Jubilant Biosys Ltd, V. ITO Coy. Ward 4 (1),

ITA 3774/DEL/2007

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8417 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-06-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 05-09-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHEELA CHOPRA
• Keywords: Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI BEFORE SHRI D.R. SINGH, JUDICIAL MEMBER AND SHRI DEEPAK R. SHAH, ACCOUNTANT MEMBER I.T.A.NO.3774/DEL/2007 ASSESSMENT YEAR : 2004-05 JUBILANT BIOSYS LTD., INCOME-TAX OFFICER, PLOT NO.1A, SECTOR-16A, VS. COY. WARD 48(1), NE W DELHI. NOIDA (UP). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY VOHRA, ADVOCATE & SHRI ROHIT GARG, AR. RESPONDENT BY : SMT. SHEELA CHOPRA , SR. DR. O R D E R PER DEEPAK R. SHAH, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VII, NEW DELHI , DATED 20 TH JULY, 2008 FOR THE ASSESSMENT YEAR 2004-05 IN AN APPEAL A GAINST ASSESSMENT FRAMED UNDER SECTION 143(3)(II) OF THE INCOME-TAX A CT, 1961 (THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS BE FORE US:- 1. THAT THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF RS.16,19,062/- BY TRE ATING THE TRIAL RUN RECEIPTS AS PART OF SALES AND TAXABLE INC OME. 2. THAT THE LEARNED CIT(A) HAS ERRED ON FACTS AND I N LAW IN UPHOLDING THE DISALLOWANCE OF RS.55,694/- ON ACCOUN T OF DEBIT 2 BALANCES WRITTEN OFF BEING ADVANCE GIVEN IN THE ORD INARY COURSE OF BUSINESS. THE ASSESSEE HAS ALSO RAISED THE ADDITIONAL GROUND AS UNDER:- WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION ON RS.16,19,602/-, BEING THE INCOME RECEIVED DURING THE TRIAL RUN, WHICH WAS SET OFF AGAINST PROJECT COST BY THE APPELLANT AND HENCE NOT CAPITAL IZED BY THE APPELLANT, WHILE BRINGING TO TAX THE TRIAL RUN RECE IPTS AS BUSINESS INCOME. THE SAME WAS ADMITTED BY THE ORDER OF THE BENCH ON 22 ND JUNE, 2009. 3. THE ASSESSEE IS A PUBLIC LIMITED COMPANY IN WHIC H PUBLIC ARE SUBSTANTIALLY INTERESTED. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SCIENTIFIC RESEARCH AND INFORMATICS SERVICES FOR DR UG DISCOVERY UNITS BASED UPON INSILCO SOLUTIONS. THE ASSESSEE FILED ITS RET URN OF INCOME ON 29.10.2004 AT A LOSS OF RS.4,47,48,414/-. AS PER T HE PROFIT AND LOSS ACCOUNT IN THE YEAR UNDER APPEAL, IT REFLECTS THAT DURING T HE RELEVANT FINANCIAL YEAR, THE ASSESSEE HAS ACCOUNTED FOR RS.2,83,59,449/- AS INCO ME ON ACCOUNT OF RESEARCH AND DEVELOPMENT ACTIVITIES CARRIED OUT BY THE ASSESSEE. THE ASSESSEE ACTUALLY RECEIVED AN AMOUNT OF RS.2,99,78, 511/- TOWARDS SALE OF SERVICES. HOWEVER, A SUM OF RS.16,19,062/- WAS RED UCED FROM THE TOTAL SALES, WHICH WAS CONSIDERED AS TRIAL RUN RECEIPTS A ND WAS ALSO REDUCED FROM PRE-OPERATIVE EXPENDITURE. THUS ONLY NET SUM OF RS .2,83,59,449/- WAS CREDITED TO THE PROFIT & LOSS ACCOUNT AS SALES/SERV ICES. ON A QUERY, IT WAS 3 EXPLAINED THAT AS PER THE ACCOUNTING STANDARD PRESC RIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, SINCE RECEIPTS PERT AIN TO TRIAL PERIOD, THEY WERE REDUCED FROM THE TOTAL RECEIPTS AND ALSO REDUC ED FROM PRE-OPERATIVE RECEIPTS. ON BEING ASKED TO EXPLAIN THE REASON FOR THE SAME, IT WAS SUBMITTED AS UNDER:- IT IS REALLY HEARTENING & ALSO GIVES GREAT PLEASUR E IN CONFIRMING THAT WE SUCCESSFULLY COMPLETED OUR RESEA RCH PROJECT TITLED PATH ART AND ALSO KINASE IN JUNE, 2003. TO EVALUATE THE EFFECTIVENESS OF THESE RESEARCH PAC KAGES, PATH ART WAS MADE AVAILABLE TO M/S. NIEH MICRO ARRA Y CENTRE, USA AND ALSO TO THE SYSTEMS BIOLOGY INSTITUTE, TOKY O. THESE PARTIES WERE INVOICED IN JULY, 03 & AUGUST, 03. SIMILARLY, KINASE RESEARCH PACKAGE WAS ALSO MADE AVAILABLE TO ASTEX TECHNOLOGY, UK AS WELL AS TO PHA RMIX CORPORATION, USA. THESE PARTIES WERE INVOICED IN T HE MONTH OF AUGUST, 03 & SEPTEMBER, 03. THE ASSESSING OFFICER HELD THAT THE RECEIPTS ARE NO T DURING THE TRIAL RUN PERIOD BUT IN THE COURSE OF REGULAR ACTIVITIES AND HENCE TO BE TREATED AS PART OF SALES. THE SAME WERE ACCORDINGLY ADDED TO THE I NCOME. THE SAME WAS CONFIRMED BY THE LEARNED CIT(A). THE ASSESSEE HAS, THEREFORE, RAISED GROUND NO.1 IN THIS REGARD AND IN THE ALTERNATE THE ADDITI ONAL GROUND HAS ALSO BEEN RAISED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI AJAY V OHRA FAIRLY SUBMITTED THAT SINCE THE BUSINESS OF THE COMPANY IS SAID TO H AVE BEEN SET UP WITHIN THE 4 MEANING OF SECTION 3 OF THE INCOME-TAX ACT, JUST AS THE EXPENSES ARE ALLOWABLE AFTER THE BUSINESS IS SET UP, IN THE SAME FASHION, THE INCOME IS ALSO TAXABLE. HOWEVER, IT WAS ALTERNATIVELY PLEADED THA T SINCE THE RECEIPT IS MADE TAXABLE BUT SINCE THE ASSESSEE IN ITS ACCOUNTS HAVE REDUCED THE PRE-OPERATIVE EXPENSES, THE PRE-OPERATIVE EXPENSES SHOULD NOT HAV E BEEN REDUCED AND WHEN CAPITALIZED, DEPRECIATION SHOULD BE ALLOWED ON SUCH HIGHER AMOUNT. THE LEARNED DR SMT. SHEELA CHOPRA SUBMITTED THAT AL TERNATE CONTENTION IS ACCEPTABLE BUT THE RECEIPT WHICH HAS ACCRUED IN THE COURSE OF CARRYING ON OF BUSINESS IS LIABLE TO TAX. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS SU BMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, SINCE RECEIPTS AR E AFTER THE BUSINESS HAS BEEN SET UP, THE SAME ARE TAXABLE JUST AS EXPENDITU RES ARE ALLOWABLE AFTER THE BUSINESS IS SET UP. THEREFORE, THE AMOUNT WAS RIGH TLY ADDED AS INCOME OF THE ASSESSEE. HOWEVER, SINCE THE EFFECT GIVEN BY THE A SSESSEE WAS TO REDUCE SUCH AMOUNT FROM PRE-OPERATIVE EXPENDITURE PENDING ALLOCATION, THE SAME IS NOT TO BE REDUCED FROM PRE-OPERATIVE EXPENSES AND W HEN SUCH EXPENSES ARE CAPITALIZED OVER VARIOUS ASSETS, THE COST SHALL BE TREATED AS ENHANCED TO THE EXTENT OF RS.16,19,602/-. ACCORDINGLY GROUND NO.1 IS DISMISSED BUT THE ADDITIONAL GROUND RAISED IS ALLOWED. 5 6. AT THE TIME OF HEARING GROUND NO.2 WAS NOT PRESS ED. FOR WANT OF PROSECUTION, THIS GROUND IS DISMISSED. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2009. SD/- SD/- (D.R. SINGH) (DEEPAK R. SH AH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 ST JULY, 2009. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.