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TMI Blog2008 (7) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... 398. The assessee computed indexed cost of various assets separately which total altogether to Rs. 44,16,775. The assessee accordingly claimed a long term capital loss of Rs. 38,21,786 and short-term capital loss of Rs. 14,607. The entire loss of Rs. 38,36,393 has been claimed to be carried forward to the next year. 4. The Assessing Officer did not accept the assessee s contention. He noticed that the assessee had claimed 100 per cent deduction amounting to Rs. 21,25,398 in respect of these assets in the years of purchase under section 35(1)( iv ) of the Act. The Assessing Officer was of the view that the cost of the assets has already been allowed to the assessee in the year of purchase under section 35(1)( iv ) of the Act, therefore there is no question of considering the same again for the purpose of taxing the sale proceeds by way of capital gain, etc. The CIT(A) after considering the assessee s submission observed that the procedure for computation of income from "profit and gains from business and profession" has been laid down in sections 30 to 43D of the Act and section 41(3) therefore falls under these provisions. Once any income is computed as per provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for the purpose of computation of capital gains chargeable to tax, the provisions of section 48 would apply and the assessee would be eligible for the benefits of indexation mentioned therein. The learned AR further submitted that the assessee is not claiming double deduction as regards the cost of the assets as sections 45 to 55A and sections 28 to 44 operate in totally different fields of income. The scope of both the sections is different and both are applicable to different natures of income. The learned AR submitted that deduction allowed under section 35(1)( iv ) ought not to be equated with the reduction of cost from the sale value. Deduction under section 35(1)( iv ) is a special deduction allowed, even in respect of capital expenditure to promote the scientific research activities in India. Whereas the reduction of cost from the sales value on the asset is for the purposes of determining the income chargeable to tax under the head capital gains . The learned AR submitted that claim of the assessee for carry forward of loss on sale of scientific research assets may be allowed. The alternate submission of the AR is that if it is assumed that the cost has been allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Chapter III-E is related to capital gain. The provisions of section 45 of that Chapter are attracted if the following conditions are satisfied:- ( i )There exists a capital asset ( ii )There is effected transfer of such asset during the previous year ( iii )There shall arise profits and gains from such transfer. 8.1 Section 48 provides for mode of computation of income chargeable under the head capital gain . It provides that such income shall be computed by deducting expenditure incurred in connection with transfer and cost of acquisition and improvement of the asset from the full value of consideration arising as a result of transfer of the asset. The cost of acquisition for the purpose of section 48 as is generally understood in the common parlance is the price paid for the acquisition of an asset. If the cost of acquisition of an asset is the price paid by the assessee that amount has to be allowed as deduction under the main provisions of section 48 of the Act. It has to be allowed at a higher amount as an indexed cost of acquisition by virtue of the second proviso to section 48, which reads as under: "Provided further that where long-term, capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance. However section 41(2) has been reinserted by the Finance (No. 2) Act, w.r.e.f 1-4-1998. The provisions relating to balancing charges and capital gain at that time can be clearly understood by following example : "Suppose, A imported a machine at a cost of Rs. 1,00,000. During the years A used it for his business, he had been allowed a depreciation totalling to Rs. 36,000. Its written down value is Rs. 64,000. At such a time, A sells it for Rs. 1,60,000. The gross surplus Rs. 1,60,000 minus Rs. 64,000 i.e. Rs. 96,000 is bifurcated into ( i ) depreciation actually allowed, Rs. 36,000 and ( ii ) the further surplus, Rs. 60,000. Thus, Rs. 36,000 shall be includible in A s total income as balancing charge under section 41(2), and Rs. 60,000 shall be includible as capital gains under section 45 (quoted with approval in Ahmedabad Cotton Mfg. Co. Ltd. v. CIT [1974] 95 ITR 639, 646-47 (Guj.)." 8.5 The Apex Court in the case of CIT v. Urmila Ramesh [1998] 230 ITR 422 while deciding issue pertaining to deemed dividend and accumulated profits considered section 41(2) observing as under: "It will be appropriate to first consider whether section 41(2) of the Act contains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on allowed such amount is called balancing charge and the same was treated as income from business. In case sale consideration is more than the cost of asset that excess was subject to capital gain under section 45 of the Act. 8.7 Provisions in respect of sale of assets used for scientific research provided in section 41(3), which is similar to the section 41(2). Section 41(3) reads as under:- "Where an asset representing expenditure of a capital nature on scientific research within the meaning of clause ( iv ) of sub-section (1), [or clause ( c ) of sub-section (2B),] of section 35, read with clause (4) of section 43, is sold, without having been used for other purposes, and the proceeds of the sale together with the total amount of the deductions made under clause ( i ) [or, as the case may be, the amount of the deduction under clause ( ia )] of sub-section (2), [or clause ( c ) of sub-section (2B),] of section 35 exceed the amount of the capital expenditure, the excess or the amount of the deductions so made, whichever is the less, shall be chargeable to income-tax as income of the business or profession of the previous year in which the sale took place." 8.8 The reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ationship to the nature of the charge. The charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrity of the statutory scheme provided for each head. 8.10 The point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When there is a case to which the computation provision cannot apply such case does not fall within the charging section. Section 45 of the Act is charging section and section 48 of computation. In the case under consideration, the assessee sold assets for Rs. 6,20,971 of which cost was 21,25,398. The cost has been claimed as deduction under section 35( iv ). According to the formula laid down in section 41(3) that the income chargeable as business income is Rs. 6,20,971. Sale consideration is not exceeding the cost of the assets. Section 41(3) [is an] overriding section according to which sale consideration to the extent of cost of asset or to the extent of deduction allowed under section 35 is to be considered according to that section 41(3). Whatever the sale consideration received has been observed in section 41(3) itself ( sic ). There is no full consideration which can be considered for the purpose of computation of capital gain. Since there is no full consideration exists, like-wise there is no existence of cost; therefore capital gain cannot be computed. Where capital cannot be computed, charging section 45 is not applicable. In cases like under consideration, section 45 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lized in excess thereof was capital gain and on its distribution it could be taxed as deemed dividend. We do not think that learned counsel can be permitted to raise this contention for the first time in this court especially when the questions of law, as referred, do not cover this aspect of the case at all. In any event as this amount has already been assessed in the hands of the company, obviously the same amount cannot also be regarded as capital gains. In other words, both section 41(2) and section 50 of the 1961 Act cannot apply to the same amount." 8.15 In the case under consideration, the assessee claimed cost index benefit while calculating capital gain under section 48 without having any part of sale consideration subject to tax under section 45. Thus, the assessee has claimed notional loss. The situation can also be on reverse side where instead of notional loss there may be notional profit. On acceptance of assessee s claim of loss then on the same basis when there is a notional profit on account of indexations the same is required to be accepted for the purpose of capital gain, such situation is not in accordance with law. Under the Income-tax Act neither notional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for more than three years as they are not recoverable or time barred hence, the assessee has written off the same in the books of account as bad debts. He further submitted that certain balances were in the nature of advances to the staff and the same were written off as the company could not recover the same as they left the services. Some of the small amounts were advances given in the normal and ordinary course of business. These amounts are not recoverable due to either lapse of time or the smallness of the amount. The ld. AR further submitted that following items written off are not pressed. S. No Name of the party Amount 4. Advance for land purchase 2,000 5. Ganesh Re-constant Factor, Kalol 20,185 9. Steel Authority of India, Nagpur 166 10. Mac Donalds, Delhi 12,278 11. U.P. Twinga Fiber Glass Ltd., Mumbai 50 12. IARI, Karnal 497 15. Excess payments 2,679 20. Others 15,547 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has failed to produce the same before the Assessing Officer. The CIT(A) further observed that the filing of bills by the First Appellate stage has no use because the CIT(A) is not in a position to go through each and every bill and the condition of Rule 46A are not applicable to the case of the assessee as the Assessing Officer has provided proper opportunity to the assessee. The CIT(A) confirmed the disallowance made by the Assessing Officer. 16. We heard ld. Representative of the parties and perused the records. We are of the view that when the assessee filed materials before the CIT(A) he is also holding power of the Assessing Officer either he should examine those materials or calling Remand report from the Assessing Officer and should have decide the matter on merit. After considering the facts of the case we find it appropriate to send back this matter to the file of the Assessing Officer. The necessary verification is required to be made by the Assessing Officer. The Assessing Officer is directed to verify the material and record the complete facts and decide the issue afresh in accordance with law after providing reasonable opportunity to the assessee. 17. Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Court clarified that the issue decided is limited to the power of the Assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal. After considering the totality of the facts of the case the claim of the assessee ought to have been admitted in the interest of justice. The claim of the assessee is accordingly admitted by us. Since for deciding the issue, certain facts are required to be examined, the relevant record is not readily available at this stage.Under these circumstances, we think it proper to send back this issue to the file of the Assessing Officer with the direction to decide the issue in accordance with law after providing reasonable opportunity of hearing to the assessee. 23. The fifth ground is pertaining not allowing the amortization of the expenditure incurred and loss due to premature end of the Rose bushes amounting to Rs. 26,14,054. 24. The brief facts of the case are that the assessee made the following claim: ( i ) Amortisation of Rose Plant Rs. 19,84,000 ( ii ) Loss on Rose plant written off Rs. 6,30,054, Rs. 26,14,054 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89,421 as capital expenditure on scientific research if allowable under section 35. On examination of the detailed, the Assessing Officer noticed that the two amounts of expenditure which were in the nature of tour advances and in respect of which the assessee has not submitted any bill or evidence to show that the expenditure is actually incurred either on the project or on the portion of the work completed. It appears that these two amounts are pure advances in respect of which the work is yet to be done or the material is yet to be supplied. The details of these two amounts noted by the Assessing Officer is as under: 1. M.H. Dalal (Phase 11)(Architect) Rs. 4,20,000 2. Mantri H. Const. Ltd., (Building Material Supplied) Rs. 26,06,410 Rs. 30,26,410 In absence of above amounts of Rs. 30,26,410, the CIT(A) allowed assessee s claim as under: "I have considered the above facts as discussed by the Assessing Officer as well as submitted by the appellant along with the evidences filed in the Paper book which show that the materials have been recei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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