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TMI Blog2023 (7) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... l loss rather had claimed deduction notional loss merely making book entry which is disallowable u/s 37 of the Act?" 3. Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in giving a finding that the assessee has sold the block of asset which is contradictory to the fact on record that the assessee has merely made an entry of provisions for impairment loss in books of account which is a notional loss not an actual loss, thereby rendering the decision which is perverse?" 4. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in giving a finding which is contrary to the ratio of decision of Hon'ble ITAT Kolkata Bench "B" in the case of M/s Empire & Singlo Tea Ltd. Vs DCIT [201 l- LL-823-20] and Hon'ble Chennai bench "B" in the case of DCIT II (I), Chennai vs. M/s Ennore Port Ltd. [2011-11-1129-22]?" 5. "Whether on points of law and on facts & circumstances of the case, the Ld. i CIT(A) was justified in accepting fresh evidence produced by the assessee if any, without allowing the AO, proper opportunity to examine the same, thereby violating the provisions on law under Rule 46A of the IT Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r loss shown from large gross receipt. (ii) Large other expenses claimed in P&L a/c (iii) Low income shown by large contractors. (iv) Mismatch in sales turnover reported in Audit Report and ITR (v) Mismatch in amount paid to related persons u/s. 40A(2)(b) reported in Audit Report and ITR. 6. Statutory notices were issued and in response the assessee's AR has submitted necessary submissions and supporting documents from time to time. Certain additions were proposed by the ld. AO, which was later added to the income of the assessee. The addition which is the subject matter of the present appeal, is pertaining to a loss claimed by the assessee under the head impairment loss on disposal of fixed asset for Rs. 1,73,76,465/-. While making this addition, ld.AO has observed that the assessee in its profit and loss account has added a sum of Rs. 1,73,76,465/-, details of which were given at Note-23 under the head "other expenses" of the profit and loss account, having sub-head "impairment loss on disposal of fixed asset". The assessee was asked to explain as to how such loss is entitled to be allowed under the provisions of Income Tax Act, 1961. In reply, the assessee has explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case where the assessee continue to hold the fixed assets and loss or impairment in the value of asset is calculated and recorded in the books of accounts on the basis of registered valuer's report. Ld. CIT-DR relied upon the judgment in the case of Uniworth Textiles Ltd., reported in [2022] 140 taxmann.com 140 (Kolkata-Trib), wherein in para 5.1 the coordinate bench of the Tribunal has held as under :- "5.1 After hearing the rival parties and perusing the material on record, we find that the deletion of addition by ld CIT(A) on account of loss resulting from impairment of fixed assets based on the valuation done by Government Registered approved Valuer is not in consonance with the provisions of the Act. The ld Counsel of the assessee referred to the provisions of section 41(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act) when he was queried that under what provisions of the Act the loss on impairment in the value of fixed assets was claimed. We have perused the provisions of section 41(2) of the Act carefully and in our view the section deals with the loss arising from building, machinery, plant or furniture which are owned by the assessee and in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the expenditure is of capital nature and should have been set off against any capital gain. In absence of any capital gain, the claim is not allowable. The learned AO drew our attention to pages 6 & 7 of the order of learned CIT(A), wherein, at para 3.2, assessee's submissions were extracted, the same are reproduced hereunder for the sake of clarity: i) Appellant was in the process of hiving off one of its production division (ingot mould division) which was not operational since the year 2004. The value of assets of this division had eroded substantially. The plant and machinery, electrical installations and tools and equipment etc. pertaining to such division were sold/discarded during the year under appeal, for total consideration of Rs. 28,37,688/-. ii) The total written down value of above assets on the date of sale was 2,02,14,153/- whereas the assets were sold/discarded for total sum of Rs. 28,37,688/-. As per provisions as contained in para 14.3 of Accounting Standard 10, the gains I loss arising on disposal of fixed assets are required to be recognized in the profit and loss account. In order to comply with above provisions, the difference of Rs. 1,73,76,465/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations of learned CIT(A), wherein, learned CIT(A) has allowed the contention of the assessee and has observed as under: "3.3 Facts being as above the issue is regarding sale of production division of the assessee company for an amount of Rs. 2837688/- whereas the WDV of the assets as per the books was Rs. 20214153/-. The assessee has debited the difference in its account which has been disallowed by the AO as capital in nature. On these facts Sec. 50 of the Income Tax Act deals with capital gains arising out of the sale of depreciable assets. As per the provision of that section where the sales consideration exceeds WDV of the bock of assets and the entire block has been exhausted then the net amount of consideration minus WDV will be taxed a short term capital gain. Corollary to this, in the present case since the entire block has been exhausted and the net result is loss such loss will be treated as short term capital loss. The AO is directed to treat the amount of Rs. 1,75,76,465/- as short term capital loss." 12. Carrying the arguments further, learned AR of the assessee submitted that in case the claim of the assessee regarding impairment loss is not allowed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no longer in existence, the provision of this sub-section shall apply as if the business is in existence in that previous year." 14. In this regard, the ITAT, Kolkata Bench 'A' in the case of Uniworth Textiles Ltd., reported in [2022] 140 taxmann.com 140 (Kolkata - Trib.), has categorically held that the provisions of section 41(2) deals with the charging of income in the year in which the asset is sold, discarded, demolished or destroyed, but not the case, where the assessee continue to hold the fixed assets and loss or impairment in the value of asset is calculated on the registered Valuer Report. 15. In the present case, since the assessee itself has claimed the impairment loss in profit and loss account and it is evident from the computation of income of the assessee that the block of assets, which were the subject matter of impairment loss, are still in existence, therefore, it cannot be said that the assessee is not holding the said fixed assets. We, therefore, are of the considered opinion that since the assessee itself has accepted that the claim of impairment loss on disposal of fixed assets which was calculated and accounted for according to the guidelines prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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