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Issues Involved:
1. Applicability of Section 41(1) of the Income-tax Act, 1961. 2. Applicability of Section 41(2) of the Income-tax Act, 1961. 3. Assessee's claim for depreciation. 4. Assessee's claim for short-term capital loss. Issue-wise Detailed Analysis: 1. Applicability of Section 41(1) of the Income-tax Act, 1961: - The first condition for the applicability of Section 41(1) is that a deduction or allowance should have been made in the assessment for any year in respect of loss, expenditure, or trading liability incurred by the assessee. - The liabilities amounting to Rs. 5,79,14,487 represent deposits obtained by the assessee from customers, agents, and distributors (Rs. 5,28,47,771) and current liabilities (Rs. 50,68,951). There was no deduction or allowance granted in any previous year for these liabilities. - The second condition is that the assessee should have obtained some benefit in respect of the trading liability by way of remission or cessation thereof. In this case, the liabilities have not ceased but have been transferred to the Central Government to be discharged. - Since both conditions are not satisfied, Section 41(1) is not applicable. 2. Applicability of Section 41(2) of the Income-tax Act, 1961: - Section 41(2) applies when any building, machinery, plant, or furniture owned by the assessee and used for business is sold, including compulsory acquisition by the Government, and the moneys payable exceed the written down value. - The business of bottling and marketing of L.P. Gas was compulsorily acquired for a slump price, with no individual price fixed for any item of building, plant, machinery, or furniture. - The compensation of Rs. 10,000 represents a symbolic amount for taking over the business as a going concern, not for individual assets. - The sale of the business as a whole for a slump price means no individual item of building, plant, machinery, or furniture is transferred for a particular price, making the computation provision under Section 41(2) unworkable. - The Income-tax Officer did not attribute any amount towards the price of any individual item of assets, and no attempt was made to fix even a notional price for individual assets. - Consequently, no balancing charge under Section 41(2) could be levied. 3. Assessee's Claim for Depreciation: - The assessee claimed depreciation amounting to Rs. 1,10,793 on buildings owned and used by the assessee, which was disallowed by the Income-tax Officer. - The Commissioner of Income-tax (Appeals) did not consider this claim, and the matter is restored to the Commissioner of Income-tax (Appeals) for consideration and decision in accordance with the law. 4. Assessee's Claim for Short-term Capital Loss: - The assessee claimed a short-term capital loss of Rs. 2,39,71,106 on the transfer of the L.P. Gas business as a slump sale, which was disallowed by the Income-tax Officer. - The Commissioner of Income-tax (Appeals) did not consider this claim, and the matter is restored to the Commissioner of Income-tax (Appeals) for consideration and decision in accordance with the law. Conclusion: - The departmental appeal is dismissed. - The assessee's cross-objections are allowed for statistical purposes, with the matters of depreciation and short-term capital loss restored to the Commissioner of Income-tax (Appeals) for further consideration.
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