The ITO, Ward-4(3), Ahmedabad V. Fisher Scientific India Pvt.Ltd., Ahmedabad

ITA 109/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9301 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SEVAK
• Section: 143(3)

Judgement Text

ITA NO.1 09/ AHD/201 2 ASSESSMENT Y EAR: 20 08 - 09 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD B BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND KUL BHARAT JM] ITA NO.1 09 /AHD/201 2 ASSESSMENT YEAR : 20 08 - 09 INCOME TAX OFFICER, .APPELLANT WARD 4(3), AHMEDABAD. VS. FISHER SCIENTIFIC INDIA P . LIMITED . RESPONDENT PLOT NO.22, PHARMEZ, SPECIAL ECONOMIC ZONE, MATODA ON NH NO.8A, AHMEDABAD. [PAN: AA ACF 9462 G ] APPEARANCES BY: SHIVA SEVAK, FOR THE APPELLANT SA NJAY R. SHAH, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : DECEMBER 11 TH , 201 5 DATE OF PRONOUNCING THE ORDER : MARCH 7 TH , 201 6 O R D E R PER PRAMOD KUMAR , AM : 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 24 TH OCTOBER, 2011, PASS ED BY THE LD. CIT(A), IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR 200 8 - 09 . 2. GRIEVANCES RAISED BY THE A SSESSING OFFICER ARE AS F FOLLOWS 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO CONSIDER THAT THE BUSINESS HAS NOT COMMENCED DURING ITA NO.1 09/ AHD/201 2 ASSESSMENT Y EAR: 20 08 - 09 PAGE 2 OF 6 T HE YEAR UNDER CONSIDERATION WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE HAS R ECEIVED ADVANCE MONEY FROM CUSTOMER TOWARDS SERVICES. 2. THE LD. C IT (A) HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS.13,49,875/ - MADE BY THE AO ON ACCOUNT OF DEDUCTION OF FOREIGN EXCHANGE LOSS. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE HAD FILED RETURN OF INCOME ON 25 TH S EPTEMBER, 2008 , DECLARING INTEREST INCOME ON DEPOSIT S AMOUNTING TO RS.58,539/ - UNDER THE HEAD INCOME FROM OTHER SOURCES . T HE STAND OF THE ASSESSEE WAS THAT SINCE THE ASSESS EE HAS NOT COMMENCED ITS BUSINESS DURING THE RELEVANT PERIOD , COMPUTATION OF INCO ME UNDER THE H E AD PROFIT AND GAINS FROM BUSINESS WAS NOT NECESSARY . I N T HE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS , THE A SSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED FOREIGN EXCHANGE LOSS OF RS.13 , 49 , 8 74 / - ON ACCOUNT OF REVALUATION OF ADVA NCE ON THE CLOSING DAY OF THE F INANCIAL YEAR. IT WAS ALSO NOTED THAT ACCORDING TO THE ASSESSEE THESE ADVANCES REPRESENTED AMOUNTS RECEIVED FROM CUSTOMERS AGAINST FUTURE SUPPLY OF SERVICE. THE A SSESSING OFFICER WAS OF THE VIEW THAT THE LOSS SHOWN ON ACCOU NT OF REVALUATION OF LIABILITY CANNOT BE ALLOWED AS DEDUCTION AND THAT THE ASSESSEE CAN CLAIM PROFIT OR LOSS AT THE TIME OF ACCOUNTING OF ACTU A L SERVICES RENDERED. THE ASS ESS ING OFFICER FUR T HER OBSERVED THAT WHILE THE ASSESSEE MAY BE CORRECT , SO F A R A S AC CO UNTING PRACTICE IS C ONCERN E D, BUT NO DEDUCTION C A N BE ALLOWED, FOR THE PURPOSE OF COMPUTING HIS PROFIT UNDER THE I NCOME T AX A CT FOR CONTINGENT LIABILITY. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAS INCURRED A LOSS OF RS.1,33,97,654/ - WHICH P ERTAINED TO S A LARY AND OTHER EXPENS E S RELATING TO BUSINESS EVIDENCING THAT BUSINESS OF THE ASSESSEE H A S COMMENCED ALTHOUGH NO INCOME HA S BEEN BOOKED . THE ASSESSING OFFICE W A S OF THE VI E W THAT THIS LOSS HA S N OT BEEN CAPITALISE D ITA NO.1 09/ AHD/201 2 ASSESSMENT Y EAR: 20 08 - 09 PAGE 3 OF 6 WHICH SHOWS THAT THE ASSES SEE HA S INITI ATED BUSINESS OPERATIONS. HE FURTHER NOTED THAT THE A SSESSEE H A S RECEIVED ADVANCES FROM CUSTOMERS FROM THE MONTH OF JUNE 2007 WHICH SHOWS THAT THE BUSINESS HA S COMMENCED DURING THE RELEVANT PERIOD. IT W AS IN THIS BACKDROP THAT HE PROCEEDED T O FIN A LISE THE ASSESSMENT AS FOLLOWS : - AFTER VERIFICATION OF THE SUBMITTED DETAIL, THE TOTAL INCOME OF THE ASSESSEE COMPANY IS DE T ERMINED AS UNDER : - (I) INCOME FROM OTHER SOURCES RS.58,539/ - (II) LOSS FROM BUSINESS RS.1,33,97,654/ - ADD: DISALLOWANCE AS DISCUSSED ABOVE RS.13,49,875/ - NET LOSS FROM BUSINESS RS.1,20,47,779/ - 5 . I NCOME ASSESSED U/S. 143(3) OF THE I.T. ACT, 1961. ISSUE DEMAND NOTICE AND CHALLAN, ACCORDINGLY. 4. AGGRIEVED BY THE STAND SO TAKEN , THE ASSESSEE CARRI E D TH E MATTER IN APPEAL BEFORE THE LEARNED C IT(A). 5 . AS REG A RD S THE FIRST POINT I.E. COMMENCEMENT OF BUSINESS, THE L EARNED C IT ( A ) WAS OF THE VI E W THAT THE COMMERCIAL ACTIVITIES HAD NOT COMMENCED IN THE RELEVANT ACCOUNTING PERIOD . O N THIS POINT , HIS FINDINGS ARE AS FOLLOWS : - 4.6. THE APPELLANT HAS ALSO SUBMITTED VARIOUS CORRESPONDENCES EXCHANGED BETWEEN THE DEVELOPMENT COMMISSIONER OF THE KANDLA SPECIAL ECONOMIC ZONE, WHICH WORKS UNDER THE MINISTRY OF COMMERCE & INDUSTRY, AND APPELLANT REGARDING EXTENSION TO COMMENCE SERVICE ACTIVITY. IT IS UNDISPUTED THAT THE APPELLANT HAS BEEN SETTING UP UNIT IN SPECIAL ECONOMIC ZONE AND THEREFORE AS PER THE LETTER OF APPROVAL, IT NEEDS TO COMMENCE THE SERVICE ACTIVITY WITHIN STIPULATED PERIOD UNLESS I T IS EXTENDED BY APPROPRIATE AUTHORITY. THE APPELLANT HAD SOUGHT EXTENSION TO START COMMERCIAL ACTIVITIES INITIALLY UP TO DECEMBER 31, 2008 AND LATER ON UP TO APRIL 30, 2009 WHICH WAS DULY GRANTED BY THE DEVELOPMENT COMMISSIONER. HAD THE APPELLANT ALREADY COMMENCED THE SERVICE ACTIVITY, THERE WOULD HAVE NOT BEEN ANY NECESSITY TO SEEK SUCH EXTENSION, 4.7. THE COMPANY INAUGURATED ITS FACILITY IN NOVEMBER 2008 AND COMMENCED COMMERCIAL ACTIVITIES IN JANUARY 2009. THE INAUGURATION WAS COVERED BY NEWS ITA NO.1 09/ AHD/201 2 ASSESSMENT Y EAR: 20 08 - 09 PAGE 4 OF 6 AGENCIES AND CLIPPINGS SUBMITTED BY THE APPELLANT DO REFLECT THAT THE FACILITY WAS NOT OPERATION AT THE TIME OF INAUGURATION IN NOVEMBER 2008. 4.8. THE ANNUAL ACCOUNTS OF THE APPELLANT FOR FY 2008 - 09 ALSO MENTIONS THAT COMMERCIAL ACTIVITIES IN THE SAID UNIT COMME NCED ON JANUARY 10, 2009. 4.9. FURTHER, BEING PART OF SPECIAL ECONOMIC ZONE, THE APPELLANT IS REQUIRED TO SEND ANNUAL REPORT TO THE GOVERNMENT AGENCIES REGARDING THE REVENUES EARNED BY IT. THE ANNUAL PERFORMANCE REPORT FOR THE FINANCIAL YEAR 2008 - 09 CLEA RLY MENTIONS THAT FINANCIAL YEAR 2008 - 09 (I.E. ASSESSMENT YEAR 2009 - 10) IS THE FIRST YEAR OF OPERATIONS. 4.10. THE EVIDENCES ADDUCED BY THE APPELLANT IN SUPPORT OF ITS CLAIM CLEARLY INDICATES THAT THE APPELLANT DID NOT CARRY OUT ANY COMMERCIAL ACTIVITIES IN FY 2007 - 08. FURTHER, THE AO HAS ONLY RELIED UPON ACCOUNTING TREATMENT TO CONSTRUE THAT THE APPELLANT COMMENCED PROVISION OF SERVICES WITHOUT ANY CORROBORATIVE EVIDENCE IN RELATION THERETO. WHILE AO HAS MENTIONED THAT THE APPELLANT HAS CARRIED OUT OPERA TIONS DURING THE YEAR, HE HAS NOT DRAWN REFERENCE TO ANY SUPPORTING OR CORROBORATIVE EVIDENCE. THERE IS NOTHING WHICH SUGGESTS THAT THE APPELLANT PROVIDED SERVICES TO ITS CUSTOMERS DURING THE YEAR UNDER CONSIDERATION. THE SUPREME COURT HAS IN CASE OF CIT V . SHOORJI VALLABHDAS & CO. 46 ITR 144 (SC) HAS HELD THAT ACCOUNTING ENTRY IS NOT A STANDALONE EVIDENCE TO TAX ANY INCOME. AS DISCUSSED ABOVE, THE ACCOUNTING TREATMENT OF CHARGING CERTAIN EXPENSE TO PROFIT & LOSS ACCOUNT WAS IN ORDER TO COMPLY WITH ACCOUNTI NG STANDARDS AND THEREFORE IT CANNOT BE INTERPRETED TO MEAN THAT THE APPELLANT PROVIDED ANY SERVICES. 4.11. THE CONTENTION OF THE APPELLANT THAT ITS BUSINESS HAS NOT COMMENCED DURING THE YEAR GETS SUPPORT FROM ITS AUDITED ANNUAL ACCOUNTS, LETTER OF EXTEN SION BY DEVELOPMENT COMMISSIONER OF KANDLA SPECIAL ECONOMIC ZONE, THE NEWSPAPER CLIPPINGS, ANNUAL PERFORMANCE REPORT, ETC. AND THESE EVIDENCES CANNOT BE RULED OUT WITHOUT ANY COGENT MATERIAL ON THE OTHER SIDE. 4 .12. THE AO HAS CONSIDERED THAT THE RECEIPT OF ADVANCE ITSELF SIGNIFIES THAT THE BUSINESS OF THE APPELLANT HAS COMMENCED, WHEREAS HE FAILED TO BROUGHT ANY EVIDENCE WHICH SIGNIFIES THAT SERVICES HAS BEEN RENDERED OR EVEN THE APPELLANT WAS READY TO PROVIDE SERVICE. RECEIPT OF ADVANCE IS MERELY A TRAD E PRACTICE WHICH CANNOT BE CONSIDERED AS A DECISIVE EVENT REGARDING COMMENCEMENT OF BUSINESS/PROVISION OF SERVICES. PROVISION OF SERVICE IS PHYSICAL REVENUE GENERATING ACTIVITY AND RECEIPT OF ADVANCE DOES NOT INDICATE THAT SERVICES WERE ACTUALLY PROVIDED. 4.13. THE SERVICES CAN BE PROVIDED AND BUSINESS CAN BE SAID TO HAVE COMMENCED WHEN THE BASIC FACILITIES REQUIRED FOR PROVIDING SERVICE (IN CASE OF APPELLANT) IS READY. THE EVIDENCES PRODUCED BY THE APPELLANT DOES INDICATE THAT THE FACILITIES WERE NOT REA DY TO COMMENCE PROVISION OF SERVICE BY MARCH 2008 OR EVEN NOVEMBER 2008 WHEN THE FACILITY WAS INAUGURATED. WITHOUT THE FACILITIES BEING READY, SERVICES CANNOT BE PROVIDED. DECISIONS OF THE JURISDICTIONAL HIGH COURT IN CASE OF CIT V. SARABHAI SONS P. LTD . 9 0 ITR 318 (GUJ) AND BOMBAY HIGH COURT IN CASE OF CIT V. FORGING & STAMPING P. LTD. 119 ITR 616 (BOM) ARE APPLICABLE IN THE PRESENT CASE. ITA NO.1 09/ AHD/201 2 ASSESSMENT Y EAR: 20 08 - 09 PAGE 5 OF 6 WITHOUT MACHINERIES BEING INSTALLED IN THE PREMISES, THE BUSINESS CANNOT BE CONSIDERED TO HAVE COMMENCED. 6 . ON THE S ECOND POINT I.E. TREATING THE LOSS ON ACCOUNT OF REVALUATION OF LIABILITY, LEARNED CIT(A) REVERSED THE STAND OF THE ASSESSING OFFICER AND HELD THAT THE DISALLOWANCES CANNOT BE MADE FOR THE REASONS SET OUT BELOW: - 5. FIFTH GROUND IS AN ALTERNATIVE GROUND W HICH RELATES TO GRANTING DEDUCTION OF FOREIGN EXCHANGE LOSS OF RS.13,49,875/ - IN CASE IT IS HELD THAT THE BUSINESS OPERATIONS HAVE COMMENCED DURING THE YEAR. AS IT HAS BEEN DECIDED ABOVE THAT THE BUSINESS OPERATIONS HAVE NOT STARTED DURING THE YEAR THIS G ROUND HAS NOT BEEN ADJUDICATED SEPARATELY. 7. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEFORE US. 8 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGA L POSITION. 9. SO FAR AS THE ISSUE R E GA R DING COMMENCEMENT OF BUSINESS, DURING THE RELEVANT PREVIOUS YE A R, IS CONCERN E D, WE FIND THAT LEARNED CIT ( A ) HAS GIVEN WELL REASONED FINDINGS AND THERE IS NO GOOD REASON TO DISTURB THE SAME. THER E IS ENOUGH MATERIAL ON RECORD TO INDICATE THAT THE BUSINESS HAS ACTUALLY COMMENCED IN 2008 - 09 . L EARNED CIT ( A ) HAS CATEGORICALLY GIVEN FINDINGS ON THAT ASPECT AND LEA RNED DEPARTMENTAL REPRESENTATIVE HAS NOT BEEN ABLE TO CONTROVERT THE SAME. THE MERE FACT THAT THE ASSESSEE H AD RECEIVED ADVANCE FOR WORK CANNOT LEAD TO THE CONCLUSION THAT THE BUSINESS HAD COMMENCED. IN ANY EVENT, THIS ADVANCE WAS RECEIVED FROM A GROUP ENTITY AND IT IS NOT A CONDITION PRECEDENT FOR RECEIVING THE MONEY THAT THE BUSINESS HAD ACTUALLY COMMENCED. AS FOR THE GRIEVANCE RAISED BY THE ASSESSING OFFICER REGARDING ALLOWABILITY OF DEDUCTION FOR RS.13,49,875/ - , WE FIND THAT THE LEARNED C IT(A) HAS NOT REALLY ADJUDICATED ON ITA NO.1 09/ AHD/201 2 ASSESSMENT Y EAR: 20 08 - 09 PAGE 6 OF 6 THIS, AND THIS ISSUE HAS BEEN TREATED AS INFRUCTUOUS. GRIEVANCE OF THE ASSESSING OFF ICER IS T H US CLEARLY ILL CONCEIVED. 10. FOR THE REASONS SET OUT ABOVE, WE APPROVE THE CONCLUSIONS ARRIVED AT BY T HE LEARNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 11 . IN THE RESULT, APPEAL IS DISMISSED . P RONOUNCED IN THE OPEN COURT TODAY ON THE 7 TH DAY OF MARCH, 2016 . SD/ - SD/ - KUL BHARAT PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 7 TH DAY OF MARCH, 2016 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD