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TMI Blog2018 (8) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... d D. Praveen, Advocate- For the Respondent. ORDER The order of the Bench was pronounced by 1. Abraham P. George (Accountant Member). - In this appeal filed by the Revenue, which is directed against an order dated December 19, 2016 of the learned Commissioner of Income-tax (Appeals)-1, Chennai, it assails the direction of the learned Commissioner of Income-tax (Appeals) to allow a claim of expenditure aggregating ₹ 21.32 crores. 2. Facts apropos are that the assessee a company incorporated with the intention of designing, manufacturing and selling commercial vehicles had filed its return of income for the impugned assessment year declaring nil income. During the course of assessment proceedings, 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to him, the main revenue generating activity of the assessee was designing, manufacturing and selling commercial vehicles and not research and development. As per the learned Assessing Officer, such activity had not commenced during the relevant previous year. According to him, the assessee's activities had not reached a stage where it was in a position to procure business. The learned Assessing Officer also placed reliance on an order passed by the learned Transfer Pricing Officer on November 20, 2013 in respect of the international transactions undertaken by the assessee. It seems the learned Transfer Pricing Officer had commented that the assessee was yet to start its commercial operations. 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 ₹ 21,31,93,711 was made to the returned loss of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are complete. The learned Commissioner of Income-tax (Appeals) thus came to a conclusion that the assessee had commenced its activities in relation to design and had also undertaken pre-activities essential for commencement of manufacturing. 5. Further, as per the learned Commissioner of Income-tax (Appeals) the expenditure debited in the profit and loss account, which was disallowed by the learned Assessing Officer was not incurred for setting up of the manufacturing facility. The learned Commissioner of Income-tax (Appeals) also noted that the assessee had capitalised expenses relating to setting up manufacturing facility 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 lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such reopening was that the business of the assessee was yet to commence and the claim of expenditure was erroneously allowed. The learned authorised representative, pointed out that such reopening was assailed by the assessee through a Writ Petition No. 43435 of 2016 and WMP Nos. 37296 and 37297 of 2016, before the hon'ble jurisdictional High Court and the hon'ble jurisdictional High Court through its judgment dated January 30, 2018 quashed it. Copy of the judgment was placed on record by the learned authorised representative. Thus, according to him, the assessment done on January 24, 2013 for the assessment year 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 ₹ 19,39,47,503 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 262 (Bom) CIT v. Axis Pvt. Equity Ltd. (I. T. A. No. 1204/2014) [2017] 391 ITR 370 (Bom) CIT v. Saurashtra Cement and Chemical Industries Ltd. [1973] 91 ITR 170 (Guj) Sarabhai Management Corporation Ltd. v. CIT [1976] 102 ITR 25 (Guj) Prem Conductors Pvt. Ltd. v. CIT [1977] 108 ITR 654 (Guj) CIT v. Hughes Escorts Communications Ltd. [2009] 311 ITR 253 (Delhi) Omniglobe Information Tech India P. Ltd. v. CIT [2014] 369 ITR 1 (Delhi) CIT v. E Funds International India [2007] 162 Taxman 1 (Delhi) CIT v. ESPN Software India P. Ltd. [2008] 301 ITR 368 (Delhi) CIT v. Dhoomketu Builders and Development P. Ltd. [2014] 368 ITR 680 (Delhi) CIT v. Samsung India 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balance Carried to Balance Sheet (513.69) (353.67) Sine your company is yet to start commercial production and no revenue was generated, the company has reported a loss of 160.02 Million after tax During the year under review, your company succeeded in implanting its first footprint on Indian customers by selling imported ROSA bus manufactured by Mitsubishi FUSO Japan. Your parent company ('Daimler AG') had consolidated their truck business for India with your company because which your company takes the responsibility of marketing, sales and service of Mercedes- Benz Trucks effective from July 1, 2010. With focus on the entire Indian truck market, your company consolidates the Daimler truck business in India and offers the total product portfolio of Daimler trucks to the customers for their individual needs. Furthermore, your company will be able to offer a dedicated approach with synergies for the premium segment of heavy transportation, powered by high performance Mercedes-Benz trucks Thus, it is an admitted position that the assessee was yet to start commercial production and no revenue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,695,368 13,529,119 Depreciation 11,514,006 32,158,904 Others 13,241,660 54,044,209 Total of project development expenses 1,135,752,206 1,156,937,227 Total 2,694,407,098 2,897,698,199 There is no identifiable item shown in the profit and loss account or in the capitalised expenditure which can substantiate the claim of any research and development activity. Neither has any revenue been gener ated from the research and development activities also. The fact of the matter is that the assessee had just completed the process of registering the lease of the land and started the setting up of its plant, 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this aspect was mentioned in the return of income and duly explained in the notes to the financial statements, which forms part of the return of income and specifically dealt with by the Transfer Pricing Officer, as it was disclosed by the assessee in Form 3CEB. The Assess ing Officer issued notices under section 142(1) of the Act and called for information, which were furnished along with letter dated December 8, 2012, a brief note on the business activity of the company was furnished which shows that the petitioner was to set up a truck manufacturing facility with research and development facility activity for research and development. The Transfer Pricing Officer considered this issue and while passing the order dated December 27, 2017, specifically recorded that the commercial production proposes to start in the year 2012. This material was available and considered by the Assessing Officer as could be seen from paragraph 2 of the scrutiny assessment order dated January 24, 2013. 18. The learned senior standing counsel for the Revenue would submit that the Assessing Officer will not look into Form 3CEB and it is for the Transfer Pricing Officer, to take note of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the completion of the original assessment, the question of reopening does not arise. The conclusion arrived by the Assessing Officer in the impugned order that merely the petitioner has produced the books of account before the Assessing Officer and that there is no presumption that all the books were seen by the Assessing Officer is factually incorrect, as during the course of assessment proceedings, documents and evidence were called for from the asses see which were produced and after perusal of the same, the assess ment was completed. As pointed out in several decisions, it is for the Assessing Officer to arrive at a conclusion based on the materials produced and it is for the assessee to suggest as to what conclusion that should be arrived as it has been held that the assessee is not expected to submit a draft assessment order. 20. Thus, for all the above reasons, I am of the considered view that the impugned reopening proceedings is a clear case of change of opinion as there has been full and true disclosure by the assessee at the time of scrutiny assessment/original assessment. The Assessing Officer had no tangible material to come to a conclusion that there was no full a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and deal in portable electric tools, and tools of all kinds, implements and machinery of all kinds, vehicles of any kind, rolling stock and hardware of all kinds and the component parts thereof and accessories thereto. Concerned assessee had during the relevant previous year purchased items which could be used either for manufacture or for sales. This was the reason why their Lordships held the assessee to have commenced its busi ness. As against this, in the case before us, there is no such purchase of raw materials or components for sale. 16. No doubt, the learned counsel has placed reliance on a host of other judgments. In all these judgments, concerned assessees had started at least one line of activity coming within the ambit of the main object and such line of activity which earned revenue, was a precursor to its main object. None of these judgments, in our opinion would further the case of the assessee here. 17. In the light of our observations above, we are of the opinion that the learned Commissioner of Income-tax (Appeals) fell in error in accepting the contention of the assessee that it had set up its business. Just because learned Assessing Officer computed th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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