TMI Blog2016 (9) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... indicate that the dominant object was to purchase the capital assets and in fact the assessee has merely quoted the lumpsum price which was accepted by the Official Liquidator. The land and machinery was kept idle for more than one year but the assessee did not choose to obtain any report from the registered valuer with regard to the value of such plant and machinery which also indicate that the price now sought to be fixed at ₹ 294 lakhs is only an imaginary value so as to claim deduction from the business income overlooking the fact that it was purchased as an asset and reflected in the balance sheet as such. In our considered opinion, the Ld. CIT(A) has not given any reasons to accept the contention of the assessee despite the fact that not even an iota of evidence is placed to support such contention. On the other hand, the circumstances, categorically indicate that there is no nexus between purchase of land, building and plant and machinery on one hand and the hotel business being carried on by the assessee for the past two decades. On a conspectus of the matter, we of the firm view that the order passed by the Ld. CIT(A) is contrary to law and facts of the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amine disallowance under section 14A of the Act. While examining the books of account etc., the A.O. noticed that the assessee debited a sum of ₹ 1,22,78,611 towards loss on sale of machinery. When called upon to explain the admissibility of such loss the assessee contended that it has purchased certain property and plant and machinery belonging to M/s. Shyam Vinyls Ltd., from the Official Liquidator, High Court of A.P; the property consists of land admeasuring 7.75 acres with building, civil works and plant and machinery. According to the A.O. the property has no nexus to the assessee s business whatsoever. The said company was in liquidation and the Official Liquidator issued a notice for sale quoting minimum upset price at ₹ 273.50 lakhs for the land and building and ₹ 290 lakhs for the plant and machinery, aggregating to ₹ 527.50 lakhs. The assessee company made a consolidated offer of ₹ 502 lakhs for the entire property which was accepted by the Official Liquidator and possession of the property was handed-over on 05.07.2007. Thereafter, the assessee company sold the entire machinery for a total consideration of ₹ 1.72 crores and claimed los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not justified in invoking the provisions of section 14A of the I.T. Act since there is no income which does not form part of total income under the Act, during the relevant assessment year. It was also submitted that the assessee company is part of the renowned group by name Mayura , known for hotel industry since more than two decades. During the course of carrying on its main business it is quite natural for the company to sell scrap of various items such as iron and steel items, furniture, plastic bottles etc., and this sales represents major revenue which is ordinarily credited to the concerned purchase account and debited to the P L A/c. Since sale of scrap is incidental and ancillary to the carrying on main objects of the company, the same was provided in the memorandum and articles of the association of the company and in the same process the assessee having sold the plant and machinery (in scrap condition), only to save the company from locking of huge funds in the said idle asset . The amount realised on sale of scrap should be considered as revenue in nature and differential amount between the cost of plant and machinery (scrap) and the sale consideration realised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) was that such a step would impede the proposed sale of scrap in the light of the fact that with time the scrap deteriorates fast and may lessen the value of the scrap; with the passage of time no body may be interested in purchasing such scrap and hence, the assessee was justified in selling the same without obtaining any valuation report. He mainly highlighted that as per the memorandum and articles of association, assessee can indulge in any other activity other than hotel business, and sale of scrap is an ordinary fall-out of the hotel business and thus the same rule can be extended to the sale of plant and machinery in the scrap form and hence, the loss thereof, has to be allowed as set off against the income from hotel business. 5. Aggrieved, Revenue is in appeal before the Tribunal. Ld. D.R. submitted that the main object of the assessee company was only to carry on the hotel business and the scrap if any, is not either main line of business or even ancillary activity. Vessels, furniture, machinery etc., which were used in the hotel industry might have been occasionally sold but it precedes usage of the assets for the purpose of business and even as per the memorandum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connected to the main line of the business of the assessee, it cannot be said that the company was selling the scrap as part of its business activity. 7. On the other hand, Ld. Counsel appearing on behalf of the assessee strongly relied upon the order passed by the CIT(A). He adverted our attention to pages 45 and 52 of paper book to submit that the assessee was mainly interested in expanding its business by acquiring land admeasuring 7.75 acres and the plant and machinery was purchased for scrap value. In order to lessen the burden of further loss it was sold on as is where as basis in which event, it has to be treated as incidental to the main activity of business and sale thereof, ought to have been allowed as business loss. 8. We have considered the rival contentions and perused the record. As rightly pointed out by the assessee as well as by the Ld. CIT(A) the assessee has been wholly and exclusively engaged in the business of running hotels, boarding and lodging for the past two decades and the scrap, if any, generated out of the main line of activity was sold. The material presented before us nowhere indicate that the assessee was carrying on the activity of purchasi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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