9911796707
TMI Blog2014 (10) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset in the hands of the assessee in his business of running a hotel - the argument that the plant & machinery purchased would constitute stock in trade is acceptable and the loss on sale should be assessed as capital loss – Decided in favour of revenue. - ITA No. 1674/Hyd/2012 - - - Dated:- 16-9-2014 - Shri B. Ramakotaiah And Smt. Asha Vijayaraghavan,JJ. For the Appellant : Sri R. Mohan Reddy For the Respondent : None ORDER Per Asha Vijayaraghavan, J.M. This appeal by Revenue is directed against the order of CIT(A), Guntur dated 13.09.2012 for assessment year 2009-10. 2. Brief facts of the case are that the assessee is a company deriving income from hotel business, filed its ereturn of income for the A.Y. 2009-10 on 29.09.2009, determining total income of ₹ 1,45,38,260. The case was selected for scrutiny to examine the disallowance u/s 14A of the Income-tax Act, 1961. It was seen from the assessment order that the assessee had debited a sum of ₹ 1,22,78,611 towards loss on sale of machinery. The assessee has purchased property admeasuring 7.75 acres with buildings and civil works and plant and machinery situated at S. No. 438 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in invoking the provisions of section 14A of the IT Act. The assessee further raised a ground that when notice u/s 156 was not signed, no amount was mentioned, demand is not enforceable, in result of the order passed u/s 143(3) becomes void. During the course of appellate proceedings, Sri KJD Srinivas, CA, Authorized Representative, attended and filed written submissions. The main ground in this case is invoking the provisions of section 14A of the IT Act, by treating the set off of loss of ₹ 1,22,78,611 as capital asset and such loss can be set off against the income of capital gains only. For this addition, the assessee had submitted its explanation as under:- The assessee is a company, carrying on hotel, restaurant and other related business filed the ROI for the A.Y. 2009-10 with a returned income of ~1,45,38,260/-. The Assessee has participated in auction released by official liquidator of Hon'ble HC of AP, became successful bidder, and accordingly paid an advance amount of ₹ 40 lakhs in terms of the tender notice. In terms of the said transaction the Official Liquidator of the Hon'ble HC of AP, issued a letter dated 21-02- 2007 confirming the tender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) The fact that the cost of plant machinery was brought to the books of account, were, verified during assessment proceedings itself. (iii) Hence, it is submitted, that the plant machinery was brought in to the books of account. (III) The A.O. was of the opinion the Assessee has not got the machinery evaluated by an appropriate person, in this connection the following have been submitted viz., i) The Assessee Company was explaining that to secure a party for this transaction was an Herculean job, the rate mobilized was as higher as market rate prevailed for this type of scrap /obsolete /old plant and machinery transaction, hence, the rate fetched was far higher than real market value. ii) The said plant and machinery, was not having any maintenance, for the past several years, when it is owned by the erstwhile vendor, SHAYAM VINYLS LTD, wherein the unit was under seizure for quite a number of years, before the advertisement was released in the paper. iii) It could be appreciated, when the official liquidator of Hon'ble APHC, given the advertisement in the paper, that the enough number of years were passed (court process) after the seizure of the unit. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reduced from the block of asset, however, in the present case there was no such block of asset as this plant and machinery was a scrap one, not in use, lying as idle for the last several years, hence, no separate block of asset could be created to begin with this transaction hence, the sale transaction resulting profit or loss was need to be transferred to the profit and loss account. (b) All that, the AO, was observing, since the assessee company, has acquired the asset, i.e. land buildings, Plant Machinery, together, the same shall represent capital asset, and the profit or loss arising out of sale of these assets shall represent capital gain or capital loss and hence, not to be debited to profit loss ale. In this connection, the following are submitted, viz. i) Sale of land and buildings, - did not arise in this case, and hence, not discussed. ii) Sale of Plant Machinery (Scrap): though it is a fixed asset, representing capital asset, however, since the time the block of asset concept was introduced by the statute, the treatment for the purchase / sale of the transaction, representing Plant Machinery, undergone changes. iii) When a plant machinery (scr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, sale of scrap is incidental and ancillary to the carrying on the main objects of the company, the same was provided in the Memorandum Articles of Association of the company. It was pointed out that keeping in view the nature of industry, sale of scrap represents major receipt/activity, to sell the scrap the company does not require to get register themselves as scrap dealers/ traders. (VII) Date chart of the events taken place in connection with purchase of Land Buildings, Plant Machinery (scrap) are as follows:- (VIII) Sale of Plant Machinery (Scrap): Entire sale consideration was received during the financial year 2008-09. It was brought to notice that Soon after making the payment of entire sale consideration, upon assuming the possession memo from OL of HC, the company could strike a decision for sale of plant Machinery(in scrap condition) only to save the company from locking of huge funds in the said IDLE ASSET, as the company is paying huge interest to Banks and APSFC on working capital Term Loans respectively, in addition to this, sale of scrap would infuse additional funds in the system thereby in turn increase in cash flows of the company. (IX ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, it is nothing but scrap, which amounted to ₹ 2,94,78,611/-, on payments made to the Court. Since the value of scrap is bound to deteriorate, if kept in the purchased erstwhile business unit for long, the appellant took a decision to sell the same in 'as is where is basis', and the realisations made under this exercise amounted to ₹ 1,72,00,000 and incurring a loss of s. 1,22,78,611/-. Now the question before the undersigned is whether this loss could be allowed to be written off to business income, which is discussed in the following paragraphs. 4.3.2. It may be seen that as per articles and memoranda, the appellant can indulge in any other activity other than hotel business also. Incidentally, sale of scrap is one of the main sources of income in any hotel industry and the appellant is not an exception. Thus, on successful bidding the sale of scrap tantamount to business activity only and thus, if any loss is sustained in such a situation, the same has to go to reduce the business income, but not to any other head. It may however be noted here that the AO while selecting the case for scrutiny, thought that it was a case where the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces, the same is allowable loss against the business income sustained from hotel business, which the AO has not allowed. Since, the reasons cited by the AO for such an action were not approved; the AO is directed not to disallow the impugned loss. Aggrieved the Department is in appeal before us. 7. We have heard the learned DR. None appeared on behalf of the assessee, however, written submissions have been placed on record. The fact is that the assessee had purchased a hotel which included land, building, plant machinery. The purchase price of acquisition has clearly demarcated the price for land building and the price for plant machinery. According to the assessee, he had not used the plant machinery for his business but had sold that as scrap . 8. The issue for consideration is whether the purchase of plant machinery is under revenue field and therefore the loss arising from the sale of the same would constitute the revenue loss. 9. Plant machinery being capital asset, the purchase of the same cannot be considered as to be in the revenue field unless the assessee is in the business of trading in plant machinery or trading in machinery. In the present ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
