India Kawasaki Motors Private Limited, Pune V. Deputy Commissioner of Income tax, Pune

ITA 502/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6713 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 01-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK MALVIYA
• Keywords: Commercial expediency
• Section: 37(1); 250; 192; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.502/PUN/2017 / ASSESSMENT YEAR : 2011-12 INDIA KAWASAKI MOTORS PRIVATE LIMITED, BAJAJ AUTO LIMITED COMPLEX, MUMBAI PUNE ROAD, AKURDI, PUNE-411035. PAN: AACCI3725K .. /APPLICANT / V/S. DCIT, CIRCLE-9, PUNE. .. / RESPONDENT ASSESSEE BY : SHRI DARPAN KIRPALANI SHRI AJIT TOLANI REVENUE BY : SHRI ALOK MALVIYA / DATE OF HEARING : 31.08.2020 / DATE OF PRONOUNCEMENT : 09.09.2020 / ORDER PER P.M. JAGTAP, VP: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-6, PUNE DATED 01.11.2016 AND THE SOLITARY ISSUE RAISED THEREIN RELATES TO THE DISALLOWANCE OF RS.38,39,218/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PRE-OPERATIVE EXPENSES. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY INCORPORATED WITH THE OBJECT OF DOING BUSINESS OF TRADING AND DISTRIBUTION OF COMPLETELY KNOCKED DOWN (CKD) PARTS OF MOTORBIKES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 30.11.2011 DECLARING A LOSS OF RS.35,23,876/-. IN THE PROFIT & LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN, 2 ITA NO.502/PUN/2017 AMOUNTS OF RS.25.58 LAKHS AND RS.97.33 LAKHS WERE DEBITED BY THE ASSESSEE ON ACCOUNT OF PERSONNEL COST AND GENERAL AND ADMINISTRATIVE EXPENSES RESPECTIVELY. IN THE COMPUTATION OF TOTAL INCOME, THE SAID EXPENSES TO THE EXTENT OF RS.84,12,461/- WERE DISALLOWED AND ADDED BACK BY THE ASSESSEE AS PRE-OPERATIVE EXPENSES AND REMAINING AMOUNT OF RS.38,93,218/- WAS CLAIMED AS DEDUCTION. SINCE THE ASSESSEE HAD NOT SHOWN ANY SALES AND TURNOVER DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO JUSTIFY ITS CLAIM FOR DEDUCTION ON ACCOUNT OF EXPENSES TO THE EXTENT OF RS.38,93,218/-. IN REPLY, THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE IN WRITING :- B. RATIONALE FOR CLAIMING SELLING AND MARKETING EXPENSES AS TAX DEDUCTIBLE EXPENDITURE IN ABSENCE OF SALES: B1. ALLOWABILITY OF GENERAL EXPENSES ACCRUING NO BENEFITS : 1.1 SECTION 37 OF THE ACT INTER-ALIA PROVIDES THAT ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS SHALL BE TREATED AS AN ALLOWABLE EXPENDITURE WHILE COMPUTING THE TAXABLE INCOME. 1.2 THE SAID SECTION DOES NOT REQUIRE A TAXPAYER TO RECEIVE ANY BENEFIT FROM THE EXPENSES INCURRED FOR THE PURPOSE ITS BUSINESS. IN THIS CONNECTION, THE SUPREME COURT IN THE CASE OF EASTER INVESTMENTS LTD. VS. CIT 20 TTR 1 (1951) HAS LAID DOWN THE FOLLOWING PRINCIPLES : A. THOUGH THE QUESTION MUST BE DECIDED ON THE FACTS OF EACH CASE, THE FINAL CONCLUSION IS ONE OF LAW; B. IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFITABLE ONE OR THAT ANY PROFIT WAS, IN FACT, EARNED OR NOT; C. IT IS ENOUGH TO SHOW THAT THE MONEY WAS EXPENDED NOT OF NECESSITY AND WITH A VIEW TO A DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUND OF COMMERCIAL EXPEDIENCY, AND IN ORDER INDIRECTLY TO FACILITATE THE CARRYING OUT THE BUSINESS.; D. BEYOND THAT, NO HARD AND FAST RULE CAN BE LAID DOWN TO EXPLAIN WHAT IS MEANT BY THE WORD SOLELY OCCURRING IN THE PRE-1939 LAW. 1.3 HENCE, ONCE AN OUTLAY IS MADE FOR THE PURPOSE OF THE BUSINESS, IT MAY TURN OUT PROFITABLE OR NOT PROFITABLE TO THE BUSINESS. 1.4 THE SUPREME COURT, IN THE ABOVE CASE, OBSERVED THAT IN ORDER TO CLAIM DEDUCTION UNDER SECTION 37 OF THE ACT, IT IS NOT NEEDED TO INCUR THE EXPENDITURE WITH AN OBJECT OF GAINING A DIRECT AND IMMEDIATE BENEFIT. 1.5 ACCORDINGLY, IT CAN BE CONCLUDED THAT, IT IS NOT NECESSARY FOR A TAXPAYER TO ACCRUE / RECEIVE IMMEDIATE BENEFIT FROM THE EXPENDITURE INCURRED IN ORDER TO CLAIM THAT EXPENDITURE ALLOWABLE UNDER SECTION 37 OF THE ACT. B2. ALLOWABILITY OF SALES PROMOTIONAL EXPENSES 1.6 THE PRINCIPLES DISCUSSED ABOVE CAN ALSO BE APPLIED TO DETERMINE WHETHER THE SALES PROMOTIONAL EXPENSES INCURRED BY A TAXPAYER CAN BE ALLOWED UNDER SECTION 37 OF THE ACT, ALTHOUGH THE SAME HAVE NOT RESULTED INTO EFFECTING THE SALES OF THE TAXPAYER IN THE RELEVANT PREVIOUS YEAR. 1.7 IN THIS CONNECTION, THE OBSERVATION OF THE CALCUTTA HIGH COURT IN THE CASE OF SARDA PLYWOOD INDUSTRIES LTD. VS. CIT (1999) 238 1TR 354 ARE NOTEWORTHY. THE HIGH COURT OBSERVED AS UNDER : IT HAS BEEN HELD THAT ONCE IT IS FOUND THAT THE EXPENDITURE HAD BEEN AS A MATTER OF FACT, INCURRED BY THE ASSESSEE FOR PUBLICITY OR ADVERTISEMENT, IT IS NOT FOR THE DEPARTMENT TO CONSIDER WHETHER COMMERCIAL EXPEDIENCY JUSTIFIED THE EXPENDITURE. 3 ITA NO.502/PUN/2017 1.8 RECENTLY, THE GAUHATI HIGH COURT IN THE CASE OF C1T VS. WILLIAMSON TEA (ASSAM) LTD. (2013) 355 ITR 323 HELD THAT: WHAT NECESSARILY FOLLOWS FROM THE ABOVE DISCUSSION IS THAT WHEN AN EXPENDITURE IS CLAIMED TO HAVE BEEN INCURRED BY AN ASSESSEE FOR PROMOTION OF HIS BUSINESS, THERE IS NO LEGAL OBLIGATION IMPOSED ON THE ASSESSEE TO PROVE THAT THE EXPENDITURE WAS NECESSARY FOR PROMOTION OF HIS BUSINESS. SO LONG AS THE EXPENDITURE IS INCURRED BY AN ASSESSEE FOR PROMOTION OF SALE OF PRODUCT, THE ASSESSEE IS ENTITLED, UNDER SECTION 37(1) OF THE ACT, TO CLAIM EXEMPTION FROM TAX ON SUCH AMOUNT OF EXPENDITURE. 1.9 IN CASE OF CIT VS. E FUNDS INTERNATIONAL INDIA (2007) 163 TAXMAN 1 (DELHI HC), THE DELHI HIGH COURT STATED THAT THE TAXPAYER MAY NOT HAVE EARNED ANY INCOME DURING THE RELEVANT PREVIOUS YEAR BUT THE FACT THAT THE TAXPAYER HAD TAKEN NECESSARY STEPS TO OBTAIN BUSINESS INCLUDING EFFORTS FOR MARKETING SHOWS THAT IT HAS COMMENCED BUSINESS IN THE RELEVANT PREVIOUS YEAR. ACCORDINGLY, THE HIGH COURT ALLOWED THE TAXPAYER'S CLAIM OF BUSINESS LOSS. BASED ON THE ABOVE PRONOUNCEMENT OF DELHI HIGH COURT, IT CAN BE INFERRED THAT THE EXPENDITURE INCURRED FOR MARKETING PURPOSE BY A TAXPAYER SHALL BE TREATED AS AN ALLOWABLE EXPENDITURE ALTHOUGH THE TAXPAYER HAS NOT EARNED ANY INCOME DURING THE RELEVANT PREVIOUS YEAR. 1.10 FURTHER, THE THIRD MEMBER BENCH OF PUNE TRIBUNAL IN CASE OF STYLER - INDIA (P) LTD. VS. JCIT (2008) 116 TTJ 333 (PUNE ITAT) ALLOWED EXHIBITION / LAUNCH EXPENSES INCURRED FOR TAKING PAN IN AN AUTO FAIR ALTHOUGH NO INCOME WAS EARNED BY THE TAXPAYER IN THE YEAR UNDER CONSIDERATION. THE TRIBUNAL OBSERVED THAT THE SAID EXPENSES SHALL BE ALLOWED AS DEDUCTIBLE EXPENSES AS THEY WERE INCURRED AFTER THE SET-UP OF BUSINESS TO PROPAGATE THE TAXPAYERS BUSINESS. B3. APPLICABILITY TO INDIA KAWASAKI BASED ON THE ABOVE JUDICIAL PRECEDENTS, INDIA KAWASAKI HUMBLY SUBMITS THAT THE SELLING AND MARKETING EXPENSES OF RS. 1.81 MILLION INCURRED FOR PROMOTING SALE OF ITS PRODUCT (NINJA 250 MOTORBIKES) SHOULD BE ALLOWED UNDER SECTION 37 OF THE ACT. 3. THE ASSESSING OFFICER DID NOT FIND ANY MERIT IN THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND PROCEEDED TO DISALLOW THE EXPENSES OF RS.38,93,218/- CLAIMED BY THE ASSESSEE BY TREATING THE SAME AS PRE-OPERATIVE EXPENSES ON THE GROUND THAT THE ASSESSEE HAD NOT COMMENCED ITS BUSINESS ACTIVITIES OF MANUFACTURING/PRODUCTION. 4. THE DISALLOWANCE OF RS.38,93,218/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PERSONNEL COST AND GENERAL AND ADMINISTRATIVE EXPENSES TREATING THE SAME AS PRE-OPERATIVE EXPENSES WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE-COMPANY THAT ONE OF ITS BUSINESS ACTIVITIES WAS TRADING OF THE PARTS OF MOTORBIKES AND SINCE THE FIRST STEP TO START THE SAID BUSINESS WAS TAKEN BY MAKING PURCHASE OF CKD UNITS BY THE ASSESSEE- COMPANY FROM ITS PARENT COMPANY UNDER AN INVOICE DATED 21.02.2011, THE 4 ITA NO.502/PUN/2017 BUSINESS WAS VERY MUCH SET-UP ON THAT DATE AND THE EXPENSES INCURRED AFTER 21.02.2011 WERE ALLOWABLE AS DEDUCTION. IT WAS ALSO POINTED OUT THAT THE ASSESSEE-COMPANY HAD ALREADY OBTAINED THE CERTIFICATE OF IMPORT AND EXPORT CODE ON 04 TH OCTOBER, 2010, CERTIFICATE OF VAT REGISTRATION ON 04 TH OCTOBER, 2010 AND REGISTRATION FOR OPERATING AS DEALERS OF EXCISABLE GOODS ON 31 ST JANUARY, 2011. IT WAS FURTHER POINTED OUT THAT THE ASSESSEE-COMPANY HAD ALSO TAKEN A PREMISE ON LEASE VIDE LEASE AGREEMENT DATED 10.01.2011 AND APPOINTED THE REQUIRED STAFF FOR THE PURPOSE OF TRADING BUSINESS. RELYING ON THE SEVERAL JUDICIAL PRONOUNCEMENTS, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE-COMPANY BEFORE THE LD. CIT(A) THAT THERE WAS A CLEAR DISTINCTION BETWEEN COMMENCEMENT OF BUSINESS AND SETTING UP A BUSINESS WHICH THE ASSESSING OFFICER COULD NOT PROPERLY UNDERSTAND AND APPRECIATE. IT WAS CONTENDED THAT ALL THE EXPENSES OF REVENUE IN NATURE INCURRED AFTER THE SETTING UP OF A BUSINESS WERE ALLOWABLE AS DEDUCTION. 5. THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE-COMPANY WERE NOT FOUND ACCEPTABLE BY THE LD. CIT(A) AND HE PROCEEDED TO CONFIRM THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PERSONNEL COST AND GENERAL AND ADMINISTRATIVE EXPENSES AMOUNTING TO RS.38,93,218/- BY TREATING THE SAME AS PRE-OPERATIVE EXPENSES FOR THE FOLLOWING REASONS GIVEN IN PARA 4.3 OF HIS IMPUGNED ORDER :- 4.3. THE ABOVE SUBMISSIONS OF THE APPELLANT HAVE BEEN EXAMINED. THE APPELLANT HAD TAKEN A SHOP ON LEASE MEASURING 235 SQ.FT. AND THIS CANNOT BE TAKEN TO BE A PREMISES MEANT FOR THE PURPOSE OF SETTING UP OF BUSINESS OF THE NATURE UNDERTAKEN BY THE APPELLANT. THE APPELLANT BEING A MULTINATIONAL COMPANY AND CONSIDERING THE INVESTMENTS INVOLVED, THE PREMISES SO TAKEN ON LEASE CANNOT BE SAID TO BE TAKEN FOR THE PURPOSE OF BUSINESS. THE APPELLANT CLAIMED THAT IT HAD SOURCED CKD UNITS FROM ITS PARENT COMPANY AND PRODUCED THE INVOICE DTD.21/2/2011. A PERUSAL OF THIS INVOICE DOES NOT INDICATE THAT IT HAS BEEN GENERATED BY THE JAPANESE COMPANY, AS NONE OF THE DESCRIPTIONS THEREIN ARE MENTIONED IN JAPANESE LANGUAGE. THE DUTIES IF ANY PAYABLE ARE ALSO NOT MENTIONED IN THIS INVOICE. THE APPELLANT ALSO DID NOT PRODUCE THE SHIPPING BILL TO AUTHENTICATE ITS CLAIM EVEN ON SPECIFIC QUERY BY THE UNDERSIGNED. THE APPELLANT COULD NOT PRODUCE EVIDENCE OF LOADING OF CKD PARTS INTO THE SHIP/FLIGHT BEFORE THE END OF THE YEAR. AS SEEN FROM THE EVIDENCE FILED, THE CUSTOMS DUTY CHALLANS ARE DTD.15/4/2011 I.E. SUBSEQUENT TO THE FINANCIAL YEAR 2010-11. THE PAYMENTS WERE ALSO MADE FOR THIS PURCHASE ONLY IN APRIL 2011. CONSIDERING THESE BASIC 5 ITA NO.502/PUN/2017 FACTS, I DO NOT FIND THAT THE APPELLANT HAD ACTUALLY SET UP THE BUSINESS AS CLAIMED. THE ACTION OF THE AO IN DISALLOWING THE EXPENDITURE HOLDING THEM TO BE PREOPERATIVE EXPENDITURE IS UPHELD. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE VARIOUS STEPS TAKEN BY THE ASSESSEE-COMPANY IN ORDER TO START ITS BUSINESS OF TRADING AND DISTRIBUTION OF COMPLETELY KNOCKED DOWN PARTS OF MOTORBIKES. HE POINTED OUT THAT THE ASSESSEE-COMPANY NOT ONLY HAD OBTAINED THE REQUIRED REGISTRATIONS TO COMMENCE THE SAID BUSINESS BUT HAD ALSO ACQUIRED THE ASSETS IN THE FORM OF COMPUTER, FURNITURE ETC AS INITIALLY REQUIRED, APPOINTED THE STAFF AND ACQUIRED THE PREMISES ON LEASE. HE SUBMITTED THAT THE ASSESSEE-COMPANY THEREAFTER PURCHASED CKD UNITS FROM ITS PARENT COMPANY UNDER INVOICE DATED 21.02.2011 AND THE BUSINESS WAS CLAIMED TO BE SET-UP ON THAT DATE. HE CONTENDED THAT THE EXPENSES INCURRED AFTER THE SAID DATE WERE ALLOWABLE AS DEDUCTION TO THE ASSESSEE AS THE BUSINESS WAS ALREADY SET-UP ON THAT DATE. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SARABHAI MANAGEMENT CORPORATION LTD., 192 ITR 151 AND THAT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA VEGETABLE PRODUCTS LTD. VS. CIT, 26 ITR 151. HE SUBMITTED THAT THE SHIPPING BILL FOR THE FIRST PURCHASES (COPY PLACED AT PAGE 34 AND 35 OF THE PAPER BOOK) WAS PRODUCED BY THE ASSESSEE EVEN BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE SAME WAS NOT PRODUCED BY THE ASSESSEE. HE ALSO SUBMITTED THAT THE DOUBT RAISED BY THE LD. CIT(A) ON THE BASIS OF THE SIZE OF THE PREMISES TAKEN BY THE ASSESSEE ON LEASE WAS UNSUSTAINABLE AS THE SAID PREMISES WAS SUFFICIENT FOR THE ASSESSEE- COMPANY TO COMMENCE ITS BUSINESS OF TRADING AND DISTRIBUTION. HE SUBMITTED THAT THE FACTS THAT THE REQUIRED REGISTRATION WAS OBTAINED BY THE ASSESSEE- 6 ITA NO.502/PUN/2017 COMPANY, THE REQUIRED ASSETS WERE PURCHASED AND EVEN THE REQUIRED STAFF WAS HIRED, WERE SUFFICIENT TO SHOW THAT THE ASSESSEE-COMPANY WAS READY TO COMMENCE THE BUSINESS AND THE LD. CIT(A) WAS NOT JUSTIFIED IN TREATING THE EXPENSES IN QUESTION AS PRE-OPERATIVE EXPENSES ON THE GROUND THAT THERE WAS NO SALE OR TURNOVER DURING THE YEAR UNDER CONSIDERATION. HE CONTENDED THAT THERE IS DISTINCTION BETWEEN THE COMMENCEMENT OF BUSINESS AND SETTING UP OF BUSINESS AND ONCE THE BUSINESS IS SET-UP, THE EXPENSES OF REVENUE NATURE INCURRED AFTER THE SETTING UP ARE ALLOWABLE AS DEDUCTION. 7. THE LD. DR ON THE OTHER HAND STRONGLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. HE SUBMITTED THAT THERE WAS NO SALE EFFECTED BY THE ASSESSEE-COMPANY DURING THE YEAR UNDER CONSIDERATION AS CLEARLY POINTED OUT BY THE ASSESSING OFFICER AND SINCE THE BUSINESS HAD NOT COMMENCED, THE EXPENSES WERE RIGHTLY DISALLOWED AS PRE- OPERATIVE EXPENSES. HE ALSO SUBMITTED THAT WHATEVER ACTIVITIES THAT WERE CLAIMED TO BE STARTED/UNDERTAKEN BY THE ASSESSEE-COMPANY WERE ONLY MINISCULE ACTIVITIES AS RIGHTLY POINTED OUT BY THE LD. CIT(A) GOING BY THE NATURE OF THE ASSESSEES BUSINESS AND ON THE BASIS OF THE SAME, THE ASSESSEE CANNOT BE SAID TO HAVE COMMENCED ITS BUSINESS. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT VARIOUS STEPS WERE TAKEN BY THE ASSESSEE-COMPANY TO COMMENCE ITS BUSINESS OF TRADING AND DISTRIBUTION OF COMPLETELY KNOCKED DOWN PARTS OF MOTORBIKES. AS EXPLAINED ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW AS WELL AS BEFORE US, CERTIFICATE OF IMPORT AND EXPORT CODE AND VAT REGISTRATION WERE OBTAINED BY THE ASSESSEE-COMPANY ON 04 TH OCTOBER, 2010 WHILE THE REGISTRATION FOR OPERATING AS DEALERS OF EXCISABLE GOODS WAS OBTAINED ON 31 ST JANUARY, 2011. THE ASSETS REQUIRED TO COMMENCE THE BUSINESS OF TRADING IN THE FORM OF COMPUTER, FURNITURE ETC WERE 7 ITA NO.502/PUN/2017 ALSO ACQUIRED BY THE ASSESSEE AND IT HAD APPOINTED NECESSARY PERSONNEL TO CARRY ON ITS BUSINESS OPERATIONS. THE PREMISES WAS ALSO TAKEN ON LEASE BY THE ASSESSEE TO CARRY ON ITS BUSINESS AND ALTHOUGH THE LD. CIT(A) HAS RAISED SOME OBJECTION REGARDING THE SIZE OF THE SAID PREMISES BEING INSUFFICIENT FOR SETTING UP OF THE ASSESSEES BUSINESS, WE FIND MERIT IN THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE THAT THE SAID OBJECTION IS NOT SUSTAINABLE KEEPING IN VIEW THE NATURE OF THE ASSESSEES BUSINESS. IN ANY CASE, THE FIRST MAJOR STEP WAS TAKEN BY THE ASSESSEE-COMPANY BY PURCHASING THE PARTS OF MOTORCYCLE FROM ITS PARENT COMPANY AND THIS VITAL STEP WAS DULY ESTABLISHED ON EVIDENCE BY THE ASSESSEE IN THE FORM OF BILL OF LADING AND THE BANK STATEMENT, COPIES OF WHICH ARE PLACED AT PAGE 34 AND 35 OF THE ASSESSEES PAPER BOOK. ALL THESE STEPS TAKEN BY THE ASSESSEE-COMPANY DURING THE YEAR UNDER CONSIDERATION ESPECIALLY THE MAJOR STEP TAKEN BY PROCURING THE GOODS FROM ITS PARENT COMPANY ON 21.02.2011, IN OUR OPINION, WERE SUFFICIENT TO SHOW THAT THE BUSINESS WAS DULY SET-UP AND IT WAS READY TO COMMENCE. IT IS OBSERVED THAT THE AUTHORITIES BELOW, HOWEVER, COULD NOT PROPERLY APPRECIATE THIS POSITION AND TREATED THE EXPENSES IN QUESTION CLAIMED BY THE ASSESSEE AS PRE-OPERATIVE EXPENSES ON THE GROUND THAT THE BUSINESS HAD NOT COMMENCED IN THE ABSENCE OF ANY SALE MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SARABHAI MANAGEMENT CORPORATION LTD. (SUPRA) WHERE THE BUSINESS ACTIVITIES CONSTITUTED OF ACQUISITION OF PROPERTY, PUTTING IT INTO SHAPE AND LEASE IT OUT, IT COULD NOT BE SAID THAT THE BUSINESS WAS NOT SET- UP TILL THE FIRST LEASE TOOK PLACE. IT WAS HELD THAT EARLIER PART OF THE ACTIVITIES, NAMELY, ENGAGING STAFF, BUYING THE EQUIPMENT AND MAKING THE STAFF FAMILIAR THEREWITH ARE ALL PART OF THE BUSINESS AND THE BUSINESS CAN BE SAID TO BE SET-UP EVEN EARLIER. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA VEGETABLE PRODUCTS LTD. VS. CIT (SUPRA) HELD THAT FOR THE PURPOSE OF THE INDIAN INCOME-TAX ACT, THE SETTING UP A BUSINESS AND NOT THE COMMENCEMENT IS TO BE 8 ITA NO.502/PUN/2017 CONSIDERED. IT WAS HELD THAT WHEN A BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS, THEN IT CAN BE SAID THAT BUSINESS HAS BEEN SET UP. EXPLAINING FURTHER, THE HONBLE BOMBAY HIGH COURT CLARIFIED THAT THERE MAY BE AN INTERVAL BETWEEN THE SETTING UP OF THE BUSINESS AND THE COMMENCEMENT OF BUSINESS AND ALL THE EXPENSES INCURRED DURING THAT INTERVENING PERIOD WOULD BE PERMISSIBLE DEDUCTION. 9. KEEPING IN VIEW THE LEGAL POSITION EMANATING FROM THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE AND HAVING REGARD TO THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE BUSINESS OF THE ASSESSEE WAS SET-UP ON 21.02.2011 AND IT WAS, THEREFORE, ELIGIBLE FOR DEDUCTION ON ACCOUNT OF EXPENSES INCURRED AFTER THAT DATE. IN THAT VIEW OF THE MATTER, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) BY TREATING THE EXPENSES INCURRED BY THE ASSESSEE-COMPANY UNDER THE HEAD PERSONNEL COST, GENERAL AND ADMINISTRATIVE EXPENSES AS PRE-OPERATIVE EXPENSES AND ALLOW THIS APPEAL OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 09 TH DAY OF SEPTEMBER, 2020. SD/- SD/- ( S. S. VISWANETHRA RAVI ) ( P.M. JAGTAP ) JUDICIAL MEMBER VICE PRESIDENT / PUNE; / DATED : 09 TH SEPTEMBER, 2020 SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-6, PUNE. 4. THE PR. CIT-5, PUNE. 5 . , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.