CONDE NAST (I) P.LTD, MUMBAI V. DCIT 3(1), MUMBAI

ITA 1819/MUM/2013

• Counselvise Citation: 181919914 RSA 2013
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-06-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: YOGESH A THAR; RONAK G DOSHI
• Keywords: Business expenditure; Corroborative evidences; Revenue expenditure

Judgement Text

. , IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI , BEFORE SHRI R. K. GUPTA , JM ITA NO. 1819 / MUM/ 20 1 3 ( ASSESSMENT YEAR : 2007 - 08 ) CONDE NAST (INDIA) PVT. LTD., 2 ND FLOOR, DARABSHAW HOUSE, SHOORJI VALLABHDAS MARG, BALLARD ESTATE, MUMBAI - 01 VS. DCIT - 3(1), MUMBAI - 20. PAN/GIR NO. : A ACCB 9075 H ( APPELLANT ) .. ( RESP ONDENT ) /ASSESSEE BY : SHRI YOGESH A. THAR & SHRI RONAK G. DOSHI /REVENUE BY : SHRI O.P.SINGH DATE OF HEARING : 2 ND JULY , 201 3 DATE OF PRONOUNCEMENT : 4 TH SEPT. , 2013 O R D E R TH IS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 31 - 12 - 2012 OF CIT(A) - 6 , MUMBAI RELA TING TO THE ASSESSMENT YEAR 2007 - 08 . 2 . THE ASSESSEE IS OBJECTING IN CONFIRMING THE DISALLOWANCE OF RS. 3,5 6,33,431/ - IN RESPECT OF REVENUE EXPENDITURE INCURRED DURING THE PERIOD 20 - 11 - 2006 TO 31 - 3 - 2007 BY HOLDING THAT THE BUSINESS OF THE ASSESSEE WAS NOT SET UP DURING THE FINANCIAL YEAR. ITA NO. 1819 /20 1 3 2 3 . THE FACTS IN SUCCINCT ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PRINTING, PUBLISHING, CIRCULATING, MARKETING AND DISTRIBUTING OR OTHERWISE DEALING IN ANY PERIODICAL MAGAZINES, JOURNALS OR OTHER PUBLICATIONS. DURING THE ASSESSMENT PROCEEDING, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED THAT ITS BUSINESS HAS BEEN S ET UP W.E.F. 20 - 11 - 2006 AND EXPENDITURE INCURRED AFTER 20 - 11 - 2006 HAS BEEN CLAIMED AS REVENUE EXPENDITURE AT RS. 3,56,33,431/ - . THE ASSESSEE WAS ASKED TO SUBSTANTIATE ITS CLAIM WITH NECESSARY EVIDENCE. DETAILED SUBMISSIONS WERE FILED BEFORE THE AO, WHICH AR E REPRODUCED IN THE ORDER OF AO AT PAGES 2 TO 4. AFTER CONSIDERING VARIOUS DETAILS AND DATE OF EVIDENCE, THE AO FOUND THAT THE BUSINESS OF THE ASSESSEE HAS NOT BEEN SET UP AS THE ASSESSEE HAS APPOINTED ONLY EXECUTIVES ALONG WITH EDITORS. NO ISSUE OF THE MA GAZINE IS PUBLISHED DURING THE YEAR. THE AO FOUND THAT THE MAGAZINES HA VE BEEN PUBLISHED IN FINANCIAL YEAR 2007 - 08 RELATING TO ASSESSMENT YEAR 2008 - 09. ACCORDINGLY, HE HELD THAT THE BUSINESS WAS NOT SET UP IN THE YEAR UNDER CONSIDERATION. HENCE, HE DISALLO WED THE CLAIM OF EXPENDITURE. 4 . ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) . I T WAS SUBMITTED THAT THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATES TO DATE OF SET UP OF BUSINESS. THE DETAILED SUBMISSION FILED BEFORE THE AO, WERE FILED BEFORE THE CIT(A) AL SO. PROVISION S OF SECTION 3 OF THE ACT WERE BROUGHT TO THE KNOWLEDGE OF THE LEARNED CIT(A) , WHEREBY IT HAS BEEN PROVIDED THAT , IN THE CASE OF A BUSINESS OR PROFESSION NEWLY SET UP, OR A SOURCE ITA NO. 1819 /20 1 3 3 OF INCOME NEWLY COMING INTO EXISTENCE, IN THE SAID FINANCIAL Y EAR, 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. ACCORDINGLY, IT WAS SUBMITTED THAT THE ASSESSEE CONDE NAST INDIA IS ENGAGED IN THE BUSINESS OF PRINTING, PUBLISHING, CIRCULATING, MARKETING AND DISTRIBUTING OR OTHERWISE DEALING IN ANY PERIODICAL MAGAZINES, JOURNALS OR OTHER PUBLICATIONS. THE EDITOR, WHO IS THE HELM O F AFFAIRS IN THE EDITORIAL DEPARTMENT IN PUBLISHING ORGANIZATION, DECIDES WHAT SHALL AND WHAT SHALL NOT GO INTO HIS PUBLICATION ON THE BASIS OF WHAT HE CONCEIVES TO BE THE PUBLICATIONS MISSION AND PHILOSOPHY. THEREAFTER THE FUNCTION S OF THE EDITORIAL AS W ELL AS THE ACTIVITIES TAKEN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE FILED BEFORE HIM. LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, FOUND THAT THE AO WAS CORRECT IN REJECTING THE CLAIM OF THE ASSESSE E. LEARNED CIT(A) NOTED THAT THE APPOINTMENT OF THE PUBLISHER WAS MADE ON 18 - 12 - 2006, APPOINTMENT OF MANAGING EDITOR WAS MADE ON 29 - 1 - 2007 AND APPOINTMENT OF FASHION DIRECTOR WAS MADE ON 1 - 2 - 2007 . LEARNED CIT(A) FURTHER NOTED THAT THE FIRST ISSUE OF THE MA GAZINE, NAMELY, VOGUE, PUBLISHED BY THE ASSESSEE , CAME ON OCTOBER, 2007 AND ACCORDINGLY THE BUSINESS WAS SET UP ONLY ON OCTOBER, 2007 AND NOT DURING THE YEAR UNDER CONSIDERATION. THEREAFTER AFTER DISCUSSING THE ISSUE ON FURTHER POINTS DISCUSSED BY THE AO, LEARNED CIT(A) FOUND THAT ITA NO. 1819 /20 1 3 4 THE AO WAS CORRECT IN DISALLOWING THE EXPENDITURE CLAIMED BY THE ASSESSEE. ACCORDINGLY, LEARNED CIT(A) CONFIRMED THE ORDER OF THE AO. NOW, THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL. 5 . THE CONTENTIONS RAISED BEFORE THE LOWER AUTHORITIES WERE REITERATED HERE BEFORE THE TRIBUNAL BY LEARNED AR. ATTENTION OF THE BENCH WAS DRAWN ON COPY OF THE WRITTEN SUBMISSION PLACED ON RECORD. RELIANCE WAS PLACED ON VARIOUS CASE LAWS MENTIONED IN THE WRITTEN SUBMISSION. THEREAFTER THE CAS E WAS ADJOURNED FOR FURTHER CLARIFICATION AND ON THAT DATE THE COUNSEL OF THE ASSESSEE FILED A SUPPLEMENTARY WRITTEN SUBMISSION, WHICH IS A SUMMARY OF THE WRITTEN SUBMISSION FILED ORIGINALLY. HEAVY RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF HSBC SECURITIES INDIA HOLDINGS PVT. LTD., DECIDED IN ITA NO. 3181/M/1999, VIDE ORDER DATED 28 - 11 - 2001 . COPY OF THE ORDER WAS FILED. RELIANCE WAS ALSO PLACED ON VARIOUS OTHER CASE LAWS I.E. IN THE CASE OF CIT VS. SAURASHTRA CEMENT AND CHEMICAL INDUS TRIES LTD. , REPORTED IN (1973) 091 ITR 170 (GUJ), PREM CONDUCTORS PVT. LTD. VS. CIT, REPORTED IN 108 ITR 654 (GUJ), ACCOR RADHAKRISHNA CORPORATE SERVICES PVT. LTD. VS. JCIT, REPORTED IN 13 SOT 652, CIT VS. ESPN SOFTWARE INDIA PVT. LTD., REPORTED IN 184 TAX MAN 452 ( DEL ) AND CIT VS. WESTERN INDIA SEAFOOD PVT. LTD. REPORTED IN 69 TAXMAN 246 (GUJ) . COPIES OF THESE ORDERS ARE ALSO PLACED ON RECORD. 6 . ON THE OTHER HAND, LEARNED DR FIRSTLY PLACED RELIANCE ON THE ORDER OF LEARNED CIT(A) . PART OF THE ORDER OF LEARN ED CIT(A) WAS ALSO ITA NO. 1819 /20 1 3 5 READ. IT WAS FURTHER SUBMITTED THAT NO REVENUE HAS BEEN GENERATED DURING THE YEAR UNDER CONSIDERATION AS THE FIRST ISSUE OF MAGAZINE I.E. VOGUE WAS PUBLISHED IN THE MONTH OF OCTOBER, 2007, WHICH PERTAINS TO ASSESSMENT YEAR 2008 - 09 AND NO T IN THE YEAR UN DER CONSIDERATION. THEREFORE, THE AO AS WELL AS LEARNED CIT(A) WAS JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. 7 . I HAVE HEARD RIVAL SUBMISSION AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE ORDER OF THE AO, CIT(A) AND THE SUBM ISSIONS OF LEARNED AR ALONG WITH VARIOUS CASE LAWS, I FOUND THAT THE ASSESSEE DESERVES TO SUCCEED IN ITS APPEAL. I HAVE SEEN SUPPLEMENTARY WRITTEN SUBMISSIONS, WHICH ARE SIMILAR TO THE MAIN WRITTEN SUBMISSION FILED EARLIER. IN THIS WRITTEN SUBMISSION, BACK GROUND OF THE CASE, ACTIVITIES UNDERTAKEN BY AUDITOR DURING THE PERIOD NOVEMBER, 20, 2006 TO MARCH, 31,2007, CREATING FIRST ISSUE OF VOGUE MAGAZINE, PLANNING, FORMULATING WORK - PLAN, SETTING UP SYSTEMS AND PROCESSES, CONCEPTUALIZING AND FINALIZING VARIOUS SECTIONS IN THE MAGAZINE , DOCUMENTARY EVIDENCE WITH RESPECT TO THE AFORESAID ACTIVITIES DURING THE YEAR UNDER CONSIDERATION ARE ALSO ENCLOSED ALONG WITH THIS WRITTEN SUBMISSION AND LINE UP FOR CREATING TRIAL VERSION & FIRST ISSUE, HAS BEEN DISCUSSED. VAR IOUS DOCUMENTARY EVIDENCES WITH RESPECT TO SOME KEY ACTIVITIES RELATING TO PREPARING FOR THE TRIAL VERSION OF FIRST ISSUE OF THE MAGAZINES HAS BEEN FILED, WHICH ARE PLACED IN THE PAPER BOOK. FOR THE SAKE OF CLARIFICATION, THE WRITTEN SUBMISSION CONTAINING FIVE PAGES ARE REPRODUCED HERE AS UNDER : - ITA NO. 1819 /20 1 3 6 NOTE ON THE ACTIVITIES UNDERTAKEN BY THE EDITOR DURING THE PERIOD NOVEMBER 20, 2006 TO MARCH 31, 2007 1.0 BACKGROUND: 1.1. THE APPELLANT IS ENGAGED IN THE BUSINESS OF PRINTING, PUBLISHING, CIRCULATING, MARKETIN G AND DISTRIBUTING OR OTHERWISE DEALING IN ANY PERIODICAL MAGAZINES, JOURN ALS OR OTHER PUBLICATIONS. 1.2. TYPICALLY, A FASHION MAGAZINE PUBLISHING BUSINESS COMPRISES OF FOLLOWING THREE ESSENTIAL DEPARTMENTS SR.NO DEPARTM ENT KEY ACTIVITIES 1. EDITORIAL I. CONTENT DEVELOPMENT II. WRITING ARTICLES III.EDITING AND FINALIZING CONTENT IV.ENGAGING PHOTOGRAPHS FOR PHOTO SHOOT ETC. 2 . PUBLISHING AND PRINTING I. SECURING ADVERTISEMENTS II.MONITORING SALES PROGRESS, YIELD AND PAGES TRACKING WITH FORECASTS III.I DENTIFYING NEW CATEGORIES, POTENTIAL CLIENTS IV.DEVELOPING RATE CARD AND DISCOUNTING STRATEGY V. PRINTING 3 . DISTRIBUTION APPOINTING DISTRIBUTOR FOR PROCESSING SUBSCRIPTION FOR THE MAGAZINE AND TO SELL AND DISTRIBUTE THE MAGAZINE AMONG SUBSCRIBERS AND N EWSSTAND AGENTS. 1.3. 'EDITING' IS THE MOST IMPORTANT FUNCTION IN THE PUBLISHING BUSINESS. THE EDITOR, WHO IS THE HELM OF AFFAIRS IN THE EDITORIAL DEPARTMENT IN PUBLISHING ORGANIZATION, DECIDES WHAT SHALL AND WHAT SHALL NOT GO INTO THE PUBLICATION ON TH E BASIS OF WHAT HE CONCEIVES TO BE THE PUBLICATION'S MISSION AND PHILOSOPHY. 1.4. THE EDITOR HAS TO DEVELOP A PRESENTATION STYLE OF THE PUBLICATION THAT IS ATTRACTIVE AND HIGHLY UTILITARIAN. BESIDES, THE EDITOR HAS TO ENSURE CONSISTENCY AND CONTINUITY THR OUGHOUT THE PUBLICATION. THUS EDITING OF A MAGAZINE IS THE MOST CRUCIAL FUNCTION AMONGST ALL OTHER FUNCTIONS OF A PUBLISHING BUSINESS. THE MAIN FUNCTIONS OF THE EDITORIAL DEPARTMENT ARE: I) CREATION AND COLLECTION OF CONTENT II) SELECTION OF CONTENT AND FEATURES III) EDITING OF CONTENT AND FEATURES IV) INTERPRETATION OF THE CONTENT V) EDITORIAL AND SELECTION OF LEAD CONTENT. 1.5. FOR A PUBLISHING BUSINESS, THE ACTIVITY OF APPOINTING AN EDITOR IS THE FIRST IN POINT OF TIME, WHICH MUST NECESSARILY PREC EDE ALL OTHER ACTIVITIES. ACCORDINGLY, THE APPELLANT HAS CONSIDERED THE DATE OF APPOINTMENT OF HEAD OF EDITORIAL DEPARTMENT I.E. NOVEMBER 20, 2006 AS THE DATE ON WHICH THE BUSINESS OF THE APPELLANT HAS BEEN SET - UP. 2.0 ACTIVITIES UNDERTAKEN BY THE EDITOR DURING THE PERIOD NOVEMBER 20, 2006 TO MARCH 31, 2007: ITA NO. 1819 /20 1 3 7 THE EDITOR WAS INVOLVED IN THE FOLLOWING ACTIVITIES DURING THE AFORESAID PERIOD A) CREATING FIRST ISSUE OF 'VOGUE' MAGAZINE PLANNING, FORMULATING WORK - PLAN, SETTING UP SYSTEMS AND PROCESSES, CON CEPTUALIZING AND FINALIZING VARIOUS SECTIONS IN THE MAGAZINE; LINE - UP FOR CREATING TRIAL VERSION AND FIRST ISSUE B) HIRING OF PEOPLE, TRAINING AND ORIENTATION THE ABOVE ACTIVITIES AND DOCUMENTARY EVIDENCE SUBSTANTIATING SUCH ACTIVITIES ARE DISCUSSED I N THE FOLLOWING PARAS. 2.1 CREATING FIRST ISSUE OF 'VOGUE' MAGAZINE: 2.1.1 PLANNING, FORMULATING WORK - PLAN, SETTING UP SYSTEMS AND PROCESSES, CONCEPTUALIZING AND FINALIZING VARIOUS SECTIONS IN THE MAGAZINE: FOR THE PURPOSE OF PUBLISHING THE FIRST ISSUE , IT IS IMPERATIVE TO CONCEPTUALIZE VARIOUS SECTIONS IN THE MAGAZINE. THE EDITOR WAS RESPONSIBLE FOR CONCEPTUALIZING AND FINALIZING VARIOUS SECTIONS IN 'VOGUE' MAGAZINE SUCH AS FASHION, TRAVEL & FOOD, HEALTH & FITNESS, PLACEMENT OF ADVERTISEMENT PAGES, ART ICLES ON VARIOUS TOPICS ETC. . DOCUMENTARY EVIDENCE WITH RESPECT TO THE AFORESAID ACTIVITIES DURING THE YEAR ENDED MARCH 31, 2007 SR. NO. PARTICULARS DATE OF EMAIL/ACTIVITY REFERENC E IN PAPER BOOK IV 1 . L.MS. PRIYA TANNA'S (EDITOR) E - MAIL ENCLOSING WOR K PLAN FOR JANUARY - MARCH 2007. THE WORK PLAN CONTAINS DETAILS OF ACTIVITIES TO BE UNDERTAKEN BY THE EDITOR SUCH AS EDITORIAL PLAN , TRAINING TEAM MEMBERS, RESEARCH PLAN, PLAN FOR CONTENT CONCEPTUAL IZATION & DEVELOPMENT AND ATTENDING FASHION WEEK S DECEMBER 26, 2006 1 - 4 2 . 2. E - MAIL BY MS. PRIYA TANNA ENCLOSING THEREWITH DETAILS OF THE COMPETITORS JANUARY 02,2007 5 - 6 3 . 3. E - MAIL BY MS. PRIYA TANNA REGARDING SCHEDULE OF MEETINGS WITH PRODUCTION TEAM, SCHEDULING LAUNCH OF FIRST IS SUE, HIRING OF PEOPLE ETC. JANUARY 22,2007 7 2.1.2 LINE - UP FOR CREATING TRIAL VERSION & FIRST ISSUE A) IN A MAGAZINE PUBLISHING INDUSTRY, IT IS A COMMON PRACTICE OF PRINTING A TRIAL VERSION OF MAGAZINE, BEFORE PUBLISHING THE FIRST ISSUE. TH E SAID TRIAL VERSION IS GENERALLY TO DETERMINE THE SECTIONS OF THE MAGAZINE, THE PAPER AND PRINTING QUALITY OF THE MAGAZINE, ETC. THE SAID TRIAL VERSION WAS PRINTED IN THE MONTH OF JUNE 2007 (WE ARE ATTACHING HEREWITH, A COPY THEREOF), EVEN THOUGH THE FIRS T ISSUE WAS PUBLISHED IN OCTOBER 2007 (COPY ATTACHED). YOUR HONOUR WILL APPRECIATE THAT EVEN FOR THE PURPOSE OF MAKING THE TRIAL VERSION READY, LOT OF PREPARATION IS REQUIRED. SOME OF THE KEY ACTIVITIES BEFORE THE CONTENT IS READY TO BE PUBLISHED ARE SUMM ARIZED BELOW: ITA NO. 1819 /20 1 3 8 I . CREATE, DEVELOP AND IMPLEMENT THE EDITORIAL STRATEGY OF MAGAZINE II . MANAGE THE EDITORIAL PROCESS INCLUDING SCHEDULING, PLANNING AND CONTENT DEVELOPMENT III . DETERMINE CONTENT OF MAGAZINE IV . DEVELOP CONTENT WITH ESTABLISHED BUDGETS V . WORK WITH THE PUBLIC RELATIONS ('PR') AGENCY TO DEFINE AND CREATE THE PR STRATEGY FOR THE LAUNCH OF MAGAZINE. PR STRATEGY SHOULD HELP BUILD THE RIGHT LEVEL OF AWARENESS, IMAGE AND INTEREST IN THE BRAND AND BUILD UP TO THE LAUNCH EVENT. VI . PUT TOGETHER THE ENTIRE CREATIVE LOOK FOR THE MAGAZINE AND EXECUTE IT WITH THE TEAM. VII . ATTEND AND HELP CONCEPTUALIZE OCCASIONAL SHOOTS ALONG WITH THE FASHION DIRECTOR, IF REQUIRED. VIII . COLLABORATE WITH OTHER GROUP MAGAZINE MEMBERS TO IDENTIFY TALENT FOR USE IN T HE MAGAZINE IX . SOURCE NEW TALENT FOR INCLUSION IN MAGAZINE X. PLAN, VISUALIZE, IDEATE AND COLLABORATE WITH TEAM TO PUT TOGETHER THE FASHION SECTIONS OF THE MAGAZINE XI . STYLE AND CONCEPTUALIZE SHOOTS INCLUDING COVER AND THE ONES IN THE WELL XII . ATTEN D FASHION WEEKS XIII . ATTEND SHOWROOMS OF DESIGNERS AT FASHION WEEKS TO VIEW ENTIRE COLLECTION, PRESENT FORECAST REPORTS AND BI - ANNUAL PLANS ON THE SAME XIV . OBTAINING QUOTES FOR PURCHASING PAPER THE FOLLOWING TABULATES THE DOCUMENTARY EVIDENCE WITH RES PECT TO SOME KEY ACTIVITIES RELATING TO THE PREPARATION FOR THE TRIAL VERSION AND FIRST ISSUE OF THE MAGAZINE S N O . PARTICULARS DATE OF INVOICE EMAIL/ACTIVITY REFERENCE NO. IN FIRST ISSUE OF VOGUE OCT, 2007 REFERENCE IN PAPER BOOK IV 1 . COPIES OF INVOI CES RAISED BY SILVERPOINT PRESS PVT. TOWARDS PRODUCTION COST FOR PRESS TRIALS; COST OF PURCHASE OF PAPERS COST OF COVER PROOFING (4 PAGES), MACHINE PROOFING AND TEXT PROOFING (16 PAGES) DATE OF INVOICES WAS FEBRUARY 26, 2007. HOWEVER, THE CUSTOMS DUTY FOR IMPORT OF SAID PAPER WAS PAID ON JANUARY 03,2007 1 - 4 8 - 12 2 . E - MAIL BY MS. PRIYA TANNA FOR ENGAGING FARROKH CHOTHIA AS PHOTOGRAPHER, ULTIMATELY, PHOTOGRAPHS BY FARROKH CHOTHIA WERE REFLECTED IN THE FIRST ISSUE OF VOGUE MAGAZINE JANUARY 03, 2007 PAG ES NO.246 - 247 13 3 . EMAIL CORRESPONDENCE BY MS. PRIYA TANNA REGARDING ATTENDING FASHION WEEK IN MILAN, ITALY. EVENTUALLY, THE DETAILS AS WELL AS THE PHOTOGRAPHS OF THE SAID FASHION SHOW WERE PUBLISHED IN THE FIRST ISSUE OF VOGUE MAGAZINE. FEBRUARY 12, 2007 THE PHOTOGRAPHS OF THE FASHION SHOW WERE ACTUALLY PUBLISHED AT PAGE NO.187 14 - 16 ITA NO. 1819 /20 1 3 9 ITA NO. 1819 /20 1 3 10 8 . AFTER CONSIDERING THE WRITTEN SUBMISSION, I FOUND THAT ON SIMILAR FACTS, IN CASE OF HSBC SECURITIES INDIA HOLDINGS PVT. LTD. (SUPRA) , THE ISSUE HAS BEEN DE CIDED IN FAVOUR OF THE ASSESSEE. THE FINDINGS OF THE TRIBUNAL HAVE BEEN RECORDED IN PARAS 12 TO 21, WHICH ARE AS UNDER : - 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND THE FACTS. THE QUESTION ARISES UNDER SECTION 3 OF THE INCOME - TAX ACT, WHIC H DEFINES PREVIOUS YEAR. NORMALLY IT IS THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR BUT IN TERMS OF THE PROVISO TO SUB - SECTION (1) IN THE CASE OF A BUSINESS NEWLY SET UP, THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF S ETTING UP OF A BUSINESS AND ENDING WITH THE FINANCIAL YEAR. IT THEREFORE BECOMES NECESSARY TO EXAMINE WHETHER THE BUSINESS WAS SET UP IN THE PREVIOUS YEAR AND IF SO, THE DATE OF SETTING UP . ITA NO. 1819 /20 1 3 11 T HERE IS A WELL - MARKED DISTINCTION BETWEEN A BUSINESS BEING SET UP AND THE COMMENCEMENT OF THE BUSINESS. THIS HAS BEEN RECO G NISED AND EXPLAINED BY THE HONBLE BOMBAY HIGH COURT IN WESTERN INDIA VEGETABLES PRODUCTS LTD. 'IS. CIT (SUPRA). IT HAS BEEN HELD THAT THERE IS A CLEAR DISTINCTION BETWEEN A PERSON COMMENCING A BUSI NESS AND A PERSON SETTING UP A BUSINESS AND THAT FOR THE PURPOSES OF THE INCOME - TAX ACT . IT IS THE SETTING UP OF THE BUSINESS THAT HAS TO BE CONSIDERED AND NOT THE COMMENCEMENT. IT IS ONLY WHEN THE BUSINESS IS SET UP THAT THE PREVIOUS YEAR FOR THAT BUSINES S COMMENCES AND EXPENSES INCURRED PRIOR TO THE SETTING UP ARE NOT A PERMISSIBLE DEDUCTION. IT HAS FURTHER BEEN HELD I N THE DECISION THAT WHEN THE BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE THE BUSINESS THEN IT CAN BE SAID THAT THE BUSINESS IS SET UP. BEFORE THE ASSESSEE IS REEDY TO COMMENCE BUSINESS, THE BUSINESS IS NOT SET UP. IT HAS HOWEVER BEEN RECOGNLSED BY THE DECISION THAT THERE MAY BE AN INTERVAL BETWEEN THE SETTING UP OF THE BUSINESS AND THE COMMENCEMENT THEREOF AND ALL EXPENSES INCURRED DURIN G THE INTERVAL WOULD BE PERMISSIBLE DEDUCTIONS, 13. THERE ARE SEVERAL AUTHORITIES ON THE QUESTION AS TO WHEN IT CAN BE CONSIDERED THAT THE BUSINESS HAS BEEN SET UP AND MANY OF THEM WERE CITED BEFORE US, ALL THESE A UTHORIT I ES AFFORD ILLUSTRATIONS OF THE QUESTION. THE RATIO WHICH IS DEDUCIBLE FROM THEM IS THAT THE QUESTION DEPENDS ON THE NATURE OF THE BUSINESS AS ALSO THE SIGNIFICANCE OF EACH OF THE STEPS TAKEN BY THE ASSESSEE BEFORE COMMENCEMENT OF THE BUSINESS. ULTIMATELY IT IS A QUESTION OF FACT AS TO W HEN A BUSINESS IS SET UP AND THIS QUESTION HAS TO BE DECIDED ON A CONSIDERATION OF ALL THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THE JUDGMENT CITED IN THE PRECEDING PARAGRAPH, THE COMPANY WAS INCORPORATED WITH THE OBJECT OF RUNNING AN OIL MILL. IT PURCHA SED THE OIL MILL ON 1 ST NOVEMBER. 1942 BUT PRIOR THIS DATE THERE WAS A PERIOD WHERE THE ASSESSEE PURCHASED RAW MATERIALS AND INCURRED CERTAIN EXPENSES. TAKING THIS INTO CONSIDERATION, THE TRIBUNAL CONCLUDED THAT ALL EXPENSES INCURRED AFTER 1 ST SEPTEMBER. 1 946 SHOULD BE ALLOWED AS BUSINESS EXPENSES ON THE FOOTING THA T THE BUSINESS WAS SET UP ON T HAT DATE. THE HON'BLE BOMBAY HIGH COURT UPHELD THE CONCLUSION OF T HE TRIBUNAL. THIS IS THEREFORE A CASE WHERE THE PURCHASE OF RAW MA TER IAL WAS CONSIDERED SU FFICI ENT TO HOLD THAT THE BUSINESS W AS SET UP. IN SARABHAI MAN AGEMENT CORPORATION LTD. VS. CIT (SUPRA), THE GUJARAT HIGH COURT RELYING ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN WESTERN INDIA VEGETABLE PRODUCTS (SUPRA), HELD THAT IN THE CASE OF A COMPANY W HOSE OBJECT WAS TO PURCHASE IMMOVABLE PROPERTY AND LEI IT OUT ON LEAVE AND LICENCE BASIS OR ON LEASE EITHER FOR RESIDENTIAL USE OR FOR COMMERCIAL USE WITH ELL APPURTENANT AMENITIES, THE BUSINESS ACTIVITIES CONSIST ED OF T HREE CATEGORIES. THE FIRST PART WAS THE ACQUISITION OF THE PROPERTY. THE SECOND P ART WAS TO RENDER THE PROPERT Y CAPABLE OF BEING LET OUT AND T HE THIRD PART WAS THE ACTUAL LETTING OUT. THE ASSESSEE HAD ACQUIRED THE PROPERTY ON 28.3.1964. THEREAFTER, REPAIRS WERE CARRIED OUT FOR THE PURPOSE OF MAKING THE PROPERTY CAPABLE OR BEING LET OUT. THE ASSESSEE S CLAIM WAS THAT ON 1.10.1964. IT WAS IN A POSITION TO LET OUT THE PROPERTY. IT THEREFORE CLAIMED THAT THE EXPENDITURE INCURRED BETWEEN 1.10.64 AND 31.3.65 SHOULD BE ITA NO. 1819 /20 1 3 12 CONSIDERED AS BUSINESS EXPENDI TURE. THE HIGH COURT, AGRE EING WITH THE ASSESSEE HELD THAT THE ASSESSEE COULD BE SAID TO HAVE COMMENCED ITS BUSINESS ACTIVITY OF THE SECOND CATEGORY AND THEREFORE ALL THE EXPENSES AS CLAIMED WERE ALLOWABLE AS BUSINESS EXPENDITURE. IN THIS CASE, EN INTEREST ING FEATURE I S THAT THE GUJARAT HIGH COURT REFERRED TO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CWT VS. RAMARALU SURGICAL COLTON MILLS (63 ITR478) BUT REFUSED TO APPLY THE SAME TO THE QUESTION BEFORE THEM ON THE GROUND THAT THE QUESTION BEFORE THE SUPREME COURT WAS WHEN THE ASSESSEE COULD BE SAID TO HAVE SET UP THE BUSINESS, WHEREAS THE QUESTION BEFORE THEM (THE GUJAR A T HIGH COURT) WAS WHEN THE ASSESSEE COULD BE SAID TO HAVE COMMENCED THE BUSINESS. IT IS THIS JUDGMENT OF THE GUJARA T HIGH COURT THAT HAS BEEN AFFIRMED BY THE SUPREME COURT I N 192 ITR 151. THE OPENING PART OF THE ORDER OF THE SUPREME COUR1LTSLF MAKES IT CLEAR THA T THE QUESTION IS AS TO THE DATE OF COMMENCEMENT OF THE ASSESSEE'S BUSINESS, AS CONTRASTED WITH SETTING UP. 14. A CASE OF SET TING UP OF THE ASSESSEE'S BUSINESS IS AFFORDED BY THE OTHER JUDGMENT OF THE GUIARA T HIGH COURT IN THE CASE OF PREM CONDUCTORS V. CL T (108ITR 654). IN THIS CASE, IT WAS HELD THAT WHAT IS REQUIRED TO BE SEEN IS WHETHER ONE OF THE ESSENTIAL ACTIVI TIES FOR THE CARRYING OF T HE BUSINESS OF THE ASSESSEE COMPANY AS A WHOLE WAS OR WAS NOT COMMENCED. IT WAS HELD THAT IT IS NOT NECESSARY THAT ALL THE CATEGORIES OF THE BUSINESS ACTIVITIES MUST START EITHER SIMULTANEOUSLY OR THAT THE LAST STAGE MUST START BEFORE IT CAN BE SAID THAT THE BUSINESS WAS SET UP. THE TEST TO BE APPLIED WAS HELD TO BE THIS: WHEN WOULD A BUSINESS MAN REGARD A BUSINESS AS HAVING COMMENCED A ND THE APPROACH MUS T BE FROM A COMMON SENSE POINT OF VIEW. IN THIS CASE, THE EARLIER JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF SARABHAI MANAGEMENT CORPORATION (SUPRA) WAS NOTICED AND IT WAS HELD THAT. THAT CASE WAS CONCERNED WITH THE QUESTION OF BUSINESS BEING SET UP. REFERENCE WAS ALSO MADE TO THE JUDGMENT OF THE SUPREME COURT IN RAMARAJU SURGIC AL COTTON MILL'S CASE (SUPRA) , WHERE IT WAS HELD THAT THE WORDS 'SET UP' IS EQUIVALENT TO THE WORD ESTABLISHED, BUT OPERATIONS FOR ESTABLISHMENT OR THE BUSINESS CANNOT BE EQUATED WI TH THE ESTABLISHMENT OF THE BUSINESS ITSELF OR ITS SETTING UP. 15. IN C IT V. SAR ABHAL SONS PVT. LTD. (90 ITR 318). THE GUJ ARA T HIGH COURT NOTICED THE DISTINCTION BETWEEN SETTING UP OF A BUSINESS AND COMMENCEMENT THEREOF. IN THA T CASE, THE ASSESSEE HAD OB TAINED THE LAND ON LEASE, APPOINT ED THE GENERAL MANAGER, PLACED ORDERS FOR PURCHAS E OF RAW MATERIAL AND STORES AND ALSO ORDERED THE NECESSARY MACHINERY EQUIPMENT . IT WAS HELD THA T THESE WERE MERELY OPERAT IONS FOR SETTING UP THE BUSINESS AND THE BUSINES S COULD BE SET UP ONLY ON THE CU LMINATION OF THESE OPERATIONS AND IT WAS ONLY AFTER TH E MACHINERY WAS INSTALLED AND THE FACTORY WAG READY TO COMMENCE OPERATIONS THAT IT COULD BE SAID THAT THE NEW BUSINESS WAG SET UP. 16. . IN HOTEL ALANKAR VS. CIT (133 ITR 866), THE GUJARAT HIGH COURT HELD THAT IT WOULD BE DE HORS COMMERCIAL SENSE 10 ASSE RT THAT IT WAS ONLY WHEN THE HOTEL REACHED THE STAGE OF RECEIVING ITA NO. 1819 /20 1 3 13 CUSTOMERS THAT THE ASSESSEE COULD BE SAID TO HAVE SET UP A HOTEL BUSINESS. ON THE FACTS OF THE CASE, I T WAS HELD THAT HO T EL BUSINESS NECESSARILY COMPRISED VARIEGATED ACTIVITIES COMMENCING F ROM THE STAGE OF ACQUISITION OF A PROPER BUILDING, MAKING IT MORE SUITABLE AND CONVENIENT FOR HOTEL BUSINESS, PURCHASE OF FURNITURE, LINEN, CUTLERY, APPOINTMENT OF STA RT BEFORE THE HOTEL COULD REACH THE STAGE OF RECEIVING CUSTOMERS. IN THAT CASE, THE TRIB UNAL HELD THAT THE BUSINESS WAS SET UP ONLY WHEN THE HOTEL WAS INAUGURATED AND ELL THE EXPENSES I NCURRED PRIOR THERET O WERE DISALLOWED. THE GUJARAT HIGH COURT DI S A PPROVED OF THE VIEW OF THE TRIBUNAL AND HELD THAT TH E ASSESSEE HAD SET UP THE BUSINESS WHEN T HE BUILDING WAS PLACED AT THE D I SPOSAL OF THE FIRM WHICH WAS CONSTITUTED TO CARRY ON THE HOTEL BUSINESS A F TER MAKING THE SAME SUITABLE FOR THE PURPOSE OF THE HOTEL. 17. IN CIT V. L&T MCNEIL LTD. (202 ITR 662) (SUPRA). THE MAIN BUSINESS OF THE ASSESSEE W AS TO MANUFACTURE VUL CAN I SERS. T YRES. ETC. DUR I NG THE YE A R, THE ASSESSEE PURCHASED RAW MATERIALS AND PROCURED ORDERS. HOWEVER, PLANT AND MACHINE RY WERE NOT INSTALLED, THE HON'B LE BOMBAY HIGH COURT HELD THAT THOUGH THE MAIN BUSINESS OF THE ASSESSEE WAS TO U NDERTAKE MANUFACTURING ACT IVI TIES, THE PLANT A ND MACHINERY WAS NOT INSTALLED DURIN G THE RELEVANT PREVIOUS YEAR AND THEREFORE TH E T RIBUNAL WAS NOT CORRECT IN HOLDI N G THAT THE ASSESSEE HAD SET UP ITS BUSINESS IN THE PREVIOUS YEAR. IN THIS CASE, ALL THE EARLI ER JUDGMENTS OF THE HON'BLE BOMBAY HIGH COURT CITED BEFORE US BY MR. DAVE. THE LD. CIT(DR) WERE CONSIDERED AND APPLIED. 18. IN THE TIGHT OF THE GUIDELINES LAID DOWN IN THE JUDGMENTS CITED ABOVE, IF WE APPROACH THE QUESTION BEFORE US, WHAT WE FIND IS THAT DURING THE RELEVANT' PREV I OUS YEAR THE ASSESSEE HAS TAKEN THE FOLLOWING STEPS: - 1. ACQU ISITION OF PREMISES ON RENT. 2. SINCE THE PREMISES COULD NOT BE OCCUPIED IMMEDIATELY DUE TO REPAIRS. THE A SSESSEE WAS TEMPORARILY FUNCTIONING FROM TWO DIFFERENT PRE MISES, ONE IN DALA L STREET AND THE OTHER IN M.G. ROAD. 3. COMPUTERS W ERE PURCHASED DURIN G THE RELEVANT Y EAR. 4. TH E APPOINTMENT OF SENIOR EXECUTIVES INCLUDING THE CHIEF EXECUTIVE OFFICER WAS COMPLETED BY JAN U ARY 1995. 5. AN ADVANCE WAS PAID TO MR. MAN OJ MURARKA AND MRS. A G ARW A L FOR ACQUIRING THE STOCK EXCHAN GE CARD. 6. T HE ASSESSEE FILED AN APPLICATION FORM WITH THE STOCK EXCHANGE FOR MEMBERSHIP . IT IS AN UNDISPUTED FACT THAT THE SEBI REGISTRATION AND THE ACTUAL MEMBERSHIP OF THE BOMBAY S T OCK EXCH ANGE WERE OBTAINED ONLY IN SEPTEMBER AND OCTOBER, 1995. UNLESS THESE ARE OB TAINED , THE ASSESSEE WOULD NOT BE IN A POSITION TO ACT AS A BROKER IN RESPECT OR THE DEALINGS IN SHARES AND SECURITIES ON BEHALF OF ITS CLIENTS. THEREFORE, SO FAR AS THE ACTIVITY OF ACTING AS SHARE BROKERS IS ITA NO. 1819 /20 1 3 14 CONCERNED. THE SAID BUSINESS CANNOT BE SAID TO HAVE BEE N SET UP DURING THE RELEVANT PR EVIOUS YEAR. HOWEVER, THE OTHER BUSINESS ACTIVITY IS THAT OF ACTING AS SHARE DEALERS ON ITS OWN ACCOUNT. INSOFAR AS THIS PART OF THE BUSINESS IS CONCERNED, WE ARE OF THE VIEW THAT THE SAME CAN BE SAID TO HAVE BEEN SET UP WHEN THE APPOINTMENT OF THE SENIOR EXECUTIVES WAS COMPLETE ON 1 7 .1.1995. FOR DEALING IN SECURITIES ON ITS OWN ACCOUNT , THE ASSESSEE DID NOT REQUIRE MEMBERSHIP OF BOMBAY STOCK EX CHANGE OR REGI STRA TI ON WITH SEBI. WHAT IT REQUIRED WAS PREMISES FROM WHICH IT COULD OPERATE AND STAFF WHICH COULD CARRY ON THE SHARE DEALING BUSINESS. AS ALREADY NOTED, THE ASSESSEE WAS OPERATING FROM TWO DIFFERENT PREMISES AT LEAST FROM 26.10.94. THE ACQU ISITION OF THE COMPUTERS IN O CTOBER, 1994 OR THE TAKING UP OF THE PREMISES IN NOVEMBER, 1994 BY THEMSELVES WOULD NOT AMOUNT TO SETTING UP OF THE OWN SHARE DEALING BUSINESS. BUT, WHEN THE SENIOR EXECUTIVES WERE APPOINTED, I NCLUDING TWO ANALYSTS, IT CAN BE S TATED THAT THE INFRASTRUCTURE WAS READY FOR CONDUCTING THE SHARE DEALING ON OWN ACCOUNT. THEREFORE, IN OUR OPINION, THIS PART OF THE BUSINESS CAN BE SAID TO HAVE BEEN SET UP BY 11.1.1995 WHEN THE APPOINTMENT OF THE SENIOR EXECUTIVES AND ANALYSTS WAS COMPLE TED. THE PROVISO TO SECTION 3(1) REQUIRES US TO RECORD A FINDING AS TO THE DATE OF SETTING UP OF THE BUSINESS. ON THE FACTS OF THE CASE BEFORE US, WE ARE OF THE VIEW THAT THE BUSINESS WAS SET UP ON 17.1.1995. WHATEVER HAPPENED BEFORE THAT DATE WERE ONLY ST EPS FOR SETTING UP THE BUSINESS OF DEALING IN OWN SHARES. WE THEREFORE DIRECT THAT THE EXPENSES INCURRED BY THE ASSESSEE AFTER 17.1.1995 MAY BE ALLOWED AS A DEDUCTION A ND IF A LOSS I S COMPUTED, THE SAME SH ALL BE CARRIED FORWARD TO THE SUBSEQUENT YEARS. 1 9. IN THE COURSE OF THE ARGUMENTS, THE ID. REPRESENTATIVE FOR THE ASSESSEE HAD SUBMITTED THAT NO DISTINCTION OR D IVISI ON CAN BE MADE BETWEEN THE OWN BUSINESS IN SHARES AND SECURITIES AND THE SAID BUSINESS CARRIED ON 8S SHARE BROKERS FOR CLIENTS AND THEREFO RE EVEN IF ONE OF THEM IS FOUND BY US TO HAVE BEEN SET UP DURING THE PREVIOUS YEAR, WHATEVER EXPENSES WHICH WERE INCURRED AFTER THE SETTING UP OF THE SAID BUSINESS, IRRESPECTIVE OF WHETHER THEY RELATE TO THE OWN BUS INESS OR THE BUSINESS ON BEHALF OF CLIENT S, ARE ALLOWABLE AS DEDUCTION. WE FIND MERIT IN THE CONTENTION. CLAUSE (A) OF THE OBJECTS CLAUSE OF THE MEMORAN DUM OF ASSOCIATION MENTIONS BOT H THE ACTIVITIES IN THE SAME BREATH. THER E IS ALSO UNITY OF CONTROL IN T HE SENSE THAT BOTH THE ACTIVITIES ARE TO BE CONTROLLED BY THE SAME STAFF AND BOARD OF DIRECTORS. THE NATURE OF BOTH THE ACTIVITIES IS THE SAME - BOTH ARE IN SHARES AND SECURITIES - AND THE M E RE FACT THAT THE ACTIVITY I S CARRIED ON BOTH ON BEHALF OF CLIENTS AND ON THE COMPA NYS OWN BEHALF DOES NO T JUSTIFY THE INFERENCE THAT BOTH THE ACT IVITIES ARE SEPARATE OR DISTINCT BUSINESS ACTIVITIES. THEREFORE, THE SETTING UP OF ONE BRANCH OF T HE SAME BUSINESS VIZ ., THAT OF DEALING IN SHARES AND SECURITIES ON OWN ACCOUNT, IS TANTAMOUNT TO SETTING UP OF THE BU SINESS OF THE COMPANY. THE REFORE, ALL EXPENSES INCURRED AF TER 17.1.95 ARE ALLOWABLE AS DEDUCTION AND IF A LOSS IS TO BE COMPUTED, THE SAME SHALL BE CARRIED FORWARD TO THE SUBSEQUENT YEARS. WE HOLD ACCORDINGLY. ITA NO. 1819 /20 1 3 15 20. WE MAY NOW DISPOSE OF CERTAIN CONTENTION S TAKEN BY MR. DAVE, THE ID. CIT(DR). HE POINTED OUT THAT NO SO FTWARE HAD BEEN PURCHASED FOR THE COMPUTERS, AS CAN BE SEEN FROM THE ACCOUNTS END THEREFORE THE PURCHASE OF THE COMPUTERS WAS OF NO USE. WE AGREE. BUT, THE MERE PURCHASE OF THE COMPUTERS HAS NO T BEEN HELD BY US 10 CONSTITUTE THE SETTING UP OF THE BUSINESS. WE HAVE TAKEN NOTE OF FOUR FACTS - (I) THE PURCHASE OF COMPUTERS, (II) THE ACQUI SITION OF PREMISES ON RENT, (III ) THE TEMPORARY FUNCTIONING OF THE ASSESSEE COMPANY FROM TWO PREMISES AND THE CO RRESPONDENCE THAT TOO TOOK PLACE BETWEEN THE ASSESSEE AND ITS BANKERS FROM THESE PREMISES AND, (IV) THE COMPLETION OF THE APPOINTMENT OF SENIOR EXECUTIVES, INCLUDING TWO ANALYSTS. ON THE COMPLETION OF THE LAST OF THE ABOVE, THE ASSESSEE CAN BE SAID TO HAVE SET UP THE BUSINESS OF SHARE DEALING ON I TS OWN ACCOUNT. AS REGARDS MR. DAVE'S CONTENTION THAT THERE WAS NO EVIDENCE TO SHOW THE WORK DONE BY THE ANALYSTS, IT I S DIFFICULT TO ENVISAGE SUCH A SITUATION SINCE THE ANALYSTS ARE HIGHLY PAID STAFF AND THE ASSE SSEE WOULD NOT BE PAYING THEM HUGE SALARIES UNLESS SOME WORK HAS BEEN EXTRACTED FROM THEM. IT MAY NOT BE. UNDER THE CIRCUMSTANCES, POSSIBLE TO OBTAIN ANY DOCUMENTARY EVIDENCE TO SHOW THE WORK ACTUALLY BEING DONE BY THEM, BUT THAT IS NOT FATAL TO THE CASE. WITH REGARD TO THE NON - SUBMISSION OF THE DIRECTORS' REPORT, AS POINTED OUT ON BEHALF OF THE ASSESSEE, THIS IS THE FIRST YEAR AND FOR COMPANIES ACT PURPOSES A PERIOD OF 18 MONTHS THEREAFTER IS AVAILABLE TO THE ASSESSEE COMPANY FOR SUBMISSION OF THE DIRECTOR S' REPORT. MR. DAVE HAD ALSO SUBMITTED THAT THE ASSESSEE ITSELF HAS TREATED T HE EXPENSES AS PRE - OPERATIVE EXPENSES. 'PRE - OPERATIVE' MEANS PRIOR TO THE COMMENCEMENT OF OPER A TIONS WHICH I S EQUIV ALENT TO THE COMMENCEMENT OF BUSINESS. AS ALREADY NOTICED ELSEW HERE, WE ARE NOT HEREIN CONCERNED WITH THE COMMENCEMENT WE ARE CONCERNED ONLY WITH THE SETTING UP OF THE BUSINESS WHICH ACTUALLY PRECEDES THE COMMENCEMENT OF THE BUSINESS. THEREFORE, WHAT THE ASSESSEE HAS TERMED AS PRE - OPERATIVE EXPENSES IS NOT AN INACCURA TE DESCRIPTION OF THE NATURE OF THE EXPENSES AND THERE IS NO INCONSISTENCY BETWEEN THE SAME AND THE ASSESSEE'S CLA I M . 21. HAVING REGARD TO THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE BUSINESS OF THE ASSESSEE CAN BE SAID TO HAVE BEEN SET UP ON 17.1.1995. ALL EXPENSES INCURRED THEREAFTER ARE ELIGIBLE FOR BEING TREATED AS BUSINESS EXPEND ITURE AND IF A LOSS IS TO BE COMPUTED, THE SAME SHALL BE CARRIED FORWARD TO THE SUBSEQUENT YEARS. THE EXPENSES INCURRED PRIOR TO THIS DATE, CANNOT BE ALLOWED A S A DEDUCTION BECAUSE THOSE ARE EXPENSES INCURRED PRIOR TO THE COMMENCEMENT OF THE PREVIOUS YEAR. WE DIRECT ACCORDINGLY. 9 . AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS AND THE RATIO OF DECISION DISCUSSED ABOVE, I FOUND THAT SIMILAR FACTS ARE INVOLVE D IN THE PRESENT CASE ALSO. THE MOOT QUESTION AS TO WHETHER ANY ACTIVITY HAS BEEN STARTED TO PUBLISH THE MAGAZINE OR NOT. AFTER GOING THROUGH THE CHART AND ITA NO. 1819 /20 1 3 16 VARIOUS DETAILS ALONG WITH SUPPORTING EVIDENCE, IT IS AMPLY PROVED THAT MAJOR ACTIVITY HAS STARTED D URING THE YEAR UNDER CONSIDERATION. SOME ORDERS HAVE BEEN PLACED, PHOTOGRAPHER IS ENGAGED, SOME TECHNICAL STAFFS WERE ALSO EMPLOYED, BUSINESS PREMISES HAS BEEN TAKEN FROM WHERE ALL THESE ACTIVITIES ARE CONDUCTED. EVEN TRIAL PRODUCTION WAS ALSO STARTED FROM ALL THESE FACTS, IT IS SEEN THAT THE ASSESSEE HAS STARTED ITS ACTIVITY FOR PUBLISHING ITS MAGAZINES. THE QUESTION IS NOT GENERATING OF REVENUE, THE QUESTION COMES FOR CONSIDERATION AS TO WHETHER ANY ACTIVITY HAS BEEN STARTED OR NOT. IN THE CASE OF HSBC SE CURITIES INDIA HOLDINGS PVT. LTD. (SUPRA) , THE TRIBUNAL FOUND THAT THERE WAS ACQUISITION OF PREMISES ON RENT, COMPUTERS WERE PURCHASED DURING THE RELEVANT YEAR, APPOINTMENT OF SENIOR EXECUTIVES INCLUDING THE CHIEF EXECUTIVE OFFICER WAS COMPLETED BY JANUARY , 1995 AND ADVANCE WAS PAID TO MR. MANOJ MURARKA AND MRS. AGARWAL FOR ACQUIRING THE STOCK EXCHANGE CARD. THE ASSESSEE FILED AN APPLICATION FORM WITH THE STOCK EXCHANGE FOR MEMBERSHIP. AFTER TAKING INTO CONSIDERATION ALL THESE ACTIVITIES, THE TRIBUNAL FOUND THAT THE BUSINESS OF THE ASSESSEE HAS BEEN SET UP. THEREFORE, THE EXPENSES INCURRED BY THE ASSESSEE SHOULD BE ALLOWED. 10 . IN THE CASE IN HAND, ALL THE FACTORS INVOLVED ARE ON BETTER FOOTING AS IN THIS CASE ALSO THE TRIAL ISSUE WAS DONE, PAYMENT TO THE PHOTOGRAPHER WAS MADE, RAW MATERIAL WAS ALSO PURCHASED, ALL EXECUTIVE REQUIRED TO PUBLISH THE MAGAZINES WERE EMPLOYED, OFFICE PREMISES WAS OCCUPIED. THERE ARE VARIOUS OTHER CORRESPONDENCE BETWEEN THE EDITORIAL OF THE ASSESSEE AND OTHER CUSTOMERS, WHO WANT TO WORK WITH THE ASSESSEE FOR THE PURPOSE OF PUBLISHING THE MAGAZINES NAMED VOGUE. FROM ALL THESE ITA NO. 1819 /20 1 3 17 ACTS OF THE ASSESSEE, IT CAN BE EASILY SAID THAT THE BUSINESS OF THE ASSESSEE WAS SET UP. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE ARE ALLOWABLE. H OWEVER, SINCE THE NATURE OF EXPENDITURE WAS NOT EXAMINED AND WHETHER THESE EXPENSES ARE ALLOWABLE OR NOT WAS NOT EXAMINED BY THE AO AS THE AO FOUND THAT THE BUSINESS WAS NOT SET UP, THEREFORE, THE EXPENDITURES WERE NOT ALLOWABLE. THEREFORE, TO THIS LIMITED PURPOSE THE MATTER IS REMANDED BACK TO THE FILE OF THE AO TO EXAMINE THE GENUINENESS OF THE EXPENDITURE AND THEN ALLOW THEM AS PER PROVISION OF LAW. I ORDER ACCORDINGLY. 11 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF SEPT .2013 SD/ - ( ) ( R.K.GUPT A ) / JUDICIAL MEMBER MUMBAI; DATED : 04/09 / 2013 /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, ( ASSTT. REGISTRAR) / ITAT, MUMBAI