POCHJRAJA INDUSTRIES LTD.,HOSUR vs. ACIT, CIRCLE-1,, HOSUR

ITA 1072/CHNY/2025Status: DisposedITAT Chennai23 September 2026AY 2013-1415 pages
AI SummaryAllowed

What were the facts?

The assessee, Pochiraju Industries Ltd., engaged in Agriculture, Pharmaceuticals, and Bio-Pharma, filed an appeal against the order of the CIT(A) for Assessment Year 2013-14. The Assessing Officer (AO), under Section 143(3) read with Section 263, disallowed Rs. 10,70,08,883/- claimed as expenditure for the Bio-Pharma Division. The AO treated this expenditure as capital in nature, arguing that the division had not commenced commercial operations. The expenditure comprised consumables, staff costs, administrative expenses, operating expenses, depreciation, financial charges, and R&D. The assessee contended that the Bio-Pharma unit, 'BIOPIL', had commenced production in FY 2012-13, citing its Annual Report which stated the first phase was implemented and production started. The Annual Report also showed revenue of Rs. 876.57 lakhs under the Pharma & Bio-Pharma segment. The CIT(A) upheld the disallowance, relying on the AO's observation that no commercial production had commenced and referencing SARFAESI proceedings affecting operations.

What did the Tribunal hold?

The Tribunal held that the Ld. CIT(A) failed to properly consider the material and submissions placed on record by the assessee, particularly the contemporaneous Annual Report for FY 2012-13, which explicitly stated that the first phase of the Bio-Pharma unit had been completed and production had commenced. The Tribunal found that the Ld. CIT(A)'s conclusion was principally founded on the AO's observations and did not effectively deal with the contrary evidence. The subsequent SARFAESI proceedings could not be used to retrospectively establish that the unit was not operational during the relevant previous year. The Tribunal emphasized the distinction between "setting up" and "commencement" of business and stated that the test for allowability of business expenditure cannot be reduced to whether commercial sales were generated. The blanket disallowance of Rs. 10,70,08,883/- solely on the ground that the Bio-Pharma Division had not commenced commercial production was not sustainable. The Tribunal clarified that each component of the expenditure remains subject to specific statutory conditions. Ground No. 4, concerning a claim under Section 35(2AB), was dismissed as withdrawn. Ground Nos. 1, 2, 3, and 5 were allowed to the extent that the disallowance of Rs. 10,70,08,883/- is directed to be deleted, and the impugned order is found to have failed to properly deal with the assessee's material and submissions. Ground No. 6 is consequential.

What were the issues?

1. Whether the Ld. CIT(A) failed to consider the material and written submissions placed on record by the assessee, thereby violating principles of natural justice, and whether the impugned order suffers from factual and legal infirmities? (Question of mixed law and fact) 2. Whether the disallowance of Rs. 10,70,08,883/- relating to the Bio-Pharma Division is sustainable, considering the assessee's claim that commercial production had commenced in FY 2012-13? Assessee's Contentions: - The Bio-Pharma unit had been established and production commenced during FY 2012-13, as evidenced by the Directors' Report in the Annual Report, stating the first phase of 'BIOPIL' was implemented and production started. - The Annual Report for FY 2012-13 reported revenue of Rs. 876.57 lakhs under the Pharma & Bio-Pharma segment. - The SARFAESI proceedings relied upon by the Revenue occurred subsequently (property taken over on 30.12.2015, auctioned on 03.03.2017) and could not establish non-commencement of operations in the relevant period. - The Ld. CIT(A) failed to consider written submissions filed on 01.03.2021 and 20.01.2024, and the appellate order recorded non-compliance with hearing notices, violating natural justice. - The expenditure comprised routine revenue expenses, staff costs, administrative expenses, operating expenses, depreciation, interest, and research expenditure, which cannot be treated as capital merely because they relate to a new division. - There is a distinction between "setting up" and "commencement" of business; expenditure incurred after setting up is allowable. Revenue's Contentions: - The assessee stated before the PCIT that additional funding was required for regulatory compliance, which PNB declined, leading to financial difficulties. - The Bio-Pharma Division could not have commenced commercial operations without satisfying regulatory requirements. - The revenue of Rs. 876.57 lakhs was not exclusively attributable to the Bio-Pharma Division, as the Annual Report combined "Pharma and Bio-Pharma" for reporting sales and profit. - The detailed bifurcation of revenue relied upon by the assessee before the Tribunal was not supported by contemporaneous documentary evidence and was furnished for the first time before the Tribunal.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 263,Section 32,Section 35,Section 35(2AB),Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: MS. PADMAVATHY S & SHRI MANU KUMAR GIRI

For Respondent: Ms. R. Ilavarasi, CIT
Hearing: 23.09.2026

PER MANU KUMAR GIRI, JM:

This appeal by the assessee is directed against the order dated 21.02.2025 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) [“Ld. CIT(A)”], for Assessment Year (AY) 2013-14. 2. The assessee has raised several grounds challenging the validity of the impugned order as well as the sustenance of the disallowance relating to the Bio-Pharma Division. During the course of hear

The order continues below.

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