Annapurna Polymers Pvt. Ltd. (In Vol. Liquidation), Ahmedabad V. The Income Tax Officer, Ward-1(2), Ahmedabad

ITA 848/AHD/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9504 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 05-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: WAY OF A DETAIL CONTAINING CHRONOLOGY OF EVENTS
• Keywords: Depreciation; Cost of acquisition; Valuation report; Retraction; Liquidation

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘C’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.848/Ahd/2017 Asstt.Year : 2011-12 Annapurna Polymers P.Ltd. (In Voluntary Liquidation) 103, Aakanksha, Shrimali Society, Navrangpura Ahmedabad 380 009. PAN : AABCA 8452 A Vs ITO, Ward-1(2) Ahmedabad. (Applicant) (Responent) Assessee by : Shri Bandish Soparkar, AR Revenue by : Shri V.K. Singh, Sr.DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 0 2 / 0 8 / 2 0 2 2 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 0 7 / 0 9 / 2 0 2 2 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The present appeal has been filed by the assessee against order passed by the Commissioner of Income Tax(Appeals)-6, Ahmedabad (in short referred to as ld.CIT(A) under section 250(6) of the Income Tax Act, 1961 ("the Act" for short), dated 30.1.2017 pertaining to Asst.Year 2011-12. 2. The assessee has raised the following grounds of appeal: “1. Ld. CIT (A) erred in law and on facts confirming addition made by AO of Rs. 2.65 crores gross sale amount of the old machinery though sold for Rs.2, 46, 56,164/- by taking cost of acquisition as nil. ITA No.848 /Ahd/2017 2 2. Ld. CIT (A) erred in law and on facts in confirming addition of Rs. 2.65 crores gross sale value not reducing cost allocated at Rs. 2,34,65, 333/- as per Chartered Engineer's Report not controverted by AO. 3. Ld. CIT (A) erred in law and on facts in holding that appellant bought only land & building for Rs.6,77, 00, 000/- ignoring bifurcation of value of land and building as well plant & machinery. 4. Ld. CIT (A) erred in law and on facts in concluding that appellant could not have earned job work receipt of Rs. 88,53,718/- from a shut down factory not appreciating correct facts that unit was purchased as on going concern. 5. Ld. CIT (A) further erred in law and on facts in holding that plant & machinery were wrongly taken in the block of assets since never used. 6. Ld. CIT (A) erred in law and on facts making irrelevant observation that stamp duty paid@ 20% of purchase price being proportionately very high indicated that price paid for land & super structure as substantially low. 7. Ld. CIT (A) factually erred in holding retraction of survey statement as not tenable without appreciating that there was total compliance with survey statement & that appellant never retracted from the statement. 8. Ld. CIT (A) erred in law and on facts confirming view of AO not allowing alternatively deprecation on plant & machinery as per tax audit report.” 3. We have heard both the parties. 4. As transpires from orders of the authorities below, there is a solitary issue involved in the present appeal and the same relates to the Revenue authorities treating the plant & machinery of the assessee as scrap and thus denying adjustment of cost of acquisition against the consideration received on sale of these assets ,as claimed by the assessee, in turn treating the entire amount of sale consideration received by the assessee as its income and further denying depreciation on the remaining plant & machinery for the same reason that it was of scrap and not put to use by the assessee. 5. Brief facts relating to the case are that a survey under section 133A was carried out in the case of the assessee on 29.3.2011. In ITA No.848 /Ahd/2017 3 the course of survey, a sale deed dated 1.12.2010 was found showing that the assessee had bought land and building for Rs.6,77,70,000/-. During the survey proceedings, director of the assessee-company, Shri Kushal Vinodchandra Mehta admitted disclosure of Rs.2.65 crores on account of sale of scrap machinery sold outside books of accounts from the assets so acquired. However, in the return of income, the disclosure of Rs.2.65 crores was not shown therefore the AO issued show cause notice and after analyzing reply held that the cost of machinery was NIL and the machinery was sold for Rs.2.65 crores. Further, depreciation claimed on such acquired assets of Rs.95,246/- was denied by the AO. The said additions/disallowance were confirmed by the ld.CIT(A). In this regard, arguments of both the parties were heard at length and briefly put, the contentions of the ld.counsel for the assessee in support of his claim that the asset sold were in the nature of plant & machinery and not scrap was; • that the assets were acquired on purchase of Ahmedabad Unit of Mafatlal Industries Ltd. (“MIL” for short); that agreement for purchase of which though entered in 21.5.2003 it was ultimately executed in the impugned year,i.e F.Y 2011-12 relating to A.Y 2012-13. That the agreement itself stated that unit purchased included movable and immovable plant & machinery. • Valuation of these plant & machinery both remaining with the assessee, and also that disposed off, was got done by a valuer who had submitted detailed report in this regard giving basis for valuation also; ITA No.848 /Ahd/2017 4 • that plant & machinery was put to use during the year and job work generated therefrom which fact was reflected in the financial statement of the assessee, and therefore, it was incorrect for the Revenue to hold that the assessee had sold only scrap and not plant & machinery of any value. • He also pointed out that the entire basis with the Revenue rested on the statement of director of the assessee-company from which the inference of the Revenue that only scrap was acquired and sold by the assessee was not correct. In this regard, he referred to various documents in support of his above claim. 6. The contention of the ld.DR, on the other hand, was that director of the assessee company had categorically stated in statement recorded during survey conducted on the assessee that the assessee had only sold scrap and the fact of the acquisition of MIL in December, 2010 and sale of assets in short period of time, i.e. 15.2.2011 showed that these assets were obsolete and of no use to the assessee. 7. We have noted that the issue involves determination of fact, whether the assets which were acquired by the assessee on the acquisition of MIL were of any value or not. Before proceeding, certain facts relevant to the issue as pointed out by the ld.counsel for the assessee by way of a detail containing chronology of events through which MIL was acquired by the assessee and the plant & machinery sold after acquisition is outlined as under: • Initially on 21.5.2003, the assessee had entered into an agreement with MIL to acquire its entire unit for Rs.6.77 crores. ITA No.848 /Ahd/2017 5 • Later in the year on 21.12.2003, Assets Sale Committee of MIL decided to accept the transaction and put the matter before the BIFR for approval. • Immediately thereafter on 28.1.2004, an application was moved before BIFR for its concurrence. • BIFR sanctioned Modified Rehabilitation Scheme after 5-years on 24-25/6/2009. • Immediately thereafter, MIL authorized its directors to enter into agreement with the purchaser and also Board of the assessee granting power to the directors to purchase MIL finally on 13.12.2010; the date of assignment between the assessee and the MIL was entered into. • In February-March, 2011 some of the machineries acquired were sold for Rs.2.30 crores. 8. The issue before us in dispute is vis a vis these machineries, which were acquired by the assessee from MIL and part of which subsequently sold, the Revenue claiming that all these plant & machinery were not useful, obsolete and scrap and therefore entire consideration received by the assessee on sale of part of plant & machinery was its income and for the balance remaining the assessee was not entitled to claim any depreciation which had so claimed. The assessee, on the other hand, has contended otherwise. 9. We shall now go through various documents, statements and other evidences which have been relied on by both the parties in support of their respective contentions. We shall first briefly deal with documents on which the ld.counsel for the assessee placed reliance to prove that plant & machinery acquired were of value and not useless and obsolete machinery. In this regard, he drew our attention to the Note on sale of MIL extracted from the annual ITA No.848 /Ahd/2017 6 accounts of MIL placed at PB Pg.No.39 before us, taking note of the fact that BIFR had sanctioned rehabilitation scheme of the company and for disposing of its sick unit in Ahmedabad it was looking for buyers who could buy the unit in totality and be capable of advancing money to meet liability of permanent workers of the unit along other needs, and who could keep the unit running till the settlement of VRS scheme with the employees and workers. 10. He thereafter drew our attention to the deed of assignment of leasehold right and conveyance of super-structure and plant & machinery entered into between the assessee and MIL on 15-12- 2010 i.e. impugned year when the unit was acquired, and copy of which was placed before at PB Pg.No.48 to 112. Pointing out there from that it was specifically mentioned that MIL unit had installed various plant & machinery, both movable and immovable at point No.V (b) pg 57, point no.VII pg 59,point no.XI pg. 60 and the assessee having agreed to purchase unit including the plant & machinery both movable and immovable mentioned at page no.7 for a consideration of Rs.6.77 crores, and the MIL agreeing to sell to the purchaser the entire unit comprising of various movable and immovable plant & machineries as given at Point No.XI. His contention being that even as per the sale agreement there were immovable machineries which are part of the unit sold to the assessee for a consideration of Rs.6.77 crores. He thereafter referred to valuation report of the plant & machinery prepared by an independent valuer and placed at PB Pg.No.35 to 38, pointing out therefrom that the valuer had taken note of the fact that as on the date of preparation of valuation report i.e. 9.4.2011 some of the plant & machinery acquired in the MIL unit had been disposed off and he had given a basis for valuing both the ITA No.848 /Ahd/2017 7 disposed off machineries and those remaining with the assessee, all of which, he had valued at Rs.2,32,67,600/-. 11. Next, the ld.counsel for the assessee took us through financial statement of the assessee for the impugned year placed before us at PB Page No.4 to 19 and taking us to the fixed assets chart forming part of annual accounts, placed at PB Page No.13, he pointed out that the assessee had clearly reflected the value of the plant & machinery acquired from MIL as addition during the year, and had given a note regarding the same also in the said schedule. He pointed therefrom that even sale of plant & machinery amounting to Rs.1,49,59,600/- was also duly reflected in the block asset schedule, and the assessee had accordingly claimed depreciation on the balance block of asset. 12. The ld.counsel for the assessee, thereafter pointed out from the financial statement that the assessee had shown job work income during the year amounting to Rs.88,53,718/- reflected in the Schedule-7 of the Balance Sheet and he also pointed out that the assessee had reflected the expenditure on electric fuel and labour charges under the manufacturing expenses amounting to Rs.66,71,946/- reflected in the Schedule-10 of manufacturing expenses; pointing out to the fact that the assessee had used machinery for doing job work and incurring cost for running machinery. He drew our attention to the fact that such expenses were not reflected in the preceding year which showed that the assessee otherwise was not capable of doing job work, having no plant & machinery. This fact was also reflected from the fixed assets chart from where he pointed out that the assessee had no opening balance of plant & machinery during the year and all the plant & machinery was acquired only on acquisition of MIL unit. ITA No.848 /Ahd/2017 8 13. The ld.counsel for the assessee thereafter drew our attention to the details of sale made by the assessee, placed before us at PB Page No.113, pointing out therefrom, that it included both scrap sale of Rs.84,11,164/- and machinery sale of Rs.1,62,45,000/- and also store sale of Rs.1,33,200/- and after including VAT/TCS thereon total sale came to Rs.2,60,56,122/-. He pointed out that invoices of the scrap sales were also placed before the Revenue authorities, and which were also placed at PB Page No.115 to 124 along with copy of ledger account of scrap sale and also invoices of machineries sold along with copy of ledger account of machinery sold during the year (placed before us PB Page No.125-137). 14. The ld.DR, on the other hand, drew our attention to the statement of the director of the assessee-company in support of his contention that he had admitted to selling only scrap. In this regard attention was drawn to Para-2 of page no.3 of the assessment order. Our attention was also drawn to the basis of the AO for arriving at his finding that machinery acquired by the assessee from MIL, all of obsolete and scrap and of no value which was mentioned at Page No.8 of the assessment order under the head “discussion on assessee’s s submissions” as under: “I have carefully considered the submission of the assessee and find no merit in it due to the following reasons; 1. The sale deed for land, building and Plant & Machinery is dt.14/12/2010. Hence these assets came into possession of the assessee w.e.f.14/12/2010 only. 2 During the course of survey proceedings, it is brought on record that the plant & Machineries were started being sold from 15- February 2011. By the date of survey i.e.29/03/2011, plant & Machinery (P&M) worth Rs.2.65 crores was already sold. Hence on record, these P&M were in the possession of the assessee for only 2 months. 3. Since P&M were absolete and purchased for the purpose of sale at the earliest possibility, there will not be any business use of the absolete P&M during these two months. ITA No.848 /Ahd/2017 9 4 Since P&M were purchased along with land and Building with only intention of re-sale, no value or zero value can only be assigned to it. On this account, taking the P&M to the block of assets, for business use, is completely wrong and unacceptable.” 15. Reference was also made to the question raised to the director of the assessee-company reproduced in para-6 of the assessment (page no.9) as under: “Further during the course of survey proceeding statement of Shri Kushal Vinodchandra Mehta has been recorded regarding sale of scrap and old machinery which is reproduced as under; Q. No.16 I am showing you "duplicate note book" found of your factory premises at Asarwa and impounded as Annexure A-1 Please per use pages 1 to 89 and explain the transactions or entries made their on. A. No. 16 There are the gate passes issued for the removal of scrap and old machinery from the factory premises of APPL of Asarwa value of the sale of which has already been reported at Rs. 2.65 Crores in answer to Question No. 15. Q.No. 17 Please provide the invoices raised for the sale of above refer to scrap A.No. 17 The invoices are being issued to the concerned parties and the same will be produced within week time. Q.No. 18 I am showing you "Gala Plus" note book found an impended as Annexure A2 from the office premises of APPL at 103, Aakansha Opp. Vadilal House, Navrangpura, Ahmedabad containing pages please explain the transaction recorded there in. A.No. 18 These are also gate passes as for removal of scrap and old machinery from factory premises at Asarwa. The same has not been recorded in the books of accounts as on date the value of the sale precede as already been included in Rs. 2.65Crores as mentioned in my reply to Question No. 15 same will be accounted during the current financial year. Q.No. 19 Please provide break up of sale of scrap aggregate to Rs. 2.65 Crores. A.No. 19 Exact break up of the various items of scrap along with copies of invoices will be submitted in your office within a weeks times. Q.No.20 On the basis of sale of scrap of Rs.2.65 crores mentioned at question No. 15 and after considering brought forward loses of Co. The tax payable works out to approximately to Rs.45 lacs. Please state by when the same will be paid to the government account. ITA No.848 /Ahd/2017 10 A.No.20 I will make arrangement for payment of tax of Rs.45 lacs before 31st March 2011 and shall submit the evidence of tax payment within a week time." 16. After considering the contentions of both the parties as above, we find that the basis with the Revenue for holding that the machinery acquired by the assessee on acquisition of the business of MIL was only scrap with nil value ,thus denying benefit of setting off cost of acquisition against sale consideration received of Rs.2.65 Crs on sale of a portion of these assets and further denying claim of depreciation on the balance assets, is insufficient for holding so while the assessee we hold has sufficiently and reasonably demonstrated with evidence that the plant and machinery were not scrap but had value. 17. The Revenues entire case for holding the assets as scrap rests on the statement of the director of the assessee company recorded during survey coupled with the fact that the assets were disposed off within a short period of two months of acquiring the same. Considering the statement of the Director of the assessee company, as reproduced in our order above at para-15, we do not find any such admission being made by him as rightly pointed out by the Ld.Counsel for the assessee. What he has only stated repeatedly when questioned on these assets was only that they were old Machines. The director has not stated these assets to be scrap. There is a world of difference between an asset being old and that being scrap. Being old does not necessarily imply that it is scrap. And an asset qualifies as scrap when it is of no use to the assessee and incapable of fetching any value commensurate with its character. It is basically waste material .Surely the director has at no point stated that the machinery was of no use to the assessee at all and of no value also as machinery. Also the mere fact that the ITA No.848 /Ahd/2017 11 assets were sold within two months of acquiring them also is not relevant, we hold, for deciding its character as scrap .The asset may have been disposed for any reason as being surplus and not required by the assessee . Therefore this fact of the asset being sold within a very short period of acquiring is not relevant for determining its character as scrap. Further it is not that all machine was disposed off by the assessee which would have been the case if it were merely scrap. At the same time we find that the assessee has sufficiently demonstrated the assets as not being scrap but of value. It has been pointed out that the acquisition of these assets alongwith the plant of MIL was negotiated by the assessee eight years back in 2003 but due to delay in getting sanction from BIFR by almost five years and the subsequent act of Board of both the companies being empowered for entering into the agreement ,pushed off the actual acquisition of the business of MIL by the assessee by eight years and the same could be acquired in the impugned year only. The business acquisition agreement mentions plant and machinery being acquired by the assessee alongwith other assets . These facts are not disputed by the Revenue. If these machineries acquired by the assessee from MIL were of no use and were only scrap there was no reason to mention them as part of assets being acquired in terms of the agreement. Moreover it is a fact on record that while the Ahmedabad Unit of MIL was acquired by the assessee for Rs.6.77 Crs, part of the machinery acquired was sold for Rs.2.65 Crs fetching almost 1/3rd the price of cost of acquiring the MIL unit. Scrap surely could not have fetched such high proportion of amount out of total value of assets acquired. Further the assesses valuation of these assets is backed by a valuation report of a valuer. The Revenue has not pointed any infirmity in this report . The Revenue therefore could not have brushed aside and ITA No.848 /Ahd/2017 12 ignored this report on its own whims and fancies. Also the assessee has demonstrated user of these assets for job work purposes pointing out income generated as such by user of the same as reflected in its audited financial statements and expenses claimed against the said income. It has also been pointed out that no such income was generated in the preceding year when the assessee had no machinery. These facts have also remained uncontroverted before us. 18. Considering all of the above, we hold that the assessee has duly demonstrated and substantiated its claim of the plant and machinery acquired from MIL as being useful and having value, while the Revenue has given no substantial basis for holding the same as scrap. 19. The assesses claim to set off of cost of acquisition against the sale consideration of these assets is accordingly allowed so also its claim of depreciation on the remaining assets. In effect grounds of appeal of the assessee are allowed. 20. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 7 th September, 2022 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 07/9/2022 vk*