Commissioner of Income Tax Delhi II v. Monnet Industries Ltd

RAJIV SHAKDHER, J.

BADAR DURREZ AHMED, J.

November 21, 2008

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* IN THE HIGH COURT OF DELHI : NEW DELHI + ITA No. 450/2008 % Judgment reserved on : 03.09.2008 Judgment delivered on : 21.11.2008 COMMISSIONER OF INCOME TAX DELHI-II ..... Revenue versus MONNET INDUSTRIES LTD ..... Respondent Advocates who appeared in this case: For the Revenue : Mr R.D. Jolly For the Respondent : Mr Ajay Vohra & Ms Kavita Jha CORAM : Hon'ble Mr.Justice Badar Durrez Ahmed Hon'ble Mr. Justice Rajiv Shakdher 1. Whether the Reporters of local papers may be allowed to see the judgment ? Yes 2. To be referred to Reporters or not ? Yes 3. Whether the judgment should be reported in the Digest ? Yes Rajiv Shakdher, J. 1. This is an Appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the "Act") preferred against the judgment of the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal") passed in ITA No. 4040/Del/2002 in respect of the assessment year 1996-97. 2. The Revenue being aggrieved by the impugned judgment has preferred an appeal to this court. The ground taken in the appeal by the Revenue before the Tribunal was whether the Commissioner of Income Tax (Appeals) [hereinafter referred in short as the "CIT(A)"] erred in allowing the claim of the assessee in the sum of Rs 5,66,79,270/- as revenue expenditure in connection with setting up of the sugar plant at Muzaffarnagar in the State of U.P. 2.1. In order to dispose of the appeal, the following facts require to be noted:- 2.2 In 1991, the respondent/assessee had set up a Ferro Alloys Manufacturing Plant, in Raipur, which was, engaged in both, the manufacture of Ferro Alloys, as also, trading of Ferro Alloys. 2.3. In the year 1994-95 and 1995-96, the respondent/assessee set up a sugar manufacturing plant at Muzaffarnagar in the State of U.P. The said sugar plant had an installed capacity of 2500 TCD. The respondent/assessee"s trial run in respect of sugar plant commenced on 20.3.1996. The total project cost for setting up of the sugar plant was a sum of Rs 56.74 crores. This amount was raised, inter-alia, by way of term loans, rights and public issue. The assessee has admittedly spent a sum of Rs 5,66,79,270/- as pre-operative expenses in respect of afore-mentioned sugar plant at Muzaffarnagar, U.P. The break-up of the said expenses as set out in the Assessment order is as follows:- Details Amount in Rupees a) Material consumed in trial production 16,62,372 b) Power and fuel 28,99,256 c) Salary, wages and amenities 70,02,410 d) Admn. Expenses 1,11,34,625 e) Financial charges 3,50,83,472 Less closing stock of finished goods & w.i.p. 11,02,865 ___________________ Total Rs 5,66,79,270/- ___________________ 2.4. As would be evident from the break-up given above, a sum of Rs 3,50,83,472/- was spent by the respondent/assessee towards financial charges i.e., as interest on monies borrowed for the purposes of setting up the sugar plant. 2.5. On 29.11.1996, the respondent/assessee filed its return of income tax for the assessment year 1996-97. In the return, the respondent/assessee disclosed a loss of Rs 7,23,18,949/- . In computing its income, the respondent/assessee had claimed the afore-mentioned sum of Rs 5,66,79,270/- as revenue expenditure incurred in relation to a sugar plant, for the relevant financial year 1995-96. 2.6. The respondent/assessee"s return was processed under Section 143(1)(a) of the Act. 2.7. On 7.11.1997, the Assessing Officer issued a notice under Section 143(2) of the Act. In the course of assessment proceedings, the Assessing Officer raised queries with respect to the expenditure in issue, on receiving replies to the queries raised and after hearing the authorised representatives of the respondent/assessee, the Assessing Officer vide order dated 29.3.1999 disallowed the expenditure in issue, primarily on the ground, that the, sugar plant constituted a new source of income as it was not the same business in which the assessee was engaged, which was manufacture of ferro alloy or tradi