M/s. Trichy Steel Rolling Mills Ltd., Trichy V. ACIT, Trichy

ITA 1570/CHNY/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51862 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-09-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 22-07-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: E SANKAR
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 1570/MDS/2008 (ASSESSMENT YEAR : 2001-02) M/S TRICHY STEEL ROLLING MILLS LTD SENTHANNIPURAM TRICHY 620 004. PAN : AAACT 3372 K (APPELLANT) VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE - I, TIRUCHIRAPALLI. (RESPONDENT) APPELLANT BY : SHRI S. SRIDHAR RESPONDENT BY : SHRI E. SANKAR CIT, DR DATE OF HEARING : 15.09.2011 DATE OF PRONOUNCEMENT : 23.09.2011 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY ASSESSEE FOR THE ASSESS MENT YEAR 2001-2002 AGAINST THE ORDER DATED 21.05.2008 OF COM MISSIONER OF INCOME TAX (APPEALS)-I, TIRUCHIRAPALLI. I.T.A. NO. 1570/MDS/2008 2 2. THE ASSESSEE HAS TAKEN FIVE EFFECTIVE GROUNDS OF APPEAL. HOWEVER, THE ONLY ISSUE INVOLVED IN ALL THESE GROUN DS IS THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT THE LEASE RENT PRE PAID IS A BUSINESS ASSET AND THE SHORT REALIZATION OF THE ADVANCE CONS TITUTES BUSINESS LOSS AND THAT THE CLAIM OF THE ASSESSEE IS ALLOWABL E AS BUSINESS LOSS U/S 29 OF THE INCOME-TAX ACT, 1961 [IN SHORT, THE A CT]. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA D TAKEN TWO DIESEL GENERATOR SETS IN THE FINANCIAL YEAR 1990-91 ON LEASE BASIS FROM M/S CHOLAMANDALAM FINANCE CORPORATION LIMITED FOR ITS USE IN THE FACTORY. THESE GENERATORS WERE FOUND TO BE UNF IT FOR USE BY THE ASSESSEE COMPANY. BUT THE ASSESSEE CONTINUED TO PA Y THE LEASE RENTALS UPTO 31 MARCH 1999 AND A TOTAL SUM OF RS. 162.95 LAKHS WAS PAID BY THE ASSESSEE COMPANY TO THE LESSOR TOWARDS LEASE CHARGES OF THESE TWO GENERATORS. THE ASSESSEE COMPANY CLAIMED TO HAVE NOT USED THESE GENERATORS IN THE PRODUCTION PROCESS AND THESE WERE NOT INSTALLED AND COMMISSIONED. SUBSEQUENTLY THE ASSES SEE FOUND TWO BUYERS TO WHOM THE GENERATORS WERE SOLD AT A SUM OF RS. 114.28 LAKHS. ONE DIESEL GENERATOR WAS SOLD TO M/S GOLD S TAR FOR A SUM OF I.T.A. NO. 1570/MDS/2008 3 RS. 54.45 LAKHS AND THE OTHER TO SHRI SIMHADRI CEM ENTS FOR A SUM OF RS. 59.83 LAKHS. THE ASSESSEE CLAIMED THAT THE LO SS ON THE SALE OF ASSETS AS BUSINESS LOSS AMOUNTING TO RS. 48.67 LAK HS [LEASE CHARGES PAID RS. 162.95 LAKHS MINUS AMOUNT REALIZED ON THE SALE OF GENERATORS RS. 114.28 LAKHS]. THE ASSESSING OFFIC ER FOUND THAT THE ASSESSEE HAD NOT CLAIMED LEASE CHARGES IN THE LAST EIGHT YEARS IN THE PROFIT AND LOSS ACCOUNT AND THE GENERATORS WERE NOT INCLUDED IN THE BLOCK OF FIXED ASSETS BECAUSE THEY WERE NOT OWNED B Y THE COMPANY AND WERE ONLY LEASED MACHINERY. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAD NOT ADDED BACK LOSS ON SALE OF ASS ETS. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE LOSS CLAIMED O N THESE GENERATORS HOLDING IT TO BE CAPITAL LOSS. 4. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED TH AT THE ASSESSING OFFICER HAD ERRED IN STATING THAT THE LEA SE RENT HAD BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THAT IT HAD BEEN CARRIED ONLY AS AN ASSET. THE LOSS OF SALE ON ASSET IS ALL OWABLE AND IT SHOULD BE DEDUCTED IN COMPUTING THE INCOME AS A BUSINESS L OSS. IT WAS ALSO SUBMITTED THAT THE LOSS INCURRED IS NOT CAPITAL IN NATURE AS THE LOSS I.T.A. NO. 1570/MDS/2008 4 IS RELATED TO BUSINESS ASSET AND THEREFORE, IT IS A LLOWABLE AS A BUSINESS LOSS. 5. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE, FOUND THAT IT WAS APPARENT FROM THE FACTS OF THE CASE THAT THE GENERATORS WERE NOT OWNED BY THE ASSESSEE COMPA NY AND THESE WERE TAKEN ON LEASE FROM M/S CHOLAMANDALAM FINANCE. THE LESSOR WAS ENTITLED TO DEPRECIATION AND NOT THE ASSESSEE C OMPANY. ACCORDINGLY, THEY WERE NOT SHOWN BY THE ASSESSEE CO MPANY ASSESSEE AS A PART OF ITS BLOCK OF ASSETS. THE ASSESSEE COM PANY PAID LEASE CHARGES DIRECTLY TO THE LESSOR WITHOUT DEBITING THE SAME IN THE PROFIT AND LOSS ACCOUNT. THE LEASE CHARGES PAID IN EVERY YEAR WERE SHOWN AS AN ADVANCE ON THE ASSETS SIDE OF THE BALAN CE SHEET. HE HELD THAT IN HIS VIEW, SUCH ACCOUNTING TREATMENT WA S NOT CORRECT. THE EXPENSES INCURRED BY THE COMPANY CANNOT BE SHOW N AS ADVANCES SIGNIFYING VALUE ON THE ASSET SIDE WHEREAS AMOUNT PAID WAS BASICALLY AN EXPENSE ITEM. HE OBSERVED THAT HE AGREED WITH THE VIEW OF THE ASSESSING OFFICER THAT SUCH LOSS ON SALE OF MACHINERY WAS A CAPITAL LOSS AND NOT A REVENUE LOSS. HE ALSO NOTED THAT THE I.T.A. NO. 1570/MDS/2008 5 GENERATORS WERE NEITHER OWNED BY THE COMPANY NOR WE RE THEY INSTALLED. THE LOSS IN THE VALUE OF GENERATORS BY KEEPING IN GODOWN FOR EIGHT YEARS BY THE ASSESSEE COMPANY CAN ONLY BE CAPITAL LOSS AND NOT REVENUE EXPENDITURE. THEREFORE, THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT(A). 6. AT THE TIME OF HEARING, THE LD. A.R. ON A QUERY BY THE BENCH AS TO WHEN THE GENERATORS WERE PURCHASED BY THE ASSESS EE, THE LD. A.R. REPLIED THAT THEY WERE PURCHASED AT RE. 1/- VA LUE AT THE END OF THE LEASE PERIOD. BUT HE COULD NOT FILE ANY EVIDEN CE IN SUPPORT OF THE SAME. ON A FURTHER QUERY BY THE BENCH AS TO WH ETHER THE ASSESSEE PAID SALES TAX ON SALE OF THE GENERATORS F OR RS. 114.28 LAKHS, THE LD. A.R. COULD GIVE NO REPLY. HE THEN S UBMITTED THAT THE ENTIRE FACTS ARE NOT BROUGHT ON RECORD BY THE LOWER AUTHORITIES BEFORE ADJUDICATING THE ISSUE, THEREFORE, THE MATER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO BRING THE ENTIRE FACTS ON RECORD AND THEN READJUDICATE THE ISSUE AND ALSO SUBMITTED THAT HE UNDERTAKES TO FILE ALL THE RELEVANT DOCUMEN TS IN THIS CONNECTION BEFORE THE ASSESSING OFFICER. I.T.A. NO. 1570/MDS/2008 6 7. THE LD. D.R. SUPPORTED THE ORDERS OF THE LOWER A UTHORITIES. 8. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIALS ON RECORD WE FIND THAT IN THE INSTANT CASE THE ASSE SSEE HAD CLAIMED TO HAVE TAKEN TWO GENERATORS ON HIRE IN FINANCIAL Y EAR 1990-91 BUT THEY WERE NOT FOUND FIT FOR USE, THE ASSESSEE DID N OT INSTALL THE SAME AND CONTINUED TO PAY LEASE RENTAL UPTO TO 31.3 .1999 ON THEM AND THE LEASE RENTALS WERE SHOWN AS ADVANCE IN THE BALANCE SHEET OF THE ASSESSEE. TOTAL OF THE LEASE RENTALS AMOUNT ED TO RS. 162.95 LAKHS. THE ASSESSEE SOLD THE DIESEL GENERATOR SETS DURING THE YEAR UNDER CONSIDERATION FOR A SUM OF RS. 114.28 LAKHS AND CLAIMED RS. 48.67 LAKHS AS LOSS WHICH WAS DISALLOWED BY THE ASS ESSING OFFICER HOLDING IT TO BE A CAPITAL LOSS. WE FIND THAT NONE OF THE LOWER AUTHORITIES AND EVEN THE LD. A.R. OF THE ASSESSEE B EFORE US COULD FILE EVIDENCE AS TO WHEN THE DIESEL GENERATOR SETS WERE PURCHASED BY THE ASSESSEE. FURTHER, NO EVIDENCE WAS FILED ABOUT THE PAYMENTS OF SALES TAX ON THE SALE OF DIESEL GENERATOR SETS. THE REFORE, WE ARE INCLINED TO ACCEPT THE SUBMISSIONS OF THE LD. A.R. OF THE ASSESSEE THAT THE ORDERS OF THE LOWER AUTHORITIES SHOULD BE SET ASIDE AND THE I.T.A. NO. 1570/MDS/2008 7 MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESS ING OFFICER FOR READJUDICATION OF THE ISSUE AFTER PROPER VERIFICATI ON AND THEREAFTER TO DECIDE THE ISSUE AFRESH AS PER LAW AFTER ALLOWIN G PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ORDER A CCORDINGLY. THUS THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED F OR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 23 RD SEPTEMBER, 2011. SD/- SD/- (GEORGE MATHAN) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 23 RD SEPTEMBER, 2011. VL COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), CHENNAI (4) CIT, CHENNAI (5) D.R. (6) GUARD FILE