No assets are transferred when moving equipment from fixed to current assets
Fact and issue of the case
This appeal in ITA No.992/Del/2021 for AY 2015-16 arises out of the order of the Commissioner of Income Tax, Delhi-38 [hereinafter referred to as ‘ld. CIT(A)’, in short] in DIN & Order No.ITBA/APL/S/250/2020-21/1027757317(1) dated 20.08.2020 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 31.12.2017 by the ld. Assessing Officer, Circle 19(2), New Delhi (hereinafter referred to as ‘ld. AO’)
The assessee has raised the following grounds of appeal
That CIT(A) has erred in law and facts of the case in holding that Short Term Capital Gain has taken place without effecting any transfer of capital assets during the year under consideration
That CIT(A) has erred in law and facts of the case in confirming the disallowance of depreciation u/s 32 of the IT Act on plant & machinery
That CIT(A) has erred in law and facts of the case in holding that assets were discarded u/s 43(6) while applying provision of AS-28
That C1T(A) has erred in law and facts of the case in holding that documentary evidence to support net realizable vale of Rs. 1.05 Crores was not submitted during appellant proceedings
Observation of the court
From the aforesaid explanation given by the assessee in its audited financial statements and also before the lower authorities, we find that since the plant & machinery could not be further used for the purpose of business, the assessee has sought to shift the same from ‘fixed assets’ to ‘current assets’ held for resale. These assets were shifted at a value of Rs.1,05,00,000/- being the net realizable value of those assets based on the offer made by a prospective buyer pursuant to an agreement of sale entered into on 08.07.2015 which was after the balance sheet date. Accordingly, we find that the value of plant& machinery in the fixed assets schedule was reflected as Rs.Nil in the books of the assessee and the said plant & machinery has been shifted to current assets for a sum of Rs.1,05,00,000/-. We find that there was absolutely no transfer of assets (plant & machinery) which had taken place during the year in accordance with the provisions of the Act. Since the plant & machinery was no longer required for the purpose of business, the assessee has merely chosen to shift the same from fixed assets schedule to current assets. The shifting value has been based on agreement of sale dated 08.07.2015 wherein the consideration was arrived at Rs.1,05,00,000/-. In fact, by this process, the assessee had incurred an impairment loss of Rs.27,25,782/- in accordance with AS-28 issued by the ICAI and as the asset loss has been debited in the profit & loss account during the year the same was added back to the total income while filing the return of income by the assessee. The assessee had also brought on record that the agreement dated 08.07.2015 did not materialize. Subsequently, the buyer Dev Industrial Corporation did not own the financial commitment as stipulated in the agreement and that the agreement for sale later stood cancelled. As stated earlier, in any case, there was absolutely no transfer of plant & machinery which had taken place in accordance with the provisions of the Income-tax Act. A very peculiar entry has been passed by the assessee in its books to reflect a true and fair view of the financial state of affairs and also in consonance with the mandate provided in AS-28 issued by the ICAI. It is needless to mention that accounting standard issued by the ICAI have to be mandatorily followed by any limited company as per the provisions of section 129 of the Companies Act, 2013 which has been done by the assessee in the instant case. We find that the shifting of plant & machinery from fixed assets to current assets in the value of Rs.1,05,00,000/- has been considered by the ld. AO as ‘discarding of assets’ by applying the provisions of section 43(6) of the Act. No doubt, discarding of assets would amount to transfer within the meaning of the Act, still, we find that there was no transfer of plant & machinery that had taken place at all. The plant & machinery held by the assessee were indeed reflected under the head ’current assets’ in the balance sheet as on 31.03.2015. Hence, this sum of Rs.1,05,00,000/- cannot be construed as either sale price or discarded price as alleged by the lower authorities. All the documentary evidences in this regard were duly filed before the lower authorities. Hence, it is grossly incorrect on the part of the CIT(A) to state in para that the assessee had not furnished any documentary evidences. In view of the above, we hold that since no transfer of assets has taken place during the year, there is no question of determination of short-term capital gain or short-term capital loss in terms of section 50 of the Act and consequentially there is no question of rejection of claim of depreciation of the assessee. Accordingly, we hold that the action of the lower authorities in this regard deserves to be dismissed. The grounds raised by the assessee are allowed
In the result, the appeal of the assessee is allowed
Order pronounced in the open court on 10.05.2023
Conclusion
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from here
Palco-Tex-Fab-Limited-Vs-ACIT-ITAT-Delhi-2-1
