Bharat Aquanet Ltd, V. CIT,

ITA 1950/DEL/2008

• Counselvise Citation: 195020114 RSA 2008
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-06-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 19-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GEETMALA MOHANANI
• Keywords: Capital asset; Depreciation; Question of law; Revised return; Revenue expenditure
• Section: 143(3); 142(1); 263; 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI DELHI BENCH A : NEW DELHI DELHI BENCH A : NEW DELHI DELHI BENCH A : NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA, HONBLE PRESIDENT AN D BEFORE SHRI G.E.VEERABHADRAPPA, HONBLE PRESIDENT AN D BEFORE SHRI G.E.VEERABHADRAPPA, HONBLE PRESIDENT AN D BEFORE SHRI G.E.VEERABHADRAPPA, HONBLE PRESIDENT AN D SHRI A.D.JAIN, JUDICIAL MEMBER SHRI A.D.JAIN, JUDICIAL MEMBER SHRI A.D.JAIN, JUDICIAL MEMBER SHRI A.D.JAIN, JUDICIAL MEMBER ITA NO.1950/DEL/2008 ITA NO.1950/DEL/2008 ITA NO.1950/DEL/2008 ITA NO.1950/DEL/2008 ASSESSMENT YEAR : 2003 ASSESSMENT YEAR : 2003 ASSESSMENT YEAR : 2003 ASSESSMENT YEAR : 2003 - -- - 04 0404 04 M/S BHARTI AQUANET LIMITED, M/S BHARTI AQUANET LIMITED, M/S BHARTI AQUANET LIMITED, M/S BHARTI AQUANET LIMITED, H HH H- -- -5/12, QUTAB AMBIENCE, 5/12, QUTAB AMBIENCE, 5/12, QUTAB AMBIENCE, 5/12, QUTAB AMBIENCE, MEHRAULI ROAD, MEHRAULI ROAD, MEHRAULI ROAD, MEHRAULI ROAD, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 030. 110 030. 110 030. 110 030. PAN : AABCB4990J. PAN : AABCB4990J. PAN : AABCB4990J. PAN : AABCB4990J. VS. VS. VS. VS. COMMISSIONER OF INCOME TAX, COMMISSIONER OF INCOME TAX, COMMISSIONER OF INCOME TAX, COMMISSIONER OF INCOME TAX, DELHI DELHI DELHI DELHI- -- -1, 1,1, 1, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL BHALLA, CA. RESPONDENT BY : MS.GEETMALA MOHANANI, CIT - DR. ORDER ORDER ORDER ORDER PER A.D.JAIN PER A.D.JAIN PER A.D.JAIN PER A.D.JAIN, JM : , JM : , JM : , JM : THIS IS ASSESSEES APPEAL FOR AY 2003-04, TAKING THE FOL LOWING GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRE D BOTH ON FACTS AND IN LAW IN ASSUMING JURISDICTION U/S 26 3 OF THE INCOME TAX ACT, 1961. 2. THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRED BOTH ON FACTS AND IN LAW IN NOT APPRECIATING THE FACT TH AT THE BUSINESS OF THE COMPANY HAD BEEN SET UP DURING THE FINANCIAL YEAR 2002- 03 RELEVANT TO A.Y. 2003-04. 3. THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRED BOTH ON FACTS AND IN LAW IN COMING TO THE CONCLUSION THA T THE AO HAD NOT APPLIED HIS MIND IN COMING TO A VIEW THAT THE A SSESSEE 2 COMPANY HAD SET UP THE BUSINESS DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2003-04. 4. THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRED BOTH ON FACTS AND IN LAW IN COMING TO THE CONCLUSION THA T THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL IN TERMS OF THE PROVISIONS OF SECTION 263 OF THE ACT. 2. AS PER THE IMPUGNED ORDER, I.E., THE ORDER DATED 27.3.20 08 PASSED U/S 263 OF THE IT ACT, THE ASSESSEE COMPANY FILED ITS RETURN O F INCOME FOR AY 2003-04, DECLARING A LOSS OF `1,96,10,485/-, WHICH WAS SUBSEQU ENTLY REVISED, RETURNING A LOSS OF `1,97,01,308/-. VIDE ASSESSMENT ORDER DATED 23. 2.2006, PASSED U/S 143(3) OF THE ACT, THE DECLARED LOSS OF `1,97,01,308/- WAS ACCEPTED. IN THE PROCEEDINGS U/S 263 OF THE IT ACT, VIDE NOTICE DATED 10. 3.2008, IT WAS STATED THAT PRE-OPERATIVE EXPENDITURE CLAIMED UNDER THE HEADS OF PERSONNEL , ADVERTISEMENT, FINANCE AND DEPRECIATION HAD BEEN WRONGLY ALLOWED BY THE AO, RESULTING IN EXCESS CARRY FORWARD OF LOSS. ON HAVING CONSIDERED THE REPLY FILED BY THE ASSESSEE, THE LEARNED CIT OBSERVED THAT AS PER THE TAX AUDIT REPORT ENCLO SED ALONGWITH THE RETURN OF INCOME, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF LAYING OPTICAL FIBRE CABLES UNDER THE WATER TO SET UP TRANSMISSION AND S WITCHING NETWORK TO CARRY DATA AND MULTIMEDIA INCLUDING VIDEO TRAFFIC; THAT IN THE PROFIT & LOSS ACCOUNT, UNDER SCHEDULE 14, THE ASSESSEE HAD CLAIMED PRE-OPERATIVE EXPENSES OF `52.99 LAKHS, WHICH INCLUDED DEPRECIATION OF `10.99 LAKHS; THAT IN T HE ASSESSMENT PROCEEDINGS, THOUGH THE PROOF OF COMMENCEMENT OF BUSINESS HAD BEEN FURN ISHED VIDE LETTER DATED 14.2.2006, IN TERMS OF CORRESPONDENCE WITH THE DEPAR TMENT OF TELECOMMUNICATION, NO DETAILS WERE FURNISHED REGARDING THE EXPENSES PRIOR TO THE DATE OF COMMENCEMENT OF BUSINESS; THAT THOUGH IN THE SAID LETTER DATED 14.2.2006, IT HAD BEEN STATED THAT PROOF OF COMMENCEMENT OF BUSINESS ALONGWITH THE DETAILS OF EXPENSES PRIOR TO THE DATE OF COMMENCEMENT OF BUSINESS, WA S BEING ENCLOSED AT PAGES 3 TO 7, THE SAID PAGES 3 TO 7 ONLY REFERRED TO COR RESPONDENCE BETWEEN THE 3 ASSESSEE COMPANY AND THE DEPARTMENT OF TELECOMMUNICATION; T HAT NO DETAILS OF EXPENDITURE WERE, HOWEVER, FILED AND NONE WERE EXAMINED BY THE AO ; THAT THE AO HAD ALSO NOT CARRIED OUT ANY EXAMINATION CONCERNING TH E CLAIM OF SETTING UP OF BUSINESS OF THE ASSESSEE; THAT THE AO HAD FAILED TO EXAMINE THE BASIC FACTS REGARDING THE SETTING UP OF BUSINESS OF THE ASSESSEE, AS AL SO THE NATURE OF PRE- OPERATIVE EXPENSES; THAT THE ORDER OF THE AO WAS A STEREOTYPED ORDER, SIMPLY ACCEPTING WHAT THE ASSESSEE COMPANY HAD SUBMITTED; AND TH AT THE AO HAD FAILED TO MAKE REQUISITE ENQUIRIES TO EXAMINE THE GENUINENESS OF THE C LAIM, THE ALLOWABILITY WHEREOF CALLED FOR SUCH EXAMINATION. 3. THUS, HOLDING THE ASSESSMENT ORDER TO BE ERRONEOUS INSO FAR AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE LEARNED CIT SET ASIDE THE ASSES SMENT TO THE AO, TO BE MADE AFRESH AFTER EXAMINATION OF THE ISSUE. 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. CHALLENGING THE IMPUGNED ORDER, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ISSUE OF ALLOWABILITY OF EXPENSES INCUR RED PRIOR TO THE COMMENCEMENT OF COMMERCIAL OPERATIONS BY THE ASSESSEE COMPAN Y WAS FIRST CONSIDERED IN AY 2001-02; THAT VIDE ORDER DATED 8.12.200 3, THE AO DISALLOWED PRE-OPERATIVE EXPENSES OF `15,02,910/-; THAT VIDE ORDER D ATED 4.8.2004, THE CIT(A) ALLOWED THE SAID EXPENSES AS REVENUE EXPENDITURE, HOLD ING THEM TO BE EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND BEFORE THE COMMENCEMENT OF COMMERCIAL OPERATIONS BY THE ASSESSEE COMPAN Y; THAT FOR THE YEAR UNDER CONSIDERATION, WHILE COMPLETING THE ASSESSMENT, THE AO WAS WELL AWARE OF SUCH ALLOWANCE OF PRE-OPERATIVE EXPENSES BY THE CI T(A) FOR AY 2001-02; THAT THIS GOES TO SHOW THAT THE VIEW TAKEN BY THE AO WHI LE ALLOWING THE EXPENSES FOR THE YEAR UNDER CONSIDERATION, WAS A PLAUSIBLE VIEW; T HAT NOT ONLY THIS, THE FACT THAT FOR THE YEAR UNDER CONSIDERATION, PROCEEDINGS U/S 15 4 OF THE IT ACT WERE INSTITUTED AND LATER DROPPED ON THE REPLY FILED BY THE AS SESSEE, GOES TO SHOW THE 4 APPLICABILITY OF MIND BY THE AO TO THE ISSUE AT HAND; THAT VIDE LETTER DATED 14.2.2006 (REFERRED TO BY THE LEARNED CIT IN PARAGRAPH 4 OF THE IMPUGNED ORDER), THE ASSESSEE HAD EXPLAINED THE FACTS BEFORE THE AO REGARDING THE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE, BY FILING THE CORRESPONDENC E BETWEEN THE ASSESSEE AND THE DEPARTMENT OF TELECOMMUNICATIONS; THAT FURTHER, D URING THE ASSESSMENT PROCEEDINGS, IT HAD BEEN POINTED OUT TO THE AO THAT IN T HE DIRECTORS REPORT, UNDER THE HEAD BUSINESS REVIEW, IT HAD BEEN MENTIONED AS A FACT THAT THE ASSESSEE COMPANY HAD COMMENCED ITS COMMERCIAL OPERATIONS ON 19.7 .2002; THAT APROPOS THE DETAILS OF EXPENSES, SUCH DETAILS HAD BEEN EXPLAINED TO THE AO WITH REFERENCE TO THE PROFIT & LOSS ACCOUNT, WHICH WAS ALREADY ON REC ORD AT THE TIME OF ASSESSMENT; THAT SCHEDULE 14 TO THE PROFIT & LOSS ACCOUNT (REFERRED TO BY THE LEARNED CIT IN PARAGRAPH 3 OF THE ORDER UNDER APPEAL) REFERS TO NOTE NO.8 IN SCHEDULE 15; THAT THEREIN, THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY UP TO THE DATE OF ITS COMMENCEMENT OF COMMERCIAL OPERATIONS HAS BEEN SHOWN. SINC E THIS DOCUMENT WAS BEFORE THE AO, THE AO WAS AWARE OF THE NATURE OF THE EXP ENDITURE; THAT THE SAID SCHEDULE 14 ALSO REFLECTS RENT RECEIVED AMOUNTING TO `5 9,30,000/-, WHICH WAS ADDED BACK IN THE COMPUTATION OF INCOME, AS `1,98,55, 958/-; THAT IN FACT, THIS IS THE AGGREGATE OF `59,30,000/- FROM SCHEDULE 14 AND `1,39, 27,000/-, BEING THE RENTAL INCOME AFTER COMMENCEMENT OF COMMERCIAL OPERATIONS BY THE ASSESSEE COMPANY; THAT SINCE THE AO HAD REVIEWED AND ANALYZED SCHED ULE 14 WHILE DETERMINING THE RENTAL INCOME, IT CANNOT BE SAID THAT THE AO WAS UNAWARE OF THE NATURE OF THE EXPENSES CLAIMED; THAT IN FACT, OUT OF THE S UM OF `52,99,000/- EXPENDITURE, A SUM OF `10,99,000/- HAD BEEN ADDED BACK I N THE COMPUTATION ON ACCOUNT OF DEPRECIATION CHARGED TO THE PROFIT & LOSS AC COUNT; AND THAT SO, THE ACTUAL AMOUNT CLAIMED ON ACCOUNT OF REVENUE EXPENDITURE INCURRED AFTER THE SETTING UP OF THE BUSINESS OF THE ASSESSEE BUT PRIOR TO ITS COMMENCEMENT OF COMMERCIAL OPERATIONS, WAS `42,00,000/-, BEING DEPRECIATION ADDED B ACK IN THE COMPUTATION 5 OF INCOME AND NOT `52,99,000/-, AS WRONGLY NOTED BY T HE LEARNED CIT; IN THE QUESTIONNAIRE ISSUED BY THE AO TO THE ASSESSEE IN THE ASSESS MENT PROCEEDINGS, THE AO HAD PUT QUESTION NOS.26 & 27, WHICH ALSO GOES TO S HOW THAT THE AO WAS AWARE THAT THE EXPENSES HAD BEEN INCURRED PRIOR TO 19.7.20 02, WHEN THE ASSESSEE HAD COMMENCED ITS COMMERCIAL OPERATIONS AND ABOUT THE EXP ENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT; THAT VIDE THE ASSESSEES REPLY DAT ED 18.1.2006 TO THE AFORESAID QUESTIONNAIRE, AT POINT NO.1, THE ASSESSEE HAD EX PLAINED THE NATURE OF ITS BUSINESS AND THE FACT THAT SUCH BUSINESS COMMENCED ON 1 9.7.2002, WITH ITS BUSINESS PREMISES IN CHENNAI, AT POINT NO.27, THE CLAIM OF THE EXP ENDITURE HAD BEEN CLAIMED AND IN THE LAST PARAGRAPH, THE EXPENDITURE HAD B EEN CLAIMED FOR AFTER THE SETTING UP OF THE BUSINESS, AS ALLOWED BY THE CIT(A) IN AY 2001-02; THAT ALL THIS AMPLY DEMONSTRATES THAT THE AO WAS FULLY AWARE OF ALL T HE FACTS AT THE TIME OF ASSESSMENT AND THAT THE ASSESSMENT WAS COMPLETED BY TAKING A PERFECTLY PLAUSIBLE VIEW BY DUE APPLICATION OF MIND, HOLDING THAT EXPENDITU RE INCURRED AFTER THE SETTING UP OF THE BUSINESS OF THE ASSESSEE COMPANY UP TO THE COMMEN CEMENT OF ITS COMMERCIAL OPERATIONS, WAS ALLOWABLE AS A REVENUE EXPENDITU RE; THAT AT WORST, TWO VIEWS WERE POSSIBLE IN THE GIVEN SITUATION; THAT HOWEVER, EVEN TAKING IT TO BE SO, WHILE NOT ACCEPTING FACTUALLY, IN SUCH FACTS AND CIRC UMSTANCES, THE PROVISIONS OF SECTION 263 OF THE ACT COULD NOT HAVE BEEN INVOKED BY THE LEARNED CIT; THAT MOREOVER, THE PROVISIONS OF SECTION 263 OF THE ACT OUGHT NOT TO HAVE BEEN BROUGHT INTO PLAY IF THE LEARNED CIT WAS OF THE OPINION THAT THE ENQUIRIES MADE BY THE AO WERE INADEQUATE AND THE AO SHOULD HAVE MADE ENQUIRIES IN THE MANNER THOUGHT FIT BY THE LEARNED CIT; THAT OTHERWISE TOO, IT STANDS AMPLY PROVED THAT THE BUSINESS OF THE ASSESSEE COMPANY HAD BEEN SET UP EARLIER, SINCE EARNEST M ONEY OF `50,000/- HAD BEEN PAID TO THE DEPARTMENT OF TELECOMMUNICATIONS FOR LAND STATION APPROVAL FOR SUBMARINE CABLE PROJECT, ON 28.11.2000, SINCE DURIN G THE YEAR ENDED ON 31.3.2002, THE ASSESSEE COMPANY HAD ALREADY RECEIVED ISP LI CENSE AND IN PRINCIPLE 6 APPROVAL TO RUN AND OPERATE THE CHENNAI LANDING STATION, SINCE THE FEE OF `48,300/- WAS PAID TO SIEMENS ON 31.3.2001, FOR PURCHA SE OF 15 KV SWITCHGEAR, SINCE ADVANCE AMOUNTS OF `20 LAKHS, `30 LAKHS AND `10 LAKHS WERE PAID ON 19.10.2000, 17.12.2000 AND 31.3.2001, FOR ACQUISITI ON OF BUILDING, AND SINCE PROPERTY WAS ACQUIRED VIDE SALE DEED DATED 20.12.2001, RELEV ANT TO AY 2002-03, SINCE GUARANTEES HAD BEEN GIVEN IN THE EARLIER YEARS. 6. AGAINST THE ASSUMPTION OF JURISDICTION U/S 263 OF THE ACT, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SOUGHT TO RELY ON THE FOLLOWING CASE LAWS:- (I) SUNBEAM AUTO LIMITED 227 CTR 133 (DEL). (II) MEPCO INDUSTRIES 294 ITR 121 (MAD). (III) GABRIEL INDIA LIMITED 203 ITR 108 (MUM). (IV) MANGILAL DIDWANIA 286 ITR 126 (RAJ). (V) CIT VS. HINDUSTAN COCA COLA BEVERAGES PVT.LTD. 2011- TIOL-33- HC-DEL-IT. (VI) SICAL LOGISTICS LTD. VS. ACIT 127 ITD 187 (CHENNAI) (TM). (VII) THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA VS. DI T(E) 2011-TIOL- 69-ITAT-DEL. (VIII) CIT VS. VIKAS POLYMERS 2010-TIOL-595-HC-DEL-IT. (IX) CIT VS. VIKRAM ADITYA & ASSOCIATES PVT.LTD. 287 IT R 268 (DEL). (X) ARVIND JEWELLERS 259 ITR 502 (GUJ). (XI) MAX INDIA 295 ITR 282 (SC). (XII) MALABAR INDUSTRIAL 243 ITR 83 (SC). (XIII) METALLIZING EQUIPMENT VS. JCIT 96 TTJ (JD) 827 (200 5). (XIV) BAGARIA VEGETABLES 106 ITD 105 (PUN)TM. 7 7. WITH REFERENCE TO THE ALLOWABILITY OF EXPENDITURE POST SETTING UP OF BUSINESS, THE LEARNED COUNSEL FOR THE ASSESSEE SEEKS TO RELY ON CIT VS. SAURASHTRA CEMENT AND CHEMICALS INDUSTRIES LTD., 91 ITR 170 (GUJ). 8. FOR THE PROPOSITION THAT ABSENCE OF DISCUSSION IN T HE BODY OF THE ASSESSMENT ORDER DOES NOT PROVE THAT NO VIEW WAS TAKEN BY THE AO, REL IANCE HAS BEEN PLACED ON KELVINATOR OF INDIA LTD., 256 ITR 1 (DELHI)(FUL L BENCH), AS CONFIRMED BY THE HON'BLE SUPREME COURT IN 320 ITR 561(SC), HARI IRON TRA DING, 263 ITR 437 (P&H) AND EICHER LIMITED, 294 ITR 310 (DEL). IT HAS BEEN TH US CONTENDED ON BEHALF OF THE ASSESSEE THAT WHILE PASSING THE ASSESSMENT ORDER, THERE WA S NO INCORRECT ASSUMPTION OF FACTS AND NO INCORRECT OPERATION OF LAW AT THE HANDS OF THE AO, THAT THE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL T O THE INTERESTS OF THE REVENUE AND THAT SO, THE LEARNED CIT(A) WENT WRONG IN INVO KING THE PROVISIONS OF SECTION 263 OF THE ACT IN THE PRESENT CASE. 9. THE LEARNED DR, ON THE OTHER HAND, HAS STRONGLY SUPPO RTED THE IMPUGNED ORDER. IT HAS BEEN CONTENDED THAT THE ISSUE WAS AS TO WHET HER THE DEFERRED REVENUE EXPENSES WERE TO BE ALLOWED OR NOT; THAT THE AO DID NOT CO NSIDER THE ISSUE OF SETTING UP OF THE ASSESSEES BUSINESS; NO FINDING STANDS RECORDED IN THE ASSESSMENT ORDER THAT THE BUSINESS HAD ACTUALLY BEEN SET UP; THAT AS PER THE ASSESSEES OWN STAND TAKEN IN THE PROCEEDINGS BEFORE THE LEARNED CIT, THE BU SINESS OF THE ASSESSEE COMPANY WAS SET UP IN AY 2002-03; THAT IN THE REPLY FI LED BY THE ASSESSEE TO THE QUESTIONNAIRE ISSUED BY THE AO, NO SPECIFIC REPLY REGARDIN G THE PRE-OPERATIVE EXPENDITURE WAS GIVEN BY THE ASSESSEE; NO DETAILS REGARDING T HE EXPENDITURE INCURRED PRIOR TO THE DATE OF COMMENCEMENT OF BUSINESS WERE FURNISHED; THAT THOUGH IT WAS STATED THAT PAGES 3 TO 7 OF THE REPLY CONTAINED T HE DETAILS OF THE EXPENSES INCURRED PRIOR TO THE DATE OF COMMENCEMENT OF THE BUSINESS, PAGES 3 TO 7 OF THE SAID REPLY REFERRED TO THE CORRESPONDENCE BETWEEN THE ASSESSEE COM PANY AND THE DEPARTMENT OF TELECOMMUNICATIONS; THAT IT IS THUS EVIDENT THAT IN THE ABSENCE OF 8 DETAILS, NONE COULD AT ALL HAVE BEEN EXAMINED BY THE AO; THAT THOUGH THE RELEVANT PORTIONS OF THE TAX AUDIT REPORT DO CONTAIN THE BROAD HEADS OF EXPENDITURE, NO DETAILS HAVE BEEN GIVEN, NOR ANY DOCUMENTS ATTACHED AND SO , NONE WERE EXAMINED BY THE AO; THAT PROCEEDINGS U/S 154 OF THE ACT ARE ENTI RELY DIFFERENT FROM THOSE U/S 263 THEREOF; AND THAT SO, THE LEARNED CIT WAS PERFECTLY JU STIFIED IN HOLDING THE ASSESSMENT ORDER TO BE ERRONEOUS INASMUCH AS IT WAS PREJ UDICIAL TO THE INTERESTS OF THE REVENUE, SINCE NO EXAMINATION WHATSOEVER OF THE ISSUES C ONCERNED WAS CARRIED OUT BY THE AO. 10. THE LEARNED DR HAS SOUGHT TO PLACE RELIANCE ON THE FO LLOWING CASE LAWS:- CIT VS. RALSON INDUSTRIES LTD., 158 TAXMANN 160 CIT VS. NALWA INVESTMENTS, 11 TAXMAN.COM 98 RAJALAKSHMI MILLS LTD. VS. ITO, 31 SOT 353 (CHENNA I) (SB). 11. IT HAS BEEN CONTENDED THAT IN THE FACTS AND CIRCUMST ANCES AS ABOVE, THE ORDER OF LEARNED CIT BE MAINTAINED, WHILE DISMISSING THE A PPEAL FILED BY THE ASSESSEE. 12. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MAT ERIAL ON RECORD. THE ISSUE IS AS TO WHETHER THE LEARNED CIT WAS CORRECT IN U PHOLDING THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 13. THE LEARNED CIT HAS HELD THAT THE AO HAD FAILED TO EX AMINE THE BASIC FACTS REGARDING THE SETTING UP OF THE ASSESSEES BUSINESS AND REGA RDING THE NATURE OF PRE- OPERATIVE EXPENSES AND SINCE THE AO HAD FAILED TO MAKE REQUI SITE ENQUIRIES TO 9 EXAMINE THE GENUINENESS OF THE ASSESSEES CLAIM, THE ASSESSMENT ORDER WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. 14. IT WOULD BE APPROPRIATE TO HEREUNDER REPRODUCE THE SHOR T ASSESSMENT ORDER DATED 23.2.2006:- THE RETURN OF INCOME DECLARING A LOSS OF RS.1,96,10,48 5/- WAS FILED ON 02/12/2003 AND THE SAME WAS PROCESSED U/S 143(1) OF I.T.ACT ON 10/12.2003. THE CASE WAS SELECTED FOR SCRUTINY AND FIR ST NOTICE U/S 143(2) OF THE I.T.ACT, 1961 WAS ISSUED ON 29/11/2004 AND DULY SERVED ON THE ASSESSEE. SUBSEQUENTLY, NOTICE U/S 142(1) OF THE I.T.ACT, 1961 ALONG WITH QUESTIONNAIRE WAS ALSO ISSUED. IN RESP ONSE TO THE NOTICES ISSUED, SHRI L.B.SINHA, SR.MANAGER (FINANCE) AND SHRI KARAN MEHTA, CA, BOTH AUTHORISED REPRESENTATIVES OF THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FILED THE D ETAILS CALLED FOR. THE CASE WAS DISCUSSED. 2.1 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RUNNING AND OPERATING THE CHENNAI SUBMARINE CABLE LANDING STATION WHIC H LINKS SUBMARINE CABLE BETWEEN INDIA & SINGAPORE. THE COMPANY COMMENCED ITS COMMERCIAL OPERATION DURING THE RELEVANT PREV IOUS YEAR W.E.F. 19 TH JULY, 2002. THE ASSESSEE, DURING THE COURSE OF ASSESSMENT FILED A REVISED RETURN ON 31/03/2005 WHEREIN IT DECLARED LOSS OF RS.1,97,01,308/-. THE FOLLOWING REASONS WAS MENTIONED AS A NOTE BELOW THE COMPUTATION OF INCOME FILED ALONG WITH TH E REVISED RETURN: FULL VALUE OF REPAIR & MAINTENANCE, INSURANCE EXPENSES A ND MUNICIPAL TAX OF THE HOUSE PROPERTY WERE WRONGLY ADDED B ACK INSTEAD OF THE PROPORTIONATE VALUE OF THE SAME SINCE, ONLY PART OF THE BUILDING WAS LET OUT DURING THE RELEVANT ASSESSMENT YEAR. THE CALCULATION OF THE PROPORTIONATE EXPENSES AS MENTIONED ABOVE ON THE BASIS OF LET OUT AREA AND SELF-OCCUPIED AREA WAS ALS O FURNISHED ALONG WITH THE NOTE IN THE COMPUTATION OF INCOME FOR T HE REVISED RETURN. 10 2.2 DURING THE COURSE OF ASSESSMENT, RELEVANT DETAILS WERE C ALLED FOR, EXAMINED AND ARE PLACED ON RECORD. IN VIEW OF THE FACTS OF THE CASE, DISCUSSIONS HELD AND DOCUMENTS PLACED ON RECORD, T HE REVISED RETURN FILED BY THE ASSESSEE IS ACCEPTED. ASSESSED AT TOTAL LOSS OF RS.1,97,01,310/-. ISSUE NEC ESSARY FORMS. 15. TO SEE AS TO WHETHER THE ISSUE OF SETTING UP OF THE ASS ESSEES BUSINESS AND NATURE OF PRE-OPERATIVE EXPENSES, I.E., EXPENSES INCURRED AFT ER THE SETTING UP OF THE ASSESSEES BUSINESS, UP TO THE COMMENCEMENT OF ITS BUSINESS OPERATIONS, WAS INDEED EXAMINED BY THE AO OR NOT, WHAT TRANSPIRED IN THE A SSESSMENT PROCEEDINGS, AS AVAILABLE FROM THE RECORD, NEEDS TO BE GONE INTO. 16. IN THE ORIGINALLY FILED RETURN OF INCOME, THE ASSESSEE DECLARED A LOSS OF `1,96,10,485/-. THIS LOSS WAS SUBSEQUENTLY REVISED TO `1,97,01,308/-. THE AO ISSUED A QUESTIONNAIRE TO THE ASSESSEE IN THIS REGARD. A COPY THEREOF HAS BEEN FILED AT PAGES 127 TO 130 OF THE ASSESSEES PAPER BOOK (APB F OR SHORT). QUESTION NOS.26 & 27 THEREOF READ AS FOLLOWS:- 26. YOU ARE REQUIRED TO FURNISH PROOF IN RESPECT OF THE COMMENCEMENT OF BUSINESS ON JULY 19 TH , 2002. YOU ARE ALSO REQUIRED TO FURNISH DETAILS OF ALL EXPENSES CLAIMED PRIOR TO 19 TH JULY, 2002 AND SUBSEQUENTLY TO 19 TH JULY, 2002. EXPLAIN WHETHER ANY EXPENSE PRIOR TO THE DATE OF COMMENCEMENT HAS BEEN CLAIMED IN THE P&L ACC OUNT DURING THE YEAR UNDER CONSIDERATION. 27. THE P&L ACCOUNT SHOWS AN AMOUNT OF RS.10,60,000/ - AS SERVICE REVENUE AGAINST WHICH EXPENSES TO THE TUNE OF RS.1.8 CRORES HAVE BEEN CLAIMED. YOU ARE REQUIRED TO JUSTIFY THE EXPENSES A GAINST INCOME EARNED. 11 17. IN RESPONSE, THE ASSESSEE FILED LETTER DATED 18.1.2006 (A PB 12-79) BEFORE THE ASSESSING OFFICER, STATING, INTER ALIA, AS FOLLOWS:- POINT NO.26. PROOF OF COMMENCEMENT OF BUSINESS ALONGW ITH THE DETAILS OF EXPENSES PRIOR TO THE DATE OF COMMENCEMENT OF BUSINESS WILL BE FURNISHED IN THE NEXT HEARING. POINT NO.27. AS REGARDS YOUR QUERY TO JUSTIFY THE EXPENS ES CLAIMED AT RS.1.8 CRORES AGAINST REVENUE INCOME OF RS.10.6 LAC, WE S UBMIT THAT THE PREVIOUS YEAR UNDER REFERENCE WAS THE FIRST YEAR OF COMMER CIAL OPERATIONS WHICH COMMENCED W.E.F. 19 TH JULY 2002 AND THEREFORE, THE COMPANY COULD NOT GENERATE SUBSTANTIAL REVENUE TO MATC H ITS EXPENDITURE. WE FURTHER SUBMIT THAT SINCE, THIS WAS TH E FIRST YEAR THE COMPANY HAD TO INCUR EXPENDITURE FOR PROMOTING THE BUSI NESS OF THE COMPANY WHICH WERE FULLY ALLOWABLE UNDER THE INCOME TAX A CT, 1961. WITHOUT PREJUDICE WE FURTHER SUBMIT THAT IT HAS BEEN JU DICIALLY HELD THAT EARNING OF INCOME IS NOT NECESSARY FOR CLAIMING T HE ALLOWABLE EXPENDITURE IN TERMS OF 28 TO 44 OF THE INCOME TAX ACT, 1 961. THE ONLY PREREQUISITE CONDITION FOR CLAIMING THE EXPENSES IS THAT THE BUSINESS SHOULD HAVE BEEN SET UP I.E., W.E.F. A.Y. 2001-02 AS HELD BY THE CIT(A). 18. VIDE LETTER DATED 14.2.2006 (COPY AT APB-81 TO 112) , THE ASSESSEE, INTER ALIA, FILED FURTHER REPLY TO THE ABOVE QUERY AT PARAGRAPH 26 OF THE QUESTIONNAIRE, STATING AS FOLLOWS:- REPLY OF POINT NO.26 OF QUESTIONNAIRE-1 POINT NO.2 PROOF OF COMMENCEMENT OF BUSINESS ALONGWITH THE DETAILS OF EXPENSES PRIOR TO THE DATE OF COMMENCEMENT OF BU SINESS IS ENCLOSED AT PAGE NO.3-7. THE ASSESSEE FILED THE FOLLOWING CORRESPONDENCE BEFORE THE AO :- 12 (I) CERTIFICATE BY THE CHIEF TECHNICAL OFFICER, BHARTI AQU ANET LTD., NEW DELHI, DATED 31.3.2003, CERTIFYING THAT THE LANDING STAT ION AT CHENNAI WAS COMPLETED ON 19.7.2002 AND PUT INTO COMMERC IAL OPERATION (APB-85); (II) LETTER DATED 5.4.2002 (APB-86) FROM THE GOVERNMENT OF IND IA, MINISTRY OF COMMUNICATIONS, DEPARTMENT OF TELECOMMUNICA TIONS, TO THE CHIEF EXECUTIVE OFFICER, M/S BHARTI TELESONIC LTD., NEW DELHI, STATING THAT THERE WAS NO OBJECTION TO THE CEREMONIAL CA LL PROPOSED TO BE INITIATED BY THE HONBLE PRIME MINISTER DURING HIS PRO POSED VISIT TO SINGAPORE THROUGH THE SUBMARINE CABLE LANDING SYSTEM OF M /S BHARTI AQUANET LTD. AND REITERATING THAT THE COMMERCIAL SERVICE B E LAUNCHED ONLY AFTER THE CLEARANCE FROM THE SECURITY AGENCIES, AS PER THE TERMS AND CONDITIONS OF THE LICENSE AGREEMENT; (III) LETTER DATED 18.7.2002 (APB-87) FROM THE GOVERNMENT OF IN DIA, MINISTRY OF COMMUNICATIONS & INFORMATION TECHNOLOGY, DEPARTMENT OF TELECOMMUNICATIONS, TO M/S BHARTI TELESONIC LIMITED, NEW DELHI, CONVEYING THE APPROVAL FOR GRANT OF LIMITED CLEARANCE F OR SIX MONTHS FROM 17.6.2002, I.E., THE DATE OF PURCHASE ORDER, AS MENT IONED IN COLUMN 2 OF THE SCHEDULE OF THE PROCUREMENT IN THE BOND D ATED 16.7.2002, FOR COMMENCEMENT OF SWITCHED VOICE BAND SERVICE UNDER LICENSE NO.10-7/2002-BS.1/ILD-02, DATED 14.3.2002, GRANTED TO M/S BHARTI TELESONIC LIMITED FOR OPERATION OF INTERNATIONAL LONG DISTANCE SERVICE (ILD), SUBJECT TO ALL THE CONDITI ONS MENTIONED IN THE BOND, SUBMITTED BY THE CHAIRMAN OF BHARTI TELESONIC LIMITED, AND CLARIFYING THAT INTERNATIONAL PRIVATE LEASED CIRCUITS ( IPLC) SHOULD NOT BE PROVIDED AND NON VOICE BAND TRAFFIC SHOULD NOT BE PA SSED WITHOUT INSTALLATION OF PROPER MONITORING EQUIPMENT. M/S BHAR TI TELESONIC 13 LIMITED AS ASKED TO IMMEDIATELY INTIMATE THE EXACT DATE OF COMMENCEMENT OF SERVICE; (IV) LETTER DATED 19.7.2002 (APB-88), FROM BHARTI TELESONIC L TD. TO THE DY.DIRECTOR GENERAL (BS), DEPARTMENT OF TELECOMMUNICATION S, NEW DELHI, IN REPLY TO THE AFORESAID LETTER AT APB-87, STATIN G THAT M/S BHARTI TELESONIC LTD. WOULD COMMENCE THEIR INTERNATIONAL LONG DISTANCE SERVICE FROM FRIDAY, 19 TH JULY 2002; (V) LETTER DATED 4.4.2002 (APB-89) FROM THE GOVERNMENT OF IND IA, MINISTRY OF COMMUNICATIONS, DEPARTMENT OF TELECOMMUNICA TIONS TO M/S BHARTI BT INTERNET LTD., NEW DELHI STATING THAT AS PER THE TERMS AND CONDITIONS OF THE ISP LICENSE, LEASING OF BANDWIDTH FROM INTERNATIONAL GATEWAY FOR PURPOSE OTHER THAN INTERNET, WA S NOT PERMITTED AND THAT SINCE IN THIS CASE, THERE WERE TWO DIFFER ENT COMPANIES, IT WAS NOT POSSIBLE TO AGREE TO THE REQUEST FOR GRANT OF PERMISSION REGARDING USE OF INTERNATIONAL GATEWAY BY BT SOL; AND (VI) COPY OF FORM 15AA (APB-83), WITH REFERENCE TO RULE 28AA OF THE IT RULES, 1962, I.E., CERTIFICATE U/S 197(1) OF THE INCOME- TAX ACT, 1961, RELATING TO DEDUCTION OF TAX, ISSUED TO M/S BHARTI MOB INET LTD., NEW DELHI. 19. A COPY OF THE BALANCE SHEET OF THE ASSESSEE, FOR THE YEAR ENDED ON 31.3.2003 (APB-113 TO 126) HAD ALSO BEEN FILED BEFORE TH E AO. AS PER THE DIRECTORS REPORT FILED THEREWITH, UNDER THE HEAD BUSINESS REVIEW, IT HAD BEEN MENTIONED THAT THE ASSESSEE COMPANY HAD COMMENCED ITS COMM ERCIAL OPERATIONS ON 19.7.2002. IT WAS STATED AS UNDER:- STATE OF THE ART LANDING STATION, WITH AN INSTALLED CA PACITY OF 256 STM1S, WHICH THE COMPANY BUILT IN CHENNAI IN THE PREVIOU S YEAR, HAS 14 BECOME FULLY OPERATIONAL. THE INFRASTRUCTURE HAS BEEN CR EATED KEEPING IN VIEW THE FUTURE COLLOCATION REQUIREMENTS OF INTER NATIONAL CARRIERS. THE COMPANY COMMENCED ITS OPERATIONS W.E.F. 19 TH JULY, 2002 WITH THE LAUNCH OF ILD SERVICES BY BHARTI TELESONIC LIMITED. BHARTI TELESONIC LIMITED OBTAINED THE SECURITY CLEARANCE FOR THE SAME. BHARTI TELESONIC LIMITED ALSO OBTAINED THE SECURITY CLEARA NCE FOR DATA SERVICES IN JANUARY 2003 AND SINCE THEN YOUR COMPANY HA S LAUNCHED DATA SERVICES. 20. THE ISSUE OF ALLOWABILITY OF EXPENSES INCURRED POST SETTING UP OF THE ASSESSEES BUSINESS AND PRIOR TO THE COMMENCEMENT OF COMMERC IAL OPERATIONS WAS CONSIDERED IN THE FIRST INSTANCE, IN AY 2001-02. THE AS SESSING OFFICER HAD DISALLOWED THE CLAIM OF PRE-OPERATIVE EXPENSES OF `15,02, 910/- (COPY FILED BEFORE US). THE CIT(A) HAD, HOWEVER, VIDE ORDER DATED 4.8.2004 (COPY FILED) ALLOWED THIS CLAIM. THE ASSESSEE HAD PLACED THIS ORDER OF THE CIT(A) A LSO BEFORE THE ASSESSING OFFICER DURING THE PROCEEDINGS FOR THE YEAR UNDER CONSIDERA TION. 21. IN THE AFORESAID ORDER DATED 4.8.2004, THE LD. CIT( A) ALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE FOR ASSESSMENT YEAR 2001-02, OBSERV ING AS FOLLOWS :- I HAVE CONSIDERED THE ISSUE CAREFULLY. THERE IS FORCE IN THE ARGUMENT OF THE APPELLANT COMPANY. THE COMPANY WA S REGISTERED IN THE MONTH OF OCTOBER, 2000 AND IT HAS STARTED INCUR RING VARIOUS EXPENSES RELATING TO SETTING UP AND COMMENCEMENT OF BUSINESS. THESE EXPENSES MAY BE TERMED AS PREOPERATIVE I.E., EXPENSES BEFORE THE OPERATION OF THE BUSINESS STARTS BUT THESE ARE DEFINITELY EXPENSES ON SETTING UP OF THE BUSINESS. UNDER I.T. ACT, EVE N EXPENSES ON VARIOUS PRE INCORPORATION HEADS ARE ALLOWED TO BE A MORTIZED U/S 35D. THE EXPENSES CLAIMED BY THE APPELLANT INCLUDE AMORT IZED EXPENSES ALSO. THE EXPENSES FALLING WITHIN THE PREVIOUS YE AR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION CANNOT BE DISAL LOWED ON THE 15 GROUND THAT THESE ARE PRE COMMENCEMENT EXPENSES. PRE COMMENCEMENT OR PRE OPERATIVE EXPENSES ARE RELEVANT FOR DEPRECIATION PURPOSE ONLY. ANY CAPITAL EXPENDITUR E INCURRED ON ANY CAPITAL ASSET WILL GO TO INCREASE THE COST OF ASSET AND DEPRECIATION WILL BE ALLOWED ON INCREASED COST AFTER COMMENCEMENT OF BUSINESS OR USE OF ASSET. ANY EXPENDITURE WHICH HAS BEEN INCURRED FOR THE PURPOSES OF BUSINESS HAS TO BE ALLOWED AS REVENUE EXPENSES. IN THIS CASE THE LD. AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW T HAT THE EXPENSES ARE NOT FOR BUSINESS PURPOSES. HE HAS ALSO NOT DI SPUTED THE FACT THAT THE EXPENSES FALL WITHIN THE PREVIOUS YEAR. THE A O HAS ALSO NOT HELD THAT THE EXPENSES HAVE BROUGHT ANY ASSET INTO EXIST ENCE AND HENCE THESE ARE CAPITAL IN NATURE. 22. THE AFORESAID ORDER WAS PLACED BY THE ASSESSEE BEFORE THE AO IN THE PROCEEDINGS FOR THE YEAR UNDER CONSIDERATION. THE AO TO OK THIS ORDER, ALONG WITH THE AFOREMENTIONED OTHER RELEVANT VOLUMINOUS MATERIAL, INTO CONSIDERATION AND APPLIED HIS MIND THERETO. 23. THE DETAILS OF EXPENSES WERE GIVEN TO THE ASSESSING OFFI CER. REFERENCE WAS MADE TO THE PROFIT & LOSS ACCOUNT FILED BEFORE THE ASSESS ING OFFICER (COPY AT APB 117-126) CONTAINING THE DETAILS OF THE EXPENDITURE. IT I S SEEN THAT APB 117 FINDS MENTION OF NETWORK OPERATING EXPENDITURE OF `1,460/-, PER SONNEL EXPENDITURE OF `3,875/- AND ADMINISTRATIVE AND OTHER EXPENDITURE OF `11 ,887/-, AS PER SCHEDULE NOS. 10 AND 11 RESPECTIVELY, CONTAINING THE DETAILS OF S UCH EXPENDITURES. THESE SCHEDULES ARE TO BE FOUND AT APB 121. SCHEDULE 14 AT APB 122 DETAILS THE PRE- OPERATIVE EXPENDITURE, WHICH HAS BEEN STATED, AS PER NOTE 8 O N SCHEDULE 15 (APB 123), TO BE EXPENDITURE INCURRED BY THE COMPANY UPTO TH E DATE OF COMMENCEMENT OF COMMERCIAL OPERATIONS AND TREATED AS PRE-OPERATIVE EXPEN DITURE AND AMORTIZED DURING THE YEAR. 16 24. IN NOTE 8 TO SCHEDULE 16 (APB 124), IT HAS BEEN STA TED : 8. THE COMPANY HAS GIVEN A BUILDING AT CHENNAI ON O PERATING LEASE BASIS TO CERTAIN COMPANIES, WHICH IS CANCELLABLE. THE BUILDING IS DISCLOSED UNDER FIXED ASSETS IN THE BOOKS OF THE COMPA NY AND THE RENTAL INCOME IS ACCOUNTED FOR ON A STRAIGHT-LINE BASIS OVER THE LEASE TERM. UNDER NOTE 9 TO SCHEDULE 16 (APB 124), IT HAS BEEN STATED AS FOLLOWS:- 9. THE COMPANY HAS TAKEN AN OFFICE AT MUMBAI ON OPERAT ING LEASE BASIS FOR AN INITIAL PERIOD OF 3 YEARS, WHICH IS NON-CANCELLABLE. THE LEASE RENTALS PAID ARE CHARGED TO THE PROFIT AND LOSS ACCOUNT ON A STRAIGHT-LINE BASIS OVER THE LEASE TERM. 25. APB 122, AS NOTED, WAS BEFORE THE ASSESSING OFFICER. THE DETAILS OF EXPENDITURE CONTAINED THEREIN ARE NO DIFFERENT FROM THOSE MENT IONED AT APB 121, ALSO BEFORE THE ASSESSING OFFICER. THE EXPENDITURE WAS ALLO WED BY THE ASSESSING OFFICER ON APPLYING HIS MIND THERETO AND BEING SATISFIED THEREWITH. THE ASSESSING OFFICER WAS THUS WELL AWARE OF THE NATURE OF EXPENDITURE M ENTIONED IN SCHEDULE 14 TO THE ACCOUNTS OF THE COMPANY. 26. BESIDES, SCHEDULE 14 SHOWS RENT RECEIVED OF `59,30,000/- . THIS HAS BEEN ADDED BACK IN THE COMPUTATION OF INCOME (APB-9) AS `1, 98,55,958/-. THIS FIGURE OF `1,98,55,958/- IS THE AGGREGATE OF THE ABOVESAID RENT RECEIVED OF `59,30,000/- AND `1,39,27,000/- REPRESENTING RENTAL INC OME AFTER THE COMMENCEMENT OF COMMERCIAL OPERATIONS BY THE COMPANY. WH ILE DETERMINING THE RENTAL INCOME, THE ASSESSING OFFICER DULY APPLIED HIS M IND TO SCHEDULE 14, EVINCING 17 THAT THE ASSESSING OFFICER WAS VERY WELL IN THE KNOW OF T HE NATURE OF THE EXPENSES CLAIMED BY THE ASSESSEE COMPANY. 27. IT HAS BEEN SUBMITTED ON BEHALF OF THE ASSESSEE, THAT T HE LEARNED CIT HAS WRONGLY MENTIONED THE EXPENDITURE IN QUESTION AT `52,99, 000/-, SHOWING NON- APPLICATION OF MIND ON HIS PART, WHEREAS IT HAD BEEN BR OUGHT TO THE KNOWLEDGE OF THE ASSESSING OFFICER THAT AN AMOUNT OF `10,99,000/-, REPRESENTING DEPRECIATION CHARGED TO THE PROFIT & LOSS ACCOUNT (APB 122) HAD BEEN ADDED BACK IN THE COMPUTATION. 28. THIS ASSERTION OF THE ASSESSEE IS FOUND TO BE CORRECT. THE CLAIM OF THE ASSESSEE ON ACCOUNT OF REVENUE EXPENDITURE INCURRED AFTER SETTI NG UP OF BUSINESS BUT BEFORE COMMENCEMENT OF COMMERCIAL PRODUCTION, ON ADDING B ACK IN THE COMPUTATION, OF THE DEPRECIATION CHARGED TO THE PROFIT AND LOSS ACCOUNT, AMOUNTING TO `10,99,000/-, CAME TO `42,20,000/- RATHER THAN `52 ,99,000/-. QUESTION NO.26 IN THE ASSESSING OFFICERS QUESTIONNAIRE (APB 127) SHOWS THE AWARENESS OF THE ASSESSING OFFICER REGARDING THE FACTUM OF THE EXPENSES H AVING BEEN INCURRED PRIOR TO 19.7.2002, I.E., THE DATE OF COMMENCEMENT OF CO MMERCIAL OPERATIONS BY THE ASSESSEE COMPANY. QUESTION NO.27 SHOWS THAT THE ASS ESSING OFFICER WAS IN THE KNOWLEDGE OF THE ASSESSEE HAVING CLAIMED THE EXPENSES IN TH E PROFIT & LOSS ACCOUNT. THE ASSESSEE, AS NOTED, FILED REPLY DATED 18.1.20 06 BEFORE THE ASSESSING OFFICER, INTER ALIA, STATING THAT THE BUSINESS HAD COMM ENCED ON 19.7.2002 AND EXPLAINING THE CLAIM OF EXPENDITURE AFTER SETTING UP OF BU SINESS. THE ASSESSING OFFICER, THEREAFTER, DECIDED THE MATTER TAKING A VIEW WHICH WAS A POSSIBLE VIEW, HOLDING THE EXPENDITURE CLAIMED AS INCURRED AFTER THE SETTIN G UP OF THE BUSINESS AND UPTO THE COMMENCEMENT OF BUSINESS OPERATIONS, TO BE ALLO WABLE AS A REVENUE EXPENDITURE. 18 29. INSPITE OF ALL THE ABOVE FACT SITUATION AS AVAILAB LE ON RECORD, THE CIT HAS BEEN OF THE OPINION THAT THE EXPENDITURE SHOULD HAVE BEEN DIS ALLOWED AND THAT THE ENQUIRIES MADE BY THE ASSESSING OFFICER IN THIS REGARD, WER E INADEQUATE. THIS, IN OUR CONSIDERED OPINION, IS NOT CORRECT. THERE WAS DUE AP PLICATION OF MIND BY THE ASSESSING OFFICER, TO THE ISSUE OF ALLOWABILITY OF EXPEN SES CLAIMED, AS DISCUSSED. IT IS INCORRECT TO STATE THAT NO PROOF OF COMMENCEMENT OF BUSINESS WAS FILED BEFORE THE ASSESSING OFFICER. IT IS ALSO NOT TRUE THAT DETAILS OF EXPENDITURE WERE NOT FILED AND WERE NOT EXAMINED BY THE ASSESSING OFFICER. THE ASSESSING O FFICER DID CARRY OUT DUE ENQUIRY CONCERNING THE CLAIM OF SETTING UP OF BUSINES S. THE FACTS REGARDING BOTH THE SETTING UP OF BUSINESS AND THE NATURE OF PRE-OPERAT IVE EXPENSES WERE BEFORE THE ASSESSING OFFICER AND HE DULY TOOK THEM INTO CONSIDERATI ON WHILE ALLOWING THE ASSESSEES CLAIM. 30. IN COMMISSIONER OF INCOME TAX VS. SUNBEAM AUTO LT D., 227 CTR (DEL) 133, IT HAS BEEN OBSERVED, INTER ALIA, THAT THERE IS A DISTINCT ION BETWEEN LACK OF ENQUIRY AND INADEQUATE ENQUIRY; THAT IF THERE IS AN ENQUIRY, EVEN INADEQUATE, THAT WOULD NOT, BY ITSELF, GIVE OCCASION TO THE CIT TO PASS AN OR DER UNDER SECTION 263 OF THE I.T.ACT, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER; THAT SUCH A COURSE OF ACTION IS OPEN ONLY IN CASES OF LACK OF ENQUIRY; AN D THAT IF APPARENTLY THE ASSESSMENT DID NOT GIVE ANY REASONS FOR ALLOWING THE ENT IRE EXPENDITURE AS A REVENUE EXPENDITURE, THAT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND TO THE ISSUE. THE PRESENT CASE, AS DISCUSSED, IS DEFINITELY NOT A CASE OF LACK OF ENQUIRY BY THE ASSESSING OFFICER. AS SUCH, THERE WAS NO OCCASION FOR THE CIT TO INVOKE REVISI ONARY JURISDICTION. 19 31. IN COMMISSIONER OF INCOME TAX VS. MEPCO INDUSTRIES , 294 ITR 121 (MAD), IT HAS BEEN HELD, INTER ALIA, THAT WHEN THE ASSESSING OFFICER ADOPTS ONE OF TWO POSSIBLE VIEWS, JURISDICTION UNDER SECTION 263 OF THE ACT CANNOT BE INVOKED. IN THE CASE BEFORE US, IT HAS NOT BEEN SHOWN THAT THE VIEW TAKEN B Y THE ASSESSING OFFICER IS NOT A POSSIBLE VIEW. 32. IN THE CASE OF GABRIEL INDIA LIMITED, 203 ITR 108 (BOM), IT HAS BEEN HELD THAT THE CIT CANNOT REVISE AN ASSESSMENT ORDER MERELY BECA USE HE DISAGREES WITH THE VIEW OF THE ASSESSING OFFICER; AND THAT WHERE QUERIES AR E RAISED AND EXPLANATION OFFERED, JUST BECAUSE THE ASSESSMENT ORDER DOES N OT CONTAIN MENTION THEREOF, IT CANNOT BE SAID TO BE ERRONEOUS. SIMILARLY, MER ELY SINCE THE ASSESSMENT ORDER IN THE PRESENT CASE DOES NOT MAKE REFERENCE TO THE QUESTI ONNAIRE OF THE ASSESSING OFFICER AND THE EXPLANATION OF THE ASSESSEE COMPA NY, IT CANNOT BE TERMED AS ERRONEOUS. 33. THE DECISION IN THE CASE OF MANGILAL DIDWANIA, 2 86 ITR 126 (RAJ) IS ALSO TO THE SAME EFFECT AND IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE AT HAND. 34. IN CIT VS. HINDUSTAN COCA COLA BEVERAGES LTD., 2 011-TIOL-33-HC-DEL-IT, WHERE FULL DETAILS WERE FOUND TO HAVE BEEN GIVEN IN THE NOTES TO ACCOUNTS, BALANCE SHEET AND TAX AUDIT REPORT, REFERRING TO THE DECISION IN GEE VEE ENTERPRISES, 99 ITR 375 (DEL), IT WAS HELD THAT PROCEEDINGS UNDER SECTION 263 OF THE ACT COULD NOT BE SUSTAINED. IN THE PRESENT CASE TOO, AS DISCUSSED, COM PLETE DETAILS WERE DULY PROVIDED BY THE ASSESSEE COMPANY IN THE NOTES TO ACCOUNTS, THE BALANCE SHEET, THE PROFIT AND LOSS ACCOUNT, THE TAX AUDIT REPORT, THE CIT S ORDER AND THE REPLIES TO THE QUESTIONNAIRE OF THE ASSESSING OFFICER. 20 35. IN SICAL LOGISTICS LTD. VS. ACIT, 127 ITD 187 (CHENNAI), WHERE THE ENTIRE ANNUAL ACCOUNTS WERE BEFORE THE ASSESSING OFFICER AND THE A SSESSING OFFICER HAD ENQUIRED INTO VARIOUS DETAILS, NOT FEELING IT NECESSARY T O CALL FOR DETAILS IN RESPECT OF MATTERS WHICH THE CIT THOUGHT DETAILS ESSENTIAL TO BE CAL LED FOR, IT WAS HELD THAT IT WAS THE ASSESSING OFFICER WHO WAS THE ADJUDICATOR AS WEL L AS INVESTIGATOR, AND HENCE, IT WAS HIS PERCEPTION WHICH COUNTED AND NOT THAT OF THE CIT. THE PRESENT CASE IS ON EVEN A BETTER FOOTING. HERE, AS DELIBERATED UPON , ALL NECESSARY ENQUIRIES WERE CARRIED OUT BY THE ASSESSING OFFICER. ALL MATERIAL F ACTS AND FIGURES WERE PUT BY THE ASSESSEE COMPANY BEFORE HIM. MOREOVER, THE CIT HAS NOT MADE OUT AS TO HOW THE ENQUIRIES CONDUCTED BY THE ASSESSING OFFICER WERE IN SUFFICIENT SO AS TO RENDER THE ASSESSMENT ORDER ERRONEOUS. 36. IN THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA VS. DIRECTOR OF INCOME TAX (EXEMPTION), 2011-TIOL-69-ITAT-DEL, WHERE IT WAS NOTED THAT A DETAILED SCRUTINY HAD BEEN UNDERTAKEN BY THE ASSESSING OFFICER, RELYING ON VIKAS POLYMERS, 2010- TIOL-595-HC-DEL AND REFERRING TO GEE VEE ENTERPRISES (SU PRA) AND DUGAL AND COMPANY, 220 ITR 456 (DEL), THE PROCEEDINGS INITIATED U NDER SECTION 263 OF THE ACT WERE HELD TO BE NOT PROPER. IN THE CASE BEFORE US TOO, A DETAILED SCRUTINY, AS CONSIDERED, WAS CARRIED OUT BY THE ASSESSING OFFICER. A LL MATERIAL FACTS AND FIGURES WERE PUT BEFORE HIM BY THE ASSESSEE. DETAILED REPLIES TO THE QU ESTIONNAIRE ISSUED BY THE ASSESSING OFFICER WERE SUBMITTED. THE ASSESSING OFF ICER ALLOWED THE EXPENDITURE CLAIMED ONLY ON DUE APPLICATION OF MIND TO THE ISSUE IN THE LIGHT OF THE COPIOUS MATERIAL PRODUCED BEFORE HIM. THAT BEING SO, HER E ALSO, THE PROCEEDINGS UNDER SECTION 263 OF THE ACT ARE NOT PROPER. 37. IN CIT VS. VIKAS POLYMERS, (SUPRA), IT WAS HELD THAT THE CIT CAN ASSUME REVISIONARY JURISDICTION ONLY IF THE ASSESSMENT ORDER IS ERRONEOUS AS WELL AS 21 PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HEREIN, AS DW ELT UPON, NEITHER OF THESE TWIN CONDITIONS, MUCH LESS BOTH OF THEM, HAS BEEN MADE O UT TO EXIST. THE ASSUMPTION OF REVISIONARY JURISDICTION WAS, THUS, WH OLLY UNCALLED FOR. 38. IN CIT VS. VIKRAM ADITYA & ASSOCIATES PVT.LTD. , 287 ITR 268 (DEL), THE INCOME TAX RETURN FILED BY CLAIMING DIVIDEND AS EXEMPT AN D SHORT TERM LOSS ON SALE OF SHARES AS A SET OFF AGAINST LONG TERM CAPITAL GAIN. THE RETURN WAS ACCEPTED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT. TH E CIT WAS HELD NOT TO HAVE ANY JURISDICTION UNDER SECTION 263 OF THE ACT, THE ASSESS ING OFFICER NOT HAVING ADOPTED AN UNREASONABLE OR IRRATIONAL VIEW. IN THE CASE BEFORE US, THE ASSESSING OFFICER ALLOWED PRE-OPERATIVE EXPENDITURE CLAIMED UNDER THE HEADS OF PERSONNEL, ADVERTISEMENT, FINANCE AND DEPRECIATION. THE VIEW TAKEN BY THE ASSESSING OFFICER CAN, IN NO MANNER, AS DISCUSSED, BE SAID TO BE EITHER UN REASONABLE OR IRRATIONAL. THEREFORE, INVOCATION OF REVISIONARY JURISDICTION BY TH E CIT IS UNSUSTAINABLE IN LAW. 39. IN ARVIND JEWELLERS, 259 ITR 502 (GUJ), IT HAS B EEN HELD THAT THE PROVISIONS OF SECTION 263 OF THE ACT CANNOT BE INVOKED TO CORRECT EAC H AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER; THAT IT IS ONLY WHEN AN ASSESSMENT ORDER IS ERRONEOUS THAT THE SECTION WILL GET ATT RACTED; THAT AN INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS; THAT THE PHRASE PREJUDICIAL TO TH E INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PA SSED BY THE ASSESSING OFFICER AND EVERY LOSS OF REVENUE AS A RESULT OF AN ORDER O F THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE R EVENUE; THAT WHEN AN ASSESSING OFFICER ADOPTS ONE OF THE COURSES PERMISSIBLE I N LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASS ESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNO T BE TREATED AS AN 22 ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENU E, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. IN THE C ASE AT HAND, THE ASSESSMENT ORDER HAS NOT BEEN SHOWN TO BE ERRONEOUS. THE ASSESSING OF FICER HAS NOT BEEN DEMONSTRATED TO HAVE ASSUMED ANY INCORRECT FACTS, NOR HA S THE LAW BEEN SHOWN TO HAVE BEEN INCORRECTLY APPLIED. THE REQUIREMENT FOR THE ASSESS MENT ORDER TO BE RENDERED LIABLE TO BE TERMED AS AN ERRONEOUS ORDER THUS DOES NOT STAND FULFILLED. THE ASSESSING OFFICER HAS ADOPTED A COURSE WELL PERMISSIBL E IN LAW. NOW, JUST BECAUSE THE CIT DOES NOT AGREE WITH THE VIEW TAKEN BY THE ASS ESSING OFFICER, THIS, BY ITSELF, DOES NOT MAKE THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 40. IN MAX INDIA, 295 ITR 282 (SC), THE HON'BLE SUPREM E COURT HAS HELD THAT TO ASSUME REVISIONARY JURISDICTION, BOTH THE CONDITION S, I.E., OF THE ASSESSMENT ORDER BEING ERRONEOUS AND OF IT BEING PREJUDICIAL TO THE INTERES TS OF THE REVENUE, HAVE TO CO-EXIST; AND THAT THE EXISTENCE OF ONLY ONE OF THE SAID T WO CONDITIONS DOES NOT CLOTHE THE CIT WITH REVISIONARY JURISDICTION. IN THE PRESENT CASE, NEITHER OF THESE CONDITIONS, MUCH LESS BOTH OF THEM, HAS BEEN SHOWN TO EXIST. THE ASSUMPTION OF JURISDICTION UNDER SECTION 263 IS, AS SUCH, ILLEGAL. 41. SIMILAR IS THE POSITION AS LAID DOWN IN MALABAR INDUSTRIAL, 243 ITR 83 (SC). THIS DECISION IS SQUARELY APPLICABLE HERETO, AS CONSIDERED . 42. IN METALLIZING EQUIPMENT VS. JCIT, 96 TTJ (JD.) 827, THE METHOD OF VALUATION OF STOCK ADOPTED BY THE ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER. THE PROCEEDINGS INITIATED BY THE CIT UNDER SECTION 263 OF THE ACT WERE QUASHED. HERE, THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS ACCEPTED BY T HE ASSESSING OFFICER AFTER DULY SCRUTINIZING ALL THE MATERIAL BROUGH T BEFORE HIM IN THE COURSE OF THE 23 ENQUIRY CONDUCTED BY THE ASSESSING OFFICER. THE CIT WAS, ERGO, NOT AT ALL JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. 43. IN BAGARIA VEGETABLES, 106 ITD 105 (PUNE), WHERE THE ASSESSING OFFICER HAD GONE THROUGH THE BOOKS OF ACCOUNT AND THE TAX AUDI T REPORT BEFORE ALLOWING THE VALUATION OF STOCK, IT WAS HELD THAT THE ASSESSING OFF ICER COULD NOT BE SAID TO HAVE FAILED TO CONDUCT AN ENQUIRY. LIKEWISE, IN THE PRESENT CA SE, THE ASSESSING OFFICER, BEFORE ALLOWING THE EXPENDITURE CLAIMED, DULY SCRUTINIZED A LL THE MATERIAL BROUGHT BEFORE HIM IN THE SHAPE OF, INTER ALIA, THE BALANCE SHEET, T HE PROFIT & LOSS ACCOUNT, THE TAX AUDIT REPORT, THE CITS ORDER AND THE ASSESSEES REP LIES TO THE QUESTIONNAIRE ISSUED BY THE ASSESSING OFFICER. HERE ALSO, IN THESE FACTS , THE ASSESSING OFFICER CANNOT BE SAID NOT TO HAVE CONDUCTED REQUISITE ENQUIRIES T O EXAMINE THE GENUINENESS OF THE CLAIM, THE ALLOWABILITY WHEREOF CALLED F OR SUCH EXAMINATION. 44. APROPOS THE CASE LAWS CITED ON BEHALF OF THE DEPARTMEN T, COMMISSIONER OF INCOME-TAX, BHOPAL VS. RALSON INDUSTRIES LTD., 158 TAXMAN 160 (SC), IS NOT APPLICABLE ON FACTS. IN THAT CASE, IT WAS HELD, INTER ALIA, THAT INITIATION OF A PROCEEDING UNDER SECTION 263 OF THE INCOME-TAX ACT CANNO T BE HELD TO HAVE BECOME BAD IN LAW ONLY BECAUSE AN ORDER OF RECTIFICATION WAS PASSED; THAT IN A GIVEN SITUATION, THE HIGH COURT MAY BE HELD TO BE ENTITLED TO SET ASIDE BOTH ORDERS AND REMIT THE MATTER FOR CONSIDERATION AFRESH; THAT HOWEV ER, IT WOULD NOT BE CORRECT TO CONTEND THAT ONLY BECAUSE A PROCEEDING FOR RECTIFICATI ON WAS INITIATED SUBSEQUENTLY, THE REVISIONAL JURISDICTION COULD NOT HAV E BEEN INVOKED UNDER ANY CIRCUMSTANCES WHATSOEVER; THAT IF SUCH A PROCEEDING WAS INITIATED, THE CONTESTING PARTIES COULD BRING IT TO THE NOTICE OF THE COMMISSIONER SO AS TO ENABLE HIM TO TAKE INTO CONSIDERATION THE SUBSEQUENT EVENTS ALSO; AND THAT I F AND WHEN THE COMMISSIONER TAKES UP FOR CONSIDERATION A SUBSEQUENT EVENT , THE ASSESSEE WOULD 24 BE ENTITLED TO MAKE ITS SUBMISSION ALSO IN REGARD THERETO . IT WAS ON THESE OBSERVATIONS THAT THE HON'BLE SUPREME COURT ALLOWED THE DEPA RTMENTS SLP, SETTING ASIDE THE DECISION OF THE HONBLE HIGH COURT, WHEREBY IT H AD BEEN OPINED THAT NO SUBSTANTIAL QUESTION OF LAW AROSE FOR DIRECTING THE TRI BUNAL TO REFER ANY QUESTION TO THE HIGH COURT. 45. THE ABOVE, AS SEEN, IS NOWHERE THE FACT-SITUATION OBTA INING IN THE PRESENT CASE. THE ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) ON 23.2.2006. A NOTICE UNDER SECTION 154 (APB-6) WAS ISSUED ON 9.1.2007. THE ASSESSEE COMPANY FILED A REPLY DATED 6.2.2007 (APB-7) TO THIS NOTICE. T HEREAFTER, THE ASSESSING OFFICER DROPPED THE PROCEEDINGS UNDER SECTION 154. THE PRO CEEDINGS UNDER SECTION 263 WERE INITIATED ON 10.3.2008 (APB-3). THE IMP UGNED ORDER MAKES NO REFERENCE TO THE PROCEEDINGS UNDER SECTION 154. 46. IN RALSON INDUSTRIES (SUPRA), IT HAS ALSO BEEN H ELD THAT THE SCOPE AND AMBIT OF A PROCEEDING FOR RECTIFICATION OF AN ORDER UNDER SECTIO N 154 AND A PROCEEDING FOR REVISION UNDER SECTION 263 ARE DISTINCT AND DIFFERENT; THA T AN ORDER FOR RECTIFICATION CAN BE PASSED ON CERTAIN CONTINGENCIES; THAT IT DOES NOT CONFER A POWER OF REVIEW; THAT IF AN ORDER OF ASSESSMENT IS RECTIFIED BY THE ASSESS ING OFFICER IN TERMS OF SECTION 154, THE SAME ITSELF MAY BE A SUBJECT-MATTER OF A PROCEEDIN G UNDER SECTION 263; THAT THE POWER OF REVISION UNDER SECTION 263 IS EXERCISED BY A HIGHER AUTHORITY; THAT IT IS A SPECIAL PROVISION; THAT THE REVISIONAL JURISDI CTION IS VESTED IN THE COMMISSIONER; THAT AN ORDER THEREUNDER CAN BE PASSED IF IT IS FOUND THA T THE ORDER OF ASSESSMENT IS PREJUDICIAL TO THE REVENUE; AND THAT IN SUCH A PROCEEDING , HE MAY NOT ONLY PASS AN APPROPRIATE ORDER IN EXERCISE OF THE SAID JURISDICTION BU T IN ORDER TO ENABLE HIM TO DO IT, HE MAY MAKE SUCH INQUIRY AS HE DEEMS NECESSARY IN THI S BEHALF. 25 47. AS TO HOW RALSON INDUSTRIES LTD. (SUPRA) IS AP PLICABLE TO THE FACTS OF THE PRESENT CASE, DOES NOT STAND MADE OUT, AS DISCUSSED. 48. REGARDING COMMISSIONER OF INCOME TAX VS. NALWA I NVESTMENTS LTD., 11 TAXMANN.COM 98 (DELHI), IT WAS HELD TO THE EFFECT THAT WHERE IT IS FOUND THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE AT ALL AND, THEREFORE, NO QUESTION OF THERE BEING A PLAUSIBLE VIEW ARISES, THE TRIBUNAL IS NOT JUSTIFIED IN SETTING ASIDE THE REVISIONAL ORDER OF THE CIT, HOLDING THAT THE VIEW TAKEN BY THE ASSESSING OFFICER WAS A PLAUSIBLE VIEW. IN THE PRESENT CASE, HOWEVER, IN THE FAC TS DISCUSSED, THE ASSESSING OFFICER HAS BEEN FOUND TO HAVE EXAMINED THE ISSUE OF CLAIM OF EXPENDITURE. HE HAS RAISED A QUESTIONNAIRE, WHICH HAS BEEN REPLIED TO BY THE A SSESSEE COMPANY IN DETAIL. ALL POSSIBLE MATERIAL, INCLUDING THE ACCOUNTS, THE BALANCE SHEET, THE TAX AUDIT REPORT AND THE COMMUNICATION BETWEEN THE ASSESSEE AND THE CONCERNED AUTHORITIES, WAS PLACED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER ALSO HAD BEFORE HIM, THE CITS ORDER DATED 4.8.2004, WHEREBY TH E CIT(A) ALLOWED `15,02,910/-, BEING EXPENSES AFTER SETTING UP OF THE ASSESS EES BUSINESS AND BEFORE COMMENCEMENT OF COMMERCIAL OPERATIONS, AS REVENUE EXPENDITURE, FOR AY 2001- 02. THE ASSESSING OFFICER ALLOWED THE PRE-OPERATIVE EXPEND ITURE CLAIMED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION ON DULY APPLYING HIS MIND TO ALL THIS VOLUMINOUS MATERIAL AVAILABLE WITH HIM. BEFORE US, IT HAS NOT BEEN SHOWN AS TO HOW THE VIEW TAKEN BY THE ASSESSING OFFICER IS NOT A PLAUSIBL E VIEW. NALWA INVESTMENTS LTD. (SUPRA), THEREFORE, IS IN NO WAY APPLICABLE TO TH E FACTS OF THE PRESENT CASE. 26 49. INSOFAR AS REGARDS RAJALAKSHMI MILLS LTD. V. I TO, 31 SOT 353 (CHENNAI)(SB), IT WAS HELD THAT IT IS NOT NECESSARY FOR THE COMMISSIONER TO MAKE FURTHER ENQUIRIES BEFORE CANCELLING AN ASSESSMENT ORDER WHI CH IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE; THAT THE COMMISSIONER CAN REGARD ING AN ASSESSMENT ORDER BE ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE, THE AO SHOULD HAVE MADE FURTHER ENQUIRIES BEFORE ACCEPTING THE STATEMENT MAD E BY THE ASSESSEE IN ITS RETURN. IN THE PRESENT CASE, HOWEVER, IT IS NOT THAT THE AO JUST ACCEPTED THE STATEMENT MADE BY THE ASSESSEE IN ITS RETURN. AS CONSIDERED , ALL THE PLAUSIBLE RELEVANT MATERIALS WERE BEFORE THE AO AND IT WAS ONLY THAT AFTER APPLYING HIS MIND THERETO AND CONSIDERING SUCH MATERIAL, THAT THE AO GRANT ED THE CLAIM OF THE ASSESSEE. RAJALAKSHMI MILLS LTD. (SUPRA), THEREFORE, IS ALSO NOT APPLICABLE TO THE PRESENT CASE. 50. IN VIEW OF THE ABOVE, WE FIND THE GRIEVANCE OF THE ASS ESSEE TO BE JUSTIFIED. WE HOLD THAT SINCE THE ASSESSING OFFICER HAD ALLOWED THE CLAIM OF PRE-OPERATIVE EXPENSES ON DUE APPLICATION OF MIND TO THE VOLUMINOUS MA TERIAL PLACED BEFORE HIM AND THE VIEW TAKEN BY THE AO IS A PLAUSIBLE VIEW, THE ASSES SMENT ORDER CANNOT AT ALL BE SAID TO BE EITHER ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE LD. CIT, IN THE AFORE-DISCUSSED FACTS AND CIRCUMSTANC ES, WENT WRONG IN INVOKING JURISDICTION U/S 263 OF THE ACT. ACCORDINGLY, THE G ROUNDS TAKEN BY THE ASSESSEE ARE ACCEPTED. 51. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLO WED. 27 ORDER PRONOUNCED IN THE OPEN COURT ON 4.11.2011. SD/- SD/- (G.E.VEERABHADRAPPA) (G.E.VEERABHADRAPPA) (G.E.VEERABHADRAPPA) (G.E.VEERABHADRAPPA) (A.D.JAIN) (A.D.JAIN) (A.D.JAIN) (A.D.JAIN) PRESIDENT PRESIDENT PRESIDENT PRESIDENT JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 4.11.2011. VK/RM COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR