The Bombay High Court has rejected Everest Kanto Cylinder Ltd.’s claim to treat ₹56,79,598 lost on the sale of depreciable assets as a business loss under Section 41(2) of the Income Tax Act, 1961. The Court held that the provision’s limited application to qualifying power-sector undertakings did not extend to the cylinder manufacturer using the written-down-value block system.
Mumbai: The Bombay High Court on November 5, 2026, dismissed Everest Kanto Cylinder Ltd.’s income-tax appeal, upholding the rejection of its ₹56.80 lakh loss claim under Section 41(2) for assessment year 2021–22.
A Division Bench of Justices G. S. Kulkarni and Dr. Neela Gokhale held that the company did not fall within the statutory category to which Section 41(2) applies. The judgment, authored by Justice Kulkarni, answered the question of law against the assessee and in favour of the Revenue.
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What the company claimed
Everest Kanto manufactures and exports CNG cylinders. It claimed a deduction of ₹56,79,598 after selling certain depreciable fixed assets for less than their written-down value. The claim was disallowed during processing of its return and remained unsuccessful before the appellate tax authorities and the Income Tax Appellate Tribunal.
Before the High Court, the company argued that Section 41(2) could accommodate the loss because the expression ‘income’ includes loss. It also contended that Section 41(2) and Section 50 coexist, and that it should receive the benefit of the provision more favourable to it.
The company relied on decisions concerning losses on business assets and the setting off of brought-forward business losses against gains from asset sales. The Revenue opposed treating the disputed amount as a business loss under Section 41(2), relying on the statutory treatment of written-down value and blocks of assets.
The statutory link that decided the appeal
The Court focused on Section 41(2)’s express requirement that depreciation on the relevant asset must have been claimed under Section 32(1)(i). That provision concerns the actual-cost depreciation regime for undertakings engaged in generation, or generation and distribution, of power.
The Tribunal had held that Everest Kanto instead claimed depreciation using the written-down-value method, with assets grouped into blocks. The High Court agreed that the company could not invoke Section 41(2) as though it applied generally to all depreciable business assets.
Tracing the legislative history, the Bench noted that Section 41(2) had been omitted when the depreciation framework changed and was reintroduced with effect from April 1, 1998, in connection with the separate depreciation regime for power undertakings.
In paragraph 17, the Court held that this limited application did not cover the appellant. For an assessee outside Section 32(1)(i), additions and sales must instead be reflected in calculating the written-down value of the asset block: the cost of additions is added and sale value deducted.
Why the earlier set-off decision did not help
The Bench distinguished Digital Electronics Ltd. v. Additional Commissioner of Income Tax. That case concerned whether existing, brought-forward business losses could be set off against gains arising from the sale of business assets under Section 72.
The question here arose at an earlier stage: could this company classify the disputed asset-sale loss as a business loss under Section 41(2) at all? A ruling about using an already recognised business loss for set-off did not establish that entitlement.
The Court also referred to the Punjab and Haryana High Court’s decision in Commissioner of Income Tax v. Rhodoen Silk Mills (P) Ltd. while examining the restricted scope of Section 41(2) and the operation of block depreciation.
Outcome and scope
The appeal was dismissed without costs. The ruling rejects the particular route used to claim the deduction under Section 41(2); it should not be read as holding that every loss from the sale of depreciable assets is incapable of recognition under the tax law.
Case Details
Case: Everest Kanto Cylinder Ltd. v. Deputy Commissioner of Income Tax-Circle 3(4) & Anr.
Case Number: Income Tax Appeal (L.) No. 39 of 2026
Court: Bombay High Court, Ordinary Original Civil Jurisdiction
Bench: Justice G. S. Kulkarni and Justice Dr. Neela Gokhale
Decision Date: November 5, 2026
Neutral Citation: 2026:BHC-OS:24152-DB
Assessment Year: 2021–22
Outcome: Appeal dismissed; question of law answered in favour of the Revenue; no costs.