ITAT Ahmedabad: Suyog Electricals Ltd. v. DCIT, Circle 2(1)(1), Vadodara, ITA No. 1352/Ahd/2025, order dated 25 November 2025.

Core Issue: Whether an addition of Rs. 4,83,894, being the book profit on sale of a motor vehicle forming part of the depreciable block of “Motor Cars” (15%), could be sustained when the assessee had already reduced the full sale consideration of Rs. 5,60,000 from the block in accordance with Section 43(6)(c) of the Income-tax Act, 1961, and the block continued to exist thereafter. In essence, the dispute was whether the tax authorities could treat the book profit as a taxable business receipt, resulting in double taxation, notwithstanding the statutory mechanism governing depreciable assets.

Facts: The assessee company sold a motor vehicle during the previous year relevant to AY 2018-19. The vehicle formed part of the existing block of assets classified as “Motor Cars” eligible for depreciation at 15 per cent. As per the books maintained under the Companies Act, the asset had a net book value of Rs. 76,106. On sale at Rs. 5,60,000, the company recorded an accounting profit of Rs. 4,83,894, which was credited to the Profit and Loss Account in the ordinary course of financial reporting.

For tax purposes, in the depreciation schedule forming part of the ITR, the assessee reduced the entire sale consideration of Rs. 5,60,000 from the written down value of the block, as mandated by the block-of-assets system. In the computation of income, the assessee removed the book profit credited in the accounts, contending that it had no tax implication under the Act once the asset belonged to a subsisting block.

The Assessing Officer completed the assessment under Section 143(3) and made an addition of Rs. 4,83,894, stating that the amount had been credited in the Profit and Loss Account and hence formed part of the taxable business profits. The case was originally selected for limited scrutiny on a different issue, but the AO invoked the computation sheet to justify the addition.

Before the CIT(A), the assessee argued that the sale consideration had already been reduced from the block, thereby eliminating any further tax event. The appellate authority, however, held that the assessee had not filed a revised return nor had it provided sufficient documentary support to substantiate its claim of double taxation. The appeal was dismissed.

Statutory Framework: The Tribunal examined the scheme of Sections 32 and 43(6)(c) of the Act, together with Rule 5 of the Income-tax Rules. Section 32 allows depreciation only on the written down value of a block of assets. Section 43(6)(c) defines “written down value” for a block as the opening WDV increased by actual cost of additions and decreased by the “moneys payable” in respect of any asset which is sold, discarded, demolished or destroyed. Once an asset becomes part of a block, its independent identity is extinguished, and any individual profit or loss on its sale becomes irrelevant for computation under the Act. The only statutory adjustment is the reduction of the sale consideration from the block.

The Tribunal also noted that Section 50 carves out a specific exception where capital gains are computed if the entire block ceases to exist. That circumstance was not applicable here, as the block remained intact after the sale.

Findings of the Assessing Officer: The AO treated the accounting profit on sale of the fixed asset as taxable. The reasoning was confined to the fact that the amount appeared in the Profit and Loss Account. There was no reference to the block-based depreciation provisions, nor was any statutory basis cited to justify a separate taxability of this profit when the block of assets continued.

Findings of the CIT(A): The CIT(A) confirmed the addition on the ground that the assessee had not furnished adequate supporting documentation, such as a revised computation or reconciliation of written down value, to substantiate the contention that the profit had already been neutralised through the block mechanism. The CIT(A) also took the view that the assessee’s claim amounted to a new claim made for the first time in appeal without a revised return, and therefore could not be entertained.

Tribunal’s Analysis and Findings: The Tribunal carefully examined the depreciation schedule in the income-tax return and noted that the entire sale consideration of Rs. 5,60,000 had indeed been reduced from the block of “Motor Cars”. This fact was not disputed by the revenue authorities. Once the statutory reduction had been made, the matter was fully governed by the computation mechanism in Section 43(6)(c). The Tribunal emphasised that the block-of-assets concept is a self-contained code: individual assets lose their separate identities, and neither accounting profits nor accounting losses on their sale are relevant for determining taxable income unless the block as a whole is extinguished.

It observed that the Assessing Officer had not pointed to any provision in the Act enabling the separate taxation of the book profit. Nor had the CIT(A) demonstrated how such an addition could be reconciled with the statutory mandate governing depreciable assets. The Tribunal held that taxing the accounting profit separately would lead to an untenable double taxation—first by reducing the WDV of the block (thereby diminishing depreciation) and again by treating the book surplus as income. Such duplication is wholly inconsistent with the legislative design behind the block-based depreciation regime.

The Tribunal also rejected the reasoning of the CIT(A) regarding the absence of a revised return. The assessee had not made a new claim but had merely applied the statutory computation mechanism in its return and had presented evidence of reduction from the block. The denial of relief on a technical ground was therefore unjustified.

ITAT Decision:On a comprehensive review of the record and statutory provisions, the Tribunal concluded that the addition of Rs. 4,83,894 was unsustainable in law and on facts. Since the sale consideration had already been fully adjusted against the block, there was no residual profit liable to tax. The addition was deleted, and the appeal of the assessee was allowed in full.