M/s. Solaris Bio Chemicals Ltd., New Delhi v. ITO, New Delhi

ITA 3218/DEL/2010 | 2003-2004
Pronouncement Date: 16-12-2011 | Result: Allowed

Appeal Details

RSA Number 321820114 RSA 2010
Assessee PAN AABCB7121R
Bench Delhi
Appeal Number ITA 3218/DEL/2010
Duration Of Justice 1 year(s) 5 month(s) 16 day(s)
Appellant M/s. Solaris Bio Chemicals Ltd., New Delhi
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 16-12-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 16-12-2011
Date Of Final Hearing 30-11-2011
Next Hearing Date 30-11-2011
Assessment Year 2003-2004
Appeal Filed On 30-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI G BENC H BEFORE SHRI RAJPAL YADAV JM & SHRI A.N. PAHUJA AM ITA NO.3218/D/2010 ASSESSMENT YEAR:2003-04 M/S. SOLARIS CHEMTECH INDUSTRIES LTD. (FORMERLY KNOWN AS SOLARIS BIO CHEMICALS LTD.) THAPAR HOUSE 124 JANPATH NEW DELHI V/S . INCOME TAX OFFICER WARD 9 (1) NEW DELHI [PAN:AABCB 7121 R] (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI SUNIL ARORA & MS.AMANDEEP KANODIA ARS REVENUE BY SMT. S. MOHANTY DR DATE OF HEARING 30-11-2011 DATE OF PRONOUNCEMENT 16-12-2011 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 30 TH JUNE 2010 BY THE ASSESSEE AGAINST AN ORDER DATED 19 TH FEBRUARY 2010 OF THE LEARNED CIT(A)-XII NEW DEL HI RAISES THE FOLLOWING GROUNDS:- 1 THE LEARNED CIT(A) HAS GROSSLY ERRED IN NOT ACCE PTING THE FINANCIAL RESULTS OF THE COMPANY WHICH WERE AS PER THE RECOGNIZED ACCOUNTING POLICIES AND STANDARDS PRESCR IBED BY THE ICAI IN TREATING /THE ENTIRE EXPENSES NOT OF IN COME ON TRIAL PRODUCTION AS CAPITAL WORK IN PROGRESS. 2 WITHOUT PREJUDICE TO GROUND NO.1 ABOVE THE LEARN ED CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ESTIMATED REVEN UE EXPENDITURE ` `371 501 251 (I.E. 99.5% OF SALE ` ` 373 368 091 (OUT OF TRIAL RUN PRODUCTION QUANTITY) INSTEAD OF A CTUAL AMOUNT INCURRED BY THE APPELLANT COMPANY AMOUNTING TO ` `648 727 055 FOR THE YEAR UNDER CONSIDERATION. 3 WITHOUT PREJUDICE TO GROUND NO.1 AND 2 ABOVE THE LEARNED CIT(A) WAS WRONG IN NOT ALLOWING ANY DEPRECIATION O N FIXED ASSETS USED FOR TRIAL RUN PRODUCTION WHEREAS SHE HA S I.T.A. NO.3218/D/2010 2 ESTIMATED INCOME ` ` 1 866 840 ON THE REPORTED SALE OF ` `373 368 091 INCLUDED UNDER TRIAL RUN EXPENDITURE. 4 WITHOUT PREJUDICE TO GROUND NO.1 TO 3 ABOVE THE LEARNED CIT(A) WAS WRONG IN ESTIMATING INCOME AT ` `1 866 840/- INSTEAD OF ALLOWING LOSS OF ` ` 265 020 052 AND UNABSORBED DEPRECIATION OF ` ` 162 662 308/- CONSIDERING THE WORK IN PROGRESS ` ` 167 773 337 (INCLUSIVE OF DIRECT AND INDIRECT EXPENDITURE AS REDUCED BY SALE AND STOCK) RELATING TO PRECEDING ASSESSMENT YEAR WHICH WAS USED FOR TRIAL RUN PRODUCTION FOR THE YEAR UNDER APPEAL. 5 WITHOUT PREJUDICE TO GROUND NO.4 THE LEARNED CIT (A) HAS GROSSLY ERRED IN DISALLOWING THE TRIAL RUN EXPENDIT URE OF ` `167 773 337 (OUT OF TOTAL EXPENDITURE ` `46 98 37 969) RELATING TO THE PRECEDING ASSESSMENT YEAR 2002-03. 6 THAT THE ORDERS PASSED BY LEARNED CIT(A) WITHOUT APPLICATION OF MIND AND WITHOUT CONSIDERING ALL THE GROUNDS OF APPEAL. 7 THAT THE ORDER IS OTHERWISE BAD IN LAW. 8 THE APPELLANT PRAYS FOR LEAVE TO ADD AMEND ALTE R OR WITHDRAW ANY GROUNDS OF APPEAL. 2. FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THA T RETURN DECLARING NIL INCOME FILED ON 28 TH NOVEMBER 2003 BY THE ASSESSEE MANUFACTURING CITR IC ACID AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS SELECTED FOR SCRUTINY W ITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE COMPANY WAS INITIALLY INCORPORATED IN THE NAME OF M/S BILT BIOCHEMICALS L TD. ON 1.6.2001 IN PURSUANT TO A SCHEME OF ORGANIZATION BY WAY OF AMALGAMATION AND RECONSTRUCTION OF M/S BHARAT STARCH INDUSTRIES LTD.. SUBSEQUENTLY THE NA ME OF THE COMPANY WAS CHANGED TO M/S SOLARIS BIOCHEMICALS LTD. VIDE CERT IFICATE DATED 10.1.2003. THE ASSESSEE CLAIMED DURING THE COURSE OF ASSESSMENT PR OCEEDINGS THAT SINCE THE PRODUCTION DID NOT STABILIZE AT ACCEPTED TECHNOLOGI CAL STANDARDS NO PROFIT AND LOSS ACCOUNT WAS PREPARED AND ONLY TRIAL PRODUCTION WAS UNDERTAKEN. THE AO FURTHER NOTED THAT THE TRIAL RUNS COMMENCED ON 7.1 1.2001 WERE CLAIMED TO BE I.T.A. NO.3218/D/2010 3 CONTINUING IN THE YEAR UNDER CONSIDERATION EVEN WHE N SALES OF ` 37 33 68 091/- WERE MADE DURING THE YEAR UNDER CONSIDERATION WITH DOMESTIC SALES OF ` `34 56 81 771/- AND EXPORTS OF ` `2 76 86 320/- . TOTAL PRODUCTION OF CITRIC ACID DURING THE YEAR WAS 7626MT AS AGAINST 1708 MT IN TH E PRECEDING YEAR. TO A QUERY BY THE AO SEEKING JUSTIFICATION OF TRIAL RUN S AND ALLOWABILITY OF PREOPERATIVE EXPENSES IN THE YEAR UNDER CONSIDERATION THE ASSES SEE CONTENDED THAT FOLLOWING RECOGNIZED ACCOUNTING POLICIES AND STANDARDS PRESCR IBED BY THE ICAI ENTIRE EXPENSES ON TRIAL PRODUCTION WERE CAPITALISED .WHIL E REFERRING TO PARA 11.4 OF THE GUIDANCE NOTE ON TREATMENT OF EXPENDITURE DURING TH E CONSTRUCTION PERIOD THE ASSESSEE CLAIMED THAT SINCE THE PRODUCT WAS NOT OF PHARMACOPOEIA STANDARDS THE PLANT COULD NOT COMMENCE COMMERCIAL PRODUCTION. INTER ALIA THE ASSESSEE RELIED UPON DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. FOOD SPECIALITIES LTD. 136 ITR 203(DEL.). AFTER OBTAININ G THE DETAILS OF EXPENSES(PG. 3 OF THE ASSESSMENT ORDER) DURING THE TRIAL RUNS THE AO OBSERVED THAT PLANT AND MACHINERY HAD ALREADY BEEN SET UP AND PERIOD OF CON STRUCTION WAS OVER BEFORE THE PRODUCTION STARTED IN THE PLANT. WHILE DISTINGU ISHING THE DECISION IN FOOD SPECIALITIES LTD.(SUPRA) AND REFERRING TO PARA 11 O F THE GUIDANCE NOTE ON TREATMENT OF EXPENDITURE DURING THE CONSTRUCTION PE RIOD THE AO OBSERVED THAT SALE OF MORE THAN ` 37 CRORES COULD NOT BE SAID TO BE SOME INCOME AS ME NTIONED IN THE GUIDANCE NOTE ESPECIALLY WHEN THE ASSESSEE PAID EXCISE DUTY AND SALES TAX ON THE PRODUCT MANUFACTURED AND SOLD. SINCE TH E ASSESSEE DID NOT PRODUCE RELEVANT BOOKS OF ACCOUNTS & VOUCHERS BEFORE THE AO NOR COULD RECONCILE WORK- IN- PROGRESS ON ACCOUNT OF MACHINERY OR BUILDING VI S--VIS EXPENSES AND NOR EVEN ADDUCED REASONS FOR CLAIMING DEPRECIATION EVEN DURING TRIAL RUNS WHILE PROFIT AND LOSS ACCOUNT WAS NOT PREPARED BY THE ASSESSEE THE AO DISALLOWED PRE- OPERATIVE EXPENSES OF ` 46 98 37 969/- AND ACCORDINGLY ESTIMATED NET PROFI T @ 0.5% ON SALES OF ` 37 33 68 091/- RESULTING IN ASSESSMENT ON AN INCO ME OF ` 18 66 840/-. INTER ALIA THE AO RELIED UPON DECISIO N IN CIT VS. CELLULOSE PRODUCTS OF INDIA LIMITED. 192 ITR 155(SC). I.T.A. NO.3218/D/2010 4 3. ON APPEAL THE LD. CIT(A) UPHELD THE FINDINGS O F THE AO IN THE FOLLOWING TERMS:- DURING THE COURSE OF APPELLATE PROCEEDINGS EXCISE INVOICE CUM DELIVERY CHALLAN WERE SOUGHT. PERUSAL OF THESE AT RANDOM REVEALS THAT VIDE THE SAID DOCUMENT IN JULY 2002 THE ASSE SSEE COMPANY EXPORTED TO MAURITIUS CCA AND GRANULAR AND VIDE INV OICE NO.1259 DT. 1 ST JULY 2002 IT SOLD CAM GRANULAR TO M/S ANIL JAIN R OOK CHEMICALS IN KHARI BAWALI. DURING THE APPELLATE PR OCEEDINGS THE AR HAS EXPLAINED THAT THE TERMS CCA MEANS CITRIC AC ID A.N. HYDRATE AND THE TERM CITRIC ACID MONO-HYDRATE. IN OTHER WORDS THE ASSESSEES CLAIM VIDE THE GROUND OF APPEAL THAT DUE TO OPERATIONAL PROBLEMS FACED BY THE APPELLANT COMPANY REQUIRED OU TPUT OF REQUISITE QUALITY COULD NOT BE OBTAINED. THE PRODUCT OBTAINE D OUT OF TRIAL RUN COULD NOT MEET THE PHARMACOPOEIA STANDARD. HENCE THE APP ELLANT COMPANY COULD NOT MARKET THE PRODUCT AS CITRIC ACID AND CON SEQUENTLY SOLD THE ENTIRE PRODUCTION OF TRIAL RUN AS SCRAP. THE ENTIR E EXPENSES INCURRED (NET OF SALES) WERE CAPITALIZED WORK IN PROGRESS IS NOT CORRECT. BEFORE THE DEPARTMENT ASSESSEE HAS CLAIMED THAT ENT IRE PRODUCTION OUT OF TRIAL RUNS WAS SOLD AS SCRAP. HOWEVER TH E ABOVE MENTIONED DOCUMENTS ESTABLISH THAT ASSESSEE WAS SEL LING THE PRODUCT IN NATIONAL & INTERNATIONAL MARKET WHICH WA S HAVING SPECIFIED CHEMICAL NAME AND ENTITY. THEREFORE APA RT FROM THE FACT THAT THE TURNOVER WAS LARGE THOUGH BEING CLAIMED A S A SCRAP IS MORE THAN `RS.37.33 CRORES THE SAME AS PER ASSESSE ES OWN BOOKS IS ALSO BEING MARKETED AS A REGULAR PRODUCT. ASSESSING OFFICER HAS FURTHER BROUGHT ON RECORD THA T :- AS PER THE AUDIT REPORT FOR THE FINANCIAL YEAR 200 3-04 THE ASSESSEE HAS STATED THAT NO P & L A/C WAS PREPARED UP TO 31.03.2003. THE ACCUMULATED EXPENSES AMOUNTING TO RS.`46 98 37 969/- INCURRED DURING THE PERIOD OF TR IAL RUN TREATED AS PREOPERATIVE EXPENDITURE AND CAPITALIZED WITH FI XED ASSETS. IN SPITE OF OPPORTUNITIES GIVEN THE ASSESSEES AR COUL D NOT RECONCILE THE WORK IN PROGRESS (PLANT AND MACHINERY) AND WORK IN PROGRESS (BUILDING) AND HOW THE ACCUMULATED EXPENSES HAVE BE EN CAPITALIZED WITH WORK IN PROGRESS. THE BOOKS OF AC COUNTS HAVE ALSO NOT BEEN PRODUCED FOR VERIFICATION. IT WILL N OT BE OUT OF PLACE TO MENTION THAT AS PER EXPENSES INCURRED DURING THE COURSE OF TRIAL RUN AS MENTIONED ABOVE THE TOTAL WORK IN PROGRESS (PLANT AND MACHINERY) AND (BUILDING) IS RS.`21 77 07 326/- AND DIRECT EXPENDITURE IS RS.22 51 53 950/- AND INDIRECT EXPEN DITURE IS RS.22 46 84 019/- WHICH INCLUDES DEPRECIATION CLAI M OF I.T.A. NO.3218/D/2010 5 RS.`5 18 10 571/-. IT IS NOT COMPREHENSIBLE HOW AS SESSEE COMPANY HAS CLAIMED DEPRECIATION ON ONE HAND AND ON THE OTH ER HAND IT IS STATING THAT THE PRODUCTION IS A TRIAL PRODUCTION. THUS THERE IS AMBIGUITY IN THE STAND TAKEN BY THE ASSESSEE COMPAN Y AND THUS TREATING THE DIRECT AND INDIRECT EXPENDITURE TO BE CAPITALIZED WITH THE FIXED ASSETS (PLANT AND MACHINERY) AND (BUILDIN G). DURING THE COURSE OF APPELLATE PROCEEDINGS THE AS SESSEE HAS MODIFIED THE 9 TH GROUND OF APPEAL AND AR ARGUED THAT IF THE ASSESSING OFFICER INTENDED TO DISALLOW CAPITALIZATI ON THEN ONLY FOR FINANCIAL YEAR 2002-03 SHOULD HAVE BEEN DISALLOWED. VIDE MODIFIED GROUND OF APPEAL AR HAS CONTENDED TH AT SINCE THE ASSESSING OFFICER LEVIED 0.5% AS THE PROFIT ON SALE THE REMAINING AMOUNT SHOULD BE TREATED AS EXPENDITURE WHICH HAS B EEN PERMITTED BY HIM. HOWEVER THIS CONTENTION OF THE ASSESSEE IS WRONG A S THE SALES ARE BEING CLAIMED AS ALLOWABLE/ALLOWED EXPENDITURE BY T HE AR WHICH IS NOT THE INTEND OF THE ASSESSING OFFICER. THE ASSES SING OFFICER HAS BROUGHT ALL FACTS ON RECORD AND AFTER A DETAILED DI SCUSSION ON PREOPERATIVE EXPENDITURE AND CAPITALIZATION HAS ES TIMATED THE NET PROFIT OF THE ASSESSEE AT 0.5% OF THE TOTAL SALES W HICH IS EXTREMELY REASONABLE. VIDE THE ADDITIONAL GROUND OF APPEAL THIS ARGUMENT HAS BEEN FURTHER ELUCIDATED AND IT HAS BEEN STATED THAT THE ASSESSING OFFICER SHOULD HAVE ALLOWED DEPRECIATION ON TRIAL RUN EXPEN DITURE AS SHOWN IN AUDITED ACCOUNT SCHEDULE 12 OF NOTE 8. ALTERNAT IVELY THE ASSESSING OFFICER SHOULD HAVE TREATED THE SAID EXPE NDITURE ELIGIBLE FOR DEPRECIATION IN THE YEAR THEN THE SAID EXPENDIT URE WAS CAPITALIZED IN THE ACCOUNTS. VIDE ADDITIONAL GROUN D NO.4 AR HAS STATED THAT ASSESSING OFFICER SHOULD HAVE ASSESSED THE BUSINESS LOSS AND DEPRECIATION MORE PARTICULARLY WHEN INCOME AND EXPENDITURE AS REPORTED IN THE AUDITED ACCOUNTS (SC HEDULE 12 NOTE 8) HAVE BEEN TREATED AS REVENUE IN NATURE IN PLACE OF CAPITAL EXPENDITURE AS CLAIMED BY THE COMPANY. DURING THE APPELLATE PROCEEDINGS AR HAS STATED TH AT EXPENSES MAY BE ALLOWED AS REVENUE EXPENDITURE WHEREAS THE A SSESSING OFFICER HAS APPLIED A VERY REASONABLE ESTIMATED RAT E OF PROFIT AS THE ASSESSEE HAS NOT SUBMITTED ANY P&L A/C FOR A PERIOD OF TWO AND A HALF YEARS. I.T.A. NO.3218/D/2010 6 IN VIEW OF THE ABOVE DISCUSSION AND FACTS BROUGHT O N RECORD IT IS HELD THAT THE STAND OF THE ASSESSING OFFICER IS EXT REMELY REASONABLE. THE ASSESSEE HAS NOT SUBMITTED THE P&L ACCOUNT TILL DATE BEFORE THE INCOME TAX DEPARTMENT AND HAS BEEN SELLING PRODUCT IN THE MARKET FOR TWO AND A HALF YEARS NEAR LY. THE SALES ARE HUGE IN TERMS OF QUANTITY THE PRODUCT HENCE THE ST AND OF THE ASSESSING OFFICER IS CONFIRMED IN TOTO. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF O F THE ASSESSEE WHILE CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED THAT FINANCIA L STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH ACCOUNTING POLICY AND G UIDELINES LAID DOWN BY THE ICAI AND ACCORDINGLY TRIAL RUNS WERE UNDERTAKEN IN VIEW OF A NUMBER OF COMPLAINTS ABOUT THE PRODUCT. THE LEARNED AR SUBM ITTED THAT AT LEAST EXPENSES INCURRED BY THEM DURING TRIAL PRODUCTION SHOULD HAV E BEEN ALLOWED BY THE LD. CIT(A) AGAINST ESTIMATED INCOME. THE LD. AR PLEADED THAT IN FACT THE ASSESSEE INCURRED LOSS OF ` ` 30 20 64 632/- IN THE YEAR UNDER CONSIDERATION EVEN IF IT IS PRESUMED THAT THE ASSESSEE STARTED THE COMMERCIAL P RODUCTION IN THE YEAR UNDER CONSIDERATION. THE LD. AR FURTHER POINTED OUT THAT THE AO WHILE MAKING ASSESSMENT FOR THE YEAR UNDER CONSIDERATION DISALLO WED EVEN CAPITALIZATION OF EXPENSES INCURRED DURING THE PRECEDING ASSESSMENT Y EAR. THE EXPENSES OF ` `30 20 64 632/- WERE NEITHER TREATED AS REVENUE EXP ENDITURE NOR ALLOWED TO BE CARRIED FORWARD. THE LD. AR ADDED THAT ESTIMATION O F INCOME WITHOUT REJECTING THE BOOK RESULTS WAS NOT IN ACCORDANCE WITH LAW. TO A Q UERY BY THE BENCH THE LD. AR SUBMITTED THAT COMMERCIAL PRODUCTION STARTED ONLY I N THE SUCCEEDING FINANCIAL YEAR. HOWEVER HE COULD NOT GIVE THE EXACT DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION. ON THE OTHER HAND THE LD. D R SUPPORTED THE FINDINGS OF THE LD.CIT(A).AFTER DISCUSSION BOTH THE PARTIES AG REED THAT MATTER REQUIRES RECONSIDERATION BY THE AO IN THE LIGHT OF RELEVANT BOOKS OF ACCOUNTS AND RECORDS WHICH ADMITTEDLY HAVE NOT BEEN PRODUCED BEFORE THE LOWER AUTHORITIES. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE ISSUES AS TO WHETHER THE ASSESSEE UNDERTOOK TRI AL PRODUCTION OR COMMERCIAL I.T.A. NO.3218/D/2010 7 PRODUCTION AND WHEN TRIAL PRODUCTION ENDED AND COMM ERCIAL PRODUCTION STARTED ARE ESSENTIALLY QUESTION OF FACTS TO BE DECIDED ON THE BASIS OF RELEVANT BOOKS OF ACCOUNTS AND PRODUCTION RECORDS INCLUDING QUALITY C ONTROL REPORTS ETC. APART FROM DISCUSSION WITH THE CONCERNED CHEMISTS/PRODUCTION S TAFF IN THE PLANT .AS IS APPARENT FROM THE FACTS NARRATED BEFORE US ACCORDI NG TO THE ASSESSEE TRIAL RUNS FOR MANUFACTURING CITRIC ACID STATED TO HAVE COMME NCED ON 7.11.2001 CONTINUED IN THE YEAR UNDER CONSIDERATION EVEN WHEN THE ASSE SSEE MANUFACTURED 7626 MT OF CITRIC ACID AND SOLD THE SAME IN THE DOMESTIC AN D INTERNATIONAL MARKETS AS ALSO PAID EXCISE DUTY AND SALES TAX AS AGAINST PRODUCTI ON OF 1708 MT IN THE PRECEDING YEAR . INDISPUTABLY THE ASSESSEE DID NOT PRODUCE THE RELEVANT BOOKS OF ACCOUNTS AND PRODUCTION RECORDS INCLUDING QUALITY C ONTROL REPORTS ETC. EITHER BEFORE THE AO OR THE LD. CIT(A) WHILE A CLAIM WAS M ADE BEFORE THE LD. CIT(A) THAT ENTIRE PRODUCTION WAS SOLD BY WAY OF SCRAP . NO MAT ERIAL APPEARS TO HAVE BEEN PLACED BEFORE EITHER THE LOWER AUTHORITIES AND EVEN BEFORE US THAT THE GOODS MANUFACTURED BY THE ASSESSEE WERE RETURNED BY ANY OF THE BUYERS DUE TO QUALITY PROBLEMS OR WERE SOLD AS A SCRAP. THOUGH AT THE TIM E OF HEARING THE LD. AR SUBMITTED COPIES OF CORRESPONDENCE RELATING TO FE W COMPLAINTS[PG.1 TO 21] IT IS NOT KNOWN AS TO WHETHER OR NOT THESE COMPLAINTS WER E PLACED BEFORE THE LOWER AUTHORITIES NOR THE LD. CIT(A) EXAMINED THESE ASPEC TS. WE FIND THAT HE LOWER AUTHORITIES DID NOT MAKE ANY ATTEMPT TO ASCERTAIN THE INTERNATIONAL AND DOMESTIC RATES OF CITRIC ACID VIS--VIS RATES AT WHICH THE A SSESSEE SOLD ITS PRODUCTS IN ORDER TO ASCERTAIN AS TO WHETHER OR NOT THE PRODUCT MANU FACTURED BY THE ASSESSEE WAS REALLY SUBSTANDARD AS CLAIMED BY THE ASSESSEE. THE MANUFACTURE OF SUCH A PRODUCT WITHOUT THE HELP QUALITY CONTROL EXPERTS I S WELL NIGH IMPOSSIBLE. NO SUCH REPORTS ON QUALITY OF THE PRODUCT WERE EITHER PRODU CED BEFORE THE AO OR THE LD. CIT(A) AND EVEN BEFORE US. AS ALREADY STATED IN T HE YEAR UNDER CONSIDERATION DOMESTIC SALE OF ` `34 56 81 771/- AND EXPORT SALE OF ` ` 2 76 86 320/- HAVE BEEN MADE. THERE IS NO MATERIAL BEFORE US IN ORDER TO AS CERTAIN AS TO WHETHER OR NOT THE ENTIRE PRODUCTION OF 7626 MT WAS SUBSTANDARD S O AS TO NECESSITATE TRIAL PRODUCTION . HONBLE BOMBAY HIGH COURT IN CIT VS. H INDUSTAN ANTIBIOTICS LTD. 93 ITR 548 OBSERVED THAT UNTIL THE COMPANY REACHES A S TAGE WHERE IT IS IN A POSITION I.T.A. NO.3218/D/2010 8 TO DECIDE THAT A FINAL PRODUCT WHICH COULD ULTIMAT ELY BE SOLD IN THE MARKET COULD BE MANUFACTURED OR PRODUCED BY IT IT WILL BE IDLE FORMALITY TO SAY THAT IT HAD STARTED MANUFACTURE OR PRODUCTION OF ARTICLES SIMPL Y BECAUSE TRIAL PRODUCTS ARE PREPARED WITH A VIEW TO VERIFY WHETHER THEY CAN BE ULTIMATELY USED IN THE PREPARATION OR MANUFACTURE OF THE FINAL PRODUCTS. I N THE PRESENT CASE HOWEVER WE FIND THAT NO MATERIAL WHATSOEVER HAS BEEN PRODUC ED BY THE ASSESSEE BEFORE ANY OF THE INCOME-TAX AUTHORITIES AND EVEN BEFORE U S TO SHOW THAT THE PRODUCTION MADE BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATI ON WAS MERELY A TRIAL PRODUCTION AND THAT THE GOODS PRODUCED WERE NOT FOR COMMERCIAL SALE EVEN WHEN THE ASSESSEE MADE SALES IN DOMESTIC MARKET AND INTE RNATIONAL MARKET OF MORE THAT ` ` 37 CRORES. EVEN OTHERWISE THE LD. CIT(A) HAVE NOT RECORDED HER SPECIFIC FINDINGS AS TO WHEN THE TRIAL PRODUCTION ENDED AND COMMERCIAL PRODUCTION STARTED NOR ADJUDICATED EACH OF THE GROUNDS OF APPE AL OF THE ASSESSEE SEPARATELY AND NOR EVEN RECORDED HER FINDINGS ON THE DISALLOWA NCE OF EXPENDITURE CAPITALIZED IN THE PRECEDING YEAR . IN VIEW OF THE FOREGOING ESPECIALLY WHEN COMPLETE FACTS AND DOCUMENTS HAVE NOT BEEN PLACED B EFORE US WHILE THE MATTER HAS NOT BE EXAMINED BY THE LOWER AUTHORITIES IN IT S PROPER PERSPECTIVE WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE O RDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUES RAISED IN THE GROUND NOS. 1 TO 6 IN THE APPEAL AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AFTER EXAMINING ALL THE RELEVANT BOOK S OR ACCOUNTS AND RECORDS OF PRODUCTION INCLUDING QUALITY CONTROL REPORTS ETC AND OF COURSE AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. NEEDLESS T O SAY THAT WHILE REDECIDING THE ISSUES THE AO SHALL PASS A SPEAKING ORDER BRINGI NG OUT CLEARLY AS TO WHEN THE TRIAL PRODUCTION ENDED AND COMMERCIAL PRODUCTION ST ARTED. THE ASSESSEE IS ALSO DIRECTED TO CO-OPERATE IN THE ASSESSMENT AND PLACE ALL THE RELEVANT FACTS WITHIN THEIR SPECIFIC KNOWLEDGE AND PRODUCE ALL THE RELEVA NT BOOKS OF ACCOUNTS INCLUDING PRODUCTION RECORDS AND QUALITY CONTROL REPORTS BEFO RE THE AO .WITH THESE OBSERVATIONS GROUND NOS. 1 TO 6 IN THE APPEAL A RE DISPOSED OF. I.T.A. NO.3218/D/2010 9 6. GROUND NO. 7 IN THE APPEAL BEING GENERAL IN NATU RE NOR ANY SUBMISSIONS HAVING BEEN MADE BEFORE US ON THIS GROUND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO.8 IN THE APPEAL ACCORDINGLY T HESE GROUNDS ARE DISMISSED. 7. NO OTHER PLEA OR ARGUMENT WAS RAISED BEFORE U S. 8. IN RESULT APPEAL IS ALLOWED BUT FOR STATIST ICAL PURPOSES.. ORDER PRONOUNCED IN OPEN COURT SD/- SD/- (RAJPAL YADAV) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER NS COPY OF THE ORDER FORWARDED TO :- 1. M/S SOLARIS BIO CHEMICALS LTD. (KNOWN AS SOLAR IS CHEMTECH INDUSTRIES LTD.) THAPAR HOUSE 124 JANPATH NEW DELHI. 2. INCOME TAX OFFICER WARD 9 (1) NEW DELHI. 3. CIT (APPEALS)-XII NEW DELHI 4. THE CIT CONCERNED. 5. THE DR ITAT G BENCH NEW DELHI 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT DELHI