DCIT, Circle-2(1), V. Bharti Aquanet Ltd.,

ITA 4805/DEL/2004

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8574 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 21-07-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 08-11-2004
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

I.T.A. NO.4805/DEL/2004 1 IN THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI, BENCH D BEFORE SHRI K. G. BANSAL, ACCOUTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ITA NO. 4805 /DEL/2004 (ASSESSMENT YEAR 2001-02) DCIT, CIRCLE 2(1), VS. M/S. BHARTI AQUANET LTD., NEW DELHI H-5/12, QUTUB AMBIENCE, MEHRAULI, NEW DELHI. (APPELLANTS) (RESPONDENTS) APPELLANT BY: SHRI B K GUPTA, SR. DR RESPONDENT BY: SHRI ANIL BHALLA, CA ORDER PER GEORGE MATHAN, JM: 1. THIS APPEAL BY THE REVENUE HAS BEEN PREFERRED AG AINST THE ORDER OF CIT(A) V, NEW DELHI IN APPEAL NO.176/2003-04 DATED 04.08.2004 FOR THE ASSESSMENT YEAR 2001-02. SHRI BK GUPTA, SR. DR APPEARED FOR T HE REVENUE AND SHRI ANIL BHALLA, CA REPRESENTED ON BEH ALF OF THE ASSESSEE. IN THE REVENUES APPEAL, THE REVE NUE HAS RAISED THE FOLLOWING GROUNDS: 1(A) THE LD. CIT(A) HAS ERRED BOTH IN LAW AS WELL A S IN FACT OF THE CASE IN HOLDING THAT THE ASSESSEE HAD COMMENCED ITS BUSINESS DURING THE YEAR AND THAT THE EXPENSES OF RS.15,02,910/- WERE ALLOWABLE AS REVENUE EXPENDITURE. 1(B) THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FA CT THAT THERE IS NO MATERIAL ON RECORDS TO SHOW THAT I.T.A. NO.4805/DEL/2004 2 THE BUSINESS OF THE ASSESSEE HAD COMMENCED DURING THE YEAR. 2. THE FACTS THAT HAVE LEAD THIS APPEAL ARE THAT TH E ASSESSEE IS A COMPANY WHICH IS DOING THE BUSINESS OF LAYING OPTICAL FIBER CABLE AND THE BUSINESS OF INTERNET SE RVICE PROVIDER. THE ASSESSEE COMPANY WAS REGISTERED IN T HE MONTH OF OCTOBER 2000. THE ASSESSMENT YEAR UNDER APPEAL BEING ASSESSMENT YEAR 2001-02 IS THE 1 ST ASSESSMENT YEAR. THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 30.10.2001 DECLARING A LOSS OF RS.15,02,910/-. 3. AFTER REGISTRATION, THE ASSESSEE HAD INCURRED VA RIOUS EXPENDITURE IN THE FORM OF THE FOLLOWING: BUSINESS PROMOTION 94568 ADVERTISEMENT & PUBLICITY 33990 CONFERENCE EXPENSES 110730 LEGAL & PROFESSIONAL EXPENSES 54000 FEES & TAXES 67000 TRAVELLING EXPENSES 391146 PRINTING & STATIONARY 480 BANK CHARGES & COMMISSION 150397 RECRUITMENT CHARGES 525000 MISCELLANEOUS EXPENSES 3500 1/5 TH OF THE PRELIMINARY EXP. OF RS.360465 U/S 35D 72093 1502910, WHICH WERE CLAIMED AS REVENUE EXPENDITURE AND CONSEQUENTLY, THE CLAIM OF LOSS IN THE RETURN OF IN COME. THE RETURN FILED BY THE ASSESSEE CAME TO BE PROCESS ED I.T.A. NO.4805/DEL/2004 3 AND WAS SELECTED FOR LIMITED SCRUTINY. THE ASSESSM ENT CAME TO BE COMPLETED ON 08.12.2003 WHEREIN THE LOSS AS CLAIMED BY THE ASSESSEE WAS DISALLOWED ON THE GROUN D THAT THE BUSINESS OF THE ASSESSEE HAD NOT BEEN SET UP AND CONSEQUENTLY, THE CLAIM OF THE REVENUE EXPENDITURE WAS NOT ALLOWABLE. 4. AGGRIEVED WITH THE ASSESSMENT, THE ASSESSEE HAS FILED 1 ST APPEAL TO THE CIT(A). BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT HE ASSESSEE HAD OBTAINED THE CERTIFI CATE OF COMMENCEMENT OF BUSINESS ON 3 RD OCTOBER 2000. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD ALSO MADE THE NECESSARY APPLICATION FOR OBTAINING THE LICENSE FOR THE INTERNET SERVICE PROVIDER (ISP) AND HAD ALSO BEING GRANTED THE LICENSE DURING THE YEAR 31.3.2002. IT WAS ALSO SUBMITTED THAT THE ASSESSEE COMPANY WAS HOLDING AN IN PRINCIPLE APPROVAL TO RUN AND OPERATE THE CHENNAI SUBMARINE CABLE LANDING STATION BETWEEN INDIA & SINGAPORE FOR HANDLING DATA AND RELAY TRANSMISSION IN AND OUT OF INDIA IN ASSOCIATION WITH THE DOMESTIC LONG DISTANCE OPERATORS OF SUB-MARINE CABLE COMPANIES. THE LD. C IT(A) HAD CONSIDERED THE SUBMISSION OF THE ASSESSEE HAD H AD ALLOWED THE ASSESSEES APPEAL. AGGRIEVED, THE REVE NUE HAS FILED THIS APPEAL. 5. IT WAS THE SUBMISSION BY THE LD. D.R. THAT THE A SSESSEE HAD NOT SET UP ANY BUSINESS. IT WAS THE SUBMISSION THA T EVEN IN I.T.A. NO.4805/DEL/2004 4 THE ANNUAL REPORT MORE SPECIFICALLY THE DIRECTORS R EPORT WHICH WAS FOUND AT PAGE 10 OF THE ASSESSEES PAPER BOOK IN THE BUSINESS REVIEW, IT HAD BEEN SPECIFICALLY ME NTIONED THAT THE COMPANY IS YET TO COMMENCE ANY SIGNIFICANT OPERATIONAL ACTIVITIES. HE FURTHER DREW OUR ATTENT ION TO PAGE 14 OF THE PAPER BOOK WHICH IS A COPY OF NOTES TO THE ACCOUNTS WHEREIN IT HAS BEEN MENTIONED UNDER THE HE AD MISCELLANEOUS EXPENDITURE THAT THE EXPENSES ARE B EING CARRIED FORWARD TO BE CHARGED TO P & L ACCOUNT ON COMMENCEMENT OF COMMERCIAL OPERATION. IT WAS THE SUBMISSION THAT THE COMMERCIAL OPERATION HAD ALSO N OT BEEN STARTED BY THE ASSESSEE. IT WAS HIS FURTHER S UBMISSION THAT IT WAS ONLY DURING THE YEAR ENDED 31.3.2002 TH AT THE ASSESSEE HAD RECEIVED THE ISP LICENSE AND THE IN PRINCIPLE APPROVAL TO RUN AND OPERATE THE CHENNAI SUB- MARINE CABLE LANDING STATION WHICH WAS THE THE LINK ING OF SUB-MARINE CABLE BETWEEN INDIA & SINGAPORE. HE DRE W OUR ATTENTION TO PAGE 27 OF THE PAPER BOOK WHEREIN IN THE BUSINESS REVIEW OF THE DIRECTORS REPORT, IT HAD BE EN MENTIONED THAT THE CONSTRUCTION ACTIVITIES AND THE EQUIPMENT INSTALLATION HAD BEEN COMPLETED AND THE L ANDING STATION AND THE COMPLETE NETWORK HAD ACCEPTANCE TO LAUNCH OF COMMERCIAL SERVICES. IT WAS THE SUBMISSION THAT IN THE BUSINESS REVIEW OF DIRECTORS REPORT FOR THE YEAR E NDED 31.3.2000, THERE WAS NO MENTION OF CONSTRUCTION ACT IVITIES I.T.A. NO.4805/DEL/2004 5 OR THE INSTALLATION MUCH LESS THE LANDING STATION. IT WAS THE SUBMISSION THAT THE ASSESSEE WAS FOR THE YEAR ENDED 31.3.2001 NOT EVEN READY TO COMMENCE ANY BUSINESS M UCH LESS THE SETTING UP OF BUSINESS HAVING BEEN INITIAT ED. HE FURTHER DREW OUR ATTENTION TO PAGE 32 OF THE ASSESS EES PAPER BOOK, WHICH IS A COPY OF SCHEDULE 4 TO THE BA LANCE SHEET IN REGARD TO THE FIXED ASSETS FOR THE YEAR EN DED 31.3.2002. IT WAS THE SUBMISSION THAT IN THIS SCHE DULE ALSO THERE WAS NO ASSET IN THE FORM OF COMPUTER, FURNITU RE & FIXTURE OR EQUIPMENT AS ON 31.3.2001 AND THERE WAS ONLY A CAPITAL WORK IN PROGRESS FOR AN AMOUNT OF RS.604830 0/- WHICH WAS AN ADVANCE PAID BY THE ASSESSEE FOR ACQUI RING A BUILDING IN CHENNAI FOR THE PURPOSE OF RUNNING ITS BUSINESS. HE FURTHER DREW OUR ATTENTION TO THE ADMINISTRATIVE AND OTHER EXPENSES FOR THE YEAR ENDE D 31.3.2001 AND 31.3.2002, WHICH ARE FOUND AT PAGE 33 OF THE PAPER BOOK WHEREIN IT WAS THE SUBMISSION THAT T HERE WAS NO EXPENDITURE ON ACCOUNT OF SALARY AND WAGES. IT WAS THUS HIS SUBMISSION THAT DURING THE RELEVANT ASSESS MENT YEAR, THE ASSESSEE HAD NO BUILDING, NO PLANT & MACH INERY AND NO STAFF EVEN AND CONSEQUENTLY, IT COULD NOT BE SAID THAT THE ASSESSEE HAD SET UP HIS BUSINESS. HE FURTH ER DREW OUR ATTENTION TO THE DECISION OF HON'BLE SUPREME CO URT IN THE CASE OF RAMA RAJU SURGICAL COTTON MILLS LTD. RE PORTED IN 63 ITR 478 WHEREIN THE HON'BLE SUPREME COURT HAD I.T.A. NO.4805/DEL/2004 6 UNDER THE WEALTH TAX ACT DEFINED THE MEANING OF THE WORD SET UP TO BE IN THE CLAUSE OF SECTION 5(1)(XXI) T O BE EQUAL TO THE WORD ESTABLISH FOR OPERATION FOR ESTABLISHME NT CANNOT BE EQUATED WITH THE ESTABLISHMENT OF THE UNI T ITSELF OR ITS SETTING UP. IT WAS HIS FURTHER SUBMISSION THAT THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RA MA RAJU SURGICAL COTTON MILLS LTD. REFERRED TO SUPRA, HAD BEEN FOLLOWED BY THE HON'BLE HIGH COURT OF MADRAS IN THE CASE OF ELECTRON INDIA REPORTED 241 ITR 166. IT WAS THU S HIS SUBMISSION THAT THE ORDER OF CIT(A) WAS LIABLE TO B E REVERSED AND THAT OF THE ASSESSING AUTHORITY RESTOR ED. 6. IN REPLY, THE LD. A.R. SUBMITTED THAT THE BUSINE SS IS A CONTINUOUS COURSE OF ACTIVITIES. HE DREW OUR ATTEN TION TO PAGE 92 OF THE PAPER BOOK, WHICH WAS THE FLOW CHART OF THE BUSINESS OF THE ASSESSEE. IT WAS THUS HIS SUBMISSI ON THAT THE LANDING STATION FOR THE SUB-MARINE CABLE WAS TH E PRIMARY APPARATUS OF THE ASSESSEES BUSINESS. HE DR EW OUR ATTENTION TO PAGE 12OF THE PAPER BOOK WHICH WAS A C OPY OF THE BALANCE SHEET AS ON 31.3.2001 WHICH SHOWED THE WORK IN PROGRESS AT RS.60,48,300/-. HE DREW OUR ATTENTI ON TO PAGE 94-95 OF THE PAPER BOOK WHICH WAS THE LEDGER C OPY OF THE ADVANCE PAID BY THE ASSESSEE TO M/S. SIEMENS LTD. FOR THE PURCHASE OF A 15 KV SWITCHGEAR AT A COST OF RS.48,300/- AND AT PAGE 95, THE LEDGER COPY OF THE ADVANCE PAID TO THE SRIRAM CAPITAL TRUST FOR ACQUIRING THE PROPERTY I.T.A. NO.4805/DEL/2004 7 IN CHENNAI FOR AN AMOUNT OF RS.60 LACS. IT WAS THE SUBMISSION THAT THE TOTAL OF THESE TWO ADVANCES WAS THE WORK IN PROGRESS AS SHOWN IN THE BALANCE SHEET. IT WAS AGREED BY HIM THAT ONLY THE ADVANCE HAD BEEN PAID A ND THE POSSESSION OF THE PROPERTY HAD NOT BEEN GIVEN TO TH E ASSESSEE BEFORE REGISTRATION. HE FURTHER PLACED BE FORE US THE COPY OF SALE DEED DATED 20.12.2001 BY WHICH THE ASSESSEE HAD PURCHASED THE SAID IMMOVABLE PROPERTY FOR WHICH THE ASSESSEE HAD PAID THE ADVANCE. IT WAS TH E SUBMISSION THAT THE AGREEMENT FOR THE PURCHASE OF T HIS PROPERTY HAD BEEN ENTERED INTO ON 25.01.2001. HE F URTHER DREW OUR ATTENTION TO PAGES 81-91 OF THE PAPER BOOK WHICH WAS A COPY OF THE LEDGER EXTRACT FOR THE VARIOUS EX PENSES INCURRED DURING THE YEAR AND WHICH HAVE BEEN CLAIME D AS REVENUE EXPENDITURE. IT WAS THE SUBMISSION THAT TH E ASSESSEE HAD ALSO INCURRED RECRUITMENT EXPENSES OF RS.5,25,000/- IN OCTOBER 2000 FOR THE SEARCH OF A C EO FOR THE ASSESSEE COMPANY. IT WAS THE SUBMISSION THAT T HE BUSINESS OF THE ASSESSEE HAD BEEN SET UP WHEN THE A SSESSEE HAD PAID THE ADVANCE FOR THE ACQUISITION OF THE PRO PERTY AT CHENNAI AS ALSO FOR THE PURCHASE OF THE SWITCHGEAR TO M/S. SIEMENS. IT WAS THE SUBMISSION THAT ONCE THE ACTIV ITIES OF THE ASSESSEE HAS BEEN STARTED, THE BUSINESS OF THE ASSESSEE IS TO BE DEEMED TO HAVE BEEN SET UP. HE DREW OUR A TTENTION TO THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN T HE CASE I.T.A. NO.4805/DEL/2004 8 OF HUGHES ESCORTS COMMUNICATIONS LTD. REPORTED IN 1 06 TTJ (DEL.) 1065, WHICH HAD BEEN APPROVED BY THE HON 'BLE HIGH COURT OF DELHI REPORTED IN 213 CTR 45 WHEREIN IT HAD BEEN HELD THAT THE 1 ST STEP IN THE BUSINESS OF THE ASSESSEE IS TO PURCHASE THE VSAT EQUIPMENT AND THE PURCHASE ORDER FOR THE SAME HAD BEEN PLACED ON 28.07.1994 IN THAT CASE AND THE TRIBUNAL HAD HELD T HAT THE BUSINESS SHOULD BE HELD TO HAVE BEEN SET UP ON THIS DATE AND THIS HAD ALSO FOUND APPROVAL FROM THE HON'BLE H IGH COURT OF DELHI. HE FURTHER PLACED RELIANCE UPON TH E DECISION OF THE TRIBUNAL IN THE CASE OF M/S. BHARAT I CELLULAR LTD., A SISTER CONCERNS OF THE ASSESSEE IN I.T.A. NO.1737 & 1738/DEL/2002 DATED 31.07.2008 WHEREIN IT HAD BEEN HELD THAT IN THAT CASE THE ASSESSEE HAD MA DE DEPOSITS IN THE BANK ACCOUNTS IN NOVEMBER 1994 FOR PROVIDING BANK GUARANTEE FOR ITS BUSINESS AND HAD A LSO PAID 1 ST INSTALLMENT OF THE LICENSE FEE AND CONSEQUENTLY IT HAD BEEN HELD IN THAT CASE THAT AS THE ASSESSEE HAD OBT AINED LICENSE AND HAD EMPLOYED MANPOWER WHO STARTED COMMUNICATION WITH THE CUSTOMERS APPRAISING THEM AB OUT THE NATURE AND SERVICES OF THE CELLULAR SERVICES AN D HAD ALSO ACQUIRED SECURITY DEPOSITS FROM THE CUSTOMERS AND AGREEMENT HAD ALSO BEEN ENTERED INTO WITH THE VARIO US CLIENTS, THE BUSINESS OF THE ASSESSEE THEREIN HAD B EEN HELD TO HAVE BEEN SET UP FROM THE MONTH OF NOVEMBER 1994 . IT I.T.A. NO.4805/DEL/2004 9 WAS THE SUBMISSION THAT THE SAID ORDER OF THE TRIBU NAL HAD ALSO BEEN APPROVED BY THE HON'BLE HIGH COURT OF DEL HI IN I.T.A. NO.54/DEL/2009C DATED 12.2.2009. HE FURTHER DREW OUR ATTENTION TO THE DECISION OF HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. REPORTED IN 91 ITR 170 WHEREIN THE HON'BLE HIGH COURT OF GUJARAT HAD EXPLAINED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAMARAJU SURGI CAL COTTON MILLS REFERRED TO SUPRA AND HAD HELD AS FOLL OWS: THE REVENUE ALSO RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN CWT VS RAMARAJU SURGICAL COTTON MILLS LTD. (1967) 63 ITR 478 (S.C.) . THIS WAS A DECISION GIVEN IN THE CONTEXT OF S.5(1)(XXI) OF THE WEALTH TAX ACT, 1957, WHICH PROVIDED THAT IF A NEW AND SEPARATE UNIT IS SET UP AFTER THE COMMENCEMENT OF THE ACT BY A COMPANY ESTABLISHED WITH THE OBJECT OF CARRYING ON AN INDUSTRIAL UNDERTAKING IN INDIA, THAT PORTION OF TH E NET WEALTH OF THE COMPANY WHICH IS EMPLOYED BY IT IN SUCH UNIT WOULD BE EXCLUDIBLE IN COMPUTING THE NET WEALTH OF THE COMPANY. THE QUESTION WHICH AROSE FOR DECISION BEFORE THE HON'BLE SUPREME COURT WAS WHETHER THE FACTORY OF THE ASSESSEE COULD BE SAID T O HAVE BEEN SET UP AFTER THE COMMENCEMENT OF THE ACT SO AS TO ENTITLE THE ASSESSEE TO EXCLUSION OF THAT PORTION OF ITS NET WEALTH WHICH WAS EMPLOYED IN THE FACTORY. THE HON'BLE SUPREME COURT, WHILE DEALING WITH THAT QUESTION, MADE THE FOLLOWING OBSERVATIONS WHICH WERE STRONGLY RELIED ON ON BEHALF OF THE REVENUE: A UNIT CANNOT BE SAID TO HAVE BEEN SET UP UNLESS IT IS READY TO DISCHARGE THE FUNCTION FOR WH ICH IT IS BEING SET UP. I IS ONLY WHEN THE UNIT HAS BE EN I.T.A. NO.4805/DEL/2004 10 PUT INTO SUCH A SHAPE THAT IT CAN START FUNCTIONING AS BUSINESS OR A MANUFACTURING ORGANIZATION THAT IT CA N BE SAID THAT THE UNIT HAS BEEN SET UP. THE EXPRESS ION USED IN THE PROVISO, UNDER WHICH THE PERIOD FOR WHI CH THE EXEMPTION IS AVAILABLE IS TO BE DETERMINED, IS NOT THE SAME AS THAT USED IN THE PRINCIPAL CLAUSE. IN THE PROVISO, THE PERIOD OF FIVE SUCCESSIVE YEARS OF EXEMPTION HAS TO COMMENCE WITH THE ASSESSMENT YEAR NEXT FOLLOWING THE DATE ON WHICH THE COMPANY COMMENCES OPERATIONS FOR THE ESTABLISHMENT OF THE UNIT. OPERATIONS FOR THE ESTABLISHMENT OF A UNIT, FROM THE VERY NATURE OF THAT EXPRESSION, CAN ONLY SINGLY STEPS THAT HAVE TO BE TAKEN TO ESTABLISH THE UNIT. THE WORD SET UP IN THE PRINCIPAL CLAUSE, IN OUR OPINION, IS EQUIVALENT TO THE WORD ESTABLISHED, B UT OPERATIONS FOR ESTABLISHMENT CANNOT BE EQUATED WITH THE ESTABLISHMENT OF THE UNIT ITSELF OR ITS SETTING UP. THE APPLICABILITY OF THE PROVISO HAS, THEREFORE, TO BE DECIDED BY FINDING OUT WHEN THE COMPANY COMMENCED OPERATIONS FOR ESTABLISHMENT OF THE UNIT, WHICH OPERATIONS MUST BE ANTECEDENT TO THE ACTUAL DATE O0N WHICH THE COMPANY IS HELD TO HAVE BEEN SET UP FOR PURPOSES OF THE PRINCIPAL CLAUSE. THESE OPERATIONS FOR ESTABLISHMENT OF THE UNIT CANNOT BE SIMULTANEOUS WITH THE SETTING UP OF THE UNIT, AS UR GED ON BEHALF OF THE CIT, BUT MUST PRECEDE THE ACTUAL SETTING UP OF THE UNIT. IN FACT, IT IS THE OPERATI ONS FOR ESTABLISHMENT OF A UNIT WHICH ULTIMATELY CULMINATE IN THE SETTING UP OF THE UNIT. 6.1 IT WAS THE SUBMISSION THAT IN THE DECISION OF H UGHES ESCORTS COMMUNICATIONS LTD. ALSO THE ITAT HAD CONSIDERED THE DECISION OF HON'BLE HIGH COURT OF GU JARAT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS INDUST RIES. I.T.A. NO.4805/DEL/2004 11 IT WAS THE SUBMISSION THAT THE FINDING OF THE LD. C IT(A) ON THIS ISSUE WAS LIABLE TO BE CONFIRMED. 6.2 IT WAS ALSO AN ALTERNATE PRAYER THAT IF THE ORD ER OF CIT(A) WAS LIABLE TO BE REVERSED THEN THE ASSESSEE SHOULD BE GRANTED THE BENEFIT OF THE EXPENDITURE BE CONSIDERE D AS CAPITAL EXPENDITURE TO BE ALLOCATED TO THE FIXED AS SETS. IT WAS THUS HIS SUBMISSION THAT THE ASSESSEE HAD SET U P THE BUSINESS AS SOON AS ANY ONE ACTIVITY OUT OF THE COM BINATION OF ACTIVITIES STARTED AND THE ADVANCE FOR THE BUILD ING AND SWITCHGEAR HAVE BEEN MADE, THE BUSINESS WAS LIABLE TO BE HELD TO HAVE BEEN SET UP. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT THE OUTSET WHAT IS NOTICED IN THE FACTS OF THIS CASE IS THAT T HE ASSESSEE COMPANY WAS INCORPORATED ON 03 RD OCTOBER 2000 AND THE CERTIFICATE FOR ENTITLEMENT TO COMMENCE THE BUSINES S WAS GIVEN ON 01 ST NOVEMBER 2000. THE ASSESSEE ENTERED INTO THE AGREEMENT FOR THE PURCHASE OF PROPERTY AT CHENN AI ON 25.01.2001 IN REGARD TO THE UNDIVIDED SHARE IN THE LAND ALONG WITH TERMS AND CONDITIONS AGREED BETWEEN AS T HE PARTIES. AS PER THE LEDGER ACCOUNT, ADVANCE FOR TH E PURCHASE OF 15 KV SWITCHGEAR HAS BEEN MADE ON 31.03.2001. A PERUSAL OF THE BALANCE SHEET AND THE ADMINISTRATIVE EXPENSES CLEARLY SHOWS THAT FOR THE YEAR ENDED ON 31.03.200, THE ASSESSEE HAD NO PLANT & MACHINERY, NO BUILDING, NO STAFF ON ITS ROLLS. ALL THAT THE I.T.A. NO.4805/DEL/2004 12 ASSESSEE HAD DONE WAS NO PLACE AN ADVANCE FOR THE PURCHASE OF AN IMMOVABLE PROPERTY AS ALSO THE ADVAN CE FOR THE PURCHASE OF 15 KV SWITCHGEAR, WHICH IS FOR ELEC TRICAL PURPOSES OF THE BUILDING PURCHASED. A PERUSAL OF T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F RAMARAJU SURGICAL COTTON MILLS CLEARLY SHOWS THAT T HE DECISION WAS GIVEN IN THE CONTEXT OF SECTION 5(1)(X XI) OF THE WEALTH TAX ACT AND THE PRINCIPLES AS LAID DOWN I N THE SAID DECISION WOULD SQUARELY APPLY EVEN TO THE INCO ME TAX PROCEEDINGS IN SO FAR AS THE MEANING OF THE TERM SE TTING UP IS CONCERNED. THIS FOLLOWS FROM THE DECISION OF HO NBLE MADRAS HIGH COURT IN THE CASE OF CIT VS ELECTRON IN DIA (2000) 241 ITR 166, IN WHICH THE AFORESAID DECISION WAS FOLLOWED. THE FACT THAT THE ASSESSEE HAS PAID AN A DVANCE FOR THE PURCHASE OF BUILDING CLEARLY CAN LEAD TO A LIMITED CONCLUSION THAT THE ASSESSEE HAS COMMENCED OPERATIO N FOR ESTABLISHMENT OF A UNIT. THIS COMMENCEMENT FOR THE ESTABLISHMENT OF THE UNIT CANNOT BE SAID TO BE THE SETTING UP OF THE BUSINESS. FURTHER, A PERUSAL OF THE DECISIO N OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF HU GHES ESCORTS COMMUNICATION LTD. CLEARLY SHOWS THAT IT HA D CONSIDERED THE DECISION OF HON'BLE HIGH COURT OF GU JARAT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTR IES LTD. REFERRED TO SUPRA HOLDING THAT ALL THE ACTIVIT Y WHICH GO TO MAKE UP THE BUSINESS NEED NOT BE STARTED SIMULTA NEOUSLY I.T.A. NO.4805/DEL/2004 13 IN ORDER THAT THE BUSINESS MAY COMMENCE. THE BUSIN ESS WOULD COMMENCE WHEN THE ACTIVITIES, WHICH IS FIRST IN POINT OF TIME AND WHICH MUST NECESSARILY PRECEDE AL L OTHER ACTIVITIES IS STARTED. THE COORDINATE BENCH OF THI S TRIBUNAL HAD FURTHER NOTICED THAT THE ASSESSEE HAD PLACED AN ORDER FOR THE PURCHASE OF THE VSAT EQUIPMENT, WH ICH IS NECESSARY FOR THE PURPOSE OF CARRYING OUT THE BU SINESS OF THE ASSESSEE. HERE, WHAT IS TO BE NOTICED IS THAT IN THE CASE OF HUGHES ESCORTS COMMUNICATIONS LTD., THE ASSESSEE HAD PLACED THE ORDER FOR THE PURCHASE OF THE PLANT & MA CHINERY, WHICH IS CRUCIAL AND PRIMARY FOR ITS BUSINESS ACTIV ITIES WHILE IN THE PRESENT CASE THE ASSESSEE HAS ONLY PAI D AN ADVANCE FOR THE BUILDING AND POSSESSION OF WHICH WA S ALSO NOT IN THE HANDS OF THE ASSESSEE. IN FACT, THE POS SESSION RESTED WITH THE ASSESSEE ONLY ON THE REGISTRATION O F THE SALE DEED, WHICH TOOK PLACE ON 20.12.2001 I.E. NEARLY 11 MONTHS AFTER THE DATE OF ENTERING INTO THE AGREEMEN T AND AFTER THE CLOSE OF THIS YEAR. THE BUILDING AS A WH OLE WAS ALSO NOT NECESSARY FOR THE BUSINESS OF THE ASSESSEE AS IN THE SUBSEQUENT YEAR THE ASSESSEE HAS LET OUT A PART OF THE BUILDING & DECLARED RENTAL INCOME. OBVIOUSLY, ONLY AFTER TAKING POSSESSION OF BUILDING COULD THE ASSESSEE IN ITIATE THE PROCESS OF INSTALLATION OF THE NECESSARY EQUIPM ENT FOR SETTING UP ITS BUSINESS. FURTHER, A PERUSAL OF THE DECISION OF COORDINATE BENCH IN THE CASE OF THE ASSESSEES S ISTER I.T.A. NO.4805/DEL/2004 14 CONCERN BEING M/S. BHARATI CELLULAR LTD. REFERRED T O SUPRA ALSO CLEARLY SHOWS THAT THE COORDINATE BENCH OF THI S TRIBUNAL HAS CONSIDERED THE DECISION OF HON'BLE HIG H COURT OF GUJARAT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. REFERRED TO SUPRA AND HAD ALSO NOTICED THAT THE ASSESSEE HAD OBTAINED LICENSE, HAD EMPLOYED MANPOWER WHO HAD STARTED COMMUNICATION WIT H THE CUSTOMERS. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSEE DOES NOT HAVE ANY MANPOWER ALSO DURING THE RELEVANT ASSESSMENT YEAR AS NO SALARY OR WAGES HAD BEEN PAID. THE ASSESSEE HAS NO PLANT & MACHINERY IN SO FAR AS THERE IS NONE SHOWN IN THE BALANCE SHEET OF THE ASS ESSEE, THE ASSESSEE HAS NO BUILDING TO CLAIM THE SETTING U P OF BUSINESS OF THE ASSESSEE AS IT HAS ONLY PAID THE AD VANCE FOR THE SAME AND DOES NOT HAVE THE POSSESSION. IT IS A LSO NOTICED THAT EVEN THE ADVANCE FOR THE PURCHASE OF SWITCHGEAR HAD BEEN MADE ON 31.03.2001 BY A JOURNAL ENTRY. IN THESE CIRCUMSTANCES, IT CANNOT BE SAID T HAT THE ASSESSEE HAS SET UP ITS BUSINESS DURING THE YEAR-EN DED 31.3.2001. IN THESE CIRCUMSTANCES, THE FINDING OF THE LD. CIT(A) ON THIS ISSUE STANDS REVERSED AND THE ORDER OF THE ASSESSING AUTHORITY IS RESTORED ON THIS ISSUE. 8. IN REGARD TO THE ALTERNATE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE AS CLAIMED MAY BE CAPITALIZED AND ALLOC ATED TO THE FIXED ASSETS SO THAT DEPRECIATION COULD BE ALLO WED IN I.T.A. NO.4805/DEL/2004 15 THE SUBSEQUENT YEAR, WE FIND THAT THIS CLAIM IS REA SONABLE AND IS LIABLE TO BE ALLOWED. HOWEVER, IT IS NOTICE THAT THE DETAILS OF ALLOCATION TO THE SPECIFIED FIXED ASSET ARE NOT BEFORE US. IN THESE CIRCUMSTANCES, WE ARE OF THE V IEW THAT THIS ISSUE OF ALLOCATION OF THE EXPENDITURE TO THE FIXED ASSET IS TO BE RESTORED TO THE FILE OF THE ASSESSING AUTH ORITY FOR PROPER VERIFICATION AND CAPITALIZATION UNDER APPROP RIATE BLOCK OF ASSETS FOR GRANT OF DEPRECIATION IN FUTURE AND WE DO SO. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED. (K.G. BANSAL) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:24 TH JULY, 2009 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI