TaxTMI 
TaxTMI 
2018 (8) TMI 262
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....oceedings, it was noted by the learned Assessing Officer that the assessee had not started its commercial operations. As per the learned Assessing Officer, the assessee was only in the process of setting up a manufacturing facility and operationalising such facility with the support of its group companies. During the relevant previous year, the assessee was allotted 379.75 acres by SIPCOT Industrial Growth Centre, at Oragadam. The learned Assessing Officer noted that the assessee was in the process of registering and executing the lease deed. A show-cause notice was issued to the assessee, proposing a disallowance of expenditure claimed by the assessee since it was still to set up its manufacturing facility. Such notice ran on the following lines: "It is seen from the financial statements and documents that you have not commenced your commercial operations (manufacture and sale of commercial vehicle). You are involved only in activities towards setting up of your facility and operation with the support of your group companies. In the significant account policy and notes to account, it was stated that the 'company is set up for designing, manufacturing, distributing, se....
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....erations. As per the learned Assessing Officer, the assessee was not eligible to claim expenditure incurred prior to the start of its commercial operation. He disallowed the following expenditure claimed by the assessee. Operating expenses: 19,39,47,503 Financial expenses: 1,46,26,492 Depreciation: 46,19,716 Thus, an addition of Rs. 21,31,93,711 was made to the returned loss of Rs. 40,60,20,032 and assessment completed accordingly. 4. The assessee's appeal before the learned Commissioner of Income-tax (Appeals) was successful. As per the learned Commissioner of Income-tax (Appeals) there were two limbs for the activities undertaken by the assessee based on its memorandum of association. First of these, as per the learned Commissioner of Income-tax (Appeals) was setting up of a manufacturing facility for commercial vehicles and second was importing and selling readymade commercial vehicles. According to the learned Commissioner of Income-tax (Appeals), under the first limb of activity, the assessee had developed prototypes, ....
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....ity and research and development. The learned Commissioner of Income-tax (Appeals) also took into consideration earning of income from the activity of sourcing, which was identified as a separate line of business, for which approval was obtained by the assessee from the Foreign Investment Promotion Board (FIPB). Due note was also taken by the learned Commissioner of Income-tax (Appeals) of certificate of commencement of business issued by the Registrar of Companies on December 18, 2007. Further, as per the learned Commissioner of Income- tax (Appeals) the learned Assessing Officer, had allowed loss to be carried forward and had begun his computation from the loss returned by the assessee in its profit and loss account. According to the learned Commissioner of Income-tax (Appeals) the learned Assessing Officer, having allowed a carry forward claim of loss under the head "Income from business or profession" could not say that the assessee had not commenced its commercial operations. He thus deleted the disallowance made by the learned Assessing Officer. 6. Now before us, the learned Departmental representative strongly assailing the order of the learned Commissioner of Income-tax ....
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....2009-10 had reached a finality, and the view taken by the learned Assessing Officer that the assessee had commenced its business in the said assessment could not be altered in the subsequent year. 8. Alluding to the nature of expenditure disallowed, the learned authorised representative pointed out that none of such expenditure related to the manufacturing facility being set up by the assessee. Relying on schedule 12 of the audited final accounts, the learned authorised representative submitted that whole of the operating expenditure of Rs. 19,39,47,503 which was disallowed by the learned Assessing Officer did not relate to the setting up of any manufacturing facility. As per the learned authorised representative, the assessee-company was incorporated for designing, manufacturing, distributing, selling, sourcing, providing engineering services and research and development of commercial vehicles and related products and components for domestic Indian and overseas markets. The contention of the learned authorised representative was that the assessee had already started doing research and development design work and had also sold an imported Mitubishi fuso bus. Thus, according to t....
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.... Electronics Ltd. [2013] 356 ITR 354 (Delhi) Carefour WC and C India (P.) Ltd. v. Deputy CIT [2014] 368 ITR 692 (Delhi) CIT v. Franco Tosi Ingegneria [2000] 241 ITR 268 (Mad) CIT v. Club Resorts (P.) Ltd. [2006] 287 ITR 552 (Mad) ITO v. Great Sea Trawlers Building Yard Mandapam Ltd. [1982] 14 TTJ 307 (ITAT-Mad) 10. Ad libitum reply of the learned Departmental representative was that land on which manufacturing facility was to be set up itself was in the process of being acquired, and the assessee could not say that prototypes of vehicles were already tested. Further, according to her, the only trading done by the assessee was sale of one solitary bus which was given to it free of cost by somebody abroad. This would not, according to her, mean that the assessee had set up its business. 11. We have considered the rival contentions and perused the orders of the authorities below. The case of the assessee is that it was pursuing a bucket of activities connected to its main object, which inter alia included research and development, designing, manufacturing and selling of commercial vehicles. As per the learned authorised representative, the assessee had alre....
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....ered by the assessee itself as revenue arising from any commercial operation. Reason why the assessee deemed so is clear from note No. 9 of its "significant accounting policies" which read as under : "9. During the year, the company has imported Mitubishi Fuso Diesel Engine Bus free of cost form from Mitusubish Fuso Truck Bus Corporation, Japan and sold it in the Indian market. Revenue repre sents the sale of such truck, net of sales tax." 12. Another facet of the argument of the learned authorised representative is that the assessee though it had not yet started commercial production, had already undertaken research and development activities, tested protypes and procured components. However, the expenditure incurred by the assessee given in schedule 12 of its audited final accounts do not show any purchase of components. Schedule 4 of its final accounts which gives the break-up of the expenditure capitalised during the relevant previous year reads as under : Description As at April 1, 2009 Incurred during the year Construction in progress ....
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....nbsp; 6,328,102 8,589,091 Insurance 2,900,531 1,16,560 Staff Welfare 2,881,169 12,631,676 Power and fuel &....
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.... in such land during relevant previous year. 13. Coming to the aspect of sale of a bus which was given free of cost by a company abroad, such a solitary transaction cannot in our opinion, be construed as start of commercial operations. As to the nature of "other income" of Rs. 4,94,54,084 cited by the learned authorised representative as an evidence for setting up the business, the items constituting such "other income" as it appear in schedule 11 of its final accounts is reproduced hereunder : Interest on deposits (tax deducted at source B57,512 ( previous year B34,372) 489,574 233,888 Profit on sale of mutual fund investments ---- 41,173,270 Dividend income from mutual fund investments 20,761,394 15,715,403 Foreign exchange gain (net) 22,375,644 --- Miscellaneous income 5,827,472 92,837 49,454,084 57,215,398 Neither the solitary sale of a bus nor the other income, in our opinion can substantiate the claim of the assessee that its business was set up. 14. Coming to the reliance placed on the assessment for the immediately preceding assessment year, it is true that reopening which was attempted, w....
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....same and only in that said document, it has been stated that production has not commenced. I am unable to countenance the submission of the learned counsel for more than one reason. Firstly, assessment proceedings are not a one way proceedings, even in the case of the assessee, the Assessing Officer while completing the regular assess ment, called for details and documents which were furnished by the assessee. As held by the hon'ble Supreme Court in Calcutta Discount Co. Ltd. v. ITO reported in [1961] 41 ITR 191 (SC), nothing more is required on the part of the assessee except to furnish all material facts. There is sufficient indication to show that the Assessing Officer considered the order passed by the Transfer Pricing Officer. This would be sufficient to hold that the materials which were placed in Form 3CES, resulting in an order dated December 27, 2012, was part of the assessment file, perused by the Assessing Officer, but for which he would not have referred to the same in paragraph 2. Even assum ing the Assessing Officer did not look into Form 3CES. he is bound to look into the order passed by the Transfer Pricing Officer, as he is required to see any other additions h....
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....ere was no full and true disclosure and the reopening is based on the materials available on record i.e., in the return of income filed by the assessee for the relevant assessment year and based on such material, reopening could not have been done as it has been held that infor mation received by the Assessing Officer, after the completion of the assessment alone is sound foundation for exercising power under section 147 read with section 148 of the Act.'' Their Lordships had invalidated the reopening attempted for the assessment year 2009-10, taking a view that it was on a change of opinion, and not due to any failure of the assessee to make a true and full disclo sure. The judgment, in our opinion does not say that the assessee had set up its business during the previous year relevant to the assessment year 2009-10. In our opinion just for a reason that the learned Assessing Officer accepted the contention of the assessee in the earlier year on a wrong foot ing would not be a reason to accept the claim that rule of res-judicata would apply, when facts show a totally different scenario. 15. As to the various judgments relied on by the learned authorised represe....