GLOBEX ENERGIA P.LTD, MUMBAI V. ASST CIT 6(3), MUMBAI

ITA 1109/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1876 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 09-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 19-02-2014
• Court: TRIBUNAL
• Assessee Lawyers: MIS JASMIN AMALSADVALA
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Revenue expenditure

Judgement Text

, , G, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1109/MUM/2014 ASSESSMENT YEAR: 2010-11 GLOBEX ENERGIA P. LTD. 4 TH FLOOR, SADHNA HOUSE, 570 PANDURANG BUDHKAR MARG, BEHIND MAHINDRA TOWR, S. WORLI MUMBAI-400018 / VS. ACIT 6(3) MUMBAI- ( APPELLANT ) (RESPONDENT ) P .A. NO. AADCG1161C APPELLANT BY SHRI NISHANT THAKKAR & MIS. JASMIN AMALSADVALA (AR) REVENUE BY SHRI PRAKASH MANE (DR) / DATE OF HEARING: 09/11/2016 / DATE OF ORDER: 18/11/2016 / O R D E R PER ASHWANI TANEJA (AM): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI-12 (IN SHORT CIT(A)}, DATED 09.12.2013 PASSED AGAINST ASSESSME NT ORDER U/S 143(3), DATED 12.10.2012 FOR ASSESSMENT YEAR 20 10-11 ON THE FOLLOWING GROUNDS: GLOBEX ENERGIA P. LTD. 2 1.THE LEARNED CIT(A)-12, MUMBAI ERRED IN CONFIRMIN G THE ORDER OF ACIT BY DISMISSING ALL THE GROUNDS OF APPE AL. 2. YOUR APPELLANT SUBMITS THAT A 'BUSINESS' CONNOTE S A SERIES OF ACTIVITIES AND THAT IN ORDER THAT THE BUS INESS MAY BE SAID TO HAVE COMMENCED, IT IS NOT NECESSARY THAT ALL ACTIVITIES WHICH GO TO MAKE UP THE BUSINESS SHOULD BE STARTED. 2.1. YOUR APPELLANT SUBMITS THAT ACCORDINGLY THE BU SINESS HAS BEEN ESTABLISHED AND SET UP AND THAT RELATED ACTIVITY HAS BEEN CARRIED OUT DURING THE YEAR. 3. THE LEARNED CIT(A) HAS NOT APPRECIATED THE FACT THAT INTACT AS A PART OF TRADING ACTIVITY THE APPELLANT HAS ACQUIRED CERTAIN GOODS AND AS NO SALES COULD BE EFF ECTED HAS CONSIDERED THE SAME AS STOCK IN HAND. 3.1. YOUR APPELLANT THEREFORE SUBMITS THAT BUSINESS INTACT IS SET UP AND CERTAIN ACTIVITIES OUT OF VARI OUS ACTIVITIES ENVISAGED HAVE BEEN INITIATED AND CARRIE D OUT. 4. THE LEARNED CIT (A) HAS WRONGLY CONSTRUED THAT YOUR APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING WHEREAS IN FACT THE ACTIVITY RELATES TO TRADING WHICH IS ALSO EVIDENT FROM THE REGISTRATION CERTIFICATE ISSUED BY THE SALES TAX AUTHORITIES. 5. YOUR APPELLANT THEREFORE SUBMITS THAT THE EXPEND ITURE OF RS.75,28,9311 IS INCURRED FOR THE BUSINESS AND THAT THE SAME BE ALLOWED TO BE CARRIED FORWARD. 6. YOUR APPELLANT CRAVES, LEAVE TO ADD, ALTER, AMEN D, WITHDRAWAL ALL OR ANY OF THE GROUNDS OF APPEAL AS T HE CIRCUMSTANCES OF THE APPEAL MAY REQUIRE. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI NISHANT THAKKAR & MIS. JASMIN AMALSADVALA, AUT HORISED REPRESENTATIVES (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI PRAKASH MANE, DEPARTMENTAL REPRESENTATIVE (CIT-DR) ON BEHALF OF THE REVENUE. 3. THE SOLITARY ISSUE RAISED IN THIS APPEAL IS WHETHE R THE BUSINESS OF THE ASSESSEE WAS SET UP DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY WHETHER THE EXPENSES INCURRED GLOBEX ENERGIA P. LTD. 3 BY THE ASSESSEE DURING THE YEAR WERE ALLOWABLE AS B USINESS EXPENSES OR NOT. 3.1. THE BRIEF FACTS IN THIS REGARD ARE THAT THE ASSESS EE COMPANY WAS INCORPORATED ON 27.03.2008. IT WAS NOT INFORMED THAT THE ASSESSEE COMPANY PROPOSED TO DO THE BUSINE SS OF TRADING AND INSTALLATION & COMMISSIONING OF SPECIAL IZED STORAGE TANKS. NO MAJOR OPERATIONS WERE DONE IN FIN ANCIAL YEARS 2007-08. IN FINANCIAL YEAR 2008-09 ( I.E. A.Y . 2009-10), EXPENSES WERE INCURRED FOR THE PURPOSE OF SETTING U P OF THE BUSINESS AND THESE EXPENSES WERE CLAIMED AS BUSINES S EXPENSES IN THE RETURN FILED WHICH WERE ALLOWED BY THE AO U/S 143(1). IN THE IMPUGNED F.Y. I.E. 2009-10 (PERTAINI NG TO A.Y. 2010-11), THE ASSESSEE FILED ITS RETURN OF INCOME C LAIMING EXPENSES INCURRED UNDER VARIOUS HEADS AND SHOWING N ET LOSS OF RS.75,28,931/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT THERE WAS NO OPENING STOCK AND NO SALES DURING THE YEAR AND THAT THE ASSESSEE HAD EARNED ONLY INTEREST INCOME OF RS.82,2 74/-. THE AO ALSO OBSERVED THAT DURING THE YEAR, THE ASSESSEE HAD PURCHASED SOME MACHINERIES VIZ. FRP TANK, WHICH HAS BEEN SHOWN AS CLOSING STOCK FURTHER, THE ASSESSEE HAD SHOWN CAPITAL WORK-IN-PROGRESS OF RS.2,00,29,650/- IN ITS BALANCE SHEET AND THAT THERE WAS NO BUSINESS ACTIVITY CARRIED OUT BY IT, EXCEPT EARNING SOME INC IDENTAL INTEREST INCOME. THE AO OBSERVED THAT THOUGH THE BUSINESS OF THE ASSESSEE HAD NOT COMMENCED DURING T HE YEAR, YET IT HAD CLAIMED ADMINISTRATIVE EXPENSES OF RS.56,89,150/-, INTEREST OF RS.17,95,825/- AND GLOBEX ENERGIA P. LTD. 4 DEPRECIATION OF RS.88,442/- AND ASKED THE ASSESSEE AS TO WHY THE EXPENSES CLAIMED BY IT SHOULD NOT BE DISALLOWED IN VIEW OF THE FACT THAT IT HAD NOT COMM ENCED AND CARRIED OUT ANY BUSINESS TILL THE END OF THE YE AR. IN RESPONSE, THE ASSESSEE EXPLAINED THAT THE ASSESSEE HAD ALREADY GIVEN RS.69,23,395/- AS ADVANCE TO THE CONC ERNED SUPPLIER FOR MANUFACTURING FRP TANKS AS PER THE PUR CHASE ORDER. THE EXPLANATION OF THE ASSESSEE WAS NOT FOUN D TO BE ACCEPTABLE BY THE AO AND THEREFORE HE CONCLUDED THAT THE ASSESSEE HAD NOT BEEN ABLE TO SHOW THAT IT HAD COMMENCED ITS BUSINESS TILL THE END OF THE YEAR AND THAT IT WAS STILL IN THE PROCESS OF PURCHASING SOME MACHINERIES AND TILL THE END OF THE YEAR IT WAS NOT CLEAR IN THE MIND OF THE ASSESSEE IF IT WOULD USE THESE MACHINER IES AS PLANT & MACHINERY (I.E. CAPITAL ASSET) OR IT WOU LD START TRADING THE SAME. HE FURTHER OBSERVED THAT THE ASSESSEE, VIDE PARE 1 & 2 OF ITS OWN REPLY, HAD ADMITTED THAT SINCE THERE WERE NO SALES ORDERS RECEIVED IN THE AFORESA ID PERIOD, THE ASSESSEE WAS NOT ELIGIBLE FOR SUCH EXPE NSES AND HENCE HE DISALLOWED THE ENTIRE RETURNED LOSS OF RS. 75,28,931/. 3.2. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) AND MADE DETAILED SUBMISSIONS THEREIN TO DEMONSTRATE THAT BUSINESS OF THE ASSESSEE WAS DULY SET UP AND THEREFORE ENTIRE EXPENSES OF THE REVENUE NATURE INCURRED BY THE ASSESSEE WERE ALLOWABLE. BUT, LD. CIT(A) WAS NOT IMPRESSED WITH THE SUBMISSIONS OF THE ASSESSEE. IT WAS HELD BY HIM THAT BUSINESS OF THE ASSESSEE WAS MANUFACTURING OF STORAGE TANK AND ASSESSEE DID NOT MAKE REQUISITE GLOBEX ENERGIA P. LTD. 5 ARRANGEMENTS TO MANUFACTURE THE SAME DURING THE YEA R UNDER CONSIDERATION. IT WAS ALSO NOTED THAT THE AMOUNT OF PURCHASE CLAIMED TO BE MADE DURING THE YEAR WAS QUITE INSIGN IFICANT AND THERE WAS NO INCOME FROM SALES. AFTER CONSIDERING T HE ENTIRE FACTS OF THE CASE, LD. CIT(A) DISTINGUISHED THE JUD GMENTS RELIED UPON BY THE ASSESSEE AND CONCLUDED THAT BUSINESS OF THE ASSESSEE WAS NOT SET UP TILL THE END OF THE FINANCI AL YEAR I.E. 31 ST MARCH, 2010. UNDER THESE CIRCUMSTANCES, ALL THE EX PENSES WERE HELD TO BE DISALLOWABLE AND THUS ORDER OF THE AO WAS UPHELD. 3.3. STILL BEING AGGRIEVED, THE ASSESSEE FILED APPEAL B EFORE THE TRIBUNAL. DURING THE COURSE OF HEARING, SHRI NISHAN T THAKKAR & MS. JASMIN AMALSADVALA, LD. COUNSELS OF THE ASSES SEE VEHEMENTLY SUPPORTED THE CLAIM MADE BY THE ASSESSEE . IT WAS SUBMITTED THAT BOTH THE AUTHORITIES HAVE WRONGLY NA RRATED THE FACT OF MANUFACTURING. THE CORRECT FACT IS THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF STORAGE T ANKS AND IN CERTAIN CASES, THE STORAGE TANKS WERE ALSO INSTALLE D AND COMMISSIONED AT THE PREMISES OF THE CUSTOMERS. OUR ATTENTION WAS DRAWN UPON VARIOUS EVIDENCES ENCLOSED IN THE PA PER BOOK SHOWING THAT DURING THE YEAR UNDER CONSIDERATION, R EQUISITE EMPLOYEES WHO WERE SKILLED AND COMPETENT TO DO THE BUSINESS WERE APPOINTED BY THE ASSESSEE, AND SALES ORDERS WE RE RECEIVED AND PURCHASES WERE ALSO MADE. IT WAS VEHEM ENTLY ARGUED THAT ASSESSEE WAS READY TO CATER TO ITS CUST OMERS AND THUS, IT CAN BE EASILY HELD THAT BUSINESS OF THE AS SESSEE WAS DULY SET UP AND THUS ALL THE EXPENSES INCURRED IN ROUTINE WERE ALLOWABLE AS BUSINESS EXPENSES OF THE YEAR. RE LIANCE WAS GLOBEX ENERGIA P. LTD. 6 PLACED ON THE DECISIONS OF MUMBAI BENCH OF THE TRIB UNAL IN THE CASE OF PINEBRIDGE INVESTMENTS CAPITAL INDIA (P .) LTD. V. ITO 160 ITD 566(MUMBAI), M/S. MULTI ACT REALTY ENTE RPRISES PVT. LTD. V. ITO ( ITA NO.7274/MUM/2011 DATED 28.08 .2015) & RELIANCE GEMS & JEWELS LTD. V. DCIT (ITA NO.3855/MUM/2013 DATED 28.10.2015) AND JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN IN DIA VEGETABLE PRODUCTS LTD. VS. CIT 261 ITR 151(BOM). I T WAS ALSO ARGUED THAT IN A.Y. 2009-10, THE AO HAS ACCEPTED TH E RETURN OF THE ASSESSEE WHEREIN ASSESSEE HAD CLAIMED BUSINE SS EXPENSES INCURRED. PER CONTRA, SHRI PRAKASH MANE (L D. DR) RELIED UPON THE ORDERS OF LOWER AUTHORITIES. 3.4. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND ORD ERS PASSED BY THE LOWER AUTHORITIES AS WELL AS SUBMISSI ONS MADE AND COPIES OF JUDGMENTS PLACED BEFORE US. DURING TH E COURSE OF HEARING, IT WAS FAIRLY ACCEPTED BY THE LD. DR TH AT THE ASSESSEE WAS NOT IN THE BUSINESS OF MANUFACTURING, BUT IN THE BUSINESS OF TRADING OF SPECIALIZED STORAGE TANKS AN D THEIR INSTALLATION AND COMMISSIONING IN THE CASE OF SOME OF THE CUSTOMERS OF THE ASSESSEE. THIS FACT REMAINED UNDIS PUTED THAT IN THE PRECEDING YEAR I.E. A.Y. 2009-10, THE ASSESS EE HAD FILED RETURN WHEREIN ADMINISTRATIVE EXPENSES WERE CLAIMED TO THE TUNE OF RS.28,91,448/- AND RETURN WAS FILED AT LOSS OF RS.31,60,164/-, WHICH WAS ACCEPTED BY THE AO AND NO DISALLOWANCE WAS MADE, THEREBY CONFIRMING THE CLAIM OF THE ASSESSEE THAT BUSINESS HAS ALREADY BEEN SET UP. A PART FROM THE ABOVE, IT IS NOTED BY US THAT DURING THE YEAR, THE ASSESSEE HAD RECEIVED SALES ORDER FROM M/S. PURTI SAKHAR KAR KHANA GLOBEX ENERGIA P. LTD. 7 LTD., VIDE ORDER DATED APRIL 8, 2009. THE ASSESSEE HAD AL SO MADE PURCHASES DURING THE YEAR AGGREGATING TO RS.8, 14,566/- THE FIRST PURCHASE WAS MADE ON 18.05.2009 FROM M/S. KIRA EQUIPMENT PVT. LTD. THE ASSESSEE HAD ALSO APPOINTED VARIOUS EMPLOYEES HAVING REQUISITE SKILL AND QUALIFICATION TO CARRY OUT THE PROJECT OF THE ASSESSEE. THE DETAILS OF EMPLOYE E APPOINTED DURING THE YEAR SHOWS THAT SOME OF THE EMPLOYEES WE RE APPOINTED IN THE EARLIER YEAR AND SOME WERE EMPLOYE D DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO SEEN THAT THE ASSESSEE HAD ARRANGED IT OFFICE PREMISES AND ALSO OPEN BANK ACCOUNTS AND TRANSACTIONS WERE DONE THROUGH BANKING CHANNELS ONLY. UNDER THESE GIVEN FACTS WE HAVE TO DECIDE BY THE AS SESSEE IT COULD BE BUSINESS OF THE ASSESSEE WAS SET UP. 3.5. WE HAVE GONE THROUGH THE FINANCIAL STATEMENT FILED ALONG WITH THE RETURN OF INCOME. ADMITTEDLY, NO REVENUE H AS BEEN SHOWN DURING THE YEAR. THE ASSESSEE HAS NOT CLAIMED THAT ITS BUSINESS WAS COMMENCED DURING THE YEAR. THE ASSESSE E HAS CLAIMED THAT ITS BUSINESS WAS SET UP DURING THE YEAR AND THE EXPENSES WERE ALLOWABLE AFTER THE SETTING UP ITS BU SINESS, EVEN IF BUSINESS IS NOT YET COMMENCED. WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL. ON LEGAL PRINCIPLE, TH IS ISSUE HAS ALREADY BEEN SETTLED IN MANY JUDGMENTS. THIS ISSUE WAS ALSO DECIDED BY THE COORDINATE BENCH IN THE CASE OF MULTI ACT REALTY ENTERPRISES PVT. LTD. V. ITO (SUPRA) , WHEREIN IN THE SIMILAR CIRCUMSTANCES, IT WAS HELD THAT THERE WAS A DIFFERENCE BETWEEN SETTING UP OF BUSINESS AND COMMENCEMENT OF BUSINESS. THE LAW PROVIDES THAT EXPENSES WOULD BE A LLOWABLE AFTER THE SETTING UP OF THE BUSINESS, EVEN IF ITS B USINESS WAS GLOBEX ENERGIA P. LTD. 8 NOT YET COMMENCED. RELEVANT PART OF THE JUDGMENT IS REPRODUCED HEREUNDER: WE HAVE CAREFULLY CONSIDERED ARGUMENTS MADE BY BOT H THE SIDES. IT IS NOTED FROM THE FACTS ON RECORD THA T THE ASSESSEE HAD PURCHASED RESIDENTIAL FLATS AT ASHOKA TOWERS FOR THE PURPOSE OF RESALE/LEASE. IT IS ALSO ADMITTED FACT THAT IT IS MAIN OBJECT OF THE ASSESSEE COMPANY . UNDER THESE CIRCUMSTANCES, WE HAVE TO EXAMINE WHETHER THE RE WAS COMMENCEMENT OF THE BUSINESS DURING THE YEAR OR NOT. IN THIS REGARD, WE SHALL FIRST REFER TO THE DEFINIT ION OF TERM PREVIOUS YEAR AS DEFINED IN SECTION 3 OF THE INCO ME TAX ACT 1961, AND THE SAME IS REPRODUCED HERE FOR THE S AKE OF READY REFERENCE: 3. FOR THE PURPOSES OF THIS ACT, PREVIOUS YEAR M EANS THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR: PROVIDED THAT, IN THE CASE OF A BUSINESS OR PROFESS ION NEWLY SET UP, OR A SOURCE OF INCOME NEWLY COMING IN TO EXISTENCE, IN THE SAID FINANCIAL YEAR, THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINESS OR PROFESSION OR, AS THE CASE MAY BE, THE DATE ON WHICH THE SOURCE OF INCOME NEWLY COMES INTO EXISTENCE AND ENDING WITH THE SAID FINANCIAL YEAR. (EMPHASIS SUPPLIED) THE PERUSAL OF AFORESAID CLAUSE WOULD SHOW THAT REL EVANT DATE FOR COMMENCEMENT OF THE BUSINESS WOULD BE THE DATE OF SETTING UP OF BUSINESS. IT HAS BEEN HELD IN VARI OUS JUDGMENTS THAT SETTING UP OF BUSINESS AND COMMENCEMENT OF BUSINESS MAY BE TOO DIFFERENT AND INDEPENDENT EVENTS. FOR THE PURPOSE OF DEDUCTIBILIT Y OF THE BUSINESS EXPENSES, THE REFERENCE POINT WOULD BE INI TIAL SETTING UP OF THE BUSINESS. THE COMMENCEMENT OF THE BUSINESS MAY TAKE PLACE AT LATER DATE. THUS, EVEN I F THE ASSESSEE DOES NOT EARN ANY BUSINESS INCOME DURING T HE YEAR, BUT IF THE BUSINESS IS SET UP, IT WOULD AMOUN T TO CARRYING ON THE BUSINESS UNDER THE INCOME TAX LAW A ND THEREFORE, THE BUSINESS EXPENSES WOULD STAND ALLOWA BLE. 6. IN FOLLOWING CASES IT HAS BEEN HELD THAT WHETH ER INCOME HAS BEEN EARNED OR NOT AND WHETHER ULTIMATE BENEFIT HAS ACCRUED IMMEDIATELY OR NOT, THE EXPENSE S GLOBEX ENERGIA P. LTD. 9 INCURRED SHALL BE ALLOWABLE IF THESE HAVE BEEN INCU RRED FOR THE PURPOSE OF BUSINESS OR FOR COMMERCIAL EXPEDIENC Y:- 1. EASTERN INVESTMENTS LTD. VS. CIT (20 ITR 1) (SC) 2. J.R. PATEL & SONS PVT. LTD. 69 ITR 782 (GUJ) 3. RAIPUR MFG. CO. LTD. ( 84 ITR 508,516 ) (GUJ) 4. SECURITY PRINTERS OF INDIA PVT. LTD. (78 ITR 766,774) (ALL) 5. TATASONS LTD. (18 ITR 460,467) (BOM) 6. WALCHAND & CO. P. LTD. (65 ITR 381, 385) (SC) 7. J.K. WOOLEN MANUFACTURES (72 ITR 612) (SC) 8. ALUMINIUM CORP. OF INDIA LTD. (86 ITR 11, 17) (SC) 9. ORISSA CEMENT LTD. (73 ITR 14, 17) (DEL) IN FOLLOWING CASES IT HAS BEEN HELD THAT EXPENSES S HALL BECOME DEDUCTIBLE AFTER SETTING UP OF THE BUSINESS, EVEN IF COMMENCEMENT OF BUSINESS HAS NOT YET TAKEN PLACE: 1 . CIT VS. RALLIWOLF LTD. (121 ITR 262) (BOM) 2.SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. (91 ITR 170) (GUJ) 3.WESTERN INDIA VEGETABLE PRODUCTS LTD . (26 ITR 151) 4.RAMARAJA SURGICAL COTTONS MILLS LTD. (63 ITR 478) 5 . CIT VS WHIRLPOOL OF INDIA LTD 318 ITR 347 (DELHI) IN THE CASE OF CIT VS SARDAR SAROVAR NARMADA NIGAM LTD 364 ITR 477 (GUJ) IT HAS BEEN HELD THAT WHERE BUSINESS OF THE ASSESSEE CONSISTS OF DIFFERENT CATEGORIES, THEN COM PANY CAN BE SAID TO HAVE SET UP ITS BUSINESS FROM THE DATE WHEN ONE OF CATEGORIES OF ITS BUSINESS WAS STARTED AND ALL THE REVENUE EXPENDITURES AFTER SUCH DATE ARE ALLOWABLE. HONBLE MUMBAI BENCH OF INCOME TAX APPELLATE TRIBUN AL IN THE CASE OF M/S DHL EXPRESS (I) PVT. LTD. V. ACIT 124 TTJ 108 HELD AS UNDER: A UNIT CANNOT BE SAID TO HAVE BEEN SET UP UNLESS I T IS READY TO DISCHARGE THE FUNCTION FOR WHICH IT IS BEI NG SET UP. IT WAS FURTHER HELD THAT SETTING UP OF BUSINESS IS DISTINCT FROM COMMENCEMENT OF BUSINESS AND EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSINESS ARE DEDUCTIBLE AS REVENUE EXPENDITURE. IT WAS HELD AS HELD BY THE HONBLE DELHI HIGH COURT IN CIT VS. ESPN SOFTWARE INDIA (P) LTD. 301 ITR 368 THAT THE DATE OF SETTING UP OF BUSINESS AND DATE OF COMMENCEMENT OF BUSINESS ARE DISTINCT AND T HE GLOBEX ENERGIA P. LTD. 10 EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSIN ESS ARE DEDUCTIBLE AS REVENUE EXPENDITURE. 7. IN THE CASE BEFORE US, IT MAY BE SEEN THAT THE ASSESSEE HAS ALREADY PURCHASED RESIDENTIAL FLAT FOR THE PURPOSE OF RESALE/LEASE, AND THEREFORE ASSESSEE WAS APPARENTLY READY TO DO ITS BUSINESS. UNDER THESE CIRCUMSTANCES, IT CAN BE SAID THAT THE BUSINESS IS SET UP BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION . FOR THE DEDUCTIBILITY OF EXPENSES INCURRED AFTER THIS S TAGE, EARNING OF THE BUSINESS INCOME IS NOT A MANDATORY CONDITION UNDER THE LAW. THE ASSESSEE MAY NOT HAVE BEEN SUCCESSFUL IN GETTING CUSTOMERS OR EARNING THE BUSI NESS INCOME, BUT IF THE ASSESSEE HAS DONE REQUISITE PREPARATIONS AND IF THE ASSESSEE CAN BE SAID TO BE IN A POSITION TO CATER TO ITS CUSTOMERS, THEN IT CAN BE SAID THAT BUSINESS IS SET UP AND IT WOULD AMOUNT TO CARRYING ON THE BUSINESS AND ACCORDINGLY THE EXPENSES WOULD STAND ALLOWABLE TO THE ASSESSEE, IRRESPECTIVE OF THE FACT WHETHER ACTUALLY ASSESSEE GOT ANY CUSTOMER AND EARNED ANY BUSINESS INCOME DURING THE YEAR OR NOT. THUS, THE DISALLOWANCE MADE BY THE AO IS CONTRARY TO LAW AND FACTS AND THE SAME IS DELETED AND THE AO IS DIRECTED TO A LLOW THE EXPENSES CLAIMED BY THE ASSESSEE AMOUNTING TO RS.2,69,275/-. THUS, REVISED GROUND OF THE ASSESSEE IS ALLOWED. 3.6. THUS, FROM THE AFORESAID LEGAL POSITION, IT BECOMES CLEAR THAT SETTING UP OF THE BUSINESS IS THE CRUCIAL EVEN T FOR DETERMINING THE STARTING POINT FOR ALLOWING THE BUS INESS EXPENSES. IT WAS ALSO OBSERVED IN THE AFORESAID JUD GMENT THAT EVEN IF THE ASSESSEE HAS NOT BEEN SUCCESSFUL IN EAR NING THE BUSINESS INCOME, BUT IF THE ASSESSEE HAS DONE REQUI SITE PREPARATIONS AND IF ASSESSEE CAN BE SAID TO BE IN A POSITION TO CATER TO ITS CUSTOMERS, THEN IT CAN BE SAID THAT BU SINESS IS SET UP, AND THEREFORE EXPENSES WOULD BECOME ALLOWABLE THEREAFTER. GLOBEX ENERGIA P. LTD. 11 3.7. NOW, TO DECIDE WHETHER THE ASSESSEE HAD REACHED TO THE ABOVE POSITION OR NOT, NO STRAIGHT JACKET FORMULA C AN BE GIVEN. VARIOUS FACTORS DEPENDING UPON THE NATURE OF THE BU SINESS NEED TO BE TAKEN INTO ACCOUNT AND PROPERLY ANALYSED TO DECIDE THIS FACT THAT WHETHER THE ASSESSEE WAS IN A POSITI ON TO CATER TO ITS CUSTOMERS OR NOT. WITH A VIEW TO FIND ANSWER TO THIS QUESTION, IT WAS FIRSTLY NOTED BY US FROM THE PERUS AL OF THE FINANCIAL STATEMENTS OF THE ASSESSEE AND OTHER DOCU MENTARY EVIDENCES BROUGHT BEFORE US THAT VARIOUS EMPLOYEES WERE APPOINTED BY THE ASSESSEE POSSESSING REQUISITE SKIL L TO CARRY OUT SALES ORDERS. MOST OF THE EMPLOYEES HAD BEEN AL READY APPOINTED IN THE PRECEDING YEAR. THE SALES ORDER WA S RECEIVED AS EARLY AS IN THE BEGINNING OF THE FINANCIAL YEAR I.E. 08.04.2009. OFFICE PREMISES WERE HIRED, COMPUTERS, OTHER ASSETS AND REQUISITE INFRASTRUCTURE WERE PUT IN PLA CE TO ENABLE THE ASSESSEE TO CARRY ON ITS BUSINESS AND SOME PURC HASES WERE ALSO MADE. IT IS ALSO NOTED THAT EXPENSES INCU RRED BY THE ASSESSEE WERE OF ROUTINE NATURE I.E. SALARY, AUDIT FEE, BANK CHARGES, RENT, TRAVELING EXPENSES, INSTALLATION EXP ENSES AND VARIOUS OTHER ROUTINE ADMINISTRATIVE EXPENSES. FURT HER, SHARE CAPITAL AND UNSECURED LOAN WERE RECEIVED AGGREGATIN G TO RS. 3.32 CRORES. THE SURPLUS FUNDS WERE KEPT IN THE BAN K. ALL THE FACTS PUT TOGETHER CLEARLY INDICATE THAT THE ENTIRE INFRASTRUCTURE WAS PUT INTO PLACE TO MAKE THE ASSESSEE READY TO CA TER TO ITS CUSTOMERS. ON THE TOP OF IT, IT IS ALSO NOTED THAT SIMILAR EXPENSES WERE CLAIMED BY THE ASSESSEE IN THE IMMEDI ATELY PRECEDING YEAR WHICH HAVE NOT BEEN DISALLOWED BY TH E AO. HOWEVER, NO INCOME WAS BOOKED IN THE PROFIT & LOSS A/C SINCE GLOBEX ENERGIA P. LTD. 12 EXECUTION OF SALES ORDERS WAS NOT COMPLETED DURING THE YEAR. BUT, AS DISCUSSED ABOVE, RECEIPT OF INCOME WOULD BE ESSENTIAL TO DETERMINE FACTUM OF COMMENCEMENT OF INCOME. 3.8. AS FAR AS, SETTING-UP OF BUSINESS IS CONCERNED, IT TAKES PLACE AS SOON AS AN ASSESSEE BECOMES READY TO CATER TO ITS CUSTOMERS. AS DISCUSSED IN DETAIL ABOVE, THE EXPENS ES SHALL BE ALLOWABLE FROM THE STAGE OF SETTING UP OF THE BUS INESS IN VIEW OF PROVISO TO SECTION 3 OF THE ACT WHICH SAYS THAT IN THE CASE OF A BUSINESS OR PROFESSION NEWLY SET UP IN A FINAN CIAL YEAR, THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WIT H THE DATE OF SETTING UP OF THE BUSINESS AND ENDING WITH THE SAID FINANCIAL YEAR. THUS, TAKING INTO ACCOUNT ALL THE F ACTS AND CIRCUMSTANCES OF THE CASE, IT WOULD NOT BE DIFFICUL T TO REACH TO THE CONCLUSION THAT BUSINESS OF THE ASSESSEE WAS SET UP DURING THE YEAR AS THE FACTS STRONGLY INDICATE THAT BUSINESS WAS DULY SET UP DURING THE YEAR. UNDER THESE CIRC UMSTANCES, IT CAN BE EASILY SAID THAT THE ASSESSEE HAD SET UP ITS BUSINESS AND THEREFORE, EXPENSES INCURRED DURING THE YEAR SH OULD BE ALLOWED AS BUSINESS EXPENSES. 3.9. IT IS FURTHER NOTED BY US THAT THE EXPENSES CLAIME D IN THE PROFIT AND LOSS ACCOUNT ARE APPARENTLY REVENUE IN N ATURE, AND NOTHING WRONG HAD BEEN POINTED OUT BY ANY OF THE LO WER AUTHORITIES ON MERITS OF THESE EXPENSES. THUS, TAKI NG INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE , IT IS HELD THAT EXPENSES CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME ARE ALLOWABLE AND THEREFORE AO IS DIRECTED TO DELET E THE DISALLOWANCE. GLOBEX ENERGIA P. LTD. 13 4. IN THE RESULT, THE APPEAL FILED THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2016. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED : 18/11/2016 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -. / (01 , * % 012 , / DR, ITAT, MUMBAI 6. / 34 5 / GUARD FILE. / BY ORDER, ) -% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI