2015 (10) TMI 73 - AT - Income Tax

Disallowance of depreciation - whether the business of the assessee was set up as on 31st March, 2005? - Held that - In the case on hand the Revenue is not disputing the fact that the assessee has sold goods worth ₹ 698.70 on 28.3.2005. The assessee has filed both excise records as well as sales tax records, as evidence of sale. This evidence is not controverted by the Ld.D.R. except for some that these are self-serving documents. In our view the assessee has effectively replied to the issues raised by Ld.AO. Records were produced to demonstrate payments made to the contractors for construction of the building. It was also demonstrated that the assessee had two large generators of 500 KVA and that these generators were run for substantive number of hours and that there was substantial consumption of fuel. There is no denying of the fact that the trial run production was carried out by the assessee. There was a pilot lot of goods produced by the assessee and there was also a sale of goods produced by the assessee. Except for finding fault with the evidences produced by the assessee, there is no material with Revenue to controvert the stand of the assessee. Thus in our considered view, once we have come to a conclusion that the assessee s business was set up prior to 31st March, 2005 and that the plant and machinery were ready to use and that the trial run has been carried out, we have to accept the contention of the assessee that the disallowance of depreciation and business loss by the AO, as confirmed by the First Appellate Authority is erroneous. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of depreciation claimed by the appellant.
2. Disallowance of business loss suffered by the appellant.

Issue 1: Disallowance of Depreciation
The appeal was filed against the order of the Ld. CIT (A) confirming the disallowance of depreciation claimed by the appellant. The Assessing Officer (AO) rejected the claim stating that the manufacturing activity had not commenced. The AO listed various reasons for disallowing the claim, including the absence of production records, wages register, electricity connection, and evidence of machinery installation. The First Appellate Authority also upheld the disallowance, emphasizing the lack of evidence supporting the readiness of machinery for use. The appellant argued that construction of the factory and machinery installation were completed, supported by various documents. The appellant also presented excise duty and VAT-related evidence. The Tribunal observed that the Revenue did not dispute the sale of goods by the appellant on a specific date. It noted that the appellant had provided evidence of payments to contractors, generator usage, and trial production. The Tribunal concluded that the business was set up, machinery was ready for use, and trial runs had been conducted, leading to the allowance of depreciation.

Issue 2: Disallowance of Business Loss
The second ground of appeal related to the disallowance of business loss suffered by the appellant. The AO and the First Appellate Authority disallowed the business loss claim due to the alleged non-commencement of manufacturing activity. The appellant contended that the machinery was ready for use, supported by evidence of construction completion and machinery installation. The appellant also highlighted excise duty and VAT records to substantiate sales. The Tribunal noted the appellant's production of evidence regarding construction, generator usage, and trial production. It found that the appellant had successfully demonstrated the readiness of the business, machinery, and trial production. Consequently, the disallowance of business loss was deemed erroneous, and the appeal was allowed in favor of the appellant.

In conclusion, the Tribunal allowed the appeal of the appellant, overturning the disallowance of depreciation and business loss. The decision was based on the establishment of the business setup, readiness of machinery, and conduct of trial production by the appellant, as evidenced through various documents and records.