Gain on sale of fixed assets held not taxable under income tax act

Gain on sale of fixed assets was not taxable under income tax act as sale consideration was reduced from block of assets

ABCAUS Case Law Citation:
ABCAUS 3749 (2023) (05) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition on gain on sale of fixed assets by the National Faceless Appeal Centre sustaining against the order u/s 143(1) of the Income Tax Act, 1961 (the Act) by the Assessing Officer.

The assessee disposed of its part of plant & machinery. After adjustment of the written down value as per the Companies Act, there was a gain which though credited in the Profit & Loss Account, was claimed as deduction in the computation of total income by the assessee. 

This deduction was claimed in view of the fact that the entire sale consideration figure was reduced from the block of assets by the assessee while computing income-tax depreciation u/s 32 of the Act. 

In other words, the plea of the assessee was that since the entire sale consideration was reduced from the block of assets and depreciation claimed by the assessee on the remaining value of the WDV thereon after reducing the sale consideration, the gain arising on account of sale of fixed assets in the books, would not be liable to tax. 

This plea was not accepted by the AO and by the CIT(A) and, accordingly, it had resulted in an addition in the hands of the assessee.

The Tribunal from the income-tax depreciation schedule found that assessee had reduced the sale consideration figure in the plant & machinery block of 15% and had claimed depreciation u/s 32 of the Act on the remaining value thereon.   

The Tribunal noted that the methodology adopted by the assessee for computation of depreciation was strictly in consonance with the provisions of section 32 read with section 43 of the Act.  Also, no infirmity was found in the computation made by the assessee in the income-tax depreciation schedule.

The Tribunal further observed that the gain on sale of fixed assets arose in the books of accounts of the assessee company only.  That had absolutely nothing to do with the provisions of the Income-tax Act.  Moreover, the written down value of the plant & machinery as per the Companies Act and written down value of plant & machinery as per the Income-tax Act would obviously be different, in view of the change in rates of depreciation provided under the Companies Act and Income-tax.

The Tribunal opined that the lower authorities had not appreciated the specific fact and had misunderstood the provisions of the Income-tax Act while confirming the addition. 

Accordingly, the ITAT deleted the addition made and the issue was decided in favour of the assessee.

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