ACIT CIR 6(1), MUMBAI V. J B SEZ LTD ( NOW KNOWN AS HBS PHARMA SEZ P.LTD), MUMBAI

ITA 5162/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88394 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 02-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 18-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Keywords: Revenue expenditure
• Section: 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI , , . , BEFORE SHRI VIJAY PAL RAO , JM AND SHRI D. KARUNAKARA RAO, AM ./I.T.A. NO. 5162/MUM/2013 ( / ASSESSMENT YEAR : 2009-10 ) ASTT. COMMISSIONER OF INCOME TAX-CIRCLE 6(1) ROOM NO.506, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-20. / VS. M/S. J.B. SEZ LTD. (NOW KNOWN AS HBS PHARMA SEZ PVT. LTD.) 505, CEEJAY HOUSE DR. ANNIE BESANT ROAD, WORLI MUMBAI-400 018. ./ ./PAN/GIR NO. : AABCJ 8944 L ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI AKHILENDRA YADAV - DR ! / RESPONDENT BY : NONE '#$ ! % / DATE OF HEARING : 02/02/2015 &'( ! % / DATE OF PRONOUNCEMENT : 11/02/2015 ) / O R D E R PER VIJAY PAL RAO, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 30/4/2013 OF CIT(A) FOR THE ASSESSMENT YEAR 2009-10. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN L AW, THE LD. CIT(A) ERRED IN CONCLUDING THAT ASSESSEE HAD 'SET UP' THE BUSINESS OF DEVELOPING OPERATION AND MAINTENANCE OF SEZ FOR PHARMACEUTICAL SECTOR. 2. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONCLUDING THAT ASSESSEE COMPANY HAD ALREADY 'SET UP' SEZ FOR PHARMACEUTICAL SECTOR WHEN THE ASSESSEE COMPANY ITS ELF ADMITTED IN WRITING THAT IT 'WAS SETTING UP' PHARMA SPECIFIC SEZ. 2 ITA NO. 5162/M/13 3. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING PRE-COMMENCEMENT EXPENDITURE I.E. EXPEN DITURE BEFORE SETTING UP OF BUSINESS, AS 'REVENUE EXPENDITURE'. 4. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE LD. CIT(A) ERRED IN ADMITTING FRESH EVIDENCE IN VIOLATION OF RULE 46 A AND WITHOUT GIVING OPPORTUNITY FOR REBUTTING THE SAME TO THE ASSESSING OFFICER, TO COME TO THE CONCLUSION THAT THOUGH THE GIDC ISSUED THE RECEIPT FOR PAYMENT OF 'PENAL INTEREST BYTHE ASSESSEE , THE INTEREST PAID BY ASSESSEE WAS ONLY 'COMPENSATORY' IN NATURE. 5. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING 'PENAL' INTEREST PAID BY THE ASSESSEE AS COMPENSATORY IN NATURE AND ALLOWING DEDUCTION ACCORDINGLY WITHOUT B RINGING ANYTHING ON RECORD IN SUPPORT OF THIS CONCLUSION. 6. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED.' 2. NONE HAS APPEARED ON BEHALF OF THE RESPONDENT AS SESSEE DESPITE THE NOTICE OF HEARING SENT THROUGH RPAD. THEREFORE, WE PROPOSE TO HEAR AND DISPOSE OFF THIS APPEAL EXPARTE. 3. THE ASSESSEE HAS BEEN ALLOTTED LAND ON LEASE HOL D BASIS BY GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION (GIDC) FOR SETTING UP OF PH ARMA SPECIFIC, SPECIAL ECONOMIC ZONE (SEZ) AT PANOLI, GUJARAT WHICH HAS BEEN NOTIFI ED AS SEZ UNDER SPECIAL ECONOMIC ZONES, ACT, 2005 ON 9/1/2009. THE AO NOTED THAT THE ASSESSEE COMPANY HAS NOT STARTED ITS BUSINESS ACTIVITY TILL DATE BUT CLAIMED VARIOUS ADMINISTRATIVE EXPENSES AMOUNTING TO RS.72,38,677/-. THE AO ASKED THE ASSES SEE AS TO WHY ALL EXPENSES MAY NOT BE DISALLOWED AS THE ASSESSEE HAS NOT SET UP IT S BUSINESS DURING THE YEAR UNDER CONSIDERATION. IN RESPONSE THE ASSESSEE SIMPLY FILE D DETAILS OF VARIOUS EXPENSES AND DID NOT FILE SUBMISSION REGARDING ALLOWABILITY OF VARIO US EXPENSES. ACCORDINGLY, THE AO TREATED THE ENTIRE EXPENSES AS CAPITAL IN NATURE AN D DISALLOWED THE SAME. ON APPEAL, THE ASSESSEE POINTED OUT THAT THE AO HAS TAKEN A WR ONG AMOUNT OF EXPENSES AS DISALLOWANCE WAS MADE FOR RS.72,38,677/- WHEREAS TH E EXPENSES CLAIMED BY THE ASSESSEE IS ONLY RS.66,08,086/-. THE CIT(A) HAS AC CEPTED THE CLAIM OF THE ASSESSEE AND HELD THAT BUSINESS OF THE ASSESSEE HAS BEEN SET UP. 3 ITA NO. 5162/M/13 4. WE HAVE HEARD THE LD. DR AND CAREFULLY PERUSED T HE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. THE AO HAS NOTED THE FACT THAT T HE ASSESSEE HAS INCURRED THE EXPENDITURE IN QUESTION IN CONNECTION WITH EXPLORIN G THE FEASIBILITY OF SETTING UP OF NEW BUSINESS VENTURE WHICH IS NOT ALLOWABLE AS REVENUE EXPENDITURE. THE CIT(A) HAS HELD THAT THE BUSINESS OF THE ASSESSEE HAS BEEN SET UP W ITHOUT GIVING THE SPECIFIC FINDING AS ON WHICH DATE OR ON WHICH POINT OF TIME THE BUSINES S OF THE ASSESSEE HAS TO BE TREATED AS BEING SET UP. IN THE CASE OF NEW BUSINESS THE AC COUNTING YEAR/PREVIOUS YEAR COMMENCES ON THE DATE WHEN THE BUSINESS IS SET UP A S CONTEMPLATED IN SECTION 3 OF THE INCOME TAX ACT. AS PER SECTION 3 THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING ON THE DATE OF SETTING UP OF BUSINESS OR PROFESSION AS THE CASE MAY BE AND ENDING WITH THE SAID FINANCIAL YEAR. THUS, THE RELEVANT POINT OF TI ME IS THE DATE ON WHICH THE BUSINESS IS SET UP. THERE MAY BE A TIME GAP BETWEEN THE SETTING UP OF BUSINESS AND ITS ACTUAL COMMENCEMENT. A BUSINESS IS SET UP WHEN IT IS ESTAB LISHED AND IS READY TO START FUNCTIONING. IN OTHER WORDS THE BUSINESS MUST BE PU T BE INTO SUCH A SHAPE THAT IT CAN START FUNCTIONING AS BUSINESS. THEREFORE, UNTIL AND UNLESS EVERYTHING NEEDED IS PUT IN PLACE SO THAT NEW BUSINESS IS READY TO START THE FU NCTIONS FOR WHICH IT IS ESTABLISHED. THE EXPENDITURE INCURRED PRIOR TO SETTING UP OF BUSINES S CANNOT BE ALLOWED SINCE IT WOULD FALL OUTSIDE THE FINANCIAL YEAR/PREVIOUS YEAR IN TERMS O F SECTION 3 AND ALSO OUTSIDE THE AMBIT OF SECTION 28 TO SECTION 43D AS THE EXPENDITU RE HAS BEEN LAID OUT FOR BRINGING A NEW ASSET INTO EXISTENCE. SINCE THERE IS A DISTINCT ION BETWEEN SETTING UP OF BUSINESS AND ITS COMMENCING, THEREFORE, THE EXPENDITURE INCURRED AFTER THE BUSINESS IS SET UP MAY BE ALLOWED UNDER SECTION 30-37 OF THE INCOME TAX ACT E VEN IF IT IS INCURRED BEFORE THE BUSINESS HAS ACTUALLY COMMENCED. THE CIT(A) HAS HEL D THAT THE BUSINESS OF THE ASSESSEE HAS BEEN SET UP IN PARA 4.3 AS UNDER :- 4.3 I HAVE CONSIDERED THE ABOVE SUBMISSIONS OF TH E APPELLANT AS WELL AS THE FACTS OF THE CASE. THE FACTS OF THE CASE OF THE APPELLANT ARE THAT THE APPELLANT HAS BEEN INCORPORATED WITH THE MAIN OBJECT OF SETTING U P A PHARMA SEZ. THE APPELLANT WAS ALLOTTED LAND BY GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION TO SET UP THE PHARMA SEZ VIDE ITS LETTER OF ALLOTMENT DATED 25/09/2007 A ND RECEIVED POSSESSION OF THE SAME ON 01/11/2007. DURING THE CURRENT YEAR, SOME AMOUNT HAS BEEN SPENT ON ADVERTISEMENT AND EXHIBITION FOR THE PURPOSE OF MARKETING OF THE PHARMA SEZ LAND. THE APPELLANT ALSO 4 ITA NO. 5162/M/13 STATES THAT IT RECEIVED 10% ADVANCE IN AY 2010-11 F ROM BROOKS LABORATORIES LTD. TOWARDS BOOKING AMOUNT FOR SUBLEASE OF 7.54 AC RES OF LAND (HOWEVER, THIS FACT IS NOT RELEVANT IN THE YEAR UNDER CONSIDERATION). THER EFORE, SINCE PURCHASES OF SOME OF THE GOODS IN CONNECTION WITH THE APPELLANT'S LINE OF BU SINESS HAVE BEEN MADE, AND SOME EXPENDITURE ON ADVERTISEMENT AND EXHIBITION FOR MAR KETING OF SUCH GOODS HAS ALSO BEEN INCURRED, IT HAS TO BE CONCLUDED THAT THE BUSINESS OF THE APPELLANT HAS BEEN SET UP. 4.1 AS IT IS CLEAR THAT THE DATE OF SETTING UP OF T HE BUSINESS HAS NOT BEEN GIVEN BY THE CIT(A) AND IN THE ABSENCE OF SUCH DATE OF SETTI NG UP IT IS NOT POSSIBLE TO DECIDE THE ALLOWABILITY OF THE EXPENDITURE INCURRED BEFORE SUC H DATE OR AFTER SUCH DATE OF SETTING UP. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCE OF T HE CASE AND IN THE INTEREST OF JUSTICE WE SET ASIDE THIS ISSUE TO THE RECORD OF CIT(A) FOR DECIDING THE SAME DENOVO AND TO GIVE A SPECIFIC FINDING ABOUT THE DATE ON WHICH THE BUSINESS OF THE ASSESSEE CAN BE REGARDED AS SET UP FOR THE PURPOSE OF ALLOWING THE EXPENDITURE POST THE DATE OF SETTING UP. 5. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH FEBRUARY, 2015. ) ! &'( ' * +# , 11/02/2015 ' ! -$ SD/- SD/- (D. KARUNAKARA RAO) (VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER '.$ MUMBAI; +# DATED 11/02/2015. . # . ./ JV, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI.