Solaris Chemtech Industries Ltd., New Delhi V. JCIT (OSD), New Delhi

ITA 3633/DEL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3058 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 24-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 06-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 154

Judgement Text

1 ITA NO. 3633/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO.3633/DEL/20 13 (A.Y 2009-10) SOLARIES CHEMTECH INDUSTRIES LTD. (EARLIER KNOWN AS SOLARIS BIO CHEMICALS LTD.) THAPAR HOUSE, 124 JANPATH NEW DELHI AABCB7121R (APPELLANT) VS JCIT CIRCLE-9(1) NEW DELHI (RESPONDENT) APPELLANT BY SH. P. C. YADAV, ADV RESPONDENT BY SH. N. K. BANSAL, SR. DR ORDER PER SUCHITRA KAMBLE, JM THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER DATED 4/2/2013 PASSED BY THE CIT(A)-XII, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION RS.2,43, 45,499 ON W.D.V. VALUE OF ASSETS RS. 16,23,03,324 IN RESPECT OF EXPE NDITURE RS.46,98,37,969 (NET) INCURRED IN ASSESSMENT YEARS 2002-03 (RS.167,773,337) & IN ASSESSMENT YEAR 2003-04 (RS.3 02,064,632) AND CAPITALIZED IN ASSESSMENT YEAR 2004-05. DATE OF HEARING 24.05.2017 DATE OF PRONOUNCEMENT 26.05.2017 2 ITA NO. 3633/DEL/2013 2. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION OF RS. 1 ,91,84,616 ON WRITTEN DOWN VALUE RS.7,6738,462 OF PRODUCT DEVELOPMENT EXP ENDITURE AND TECHNICAL KNOW HOW FEES, CAPITALIZED IN EARLIER ASS ESSMENT YEARS. 3. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS ERRED IN DISMISSING THE GROUND IN RELATION TO INITIATION OF PENALTY PROCEEDING U/S 271(L)(C) OF THE ACT. 4. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) HAS ERRED BOTH IN LAW AND IN FACTS AS MENTIONED HEREINABOVE BY DISMIS SING THIS APPEAL IN HASTE. GENERAL 5. THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. YOUR APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR WITHDRAW ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. 3. THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE MANUFACTURING OF CITRIC ACID FILED ITS ROI FOR THE IMPUGNED YEAR DEC LARING A LOSS OF RS.32,36,32,181/- AND BOOK PROFIT OF RS.14,36,56,02 7/- U/S 115JB. BOOK PROFIT AS DECLARED IN RETURN WAS ACCEPTED. THE ASSE SSING OFFICER MADE THE DISALLOWANCE OF DEPRECIATION ON THE WDV OF TRIAL RU N EXPENSES, WHICH WERE CAPITALIZED IN ASSESSMENT YEAR 2002-03 & 2003-04 AN D DISALLOWED THE DEPRECIATION ON PRODUCT DEVELOPMENT EXPENSES WHICH WERE CAPITALIZED IN ASSESSMENT YEAR 2004-05. 4. AGGRIEVED BY THE SAME, THE ASSESSEE FILED THE AP PEAL BEFORE THE CIT(A). THE CIT(A) HAS UPHELD THE DISALLOWANCES BUT DIRECTE D THE ASSESSING OFFICER TO RE-COMPUTE THE EXPENSES U/S 14A. 5. THE LD. AR SUBMITS THAT T HE ISSUE PERTAINING TO DISALLOWANCE OF DEPRECIATION ON THE WDV OF TRIAL RUN EXPENSES, WHIC H WERE CAPITALIZED IN 3 ITA NO. 3633/DEL/2013 ASSESSMENT YEAR 2002-03 & 2003-04 INCURRING EXPENSE S OF RS. 46,98,37,969 WAS AS TRIAL RUN EXPENSES AND THE SAME WAS TREATED AS PRE-OPERATIVE EXPENSES. THE ASSESSING OFFICER DISALLOWED THE SAID PRE-OPERA TIVE EXPENSES OF RS. 46,98,37,969/- AND THE SAID AMOUNT WAS NOT ALLOWED TO BE CAPTILIZED IN THE SUBSEQUENT YEAR I.E. AY 2004-05 AND FURTHER ALSO HE LD THAT THE COMMERCIAL PRODUCTION HAS ALREADY BEEN STARTED. THE MATTER REA CHED BEFORE THE ITAT (ITA NO. 3218/D/2010 DATED 16.12.2011) WHEREIN THE FILE WAS RESTORED BACK TO THE ASSESSING OFFICER VIDE ORDER DATED 16.12.2011 TO EX AMINE ALL THE FACTS IN DETAILS AND PASS A SPEAKING ORDER AND CHECK ALL THE DETAILS IN RELATION TO BOOKS OF ACCOUNT, RECORDS OF PRODUCTION, QUALITY CONTROL REPORTS ETC TO BRING OUT CLEARLY THAT WHEN THE TRAIL PRODUCTION ENDED AND CO MMERCIAL PRODUCTION STARTED. IN ACCORDANCE WITH THE DIRECTIONS OF ITAT, THE ASSESSING OFFICER PASSED THE ORDER ON 24/03/2014 AND HELD THAT:- A) THE ASSESSEE COMPANY COMMENCED ITS TRIAL RUN PRO DUCTION FROM 7TH NOV 2001. B) THE ASSESSEE COMPANY CLAIMS THAT THE TRIAL RUN C ONTINUED TILL 31ST MARCH 2003, HOWEVER THE ASSESSEE COMPANY COULD NOT SUBSTA NTIATE THE SAME. IT HAS ONLY PRODUCED COPY OF SOME COMPLAINS RECEIVED B Y IT WHICH IS NOT ENOUGH. C) SINCE THE ASSESSEE COMPANY HAS PRODUCED 7626 MT OF CITRIC ACID DURING THE YEAR UNDER CONSIDERATION WHICH IS SUBSTANTIALLY HIGHER THAN THE PRODUCTION OF LAST YEAR I.E. A.Y. 2002-03 WHERE IT WAS ONLY 1708 MT. HENCE BY NO STRETCH OF IMAGINATION IT CAN BE ACCEPTED THA T THE TRAIL RUN PERIOD IS CONTINUED TILL 31ST MARCH 2003. ON THE BASIS OF THE PRODUCTION RECORDS AND BOOKS OF ACCOUNTS PRODUCED BEFORE US, IT IS CONCLUD ED THAT TRIAL RUN ENDED ON 31 ST MARCH 2002 AND FROM 1 ST APRIL 2002 THE ASSESSEE COMPANY IS INTO THE COMMERCIAL PRODUCTION. 4 ITA NO. 3633/DEL/2013 D) SINCE THE EXPENSES (NET OF SALES) OF RS. 16,77,7 3,337 WAS INCURRED DURING THE ASST, YEAR 2002-03, THE SAME CANNOT BE C ONSIDERED DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, EXPENSES OF RS. 16.77 CR. WAS TREATED AS CAPITAL EXPENSES AND BALANCE EXPENSES OF RS. 30.20 CR. WAS TREATED AS RE VENUE EXPENSES. 6. THUS, THE LD. AR SUBMITS THAT THERE IS NO CHAN GE IN FACTS AND CIRCUMSTANCES IN THIS CASE AS COMPARED TO EARLIER Y EARS AS SUBMITTED HEREIN ABOVE. ACCORDINGLY, THE LD. AR SUBMITTED THAT THE A SSESSING OFFICER BE DIRECTED TO GIVE THE CONSEQUENTIAL EFFECT OF THE VIEW TAKEN IN EARLIER YEARS. TOTAL TRIAL RUN EXPENSES INCURRED AND CLAIMED + 46,98,37,969/-. THE DETAILS OF WHICH ARE AS UNDER: ASSESSMENT YEAR PARTICULARS VALUE CONSIDERED BY THE A.O 2002 - 03 TRIAL RUN EXPENSES CAPITALIZED AS A.O HELD THAT TRIAL RUN HAPPENED BETWEEN 7.11.2001 TO 31.03.2002. 16,77,73,337/ - 2003 - 04 TRIAL EXPENSES INCURRED BY THE ASSESSEE AFTER 31.3.2002 MEANS IN ASSESSMENT YEAR 2003- 04 ARE ALLOWED AS REVENUE IN NATURE AND A DISALLOWANCE OF RS.5.98 CRORE HAS BEEN MADE BY THE A.O VIDE HIS ORDER DATED 24.3.2014 30,20,64,632/ - HOWEVER, DISALLOWED 5% THAT IS 5.98 CRORE. VIDE ORDER DATED 24.03.2014 2004 - 05 TRIAL RUN EXPENSES WHICH WERE CAPITALIZED HAVE BEEN ALLOWED BY THE A.O VIDE HIS ORDER DATED 15.12.2016. AMOUNT OF RS.17,17,97,807/- HAS BEEN ALLOWED VIDE ORDER DATED 15.12.2016 2005 - 06 ALLOWED THE DEPRECIATION FIGURES AS PER ORDER AMOUNT IS WDV COMING OUT FROM PREVIOUS YEARS. 5 ITA NO. 3633/DEL/2013 2006 - 07 ALLOWED THE DEPRECIATION FIGURES AS PER ORDER AMOUNT IS WDV COMING OUT FROM PREVIOUS YEARS. 2007 - 08 ALLOWED THE DEPRECIATION FIGURES AS PER ORDER AMOUNT IS WDV COMING OUT FROM PREVIOUS YEARS. SIMILARLY THE A.O HAS ALLOWED DEPRECIATION ON PRODU CT DEVELOPMENT EXPENSES CAPITALIZED IN ASSESSMENT YEAR 2004-05 VIDE ITS ORD ER DATED 22.02.2017 PASSED U/S 154 FOR ASSESSMENT YEAR 2004-05. 7. THE LD. AR FURTHER SUBMITTED IN RESPECT OF GROUN D NO. 2 THAT THE ASSESSEE COMPANY HAS CAPITALIZED THE EXPENDITURE IN CURRED TOWARDS PRODUCT DEVELOPMENT EXPENSES IN THE FIRST YEAR OF COMMERCIA L PRODUCTION I.E. AY 2004- 05 AND THEREAFTER IN ASST. YEAR 2005-06 & 2006-07. THE ASSESSEE COMPANYS CLAIM OF DEPRECIATION ALLOWED BY ITAT IN ITA NO. 50 44 TO 5046/DEL/2010 FOR ASST. YEAR 2004-05 TO 2006-07. 8. THE LD. AR SUBMITTED THAT NO EXPENDITURE IS INCU RRED IN THE YEAR UNDER CONSIDERATION AND THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION ON THE EXPENSES INCURRED IN EARLIER YEARS. THEREFORE, THE LD. AR SUBMITTED IN LIGHT OF ITAT DECISION IN ASSESSEES OWN CASE THE CLAIM FOR DEPRECIATION BE ALLOWED. 9. THE LD. DR COULD NOT CONTROVERT THE DECISIONS OF THE TRIBUNAL FOR ASSESSMENT YEAR 2003-04 & 2004-05 TO 2006-07 IN ASS ESSEES OWN CASE. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSE THE R ECORD. REGARDING 1 ST ISSUE RELATING TO DISALLOWANCE OF DEPRECIATION ON W DV OF TRIAL RUN EXPENSES, THE ASSESSING OFFICER RELIED ON THE ASSESSMENT ORDERS F OR ASSESSMENT YEAR 2003- 04 TO 2008-09 WHICH ARE NOW EFFECTED IN FAVOUR OF T HE ASSESSEE AFTER THE DECISION OF ITAT BY RESTORING MATTER TO THE FILE OF A.O. THE ABOVE ISSUES ARE NO MORE RES-INTEGRA AS THE ASSESSING OFFICER HIMSELF H AS NOW ALLOWED THE CLAIM OF THE ASSESSEE IN PREVIOUS YEARS ORDERS. SINCE THE AS SESSING OFFICER IN THOSE ASSESSMENT YEARS ALLOWED ASSESEES CLAIM AFTER GOIN G INTO THE MERITS IT WILL BE APPROPRIATE IN THIS ASSESSMENT YEAR TO RESTORE THE MATTER FOR FRESH ASSESSMENT 6 ITA NO. 3633/DEL/2013 ORDER IN ASSESSMENT YEAR 2003-04. NEEDLESS TO SAY THE ASSESSEE BE HEARD ON MERIT. AS RELATED TO 2 ND ISSUE THAT OF DEPRECIATION ON WDV OF PRODUCT DEVELOPMENT EXPENSES, THE SAME IS IN FAVOUR OF THE ASSESSEE BY TRIBUNALS DECISION IN ASSESSMENT YEAR 2004-05 TO 2006-07. TH EREFORE, GROUND NO. 2 IS ALLOWED. AS RELATES TO GROUND NO. 3 THE SAME IS CON SEQUENTIAL HENCE IS DISMISSED. 11. IN RESULT, APPEAL IS PARTLY ALLOWED FOR STATIST ICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH MAY, 2017 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 26/05/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO. 3633/DEL/2013 DATE 1. DRAFT DICTATED ON 24/05/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 24/05/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 26.05.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 6 .05.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.