IFB AUTOMOTIVE PVT. LTD.,KOLKATA vs. DCIT, CIR. 12(1), KOLKATA

The present appeal is directed at the instance of the assessee against the order of the National Faceless Appeal Centre (hereinafter the “ld. CIT(A)”) dt. 12/12/2023, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2014-15. 2. The assessee has raised the following grounds of appeal:- “1. Under the facts and circumstances of the case the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Income Tax Department, Delhi has erred in law as well as in facts in confirming the disallowance and addition made by the Ld. Deputy Commissioner of Income Tax, Circle-12(l), Kolkata (Assessing Officer) on account of profit on sale of Fixed Assets of Rs. 41,61,190/- ignoring the provisions under Section 50 of the Income-tax Act, 1961.

Facts in brief confined to the issue are that the assessee is a private limited company engaged in the manufacturing of automobile parts. In the e-return furnished for Assessment Year 2014-15 on 27/11/2014 showing business loss of Rs.7,84,99,201/- and income from other sources at Rs.1,32,59,821/-. Case selected for scrutiny followed by service of notice u/s 143(2) and 142(1) of the Act. The issue before us relates to disallowance under the head profit on sale of fixed assets. The ld. Assessing Officer observed that the assessee deducted Rs.63,61,190/- on account of profit on sale of fixed assets from its net profit but in the profit and loss account only Rs.22,00,000/- was shown on account of profit on sale of fixed assets. Ld. Assessing Officer noticed that the assessee has claimed excess deduction of Rs.41,61,190/- and added it back to the income of the assessee. The assessee carried the matter before the ld. CIT(A) who confirmed the action of the ld. Assessing Officer observing as follows:- “5. Discussion and appellate decision:- The submission filed by the appellant has been taken into consideration. The appellant has failed to furnish any details/evidences with regard to discarded Assessment Year: 2014-15 IFB Automotive Private Limited depreciable fixed assets amounting to Rs.42,06,290/- adjusted against the profit on sale of asset during the year under consideration before the AO. The appellant has taken the plea before the first appellate authority that the asset has been discarded during the year and the same has been deducted from the profit arrived on sale of fixed assets, which is found to be incorrect as any asset discarded, the depreciable value has to be calculated and can claim to that extent only. In the present case, the appellant has not given the calculation of depreciation of the discarded asset as on the date of sale of asset and even did not produce any documentary evidences to prove that the asset has been discarded. After considering the exact depreciation of the discarded assets as on the date of sale of scrap, the same can be set off against the depreciation and depreciation of the said asset become zero in subsequent years. Since the appellant has failed to submit any requisite documentary evidence/details, or bifurcation of discarded assets, or total amount of depreciation of the said asset, etc. before the AO which led to addition of Rs.42,06,290/-. Therefore, there is no question or reason arises to interfere with the decision of the Ld. AO. Hence, the addition made by the AO is sustained and this ground of appeal is dismissed.

The ld. Counsel for the assessee referring to the paper book containing 103 pages, firstly took us through the fact sheet at page 1. He submitted that the assessee has earned profit on sale of depreciable asset of Rs.63,61,190/-. The assessee has discarded and written off the depreciable fixed assets of Rs.41,61,190/- and the difference of these two amounts was rounded off to Rs.22,00,000/- and shown as income in the profit and loss account. He submitted that the assessee has rightly made the adjustments in the books and the audited balance sheet and no disallowance is called for. On the other hand, the ld. D/R vehemently argued supporting the orders of the lower authorities. 6. We have heard rival contentions and perused the material placed before us. We observe that there is a net profit from sale of depreciable Assessment Year: 2014-15 IFB Automotive Private Limited assets at Rs. 63,61,190/-. Auditor in the tax audit report in para 118 of Form 3CD has observed that the deduction made from the block of asset during the year excludes the assets discarded and written off in the books of accounts. It means that Rs.63,61,190/- is the net gain from sale of depreciable assets. Now, as per the special provisions for computation of capital gains in case of depreciable assets provided under the Act come into play if the block of assets ceases to exist and the residuary has to be treated as short term capital gain/loss, as the case may be. This has been admitted by the ld. Counsel for the assessee that the block in which the profit from sale of depreciable asset has been calculated has not ceased to exist and this facts is verifiable from the fixed asset chart appearing at page 103 of the paper book showing that none of the block of assets has seized to exist. Therefore, Rs.63,61,190/- is not to be shown in the profit and loss account because the adjustment of the same has already been considered in the fixed asset chart and the written down value has been impacted accordingly. 6.1. Second part of the issue is the loss on account of discarded and written off fixed assets at Rs.41,61,190/-. Though the assessee has claimed it to be a deduction of depreciable asset offered, but the auditor has specifically mentioned that discarded and written off fixed asset are not part of deduction appearing in the fixed asset chart. So, these amounts have to be claimed as expenditure during the year. Now, perusal of the impugned order indicates that the assessee had not filed details of discarded and written off assets and the copy of the same are available from page 23 to 51. Perusal of these details prima facie indicate Assessment Year: 2014-15 IFB Automotive Private Limited that in the 28 sheets of these details, there are almost 40 entries on each page and the amounts ranging from Rs.3,000/- (approx) to Rs.1,14,99,964/-. In these details, it is one of the entries of profit on sale of machineries and the amount is Rs.1,14,99,964/-, Rs.80,03,956.31/- towards fine blanking press, Rs.81,49,323.33/- for ALN Project - Dymos Lear etc. In case they are part of the repairs and maintenance, it has already been claimed as expenditure and if they are part of the fixed assets, then also their treatment has to be done under the blocks of fixed assets chart. These aspects have not been examined by the lower authorities nor specific details have been filed by the assessee in support of its claim. Further the claim of the assessee reducing the net profit by amount of profit from sale of depreciable assets at Rs.63,61,190/-, is in itself not in accordance with law, because no such income was credited to the profit and loss account.

Under these given facts and circumstances of the case, the issue raised on merits deserves to be restored back to the file of the ld. Assessing Officer for examining the following details:- (i) fresh computation of income to be filed by the assessee. (ii) Verify the details of discarded and write off of depreciable fixed assets and also to verify as to whether they fall under the block of assets and whether the block ceases to exist. (iii) Correctness of the claim of short term capital gain from sale of depreciable asset of Rs.63,61,190/- along with verifying the block of asset in which such assets fall or not.