Premier Tobacco Packers Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 703/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96104 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 05-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 21-03-2014
• Court: TRIBUNAL
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . ! '# , $ % BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.703/MDS./2014 ( / ASSESSMENT YEAR :2005-06) M/S. PREMIER TOBACCO PACKERS PVT. LTD., NO.2B,PIONEER HOMES, NO.115A SIR P.S.SIVASAMI SALAI, MYALPORE, CHENNAI 600 004. VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(2), CHENNAI. PAN AAACP 4232 G ( &' / APPELLANT ) ( ()&' / RESPONDENT ) / APPELLANT BY : MR.A.S.SRIRAMAN,ADVOCATE / RESPONDENT BY : DR.B.NISCHAL, JCIT,D.R / DATE OF HEARING : 05.08.2015 ! /DATE OF PRONOUNCEMENT : 29.09.2015 * / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE , AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-V, CHENNA I DATED ITA NO.703 /MDS/14 2 11.12.2013 IN ITA NO.611/13-14/A-V PASSED UNDER SE C.143(3) READ WITH SEC.147 & SEC. 250 OF THE ACT. 2. THE ASSESSEE HAS RAISED TEN ELABORATE GROUNDS IN ITS APPEAL; HOWEVER THE CRUX OF THE ISSUE IS THAT:- (I) THE LD. CIT (A) HAD ERRED IN CONFIRMING THE RE -ASSESSMENT FRAMED U/S.143(3) R.W.S 147 OF THE ACT. (II) THE LD. CIT (A) HAD ERRED IN CONFIRMING THE ORDER OF THE LD. ASSESSING OFFICER IN DISALLOWING A SUM OF ` 18,84,633/- BEING EXPENDITURE INCURRED BY THE ASSESSEE ON ITS OIL SO LVENT EXTRACTION PLANT SINCE THE PRODUCTION HAD NOT COMM ENCED AND THEREFORE, IT IS IN THE NATURE OF CAPITAL EXPENDITU RE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A COMPANY, ENGAGED IN THE BUSINESS OF TRADING IN TOBACCO THRES HERS, RE-DRYERS AND EXPORTS, FILED ITS RETURN OF INCOME FOR THE AS SESSMENT YEAR 2005- 06 ON 28.10.2005 ADMITTING AN INCOME OF ` 3,59,99,511/-. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT ON 31.07 .2006. SUBSEQUENTLY THE CASE WAS REOPENED BY ISSUANCE OF N OTICE U/S.148 ITA NO.703 /MDS/14 3 OF THE ACT ON 29.03.2010 AND FINALLY, THE ASSESSMEN T WAS COMPLETED ON 24.12.2010 WHEREIN THE LD. ASSESSING OFFICER DIS ALLOWED THE ABOVE STATED EXPENDITURE. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD. A.O THAT TH E ASSESSEE HAD INCURRED EXPENDITURE ON ITS OIL SOLVENT EXTRACTION PLANT AMOUNTING TO ` 18,84,633/-. THE LD. ASSESSING OFFICER FURTHER OBSE RVED FROM THE ANNUAL REPORT OF THE COMPANY THAT THE COMPANY HAS S TARTED ITS OIL DIVISION AND PRODUCED 11,660 KGS OF LOW PURITY CRUD E SOLANESOL OIL ON ITS TRIAL RUN BEFORE COMMENCING COMMERCIAL PRODUCTI ON OF THE LICENSE PRODUCT DURING THE PREVIOUS YEAR. FURTHER IT WAS NOTICED THAT THE OIL PRODUCTION WAS AT SEMI-FINISHED STAGE AND NO SALE W AS EFFECTED, HOWEVER, THE ASSESSEE HAD CLAIMED REVENUE EXPENDITU RE OF ` 18,84,633/- IN ITS PROFIT AND LOSS ACCOUNT FOR PROD UCING THE SEMI- FINISHED PRODUCT. THE LD. ASSESSING OFFICER WAS OF THE VIEW THAT THE ABOVE SAID EXPENDITURE IS OF CAPITAL IN NATURE BECA USE THE ENTIRE OPERATION OF THE ASSESSEE WITH RESPECT TO THE ABOVE PRODUCT WAS ONLY TRIAL RUN AND COMMERCIAL PRODUCTION HAD NOT YET BEG UN. ON APPEAL THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD. ASSESSIN G OFFICER AGREEING WITH VIEW OF THE LD.A.O. THE LD. CIT (A) FURTHER O BSERVED FROM THE ITA NO.703 /MDS/14 4 REMAND REPORT THAT THE ASSESSEE HAD NOT CLAIMED DEP RECIATION ON THE PLANT PRODUCING THE CRUDE SOLANESOL OIL WHICH CONFI RMED THE FINDING OF THE LD. ASSESSING OFFICER THAT THE SOLVENT EXTRACTI ON PLANT IS NOT FULLY SETUP IN THE RELEVANT YEAR UNDER CONSIDERATION AND THEREFORE, THE EXPENDITURE INCURRED TOWARD THE PROJECT SHOULD BE T REATED AS CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. 4. BEFORE US, THE LD. A.R. SUBMITTED A PAPER BOOK CONTAINING THE ANNUAL REPORT OF THE COMPANY AND ARGUED BY STATING THAT THE ASSESSEE HAD COMMENCED COMMERCIAL PRODUCTION OF THE CRUDE OIL BY OPERATING ITS OIL EXTRACTION PLANT. THEREFORE HE PL EADED THAT THE ABOVE MENTIONED EXPENDITURE MAY BE TREATED AS REVENUE EXP ENDITURE AND ALLOWED AS DEDUCTION. THE LD. D.R ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. AS POINTED OUT BY T HE REVENUE, IT IS EVIDENT FROM THE BALANCE SHEET OF THE ASSESSEE THAT THE ASSESSEE HAD PRODUCED SEMI FINISHED CRUDE SOLANESOL OIL OF 1 1,660 KGS OF LOW ITA NO.703 /MDS/14 5 PURITY. THEREFORE, ON COMPLETION OF THE BALANCE PR OCESS THESE SEMI FINISHED GOODS WILL BE CONVERTED INTO FINISHED GOOD S AND AVAILABLE AS STOCK IN TRADE TO THE ASSESSEE FOR SALE. HENCE ANY EXPENDITURE INCURRED FOR PRODUCING THE SEMI FINISHED GOODS WILL BE IN THE NATURE OF REVENUE EXPENDITURE AND HAS TO BE DEBITED TO THE PR OFIT AND LOSS ACCOUNT. CONSEQUENTLY THE SEMI FINISHED GOODS WILL ALSO BE REFLECT IN THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT AS SEMI-FINISHED GOODS AND AS WELL AS IN THE BALANCE SHEET UNDER TH E HEAD CURRENT ASSETS. IN SUCH CIRCUMSTANCES IF THIS EXPENDITURE IS NOT ALLOWED AS DEDUCTION, THEN TO THAT EXTENT PROFIT OF THE ASSESS EE WILL BE SUPERFICIALLY INFLATED. THEREFORE, THE REVENUE HAS ERRED IN TREATING THE SEMI FINISHED STOCK OF THE ASSESSEE AS CAPITAL EXPE NDITURE. MOREOVER FROM THE ORDER OF THE LD. ASSESSING OFFICER IT APPE ARS THAT HE WAS UNDER IMPRESSION THAT THE EXPENDITURE IS INCURRED T OWARDS SOLVENT EXTRACTION PLANT WHEN THE FACT REMAINS THAT THESE EXPENDITURE WAS INCURRED FOR THE PRODUCTION OF SEMI FINISHED GOODS VIZ., CRUDE SOLANESOL OIL. HENCE WE HEREBY DIRECT THE LD. ASSE SSING OFFICER TO ALLOW THE CLAIM OF THE EXPENDITURE OF ` 18,84,633/- INCURRED BY THE ITA NO.703 /MDS/14 6 ASSESSEE FOR PRODUCING THE SEMI FINISHED GOODS VIZ ., CRUDE SOLANESOL OIL. 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON 29 TH SEPTEMBER, 2015 AT CHENNAI. SD/- SD/- ( . ! '# ) (V. DURGA RAO) ( . ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 29 TH SEPTEMBER, 2015. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE