ACIT 2(3), MUMBAI v. SCIENTIFIC PRECISION P. LTD, MUMBAI

ITA 2685/MUM/2010 | 2006-2007
Pronouncement Date: 27-07-2011 | Result: Dismissed

Appeal Details

RSA Number 268519914 RSA 2010
Assessee PAN AAACS8398P
Bench Mumbai
Appeal Number ITA 2685/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 19 day(s)
Appellant ACIT 2(3), MUMBAI
Respondent SCIENTIFIC PRECISION P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted J
Tribunal Order Date 27-07-2011
Date Of Final Hearing 19-07-2011
Next Hearing Date 19-07-2011
Assessment Year 2006-2007
Appeal Filed On 07-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 2685/MUM/2010 (ASSESSMENT YEAR: 2006-07) D C I T - 2(3) M/S. SCIENTIFIC PRECISION P. LTD. ROOM NO. 55 AAYAKAR BHAVAN 411 SHAH & NAHAR WORL I INDL. MUMBAI 400020 VS. ESTATE DR. E. MOSES ROAD WORLI NAKA MUMBAI 400019 PAN - AAACS 8398 P APPELLANT RESPONDENT APPELLANT BY: SHRI S.K. SINGH RESPONDENT BY: NONE O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) VI MUMBAI DATED 08.01.2010. 2. REVENUE HAS RAISED TWO GROUNDS STATING THAT THE ASS ESSEES CLAIM OF REVENUE EXPENDITURE AND DEPRECIATION CANNOT BE ALLO WED AS THERE IS NO COMMERCIAL PRODUCTION DURING THE RELEVANT PREVIOUS YEAR. 3. BRIEFLY STATED ASSESSEE FILED RETURN OF INCOME CLA IMING LOSS OF ` 78 73 386/-. THIS LOSS IS INCLUSIVE OF EXPENSES CLA IMED OF ` 62 62 182/- AND DEPRECIATION OF ` 16 11 204/-. THE A.O. WAS OF THE VIEW THAT NO COMME RCIAL PRODUCTION HAS TAKEN PLACE IN THE ASSESSMENT YEAR THEREFORE THE EXPENDITURE WAS TO BE CAPITALISED. ACCORDINGLY HE T REATED THE EXPENDITURE AS CAPITAL EXPENDITURE AND DEPRECIATION WAS ALSO DISAL LOWED AND ADDED BACK. IT WAS CONTESTED BEFORE THE CIT(A) THAT THE A.O. DID N OT UNDERSTAND THE BUSINESS OF THE ASSESSEE WHICH HAS ALREADY COMMENCE D. THE FINAL PRODUCT OF THE COMPANY WAS VITAMIN-E PRODUCTION OF WHICH WAS A COMPLEX MATTER AND REQUIRED A NUMBER OF PROCESSES. IT WAS CLAIMED THAT THE MANUFACTURING FACILITY WAS FULLY SET UP IN THE EARLIER YEAR ITSEL F AND THE COMPANY HAD BEEN FULLY STAFFED AND WORKING IN FULL SWING. IT WAS FUR THER SUBMITTED THAT THE INSTALLED CAPACITY OF PRODUCT VITAMIN-E WAS 36 TONS OUT OF WHICH A QUANTITY ITA NO. 2685/MUM/2010 M/S. SCIENTIFIC PRECISION P. LTD. 2 OF 0.165 TON WAS PRODUCED DURING THE YEAR AND REFER RED TO SCHEDULE 16 CARRYING NOTES FORMING PARTS OF ACCOUNTS TO POINT OUT THE PRODUCTION DURING THE YEAR. IT WAS FURTHER SUBMITTED THAT THE EXPENSE S WERE INCURRED FOR MANUFACTURING PURPOSES AND THE EXPENDITURE WAS REVE NUE IN NATURE. IN SUPPORT OF THE CLAIMS ASSESSEE SUBMITTED VARIOUS R EGISTRATIONS WITH AUTHORITIES WHICH WERE DETAILED IN PARA 4.2.5 OF TH E CIT(A)S ORDER. CONSEQUENT TO THAT THE CIT(A) ALLOWED THE CLAIM AS UNDER: - 4.3 I HAVE CONSIDERED THE FACTS OF THE ISSUE AS WE LL AS WRITTEN SUBMISSIONS FILED BY THE AR. WHILE THE SUBMISSIONS MADE BY THE AR AND THE DOCUMENTS FILED IN THE PAPER BOOK CLEARLY B RING OUT THE FACT THAT THE APPELLANT WAS INVOLVED IN THE PRODUCTION A CTIVITY AND SOME PRODUCTION HAD ALSO BEEN REPORTED IN THE FINAL ACCO UNTS OF THE APPELLANT. THUS IT COULD NOT BE SAID THAT THE APPE LLANT HAD NOT STARTED ITS BUSINESS. BESIDES THE AO COULD NOT HAV E DISALLOWED THE ENTIRE EXPENDITURE INCLUDING THE EXPENDITURE STATUT ORILY REQUIRED TO BE INCURRED FOR THE CORPORATE EXISTENCE OF THE APPELLA NT COMPANY. THE APPELLANT HAVING ESTABLISHED THE EXISTENCE OF BUSIN ESS/PRODUCTION DURING THE YEAR UNDER CONSIDERATION ALL THE RELEVA NT EXPENDITURE HAS TO BE ALLOWED DURING THE YEAR ALTHOUGH THERE MAY B E NO SALE. HOWEVER THE EXPENDITURE RELATING TO THE RESEARCH A MOUNTING TO RS.38 33 701/- IS CLEARLY AN EXPENDITURE WHICH COUL D NOT BE STATED TO BE REVENUE IN NATURE. THE RESEARCH ACTIVITY IS A LO NG DRAWN PROCESS INVOLVING HUGE EXPENDITURE WHICH WOULD RESULT IN CR EATION OF AN ASSET OF ENDURING BENEFIT IN THE NATURE OF THE FINAL RESU LT OF SUCH RESEARCH ACTIVITY. HENCE THIS EXPENDITURE IS HELD TO BE CAP ITAL IN NATURE. HOWEVER THE REMAINING EXPENDITURE CLAIMED IN THE P &L ACCOUNT BEING ADMINISTRATIVE AND OTHER EXPENSES AS WELL AS PERSONNEL EXPENSES ARE HEREBY ALLOWED AS DEDUCTION TO THE APP ELLANT. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4. CONSEQUENT TO THE ABOVE FINDING THE CIT(A) ALSO DIR ECTED THE A.O. TO ALLOW THE DEPRECIATION AS CLAIMED ON THE BUSINESS A SSETS. REVENUE IS AGGRIEVED ON THE ABOVE ORDER ALLOWING TWO AMOUNTS O F REVENUE EXPENDITURE OF ` 24 28 481/ AND DEPRECIATION OF ` 16 11 204/- AND RAISED THE GROUNDS ACCORDINGLY. 5. ASSESSEE WAS NOT REPRESENTED BY ANYBODY NOR THERE W AS ANY REQUEST FOR ADJOURNMENT. THE LEARNED D.R. ALSO COULD NOT IN FORM WHETHER THERE IS ANY CROSS APPEAL PENDING. AS SEEN FROM THE ORDER OF THE CIT(A) THE ISSUES WHICH ARE AGITATED IN REVENUES APPEAL HAS NO BEARI NG ON THE OTHER ISSUE ON WHICH THE CIT(A) HAS NOT GIVEN ANY RELIEF. IN VIEW OF THIS THE APPEAL IS TAKEN UP FOR HEARING AND DECIDED ON MERITS EXPARTE RESPON DENT. ITA NO. 2685/MUM/2010 M/S. SCIENTIFIC PRECISION P. LTD. 3 6. AFTER HEARING THE LEARNED D.R. WHO RELIED ON THE O RDER OF THE A.O. WE ARE OF THE OPINION THAT THERE IS NO REASON TO DIFFE R FROM THE FINDINGS OF THE CIT(A). AS SEEN FROM THE ASSESSMENT ORDER ASSESSEE HAS FURNISHED VARIOUS DETAILS ON RECORD AND A.O. ALSO MENTIONED IN THE BO DY OF THE ORDER THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURING OF TOCOPHEROL VITAMIN-E AND MIXTURE OF TOCOPHEROL. JUS T BECAUSE THERE WERE NO SALES DURING THE YEAR IT CANNOT BE STATED THAT ASSESSEE HAS NOT COMMENCED BUSINESS ACTIVITY. ASSESSING OFFICERS RE ASON IN DISALLOWING THE EXPENDITURE IS THAT THERE IS NO COMMERCIAL PRODUCTI ON. IT WAS NOT THE CASE OF THE A.O. THAT THE BUSINESS HAS NOT COMMENCED AS THE RE WAS PRODUCTION DURING THE YEAR USING BUSINESS ASSETS AND MANPOWER. IN VIEW OF THE CLEAR FINDINGS OF THE CIT(A) ON THE BASIS OF THE EVIDENCE S PLACED BEFORE HIM WE ARE OF THE OPINION THAT ASSESSEE HAS STARTED BUSINESS A CTIVITY AND THERE IS NO REASON TO DISALLOW THE EXPENDITURE AND DEPRECIATION BY THE A.O. WHICH ARE IN DISPUTE BEFORE US. WE UPHOLD THE ORDER OF THE CI T(A). ACCORDINGLY BOTH GROUNDS ARE REJECTED. 7. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JULY 2011. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 27 TH JULY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VI MUMBAI 4. THE CIT II MUMBAI CITY 5. THE DR J BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.