Law:

Section:

Section 41(2) of the Income-tax Act, 1961 - Balancing charge - Assessment year 1976-77 - Whether under section 41(2), difference of sale price and written down value of depreciable assets is to be treated as profit for year in which sale of depreciable assets had taken place - Held, yes - Whether where assessee failed to show by cogent material written down value of depreciable assets which had been sold, Assessing Officer was fully justified in treating entire sale proceeds as profit - Held, yes FACTS During the assessment year 1976-77, the assessee, a public limited company had sold certain old assets and had claimed that the written down value of those assets was not ascertainable. The Assessing Officer held that the fact that the assessee was not able to work out the cost of said assets would go to show that the assets were very old and depreciation must have been allowed on those assets equal to their cost. Thus, the entire sale price in respect of said assets was treated as profits. On appeal, the Commissioner (Appeals) held that the addition might be limited to 50 per cent. However, the Tribunal held that the profit might be taken at nil and the written down value of the remaining block of the assets be reduced by the amount received by sale of assets. On reference : HELD The approach of the Tribunal was wholly illegal and unwarranted. It did not have backing of the statutory provisions. Under section 41(2), the difference of the sale price and the written down value of the depreciable assets is to be treated as profit for the year in which the sale of depreciable assets had taken place. In the instant case, since the value of the assets so sold was not ascertainable and the assets were very old, the assessing authority was fully justified in treating the entire sale proceeds as profit chargeable to tax. It was upon the assessee to show by cogent material, the written down value of the depreciable assets which had been sold. Having failed to do so, the Tribunal ought to have applied the provisions of section 41(2). [Para 4] Therefore, the Tribunal was not justified in holding that no profit be charged under section 41(2) on sale of assets. Shamboo Chopra…

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