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TMI Blog1986 (5) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... finance charges of Rs. 52,500 and the insurance payable for the second, third and fourth years of Rs. 7,500. The assessee derived income from this lorry for the assessment years 1977-78 and 1978-79. This lorry was sold on 1-4-1978 for Rs. 1,15,000 and out of this Rs. 22,400 was received in cash and the balance of Rs. 92,600 was to be paid by the purchaser towards the outstanding loan, finance charges and insurance under the above hire-purchase agreement. The written down value of the lorry was as on 1-4-1978 was Rs. 56,458. The assessee returned Rs. 25,362 as profit under section 41(2) of the Income-tax Act, 1961 ('the Act') as under : Rs. "Sale proceeds 1,15,000 Les ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 30 to 43 of the Act will be applicable and the expenses claimed would be admissible under section 37. In this connection he relied on the decisions in CIT v. Official Liquidator, New Era Mfg. Co. LTd. [1977] 109 ITR 262 (Ker.) and CIT v. Rampur Timber Turnery Co. LTd. [1973] 89 ITR 150 (All.). Alternatively it was urged that out of the sale proceeds of Rs. 1,15,000 the assessee received only Rs. 22,400 in cash and the balance of Rs. 92,600 was adjusted by the purchaser towards balance of the hire-purchase loan including finance charges and insurance of Rs. 33,180 and hence the sale proceeds were only Rs. 81,820 and, therefore, the assessee was entitled to the deduction of Rs. 33,180. The AAC, by applying the principles enunciate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AAC the revenue preferred the present appeal. 4. The arguments of the departmental representative were to the following effect : The AAC erred in holding that the insurance and finance charges amounting to Rs. 33,180 were to be deducted from the profit assessable under section 41(2). As there is no provision to deduct such expenses from the profit under section 41(2) he ought to have confirmed the assessment. He ought to have found that since the lorry was sold on the first day of the accounting year the assessee was not liable to pay any such charges. The non-existent liability was not deductible from the profit computed under section 41(2). He erred in holding that the actual consideration received by the assessee was only Rs. 81,82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to staff) for the discontinued business. Here in the present case the lorry was sold on 1-4-1978, i.e., the first day of the accounting year relevant to the assessment year under appeal. The assessee has not incurred any expenditure towards finance charges and insurance. The assessee is claiming deduction for these expenses on the ground that these expenses would have been payable if the business were to be continued in the year of account. Since the Explanation deems the business to the in existence in the previous year, the assessee contends that these expenses relating to finance charges and insurance should be allowed against the balancing charge deemed as business income of the year. But this argument of the assessee is not tenable f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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