Case Number: ITA 992/DEL/2021
Appellant: Palco Tex Fab Limited, Delhi
Respondent: ACIT, Circle 19(2)
Assessment Year: 2015-16
Result: 2015-16
Case Filed on: 2021-08-18
Order Type: Final Tribunal Order
Date of Order: 2023-05-10
Pronounced on: 2023-05-10
This case involves an appeal filed by Palco Tex Fab Limited (hereinafter referred to as ‘the Appellant’) against the order dated 20.08.2020 passed by the Commissioner of Income Tax (Appeals), Delhi-38, for the assessment year 2015-16. The appeal addresses issues related to the disallowance of depreciation and the determination of short-term capital gains without the actual transfer of capital assets during the year under consideration.
The appellant is a limited company engaged in the business of dyeing and printing of cloth for onward sales as well as job work. The return of income for the AY 2015-16 was electronically filed on 29.09.2015, declaring a loss of Rs.1,72,69,100/-. During the scrutiny proceedings, the Assessing Officer (AO) noted that the appellant had shifted some plant and machinery from fixed assets to current assets at a value of Rs.1,05,00,000/-, booking an impairment loss in the books.
The impairment loss of Rs.27,25,782/- was suo moto disallowed by the appellant in the return of income. The AO observed that the appellant did not make a corresponding effect of shifting plant and machinery from fixed assets to current assets in the block of assets. Consequently, the AO issued a questionnaire on 25.12.2017, indicating that the assets were discarded and should be treated as a transfer under section 43(6) of the Income Tax Act, calculating short-term capital gains/losses under section 50 of the Act.
The appellant submitted that the business operations had been discontinued due to changes in environmental policies at the state and central government levels, making it infeasible to continue production in the industrial area. Consequently, the plant and machinery were put up for sale. The appellant argued that the impairment of assets was in accordance with Accounting Standard 28 (AS-28) issued by the Institute of Chartered Accountants of India (ICAI).
The CIT(A) summarily dismissed the appellant’s factual and legal contentions, stating that no documentary evidence was furnished to support the claims.
Aggrieved by the order of the CIT(A), the appellant filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench. The appellant’s counsel, Shri Deepak Bansal, argued that the impairment and shifting of assets from fixed to current assets were in compliance with AS-28 and that no actual transfer or sale of assets occurred during the year. The Departmental Representative (DR), Shri Raghunath, supported the order of the CIT(A).
The Tribunal, comprising Saktijit Dey, Judicial Member, and M. Balaganesh, Accountant Member, observed that the plant and machinery were shifted from fixed assets to current assets at a value of Rs.1,05,00,000/- based on an agreement of sale dated 08.07.2015. However, this agreement did not materialize, and no actual transfer occurred.
The Tribunal noted that the shifting of assets was a bookkeeping exercise to reflect the financial state of affairs accurately and in compliance with AS-28. The impairment loss was added back to the total income while filing the return. The Tribunal found that there was no transfer of assets as per the provisions of the Income Tax Act, and the treatment of the assets as discarded by the lower authorities was incorrect.
The Tribunal held that since no transfer of assets occurred during the year, there was no question of determining short-term capital gains or losses under section 50 of the Act. Consequently, the appellant’s claim for depreciation could not be rejected. The Tribunal allowed the appeal, directing the AO to grant the appellant’s claims as per the provisions of the law.
Order: The appeal of the Appellant is allowed.
Order Pronounced in the Open Court on 10th May, 2023.
-Sd/- (Saktijit Dey, Judicial Member)
-Sd/- (M. Balaganesh, Accountant Member)
Date: 10th May, 2023
Copy forwarded to:
Assistant Registrar
ITAT, New Delhi
Palco Tex Fab Limited vs. ACIT: Depreciation and Capital Gains for Assessment Year 2015-16
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