Disallowance of loss due to Incorrect Comprehension of Section 43(6) of Income Tax Act: ITAT upholds order of CIT(A) [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) upheld the order of the Commissioner of Income Tax (Appeal) [CIT(A)] due to disallowance of loss due to incorrect comprehension of Section 43(6) of the Income Tax Act, 1961.

The Departmental Representative submitted that the Assessing Officer (AO) rightly made an addition in the hands of the assessee by observing the ‘mutual adjustment’ between the assessee and its other group entity M/s. Bharti Realty Holdings Ltd. reveals that the assets sold have been transferred at a price below the Fair Market Value (FMV) of the assets. It was further submitted that the said arrangement between the assessee and other group entities has resulted in Short Term Capital Loss (STCL) of Rs.5,36,65,783/- to the assessee company.

The AO rightly held that the assessee has managed its affairs so as to claim STCL by not taking FMV as per the Income Tax Act and consequently, the AO rightly made an addition on account of STCL accrued to the assessee. The Authorized Representative further submitted that the AO has not given any basis or reason for the ‘money payable’ has been substituted by Written Down Value (WDV) and how the ‘mutual understanding theory’ prevails upon the provision of the Income Tax Act.

The assessee filed details showing the disclosed value of assets matching with the sale value of the appellant wherein all details of the financials of the assessee and transferee entity were available in the record of the AO, which could be verified. Thus, it was further submitted that the disallowance of loss has been made due to incorrect comprehension of the provision of Section 43(6) of the Income Tax Act which provides a reduction of written down value by the ‘money payable’ in case of sold assets.

The Two-member bench comprising of G.S. Pannu (President) and Chandra Mohan Garg (Judicial member) held that the CIT(A) rightly held that the disallowance of loss was due to incorrect comprehension of the provisions of Section 43(6) of the Income Tax Act which provides reduction of Written Down Value by the ‘money payable’ in the case of sold assets.

Keeping in view relevant facts that the assessee has sold two blocks of assets and part of three blocks to its sister concern by ‘mutual fixing’ sale price resulted in nil Written Down Value and Short-Term Capital Loss of Rs.5,36,65,783/-. In view of the above, the bench was unable to find any valid reason to interfere with the findings and conclusion drawn by CIT(A) while granting relief to the assessee. Thus, the appeal of the revenue was dismissed.

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