TMI Blog2015 (7) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has sold three (3) machines to its group companies, it cannot be said that there was no commercial transaction. In the matter on hand, admittedly the three (3) machines were sold by the assessee, of course, to its group companies for consideration. Hence, it cannot be said that the machines were manufactured only on trial basis and not for commercial purposes in the Financial Year 1994-95 relevant to Assessment Year 1995-96. Tribunal was right holding that the appellant was not entitled to deduction under Section 80IB - Decided in favour of revenue. - ITA No. 793/2009 - - - Dated:- 2-6-2015 - Mohan M Shantanagoudar And Aravind Kumar,JJ. For the Appellants : Sri T Suryanarayana For M/s King Partridge, Adv. For the Respondent : Sri K V Aravind, Standing Counsel JUDGMENT This appeal is filed by the assessee seeking for setting aside the order passed by the Income Tax Appellate Tribunal dated 31.07.2009 in ITA No.257/BNG/2009 under which the order of CIT-(A) came to be confirmed. 2. In this appeal we were called upon to answer the following Substantial Questions of Law: (i) Whether the Tribunal was right in holding that the Financial Year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to the assessee, the initial Assessment Year from which the deduction was being claimed is the Assessment Year 1996-97. 6. According to assessee, as per Provisions of Section 80IB (3) of the Income Tax Act, 1961, the deduction under Section 80IB for the industrial undertaking shall be 30% of the profit derived from the undertaking for a period of 10 consecutive years beginning from the initial Assessment Year. Under Section 80IB(14)(c)(i) the initial Assessment Year is defined as the initial Assessment Year relevant to the previous year in which the industrial undertaking begins to manufacture or produce article on things. It is not in dispute that the assessee had produced three (3) machines in the Financial Year 1994-95 relevant to Assessment Year 1995-96. According to assessee, the initial Assessment Year is 1996-97 and deduction under Section 80IB (3) would be available to it for a period of ten (10) years from initial Assessment Year i.e., 1996-97 till the year ending 2005-06. The assessee was asked to justify the claim of deduction for the year ending 2005-06 vide letter dated 29.10.2007. After considering the reply furnished by the assessee and rejecting the same, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial Year 1994-95 was not on commercial basis but it was on trial basis. 9. All the Authorities as well as Tribunal on facts have concluded that the production of three (3) machines by the assessee in the Financial Year 1994- 95 was on commercial basis and not on trial basis. 10. Sri.T.Suryanarayana, learned Advocate appearing on behalf of assessee taking us to the entire material on record more particularly the Annual Report of the assessee submits that manufacturing of three (3) machines by the assessee in the Financial Year 1994-95, was only for conducting the field trials and not for commercial purposes of selling the same to the outsiders. In that view of the matter, all the three (3) machines which were manufactured by the assessee were sold to the group companies only, in order to conduct the field trials and also to get feedback on performance. He further submits that after getting the orders from intending buyers and after rectifying the defects found in the three (3) machines, actual production for commercial purposes commenced in the Financial Year 1995-96 (relevant to Assessment Year 1996-97) and therefore, assessee would be entitled to get the benefit of 10 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s group companies i.e., to Ace Designers and M/s.Pragati Engineering Works. These machines started working for 2 shifts per day continuously for four months and working of the machines was to the satisfaction of the other customers. At the time of the exhibition itself the booking of machines took place. Several reputed customers like M/s.Widia (India) Limited, M/s.Technico, M/s. Hindustan Hyderabad, M/s.Hero Honda, M/s.Mico, M/s.Delta Corporation, etc. were interested to buy the machines and as such, they have placed orders. However, the machines were launched in the market in the month of August' 1995. 13. The assessee has shown the closing stock of ₹ 12,13,077/- including a closing work-inprogress of Machining Centre MCH-400 amounting to ₹ 3,54,643/- as on March' 1995. The assessee has also shown ₹ 13,54,258/- as advance received from Ace Designers and Technico Engineering. Thus, it is evident that the so called prototypes manufactured by the assessee were tested and sold commercially during the Assessment Year 1995-96 itself. Merely because the machines were sold to group companies, it cannot be said that the transaction is not commercial. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xhibition, bookings took place. The assessee could have as well sold the products to the third parties viz. intending buyers. However, instead of doing so, the assessee chose to sell the machines to its group companies. Therefore, it cannot be said that the machines were not available for sale. Merely because the assessee has sold three (3) machines to its group companies, it cannot be said that there was no commercial transaction. In none of the aforementioned cases, relied upon by the assessee, there was a sale of the finished product for consideration as is obtained in the facts on hand. 16. In the case of COMMISSIONER OF INCOME-TAX, POONA V. HINDUSTAN ANTIBIOTICS LTD. reported in (1974) 93 ITR 548, there was a requirement in law that a crude penicillin produced by the assessee was to be tested either in USA or UK for obtaining certificates as to their qualities. After obtaining such certificates as to their qualities, the assessee was permitted to produce the final product i.e., sterile penicillin . In that regard the Bombay High Court has ruled that the year of production of crude penicillin cannot be the starting point. It is only after sterile penicillin was produced f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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