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2012 (12) TMI 748 - AT - Income TaxEligibility of deduction u/s. 80IC(2) - Initial Assessment Year - Held that - Accepting to the issue that commercial production and not trial production determines the beginning of manufacture or production of articles or things. However when actual production has began and sales has also been effected of manufactured goods and there is no sales return that such production is still a trial production just because the consent order from the Pollution Control Board Assam has not been received to begin the manufacture or produce any articles or things or commences operation as required u/s. 80IC is unsustainable. The facts in the present case clearly show that the assessee has began to manufacture the calcinated petroleum coke using the raw material of petroleum coke before 31-3-06 and the sale of finished products would clearly establishes the commencement of operation. In the circumstances initial assessment year for the assessee to claim deduction u/s. 80IC(2) is the year 31-3-96 relevant to the AY 1996-97. Coming to the claim of the assessee that it has capitalized the expenditure till 18-9-96 and the same has also been accepted by the revenue not convinced by the said claim as nothing stopped the assessee from claiming expenditure thereto as a revenue expenditure. There is no assessment order for the AY 1996-97 or 1997-98 specifically accepting the claim of the assessee. Further there is also no scrutiny assessment order accepting the claim of the assessee that the initial AY in the case of the assessee for claiming of deduction u/s. 80IC is the AY 1997-98. In the circumstances the initial assessment year for the assessee for claiming of deduction u/s. 80IC(2) is held as the assessment year 1996-97. Consequently the assessee would not be entitled to claim of deduction u/s.80IC(2) for the impugned AY 2006-07. In the circumstances the finding of CIT(A) stands reversed and that of the AO restored - in favour of revenue.
Issues Involved:
1. Deletion of addition of Rs. 4,87,82,530/- considering the initial assessment year. 2. Violation of Rule 46A of the Income Tax Rules, 1962 by admitting fresh evidence at the appellate stage. Issue-wise Detailed Analysis: 1. Deletion of Addition Considering Initial Assessment Year: The primary issue revolves around the determination of the "initial assessment year" for the purpose of claiming deduction under Section 80IC(2) of the Income Tax Act. The Assessing Officer (AO) denied the deduction for the assessment year (AY) 2006-07 on the grounds that the assessee commenced manufacturing in February 1996, making the initial AY 1996-97, thus ending eligibility in AY 2005-06. The AO's stance was supported by the assessee's letter to the Superintendent of Central Excise, confirming the start of trial production on 5-2-96, and financial records showing significant sales and raw material consumption in AY 1996-97. The Commissioner of Income-tax (Appeals) [CIT(A)] ruled that the initial AY should be 1997-98, based on the assessee's claim that commercial production started in September 1996, supported by a certificate from the Pollution Control Board, Assam dated 19-9-96. The CIT(A) accepted the assessee's position that the trial production and related sales before this date were part of construction and erection activities. The Tribunal, however, disagreed with the CIT(A). It emphasized the substantial raw material consumption and sales during the trial production period, indicating that the assessee had effectively commenced commercial operations before 31-3-96. The Tribunal noted the absence of sales returns and the fact that the assessee had applied for the Pollution Control Board's consent as early as 29-12-95. The Tribunal concluded that the initial AY for claiming deduction under Section 80IC(2) was 1996-97, not 1997-98, thus the assessee was not entitled to the deduction for AY 2006-07. The Tribunal reversed the CIT(A)'s order and restored the AO's decision. 2. Violation of Rule 46A by Admitting Fresh Evidence: The second issue pertains to the alleged violation of Rule 46A of the Income Tax Rules, 1962, by the CIT(A) in admitting fresh evidence during the appellate stage. The revenue argued that the CIT(A) had improperly considered new evidence, including various letters and orders from the Central Excise and Pollution Control Board, which were not presented before the AO. The Tribunal noted that the CIT(A) had indeed relied on fresh evidence that was not part of the original assessment proceedings. This was seen as a clear violation of Rule 46A, which restricts the admission of additional evidence at the appellate stage without providing the AO an opportunity to examine it. The Tribunal thus found merit in the revenue's contention and upheld the objection, further supporting the decision to reverse the CIT(A)'s order. Conclusion: The Tribunal allowed the revenue's appeal, determining that the initial assessment year for the assessee was AY 1996-97, thereby disqualifying the assessee from claiming the deduction under Section 80IC(2) for AY 2006-07. The Tribunal also upheld the revenue's objection regarding the violation of Rule 46A by the CIT(A) in admitting fresh evidence. The appeal of the revenue was thus allowed in full.
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