2021 (3) TMI 320 - AT - Income Tax

Loss on sale of depreciable assets - Disallowance of short term capital loss on sale of machinery and short term capital loss on sale of furniture - AR submitted that the assessee was engaged in the business of sale and supply of marble tiles which was discontinued since last 3-4 years and there is no business activity during the year under consideration - HELD THAT - No finding of the AO regarding the claim of short term capital loss in the assessment proceedings and only during the remand proceedings, the matter was examined by the AO wherein the assessee submitted that since it has sold land and building, it has also sold old plant and machinery, and furniture. AO in his remand report thereafter stated that the claim of the assessee is not verifiable and hence, not acceptable. We therefore find that the AO had some apprehension about the value of such plant and machinery and furniture and in order to verify the same, had issued the summons to the purchaser, however due to death of the purchaser, the sale consideration could not be verified. However, he has not disputed the fact that such assets have been found recorded in the assessee s books of accounts as on the beginning of the year and have since been disposed off way back in 2008, therefore, mere apprehension cannot be a basis to deny the fact that these assets have been sold at the stated consideration as evidenced by the sale receipts. Similarly, the findings of the ld CIT(A) that no evidence for sale of plant and machinery was brought on record is incorrect as the assessee has submitted the sale receipts in support of such transactions which have infact been taken on record by the ld CIT(A) and sent for AO s comments and verification. Lastly, non-filing of the return of income by due date can be basis for denial of claim for carry forward of losses as per section 139(3) of the Act, therefore, in the instant case, where admittedly and undisputedly there is no such claim by the assessee in terms of carry forward of such losses on account of sale of plant and machinery and furniture, the reasoning adopted by the ld CIT(A) is not sustainable as the same is not in accordance with law. In the result, the AO is directed to allow the claim of short term capital loss on sale of plant and machinery and furniture for being set off against other income as per provisions of law for the impugned assessment year. Appeal of the assessee is allowed.

Summary

Issues:
1. Discrepancy in sale consideration amount.
2. Disallowance of short term capital loss on sale of machinery.
3. Disallowance of short term capital loss on sale of furniture.
4. Disallowance of improvement in building amount.

1. Discrepancy in Sale Consideration Amount:
The assessee appealed against the order of the ld. CIT(A) regarding the sale consideration amount. The ld. AR mentioned that the assessee did not press Ground Nos. 1 and 4 of the appeal, leading to their dismissal. The focus was on Ground Nos. 2 and 3 challenging the disallowance of short term capital loss on the sale of machinery and furniture. The assessee provided details of the sale values and short term capital losses claimed, emphasizing the business discontinuation and losses incurred. The ld. CIT(A) examined the evidence presented, including receipts from the purchaser, but raised concerns over the lack of evidence of sale of old machinery and furniture. The AO's remand report highlighted issues with verifying the sale receipts due to the purchaser's demise. The ld. AR argued against the disallowance, citing the verifiability of opening WDV and sale evidence. Ultimately, the Tribunal directed the AO to allow the short term capital loss claims on machinery and furniture for set off against other income.

2. Disallowance of Short Term Capital Loss on Sale of Machinery and Furniture:
The dispute revolved around the disallowance of short term capital loss on the sale of machinery and furniture. The ld. AR contended that the assessee had sold these assets along with land and building due to business losses. The ld. CIT(A) questioned the lack of evidence for the sale of old machinery and furniture, leading to the disallowance. The ld. DR supported the lower authorities' decision, emphasizing the absence of proof of sale and failure to file returns on time. The Tribunal noted the AO's apprehensions regarding the sale value verification due to the deceased purchaser but highlighted the assets' recording and disposal as per the books of accounts. The Tribunal found the ld. CIT(A)'s reasoning flawed, especially regarding the evidence submitted and the non-applicability of late filing consequences. Consequently, the Tribunal directed the allowance of the short term capital loss claims for the relevant assessment year.

3. Disallowance of Improvement in Building Amount:
No specific details or analysis were provided in the judgment regarding the disallowance of the improvement in building amount. Hence, no detailed analysis or outcome is available for this issue.

This judgment from the Appellate Tribunal ITAT Jaipur addressed discrepancies in sale consideration amounts, the disallowance of short term capital loss on the sale of machinery and furniture, and the disallowance of improvement in building amount. The Tribunal allowed the appeal, directing the AO to permit the short term capital loss claims on machinery and furniture for set off against other income, highlighting the importance of verifiable evidence and correct application of legal provisions.