TMI Blog2020 (12) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... at even if these provisions talk only of taxability on the excess received by the Assessee over the written down value of the assets, it cannot exclude or ignore the minus figure or loss occurring on such sale transactions. Since the sale of those Assets of the Block of Assets, not being immovable property of the Assessee, were sold during the regular course of business, before it was wound up during the relevant previous year, the loss occurring on such sale at a figure less than the written down value of the assets should be treated as Business Loss under Section 41(2) - treatment of such losses as Capital Gains either as Short Term Capital Gains or Long Term Capital Gains would depend upon the period for which assets are held by the Assessee. In either case, Section 70 of the Act provides for Carry Forward and set off of such Business Loss or Short Term Capital Loss in the hands of the Assessee, as Section 70 clearly spells about set off of loss from one source against income from another source under the same head of income. Since in the present case, the business of the Assessee was closed during the relevant previous year itself therefore, the other situation of Carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantial questions of law from the order of the learned Tribunal dated 26.12.2008 for the Assessment Year 2001-2002 by which the Revenue s Appeal was allowed by the learned Tribunal. 2. The Tax Case Appeal was admitted on the following questions of law:- i) Whether under the facts and circumstances of the case the assessee is entitled to invoke Section 41(2) of the Income Tax Act, 1961 to calculate the loss on sale of asset and claim the same as the business loss incurred and reflect the same in the assessee s Income Tax returns? ii) Whether depreciation can be claimed on capital assets and whether provisions of Section 50 of the Act will apply to the current situation when there are no other assets in the block except those sold? iii) Whether the ITO is entitled to partly accept expenditure and disallow the balance without assigning any reasons for either of the same? 3. The relevant findings of the learned Tribunal with regard to the aforesaid two questions as given in para 2.6 to 3.3 till are extracted hereunder for ready reference:- 2.6 From a plain reading of the Section, it is clear that Section 41(2) is applicable only where the sale value along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covery is an expenditure and Assessing Officer has not given his opinion as to whether it was genuine or not and if he has treated a part of the expenditure as genuine, the other part cannot be disallowed. Hence he directed for deletion of this addition. 3.3 We have heard both the counsels and perused the relevant records. We find that the learned Commissioner of Income Tax (Appeals) has given a very strange reason for deleting this addition. It is quite apparent from the assessment order that no evidence whatsoever was produced before the Assessing Officer regarding the details of this expenditure. De hors production of any evidence, Assessing Officer could not have gone into the veracity of this expenditure. Under the circumstances, we set aside the order of the learned Commissioner of Income Tax (Appeals) and restore that of Assessing Officer on this issue. 4. The learned counsel for the Appellant/Assessee Ms.Madhupreetha Elango submitted that the if a loss is caused on the sale of the Capital Assets by the Assessee, the same should be allowed as Business Expenditure under Section 41(2) of the Act as it cannot be brought to tax under Section 50 of the Income Tax Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Assessing Officer did not accept the assessee s plea that the loss should be allowed u/5 41(2). 6. On the other issue involved in the present case with regard to recovery of the expenditure like Postage, Courier Charges etc., from the clients of the Assessee Company, the total expenditure incurred by the Assessee during the year in question was more and recovery from the clients was less and thus, the net Unrecovered amount to the extent of ₹ 3,56,949/- was claimed as expenditure under the head Recovery . The Assessee claimed that this was the expenses incurred for Postage, Courier, Stationery etc., to comply with the guidelines of SEBI to inform the change of address to the individual investors both by advertisement in prominent newspapers and also by individual communications. But, since there was closure of business in the year 2000, the relevant to Assessment Year 2001-2002, only a part of expenses could be recovered from the clients and the balance amount was claimed as Business Expenditure which was disallowed by the learned Tribunal. 7. The learned counsel for the Appellant/Assessee submitted that it was a Business Expenditure in the regular course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable assets. 50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications :- (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely:-- (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets; (2) where any block of assets ceases to exist a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e written down value of the assets should be treated as Business Loss under Section 41(2) of the Act, quoted above. The treatment of such losses as Capital Gains either as Short Term Capital Gains or Long Term Capital Gains would depend upon the period for which assets are held by the Assessee. In either case, Section 70 of the Act provides for Carry Forward and set off of such Business Loss or Short Term Capital Loss in the hands of the Assessee, as Section 70 clearly spells about set off of loss from one source against income from another source under the same head of income. Since in the present case, the business of the Assessee was closed during the relevant previous year itself therefore, the other situation of Carrying Forward such Business Loss is not really relevant but, such loss suffered actually by the Assessee could not have been disallowed by misconstruing both these provisions. 13. The Assessment of income in the hands of the Assessee implies Assessment of loss also and it is a question of fact depending upon the sale value realised by the Assessee on the sale of assets. Therefore, the first question deserves to be answered in favour of the Assessee and against ..... X X X X Extracts X X X X X X X X Extracts X X X X
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