Appeal successful: Plant & machinery not scrap, cost set-off allowed, depreciation granted

The Tribunal allowed the appeal of the assessee, holding that the plant & machinery acquired were not scrap but had significant value. The set-off of the cost of acquisition against the sale consideration was permitted, and depreciation on the remaining assets was also allowed. The appeal was decided in favor of the assessee.

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Issues Involved:
1. Addition of Rs. 2.65 crores as gross sale amount of old machinery.
2. Non-reduction of cost allocated as per Chartered Engineer's Report.
3. Classification of assets bought as land and building only.
4. Validity of job work receipts from a shut-down factory.
5. Inclusion of plant & machinery in the block of assets.
6. Stamp duty paid indicating low price for land & superstructure.
7. Retraction of survey statement.
8. Depreciation on plant & machinery.

Detailed Analysis:

1. Addition of Rs. 2.65 crores as gross sale amount of old machinery:
The Revenue authorities treated the plant & machinery of the assessee as scrap, denying adjustment of the cost of acquisition against the consideration received on sale of these assets, and treating the entire amount of Rs. 2.65 crores as income. The assessee contended that the assets were not scrap but plant & machinery acquired from Mafatlal Industries Ltd. (MIL) and sold for Rs. 2.30 crores. The Tribunal found that the Revenue's basis for treating the machinery as scrap was insufficient, noting that the assets were part of a business acquisition agreement and fetched a significant amount upon sale, indicating they were not scrap.

2. Non-reduction of cost allocated as per Chartered Engineer's Report:
The assessee provided a valuation report by an independent valuer, valuing the plant & machinery at Rs. 2,32,67,600/-. The Tribunal noted that the Revenue did not point out any infirmity in this report and could not ignore it without substantial basis. The Tribunal thus allowed the assessee's claim to set off the cost of acquisition against the sale consideration.

3. Classification of assets bought as land and building only:
The Revenue held that the appellant bought only land & building for Rs. 6.77 crores, ignoring the bifurcation of value of land, building, and plant & machinery. The Tribunal observed that the acquisition agreement explicitly mentioned the inclusion of plant & machinery, both movable and immovable, and thus rejected the Revenue's classification.

4. Validity of job work receipts from a shut-down factory:
The Revenue questioned the job work receipts of Rs. 88,53,718/- from a shut-down factory. The Tribunal found that the assessee had shown job work income in its financial statements and incurred expenses for running the machinery, indicating the machinery was put to use. The Tribunal accepted the assessee's claim.

5. Inclusion of plant & machinery in the block of assets:
The Revenue denied depreciation on the plant & machinery, claiming they were never used and were obsolete. The Tribunal, however, found that the assessee had demonstrated the use of these assets for job work, reflected in its financial statements, and thus allowed the depreciation claim.

6. Stamp duty paid indicating low price for land & superstructure:
The Revenue made an observation that the high stamp duty paid indicated a low price for land & superstructure. The Tribunal did not find this observation relevant to the determination of the nature and value of the plant & machinery acquired and sold by the assessee.

7. Retraction of survey statement:
The Revenue held that the retraction of the survey statement by the assessee was not tenable. The Tribunal noted that the director of the assessee-company did not admit that the machinery was scrap but only stated they were old. The Tribunal found no admission of the assets being scrap in the director's statement.

8. Depreciation on plant & machinery:
The Tribunal allowed the assessee's claim for depreciation on the remaining plant & machinery, finding that the assets were not scrap and were put to use for job work during the year.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the plant & machinery acquired from MIL were not scrap and had value. The Tribunal allowed the set-off of the cost of acquisition against the sale consideration and the claim of depreciation on the remaining assets. The appeal was allowed in favor of the assessee.

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