TMI Blog2011 (12) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... d No.1 and 2 above, the learned CIT(A) was wrong in not allowing any depreciation on fixed assets used for trial run production whereas she has estimated income ``1,866,840 on the reported sale of ``373,368,091 included under trial run expenditure. 4 Without prejudice to ground No.1 to 3 above, the learned CIT(A) was wrong in estimating income at ``1,866,840/- instead of allowing loss of ``265,020,052 and unabsorbed depreciation of ``162,662,308/- considering the work in progress ``167,773,337 (inclusive of direct and indirect expenditure as reduced by sale and stock) relating to preceding assessment year which was used for trial run production for the year under appeal. 5 Without prejudice to ground No.4, the learned CIT(A) has grossly erred in disallowing the trial run expenditure of ``167,773,337 (out of total expenditure ``46,98,37,969) relating to the preceding assessment year 2002-03. 6 That the orders passed by learned CIT(A) without application of mind and without considering all the grounds of appeal. 7 That the order is otherwise bad in law. 8 The appellant prays for leave to add, amend, alter or withdraw any grounds of appeal. 2. Facts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of expenditure during the construction period, the AO observed that sale of more than `37 crores could not be said to be some income as mentioned in the guidance note, especially when the assessee paid excise duty and sales tax on the product manufactured and sold. Since the assessee did not produce relevant books of accounts vouchers before the AO nor could reconcile workin- progress on account of machinery or building vis- -vis expenses and nor even adduced reasons for claiming depreciation even during trial runs while profit and loss account was not prepared by the assessee, the AO disallowed preoperative expenses of `46,98,37,969/- and accordingly, estimated net profit @ 0.5% on sales of ` 37,33,68,091/- resulting in assessment on an income of `18,66,840/-. Inter alia, the AO relied upon decision in CIT vs. Cellulose Products of India Limited. 192 ITR 155(SC). 3. On appeal, the ld. CIT(A) upheld the findings of the AO in the following terms:- During the course of appellate proceedings excise invoice cum delivery challan were sought. Perusal of these at random, reveals that vide the said document in July, 2002, the assessee company exported to Mauritius CCA and Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that the production is a trial production. Thus, there is ambiguity in the stand taken by the assessee company and thus treating the direct and indirect expenditure to be capitalized with the fixed assets (plant and machinery) and (building). During the course of appellate proceedings, the assessee has modified the 9th ground of appeal and AR argued that if the Assessing Officer intended to disallow capitalization then only for financial year 2002-03 should have been disallowed. Vide modified ground of appeal, AR has contended that since the Assessing Officer levied 0.5% as the profit on sale, the remaining amount should be treated as expenditure which has been permitted by him. However, this contention of the assessee is wrong as the sales are being claimed as allowable/allowed expenditure by the AR which is not the intend of the Assessing Officer. The Assessing Officer has brought all facts on record and after a detailed discussion on preoperative expenditure and capitalization, has estimated the net profit of the assessee at 0.5% of the total sales which is extremely reasonable. Vide the additional ground of appeal, this argument has been further el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue expenditure nor allowed to be carried forward. The ld. AR added that estimation of income, without rejecting the book results was not in accordance with law. To a query by the Bench, the ld. AR submitted that commercial production started only in the succeeding financial year. However, he could not give the exact date of commencement of commercial production. On the other hand, the ld. DR supported the findings of the ld. CIT(A). After discussion, both the parties agreed that matter requires reconsideration by the AO in the light of relevant books of accounts and records, which admittedly have not been produced before the lower authorities. 5. We have heard both the parties and gone through the facts of the case. The issues as to whether the assessee undertook trial production or commercial production and when trial production ended and commercial production started, are essentially question of facts to be decided on the basis of relevant books of accounts and production records including quality control reports etc. apart from discussion with the concerned chemists/production staff in the plant. As is apparent from the facts narrated before us, according to the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture of the final products. In the present case, however, we find that no material whatsoever has been produced by the assessee before any of the income-tax authorities and even before us to show that the production made by the assessee in the year under consideration was merely a trial production and that the goods produced were not for commercial sale even when the assessee made sales in domestic market and international market of more that ``37 crores. Even otherwise, the ld. CIT(A) have not recorded her specific findings as to when the trial production ended and commercial production started nor adjudicated each of the grounds of appeal of the assessee separately and nor even recorded her findings on the disallowance of expenditure, capitalized in the preceding year. In view of the foregoing, especially when complete facts and documents have not been placed before us while the matter has not be examined by the lower authorities in its proper perspective, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to the file of the AO for deciding the issues raised in the ground nos. 1 to 6 in the appeal afresh, in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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