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Before: Shri M. Balaganesh
SHRI M.BALAGANESH, AM
This appeal of the assessee arises out of the order of the Learned CITA in Appeal No. 489/CIT(A)-XXIV/12(1)/08-09 dated 04-09-2012 for the Asst Year 2004-05 passed against the order of assessment framed by the Learned AO u/s 154 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
Shri.Dev Kr.Kothari, FCA, the Learned AR argued on behalf of the assessee and Shri.Md.Ghayasuddin, JCIT, the Learned Senior DR argued on behalf of the revenue.
The only issue to be decided in this appeal is as to whether the omission to disallow a sum of Rs. 10,2,7456/- towards loss on sale / exchange of fixed assets in the original assessment is a mistake apparent from record or not in the facts and circumstances of the case .
The brief facts of this issue is that the assessee purchased a CT Scan machine during the assessment year under appeal by way of exchange of old CT scan machine available with it. On exchange of old CT scan machine, the assessee debited a sum of Rs.
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10,27,456/- as loss on sale of fixed assets in its books of accounts and debited the same in the profit and loss account. But the impact of the same would be effected in the computation of income tax depreciation statement filed by the assessee. The Learned AO did not disturb the income tax depreciation figure claimed by the assessee. The assessee did not disallow the loss on sale of assets in the sum of Rs. 10,27,456/- voluntarily in the return of income. The Learned AO also omitted to disallow the same in the original scrutiny assessment proceedings u/s 143(3) of the Act. Later the Learned AO sought to rectify the said apparent mistake by issuance of notice u/s 154 clearly mentioning the mistake sought to be rectified by him. Later the assessment u/s 154 of the Act was framed by the Learned AO duly disallowing the loss on sale of fixed assets to the tune of Rs. 10,27,456/-. On first appeal, the Learned CITA upheld the action of the Learned AO. Aggrieved, the assessee is in appeal before us on the following ground (concise grounds of appeal):- “1. For that on the facts and in the circumstances of the case learned CIT(A) XXIV, Kolkata was wrong in confirming initiation of rectification proceeding and order passed by the AO u/s. 154 and confirming rectification, though the notice was very vague and there was no mistake apparent from records rectifiable u/s. 154 2. The appellant pray that the order passed u/s. 154 may be set aside and the order passed u/s. 143(3) may be restored..
The Learned AR argued that there was no computation under the head “capital gains” in the computation of taxable income by the assessee and by the Learned AO in the assessment proceedings and hence he argued that the loss on sale of fixed assets is only incidental to the business and is allowable as deduction. He further argued that only the net addition to CT scan machine (i.e the purchase cost of new CT scan machine less the old CT scan machine exchanged) is reflected in the income tax depreciation schedule and depreciation claimed accordingly by the assessee which is not disputed by the Learned AO. The Learned AR argued that the notice issued u/s 154 which is also placed on record in the paper book filed by the assessee is very vague and did not indicate the apparent mistake from record and accordingly placed reliance on the decision of the Hon’ble Supreme Court
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in the case of Addl CIT vs Shreyas Gramin Bank reported in 2012 (9) TMI 518 – Supreme Court in support of his contentions.
In response to this, the Learned DR vehemently supported the orders of the lower authorities and stated that the Learned AO had clearly stated in the notice issued u/s 154 of the Act the mistake proposed to be rectified and hence the decision stated by the Learned AR is distinguishable to the facts of the instant case.
We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove are not disputed by both the parties and hence are not reproduced for the sake of brevity. We find that the notice issued u/s 154 of the Act clearly mentions the intention of the Learned AO by duly mentioning the mistake that had crept in the original assessment order towards omission to disallow the loss on sale of fixed assets to the tune of Rs 10,27,456/- . Admittedly, the loss on sale of fixed assets is only a capital loss and cannot be construed as a loss incidental to the business as claimed by the Learned AR. Hence the said capital loss ought to have been disallowed in the computation of total income by the assessee voluntarily or by the Learned AO in the original scrutiny assessment proceedings in accordance with law. However, the same was duly sought to be rectified by the Learned AO in section 154 proceedings as it is not a debatable issue and the said mistake is patent , glaring and very obvious. Now let us get into the decision of the Hon’ble Apex Court relied by the Learned AR in the case of Addl CIT vs Shreyas Gramin Bank reported in 2012 (9) TMI 518 (Civil Appeal No. 4801 of 2007 dated 12th September 2012) – Supreme Court wherein it was held as below:- Head notes: “Rectification of mistake – Notice u/s. 154- Held that;- The said notice is ytotally vague as AO has not even indicated as to on what basis he has allowed excess set-off-notice u/s. 148 issued squarely on the basis of notice under Section 154- both the notices set aside- in favour of assessee.”
Held/Order: “Heard learned counsel on both sides.
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We have gone through the Notice under Section 154 of the Income Tax Act, 1961 [ ‘Act’, for short]. We find that the said notice is totally vague. The Assessing officer has not even indicated as to on what basis he has allowed excess set-off. Notice under Section 154 of the Act, therefore, was not maintainable. The second notice under Section 148 of the Act was issued squarely on the basis of notice under Section 154 of the Act. In the circumstances, the High Court was right in setting aside both the notices. We, therefore, see no reason to interfere with the impugned order. Accordingly, the civil appeal filed by the Department is dismissed with no order as to costs. “
7.1 We are in total agreement with the arguments of the Learned DR that the case law quoted by the Learned AR are squarely distinguishable to the facts of the instant case as in the case before the supreme court, the notice u/s 154 was very vague in nature and did not indicate the intention of the AO to rectify the mistake. Whereas in the instant case before us, the Learned AO had clearly mentioned the mistake sought to be rectified in the notice u/s 154 of the Act itself. We don’t endorse the arguments of the Learned AR that when there is no computation under the head capital gains while determining the taxable income, the resultant capital loss cannot be set off against the business income. This is a glaring mistake committed by both assessee as well as by the Learned AO in original scrutiny assessment proceedings which was later rectified u/s 154 by the Learned AO and we hold that the action of the Learned CITA does not require any interference in this regard. Accordingly the ground raised by the assessee is dismissed.
In the result, the appeal of the assessee is dismissed.
THIS ORDER IS PRONOUNCED IN OPEN COURT ON 8 / 10/2015
Sd/- Sd/- ( Mahavir Singh, Judicial Member ) (M. Balaganesh, Accountant Member)
Date 8 /10/2015
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Copy of the order forwarded to: 1.. The Appellant M/s. Quadra Medical Services Pvt. Ltd 41 Hazra Road, Kol-19. 2 The Respondent- I T O W 12(1), Aaykar Bhawan P-7 Chowringhee Sq., Kol-69.
3 /The CIT, / The CIT(A) 4.. 5. DR, Kolkata Bench 6. Guard file. True Copy, By order, Asstt Registrar
** PRADIP SPS
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