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TMI Blog2014 (10) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... Vinyls Ltd., from the Official Liquidator, High Court of Andhra Pradesh, Hyderabad. The Official Liquidator has issued a notice for sale of land and buildings and plant and machinery quoting the minimum upset price at Rs. 273.50 lakhs for the land and buildings and Rs. 290 lakhs for the plant and machinery aggregating to Rs. 527.50 lakhs. The assessee has made a consolidated offer of Rs. 502 lakhs and the Official Liquidator has accepted the offer and handed over the possession of the land and buildings and machinery on 05.07.2007. The company got a sale deed executed by the Official Liquidator on 27.11.2009. 3. After taking possession of the land and buildings and plant and machinery, the assessee company had sold the entire machinery for a total consideration of Rs. 1.72 crores and the assessee claimed the difference amount of Rs. 1,22,78,611 as loss against the income of its hotel business, after taking into consideration, the sum of Rs. 4.78 lakhs paid towards interest on belated payment of the sum of Rs. 290 lakhs, towards the value of plant and machinery as fixed by the Official liquidator. The Assessing Officer while completing the assessment u/s 143(3) had observed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, on payment of full sale consideration as mentioned in possession memo." 5. The learned counsel for the assessee filed written submissions before the CIT(A) as follows: (I) The AO has observed that, purchase of this property has no nexus with the existing business of the assessee company, whatsoever, in this connection the following have been submitted viz., (a) The assessee company could acquire the said property as part of the strategic prudent business decision and future expansion proposal/diversification plans of the hotel industry. (b) The company was having units at Tirumala, Tirupati with a vast track record and MAYURA brand image, is endeavouring, aiming to setup new hotel units / restaurants, at nearby locations found the offer/advertisement released by the Official Liquidator of Hon'ble APHC, was feasible and reasonable, as such could strike a decision to participate. (c) As per the terms and conditions of the tender, the entire unit is to be purchased and the same cannot be allowed partially, and hence, the company could take a decision to file a tender for the purchase of the entire unit, in terms of advertisement released. (d) To save the situation and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircles through e-mails, phone contacts, industrial brokers, could find a purchaser, from Uttar Pradesh, and sold the plant and machinery on as it is where it is basis. v) The assessee company was escorted by very experienced management as such, could resolve, that the said plant & machinery is to be sold as scrap only, and hence, no registered valuer would be evaluating the Plat & machinery, as it was known fact, that the said plant & machinery was not in use, for more than a decade or so, and if the company resort for referring to registered valuer the same would lead to spreading message to the industrial circles, and will certainly reduces the chances of getting a good party, for the sale. vi) When a plant & machinery was not in use, valuation of the same would be done/ known through major scrap merchants, and not from a registered valuer, for the following reasons. viz. (i) Registered Valuer requires the date, make, model of the machinery these details were not available with the erstwhile vendor Shayam Vinyls Ltd., itself, hence, the assessee company was not in a position to provide these details, as the Plant & machinery was acquired through official Liquidator of the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atment was to be given as the assessee company was not a scrap dealer/not trader in scrap. iv) In the present assessee company's case - the company is a going concern, and was in existence prior to the acquisition of this plant & machinery (Scrap), and hence, the purchase of this plant & machinery (scrap), was categorized as a separate one. v) The plant & machinery (scrap) was known as not fit for use before purchase itself, it was a coincidence, that plant & machinery, land and buildings, together purchased however, the Official Liquidator of Hon'ble APHC, himself, bifurcated the values of land & Buildings, Plant & Machinery in the advertisement released and made the registration accordingly. vi) In view of the above, sale of this plant & machinery, (scrap) the profit or loss arising out of this transaction needs to be transferred to profit & loss a/c. (V) AO was not justified in invoking the provisions of section 14A of the IT Act, for the following reasons, viz.: i) Income which is taxable under the Act in the relevant asst. year; ii) there should also be income which does not form part of total income under the act, during the relevant asst year, and if either is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,611. iii) Total Value of Plant & Machinery( Scrap) including interest = Rs. 2,94.78,611. iv) Sale consideration = Rs. 1,72,00,000 v) Loss on account of this transaction = Rs. 1,22,78,611 (X) It is submitted, that acquisition of the Land, Buildings and Plant & Machinery( Scrap) is for the purpose of carrying on the business of the assessee company, as part of the future needs, expansion programme, strategic decisions and to sell the unwanted/not for use/scrap/ obsolete items is an appropriate decision that too timely to ensure no impact on the existing cash flows and at the same time to enhance the liquidity position of the company, as there was no alternative to this, as per the advertisement of the OL of HC, both the items of Land, Buildings and Plant & Machinery are to be bought together. In view of the above, it was again submitted and prayed that loss on sale of scrap is a revenue loss, eligible to be written off to the profit & loss a/c. 6. The CIT(A) considered the submissions of the assessee and after elaborate discussion at paras 4.3.1, 4.3.2 and 4.3.3 of his order, extracted below, held that loss of Rs. 1,22,75,611 is allowable loss against the business income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance for others; another amount of Rs. 4,08,28,493/- for the year ending 31.03.2008 was paid to the Court and the total amount of Rs. 5,10,28,493/- was shown in the schedule of fixed assets for the year ending 31.03.2008. But, however in the balance sheet for the year ending 31.03.2009, the scrap (plant and machinery at Rs. 2,94,78,611/-) was shown as sold retaining in the balance sheet land and buildings at Rs. 2,15,49,882/-. Thus, the observation of the AO that the impugned asset was not brought into books is ill founded. It is also true that the allegation of the AO that registered Valuer was not appointed would not carry any weight as such a situation demands production of invoices, registers etc, which were not there. Thus, in fact such a step impede the proposed sale of scrap and in light of the fact that with time the scrap deteriorates fast getting lesser price with passage of time is not in the interest of anybody. In light of the foregoing, all allegations of the AO are not worth and not helping either the Revenue or the appellant. The last point regarding sale of scrap and written off such loss to business income is discussed as under. 4.3.3. It has already been bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use still to be sale of capital asset and not stock in trade. Hence, the loss arising from sale of plant & machinery would constitute capital loss As the assessee has stated that the plant and machinery has never been used in the hotel right from the beginning, such plant & machinery cannot be considered as part of the block of asset of the assessee's business. Therefore, the sale consideration for the disposal of unused plant and machinery could result in capital loss on account of the plant & machinery and the sale consideration cannot be credited to any block of assets of the assessee in as much as the plant & machinery sold never entered in block of assets plant & machinery used by the assessee in his business. Therefore, we hold that the loss arising from scrap sale of plant & machinery purchased but never used in the business would only constitute capital loss as the assessee had purchased land & building together with plant & machinery for the purpose of their business of setting up and running a hotel. The argument of the assessee that the purchases of plant & machinery alone is solitary transaction in the nature of adventure in trade cannot be accepted. The sale by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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