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2023 (7) TMI 983 - AT - Income TaxImpairment loss - Loss claimed on disposal of fixed assets - said loss was calculated as prescribed in Accounting Standard AS-10 issued by the ICAI and accounting policy being consistently adopted by the assessee company - contention of the Revenue that the same is not allowable as per the provisions of section 41(2) - HELD THAT - Since the assessee itself has accepted that the claim of impairment loss on disposal of fixed assets which was calculated and accounted for according to the guidelines prescribed under the Companies Act, which are not binding while calculating the taxable income of the assessee under the provisions of the Income Tax Act, therefore, the observations of CIT(A), which are not factually correct that the entire block of asset has exhausted, is an erroneous finding not in concurrence with the actual facts of the case, wherein as per computation of total Income by the assessee the block is showing as in existence, is liable to be quashed. Consequently, the addition made by the AO stands confirmed. Since we are approving the findings of learned AO regarding disallowing the claim of the assessee for impairment loss, in the interest of justice, the entitlement of depreciation which should have been allowed to the assessee according to the provisions of section 32 of the Income Tax Act, is hereby directed to be allowed. Appeal of the Revenue is partly allowed for statistical purposes.
Issues Involved:
1. Deletion of addition on account of impairment loss. 2. Allowability of the impairment loss as Short Term Capital Loss. 3. Whether the assessee sold the block of assets or merely made an entry for impairment loss. 4. Contradiction with decisions of ITAT Kolkata Bench and Chennai Bench. 5. Acceptance of fresh evidence by CIT(A) without AO's examination. 6. Nexus between the conclusion of fact and primary fact. 7. Justification of CIT(A)'s order in law and facts. 8. Additional ground for higher depreciation claim. Summary: Issue 1: Deletion of Addition on Account of Impairment Loss The Tribunal examined whether the CIT(A) was justified in deleting the addition of Rs. 1,73,76,465/- made by the AO on account of impairment loss. The AO had added this amount back to the income, considering it a capital loss not allowable as a business loss. Issue 2: Allowability of the Impairment Loss as Short Term Capital Loss The Tribunal reviewed the CIT(A)'s decision to allow the impairment loss as a Short Term Capital Loss under Section 50 of the Act. The Revenue argued that the loss was not actual but notional, thus disallowable under Section 37 of the Act. The CIT(A) had found that since the entire block of assets was exhausted, the loss should be treated as a short-term capital loss. Issue 3: Sale of Block of Assets vs. Entry for Impairment Loss The Tribunal considered whether the assessee had sold the block of assets or merely made an entry for impairment loss. The Revenue contended that the loss was not real but a book entry based on a registered valuer's report, thus not allowable under Section 41(2) of the Act. Issue 4: Contradiction with ITAT Kolkata and Chennai Bench Decisions The Tribunal noted that the CIT(A)'s findings were contrary to the decisions of ITAT Kolkata Bench in M/s Empire & Singlo Tea Ltd. and ITAT Chennai Bench in DCIT II (I), Chennai vs. M/s Ennore Port Ltd., which did not allow impairment losses based on book entries. Issue 5: Acceptance of Fresh Evidence by CIT(A) The Revenue argued that the CIT(A) accepted fresh evidence without allowing the AO to examine it, violating Rule 46A of the IT Rules. The Tribunal did not find explicit details on this issue in the judgment. Issue 6: Nexus Between Conclusion of Fact and Primary Fact The Revenue claimed there was no nexus between the conclusion of fact and the primary fact upon which the CIT(A)'s decision was based. The Tribunal found the CIT(A)'s observation that the entire block of assets was exhausted to be factually incorrect. Issue 7: Justification of CIT(A)'s Order The Tribunal concluded that the CIT(A)'s order was erroneous, both in law and on facts, as the block of assets was still in existence as per the assessee's computation of total income. Issue 8: Additional Ground for Higher Depreciation Claim The Tribunal noted that the assessee had filed an additional ground for higher depreciation, which was later withdrawn and thus dismissed as not pressed. Conclusion: The Tribunal partly allowed the Revenue's appeal for statistical purposes, confirming the addition made by the AO and directing the AO to allow the depreciation entitlement as per Section 32 of the Income Tax Act. The cross objections filed by the assessee were dismissed. Order Pronounced: The order was pronounced in the court on 19/07/2023.
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