GE GLOBAL SOURCEING INDIA P.LTD, NEW DELHI V. ITO RG 3(1)4, MUMBAI

ITA 4610/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3124 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 15-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 13-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S SENTHIL KUMARANDR
• Keywords: Business income; Transfer pricing; Business expenditure; Additional evidence; Question of law; Corroborative evidences; Revenue expenditure
• Section: 143(3); 234B

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.4610 /MUM/2013 ( / ASSESSMENT YEAR : 2009-10) GE GLOBAL SOURCING INDIA PRIVATE LIMITED, AIFCAS BUILDING, 1 RAFI MARG, NEW DELHI 11 0001. / V. INCOME TAX OFFICER RANGE 3(1)(4), AAYAKAR BHAVAN, MUMBAI 400020. ./ PAN : AABCG0865H ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY NONE REVENUE BY : SHRI S. SENTHIL KUMARAN,DR / DATE OF HEARING : 15-03-2016 / DATE OF PRONOUNCEMENT : 13-06-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING ITA NO. 4610/MUM/2013, IS DIRECTED AGAINST THE APPELLATE OR DER DATED 07-02-2013 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEA LS)- 7, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSME NT YEAR 2009-10, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARI SING FROM THE ASSESSMENT ORDER DATED 28-12-2011 PASSED BY THE LEARNED ASSESS ING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1 961 (HEREINAFTER CALLED THE ACT). ITA 4610/MUM/2013 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNE D CIT(A) HAS: 1. ERRED IN CONFIRMING ACTION OF THE ASSESSING OFFICE R IN DISALLOWING THE PROFESSIONAL FEES PAID TO BMR ADVISORS PVT. LTD ( 'BMR'), AN INDEPENDENT THIRD PARTY CONSULTING FIRM ON THE GROUND THAT THE EXPENSES HAVE NOT BEEN INCURRED FOR THE PURPOSE OF BU SINESS OF THE APPELLANT; 2. ERRED IN NOT APPRECIATING THE FACT THAT THE SERVICES PROVIDED BY BMR IN THE PROCESS OF BID WITH RITES LIMITED WERE IN NATURE OF ADVICE FROM TAX AND REGULATORY PERSPECTIVE SUCH AS INDIRECT TAXES; 3. ERRED IN CONFIRMING LEVY OF INTEREST UNDER SECTIO N 234B AND 234C OF THE ACT, WHICH IS NOT COMPUTED AS PER THE LAW. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING SOURCING SERVICES TO GE G LOBAL SOURCING LLC, USA WHO IS A 100% SHAREHOLDER IN THE ASSESSEE COMPANY . THE ASSESSEE COMPANY HAS SAID TO HAVE RECEIVED AN INCOME OF RS.9,13,79,8 57/- ON ACCOUNT OF SERVICE CHARGES FROM THE HOLDING COMPANY FOR PROVIDING VEND OR AND SUPPLY RELATED INFORMATION TO ITS HOLDING COMPANY. 4. IT WAS OBSERVED BY THE AO FROM THE PERUSAL OF T HE P&L ACCOUNT FOR THE YEAR ENDED ON 31 ST MARCH, 2009 SHOWS AN AMOUNT OF RS. 1,65,31,483/- H AD BEEN DEBITED AS LEGAL AND PROFESSIONAL CHARGES BY THE ASSESSEE COMPANY. FROM THE DETAILS SUBMITTED BY THE ASSESSEE COMPANY BEFORE TH E AO , IT WAS OBSERVED BY THE AO THAT THE ASSESSEE COMPANY PAID A SUM OF RS. 1,35,74,240/- TO M/S BMR ADVISORS PVT. LTD.(HEREINAFTER CALLED BMR) FO R CONSULTANCY ADVISORY ON UPCOMING BUSINESS PROJECTS. THE ASSESSEE COMPANY WAS ASKED TO SUBMIT THE SUPPORTING EVIDENCES OF THESE EXPENSES. FROM THE BI LLS OF BMR SUBMITTED BY THE ASSESSEE COMPANY, IT WAS NOT ASCERTAINABLE TO T HE AO ABOUT THE NATURE ITA 4610/MUM/2013 3 AND RELATION OF THESE EXPENSES TO ASSESSEE COMPANY S BUSINESS. THE ASSESSEE COMPANY WAS ASKED BY THE AO TO SUBMIT THE DETAILS A BOUT THE NARRATION IN THE INVOICE PROFESSIONAL FEE FOR THE SERVICES REND ERED TO GE IN RELATION TO THE IR PROJECT AND HOW THESE EXPENSES PERTAINED TO THE BUSINESS OF THE ASSESSEE COMPANY.THE AO ASKED THE ASSESSEE COMPANY TO SUBMIT COPIES OF THE CONTRACT ENTERED INTO BY THE ASSESSEE COMPANY WITH BMR . THE ASSESSEE COMPANY SUBMITTED THAT IT IS ENGAGED I N THE BUSINESS OF PROVIDING SOURCING SERVICES IN RELATION TO REQUIREM ENTS OF TRANSPORTATION, OIL AND GAS AND ENERGY BUSINESS AND IT FURTHER EXPLORED BUSINESS OF INFRASTRUCTURE PROJECTS. THE ASSESSEE COMPANY SUBMI TTED THAT AS PER ITS MEMORANDUM OF ASSOCIATION(MOA) , ONE OF THE OBJECTS OF THE ASSESSEE COMPANY IS TO ENGAGED IN THE BUSINESS OF INFRASTRUC TURE PROJECTS IN INDIA. THE ASSESSEE COMPANY MADE A BID FOR CONTRACT WITH INDIA N RAILWAYS FOR MANUFACTURING AND SUPPLYING LOCOMOTIVES TO INDIAN R AILWAYS IN RELATION TO THE MANUFACTURING FACILITY AT MARHORWA , BIHAR. TH E ASSESSEE COMPANY EXPLAINED THAT THE ASSESSEE COMPANY HAD PAID 1,35,7 4,240/- TO BMR FOR CONSULTANCY AND ADVISORY SERVICES FOR UPCOMING INDI AN RAILWAYS(IR) BUSINESS PROJECT AS STATED ABOVE. THE ASSESSEE COMPANY SUBMI TTED THAT NO AGREEMENT WAS ENTERED INTO WITH BMR . THE ASSESSEE COMPANY SU BMITTED THAT FOR AVAILING THESE SERVICES FROM BMR FOR WHICH THERE IS NO AGREEMENT OTHER THAN INVOICES RAISED GIVING DETAILS OF SERVICES RENDERED . THE ASSESSEE COMPANY SUBMITTED THAT THESE EXPENSES WERE INCURRED DURING THE COURSE OF BUSINESS OF THE ASSESSEE COMPANY ALTHOUGH NO INCOME HAS BEEN GE NERATED AND HENCE THESE EXPENSES SHOULD BE ALLOWED AS BUSINESS EXPENS ES. IT WAS OBSERVED BY THE A.O. FROM THE PROFIT AND LOSS ACCOUNT FOR YEAR ENDED 31 ST MARCH, 2009 THAT AN AMOUNT OF RS. 9,13,79,857/- WAS RECEIVED BY THE ASSESSEE COMPANY ON ACCOUNT OF SERVICE CHARGES FROM THE HOLDING COMP ANY M/S GE GLOBAL SOURCING LLC, USA, AND SIMILARLY FOR THE PRECEDING YEAR THE ASSESSEE COMPANY RECEIVED ITS ENTIRE SERVICE INCOME FROM THE HOLDING COMPANY M/S GE ITA 4610/MUM/2013 4 GLOBAL SOURCING LLC, USA. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, THE ASS ESSEE COMPANY HAD FURNISHED COPY OF SERVICE AGREEMENT DATED 16 TH JANUARY, 2001 BETWEEN THE ASSESSEE COMPANY AND THE HOLDING COMPANY M/S GE GL OBAL SOURCING LLC, USA WHICH WAS FOR PROVIDING SERVICES TO THE HOLDING COMPANY. IT WAS OBSERVED THAT IN CONSIDERATION FOR PAYMENT OF SERVICES CONTE MPLATED IN THE AGREEMENT, THE HOLDING COMPANY GE GLOBAL SHALL PAY TO THE ASSE SSEE COMPANY I.E. GE INDIA A FEE WHICH SHALL BE EQUIVALENT TO THE COST OF GE INDIA PROVIDING THE SERVICES PLUS 5% THEREOF. FROM THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2009 , THE A.O. OBSERVED THAT THE TOTAL EXP ENSES OF THE ASSESSEE COMPANY WAS RS. 9,90,14,100/- , WHILE THE INCOME WA S RS. 9,13,79,857/- AND HENCE THE EXPENDITURE WAS MORE THAN THE INCOME LEADING TO A LOSS TO THE ASSESSEE COMPANY AND HENCE THERE WAS SOME EXPENSES CLAIMED BY THE ASSESSEE COMPANY WHICH DOES NOT PERTAIN TO THEIR BU SINESS OF SOURCING FOR THE HOLDING COMPANY. IN THIS ENDEAVOR AS PER THE S ERVICES AGREEMENT THE ASSESSEE COMPANY IS IN RECEIPT OF A FEE WHICH IS TH E COST PLUS 5%. THE ASSESSEE COMPANY WAS CAPTIVE SERVICE PROVIDER TO TH E HOLDING COMPANY . THE A.O. FURTHER OBSERVED THAT THE PROFESSIONAL FEE PAY MENT OF RS. 1,35,74,240/- PAID TO BMR IS NOT A BUSINESS EXPENSE OF THE ASSESS EE COMPANY AND IS NOT INCURRED FOR COMPANYS BUSINESS PURPOSES. THE ASSE SSEE COMPANY HAS NOT ADDED THIS EXPENDITURE IN ITS MONTHLY INVOICE TO TH E HOLDING COMPANY WHICH PROVES THAT THIS EXPENSE IS NOT FOR ITS BUSINESS PU RPOSES. IT WAS ALSO OBSERVED THAT AS PER COPY OF MOA , OBJECT CLAUSE WAS INSERTE D BY THE ASSESSEE COMPANY ON 26 TH MAY, 2008 TO ENGAGE IN THE BUSINESS OF INFRASTRUCT URE PROJECTS IN INDIA INCLUDING MANUFACTURE OF RAIL LOCOMOTIVES IN INDIA. REGARDING EXPENSES SUCH AS ADVISES ON NEW OBJECTIVE WITHOUT CONCRETE P ROPOSALS CANNOT BE CONSIDERED AS REVENUE EXPENDITURE DEDUCTIBLE FROM I NCOME OF ORIGINAL OBJECTIVES OF PROVIDING SERVICES TO THE HOLDING COM PANY. IT WAS OBSERVED FROM THE COMPUTATION OF ACCOUNT FURNISHED BY THE ASSESSE E COMPANY FOR FINANCIAL YEAR 2008-09 THAT THE ASSESSEE COMPANY EXPANDED THE SCOPE OF ITS PRESENT ITA 4610/MUM/2013 5 BUSINESS OF INFRASTRUCTURE PROJECTS TO MANUFACTURE AND SUPPLY OF TRAIN LOCOMOTIVES ETC. FOR THIS PURPOSE, THE ASSESSEE CO MPANY INCURRED AN EXPENDITURE OF RS. 1,35,74,240/- TOWARDS PROFESSION AL CHARGES PAID TO CONSULTANTS FOR ASSISTING IN THE BIDDING FOR GOVERN MENT CONTRACTS RELATING TO SETTING UP A MANUFACTURING FACILITY FOR MANUFACTURI NG AND SUPPLY OF LOCOMOTIVES TO INDIAN RAILWAYS. THE PROPOSAL WAS C LEARED ON TECHNICAL AND FINANCIAL PARAMETERS, HOWEVER, ON ACCOUNT OF DECISI ON BY THE MINISTRY OF RAILWAY, THE SAID PROJECT WAS DROPPED. IT WAS OBSER VED BY THE A.O. THAT APART FROM PROFESSIONAL FEES TO BMR, NO OTHER EXPENSES WE RE CLAIMED BY THE ASSESSEE COMPANY FOR SUCH A PROJECT FORMING PART OF A PURPORTED SEPARATE LINE OF BUSINESS. THE ASSESSEE COMPANY HAS OBTAINED NECE SSARY APPROVALS/CLEARANCE FROM THE CORPORATE LAW/GOVERNME NT AUTHORITIES AND THE PROPOSAL WAS CLEARED ON TECHNICAL PARAMETERS. EXCEP T FOR THE PROFESSIONAL FEES OF RS. 1,35,74,240/- TO BMR, NO OTHER EXPENSES HAD BEEN CLAIMED BY THE ASSESSEE COMPANY. THE DETAILS OF SERVICES RECEIVED FROM BMR STATED ABOUT ONLY OF ADVICE AND RESEARCH ON GOVERNMENT REGULATIO NS AND RULES RENDERED BY BMR THE INVOICES OF BMR ARE NOT AT ALL DESCRIPTIVE ABOUT THE SERVICES RENDERED IN RELATION TO INDIAN RAILWAYS PROJECT HEN CE IT WAS NOT CLEAR WHETHER BMR IS RENDERING SERVICE TO THE ASSESSEE COMPANY OR ANY OF THE OTHER SUBSIDIARIES OR ASSOCIATE ENTERPRISE OF THE GE GROU P. THUS IT WAS HELD BY THE A.O. THAT THE EXPENDITURE OF RS. 1,35,74,240/- IS N OT ASSESSEE COMPANYS BUSINESS EXPENSE NEITHER IT IS A REVENUE EXPENDITUR E, HENCE, THE SAME IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE COMPANY VIDE ASSESSMENT ORDERS DATED 28.12.2011 PASSED BY THE AO U/S 143(3) OF THE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDERS DATED 28.12.2 011 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY HAS FIL ED ITS FIRST APPEAL BEFORE THE LEARNED CIT(A). ITA 4610/MUM/2013 6 6. BEFORE THE LEARNED CIT(A) , THE ASSESSEE COMPAN Y REITERATED ITS SUBMISSIONS AS WERE MADE BEFORE THE A.O.. IT WAS S UBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROV IDING SOURCING SERVICES TO GE GLOBAL SOURCING LLC, USA IN RELATION TO THE REQU IREMENTS OF TRANSPORTATION, OIL AND GAS AND ENERGY BUSINESS PRO JECTS. THE ASSESSEE COMPANY EXPANDED ITS PRESENT BUSINESS OPERATIONS TO ENGAGE IN THE BUSINESS OF INFRASTRUCTURE PROJECTS AS APPROVED IN TERMS OF CLAUSE 4A OF ARTICLE III(A) OF THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPA NY, ONE OF THE OBJECTS OF THE ASSESSEE COMPANY IS TO ENGAGE IN THE BUSINES S OF INFRASTRUCTURE PROJECTS IN INDIA INCLUDING BUT NOT LIMITED TO MANU FACTURE AND SUPPLY OF RAIL LOCOMOTIVES, SPARES AND ANCILLARY EQUIPMENT AND PER FORM, CARRY OUT AND ENGAGE IN ANY ACTS, DEEDS, THINGS, SERVICES IN RELA TION THERETO. THE ASSESSEE COMPANY MADE A BID FOR A CONTRACT WITH THE MINISTRY OF RAILWAYS IN RELATION TO A MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MAN UFACTURING AND SUPPLYING LOCOMOTIVES TO THE INDIAN RAILWAYS. THE RELEVANT C OPY OF BID DOCUMENT SUBMITTED WITH THE MINISTRY OF RAILWAY IS FILED BY THE ASSESSEE COMPANY BEFORE THE LEARNED CIT(A) FOR THE FIRST TIME AS ADD ITIONAL EVIDENCE WHICH COULD NOT BE FILED BEFORE THE A.O. THE SAID DOCUMENTARY P ROOF ALSO COVERS THE ENGAGEMENT LETTER WITH BMR ADVISORS APPOINTING THEM FOR GIVING ADVICE FOR THE INDIAN RAILWAYS PROJECT. THE ASSESSEE COMPANY SUBMITTED THAT SINCE THE CONTRACT WAS A LARGE CONTRACT, THE ASSESSEE COMPANY WANTS TO SUB-CONTRACT PART OF THE WORK TO SUB-CONTRACTORS TO MAKE IT COST EFFECTIVE AND ALSO DESIRED TO UNDERSTAND VARIOUS TAX COSTS ASSOCIATED WITH THE PROJECT AND ALSO REQUIRED ASSISTANCE IN THE BIDDING PROCESS. FURTHER, THE ASS ESSEE COMPANY DESIRED TO UNDERSTAND THE INCENTIVES WHICH WERE OFFERED BY THE DIFFERENT INDIAN STATES FOR THE SAID PROJECT TO MINIMIZE OVERALL TAX COST. FOR THIS PURPOSE, THE ASSESSEE COMPANY ENGAGED THE SERVICES OF BMR FOR CO NSULTING, ADVISORY AND OTHER SERVICES LIKE ADVICE ON VARIOUS CUSTOMS, EXCI SE AND TRANSFER PRICING LAWS FOR MANUFACTURE AND SUPPLY OF LOCOMOTIVES TO RAILWA YS AND TAXATION ETC. . FOR THE ABOVE SERVICES RENDERED, THE BMR RAISED INVOICE S AMOUNTING TO RS. ITA 4610/MUM/2013 7 1,35,74,240/- AND THE COPIES OF THE INVOICES CAPTUR ING THE DETAILS OF THE SERVICES WERE SUBMITTED TO THE A.O. THE ASSESSEE CO MPANY SUBMITTED THAT THE INVOICES ALONG WITH TIME COSTS DEMONSTRATE THE NATU RE OF SERVICES RENDERED BY BMR AND THE AMOUNTS CHARGED WHICH ARE INCURRED BY T HE ASSESSEE COMPANY IS WHOLLY AND EXCLUSIVELY IN THE COURSE OF ITS BUSI NESS. THE ASSESSEE COMPANY HAS RELIED UPON VARIOUS CASE LAWS TO SUPPORT ITS CO NTENTION. IT IS THE CONTENTION OF THE ASSESSEE COMPANY THAT THE A.O. HA S ERRED IN DISALLOWING THE EXPENSES IN RELATION TO THE EXPENSES SUCH AS ADVISE S ON NEW OBJECTIVE WITHOUT ANY CONCRETE PROPOSALS , THOUGH THE ASSESSEE COMPAN Y CLAIMED THAT IT IS ONE OF THE OBJECT OF THE ASSESSEE COMPANY. THE ASSESSE E COMPANY SUBMITTED THAT THE PROFESSIONAL CHARGES PAID TO BMR ARE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE COMPANY . SINCE IT WAS FOR THE INFRASTRUCTURE PROJECTS, WHICH IS SEPARATE FROM THE SOURCING BUSINESS , THE EXPENSES WERE NOT INCLUDED IN THE COSTS COVERED WHI LE INVOICING TO GE GLOBAL SOURCING LLC USA. IT WAS ALSO SUBMITTED THAT THE E XPENSES ARE INCURRED DURING THE COURSE OF BUSINESS CARRIED OUT BY THE AS SESSEE COMPANY. THE LEARNED CIT(A) ASKED FOR THE REMAND REPORT FRO M A.O. WITH RESPECT TO THE ADMISSIBILITY OF THE ADDITIONAL EVIDENCE. THE A.O. REQUESTED NOT TO ADMIT THE ADDITIONAL EVID ENCE FILED BY THE ASSESSEE COMPANY IN ITS REMAND REPORT SUBMITTED TO THE LEARN ED CIT(A). IT WAS OBSERVED BY THE A.O. THAT THE ADDITIONAL EVIDENCE D OCUMENT NO. 1 TO 4 DID NOT PERTAIN TO THE ASSESSEE COMPANY HENCE CANNOT BE CON SIDERED AS HAVING ANY BEARING ON THE ISSUE UNDER CONSIDERATION. THE A.O. REPORTED THAT THE BMR IS NOT RENDERING SERVICE TO THE ASSESSEE COMPANY, HENC E, THE EXPENSES CANNOT BE ATTRIBUTED SPECIFICALLY TO THE BUSINESS INCOME O F THE ASSESSEE COMPANY. THE COPY OF REMAND REPORT WAS SENT BY LEARNED CIT(A ) TO THE ASSESSEE COMPANY FOR ITS COMMENTS AND IN RESPONSE TO THE REM AND REPORT THE ASSESSEE ITA 4610/MUM/2013 8 SUBMITTED ITS REPLY. THE ASSESSEE COMPANY HAD FILE D THE FOLLOWING ADDITIONAL EVIDENCES BEFORE LEARNED CIT(A) WHICH WERE SENT TO THE AO FOR HIS COMMENTS AND REMAND REPORT:- I) ACKNOWLEDGEMENT FROM RITES LIMITED (A GOVT. OF INDI A ENTERPRISE) FOR RECEIPT OF BID DOCUMENTS FROM GE GLOBAL. II) RELEVANT EXTRACT OF DRAFT AGREEMENT FOR PROCUREMENT -CUM- MAINTENANCE OF LOCOMOTIVES, TO BE ENTERED ON ONWARD OF BID. III) RELEVANT EXTRACT OF REQUEST FOR QUALIFICATION FOR B ID. IV) ENGAGEMENT LETTER WITH BMR. THE ASSESSEE COMPANY SUBMITTED THAT THE ABOVE ADDIT IONAL EVIDENCES ARE NOT ADVANCING ANY NEW POINT BUT ONLY TO SUPPORT THE EXI STING FACTS. IT WAS SUBMITTED THAT IN VIEW OF THE NEW BUSINESS, THE ASS ESSEE COMPANY MADE A BID FOR A CONTRACT WITH MINISTRY OF RAILWAYS IN RELATIO N TO SETTING UP OF MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUF ACTURING AND SUPPLYING LOCOMOTIVES TO THE INDIAN RAILWAYS. THE MAIN OBJEC TS OF THE ASSESSEE COMPANY WAS AMENDED TO INSERT CLAUSE 4A OF THE MOA AS ONE OF THE OBJECTS OF THE ASSESSEE COMPANY WAS TO ENGAGE IN THE BUSINESS OF INFRASTRUCTURE BUSINESS, INCLUDING BUT NOT LIMITED, TO MANUFACTURE AND SUPPLY OF RAIL LOCOMOTIVES , SPARES, ANCILLARY EQUIPMENTS AND PERF ORM, CARRY OUT AND ENGAGE IN ANY ACTS , DEEDS , THINGS, SERVICE IN RELATION T HERETO. THE ASSESSEE COMPANY SUBMITTED THE ACKNOWLEDGMENT OF RITES LIMITED ACKNO WLEDGING THE RECEIPT OF BID, THEREBY CONSIDERING THE ASSESSEE COMPANY AS AN ELIGIBLE CANDIDATE FOR BIDDING AND SUBMITTED THAT IT CANNOT BE DISREGARDED THAT THE EXPENSES INCURRED IN RELATION TO BID WERE BUSINESS EXPENSES OF THE ASSESSEE COMPANY. THE RELEVANT DRAFT AGREEMENT AND THE RELEVANT REQUE ST FOR QUALIFICATION WERE SUBMITTED. IT WAS SUBMITTED THAT THE INDIAN RAILWA YS CONTRACT IS TO BE ENTERED BETWEEN THE DIRECTOR MECHANICAL ENGINEERI NG WORKS, MINISTRY OF RAILWAYS AND MARHOWRA DIESEL LOCOMOTIVE COMPANY L IMITED WHICH WAS TO BE INCORPORATED AS A SPECIAL PURPOSE VEHICLE(SPV) B Y THE PROPOSED BIDDER/CONSORTIUM COMPANIES AND HENCE THE A.O.S CO MMENTS THAT DIFFERENT ITA 4610/MUM/2013 9 CONCERNS ARE PARTIES TO THE AGREEMENT IS UNTENABLE. IT WAS SUBMITTED THAT DRAFT BID DOCUMENTS WERE SUBMITTED BY THE ASSESSEE COMPANY BEFORE THE LEARNED CIT(A) AND NOT THE ACTUAL BID DOCUMENTS WHI CH CONTAINS THE RELEVANT INFORMATION WHICH ARE VERY CONFIDENTIAL AND SENSITI VE WHICH SHOWS THAT THE BIDS ARE STILL OPEN AND NOT AWARDED YET. THE ASSESS EE COMPANY ALSO SUBMITTED THAT THE BMR IS PROVIDING SERVICES TO ASS ESSEE COMPANY IN RELATION TO THE INFRASTRUCTURE BUSINESS AND AGREEMENT IS ALS O BETWEEN BMR AND THE ASSESSEE COMPANY WITH REFERENCE TO INDIAN RAILWAY P ROJECT OF THE ASSESSEE COMPANY AND NOT ANY OTHER GE GROUP COMPANY. THE LEARNED CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE COMPANY AFTER ADMISSION OF THE ADDITIONAL EVIDENCE SUBMITTED BY T HE ASSESSEE COMPANY. THE LEARNED CIT(A) HELD THAT THE PAYMENT MADE BY TH E ASSESSEE COMPANY IS NOWHERE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. THE BMR HAS RENDERED SERVICES TO GE GROUP AND NOT TO THE ASSESS EE COMPANY. IT WAS ALSO HELD BY THE LEARNED CIT(A) THAT BASED ON FACTS ON RECORDS , THE SAID BMR IS A FIRM OF CHARTERED ACCOUNTANTS WHICH HAS NO SUCH EXP ERTISE IN THE BIDDING PROCESS OF RITES LIMITED.THERE WAS NO BUSINESS EXIG ENCY FOR SUCH PAYMENT, HENCE, A.O. IS JUSTIFIED IN HIS ACTION AND ACCORDIN GLY THE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A.O. VIDE AP PELLATE ORDERS DATED 07/02/2013. 7. AGGRIEVED BY THE APPELLATE ORDERS DATED 07/02/2 013 OF THE LEARNED CIT(A), THE ASSESSEE COMPANY IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 8. AT THE TIME OF HEARING BEFORE US, NONE APPEARED ON BEHALF OF THE ASSESSEE COMPANY. AS PER THE ORDER SHEET ENTRIES, T HE APPEAL WAS ADJOURNED SEVERAL TIMES EARLIER SINCE 2014 AS THE ASSESSEE CO MPANY WAS NOT APPEARING DESPITE SEVERAL NOTICES ISSUED BY THE REGISTRY TO T HE ASSESSEE COMPANY. THEREFORE, WE PROCEED TO DISPOSE OF THIS APPEAL AFT ER HEARING THE LEARNED D.R. ITA 4610/MUM/2013 10 9. THE LEARNED D.R. SUBMITTED THAT THE PAYMENT HAS BEEN MADE TO BMR WHICH IS A CHARTERED ACCOUNTANT FIRM. AS RIGHTLY P OINTED OUT BY THE LOWER AUTHORITIES, THE PAYMENT WAS NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. FURTHER HE RELIED UPON THE ORDERS OF AUTH ORITIES BELOW. 10. WE HAVE HEARD THE LEARNED D.R. AND ALSO PERUSED THE MATERIAL PLACED ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF RENDERING SOURCING SERVICES TO ITS 100% HOLDING COMPANY GE GLOBAL SOURCING LLC USA ON COST PLUS BASIS IN RELAT ION TO THE REQUIREMENTS OF TRANSPORTATION, OIL AND GAS AND ENERGY BUSINESSES. THE ASSESSEE COMPANY IS RECOVERING ENTIRE COSTS FROM ITS HOLDING COMPANY AL ONG WITH MARK UP OF 5%. THE ASSESSEE COMPANY HAS AMENDED THE OBJECT CLAUSE IN MOA DURING THE RELEVANT PREVIOUS YEAR AND CONTEMPLATES TO ENTER IN TO AN ENTIRELY DIFFERENT LINE OF BUSINESS WHICH IS AN ALTOGETHER DIFFERENT SOURCE OF INCOME VIS--VIS EXISTING BUSINESS OF THE ASSESSEE COMPANY OF RENDERING SOURC ING SERVICES TO GE GLOBAL SOURCING LLC USA, BY PROPOSING TO SET UP A MANUFA CTURING FACILITIES FOR MANUFACTURING AND SUPPLYING LOCOMOTIVES TO INDIAN R AILWAYS AT MARHOWRA, BIHAR. THE ASSESSEE COMPANY HAS FILED BIDS WITH RIT ES LIMITED, MINISTRY OF RAILWAYS FOR AWARD OF THE MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIA N RAILWAYS. FROM THE RECORDS BEFORE US, IT EMERGES THAT THIS IS ENTIREL Y 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 T HE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS PARTICIPATED IN THE BID WITH R ITES LIMITED, MINISTRY OF RAILWAYS IN CONSORTIUM WITH BID PARTNERS FOR SETTIN G UP MANUFACTURING FACILITY FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO I NDIAN RAILWAYS AND NOT EVEN THE BIDS HAVE BEEN AWARDED TO THE ASSESSEE COM PANY AND ITS CONSORTIUM PARTNERS BY RITES LIMITED, MINISTRY OF RAILWAYS BY THE END OF THE PREVIOUS YEAR. MARHOWRA DIESEL LOCOMOTIVE COMPANY LIMITED WA S PROPOSED TO BE ITA 4610/MUM/2013 11 INCORPORATED AS A SPECIAL PURPOSE VEHICLE(SPV) BY T HE PROPOSED BIDDER/CONSORTIUM PARTNERS TO IMPLEMENT AND SET UP THIS NEW MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUFACTURING AND S UPPLYING 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 P ROJECT FOR SETTING UP MANUFACTURING FACILITY AT MARHOWRA, BIHAR FOR MANUF ACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS. SINCE , THESE A RE PRE OPERATIVE AND PREPARATORY EXPENSES WHICH ARE INCURRED PRIOR TO SE TTING UP OF BUSINESS AND PRIOR TO COMING INTO AN EXISTENCE ALTOGETHER NEW SO URCE 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 S PECIAL PURPOSE VEHICLE(SPV) TO BE INCORPORATED BY THE PROPOSED BIDDER/CONSORTIU M PARTNERS WHICH INCLUDED ASSESSEE COMPANY FOR SETTING UP OF A NEW M ANUFACTURING FACILITIES AT MARHOWRA, BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO INDIAN RAILWAYS, HENCE, THESE EXPENSES IN-FACT DO NOT PERT AINS 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 PR EOPERATIVE AND PREPARATORY EXPENSES OF SPV WHICH IS YET TO BE INCO RPORATED AND WHICH ARE INCURRED PRIOR TO ITS INCORPORATION AND ALSO PRIOR TO THE SETTING UP OF AFORE- STATED BUSINESS BY SPV. THESE EXPENSES PAID TO BMR ARE ALSO NOT INCURRED FOR THE PURPOSE OF THE EXISTING SOURCE OF INCOME OR BUS INESS 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 S ET UP AT MARHOWRA , BIHAR FOR MANUFACTURING AND SUPPLYING OF LOCOMOTIVES TO I NDIAN RAILWAYS AND CANNOT BE CLASSIFIED AS REVENUE EXPENDITURE ALLOWAB LE UNDER THE PROVISION OF ITA 4610/MUM/2013 12 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, '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 TH E SAID FINANCIAL YEAR, THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH TH E 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 T HE SAID FINANCIAL YEAR.]' ' CHARGE OF INCOME-TAX. 4. (1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME-TAX SH ALL 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 [S UBJECT TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEVY OF ADDITIONAL IN COME-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 I NCOME-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-SECTI ON (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.' ITA 4610/MUM/2013 13 SECTION 4 OF THE ACT IS A CHARGING SECTION WHICH ST IPULATES 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 AC T 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 YEA R AND IN CASE OF A BUSINESS OR PROFESSION NEWLY SET UP OR A SOURCE OF INCOME NE WLY 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 PROFESSIO N , 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 BUSIN ESS AND THE COMMENCEMENT OF BUSINESS AS UNDER: 'NOW, TURNING TO OUR STATUTE, THE DEDUCTIONS CLAIME D ARE UNDER SECTION 10(2) AND THEY ARE IN RELATION TO A BUSINESS AND IN ORDER THA T THOSE DEDUCTIONS CAN BE ALLOWED, THE BUSINESS MUST BE CARRIED ON BY THE ASS ESSEE. IN THIS CASE IT IS NOT DISPUTED THAT THE BUSINESS WAS CARRIED ON IN THE RE LEVANT PREVIOUS YEAR WHICH IS THE FINANCIAL YEAR 1946-47, BUT THE IMPORTANT QUEST ION THAT HAS GOT TO BE CONSIDERED IS FROM WHICH DATE ARE THE EXPENSES OF T HIS BUSINESS TO BE CONSIDERED PERMISSIBLE DEDUCTIONS AND FOR THAT PURPOSE THE SEC TION THAT WE HAVE GOT TO LOOK TO IS SECTION 2(11) AND THAT SECTION DEFINES THE 'P REVIOUS YEAR' AND FOR THE PURPOSE OF A BUSINESS THE PREVIOUS YEAR BEGINS FROM THE DAT E OF THE SETTING UP OF THE BUSINESS. THEREFORE IT IS ONLY AFTER THE BUSINESS I S SET UP THAT THE PREVIOUS YEAR OF THAT BUSINESS COMMENCES AND IN THAT PREVIOUS YEAR T HE 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 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 M UST THEREFORE LOOK AT THE ITA 4610/MUM/2013 14 DECISION OF THE TRIBUNAL AS REALLY REFERRING TO THE SETTING UP OF THE BUSINESS IN THE LANGUAGE OF SECTION 2(11) AND NOT EXPENSES CONNECTE D 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 SETTING 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 EVERY ENGLISH EXPRESSION M UST 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 'CO MMENCED'. MR. JOSHI VERY STRONGLY RELIED ON A JUDGMENT OF MR. JUSTICE ROWLAT T REPORTED IN BIRMINGHAM AND DISTRICT CATTLE BY-PRODUCTS CO. LTD. V. COMMISSIONE RS OF INLAND REVENUE [1919] 12 TAX CAS 92. IN THAT CASE THE ASSESSEE COMPANY WAS I NCORPORATED ON THE 20TH OF JUNE, 1913, AND BETWEEN THAT DATE AND THE 6TH OF OC TOBER, 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 T HE 6TH OF OCTOBER, 1913, THE INSTALLATION OF PLANT AND MACHINERY BEING COMPLETED , THE COMPANY COMMENCED TO RECEIVE RAW MATERIALS FOR THE PURPOSE OF MANUFACTUR E 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 D URING THE ACCOUNTING PERIOD AND THE COMPANY CONTENDED THAT IT COMMENCED BUSINES S 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 ACC OUNTS FOR THE PERIOD 20TH JUNE, 1913, TO 30TH JUNE, 1914, AND MR. JUSTICE ROW LATT HELD, UPHOLDING THE VIEW OF THE COMMISSIONERS, THAT THE BUSINESS OF THE COMP ANY HAD COMMENCED ON THE 6TH OF OCTOBER, 1913. NOW, THIS IS INDEED A VERY ST RONG CASE ON FACTS IN SUPPORT OF THE COMMISSIONER, BECAUSE THE VIEW TAKEN BY MR. JUS TICE ROWLATT IS THAT EVERYTHING THAT HAD BEEN DONE BY THE COMPANY BEFORE THE INSTALLATION OF THE PLANT ITA 4610/MUM/2013 15 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 FINIS HED PRODUCTS, THE PLANT AND MACHINERY BEING READY, THAT IT COULD BE SAID THAT T HE ASSESSEE COMPANY HAD COMMENCED BUSINESS, AND THIS IS WHAT THE LEARNED JU DGE SAYS AT PAGE 97 : 'REFERRING TO THEIR MINUTES HAVING LOOKED ROUND, AN D HAVING GOT THEIR MACHINERY AND PLANT, AND HAVING ALSO EMPLOYED THEIR FOREMEN, AND HAVING GOT THEIR WORKS ERECTED AND GENERALLY GOT EVERYTHING READY, THEN TH EY BEGAN TO TAKE THE RAW MATERIALS AND TO TURN OUT THEIR PRODUCTS.' THEREFORE IF THIS CASE WERE TO BE APPLIED TO THE PR ESENT ASSESSEE, THEN WE WOULD BE DRIVEN TO THE CONCLUSION 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 HOLDI NG THAT THE NET EXPENSES PRIOR TO THE 1ST OF NOVEMBER, 1946, SHOULD 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 B USINESS.' 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 CONTRA DISTINCTION TO 'COMMENCE'. THE DISTINCTION IS THIS THAT WHEN A BUSINESS IS ESTABLI SHED 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 TH ERE MAY BE AN INTERREGNUM, THERE MAY BE AN INTERVAL BETWEEN A BUSINESS WHICH I S SET UP AND A BUSINESS WHICH IS COMMENCED ' AND ALL EXPENSES INCURRED AFTE R THE SETTING UP OF THE BUSINESS AND BEFORE THE COMMENCEMENT OF THE BUSINES S, ALL EXPENSES DURING THE INTERREGNUM, WOULD BE PERMISSIBLE DEDUCTIONS UNDER SECTION 10(2). NOW APPLYING THAT TEST TO THE FACTS HERE, THE COMPANY ACTUALLY C OMMENCED BUSINESS ONLY ON THE 1ST OF NOVEMBER 1946, WHEN IT PURCHASED A GROUND-NU T OIL MILL AND WAS IN A POSITION TO CRUSH GROUND-NUTS AND PRODUCE OIL. BUT PRIOR TO THIS THERE WAS A PERIOD ITA 4610/MUM/2013 16 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 TRIBUN AL ONE OF THE MAIN FACTORS WAS THE PURCHASE OF RAW MATERIALS FROM WHICH AN INF ERENCE COULD BE DRAWN THAT THE COMPANY HAD SET UP ITS BUSINESS; BUT THAT IS NO T THE ONLY FACTOR THAT THE TRIBUNAL TAKEN INTO CONSIDERATION. THE TRIBUNAL HAS AS POINTED OUT IN THE STATEMENT OF THE CASE, SCRUTINISED THE VARIOUS DETA ILS OF THE EXPENSES GIVEN IN THE ORDER OF THE APPELLATE ASSISTANT COMMISSIONER AND H AVING SCRUTINISED THOSE EXPENSES THE TRIBUNAL HAS COME TO THE CONCLUSION EV EN ON AN INTERPRETATION MORE FAVOURABLE TO THE ASSESSEE THAN THE ONE WE ARE GIVI NG TO THE EXPRESSION 'SETTING UP' THAT THESE EXPENSES DO NOT SHOW THAT THE BUSINE SS WAS SET UP PRIOR TO THE 1ST OF SEPTEMBER, 1946. IN OUR OPINION, IT WOULD BE DIF FICULT TO SAY THAT THE DECISION OF THE TRIBUNAL IS BASED UPON A TOTAL ABSENCE OF ANY E VIDENCE. AS WE HAVE OFTEN SAID WE ARE NOT CONCERNED WITH THE SUFFICIENCY OF E VIDENCE ON A REFERENCE. IT IS ONLY IF THERE IS NO EVIDENCE WHICH WOULD JUSTIFY TH E 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 B Y 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 SEPTEMBE R, 1946?' AND WE WILL ANSWER THAT IN THE AFFIRMATIVE. NO ORDER AS TO COST S.' 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 M ANUFACTURING AND 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 CON SORTIUM PARTNERS WHICH INCLUDED ASSESSEE COMPANY ALSO FOR SETTING UP MANUF ACTURING FACILITY AT ITA 4610/MUM/2013 17 MARHOWRA, BIHAR FOR MANUFACTURE AND SUPPLY OF LOCOM OTIVES 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 WIT H 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. L OOKING INTO ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND NO INFI RMITY IN THE ORDER OF THE LD. CIT(A) AND WE UPHOLD AND SUSTAIN THE SAME FOR THE R EASONS 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 DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JUNE , 2016. # $% &' 13-06-2016 ( ) SD/- SD/- (C.N.PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 13-06-2016 [ ITA 4610/MUM/2013 18 .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI G BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI