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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 ..... lakh, 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 : &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------ ------- Profits under section 41(2) 25,362" ------- The ITO assessed the profit under section 41(2) at Rs. 58,542 thereby disallowing Rs. 33,180 on the ground that since the vehicle was not used by the assessee for the purpose of the business during the year, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was entitled to the deduction of Rs. 33,180. The AAC, by applying the principles enunciated on Official Liquidator, New Era Mfg. Co. Ltd.'s case, concluded that the assessee's claim for the deduction had to be accepted since in the assessee's case also the profit under section 41(2) had to be treated as business income and the expenses claimed, viz., finance charges and insurance, will be expenses admissible under section 37. But the AAC observed that difficulty will arise in quantifying the amount admissible for this year since the sum of Rs. 33,180 represented the finance charges and the insurance which was for more than one year. Hence, he considered the alternative plea of the assessee. The AAC noted that the total sale value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2). He erred in holding that the actual consideration received by the assessee was only Rs. 81,820. As sale was for Rs. 1,15,000, whether any portion of it was retained with the purchaser or not, the assessee should be deemed to have received the entire amount on the date of sale. Hence, the profit under section 41(2) was to be computed on that basis. In the decision in Official Liquidator, New Era Mfg. Co. Ltd.'s case, there was no dispute about the computation of profit under section 41(2). The expenses claimed in the instant case relate to the period after the sale. The sale price agreed was not affected as to how it was paid and as to whom it was to be paid. 5. The assessee's counsel reiterated the arguments as advanced before the AAC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge deemed as business income of the year. But this argument of the assessee is not tenable for the reason that the assessee has not incurred any expenditure on these two heads up to the date of sale in the year of account. The case relied on by the assessee, i.e., Official Liquidator, New Era Mfg. Co. (P.) Ltd.'s case is distinguishable. In that case the unabsorbed depreciation of the earlier years was allowed to be set off against the profits computed under section 41(2) because the balancing charges under section 41(2) was, by the legal fiction, treated as business income. That case did not deal with the expenditure incurred or expenditure which would have been incurred in the year of account. 6.1 In the case of CIT v. Bharat Lines L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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