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TMI Blog2024 (9) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... under CASS by issuing notice u/s 143(2) on 19.09.2016. The assessee-claimed business loss of Rs. 2,28,87,566/- which includes depreciation of Rs. Rs. 6,08,305/-. It is stated that assessee was engaged in business of manufacturing of plywood and trading of plywood. The assessee has offered long-term capital gains of Rs. 8,20,36,080/- after claiming deduction of Rs. 50,000/- u/s 54EC of the Act. During the year under consideration, assessee has sold its factory land to TBEA Energy India Pvt Ltd. for a sum of Rs. 10,92,98,692/- through a registered sale deed on 07.07.2014. The assessee earned a net capital gains of Rs. 10,75,67,234/- and made investment of Rs. 50,00,000/- on REC Bond within a prescribed time limit of six months for claiming deduction u/s 54EC. During the year, assessee has shown turnover of Rs. 93,22,891/-. It has shown opening stock of Rs. 49,78,250/- and made purchases of Rs. 56,00,958/-. Assessee was asked by AO to justify how the business continued after selling the factory land along with transfer of possession of the property to the purchasing party. Since assessee has not claimed any freight inward expenses or factory insurance expenses or advertisement expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee earned net long-term capital gain of Rs. 10,76,67,234/- on the above sale of the factory land. The assessee submitted that although the factory land was sold on 07.07.2014, the appellant had not discontinued its business. The assessee submitted various additional evidence to substantiate its claim that business was not discontinued but the appellant had merely shifted its place of business to plot no.217, Palej, GIDG, Bharuch, Gujarat. The assessee also submitted that the donation need not be made out of current year's business income. Deduction u/s 35(1)(ii) can be claimed notwithstanding discontinuation of business. The CIT(A) was not satisfied with the explanation of assessee. As sale of factory land was completed on 07.07.2014, there was no logic behind continuation of business after said sale of factory land. He also observed that assessee failed to justify the deferment of possession of land, which was not mentioned in the registered document. When there was business loss how can the donation be made from business income. The donation was clearly made from the LTCG earned out of sale of factory land, which is ab initio a non-maintainable claim. Deduction u/s 35(1)(ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of lower authorities. He submitted that deduction u/s 35(1)(ii) cannot be claimed if there was no business income. Ld.Sr-DR stated that assessee sold its factory land and there was no lease agreement to prove that the assessee carried on its business after the factory land was sold on 07.07.2014. As per sale deed, vacant possession was given to the purchaser on 07.07.2014. The Ld.Sr-DR stated that there are no PANs to prove the identity of the parties from whom purchases were made after 07.07.2014. Regarding the electricity bills of the subsequent months, the Ld.DR submitted that it takes time to change owner's name of the premises where electricity was supplied. Regarding possession of the factory land after it was sold, it was submitted that no agreement has been submitted by the appellant to prove the claim. The Ld.DR further stated that no similar donation was made by the assessee in the earlier year or subsequent year. Only to reduce its tax liability, assessee has made such donation. The assessee was hesitant to furnish details of donation to lower authorities. The assessee has also not produced any evidence such as freight / transportation bills etc., to support claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy that it carried on the business during the year. It has also submitted copies of electricity bill of the old premises to further its claim of continuance of the business. This explanation regarding electricity bill is not acceptable because it is common knowledge that the electricity bill is issued in the name of the earlier owner till it is changed in the name of the new owner. It takes some time to get the name changed in favour of the new owner. The other evidence of closing stock and subsequent purchase and sale is also not satisfactory because the assessee has not furnished all the details to prove the genuineness of the sales and purchases. It is obvious that there would be some closing stock when the factory is handed over to a new party. The subsequent sale of the closing stock would not by itself establish continuation of business by assessee. When the income generating asset has been sold off, where is the question of earning business income. As stated above, huge donation of Rs. 1,30,00,000/- has been given in March, 2015. Obviously, it was intended to reduce the tax liability by irregularly claiming weighted deduction @ 175 per cent of the donation. The assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of asset and cost of any improvement thereto. Some other instances covered under clause-(iii) need not be discussed here because the same is not relevant to the fact of the instant case. Hence, only expenditure in connection with transfer of the capital asset and cost of acquisition and improvement can be allowed in respect of the capital gain earned by the assessee. The assessee has already claimed such permissible deduction from the sale consideration of Rs. 10,92,98,692/- and has earned net capital gain of Rs. 10,75,67,234/-. He has also claimed deduction of Rs. 50,00,000/- u/s 54EC, which has been allowed to it. There is no provisions u/s 48 to allow deduction u/s 35(1)(ii) of the Act. Hence, allowing such deduction would be against the provisions of the Act. If due to clear operation of the provisions of the Act, any hardship is caused to the assessee, the same can be redressed only by the Legislature and not by any appellate authority. In view of the above discussion, the AO and CIT(A) have rightly disallowed the deduction claimed u/s 35(1)(ii) of the Act. 7.1 The Ld.AR of the assessee has relied upon the decision in case of Dr.M.S. Swaminathan (supra). The decision is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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