COMMR OF INCOME-TAX-3 HYD V. THE NIZAM SUGAR FACTORY LTD. HYD

ITTA/154/2002

AI Insights

The case involves an appeal by the Revenue against the decision of the Income Tax Appellate Tribunal, which favored the respondent, a government undertaking in sugar manufacturing, for the Assessment Year 1994-95. The respondent had claimed deductions for expenses related to the maintenance of their Township, and losses from unserviceable and obsolete goods, among other claims. The Assessing Authority and the Commissioner of Appeals had initially denied these claims, leading to the appeal to the Tribunal. The Tribunal's decision to allow the claims was contested by the Revenue in this appeal under Section 260-A of the Income Tax Act, 1961.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 742166 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 20-08-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax vs. Ponni Sugars and Chemicals Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: A V KRISHNA KOUNDINYA
• Assessee Lawyers: S R ASHOK
• Keywords: Assessment year 1994-95; Deduction; Income Tax; Loss; Maintenance; Obsolete Goods; Township; Excise Rebate; Price Incentive; Unserviceable Goods
• Section: 260-A

Judgement Text

"THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.154 of 2002 JUDGMENT: (per the Hon’ble Sri Justice L.Narasimha Reddy) This appeal is preferred by the Revenue feeling aggrieved by the order dated 26.11.2001 passed by the Hyderabad ‘A’ Bench of the Income Tax Appellate Tribunal. The respondent was a Government of Andhra Pradesh undertaking involved in the manufacture of sugar. For the Assessment Year 1994-95, it claimed certain benefits, such as, deduction of maintenance of the Township in which the sugar factory was established, and a sum of Rs.10,41,600/- on unserviceable and obsolete goods by treating it as loss. One more item was the amount of excise rebate and price incentive. The Assessing Authority took the view on all the three aspects, against the respondent. The order of assessment was confirmed in appeal by the Commissioner of Appeals. Hence, the matter was taken to the Tribunal by filing an appeal. On the three aspects referred to above, the Tribunal allowed the claim of the respondent. Hence, this appeal under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’), by the Revenue. Heard Sri S.R. Ashok, learned Senior Counsel for the appellant and Sri A.V.Krishna Koundinya, learned Senior Counsel for the respondent. In all fairness, the learned Senior Counsel for the Revenue submitted that on two items i.e., the expenditure incurred for maintenance of the Township and the receipt of excise rebate and price incentive, the matter is covered in favour of the respondent in view of the judgment of the Supreme Court in Commissioner of Income Tax vs. Ponni Sugars and Chemicals Limited[1]. Now, there remains the third item, namely, the deduction of Rs.10,41,600/-, which the Tribunal allowed towards unserviceable and obsolete goods by treating it as loss. From a perusal of the order of the Assessing Authority, it becomes clear that no doubt as such was expressed about the value of the goods, which ceased to be of any use to the respondent. The only ground on which the claim was disallowed is that the items, which were treated as unserviceable and obsolete, were not deleted from the list of assets nor were they written off. Assuming that the items, which were treated as unserviceable and obsolete, continued to be in the list of assets, the view taken by the Assessing Authority cannot be countenanced. The reason is that the question as to whether a particular of item of machinery or other utility in a factory is not usable or obsolete would depend upon its condition, namely, whether it can be put to use or not. It is only when the owner of a particular item finds that it is no longer feasible to put it to use even by carrying out repairs that it is treated as obsolete or unworkable. If those conditions are satisfied, the deduction becomes permissible. The failure of the owner of the goods to write of them or to delete them from the list of assets does not have any bearing in this regard. If that is the basis, even the scrap of a machinery, can be treated as an asset though it cannot be put to use. Therefore, we dismiss the appeal. There shall be no order as to costs. The miscellaneous petitions filed in this appeal shall also stand disposed of. L.NARASIMHA REDDY, J Date: 20.08.2014 CHALLA KODANDA RAM, J va [1] 306 ITR 392 "