DCIT, CHENNAI V. Dalmer India Commercial Vehicles (P) Ltd., Kancheepuram

ITA 563/CHNY/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5176 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 06-03-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Tangible material; Difference of opinion; Change of opinion; Capital expenditure
• Section: 142(1); 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO.563/CHNY/2017 / ASSESSMENT YEAR : 2010-2011 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1) CHENNAI 600 034. VS. M/S. DAIMLER INDIA COMMERCIAL VEHICLES (P) LTD, SIPCOR INDUSTRIAL GROWTH, ORAGADAM, MATHUR POST, KANCHEEPURAM 602 105. [PAN AABCF 1590N] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MRS. RUBY GEORGE, IRS, CIT. /RESPONDENT BY : SHRI. AJAY VOHRA, SR. ADVOCATE AND SHRI. D. PRAVEEN, ADVOCATE /DATE OF HEARING : 29-05-2018 ! /DATE OF PRONOUNCEMENT : 31-05-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE REVENUE, WHICH IS DI RECTED AGAINST AN ORDER DATED 19.12.2016 OF LD. COMMISSIO NER OF INCOME TAX (APPEALS)-1, CHENNAI, IT ASSAILS THE DIRECTION OF LD. COMMISSIONER OF ITA NO. 563/CHNY/2017. :- 2 -: INCOME TAX (APPEALS) TO ALLOW A CLAIM OF EXPENDITUR E AGGREGATING B21.32 CRORES. 2. FACTS APROPOS ARE THAT ASSESSEE A COMPANY INCORPORA TED WITH THE INTENTION OF DESIGNING, MANUFACTURING AN D SELLING COMMERCIAL VEHICLES HAD FILED ITS RETURN OF INCO ME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING NIL INCOME. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE LD. AS SESSING OFFICER THAT ASSESSEE HAD NOT STARTED ITS COMMERCIAL OPERATIONS . AS PER THE LD. ASSESSING OFFICER, ASSESSEE WAS ONLY IN THE PROCESS OF SETTING UP A MANUFACTURING FACILITY AND OPERATIONALISING SUCH FA CILITY WITH THE SUPPORT OF ITS GROUP COMPANIES. DURING THE RELEVANT PREVIOUS YEAR, ASSESSEE WAS ALLOTTED 379.75 ACRES BY SIPCOT INDUST RIAL GROWTH CENTRE, AT ORAGADAM. LD. ASSESSING OFFICER NOTED T HAT ASSESSEE WAS IN THE PROCESS OF REGISTERING AND EXECUTING THE LE ASE DEED. A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE, PROPOSING A DISALLOWANCE OF EXPENDITURE CLAIMED BY THE ASSESSEE, SINCE IT WAS S TILL TO SET UP ITS MANUFACTURING FACILITY. SUCH NOTICE RAN ON THE FOLL OWING LINES:- ' IT IS SEEN FROM THE FINANCIAL STATEMENTS AND DOCU MENTS THAT YOU HAVE NOT COMMENCED YOUR COMMERCIAL OPERATIONS (MANUFACTURE AND SALE OF COMMERCIAL VEHICLE). YOU A RE INVOLVED ONLY IN ACTIVITIES TOWARDS SETTING UP OF Y OUR FACILITY AND OPERATION WITH THE SUPPORT OF YOUR GROUP COMPANIES. IN THE SIGNIFICANT ACCOUNT POLICY AND NOTES TO ACCOUNT, IT WAS STATED THAT THE 'COMPANY IS SET UP FOR DESIGNING, MANUFACT URING, ITA NO. 563/CHNY/2017. :- 3 -: DISTRIBUTING, SELLING, SOURCE OF AFTER SALES ENGINE ERING SERVICES AND R&D OF COMMERCIAL VEHICLE AND RELATED PRODUCTS AND COMPONENT FOR DOMESTIC INDIAN AND OVERSEAS MARKET', 'MOREOVER AS PER POINT 9 OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNT, THE COMPANY HAS IMPORTED MITUBISH I FUSO BUS, FREE OF COST FROM YOUR GROUP COMPANY IN JAPAN AND SOLD THE SAME IN INDIA'. POINT 15 OF SIGNIFICANT ACCOUNT ING POLICIES AND NOTES ON ACCOUNT, IT WAS STATED THAT 379.75 ACR ES OF LAND IS ALLOTTED TO BY SIPCOT INDUSTRIAL GROWTH CENTRE, ORGADAM AND THE COMPANY IS IN THE PROCESS OF REGISTERING AN D EXECUTING THE LEASE DEED. ALL THE ABOVE DISCUSSIONS CLEARLY SHOW THAT THE COM PANY HAS NOT COMMENCED ITS COMMERCIAL OPERATION. MORE OVER T HIS FACT WAS ALSO REFLECTED IN TPO'S ORDER ALSO (F. NO.D-108 /TPO-I/AY. 2010-11 DTD. 20.11.2013) THAT THE COMPANY HAD NOT COMMENCED ITS ACTIVITIES. SINCE THE INCOME FROM MAI N ACTIVITY HAS NOT COMMENCED, THE CORRESPONDING EXPENDITURE IS NOT ALLOWABLE. IN THIS REGARD YOU ARE HEREBY REQUESTED TO SHOW CAUSE WHY THE EXPENDITURE UNDER THE HEAD OPERATING EXPENSES, FINANCIAL EXPENSES, DEPRECIATION SHOULD N OT BE DISALLOWED' 3. ASSESSEE IN ITS REPLY TO THE ABOVE NOTICE STATED TH AT IT HAD STARTED ITS R & D ACTIVITY WHICH WAS ONE OF ITS M AIN OBJECT AND HAD SET-UP AN R &D CENTRE, PURSUANT TO AGREEMENTS WIT H M/S. RICARDO, UK LTD AND M/S. MAGNA POWERTRAIN-ENGINEERING CENTRE STEYR GMBH & CO KG. FURTHER, AS PER THE ASSESSEE IT HAD ALREADY EARNED REVENUE FROM SALE OF VEHICLE. HOWEVER, LD. ASSESSING OFFIC ER WAS NOT IMPRESSED BY THE ABOVE REPLY. ACCORDING TO HIM, MAIN REVENUE GENERATING ACTIVITY OF THE ASSESSEE WAS DESIGNING, MANUFACTUR ING AND SELLING COMMERCIAL VEHICLES AND NOT R&D. AS PER THE LD. AS SESSING OFFICER, SUCH ACTIVITY HAD NOT COMMENCED DURING THE RELEVA NT PREVIOUS YEAR. ITA NO. 563/CHNY/2017. :- 4 -: ACCORDING TO HIM, ASSESSEES ACTIVITIES HAD NOT RE ACHED A STAGE WHERE IT WAS IN A POSITION TO PROCURE BUSINESS. LD. ASSE SSING OFFICER ALSO PLACED RELIANCE ON AN ORDER PASSED LD. TRANSFER PRI CING OFFICER ON 20.11.2013 IN RESPECT OF THE INTERNATIONAL TRANSAC TIONS UNDERTAKEN BY THE ASSESSEE. IT SEEMS LD. TPO HAD COMMENTED THAT ASSESSEE WAS YET TO START ITS COMMERCIAL OPERATIONS. AS PER, L D. ASSESSING OFFICER, ASSESSEE WAS NOT ELIGIBLE TO CLAIM EXPENDITURE INCU RRED PRIOR TO THE START OF ITS COMMERCIAL OPERATION. HE DISALLOWED T HE FOLLOWING EXPENDITURE CLAIMED BY THE ASSESSEE. OPERATING EXPENSES : 19,39,47,503 FINANCIAL EXPENSES : 1,46,26,492 DEPRECIATION : 46,19,716 THUS, AN ADDITION OF B21,31,93,711/- WAS MADE TO T HE RETURNED LOSS OF B40,60,20,032/- AND ASSESSMENT COMPLETED ACCORD INGLY. 4. ASSESSEES APPEAL BEFORE THE LD. COMMISSIONER OF IN COME TAX (APPEALS) WAS SUCCESSFUL. AS PER THE LD. COM MISSIONER OF INCOME TAX (APPEALS) THERE WERE TWO LIMBS FOR THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE BASED ON ITS MEMORANDUM OF ASSOCIATION. FIRST OF THESE, AS PER LD. COMMISSIONER OF INCOME T AX (APPEALS) WAS ITA NO. 563/CHNY/2017. :- 5 -: SETTING UP OF A MANUFACTURING FACILITY FOR COMMERCI AL VEHICLES AND SECOND WAS IMPORTING AND SELLING READYMADE COMMERC IAL VEHICLES. ACCORDING TO THE LD. COMMISSIONER OF INCOME TAX (AP PEALS), UNDER THE FIRST LIMB OF ACTIVITY, ASSESSEE HAD DEVELOPED PROT OTYPES, REQUESTED FOR SOURCING OF COMPONENTS AND ALSO UNDERTAKEN IN-HOUSE RESEARCH. FURTHER, AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS), SECOND LIMB OF ACTIVITY ALSO HAD STARTED SINCE REVE NUE WAS GENERATED FROM SALE AND ACCOUNTED IN THE PROFIT AND LOSS ACC OUNT. LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT ASS ESSEE HAD SALES OF B36,44,361/- AND OTHER INCOME OF B4,94,54,084/- REFLECTED IN ITS PROFIT AND LOSS ACCOUNT. FORMER INCOME, AS PER LD. COMMISSIONER OF INCOME TAX (APPEALS), AROSE ON ACCOUNT OF SALE OF C OMMERCIAL VEHICLE. LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO TOOK CUE FROM SCHEDULE 14 OF AUDITED FINANCIAL STATEMENTS FILED BY THE ASSESSEE, BY HIGHLIGHTING THE FOLLOWING. 21.1 POINT NO.(D)- FIXED ASSETS AND CAPITAL WORK- IN- PROGRESS. EXPENDITURE DIRECTLY ATTRIBUTABLE TO CONSTRUCTION OF THE PROJECT IS CLASSIFIED AS PROJECT DEVELOPMENT EXPEND ITURE AND DISCLOSED UNDER CAPITAL WORK-IN-PROGRESS. 21.2 POINT NO.(F) - RESEARCH AND DEVELOPMENT EXPENS ES CAPITAL EXPENDITURE ON ACCOUNT OF RESEARCH AND DEVELOPMENT IS CLASSIFIED AS PROJECT DEVELOPMENT EXPENDITURE AND DISCLOSED UNDER CAPITAL WORK-IN-PRO GRESS. 21.3 THE APPELLANT IN ITS SUBMISSION DATED 23.12.20 16 HAS SUBMITTED THAT THE ENTIRE EXPENDITURE INCURRED TOWA RDS RESEARCH AND DEVELOPMENT HAS BEEN CLASSIFIED AS PRO JECT ITA NO. 563/CHNY/2017. :- 6 -: DEVELOPMENT EXPENDITURE AND DISCLOSED UNDER CAPITAL WORK-IN-PROGRESS. 21.4 POINT NO.(G) - BORROWING COSTS: BORROWING COST COMPRISING INTEREST AND FINANCE CHAR GES DIRECTLY ATTRIBUTED TO THE CONSTRUCTION OF QUALIFYI NG ASSETS ARE CAPITALIZED AS PART OF THE COST OF THAT ASSET U NTIL THE ACTIVITIES NECESSARY TO PREPARE THE QUALIFYING ASSE T FOR ITS INTENDED USE ARE COMPLETE . LD. COMMISSIONER OF INCOME TAX (APPEALS) THUS CAME TO A CONCLUSION THAT ASSESSEE HAD COMMENCED ITS ACTIVITIES IN RELAT ION TO DESIGN AND HAD ALSO UNDERTAKEN PRE-ACTIVITIES ESSENTIAL FOR CO MMENCEMENT OF MANUFACTURING. 5. FURTHER, AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) EXPENDITURE DEBITED IN THE PROFIT AND LOS S ACCOUNT, WHICH WAS DISALLOWED BY THE LD. ASSESSING OFFICER WAS NOT INCURRED FOR SETTING UP OF THE MANUFACTURING FACILITY. LD. COMMISSIONE R OF INCOME TAX (APPEALS) ALSO NOTED THAT ASSESSEE HAD CAPITALIZED EXPENSES RELATING TO SETTING UP MANUFACTURING FACILITY AND RESEARCH AND DEVELOPMENT. LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO TOOK INTO CONSIDERATION EARNING OF INCOME FROM THE ACTIVITY OF SOURCING, W HICH WAS IDENTIFIED AS A SEPARATE LINE OF BUSINESS, FOR WHICH APPROVAL WAS OBTAINED BY THE ASSESSEE FROM FOREIGN INVESTMENT PROMOTION BOARD ( FIPB). DUE NOTE WAS ALSO TAKEN BY THE LD. CIT(A) OF CERTIFICATE OF ITA NO. 563/CHNY/2017. :- 7 -: COMMENCEMENT OF BUSINESS ISSUED BY THE REGISTRAR OF COMPANIES ON 18.12.2007. FURTHER, AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) LD. ASSESSING OFFICER, HAD ALLOWED LOSS T O BE CARRIED FORWARD AND HAD BEGUN HIS COMPUTATION FROM THE LOSS RETURN ED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. ACCORDING TO THE LD. COMMISSIONER OF INCOME TAX (APPEALS) LD. ASSESSING OFFICER, HAVING ALLOWED A CARRY FORWARD CLAIM OF LOSS UNDER THE HEA D INCOME FROM BUSINESS OR PROFESSION COULD NOT SAY THAT ASSESS EE HAD NOT COMMENCED ITS COMMERCIAL OPERATIONS. HE THUS DELET ED THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER. 6. NOW BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE S TRONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT DURING THE RELEVANT PREVIOUS YEAR, SIPCOT HAD JUST ALLOTTED A PIECE OF LAND TO THE ASSESSEE ON WHICH ASSESSEE WAS SETTING UP ITS PLANT. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUN TS, CONTAINED IN SCHEDULE 14 TO ITS AUDITED FINAL ACCOUNTS CLEARLY M ENTIONED AT PARA 9 THAT ASSESSEE WAS STILL TO COMMENCE BUSINESS. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, ASSESSEE HAD NOT SET U P ITS MANUFACTURING FACILITY. CONTENTION OF THE LD. DEPA RTMENTAL REPRESENTATIVE WAS THAT TAKING UP RESEARCH AND DE VELOPMENT BY ITSELF ITA NO. 563/CHNY/2017. :- 8 -: COULD NOT BE CONSTRUED AS SETTING UP OF THE BUSINE SS. ACCORDING TO HER, CLAIM WAS ALLOWED BY THE LD. COMMISSIONER OF I NCOME TAX (APPEALS) WITHOUT PROPERLY APPRECIATING THE FACTS. 7. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTING THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) SUBMITTED THAT LD. ASSESSING OFFICER HAD IN THE ASSESSMENT D ONE FOR ASSESSMENT YEAR 2009-2010, ACCEPTED THE CLAIM OF BUSINESS LOS S, AND COMPLETED THE ASSESSMENT. AS PER THE LD. ASSESSING OFFICER, ONCE THE LD. ASSESSING OFFICER HAD ACCEPTED THE BUSINESS TO HAVE BEEN SET UP IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2009- 2010, HE COULD NOT TAKE A CONTRADICTORY STAND THAT THE BUSINESS WAS ST ILL TO BE SET UP IN THE SUBSEQUENT ASSESSMENT YEAR. LD. AUTHORISED REP RESENTATIVE POINTED OUT THAT THE ASSESSMENT DONE BY THE LD. ASS ESSING OFFICER FOR ASSESSMENT YEAR 2009-2010 U/S.143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WAS SUBJECTED TO A REOPENI NG U/S.148 OF THE ACT. AS PER THE LD. AUTHORISED REPRESENTATIVE, THE REASO N CITED FOR SUCH REOPENING WAS THAT BUSINESS OF THE ASSESSEE WAS YE T TO COMMENCE AND CLAIM OF EXPENDITURE WAS ERRONEOUSLY ALLOWED. LD. AUTHORISED REPRESENTATIVE, POINTED OUT THAT SUCH REOPENING WAS ASSAILED BY THE ASSESSEE THROUGH A WRIT PETITION NO.43435 OF 2016 AND WMP NOS.37296 & 37297/2016, BEFORE HONBLE JURISDICTIO NAL HIGH COURT ITA NO. 563/CHNY/2017. :- 9 -: AND HONBLE JURISDICTIONAL HIGH COURT THROUGH ITS JUDGMENT DATED 30.01.2018 QUASHED IT. COPY OF THE JUDGMENT WAS P LACED ON RECORD BY THE LD AUTHORISED REPRESENTATIVE. THUS, ACCORD ING TO HIM, ASSESSMENT DONE ON 24.01.2013 FOR ASSESSMENT YEA R 2009-2010 HAD REACHED A FINALITY, AND THE VIEW TAKEN BY THE LD. A SSESSING OFFICER THAT ASSESSEE HAD COMMENCED ITS BUSINESS IN THE SAID ASS ESSMENT COULD NOT BE ALTERED IN THE SUBSEQUENT YEAR. 8. ALLUDING TO THE NATURE OF EXPENDITURE DISALLOWED, LD. AUTHORISED REPRESENTATIVE POINTED OUT THAT NONE OF SUCH EXPENDITURE RELATED TO THE MANUFACTURING FACILITY BEING SET U P BY THE ASSESSEE. RELYING ON SCHEDULE 12 OF THE AUDITED FINAL ACCOUNT S, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT WHOLE OF THE OPERATIN G EXPENDITURE OF B19,39,47,503/- WHICH WAS DISALLOWED BY THE LD. AS SESSING OFFICER DID NOT RELATE TO SETTING UP OF ANY MANUFACTURING FACI LITY. AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE COMPANY WAS INC ORPORATED FOR DESIGNING, MANUFACTURING, DISTRIBUTING, SELLING, SO URCING, PROVIDING ENGINEERING SERVICES AND RESEARCH AND DEVELOPMENT O F COMMERCIAL VEHICLES AND RELATED PRODUCTS AND COMPONENTS FOR DOMESTIC INDIAN AND OVERSEAS MARKETS. CONTENTION OF THE LD. AUTHOR ISED REPRESENTATIVE WAS THAT ASSESSEE HAD ALREADY STARTE D DOING R & D DESIGN WORK AND HAD ALSO SOLD AN IMPORTED MITUBI SHI FUSO BUS. THUS, ITA NO. 563/CHNY/2017. :- 10 -: ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE, AS SESSEE HAD SET UP ITS BUSINESS AS WELL AS COMMENCED ITS TRADING OPERA TIONS. 9. ADVERTING TO THE DEPRECIATION SCHEDULE PLACED AT PAPER BOOK PAGE NO.12, LD. AUTHORISED REPRESENTATIVE SUBM ITTED THAT A SUM OF B3,21,58,904/- OUT OF THE TOTAL DEPRECIATION CLA IM OF B3,67,78,620/-, WHICH WAS DIRECTLY ATTRIBUTABLE TO SETTING UP OF M ANUFACTURING FACILITY WAS INCLUDED UNDER THE HEAD CAPITAL WORK IN PRO GRESS. AS PER THE LD. AUTHORISED REPRESENTATIVE, BALANCE SUM OF B46,1 9,716/-, CLAIMED AS DEPRECIATION IN THE REVENUE FIELD WAS NOT ATTR IBUTABLE TO THE SETTING UP OF THE MANUFACTURING FACILITY. CONTENTI ON OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT ASSESSEE WAS PU RSUING DIFFERENT STREAMS OF BUSINESS, ALL CONNECTED TO MANUFACTURING AND SALE OF COMMERCIAL VEHICLES. CONTENTION OF THE LD. AUTHORI SED REPRESENTATIVE WAS THAT ASSESSEE ITSELF HAVING CAPITALIZED THE EXP ENDITURE WHICH WAS RELATABLE TO THE MANUFACTURING FACILITY WHICH WAS B EING ERECTED, BALANCE OF EXPENDITURE WHICH WAS RELATED TO TRADING AND OTHER ACTIVITIES COULD NOT HAVE BEEN DISALLOWED. AS PER THE LD. AUTHORISED REPRESENTATIVE, APART FROM PURSUING R&D WORK, ASSE SSEE HAD ALSO PROCURED COMPONENTS AND STARTED TESTING PROTOTYPES OF VARIOUS VEHICLES MANUFACTURED BY IT. SUBMISSION OF THE AS SESSEE WAS THAT THE BUSINESS AS A WHOLE WAS TO BE CONSIDERED AND EVEN W HEN ONE OF THE ITA NO. 563/CHNY/2017. :- 11 -: LINE OF ACTIVITIES HAD COMMENCED, BUSINESS HAD TO BE CONSIDERED AS SETUP. RELIANCE WAS PLACED ON THE FOLLOWING JUDGME NTS:- WESTERN INDIA VEGETABLE PRODUCTS LTD VS. CIT, 26 IR 151 (BOM) CIT VS. RALLIWOLF LTD, 121 ITR 262 (BOM) CIT VSA. AXIS PVT. EQUITY LTD, ITA NO.1204/2014 (BO M) CIT VS. SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES L TD, 91 ITR 170 (GUJ) SARABHAI MANAGEMENT CORPORATION LTD, VS. CIT, 102 I TR 25 (GUJ) PREM CONDUCTORS PVT. LTD VS. CIT, 108 ITR 654 (GUJ) CIT VS. HUGHES ESCORTS COMMUNICATIONS LTD, 311 ITR 253 (DEL) OMNIGLOBE INFORMATION TECH INDIA (P) LTD VS. CIT, 3 69 ITR 1 (DEL) CIT VS. E FUNDS INTERNATIONAL INDIA, 162 TAXMAN 1 ( DEL) CIT VS. ESPN SOFTWARE INDIA. P. LT D 301 ITR 368 (DEL) CIT VS. DHOOMKETU BUILDERS & DEVELOPMENT P. LTD, 36 8 ITR 680 (DEL) CIT VS. SAMSUNG INDIA ELECTRONICS LTD, 356 ITR 354 (DEL) CAREFOUR WC & C INDIA (P) LTD VS. CIT, 368 ITR 692 (DEL) CIT VS. FRANCO TOSI INGEGNERIA, 241 ITR 268 (MA D) CIT VS. CLUB RESORTS P. LTD, 287 ITR 552 (MAD) ITO VS. GREAT SEA TRAWLERS BUILDING YARD MANDAPAM L TD, 14 TTJ 307, (MADRAS TRIBUNAL) ITA NO. 563/CHNY/2017. :- 12 -: 10. AD LIBITUM REPLY OF THE LD. DEPARTMENTAL REPRESENTA TIVE WAS THAT LAND ON WHICH MANUFACTURING FACILITY WAS TO BE SET UP ITSELF WAS IN THE PROCESS OF BEING ACQUIRED, AND ASSESSEE COUL D NOT SAY THAT PROTOTYPES OF VEHICLES WERE ALREADY TESTED. FURTHE R, ACCORDING TO HER, THE ONLY TRADING DONE BY ASSESSEE WAS SALE OF ONE SOLITARY BUS WHICH WAS GIVEN TO IT FREE OF COST BY SOMEBODY ABROAD. THIS WOULD NOT, ACCORDING TO HER, MEAN THAT ASSESSEE HAD SET UP ITS BUSINESS. 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. CASE OF THE ASSE SSEE IS THAT IT WAS PURSUING A BUCKET OF ACTIVITIES CONNECTED TO ITS MA IN OBJECT, WHICH INTER ALIA INCLUDED RESEARCH AND DEVELOPMENT, DESIGNING , MANUFACTURING AND SELLING OF COMMERCIAL VEHICLES. AS PER THE LD. AUTHORISED REPRESENTATIVE, ASSESSEE HAD ALREADY STARTED PROCUR EMENT OF COMPONENTS AND HAD ALSO UNDERTAKEN TRADING, APART F ROM PURSUING A R & D ACTIVITIES. AT THIS JUNCTURE, IT IS APPOSITE T O LOOK AT THE DIRECTORS REPORT OF THE ASSESSEE FOR THE RELEVANT PREVIOUS YE AR. WHAT WAS STATED IN THE SUCH DIRECTORS REPORT UNDER THE HEADING FIN ANCIAL RESULTS IS REPRODUCED UNDER:- ITA NO. 563/CHNY/2017. :- 13 -: YOUR COMPANYS PERFORMANCE DURING THE YEAR AS COMPA RED WITH THAT DURING THE PREVIOUS YEAR IS SUMMARIZED BE LOW :- ( IN MILLION ) 2009-10 2008-09 SHARE CAPITAL (INCLUDING SHARE APPLICATION MONEY) 5921.31 2,578.99 C APITAL WORK IN PROGRESS 5592.17 3,082.44 FIXED ASSETS (NET BLOCK) 1543.85 87.12 (+) PROFIT ( - ) LOSS BEFORE DEPRECIATION & TAX (155.41) (327.14) DEPRECIATION 4.61 5.30 NET PROFIT /( - ) LOSS BEFORE TAX (160.02) (332.44) PROVISION FOR FRINGE BE NEFIT TAX -- 5.72 NET PROFIT ( - ) LOSS AFTER TAX (160.02) (338.16) BALANCE CARRIED TO BALANCE SHEET (513.69) (353.67) SINE YOUR COMPANY IS YET TO START COMMERCIAL PRODUC TION AND NO REVENUE WAS GENERATED, THE COMPANY HAS REPORTED A LOSS OF 160.02MILLION AFTER TAX DURING THE YEAR UNDER REVIEW, YOUR COMPANY SUCCEEDE D IN IMPLANTING ITS FIRST FOOTPRINT ON INDIAN CUSTOM ERS BY SELLING IMPORTED ROSA BUS MANUFACTURED BY MITSUBISH I FUSO JAPAN. YOUR PARENT COMPANY ('DAIMLER AG') HAD CONSOLIDATED THEIR TRUCK BUSINESS FOR INDIA WITH YOUR COMPANY BE CAUSE WHICH YOUR COMPANY TAKES THE RESPONSIBILITY OF MARK ETING, SALES & SERVICE OF MERCEDES-BENZ TRUCKS EFFECTIVE FROM JULY 01, 2010. WITH FOCUS ON THE ENTIRE INDIAN TRUCK MARKET, YOUR COMPANY CONSOLIDATES THE DAIMLER TRUCK BUSINESS IN INDIA AND OFFERS THE TOTAL PRODUCT PORTFOLIO OF DAIMLER TRUCKS TO THE CUSTOMERS FOR THEIR INDIVIDUAL NEEDS. FURTHERMO RE, YOUR ITA NO. 563/CHNY/2017. :- 14 -: COMPANY WILL BE ABLE TO OFFER A DEDICATED APPROACH WITH SYNERGIES FOR THE PREMIUM SEGMENT OF HEAVY TRANSPORTATION, POWERED BY HIGH PERFORMANCE MERCEDE S- BENZ TRUCKS THUS, IT IS AN ADMITTED POSITION THAT ASSESSEE WAS YET TO START COMMERCIAL PRODUCTION AND NO REVENUE WAS GENERATED BY IT. IN OTHER WORDS, SALE OF B36,44,361/- APPEARING IN THE INCOME SIDE OF ITS PROFIT AND LOSS ACCOUNT WAS NOT CONSIDERED BY THE ASSESSEE ITSELF AS REVENUE ARISING FROM ANY COMMERCIAL OPERATION. REASON WHY ASSESSEE DEEMED SO IS CLEAR FROM NOTE NO.9 OF ITS SIGNIFICANT AC COUNTING POLICIES WHICH READ AS UNDER:- 9. DURING THE YEAR, THE COMPANY HAS IMPORTED MITU BISHI FUSO DIESEL ENGINE BUS FREE OF COST FORM FROM MITU SUBISH FUSO TRUCK BUS CORPORATION, JAPAN AND SOLD IT IN TH E INDIAN MARKET. REVENUE REPRESENTS THE SALE OF SUCH TRUCK, NET OF SALES TAX. 12. ANOTHER FACET OF THE ARGUMENT OF THE LD. AUTHORISE D REPRESENTATIVE IS THAT ASSESSEE, THOUGH IT HAD NOT YET STARTED COMMERCIAL PRODUCTION, HAD ALREADY UNDERTAKEN R & D ACTIVITIES, TESTED PROTYPES AND PROCURED COMPONENTS. HOWEVER, EXPENDIT URE INCURRED BY THE ASSESSEE GIVEN IN SCHEDULE 12 OF IT S AUDITED FINAL ACCOUNTS DO NOT SHOW ANY PURCHASE OF COMPONENTS. SCHEDULE 4 OF ITS ITA NO. 563/CHNY/2017. :- 15 -: FINAL ACCOUNTS WHICH GIVES THE BREAK-UP OF THE EXPE NDITURE CAPITALIZED DURING THE RELEVANT PREVIOUS YEAR READS AS UNDER: DESCRIPTION AS AT APR IL 1, 2009 INCURRED DURING THE YEAR CONSTRUCTION IN PROGRESS 1,500,608,266 1,190,965,773 ADVANCE AGAINST CAPITAL GOODS 58,046,626 549,795,199 PROJECT DEVELOPMENTS EXPENSES SALARIES AND ALLOWANCES 158,669,050 452,214,944 CONTRIBUTION TO P ROVIDENT AND OTHER FUNDS 4,671,559 12,642,468 LEGAL AND PROFESSIONAL CHARGES 790,568,873 440,475,128 TRAVELLING AND CONVEYANCE 74,453,442 60,362,721 RENT 34,578,141 43,322,638 RECRUITMENT EXPENSES 34,250,305 25,849,770 COMMUN ICATION EXPENSES 6,328,102 8,589,091 INSURANCE 2,900,531 1,16,560 STAFF WELFARE 2,881,169 12,631,676 POWER AND FUEL 1,695,368 13,529,119 DEPRECIATION 11,514,006 32,158,904 OTHERS 13,241,660 ------------------- 54,044,209 ---------------- TOTAL OF PROJECT DEVELOPMENT EXPENSES 1,135,752,206 1,156,937,227 TOTAL 2,694,407,098 2,897,698,199 ITA NO. 563/CHNY/2017. :- 16 -: THERE IS NO IDENTIFIABLE ITEM SHOWN IN THE PROFIT AND LOSS ACCOUNT OR IN THE CAPITALIZED EXPENDITURE WHICH CAN SUBSTANTIA TE THE CLAIM OF ANY R& D ACTIVITY. NEITHER HAS ANY REVENUE BEEN GENERA TED FROM R&D ACTIVITIES ALSO. FACT OF THE MATTER IS THAT ASSESSE E HAD JUST COMPLETED THE PROCESS OF REGISTERING THE LEASE OF THE LAND A ND STARTED THE SETTING UP OF ITS PLANT, IN SUCH LAND DURING RELEVA NT PREVIOUS YEAR. 13. COMING TO THE ASPECT OF SALE OF A BUS WHICH WAS GI VEN FREE OF COST BY A COMPANY ABROAD, SUCH A SOLITARY TRANSA CTION CANNOT IN OUR OPINION, BE CONSTRUED AS START OF COMMERCIAL OPERATIONS. AS TO THE NATURE OF OTHER INCOME OF B4,94,54,084/- CI TED BY THE LD. AUTHORISED REPRESENTATIVE AS AN EVIDENCE FOR SETTIN G UP THE BUSINESS, THE ITEMS CONSTITUTING SUCH OTHER INCOME AS IT APPEAR IN SCHEDULE 11 OF ITS FINAL ACCOUNTS IS REPRODUCED HEREUNDER:- INTEREST ON DEPOSITS (TAX DED UCTED AT SOURCE B57,512 ( PREVIOUS YEAR B34,372) 489,574 233,888 PROFIT ON SALE OF MUTUAL FUND INVESTMENTS ---- 41,173,270 DIVIDEND INCOME FROM MUTUAL FUND INVESTMENTS 20,761,394 15,715,403 FOREIGN EXCHANGE GAIN (NET) 22,375,644 --- MISCELL ANEOUS INCOME 5,827,472 92,837 49,454,084 57,215,398 ITA NO. 563/CHNY/2017. :- 17 -: NEITHER THE SOLITARY SALE OF A BUS NOR THE OTHER IN COME, IN OUR OPINION CAN SUBSTANTIATE THE CLAIM OF THE ASSESSEE THAT IT S BUSINESS WAS SET UP. 14. COMING TO THE RELIANCE PLACED ON THE ASSESSMENT FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, IT IS TRUE T HAT REOPENING WHICH WAS ATTEMPTED, WAS QUASHED BY HONBLE JURISD ICTIONAL HIGH COURT THROUGH ITS JUDGMENT DATED 30.01.2018. WHAT WAS HELD BY THEIR LORDSHIPS IN THIS JUDGMENT AT PARAS 16 TO 20 ARE REPRODUCED HEREUNDER:- 16. IN THE LIGHT OF THE ABOVE LEGAL POSITION, THE I MPUGNED PROCEEDINGS ARE LIABLE TO BE SET ASIDE FOR THE SOLE REASON THAT THERE WAS NO TANGIBLE MATERIAL AVAILABLE WITH THE A SSESSING OFFICER EXCEPT THAT WHICH WAS DISCLOSED IN THE RETU RN OF INCOME FILED BY THE PETITIONER FOR THE RELEVANT ASS ESSMENT YEAR. THIS HAS BEEN HELD TO BE NOT A SOUND FOUNDATI ON FOR EXERCISING POWER UNDER SECTION 147 READ WITH SECTIO N 148 OF THE ACT. THIS WOULD BE SUFFICIENT TO SET ASIDE THE IMPUGNED PROCEEDINGS. HOWEVER, SINCE ELABORATE SUBMISSIONS W ERE MADE ON EITHER SIDE, TOUCHING UPON THE FACTUAL ISSU ES ONLY TO TEST WHETHER REOPENING WAS JUSTIFIED OR WHETHER IT WAS A CHANGE OF OPINION. I PROPOSED TO CONSIDER THE SAID ISSUE. THE QUESTION REVOLVES UPON WHETHER THE PETITIONER HAD M ADE FULL AND TRUE DISCLOSURE WITH REGARD TO THE YEAR OF COMMENCEMENT OF BUSINESS. THE ASSESSEE WOULD CONTEN D THAT THERE HAS BEEN FULL AND TRUE DISCLOSURE. 17. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE POI NTED OUT THAT THIS ASPECT WAS MENTIONED IN THE RETURN OF INC OME AND DULY EXPLAINED IN THE NOTES TO THE FINANCIAL STATEM ENTS, WHICH FORMS PART OF THE RETURN OF INCOME AND SPECIFICALLY DEALT WITH BY THE TPO, AS IT WAS DISCLOSED BY THE ASSESSEE IN FORM NO.3 CEB. THE ASSESSING OFFICER ISSUED NOTICES UNDE R SECTION 142(1) OF THE ACT AND CALLED FOR INFORMATIO N, WHICH WERE FURNISHED ALONG WITH LETTER DATED 08.12.2012, A BRIEF NOTE ON THE BUSINESS ACTIVITY OF THE COMPANY WAS FU RNISHED ITA NO. 563/CHNY/2017. :- 18 -: WHICH SHOWS THAT THE PETITIONER WAS TO SET UP A TRU CK MANUFACTURING FACILITY WITH R & D FACILITY ACTIVITY FOR RESEARCH AND DEVELOPMENT. THE TPO CONSIDERED THIS ISSUE AND WHILE PASSING THE ORDER DATED 27.12.2017, SPECIFICALLY RE CORDED THAT THE COMMERCIAL PRODUCTION PROPOSES TO START I N THE YEAR 2012. THIS MATERIAL WAS AVAILABLE AND CONSIDERED BY THE ASSESSING OFFICER AS COULD BE SEEN FROM PARA 2 OF T HE SCRUTINY ASSESSMENT ORDER DATED 24.01.2013. 18. THE LEARNED SENIOR STANDING COUNSEL FOR THE REV ENUE WOULD SUBMIT THAT THE ASSESSING OFFICER WILL NOT LO OK INTO FORM NO.3 CEB AND IT IS FOR THE TPO, TO TAKE NOTE O F THE SAME AND ONLY IN THAT SAID DOCUMENT, IT HAS BEEN ST ATED THAT PRODUCTION HAS NOT COMMENCED. I AM UNABLE TO COUNTE NANCE THE SUBMISSION OF THE LEARNED COUNSEL FOR MORE THAN ONE REASON. FIRSTLY, ASSESSMENT PROCEEDINGS ARE NOT A O NE WAY PROCEEDINGS, EVEN IN THE CASE OF THE ASSESSEE, THE ASSESSING OFFICER WHILE COMPLETING THE REGULAR ASSE SSMENT, CALLED FOR DETAILS AND DOCUMENTS WHICH WERE FURNISH ED BY THE ASSESSEE. AS HELD BY THE HON'BLE SUPREME COURT IN CALCUTTA DISCOUNT COMPANY LIMITED VS. ITO, REPORTED IN 1961 (41) ITR 191 (SC ), NOTHING MORE IS REQUIRED ON THE PART OF THE ASSESSEE EXCEPT TO FURNISH ALL MATERIAL FACTS. THERE IS SUFFICIENT INDICATION TO SHOW THAT THE ASSESSING OF FICER CONSIDERED THE ORDER PASSED BY THE TPO. THIS' WOULD BE SUFFICIENT TO HOLD THAT THE MATERIALS WHICH WERE PL ACED IN FORM NO.3 CES, RESULTING IN AN ORDER DATED 27.12.20 12, WAS PART OF THE ASSESSMENT FILE, PERUSED BY THE ASSESSING OFFICER, BUT FOR WHICH HE WOULD NO T HAVE REFERRED TO THE SAME IN PARAGRAPH 2. EVEN ASSUMING THE ASSESSING OFFICER DID NOT LOOK INTO THE FORM NO. 3 CES. HE IS BOUND TO LOOK INTO THE ORDER PASSED BY THE TPO, AS HE IS REQUIRED TO SEE ANY OTHER ADDITIONS HAVE B EEN MADE. THIS IS SO BECAUSE THE ORDER PASSED BY THE TPO IS B INDING ON THE ASSESSING OFFICER. THUS, I HAVE NO HESITATIO N TO HOLD THAT THE MATERIALS DISCLOSED BY THE ASSESSEE W ERE AVAILABLE WITH THE ASSESSING OFFICER AND IT IS FROM SUCH MATERIAL, THE PRESENT IMPUGNED REOPENING PROCEEDING S HAVE BEEN INITIATED. THUS, THE RESPONDENT HAD INITIATED PROCEEDINGS PURELY BASED ON EXISTING INFORMATION WH ICH WAS PROVIDED BY THE ASSESSEE IN THE COURSE OF ORIGINAL ASSESSMENT AND BASED ON THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE RELEVANT YEAR. THE PETITIONER BEFO RE THE ASSESSING OFFICER PLACED THE PROFIT AND LOSS ACCOUN T AND THE BALANCE SHEET AND THE RELEVANT ANNEXURES AND NOTES TO THE FINANCIAL STATEMENTS. TH E NOTES ARE IMPORTANT MATERIAL BECAUSE IT WOULD DISCLOSE TH E DETAILS PERTAINING TO VARIOUS ENTRIES IN THE PROFIT AND LOS S ACCOUNT ITA NO. 563/CHNY/2017. :- 19 -: AND BALANCE SHEET AND EXPLAIN THE STAND TAKEN BY TH E ASSESSEE. SO FAR AS THE FIXED ASSETS IS CONCERNED I N THE BALANCE SHEET, THE PETITIONER HAS INDICATED THAT THE CAPITAL WORK IS I N PROGRESS. 19. THUS, IN THE ABSENCE OF ANY NEW MATERIAL IN THE HANDS OF THE ASSESSING OFFICER OR DISCOVERY OF SOME MATERIAL S OR A NEW INSIGHT AFTER THE COMPLETION OF THE ORIGINAL AS SESSMENT, THE QUESTION OF REOPENING DOES NOT ARISE. THE CONCL USION ARRIVED BY THE ASSESSING OFFICER IN THE IMPUGNED OR DER THAT MERELY THE PETITIONER HAS PRODUCED BOOKS OF ACCOUNT BEFORE THE ASSESSING OFFICER AND THAT THERE IS NO PRESUMPT ION THAT ALL THE BOOKS WERE SEEN BY THE ASSESSING OFFICER IS FACTUALLY INCORRECT, AS DURING THE COURSE OF ASSESSMENT PROCE EDINGS, DOCUMENTS AND EVIDENCES WERE CALLED FOR FROM THE AS SESSEE WHICH WERE PRODUCED AND AFTER PERUSAL OF THE SAME, THE ASSESSMENT WAS COMPLETED. AS POINTED OUT IN SEVERAL DECISIONS, IT IS FOR THE ASSESSING OFFICER TO ARRIV E AT A CONCLUSION BASED ON THE MATERIALS PRODUCED AND IT I S FOR THE ASSESSEE TO SUGGEST AS TO WHAT CONCLUSION THAT SHOU LD BE ARRIVED AS IT HAS BEEN HELD THAT THE ASSESSEE IS NO T EXPECTED TO SUBMIT A DRAFT ASSESSMENT ORDER. 20. THUS, FOR ALL THE ABOVE REASONS, I AM OF THE CO NSIDERED VIEW THAT THE IMPUGNED REOPENING PROCEEDINGS IS A C LEAR CASE OF CHANGE OF OPINION AS THERE HAS BEEN FULL AN D TRUE DISCLOSURE BY THE ASSESSEE AT THE TIME OF SCRUTINY ASSESSMENT/ORIGINAL ASSESSMENT. THE ASSESSING OFFIC ER HAD NO TANGIBLE MATERIAL TO COME TO A CONCLUSION THAT THERE WAS NO FULL AND TRUE DISCLOSURE AND THE REOPENING IS BASED ON THE MATERI ALS AVAILABLE ON RECORD I.E., IN THE RETURN OF INCOME F ILED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR AND BASED ON SUCH MATERIAL, REOPENING COULD NOT HAVE BEEN DONE A S IT HAS BEEN HELD THAT INFORMATION RECEIVED BY THE ASSESSIN G OFFICER, AFTER THE COMPLETION OF THE ASSESSMENT ALONE IS SOU ND FOUNDATION FOR EXERCISING POWER UNDER SECTION 147 R EAD WITH SECTION 148 OF THE ACT. THEIR LORDSHIPS HAD INVALIDATED THE REOPENING ATT EMPTED FOR THE ASSESSMENT YEAR 2009-2010, TAKING A VIEW THAT IT WA S ON A CHANGE OF OPINION, AND NOT DUE TO ANY FAILURE OF THE ASSESSEE TO MAKE A TRUE AND FULL DISCLOSURE. THE JUDGMENT, IN OUR OPINION DOES NOT SAY THAT ITA NO. 563/CHNY/2017. :- 20 -: ASSESSEE HAD SETUP ITS BUSINESS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2009-2010. IN OUR OPINION JUST FOR A REASON THAT LD. ASSESSING OFFICER ACCEPTED THE CONTENTION OF THE AS SESSEE IN THE EARLIER YEAR ON A WRONG FOOTING WOULD NOT BE A REASON TO AC CEPT THE CLAIM THAT RULE OF RES-JUDICATA WOULD APPLY, WHEN FACTS SHOW A TOTALLY DIFFERENT SCENARIO. 15. AS TO THE VARIOUS JUDGMENTS RELIED ON BY THE LD. A UTHORISED REPRESENTATIVE, THE CASE OF WESTERN INDIA VEGETABLE PRODUCTS LTD (SUPRA ), IS THE FIRST. IN THE SAID CASE, CONCERNED ASSESS EE HAD STARTED PURCHASING GROUNDNUTS WHICH WAS AN ESSENTIAL RAW MATERIAL FOR PRODUCTION OF OIL. THOUGH OIL MILL WAS STILL TO B E PROCURED, THEIR LORDSHIPS HELD THAT BUSINESS COULD BE DEEMED AS SET UP, THE MOMENT ASSESSEE HAD PURCHASED THE RAW MATERIAL. AS AGAIN ST THIS, IN THE CASE BEFORE US, THERE IS NO PURCHASE OF ANY RAW MATERIAL FOR PRODUCTION OF THE COMMERCIAL VEHICLES. ASSESSEE WAS STILL IN TH E PROCESS OF SETTING UP ITS PLANT. COMING TO THE JUDGMENT OF HONBLE B OMBAY HIGH COURT IN THE CASE OF RALLIWOLF LTD (SUPRA) , THE MAIN OBJECT OF THE SAID COMPANY WAS AS UNDER:- (1) TO CARRY ON THE BUSINESS OF TOOL MAKERS, ELECTR ICAL AND MECHANICAL ENGINEERS AND CONTRACTORS, IRON-FOUNDERS , MANUFACTURERS OF AGRICULTURAL IMPLEMENTS AND OTHER MACHINERY, BRASS FOUNDERS, METAL WORKERS, BOILER MA KERS, WHEELWRIGHTS, MACHINISTS, IRON AND STEEL CONVERTERS , SMITHS, WOODWORKERS, BUILDERS, PAINTERS, METALLURGI STS, ITA NO. 563/CHNY/2017. :- 21 -: WATER SUPPLY ENGINEERS, GAS AND ELECTRICITY MAKERS, FRAMERS, PRINTERS, CARRIERS AND MERCHANTS, AND TO B UY, SELL, MANUFACTURE, IMPORT AND EXPORT, REPAIR, CONVE RT, ALTER, LET ON HIRE, AND DEAL IN PORTABLE ELECTRIC T OOLS, AND TOOLS OF ALL KINDS, IMPLEMENTS AND MACHINERY OF ALL KINDS, VEHICLES OF ANY KIND, ROLLING STOCK AND HARDWARE OF ALL KINDS AND THE COMPONENT PARTS THEREOF AND ACCESSORI ES THERETO. ' CONCERNED ASSESSEE HAD DURING THE RELEVANT PREVIOUS YEAR PURCHASED ITEMS WHICH COULD BE USED EITHER FOR MANUFACTURE OR FOR SALES. THIS WAS THE REASON WHY THEIR LORDSHIPS HELD THE ASSES SEE TO HAVE COMMENCED ITS BUSINESS. AS AGAINST THIS, IN THE CA SE BEFORE US, THERE IS NO SUCH PURCHASE OF RAW MATERIALS OR COMPONENTS FOR SALE. 16. NO DOUBT, LD. COUNSEL HAS PLACED RELIANCE ON A HOS T OF OTHER JUDGMENTS. IN ALL THESE JUDGMENTS, CONCERNED ASS ESSEES HAD STARTED ATLEAST ONE LINE OF ACTIVITY COMING WITHIN THE AMBI T OF THE MAIN OBJECT AND SUCH LINE OF ACTIVITY WHICH EARNED REVENUE, W AS A PRECURSOR TO ITS MAIN OBJECT. NONE OF THESE JUDGMENTS, IN OUR OPINION WOULD FURTHER THE CASE OF THE ASSESSEE HERE. 17. IN THE LIGHT OF OUR OBSERVATIONS ABOVE, WE ARE OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) FELL IN ERROR IN ACCEPTING THE CONTENTION OF THE ASSESSEE THAT IT HA D SET UP ITS BUSINESS. JUST BECAUSE LD. ASSESSING OFFICER COMP UTED THE INCOME BY MAKING A DISALLOWANCE ON RETURNED LOSS WOULD NOT E NTITLE THE ASSESSEE TO CLAIM THAT AN EXPENDITURE OTHERWISE NOT ALLOWA BLE UNDER THE ACT, ITA NO. 563/CHNY/2017. :- 22 -: HAS TO BE ALLOWED. EXPENDITURE CLAIMED BY THE ASSE SSEE WAS INCURRED PRIOR TO SETTING UP ITS BUSINESS. WE THEREFORE HAV E NO HESITATION IN SETTING ASIDE THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND RESTORING THE ORDER OF THE LD. ASSESS ING OFFICER. 18. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS AL LOWED. ORDER PRONOUNCED ON THURSDAY, THE 31ST DAY OF MAY , 2018, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED:31ST MAY, 2018 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF