M/s. Superfil Products Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2056/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64433 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 14-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S MO HARANA
• Assessee Lawyers: V S JAYAKUMAR
• Keywords: Capital asset; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 2054 & 2056/MDS/2011 ASST. YEARS : 2000-01 & 2005-06 M/S. SUPERFIL PRODUCTS LTD, OLD NO.407/1, NEW NO.808/1, GR COMPLEX, BASEMENT, ANNA SALAI, CHENNAI 600 035 PAN : AAACS8817Q. (APPELLANT) V. THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-VI(4), CHENNAI. (RESPONDENT) APPELLANT BY : SHRI V.S. JAYAKUMAR, ADVO CATE RESPONDENT BY : SHRI S. MOHARANA, JCIT, D.R. DATE OF HEARING : 25 SEPT. 2012 DATE OF PRONOUNCEMENT : 12 TH OCT. 2012 O R D E R PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER : ITA NO.2054/MDS/2011 : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, CHE NNAI DATED 25.10.2011 IN ITA NO.205/10-11 FOR THE ASST. YEAR 2 000-01. I.T.A. NO.2054 & 2056/MDS/11 2 2. THE FIRST ISSUE IN THE GROUNDS OF APPEAL IS THA T THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT A DJUDICATING THE VALIDITY OF RE-OPENING OF ASSESSMENT UNDER SEC.14 7 OF THE I.T. ACT, BY THE ASSESSING OFFICER. THE SECOND ISSUE IN THE GROUNDS OF APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN DISALLOWING THE ADVANCE MADE FOR PURCHASE OF MACHIN ERY WHICH WAS WRITTEN OFF BY THE ASSESSEE. THE THIRD ISSUE IN TH E GROUNDS OF APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN HOLDING THAT THE COMMENCEMENT OF PONDICHERRY UNIT OF THE AS SESSEE COMPANY WAS IN THE PREVIOUS YEAR RELEVANT TO THE AS ST. YEAR 2000-01 AS THE PROJECT STARTED IN DECEMBER 1999 AND NOT ON 06.4.2000 AS CLAIMED BY THE ASSESSEE. 3. IN SO FAR AS THE FIRST ISSUE IS CONCERNED, WE S EE THAT THE ASSESSEE HAS NOT RAISED ANY SPECIFIC GROUND BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) QUESTIONING THE VALIDITY OF RE-OPENING OF ASSESSEE UNDER SEC.147 OF THE ACT. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THOUGH NO SPECIFIC GROUND WAS RAISED I N THE GROUNDS OF I.T.A. NO.2054 & 2056/MDS/11 3 APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEA LS), IN THE GROUNDS OF APPEAL IT HAS BEEN STATED IN THE STATEME NT OF FACTS FILED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). W E HAVE PERUSED THE STATEMENT OF FACTS FILED BEFORE THE COMMISSIONE R OF INCOME TAX (APPEALS) AND FIND THAT THE ASSESSEE HAS STATED THA T THE ASSESSMENT WAS RE-OPENED UNDER SEC.147 OF THE ACT FOR CERTAIN REASONS. HOWEVER, THE ASSESSEE HAS NOT QUESTIONED THE VALID ITY OF RE-OPENING OF ASSESSMENT UNDER SEC.147 OF THE ACT IN THE ST ATEMENT OF FACTS. THEREFORE, SINCE THE ASSESSEE HAS NOT RAISED SPECIF IC GROUND BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) QUESTIONIN G THE VALIDITY OF RE-OPENING OF ASSESSMENT, WE DISMISS THIS GROUND RA ISED BY THE ASSESSEE BEFORE US. 4. WITH REGARD TO SECOND ISSUE IN THE GROUNDS OF A PPEAL OF THE ASSESSEE, THE BRIEF FACTS ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME ON 24.11.2000 FOR THE ASST. YEAR 2000-01 DEC LARING NIL INCOME. THE ASSESSMENT WAS COMPLETED UNDER SEC.143 (3) READ WITH SEC.147 OF THE ACT DETERMINING INCOME AT G. 83,24,6 43/-. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER DI SALLOWED ADVANCE I.T.A. NO.2054 & 2056/MDS/11 4 OF G. 1,13,81,385/- PAID BY THE ASSESSEE FOR PURCHA SE OF SOLID STATE POST CONDENSATION UNIT FROM KARL FISCHER, A GERMAN COMPANY AND DRAW WINDING EQUIPMENT AND OTHER RELATED MACHINERY FROM REITAR SWITZERLAND AND PRE-OPERATIVE EXPENSES OF G. 64,70, 477/- INCURRED TOTALLING TO G.1,78,51,862/- TREATING SUCH EXPENSES AS CAPITAL EXPENDITURE AS THE ASSESSEE ABANDONED THE NEW EXPAN SION PROJECT. THE ASSESSING OFFICER TREATED THE SAID AMOUNT OF G. 1,78,51,862/- AS CAPITAL LOSS AND NOT REVENUE LOSS. THE ASSESSIN G OFFICER OBSERVED THAT THE LOSS INCURRED BY THE ASSESSEE WAS NOT INCU RRED DURING ORDINARY COURSE OF EARNING REVENUE. HE OBSERVED TH AT THIS AMOUNT GIVEN AS ADVANCE WAS NOT OFFERED TO TAX AND DID NOT CONSIDERED IN COMPUTING THE INCOME OF THE ASSESSEE IN ANY OF THE ASSESSMENT YEARS. HE FURTHER OBSERVED THAT THIS IS ONLY AN AD VANCE GIVEN IN PURSUANCE OF AN AGREEMENT TO ACQUIRE CAPITAL ASSET BUT NOT STOCK-IN- TRADE. HE ALSO OBSERVED THAT THE SAID LOSS ON ACCO UNT OF IRRECOVERABLE ADVANCE WAS NOT INCIDENTAL TO THE BUS INESS. HE OBSERVED THAT THE ADVANCE WAS GIVEN ONLY FOR ACQUIR ING MACHINERY WHICH WOULD BE USED ONLY FOR FUTURE BUSINESS BY SE TTING UP NEW PLANT FOR PRODUCING AN ALTOGETHER A NEW PROJECT (MU LTIFILAMENT FIBRE) I.T.A. NO.2054 & 2056/MDS/11 5 AND THE PROPOSED PRODUCTION OF NEW PRODUCT COULD NO T OTHERWISE BE PRODUCED BY USING THE EXISTING MACHINERY. THEREFOR E, WHAT WAS PROPOSED AS AN EXPANSION PROJECT WAS COMPLETELY DIF FERENT FROM THE EXISTING BUSINESS. THE ASSESSING OFFICER RELYING O N THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF M.K. BROTHERS PVT. LTD. V. CIT (86 ITR 38) AND HON'BLE MADRAS HIGH COURT IN THE CA SE OF EID PARRY (INDIA) LTD. V. CIT (257 ITR 253) HELD THAT THE EXP ENDITURE INCURRED BY THE ASSESSEE WAS CAPITAL IN NATURE NOT ALLOWABLE . THEREFORE, HE REJECTED THE CLAIM OF WRITE OFF OF THE SAID AMOUNT OF G. 1,78,51,862/- MADE BY THE ASSESSEE. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE MADE BY THE AS SESSING OFFICER. 5. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE A DVANCE WAS GIVEN FOR PURCHASE OF MACHINERY FOR SPINNING UN IT EQUIPMENT BY OBTAINING APPROVAL OF RBI. HE SUBMITS THAT THE ASS ESSEE ALSO OBTAINED PERMISSION FROM RBI FOR WRITING OFF OF SUC H ADVANCE AS THE PROJECT WAS ABANDONED LATER. HE SUBMITS THAT THE P ROJECT WAS ABANDONED DUE TO CHANGE IN IMPORT POLICY BY THE GOV T., AND THE EXPENDITURE WAS INCURRED IN THE COURSE OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE COMPANY. THEREFORE, HE SUBMITS THA T THE ASSESSEE I.T.A. NO.2054 & 2056/MDS/11 6 HAS WRITTEN OFF THESE AMOUNTS AS IRRECOVERABLE LOSS AND THIS LOSS INCIDENTAL TO BUSINESS AND IS ALLOWABLE AS DEDUCTIO N. THE COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT THIS IS NOT A CAP ITAL LOSS AND, THEREFORE, THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN DISALLOWING THE SAME. 6. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDERS OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND THE ORDERS OF THE AUTHORITI ES BELOW. IT IS A FACT THAT THE ASSESSEE HAS ADVANCED THESE AMOUNTS F OR PURCHASE OF VARIOUS MACHINERIES FOR SETTING UP OF A NEW PROJECT . IT IS ALSO A FACT THAT THE ASSESSEE HAS ABANDONED THIS PROJECT SUBSEQ UENTLY WITHOUT EVEN IMPORTING THE MACHINERY. THE AMOUNT ADVANCED WAS FOR ACQUIRING CAPITAL ASSET FOR THE NEW PROJECT. IN TH E CIRCUMSTANCES, WE HOLD THAT THE ADVANCE GIVEN BY THE ASSESSEE FOR PUR CHASE OF MACHINERY FOR EXPANSION OF NEW PROJECT IS CAPITAL I N NATURE. THE COMMISSIONER OF INCOME TAX (APPEALS), WHILE SUSTAIN ING THE DISALLOWANCE OBSERVED AS UNDER :- I.T.A. NO.2054 & 2056/MDS/11 7 6. THE F IRST GR O UN D R E L ATES TO DI SALL OWANCE OF WRITE OFF OF RS . L, 7 8,51,8 6 2/ -. TH E A PP E LL A N T COMPANY ENT ERED INTO AGREEMENTS WI T H O V E R S E A S S U PPL I E R S FOR THE SUPPL Y OF SOLI D STAT E P OST CO N DENSAT I ON UNIT , SP I NNI N G UN I T E QU IPME N T ETC . , FR OM KA RL FISCHER COMPANY OF GERMANY A N D DRAW WI NDIN G EQUIP M E NT AND OT H ER RE L A T E D M AC H INERY FROM M/S REI T E R, SWITZERLAND. TOWA R D S THE FULFILLMEN T OF THE CONTR A C T, THE A S SESSE E PAI D AN A D VANC E OF RS. L , 1 3 , 8 1,385 / - AN D ALSO I N C U R RED P R EOP E RAT I VE EX P E N S ES OF RS . 64 ,7 0 , 4 7 7 / - TO T A LING TO RS . L, 78,51 ,862/ -. WHE N THE PR O J ECT WAS ABANDON E D D UE I T S O WN B USINESS CONSTR A IN S, THE A MOU NT O F RS . L, 75 , 15 ,0 97/ - WAS R E DU C ED FR OM T HE N ET PR O FIT AS EXTRAORDINA R Y I TEM. 7 . THE A O DI SA LLO W ED THE E XPEND IT UR E BY HO LD ING T H AT THE ADVANC E GIVEN I S ONLY A N A TT E MPT AT TR A NS F ORMING ONE F O R M OF ASSET T O ANOTHER F O RM . THIS PRO C ESS OF T RANSFOR MA TI ON I S NOT A T RA D ING AC TI V IT Y B U T ON L Y A PROJECT EX P ANSI O N. THE AD V AN CE GIVE N FOR A C Q UI R I NG AN ASSE T IS O NL Y APPLICATION OF A N E X I S TING RESOU R CE. I N T HE PROC ES S O F T RANS F ORMATIO N O F A N ASSET OR A R E SOURCE , I F ONE RES OU R C E GOE S BAD OR RENDERS U SELESS D UE TO VARI O US B U SIN ESS RE L A T E D REA S ON S , SUCH LO SS IS ON L Y A CAPITAL L OS S B U T N OT REV E N UE L O SS . THIS IS S O BEC AUSE S U CH L O SS WAS N OT I N CURRED IN THE ORDI NARY CO UR SE O F EARNIN G PAR TI CU L AR REVEN UE. T HER EFORE IT IS NOT RE V E N UE I N NAT URE . THE AO ALSO O B SERVED T H AT T HE AM O U N T GIVEN AS ADVA NC E H A S NOT BEEN O F F E RED FOR T AX . TH E S AID AMOU N T O F A D V A NCE WAS NOT TA KE N I N TO CON S I DERATION IN COMPUT IN G THE I NCOME OF T HE ASSESSEE IN ANY ASSESSM ENT YE A R. A L SO THE SAID AMO UNT OF ADVANCE DOE S NOT R E PRESENT THE MONEY LE N T IN TH E ORDI N ARY COURS E O F THE B U SINES S . THIS IS ONLY AN ADVANCE WHICH WAS GIVEN IN PURSUANCE OF AN AGREEMENT TO ACQUIRE A CAP ITAL I.T.A. NO.2054 & 2056/MDS/11 8 ASSET BUT NOT STOCK-IN-TRADE. THE AO ALSO DISTINGU ISHED THE FACTS OF THE CASE OF THE APPELLANT COMPANY ON THE I SSUE WRITE OFF FROM THE DECISIONS CITED BY THE APPELLANT COMPA NY IN SUPPORT OF ITS CLAIM IN THE ASSESSMENT ORDER. THE AO RELIED ON VARIOUS DECISIONS, ESPECIALLY THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS EID PARRY (INDIA) LT D 257 ITR 253 WHICH RELYING ON SWADESHI COTTON MILLS CO. LTD. V. CIT [1997] 63 ITR 65, HELD THAT EXPENDITURE INCURRED ON ABANDONED PROJECT IS CAPITAL IN NATURE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS CITED I CONFIR M THE DISALLOWANCE MADE BY THE AO OF G 1,78,51,862/- HOLD ING THAT THE EXPENDITURE RELATING TO MACHINERY WRITE OFF AS CAPITAL IN NATURE. THIS GROUND OF THE APPEAL IS ACCORDINGLY D ISMISSED. 8. THE HON'BLE SUPREME COURT IN THE CASE OF M.K. BROTHERS PVT LTD. V. CIT (SUPRA) HELD THAT IF THE OBJECT OF MAKING THE PAYMENT IS TO ACQUIRE A CAPITAL ASSET THE PAYMENT WOULD PAR TAKE THE CHARACTER OF CAPITAL PAYMENT. THE HON'BLE JURISDICTIONAL HIG H COURT IN THE CASE OF EID PARRY (INDIA) LTD. V. CIT (SUPRA) HELD AS UN DER :- IT IS CLEAR FROM THE ASSESSEE'S OWN CASE THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF SETTING UP A NEW PROJEC T. THE EXPENDITURE HAD BEEN INCURRED IN THE YEARS PRIOR TO THE ASSESSMENT YEAR IN QUESTION. THE ASSESSEE'S CASE THAT IT SUBSE QUENTLY ABANDONED THAT PROJECT DOES NOT ON THAT SCORE CONVE RT WHAT WAS AN EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE IN TO A REVENUE EXPENDITURE. THE SETTING UP OF A NEW PROJECT WAS CL EARLY IN THE CAPITAL FIELD AND NOT IN THAT OF REVENUE. THE ABAND ONMENT OF THAT I.T.A. NO.2054 & 2056/MDS/11 9 PROJECT IS THE ABANDONMENT OF A PROJECT ON WHICH CA PITAL EXPENDITURE HAD BEEN INCURRED. THE EXPENDITURE INCU RRED ON THAT CAPITAL PROJECT WAS NOT SOMETHING WHICH COULD BE RE GARDED AS REVENUE EXPENDITURE LAID OUT EXCLUSIVELY AND WHOLLY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AS WHAT THE AS SESSEE WAS TRYING TO START WAS A NEW BUSINESS FOR THE MANUFACT URE OF A NEW PRODUCT. THE EXPENDITURE INCURRED THEREIN WAS CLEAR LY CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. 4. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF B. K. LTD. V. V.P. GUPTA, CIT [1978] 113 ITR 647. THE COURT THERE WAS NOT CONCERNED WITH THE ASS ESSEE STARTING A NEW INDUSTRIAL PROJECT, AND SUBSEQUENTLY ABANDONI NG THE SAME. THE CASE THERE CONCERNED A TRADER WHO HAD, WHILE RE TAINING THE SAME MANAGEMENT AND CONTROL OF THE BUSINESS, SOUGHT TO CARRY FORWARD THE LOSSES IN THE IMPORT BUSINESS OF AN EAR LIER YEAR AGAINST THE PROFIT OF THE EXPORT BUSINESS OF A LATTER YEAR. HE WAS ALLOWED TO DO SO AFTER THE COURT FOUND THAT THE TWO BUSINESSES , ONE WHICH HAD BEEN DISCONTINUED AND ONE WHICH WAS LATTER STARTED, IN FACT, CONSTITUTED THE SAME BUSINESS. 5. HERE, IT IS EVIDENT THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF OTHER PRODUCTS AND WANTED TO ADD A N EW PRODUCT 'METHANOL' AND FOR THAT PURPOSE HAD INCURRED EXPEND ITURE BY WAY OF ENTERING INTO A COLLABORATION AGREEMENT FOR PURC HASE OF MACHINERY BUT HAD ABANDONED THE SAME. THE FACT THAT THE ASSESSEE CONTINUED TO CARRY ON ITS OLD BUSINESS DOE S NOT ON THAT SCORE RENDER THE EXPENDITURE INCURRED BY IT IN THE SETTING UP OF A NEW PROJECT FOR THE MANUFACTURE OF A NEW PRODUCT, A REVENUE EXPENDITURE. 6. THE SUPREME COURT IN THE CASE OF SWADESHI COTTON MILLS CO. LTD. V. CIT [1967] 63 ITR 65, CONSIDERED THE CASE OF AN ASSESSEE WHO WAS CARRYING ON THE BUSINESS OF MANUFACTURE AND SAL E OF CLOTH AND OTHER TEXTILE GOODS AND WHO HAD ENTERED INTO CONTRA CT FOR THE PURCHASE OF TEXTILE MACHINERY FOR THE PURPOSES OF E XPANDING ITS I.T.A. NO.2054 & 2056/MDS/11 10 FACTORY. THE ASSESSEE THEREIN SUBSEQUENTLY CANCELLE D THE CONTRACTS AND PAID COMPENSATION TO THE CONTRACTING PARTIES. T HE AMOUNT SO EXPENDED BY THE ASSESSEE WAS HELD BY THE SUPREME CO URT TO BE AN EXPENDITURE IN THE CAPITAL FIELD AND NOT REVENUE EX PENDITURE. THE RATIO OF THAT CASE IS CLEARLY ATTRACTED TO THE FACT S OF THE CASE HERE. WHILE IN THE CASE OF SWADESHI COTTON, PAYMENT HAD B EEN MADE WITH THE OBJECT OF AVOIDING UNNECESSARY INVESTMENT IN CAPITAL ASSETS, HERE THE EXPENDITURE HAD BEEN INCURRED FOR THE PURPOSES OF SETTING UP THE PROJECT, BUT THAT EXPENDITURE WAS UN FRUITFUL, AS THE PROJECT WAS NOT ESTABLISHED BUT WAS ABANDONED. THE ABANDONMENT WAS OBVIOUSLY TO AVOID ANY FURTHER EXPENDITURE BEIN G INCURRED, AND TO AVOID ANY OTHER ADVERSE EFFECTS BY REASON OF INC URRING OF ADDITIONAL EXPENDITURE WHICH THE ASSESSEE ITSELF TH OUGHT WOULD NO LONGER BE BENEFICIAL TO PURSUE. SUCH EXPENDITURE IN CURRED BY IT FOR A NEW PROJECT WHICH WAS IN THE NATURE OF CAPITAL EXPE NDITURE REMAINS SUCH, AND BY CLAIMING IT IN A SUBSEQUENT YEAR AS RE VENUE EXPENDITURE, THE ASSESSEE CANNOT CONVERT WHAT WAS C APITAL EXPENDITURE INTO REVENUE EXPENDITURE. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THA T THE EXPENDITURE OF G. 1,78,51,862/- INCURRED IS CAPITAL IN NATURE. WE REJECT THE GROUNDS OF APPEAL ON THIS ISSUE. 9. THE LAST ISSUE IN THE GROUNDS OF APPEAL IS WITH REGARD TO DATE OF COMMENCEMENT OF PONDICHERRY UNIT FOR THE PU RPOSE OF ALLOWING DEDUCTION UNDER SEC.80IB OF THE ACT. THE A SSESSING OFFICER WHILE COMPLETING THE ASSESSMENT FOR THE ASST. YEAR 2000-01 HELD THAT I.T.A. NO.2054 & 2056/MDS/11 11 THE FIRST YEAR OF PRODUCTION OF PONDICHERRY UNIT IS THE YEAR ENDED ON 31.3.2000, IE., THE PREVIOUS YEAR 1999-2000 RELEVAN T TO ASST. YEAR 2000-01 AND DEDUCTION UNDER SEC.80IB OF THE ACT AT 100% IS AVAILABLE FOR THE FIRST FIVE ASST. YEARS COMMENCING FROM 2000-01 TO 2004-05. AS PER THE ASSESSEE, THE REGULAR PRODUCTI ON OF PONDICHERRY UNIT COMMENCED ON 06.4.2000 IE., THE PREVIOUS YEAR 2000-01 RELEVANT TO THE ASST. YEAR 2001-02 AND, THEREFORE, IT IS ELIGIBLE FOR DEDUCTION UNDER SEC.80IB OF THE ACT FOR THE ASST. Y EARS 2001-02 TO 2005-06. THE ASSESSING OFFICER CAME TO KNOW THAT T HE ASSESSEE PRODUCED 31 METRIC TONNES OF GOODS WORTH G. 69.16 L AKHS DURING THE FINANCIAL YEAR 1999-2000 RELEVANT TO THE ASST. YEAR 2000-01 IN THE PONDICHERRY UNIT AND THE DETAILS ARE AS FOLLOWS :- MONTH QTY PRODUCED & SOLD (KGS) SALE VALUE ( G.) DECEMBER 1999 5,458.48 1,230,513 JANUARY 2000 7,548.45 1,588,107 FEBRUARY 2000 2,365.8 544,269 MARCH 2000 15,699.3 3,580.514 TOTAL 31,072,03 6,943.403 LESS : DISCOUNTS 26,820.93 NET SALES 6,916,582.07 I.T.A. NO.2054 & 2056/MDS/11 12 THIS INFORMATION WAS COLLECTED BY THE ASSESSING OFF ICER FROM SHRI RANGAMANNAR, FINANCE MANAGER OF THE ASSESSEE COMPAN Y DURING THE PROCEEDINGS UNDER SEC.133 OF THE ACT. BASED ON THI S INFORMATION, THE ASSESSING OFFICER CONCLUDED THAT THE PONDICHERRY UN IT OF THE ASSESSEE COMMENCED PRODUCTION DURING THE MONTH OF DECEMBER 1 999 RELEVANT TO THE ASST. YEAR 2001-02 AND NOT ON 06.4.2000 AS C ONTENDED BY THE ASSESSEE. THEREFORE, ACCORDING TO THE ASSESSING OF FICER, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SEC.80IB O F THE I.T. ACT FOR INITIAL FIVE ASST. YEARS FROM ASST. YEAR 2000-01 TO 2004-05. 10. THE ASSESSEE CONTENDED THAT THE COMMERCIAL PRO DUCTION WAS STARTED ON 06.4.2000 AND THE PRODUCTION WHICH W AS MADE PRIOR TO 6.4.2000 WAS ONLY TRIAL PRODUCTION. THE ASSESSE E FURNISHED COPY OF CERTIFICATE ISSUED BY THE GOVT. OF PONDICHERRY, INDUSTRIES DEPARTMENT IN SUPPORT OF ITS CONTENTION THAT THE PO NDICHERRY UNIT HAD COMMENCED REGULAR PRODUCTION ONLY WITH EFFECT FROM 06.4.2000. THE ASSESSING OFFICER OBSERVED THAT THIS CERTIFICATE IS SUED BY INDUSTRIES DEPARTMENT OF PONDICHERRY GOVT., WAS FOR GRANTING S ALES TAX EXEMPTION FOR FIVE YEARS STARTING FROM 06.4.2000. THE SALES TAX I.T.A. NO.2054 & 2056/MDS/11 13 EXEMPTION IS AVAILABLE TO THE ASSESSEE FOR FIVE YEA RS FROM DATE TO DATE. THEREFORE, ACCORDING TO THE ASSESSING OFFICE R, THE CERTIFICATE ISSUED BY THE INDUSTRIES DEPT., IS NOT RELEVANT FOR CONSIDERING THE DATE OF COMMENCEMENT OF REGULAR PRODUCTION AS 06.4. 2000. 11. THE ASSESSEE FILED AN APPEAL BEFORE THE COMMI SSIONER OF INCOME TAX (APPEALS) CONTENDING THAT THE PONDICHERR Y UNIT COMMENCED ITS PRODUCTION ON 06.4.2000 AS EVIDENCED BY THE CERTIFICATE ISSUED BY INDUSTRIES DEPT., OF PONDICHE RRY GOVERNMENT. THE COMMISSIONER OF INCOME TAX (APPEALS), AGREEING WITH THE VIEW OF THE ASSESSING OFFICER HELD THAT THE ASSESSEE COM MENCED PRODUCTION IN ITS PONDICHERRY UNIT DURING THE MONTH OF DECEMBER 1999 RELEVANT TO THE ASST. YEAR 2000-01. THE COMMI SSIONER OF INCOME TAX (APPEALS) HELD THAT CERTIFICATE ISSUED B Y THE INDUSTRIES DEPARTMENT OF PONDICHERRY GOVT., IS ALTOGETHER FOR A DIFFERENT PURPOSE AND HAS NO RELEVANCE SO FAR AS THE DATE OF COMMENCEMENT OF PRODUCTION OF PONDICHERRY UNIT IS CONCERNED. I.T.A. NO.2054 & 2056/MDS/11 14 12. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT POND ICHERRY UNIT COMMENCED ITS REGULAR PRODUCTION ON 06.4.2000 RELEVANT ASST. YEAR 2001-02 AND THE CERTIFICATE ISSUED BY INDUSTRI ES DEPT., GOVT. OF PONDICHERRY CONFIRMS THE DATE OF PRODUCTION AND, TH EREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SEC.80IB O F THE ACT FROM THE ASST. YEAR 2001-02 TO 2005-06. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SEC.80IB, APPROVAL OR PERMISSION AS THE CASE MAY BE, SHOULD BE OBTAINED FROM CENTRAL GOVT. OR STATE GOVT. OR LOCAL AUTHORITY AS PER RULE 18BBB OF THE I.T. RULES FOR CARRYING ON THE ELIGIBLE BUSINES S. THEREFORE, COMPLYING WITH THE PROVISIONS OF RULE 18BBB OF IT R ULES, THE ASSESSEE OBTAINED CERTIFICATE FROM INDUSTRIES DEPT. OF GOVT. OF PONDICHERRY. THEREFORE, COUNSEL FOR THE ASSESSEE S UBMITS THAT THE ASSESSEES PONDICHERRY UNIT IS ELIGIBLE FOR DEDUCTI ON UNDER SEC.80IB OF THE ACT FROM THE ASST. YEAR 2001-02 TO 2005-06 AS T HE LOCAL AUTHORITY HAD CERTIFIED THAT THE PONDICHERRY UNIT HAD COMMENC ED REGULAR PRODUCTION ON 06.4.2000. I.T.A. NO.2054 & 2056/MDS/11 15 13. THE DEPARTMENTAL REPRESENTATIVE WHILE SUPPORTI NG THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) SUBMITS THAT THE ASSESSEE HAD COMMENCED PRODUCTION IN THE MONTH OF DECEMBER 1999 RELEVANT TO THE ASST. YEAR 2000-01 AND NOT ON 6.4.2000 RELEVANT TO ASST. YEAR 2001-02. THE DEPARTMENTAL REPRESENTA TIVE SUBMITS THAT THE ASSESSEE HAD SHOWN SUBSTANTIAL TURNOVER OF ABOUT G 69 LAKHS WITH THE PRODUCTION OF 31 METRIC TONNES OF GOODS IN THE ASST. YEAR 2000-01 IN ITS BOOKS OF ACCOUNTS FROM PONDICHERRY U NIT. THEREFORE, THE ASSESSEE HAD COMMENCED ITS PRODUCTION ONLY DURI NG ASST. YEAR 2000-01 AND NOT IN THE ASST. YEAR 2001-02 AS CONTEN DED BY THE ASSESSEE. 14. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL ON RECORD INCLUDING THE ORDERS OF THE AUTHORITIES BELO W AND THE CERTIFICATE PRODUCED BY THE ASSESSEES COUNSEL. IT IS A FACT THAT THE ASSESSEE IN ITS BOOKS OF ACCOUNTS HAD RECORDED PROD UCTION OF 31.072 METRIC TONNES OF GOODS DURING THE ASST. YEAR 2000-0 1 FROM PONDICHERRY UNIT. IT IS ALSO A FACT THAT THE ASSES SEE RECORDED A TURNOVER OF G. 69.16 LAKHS FROM SUCH PRODUCTION OF GOODS IN ITS BOOKS I.T.A. NO.2054 & 2056/MDS/11 16 OF ACCOUNTS FOR THE ASST. YEAR 2000-01 FROM PONDICH ERRY UNIT. THE ASSESSEES CONTENTION THAT IT HAD COMMENCED REGULAR PRODUCTION ON 06.4.2000 RELEVANT TO THE ASST. YEAR 2001-02 AND NO T IN THE ASST. YEAR 2000-01 APPEARS TO BE NOT CORRECT. THE CONTEN TION OF THE ASSESSE THAT IT HAD STARTED REGULAR PRODUCTION ON 6 .4.2000 IN PONDICHERRY UNIT WAS BASED SOLELY ON CERTIFICATE IS SUED BY THE INDUSTRIES DEPARTMENT OF GOVT. OF PONDICHERRY WHICH READS AS UNDER:- GOVERNMENT OF PONDICHERRY INDUSTRIES DEPARTMENT NO.1-13/307/IND/ADA/A6/2000 PONDICHERRY, THE 21 AUGUST 2000 CERTIFICATE THIS IS TO CERTIFY THAT M/S. SUPERFIL PRODUCTS LT D. R.S. NO.55/4-B, THIRUVANDARKOIL VILLAGE, MANNADIPET COMMUNE, PONDI CHERRY IS A MEDIUM SCALE INDUSTRIAL UNIT. IT HAS FILED INDUSTRIAL ENTREPREN EURS MEMORANDUM WITH THE SECRETARIAT FOR INDUSTRIAL APPROVALS, MINISTRY OF INDUSTRY, GOV ERNMENT OF INDIA, NEW DELHI AND OBTAINED ACKNOWLEDGEMENT VIDE NO.2569/SIA/IMO/98 DA TED 01-12-98 FOR THE I.T.A. NO.2054 & 2056/MDS/11 17 MANUFACTURE OF SYNTHETIC MONOFILAMENTS AND COMMEN CED REGULAR PRODUCTION WITH EFFECT FROM 06/04/2000. THE UNIT IS ELIGIBLE FOR EXEMPTION FROM PAYMENT O F CST/PGST FOR A PERIOD OF FIVE YEARS WITH EFFECT FROM 06.04.2000 VIDE G.O. MS. NO.15/74/FIN(CT), DATED 25/06/1974. SD/- X X X X (SUNDARAVADIVELU) DIRECTOR OF INDUSTRIES AND COMMERCE 15. THE ABOVE CERTIFICATE APPEARS TO HAVE BEEN ISS UED BY THE INDUSTRIES DEPARTMENT OF THE GOVERNMENT OF PONDICHE RRY FOR CLAIMING EXEMPTION FROM PAYMENT OF CST/PGST FOR A PERIOD OF FIVE YEARS WITH EFFECT FROM 06.4.2000. THIS CERTIFICATE IS NOT ISS UED BY THE INDUSTRIES DEPARTMENT, GOVT. OF PONDICHERRY FOR APPROVAL OR PE RMISSION FOR CARRYING ON ELIGIBLE BUSINESS AS PER RULE 18BBB(4) OF IT RULES. IN THE CIRCUMSTANCES, THE CERTIFICATE CANNOT BE CONSID ERED AS A CONCLUSIVE PROOF OF EVIDENCE SO AS TO ARRIVE AT A C ONCLUSION THAT PONDICHERRY UNIT OF THE ASSESSEE HAD COMMENCED REGU LAR PRODUCTION ONLY FROM 06.4.2000 ONWARDS AND NOT PRIOR TO THAT D ATE. THE I.T.A. NO.2054 & 2056/MDS/11 18 ASSESSEE IN ITS BOOKS OF ACCOUNTS FOR THE ASST. YEA R 2000-01 HAD IN FACT SHOWN SUBSTANTIAL TURNOVER OF G. 69.16 LAKHS F ROM ITS PONDICHERRY UNIT. THE ASSESSEE ALSO DID NOT BRING ON RECORD AN Y EVIDENCE TO SUGGEST THAT THE PRODUCTION OF GOODS OF 31 MT AND TURNOVER OF G. 69.16 LAKHS RELATES TO ONLY TRIAL RUN PRODUCTION IN ITS PONDICHERRY UNIT. THEREFORE, IN THE ABSENCE OF ANY SUCH MATERI AL AVAILABLE ON RECORD AND SINCE THE ASSESSEE HAD SHOWN SUBSTANTIAL PRODUCTION IN ITS BOOKS OF ACCOUNTS FOR THE ASST. YEAR 2000-01 WE HOL D THAT THE ASSESSEE HAD COMMENCED ITS REGULAR PRODUCTION IN IT S PONDICHERRY UNIT IN DECEMBER 1999 RELEVANT TO THE ASST. YEAR 20 00-01 AND NOT IN THE ASST. YEAR 2001-02 AS CONTENDED BY THE ASSESSE. THUS, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SEC.80IB O F THE ACT FOR THE ASST. YEARS 2000-01 TO 2004-05. THEREFORE, WE SUST AIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS IS SUE. SINCE THE ASSESSEE HAD COMMENCED ITS REGULAR PRODUCTION IN TH E ASST. YEAR 2000-01, WE DIRECT THE ASSESSING OFFICER TO ALLOW R ELIEF UNDER SEC.80IB OF THE ACT FOR THE ASST. YEARS 2000-01 TO 2004-05. I.T.A. NO.2054 & 2056/MDS/11 19 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.2056/MDS/2011: THE ONLY ISSUE ARISING OUT OF THE ORDER OF COMMIS SIONER OF INCOME TAX (APPEALS) IN THIS APPEAL IS WITH REGARD TO DATE OF COMMENCEMENT OF PRODUCTION IN PONDICHERRY UNIT OF T HE ASSESSEE COMPANY FOR THE PURPOSE OF ALLOWING DEDUCTION UNDER SEC.80IB OF THE I.T. ACT. SINCE WE HAVE ALREADY HELD THAT THE POND ICHERRY UNIT HAD COMMENCED REGULAR PRODUCTION IN THE ASST. YEAR 2000 -01, WE REJECT THE CONTENTION OF THE ASSESSEE IN THIS APPEAL THAT THE SAID UNIT HAD COMMENCED REGULAR PRODUCTION ON 06.4.2000 FOR THE R EASONS ADVANCED IN THE APPEAL IN ITA NO.2054/MDS/2011. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. 18. ORDER PRONOUNCED ON FRIDAY, THE 12 TH DAY OF OCTOBER 2012. SD/- SD/- ( N.S. SAINI) (CHALLA NAGEND RA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED : 12 TH OCTOBER 2012. JLS. I.T.A. NO.2054 & 2056/MDS/11 20 COPY TO :- 1) ASSESSEE 2) RESPONDENT 3) CIT(APPEALS) 4) C.I.T. (5) D.R., 5) GUARD FILE.