AMIT BHOLANATH MISHRA,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 22(1), MUMBAI, MUMBAI

Amit Bholanath Mishra 4. The Assessing Officer observed that the two motor cars sold during the year appeared to be personal effects and not capital assets. The assessee was therefore called upon to explain as to why the losses arising from sale of such motor cars should not be disallowed and not permitted to be set off against long-term capital gains under section 70 of the Act.In response, the assessee submitted that the motor cars, namely Audi and Mercedes Benz, were business assets which were hired out to M/s AB Infra Build Pvt. Ltd., of which the assessee was a director and owner. It was further submitted that the assessee had never claimed depreciation on the said vehicles and therefore the cost of acquisition should be taken at the original purchase price. The Assessing Officer did not accept the assessee’s contention. He held that depreciation is not optional and represents a permanent diminution in the value of an asset, irrespective of whether the assessee claims it or not. The Assessing Officer further held that if the assessee’s claim that the vehicles were business assets was accepted, then depreciation at the applicable rate was required to be allowed and the computation of gain or loss on transfer of such assets would fall under section 50 of the Act as short-term capital gain or loss. Accordingly, the Assessing Officer recomputed depreciation for the relevant earlier years, recalculated the written down value of the motor cars and determined a net short-term capital loss of Rs. 2,25,366/- from the sale of both vehicles. The said short-term capital loss was held to be adjustable only against the block of depreciable assets Amit Bholanath Mishra and not against long-term capital gains arising from sale of flats. Consequently, the Assessing Officer disallowed the set-off claimed by the assessee and added long-term capital gains of Rs. 57,62,206/- to the total income. The assessment was thus completed at a total income of Rs. 1,15,67,060/-. Penalty proceedings under section 271(1)(c) were also initiated.

1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in making an addition of Rs. 57,62,206/-, to the total income of the assessee by disallowing the set-off of capital losses against the Long-Term Capital Gains earned on sale of immovable properties, without considering the facts and circumstances of the case.

2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in calculating the depreciation of Car @ 30% without assigning any reason, without considering the facts and circumstances of the case.

3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in recalculating depreciation of car in earlier years @ 30% and re-computing opening WDV without assigning any reason and rework & recalculated depreciation from AY 2012-13 to 2015- 16, without considering the facts and circumstances of the case.

8. During the course of hearing before us, the learned Authorised Representative (AR) of the assessee reiterated the facts as recorded by the lower authorities. It was submitted that Amit Bholanath Mishra the assessee has not claimed depreciation on the motor cars in the past, despite the vehicles being reflected as fixed assets in the books of account. In support of this contention, the learned AR specifically drew our attention to the computation of income, balance sheet and the schedule of fixed assets forming part of the returns of income for A.Y. 2012–13, A.Y. 2013–14, A.Y. 2014–15 and A.Y. 2015–16, to demonstrate that no depreciation was claimed on the said motor cars in any of the aforesaid assessment years. It was contended that these documents, which form part of the record, clearly establish the consistent conduct of the assessee in not claiming depreciation and that the Assessing Officer was not justified in recomputing depreciation and reworking the written down value for the earlier years which had already attained finality. In support of the aforesaid contention, the learned AR placed reliance on the judgment of the Hon’ble High Court of Karnataka in Income Tax Appeal No. 186 of 2023, rendered in the case of The Principal Commissioner of Income Tax vs. M/s Swetha Realmart LLP (successor in interest of M/s Swetha Health Research Pvt. Ltd.), dated 05.03.2025.

9. Per contra, the learned Departmental Representative (DR) strongly relied upon the order of the learned CIT(A). The learned DR drew our attention to the findings recorded by the Assessing Officer and affirmed by the CIT(A) to contend that depreciation stood deemed to have been allowed in respect of the motor cars, once the assessee himself claimed that the vehicles were business Amit Bholanath Mishra assets given on hire. It was submitted that the Assessing Officer was justified in invoking the provisions of the Act to recompute depreciation and the opening written down value, and thereafter apply section 50 for determining the character of capital gains arising on transfer of the said assets. According to the learned DR, the CIT(A) has correctly held that depreciation is not optional in nature and that Explanation 6 to section 43(6) permits re- computation of WDV by allowing depreciation for earlier years, even if the assessee had not claimed the same.

by the assessee be dismissed.

11. We have carefully considered the rival submissions, perused the orders of the lower authorities and examined the material placed on record. The controversy before us essentially revolves around the applicability of section 50 of the Act, and the permissibility of re-computation of depreciation and written down value for earlier assessment years by invoking Explanation 6 to section 43(6) of the Act.

Amit Bholanath Mishra 12. At the outset, it is relevant to note that though the assessee has claimed before the Assessing Officer that the motor cars were business assets allegedly given on hire, no income from leasing or hiring of the said assets has been offered to tax in the earlier assessment years. This fact clearly emerges from the computations of income for A.Ys. 2012–13 to 2015–16, which are available on record and were specifically referred to by the learned Authorised Representative during the course of hearing. Thus, while the assessee has taken a stand that the assets were given on lease, such assertion is not supported by any corresponding disclosure of lease or hire income in the returns of income of the earlier years. This factual aspect materially weakens the foundation of the Assessing Officer’s conclusion that the assets were part of an active block of business assets in respect of which depreciation was allowable or deemed to have been allowed.

Amit Bholanath Mishra “Section 50 of the Income Tax Act, 1961 is not invocable when at no point of time any depreciation is allowed in respect of subject property, even if arguably the same is a depreciable asset. The said provision employs the expression „asset forming a part of a block of assets in respect of which depreciation has been allowed‟. Thus, unless that incident happens, assessee does not fit into the precincts of this provision.” (para 3) 16. The Hon’ble High Court further clarified the limited applicability of the Supreme Court decision in Sakthi Metal Depot as under:

“Even one single incident of allowing depreciation may attract the said provision. That being the position, the ratio does not come to the aid of the Revenue.” 17. In the present case, there is not even a single instance of depreciation having been allowed, and therefore, the ratio of Sakthi Metal Depot is clearly distinguishable and inapplicable.

The assessee has not claimed depreciation in the earlier i. years and has also not offered any lease or hire income from the alleged use of the motor cars. Section 50 of the Act cannot be invoked in the absence of ii. depreciation having been actually allowed. Explanation 6 to section 43(6) does not empower the iii. Assessing Officer to retrospectively force depreciation into concluded assessment years merely to invoke section 50. The issue is squarely covered in favour of the assessee by iv. the binding judgment of the Hon’ble Karnataka High Court in Swetha Realmart LLP.

Amit Bholanath Mishra 19. Accordingly, the addition of Rs. 57,62,206/- made by the Assessing Officer by invoking the provisions of section 50 of the Income-tax Act, 1961 is deleted. The action of the Assessing Officer in recomputing depreciation and the written down value for the earlier assessment years by invoking Explanation 6 to section 43(6) of the Act is held to be unsustainable in law. Consequently, the findings of the learned CIT(A) to that extent are set aside.

Order pronounced in the open court on 19.01.2026.