ITO 3(1)(4), MUMBAI V. G.E. GLOBAL SOURCING INDIA P.LTD, MUMBAI

ITA 4194/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8609 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 17-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Revenue expenditure

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 4194/ MUM/2016 ( / ASSESSMENT YEAR : 2009 - 10) ITO 3(1)(4) AAYAKAR BHAVAN, MUMBAI 400020 / V. G.E GLOBAL SOURCING INDIA P. LTD. C/O. SRBC & ASSOCIATES LLP 14 TH FLOOR, THE RUBY 29 SENAPATI BAPAT MARG, DADAR, MUMBAI 400012 ./ PAN :AABCG0865H ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: NONE REVENUE BY : SHRI V. VIDYADHAR / DATE OF HEARING : 26 - 10 - 2017 / DATE OF PRONOUNCEMENT : 09.11.2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE , BEING ITA NO. 4194/MUM/2016 FOR ASSESSMENT YEAR 2009 - 10, IS DIRECTED AG AINST THE APPELLATE ORDER DATED 15 - 03 - 2016 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 8 , MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR ASSESSMENT YEAR 2009 - 10, APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE PENALTY ORDER DATED 27.03.2014 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 271(1)(C) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELL ATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - I.T.A.NO.4194/ MUM/2016 2 ON THE FACTS AND CIRCUMSTANC ES OF THE CASE AND IN LAW, THE L D. CIT(A) ERRED IN DE LETING THE PENALTY U/S 271 (1)( C) OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT THE CLAIM OF EXPENSES OF RS.1,65,31,483/ - ON ACCOUNT OF 'LEGAL PROFESSIONAL CHARGES' WAS IN THE NATURE OF CONSULTANCY ADVISORY ON UPCOMING BUSINESS PROJECTS AND THE SAME WERE NOT ALLOWABLE AS BUSINESS EXP ENDITURE AS PER IT ACT AND THEREBY THE ACT OF THE ASSESSEE AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS OF INCOME WITHIN THE AMBIT OF EXPLANATION TO SECTION 271 (1 )(C) OF THE I . T. ACT 1961.' (2) 'THE APPELLANT PRAYS THAT THE ORDER OF CIT( A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED.' (3) 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ' 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF P ROVIDING SOURCING SERVICES TO GE GLOBAL SOURCING LLC, USA WHO IS 100% SHAREHOLDER IN THE ASSESSEE COMPANY . T HE ASSESSEE HAD CLAIMED AN EXPENSES OF RS.1,35,74,240/ - TOWARDS PROFESSIONAL FEE CLAIMED TO BE PAID TO BMR ADVISOR S PRIVATE LTD, FO R CONSULTANCY ADVISORY OF UPCOMING BUSINESS PROJECT WHI CH WAS HELD BY THE A.O TO BE NOT FOR THE PURPOSES OF THE ASSESSEE BUSINESS . THE LEARNED CIT( A ) ALSO UPHELD THAT ASSESSEE IS NOT ENTITLE D TO CLAIM THE SAID EXPENSES AS BUSINESS EXPENSE S AND APPEAL OF T HE ASSESSEE ON THIS GROUND STOOD DISMISSED BY LEARNED CIT(A). T HE A.O LEVIED THE PENALTY OF RS. 46,13,884/ - U/S. 271(1)(C) BY HOLDING THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME WHEREIN INACCURATE CLAIM OF PROFESSIONAL EXPENSES OF RS.1,35,74,240/ - PAYABLE TO BMR ADVISOR P LTD. HAS BEEN FILED BY THE ASSESSEE IN THE RETURN OF INCOME FILED WITH THE REVENUE , WHICH PENALTY LEVIED BY THE AO U/S 271(1)(C) WAS LATER DELETED BY LEARNED CIT( A ) BY RELYING ON THE SEVERAL JUDICIAL PRECEDENT AND THE FACTUAL MATRIX OF THE CASE . I N THE MEANTIME , THE APPEAL AGAINST QUANTUM A DDITIONS WERE DECIDED BY THE TRIBUNAL IN ITA NO. 4610/MUM/2013 FOR AY 2009 - 10 VIDE ORDER S DATED 13TH JUNE 2016, WHEREIN TRIBUNAL DISMISSED TH E APPEAL OF THE ASSESSEE BY CONFIRMING THE ADDITIONS AS MADE BY THE AO AND AS CONFIRMED BY LEARNED CIT(A) IN QUANTUM ASSESSMENT BY DISMISSING THE APPEAL OF THE ASSESSEE , WHEREIN TRIBUNAL HELD AS UNDER: - I.T.A.NO.4194/ MUM/2016 3 10. WE HAVE HEARD THE LEARNED D.R. AND ALSO PERUSE D THE MATERIAL PLACED ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RENDERING SOURCING SERVICES TO ITS 100% HOLDING COMPANY GE GLOBAL SOURCING LLC USA ON COST PLUS BASIS IN RELATION TO THE REQUIREMENTS OF TRANSPORTATIO N, OIL AND GAS AND ENERGY BUSINESSES. THE ASSESSEE COMPANY IS RECOVERING ENTIRE COSTS FROM ITS HOLDING COMPANY ALONG WITH MARK UP OF 5%. THE ASSESSEE COMPANY HAS AMENDED THE OBJECT CLAUSE IN MOA DURING THE RELEVANT PREVIOUS YEAR AND CONTEMPLATES TO ENTER I NTO AN ENTIRELY DIFFERENT LINE OF BUSINESS WHICH IS AN ALTOGETHER DIFFERENT SOURCE OF INCOME VIS - - VIS EXISTING BUSINESS OF THE ASSESSEE COMPANY OF RENDERING SOURCING SERVICES TO GE GLOBAL SOURCING LLC USA, BY PROPOSING TO SET UP A MANUFACTURING FACILITIES FOR MANUFACTURING AND SUPPLYING LOCOMOTIVES TO INDIAN RAILWAYS AT MARHOWRA, BIHAR. THE ASSESSEE COMPANY HAS FILED BIDS WITH RITES LIMITED, MINISTRY OF RAILWAYS FOR AWARD OF THE MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUFACTURING AND SUPPLYING OF L OCOMOTIVES TO INDIAN RAILWAYS. FROM THE RECORDS BEFORE US, IT EMERGES THAT THIS IS ENTIRELY A NEW LINE OF BUSINESS WHEREBY NEW SOURCE OF INCOME WILL EMERGE AND THERE IS NO CONNECTION WITH THE EXISTING BUSINESS AND SOURCE OF THE INCOME OF THE ASSESSEE COMPA NY. THE ASSESSEE COMPANY HAS PARTICIPATED IN THE BID WITH RITES LIMITED, MINISTRY OF RAILWAYS IN CONSORTIUM WITH BID PARTNERS FOR SETTING UP MANUFACTURING FACILITY FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS AND NOT EVEN THE BIDS HAVE BEEN AWARDED TO THE ASSESSEE COMPANY AND ITS CONSORTIUM PARTNERS BY RITES LIMITED, MINISTRY OF RAILWAYS BY THE END OF THE PREVIOUS YEAR. MARHOWRA DIESEL LOCOMOTIVE COMPANY LIMITED WAS PROPOSED TO BE INCORPORATED AS A SPECIAL PURPOSE VEHICLE(SPV) BY THE PR OPOSED BIDDER/CONSORTIUM PARTNERS TO IMPLEMENT AND SET UP THIS NEW MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS. WE FIND THAT A SUM OF RS. 1,35,74,240/ - WAS PAID TO M/S BMR FOR CONSULTANCY/ADVI SORY ON UPCOMING BUSINESS PROJECT FOR SETTING UP MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS. SINCE , THESE ARE PRE OPERATIVE AND PREPARATORY EXPENSES WHICH ARE INCURRED PRIOR TO SETTING UP OF BUSINESS AND PRIOR TO COMING INTO AN EXISTENCE ALTOGETHER NEW SOURCE OF INCOME AS SET OUT ABOVE , THESE EXPENSES CANNOT BE ALLOWED AS REVENUE EXPENDITURE AS PER PROVISIONS OF SECTION 3 AND 4 OF THE ACT. MOREOVER AS PER FACTS EMERGES FROM RECORDS, THESE EX PENSES ARE ALSO RELATABLE TO THE SPECIAL PURPOSE VEHICLE(SPV) TO BE INCORPORATED BY THE PROPOSED BIDDER/CONSORTIUM PARTNERS WHICH INCLUDED ASSESSEE COMPANY FOR SETTING UP OF A NEW MANUFACTURING FACILITIES AT MARHOWRA, BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS, HENCE, THESE EXPENSES IN - FACT DO NOT PERTAINS TO THE ASSESSEE COMPANY AS THEY ARE RELATABLE TO THE PROJECT TO BE SET UP BY THE SPV AS SET OUT ABOVE BY CONSORTIUM PARTNERS AND ARE IN - FACT PREOPERATIVE AND PREPARATORY EXPEN SES OF SPV WHICH IS YET TO BE INCORPORATED AND WHICH ARE INCURRED PRIOR TO ITS INCORPORATION AND ALSO PRIOR TO THE SETTING UP OF AFORESTATED BUSINESS BY SPV. THESE EXPENSES PAID TO BMR ARE ALSO NOT INCURRED FOR THE PURPOSE OF THE EXISTING SOURCE OF INCOME OR BUSINESS OF THE ASSESSEE COMPANY AND ARE IN - FACT PREPARATORY EXPENSES PRIOR TO SETTING UP OF BUSINESS BY SPV. EVEN IF IT IS CONSIDERED TO BE BORNE BY THE ASSESSEE COMPANY AND NOT TO BE BORNE BY SPV, THEN ALSO THE NEW PROJECTS HAS NOT YET BEEN SET - UP AND IN ANY CASE THESE EXPENSES ARE PRE - OPERATIVE EXPENSES AND PREPARATORY EXPENSES RELATABLE TO THE NEW MANUFACTURING FACILITY TO BE SET UP AT MARHOWRA , BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS AND CANNOT BE CLASSIFIED AS REVEN UE EXPENDITURE ALLOWABLE UNDER THE PROVISION OF THE ACT KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AS SET OUT ABOVE. THE REFERENCE IS DRAWN TO PROVISIONS OF SECTIONS 3 AND 4 OF THE ACT WHICH STIPULATES AS UNDER: I.T.A.NO.4194/ MUM/2016 4 ' ['PREVIOUS YEAR' DEFINED. 3. FOR THE PURPOSES OF THIS ACT, 'PREVIOUS YEAR' MEANS THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR : PROVIDED THAT, IN THE CASE OF A BUSINESS OR PROFESSION NEWLY SET UP, OR A SOURCE OF INCOME NEWLY COMING INTO EXISTENCE, IN THE SAID FINANCI AL YEAR, 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.]' 'CHARGE OF INCOME - TAX. 4. (1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME - TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATES, INCOME - TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN ACCORDANCE WITH, AND [SUBJECT TO THE PROVISIONS (IN CLUDING PROVISIONS FOR THE LEVY OF ADDITIONAL INCOME - TAX) OF, THIS ACT] IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR [* * *] OF EVERY PERSON : PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF THIS ACT INCOME - TAX IS TO BE CHARGED IN RESPECT OF THE INCOME OF A PERIOD OTHER THAN THE PREVIOUS YEAR, INCOME - TAX SHALL BE CHARGED ACCORDINGLY. (2) IN RESPECT OF INCOME CHARGEABLE UNDER SUB - SECTION (1), INCOME - TAX SHALL BE DEDUCTED AT THE SOURCE OR PAID IN ADVANCE, WHERE IT IS SO DEDUCTIBLE OR PAYABLE UNDER ANY PROVISION OF THIS ACT.' SECTION 4 OF THE ACT IS A CHARGING SECTION WHICH STIPULATES THAT THE INCOME SHALL BE CHARGED TO TAX IN RESPECT OF THE ASSESSMENT YEAR ON PRESCRIBED RATES IN ACCORDANCE WITH AND SUBJECT TO PROVISIONS OF THE ACT IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. WHILE PREVIOUS YEAR IS DEFINED TO BE FINANCIAL YEAR IMMEDIATELY PRECEDING ASSESSMENT YEAR AND IN CASE OF A BUSINESS OR PROFESSION NEWLY SET UP OR A SOURCE OF INCOME NEWLY COMING INTO EXISTENCE , IN THE SA ID FINANCIAL YEAR, 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. REFERENCE IS ALSO DRAWN TO THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA VEGETABLE PRODUCTS LTD. V. CIT [1954] 26 ITR 151 WHEREBY THE HON'BLE BOMBAY HIGH COURT HAS DRAWN A DISTINCTION BETWEEN THE SETTING UP OF BUSINESS AND THE COM MENCEMENT OF BUSINESS AS UNDER: 'NOW, TURNING TO OUR STATUTE, THE DEDUCTIONS CLAIMED ARE UNDER SECTION 10(2) AND THEY ARE IN RELATION TO A BUSINESS AND IN ORDER THAT THOSE DEDUCTIONS CAN BE ALLOWED, THE BUSINESS MUST BE CARRIED ON BY THE ASSESSEE. IN THIS CASE IT IS NOT DISPUTED THAT THE BUSINESS WAS CARRIED ON IN THE RELEVANT PREVIOUS YEAR WHICH IS THE FINANCIAL YEAR 1946 - 47, BUT THE IMPORTANT QUESTION THAT HAS GOT TO BE CONSIDERED IS FROM WHICH DATE ARE THE EXPENSES OF THIS BUSINESS TO BE CONSIDERED PERM ISSIBLE DEDUCTIONS AND FOR THAT PURPOSE THE SECTION THAT WE HAVE GOT TO LOOK TO IS SECTION 2(11) AND THAT SECTION DEFINES THE 'PREVIOUS YEAR' AND FOR THE PURPOSE OF A BUSINESS THE PREVIOUS YEAR BEGINS FROM THE DATE OF THE SETTING UP OF THE BUSINESS. THEREF ORE IT IS ONLY AFTER THE BUSINESS IS SET UP THAT THE PREVIOUS YEAR OF THAT BUSINESS COMMENCES AND IN THAT PREVIOUS YEAR THE EXPENSES INCURRED IN THE BUSINESS CAN BE CLAIMED AS PERMISSIBLE DEDUCTIONS. ANY EXPENSES INCURRED PRIOR TO THE SETTING UP OF A BUSIN ESS WOULD OBVIOUSLY NOT BE PERMISSIBLE DEDUCTIONS BECAUSE THOSE EXPENSES WOULD BE INCURRED AT A POINT OF TIME WHEN THE PREVIOUS YEAR OF THE BUSINESS WOULD NOT HAVE COMMENCED. WE MUST THEREFORE LOOK AT THE DECISION OF THE TRIBUNAL AS REALLY REFERRING TO THE SETTING UP OF THE BUSINESS IN THE LANGUAGE OF SECTION 2(11) AND NOT EXPENSES CONNECTED WITH THE COMMENCEMENT OF THE BUSINESS. MR. PALKHIWALLA SAYS THAT IF THAT BE THE CORRECT APPROACH, THEN THE TRIBUNAL HAS MISDIRECTED ITSELF IN CONSIDERING THE COMMENCEME NT OF THE BUSINESS AND NOT THE SETTING UP OF THE BUSINESS. LET US TRY AND I.T.A.NO.4194/ MUM/2016 5 UNDERSTAND WHETHER THERE IS ANY DIFFERENCE BETWEEN THE TWO EXPRESSIONS 'SETTING UP' AND 'COMMENCED AND IF SO, WHAT IS THE DIFFERENCE. IT HAS OFTEN BEEN SAID THAT THE ENGLISH LANGUAGE DOES NOT CONTAIN SYNONYMS AND EVERY ENGLISH EXPRESSION MUST MEAN SOMETHING DIFFERENT, HOWEVER SLIGHT THE DIFFERENCE, FROM ANY OTHER EXPRESSION. ENGLISH LANGUAGE IS FULL OF NUANCES AND IF POSSIBLE WE MUST GIVE A DIFFERENT MEANING TO THE EXPRESSION 'SETTING UP' FROM THE EXPRESSION 'COMMENCED'. MR. JOSHI VERY STRONGLY RELIED ON A JUDGMENT OF MR. JUSTICE ROWLATT REPORTED IN BIRMINGHAM AND DISTRICT CATTLE BY - PRODUCTS CO. LTD. V. COMMISSIONERS OF INLAND REVENUE [1919] 12 TAX CAS 92. IN THAT CASE THE ASSESSEE COM PANY WAS INCORPORATED ON THE 20TH OF JUNE, 1913, AND BETWEEN THAT DATE AND THE 6TH OF OCTOBER, 1913, THE DIRECTORS ARRANGED FOR THE ERECTION OF WORKS AND THE PURCHASE OF PLANT AND MACHINERY, AND ENTERED INTO AGREEMENTS RELATING TO THE PURCHASE OF PRODUCTS TO BE USED IN THE BUSINESS AND TO THE SALE OF FINISHED PRODUCTS. ON THE 6TH OF OCTOBER, 1913, THE INSTALLATION OF PLANT AND MACHINERY BEING COMPLETED, THE COMPANY COMMENCED TO RECEIVE RAW MATERIALS FOR THE PURPOSE OF MANUFACTURE INTO FINISHED PRODUCTS. FOR THE PURPOSES OF EXCESS PROFITS TAX A QUESTION AROSE AS TO THE COMPUTATION OF AVERAGE AMOUNT OF CAPITAL EMPLOYED BY THE COMPANY DURING THE ACCOUNTING PERIOD AND THE COMPANY CONTENDED THAT IT COMMENCED BUSINESS ON THE DATE OF ITS INCORPORATION, VIZ., ON THE 20TH OF JUNE, 1913, AND THAT THE PRE - WAR STANDARD SHOULD BE BASED ON THE PROFITS SHOWN BY REVISED ACCOUNTS FOR THE PERIOD 20TH JUNE, 1913, TO 30TH JUNE, 1914, AND MR. JUSTICE ROWLATT HELD, UPHOLDING THE VIEW OF THE COMMISSIONERS, THAT THE BUSINESS OF THE COMPANY HAD COMMENCED ON THE 6TH OF OCTOBER, 1913. NOW, THIS IS INDEED A VERY STRONG CASE ON FACTS IN SUPPORT OF THE COMMISSIONER, BECAUSE THE VIEW TAKEN BY MR. JUSTICE ROWLATT IS THAT EVERYTHING THAT HAD BEEN DONE BY THE COMPANY BEFORE THE INSTALLATION OF THE PLANT AND MACHINERY WAS COMPLETED WAS PREPARATORY TO THE COMMENCEMENT OF THE BUSINESS AND IT WAS ONLY WHEN THE COMPANY ACTUALLY STARTED RECEIVING RAW MATERIALS FOR THE PURPOSE OF MANUFACTURE INTO FINISHED PRODUCTS, THE PLANT AND MACHINERY BEING READY, THAT IT COULD BE SAID THAT THE ASSESSEE COMPANY HAD COMMENCED BUSINESS, AND THIS IS WHAT THE LEARNED JUDGE SAYS AT PAGE 97 : 'REFERRING TO THEIR MINUTES HAVING LOOKED ROUND, AND HAVING GOT THEIR MACHINERY AND PLANT, AND HAVING ALSO EMPLOYED THEIR FOREME N, AND HAVING GOT THEIR WORKS ERECTED AND GENERALLY GOT EVERYTHING READY, THEN THEY BEGAN TO TAKE THE RAW MATERIALS AND TO TURN OUT THEIR PRODUCTS.' THEREFORE IF THIS CASE WERE TO BE APPLIED TO THE PRESENT ASSESSEE, THEN WE WOULD BE DRIVEN TO THE CONCLUS ION THAT, IF ANYTHING, THE TRIBUNAL HAS TAKEN A VIEW OF THE CASE VERY FAVOURABLE TO THE ASSESSEE BECAUSE ON THE FACTS OF THIS CASE IT WOULD SEEM THAT THE INCOME - TAX OFFICER WAS RIGHT IN HOLDING THAT THE NET EXPENSES PRIOR TO THE 1ST OF NOVEMBER, 1946, SHOU LD NOT BE ALLOWED AS PERMISSIBLE DEDUCTIONS. THAT IS WHY IT IS IMPORTANT TO CONSIDER WHETHER THE EXPRESSION USED IN THE INDIAN STATUTE FOR SETTING UP A BUSINESS IS DIFFERENT FROM THE EXPRESSION MR. JUSTICE ROWLATT WAS CONSIDERING, VIZ., 'COMMENCING OF THE BUSINESS.' IT SEEMS TO US, THAT THE EXPRESSION 'SETTING UP' MEANS, AS IS DEFINED IN THE OXFORD ENGLISH DICTIONARY, 'TO PLACE ON FOOT' OR 'TO ESTABLISH,' AND IN CONTRADISTINCTION TO 'COMMENCE'. THE DISTINCTION IS THIS THAT WHEN A BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS THEN IT CAN BE SAID OF THAT BUSINESS THAT IT IS SET UP. BUT BEFORE IT IS READY TO COMMENCE BUSINESS IT IS NOT SET UP. BUT THERE MAY BE AN INTERREGNUM, THERE MAY BE AN INTERVAL BETWEEN A BUSINESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED ' AND ALL EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND BEFORE THE COMMENCEMENT OF THE BUSINESS, ALL EXPENSES DURING THE INTERREGNUM, WOULD BE PERMISSIBLE DEDUCTIONS UNDER SECTION I.T.A.NO.4194/ MUM/2016 6 10(2). NOW APPLYING THAT TEST TO THE FACTS HERE, THE COMPANY ACTUALLY COMMENCED BUSINESS ONLY ON THE 1ST OF NOVEMBER 1946, WHEN IT PURCHASED A GROUND - NUT OIL MILL AND WAS IN A POSITION TO CRUSH GROUND - NUTS AND PRODUCE OIL. BUT PRIOR TO THIS THERE WAS A PERIOD WHEN THE BUSINESS COULD BE SAID TO HAVE BEEN SET UP AND THE COMPANY WAS READY TO COMMENCE BUSINESS, AND IN THE VIEW OF THE TRIBUNAL ONE OF THE MAIN FACTORS WAS THE PURCHASE OF RAW MATERIALS FROM WHICH AN INFERENCE COULD BE DRAWN THAT THE COMPANY HAD SET UP ITS BUSINESS; BUT THAT IS NOT THE ONLY FACTOR THAT THE TRIBUNAL TAKEN INTO CONSIDERATION. THE TRIBUNAL HAS AS POINTED OUT IN THE STATEMENT OF THE CASE, SCRUTINISED THE VARIOUS DETAILS OF THE EXPENSES GIVEN IN THE ORDER OF THE APPELLATE ASSISTANT COMMISSIONER AND HAVING SCRUTINISED THOSE EXPENS ES THE TRIBUNAL HAS COME TO THE CONCLUSION EVEN ON AN INTERPRETATION MORE FAVOURABLE TO THE ASSESSEE THAN THE ONE WE ARE GIVING TO THE EXPRESSION 'SETTING UP' THAT THESE EXPENSES DO NOT SHOW THAT THE BUSINESS WAS SET UP PRIOR TO THE 1ST OF SEPTEMBER, 1946. IN OUR OPINION, IT WOULD BE DIFFICULT TO SAY THAT THE DECISION OF THE TRIBUNAL IS BASED UPON A TOTAL ABSENCE OF ANY EVIDENCE. AS WE HAVE OFTEN SAID WE ARE NOT CONCERNED WITH THE SUFFICIENCY OF EVIDENCE ON A REFERENCE. IT IS ONLY IF THERE IS NO EVIDENCE WH ICH WOULD JUSTIFY THE DECISION OF THE TRIBUNAL THAT A QUESTION OF LAW WOULD ARISE WHICH WOULD INVOKE OUR ADVISORY JURISDICTION WHICH AFTER ALL IS A VERY LIMITED JURISDICTION. WE WILL, THEREFORE REDRAFT THE QUESTION SUBMITTED BY THE TRIBUNAL AS FOLLOWS: 'WHETHER THERE WAS EVIDENCE BEFORE THE TRIBUNAL TO HOLD THAT THE ASSESSEE COMPANY SET UP ITS BUSINESS AS FROM 1ST OF SEPTEMBER, 1946?' AND WE WILL ANSWER THAT IN THE AFFIRMATIVE. NO ORDER AS TO COSTS.' THE ABOVE DECISION OF HON'BLE BOMBAY HIGH COURT WAS APPROVED BY HON'BLE SUPREME COURT IN THE CASE OF CWT V. RAMARAJU SURGICAL COTTON MILLS LTD. [1967] 63 ITR 478. IN THE INSTANT CASE UNDER APPEAL, THE PROJECT FOR MANUFACTURING A ND SUPPLYING OF LOCOMOTIVES HAS NOT YET BEEN SET UP , WHILE ONLY PREPARATORY STEPS ARE TAKEN BY THE ASSESSEE COMPANY BY BIDDING FOR AWARD OF THE CONTRACT BY RITES LIMITED , MINISTRY OF RAILWAYS IN FAVOUR OF THE CONSORTIUM PARTNERS WHICH INCLUDED ASSESSEE C OMPANY ALSO FOR SETTING UP MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUFACTURE AND SUPPLY OF LOCOMOTIVES TO INDIAN RAILWAYS WHEREBY BID DOCUMENTS HAS BEEN FILED WITH RITES LIMITED , MINISTRY OF RAILWAYS AND THESE EXPENSES OF RS.1,35,74,240/ - PAID TO BMR ON CONSULTANCY AND ADVISORY SERVICES IN CONNECTION WITH THIS INDIAN RAILWAY PROJECT ARE MERELY PREPARATORY EXPENSES INCURRED BY THE ASSESSEE COMPANY PRIOR TO SETTING UP OF BUSINESS AND HENCE CANNOT BE ALLOWED AS REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY. LOOKING INTO ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND WE UPHOLD AND SUSTAIN THE SAME FOR THE REASONS AS INDICATED ABOVE. WE ORDER ACCORDINGLY. 11. IN THE RESULT, THE APPEAL FILE D BY THE ASSESSEE COMPANY IN ITA N0. 4610/MUM/2013 FOR THE ASSESSMENT YEAR 2009 - 10 IS DISMISSED. THUS IN NUTSHELL THE APPEAL OF THE ASSESSEE AGAINST QUANTUM ADDITIONS WAS DISMISSED BY THE TRIBUNAL AND DISALLOWANCE AS MADE BY THE REVENUE IN QUANTUM ASSES SMENT WAS SUSTAINED BY THE TRIBUNAL . I.T.A.NO.4194/ MUM/2016 7 4. THE REVENUE HAS COME IN APPEAL AGAINST APPELLATE ORDER OF LEARNED CIT(A) DELETING PENALTY LEVIED U/S 271(1)(C). N ONE APPEARED ON BEHALF OF THE ASSESSEE BEFORE TRIBUNAL WHEN THE APPEAL WAS CALLED FOR HEARING WHIL E LD. DR HAS RELIED UPON THE PENALTY ORDER OF THE A.O PASSED U/S 271(1)(C) . I T WAS SUBMITTED THAT THE LEARNED CIT(A) RELIED UPON THE ORDER OF THE HONBLE SUPREME COUR T IN THE CASE OF CIT V. RELIANCE PETROP RODUCT S PRIVATE LTD. (2010) 322 ITR 158(SC) AND ALS O DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. N ALIN P SHAH ( HUF ) ( 2013) 40 TAXMANN.COM 86(BOM.HC) AND OTHER DECISIONS TO DELETE THE PENALTY . 5 . WE HAVE HEARD LD. DR AND PERUSED THE MATERIAL ON RECORD INCLUDING CASE LAWS CITED BEFORE U S. WE HAVE OBSERVED THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF P ROVIDING SOURCING SERVICES TO GE GLOBAL SOURCING LLC, USA WHO IS 100% SHAREHOLDER IN THE ASSESSEE COMPANY . T HE ASSESSEE HAD CLAIMED AN EXPENSES OF RS.1,35,74,240/ - TOWARDS PROFESSIONAL FEE C LAIMED TO BE PAID TO BMR ADVISOR S PRIVATE LTD, FOR CONSULTANCY ADVISORY OF UPCOMING BUSINESS PROJECT WHI CH WAS HELD BY THE A.O TO BE NOT FOR THE PURPOSES OF THE ASSESSEE BUSINESS . THE LEARNED CIT( A ) ALSO UPHELD THAT THE ASSESSEE IS NOT ENTITLE D TO CLAIM THE SAID EXPENSES AS BUSINESS EXPENSE S AND APPEAL OF THE ASSESSEE ON THIS GROUND STOOD DISMISSED BY LEARNED CIT(A). T HE A.O LEVIED THE PENALTY OF RS. 46,13,884/ - U/S. 271(1)(C) HOLDING THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME WHEREIN INACCURATE CLAIM OF PROFESSIONAL EXPENSES OF RS.1,35,74,240/ - PAYABLE TO BMR ADVISOR P RIVATE LTD. HAS BEEN FILED BY THE ASSESSEE , WHICH PENALTY LEVIED BY THE AO U/S 271(1)(C) WAS LATER DELETED BY LEARNED CIT( A ) BY RELYING ON THE SEVERAL JU DICIAL PRECEDENT AND THE FACTUAL MATRIX OF THE CASE . I N THE MEANTIME , THE QUANTUM APPEAL WERE DECIDED BY THE TRIBUNAL IN ITA NO. 4610/MUM/2013 FOR AY 2009 - 10 VIDE ORDER S DATED 1 3TH JUNE 2016, WHEREIN TRIBUNAL DISMISSED THE APPEAL OF THE ASSESSEE , WHEREI N THE QUANTUM ADDITION S MADE BY THE AO AND AS CONFIRMED BY LEARNED CIT(A) WERE UPHELD BY TRIBUNAL BY DISMISSING THE APPEAL OF THE ASSESSEE , BY HOLDING AS UNDER: - 10. WE HAVE HEARD THE LEARNED D.R. AND ALSO PERUSED THE MATERIAL PLACED ON RECORD. WE HA VE OBSERVED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RENDERING SOURCING SERVICES TO ITS 100% HOLDING COMPANY GE GLOBAL SOURCING LLC USA ON COST PLUS BASIS IN RELATION TO THE REQUIREMENTS OF TRANSPORTATION, OIL AND GAS AND ENERGY BUSINESSES. THE ASSESSEE COMPANY IS RECOVERING ENTIRE COSTS FROM ITS HOLDING I.T.A.NO.4194/ MUM/2016 8 COMPANY ALONG WITH MARK UP OF 5%. THE ASSESSEE COMPANY HAS AMENDED THE OBJECT CLAUSE IN MOA DURING THE RELEVANT PREVIOUS YEAR AND CONTEMPLATES TO ENTER INTO AN ENTIRELY DIFFERENT LINE OF BUSI NESS WHICH IS AN ALTOGETHER DIFFERENT SOURCE OF INCOME VIS - - VIS EXISTING BUSINESS OF THE ASSESSEE COMPANY OF RENDERING SOURCING SERVICES TO GE GLOBAL SOURCING LLC USA, BY PROPOSING TO SET UP A MANUFACTURING FACILITIES FOR MANUFACTURING AND SUPPLYING LOCOM OTIVES TO INDIAN RAILWAYS AT MARHOWRA, BIHAR. THE ASSESSEE COMPANY HAS FILED BIDS WITH RITES LIMITED, MINISTRY OF RAILWAYS FOR AWARD OF THE MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS. FROM TH E RECORDS BEFORE US, IT EMERGES THAT THIS IS ENTIRELY A NEW LINE OF BUSINESS WHEREBY NEW SOURCE OF INCOME WILL EMERGE AND THERE IS NO CONNECTION WITH THE EXISTING BUSINESS AND SOURCE OF THE INCOME OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS PARTICIPA TED IN THE BID WITH RITES LIMITED, MINISTRY OF RAILWAYS IN CONSORTIUM WITH BID PARTNERS FOR SETTING UP MANUFACTURING FACILITY FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS AND NOT EVEN THE BIDS HAVE BEEN AWARDED TO THE ASSESSEE COMPANY AND ITS CONSORTIUM PARTNERS BY RITES LIMITED, MINISTRY OF RAILWAYS BY THE END OF THE PREVIOUS YEAR. MARHOWRA DIESEL LOCOMOTIVE COMPANY LIMITED WAS PROPOSED TO BE INCORPORATED AS A SPECIAL PURPOSE VEHICLE(SPV) BY THE PROPOSED BIDDER/CONSORTIUM PARTNERS TO I MPLEMENT AND SET UP THIS NEW MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS. WE FIND THAT A SUM OF RS. 1,35,74,240/ - WAS PAID TO M/S BMR FOR CONSULTANCY/ADVISORY ON UPCOMING BUSINESS PROJECT FOR SETTING UP MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS. SINCE , THESE ARE PRE OPERATIVE AND PREPARATORY EXPENSES WHICH ARE INCURRED PRIOR TO SETTING UP OF BUSINESS AND PRIOR TO COMING INTO AN EXISTENCE ALTOGETHER NEW SOURCE OF INCOME AS SET OUT ABOVE , THESE EXPENSES CANNOT BE ALLOWED AS REVENUE EXPENDITURE AS PER PROVISIONS OF SECTION 3 AND 4 OF THE ACT. MOREOVER AS PER FACTS EMERGES FROM RECORDS, THESE EXPENSES ARE ALSO RELATABLE TO THE SPECI AL PURPOSE VEHICLE(SPV) TO BE INCORPORATED BY THE PROPOSED BIDDER/CONSORTIUM PARTNERS WHICH INCLUDED ASSESSEE COMPANY FOR SETTING UP OF A NEW MANUFACTURING FACILITIES AT MARHOWRA, BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS, HEN CE, THESE EXPENSES IN - FACT DO NOT PERTAINS TO THE ASSESSEE COMPANY AS THEY ARE RELATABLE TO THE PROJECT TO BE SET UP BY THE SPV AS SET OUT ABOVE BY CONSORTIUM PARTNERS AND ARE IN - FACT PREOPERATIVE AND PREPARATORY EXPENSES OF SPV WHICH IS YET TO BE INCORPOR ATED AND WHICH ARE INCURRED PRIOR TO ITS INCORPORATION AND ALSO PRIOR TO THE SETTING UP OF AFORESTATED BUSINESS BY SPV. THESE EXPENSES PAID TO BMR ARE ALSO NOT INCURRED FOR THE PURPOSE OF THE EXISTING SOURCE OF INCOME OR BUSINESS OF THE ASSESSEE COMPANY AN D ARE IN - FACT PREPARATORY EXPENSES PRIOR TO SETTING UP OF BUSINESS BY SPV. EVEN IF IT IS CONSIDERED TO BE BORNE BY THE ASSESSEE COMPANY AND NOT TO BE BORNE BY SPV, THEN ALSO THE NEW PROJECTS HAS NOT YET BEEN SET - UP AND IN ANY CASE THESE EXPENSES ARE PRE - OP ERATIVE EXPENSES AND PREPARATORY EXPENSES RELATABLE TO THE NEW MANUFACTURING FACILITY TO BE SET UP AT MARHOWRA , BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS AND CANNOT BE CLASSIFIED AS REVENUE EXPENDITURE ALLOWABLE UNDER THE PRO VISION OF THE ACT KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AS SET OUT ABOVE. THE REFERENCE IS DRAWN TO PROVISIONS OF SECTIONS 3 AND 4 OF THE ACT WHICH STIPULATES AS UNDER: ' ['PREVIOUS YEAR' DEFINED. 3. FOR THE PURPOSES OF THIS ACT, 'PREVIO US YEAR' MEANS THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR : PROVIDED THAT, IN THE CASE OF A BUSINESS OR PROFESSION NEWLY SET UP, OR A SOURCE OF INCOME NEWLY COMING INTO EXISTENCE, IN THE SAID FINANCIAL YEAR, THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINESS OR PROFESSION OR, I.T.A.NO.4194/ MUM/2016 9 AS THE CASE MAY BE, THE DATE ON WHICH THE SOURCE OF INCOME NEWLY COMES INTO EXISTENCE AND ENDING WITH THE SAID FINANCIAL YEAR.]' 'CHARGE OF INCOME - TAX. 4. (1) WHERE ANY CE NTRAL ACT ENACTS THAT INCOME - TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATES, INCOME - TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN ACCORDANCE WITH, AND [SUBJECT TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEVY OF A DDITIONAL INCOME - TAX) OF, THIS ACT] IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR [* * *] OF EVERY PERSON : PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF THIS ACT INCOME - TAX IS TO BE CHARGED IN RESPECT OF THE INCOME OF A PERIOD OTHER THAN THE PREVIOUS YEAR, INCOME - TAX SHALL BE CHARGED ACCORDINGLY. (2) IN RESPECT OF INCOME CHARGEABLE UNDER SUB - SECTION (1), INCOME - TAX SHALL BE DEDUCTED AT THE SOURCE OR PAID IN ADVANCE, WHERE IT IS SO DEDUCTIBLE OR PAYABLE UNDER ANY PROVISION OF THIS ACT.' SECTI ON 4 OF THE ACT IS A CHARGING SECTION WHICH STIPULATES THAT THE INCOME SHALL BE CHARGED TO TAX IN RESPECT OF THE ASSESSMENT YEAR ON PRESCRIBED RATES IN ACCORDANCE WITH AND SUBJECT TO PROVISIONS OF THE ACT IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. WHILE PREVIOUS YEAR IS DEFINED TO BE FINANCIAL YEAR IMMEDIATELY PRECEDING ASSESSMENT YEAR AND IN CASE OF A BUSINESS OR PROFESSION NEWLY SET UP OR A SOURCE OF INCOME NEWLY COMING INTO EXISTENCE , IN THE SAID FINANCIAL YEAR, THE PREVIOUS YE AR 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. REFERENCE IS ALSO DRAWN TO THE JU DGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA VEGETABLE PRODUCTS LTD. V. CIT [1954] 26 ITR 151 WHEREBY THE HON'BLE BOMBAY HIGH COURT HAS DRAWN A DISTINCTION BETWEEN THE SETTING UP OF BUSINESS AND THE COMMENCEMENT OF BUSINESS AS UNDER: ' NOW, TURNING TO OUR STATUTE, THE DEDUCTIONS CLAIMED ARE UNDER SECTION 10(2) AND THEY ARE IN RELATION TO A BUSINESS AND IN ORDER THAT THOSE DEDUCTIONS CAN BE ALLOWED, THE BUSINESS MUST BE CARRIED ON BY THE ASSESSEE. IN THIS CASE IT IS NOT DISPUTED THAT THE BUSINESS WAS CARRIED ON IN THE RELEVANT PREVIOUS YEAR WHICH IS THE FINANCIAL YEAR 1946 - 47, BUT THE IMPORTANT QUESTION THAT HAS GOT TO BE CONSIDERED IS FROM WHICH DATE ARE THE EXPENSES OF THIS BUSINESS TO BE CONSIDERED PERMISSIBLE DEDUCTIONS AND FOR THAT PU RPOSE THE SECTION THAT WE HAVE GOT TO LOOK TO IS SECTION 2(11) AND THAT SECTION DEFINES THE 'PREVIOUS YEAR' AND FOR THE PURPOSE OF A BUSINESS THE PREVIOUS YEAR BEGINS FROM THE DATE OF THE SETTING UP OF THE BUSINESS. THEREFORE IT IS ONLY AFTER THE BUSINESS IS SET UP THAT THE PREVIOUS YEAR OF THAT BUSINESS COMMENCES AND IN THAT PREVIOUS YEAR THE EXPENSES INCURRED IN THE BUSINESS CAN BE CLAIMED AS PERMISSIBLE DEDUCTIONS. ANY EXPENSES INCURRED PRIOR TO THE SETTING UP OF A BUSINESS WOULD OBVIOUSLY NOT BE PERMISS IBLE DEDUCTIONS BECAUSE THOSE EXPENSES WOULD BE INCURRED AT A POINT OF TIME WHEN THE PREVIOUS YEAR OF THE BUSINESS WOULD NOT HAVE COMMENCED. WE MUST THEREFORE LOOK AT THE DECISION OF THE TRIBUNAL AS REALLY REFERRING TO THE SETTING UP OF THE BUSINESS IN THE LANGUAGE OF SECTION 2(11) AND NOT EXPENSES CONNECTED WITH THE COMMENCEMENT OF THE BUSINESS. MR. PALKHIWALLA SAYS THAT IF THAT BE THE CORRECT APPROACH, THEN THE TRIBUNAL HAS MISDIRECTED ITSELF IN CONSIDERING THE COMMENCEMENT OF THE BUSINESS AND NOT THE SET TING UP OF THE BUSINESS. LET US TRY AND UNDERSTAND WHETHER THERE IS ANY DIFFERENCE BETWEEN THE TWO EXPRESSIONS 'SETTING UP' AND 'COMMENCED AND IF SO, WHAT IS THE DIFFERENCE. IT HAS OFTEN BEEN SAID THAT THE ENGLISH LANGUAGE DOES NOT CONTAIN SYNONYMS AND EVE RY ENGLISH EXPRESSION MUST MEAN SOMETHING DIFFERENT, HOWEVER SLIGHT THE DIFFERENCE, FROM ANY OTHER EXPRESSION. ENGLISH LANGUAGE IS FULL OF NUANCES AND IF POSSIBLE WE MUST GIVE A DIFFERENT MEANING I.T.A.NO.4194/ MUM/2016 10 TO THE EXPRESSION 'SETTING UP' FROM THE EXPRESSION 'COMMENCE D'. MR. JOSHI VERY STRONGLY RELIED ON A JUDGMENT OF MR. JUSTICE ROWLATT REPORTED IN BIRMINGHAM AND DISTRICT CATTLE BY - PRODUCTS CO. LTD. V. COMMISSIONERS OF INLAND REVENUE [1919] 12 TAX CAS 92. IN THAT CASE THE ASSESSEE COMPANY WAS INCORPORATED ON THE 20TH OF JUNE, 1913, AND BETWEEN THAT DATE AND THE 6TH OF OCTOBER, 1913, THE DIRECTORS ARRANGED FOR THE ERECTION OF WORKS AND THE PURCHASE OF PLANT AND MACHINERY, AND ENTERED INTO AGREEMENTS RELATING TO THE PURCHASE OF PRODUCTS TO BE USED IN THE BUSINESS AND TO THE SALE OF FINISHED PRODUCTS. ON THE 6TH OF OCTOBER, 1913, THE INSTALLATION OF PLANT AND MACHINERY BEING COMPLETED, THE COMPANY COMMENCED TO RECEIVE RAW MATERIALS FOR THE PURPOSE OF MANUFACTURE INTO FINISHED PRODUCTS. FOR THE PURPOSES OF EXCESS PROFITS TA X A QUESTION AROSE AS TO THE COMPUTATION OF AVERAGE AMOUNT OF CAPITAL EMPLOYED BY THE COMPANY DURING THE ACCOUNTING PERIOD AND THE COMPANY CONTENDED THAT IT COMMENCED BUSINESS ON THE DATE OF ITS INCORPORATION, VIZ., ON THE 20TH OF JUNE, 1913, AND THAT THE PRE - WAR STANDARD SHOULD BE BASED ON THE PROFITS SHOWN BY REVISED ACCOUNTS FOR THE PERIOD 20TH JUNE, 1913, TO 30TH JUNE, 1914, AND MR. JUSTICE ROWLATT HELD, UPHOLDING THE VIEW OF THE COMMISSIONERS, THAT THE BUSINESS OF THE COMPANY HAD COMMENCED ON THE 6TH O F OCTOBER, 1913. NOW, THIS IS INDEED A VERY STRONG CASE ON FACTS IN SUPPORT OF THE COMMISSIONER, BECAUSE THE VIEW TAKEN BY MR. JUSTICE ROWLATT IS THAT EVERYTHING THAT HAD BEEN DONE BY THE COMPANY BEFORE THE INSTALLATION OF THE PLANT AND MACHINERY WAS COMPL ETED WAS PREPARATORY TO THE COMMENCEMENT OF THE BUSINESS AND IT WAS ONLY WHEN THE COMPANY ACTUALLY STARTED RECEIVING RAW MATERIALS FOR THE PURPOSE OF MANUFACTURE INTO FINISHED PRODUCTS, THE PLANT AND MACHINERY BEING READY, THAT IT COULD BE SAID THAT THE AS SESSEE COMPANY HAD COMMENCED BUSINESS, AND THIS IS WHAT THE LEARNED JUDGE SAYS AT PAGE 97 : 'REFERRING TO THEIR MINUTES HAVING LOOKED ROUND, AND HAVING GOT THEIR MACHINERY AND PLANT, AND HAVING ALSO EMPLOYED THEIR FOREMEN, AND HAVING GOT THEIR WORKS EREC TED AND GENERALLY GOT EVERYTHING READY, THEN THEY BEGAN TO TAKE THE RAW MATERIALS AND TO TURN OUT THEIR PRODUCTS.' THEREFORE IF THIS CASE WERE TO BE APPLIED TO THE PRESENT ASSESSEE, THEN WE WOULD BE DRIVEN TO THE CONCLUSION THAT, IF ANYTHING, THE TRIBUNA L HAS TAKEN A VIEW OF THE CASE VERY FAVOURABLE TO THE ASSESSEE BECAUSE ON THE FACTS OF THIS CASE IT WOULD SEEM THAT THE INCOME - TAX OFFICER WAS RIGHT IN HOLDING THAT THE NET EXPENSES PRIOR TO THE 1ST OF NOVEMBER, 1946, SHOULD NOT BE ALLOWED AS PERMISSIBLE D EDUCTIONS. THAT IS WHY IT IS IMPORTANT TO CONSIDER WHETHER THE EXPRESSION USED IN THE INDIAN STATUTE FOR SETTING UP A BUSINESS IS DIFFERENT FROM THE EXPRESSION MR. JUSTICE ROWLATT WAS CONSIDERING, VIZ., 'COMMENCING OF THE BUSINESS.' IT SEEMS TO US, THAT TH E EXPRESSION 'SETTING UP' MEANS, AS IS DEFINED IN THE OXFORD ENGLISH DICTIONARY, 'TO PLACE ON FOOT' OR 'TO ESTABLISH,' AND IN CONTRADISTINCTION TO 'COMMENCE'. THE DISTINCTION IS THIS THAT WHEN A BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS THE N IT CAN BE SAID OF THAT BUSINESS THAT IT IS SET UP. BUT BEFORE IT IS READY TO COMMENCE BUSINESS IT IS NOT SET UP. BUT THERE MAY BE AN INTERREGNUM, THERE MAY BE AN INTERVAL BETWEEN A BUSINESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED ' AND ALL EXPE NSES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND BEFORE THE COMMENCEMENT OF THE BUSINESS, ALL EXPENSES DURING THE INTERREGNUM, WOULD BE PERMISSIBLE DEDUCTIONS UNDER SECTION 10(2). NOW APPLYING THAT TEST TO THE FACTS HERE, THE COMPANY ACTUALLY COMMENC ED BUSINESS ONLY ON THE 1ST OF NOVEMBER 1946, WHEN IT PURCHASED A GROUND - NUT OIL MILL AND WAS IN A POSITION TO CRUSH GROUND - NUTS AND PRODUCE OIL. BUT PRIOR TO THIS THERE WAS A PERIOD WHEN THE BUSINESS COULD BE SAID TO HAVE BEEN SET UP AND THE COMPANY WAS R EADY TO COMMENCE BUSINESS, AND IN THE VIEW OF THE TRIBUNAL ONE OF THE MAIN I.T.A.NO.4194/ MUM/2016 11 FACTORS WAS THE PURCHASE OF RAW MATERIALS FROM WHICH AN INFERENCE COULD BE DRAWN THAT THE COMPANY HAD SET UP ITS BUSINESS; BUT THAT IS NOT THE ONLY FACTOR THAT THE TRIBUNAL TAKEN IN TO CONSIDERATION. THE TRIBUNAL HAS AS POINTED OUT IN THE STATEMENT OF THE CASE, SCRUTINISED THE VARIOUS DETAILS OF THE EXPENSES GIVEN IN THE ORDER OF THE APPELLATE ASSISTANT COMMISSIONER AND HAVING SCRUTINISED THOSE EXPENSES THE TRIBUNAL HAS COME TO THE CO NCLUSION EVEN ON AN INTERPRETATION MORE FAVOURABLE TO THE ASSESSEE THAN THE ONE WE ARE GIVING TO THE EXPRESSION 'SETTING UP' THAT THESE EXPENSES DO NOT SHOW THAT THE BUSINESS WAS SET UP PRIOR TO THE 1ST OF SEPTEMBER, 1946. IN OUR OPINION, IT WOULD BE DIFFI CULT TO SAY THAT THE DECISION OF THE TRIBUNAL IS BASED UPON A TOTAL ABSENCE OF ANY EVIDENCE. AS WE HAVE OFTEN SAID WE ARE NOT CONCERNED WITH THE SUFFICIENCY OF EVIDENCE ON A REFERENCE. IT IS ONLY IF THERE IS NO EVIDENCE WHICH WOULD JUSTIFY THE DECISION OF THE TRIBUNAL THAT A QUESTION OF LAW WOULD ARISE WHICH WOULD INVOKE OUR ADVISORY JURISDICTION WHICH AFTER ALL IS A VERY LIMITED JURISDICTION. WE WILL, THEREFORE REDRAFT THE QUESTION SUBMITTED BY THE TRIBUNAL AS FOLLOWS: 'WHETHER THERE WAS EVIDENCE BEFORE THE TRIBUNAL TO HOLD THAT THE ASSESSEE COMPANY SET UP ITS BUSINESS AS FROM 1ST OF SEPTEMBER, 1946?' AND WE WILL ANSWER THAT IN THE AFFIRMATIVE. NO ORDER AS TO COSTS.' THE ABOVE DECISION OF HON'BLE BOMBAY HIGH COURT WAS APPROVED BY HON'BLE SUPREME COURT I N THE CASE OF CWT V. RAMARAJU SURGICAL COTTON MILLS LTD. [1967] 63 ITR 478. IN THE INSTANT CASE UNDER APPEAL, THE PROJECT FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES HAS NOT YET BEEN SET UP , WHILE ONLY PREPARATORY STEPS ARE TAKEN BY THE ASSESSEE COMP ANY BY BIDDING FOR AWARD OF THE CONTRACT BY RITES LIMITED , MINISTRY OF RAILWAYS IN FAVOUR OF THE CONSORTIUM PARTNERS WHICH INCLUDED ASSESSEE COMPANY ALSO FOR SETTING UP MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUFACTURE AND SUPPLY OF LOCOMOTIVES TO INDIAN RAILWAYS WHEREBY BID DOCUMENTS HAS BEEN FILED WITH RITES LIMITED , MINISTRY OF RAILWAYS AND THESE EXPENSES OF RS.1,35,74,240/ - PAID TO BMR ON CONSULTANCY AND ADVISORY SERVICES IN CONNECTION WITH THIS INDIAN RAILWAY PROJECT ARE MERELY PREPARATORY EX PENSES INCURRED BY THE ASSESSEE COMPANY PRIOR TO SETTING UP OF BUSINESS AND HENCE CANNOT BE ALLOWED AS REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY. LOOKING INTO ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND WE UPHOLD AND SUSTAIN THE SAME FOR THE REASONS AS INDICATED ABOVE. WE ORDER ACCORDINGLY. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE COMPANY IN ITA N0. 4610/MUM/2013 FOR THE ASSESSMENT YEAR 2009 - 10 IS DISMISSED. THE LEARNED C IT( A ) HAS DELETED PENALT Y LEVIED BY THE A.O U/S. 271(1)(C) BY HOLDING THAT ASSESSEE HAS MA DE BONAFIDE CLAIM W.R.T. PROFESSIONAL FEE OF RS.1,35,74,240/ - PAID/PAYABLE TO BMR WHICH WAS DUL Y DECLARED AND DISCLOSED IN RETURN OF INCOME FILE D WITH THE REVENUE W HICH , HOWEVER, DID NOT FOUND FAVOUR WITH THE REVENUE AND MERE NON ACCEPTABILITY OF THE CLAIM OF THE ASSESSEE BY THE REVENUE WILL NOT AUTOMATICALLY MADE ASSESSEE LIABLE TO PENALTY U/S 271(1)(C) AND SINCE THE ASSESSEE MADE A BONAFIDE CL AIM THERE IS NO REASO N TO LEVY PENALTY U/S 27(1) (C) WAS THE CONCLUSION OF LEARNED CIT(A) . E LABORATE I.T.A.NO.4194/ MUM/2016 12 DISCUSSION S HAVE BEEN MADE BY LEARNED CIT( A ) IN HIS APPELLATE ORDER . RELIANCE WAS ALSO PLACED BY LEARNED CIT(A) ON THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF CIT V . RELIANCE PETROP RODUCT S PRIVATE LTD. 322 ITR 158(SC) AND ALSO DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. N ALIN P SHAH ( HUF ) , 40 TAXMANN.COM 86(BOM.HC) WHILE GRANTING RELIEF TO THE ASSESSEE BY DELETING THE PENALTY LEVIED BY THE AO U/S 271(1)(C) OF THE 1961 ACT. W E CONCUR WITH THE DECISION OF LEARNED CIT(A ) WHICH ORDER OF LEARNED CIT(A) WE CONFIRM/AFFIRM. IT IS NOT THE CASE OF THE R EVENUE THAT FALSE /BOGUS CLAIM HAS BEEN FILED BY THE ASSESSEE WHEREIN NO EXPENDITURE WAS INCURRED BUT STILL THE EXPENSES WERE CLAIMED BY THE ASSESSEE , RATHER IT IS A CASE OF THE REVENUE THAT THE ASSESSEE MADE CERTAIN CLAIM FOR THE EXPENSES PAID TO BMR FOR ITS NEW PROJECT AS REVENUE EXP ENSES WHICH WAS NOT ALLOWED BY R EVENUE AND ALSO BY TRIBUNAL AS THESE EXPENSE S WERE INCURRED FOR AN ALTOGETHER NEW SOURCE OF INCOME BEING NEW PROJECT AS ALSO IT PERTAINS TO NEW SPV TO BE CREATED IN CONSORTIUM BY ALL JV PARTNERS BUT THAT DOES NOT MEAN THAT THIS WILL AUTOMATICALLY LEAD TO LEVY OF PENALTY U/S 271(1)(C). THE ASSESSEE W AS IN THE BUSINESS AND UNDER THE BELIEF THAT THESE ARE REVENUE EXPENSES BEING CONSULTANCY FEE TO BMR, A CLAIM WAS LODGED BY THE ASSESSEE FOR CLAIMING SAID EXPENSES REVENUE EXPENSES BUT WHICH DID NOT FOUND FAVOUR WITH REVENUE AS THE SAME BELONGED TO A NEW SOURCE OF REVENUE BEING SET UP WHICH WAS DIFFERENT FROM THE EXISTING BUSINESS OF THE ASSESSEE AND ALSO FOR SPV TO BE FORMED IN CONSORTIUM WITH JV PARTNERS. THE ASSESSEE ALSO MADE DISCLOSURE OF THE SAID CLAIM IN THE RETURN OF INCOME FILED WITH THE REVENUE. W E ARE OF THE CONSIDERED VIEW THAT ASSESSEE CASE IS COVERED BY THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF CIT V. RELIANCE PETROP RODUCT S PRIVATE LTD. (2010) 322 ITR 158(SC) WHEREIN HONBLE SUPREME COURT HELD THAT NO PENALTY IS LEVIABLE U/S 271 (1)(C) WHERE MERE CLAIM OF EXPENSES ARE MADE BY THE ASSESSEE WHICH DOES NOT FOUND FAVOUR WITH THE REVENUE AND HENCE WE HAVE NO HESITATION IN CONFIRM ING THE WELL REASONED DETAILED APPELLATE ORDER OF THE LEARNED CIT - A DELETING THE PENALTY U/S 271|(1)(C) LEVI ED BY THE AO AND HENCE IN OUR CONSIDERED VIEW PEN ALTY LEVIED BY THE A.O OF RS. 46,13,884/ - U/S 271(1)(C) IS NOT SUSTAINABLE IN T HE EYES OF THE LAW I.T.A.NO.4194/ MUM/2016 13 , WHICH WE HEREBY ORDER TO BE DELETE D BY CONFIRMING THE APPELLATE ORDER OF LEARNED CIT(A) . W E ORDER ACCORDIN GLY. 6 . IN T HE RESULT APPEAL OF THE R EVENUE IN I.T.A. NO. 4194/MUM/2016 FOR ASSESSMENT YEAR 2009 - 10 IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 09 .11.2017 09 .11.2017 SD/ - SD/ - (SAKTIJIT DEY ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 09 .11.2017 COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, E 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI