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TMI Blog1984 (7) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, wherein they had stated that they were unable to state whether the accounts gave a true and fair view due to these adjustments. The ITO, therefore, held that this amount was in the nature of capital loss and, accordingly, disallowed and added back the same to the income of the assessee. 2. The appellant took up the matter in appeal to the Commissioner (Appeals) and contended that it was entitled to this deduction either under section 29 or under section 32(1)(iii) of the Income-tax Act, 1961 ('the Act'). It relied on the decision of the Bombay High Court, in the case of CIT v. Tata Iron Steel Co. Ltd. [1977] 106 ITR 363. The Commissioner (Appeals) did not accept this contention. He agreed with the ITO that the deduction claimed by the appellant in the present case was in respect of capital assets, which were found to be missing and that, therefore, it could not be allowed under the provisions of section 32(1)(iii). He was of the view that the said provisions of law were not attracted in the present case. He then proceeded to examine the question whether the said amount could be allowed as a loss incidental to the carrying on of the business and came to the conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the decision of the Supreme Court, in P.K. Badiani v. CIT [1976] 105 ITR 642, 649, and contended that obsolete commercial assets would result in business loss. Shri Khare, therefore, argued that the departmental authorities were not justified in disallowing the assessee's claim for this loss. 4. Shri L.N. Joy, the learned departmental representative, relied on the order of the Commissioner (Appeals) and contended that what the assessee claimed was only a loss of capital assets and that the same would not be admissible either under section 32(1)(iii) or under section 28(i). He further relied on the distinction pointed out by the Commissioner in his order to distinguish the present case from the decision in the case of Tata Iron Steel Co. Ltd. relied on by the appellant. He, therefore, submitted that the decision of the Commissioner (Appeals) was correct and that the same should be upheld. 5. We have carefully considered the submissions urged on both sides, in the light of the materials placed before us and the decisions referred to above. From a perusal of the statement of depreciation claimed by the assessee under section 32(1)(iii), it is seen that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of Rs. 1,58,940, written off to the profit and loss account, includes this amount of Rs. 1,51,814.40. It is, therefore, highly doubtful as to whether the assessee would be entitled to the claim of this loss at all, since it is not possible to ascertain as to how this loss has arisen. Even accepting what the assessee says in its directors' report is true, it cannot be disputed that the amount written off represented only loss of capital assets. In paragraph 7 of their report dated 3-2-1977, which is at pages 7 to 11 of the assessee's paper book, the directors state as follows : " 7. When a physical verification of the fixed assets, stocks of raw materials, components and semi-finished goods, etc., of the company was taken, above discrepancies were discovered and as a result large amount of the assets had to be written off as follows : Rs. Fixed assets 1,58,940.39 Raw materials and components 3,97,586.46 Semi-finished products and parts in process 1,49,446.00 Packing materials 6,166.01. " It must be mentioned here that the revenue has accepted the write-off of the remaining three items relating to raw materials and components, semi-finished products and parts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod of years the debit raised in respect of the 1 per cent value of the discarded plants got accumulated and could not be directly connected with the sales thereof made from time to time. During the year of account, TISCO had obtained a surplus on sale of discarded plants of Rs. 7,89,211, and after making adjustment referred to above, had brought to account the sum of Rs. 6,06,361 as profit liable to tax under section 10(2)(vii). TISCO also made a simultaneous claim for a deduction of Rs. 1,78,277 as representing the value of the discarded plants which had been retained in the books, but which on physical verification were found to be non-existent. It was this amount of Rs. 1,78,277, which was disallowed by the departmental authorities, but which was allowed by the Tribunal by relying on section 13 of the 1922 Act, having regard to the regular method of accounting employed and followed by the assessee. This decision of the Tribunal was upheld by the High Court and Question No. 3 was answered in the affirmative and against the revenue and in favour of the assessee. But, in the present case before us, the facts are entirely different, as we have already stated above with reference ..... X X X X Extracts X X X X X X X X Extracts X X X X
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