The Dy.Commissioner of Income Tax Circle-2(1)(1), Ahmedabad V. M/s. Gujarat International Finance Tech-City Co. Limited, Gandhinagar

ITA 1177/AHD/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5698 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 05-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Capital asset; Gift; Business income; Depreciation; Business expenditure; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB; 37(1); 201; 143(2); 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE DCIT, CIRCLE - 2(1)(1), AHMEDABAD (APPELLANT) VS M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LTD. ZONAL FACILITY CENTRE, BLOCK - 12 ROAD1 - D, GANDHINAGAR - 382355 PAN: AACCG9675L (RESPONDENT) REVENUE BY : S H RI S.K. DEV , SR. D . R. ASSESSEE BY: SHRI VIJAY RANJAN, A.R. DATE OF HEARING : 28 - 11 - 2 018 DATE OF PRONOUNCEMENT : 30 - 11 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS REVENUE S APPEAL FOR A. Y. 2012 - 13 , ARI SES FROM ORDER OF THE CIT(A) - 7, AHMEDABAD DATED 16 - 02 - 2 016 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE HAS RAISED FOLLOWING SUBSTAN TIVE GROUNDS OF APPEAL: - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.2,40,18,801/ - MADE U/S.37(L) R.W.S 3 OF THE ACT, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.1,11,38,327/ - MADE U/S.32 R.W.S.3 OF THE I.T. ACT, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. I T A NO . 1177 / A HD/20 16 A SS ESSMENT YEAR 2012 - 13 I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 2 3. THE BRIEF FACT OF THE CASE IS THAT RETU RN OF INCOME DECLARING INCOME OF RS. 2 , 59 , 93 , 609/ - WAS FILED ON 14 TH AUGUST, 2012. SUBSEQUENTLY, THE REVISED RETURN OF INCOME WAS FILED BY THE ASSSESSSEE ON 24 TH SEP, 2013 DECLARING TOTAL LOSS OF RS. - 91 , 75 , 001/ - UNDER THE NORMAL PROVISION OF INCOME TAX A ND INCOME OF RS. 13 , 67 , 2 40/ - U/S. 115JB OF THE ACT. THEREAFTER THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) ON 16 TH AUGUST, 2013. FURTHER FACT S OF THE C ASE ARE DISCUSSED UNDER THE RESPECTIVE GROUND OF APPEAL . DISALLOWANCE OF R S . 2 , 40 , 18 , 8 01/ - U/S. 37(1) R.W.S. 3 OF THE ACT AND DISALLOW ANCE OF DEPRECIATION OF RS. 111 38327/ - 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT AS PER NOTE NO. 18 OF THE ACCOUNT, THE ASSESSEE HAS DEBITED THE FOLLOWING EXPENSES IN THE PROFIT AND LOSS ACCOUNT: - INTER NAL AUDIT FEES RS. 275752 STATUTORY AUDIT FEES RS, 447526 DIRECTOR'S SITTING FEES RS. 428000 FILING FEES AND PROFESSIONAL TAX RS. 5423 ELECTRICITY CHARGERS RS. 1124116 RENT RS. 4284450 REPAIRS & MAINTENANCE (OFFICE BLDG.) RS. 242934 TRANSFERRED FROM PDE PENDING ALLOCATION RS. 17210600 ------------------------ RS. 24018801/ - TO VERIFY THE NATURE OF ABOVE EXPENDITURE T HE ASSESSEE WAS CALLED UPON TO FURNISH THE PROJECT REPORT ALONG WITH OTHER PARTICULARS LIKE TOTAL COST OF PROJECT, DATE OF COMPLETION OF T HE PROJECT ETC. FROM THE PROJECT REPORT, T HE ASSESSING OFFICER HAS NOTED THE FOLLOWING POINTS: - (I) GUJARAT INTERNATIONAL FINANCE TEC CITY (GIFT) IS BEING DEVELOPED AS A GLOBAL FINANCIAL IT/ITES HUB IN THE STATE OF GUJARAT. (II) GIFT WILL ENCOMPASS AN AREA OF 886 ACRES WITH TOTAL BUILT OF AREA OF AROUND 84 MILLION SQ, FT, (III) GIFT PROJECT IS TO BE IMPLEMENTED OVER A PERIOD 10 TO 12 YEARS IN THREE PHASES OF 3 TO 4 YEARS EACH FOR THE DEVELOPMENT OF ABOUT 84 MILLION SQ, FT. BUILT U P AREA. (IV) THE TOTAL ESTIMATED COST O F INFRASTRUCTURE COMPONENTS AS GIVEN IN THE PROJECT REPORT, JANUARY, 2014 FOR THE PHASE - L (YEAR 2013 - 2016) IS 2408.36 CRORES, FOR THE PHASE - LL (YEAR 2016 - 2020) IS 3015.99 CRORES FOR THE PHASE - ILL (YEAR 2020 - 2024 ) IS 6665.13 CRORES. (V) THE TOTAL ESTIMATED COST OF THE PROJECT IS RS. 12089.48 CRORES . I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 3 IN VIEW OF T HE ABOVE FACTS , T HE ASSESSEE WAS DIRECTED TO EXPLAIN HOW IT HAS CLAIMED SUCH EXPENSES OF RS. 2 , 40 , 18 , 801/ - AS REVENUE EXPENSES IN THE PROFIT AND LOSS AC COUNT DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS OBSERVED THAT AS PER THE SUMMARY O F PROJECT REPORT T HE FIRST PHAS E OF THE PROJ ECT WAS TO BE SET UP BY 2016. THEREFORE , HE WAS OF THE VIEW THAT THERE WAS NO BASIS TO CLAIM THAT THIS PROJECT WAS SET UP AND READY TO COMMENCE THE BUSINESS. THE ASSESSEE WAS ASKED TO EXPLAIN THE EVIDENCE OF COMMENCEMENT OF THE BUSINESS AS WELL AS T HE EVIDENCE OF THE SET UP OF T HE B USINESS FOR ALLOWABILITY OF EXPENDITURE OF RS . 2 , 40 , 18 , 801/ - FOR T HE YEAR UNDER CONSIDERATION. IN RESPONSE THE ASSESSEE HAS SUBMITTED ITS EXPLANATION VIDE LETTER DATED 19 TH JAN, 2015 REPRODUCED AS U N DER : - 'THIS IS IN REFERENCE TO HEARING ON 13''JANUARY, 2015 AT YOUR OFFICE REGARDING ASSESSMENT PROCEEDINGS OF GUJARAT IN TERNATIONAL FINANCE TEC - CITY COMPANY LTD. (GIFTCL) FOR THE A.Y. 2012 - 13, IN THIS REGARD, WE WOULD LIKE TO SUBMIT AS UNDER. AS YOU ARE AWARE, GIFT PROJECT IS A GOVERNMENT PROJECT INITIATED BY THE GOVERNMENT OF GUJARAT (GOG) FOR DEVELOPING A GLOBAL FINANCIAL HUB AT GANDHINAGAR. FOR IMPLEMENTATION AND MANAGEMENT OF THE PROJECT, GOG HAS SET UP A SPV I.E. GUJARAT INTERNATIONAL FINANCE TEC - CITY COMPANY LTD. (GIFTCL) GIFT IS PLANNED AS A FINANCIAL CENTRAL BUSINESS DISTRICT (CBD) BETWEEN AHMEDABAD AND GANDHINAGAR A S A GREENFIELD DEVELOPMENT. GIFT IS DESIGNED AS A HUB FOR THE GLOBAL FINANCIAL SERVICES SECTOR. MORE PARTICULARLY, STATE - OF - THE - ART CONNECTIVITY, INFRASTRUCTURE AND TRANSPORTATION ACCESS HAVE BEEN INTEGRATED INTO THE DESIGN OF THE CITY, IT IS THE COMPANY W HO IS LOOKING AFTER DEVELOPMENT OF GIFT. GIFTCL IS INCORPORATED ON 21' JUNE, 2007 WITH EQUAL SHAREHOLDING OF GUJARAT URBAN DEVELOPMENT COMPANY (GUDC), A 100% GOVERNMENT OF GUJAR.AT OWNED COMPANY ARID INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED (IL& FS) GIFTCL IS A BOARD MANAGED COMPANY WITH GOVERNMENT OF GUJARAT NOMINATING FOUR SENIOR GOVERNMENT OFFICIALS AS DIRECTORS INCLUDING CHAIRMAN OF THE COMPANY WHO HAS A SECOND OR CASTING VOTE. GIFT PROJECT IS A PUBLIC PROJECT AND STRUCTURED TO PROVIDE THE REQ UIRED QUALITY INFRASTRUCTURE AND FACILITIES. DEVELOPMENT OF THE MUCH REQUIRED ACTIVITIES FOR THE ENVISAGED 'GLOBAL FINANCIAL HUB' IS THE OBJECT. FOR DEVELOPING THE REQUIRED INFRASTRUCTURE AND FACILITIES, JT WOULD REQUIRE 'SUPPORT FROM GOVERNMENT AND GOVERN MENT AGENCIES, KEEPING THIS IN VIEW, GOVERNMENT OF GUJARAT HAS TRANSFERRED THE R EQU IRED LAND IN APRIL, 2011 AT A NOMINAL COST OF RE. 1 AND SURPLUS IF ANY GENERATED WOULD BE ALSO ON ACCOUNT OF THE GOVERNMENT. IN THE INITIAL YEARS TILL THE FINANCIAL YEAR 201 0 - 11 SINCE INCEPTION OF THE COMPANY ON 21 S( JUNE, 2007, NO PROFIT AND LOSS ACCOUNT WAS PREPARED BY THE COMPANY AND NO EXPENSE WAS CLAIMED AGAINST THE OTHER INCOME OF THE COMPANY DURING THE INITIAL 4 YEA RS AS THE BUSINESS ACTIVITIES HAD NOT STARTED. DURING THE COURSE OF RELEVANT ASSESSMENT YEAR OF AY 2012 - 13, THE COMPANY PREPARED PROFIT AND LOSS ACCOUNT FOR THE FIRST TIME SINCE ITS OPERATIONS DISCLOSING INTEREST INCOME, BID DOCUMENTS FEES, LICENSE FEES, SCRUTINY FEES AND WATER CHARGES AND CLAIMING I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 4 DEDUCTION OF VARIOUS ADMINISTRATIVE OFFICE EXPENSES. BESIDES, THE COMPANY CLAIMED DEDUCTION OF TAX DEPRECIATION LATER ON BY FILING REVISED RETURN OF INCOME. THE CASE OF THE COMPANY WAS SELECTED FOR SCRUTINY ASSESSMENT WHEREBY ALL INFORMATION REQUESTED HAVE BEEN SUBM ITTED FROM TIME TO TIME. DURING THE COURSE OF HEARING ON 13 TH JANUARY, 2015, IT WAS ASKED TO EXPLAIN WHY EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT SHOULD NOT BE DISALLOWED AS EXPENSES INCURRED BEFORE COMMENCEMENT OF BUSINESS. FURTHER THE COMPANY WAS ASKE D TO EXPLAIN WHY DEPRECIATION SHOULD NOT BE DISALLOWED BEING EXPENSES BEFORE COMMENCEMENT OF BUSINESS. IN THIS CONNECTION, THE COMPANY HEREBY SUBMITS THE FOLLOWING: 1. ALLOWABILITY OF EXPENSES AFTER SET - UP OF BUSI NESS 1.1 WITHOUT PREJUDICE TO THE FACT T HAT THE COMPANY HAS ALREADY COMMENCED THE BUSINESS DURING RELEVANT PREVIOUS YEAR' AND ALL EXPENSES ARE INCURRED AFTER - COMMENCEMENT OF BUSINESS, IT IS SUBMITTED THAT THE GENERAJ EXPENSES) INCURRED BY THE COMPANY ARE A LLOWABLE NOT FROM THE COMMENCEM ENT OF BU SINESS BUT A LSO FROM THE DATE OF SETTING UP OF BUSINESS. THE JUDICIAL AUTHORITIES HAVE WORKED OUT A FINE LINE OF DISTINCTION BETWEEN SET - UP OF OPERATIONS AND COMMENCEMENT OF OPERATIONS. FOR THE PURPOSE OF A LLOWING DEDUCTION OF EXPENSES, BUSINESS SHOULD N OT HAVE BEEN EX PENSES ARE NCURRED AFTER THAT DURING INTERVENING PERIOD OF COMMENCEMENT OF BUSINESS JUDICIAL AUTHORITIES HAVE RIGHTLY HELD THAT EXPENSES ARE ELIGIBLE F OR DEDUCTION, 1.2 THE AFORESAID VIEW HAS BEEN HELD BY BOMBAY HIGH COURT IN WESTERN INDIA VEGETABLE PRODUCTS LTD. V. CIT. THE RELEVANT EXTRACTS OF THE JUDGMENT READS AS UNDER: 'THERE IS DIFFERENCE BETWEEN THE TWO EXPRESSIONS 'SETTING UP' AND 'COMMENCED'. THE EXPRESSION 'SETTING UP' MEANS, AS IS DEFINED IN OXFORD ENGLISH DICTIONARY, 'TO PLACE ON FOOT' OR 'TO ESTABLISH', AND IN CONTRADICTION TO 'COMMENCE', THE DISTINCTION IS THAT WHEN A BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS THEN IT CAN BE SAID OF BUSINESS THAT IT IS SET UP, BUT BEFORE IT IS READY TO COMMENCE BUSINESS IT IS NOT SET UP. BUT THERE MAY BE A N INTERREGNUM, THERE M AY BE AN INTERVAL BETWEEN A BUSINESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED AND ALL EXPENSES I NCURRED AFTER SETTING UP OF THE BUSINESS AND BEFORE THE COMMENCEMENT OF THE BUSINESS, ALL EXPENSE S DUR ING THE INTERREGNUM, WOULD BE PERMISSIBLE DEDUCTIONS UNDER SECTION 10(2). 1.3 THE DECISION IS ALSO SUPPORTED BY GUJARAT HIGH COURT IN THE CASE OF CIT V. SAURASHTRA CEMENT AND CHEMICALS INDUSTRIES LTD., WHEREIN IT WAS HELD THAT THE BUSINESS WOULD COMMENCE WHEN THE ACTIVITY WHICH, IS FIRST IN POINT OF TIME AND WHICH MUST NECESSARILY PRECEDE THE OTHER ACTIVITIES IS STARTED. 4S SOON AS AN ACTIVITY WHICH IS AN IN THE COURSE OF CARRYING ON THE BUSINESS, OR WHICH, IN OTHER WORDS, IS A BUSINESS ACTIVITY IS STARTE D, THE ASSESSES MUST BE HELD TO HAVE COMMENCED THE BUSINESS. TO TAKE ANY OTHER VIEW WOULD NOT ONLY BE ILLOGICAL BUT ALSO IRRATIONAL. THE CONCLUSION REACHED BY THE TRIBUNAL COULD NOT, THEREFORE, BE SAID TO BE UNREASONABLE OR PERVERSE OR BASED ON NO EVIDENCE AT ALL.' THE ABOVE DECISIONS SUPPORT A VIEW THAT THE GENERAL EXPENSES INCURRED BY THE COMPANY ARE REVENUE EXPENSES IN NATURE AND ALLOWABLE IN NATURE IF SUCH EXPENSES ARE INCURRED AFTER SETTING UP OF BUSINESS BUT BEFORE COMMENCEMENT OF BUSINESS. SETTING UP OF BUSINESS OF THE COMPANY; 2.1 WITHOUT PREJUDICE TO THE FACT THAT BUSINESS OF THE COMPANY HAS ALREADY COMMENCED OPERATIONS AND ALL EXPENSES ARE INCURRED BY THE COMPANY ONLY AFTER SETTING UP OF BUSINESS, IT IS HUMBLY SUBMITTED BY THE COMPANY, THAT THE BUS INESS OF THE COMPANY IS ALREADY SET UP IN PREVIOUS YEAR 2011 - 12. GUJARAT HIGH COURT .IN THE CASE OF GIT V, SAURASHTRA CEMENT AND CHEMICALS INDUSTRIES LTD HAS DEFINED THE CONNOTATION SETTING UP OF BUSINESS' AS 'THE BUSINESS WOULD COMMENCE WHEN THE ACTIVITY WHICH, IS FIRST IN POINT OF TIME AND WHICH MUST NECESSARILY PRECEDE THE OTHER ACTIVITIES IS STARTED. AS SOON AS AN ACTIVITY WHICH IS AN ESSENTIAL ACTIVITY IN THE COURSE OF CARRYING ON THE BUSINESS, I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 5 OR WHICH, IN OTHER WORDS, IS A BUSINESS ACTIVITY IS STARTE D, THE ASSESSEE MUST BE HELD TO HAVE COMMENCED THE BUSINESS.' 2.2 IN ORDER TO ESTABLISH THE FACT THAT THE COMPANY HAS ALREADY SET UP ITS BUSINESS, THE DETAILS PROVIDED BELOW FOR YOUR KIND PERUSAL IN FINANCIAL YEAR 2011 - 12, VIDE COLLECTOR ORDER DTD, 15.04.2 011 (IN GUJARATI AND ITS ENGLISH TRANSLATED VERSION PLACED AT ANNEXURE - 1), THE - STATE GOVERNMENT HAS TRA NSFERRED THE LAND OF 662 ACRES TO GIFTCL (412 ACRES) AND ITS SUBSIDIARY COMPANY GIFT SEZ LTD. (250 ACRES) AT A TOKEN VALUE OF RE.1/ - . ANNEXURE; 1 ST PHASE OF THE PROJECT, AN Y SURPLUS AMOUNT RECEIVED FRO M DEVELOPMENT RIGHTS BY BOTH T HE COMPANIES OVER AND ABVOE THE ORIGINAL COST SHALL BE DISTRIBUTED EQUALLY BETWEEN THE GOVERNMENT AND BOTH THE COMPANIES (50 - 50%) RESPECTIVELY AND FOR ALL THE PHASES THEREAFTER, THE DISTRIBUTION OF SURPLUS WOULD BE (80 - 20%) TOWARDS THE COST OF THE LAND, AFTER THE TRANSFER OF LAND BY THE GOVERNMENT OF GUJARAT, THE IMPLEMENTATION WORK OF THE INFRASTRUCTURE WAS COMMENCED BY GIFTCL AND VARIOUS TENDERS WERE FLOATED AND BIDS WERE INVITE D FROM CONTRACTORS AS PER DETAILS PLACED AT ANNEXURE - 2. THE DETAILS O F MAJOR INFRASTRUCTURE WORKS FOR WHICH LETTER OF INTENT WAS ISSUED TO THE CONTRACTORS IN F.Y. 2011 - 12 (A.Y. 2012 - 13) AMOUNTING TO RS. 57.42 CRORES ARE PLACED AT ANNEXURE - 3. 2.3 IT CAN AL SO BE DEDUCED FROM THE SERIES OF EVENTS LISTED ABOVE THAT THE COMPANY HAS ACTUALLY COMMENCED THE BUSINESS OPERATIONS. IT IS ALSO EVIDENCED FROM THE FACT THAT COMPANY HAS INVENTORIED EXPENDITURE AMOUNTING TO RS. 40,03,25,606/ - TO PROJECT DEVELOPMENT EXPENDI TURE DURING THE FINANCIAL YEAR 2011 - 12 ATTRIBUTABLE TO LAND DEVELOPMENT EXPENSE, SITE AND INFRASTRUCTURE WORKS ETC. THE EXPENSES ON THE OTHER HAND DEBITED IN PROFIT - LOSS STATEMENT ARE GENERAL EXPENSES SUCH AS AUDIT FEES, RENTAL CHARGES THAT TANTAMOUNT TO ADMINISTRATIVE EXPENDITURE NOT RELATING TO PROJECT EXPENDITURE AND HENCE NOT INVENTORIED. AFTER DRAWING CONCLUSIONS FORM THE JUDICIAL PRONOUNCEMENTS THAT THE EXPENDITURE INCURRED AFTER SET - UP OF BUSINESS IS ALLOWABLE UNDER THE INCOME TAX ACT AND THAT SUCH EXPENSE ARE REVENUE IN NATURE, THE SAME IS ALLOWABLE UNDER SECTION 37 OF THE INCOME TAX ACT, 1961. 2.4 IT IS ALSO SUBMITTED THAT OWING TO THE ACCOUNTING STANDARD REQUIREMENTS, NO REVENUE HAS BEEN ACCOUNTED FOR IN THE PROFIT - LOSS STATEMENT. HENCEFORTH, TH E COMMENCEMENT OF OPERATIONS CANNOT BE LINKED WITH THE BOOKING OF REVENUE IN THE ACCOUNTING BOOKS. 3. ALLOWABILITY OF EXPENSES.TRANSFERRED FROM PDE 3.1 IN THE CONCERNED ASSESSMENT YEAR, THE COMPANY HAS DEBITED TO THE PROFIT AND LOSS STATEMENT EXPENSES AM OUNTING TO RS. 17,210,600/ - AS 'TRANSFERRED FROM PDE PENDING ALLOCATION. DURING THE HEARING, IT IS QUESTIONED THE ALLOWABLLITY OF THE SAME CONSIDERING THE SAME AS PRELIMINARY EXPENSES. 3.2 IN CONNECTION WITH THE SAME, THE COMPANY HEREBY SUBMITS THAT THE PROFIT - LOSS STATEMENT HAS BEEN PREPARED FOR THE FIRST TIME SINCE INCORPORATION. THE AFORESAID EXPENSES ARE ADMINISTRATIVE AND OFFICE EXPENDITURE IN NATURE WHICH HAS BEEN EXPENDED BEFORE PROFIT AND LOSS STATEMENT IS PREPARED. SUCH EXPENSES ARE . I ACTUALLY INCURRED AFTER BUSINESS HAS BEEN SET UP AND THEREFORE ALLOWED AS DEDUCTION. AS PER ACCOUNTING PRINCIPLES, SUCH EXPENSES ARE DEBITED TO PROFIT AND LOSS STATEMENT OF THIS YEAR AND THEREFORE EXPENSES ARE ALLOWED AS DEDUCTION IN CURRENT ASSESSMENT YEAR BASED O N PRINCIPLES DISCUSSED IN PARA 2 OF THE SUBMISSION. 3.3 AS DISCUSSED ABOVE, THE EXPENSES INCURRED AFTER SET - UP OF BUSINESS ARE ALLOWABLE AS DEDUCTION. GIVEN THE FAC T THAT SUCH EXPENSES ARE NOT PRO JECT RELATED AND THAT HAVE BEEN INCURRED AFTER THE SET - U P OF BUSINESS, THE SAME IS ALLOWABLE AS REVENUE EXPENDITURE TO THE COMPANY. 3.4 WITHOUT PREJUDICE TO THE ABOVE, THE COMPANY ALSO SUBMITS THAT EVEN IF IT IS TREATED AS PRELIMINARY EXPENDITURE, 1/5 TH OF THE AFORESAID EXPENDITURE SHALL BE ALLOWABLE UNDER S ECTION 35D OF THE ACT. I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 6 4. ALLOWABILI TY OF DEPRECIATION 41 IT IS SUBMITTED THAT THE ASSETS USED BY THE COMPANY ARE USED FOR THE PURPOSE OF BUSINESS AND THAT THE ASSETS HAVE BEEN PUT TO USE BY THE COMPANY. SECTION 32 OF THE INCOME TAX ACT, 1961 MANDATES T HE ASSESSEE COMPANY TO CLAIM THE DEPRECIATION ONCE THE ASSETS ARE PUT TO USE FOR THE PURPOSE OF ITS BUSINESS. IT CAN BE NOTED THAT THE COMPANY HAS CAPITALIZED ALL SUCH ASSETS IN FINANCIAL STATEMENTS WHICH INDICATES THAT SUCH ASSETS ARE USED FOR THE PURPOSE OF BUSINESS AND PROFESSION OF THE COMPANY. 4.2 FURTHER THE COMPANY HAS ALREADY SUBMITTED THAT THE BUSINESS OF THE COMPANY HAS BEEN SET UP AND COMMENCED, ALL SUCH ASSETS ARE BUSINESS ASSETS OF THE COMPANY AND USED FOR BUSINESS ACTIVITIES. THEREFORE DEPR ECIA TION ON SUCH ASSETS SHOULD BE ALLOWED AS DEDUCTION.' THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE STATING THAT DESPITE GIVING VARIOUS OPPORTUNITIES , ASSESSEE HAS NOT FURNISHED ANY EVIDENCE OF SET UP OF BUSINESS. IN THIS CO NNECTION, THE ASSESSING OFFICER HAS REPRODUCED THE CHART GIVEN BY THE ASSESSEE SHOWING SCHEDULE OF MAJOR TENDER WORK SUMMARIZED AS UNDER: - NAME OF THE WORK NOTICE TO COMMENCE THE WORK CONSTRUCTION COMPLETION DATE CONTRACT COMPLETION DATE INCLUDING O&M CONTRACT AWARDED PRICE (RS. IN CRORE) UPGRADATION OF ACCESS ROAD FROM SHAHPUR SIDE TO GIFT ZONE 07/11/2011 05/0 5/2012 05/05/2012 3.51 CONSTRUCTION, OPERATION & MAINTENANCE OF RAW WATER PUMPING STATION AT NABHOI HEAD WORKS AND T RANSMISSION MAIN FOR WATER SUPPLY TO GIFT R ,ZONE 07/11/2011 06/11/2013 05/11/2016 16.44 CONSTRUCTION OF SUB - ARTERIAL ROADS IN GIFT AREA (DTA) 02/01/2012 15/06/2012 31/12/2016 31.74 CONSTRUCTION OF GABION WALL IN GI FT 16/01/2012 14/07/2012 14/07/2012 2.51 STREET LIGHTING WITH AREA LIGHTING FOR ACCESS ROAD FROM SHAHPUR SIDE TO GIFT 13/01/2012 11/07/2012 11/07/2012 0.56 WATER (WTP & STP) 13/05/2012 09/12/2012 08/12/2017 16.23 I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 7 DISTRICT COOLIN G SYSTEM (BUILDING LEVEL) 01/08/2012 24/11/2013 23/11/2018 77.10 66/35KV SUBSTATION 27/07/2012 27/07/2013 26/07/2018 27.19 IN VIEW OF THE ABOVE DETAIL, THE A SSESSING OFFICER WAS OF THE VIE W THAT BUSINESS OF THE ASSESSE WAS NOT SET UP TILL T HE END OF FINANCIAL YEAR 2011 - 12 AND OBSERVED THAT CLAIM OF AFORESAID EXPENDITURE AS REVENUE EXPENDITURE WAS NOT ALLOWABLE. THE ASSESSING OFFICER STATED THAT IT IS EVIDENT THAT THE BUSINESS OF THE A SSESSEE WAS NOT SET UP DURING T HE YEAR UNDER CONSIDERATI ON AND HENCE THE CLAIM OF OTHER EX PENSES OF RS . 2 , 40 , 18 , 801 WAS NOT ALLOWABLE AS DEDUCTION DURING THE YEAR UNDER CONSIDERATION . THEREFORE, THE ASSESSING OFFICER HAS TREAT ED THE SAME AS CAPITAL EXPENDITURE AND ADDED BACK TO THE TOTAL INCOME SHOWN BY THE ASSES SEE . HE HAS ALSO STATED THAT THE BUSINESS OF THE ASSESSEE WAS NOT READY TO COMMENCE , THEREFORE, THE CLAIM OF DEPRECIATION OF RS . 1 , 11 , 38 , 327/ - MADE BY THE ASSESSEE IN THE REVISED RETURN OF INCOME WAS ALSO DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. RELEVANT PART OF THE DECISION OF THE L D. CIT(A) IS REPRODUCE AS UNDER: - 4.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. THE AO AFTER A DETAILED DISCUSSION IN HIS ORDER HELD THAT THE APPELLANT HAD NOT DERIVED ANY INCOME DURING THE YEAR UNDER CONSIDERATION AND HAD NOT FURNISHED ANY EVIDENCES TO SHOW THAT BUSINESS HAD BEEN SET UP AND WAS READY TO COMMENCE DURING THE YEAR. HE ACCORDINGLY DISALLOWED THE EXPENSES AMOUNTING TO RS.2,40,18,801/ - STATING THAT THE SAME WERE NOT ALLOWABLE U/S. 37(1) OF THE ACT. THE APPELLANT, ON THE OTHER HAND, SUBMITTED THAT ALL THE SUBMISSIONS MADE BY IT AND THE EVIDENCES PRODUCED BEFORE THE AO ESTABLISHED THAT THE BUSINESS HAD BEEN SET UP AND THE EXPENSES CLAIMED WERE WHOLLY ALLOWABLE. 4.2.1 A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT IN PARA 3.7(I) ON PAGE 8, THE A.O HAS DISALLOWED THE EXPENSES CLAIMED BY THE APPELLANT FOR THE REASON THAT IT WAS HELD THAT THE APPELLANT HAD NOT SET UP ITS BUSINESS. THEAO HAS ALSO QUOTED A NUMBER OF CASE - LAWS IN SUPPORT OF HIS STAND. HOWEVER, EACH OF THESE DECISIONS REFERRED TO BY THE A.O, HOLDS THAT EXPENDITURE INCURRED PRIOR TO SETTING UP A BUSINESS WOULD NOT QUALIFY FOR DEDUCTION. THUS WHAT NEEDS TO BE SEEN IS WHETHER THE BUSINESS OF THE APPELLANT, EVEN THOUGH IT MAY NOT HAVE ' COMMENCED', HAD INDEED BEEN 'SET - UP'. 4.2.2 VARIOUS JUDICIAL DECISIONS HAVE LAID DOWN WHAT WOULD COMP RISE 'SETTING UP OF BUSINESS'. IN ITS DECISION IN THE CASE OF DHOOMKETU BUILDERS & DEVELOPMENT (P). LTD. VS. ADDITIONAL COMMISSIONER OF INCOME - TAX, THE HON'BLE DELHI HIGH COURT HAS HELD THAT EYEA, I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 8 PARTICIPATION IN A BID FOR ACQUISITION OF LAND FOR A REAL E STATE DEVELOPER WOULD CONSTITUTE SETTING UP' OF BUSINESS. THE RELEVANT PART OF THE DECISION IS REPRODUCED AS UNDER: 'SECTION 28(I) READ WITH SECTION 56, OF THE INCOME - TAX ACT, 1961 - BUSINESS INCOME - CHARGEABLE AS - ASSESSMENT YEAR 2006 - 07 - ASSESSEE COMP ANY WAS INCORPORATED TO CARRY ON BUSINESS OF REAL ESTATE DEVELOPMENT - IT FILED ITS RETURN OF INCOME DECLARING A LOSS - IN COURSE OF ASSESSMENT, ASSESSING OFFICER NOTICED THAT OFFICIAL LIQUIDATOR OF HIGH COURT FLOATED A TENDER FOR SALE OF LAND - ASSESSEE H AD RAISED AN INTEREST BEARING UNSECURED LOANS OF RS. 186 CRORES FROM ITS HOLDING COMPANY, I.E., DLF LTD. AND HAD DEPOSITED ABOVE AMOUNT OF RS. 186 CRORES ON SAME DAY AS EARNEST MONEY IN RESPONSE TO TENDER INVITED BY OFFICIAL LIQUIDATOR - BID, HOWEVER, COUL D NOT MATERIALIZE AND ULTIMATELY AMOUNT OF RS. 186 CRORES WAS RETURNED TO ASSESSEE ALONG WITH INTEREST - ASSESSEE ALSO PAID INTEREST TO DLF LTD. - ASSESSING OFFICER WAS OF VIEW THAT ASSESSEE HAD NOT COMMENCED ANY BUSINESS ACTIVITY; THEREFORE, IT WAS NOT EN TITLED FOR INTEREST EXPENSES AS CLAIMED BY IT SIMILARLY INTEREST INCOME RECEIVED BY ASSESSEE DESERVED TO BE ASSESSED AS AN 'INCOME FROM OTHER SOURCES' AND NOT AS A 'BUSINESS INCOME' - WHETHER PARTICIPATION IN TENDER WAS STARTING OF ONE ACTIVITY WHICH ENABL ED ASSESSEE TO ACQUIRE LAND FOR DEVELOPMENT AND, IN SUCH A SITUATION, ACTUAL DEVELOPMENT OF LAND WAS IMMATERIAL FOR CONSTRUING THAT BUSINESS OF ASSESSEE HAD BEEN SET UP - HELD, YES - WHETHER, THEREFORE, ASSESSEE HAD DEMONSTRATED THAT ITS BUSINESS WAS SET U P DURING RELEVANT YEAR AND, AS A CONSEQUENCE, INTEREST INCOME EARNED BY ASSESSEE WAS TO BE TAXED AS ITS BUSINESS INCOME - HELD, YES' THIS RULING BY THE DELHI HIGH COURT REITERATES THAT BUSINESS CAN BE CONSIDERED AS SET UP WHEN THE ACTIVITY THAT IS CHRONOLO GICALLY FIRST AND MUST PRECEDE ALL OTHER ACTIVITIES IS STARTED. THAT IS, THE MOMENT AN ESSENTIAL ACTIVITY IS STARTED, THE BUSINESS IS CONSIDERED TO BE SET - UP. IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS INDUSTRIES LIMITED VS. CIT, THE HON'BLE GUJARAT HI GH COURT HAS HELD AS UNDER: 'SECTION 37(1) OF THE INCOME - TAX ACT, 1961 - BUSINESS EXPENDITURE - ALLOWABILITY OF - ASSESSMENT YEARS 1960 - 61 AND 1961 - 62 - ASSESSEE COMPANY, INCORPORATED IN 1956 FOR MANUFACTURE OF CEMENT, HAD OBTAINED A MINING LEASE FOR QUARRY ING LIMESTONE AS LIMESTONE WAS ESSENTIAL RAW MATERIAL IN MANUFACTURE OF CEMENT - IT STARTED EXTRACTING LIMESTONE FROM LEASED AREA FROM 1958 - ASSESSEE COMPLETED INSTALLATION OF PLANT AND MACHINERY IN JUNE, 1960 AND STARTED MANUFACTURE OF CEMENT IN OCTOBER, 1960 - WHETHER ON FACTS, IT COULD BE SAID THAT ASSESSEE HAD COMMENCED ITS BUSINESS IN 1958 WHEN IT STARTED ACTIVITY OF EXTRACTION OF LIMESTONE BY QUARRYING LEASED AND, THEREFORE, EXPENDITURE INCURRED BY ASSESSEE IN CARRYING ON ACTIVITY OF EXTRACTION OF LI MESTONE AS ALSO DEPRECIATION ALLOWANCE AND DEVELOPMENT REBATE IN RESPECT OF MACHINERY EMPLOYED IN EXTRACTING LIMESTONE WERE DEDUCTIBLE IN COMPUTING TRADING PROFITS OF ASSESSEE - HELD, YES' THUS THE HON'BLE GUJARAT HIGH COURT ESTABLISHED PRINCIPLES OF 'SETTIN G UP' AS UNDER: 'THE BUSINESS WOULD COMMENCE WHEN THE ACTIVITY WHICH IS FIRST IN POINT OF TIME AND WHICH MUST NECESSARILY PRECEDE THE OTHER ACTIVITIES IS STARTED...' FURTHER, IN THE CASE OF SAURASHTRA CEMENT THE HON'BLE JURISDICTIONAL HIGH COURT HAS ALSO HELD AS UNDER: '... ..... THE TERM BUSINESS CONNOTES A CONTINUOUS COURSE OF ACTIVITIES. ALL THE ACTIVITIES, WHICH GO TO MAKE UP THE BUSINESS, NEED NOT BE STARTED SIMULTANEOUSLY IN ORDER THAT THE BUSINESS MAY COMMENCE. THE BUSINESS WOULD COMMENCE, WHEN THE ACTIVITY WHICH IS FIRST IN POINT OF TIME AND WHICH MUST NECESSARILY PRECEDE ALL OTHER ACTIVITIES, IS STARTED. IT WAS FURTHER HELD THAT IN ORDER TO DETERMINE THE QUESTION WHETHER, THE BUSINESS OF AN ASSESSEE HAS COMMENCED OR NOT, IT IS NECESSARY TO CONSIDER , WHAT CONSTITUTES THE BUSINESS OF THE ASSESSEE. IT WAS ALSO LAID DOWN THAT IN DETERMINING THIS QUESTION ARISING UNDER FISCAL LEGISLATION, ONE MUST CONSIDER WHAT ARE THE ACTIVITIES WHICH CONSTITUTED SUCH I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 9 BUSINESS WITHOUT BEING MISGUIDED BY THE LOOSE EXPRES SIONS OF VAGUE AND INDEFINITE IMPORT ... ... THUS, THE HON'BLE HIGH COURT HAS HELD THAT IN ORDER TO DETERMINE WHETHER THE BUSINESS OF THE ASSESSEE HAS COMMENCED OR NOT, IT IS ESSE NTIAL TO SEE WHAT THE BUSINESS O F THE ASSESSEE IS. IN THE CASE OF WESTERN IN DIA VEGETABLE PRODUCTS LTD. 26 ITR 151, THE HON'BLE BOMBAY HIGH COURT HAS HELD AS UNDER: ' 'THERE IS DIFFERENCE BETWEEN THE TWO EXPRESSIONS 'SETTING UP' AND 'COMMENCED'. THE EXPRESSION 'SETTING UP' MEANS, AS IS DEFINED IN OXFORD ENGLISH DICTIONARY, 'TO PL ACE ON F FOOT' OR 'TO ESTABLISH', AND IN CONTRADICTION TO 'COMMENCE'. THE DISTINCTION IS THAT WHEN IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS THEN IT CAN BE SAID OF BUSINESS THAT IT IS SET UP. BUT BEFORE IT IS READY TO COMMENCE BUSINESS IT IS NOT SET UP. BUT THERE MAY BE AN INTERREGNUM, THERE MAY BE AN INTERVAL BETWEEN A BUSINESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED AND ALL EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND BEFORE THE COMMENCEMENT OF THE BUSINESS, ALL EXPENSES DUR ING INTERREGNUM, WOULD BE PERMISSIBLE DEDUCTIONS UNDER SECTION 10(2)'. 4.2.3 NOW IT WOULD BE PERTINENT TO SEE WHAT THE BUSINESS OF THE APPELLANT IS, AND WHETHER ANY ACTIVITY HAD ACTUALLY TAKEN PLACE TOWARDS MEETING THE BUSINESS OBJECTIVES OF THE APPELLANT. A PERUSAL OF THE MEMORANDUM OF ASSOCIATION OF THE APPELLANT COMPANY SHOWS THAT THE OBJECTIVE OF THE COMPANY IS TO DESIGN, DEVELOP, FINANCE, CONSTRUCT, OPERATE AND MAINTAIN GUJARAT INTERNATIONAL FINANCE TECH. CITY (GIFT CITY). VARIOUS EVIDENCES HAVE BEEN F URNISHED BY THE APPELLANT TO SUPPORT ITS CONTENTION THAT BUSINESS HAD INDEED BEEN SETUP. THE FOLLOWING DOCUMENTS HAVE BEEN FURNISHED BY THE APPELLANT - 1. ENVIRONMENT CLEARANCE FOR THE PROJECT RECEIVED FROM STATE LEVEL ENVIRONMENT IMPACT ASSESSMENT AUTHOR ITY, GUJARAT ON 3 RD NOVEMBER, 2009. 2. NOC FOR HEIGHT CLEARANCE FOR THE PROJECT ISSUED BY AIRPORTS AUTHORITY OF INDIA ON 21 ST MAY, 2010. 3. APPROVAL OF LAND USE PLAN OF GIFT PROJECT AREA UNDER GOVERNMENT NOTIFICATION OF URBAN DEVELOPMENT AND URBAN HOUSI NG DEPARTMENT NO.GH/V/116 OF 2011/GIFTV 102011 - 2523 - L DTD.22 - 07 - 2011. 4. RECOMMENDATION FOR SEISMIC DESIGN FOR GIFT PROJECT RECEIVED FROM INSTITUTE OF SEISMOLOGICAL RESEARCH VIDE LETTER DTD.16.05.2011. 5. NOTIFICATION OF URBAN DEVELOPMENT AND URBAN HOU SING DEPARTMENT, GOVERNMENT OF GUJARAT DTD.19.10.2011 REGARDING APPROVAL OF GENERAL DEVELOPMENT CONTROL REGUL ATION FOR THE GIFT AREA. 6. COLLECTOR ORDER DTD.15.04.2011 VIDE WHICH THE STATE GOVERNMENT HAS TRANSFERRED 662 ACRES OF LAND TO GIFTCL (412 ACRES) AND ITS SUBSIDIARY COMPANY GIFT SEZ LTD. (250 ACRES) AT A TOKEN VALUE OF RE.L/ - IN FINANCIAL YEAR 2011 - 12. 4.2.4 AS MENTIONED ABOVE, THE OBJECTIVE OF THE APPELLANT COMPANY IS TO DESIGN, DEVELOP, BUSINESS, CONSTRUCT, OPERATE AND MAINTAIN GUJARAT INTERNATIONAL FINANCE TECH. CITY (GIFT CITY). IN PURSUANCE TO THESE OBJECTIVES, IT IS SEEN THAT THE APPELLANT HAS ACQUIRED LAND, OBTAINED ENVIRONMENTAL CLEARANCE, RECEIVED NOC FROM AIRPORT AUTHORITY OF INDIA, RECEIVED RECOMMENDATION FROM THE INSTIT UTE OF SEISMOLOGICAL RESEARCH AND HAS ALSO RECEIVED AN APPROVAL FROM THE URBAN DEVELOPMENT AND HOUSING DEPARTMENT FOR LAND USE PLAN OF THE GIFT PROJECT AREA. THE APPELLANT HAS ALSO SUBMITTED LETTERS OF INTENT GIVEN TO VARIOUS CONTRACTORS IN RESPECT OF CARR YING OUT WORK RELATED TO THE ITS BUSINESS SUCH AS NOTICE TO COMMENCE WORK FOR CONSTRUCTION, OPERATION AND MAINTENANCE OF WATER PUMPING STATION FOR WATER SUPPLY TO GIFT ZONE, NOTICE TO COMMENCE WORK FOR POWER SUPPLY ARRANGEMENT FOR GIFT PROJECT AND NOTICE T O COMMENCE WORK FOR PIPE NETWORK FOR BORE - WELL CONNECTION FOR GIFT PROJECT. THE FACT THAT THE WORK HAD ALSO STARTED IN PURSUANCE OF THESE CONTRACTS HAS BEEN ESTABLISHED BY THE APPELLANT BY SUBMISSION OF WORK COMPLETION CERTIFICATES OF I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 10 THESE CONTRACTORS. AL L THESE EVIDENCES CLEARLY ESTABLISH THAT THE BUSINESS OF THE APPELLANT HAD BEEN SET UP DURING THE YEAR UNDER CONSIDERATION. 4.2.5 CONSIDERING THE FACTS OF THE CASE, THE NATURE OF THE APPELLANT'S BUSINESS AND ITS OBJECTIVES, THE EVIDENCES FILED AND THE JUDI CIAL DECISIONS REFERRED TO ABOVE, I AM OF THE VIEY THAT IN THIS CASE, THE APPELLANT'S BUSINESS HAD BEEN SET UP AND WAS POSITIONED IN THE INTERIM PERIOD BETWEEN SET UP AND COMMENCEMENT AS ENVISIONED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF WESTERN IN DIA VEGETABLE PRODUCTS LTD. THEREFORE, THE EXPENDITURE CLAIMED BY THE APPELLANT WOULD BE ALLOWABLE U/S. 37(1) OF THE ACT. THE DISALLOWANCE OF RS.2,40,18,801/ - IS ACCORDINGLY DELETED. GROUND OF APPEAL NO. 2 IS ALLOWED 5.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. A PERUSAL OF THE SUBMISSION MADE BY THE APPELLANT SHOWS THAT THE DEPRECIATION HAS BEEN CLAIMED ON ACCOUNT OF PLANT & MACHINERY WHICH INCLUDES OFFICE EQUIPMENT AND VEHICLES, COMPUTERS AND COMPUTER SOFTWARE A ND FURNITURE AND FIXTURES. IT HAS BEEN ALREADY BEEN HELD BY ME WHILE ADJUDICATING THE GROUND OF APPEAL NO.2 THAT THE APPELLANT'S BUSINESS HAD BEEN SET UP AND WHILE NO INCOME HAD BEEN EARNED DURING THE YEAR, ACTIVITIES WERE BEING CARRIED OUT BY THE APPELLAN T TOWARDS COMMENCEMENT OF BUSINESS. IN VIEW OF THE SAME, I AM OF THE OPINION THAT THE APPELLANT WILL BE ENTITLED TO CLAIM OF DEPRECIATION AND THEREFORE THE DISALLOWANCE OF RS.1,11,38,327/ - IS DELETED. GROUND OF APPEAL NO. 3 IS ALLOWED. 6. DURING THE COUR SE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND, LD. COUNSEL HAS SUBMITTED PAPER BOOK CONTAINING DETAIL AND SUBMISSION MADE BEFORE ASSESSING OFFICER AND LD. CIT(A). THE LD. COUNSEL HAS ALSO FURNISHED PAPER BOOK CONTAINING VARIOUS JUDICIAL PRONOUNCEMENTS ON WHICH RELIANCE WAS PLACED . 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE ASSESSEE COMPANY HAS FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 14 TH AUGUST, 2012 DECLARING TOTAL INCOME AT RS. 2,59,93,609/ - . TO DEMONSTRATE THAT THE BUSINESS OF THE ASSESSEE COMPANY HAS BEEN SET UP THE ASSESSEE COMPANY HAS SUBMITTED THE FOLLOWING DETAILS DURING THE COURSE OF ASSES SMENT PROCEEDINGS: - (A) COLLECTOR ORDER DTD.15.04.2011 (IN GUJARATI AND ITS ENGLISH TRANSLATED VERSION) FOR THE FINANCIAL YEAR 2011 - 12 (B) DETAILS OF THE TENDER FLOATED FOR THE PURPOSE OF INFRASTRUCTURE WORK (C) DETAILS OF MAJOR INFRASTRUCTURE WORKS FOR W HICH LETTER OF INTENT WAS ISSUED TO THE CONTACTORS IN FY 2011 - 12 I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 11 THE NATURE OF BUSINESS OF THE ASSESSEE COMPANY WAS TO DESIGN, DEVELOP, FINANCE, CONSTRUCT, OPERATE AND MAINTAIN GUJARAT INTERNATIONAL FINANCE TECH. CITY (GIFT CITY). THE COMPANY HAD ENGAGED SPECIALIZED CONSUL TANT TO UNDERTAKE VARIOUS STUDIES FOR THE DEVELOPMENT OF THE GIFT PROJECT WHICH INCLUDED DETAILED MASTER PLAN, ARCHITECTURAL AND ENGINEERING DESIGN INCLUDING CONCEPT DESIGN OF BUILDING AND INFRASTRUCTURE, CONTEXT STUDY, TALENT ASSESSMENT STUDY, SKILLS, DEM AND SUPPLY STUDY, DEMAND ASSESSMENT AND FEASIBILITY, ICT MASTER PLAN AND DESIGN FOR BUILDING ICT INFRASTRUCTURE, REAL ESTATE AND MARKET ASSESSMENT, SOIL INVESTIGATION ETC. THE ASSESSEE HAS SUBMITTED THAT ALL THESE STUDIES HAD TAKEN PLACE BEFORE 31 ST MARCH , 2011. THE ASSESSEE COMPANY HAS ALSO OBTAINED VARIOUS APPROVALS AND CLEARANCE FOR IMPLEMENTATION OF THE PROJECT AS ELABORATED IN DETAIL IN FINDING OF THE CIT(A) AS SUPRA IN THIS ORDER. THE A SSESSEE COMPANY HAS ALSO ISSUED LETTERS OF INTENT TO VARIOUS CONTRACTORS IN RESPECT OF CARRYING OUT WORK RELATED TO ITS BUSINESS SUCH AS NOTICE TO COMMENCE WORK FOR CONSTRUCTION, OPERATION AND MAINTENANCE OF WATER PUMPING STATION FOR WATER SUPPLY TO GIFT ZONE, NOTICE TO COMMENCE WORK FOR POWER SUPPLY ARRANGEMENT FO R GIFT PROJECT AND NOTICE TO COMMENCE WORK FOR PIPE NETWORK FOR BORE - WELL CONNECTION FOR GIFT PROJECT. THE ASSESSEE HAS ALSO SUBMITTED WORK COMPLETION CERTIFICATES OF THESE CONTRACTORS. DURING THE COURSE OF ASSESSMENT YEAR 2012 - 13, THE ASSESSEE COMPANY HAS PREPARED ITS PROFIT AND LOSS ACCOUNT FOR THE FIRST TIME SINCE ITS OPERATION DISCLOSING INTEREST DOCUMENT FEES, LICENSE FEES, SCRUTINY FEES AND WATER CHARGES AND CLAIMED DEDUCTION OF VARIOUS ADMINISTRATIVE OFFICE EXPENSES. SUBSEQUENTLY, THE ASSESSEE COMPA NY HAS ALSO CLAIMED DEDUCTION OF DEPRECIATION BY FILING REVISED RETURN OF INCOME. THE LD. CIT(A) HAS ALSO REFERRED THE DECISION OF SAURASTRA CEMENT AND CHEMICAL LTD. VS. CIT OF THE JURISDICTIONAL HIGH COURT WHEREIN IT IS HELD THAT THE BUSINESS WOULD COMME NCE WHEN THE ACTIVITY WHICH IS FIRST IN POINT OF TIME AND WHICH MUST NECESSARILY PRECEDE THE OTHER ACTIVITY IS STARTED. IT IS CLEAR FROM THE DECISION OF JURISDICTIONAL HIGH COURT THAT AS SOON AS A ACTIVITY WHICH IS AN ESSENTIAL ACTIVITY IN THE COURSE OF C ARRYING ON THE BUSINESS OR WHICH IN OTHER WORDS IS A BUSINESS ACTIVITY IS STARTED THE I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 12 ASSESSEE MUST BE HELD TO HAVE COMMENCED THE BUSINESS. THE NATURE OF BUSINESS OF THE ASSSESSEE COMPANY WAS TO DEVELOP VARIOUS COMMON FACILITIES AND THE MATERIAL FACTS AS E LABORATED IN THIS ORDER SUBSTANTIATE THAT THE BUSINESS OF THE ASSESSEE COMPANY WAS SET UP DURING THE YEAR UNDER CONSIDERATION . WE OBSERVE THAT ALL THESE EVIDENCES CLEARLY DEMONSTRATE THAT THE BUSINESS OF THE ASSESSEE HAD BEEN SET UP DURING THE YEAR UNDER CONSIDERATION . IN THE LIGHT OF THE ABOVE FACT AND THE DETAILED FINDINGS OF THE CIT(A), WE DO NOT FIND ANY ERROR IN THE DECISION OF THE LD. CIT(A), THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 8. REGARDING CLAIM OF DEPRECIATION, IT IS EST ABLISHED THAT THE BUSINESS OF THE ASSSEEEE COMPANY WAS ACTUALLY COMMENCED IN THE ASSESSMENT YEAR 2012 - 13, THEREFORE, THE LD. CIT(A) HAS RIGHTLY ADJUDICATED THAT THE ASSESSEE COMPANY WAS ENTITLED TO CLAIM DEPRECATION ON ACCOUNT OF PLANT AND MACHINERY WHICH INCLUDES OFFICE EQUIPMENT AND VEHICLE, COMPUTER, COMPUTER SOFTWARE AND FURNITURE, FIXTURE USED FOR THE PURPOSE OF BUSINESS. THEREFORE, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE . ACCORDINGLY THIS GROUND OF APPEAL OF THE RE VENUE IS ALSO DISMISSED. 9 . IN THE RESULT, BOTH THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 30 - 11 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 30 /11 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. I.T.A NO. 1177 /AHD/20 16 A.Y. 2012 - 13 PAGE NO D CIT VS. M/S. GUJARAT INTERNATIONAL FINANCE TECH - CITY CO. LIMITED 13 BY ORDER/ , / ,