1984 (7) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of loss due to missing fixed assets under section 32(1)(iii) of the Income-tax Act, 1961.
2. Deduction of loss as a business loss under section 28(i) of the Income-tax Act, 1961.

Detailed Analysis:

1. Deduction of loss due to missing fixed assets under section 32(1)(iii) of the Income-tax Act, 1961:

The appellant, a company engaged in the manufacture of electrical instruments, claimed a deduction for a sum of Rs. 1,58,940, representing the value of fixed assets found missing during physical verification. The Income Tax Officer (ITO) disallowed this claim, classifying it as a capital loss. The appellant contended that the deduction was allowable under section 32(1)(iii) of the Income-tax Act, 1961, which pertains to depreciation on discarded, demolished, or destroyed assets. However, the Commissioner (Appeals) upheld the ITO's decision, stating that the assets were neither discarded, demolished, nor destroyed during the relevant year. The Tribunal agreed, noting that the assets were merely missing and not discarded, demolished, or destroyed, thus making section 32(1)(iii) inapplicable.

2. Deduction of loss as a business loss under section 28(i) of the Income-tax Act, 1961:

The appellant alternatively claimed the loss under section 28(i), arguing it as a business loss. The Commissioner (Appeals) rejected this claim, emphasizing that the loss was related to capital assets and not incidental to the business operations. The Tribunal concurred, referencing the auditors' report, which stated the inability to ascertain the cause of the loss. The Tribunal highlighted that the missing assets represented a capital loss, not a business loss. The decision in the case of Tata Iron & Steel Co. Ltd. was distinguished, as it involved a regular method of accounting for discarded assets, which was not applicable in the appellant's case. The Tribunal also referenced the Supreme Court's decision in Badridas Daga v. CIT, which delineated that losses must directly arise from business operations to be deductible under section 28(i). The Tribunal concluded that the loss was a capital loss, not allowable as a business loss under section 28(i).

Conclusion:

The Tribunal dismissed the appeal, affirming that the loss of Rs. 1,58,940 due to missing fixed assets was a capital loss and not deductible under sections 32(1)(iii) or 28(i) of the Income-tax Act, 1961.