Gujarat State Fertilisers & Chemicals Ltd.,, v. THE DY,CIT, CIRCLE-1,,

ITA 3490/AHD/2003 | 2000-2001
Pronouncement Date: 17-09-2010 | Result: Partly Allowed

Appeal Details

RSA Number 349020514 RSA 2003
Bench Ahmedabad
Appeal Number ITA 3490/AHD/2003
Duration Of Justice 7 year(s) 5 day(s)
Appellant Gujarat State Fertilisers & Chemicals Ltd.,,
Respondent THE DY,CIT, CIRCLE-1,,
Appeal Type Income Tax Appeal
Pronouncement Date 17-09-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 17-09-2010
Date Of Final Hearing 12-08-2010
Next Hearing Date 12-08-2010
Assessment Year 2000-2001
Appeal Filed On 11-09-2003
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH JM AND D.C.AGRAWAL AM GUJARAT STATE FERTILIZERS & CHEMICALS LTD. PO- FERTILIZERNAGAR-391 750 DIST. VADODARA. VS. DY. CIT CIRCLE-1 BARODA. (APPELLANT) .. (RESPONDENT) AND DY. CIT CIRCLE-1 BARODA. VS. GUJARAT STATE FERTILIZERS & CHEMICALS LTD. PO- FERTILIZERNAGAR-391 750 DIST. VADODARA. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI J. P. SHAH AR REVENUEBY:- SHRI ALOK JOHRI CIT DR O R D E R PER D. C. AGRAWAL ACCOUNTANT MEMBER . THESE ARE TWO CROSS APPEALS ONE FILED BY THE ASSES SEE AND THE OTHER BY THE REVENUE FOR ASST. YEAR 2000-01. THEY ARE TAK EN UP TOGETHER FOR THE SAKE OF CONVENIENCE. ITA NO.3490/AHD/2003 ASST. YEAR :2000-01 ITA NO.3743/AHD/2003 ASST. YEAR :2000-01 ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- (1) THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME-LAX (APPEALS) IS ERRONEOUS ON FACTS AND CONTRARY TO THE PROVISIONS OF LAW AND THEREFORE REQUIRES LO BE SUITABLY MODIFIED. IT IS SUBMITTED THAT IT BE SO DONE NOW (2) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.20 5 1 000/- BEING EXPENSES INCURRED ON ABANDONED PROJECT - ACRYLON NI TRIC PROJECT WRITTEN OFF. YOUR APPELLANT SUBMITS THAT THE EXPEND ITURE HAS BEEN INCURRED IN CONNECTION WITH THE EXPANSION OF BUSINE SS/SAME BUSINESS. YOUR APPELLANT SUBMITS THAT IN THE FACTS AND CIRCUMSTANCES AS THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF EXPANSION OF BUSINESS/ SAME BUSINESS THE SAME I S FULLY ALLOWABLE AS DEDUCTION. IT IS SUBMITTED THAT IT BE SO HELD NOW. WITHOUT PREJUDICE TO THE ABOVE IT IS SUBMITTED 'HA T THE EXPENSES INCURRED ON ABANDONED ACRVLON NITRIC PROJECT BEING BUSINESS LOSS INCURRED BY YOUR APPELLANT THE SAME SHOULD BE ALLO WED WHILE COMPUTING THE INCOME. (3) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN NOT ALLOWING THE CLAIM OF DEDUCTION FOR THE SUBSIDY REC EIVED RS.60.22 CRORES CREDITED TO PROFIT AND LOSS A/C BUT EVENTUA LLY WAS REPAYABLE AND REPAID TO GOVERNMENT IN ASST. YEAR 2001-02 DUE TO REDUCTION IN SUBSIDY ON ACCOUNT OF REVISION IN RETENTION PRIC E. YOUR APPELLANT SUBMITS THAT IN THE FACTS AND CIRCUMSTANCES THE LE ARNED CIT(A) OUGHT TO HAVE ALLOWED THE CHUM FOR DEDUCTION OF THE AMOUNT OF SUBSIDY RECOVERED BY THE GOVERNMENT. YOUR APPELLANT SUBMITS THAT DEDUCTION FOR THE SUBSIDY RECOVERED BY THE GOVERNME NT BE GRANTED NOW BECAUSE SUCH SUBSIDY RECEIPT WAS RIOT THE REAL INCOME OF THE ASSESSEE. (4) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN NOT ALLOWING THE CLAIM OF DEPRECIATION ON THE PLANT AND MACHINERY AND OTHER ASSETS USED FOR THE TRIAL RUN PRODUCTION IN A MMONIA PLANT- IV. YOUR APPELLANT SUBMITS THAT IN THE FACTS AND CI RCUMSTANCES OF ITS CASE THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED THE CLAIM OF DEPRECIATION AS IT HAS FULFILLED ALL THE CONDITIONS LAID DOWN U/S. 32 ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 3 OF THE INCOME-TAX ACT 1961 YOUR APPELLANT SUBMITS THAT DEPRECIATION AS CLAIMED BE ALLOWED NOW. (5) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN NOT ENTERTAINING THE ADDITIONAL GROUND OF APPEAL FILED BY YOUR APPELLANT IN RESPECT OF CLAIM OF DEDUCTION FOR THE SUBSIDY RE CEIVED RS.4 51 CRORES CREDITED TO PROFIT AND LOSS A/C. BUT EVENTUA LLY WAS REPAYABLE AND REPAID TO GOVERNMENT IN ASST. YEAR 2003-04 DUE TO REDUCTION M SUBSIDY ON ACCOUNT OF REVISION IN RETENTION PRICE . YOUR APPELLANT SUBMITS THAT IN THE FILERS AND CIRCUMSTANCES THE L EARNED C1T(A) OUGHT TO HAVE ENTERTAINED THE ADDITIONAL GROUND OF APPEAL AND ALLOWED THE CLAIM FOR DEDUCTION OF THE AMOUNT OF SU BSIDY RECOVERED BY THE GOVERNMENT. YOUR APPELLANT SUBMITS THAT ADDI TIONAL GROUND OF APPEAL BE ADMITTED AND DEDUCTION FOR THE SUBSIDY RECOVERED BY THE GOVERNMENT BE GRANTED NOW BECAUSE SUCH SUBSIDY RECEIPT WAS NOT THE REAL INCOME OF THE ASSESSED WHEREAS THE REVENUE HAS RAISED THE FOLLOWING GROUND S IN ITS APPEAL:- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A)-I BARODA HAS ERRED IN DELETING THE FOLLOWING : I) INCOME FROM SALE OF AMMONIA OF RS.1673450000/- II) INCOME FROM OTHER SALE OF AMMONIA RS 318919000/ - III) FORFEITURE OF SHARE CAPITAL RS.413000/- IV) RELEASE OF WATER ETC. RS.10743000/- V) EXPENDITURE ON FIRE FIGHTING EQUIPMENTS ETC. RS .9325000/- (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LAW THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF TH E ASSESSING OFFICER. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING FERTILIZERS AND CHEMICALS . ASSESSEES APPEAL 4. GROUND NO.1 IN ASSESSEES APPEAL IS GENERAL IN N ATURE AND HENCE REJECTED. ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 4 5. GROUND NO.2 IN ASSESSEES APPEAL RELATES TO CLAI M OF EXPENSES OF RS.20 51 000/- INCURRED ON ABANDONED PROJECT ACRYL ON NITRIC PROJECT WHICH WAS WRITTEN OFF. THE FACTS RELATING TO THIS I SSUE ARE THAT THE ASSESSEE CLAIMED AN EXPENDITURE OF RS.20.51 LACS IN RESPECT OF ACRYLON NITRIC PROJECT WHICH WAS INITIATED AT DAHEJ AS A JOINT VEN TURE WITH M/S MODI RUBBER LTD. FOR THIS PURPOSE ASSESSEE COMPANY FLOAT ED ANOTHER COMPANY NAMED AS GUJARAT ACRYLICS LTD. AS PER SHARE HOLDERS AGREEMENT COMPLETED ON 6.1.1995 COST AND EXPENDITURE IN THE P ROJECT INCURRED UPTO 31.12.1994 WAS TO BE BORNE BY THE RESPECTIVE PARTIE S EXCEPT THE FEES PAYABLE TO AN ITALIAN CONCERN. THE ITALIAN CONCERN WAS ENGAGED FOR PREPARING FEASIBILITY REPORT. THE ASSESSEE COMPANY INCURRED UPTO 31.12.1994 AN EXPENDITURE OF RS.20 50 939/-. THE OT HER PARTNER IN THE JOINT VENTURE REQUIRED THE PROJECT TO BE SHIFTED TO HALDIA FROM DAHEJ TO WHICH ASSESSEE COMPANY DID NOT AGREE AND ACCORDINGL Y ASSESSEE DECIDED TO ABANDON THE PROJECT AND CLAIMED THE EXPENDITURE AS REVENUE EXPENDITURE. THE AO DISALLOWED THE CLAIM ON THE GRO UND THAT ALL THE EXPENDITURE HAVE BEEN INCURRED FOR SETTING UP OF A NEW PROJECT WHICH WAS ABANDONED MID-WAY. THIS BUSINESS WAS NOT COMMENCED AND THEREFORE EXPENDITURE CANNOT BE ALLOWED UNLESS THERE IS SOME RELATABLE INCOME. ACCORDINGLY HE PROPOSED AN ADDITION OF RS.20.51 LAC S. THE LD. CIT(A) CONFIRMED THE ADDITION BY HOLDING THAT THE EXPENDIT URE WAS INCURRED ON AN ENTIRELY NEW PROJECT FOR WHICH SEPARATE FACILITI ES WERE TO BE CREATED AND IT WAS NOT LINKED TO ANY OF THE ALREADY EXISTIN G UNITS. THUS IT IS NOT AN EXTENSION OF THE BUSINESS. SINCE THE BUSINESS DID N OT COMMENCE OR ABANDONED IN MID-WAY NO CLAIM IS ALLOWABLE UNDER TH E HEAD BUSINESS INCOME. 6. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT BY IN CURRING EXPENDITURE ASSESSEE HAS NOT CREATED ANY ASSET. THE ASSESSEE IS ALREADY IN THE BUSINESS ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 5 OF CHEMICALS AND FERTILIZERS AND LARGE NUMBER OF PR ODUCTS ARE MANUFACTURED BY IT. THE EXPENDITURE WAS INCURRED TO CREATE A UNIT UNDER THE SAME MANAGEMENT AND CONTROL. THE EXPENDITURE WA S INCURRED FOR BUSINESS PURPOSES FOR EXPANDING ITS BUSINESS THERE FORE IT IS ALLOWABLE UNDER SECTION 37(1). THE LD. AR FOR THE ASSESSEE RE LIED ON THE FOLLOWING JUDGMENTS:- (1) CIT VS. ESCORTS AUTO COMPONENTS LTD. (2010) 323 ITR 11 (P& H) IT WAS LAID DOWN BY HON. PUNJAB & HARYANA HIGH COUR T IN THAT CASE THAT WHERE NO NEW ASSET IS CREATED EXPENDITURE SO INCUR RED WOULD BE REVENUE. HON. HIGH COURT IN THIS REGARD HELD AS UNDER :- THAT MERELY BECAUSE THE ASSESSEE HAD DECLARED BY G IVING A NOTE IN ITS ORIGINAL RETURN THAT IT WAS AN EXPENDITURE PERTAINI NG TO NEW PROJECT AND WAS OF CAPITAL IN NATURE THE ASSESSING OFFICER COU LD NOT HAVE TREATED IT AS CAPITAL EXPENDITURE. THE ASSESSING OFFICER SIMPLY P LACED RELIANCE ON THE NOTE GIVEN BY THE ASSESSEE IN ITS ORIGINAL RETURN WHICH HAD BEEN REGARDED AS INSUFFICIENT. MOREOVER UNDER SECTION 139(5) OF THE ACT THE ASSESSEE WAS ENTITLED TO FILE THE REVISED RETURN RECTIFYING THE ERROR COMMITTED IN SHOWING THE EXPENDITURE. MOREOVER THE FINDING OF T HE TRIBUNAL THAT THE EXPENDITURE INCURRED WAS REVENUE EXPENDITURE AND/OR FOR BUSINESS PURPOSE HAD NOT BEEN CHALLENGED NOR WAS THERE ANY CHALLENGE TO THE FINDING THAT NO CAPITAL ASSET HAD COME INTO EXISTEN CE. IT WAS FOUND AS A FACT THAT THE EXPENDITURE BY THE ASSESSEE WAS INCUR RED ON SALARIES WAGES TRAVELLING EXPENSES AND NO QUESTION OF LAW AROSE FO R DETERMINATION. (2) JAY ENGINEERING WORKS LTD. VS. CIT (2009) 311 I TR 405 IT WAS HELD THEREIN THAT WHERE CONTROL OVER THE TWO VENTURES WAS IN THE SAME MANAGEMENT AND ADMINISTRATION AND NEW VENTURE WAS MANAGED FROM COMMON FUNDS THERE WAS INTERCONNECTION INTERD EPENDENCE AND INTERLACING OF THE TWO VENTURES. THEREFORE IT CANN OT BE SAID THAT A NEW PROJECT WAS COMING INTO EXISTENCE. IT WAS ONLY AN EXTENSION OF THE ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 6 EXISTING BUSINESS OF THE ASSESSEE AND THEREFORE E XPENDITURE INCURRED ON NEW PROJECT IS REVENUE EXPENDITURE. (3) EXCEL INDUSTRIES LTD. VS. DCIT (2004) 86 TTJ (M UMBAI) 840 IT IS HELD THEREIN THAT WHERE PROJECT EXPENSES ARE WRITTEN OFF AND CONCERNED PROJECT WAS UNDERTAKEN IN THE COURSE OF E XISTING BUSINESS AND WAS NOT A DIFFERENT OR NEW PROJECT AND THE PROJECT IS ABANDONED DURING THE RELEVANT PREVIOUS YEAR AS IT WAS FOUND COMMERCIALLY UNVIABLE THAN LOSS INCURRED WOULD BE REVENUE LOSS. (4) INDO RAMA SYNTHETICS (I) LTD. VS. CIT (2009) 18 5 TAXMAN 277 IT WAS HELD THEREIN THAT WHERE PROJECT IS ABANDONED AND NO NEW ASSET CAME TO BE CREATED EXPENDITURE IN THE NATURE OF SA LARY WAGES REPAIRS MAINTENANCE DESIGN AND ENGINEERING FEE ETC. INCUR RED ON THE PROPOSED UNIT CONSTITUTED REVENUE EXPENDITURE. (5) ONGC VIDESH LTD. VS. DCIT (2010) 127 TTJ (DEL) 497 IT IS HELD THEREIN THAT EXPENDITURE INCURRED PERTAI NING TO ABANDONING THE PROJECT WOULD BE REVENUE EXPENDITURE. WHERE ASSESS EE IS ENGAGED IN THE BUSINESS OF EXPLORATION AND PRODUCTION OF OIL AND C LAIMED DEDUCTION OF EXPENDITURE PERTAINING TO AN ABANDONED PROJECT IN T HE YEAR OF ITS INCURRENCE IT WOULD BE ALLOWABLE AS REVENUE EXPEN DITURE. 7. THE LD. DR ON THE OTHER HAND SUBMITTED THAT EXPE NDITURE INCURRED WAS ON FEASIBILITY REPORT. IT IS NOT SUPPORTED BY A NY OF THE JUDGMENTS CITED BY THE LD. AR AS FACTS ARE DIFFERENT. FURTHER IT WA S NOT AN EXTENSION OF THE BUSINESS OF THE ASSESSEE. ASSESSEE HAD FLOATED A NE W COMPANY GUJARAT ACRYLIC LTD. AND WAS A JOINT VENTURE WITH MODI RUB BER LTD. THEREFORE IT ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 7 WAS A NEW PROJECT AND THEREFORE WOULD BE CAPITAL IF THE PROJECT IS ABANDONED. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW WHAT IS TO BE SEE N IS WHETHER ASSESSEE IS ABLE TO START A NEW PROJECT. IF ASSESSEE IS NOT IN THE LINE OF BUSINESS AND INCURS EXPENDITURE ON SETTING UP OF BUSINESS WHICH BUSINESS IS SUBSEQUENTLY ABANDONED THEN SUCH EXPENDITURE CANNOT BE ALLOWED AS THERE IS NO BUSINESS IN EXISTENCE. WHERE THE ASSESS EE IS ALREADY IN THE BUSINESS THEN CREATING ANOTHER UNIT WILL ONLY BE AN EXTENSION OF BUSINESS. IF ASSESSEE WOULD HAVE SUCCEEDED IN CREATING AN ASS ET AND ESTABLISHED THE PROJECT THE EXPENDITURE SO INCURRED WOULD HAVE TO B E CAPITALIZED WITH RESPECT TO THAT PROJECT BUT SO LONG PROJECT DOES NO T SEE THE LIGHT AND NO NEW ASSET IS CREATED THEN WHATEVER EXPENDITURE IS I NCURRED BY THE ASSESSEE IT WOULD BE ALLOWABLE EXPENDITURE OF THE EXISTING BUSINESS. BIFURCATION OF EXPENDITURE FROM THE EXISTING BUSINE SS TO THE NEW PROJECT WOULD COME ONLY WHEN NEW PROJECT COMES INTO EXISTEN CE .IF IT DOES NOT IT REMAINED THE BUSINESS EXPENDITURE OF THE EXISTIN G BUSINESS. HOWEVER CERTAIN FACTS ARE NOT CLEAR IN THIS CASE. ASSESSEE HAS FLOATED A COMPANY GUJARAT ACRYLIC LTD. AND WITH JOINT VENTURE WITH M ODI RUBBER LTD. THE TWO COMPANIES WOULD HAVE FLOATED THEIR SHARES CREA TED CAPITAL AND WOULD HAVE INCURRED EXPENDITURE OUT OF SUCH CAPITAL. IT H AS TO BE ENQUIRED INTO BY THE AO AS TO WHETHER EXPENDITURE SO CLAIMED WAS ACTUALLY INCURRED OR IN FACT WAS INCURRED BY THE GUJARAT ACRYLIC LTD. IF IT WAS INCURRED BY GUJARAT ACRYLIC LTD. THEN THIS CANNOT BE ALLOWED IN THE CASE OF THE ASSESSEE. THE MODE OF PAYMENT AND TIME OF PAYMENT THE CREATION OF COMPANY GUJARAT ACRYLIC LTD. WHO MADE THE PAYMENT AND TO WHOM FOR WHICH EXPENDITURE WAS CLAIMED IS REQUIRED TO BE EXA MINED. IF EXPENDITURE WAS INCURRED BY THE PRESENT ASSESSEE AND WAS REALLY ATTRIBUTED TO IT AND ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 8 NOT MERELY A TRANSFER ENTRY FROM GUJARAT ACRYLIC LT D. TO THE ASSESSEE THEN CLAIM SHOULD BE ALLOWED BUT WHERE IT WAS ORIGINALLY INCURRED BY THE NEW ENTITY AND ON ABANDONING THE PROJECT IT WAS SHIFTE D TO THE ASSESSEE COMPANY THEN SUCH EXPENDITURE CANNOT BE ALLOWED. FO R THE LIMITED PURPOSE WE RESTORE THIS ISSUE TO THE FILE OF AO. T HIS GROUND OF ASSESSEE IS ALLOWED BUT FOR STATISTICAL PURPOSES. 9. GROUND NO.3 RELATES TO SUBSIDY OF RS.60.22 CRORE S. THIS GROUND IS NOT PRESSED HENCE IT IS REJECTED. 10. GROUND NO.4 RELATES TO DEPRECIATION ON PLANT AN D MACHINERY. WE HAVE HEARD THE PARTIES. THIS ISSUE IS COVERED IN FA VOUR OF ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ITA NO.3228/AHD/2003 FO R ASST. YEAR 1999- 2000 IN ASSESSEES OWN CASE AS PER PARA 7 TO 7.3 A S UNDER :- 7. AS REGARDS ISSUE OF DEPRECIATION RAISED IN GROU ND NO.3 IN THE APPEAL OF THE ASSESSEE THE LD. CIT(A) WHILE DISTING UISHING THE DECISION OF THE HON. JURISDICTIONAL HIGH COURT IN THE CASE OF A SHIMA SYNTEX LTD. (SUPRA) HELD THAT THE PRESENT CASE IS DIFFERENT FRO M THAT OF ASHIMA SYNTEX LTD. WHERE THE MACHINES INSTALLED WORKED IMMEDIATEL Y AND STRICTLY THERE WAS NO TRIAL RUN AS SUCH IN THE CASE OF M/S GSFC R ETRIAL RUN HAS CONTINUED FOR OVER TWO YEARS AND THEREFORE THE ASS ESSEE CANNOT CLAIM THE BENEFIT OF DEPRECIATION DURING THIS PERIOD THE LD. CIT(A) CONCLUDED. APPARENTLY THE LD. CIT(A) UPHELD THE DISALLOWANCE OF CLAIM OF DEPRECIATION HOLDING THAT MACHINERY USED FOR TRIAL RUNS IS NOT USED WITHIN THE MEANING OF PROVISIONS OF SEC.32 OF THE ACT. WE ARE OF THE OPINION THAT USER OF THE MACHINERY IN TEST PRODUCTION OR EXPERIM ENTAL MANUFACTURE WAS STILL USER FOR THE PURPOSES OF THE ASSESSEES B USINESS. WE ARE SUPPORTED IN OUR VIEW BY THE DECISION OF HON. MADRA S HIGH COURT IN THE CASE OF V. RAMAKRISHNA AND SONS LTD. VS. CIT (1984) 149 ITR 554 (MAD). 7.1 IN CIT VS. UNION CARBIDE (I) LTD. (2002) 254 IT R 488 (CAL) HON. HIGH COURT HELD THAT IT IS ONE THING FOR MACHINERY TO WAIT PASSIVELY DURING THE YEAR IN QUESTION READY TO COME INTO USE COMMERCIALLY AT ANY TIME ALTHOUGH IT MIGHT ACTUALLY NOT HAVE BEEN USED BECAUSE THE RUNNING UNITS RAN PERFECTLY BUT THIS IS NOT THE SAME THING AS PLANT OR MACHINERY WHICH IS BEING BROUGHT UP TO THE STATE OF ACTUALLY ACTIVE COMMERCIAL USE DURING THE YEAR WHICH IS WHOLLY SPENT IN TRIAL PRO DUCTION I.E. IN MAKING ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 9 THE MACHINERY FULLY READY FOR GENERATING PROJECTED COMMERCIAL PROFIT. IT MIGHT BE THAT THE ASSESSEES USE IS TO KEEP IT AS A STAND BY. BUT IT MIGHT BE AGAIN THAT THE ASSESSEE HAD USED IT FOR A TRIAL PRO DUCTION OR IN SOME OTHER PURPOSE FOR THE ASSESSEES BUSINESS WHICH IS NOT I MMEDIATELY PRODUCTIVE OF COMMERCIAL PROFIT. BUT THIS WOULD NOT GO AGAINST THE ASSESSEE. ONCE THE ASSESSEE CAN ESTABLISH BONA FIDE USE OF THE MACHINE RY FOR THE PURPOSE OF THE ASSESSEES BUSINESS THEN AND IN THAT EVENT TH E ASSESSEE ESTABLISHES THE ASSESSEES RIGHT TO CLAIM DEPRECIATION. HON. HI GH COURT FURTHER HELD THAT IT SOMETIMES HAPPENS THAT THE CLAIMING OF DEPR ECIATION OR INVESTMENT ALLOWANCE IS INEXTRICABLY CONNECTED WITH THE ASSESS EE COMMENCING ITS BUSINESS IN THE FIRST PLACE OF A NEW COMPANY HAS NO T COMMENCED ITS BUSINESS AT ALL IT MIGHT BE THAT THE USE MADE BY I T OF PLANT OR MACHINERY CAN BE SAID TO BE USE BY IT FOR THE PURPOSES OF ITS BUSINESS BECAUSE IT HAS NO BUSINESS AS YET. BUT SO FAR AS THE PRESENT ASSES SEE IS CONCERNED IT HAS HAD ITS BUSINESS LONG RUNNING AND THUS TRIAL PRODU CTION IS QUITE SUFFICIENT IN OUR OPINION FOR THE ASSESSEE TO CLAIM JUSTLY AN D PROPERLY DEPRECIATION. 7.2 HON. HIGH COURT ALSO OBSERVED IN THE AFORESAID DECISION THAT UNLESS THERE ARE WORDS IN THE SECTION INDICATING TH AT NOT EVERY KIND OF USE FOR THE PURPOSE OF THE BUSINESS WILL SATISFY FOR AT TRACTING ALLOWANCE IT IS NOT OPEN FOR THE REVENUE TO READ INTO THE SECTION A NY WORDS OF LIMITATION SO AS TO AFFECT THE INTEREST OF THE ASSESSEE. IT IS WITH A VIEW TO THE BUSINESS OF THE ASSESSEE THAT THE ASSESSEE USED THE MACHINER Y FOR THE PURPOSES OF ITS BUSINESS IN CAUSING THOSE TO GO INTO TRIAL PROD UCTION. IF THAT IS NOT USING THE MACHINERY FOR THE PURPOSES OF THE BUSINES S THEN HOW ELSE THE ABOVE ACTIVITY OF THE ASSESSEE CAN BE DESCRIBED IN THAT REGARD. 7.3 IN VIEW OF THE FOREGOING WE HAVE NO HESITATION IN SETTING ASIDE THE FINDINGS OF THE LD. CIT(A) IN THE MATTER OF DEPRECI ATION ON PLANT AND MACHINERY UNDER TRIAL RUNS AND ACCORDINGLY DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH THE PROVIS IONS OF SECTION 32 OF THE ACT. THUS GROUND NO.3 IN THE APPEAL OF THE ASS ESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE DECISION WE ALLOW THE CLAIM OF THE ASSESSEE. 11. GROUND NO.5 RELATES TO CLAIM OF DEDUCTION OF TH E SUBSIDY. THIS GROUND IS NOT PRESSED AND HENCE IT IS REJECTED. ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 10 12. THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLO WED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. REVENUES APPEAL 13. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. 14. GROUND NO.1(I) RELATES TO INCOME FROM SALE OF A MMONIA OF RS.1673450000/-. THE TRIBUNAL HAS DECIDED THIS ISSU E IN FAVOUR OF ASSESSEE VIDE ITS ORDER DATED 28.8.2009 IN ITA NO.3 358/AHD/2003 FOR ASST. YEAR 1999-2000 AS UNDER :- 5. THE ASSESSEE IS NOW IN APPEAL AGAINST THE REJEC TION OF THEIR CLAIM FOR DEPRECIATION IN TERMS OF GROUND NO.3 OF THE APP EAL WHILE THE REVENUE IS IN APPEAL AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A) DELETING THE AMOUNT OF RS.10 99 25 676/- AS INCOME ASSESSED UNDE R THE HEAD OTHER SOURCES. THE LD. AR ON BEHALF OF THE ASSESSEE WHIL E RELYING UPON THE DECISION OF THE HON. GUJARAT HIGH COURT IN THE CASE OF ASHIMA SYNTEX LTD. (SUPRA) SUBMITTED THAT EVEN DURING TRIAL RUN O F THE UNIT DEPRECIATION CANNOT BE DISALLOWED. ON THE OTHER HAND THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A) ON THE ISSUE OF DEPRECIA TION WHILE RELYING UPON THE ORDER OF THE AO IN RESPECT OF ASSESSMENT OF THE AMOUNT RS.10 99 25 676/- UNDER THE HEAD INCOME FROM OTHER SOURCES. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDOUBTEDLY AMMONIA-IV PLANT WAS UNDER TRIAL PRODUCTION DURING THE YEAR UNDER CONSIDERATION AND THE COMMERCIAL PRO DUCTION IS YET TO COMMENCE. THEREFORE AS CONCLUDED BY THE LD. CIT(A) THE CLAIMS HAVE TO BE CONSIDERED HOLDING THE AMMONIA-IV PLANT TO BE A T THE PRE- COMMENCEMENT STAGE. IT IS WELL SETTLED THAT UNDER T HE ACCOUNTING PRACTICES ALL EXPENDITURE INCLUDING INTEREST COST INCURRED DURING THE PROJECT CONSTRUCTION PERIOD ARE ACCUMULATED AND DIS CLOSED AS CAPITAL WORK IN PROGRESS UNTIL THE ASSETS ARE READY FOR COM MERCIAL USE. INCOME EARNED FROM INVESTMENT OF SURPLUS BORROWED FUNDS DU RING CONSTRUCTION/TRIAL RUN PERIOD IS REDUCED FROM CAPIT AL WORK IN PROGRESS FOR ACCOUNTING PURPOSES WHILE EXPENDITURE/INCOME ARISIN G DURING TRIAL RUN IS ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 11 ADDED TO/REDUCED FROM CAPITAL WORK IN PROGRESS. HON . APEX COURT IN THE CASE OF BOKARO STEEL VS. CIT 236 ITR 315 HELD THAT IF THE ASSESSEE RECEIVES ANY AMOUNT WHICH ARE INEXTRICABLY LINKED W ITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY SUCH RECEIPTS W OULD GO TO REDUCE THE COSTS OF ASSETS AND WOULD BE RECEIPT OF A CAPITAL N ATURE WHICH CANNOT BE TAXED. IN THE CASE UNDER CONSIDERATION UNDISPUTEDL Y AND AS FOUND BY THE LD. CIT(A) THE PLANT IS UNDER TESTING FOR ITS EFFIC IENCY PRIOR TO COMMENCEMENT OF COMMERCIAL PRODUCTION AND THE INPUT S AND OUTPUTS HAVE ALREADY BEEN NETTED BY GSFC AND THE NET RESULT HAS BEEN CAPITALIZED. CONSIDERING THE FACTS AND CIRCUMSTANCE S OF THE CASE AND THE GUIDELINES OF THE ICAL WE ARE IN AGREEMENT WITH TH E LD. CIT(A) THAT ANY ATTEMPT TO TAX THE PRODUCTION WHICH IS ALREADY ACC OUNTED FOR AS INPUT FOR THE FERTILIZER PLANT AND THE CAPTIVE INPUTS OF OTHE R UNITS 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 ESPECIALLY WHEN REVENUE HAV E NOT PLACED BEFORE US ANY MATERIAL CONTRARY TO THE AFORESAID FINDINGS OF THE LD. CIT(A) IN SO FAR AS ADDITION OF RS.10 99 25 676 IS CONCERNED NOR POINTED OUT ANY CONTRARY DECISION WE HAVE NO HESITATION IN UPHOLDI NG THE FINDINGS OF THE LD. CIT(A) WHILE RELYING UPON THE DECISION OF THE H ON. APEX COURT IN BOKARO STEEL LTD. THEREFORE GROUND NO.1 IN THE APP EAL OF THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TR IBUNAL WE DISMISS THIS GROUND OF REVENUE. 15. GROUND NO.1(II) RELATES TO INCOME FROM OTHER SA LE OF AMMONIA OF RS.31.89 CRORES. THIS ISSUE IS ALSO COVERED AGAINST THE REVENUE BY THE ORDER OF THE TRIBUNAL AS REFERRED TO IN PARA 14 ABO VE. ACCORDINGLY THIS GROUND OF REVENUE IS REJECTED. 16. GROUND NO.1(III) RELATES TO FORFEITURE OF SHARE CAPITAL OF RS.4 13 000/-. THIS ISSUE IS COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION IN DCIT VS. BRIJLAXMI LEASING & FINANCE L TD.(2009) 118 ITD 546 (AHD). HEAD NOTES FROM THAT DECISION ARE AS UND ER :- INCOMECAPITAL OR REVENUE RECEIPTFORFEITU RE OF SHARE APPLICATION MONEY SHARE ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 12 APPLICATION MONEY FORFEITED BY ASSESSEE IN TERMS OF PROSPECTUS AND CREDITED TO CAPITAL RESERVE ACCOUNT IS CAPITAL RECEIPT NOT CHARGEABLE TO TAXHA D THE CALL MONEY BEEN RECEIVED BY THE ASSESSEE IT WOULD HAVE DEFINITELY GONE TO THE CAPIT AL ACCOUNT OF THE ASSESSEEISSUE OF SHARES NOT BEING BUSINESS OF ASSESSEE THE AMOUNT CANNOT BE TR EATED AS RECEIPT IN THE NORMAL COURSE OF BUSINESS PRISM CERNENTS LTD. VS JT. CIT (2006) 10 3 TTJ (MUMBAI) 63 FOLLOWED; CIT VS. T.V. SUNDARAM LYENGAR & SONS LTD. (1996) 136 CTR (SC) 44 4 : (1996) 222 ITR 344 (SC) DISTINGUISHED. RESPECTFULLY FOLLOWING THE ABOVE DECISION WE REJECT THIS GROUND OF REVENUE. 17. GROUND NO.1(IV) RELATES TO RELEASE OF WATER ETC . OF RS.1 07 43 000/-. THIS GROUND IS ALSO COVERED IN FAVOUR OF THE ASSESS EE BY THE TRIBUNALS DECISION IN ITA NO.341/AHD/2003 FOR ASST. YEAR 1999 -2000 BY GUJARAT INDUSTRIAL POWER CO. LTD. VIDE ORDER DATED 31.7.200 8 AS UNDER :- 4. FIRST WE WILL DEAL WITH ASSESSEES APPEAL IN IT A NO.341/AHD/2004. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AS RE GARDS TO THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF RS.1 49 21 06 6/- ON THE EXPENDITURE INCURRED ON THE COMMON WATER SUPPLY SCH EME TREATING IT AS A CAPITAL EXPENDITURE. IT IS TO BE MENTIONED HERE THA T DURING THE COURSE OF HEARING THE LD. COUNSEL OF THE ASSESSEE STATED THAT THE CORRECT FIGURE OF DISALLOWANCE IS RS.81 81 474/- INSTEAD OF DISALLOWA NCE FIGURE NOTED BY THE AUTHORITIES BELOW AS RS.1 49 21 066/-. AFTER HE ARING THE RIVAL CONTENTIONS AND GOING THROUGH CASE RECORDS IT IS NO TICED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY ITAT DECISION IN ASSESSEES OWN CASE FOR ASST. YEAR 1996-97 TO 1998-99 VIDE ORD ER DATED 25.4.2008 IN APPEAL NO. ITA NO.1932/A/01 (ASST. YEAR 1996-97) 1541 & 1542(ASST. YEAR 97-98 & 98-99) WHEREIN THE TRIBUNAL EXACTLY O N SIMILAR FACTS (PAGE 39 & 40 PAPER BOOK HAS HELD AS UNDER :- 22. COMING TO THE PRESENT CASE IT IS AN ADMITTED FACT THAT OWNERSHIP OF WATER SUPPLY LYING AS WELL AS ELECTRIC LINE LAID DO WN BY THE GACL AND GEB RESPECTIVELY WAS TO REMAIN WITH GACL AND GEB FOR AL L TIMES TO GIVE THE EXPENDITURE INCURRED BY THE ASSESSEE THOUGH WAS TO FACILITATE THE CARRYING ON OF ITS BUSINESS BUT HAD NOT RESULTED IN ACQUISITIO N OF ANY ASSET BY THE ASSESSEE AND IF THAT IS THE CASE THEN THE ASSESSEES CASE I S SQUARELY COVERED BY THE DECISION OF HON. SUPREME COURT IN THE CASE OF EMPIR E JUTE CO. LTD. (SUPRA). 23. WE ARE FURTHER OF THE OPINION THAT THE ISSUES INVOLVED IN GROUND NO.1(III) & 1(IV) OF REVENUES APPEAL (SUPRA) IS C OVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HON. HIG H COURT OF GUJARAT IN THE CASE OF NAVSARI & COTTON SILK MILLS LTD. 135 ITR 54 6 (GUJ) (SUPRA) ALSO BECAUSE OF THE NATURE OF EXPENDITURE IN THAT CASE W HICH WAS CONTRIBUTION TOWARDS MUNICIPALITY FOR PROVIDING UNDERGROUND PIPE LINE FOR DISPOSAL OF ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 13 EFFLUENT DISCHARGED BY THE COMPANY WAS HELD TO BE REVENUE EXPENDITURE. THE ASSESSEES CASE IN OUR OPINION IS ALSO COVERED BY THE PROPOSITION OF LAW LAID DOWN BY THE HON. HIGH COURT OF GUJARAT IN THE CASE OF ALEMBIC GLASS INDUSTRIES LTD. 103 ITR 715 (GUJ) (SUPRA) WHEREIN C ONTRIBUTION MADE BY THE ALEMBIC GLASS INDUSTRIES LTD. (WHICH WAS THE MEMBER OF THE FEDERATION OF GUJARAT MILLS AND INDUSTRIES CONTRIBUTED A SUM OF R S.5 000/- FOR CONSTRUCTION OF A BUILDING AND AUDITORIUM FOR THE SAID FEDERATIO N. THE HON. HIGH COURT HELD THAT SUCH EXPENDITURE WAS ALLOWABLE AS BUSINES S EXPENDITURE AS HAVING BEEN LAID DOWN FOR THE PURPOSE OF BUSINESS BECAUSE THE ASSESSEE WOULD HAVE RECEIVED THE BENEFIT OUT OF CONSTRUCTION OF THE BUI LDING BY THE FEDERATION AS IT WOULD BE RENDERING BETTER SERVICES TO ITS MEMBERS. 24. IN VIEW OF ABOVE DISCUSSION AND VARIOUS DECISIO NS REFERRED ABOVE WE ARE OF THE OPINION THAT THE CONTRIBUTION MADE BY TH E ASSESSEE IN THE CASE TO GACL FOR WATER SUPPLY SCHEME WHICH WAS TO RESULT I N SUPPLY TO THE ASSESSEE AS WELL AS THE CONTRIBUTION TO GEB WHICH COULD RESU LT IN SUPPLY OF ELECTRICITY TO THE ASSESSEE HAD DEFINITELY FACILITATED/ENABLED THE MANAGEMENT AND CONDUCT OF THE ASSESSEES BUSINESS IN MORE EFFICIENTLY RESU LTING IN MORE PROFITABILITY WITHOUT EFFECTING ASSESSEES FIXED CAPITAL AND WITH OUT RESULTING IN ACQUISITION OF ANY CAPITAL ASSET BY THE ASSESSEE. IN OTHER WORD S THE BENEFIT DRAWN BY THE ASSESSEE EVEN IF TO BE CONSIDERED OF ENDURING NATU RE WERE ONLY TO ENHANCE THE ASSESSEES PROFITABILITY AND THEREFORE THE EXPEND ITURE INCURRED BY THE ASSESSEE WAS ON REVENUE ACCOUNT. CONSEQUENTLY WE NO T FIND ANY REASON FOR INTERFERING WITH THE ORDER OF THE CIT(A) IN RESPE CT TO THESE ISSUES ALSO. REVENUES GROUND NOS.1(III) & 1(IV) ALSO REJECTED. 5. AS THE FACTS ARE EXACTLY IDENTICAL IN THE PRESEN T YEAR ALSO AND THE EXPENDITURE IS CARRIED OVER FROM EARLIER YEARS TAK ING A CONSISTENT VIEW AND FOLLOWING THE TRIBUNALS ORDER SUPRA WE ALLOW THE CLAIM OF THE ASSESSEE AND THIS ISSUE OF THIS APPEAL OF ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THIS GROUND OF REV ENUE IS REJECTED. 18. GROUND NO.1(V) RELATES TO EXPENDITURE ON FIRE F IGHTING EQUIPMENTS ETC. OF RS.9325000/-. SIMILAR ISSUE HAD ARISEN IN T HE EARLIER ASST. YEAR AND IT WAS DECIDED IN FAVOUR OF ASSESSEE. NO APPEAL HAS BEEN FILED BY THE REVENUE. BOTH THE PARTIES ACCEPT THAT THIS ISSUE HA S BEEN SETTLED AT THE LEVEL OF CIT(A) WHEREBY IT IS DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY NO DISPUTE SURVIVES AND THEREFORE TH IS GROUND OF REVENUE IS REJECTED. ITA NOS.3490 & 3743/AHD/2003 ASST. YEAR 2000-01 14 19. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APP EAL FILED BY THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 17/9/10. SD/- SD/- (MAHAVIR SINGH) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD DATED : 17/9/10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD 1.DATE OF DICTATION 12.8.2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..