Profit on sale of assets is still taxable even if the block of assets continues to exist?
ITAT Ahmedabad: Suyog Electricals Ltd. v. DCIT, Circle 2(1)(1), Vadodara, ITA No. 1352/Ahd/2025, order dated 25 November 2025 was having an issue as to whether Profit on sale of assets is still taxable even if the block of assets continue to exists?
Let us have a Short Overview of the Case: –
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.
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 copy of the order is as under:
