No Transfer of Asset During year and no Determination of Short Term Capital Gain and Loss: ITAT allows Depreciation [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has allowed the depreciation as no transfer of asset was taken place during the year under consideration and no determination of short term capital gain and loss was needed.

The assessee,Palco Tex Fab Limited,was a limited company engaged in the business of dyeing and printing of cloth for onward sales as well as carrying the same on job work basis. During the course of scrutiny proceedings,The AO noticed that the assessee in his books has shifted some plant & machinery from fixed assets to current assets and booked impairment loss in the books.

This impairment loss was suo moto disallowed by the assessee in the return of income. The AO observed that the assessee had not made any corresponding effect of shifting of plant & machinery from fixed assets to current assets in the block of assets.

Accordingly, the AO issued a notice as to why the said transaction be not treated as transfer in terms of section 43(6) of the Income Tax Act treating it as assets discarded and accordingly calculate depreciation under Section 32 of the of the Income Tax Act, business loss and short-term capital gain/short-term capital loss under section 50 of the Income Tax Act.

 Accordingly, the AO concluded that the discarded price of plant & machinery at a sum which needed to be reduced from the block of assets of plant & machinery and the resultant gain or loss should have to be determined in terms of section 50 of the Income Tax Act as short term capital gain or short term capital loss. Accordingly,AO determined the short-term capital gain under Section 50 of the Income Tax Act in and reduced the claim of depreciation.

Deepak Bansal,appeared on behalf of the assessee and Raghunath appeared on behalf of the revenue.

The two-member Bench of Saktijit Dey, (Judicial Member) and M. Balaganesh, (Accountant Member) allowed the appeal filed by the assessee holding that since the plant & machinery could not be further used for the purpose of business, the assessee had sought to shift the same from ‘fixed assets’ to ‘current assets’ held for resale and there was absolutely no transfer of assets (plant & machinery) which had taken place during the year in accordance with the provisions of the Act.

The Bench held that, since no transfer of assets has taken place during the year, there was no question of determination of short-term capital gain or short-term capital loss in terms of section 50 of the Income Tax Act and consequentially there was no question of rejection of claim of depreciation of the assessee.

To Read the full text of the Order CLICK HERE

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