Mx SYSTEM INTERNATIONAL P. LTD, MUMBAI V. DCIT 9(2), MUMBAI

ITA 152/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9237 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 07-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income
• Section: 14A

Judgement Text

. , IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI , BEFORE SHRI R. K. GUPTA , JM ITA NO. 152 / MUM/ 20 1 1 ( ASSESSMENT YEAR : 200 6 - 20 07 ) M/S MX SYSTEMS INTERNATIONAL PRIVATE LIMITED, 202, D. ARVIND CHAMBERS, WESTERN EXPRESS HIGHWAY, ANDHERI (EAST), MUMBAI - 400 069. VS. D CIT - 9(2) , MUMBAI PAN/GIR NO. : A A ECM 5026 B ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. PIYUSH CHATURVEDI /REVENUE BY : MR. RAKESH RANJAN DATE OF HEARING : 1 1 TH DEC . , 2012 DATE OF PRONOUNCEMENT : 19 TH DEC. , 2012 O R D E R THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 15 - 11 - 2010 OF LEANED CIT(A) - 20 , MUMBAI RELA TING TO THE ASSESSMENT YEAR 200 6 - 07 . 2 . THE ASSESSEE IS OBJECTING IN REGARD TO ACTION OF THE CIT(A) IN HOLDING THAT THE ASSE SSEE HAS NOT CONDUCTED ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION AND THEREBY CONFIRMING THE DISALLOWANCE OF BUSINESS LOSS OF RS. 17,33,642 / - . 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 13 - 8 - 2005 WITH THE MA IN OBJECT TO ACT AS DEVELOPER, ITA NO. 152 /20 1 1 2 INTEGRATOR, AND CONSULTANT OF ALL TYPE OF ELECTRICAL, MECHANICAL, ENGINEERING SYSTEMS RELA T ED TO FIRE PROJECTION AND TELECOMMUNICATION. THE ASSESSEE BIDED FOR CONTRACT FOR INSTALLATION OF FIRE FIGHTING SYSTEM AND INCURRED EXP ENSES ON THAT CONTRACT WHICH ARE APPEARING IN THE STOCK AS WORK IN PROGRESS. BESIDES THE ADMINISTRATIVE EXPENSES TO RUN THE COMPANY, IT HAD INCURRED TOTAL RS. 32,68,710/ - OUT OF WHICH EXPENDITURE INCURRED ON PROJECT UNDER CONTRACT AMOUNTED TO RS. 17,78,847/ - HAD BEEN CREDITED TO CLOSING WORK - IN - PROGRESS. 4 . T HE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN ONLY SHORT TERM CAPITAL GAIN OF RS. 9,279/ - AGAINST WHICH IT HAD DEBITED VARIOUS EXPENSES RESULTED THE LOSS OF RS. 17,24,364/ - .THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD NOT DONE ANY BUSINESS ACTIVITY DURING THE YEAR AS IT HAD ONLY INVESTMENT IN SHARES AND THE EXPENSES CLAIMED WERE NOT ADMISSIBLE WHILE COMPUTING THE SHORT TERM CAPITAL GAIN. ACCORDINGLY, HE DISALLOWED THE VARIOUS EXPENSES CLAI MED IN PROFIT AND LOSS ACCOUNT AND ALSO MADE A DISALLOWANCE UNDER SECTION 14A OF THE EXPENSES INCURRED FOR INVESTMENT IN SHARES. 5 . BEFORE LEARNED CIT(A) , IT WAS STATED THAT THE ASSESSING OFFICER HAS NOT APPRECIATED THE FACTS OF THE CASE PROPERLY AS BUSIN ESS OF THE ASSESSEE HAS ALREADY BEEN SET UP. THE TENDER HAS BEEN FULFILLED BY THE ASSESSEE AND CONTRACT WAS ALSO AWARDED ON 9 - 3 - 2006, THEREFORE, IT CANNOT BE SAID THAT BUSINESS HAS NOT BEEN STARTED. HOWEVER, LEARNED CIT(A) WAS ALSO NOT SATISFIED WITH THE C ONTENTION OF THE LEARNED AR. ITA NO. 152 /20 1 1 3 ACCORDINGLY, HE CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON THE GROUND THAT NO BUSINESS ACTIVITY HAS BEEN STARTED DURING THE YEAR, THEREFORE, THE LOSS DISALLOWED BY THE ASSESSING OFFICER WAS CORRECT. 6 . BEING AGGRIEVED WI TH THE ACTION OF BOTH THE AUTHORITIES BELOW, NOW, THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL. THE CONTENTIONS RAISED BEFORE BOTH THE AUTHORITIES BELOW HAVE BEEN REITERATED BY THE LEARNED AR HERE BEFORE THE TRIBUNAL. THE ATTENTION OF THE BENCH WAS D RAWN ON A COPY OF THE WRITTEN SUBMISSION FILED BEFORE THE LEARNED CIT(A) , WHICH IS PLACED IN THE PAPER BOOK AT PAGE 1 TO 9. ATTENTION OF THE BENCH WAS ALSO DRAWN ON THE COPY OF THE CONTRACT AWARDED ON 29 - 3 - 2006, COPY OF WHICH IS PLACED AT PAGE 22 TO 28. AC CORDINGLY, IT WAS SUBMITTED THAT IT CANNOT BE SAID THAT THE BUSINESS ACTIVITY HAS NOT BEEN CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IT WAS ALSO SUBMITTED THAT SINCE THE BUSINESS HAS BEEN SET UP AND IF THERE IS NO BUSINESS RECEIPT DU RING THE YEAR THEN IT CANNOT BE SAID THAT NO BUSINESS ACT IVITY HAS BEEN STARTED. RELIANCE WAS PLACED ON THE DECISION OF H O N BLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHARAT INSURANCE COMPANY LIMITED, 142 ITR 342 . IT WAS ALSO SUBMITTED THAT ON THE BASIS O F CONTRACT AWARDED ON 29 - 3 - 2006 , THE HAS DONE WORK AND WHATEVER THE RECEIPTS WERE RECEIVED BY THE ASSESSEE THEY HAVE BEEN DISCLOSED IN SUBSEQUENT YEAR AND THE AO HAS ADMITTED THE SAME. COPY OF THE RETURN FOR SUBSEQUENT YEAR ALONG WITH COMPUTATION OF INCOME WAS ALSO FILED. RELIANCE WAS PLACED ON THE ITA NO. 152 /20 1 1 4 DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ESPN SOFTWARE INDIA P. LTD., REPORTED IN [2008] 301 ITR 368 (DELHI) . 7 . PER CONTRA , LEARNED DR PLACED RELIANCE ON THE ORDER OF THE LEARNED CIT(A) . 8 . AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, I FOUND THAT THE ASSESSEE DESERVES TO SUCCEED ON THE ISSUE THAT BUSINESS HAS BEEN STARTED DURING THE YEAR UNDER CONSIDERATION. I NOTED THAT THE ASSESSEE COMPANY WHICH WAS INCORPORA TED ON 13 - 8 - 2005 HAS SET UP ITS BUSINESS BY EMPLOYING OF REQUIRED EMPLOYEES. THE ASSESSEE COMPANY WAS SET UP TO BID FOR CONTRACTS FOR INSTALLATION OF FIRE FIGHTING SYSTEMS. TENDERS WERE FILLED UP AND THE CONTRACTS WERE ALSO AWARDED DURING THE YEAR UNDER CO NSIDERATION. COPY OF THE SAME IS PLACED IN THE COMPILATION AT PAGE 22 TO 28. FROM ALL THESE FACTS AND EVIDENCES, IT IS PROVED THAT BUSINESS OF T HE COMPANY HAS BEEN SET UP AND HAS STARTED ALSO. IT IS NOT NECESSARY THAT THERE COULD BE SOME BUSINESS RECEIPTS BUT NECESSARY IS THAT BUSINESS HAS SET UP AND HAS COMMENCED ITS BUSINESS ACTIVITY. THE HONBLE DELHI HIGH COURT IN THE CASE OF ESPN SOFTWARE INDIA P. LTD. (SUPRA) , HAS HELD THAT A BUSINESS IS COMMENCED A SOON AS AN ESSENTIAL ACTIVITY OF THAT BUSINESS IS S TARTED. THUS, A BUSINESS COMMENCES WITH THE FIRST PURCHASE OF STOCK - IN - TRADE, AND THE DATE WHEN THE FIRST SALE IS MADE IS IMMATERIAL. SIMILARLY, A MANUFACTURER HAS TO UNDERTAKE SEVERAL ACTIVITIES IN ORDER TO ITA NO. 152 /20 1 1 5 BRING TO PRODUCE FINISHED GODS AND HE COMMENCES HIS BUSINESS AS SOON AS HE UNDERTAKES THE FIRST OF SUCH ACTIVITIES. 9 . IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN FIRST ACTIVITY TO FILE THE TENDER FOR AWARDING CONTRACT AND THE SAME HAS BEEN AWARDED ALSO. INCORPORATION CERTIFICATE HAS BEEN ISSUE TO THE ASSESSEE COMPANY BY REGISTRAR OF COMPANIES. EMPLOYEES FOR DOING THE BUSINESS ACTIVITIES HAVE BEEN EMPLOYED DURING THE YEAR UNDER CONSIDERATION. HUGE ADMINISTRATIVE EXPENSES HAVE BEEN INCURRED DURING THE YEAR UNDER CONSIDERATION. THEREFORE, IT CANNOT BE SA ID THAT BUSINESS ACTIVITY HAS NOT BEEN STARTED. ACCORDINGLY, I HOLD THAT THE BUSINESS OF THE ASSESSEE HAS BEEN COMMENCED DURING THE YEAR UNDER CONSIDERATION. THEREFORE, WHATEVER THE EXPENSES ARE CLAIMED, IF THEY ARE ALLOWABLE, THAT HAS TO BE ALLOWED. GENUI NENESS OF THE EXPENSES CAN BE EXAMINED BY THE ASSESSING OFFICER AS THEY WERE NOT EXAMINED EARLIER, SINCE THE AO HAS DISALLOWED ALL THE EXPENSES BY OBSERVING THAT NO BUSINESS ACTIVITY HAS BEEN STARTED. NOW, I HELD THAT BUSINESS ACTIVITY HAS BEEN STARTED AND BUSINESS OF THE ASSESSEE HAS BEEN COMMENCED , THEREFORE, THE GENUINENESS OF THE EXPENSES CAN BE EXAMINED AT THE END OF THE ASSESSING OFFICER NOW. I ORDER ACCORDINGLY. 10 . THE NEXT ISSUE RELATES TO DISALLOWANCE OF EXPENSES UNDER SECTION 14A. ITA NO. 152 /20 1 1 6 11 . LEARNED C OUNSEL OF THE ASSESSEE HAS STATED THAT THE ASSESSEE HAS INVESTED PETTY AMOUNT IN MUTUAL FUNDS, WHICH IS IN EXEMPT, THEREFORE, THE PROVISION OF SECTION 14A ARE NOT APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 12 . THIS ASPECT ALSO CAN BE EXAMINED BY THE ASSESSING OFFICER AFRESH AND IF IT IS FOUND THAT INVESTMENTS IN THE MUTUAL FUNDS HAS BEEN MADE AND INCOME OF MUTUAL FUND IS TAXABLE THEN OF COURSE NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. I ORDER ACCORDINGLY. 13 . IN THE RESULT, APPEAL OF TH E ASSESSEE IS DISPOSED OF AS INDICATED ABOVE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF DEC. 2012. 2012 SD/ - ( ) ( R.K.GUPTA ) / JUDICIAL MEMBER MUMBAI ; DATED : 19 / 1 2 / 2012 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( DY./ASSTT. REGISTRAR) / ITAT, MUMBAI