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2016 (9) TMI 447 - ITAT HYDERABAD

2016 (9) TMI 447 - ITAT HYDERABAD - TMI - Revenue loss or business loss - Held that:- 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 purchasing plant and machinery with .....

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specified as to what is the price quoted towards plant and machinery at the time of offering its tender. On the contrary, the facts 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 m .....

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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 case and therefore, deserves to be set aside and we direct accordingly. In the result, we set aside the order passed by the Ld. CIT(A) and uphold the view taken by th .....

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he learned Commissioner of Incometax( Appeals) is erroneous both in law and facts of the case. 2. The Ld. CIT(A) erred in deleting the addition unilaterally relying upon the submissions furnished by AR of the assessee without appreciating the facts of the case. 3. The Ld. CIT(A) erred in appreciating the fact that the impugned transaction ie., sale of plant and machinery is a SOLITARY TRANSACTION and incidental activity to purchase of land, plant and machinery. This is not an organized activity .....

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that the impugned plant and machinery treated as scrap by the learned CIT(A) cannot be considered as that scrap which emerged from the hotel business. 8. Any other ground that may be urged at the time of hearing. 2. The facts in brief are that the assessee company is engaged in the hotel business and for the year under consideration it declared total income of ₹ 1.45 crores whereas the assessment was completed by determining the income at ₹ 2,68,16,871. It may be noticed that though .....

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nging 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, aggregat .....

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lakhs was paid towards interest on belated payments of the said sum and thus, the total worked out to ₹ 294.78 lakhs. Since the entire machinery was sold for a consideration of ₹ 1.72 crores, the balance of ₹ 1.22 crores was shown as loss against the income of its hotel business. 2.1. The A.O. noticed that the assessee is in hotel business whereas M/s. Shyam Vinyls Ltd., was altogether in a different line of business and therefore, the purchase of machinery has no nexus with t .....

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can be set off only against the capital gain. Since the assessee debited loss of ₹ 1.22 crores the same was disallowed by the A.O. by specifically observing that it has no connection whatsoever with the business activity carried on by the assessee. 3. Aggrieved, assessee contended before the Ld. CIT(A) that the Official Liquidator has called for a tender quoting minimum upset price of ₹ 290 lakhs for the plant and machinery and assessee having not paid the amount intime he had to pay .....

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t used and lying idle for the last several years - this asset can independently be treated as a separate block and the sale transaction resulting in profit or loss needs to be transferred to the P & L A/c. It was also contended that the A.O. was 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 t .....

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y, 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 was correctly taken into consideration in the P &am .....

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the Official Liquidator has quoted the minimum upset price for plant and machinery the fact remains that the plant and machinery is nothing but scrap on which the assessee had to pay ₹ 294 lakhs. Since the assessee took a decision to sell the same on as is where as basis , the differential amount has to be treated as loss incurred in the course of business which has to be treated as business loss. Ld. CIT(A) had also taken support of the clause in the memorandum and articles of association .....

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hlighted that the A.O. was not correct in alleging that the asset was not brought into books of account since the assessee paid a sum of ₹ 1.02 crores for the year ending 31.03.2007 which was shown in the balance sheet under the head Advances for Others and another sum of ₹ 4.08 crores for the year ending 31.03.2008, paid to the Court were shown in the schedule of fixed assets but at the same time in the balance sheet for the year ending 31.03.2009 the scrap (plant and machinery) was .....

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lue 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 .....

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of business and even as per the memorandum and articles of association the scrap arising out of the main activity i.e., hotel business can be sold whereas, in the instant case, the assessee purchased the land and building and plant and machinery of M/s. Shyam Vinyls Ltd., which was useful for manufacturing of cushion vinyl floor covering line and it has no nexus whatsoever with the line of activity carried on by the assessee. He further pointed out that though the minimum upset price fixed by th .....

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of proceedings in Company Application No.1888 of 2009 the assessee accepted that proportionate value of auctioned property can be taken at ₹ 226 lakhs (see page 27 and 28 of paper book) and in fact, sale deed was also executed without referring to the specific price for plant and machinery and for land and building. Thus, it is only an afterthought by the assessee to increase the value of the plant and machinery, as if upset price was accepted during tender proceedings. He further submitte .....

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the conclusions reached by the CIT(A). 6. The Ld. D.R. also adverted our attention to para 3.2 of CIT(A) order (page 12) to submit that the assessee having shown the purchase cost in the balance sheet as part of schedule of fixed assets the same cannot be treated as stock-in-trade. In otherwords, the building and plant and machinery was shown in the schedule of fixed assets but while selling the plant and machinery, which is nowhere connected to the main line of the business of the assessee, it .....

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old 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 o .....

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purpose of carrying on the business of purchase and sale of scrap since it is not even remotely connected to the main line of activity. Assessee has nowhere specified as to what is the price quoted towards plant and machinery at the time of offering its tender. On the contrary, the facts 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. Thus the bifurcation of value bet .....

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