DLF Utilities Ltd., New Delhi V. DCIT, New Delhi

ITA 194/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61799 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-07-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 13-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K V K SINGH
• Assessee Lawyers: P RADEEP DINODIA R K KAPOOR
• Keywords: Depreciation; Revenue expenditure
• Section: 37

Judgement Text

ITA NOS. 194 & 213/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 194/DEL/2011 A.Y. : 2003-04 DLF UTILITIES LIMITED, (SUCCESSOR TO : DLF SERVICES LIMITED) DLF CENTRE, 9 TH FLOOR, SANSAD MARG, NEW DELHI 110 001 (PAN : AABCD8494M) VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 10(1), ROOM NO. 46, CENTRAL REVENUE BUILDING, NEW DELHI 110002 AND ITA NO. 213 /DEL/2011 A.Y. 2003-04 ACIT, CIR.-10(1), VS. M/S DLF SERVICES LTD., (FO RMERLY NEW DELHI KNOWN AS DT CINEMA LTD.) DLF CENTRE, 9 TH FLOOR, SANSAD MARG, NEW DELHI - 110001 (PAN : AABCD8494M) (APPELLAN (APPELLAN (APPELLAN (APPELLAN TS ) TS ) TS ) TS ) (RESPONDENTS ) (RESPONDENTS ) (RESPONDENTS ) (RESPONDENTS ) ASSESSEE BY : SH. PRADEEP DINODIA/ R.K. KAPOOR, CA DEPARTMENT BY : SH. K.V.K. SINGH, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THESE CROSS APPEALS BY THE ASSESSEE AND THE REVEN UE EMANATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) DATED 01.11.2010 AND PERTAIN TO ASSESSMENT YEAR 2003-04. ITA NOS. 194 & 213/DEL/2011 2 2. THE GROUNDS RAISED IN THE ASSESSEES APPEAL REA D AS UNDER:- I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND CONTRARY TO THE PROVISIONS OF LAW, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN HOLDING THAT THE BUSINESS OF THE APPELLANT COMPANY HAS BEEN SET UP ON 1.1.2003. II) THAT THE LD. COMMISSIONER OF INCOME TAX (A) SHOU LD HAVE HELD THAT BUSINESS OF THE APPELLANT COMPANY HA S ALREADY BEEN SET UP IN THE BEGINNING OF THE YEAR A S THE APPELLANT APPOINTED CONSULTANTS W.E.F. 1.4.2002 , WHO HAD SPECIFIC KNOWLEDGE ABOUT THE ACTIVITIES OF THE SHOW BUSINESS. III) THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, SUBSTITUTE, WITHDRAW AND / OR VARY ANY GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 3. THE GROUNDS RAISED IN THE REVENUES APPEAL READ AS UNDER:- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) I S WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF PRE-OPERATIVE EXPENSES. ITA NOS. 194 & 213/DEL/2011 3 III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERR ED IN HOLDING THE DATE OF SET UP OF BUSINESS OF THE ASSESSEE COMPANY ON 1.1.2003 AS AGAINST THE SAME DETERMINED BY THE ASSESSING OFFICER ON 7.3.2003. IV) THE APPELLANT CRAVES TO LEAVE, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF T HE HEARING. 4. IN THIS CASE ASSESSING OFFICER REFERRED TO THE NOTE OF THE ASSESSEE REGARDING NATURE OF BUSINESS ACTIVITY OF T HE COMPANY AS UNDER:- THE ASSESSEE COMPANY WAS INCORPORATED ON 08.6.1999 UNDER THE COMPANIES ACT, 1956, TO CARRY ON THE BUSINESS OF RUNNING MULTIPLEX CINEMAS / THEATRES, AS ENUMERATED IN THE MEMORANDUM & ARTICLES OF ASSOCIATION OF THE COMPANY. IN PURSUAN CE THERETO THE ASSESSEE COMPANY IS RUNNING A MULTIPLEX THEATRE AT DLF CITY CENTRE, GURGAON (HARYANA). DURING THE YEAR THE NAME OF THE COMPANY WAS CHANGED FROM ORIGINALLY INCORPORATED NAME RIDGEWOOD ESTATES MANAGEMENT SERVICES PVT. LTD. TO GRAND CINEMA PVT. LTD. ON 31 OCTOBER, 2002 AND TO DT CINEMAS PVT. LTD. ON 10 JANUARY, 2003 AND TO D T CINEMAS LTD. UPON ISSUE OF FRESH CERTIFICATE OF INCORPORATION CONSEQUENT TO CONVERSION OF COMPANY INTO A PUBLIC LIMITED COMPANY VIDE CERTIFICATE DATED 13 MARCH 2003 ISSUED BY THE ROC, NCT OF DELHI AND ITA NOS. 194 & 213/DEL/2011 4 HARYANA AT NEW DELHI. THIS IS THE FIRST YEAR OF COMMERCIAL OPERATION OF THE ASSESSEE COMPANY, WHICH HAS MADE FUNCTIONAL ONLY DURING THE YEAR UNDER ASSESSMENT. 4.1 FROM THE ABOVE ASSESSING OFFICER INFERRED THAT T HE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE COMPAN Y TOOK PLACE DURING THE YEAR UNDER CONSIDERATION. REGARDING THE COMMENCEMENT OF BUSINESS ASSESSING OFFICER REFERRED TO THE INFO RMATION AVAILABLE IN THE DIRECTORS REPORT THIS IS THE FIRST YEAR OF C OMMERCIAL OPERATION OF THE COMPANY, AND DURING THE YEAR UNDER REVIEW, TH E COMPANY HAS COMPLETED ITS MULTIPLEX PROJECT AT CITY CENTRE, GUR GAON, WHICH HAS BEEN MADE FUNCTIONAL WITH EFFECT FROM 07 TH MARCH, 2003. THE COMPANY HAS MANAGED TO ENTER INTO MARKETING A LLIANCE WITH COKE, HYNDAI, LOREAL AND NESTLE DURING THE YEAR FO R BUILDING THE STRONG BRAND IMAGE OF THE COMPANY. 4.2 FROM THE ABOVE CONTENTION, THE ASSESSING OFFICER INFERRED THAT COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE TOOK P LACE ON 07.3.2003, MEANING THEREBY THAT THE COMPANY WAS OPE RATIONAL FOR ONLY 24 DAYS DURING THE YEAR. 4.3 ASSESSING OFFICER FURTHER NOTED THAT PERUSAL O F P&L ACCOUNT REVEALS THAT INCOME FOR THIS PERIOD HAS BEEN SHOWN AT ` 51,48,311/- AS AGAINST EXPENDITURE OF ` 2,94,36,172/-. THE ASSES SEE WAS ASKED, VIDE ORDER SHEET ENTRIES DATED 28.12.2005 AND 10.1.2006 , TO FILE DETAILS AND JUSTIFICATION FOR THIS LOPSIDED RATIO OF INCOME / EXPENDITURE. IN THIS REGARD, ASSESSEE SUBMITTED THAT THE SUBJECT YEAR IS THE INITIAL YEAR IN WHICH BUSINESS WAS STARTED AND SO THE COMPANY HAD T O INCUR HEAVY AMOUNT OF EXPENDITURE TO START THIS TYPE OF BUSINES S, WHICH WAS A ITA NOS. 194 & 213/DEL/2011 5 SHOW BUSINESS. IT WAS FURTHER SUBMITTED THAT THE EXPENDITURE WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE SAME WAS FULLY ALLOWABLE U/S. 37 OF THE I.T. ACT. FROM THI S ASSESSING OFFICER INFERRED THAT ASSESSEE HAS ADMITTED THAT THE LOPSID ED RATIO IS RELATED BASICALLY TO LAUNCH THE BUSINESS. ASSESSING OFFI CER FURTHER OBSERVED THAT ASSESSEE HAS ADMITTED THAT SUCH HEAVY EXPENDITU RE WAS INCURRED TO BASICALLY KICK-START THE BUSINESS. MEANING T HEREBY, BENEFIT OF ENDURING NATURE IS EMBEDDED IN THE CAUSE. ASSESSIN G OFFICER FURTHER TOOK THE COMMENCEMENT OF BUSINESS ON 07.3.2003 AND PR OCEEDED TO MAKE VARIOUS DISALLOWANCES ON PROPORTIONATE BASIS. 4.4 AS REGARDS PROFESSIONAL AND CONSULTANCY EXPENS ES, ASSESSING OFFICER NOTED THAT THE SAID EXPENDITURE COMPRISED MAINLY OF CONSULTANCY FEES WHICH WAS AT ` 78,49,303/-. THE ASSESSEE ALSO FILED COPIES OF AGREEMENTS WITH SOME OF THE CONSULTANTS NAMELY MS. KAJAL AIJAZ (CONSULTANCY FEES ` 26,00,000/-), SH. ANUPAM J OGLEKAR (CONSULTANCY FEES ` 11,25,000/-) AND SH. RAJIV SEKHR I (CONSULTANCY FEES ` 10,79,000/-). AS REGARDS THE PAYMENT OF ` 26,00,0 00/- TO MS. KAJAL AIJAZ, ASSESSING OFFICER TREATED THE SAME AS CAPITAL IN NATURE AND DISALLOWED WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE COMPANY. AS REGARDS THE PAYMENT OF ` 10,79,000/- T O SHRI RAJIV SEKHRI IT WAS TREATED AS CAPITAL IN NATURE AND DISA LLOWED WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE COMPANY AN D WITH RESPECT TO PAYMENT OF ` 11,25,000/- TO SH. ANUPAM JOGLEKAR, ASSESSING OFFICER ALLOWED THE ONE MONTH EXPENDITURE OF MARCH, 2003 AT ` 1,25,000/- AS COMPENSATION AS REVENUE EXPENDITURE AND THE BALANCE OF ` 10,00,000/- WAS DISALLOWED AS PRE-OPERATIVE EXPENDITURE. AS REGARDS THE PAYMENTS TO OTHER CONSULTANTS OF ` 30,45,303/-, THE ASSESSING OFFICER NOTED THAT THESE CONSULTANTS WERE PAID W.E.F. 1.4.2 002. HENCE, THE ITA NOS. 194 & 213/DEL/2011 6 COMPENSATION ONLY FOR THE MONTH OF MARCH, 2003 WAS AL LOWED AND THE BALANCE PAYMENT (11 MONTHS) OF ` 27,91,527/- WAS DI SALLOWED AS PRE- OPERATIVE IN NATURE. ASSESSING OFFICER FURTHE R NOTED THAT FROM THE DETAILS OF PROFESSIONAL AND CONSULTANTS FEES FILED BY THE ASSESSEE NO DESCRIPTION / NATURE WAS GIVEN AGAINST THE PAYME NT OF ` 3,65,500/- TO GOPIKA CHOWFLA. ASSESSING OFFICER HELD THAT IN THE ABSENCE OF THE REQUISITE DETAILS IN THIS REGARD, THE ENTIRE AMOUNT OF ` 3,65,500/- WAS DISALLOWED WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY, IN THIS MANNER ASSESSING OFFICER MADE TOTAL DISALLOWANCE OF ` 50,44,500/- UNDER THE HEAD PROFESSIONAL AND CO NSULTANCY FEES. 4.5 AS REGARDS RENT OF ` 43,98,345/- IS CONCERNED, ASSESSING OFFICER NOTED THAT THE SAME WAS PAID W.E.F. JANUARY, 2003, WHEREAS, AS ALREADY POINTED OUT ABOVE, THE BUSINESS OF THE ASSE SSEE COMPANY COMMENCED IN MARCH, 2003. HENCE, PROPORTIONATE CLAI M FOR ` 29,32,230/- FOR THE MONTH OF JANUARY AND FEBRUARY, 2 003 WAS DISALLOWED AS PRE-OPERATIVE EXPENDITURE. 4.6 ASSESSING OFFICER FURTHER NOTED THAT THE ASSES SEE HAS INCURRED A SUM OF ` 1493204/- WHICH WAS FOR LAUNCHING /BRAND B UILDING EXERCISE. ASSESSING OFFICER OPINED THAT THIS EXPENDITURE WAS CAPITAL IN NATURE, HENCE, DISALLOWED THE ENTIRE AMOUNT. 4.7 ASSESSING OFFICER FURTHER NOTED THAT THE ASSES SEE HAS CLAIMED A SUM OF ` 23,77,335/- ON ACCOUNT OF MAINTENANCE AND RE PAIR (BUILDING). ASSESSING OFFICER NOTED THAT SUCH EXPENDITURE WERE FOR THE PERIOD DECEMBER TO FEBRUARY, 2003 ASSESSING OFFICER HELD THA T SINCE THE OPERATION OF THE COMPANY STARTED IN MARCH, 2003 SUCH EXPENDITURE FROM DECEMBER TO FEBRUARY, 2003 AT ` 17,83,001/- WAS D ISALLOWED AS ITA NOS. 194 & 213/DEL/2011 7 PREOPERATIVE IN NATURE. IN THIS MANNER, ASSESSING OFFICER MADE THE ASSESSMENT AT A TOTAL LOSS OF ` 2,04,50,778/-. 5. BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) ASS ESSEE SUBMITTED THAT ONCE THE BUSINESS OF A PERSON IS SET UP, ALL THE EXPENDITURE INCURRED THEREAFTER, WHICH ARE OTHERWIS E OF REVENUE NATURE SHOULD BE ALLOWED TO AN ASSESSEE. ASSESSEE FURT HER SUBMITTED THAT ITS BUSINESS WAS SET FROM 1.4.2002, THAT IS WHEN IT APPOINTED THE CONSULTANTS FOR THE PURPOSE OF BUSINESS, BECAUSE T HIS WAS THE FIRST STEP IN SETTING UP THE BUSINESS. IT WAS FURTHER S UBMITTED THAT 7.3.2003 WAS THE ACTUAL DATE WHEN PUBLIC WAS ALLOW ED TO WATCH A MOVIE IN THE THEATRE. IT WAS SUBMITTED BY THE ASSES SEE THAT 7.3.2003 CAN BE THE DATE OF THE COMMENCEMENT OF THE BUSINESS, BUT NOT THE DATE FOR SETTING UP OF THE BUSINESS WHICH ACCORDIN G TO THE ASSESSEE WAS SET UP FROM 1.4.2002 WHEN THE CONSULTANTS ETC. WERE APPOINTED. IT WAS FURTHER SUBMITTED THAT ASSESSING OFFICER WAS HAVING AN ERRONEOUS UNDERSTANDING AND HE PROCEEDED TO JUDGE T HE WHOLE ISSUE FROM THE ANGLE OF COMMENCEMENT OF THE BUSINESS WHICH IS NOT THE MANDATE OF THE LAW AND HE SHOULD HAVE DECIDED THE I SSUE BASED ON THE DATE OF SETUP OF THE BUSINESS. IN THIS REGAR D, ASSESSEE PLACED RELIANCE UPON THE FOLLOWING CASE LAWS:- I) C.I.T. VS. LG ELECTRONICS (I) LTD. 282 ITR 545 (DEL.) II) WESTERN INDIA VEGETABLE PRODUCTS LTD. VS. C.I.T . 26 ITR 151 (BOM.) III) C.I.T. VS. SARABHAI MANAGEMENT CORPORATION LTD. (1991) 192 ITR 151 (SC). IV) HUGHES EXCESS COMMUNICATION LTD. 213 CTR 45 (DELHI). ITA NOS. 194 & 213/DEL/2011 8 5.1 IT WAS FURTHER SUBMITTED THAT IN THE ABOVE CAS E LAWS THE HONBLE COURTS HAVE HELD THAT EXPENDITURE INCURRED AFTER TH E BUSINESS HAS BEEN SET UP MAY BE ALLOWED UNDER SECTION 30 TO 37 E VEN IF IT IS INCURRED BEFORE THE BUSINESS HAS ACTUALLY COMMENCED AND THAT THERE IS A CLEAR DISTINCTION BETWEEN COMMENCING OF BUSINESS AND SETTING UP OF BUSINESS. THAT THERE MAY, HOWEVER, BE AN INTERVA L BETWEEN THE SETTING UP OF THE BUSINESS AND COMMENCEMENT OF BUSIN ESS AND ALL EXPENSES INCURRED DURING THAT INTERVAL WOULD BE PER MISSIBLE DEDUCTION, IF OTHERWISE ALLOWABLE UNDER THE I.T. ACT. ASS ESSEE MADE FURTHER SUBMISSION TO THE LD. COMMISSIONER OF INCOME TAX (A) CANVASSING THE CASE THAT BUSINESS WAS SET UP W.E.F. 1.4.2002 AND W HEN ASSESSEE APPOINTED CONSULTANTS. IT WAS FURTHER SUBMITTED THA T 7.3.2003 WAS THE FIRST DAY OF OPENING UP THE THEATRE FOR PUBLIC SHOW S AND IT WAS SUBMITTED BEFORE OPENING FOR THE PUBLIC, LOTS OF NE CESSARY PREOPENING ACTIVITIES WERE CARRIED OUT IN THE BEGINNING OF THE YEAR, WHICH ALSO CULMINATED IN INVITING PUBLIC FIGURES/ FACES IN THE SHOW BUSINESS IN NOVEMBER, 2002 ONWARDS. THUS, IT WAS URGED THAT ON THE FACTS OF THE CASE, IT CAN BE SAFELY CONCLUDED THAT THE BUSINESS OF THE ASSESSEE WAS SET UP IN THE BEGINNING OF THE YEAR AND ALL EXPENSE S ON CONSULTATION, RENT, MAINTENANCE CHARGES, ADVERTISEMENT AND PUBLIC ITY ETC. ARE FULLY ALLOWABLE AS REVENUE EXPENSES. 5.2 THUS, IT WAS CONTENDED BEFORE THE LD. COMMISSION ER OF INCOME TAX (A) THAT ASSESSING OFFICER, CONTRARY TO THE PRO VISIONS OF LAW AND WITHOUT CONSIDERING THE ACTUAL FACTS AND IN THE CIR CUMSTANCES OF THE CASE, DISALLOWED ALL THE EXPENSES INCURRED DURING T HE PERIOD FROM 1.4.2002 TO 6.3.2003 I.E. THE EXPENSES INCURRED AFT ER THE SETTING UP THE BUSINESS UP TO ACTUAL COMMENCEMENT OF MULTIPLEX AT GU RGAON. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT WITHOUT PREJ UDICE, AND IN THE ITA NOS. 194 & 213/DEL/2011 9 ALTERNATE IT WAS CLAIMED THAT ALL EXPENSE INCURRED BY THE ASSESSEE PRIOR TO SET UP O BUSINESS SHOULD HAVE BEEN ALLOWED BY THE ASSESSING OFFICER TO BE CAPITALIZED ALONGWITH THE COST TO AS SETS AND ALLOWED DEPRECIATION THEREON. ASSESSEE FURTHER PLACED REL IANCE ON THE FOLLOWING CASE LAWS:- I) C.I.T. VS. HERBALIFE INTERNATIONAL IND. (297 I TR 303 (DELHI) II) C.I.T. VS. CLUB RESORTS PVT. LTD. (287 ITR 552 ) (MAD.) III) C.I.T. VS. E. FUNDS INTERNATIONAL INDIA (162 T AXMANN 1) (DELHI) IV) WHIRLPOOL OF INDIA LTD. VS. JCIT (19 SOT 593) (DELHI) 5.3 CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOM E TAX (A) HELD AS UNDER:- I HAVE CAREFULLY EXAMINED THE ORDER OF THE AO, AND THE WRITTEN AND ORAL ARGUMENTS OF THE A.R. OF THE APPEL LANT. FROM THE RATIO OF THE DECISION RELIED UPON BY THE AP PELLANT IT IS NOW AN ESTABLISHED LEGAL PROPOSITION THAT REVENU E EXPENSES INCURRED AFTER THE SETTING UP OF BUSINESS AND PRIOR TO ITS COMMENCEMENT ARE AN ALLOWABLE EXPENSE. IT IS OBSERVED FROM THE ASSESSMENT ORDER THE AO HAS PROCE EDED ON THE CONCEPT OF COMMENCEMENT OF THE BUSINESS AND ACCORDINGLY HAS ADOPTED 07.03.03 AS THE DATE OF ITA NOS. 194 & 213/DEL/2011 10 COMMENCEMENT OF THE BUSINESS AND THERE BY HAS IMPLI EDLY HAS TAKEN THIS VERY DATE AS SET UP OF THE BUSINESS. THE APPROACH OF THE AO IS THUS NOT IN ACCORDANCE WITH T HE DECISIONS RELIED UPON THE APPELLANT. AT THE SAME TIM E, THE ARGUMENTS OF THE A.R. THAT 01.04.02 SHOULD BE TAKEN AS THE DATE OF SET UP OF THE BUSINESS WHEN SOME CONSULTANTS WERE APPOINTED BY THE APPELLANT IS ALSO NOT THE CORRECT APPROACH. AS MERE APPOINTMENT OF CONSULTANTS, IN ITSELF DOES N OT MEAN ANYTHING IN APPELLANT'S LINE OF BUSINESS. THERE ARE HOST OF OTHER ACTIVITIES WHICH ARE REQUIRED TO BE UNDERTAKEN/PERFORMED BEFORE THE BUSINESS CAN BE STAT ED TO HAVE ACTUALLY BEEN SET UP IN APPELLANT'S LINE OF BU SINESS. THE CONSULTANTS WERE APPOINTED TO CARRY OUT AND TO ADVISE ABOUT THE FEASIBILITY OF THE BUSINESS AND THEREFORE , 01 ST APRIL CANNOT BE TAKEN THE DATE FOR SET UP OF THE BU SINESS AS CLAIMED BY THE ASSESSEE. I HAVE CAREFULLY EXAMINED ALL THE FACTS PERTAINING T O THE ISSUE AND I AM OF THE OPINION THAT ASSESSEE IS ENGAG ED IN THE SHOW BUSINESS OF RUNNING CINEMA, THEATRE ETC. THEREFORE, IT NEEDS TO BE SEEN THAT AS TO WHEN IT C AN ITA NOS. 194 & 213/DEL/2011 11 REASONABLY BE HELD THAT THE ASSESSEE HAS SET UP HIS BUSINESS. EVEN THE ROAD SHOW CONDUCTED FOR LAUNCHING OF THE P ROJECT WERE ONLY PROMOTIONAL ACTIVITIES AND ARE THEREFORE P RE- OPERATIONAL IN NATURE. FROM THE DETAILS OF VARIOUS AGREEMENTS PROVIDED BY THE APPELLANT IT CAN REASONAB LY BE HELD THAT THE DATE ON WHICH THE BUILDING FOR CINEMA WAS OCCUPIED ON RENT I.E. 01.01.03 CAN SAFELY BE HELD A S THE CUT- OFF DATE. IN FACT IT IS IN JANUARY 2003 THAT THE AP PELLANT HAS ALSO ENTERED INTO AGREEMENT WITH DISTRIBUTORS & MEDIA AGENCIES; TELEPHONE LINES WERE INSTALLED IN JANUARY 2003 & EVEN TRIAL RUN OF THE CINEMA WAS CARRIED OUT IN DEC . 2002 & FIXED ASSETS PURCHASED. I THEREFORE, HOLD THAT THE DATE OF SET UP OF THE BU SINESS SHOULD BE TAKEN AS 01 ST JANUARY 2003 AND THEREFORE, ALL THE EXPENSES WHICH THE ASSESSEE HAS INCURRED AFTER 01.0 1.2003 WHETHER ON THE PAYMENT OF CONSULTANTS OR ON RENT OR ON STAFF SALARY OR ALL OTHER EXPENSES OF REVENUE NATUR E ETC. SHOULD BE ALLOWED AS A DEDUCTION, AS AGAINST THE 07 .03.03 TAKEN BY THE A.O. ITA NOS. 194 & 213/DEL/2011 12 FURTHER CONSIDERING, THE ALTERNATE GROUND RAISED BY THE APPELLANT ALL EXPENSES INCURRED FROM 01.04.02 TO 31. 12.02 SHOULD BE TREATED AS PRE-OPERATIVE EXPENSES AND SHO ULD BE CAPITALIZED ON WHICH THE APPELLANT IS ENTITLED TO G ET DEPRECIATION AT THE APPLICABLE RATES, AND IN ACCORD ANCE WITH LAW. 6. AGAINST THE ABOVE ORDER, BOTH ASSESSEE AND REVE NUE ARE IN CROSS APPEAL BEFORE US. 7. REVENUE HAS CONTENDED THAT LD. COMMISSIONER OF INC OME TAX (A) HAS ERRED IN HOLDING THAT THE DATE OF SET UP OF THE BUSINESS OF THE ASSESSEE COMPANY ON 1.1.2003 AS AGAINST THE SAME DET ERMINED BY THE ASSESSING OFFICER ON 7.3.2003. 8. IN THE CROSS APPEAL ASSESSEE HAS SUBMITTED THAT THE DATE OF SET UP OF THE BUSINESS WAS IN THE BEGINNING OF THE YEA R AS THE ASSESSEE APPOINTED CONSULTANTS W.E.F. 1.4.2002 WHICH SHOULD BE TAKEN AS DATE ON WHICH THE BUSINESS WAS SET UP. 9. WE FIND THAT IN THE ASSESSMENT ORDER THE ASSESS ING OFFICER HAS PROCEEDED ON THE CONCEPT OF COMMENCEMENT OF THE BUSI NESS AND ACCORDINGLY HAS ADOPTED 7.3.2003 AS THE DATE OF COMM ENCEMENT OF THE BUSINESS AND THEREBY HAS IMPLIEDLY TAKEN THIS VERY DATE AS SET ITA NOS. 194 & 213/DEL/2011 13 UP OF THE BUSINESS. WE AGREE WITH THE LD. COMMISSIO NER OF INCOME TAX (A) THAT THIS APPROACH OF THE ASSESSING OFFICER IS NOT IN ACCORDANCE WITH THE DECISION RELIED UPON BY THE ASSESSEE. A T THE SAME TIME, THE ASSESSEES PLEA THAT 1.4.2002 SHOULD BE TAKEN AS TH E DATE OF SET UP OF THE BUSINESS WHEN SOME CONSULTANTS WERE APPOINTED BY THE ASSESSEE IS ALSO NOT CORRECT APPROACH, AS MERE APPOINTMENT O F CONSULTANTS, IN ITSELF DOES NOT MEAN ANYTHING IN ASSESSEES LINE OF BUSINESS. IN THIS REGARD, LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT THERE ARE HOST OF OTHER ACTIVITIES WHICH ARE REQUIRED TO BE U NDERTAKEN / PERFORMED BEFORE THE BUSINESS CAN BE STATED TO HAV E ACTUALLY BEEN SET UP IN THE ASSESSEES LINE OF BUSINESS. THE LD. CO MMISSIONER OF INCOME TAX (A) FURTHER HELD THAT THE CONSULTANTS WERE APPO INTED TO CARRY OUT AND TO ADVISE ABOUT THE FEASIBILITY OF THE BUSINESS AND THEREFORE, 1 ST APRIL CANNOT BE TAKEN THE DATE FOR SET UP OF THE B USINESS AS CLAIMED BY THE ASSESSEE. THEREAFTER LD. COMMISSIONER OF INCOME TAX (A) HELD THAT THE ASSESSEE WAS IN THE SHOW BUSINESS OF RUNN ING CINEMA, THEATRE ETC. THEREFORE, HE HELD THAT IT NEEDS TO BE SEEN T HAT AS TO WHEN IT CAN REASONABLY HELD THAT THE ASSESSEE HAS SET UP HIS B USINESS. LD. COMMISSIONER OF INCOME TAX (A) FURTHER HELD THAT EV EN THE ROAD SHOW CONDUCTED FOR LAUNCHING OF THE PROJECT WERE ONLY PROMOTIONAL ACTIVITIES AND ARE THEREFORE PRE-OPERATIONAL IN NA TURE. THEREAFTER, LD. ITA NOS. 194 & 213/DEL/2011 14 COMMISSIONER OF INCOME TAX (A) HELD THAT FROM THE DE TAILS OF VARIOUS AGREEMENTS PROVIDED BY THE ASSESSEE IT CAN REASONAB LY BE HELD THAT THE DATE ON WHICH HE BUILDING FOR CINEMA WAS OCCUPI ED ON RENT I.E. 1.1.2003 CAN SAFELY BE HELD AS THE CUT OFF DATE. LD. COMMISSIONER OF INCOME TAX (A) FURTHER FOND THAT IT WAS IN JANUARY, 2003 THAT THE ASSESSEE HAS ALSO ENTERED INTO AGREEMENT WITH DISTR IBUTORS AND MEDIA AGENCIES; TELEPHONE LINES WERE INSTALLED IN JANUARY , 2003 AND EVEN TRIAL RUN OF THE CINEMA WAS CARRIED OUT IN DEC, 2002 AND FIXED ASSETS PURCHASED. THEREAFTER, LD. COMMISSIONER OF INCOME T AX (A) HELD THAT THE DATE OF SETUP OF THE BUSINESS SHOULD BE 1.1.20 03 AND HENCE ALL THE EXPENSES WHICH THE ASSESSEE HAS INCURRED AFTER 1.1. 2003 WHETHER ON THE PAYMENT OF CONSULTANTS OR ON RENT OR ON STAFF S ALARY OR ALL OTHER EXPENSES OF REVENUE NATURE ETC. SHOULD BE ALLOWED A S DEDUCTION, AS AGAINST FROM 7.3.2003 TAKEN BY THE ASSESSING OFFICE R. FURTHER, LD. COMMISSIONER OF INCOME TAX (A) HELD THAT AS PER THE ALTERNATE GROUND RAISED BY THE ASSESSEE ALL EXPENSES INCURRED FORM 1 .4.2002 TO 31.12.2002 SHOULD BE TREATED AS PRE-OPERATIVE EXPE NSES AND SHOULD BE CAPITALIZED ON WHICH THE ASSESSEE IS ENTITLED TO GET DEPRECIATION AT THE APPLICABLE RATES. 10. FROM THE ABOVE DISCUSSION, WE FIND THAT LD. COMMI SSIONER OF INCOME TAX (A) HAS JUDICIOUSLY DECIDED 1.1.2003 AS T HE DATE ON WHICH ITA NOS. 194 & 213/DEL/2011 15 THE BUSINESS HAS BEEN SET UP. IN OUR CONSIDERED O PINION, LD. COMMISSIONER OF INCOME TAX (A) HAS SO HELD AFTER CA REFULLY EXAMINING THE VARIOUS AGREEMENTS AND DOCUMENTS PROVIDED BY THE ASSESSEE. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) IN THIS REGARD AND AC CORDINGLY, WE UPHOLD THE SAME. 11. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENUE AND ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/7/201 2. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [ [[ [U.B.S. BEDI] U.B.S. BEDI] U.B.S. BEDI] U.B.S. BEDI] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE: 20/7/2012 SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR,ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES