ACIT, Tiruppur V. Teemage Builders Pvt. Ltd., Tiruppur

ITA 3466/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7429 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Keywords: Capital receipt
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 22

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! . , % !& BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER, AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ ITA NO.3466/MDS/2016 / ASSESSMENT YEAR : 2012-13 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2, TIRUPUR. V. M/S. TEEMAGE BUILDERS PVT. LTD., NO.19, SURIYAN NAGAR, ABT ROAD, KARUVAMPALAYAM, TIRUPUR 641 604 PAN: AADCT6964E ( /APPELLANT) ( /RESPONDENT) /APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT /RESPONDENT BY : SHRI T. BANUSEKAR, CA /DATE OF HEARING : 13.03.2017 /DATE OF PRONOUNCEMENT : 22. 03.2017 / O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-3 IN I T APPEAL NO. 203/15-16 DATED 27.10.2016 PASSED U/S. 250(6) R.W.S . 143(3) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER THE CRUX OF THE ISSUES IS THAT THE LD.CIT(A ) HAS ERRED IN 2 I.T.A. NO. 3466/MDS/2016 DELETING THE ADDITION MADE BY THE LD. AO OF RS.88,4 8,261/- BY CAPITALIZING THE START UP EXPENDITURE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN BUILDING CONSTRUCTION BU SINESS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 28.09.2012 DECLARING LOSS OF RS.3,89,87,871/-. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY TH E CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLE TED U/S.143(3) OF THE ACT ON 27.03.2015. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD. AO THAT THE ASSESSEE HAD STARTED SETTING UP OF THE BUSINESS DURING THE RELEV ANT PREVIOUS YEAR. MOST OF THE MACHINERIES WERE INSTALLED DURING THE S ECOND HALF OF THE FINANCIAL YEAR BETWEEN THE PERIOD OCTOBER AND NOVEM BER. THE COMMERCIAL PRODUCTION COMMENCED FROM 14.02.2012. T HEREFORE THE LD. AO OPINED THAT THE AMOUNT OF RS.88,48,261/- BEI NG START UP EXPENSES CANNOT BE ALLOWED TO WRITTEN OFF AS REVEN UE EXPENDITURE BUT THE SAME HAS TO BE CAPITALIZED. THEREFORE, THE LD. AO ADDED RS.88,48,261/- TO THE INCOME OF THE ASSESSEE BY CAP ITALIZING THE SAME. 3 I.T.A. NO. 3466/MDS/2016 4. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION M ADE BY THE LD. AO BY OBSERVING AS UNDER: 5.0 I HAVE CONSIDERED THE GROUNDS RAISED BY THE AP PELLANT AND THE ASSESSMENT ORDER. 5.1 THE ONLY GROUND IS AGAINST THE DISALLOWANCE OF RS.88,48,461/- MADE BY THE ASSESSING OFFICER. VIDE PARA 2(C) AND 2 (D) OF THE ASSESSMENT ORDER. 'IT HAS BEEN HELD BY THE MADRAS HIGH COURT THAT MER E INSTALLATION OR ERECTION OF MACHINERY BY ITSELF WIL L NOT BE SUFFICIENT BY ITSELF AND TILL SOME END PRODUCT WHIC H IS THE BUSINESS OF THE ASSESSEE TO PROFUCE IS OR CAN BE OB TAINED IT CANNOT BE SAID THAT THE ASSESSEE IS READY TO COMMEN CE PRODUCTION (K SAMPATHKUMAR VS CIT) (158 ITR 25). AS ALREADY STATED THAT THE BUSINESS COMMENCED IN FE B 12 AND THEREFORE THE START UP EXPENSES AMOUNTING TO RS.88, 48,261/- IS DISALLOWED AND HAS TO BE CAPITALIZED, BEING CAPITAL IN NATURE AND NOT ELIGIBLE FOR DEDUCTION U/S.37 THOUGH CLAIME D BY THE ASSESSEE. IN COMING TO THIS CONCLUSION, I HAVE ALSO CONSIDERED THE EXPLANATION GIVEN BY THE ASSESSEE THAT THE COMP ANY COMMENCED BUSINESS IN THE YEAR 2007 AND THEREFORE E LIGIBLE FOR CLAIMING THE EXPENSE U/S.37, THE EXPENSES BEING INCURRED FOR THE BUSINESS AND DURING THE FINANCIAL YEAR 2011 -12. THE ASSESSING OFFICER HAS TREATED RS.88,48,261/- AS PRIOR PERIOD EXPENSES. THE APPELLANT'S AR CONTENDED THAT THE COM PANY HAS BEEN INCORPORATED IN THE YEAR 2007 AND SALES INCOME HAS ALSO BEEN 4 I.T.A. NO. 3466/MDS/2016 OFFERED. IF EXPENSES ARE TREATED AS PRIOR PERIOD, T HE INCOME ALSO WILL HAVE TO BE TREATED AS CAPITAL RECEIPT BY SAME ANALO GY. THE CASE LAW STATED BY THE ASSESSING OFFICER, K.SAMPATHKUMAR VS CLT (158 ITR 25) IS REGARDING INTEREST PAID ON AMOUNTS BORROWED TO BE CAPITALIZED. IN THE INSTANT CASE, WHEN SALES HAVE B EEN OFFERED AS INCOME CORRESPONDING EXPENDITURE WILL HAVE TO BE AL LOWED. IF THE COMPANY HAS MADE SALES EVEN BEFORE COMMERCIAL PRODU CTION AND IN THE PERIOD OF TRIAL RUN, IT HAS TO BE TREATED AS IN COME, WHICH IS A REVENUE RECEIPT. IN THAT EVENT EXPENDITURE ALSO WIL L HAVE TO BE ALLOWED. THE DISALLOWANCE MADE IS NOT SUSTAINABLE A ND IS DELETED. 5. BEFORE US, THE LD. DR ARGUED IN SUPPORT OF THE L D. AO AND PRAYED FOR UPHOLDING HIS ORDER. 6. THE LD. AR ON THE OTHER HAND RELIED ON THE ORDER OF THE LD. CIT(A) AND FURTHER ARGUED BY STATING THAT THE ENTIR E START UP COST IS REVENUE IN NATURE. HE ALSO FURNISHED THE LIST OF S ET UP COST INCURRED BY THE ASSESSEE TO SUBSTANTIATE HIS CLAIM. ACCORDI NGLY HE REQUESTED FOR CONFIRMING THE ORDER OF THE LD. CIT(A ). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. THE LIST OF EXPENDITURE I NCURRED BY THE ASSESSEE VIZ, SET UP COST SUBMITTED BY THE LD. AR I S REPRODUCED HEREIN BELOW FOR REFERENCE:- FROM THE ABOVE, IT IS APPARENT THAT T INCURRED SUBSTANTIAL AMOUNT OF RS.22,30,317/ DIESEL AND PETROL EXPENDITURE AND RS.22,38,985/ EXPENDITURE. SINCE, THE ASSESSEE HAD COMMENCED BUS INESS ONLY FROM 12 TH FEBRUARY, THIS INCURRED FOR THE PERIOD 12 OTHER EXPENSES INCURRED BY THE ASSESSEE ALSO NEEDS TO BE ANALYZED AS TO WHEN THEY HAVE BEEN INCURRED I.E., BEFORE COM MENCEMENT OF THE BUSINESS OR AFTER COMMENCEMENT OF BUSINESS. EXPENDITURE INCURRED BEFORE COMMENCEMENT OF THE BUS INESS 5 I.T.A. NO FROM THE ABOVE, IT IS APPARENT THAT T HE ASSESSEE HAD INCURRED SUBSTANTIAL AMOUNT OF RS.22,30,317/ - TOWARDS VEHICLE, DIESEL AND PETROL EXPENDITURE AND RS.22,38,985/ EXPENDITURE. SINCE, THE ASSESSEE HAD COMMENCED BUS INESS ONLY FEBRUARY, THIS ENTIRE EXPENDITURE COULD NOT HA INCURRED FOR THE PERIOD 12 TH FEBRUARY TO 31 ST MARCH. SIMILARLY, THE OTHER EXPENSES INCURRED BY THE ASSESSEE ALSO NEEDS TO BE ANALYZED AS TO WHEN THEY HAVE BEEN INCURRED I.E., BEFORE COM MENCEMENT OF BUSINESS OR AFTER COMMENCEMENT OF BUSINESS. EXPENDITURE INCURRED BEFORE COMMENCEMENT OF THE BUS INESS I.T.A. NO . 3466/MDS/2016 HE ASSESSEE HAD TOWARDS VEHICLE, DIESEL AND PETROL EXPENDITURE AND RS.22,38,985/ - AS SALARY EXPENDITURE. SINCE, THE ASSESSEE HAD COMMENCED BUS INESS ONLY EXPENDITURE COULD NOT HA VE BEEN MARCH. SIMILARLY, THE OTHER EXPENSES INCURRED BY THE ASSESSEE ALSO NEEDS TO BE ANALYZED AS TO WHEN THEY HAVE BEEN INCURRED I.E., BEFORE COM MENCEMENT OF OBVIOUSLY THE EXPENDITURE INCURRED BEFORE COMMENCEMENT OF THE BUS INESS 6 I.T.A. NO. 3466/MDS/2016 REQUIRES TO BE CAPITALIZED AFTER ANALYZING THE NATU RE OF EXPENDITURE. ALL THESE DETAILS OF EXPENDITURE ARE ALSO NOT COMIN G FORTH FROM THE ORDER OF THE LD. AO. THEREFORE THOUGH WE FIND MERIT IN THE ORDER OF THE LD.A.O., WE ARE OF THE VIEW THAT THE ENTIRE ISS UE HAS TO BE LOOKED INTO AFRESH. THEREFORE IN THE INTEREST OF J USTICE, WE REMIT BACK THE MATTER TO THE FILE OF THE LD.AO FOR DE-NOV A CONSIDERATION. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 22 ND MARCH, 2017 AT CHENNAI. SD/- SD/- ( . ) )) ) (G. PAVAN KUMAR) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER /CHENNAI, /DATED, THE 22 ND MARCH, 2017. JR. /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT, 5. /DR 6. /GF.