears that the AO has allowed the business loss claimed by the assessee only after considering the reply of the assessee. As held in a number of cases that the AO may not record anything in the assessment order if he was inclined to allow the claim of assessee. Therefore, non-mentioning of the reasons for allowing the claim, will not make the assessment order erroneous. To hold the assessment order to be erroneous it has to be stablished that the AO had not applied his mind to the facts of the case or that he has not applied the correct law or has not appreciated the facts correctly. Thus, the assessment order cannot be held to be prejudicial to the interests of the revenue on this issue. Set-off of unabsorbed depreciation from the income - unabsorbed depreciation of the partnership firm, the business of which has been taken over by the assessee in his individual capacity, which has been set off by the assessee from his income as an individual - Succession to business otherwise than on death - HELD THAT - Consequences on retirement of all the partners except one of a partnership firm is that the partnership firm gets dissolved because, for a partnership to exist, there has to be more than one partner. On retirement of all the partners except one, the partnership firm gets dissolved and if the sole partner carries on the business it becomes a proprietary concern. In view of the Section 32(2) of the Act, the unabsorbed depreciation becomes the depreciation of the current year of the business and the same is eligible for set off against the individual income of the assessee u/s 170 of the Act as he is the successor to the business. Capital gain Computation - application of Sec.50C - difference between the sale consideration received by the assessee and the SRO value - HELD THAT - In the case before us, it is the difference between the sale consideration received by the assessee and the SRO value. Sec.50C as it prevailed at that point of time, does not make any discount in respect of difference between the SRO value and the sale consideration received by the assessee. Therefore, order of CIT on the application of Sec.50C is confirmed. Short term capital loss claimed by the assessee against the sale of vehicle - As submitted submitted that the provisions of Sec.50 are applicable to this case and since the assessee has committed an error in the computation and the AO has not looked into it - HELD THAT - Having regard to rival contentions particularly the contention of the assessee that there is a mistake in the computation of income by the assessee in relation to the loss on sale of car, we deem it fit and proper to direct the AO to reconsider the issue in accordance with law. Assessee s appeal is partly allowed.

Summary

Issues Involved:
1. Revision of the original assessment order under Section 263.
2. Treatment of loss on sale of shares.
3. Set-off of unabsorbed depreciation.
4. Application of Section 50C regarding the sale of land.
5. Treatment of short-term capital loss on the sale of a vehicle.

Issue-wise Detailed Analysis:

1. Revision of the Original Assessment Order under Section 263:
The assessee appealed against the order of Pr.CIT-6, Hyderabad, which revised the original assessment order under Section 263 of the Income Tax Act, 1961. The Pr.CIT observed that the original assessment order was erroneous and prejudicial to the interests of the revenue. The Pr.CIT noted that the AO did not properly verify the sources for the introduction of capital and the large increase in unsecured loans. The Pr.CIT issued a notice under Section 264, and the assessee contended that the AO had verified all aspects mentioned in the show-cause notice.

2. Treatment of Loss on Sale of Shares:
The Pr.CIT observed that the assessee, engaged in the business of generation of energy, claimed a loss of ?8,95,97,600 on the sale of shares, which should have been treated as a capital loss under Section 45(2), instead of a business loss. The assessee argued that the shares were converted into stock-in-trade at book value during FY 2011-12 and sold in FY 2012-13, resulting in a business loss. The Pr.CIT held that the loss should be treated as a capital loss. However, the Tribunal found that the AO had considered the assessee's explanation during the assessment proceedings and allowed the business loss after due consideration. Therefore, the assessment order was not erroneous or prejudicial to the revenue's interests on this issue. The appeal on this ground was allowed.

3. Set-off of Unabsorbed Depreciation:
The Pr.CIT observed that the unabsorbed depreciation of ?5,47,59,555 claimed by the assessee was allowed by the AO without proper verification, even though the assessee had taxable income in the previous years. The assessee argued that the business of the partnership firm was taken over by the assessee in his individual capacity, and the unabsorbed depreciation should be allowed to be set off against the individual income under Section 170. The Tribunal agreed with the assessee, citing Section 32(2) and relevant case laws, and held that the unabsorbed depreciation could be set off against the individual income. The appeal on this ground was allowed.

4. Application of Section 50C Regarding the Sale of Land:
The Pr.CIT observed that the AO did not consider the provisions of Section 50C, which mandates that the difference between the sale consideration and the market value of the land should be brought to tax. The assessee argued that the difference was within 10%, and therefore, the provisions of Section 50C should not be applied. The Tribunal found that the AO did not examine this issue, making the assessment order erroneous and prejudicial to the revenue's interests. The Tribunal upheld the Pr.CIT's order on this issue.

5. Treatment of Short-term Capital Loss on the Sale of a Vehicle:
The Pr.CIT observed that the short-term capital loss claimed by the assessee on the sale of a car should have been reduced from the block of assets, and the loss cannot be claimed from the income. The assessee admitted a mistake in the computation and agreed that the loss should have been debited to the P&L account. The Tribunal directed the AO to reconsider the issue in accordance with the law, giving the assessee a fair opportunity of hearing.

Conclusion:
The Tribunal partly allowed the assessee's appeal, setting aside the Pr.CIT's order on the issues of loss on sale of shares and set-off of unabsorbed depreciation, while upholding the Pr.CIT's order on the application of Section 50C and treatment of short-term capital loss on the sale of a vehicle.