Sinto Bharat Manufacturing Pvt Ltd, Chennai V. ITO, Corp Ward-6(2), Chennai

ITA 87/CHNY/2019

• Counselvise Citation: [2020] 109 COUNSELVISE.COM (IT) 9698 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 10-01-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: MRS NITHYA SANKARAN
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI , . , % BEFORE SHRI MAHAVIR SINGH, VICE-PRESIDENT AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.87/CHNY/2019 ( / ASSESSMENT YEAR: 2013-14) M/S. SINTO BHARAT MANUFACTURING PVT.LTD. II FLOOR, R.A BUILDING, MARSHALL ROAD, EGMORE, CHENNAI-600 008. VS THE INCOME TAX OFFICER, CORPORATE WARD-6(2), CHENNAI . PAN:AARCS 3960K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MRS. NITHYA SANKARAN, C.A /RESPONDENT BY : MR. SURESH PERIASAMY, JCIT /DATE OF HEARING : 29.12.2020 /DATE OF PRONOUNCEMENT : 29.12.2020 / O R D E R PER G.MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF THE LEARNED CIT(A)-16, CHENNAI DATED 14.1 1.2018 AND PERTAIN TO ASSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL:- 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANC ES OF THE CASE TO THE EXTENT PREJUDICIAL TO THE INTEREST OF THE AP PELLANT AND IS OPPOSED TO THE PRINCIPLES OF EQUITY, NATURAL JUSTIC E AND FAIR PLAY. 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ORDER OF THE ASSESSING OFFICER IS WITHOUT JURISDICTION. 2 ITA NO.87/CHNY/2019 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN UPHOLDING THE DISALLOWANCE OF CLAIM OF BUSINESS EXP ENDITURE OF RS.64,35,738/- AND TREATING THE SAME AS CAPITAL EXP ENDITURE. 4. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN UPHOLDING THE CONCLUSION OF THE ASSESSING OFFICER T HAT THE APPELLANT HAD NOT COMMENCED OPERATIONS IN THE IMPUG NED ASSESSMENT YEAR. 5. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION ON ASSET S CLAIMED BY THE APPELLANT. 6. FOR THAT THE APPELLANT OBJECTS TO THE LEVY OF IN TEREST ULS.234A AND 234B. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPAN Y IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MOULD HANDLING LINES AND SHOT BLASTING MACHINES HAS FILED ITS RETURN OF INCOME F OR ASSESSMENT YEAR 2013-14 ON 30.11.2013 ADMITTING TOTAL INCOME OF ` 62,13,132/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS ING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED VARIOUS EXPENDITU RE UNDER THE HEAD REVENUE EXPENDITURE, HOWEVER, NOT ADMITTED ANY INCOME FROM BUSINESS OPERATIONS, THEREFORE CALLED UPON THE ASSE SSEE TO EXPLAIN AS TO WHY EXPENDITURE CLAIMED UNDER VARIOUS HEADS S HOULD NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE VIDE LETTER D ATED 04.02.2016 SUBMITTED THAT COMPANY HAS COMMENCED ITS BUSINESS O N 31.03.2012 FOR MANUFACTURING OF MOULD HANDLING LINE S AND SHOT BLASTING MACHINES, FOR WHICH IT HAS PLACED ORDERS FOR PURCHASE AND 3 ITA NO.87/CHNY/2019 INSTALLATION OF MACHINES REQUIRED FOR MANUFACTURING ACTIVITY AND SUCH MACHINES HAVE BEEN INSTALLED IN SUBSEQUENT FINANCIA L YEARS. THE ASSESSEE FURTHER SUBMITTED THAT THE MOMENT IT HAS S TARTED ITS ACTIVITIES AND ORDERED FOR PROCUREMENT OF PLANT AND MACHINERY, THE BUSINESS SAID TO HAVE BEEN COMMENCED AND RELATED EX PENDITURE IN THE NATURE OF REVENUE EXPENDITURE CAN BE ALLOWED AS DEDUCTION. THE ASSESSING OFFICER WAS NOT CONVINCED WITH EXPLANATIO N FURNISHED BY ASSESSEE AND ACCORDING TO HIM, DURING THE YEAR UNDE R CONSIDERATION, ASSESSEE DID NOT SET UP ITS BUSINESS ACTIVITY WHICH IS EVIDENT FROM THE FACT THAT PURCHASE ORDER ISSUED FO R PROCUREMENT OF PLANT & MACHINERY REQUIRED FOR MANUFACTURING OF GOO DS WAS PLACED ON 10.10.2012 AND AS PER PURCHASE ORDER DELIVERY OF THE ABOVE TWO MACHINES WAS DUE ON 20.08.2013, WHICH COMES UNDER N EXT FINANCIAL YEAR AND HENCE, IT CANNOT BE SAID THAT ASSESSEE HAS COMMENCED ITS BUSINESS TO ALLOW DEDUCTION FOR VARIOUS EXPENDITURE DEBITED INTO PROFIT & LOSS ACCOUNT AND ACCORDINGLY DISALLOWED EX PENDITURE CLAIMED INCLUDING DEPRECIATION AMOUNTING TO ` 64,35,736/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, ASSESS EE PREFERRED AN APPEAL BEFORE LEARNED CIT(A). BEFORE THE LEARNED CIT(A), ASSESSEE HAS FILED DETAILED WRITTEN SUBMISSIONS AND ARGUED THAT THE 4 ITA NO.87/CHNY/2019 ASSESSEE HAS SET UP BUSINESS AND ITS BUSINESS ACTI VITIES HAS COMMENCED ON 30.03.2012, WHICH IS EVIDENT FROM THE FACT THAT IT HAS PLACED ORDERS FOR PROCUREMENT OF PLANT AND MACH INERY AS REQUIRED FOR MANUFACTURING ACTIVITIES AND ALSO IN THE PROCESS OF INSTALLATION OF SUCH MACHINERY FOR WHICH IT HAS PA ID VARIOUS EXPENDITURE INCLUDING SALARY OF TECHNICIAN AND OTHE R RELEVANT REVENUE EXPENDITURE. THEREFORE, THE ASSESSING OFFI CER IS INCORRECT TO SAY THAT BUSINESS WAS NOT COMMENCED FOR IMPUGNED ASSESSMENT YEAR. THE LEARNED CIT(A), AFTER CONSIDERING RELEV ANT SUBMISSIONS OF ASSESSEE OBSERVED THAT ALTHOUGH ASSESSEE HAS PLA CED ORDERS FOR PROCUREMENT OF PLANT & MACHINERY ON 10.10.2012, BUT SUCH MACHINERY WAS DUE FOR DELIVERY ON 20 TH AUGUST, 2013, WHICH IS PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2014 -15, HENCE, IT CANNOT BE SAID THAT ASSESSEE HAS COMMENCED ITS BUS INESS OPERATIONS TO ALLOW DEDUCTION FOR VARIOUS EXPENDITU RE DEBITED INTO PROFIT & LOSS ACCOUNT. THE LEARNED CIT(A) FURTHER OBSERVED THAT MOREOVER THE ASSESSEE DID NOT BRING ON RECORD ANY EVIDENCES TO PROVE THAT IT HAS STARTED ITS BUSINESS ACTIVITY AND IDENTIFIED PROSPECTIVE CLIENTS ETC. AND THEREFORE OPINED THAT ASSESSING OFFICER WAS RIGHT IN DISALLOWING EXPENDITURE DEBITED INTO P ROFIT & LOSS 5 ITA NO.87/CHNY/2019 ACCOUNT ACCORDINGLY, CONFIRMED ADDITIONS MADE BY AS SESSING OFFICER TOWARDS DISALLOWANCE OF EXPENDITURE. AGGRI EVED BY THE LEARNED CIT(A) ORDER, ASSESSEE IS IN APPEAL BEFO RE US. 5. THE LEARNED AR FOR ASSESSEE SUBMITTED THAT LEAR NED CIT(A) HAS ERRED IN CONFIRMING ADDITIONS MADE BY THE ASSES SING OFFICER TOWARDS DISALLOWANCE OF BUSINESS EXPENDITURE OF ` 64,35,736/- AND TREATING THE SAME AS CAPITAL EXPENDITURE WITHOUT AP PRECIATING THE FACT THAT ASSESSEE HAS COMMENCED ITS BUSINESS OPER ATIONS ON 30.03.2012 AND HAS STARTED SETTING UP OF PLANT & M ACHINERY REQUIRED FOR MANUFACTURING ACTIVITY. THE LEARNED AR FOR THE ASSESSEE REFERRING TO PAPER BOOK FILED FOR THIS PURPOSE SUBM ITTED THAT ASSESSEE HAS PLACED ORDERS FOR PROCUREMENT OF PLAN T AND MACHINERY WITH ITS OWN SPECIFICATIONS AND DRAWINGS AND SUCH PLANT & MACHINERY HAS BEEN PROCURED IN SUBSEQUENT FINANCIAL YEAR. THE LEARNED AR FURTHER SUBMITTED THAT ASSESSEE HAS PLA CED ORDERS FOR PROCUREMENT OF VARIOUS PLANT & MACHINERY AND ALSO S TARTED DRAWING AND DESIGN WORK FOR THIS PURPOSE AND IT HAS PAID SA LARY AND OTHER EXPENDITURE TO VARIOUS STAFF INVOLVED IN EXECUTION OF THE PROJECT. MOREOVER, ASSESSEE HAS SET UP ITS BUSINESS AND STA RTED ACTIVITY FOR 6 ITA NO.87/CHNY/2019 INSTALLATION OF PLANT & MACHINERY REQUIRED FOR BUSI NESS ACTIVITIES AND ONCE, IT HAS STARTED ITS ACTIVITIES IT CAN BE SAI D TO HAVE COMMENCED BUSINESS AND RELATED EXPENDITURE IN THE NATURE OF R EVENUE EXPENDITURE CAN BE ALLOWED AS DEDUCTION. IN THIS R EGARD, LEARNED AR HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF M/S. CAREFOUR WC & C INDIA P.LTD VS. DCIT RE PORTED IN 368 ITR 692 (DEL). 6. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T ASSESSING OFFICER HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT ASSESSEE HAS NOT EVEN PURCHASED BASIC MACHINERY FOR TRIAL RUN DU RING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2013-14, WHICH ITSELF IS SUFFICIENT TO PROVE AND HOLD THAT BUSINESS WAS NOT COMMENCED FOR THE IMPUGNED ASSESSMENT YEAR AND HENCE, QUESTION OF DI SALLOWANCE OF EXPENDITURE DOES NOT ARISE. 7. WE HAVE HEARD BOTH PARTIES, PERUSED MATERIAL AVA ILABLE ON RECORD AND GONE THROUGH ORDERS OF AUTHORITIES BELOW . THE TERM SET UP OF BUSINESS AND COMMENCEMENT OF BUSINESS ARE TWO DIFFERENT EVENTS. IF AN ASSESSEE HAS SET UP BUSINESS, EVEN I F THE BUSINESS WAS NOT COMMENCED DURING THE RELEVANT FINANCIAL YEA R, THEN 7 ITA NO.87/CHNY/2019 NECESSARY REVENUE EXPENDITURE INCURRED FOR THE PURP OSE OF BUSINESS CAN BE ALLOWED AS DEDUCTION. BUT, IN ORDER TO DECID E WHETHER BUSINESS HAS BEEN SET UP OR NOT VARIOUS FACTS HAS T O BE EXAMINED INCLUDING NATURE OF BUSINESS CARRIED ON BY ASSESSEE . IN A CASE WHERE ASSESSEE IS INVOLVED IN BUSINESS OF MANUFACT URING OF ANY GOODS OR ARTICLES, BUSINESS CAN BE SAID TO HAVE COM MENCED ONLY, IF THE ASSESSEE HAS INSTALLED NECESSARY PLANT & MACH INERY REQUIRED FOR MANUFACTURING OF GOODS OR ARTICLES. IN A CASE, WHERE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING, THEN BUSINESS C AN BE SAID TO HAVE COMMENCED OR SET UP IF THE ASSESSEE HAS START ED PROCESS OF TAKING PREMISES, EMPLOYING STAFF AND OTHER FACILITI ES. THEREFORE, BASED ON UNIVERSAL PRINCIPLE, IT CANNOT BE SAID THA T BUSINESS HAS BEEN SET UP OR COMMENCED. IN THIS CASE, ASSESSEE I S INVOLVED IN THE BUSINESS OF MANUFACTURING MOULD HANDLING LINES AND SHOT BLASTING MACHINES. FOR THE IMPUGNED ASSESSMENT YEA R, ASSESSEE HAS NOT EVEN SET UP ITS PLANT & MACHINERY REQUIRED FOR MANUFACTURING OF GOODS OR ARTICLES WHICH IS EVIDENT FROM THE FACT THAT ASSESSEE HAS PLACED ORDER FOR PURCHASE OF MACHINERY ON10.10.201 2, AS PER SAID PURCHASE ORDER DELIVERY OF SUCH MACHINERY IS DUE ON 20.08.2013, WHICH IS NOT COMING UNDER THE IMPUGNED ASSESSMENT YEAR . 8 ITA NO.87/CHNY/2019 THEREFORE, IT IS DIFFICULT TO COME TO THE CONCLUSIO N THAT ASSESSEE HAS SET UP OR COMMENCED ITS BUSINESS ACTIVITIES FOR THE IMPUGNED ASSESSMENT YEAR . FURTHER IT IS WELL SETTLED PRINCI PLE OF LAW THAT UNLESS BUSINESS IS SET UP ALL EXPENDITURE INCURRED IN RELATION TO SAID BUSINESS HAVE TO BE CAPITALIZED TILL BUSINESS ACTIV ITY IS COMMENCED. UNLESS ASSESSEE HAS SET UP ITS BUSINESS ACTIVITY, THEN NO EXPENDITURE CAN BE ALLOWED AS REVENUE EXPENDITURE. SINCE ASSESSEE HAS NOT FILED ANY EVIDENCES TO PROVE THAT IT HAS SET UP ITS BUSINESS ACTIVITY, EXPENDITURE DEBITED INTO PROFIT AND LOSS ACCOUNT INCLUDING DEPRECIATION ON ASSET CANNOT BE ALLOWED A S DEDUCTION. AS REGARDS CASE LAW RELIED UPON BY THE ASSESSEE IN T HE CASE OF M/S. CAREFOUR WC & C INDIA P.LTD VS. DCIT (SUPRA), WE FIND THAT FACTS BEFORE THE HONBLE HIGH COURT OF DELHI WAS ON THE C ONTEXT OF THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING AC TIVITIES WHERE ASSESSEE COMPANY HAS RENTED OUT OFFICE PREMISES, O PENED BANK ACCOUNT, APPOINTED EMPLOYEES AND GOT REGISTERED UND ER SHOP & ESTABLISHMENT ACT AND UNDER THOSE FACTS, THE HONBL E HIGH COURT HELD THAT ONCE ASSESSEE HAD RENTED OUT OFFICE PREM ISES AND EMPLOYED STAFF, BUSINESS OF THE ASSESSEE SAID TO HAVE BEEN SET UP AND EXPENDITURE THEREOF WERE ALLOWABLE AS REVENUE E XPENDITURE. IN 9 ITA NO.87/CHNY/2019 THIS CASE, ASSESSEE IS INVOLVED IN MANUFACTURING A CTIVITY AND PLANT & MACHINERY REQUIRED FOR MANUFACTURING ACTIVITY WAS N OT SET UP FOR IMPUGNED ASSESSMENT YEAR AND HENCE, IT IS VERY DIF FICULT TO AGREE WITH THE CONTENTION OF THE ASSESSEE THAT BUSINESS OF ASSESSEE WAS SAID TO HAVE BEEN COMMENCED, WHEN IT HAS PLACED OR DERS FOR PROCURING PLANT & MACHINERY. THE LEARNED CIT(A), AF TER CONSIDERING RELEVANT FACTS HAS RIGHTLY CONFIRMED ADDITIONS MADE BY ASSESSING OFFICER TOWARDS DISALLOWANCE OF EXPENDITURE DEBITE D INTO PROFIT AND LOSS ACCOUNT. WE DO NOT FIND ANY ERROR IN FINDINGS OF LEARNED CIT(A) AND HENCE, WE DISMISS THE APPEAL FILED BY THE ASSES SEE . 8. IN THE RESULT, APPEAL FILED BY ASSESSEE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2020 SD/- SD/- ( ) ( . ) (MAHAVIR SINGH) (G. MANJUNATHA ) / VICE-PRESIDENT $ / ACCOUNTANT MEMBER & /CHENNAI, ' /DATED 29 TH DECEMBER, 2020 DS )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /GF .