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In a landmark ruling the Madras High Court in [2021] 17 ITR-OL 12 (Mad) held that an assessee is entitled to claim loss on sale of fixed assets as a business deduction u/s 41(2).

To make things certain the Court held that section 41(2) falls under Part D of Chapter IV which provides for “computation of total income”. The provisions under sections 28 to 44DB of the Act are relating to “computation of profits and gains of business or profession”. Part E of the said Chapter deals with capital gains and sections 45 to 55A deals with “capital gains”. Though both these provisions talk of only deemed income and deemed capital gains where depreciable assets are sold by the assessee, they do not clearly spell out the treatment of loss occurring at the stage of sale of such depreciated assets. We are of the opinion that even if these provisions talk only of taxability on the excess received by the assessee over the written down value of the assets, it cannot exclude or ignore the minus figure or loss occurring on such sale transactions.

Upon reading of relevant provisions of section 41(2), section 50 and section 70 it held thus that since, the sale of those assets of the block of assets, not being immovable property of the assessee, were sold during the regular course of business, before it was wound up during the relevant previous year, the loss occurring on such sale at a figure less than the written down value of the assets should be treated as “business loss” under section 41(2).

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