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The Principal Commissioner Of Income ... vs Hindustan Antibiotics Limited on 29 October, 2018

The manufacture of such a product without the help quality control experts is well nigh impossible. No such reports on quality of the product were either produced before the AO or the ld. CIT(A) and even before us. As already stated ,in the year under consideration domestic sale of `34,56,81,771/- and export sale of `2,76,86,320/- have been made. There is no material before us in order to ascertain as to whether or not the entire production of 7626 MT was substandard so as to necessitate trial production. Hon'ble Bombay High Court in CIT vs. Hindustan Antibiotics Ltd., 93 ITR 548,observed that until the company reaches a stage where it is in a position to decide that a final product, which could ultimately be sold in the market, could be manufactured or produced by it, it will be idle formality to say that it had started manufacture or production of articles simply because trial products are prepared with a view to verify whether they can be ultimately used in the preparation or 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 4 ITA Nos.5044 to 5046/Del/2010 ITA No.987/Del/2011 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 law in the light of our aforesaid observations, after examining all the relevant books or accounts and records of production, including quality control reports etc and of course after allowing sufficient opportunity to the assessee. Needless to say that while redeciding the issues, the AO shall pass a speaking order, bringing out clearly as to when the trial production ended and commercial production started. The assessee is also directed to co-operate in the assessment and place all the relevant facts within their specific knowledge and produce all the relevant books of accounts including production records and quality control reports before the AO. With these observations, ground nos. 1 to 6 in the appeal are disposed of."
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