SOLARFIELD ENERGY PVT. LTD., MUMBAI V. ITO WARD 2(3)(3), MUMBAI

ITA 5189/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7991 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 16-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Capital receipt; Revenue expenditure; Set aside
• Section: 143(3); 154

Judgement Text

1 ITA 5189/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNALMUMBAI BENCH G , MUMBAI BEFORE SHRI PAWAN SINGH JUDICIAL MEMBER AND SHRI M BALAGANESH ACCOUNTANT MEMBER ITA NO. 5189/MUM/2016 FOR (ASSESSMENT YEAR : 2012-1 3) ITA NO. 5190/MUM/2016 FOR (ASSESSMENT YEAR : 2012-1 3) SOLARFIELD ENERGY PVT LTD 21, 3 RD FLOOR, SETHI MANSION, KUMTHA STREET, BALLARD ESTATE MUMBAI-400 038 PAN : AAOCS4380A VS ITO, WD-2(3)(3), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI J.D. MISTRY SR ADVOCATE WITH NI RAJ SHETH ADVOCATE & DHRUMIL SHAH CA RESPONDENT BY SHRI SATISH RAJORE SR DR DATE OF HEARING 12-06-2019 DATE OF PRONOUNCEMENT 16-07-2019 O R D E R PER PAWAN SINGH, AM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-6, MUMBAI DATE D 15-06-2016 & 31.05.2016 PERTAINING TO AY 2012-13. APPEAL IN ITA NO. 5189/MUM/2016 RELATES TO ASSESSMENT ORDER PASSED UNDER SECTION 14 3(3)DATED 26.03.2015, HOWEVER, ITA NO. 5190/MUM/2016 ARISING AGAINST THE ORDER PASSED ON THE RECTIFICATION APPLICATION FILED UNDER SECTION 154 O F THE ACT. IN BOTH THE APPEALS THE ASSESSEE HAS RAISED COMMON GROUNDS OF APPEALS, THEREFORE, BOTH THE 2 ITA 5189/MUM/2016 APPEALS ARE HEARD AND ARE DECIDED BY COMMON ORDER. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE IN ITA NO 5189/MUM/2015 READ AS FOLLOWS:- 1: 0 RE: INTEREST ON FIXED DEPOSITS OF RS. 15,68,8 04/- (MENTIONED IN THE ASSESSMENT ORDER AS RS. 75.75.525/-) REDUCED FROM THE CAPITAL-WORK-IN-PROGR ESS CONSIDERED AS TAXABLE: 1 : I THE COMMISSIONER OF INCOME-LAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN HOLDING THAT THE AMOUNT OF RS. 15.68,804/- (MENTIONED IN THE ASSESSMENT ORDER AS RS. 15,75.S25 /-) BEING THE INTEREST EARNED ON FIXED DEPOSITS REDUCED FROM THE CAPITA I-WORK-IN -PROGRESS AS TAXABLE. 1 : 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FA CTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE INTE REST EARNED ON FIXED DEPOSITS IS A CAPITAL RECEIPT NOT EXIGIBLE TO TAX AND THE COMMISS IONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE HELD AS SUCH. 1 : 3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFI CER BE DIRECTED TO DELETE THE ADDITION SO MADE BY HIM AND TO RE-COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. 2 : 0 RE.: TESTING PERIOD REVENUE OF RS. 3,69,06,85 57- REDUCED FROM THE CAPITAL- WORK-IN-PROGRESS CONSIDERED AS TAXABLE: 2 : 1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN HOLDING THAT THE TESTING PERIOD REVENUE OF RS. 3,69,06,8557- REDUCED FROM THE CAPITAL-WORK-IN-PROG RESS WAS PART OF ITS TOTAL INCOME FOR THE YEAR. 1 : 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FA CTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE TEST ING PERIOD REVENUE OF RS. 3,69,06,8557- IS A CAPITAL RECEIPT CORRECTLY DEDUCT ED BY IT FROM THE CAPITAL-WORK- IN-PROGRESS AND THE COMMISSIONER OF INCOME-TAX (APP EALS) OUGHT TO HAVE HELD AS SUCH. 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GENERATION OF SOLAR POWER. THE ASSESSEE IS A SU BSIDIARY COMPANY OF M/S KIRAN ENERGY SOLAR POWER PVT LTD HAVING 100% HOLDIN G. THE ASSESSEE FILED ITS E- 3 ITA 5189/MUM/2016 RETURN OF INCOME FOR AY 2012-13 ON 28-09-2012 DECLA RING TOTAL INCOME AT NIL AND CURRENT LOSS AT RS.12,31,673. THE ASSESSMENT W AS TAKEN UP FOR SCRUTINY AND ASSESSMENT U/S 143(3) WAS COMPLETED ON 26-03-20 15 DETERMINING THE TOTAL INCOME AT RS.3,52,72,490 BY MAKING ADDITION A S PER INCOME BASED ON AIR INFORMATION BEING INTEREST ON FIXED DEPOSITS WITH H DFC BANK AMOUNTING TO RS.15,75,525 AND UNBILLED REVENUE AMOUNTING TO RS.3 ,31,98,969. AGGRIEVED, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). THE APP EAL OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE LD. CIT (A), WHO CONFIRMED BOT H THE ADDITIONS. FURTHER, AGGRIEVED BY THE ORDER OF LD. CIT (A), THE ASSESSEE IS BEFORE US, IN THIS APPEAL. 3. WE HAVE HEARD THE SUBMISSIONS OF THE LD. AUTHO RISED REPRESENTATIVES (AR) FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRE SENTATIVES (DR) FOR THE REVENUE AND GONE THROUGH THE ORDERS OF THE LOWER AU THORITIES. GROUND NO. 1 RELATES TO ADDITION ON ACCOUNT OF ADDITION ON ACCOU NT OF INTEREST ON FIXED DEPOSIT REDUCED FROM WORK IN PROGRESS. THE LD. COU NSELS APPEARING FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THIS ISSUES IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE TRIBUNAL IN ASSESS EES GROUP CASE IN SOLARFIELD ENERGY TWO PVT LTD IN ITA NO.5076/MUM/2016 DATED 11 -09-2017 FOR ASSESSMENT YEAR (AY) 2012-13. THE LD. AR FOR THE A SSESSEE SUBMITS THAT THE REVENUE HAS ACCEPTED THE DECISION OF THE TRIBUNAL A ND HAS NOT FILE APPEAL BEFORE BOMBAY HIGH COURT. 4 ITA 5189/MUM/2016 4. THE LD. DR FOR THE REVENUE AFTER GOING THROUGH T HE CONTENTS OF THE DECISION IN SOLARFIELD ENERGY TWO PVT LTD (SUPRA), THOUGH PRINCIPALLY AGREED THAT IDENTICAL GROUND OF APPEAL WAS DECIDED BY THE TRIBUNAL IN ASSESSEES GROUP CASE IN SOLARFIELD ENERGY TWO PVT LTD (SUPRA). THE LD. DR FOR THE REVENUE SUBMITS THAT HE SUPPORTS THE ORDER OF THE LOWER AUT HORITIES. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL ON RECORD. WE HAVE SEEN THAT ISSUE PERTAI NING TO ADDITION OF INTEREST ON FIXED DEPOSIT WITH HDFC BANK, IS SQUARELY COVERE D THE DECISION OF THE TRIBUNAL, SOLARFIELD ENERGY TWO PVT LTD (SUPRA). W E ALSO FIND THAT THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE PARI MATERIA WITH THE FACTS CONSIDERED BY TRIBUNAL IN SOLARFIELD ENERGY TWO LTD (SUPRA). THE COORDINATE BENCH OF TRIBUNAL IN SOLARFIELD ENERGY TWO PVT LTD (SUPRA), AFTER CON SIDERING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKA LI CHEMICALS AND FERTILIZERS LTD VS CIT (1997) 227 ITR 172 (SC), HAS PASSED THE FOLLOWING ORDER:- 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD IN THE LIGHT OF DECISIONS RELIED UPON. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. UNDISPUTED FACTS ARE, THE ASSESSEE WAS AWARDED THE WORK OF SETTING-UP OF SOLAR POWER P LANT PROJECT IN RAJASTHAN BY NWIML. IT IS ALSO EVIDENT, NWNL HAS EN TERED INTO A POWER PROJECTS AGREEMENT WITH THE ASSESSEE ON 25 TH JANUARY 2012. AS PER THE TERMS AND CONDITIONS STIPULATED IN THE BID ONE OF T HE FINANCIAL CRITERIA IN 5 ITA 5189/MUM/2016 REQUEST FOR SELECTION (RFS) DOCUMENT REQUIRES A NEW LY INCORPORATED COMPANY TO HAVE THE REQUIRED NET WORTH CONNECTED TO THE CAPACITY OF THE POWER PROJECT. THUS, AS PER THE PRE-CONDITION, THE ASSESSEE WAS REQUIRED TO HAVE THE NET WORTH OF 60 CRORE. SINCE , THE ASSESSEE WAS NOT HAVING THE REQUIRED NET WORTH IT HAD TO INFUSE FUND FOR ENABILING ITSELF TO MEET THE QUALIFICATION CRITERIA AND FOR T HIS PURPOSE, ASSESSEE'S PARENT COMPANY KESPPL STEPPED IN AND INVESTED FUND IN ACQUIRING 98,500 EQUITY SHARES AND 1,00,000 COMPULSORILY CONV ERTIBLE PREFERENCE SHARES OF THE ASSESSEE COMPANY, THEREBY, ENABLING T HE ASSESSEE TO HAVE THE REQUIRED NET WORTH. THUS, AS COULD BE SEEN, THE INFUSION OF FUND WAS INTEGRALLY AND INEXTRICABLY CONNECTED WITH THE SETT ING-UP OF THE POWER PROJECT. AS EVIDENT FROM THE FACTS ON RECORD, OUT O F THE FUNDS AVAILABLE WITH THE ASSESSEE FROM ISSUE OF EQUITY SHARES AN AM OUNT OF 40 CRORE WAS TEMPORARILY PARKED IN FIXED DEPOSIT WITH HDFC B ANK LTD. ON 1 ST MARCH 2012, SINCE, WASN'T IMMEDIATELY REQUIRED FOR IMPLEMENTATION OF THE POWER PROJECT. IT IS ALSO EVIDENT THAT THE ASSE SSEE ONLY ON 29 TH MAY 2012, ENTERED INTO A EPC CONTRACT WITH LARSEN & TOU BRO LTD. FOR DEVELOPING THE 20 MW SOLAR PHOTO VOLTAIC POWER PLAN T. THESE FACTS CLEARLY DEMONSTRATE, THE FUNDS REQUIRED FOR SETTING UP OF POWER PROJECT WAS TEMPORARILY PARKED IN FIXED DEPOSIT, THEREBY, I NDICATING THAT THE INTEREST EARNED ON SUCH FIXED DEPOSIT HAS AN IMMEDI ATE AND PROXIMATE NEXUS WITH THE SETTING-UP OF POWER PROJECT. NOTABLY , THE DEPARTMENTAL AUTHORITIES HAVE REJECTED ASSESSEE'S CLAIM THAT THE INTEREST EARNED IS A CAPITAL RECEIPT RELYING UPON THE DECISION OF THE HO N'BLE SUPREME COURT IN TUTICORIN ALKALJ CHEMICALS AND FERTILISERS LTD. (SUPRA). ON A CAREFUL READING OF THE SAID JUDGMENT, WE ARE OF THE VIEW TH AT THE RATIO LAID DOWN THEREIN WILL NOT APPLY TO THE FACTS OF THE PRE SENT CASE. IN THE CASE 6 ITA 5189/MUM/2016 OF TUTICOJ1N_ ALKALI CHEMICALS AND FERTILISERS LTD. (SUPRA), THE ASSESSEE HAS BORROWED FUNDS FOR SETTING UP OF A PLANT. HOWEV ER, THE SURPLUS FUND AVAILABLE OUT OF THE BORROWED FUND WAS INVESTED IN FIXED DEPOSIT AND ASSESSEE EARNED INTEREST. THE DEPARTMENT HELD THAT THE INTEREST EARNED FROM FIXED DEPOSIT ON INVESTMENT OF SURPLUS FUND DU RING THE PRE- CONSTRUCTION PERIOD IS ASSESSABLE AS INCOME FROM OT HER SOURCES. HOWEVER, THE HON'BLE SUPREME COURT IN CASE OF BOKAR O STEELS LTD. (SUPRA) TOOK NOTE OF THE DECISION IN TUTICORIN A/KA LI CHEMICALS AND FERTILISERS LTD. (SUPRA) REFERRED TO BY THE DEPARTM ENTAL AUTHORITIES. FURTHER, THE HON'BLE SUPREME COURT TOOK NOTE OF THE DECISION OF THE HON'BLE SUPREME COURT IN CHALLAPALLI SUGARS LTD. V/ S CIT, [1995] 98 ITR 167 (SC) WHEREIN IT WAS HELD THAT ACCEPTED ACCOUNTA NCY RULE FOR DETERMINING COST OF FIXED DEPOSIT IS TO INCLUDE ALL EXPENDITURE NECESSARY TO BRING SUCH ASSETS INTO EXISTENCE AND T O PAY THEM IN WORKING CONDITION. IN CASE MONEY IS BORROWED BY NEW LY STARTED COMPANY WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT, THE INTEREST INCURRED BEFORE THE COMMENCEMENT OF PR ODUCTION ON SUCH BORROWED MONEY CAN BE CAPITALIZED AND ADDED TO THE COST OF FIXED ASSET CREATED AS A RESULT OF SUCH EXPENDITURE. FOLLOWING THE AFORESAID REASONING, THE HON'BLE SUPREME COURT IN BOKARO STEE LS LTD. (SUPRA) * HELD THAT BY APPLYING THE SAME REASONING IF THE ASS ESSEE RECEIVES ANY AMOUNTS WHICH ARE INEXTRICABLY LINKED WITH THE PROC ESS OF SETTING-UP OF PLANT AND MACHINERY SUCH RECEIPTS WILL COME TO REDU CE THE COST OF ITS ASSETS, HENCE, ARE OF CAPITAL NATURE. THE RATIO LAI D DOWN BY THE HON'BLE SUPREME COURT IN BOKARO STEELS LTD. (SUPRA) WAS FOL LOWED BY THE HON'BLE DELHI HIGH COURT IN INDIAN OIL PANIPAT POWE R CONSORTIUM LTD. (SUPRA). THE FACTS OF THIS CASE ARE, THE ASSESSEE A JOINT VENTURE COMPANY 7 ITA 5189/MUM/2016 WAS TO SET-UP A POWER PROJECT TO EFFECTUATE THE PUR POSE FOR WHICH JOINT VENTURE WAS CREATED. THE JOINT VENTURE PARTNERS CON TRIBUTED SHARE CAPITAL WHICH INCLUDED A SUM BY WAY OF ADDITIONAL S HARE CAPITAL. THE SAID FUND, THOUGH, WAS REQUIRED FOR PURCHASE OF LAND AND DEVELOPMENT OF INFRASTRUCTURE, HOWEVER, DUE TO LEGAL ENTANGLEMENT WITH REGARD TO TITLE OF LAND, THE FUNDS WERE TEMPORARILY INVESTED IN FIX ED DEPOSIT WITH BANK EARNING INTEREST THEREON. THE ASSESSEE CLAIMED SUCH INTEREST AS CAPITAL RECEIPT AND SET IT OFF AGAINST PRE-OPERATIVE EXPEND ITURE. HOWEVER, THE ASSESSING OFFICER ASSESSED THE INTEREST AS INCOME F ROM OTHER SOURCES. THE LEARNED COMMISSIONER (APPEALS) HAVING FOUND THA T INTEREST EARNED WAS INEXTRICABLY LINKED WITH THE SETTING-UP OF THE POWER PLANT ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE DECISIONS O F THE HON'BLE SUPREME COURT IN BOKARO STEELS LTD. (SUPRA). HOWEVE R, WHILE DECIDING DEPARTMENT'S APPEAL, THE TRIBUNAL FOLLOWED THE DECI SION IN TUTICORIN ALKALI CHEMICALS AND FERTILISERS LTD. (SUPRA) AND REVERSED THE ORDER OF THE (EARNED COMMISSIONER (APPEALS), WHEN THE MATTER CAME UP BEFORE THE HIGH COURT, THE HIGH COURT FOLLOWING THE DECISI ON OF THE HON'BLE SUPREME COURT IN BOKARO STEELS LTD. (SUPRA) HELD TH AT, SINCE, THE INTEREST INCOME WAS INEXTRICABLY LINKED TO THE SET-UP OF POW ER PROJECT, IT WILL BE A CAPITAL RECEIPT AND WILL COME TO REDUCE THE COST OF THE PROJECT AND ACCORDINGLY ALLOWED ASSESSEE'S CLAIM. IN OUR VIEW, THE RATIO LAID DOWN IN CASE OF BOKARO STEELS LTD. (SUPRA) AND INDIAN OIL P ANIPAT POWER CONSORTIUM LTD. (SUPRA) ARE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. UNDISPUTEDLY, IN CASE OF ASSESSEE, TH E FUNDS INVESTED TEMPORARILY IN THE FIXED DEPOSIT WERE FOR THE PURPO SE OF SETTING-UP OF THE POWER PROJECT. THEREFORE, THE INTEREST EARNED I S INEXTRICABLY LINKED WITH THE POWER PROJECT THE OTHER DECISIONS RELIED U PON BY THE LEARNED 8 ITA 5189/MUM/2016 SR. COUNSEL INCLUDING THE DECISION IN CASE OF CIT V /S KARNAL COOPERATIVE SUGAR MILLS LTD. (SUPRA) EXPRESS SIMILAR VIEW. THAT BEING THE CASE, APPLYING THE RATIO LAID DOWN IN THE DECISIONS REFER RED TO ABOVE, WE HOLD THAT THE INTEREST EARNED ON FIXED DEPOSIT IS CAPITA L RECEIPT AND HAS TO BE SET-OFF AGAINST PRE-OPERATIVES EXPENDITURE THEREBY WILL GO TO REDUCE THE COST OF CWIP. GROUND RAISED IS ALLOWED. 6. THE ISSUE AND THE GOVERNING FACTS FOR THE YEAR U NDER CONSIDERATION ARE FIND TO BE IDENTICAL TO THE ISSUE DECIDED BY THE TR IBUNAL IN SOLARFIELD ENERGY TWO PVT LTD, A SISTER CONCERN OF THE ASSESSEE. THEREFO RE, CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN THE CASE OF SOLARFIELD ENE RGY TWO PVT LTD (SUPRA), WE ALLOW THE GROUND RAISED BY THE ASSESSEE. 7. GROUND NO.2 RELATES TO TESTING PERIOD REVENUE OF RS.3,69,06,855/-. THE LD. AT FOR THE ASSESSEE SUBMITS THAT THIS GROUND OF APPEAL IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE CO-O RDINATE IN THE FOLLOWING CASES:- 1. M/S ECO AXIS SYSTEMS PVT LTD ITA NO.730/MUM/2 013 DATED 10- 08-2018 FOR AY 2008-09, 2. M/S A.D. HYDRO POWER LTD ITA NO.5007/DEL/2015 DATED 10-10- 2018 FOR AY 2011-12, 3. GUJARAT STATE FERTILIZERS & CHEMICALS LTD ITA NO.3228/AHD/2003 DATED 28 TH AUGUST, 2009 FOR AY 1999-2000, 8. ON THE OTHER HAND THE LD. DR FOR THE REVENUE HAS RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. THE LD DR FOR THE REVENUE FURTH ER SUBMITS THAT THE INCOME RECEIVED BY THE ASSESSEE BEFORE COMMENCEMENT OF THE BUSINESS HAS TO BE 9 ITA 5189/MUM/2016 ASSESSED AS INCOME FROM OTHER SOURCES AND CANNO T BE TREATED AS BUSINESS INCOME. 9. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND HAVE GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW. DURING THE ASS ESSMENT ON THE PERUSAL OF DETAILS OF THE EXPENSES THE ASSESSEE HAS SHOWN WORK IN PROGRESS (WIP). THE ASSESSEE HAS REDUCED RS.3,69,06,885/- FROM WIP ON A CCOUNT OF UNBILLED REVENUE FROM GUJARAT URJA VIKAS NIGAM. THE ASSESSIN G OFFICER ISSUED SHOW CAUSE NOTICE AS TO WHY THIS RECEIPT BE TREATED AS INCOME FROM OTHER SOURCES. THE ASSESSEE FILED ITS DETAILED REPLY AND STATED TH AT THE AMOUNT WAS EARNED DURING THE TESTING PERIOD AND IS NOT TAXABLE AS INC OME AND HAS BEEN CORRECTLY REDUCED FROM WIP. THE REPLY OF THE ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER BY TAKING VIEW THAT THE ASSESSEE ITSELF STA TED THAT BUSINESS HAS NOT COMMENCED. HOWEVER, THE ASSESSING OFFICER ALLOWED R S.37,07,886- BEING PROFESSIONAL FEE AS DEDUCTION. BEFORE LD CIT(A) THE ASSESSEE URGED THAT AS PER TERM OF EPC CONTRACT, M/S LARSON & TURBO WAS REQUIR ED TO CARRY OUT TEST ON COMMENCEMENT OF THE PLANT. IN THE EVENT OF FAILUR E THE ASSESSE HAS A RIGHT TO REJECT THE PLANT OR ASK THE CONTRACTOR TO CORRECT I T. THE PURPOSE TO CARRY OUT TEST WAS TO ASCERTAIN WHETHER THE FACILITY (I.E. SOLAR P LANT) ACHIEVES THE TARGET PERFORMANCE- IN ACCORDANCE WITH THE TERM OF THE CON TRACT. DURING THE TEST TRIAL THE PLANT WAS CONNECTED WITH GUJARAT POWER GRID ON 4 TH MARCH 2012. THESE 10 ITA 5189/MUM/2016 TESTS WERE PENDING TO BE COMPLETED AS ON 31.03.2012 . THE ASSESSEE EVENTUALLY CAPITALISED THE SOLAR POWER IN ITS BOOKS OF ACCOUNT S ON 9 TH JULY 2012 AFTER TAKING THE PLANT FROM EPC CONTRACTOR ON COMPLETION OF WORK AND NECESSARY PERFORMANCE OF TESTS IN ACCORDANCE WITH SPECIFICATI ONS OF THE CONTRACT. ACCORDINGLY IT WAS CANVASSED THAT THE ASSESSEE HAS NOT STARTED THEIR BUSINESS IN THAT YEAR. THE CONTENTION OF THE ASSESSEE WAS GAIN NOT ACTED BY LD CIT(A) HOLDING THAT THE INCOME RECEIVED BY THE ASSESSEE BE FORE THE COMMENCEMENT OF BUSINESS HAS TO BE ASSESSED AS INCOME FROM OTHE R SOURCES AND IT CANNOT BE HELD AS NON-TAXABLE ON THE GROUND THAT IT WOULD GO TO REDUCE THE CAPITAL WORK IN PROGRESS. WE HAVE NOTED THAT ON SIMILAR GROUNDS OF APPEAL THE COORDINATE BENCH OF TRIBUNAL IN ECO AXIS SYSTEM PVT LTD (SUPRA ) PASSED THE FOLLOWING ORDER: 8. HAVING CONSIDERED THE FACTS OF THE CASE IN TOTAL ITY, WE FIND THAT THE REVENUE HAS NOT DOUBTED THE DEVELOPMENT OF PRODUCTS BY THE ASSESSEE AND ALLOWED CAPITALIZATION OF EXPENSES BUT AT THE S AME TIME THE REVENUE HAS CHOSEN TO TREAT THE SALE OF DEMO MACHINES TO TH E TUNE OF RS.59,20,849/- AND RECOVERY OF RENT AMOUNTING TO RS . 64,200 AS REVENUE RECEIPT AND ADDED THE SAME TO THE INCOME OF THE ASS ESSEE AFTER ALLOWING THE EXPENSES OF RS.14,75,5537-. THE CASE OF THE ASS ESSEE ALSO FINDS SUPPORT FROM THE GUIDANCE NOTES ISSUED BY THE INSTI TUTE OF CHARTERED ACCOUNTANTS OF INDIA ON TREATMENT OF EXPENDITURE DU RING CONSTRUCTION PERIOD, WHICH PROVIDES THAT IF ANY REVENUE IS REALI ZED DURING THE TRIAL RUN OR PRODUCT DEVELOPMENT STAGE, THE SAME SHOULD BE SET O FF AGAINST THE EXPENDITURE INCURRED IN CONNECTION WITH THE SAID PR OJECT/PRODUCTS. THE CASE OF THE ASSESSEE IS ALSO SQUARELY COVERED BY TH E DECISIONS RELIED UPON BY THE LEARNED AR. IN THE CASE OF INTERNATIONAL SEA PORTS (HALDIA) P LTD.VS. ITO (SUPRA), THE CO-ORDINATE BENCH HAS HELD AS UNDE R: 11 ITA 5189/MUM/2016 8. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ID. AR SUBMI TTED THE PAPER BOOK WHICH IS RUNNING FROM PAGES 1 TO 113 AND HIGHL IGHTED THAT TO MAKE THE BERTH READY FOR COMMERCIAL OPERATIONS THE ASSESSEE WAS TO UNDERTAKE THE RESPONSIBILITY OF COMPLETING THE WORK IN ACCORDANCE TO THE AGREEMENT OF BUILDING THE BERTH 4A. AS PER THE AGREEMENT TRIAL RUN WAS THE PRECONDITION BEFORE THE START OF THE CO MMERCIAL OPERATION. THE ASSESSEE TREATED THE TRIAL RUN OF VE SSELS AS 'PREOPERATIVE HANDLING OF THE PLANT AND INCOME GENE RATED FROM SUCH PREOPERATIVE HANDLING HAS BEEN TREATED AS 'PREOPERA TIVE INCOME'. IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR THE PREVIO US YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE, SUCH PREOPERA TIVE INCOME HAS BEEN SET OFF AGAINST THE PREOPERATIVE EXPENSES OF R S.3,17,02,632/-, WHICH CONSISTED OF BERTH HIRE CHARGES IN THE SUM OF RS.16,84,562/- AND RS.3,00,18,070/- BEING CARGO HANDLING CHARGES A ND THE BALANCE AMOUNT WAS CAPITALIZED TO BE APPORTIONED TO FIXED A SSET. THE SPECIOUS FINDING OF THE AO THAT LOADING AND UNLOADI NG OF CARGO DURING THE PERIOD FROM 07.12.2003 TO 13.01.2004 ON TRIAL B ASIS WAS COMMERCIAL ACTIVITY OF THE ASSESSEE AND THE RECEIPT S EARNED THERE FROM WAS ASSESSED AS INCOME FROM BUSINESS WHICH IS TOTALLY UNTENABLE AND INCONSISTENT WITH THE FACTS OF THE CA SE SINCE IT WAS DONE AT THE BEHEST OF THE HOLDIA DOCK COMPLEX AUTHO RITIES IN ORDER TO ESTABLISH THE STABILITY OF THE BERTH. IT IS AN ADMI TTED FACT THAT EVEN DURING A PERIOD OF TEST RUNS AND EXPERIMENTATION, A PLANT MAY BE ENGAGED IN ACTUAL PRODUCTION, BUT UNTIL THE TEST RU NS ARE COMPLETED AND THE PLANT IS PROPERLY ADJUSTED ON THE BASIS THE REOF, IT CANNOT BE SAID TO BE READY FOR 'COMMERCIAL PRODUCTION'. THE E XPRESSION 'COMMERCIAL PRODUCTION'' REFERS TO PRODUCTION IN CO MMERCIALLY FEASIBLE QUANTITIES AND IN A COMMERCIALLY PRACTICAB LE MANNER. FURTHER, IT IS A CORRECT AND ACCEPTED PROCEDURE TO CAPITALIZE ALL EXPENSES INCURRED DURING CONSTRUCTION PERIOD AND IN CONNECTION WITH THE PROCESS OF START-UP AND COMMISSIONING OF THE PL ANT. IN FACT, SUCH EXPENSES WOULD BE INCURRED IN ORDER TO BRING THE PL ANT UP TO THE 12 ITA 5189/MUM/2016 STAGE AT WHICH IT CAN COMMENCE COMMERCIAL PRODUCTIO N. THUS, IT IS CORRECT TO CAPITALIZE THE EXPENDITURE INCURRED ON S TART-UP AND COMMISSIONING OF THE PLANT THE EXPENDITURE SO INCUR RED, THEREFORE, SHOULD BE CAPITALIZED IN THE SAME WAY AS OTHER INDI RECT CONSTRUCTION EXPENDITURE. IN THE PRESENT CONTEXT, THEREFORE THE EXPENDITURE INCURRED DURING TRIAL RUN CONTRIBUTES TO CONSTRUCTI ON OF THE FACILITIES AT BERTH NO. 4A OF HALDIA DOCK COMPLEX AS TRIAL RUN AC TIVITY IS REGARDED AS AN ACTIVITY WHICH IS NECESSARY TO PREPARE THE AS SET FOR ITS INTENDED USE. THIS IS BECAUSE FLAWS IN THE FACILITIES AT BER TH NOTICED DURING TRIAL RUN OPERATION ARE RECTIFIED TO BRING THE BERTH TO I TS INTENDED USE. THEREFORE, THE EXPENDITURE INCURRED DURING TRIAL RU N TOWARDS BUILDING/CONSTRUCTING THE BERTH SHOULD ALSO BE CAPI TALIZED AS PER THE REQUIREMENTS OF ACCOUNTING STANDARD 166. IT IS ALSO AN UNDISPUTED FACT THAT OPERATION OF CARGO / VESSEL DURING TRIAL RUN WAS DIRECTLY LINKED WITH THE BUILDING UP OF FACILITIES IN THE BERTH NO. 4A OF HALDIA DOCK COMPLEX. HENCE, ANY INCOME EARNED ON SUCH OPERATION DURING TRIAL RUN WAS INCIDENTAL TO THE BUILDING OF ASSETS FOR SE TTING UP THE BERTH. THEREFORE, INCOME EARNED DURING PREOPERATIVE STAGE WAS A CAPITAL RECEIPT, WHICH WOULD GO TO REDUCE THE COST OF ASSET AND IT IS SETTLED THAT THE DEPOSIT OF MONEY WAS DIRECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INCOME EARNED ON SU CH DEPOSITS WAS INCIDENTAL TO THE ACQUISITION OFASSESSEE FOR SE TTING UP THE PLANT AND MACHINERY. THUS, THE INTEREST WAS A CAPITAL REC EIPT WHICH WOULD GO TO REDUCE THE COST OF THE ASSET AND LD AR RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT V. KARNAL CO-OPERATIVE SUGAR MILLS LTD. (2000) 243ITR 2 (SC) AND C.I. T. V S. BOKARO STEEL LIMITED. (1999) 236 ITR 315 (SC) 9. FROM THE AFORESAID DISCUSSION, WE FIND THAT THE ASSESSEE HAS MADE SOME INCOME DURING THE PERIOD OF TRIAL RUN AND THE SAME WAS ADJUSTED AGAINST THE PRE-OPERATIVE EXPENSES. THE AO REJECTED THE WORKING OF ASSESSEE AND HELD THAT THE INCOME GENERA TED DURING THE TRIAL RUN INCOME PERIOD CANNOT BE ADJUSTED AGAINST THE PREOPERATIVE EXPENSES AND THE SAME WAS CONFIRMED BY THE LD. CIT( A). HOWEVER, 13 ITA 5189/MUM/2016 WE OBSERVE THAT IT WAS THE CONDITION IN THE AGREEME NT THAT THE TRIAL RUN HAS TO BE CARRIED OUT BEFORE THE BEGINNING OF C OMMERCIAL OPERATION. THE ID, AR DREW OUR ATTENTION ON PAGES 1 7,18,19,20,21 OF THE PAPER BOOK WHERE THE REQUIREMENT FOR THE TRIAL RUN WAS REQUESTED BEFORE THE BEGINNING OF ACTUAL OPERATION. THE PURPO SE OF THE TRIAL RUN WAS TO CHECK WHETHER THERE IS ANY FLAW IN THE SYSTE M OR NOT SO THAT REMEDIAL ACTION CAN BE TAKEN WELL IN TIME IN THE EV ENT OF ANY FLAW IN THE SYSTEM. SO IT IS CLEAR THAT THE PURPOSE OF THE TRIAL RUN WAS TO CHECK THE FLAW IN THE SYSTEM AND NOT TO BEGIN THE C OMMERCIAL OPERATIONS. IN THE INSTANT CASE THE TRIAL RUN WAS S UCCESSFULLY COMPLETED ON DATED 13/1/2004 WITHOUT ANY FLAW IN TH E SYSTEM. THEREFORE THE COMMERCIAL OPERATION BEGAN IMMEDIATEL Y THEREAFTER ON DATED 15/1/2004. NOW THE QUESTION HERE ARISES THAT IN CASE OF ANY FLAW CAUGHT DURING THE TRIAL RUN THEN IN THAT EVENT CERTAINLY THE COMMERCIAL OPERATION SHALL ONLY BEGIN AFTER THE REM OVAL OF THE FLAW. IN VIEW OF THIS THE INCOME GENERATED DURING TRIAL R UN SHALL CERTAINLY BE ADJUSTED AGAINST THE PRE-OPERATIVE EXPENSES. HAVING SAID THIS WE ARE INCLINED TO REVERSE THE ORDER OF THE ID. CIT(A) AND DIRECT THE LOWER AUTHORITIES TO ADJUST THE TRIAL RUN INCOME FROM PRE OPERATIVE EXPENSES OF THE ASSESSEE. WE ARE RELYING ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. NESTOR PHARMACEUTICAL LIMITED 322 TTR 631 WHERE IT WAS HEL D THAT: 'THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURE OF PHARMACEUTICAL FORMULATION IN BULK DRUGS AND SUPPLYING DRUGS TO TH E GOVERNMENT HOSPITALS, INSTITUTIONS BESIDES SELLING THE PRODUCT IN DOMESTIC AND FOREIGN MARKETS. IT CLAIMED THE BENEFIT UNDER SECTI ON 80-IA/80-IB OF THE INCOME-TAX ACT, 1961. IT CARRIED OUT TRIAL PROD UCTION FROM MARCH 20, 1998. ON THAT BASIS THE ASSESSING OFFICER TREAT ED THE ASSESSMENT YEAR 1998-99 AS THE INITIAL YEAR FOR THE BENEFIT CLAIMED AND SINCE THIS BENEFIT WAS ALLOWABLE FOR FIVE YEARS , ACCORDING TO THE ASSESSING OFFICER, THIS BENEFIT WAS ADMISSIBLE FROM THE ASSESSMENT YEAR 1998-99 TO THE ASSESSMENT YEAR 2002-03. THE AS SESSEE ON THE OTHER HAND CLAIMED THE BENEFIT FROM THE ASSESSMENT YEARS 1999- 14 ITA 5189/MUM/2016 2000 TO 2003 -04, THE PLEA OF THE ASSESSEE WAS THAT TRIAL PRODUCTION DID NOT AMOUNT TO MANUFACTURE OF ITS PRODUCTS. IT W AS ONLY WHEN COMMERCIAL PRODUCTION COMMENCED, WHICH, ACCORDING T O THE ASSESSEE, COMMENCED ONLY IN THE ASSESSMENT YEAR 199 9-2000 THAT PRODUCTION COMMENCED. THE COMMISSIONER (APPEALS) CO NFIRMED THE ORDER OF THE ASSESSING OFFICER BUT THE TRIBUNAL REV ERSED THAT ORDER HOLDING THAT SECTION 80-IA/80-IB OF THE ACT BEING B ENEFICIAL LEGISLATION, THE BENEFIT SHOULD BE EXTENDED TO THE ASSESSEE. IT FURTHER HELD THAT AS ON MARCH 20,1998 T ONLY TRIAL PRODUCTION STARTED WHICH WAS DIFFERENT FROM COMMERCIAL PRODUCTION AND THE BENEFIT OF THAT SECTION SHOULD BE ALLOWED IN THE YEAR IN WHICH COMMERCIAL PRODUCTION STARTED, I.E. IN THE ASSESSMENT YEAR 1999- 2000 AND F THEREFORE, WOULD BE EXTENDABLE UP TO THE ASSESSMENT YEAR 2003-04. ON APPEAL: HELD, THAT THE INITIAL ASSESSMENT YEAR, FOR THE PUR POSE OF SECTION 80- IA, WAS THE ASSESSMENT YEAR RELEVANT TO THE PREVIOU S YEAR IN WHICH THE 'INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTURE O R PRODUCE ARTICLES OR THINGS''. THE TRIAL PRODUCTION BEGAN ON MARCH 20 , 1998, AS PER THE DETAILS GIVEN IN THE AUDIT REPORT FURNISHED BY THE ASSESSEE ALONG WITH ITS RETURNS OF INCOME FOR THE ASSESSMENT YEARS 2003 -04 AND 2004-05. THERE WAS NO DISPUTE THAT THE FIRST SALE WAS MADE O N APRIL 23,1998, WHICH WOULD BE THE PERIOD RELEVANT TO THE ASSESSMEN T YEAR 1999- 2000. MERELY BECAUSE SOME CLOSING STOCK WAS SHOWN A S ON MARCH 31, 1998, THAT WOULD NOT LEAD TO THE CONCLUSION THA T THERE WAS COMMERCIAL PRODUCTION AS WELL. EVEN FOR THE PURPOSE OF TRIAL PRODUCTION MATERIAL WOULD BE NEEDED AND THERE WOULD BE PRODUCTION WHICH WOULD RESULT IN STOCK OF FINISHED GOODS. THE EVIDENCE PRODUCED BY THE ASSESSEE WAS ACCEPTED BY THE TRIBUNAL AS WEL L, FROM WHICH IT WAS CLEAR THAT THERE WAS ONLY A TRIAL PRODUCTION IN THE ASSESSMENT YEAR 1998-99 AND COMMERCIAL AND FULL-FLEDGED PRODUC TION COMMENCED ONLY IN THE YEAR 1999-2000. THE ORDER OF THE TRIBUNAL ALLOWING THE BENEFIT OF DEDUCTION UNDER SECTION 80- IA/80IB OF THE ACT FROM THE ASSESSMENT YEAR 1999-2000 TREATING IT AS T HE INITIAL YEAR OF PRODUCTION TO THE ASSESSMENT YEAR 2003-04 WAS CORRE CT IN LAW. 15 ITA 5189/MUM/2016 THE TRIBUNAL HELD THAT THE ASSESSEE HAD NOT ONLY PR ODUCED THE GOODS FOR TRIAL PURPOSES BUT THERE WAS, IN FACT, SA LE OF ONE WATER COOLER AND AIR-CONDITIONER IN THE ASSESSMENT YEAR 1 998-99 RELEVANT TO THE PREVIOUS YEAR/FINANCIAL YEAR 1997-98. THE EX PLANATION OF THE ASSESSEE WAS THAT THIS WAS DONE TO FILE THE REGISTR ATION UNDER THE EXCISE ACT AS WELL AS THE SALES TAX ACT. THE TRIBUN AL HELD THAT THE SALE OF ONE WATER COOLER AND ONE AIR-CONDITIONER AS ON MARCH 31, 1998, FOR THE PURPOSE OF OBTAINING REGISTRATION OF EXCISE AND SALES TAX WAS MANUFACTURE WITHIN THE MEANING OF SECTION 80-IA , ON APPEAL: HELD, THAT THE ASSESSEE HAD SOLD ONE WATER COOLER A ND ONE AIR- CONDITIONER BEFORE APRIL, 1998. THUS, THE STAGE OF TRIAL PRODUCTION HAD BEEN CROSSED AND THE ASSESSEE HAD COME OUT WITH THE FINAL SALEABLE PRODUCT WHICH WAS IN FACT SOLD AS WELL. THE QUANTUM OF COMMERCIAL SALE WOULD BE IMMATERIAL. WITH SALE OF THOSE ARTICL ES MARKETABLE QUALITY WAS ESTABLISHED, MORE PARTICULARLY WHEN THE ASSESSEE FAILED TO SHOW THAT THE DEALER RETURNED THOSE GOODS ON THE GROUND THAT THERE WAS ANY DEFECT IN THE WATER COOLER OR AIR-CON DITIONER PRODUCED AND SOLD BY THE ASSESSEE TO THE DEALER, THE TRIBUNA L, IN THE CIRCUMSTANCES, WAS RIGHT THAT THE TWO TYPES OF COND ITIONS STIPULATED IN SECTION 80-IA WERE FULFILLED WITH THE COMMERCIAL SA LE OF THE TWO ITEMS IN THAT ASSESSMENT YEAR. WHETHER THE PURPOSE OF THA T SALE WAS TO OBTAIN REGISTRATION OF EXCISE OR SALES TAX WOULD BE IMMATERIAL.' THE BOMBAY HIGH COURT HAS ALSO DECIDED THE SIMILAR ISSUE IN FAVOUR OF ASSESSEE IN THE CASE OF CIT VS. HINDUSTAN ANTIBI OTICS LTD.(1974) 93ITR 548 (BOM) AND RELEVANT EXTRACT OF THE ORDER I S REPRODUCED BELOW : 'THE WORD 'ARTICLES'USED IN THE EXPRESS/ON 'HAS BEG UN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES 'IN SECTION 15C(2)( II) MUST BE INTERPRETED REGARD BEING HAD TO THE OBJECT FOR WHIC H THE SECTION WAS ENACTED. THE PROVISION WAS ENACTED WITH A VIEW TO E NCOURAGING THE ESTABLISHMENT OF NEW INDUSTRIAL UNDERTAKINGS AND TH E OBJECT WAS SOUGHT TO BE ACHIEVED BY GRANTING EXEMPTION FROM TA X ON PROFITS DERIVED FROM SUCH UNDERTAKINGS DURING THE FIRST FIV E YEARS. THE OBJECT OF THE SECTION PRESUPPOSES THAT PROFITS ARE CAPABLE OF BEING EARNED. 16 ITA 5189/MUM/2016 HENCE, UNTIL AN ASSESSEE REACHES A STAGE WHERE IT I S IN A POSITION TO DECIDE THAT A FINAL PRODUCT WHICH CAN BE ULTIMATELY SOLD IN THE MARKET CAN BE MANUFACTURED IT CANNOT BE SAID TO HAVE START ED MANUFACTURE OF THE ARTICLES. IF IT BECOMES NECESSARY FOR AN ASS ESSEE TO PRODUCE A TRIAL PRODUCT AT AN EARLIER STAGE TO VERIFY WHETHER IT CAN BE USED ULTIMATELY IN THE MANUFACTURE OF THE FINAL ARTICLE, THE COMMENCEMENT OF OPERATION FOR THE MANUFACTURE OF THE TRIAL PRODU CT WOULD NOT CONSTITUTE COMMENCEMENT OF MANUFACTURE OF ARTICLES FOR THE PURPOSES OF SECTION 15C THE ASSESSEE-COMPANY UNDERTOOK A PROJECT FOR THE MA NUFACTURE OF PENICILLIN. IT STARTED ACTUAL OPERATIONS FOR THE MA NUFACTURE OF CRUDE PENICILLIN IN DECEMBER 1954, THE FIRST SAMPLES OF C RUDE PENICILLIN WERE REQUIRED TO BE SENT TO U.S.A. AND U.K. FOR OBT AINING CERTIFICATES AS TO THEIR QUALITIES. THE CERTIFICATES WERE OBTAIN ED IN JUNE, 1955, AND THE ASSESSEE STARTED REGULAR PRODUCTION OF STER ILE PENICILLIN, THE ONLY PRODUCT THAT COULD BE SOLD IN THE MARKET, IN A UGUST, 1955. ON THE QUESTION WHEN THE MANUFACTURE OF STERILE PENICILLIN HAD STARTED AND WHETHER THE ASSESSEE WAS ENTITLED TO THE EXEMPTION UNDER SECTION 15C FOR THE ASSESSMENT YEAR 1960-61: HELD, ON THE FACTS, THAT PRODUCT/ON OF ARTICLES BY THE ASSESSEE HAD BEGUN ONLY IN AUGUST, 1955. THE BENEFIT OF THE EXEM PTION UNDER SECTION 15C AROSE TO THE ASSESSEE FOR THE FIRST TIM E IN THE ASSESSMENT YEAR 1956-57 AND, THEREFORE, IT WAS ENTI TLED TO THE EXEMPT/ON UNDER SECT/ON 15C FOR THE ASSESSMENT YEAR 1960-61 ALSO.' 10. WE ALSO FURTHER OBSERVE THAT THE FACTS O F THE CASE LAW CITED BY THE AO I.E. TUTIKORIN ALKALI CHEMICALS & FERTILI ZERS LTD.(SUPRA) FOR TREATING THE RECEIPTS OF TRIAL RUN AS BUS/NESS RECE IPT ARE DIFFERENT FROM THE FACTS OF THE INSTANT CASE. THE APEX COURT IN TH E SAID CASE HAS TREATED THE INTEREST INCOME ON THE SURPLUS FUND AS INCOME FROM OTHER SOURCES BECAUSE THERE WAS NO NEXUS BETWEEN THE ACTI VITY OF THE ASSESSEE AND INTEREST INCOME. THE ASSESSEE HAS INVE STED IDLE FUND FOR SHORT PERIOD OF TIME BEFORE THE COMMENCEMENT OF THE BUSINESS. 17 ITA 5189/MUM/2016 THERE WAS NO CONNECTION BETWEEN INTEREST INCOME AND THE BUSINESS OF THE ASSESSEE. THE INTEREST INCOME WAS INDEPENDEN T AND SEPARATE FROM THE BUSINESS OF THE ASSESSEE. HOWEVER IN THE I NSTANT CASE THE INCOME GENERATED DURING TRIAL RUN IS VERY MUCH CONN ECTED WITH THE BUSINESS OF THE ASSESSEE HENCE THE QUESTION OF RECO GNIZING THE INCOME DOES NOT ARISE AS THE COMMERCIAL OPERATION H AS NOT BEGAN. IN VIEW OF ABOVE WE REVERSE THE ORDER OF THE ID. CFT(A ) AND ALLOW THE APPEAL OF THE ASSESSEE.' SIMILARLY, IN THE CASE OF GUJARAT STATE FERTILIZERS & CHEMICALS LTD. (SUPRA)/ THE CO ORDINATE BENCH HAS HELD AS UNDER: 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY F AMMONIA-IV PLANT WAS UNDER TRIAL PRODUCTION DURING THE YEAR UNDER CONSIDERATION AND THE COMMERCIAL PRODUCTION IS YET TO COMMENCE. THEREFORE , AS CONCLUDED BY THE ID. CIT(A), THE CLAIMS HAVE TO BE CONSIDERED, HOLDING THE AMMONIA-IV PLANT TO BE AT THE PRE-COMME NCEMENT STAGE. IT IS WELL SETTLED THAT UNDER THE ACCOUNTING PRACTICES, ALL EXPENDITURE INCLUDING INTEREST COST INCURRED DURING THE PROJECT CONSTRUCTION PERIOD ARE ACCUMULATED AND DISCLOSED A S CAPITAL WORK-IN-PROGRESS UNTIL THE ASSETS ARE READY FOR COM MERCIAL USE. INCOME EARNED FROM INVESTMENT OF SURPLUS BORROWED F UNDS DURING CONSTRUCTION/TRIAL RUN PERIOD IS REDUCED FRO M CAPITAL WORK- IN-PROGRESS FOR ACCOUNTING PURPOSES WHILE EXPENDITU RE/INCOME ARISING DURING TRIAL RUN IS ADDED TO/REDUCED FROM C APITAL WORK-IN- PROGRESS. HON'BLE APEX COURT IN THE CASE OF BOKARO STEEL VS. CIT, 236ITR 315 HELD THAT IF THE ASSESSEE RECEIVES ANY AMOUNT WHICH ARE INEXTRICABLY LINKED WITH THE PROCESS OF S ETTING UP ITS PLANT AND MACHINERY, SUCH RECEIPTS WOULD GO TO REDU CE THE COSTS OF ASSETS AND WOULD BE RECEIPT OF A CAPITAL N ATURE, WHICH CANNOT BE TAXED. IN THE CASE UNDER CONSIDERATION, U NDISPUTEDLY AND AS FOUND BY THE ID. CIT(A), THE PLANT IS UNDER TESTING FOR ITS EFFICIENCY PRIOR TO COMMENCEMENT OF COMMERCIAL PROD UCTION AND THE INPUTS AND OUTPUTS HAVE ALREADY BEEN NETTED BY GSFC AND 18 ITA 5189/MUM/2016 THE NET RESULT HAS BEEN CAPITALIZED. CONSIDERING TH E FACTS AND CIRCUMSTANCES OF THE CASE AND THE GUIDELINES OF THE ICAI, WE ARE IN AGREEMENT WITH THE ID, CIT(A) THAT ANY ATTEM PT TO TAX THE PRODUCTION, WHICH IS ALREADY ACCOUNTED FOR AS INPUT FOR THE FERTILIZER PLANT AND THE CAPTIVE INPUTS OF OTHER UN ITS UTILIZED IN AMMONIA IV PLANT, IF NOT ALLOWED TO BE SET OFF AGAI NST THE PRODUCTION OF THE PLANT, WOULD LEAD TO A DISTORTED PICTURE OF THE ACCOUNTS OF M/S. GSFC, IN THESE CIRCUMSTANCES, ESPE CIALLY WHEN REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTRARY TO THE AFORESAID FINDINGS OF THE ID. CIT(A) IN SO F AR AS ADDITION OF RS. 10,99,25,676 IS CONCERNED NOR POINTED OUT ANY C ONTRARY DECISION, WE HAVE NO HESITATION IN UPHOLDING THE FI NDINGS OF THE ID. CIT(A) WHILE RELYING UPON THE DECISION OF THE H ON'BLE APEX COURT IN BOKARO STEEL LTD.. THEREFORE, GROUND NO. 1 IN THE APPEAL OF THE REVENUE IS DISMISSED. BESIDES, THE ASSESSEE HAS ALSO CAPITALIZED OUT OF T HE CAPITAL WORK-IN PROGRESS ACCOUNT IN THE NEXT YEAR AS IS APPARENT FR OM THE TAX AUDIT REPORT FILED BY THE ASSESSEE BEFORE US. UNDER THESE CIRCUM STANCES, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE CIT(A) T HAT THE RECEIPTS FROM SALE OF 3 ALYGN MACHINES AMOUNTING TO ? 59,20,8497- AND RENT OF F 64,200/- RECEIVED DURING THE TRIAL/DEMO RUN IS REVE NUE IN NATURE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) A ND DIRECT THE ASSESSING OFFICER TO A/LOW DEDUCTION OF THE SAID RECEIPTS BY WAY SALE OF MACHINES AND RENT FROM THE PRODUCT DEVELOPMENT EXPENDITURE ACCOU NT. WE ORDER ACCORDINGLY. 7. SIMILARLY, THE DELHI TRIBUNAL IN THE CASE OF ACI T VS M/S A.D. HYDRO POWER LTD IN ITA NO.5007/DEL/2015 FOR AY 2011-12 VIDE ORD ER DATED 10-10-2018, AFTER CONSIDERING THE JUDGEMENT OF THE HONBLE SUPREME CO URT IN THE CASE CIT VS BOKARO STEEL LTD 236 ITR 315 (SC), HELD AS FOLLOWS: - 19 ITA 5189/MUM/2016 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS MADE BY THE PARTIES AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER , WE FIND THAT, IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS SHOWN INCOME OF R S. 3,16,68,000/- PERTAINING TO INCOME FROM SALE OF POWER DURING TRIAL RUN PERIO D HAS BEEN ADJUSTED FROM THE EXPENDITURE INCURRED DURING CONSTRUCTION/TRIAL PERIOD FROM 17.7.2010 TO 28.7.2010 AMOUNTING TO RS.4,90,42,000/-PENDING CAPI TALISATION. AO ON ONE HAND HAS ADDED THE INCOME AND ON THE OTHER HAND TRE ATED THE CORRESPONDING EXPENDITURE AS CAPITAL. WE ARE UNABLE TO APPRECIATE THE ACTION OF THE AO IN ADDING THE RECEIPTS OF RS. 3,16,68,0007- AS INCOME, BECAUSE IF THE EXPENSES BEFORE THE COMMENCEMENT OF THE BUSINESS ARE ADDED T O THE COST OF ASSETS AND ALLOWED TO BE CAPITALISED THEN HOW THE CORRESPONDIN G INCOME FROM THE COMMERCIAL PRODUCTION IS TREATED AS REVENUE. IT IS ALSO CAPITAL IN NATURE WHICH HAS TO BE REDUCED ACCORDINGLY. THIS PRINCIPLE HAS B EEN REITERATED BY THE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LIMITED 236 ITR 315, WHEREIN IT HAS BEEN HELD THAT IF THE ASSESSEE RECEI VES ANY AMOUNT WHICH ARE INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY, THEN SUCH RECEIPTS WILL GO TO REDUCE THE COST OF ITS ASS ETS AND WOULD BE RECEIPTS OF A CAPITAL NATURE AND CANNOT BE TAXED. WE ARE OF THE V IEW THAT, IF INCOME OF RS. 3.16 CRORE EARNED DURING THE TRIAL PERIOD IS TREATE D AS INCOME THEN CORRESPONDING EXPENSES OF RS. 4.90 CRORE INCURRED D URING THE TRIAL PERIOD SHOULD ALSO BE ALLOWED AS REVENUE EXPENDITURE BY AP PLYING THE MATCHING CONCEPT, WHICH AS DISCUSSED ABOVE WILL RESULT IN NE T LOSS OF RS.1.74 CRORES. THUS, THE ADDITION MADE BY THE AO IS UNSUSTAINABLE IN LAW AND ON FACTS AND HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) IN DELETING THE ADDITION AND THE SAME IS AFFIRMED. 8. WE FURTHER FIND THAT THE KOLKATA TRIBUNAL IN THE CA SE OF INTERNATIONAL SEAPORTS (HALDIA) PVT LTD VS ITO IN ITA NO.1194/KOL/2010 FOR ASSESSMENT YEAR 2004-05 DATED 20-01-2016 FOR AY 2004-05 ALSO CONSIDERED AN IDENTICAL ISSUE AND HELD AS UNDER:- 20 ITA 5189/MUM/2016 8. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ID. AR SUBMITTED THE PAPER BOOK WHICH IS RUNNING FROM PAGES 1 TO 113 AND HIGHLIGHTE D THAT TO MAKE THE BERTH READY FOR COMMERCIAL OPERATIONS THE ASSESSEE WAS TO UNDERTAKE THE RESPONSIBILITY OF COMPLETING THE WORK IN ACCORD ANCE TO THE AGREEMENT OF BUILDING THE BERTH 4A. AS PER THE AGRE EMENT TRIAL RUN WAS THE PRE-CONDITION BEFORE THE START OF THE COMMERCIA L OPERATION. THE ASSESSEE TREATED THE TRIAL RUN OF VESSELS AS 'PREOPERATIVE HANDLING 1 OF THE PLANT AND INCOME GENERATED FROM SUCH PREOPERATI VE HANDLING HAS BEEN TREATED AS ' PREOPERATIVE INCOME*. IN THE BOOKS 'OF ACCOUNT OF THE ASSESSEE FOR THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR UNDER DISPUTE, SUCH PREOPERATIVE INCOME HAS BEEN SET OFF AGAINST THE PREOPERATIVE EXPENSES OF RS.3,17,02,6327-, WHICH CO NSISTED OF BERTH HIRE CHARGES IN THE SUM OF RS.16,84,5627- AND RS.3, 00,18,0707- BEING CARGO HANDLING CHARGES AND THE BALANCE AMOUNT WAS C APITALIZED TO BE APPORTIONED TO FIXED ASSET. THE SPECIOUS FINDING OF THE AO THAT LOADING AND UNLOADING OF CARGO DURING THE PERIOD FROM 07.12 .2003 TO 13.01.2004 ON TRIAL BASIS WAS COMMERCIAL ACTIVITY O F THE ASSESSEE AND THE RECEIPTS EARNED THERE FROM WAS ASSESSED AS INCO ME FROM BUSINESS WHICH IS TOTAJLYJJNTENABLE AND INCONSISTENT WITH TH E FACTS OF THE CASE SINCE IT WASJTONE AT THE BEHEST OF THE HOLDIA DOCK COMPLEX AUTHORITIES IN ORDER TO ESTABLISH THE STABILITY OF THE BERTH. I T IS AN ADMITTED FACT THAT EVEN DURING A PERIOD OF TEST RUNS AND EXPERIMENTATI ON, A PLANT MAY BE ENGAGED IN ACTUAL PRODUCTION, BUT UNTIL THE TEST RU NS ARE COMPLETED AND THE PLANT IS PROPERLY ADJUSTED ON THE BASIS THEREOF , IT CANNOT BE SAID TO BE READY FOR 'COMMERCIAL PRODUCTION'. THE EXPRESSION 'COMMERCIAL PRODUCTION' REFERS TO PRODUCTION IN COMMERCIALLY FEASIBLE QUANT ITIES AND IN A COMMERCIALLY PRACTICABLE MANNER. FURTHER, IT I S A CORRECT AND_ACCEPTED PROCEDURE TO CAPITALIZE ALL EXPENSES I NCURRED DURING CONSTRUCTION PERIOD AND IN CONNECTION WITH THE PROC ESS OF START-UP AND COMMISSIONING OF THE PLANT. IN FACT, SUCH EXPENSES WOULD BE INCURRED IN 21 ITA 5189/MUM/2016 ORDER TO BRING THE PLANT UP TO THE STAGE AT WHICH I T CAN COMMENCE COMMERCIAL PRODUCTION. THUS, IT IS CORRECT TO CAPIT ALIZE THE EXPENDITURE INCURRED ON START-UP AND COMMISSIONING OF THE PLANT . THE EXPENDITURE SO INCURRED, THEREFORE, SHOULD BE CAPITALIZED IN TH E SAME WAY AS OTHER INDIRECT CONSTRUCTION EXPENDITURE. IN THE PRESENT C ONTEXT, THEREFORE THE EXPENDITURE INCURRED DURING TRIAL RUN CONTRIBUTES T O CONSTRUCTION OF THE FACILITIES AT BERTH NO, 4A OF HALDIA DOCK COMPLEX A S TRIAL RUN ACTIVITY IS REGARDED AS AN ACTIVITY WHICH IS NECESSARY TO PREPA RE THE ASSET FOR ITS INTENDED USE. THIS IS BECAUSE FLAWS IN THE FACILITI ES AT BERTH NOTICED DURING TRIAL RUN OPERATION ARE RECTIFIED TO BRING T HE BERTH TO ITS INTENDED USE. THEREFORE, THE EXPENDITURE INCURRED DURING TRI AL RUN TOWARDS BUILDING / CONSTRUCTING THE BERTH SHOULD ALSO BE CA PITALIZED AS PER THE REQUIREMENTS OF ACCOUNTING STANDARD 166. IT IS ALSO AN UNDISPUTED FACT THAT OPERATION OF CARGO / VESSEL DURING TRIAL RUN W AS DIRECTLY LINKED WITH THE BUILDING UP OF FACILITIES IN THE BERTH NO. 4A O F HALDIA DOCK COMPLEX. HENCE, ANY INCOME EARNED ON SUCH OPERATION DURING T RIAL RUN WAS INCIDENTAL TO THE BUILDING OF ASSETS FOR SETTING UP THE BERTH. THEREFORE, INCOME EARNED DURING PREOPERATIVE STAGE WAS A CAPIT AL RECEIPT, WHICH WOULD GO TO REDUCE THE COST OF ASSET AND IT IS SETT LED THAT THE DEPOSIT OF MONEY WAS DIRECTLY LINKED WITH THE PURCHASE OF PLAN T AND MACHINERY. HENCE, ANY INCOME EARNED ON SUCH DEPOSITS WAS INCID ENTAL TO THE ACQUISITION OF ASSESSEE FOR SETTING UP THE PLANT AN D MACHINERY. THUS, THE INTEREST WAS A CAPITAL RECEIPT WHICH WOULD GO T O REDUCE THE COST OF THE ASSET AND LD AR RELIED ON THE DECISION OF HON'B LE SUPREME COURT IN THE CASE OF CIT V.KARNAL CO-OPERATIVE SUGAR MILLS LTD (2000) 243 ITR 2 (SC) AND C.I.T. VS. BOKARO STEEL LIMITED (1999)~236 ITR 315JSCI. 9. FROM THE AFORESAID DISCUSSION, WE FIND THAT THE ASSESSEE HAS MADE SOME INCOME DURING THE PERIOD OF TRIAL RUN AND THE SAME WAS ADJUSTED AGAINST THE PRE-OPERATIVE EXPENSES. THE AO REJECTED THE WORKING OF ASSESSEE AND HELD THAT THE INCOME GENERATED DURING THE TRIAL RUN INCOME PERIOD CANNOT BE ADJUSTED AGAINST THE PREOPE RATIVE EXPENSES 22 ITA 5189/MUM/2016 AND THE SAME WAS CONFIRMED BY THE LD. CIT(A). HOWEV ER, WE OBSERVE THAT IT WAS THE CONDITION IN THE AGREEMENT THAT THE TRIAL RUN HAS TO BE CARRIED OUT BEFORE THE BEGINNING OF COMMERCIAL OPER ATION. THE ID. AR DREW OUR ATTENTION ON PAGES 17,18,19,20,21 OF THE PAPER BOOK WHERE THE REQUIREMENT FOR THE TRIAL RUN WAS REQUESTED BEF ORE THE BEGINNING OF ACTUAL OPERATION. THE PURPOSE OF THE TRIAL RUN W AS TO CHECK WHETHER THERE IS ANY FLAW IN THE SYSTEM OR NOT SO T HAT REMEDIAL ACTION CAN BE TAKEN WELL IN TIME IN THE EVENT OF ANY FLAW IN THE SYSTEM. SO IT IS CLEAR THAT THE PURPOSE OF THE TRIAL RUN WAS TO C HECK THE FLAW IN THE SYSTEM AND NOT TO BEGIN THE COMMERCIAL OPERATIONS. IN THE INSTANT CASE THE TRIAL RUN WAS SUCCESSFULLY COMPLETED ON DA TED 13/1/2004 WITHOUT ANY FLAW IN THE SYSTEM. THEREFORE THE COMME RCIAL OPERATION BEGAN IMMEDIATELY THEREAFTER ON DATED 15/1/2004, NO W THE QUESTION HERE ARISES THAT IN CASE OF ANY FLAW CAUGHT DURING THE TRIAL RUN THEN IN THAT EVENT CERTAINLY THE COMMERCIAL OPERATION SHALL ONLY BEGIN AFTER THE REMOVAL OF THE FLAW. IN VIEW OF THI,S THE INCOM E GENERATED DURING TRIAL RUN SHALL CERTAINLY BE ADJUSTED AGAINST THE P RE-OPERATIVE EXPENSES. HAVING SAID THIS WE ARE INCLINED TO REVER SE THE ORDER OF THE ID. CIT(A) AND DIRECT THE LOWER AUTHORITIES TO ADJUST THE TRIAL RUN INCOME FROM PREOPERATIVE EXPENSES OF THE ASSESSEE. WE ARE RELYING ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CAS E OF COMMISSIONER OF INCOME TAX VS. NESTOR PHARMACEUTICA LS LIMITED 322 ITR 631 WHERE ITWAS HELD THAT : 'THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURE OF PHARMACEUTICAL FORMULATION IN BULK DRUGS AND SUPPLY ING DRUGS TO THE GOVERNMENT HOSPITALS, INSTITUTIONS BESIDES SELL ING THE PRODUCT IN DOMESTIC AND FOREIGN MARKETS. IT CLAIMED THE BENEFIT UNDER SECTION 80-IA/80-IB OF THE INCOME-TAX ACT, 19 61. IT CARRIED OUT TRIAL PRODUCTION FROM MARCH 20, 1998. ON THAT B ASIS THE ASSESSING OFFICER TREATED THE ASSESSMENT YEAR 1998- 99 AS THE 23 ITA 5189/MUM/2016 INITIAL YEAR FOR THE BENEFIT CLAIMED AND SINCE THIS BENEFIT WAS ALLOWABLE FOR FIVE YEARS, ACCORDING TO THE ASSESSIN G OFFICER, THIS BENEFIT WAS ADMISSIBLE FROM THE ASSESSMENT YEAR 199 8-99 TO THE ASSESSMENT YEAR 2002-03. THE ASSESSEE ON THE OT HER HAND CLAIMED THE BENEFIT FROM THE ASSESSMENT YEARS 1999- 2000 TO 2003-04. THE PLEA OF THE ASSESSEE WAS THAT TRIAL PR ODUCTION DID NOT AMOUNT TO MANUFACTURE OF ITS PRODUCTS. IT WAS O NLY WHEN COMMERCIAL PRODUCTION COMMENCED, WHICH, ACCORDING T O THE ASSESSEE, COMMENCED ONLY IN THE ASSESSMENT YEAR 199 9-2000 THAT PRODUCTION COMMENCED. THE COMMISSIONER (APPEAL S) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BUT TH E TRIBUNAL REVERSED THAT ORDER HOLDING THAT SECTION 80-IA/80-I B OF THE ACT BEING BENEFICIAL LEGISLATION, THE BENEFIT SHOULD BE EXTENDED TO THE ASSESSEE. IT FURTHER HELD THAT AS ON MARCH 20,1 998, ONLY TRIAL PRODUCTION STARTED WHICH WAS DIFFERENT FROM COMMERC IAL PRODUCTION AND THE BENEFIT OF THAT SECTION SHOULD B E ALLOWED IN THE YEAR IN WHICH COMMERCIAL PRODUCTION STARTED, I.E. IN THE ASSESSMENT YEAR 1999-2000 AND, THEREFORE, WOULD BE EXTENDABLE UP TO THE ASSESSMENT YEAR 2003-04. ON APPEAL ; HELD, THAT THE INITIAL ASSESSMENT YEAR, FOR THE PUR POSE OF SECTION 80-IA, WAS THE ASSESSMENT YEAR RELEVANT TO THE PREV IOUS YEAR IN WHICH THE 'INDUSTRIAL UNDERTAKING BEGINS TO MANUFAC TURE OR PRODUCE ARTICLES OR THINGS'. THE TRIAL PRODUCTION B EGAN ON MARCH 20, 1998, AS PER THE DETAILS GIVEN IN THE AUDIT REP ORT FURNISHED BY THE ASSESSEE ALONG WITH ITS RETURNS OF INCOME FOR T HE ASSESSMENT YEARS 2003-04 AND 2004-05. THERE WAS NO DISPUTE THA T THE FIRST SALE WAS MADE ON APRIL 23,1998, WHICH WOULD BE THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 1999-2000. MERELY B ECAUSE SOME CLOSING STOCK WAS SHOWN AS ON MARCH 31, 1998, THAT WOULD NOT LEAD TO THE CONCLUSION THAT THERE WAS COMMERCIA L PRODUCTION AS WELL. EVEN FOR THE PURPOSE OF TRIAL PRODUCTION M ATERIAL WOULD BE 24 ITA 5189/MUM/2016 NEEDED AND THERE WOULD BE PRODUCTION WHICH WOULD RE SULT IN STOCK OF FINISHED GOODS. THE EVIDENCE PRODUCED BY THE ASS ESSEE WAS ACCEPTED BY THE TRIBUNAL AS WELL, FROM WHICH IT WAS CLEAR THAT THERE WAS ONLY A TRIAL PRODUCTION IN THE ASSESSMENT YEAR 1998-99 AND COMMERCIAL AND FULL-FLEDGED PRODUCTION COMMENCED ON LY IN THE YEAR 1999-2000. THE ORDER OF THE TRIBUNAL ALLOWING THE BENEFIT OF DEDUCTION UNDER SECTION 80-IA/80IB OF THE ACT FROM THE ASSESSMENT YEAR 1999-2000 TREATING IT AS THE INITIA L YEAR OF PRODUCTION TO THE ASSESSMENT YEAR 2003-04 WAS CORRE CT IN LAW. THE TRIBUNAL HELD THAT THE ASSESSEE HAD NOT ONLY PR ODUCED THE GOODS FOR TRIAL PURPOSES BUT THERE WAS, IN FACT, SA LE OF ONE WATER COOLER AND AIR-CONDITIONER IN THE ASSESSMENT YEAR 1 998-99 RELEVANT TO THE PREVIOUS YEAR/FINANCIAL YEAR 1997-9 8. THE EXPLANATION OF THE ASSESSEE WAS THAT THIS WAS DONE TO FILE THE REGISTRATION UNDER THE EXCISE ACT AS WELL AS THE SA LES TAX ACT. THE TRIBUNAL HELD THAT THE SALE OF ONE WATER COOLER AND ONE AIR- CONDITIONER AS ON MARCH 31, 1998, FOR THE PURPOSE O F OBTAINING REGISTRATION OF EXCISE AND SALES TAX WAS MANUFACTUR E WITHIN THE MEANING OF SECTION 80-LA. ON APPEAL: HELD, THAT THE ASSESSEE HAD SOLD ONE WATER COOLER A ND ONE AIR- CONDITIONER BEFORE APRIL, 1998. THUS, THE STAGE OF TRIAL PRODUCTION HAD BEEN CROSSED AND THE ASSESSEE HAD COME OUT WITH THE FINAL SALEABLE PRODUCT WHICH WAS IN FACT SOLD AS WELL. TH E QUANTUM OF COMMERCIAL SALE WOULD BE IMMATERIAL. WITH SALE OF T HOSE ARTICLES MARKETABLE QUALITY WAS ESTABLISHED, MORE PARTICULAR LY WHEN THE ASSESSEE FAILED TO SHOW THAT THE DEALER RETURNED TH OSE GOODS ON THE GROUND THAT THERE WAS ANY DEFECT IN THE WATER C OOLER OR AIR- CONDITIONER PRODUCED AND SOLD BY THE ASSESSEE TO TH E DEALER. THE TRIBUNAL, IN THE CIRCUMSTANCES, WAS RIGHT THAT THE TWO TYPES OF CONDITIONS STIPULATED IN SECTION 80-1 A WERE FULFIL LED WITH THE COMMERCIAL SALE OF THE TWO ITEMS IN THAT ASSESSMENT YEAR. 25 ITA 5189/MUM/2016 WHETHER THE PURPOSE OF THAT SALE WAS TO OBTAIN REGISTRATION OF EXCISE OR SALES TAX WOULD BE IMMATERIAL.' THE BOMBAY HIGH COURT HAS ALSO DECIDED THE SIMILAR ISSUE IN FAVOUR OF ASSESSEE IN THE CASE OF CIT VS. HINDUSTAN ANTIBI OTICS LTD.(1974) 93 ITR 548 (BOM) AND RELEVANT EXTRACT OF THE ORDER IS REPRODU CED BELOW : 'THE WORD 'ARTICLES' USED IN THE EXPRESSION 'HAS BE GUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES 'IN SECTI ON 15C(2)(II) MUST BE INTERPRETED REGARD BEING HAD TO THE OBJECT FOR WHICH THE SECTION WAS ENACTED. THE PROVISION WAS ENACTED WITH A VIEW TO ENCOURAGING THE ESTABLISHMENT OF NEW INDUSTRIAL UND ERTAKINGS AND THE OBJECT WAS SOUGHT TO BE ACHIEVED BY GRANTIN G EXEMPTION FROM TAX ON PROFITS DERIVED FROM SUCH UND ERTAKINGS DURING THE FIRST FIVE YEARS. THE OBJECT OF THE SECT ION PRESUPPOSES THAT PROFITS ARE CAPABLE OF BEING EARNED. HENCE, UN TIL AN ASSESSEE REACHES A STAGE WHERE IT IS IN A POSITION TO DECIDE THAT A FINAL PRODUCT WHICH CAN BE ULTIMATELY SOLD IN THE MARKET CAN BE MANUFACTURED IT CANNOT BE SAID TO HAVE STARTED MANU FACTURE OF THE ARTICLES. IF IT BECOMES NECESSARY FOR AN ASSESS EE TO PRODUCE A TRIAL PRODUCT AT AN EARLIER STAGE TO VERIFY WHETH ER IT CAN BE USED ULTIMATELY IN THE MANUFACTURE OF THE FINAL ART ICLE, THE COMMENCEMENT OF OPERATION FOR THE MANUFACTURE OF TH E TRIAL PRODUCT WOULD NOT CONSTITUTE COMMENCEMENT OF MANUFA CTURE OF ARTICLES FOR THE PURPOSES OF SECTION 15C. THE ASSESSEE-COMPANY UNDERTOOK A PROJECT FOR THE MANUFACTURE OF PENICILLIN. IT STARTED ACTUAL OPERAT IONS FOR THE MANUFACTURE OF CRUDE PENICILLIN IN DECEMBER 1954. T HE FIRST SAMPLES OF CRUDE PENICILLIN WERE REQUIRED TO BE SEN T TO U.S.A. AND U.K. FOR OBTAINING CERTIFICATES AS TO THEIR QUA LITIES. THE CERTIFICATES WERE OBTAINED IN JUNE, 1955, AND THE A SSESSEE STARTED REGULAR PRODUCTION OF STERILE PENICILLIN, T HE ONLY PRODUCT 26 ITA 5189/MUM/2016 THAT COULD BE SOLD IN THE MARKET, IN AUGUST, 1955. ON THE QUESTION WHEN THE MANUFACTURE OF STERILE PENICILLIN HAD STARTED AND WHETHER THE ASSESSEE WAS ENTITLED TO THE EXEMPT ION UNDER SECTION 15C FOR THE ASSESSMENT YEAR 1960-61 : HELD, ON THE FACTS, THAT PRODUCTION OF ARTICLES BY THE ASSESSEE HAD BEGUN ONLY IN AUGUST, 1955. THE BENEFIT OF THE EXEMPTION UNDER SECTION 15C AROSE TO THE ASSESSEE FOR THE FIR ST TIME IN THE ASSESSMENT YEAR 1956-57 AND, THEREFORE, IT WAS ENTI TLED TO THE EXEMPTION UNDER SECTION 15C FOR THE ASSESSMENT YEAR 1960-61 ALSO.' 10. WE ALSO FURTHER OBSERVE THAT THE FACTS OF T HE CASE LAW CITED BY THE AO I.E. TUTIKORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) FOR TREATING THE RECEIPTS OF TRIAL RUN AS BUSINESS RECEIPT ARE DIFFERENT FROM THE FACTS OF THE INSTANT CASE. THE APEX COURT IN TH E SAID CASE HAS TREATED THE INTEREST INCOME ON THE SURPLUS FUND AS INCOME FROM OTHER SOURCES BECAUSE THERE WAS NO NEXUS BETWEEN THE ACTI VITY OF THE ASSESSEE AND INTEREST INCOME. THE ASSESSEE HAS INVE STED IDLE FUND FOR SHORT PERIOD OF TIME BEFORE THE COMMENCEMENT OF THE BUSINESS. THERE WAS NO CONNECTION BETWEEN INTEREST INCOME AND THE B USINESS OF THE ASSESSEE. THE INTEREST INCOME WAS INDEPENDENT AND S EPARATE FROM THE BUSINESS OF THE ASSESSEE. HOWEVER IN THE INSTANT CA SE THE INCOME GENERATED DURING TRIAL RUN IS VERY MUCH CONNECTED W ITH THE BUSINESS OF THE ASSESSEE HENCE THE QUESTION OF RECOGNIZING THE INCOME DOES NOT ARISE AS THE COMMERCIAL OPERATION HAS NOT BEGAN. IN VIEW OF ABOVE WE REVERSE THE ORDER OF THE ID. CIT(A) AND ALLOW THE A PPEAL OF THE ASSESSEE. 9. IN VIEW OF THE ABOVE AND BEING CONSISTENT WITH T HE EARLIER VIEW TAKEN BY THE CO-ORDINATE BENCHES OF THE TRIBUNAL, WE ARE OF THE VIEW THAT THE INCOME GENERATED DURING TRIAL RUN DOES NOT ARISE AS THE COMMERCIAL O PERATION OF THE ASSESSEE WAS 27 ITA 5189/MUM/2016 NOT STARTED DURING THE PERIOD OF TRIAL, THUS, THE G ROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 5180/MUM/2016 ( AGAINST ORDER UNDER SECTION 154) 11. THE FACTS LEADING THE FILE THE PRESENT APPEAL ARE THAT ON RECEIPT OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) DATED 26.03.2012, THE ASSESSEE FILED AN APPLICATION UNDER SECTION 154 OF THE ACT DATED 27.10.205, CONTENDING THAT THE ADDITIONS MADE ON ACCOUNT OF INTEREST INCOME OF RS. 15,68,804/- AND ADDITION OF UNBILLED REVENUE ARE COVERED BY THE DECISION OF SUPREME COURT IN BOKARO STEEL LTD 236 ITR 315. THE APPLICATION OF THE ASSESSEE WA S REJECTED BY ASSESSING OFFICER. ON FURTHER APPEAL BEFORE LD CIT(A) THE ACT ION OF THE ASSESSING OFFICER WAS SUSTAINED. THUS, FURTHER AGGRIEVED THE ASSESSEE HAS FILED PRESENT APPEAL BEFORE TRIBUNAL. 12. CONSIDERING THE FACTS THAT WE HAVE ALREADY ALLO WED THE APPEAL OF THE ASSESSEE IN ITA NO.5189/M/2017, THEREFORE, THE ADJU DICATION OF THE GROUNDS OF APPEAL RAISED IN THE PRESENT APPEAL HAS BECOME ACAD EMIC. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16-07-2019 . SD/- SD/- (M. BALAGANESH) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIALMEMBER MUMBAI, DT : 16 TH JULY, 2019 PK/- 28 ITA 5189/MUM/2016 COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI