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TMI Blog2016 (2) TMI 745X X X X Extracts X X X X X X X X Extracts X X X X ..... e income of the assessee has been offered to tax or not. So for this purpose we are restoring the file to the AO with the direction to check whether the income of the assessee has been disclosed in the subsequent year or not. If yes then delete the addition made by the assessee. - Decided in favour of assessee for statistical purposes. - ITA No.1194/Kol /2010 - - - Dated:- 20-1-2016 - Shri Mahavir Singh, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Appellant : Shri Somnath Ghosh, Advocate For The Respondent : Shri Debasish Banerjee, JCIT-SR-DR ORDER PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals)-XXXV, Kolkata in appeal No.34/CIT(A)- XXXVI/Kol/Ward-12(3)/06-07 dated 19.03.2010. Assessment was framed by ITO Ward-12(3), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 29.12.2006 for assessment year 2004-05 and the assessee raised the following grounds:- 1. FOR THAT the Ld. Commissioner of Income Tax (Appeals) XXXVI, Kolkata acted unlawfully and with material irregularity in upholding the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the concerned assessment year without judiciously considering the reconciliation submitted in this regard by the appellant and the purported action on that count is thoroughly unjust, improper and unsustainable in law. 2. The first issue raised by the assessee in this appeal is that the ld. CIT(A) erred in treating the receipt of ₹3,17,02,632/- from trial run of berth hire charges as business income. 3. The facts of the case are that the assessee is a Private Ltd. Company which is engaged in the business of port development and inter alia has income from the activity of cargo handling and berth hire charge. The assessee was awarded a contract to build a berth no. 4A at Haldia Dock Complex. As per the contract the assessee was to conduct the trial run of the port before the start of commercial operation. The assessee began the trial run on the date 7-12-2003 and ended on dated 13-01-2004. The actual commercial operation started immediately after the successful completion of trial run on dated 15.01.2004. During the trial run, assessee has earned income for cargo handling charges of ₹ 3,00,18,070/- and ₹ 16,84,562/- for berth hire charges (total ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as taxable income. Accordingly the ground No.2 is dismissed. Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us. Shri Samnath Ghosh, Ld. Authorized Representative appearing on behalf of assessee and Shri Debasish Banerjee, Ld. Departmental Representative appearing on behalf of Revenue. 8. We have heard rival contentions of both the parties and perused the materials available on record. The ld. AR submitted the paper book which is running from pages 1 to 113 and highlighted that to make the berth ready for commercial operations the assessee was to undertake the responsibility of completing the work in accordance to the agreement of building the berth 4A. As per the agreement trial run was the pre-condition before the start of the commercial operation. The assessee treated the trial run of vessels as preoperative handling of the plant and income generated from such preoperative handling has been treated as preoperative income . In the books of account of the assessee for the previous year relevant to the assessment year under dispute, such preoperative income has been set off against the preoperative expenses of ₹ 3,17,02,632/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation during trial run was incidental to the building of assets for setting up the Berth. Therefore, income earned during preoperative stage was a capital receipt, which would go to reduce the cost of asset and it is settled that the deposit of money was directly linked with the purchase of plant and machinery. Hence, any income earned on such deposits was incidental to the acquisition of assessee for setting up the plant and machinery. Thus, the interest was a capital receipt which would go to reduce the cost of the asset and Ld AR relied on the decision of Hon ble Supreme Court in the case of CIT v. Karnal Co-operative Sugar Mills Ltd. (2000) 243 ITR 2 (SC) and C.I.T. Vs. Bokaro Steel Limited. (1999) 236 ITR 315 (SC) 9. From the aforesaid discussion, we find that the assessee has made some income during the period of trial run and the same was adjusted against the pre-operative expenses. The AO rejected the working of assessee and held that the income generated during the trial run income period cannot be adjusted against the preoperative expenses and the same was confirmed by the Ld. CIT(A). However, we observe that it was the condition in the agreement that the trial run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner (Appeals) confirmed the order of the Assessing Officer but the Tribunal reversed that order holding that section 80-IA/80-IB of the Act being beneficial legislation, the benefit should be extended to the assessee. It further held that as on March 20,1998, only trial production started which was different from commercial production and the benefit of that section should be allowed in the year in which commercial production started, i.e. in the assessment year 1999-2000 and, therefore, would be extendable up to the assessment year 2003-04. On appeal : Held, that the initial assessment year, for the purpose of section 80-IA, was the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things . The trial production began on March 20, 1998, as per the details given in the audit report furnished by the assessee along with its returns of income for the assessment years 2003-04 and 2004-05. There was no dispute that the first sale was made on April 23,1998, which would be the period relevant to the assessment year 1999-2000. Merely because some closing stock was shown as on March 31, 1998, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he word articles used in the expression has begun or begins to manufacture or produce articles in section 15C(2)(ii) must be interpreted regard being had to the object for which the section was enacted. The provision was enacted with a view to encouraging the establishment of new industrial undertakings and the object was sought to be achieved by granting exemption from tax on profits derived from such undertakings during the first five years. The object of the section presupposes that profits are capable of being earned. Hence, until an assessee reaches a stage where it is in a position to decide that a final product which can be ultimately sold in the market can be manufactured it cannot be said to have started manufacture of the articles. If it becomes necessary for an assessee to produce a trial product at an earlier stage to verify whether it can be used ultimately in the manufacture of the final article, the commencement of operation for the manufacture of the trial product would not constitute commencement of manufacture of articles for the purposes of section 15C. The assessee-company undertook a project for the manufacture of penicillin. It started actual operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of 1 Interest other that interest on 72,685 14,901 Union Bank of India 2 -do- 58,536 12,000 -do- 3 Port payment 4,98,489 10,218 Intro shipping 4 Payment to Contractor 11,99,98,606 24,59,977 SAIL 5 -do- 2,46,500 5,160 Chowringhee 6 -do- 2,01,322 4,214 7 -do- 1,46,750 3,071 -do- 8 -do- 1,39,050 2,910 -do- Total 12,13,61,939 25,12,451 25,12,451 The AO sough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding of the Ld. Assessing officer on the issue of discrepancy of ₹ 2,22,23,527/- is simply an issue which arose from a future imagination. It was apprised that Steel Authority of India, the contractor had deducted tax on the total payment made to the appellant which was shown by the appellant as Work-in-progress. It was also apprised to the Ld. Assessing Officer that the same was duly disclosed in the subsequent assessment year 2005-2006. However, the Ld. Assessing officer did not enquire about the veracity of the explanation furnished by the appellant. It was his view that, such sum was not offered as income by the appellant in its Profit Loss Account and accordingly the impugned amount is liable to be considered as income for the assessment year under dispute. The approach of the Ld. Assessing Officer in this respect is one sided. It is axiomatic that when there was difference with the figures of a party with that of the assessee, it was the duty of the Ld. Assessing officer to provide opportunity to the appellant to resolve any alleged discrepancy. As a result, the approach of the Ld. Assessing officer was contrary to law and as such, the addition made on the specious ..... X X X X Extracts X X X X X X X X Extracts X X X X
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