DCIT-I, Bareilly V. M/S G.Surgiwear Ltd, Shahjahanpur

ITA 295/LKW/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54817 (ITAT-LUCKNOW)
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2011
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 09-11-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 20-05-2011
• Court: TRIBUNAL
• Department Lawyers: PRAVIN
• Assessee Lawyers: S D SETH
• Keywords: Depreciation; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI B. R. JAIN , ACCOUNTANT MEMBER ITA NO. 295/LKW/2011 ASSESSMENT YEAR: 2008 - 09 DCIT CIRCLE 1, BAREILLY V. M/S G. SURGIWEAR LTD. 35 2, RAM GIRI GANJ, SHAHJAHANPUR PAN: AAACG7035J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. PRAVIN, CIT( D.R. ) RESPONDENT BY: SHRI. S. D SETH, ADVOCATE DATE OF HEARING: 09.11.2011 DATE OF PRONOUNCEMENT: 14.12.2011 O R D E R PER S UNIL KUMAR YA DAV : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) MAINLY ON TWO GROUNDS WHICH ARE AS UNDER: - 1. T HAT THE COMMISSIONER OF INCOME TAX ( APPEAL) HAS ERRED ON LAW AND ON FACTS IN DELETING THE DISALLOWANCE AMOUNTING TO RS.45,50 ,025/ - MADE BY THE ASSESSING OFFICER UNDER SECTION 35( 1 )(IV) OF THE I.T. ACT, 1961 AS THE DEDUCTION CLAIMED FOR CAPITAL EXPENDITURE ON ACCOUNT OF PURCHASE OF MACHINERY FOR R&D WHICH WAS NOT USED DURING THE YEAR UNDER CONSIDERATION. 2. THAT THE COMMISSIONER OF INCOME TAX ( APPEALS ) HAS ERRED ON LAW AND ON FACTS IN ALLOWING DEPRECIATION ON FOOD DIVISION AMOUNTING : - 2 - : TO RS.29,29,610/ - ON MACHINERY AND RS.5,63,110/ - ON BUILDING OF FOOD DIVISION WITHOUT APPRECIATING THE FINDING GIVEN BY THE ASSESSING OFFICER. 2 . THE FACTS IN BRIEF BORNE OUT FROM THE ORDERS OF THE AUTHORITIES BELOW ON THE IMPUGNED ISSUES ARE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF IMPLANTABLE SURGICAL DEVICES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OF FICER THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING OF IMPLANTABLE SURGICAL DEVICES AND HAVE ALSO CLAIMED THAT IT HAD STARTED BUSINESS OF FOOD DIVISION IN WHICH THE COMPANY HAS STARTED MANUFACTUR ING OF READY TO COOK FOODS. THE ASSESSING OFFICER HAS A LSO NOTICED FROM FORM NO.3CD GIVING STATEMENT OF PARTICULARS REQUIRED TO BE FURNISHED UNDER SECTION 44AB OF THE INCOME - TAX ACT, 1961 (HEREINAFTER IN SHORT THE ACT) FILED BY THE ASSESSEE THAT AGAINST COLUMN NO.8, THE ASSESSEE HAS FURNISHED INFORMATION THA T IT WAS ENGAGED IN MANUFACTURE OF IMPLANTABLE SURGICAL DEVICES AND DISPOSABLE DROPS AND DRESSUP AND THERE WAS NO CHANGE IN THE NATURE OF BUSINESS OR PROFESSION. FROM THESE DETAILS, THE ASSESSING OFFICER HAS OBSERVED THAT NO BUSINESS OF FOOD DIVISION WAS CARRIED ON DURING THE YEAR. SIMILAR WAS THE POSITION WITH RESPECT TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND THE DETAILS OF RAW - MATERIALS CONSUMED. NOWHERE THE ASSESSEE HAS MADE ANY REFERENCE WITH REGARD TO THE PRODUCTION AND PROFIT FROM THE FOOD DIVISION. HE HAS ALSO EXAMINED THE DETAILS OF THE OPENING STOCK, SALES, PRODUCTION AND CLOSING STOCK ANNEXED TO THE AUDITORS R EPORT, BUT ALL THESE DETAILS O F RAW - MATERIAL CONSUMED, PRODUCTION, SALES AND OTHER MATERIALS GO TO SHOW THAT THERE WAS NO CHANG E IN THE BUSINESS ACTIVITIES AS COMPARED TO THE ACTIVIT IES IN THE IMMEDIATELY PRECEDING YEAR. THE ASSESSING OFFICER ACCORDINGLY CONCLUDED THAT THE ASSESSEE DID NOT CARRY OUT BUSINESS OF FOOD DIVISION DURING THE ACCOUNTING PERIOD AND ACCORDING LY T HE ASSESS EE WAS : - 3 - : ASKED TO JUSTIFY AND ESTABLISH THE FACT THAT THE BUSINESS OF FOOD DIVIS I ON WAS STARTED DURING THE IMPUGNED ASSESSMENT YEAR. 3 . IN RESPONSE THERETO , IT WAS CONTENDED THAT THE COMMERCIAL TAX DEPARTMENT VIDE ITS LETTER DATED 5.6.2010 HAS CONFIRMED THAT PR ESERVED READY TO COOK FOOD PRODUCTION HAD STARTED FROM 25.3.2008. THE CERTIFICATE TO THIS EFFECT WAS FILED BEFORE THE ASSESSING OFFICER. THE ASSESSEE HAS ALSO FILED THREE CASH PURCHASE VOUCHERS OF M/S SAHAI TRADERS THROUGH WHICH ASSESSEE HAD MADE CASH PU RCHASES OF SMALL AMOUNTS OF DAL, HALDI, MIRCH, DHANIA, CHOLA, ETC. A COPY OF COMPUTER GENERATED VOUCHER AMOUNT ING TO ` 13,000 BEING SALES OF CERTAIN ITEMS TO M/S RAJU GENERAL STORES WAS ALSO FILED. ON RECEIPT OF THIS INFORMATION, THE ASSESSING OFFICER HAS MADE NECESSARY ENQUIRIES FROM M/S SAHAI TRADERS AND M/S RAJU GENERAL STORES. IN THE ABSENCE OF CONFIRMATION FROM THE ABOVE PARTIES WITH REGARD TO THE SALE AND PURCHASE AND ALSO IN THE LIGHT OF THE SURROUNDING CIRCUMSTANCES, THE ASSESSING OFFICER HAS FINA LLY HELD THAT THE BUSINESS OF FOOD DIVISION HAS NOT COMMENCED DURING THE ACCOUNTING PERIOD. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 35(1)(IV) OF THE ACT AND ALSO DEPRECIATION CLAIMED ON FOOD DIVISI ON. THE RELEVANT OBSERVATIONS OF THE ASSESSING OFFICER ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: - I HAVE PERUSED ALL THE ABOVE DETAILS FILED BY THE ASSESSEE. IT IS VERY APPARENT THAT ALL THE ABOVE DETAILS ARE AN AFTER THOUGHT AND NOT SUPPORTED B Y ANY EVIDENCE. THE COMMERCIAL TAX DEPARTMENT HAD GIVEN THE CERTIFICATE ON THE BASIS OF ASSESSE'S SUBMISSION AND IS NOT SUPPORTED BY ANY EVIDENCE. IT IS VERY SURPRISING THAT A BIG AND REPUTED ORGANIZATION LIKE THAT OF ASSESSEE HAS MADE CASH PURCHASE FROM S MALL GROCERY SHOP AND EVEN THIS VOUCHER DOES NOT REFLECT THE NAME OF THE ASSESSEE. IT IS NOT UNDERSTANDABLE WHY AN ORGANIZATION WHICH IS ESTABLISHING A FOOD DIVISION PLANT BY PURCHASING MACHINERY WORTH SEVERAL CRORES OF RUPEES WOULD PURCHASE SUCH SMALL RAW : - 4 - : MATERIAL AND THAT TOO FROM A SMALL GROCERY SHOP. FURTHER ENQUIRES WERE MADE REGARDING THE SALE OF DAL ETC FROM M/S SAHAI TRADERS AND THERE WAS NOTHING TO ESTABLISH THAT THE SAID PURCHASES WAS AUTHENTIC AS THE GROCERY SHOP OWNER DID NOT REMEMBER ANY SUCH S ALES. MOREOVER, THE SALE OF FOOD PRODUCT TO M/S RAJU GENERAL STORE, SHAHJAHANPUR COULD NOT BE ESTABLISHED AS ON ENQUIRY FROM ITO, SHAHJAHANPUR, THE EXISTENCE OF SUCH FIRM WAS NOT ESTABLISHED. THE ASSESSEE HAS NOW CAME FORWARD WITH A DIFFERENT EXPLANATION T HAT IT HAD ARRANGED A DISPLAY MEET BEFORE LAUNCHING THE PRODUCT IN THE MARKET IN THE MONTH OF MARCH, 2008 AND IN THIS MEET IT HAD DISTRIBUTED FREE SAMPLE AND IN THE SAID MEET OWNERS OF M/S RAJU GENERAL STORES HAD ALSO PARTICIPATED AND HAD PURCHASED THE MAT ERIAL FROM THE COMPANY AND HAD MADE CASH PAYMENT FOR THEIR PURCHASES. NO OTHER SALES HAS BEEN MADE BY THE ASSESSEE. THE CASH SALE VOUCHER IS COMPUTER GENERATED AND THERE IS NO MENTION OF ANY COMMERCIAL TAX/TRADE TAX REGISTRATION OVER THE CASH NAME. SUCH A BIG ORGANIZATION COULD NOT ENTER IN TO SALE BEFORE GETTING REGISTRATION WITH THESE GOVT. DEPARTMENT. THE ASSESSE'S REPLY HAS NO BASIS AS THE ASSESSEE HAS NOT FILED ANY AUTHENTIC DOCUMENT T O ESTABLISH THAT ANY SU CH DISPLAY MEET WAS HELD AND IT HAS NOT ESTA BLISHED THE IDENTITY OF PURCHASER. THE ASSESSE'S REPLY IS JUST AN AFTER THOUGHT TO ESTABLISH THAT THE BUSINESS HAS STARTED WHEN IN FACT THE AUD ITED ACCOUNTS THE DETAILS OF WHICH HAVE BEEN MENTIONED NOWHERE INCORPORATES SUCH PURCHASE/SALES. THE ASSESSEE DID NOT DISCLOSE DETAILS AS TO THE NEW EMPLOYEES HIRED FOR SPECIALIZED JOB OF FOOD DIVISION AND ANY OTHER RELEVANT DETAILS AS TO THE STARTING OF NEW FOOD PRODUCT BUSINESS. IN THESE CIRCUMSTANCES, I AM NOT SATISFIED ABOUT THE CORRECTION OF THE ACCOUNTS OF THE ASSESSEE, SINCE THE BUSINESS OF FOOD DIVISION HAS NOT COMMENCED DURING THE ACCOUNTING PERIOD. I THEREFORE, : - 5 - : INVOKE THE PROVISIONS OF SEC 145(3) OF THE INCOME TAX ACT, 1961 AND PROCEED TO MAKE THE ASSESSMENT ACCORDINGLY. IN THESE CIRCUMSTANCES AND AFTER CO NSIDERING THE ABOVE FACT AND THE AUDITED ACCOUNTS FILED BY THE ASSESSEE, IT IS VERY CLEAR THAT THE BUSINESS OF FOOD DIVISION HAS NOT STARTED DURING THE YEAR AND MERELY A LETTER FROM COMMERCIAL TAX DEPARTMENT AND THAT TOO BASED ON ASSESSE'S SUBMISSION AND A SALE VOUCHER WHICH ALSO REMAINED UNCONFIRMED CANNOT ALTER THE SITUATION. IT IS THUS VERY CLEARLY ESTABLISHED THAT BUSINESS OF FOOD DIVISION HAS NOT STARTED DURING THIS ACCOUNTING PERIOD, HENCE, THE DEPRECIATION CLAIMED ON PLANT & MACHINERY, BUILDING AND B ANK INTEREST ON LOAN TAKEN FOR FOOD DIVISION BUSINESS CAN NOT BE ALLOWED AS A DEDUCTION. 4 . AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND REITERATED IT CONTENTIONS. THE ASSESSEE, HOWEVER, FILED COPY OF VAT RETURN AND COPY OF SAL E BILLS WITH THE SUBMISSION THAT THE ASSESSEE HAS STARTED PRODUCTION AND SALE OF FOOD DIVISION IN THE MONTH OF MARCH, 2008. IT WAS CONTENDED BEFORE THE LD. CIT(A) THAT THE ASSESSEE - COMPANY HAS INCURRED CAPITAL EXPENDITURE OF ` 45,50,025 ON THE PURCHASE OF MACHINERY FOR SCIENTIFIC RESEARCH WORK OF FOOD PRODUCTS. THE DETAILS OF EXPENSES WERE ALSO FILED BEFORE THE ASSESSING OFFICER. IT WAS ALSO SUBMITTED THAT T HE MACHINERIES PURCHASED FOR THE PURPOSE OF RESEARCH WORK WERE DIFFERENT AND SEPARATE FROM THE MACH INERIES PURCHASED AND U S ED FOR PRODUCTION OF FOOD PRODUCTS. THE MACHINERIES WERE USED FOR THE PURPOSE OF RESEARCH OF VARIOUS FOOD PRODUCTS AND AFTER CONDUCTING IN - HOUSE RESEARCH, THE PRODUCTION OF FOOD PRODUCTS WAS STARTED ON 25.3.2008. HE PLACED HEAVY R ELIANCE UPON THE CERTIFICATE ISSUED BY THE COMMERCIAL TAX DEPARTMENT IN WHICH IT WAS STATED THAT THE COMPANY HAS STARTED PRODUCTION OF FOOD PRODUCTS ON 25.3.2008. HE HAS ALSO PLACED RELIANCE UPON THE SURVEY : - 6 - : CONDUCTED BY THE COMMERCIAL TAX DEPARTMENT ON 14 .1.2008 IN WHICH THEY HAVE MENTIONED THAT THE PLANT IS ALMOST READY AND PRODUCTION IS EXPECTED BY MARCH/APRIL 2008. IN VAT RETURN, THE ASSESSEE HAS DECLARED SALE OF FOOD PRODUCTS AND THIS STAND OF THE ASSESSEE WAS ACCEPTED BY THE COMMERCIAL TAX DEPARTMENT IN VAT ASSESSMENT. HE HAS ALSO EXPLAINED THE PROCESS OF MANUFACTURING OF FOOD PRODUCTS. 5 . BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE LD. CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE AND HELD THAT THE BUSINESS OF THE ASSESSEE COMMENCED DURI NG THE PERIOD UNDER CONSIDERATION. ACCORDINGLY, THE ASSESSING OFFICER WAS DIRECTED TO ALLOW DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT AND ALSO DEPRECIATION ON MACHINERIES AND BUILDING OF FOOD DIVISION. 6 . AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE RE VENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT THE ASSESSING OFFICER HAS MADE A DETAILED INVESTIGATION WITH REGARD TO THE COMMENCEMENT OF PRODUCTION BY THE FOOD DIVISION. THE LD. C.I.T ( D.R. ) , SHRI. PRAVIN KUMAR HAS INVITED OUR ATTENTION TO THE DETAILS OF RAW - MATERIALS CONSUMED AND THE DETAILS OF SALE AND PRODUCTION AND ALSO OF THE CLOSING STOCK WITH THE SUBMISSION THAT NOW HE RE THE ASSESSEE HAS M ADE ANY REFERENCE WITH REGARD TO THE PRODUCTION BY THE FOOD DIVISION. THE LD. CIT ( DR) FURTHER CONTENDED THAT THE ASSESSING OFFICER HAS MADE NECESSARY ENQUIRIES FROM M/S SAHAI TRADERS FROM WHOM THE ASSESSEE ALLEGED TO HAVE MADE PURCHASE OF DAL, HALDI, MIRCH, DHANIA, CHOLA, ETC., BUT THE TRANSACTION WAS NOT CONFIRMED BY THE SAID PARTY. S IMILAR WAS THE POSITION WITH REGARD TO M/S RAJU GENERAL STORE TO WHOM THE ASSESSEE ALLEGED TO HAVE MADE SALE OF THE FOOD PRODUCTS. THE LD. CIT (DR) FURTHER INVITED OUR ATTENTION TO THE DETAILS OF OPENING & CLOSING STOCK AND ALSO SALES & PRODUCTION OF THE FOOD DIVISION FILED DURING THE COURSE OF HEARING OF THE APPEAL WHICH IS AVAILABLE AT PAGE 18 OF THE PAPER BOOK WITH THE SUBMISSION THAT THE ASSESSEE HA S NOT : - 7 - : SHOWN ANY OPENING STOCK AND ALSO CLOSING STOCK. ACCORDING TO THE DETAILS FURNISHED, WHATEVER PURCH ASES HAVE BEEN MADE WERE MANUFACTURED AND SOLD. AS PER DETAILS AVAILABLE AT PAGE 18 OF THE PAPER BOOK, EQUIVALENT Q UANTITY OF DAAL MAKHANI, DAAL TADKA, FRENCH FRI POTATO, KASMIRI RAZMA, PUNJABEE CHOLA PURCHASED W ERE SOLD AFTER ITS PRODUCTION , WHICH CANNOT BE POSSIBLE IN A PRODUCTION INDUSTRY. ACCORDING TO THE ASSESSEE, THE ENTIRE SALE WAS EFFECTED BETWEEN 26.3.2008 AND 29.3.2008 AS SAMPLE TO DIFFERENT PERSON S BUT NO CONFIRMATION TO THIS EFF ECT WAS FILED BEFORE THE ASSESSING OFFICER. HE HAS ALSO INVITED O UR ATTENTION TO THE STOCK REGISTER AS WELL AS THE ORDER OF THE LD. CIT(A) WITH THE SUBMISSION THAT BEFORE THE LD. CIT(A) IT WAS CONTENDED BY THE ASSESSEE THAT THE MACHINERIES WERE UTILIZED FOR MAKING RESEARCH IN FOOD PRODUCTS AND AFTER RESEARCH WORK IS DON E, THE COMPANY HAS STARTED PRODUCTION OF FOOD PRODUCTS ON 25.3.2008. BUT FROM THE DETAILS OF THE CLOSING STOCK, IT APPEARS THAT WHATEVER P URCHASE S MADE BY THE ASSESSEE WERE SOLD BETWEEN 25.3.2008 AND 29.3.2008. IF THAT BE THE CASE, NOTHING IS AVAILABLE O N RECORD TO SHOW HOW MUCH RAW - MATERIAL WAS CONSUMED BY THE ASSESSEE FOR MAKING RESEARCH IN FOOD PRODUCTS. THEREFORE, THE DETAILS FURNISHED BY THE ASSESSEE CLEARLY SHOW THAT THE ASSESSEE HAS NOT STARTED ANY PRODUCTION BEFORE THE END OF THE FINANCIAL YEAR U NDER CONSIDERATION AND THE ASSESSEE HAS SIMPLY FABRICATED EVIDENCE TO CLAIM BENEFIT OF PROVISIONS OF SECTION 35(1)(IV) OF THE ACT AND ALSO DEPRECIATION ON MACHINERIES. THE LD. CIT (DR) FURTHER CONTENDED THAT IT IS FOR THE ASSESSEE TO PLACE RELEVANT EVIDEN CE ON RECORD TO SUBSTANTIATE ITS C LAIM THAT THE PRODUCTION WAS STARTED BEFORE THE END OF THE FINANCIAL YEAR. 7 . THE LD. COUNSEL FOR THE ASSESSEE BESIDES PLACING HEAVY RELIANCE UPON THE ORDER OF THE LD. CIT(A) HAS CONTENDED THAT THE ASSESSEE HAS FURNISHED AL L THE RELEVANT EVIDENCES IN SUPPORT OF ITS CLAIM. THE COMMERCIAL TAX DEPARTMENT HAVE ALSO ISSUED A CERTIFICATE THAT PRODUCTION BY THE FOOD DIVISION WAS STARTED ON 25.3.2008. BESIDES, VAT RETURN WAS ALSO : - 8 - : SUBMITTED TO THE DEPARTMENT FOR THE MONTH OF MARCH 2008 IN WHICH SALE OF FOOD PRODUCTS HAVE BEEN SHOWN. SINCE THE ASSESSEE HAS PLACED ALL THE RELEVANT EVIDENCES IN SUPPORT OF ITS CLAIM, THE SAME WAS DULY EXAMINED BY THE LD. CIT(A) BEFORE ALLOWING THE SAME. 8 . HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAR EFUL PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES AND DOCUMENTS PLACED ON RECORD, WE FIND THAT THE SOLE CONTROVERSY BEFORE US IS WHETHER THE PRODUCTION OF THE FOOD DIVISION WAS COMMENCED BEFORE THE END OF THE FINANCIAL YEAR IN ORDER TO CLAIM DEDUCTION UN DER SECTION 35(1)(IV) OF THE ACT AND ALSO DEPRECIATION ON MACHINERIES INSTALLED IN THE FOOD DIVISION. THOUGH THE ASSESSEE HAS PLACED PURCHASE AND SALE BILLS, BUT HE COULD NOT FILE THE CONFIRMATIONS WITH REGARD TO SALE AND PURCHASE. IT IS ALSO VERY STRAN GE TO NOTE THAT THE ASSESSEE - COMPANY HAS SET UP ITS FOOD DIVISION BY MAKING AN INVESTMENT OF ` 1,60,40,633 IN MACHINERIES AND FOR START OF PRODUCTION IT HAS MADE PURCHASES OF SMALL QUANTITY OF RAW - MATERIAL S . THE EXACT QUANTITY HAS NOT BEEN MENTIONED IN THE SALE INVOICES. WE HAVE EXAMINED ONE INVOICE APPEARING AT PAGE 20 OF THE ASSESSEES COMPILATION ISSUED IN FAVOUR OF M/S RAJU GENERAL STORE IN WHICH THE ASSESSEE HAS MADE SALES OF DAAL MAKHANI, DAAL TADKA, PUNJABEE CHOLA AND KASHMIRI RAZMA. THE QUANTITIES WERE SHOWN IN NO. AND THE RATE WAS SHO WN IN PER NO. FOR EXAMPLE DAAL MAKHANI WAS SHOWN 100 IN NO. @ 35.00 PER NO. AND TOTAL AMOUNT AT 3,500.00. IT IS NOT CLEAR FROM THIS INVOICE WHETHER THIS 100 IS IN NO. OR 100 KG. OR 100 GM. FOR THE SAKE OF REFERENCE WE EXTRACT THE RELEVANT PORTION OF DESCRIPTION OF GOODS AS UNDER: - DESCRIPTION OF GOODS QUANTITY RATE PER AMOUNT DAAL MAKHANI 100 NO. 35.00 NO. 3,500.00 DAAL TADKA 100 NO. 30.00 NO. 3,000.00 PUNJABEE CHOLA 100 NO. 35.00 NO. 3,500.00 : - 9 - : KASHMIRI RAZMA 80 NO. 31.25 NO. 2,500.00 VAT 4% (U.P) UNREGD. DEALER 4% 500.00 TOTAL 380 NO. 13,000.00 9 . SIMILAR WAS THE POSITION WITH REGARD TO OTHER INVOICES THROUGH WHICH FRENCH FRI POTATO WERE SOLD AS SAMPLE TO M/S GUPTA GENERAL STORE, MR. RAM KUMAR, MR SANJAY SINGH , ETC. EVEN DAAL MAKHANI AND DAAL TADKA WAS SOLD IN NO. THE COPIES OF THESE INVOICES ARE AVAILABLE AT PAGES 20 TO 25 OF ASSESSEES COMPILATION. WE HAVE ALSO CAREFULLY EXAMINED THE COPY OF STOCK REGISTER PLACED ON RECORD WHEREFROM IT IS NOTICED THAT SOME OF THESE PURCHASES WERE SHOWN TO HAVE BEEN MADE IN JANUARY 2008 ON DIFFERENT DATES, BUT THE ENTIRE PRODUCT S WERE SOLD BETWEEN 25.3.2008 AND 29.3.2008. THE DETAILS OF THE PURCHASES OF RAW - MATERIALS AND ITS ISSUANCE ARE AVAILABLE AT PAGES 18 TO 38 OF THE A SSESSEES COMPILATION. FROM THESE DETAILS, IT APPEARS THAT WHATEVER PURCHASES MADE WERE ISSUED FOR ITS UTILIZATION UPTO 28.3.2008 WHEREAS ACCORDING TO THE OWN STATEMENT OF THE ASSESSEE, THE PRODUCTIO N WAS STARTED FROM 25.3.2008. T HE ASSESSEE ITSELF HAS A LSO STATED THAT BEFORE START OF PRODUCTION, THE ASSESSEE HAS UTILIZED ITS MACHINERIES FOR MAKING RESEARCH IN FOOD PRODUCTS MEANING THEREBY WHATEVER RAW - MATERIAL WAS ISSUED BY THE ASSESSEE IN THE MONTHS OF JANUARY AND FEBRUARY 2008 WERE UTILIZED FOR MAKING RESEARCH. IF THAT BE THE CASE , THE ENTIRE QUANTITIES PURCHASE D WOULD NOT BE AVAILABLE WITH THE ASSESSEE FOR SALE AS A FINAL PRODUCT IN THE MARKET. BUT THE ASSESSEE HAS DECLARED THAT THE QUANTITY OF FINISHED PRODUCT SOLD IN THE MARKET IS EQUAL TO THE QUAN TITY OF RAW - MATERIALS PURCHASED. THEREFORE, BOTH THE STANDS OF THE ASSESSEE ARE CONTRADICTORY TO EACH OTHER. ONE IMPORTANT ASPECT ALSO TO BE NOTED IS THAT IN A PRODUCTION INDUSTRY IT CANNOT BE EXPECTED THAT THE ENTIRE QUANTITY OF RAW - MATERIAL WILL BE CON VERTED INTO FINISHED PRODUCT . MOREOVER, O NCE THE PRODUCTION STARTS : - 10 - : SOME OF THE MATERIAL S EITHER IN THE FORM OF RAW - MATERIA LS OR FINISHED GOODS ARE ALWAYS LEFT OVER WHICH FORM PART OF THE CLOSING STOCK. BUT IN THE INSTANT CASE, CLOSING STOCK OF THE FOOD P RODUCT AND RAW - MATERIAL WAS SHOWN A S NIL WHICH IS HIGHLY IMPOSSIBLE IN THE CASE OF PRODUCTION INDUSTRIES. 10 . WE HAVE ALSO EXAMINED THE SURVEY REPORT AND CERTIFICATE ISSUED BY THE COMMERCIAL TAX DEPARTMENT AND FROM ITS CAREFUL PERUSAL WE FIND THAT THE COMMERCI AL TAX DEPARTMENT HAS NOT MADE PHYSICAL INSPECTION OF THE SITE. THE SURVEY WAS CONDUCTED ON 14.1.2008 AND DURING THE COURSE OF SURVEY , IT WAS STATED BY THE ASSESSEE THAT THE PRODUCTION WOULD START EITHER IN THE MONTH OF MARCH OR APRIL 2008. THEREFORE, TH E SURVEY REPORT CANNOT BE CALLED TO BE A CONCLUSIVE EVIDENCE TO SAY THAT PRODUCTION WAS STARTED IN THE MONTH OF MARCH 2008 . SO FAR AS THE CERTIFICATE IS CONCERNED, WE FIND THAT THE CERTIFICATE WAS ISSUED ON THE BASIS OF INFORMATION FURNISHED BY THE ASSESS EE. THE COMMERCIAL TAX DEPARTMENT DID NOT MAKE ANY PHYSICAL INSPECTION TO VERIFY THE FACTS. THEREFORE, THE CERTIFICATE ISSUED BY THE COMMERCIAL TAX DEPARTMENT CANNOT BE HELD TO BE A VALID PIECE OF EVIDENCE TO DECIDE AS TO WHEN THE PRODUCTION WAS COMMENCE D. THE ASSESSING OFFICER HAS EXAMINED THIS EVIDENCE AND ALSO MADE NECESSARY ENQUIR IES FROM THE PERSONS FROM WHOM THE ASSESSEE ALLEGED TO HAVE MADE PURCHASES OF SMALL QUANTITY OF RAW - MATERIAL S AND ALSO THE PERSON S TO WHOM SALE S WERE EFFECTED, BUT NONE OF T HE PARTIES HA VE CONFIRMED THE SAID TRANSACTION. MOREOVER, THE DOCUMENTS PLACED BEFORE THE ASSESSING AUTHORITIES ARE NOT SUFFICIENT TO CONCLUDE THAT PRODUCTION WAS COMMEN C ED BEFORE THE END OF THE FINANCIAL YEAR UNDER CONSIDERATION . 11 . WE HAVE ALSO CAREFULLY E XAMINED THE PROVISIONS OF SECTION 35(1)(IV) OF THE ACT AND WE FIND THAT DEDUCTION UNDER THIS SECTION CAN ONLY BE ALLOWED IF THE BUSINESS IS CARRIED ON BY THE ASSESSEE. BUT IN THE INSTANT CASE, THE ASSESSEE HAS NOT COMMENCED ITS BUSINESS AND HENCE IT CANNO T BE SAID THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OR : - 11 - : PRODUC TION OF F OODS. THEREFORE, BENEFIT OF DEDUCTION UNDER SECTION 35(1)(IV) OF THE ACT CANNOT BE ALLOWED TO THE ASSESSEE. SIMILAR WAS THE POSITION WITH REGARD TO THE DEPRECIATION CLAIMED ON THE MACHINERIES INSTALLED IN THE FOOD DIVISION. WE HAVE, HOWEVER, CAREFULLY EXAMINED THE ORDER OF THE LD. CIT(A) AND WE FIND THAT THE LD. CIT(A) HAS BLINDLY ACCEPTED THE CONTENTIONS OF THE ASSESSEE WITHOUT VERIFYING THE FACTS THAT NO EVIDENCE W AS PLACED ON RECORD TO SUBSTANTIATE THAT THE PRODUCTION WAS COMMENCED BEFORE THE END OF THE FINANCIAL YEAR UNDER CONSIDERATION. WE, THEREFORE, DO NOT FIND OURSELVES IN AGREEMENT WITH THE ORDER OF THE LD. CIT(A) AND WE ACCORDINGLY SET ASIDE HIS ORDER AND R ESTORE THAT OF THE ASSESSING OFFICER. 12 . IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.12.2011. SD/ - SD/ - [B. R. JAIN ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14.12.2011 JJ: 2511 COPY F ORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR