DCIT, New Delhi V. M/s Field Fresh Foods Pvt. Ltd., New Delhi

ITA 5917/DEL/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7436 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-08-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.5917/DEL/2010 ASSESSMENT YEAR : 2005-06 DCIT, CIRCLE-11(1), ROOM NO.312, CR BUILDING, NEW DELHI. VS. FIELD FRESH FOODS PVT. LTD., H-5/12, QUTAB AMBIENCE, MEHRAULI ROAD, NEW DELHI. PAN: AAACF8488N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANIL BHALLA, CA DEPARTMENT BY : SHRI ANIL KUMAR SHARMA, SR. DR DATE OF HEARING : 08.08.2016 DATE OF PRONOUNCEMENT : 08.08.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE CIT(A) ON 20.10.2010 IN RELATION TO THE ASSE SSMENT YEAR 2005-06. ITA NO.5917/DEL/2010 2 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.3,14,39,483/- ON ACCOUNT OF PRIOR PERIOD EXPE NSES. 3. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 6.9.2004, BEING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE FILED ITS RETURN DECLARING LOSS OF RS.3,08,71,337/-. ON PERUSAL OF THE DETAILS, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE CLAIMED DEDUCTION FOR SEVERAL EXPENSES INCLUDING PERSONNEL, ADMINISTRATIVE, BUSINESS DEVELOPMENT, TRAVELLING AN D CONVEYANCE, LEGAL EXPENSES AND RATES AND TAXES. THE AO NOTICED THAT F IRST PURCHASE WAS MADE BY THE ASSESSEE ON 11.3.2005. IT WAS, THEREFOR E, OPINED THAT THE BUSINESS COMMENCED FROM SUCH DATE. AFTER ALLOWING PROPORTIONATE DEDUCTION OF EXPENSES FOR THE MONTH OF MARCH, 2005, AMOUNTING TO RS.10.28 LAC, THE AO MADE DISALLOWANCE OF THE REMAI NING EXPENSES OF RS.3,14,39,483/-. THE LD. CIT(A) DELETED THE DISAL LOWANCE BY NOTICING THAT THE BUSINESS WAS SET UP ON THE DATE OF INCORPO RATION ITSELF. THE REVENUE IS AGGRIEVED AGAINST THE DELETION OF ADDITI ON. ITA NO.5917/DEL/2010 3 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. SECTION 3 OF THE INCOME-TAX ACT , 1961 (HEREINAFTER ALSO CALLED THE ACT) DEFINING PREVIOUS YEAR PROVIDES , INTER ALIA , THAT IN THE CASE OF A BUSINESS OR PROFESSION, NEWLY SET UP, THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF SETTING UP O F THE BUSINESS ENDING WITH THE SAID FINANCIAL YEAR. HERE IT IS SIGNIFICAN T TO TAKE NOTE OF THE CHARGING SECTION 4, WHICH STATES THAT THE INCOME-TA X SHALL BE CHARGED FOR ANY ASSESSMENT YEAR IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. ON A CONJOINT READING OF THESE SECTIO NS, IT CLEARLY EMERGES THAT THE INCOME OF A NEWLY SET UP BUSINESS IS CALCU LATED, STARTING WITH THE DATE OF SETTING UP AND ENDING WITH THE CLOSE OF THE FINANCIAL YEAR. THE RELEVANT POINT TO BE HIGHLIGHTED IS THAT THE PREVIO US YEAR IN THE CASE OF A NEWLY SET UP BUSINESS, OR IN OTHER WORDS, THE START ING POINT OF TAXABILITY OF INCOME OR ALLOWABILITY OF DEDUCTION, IS THE SETTIN G UP OF THE BUSINESS AND NOT THE COMMENCEMENT OF BUSINESS. 5. THERE CAN BE BROADLY THREE STAGES IN MAKING A BUSINESS OPERATIONAL, VIZ., (I) UP TO THE SETTING UP OF BUSINESS; (II) PO ST SETTING UP BUT BEFORE COMMENCEMENT OF BUSINESS ; AND (III) COMMENCEMENT O F BUSINESS AND ITA NO.5917/DEL/2010 4 THEREAFTER. SETTING UP OF A BUSINESS REFERS TO A SI TUATION IN WHICH THE BUSINESS IS READY TO DISCHARGE THE FUNCTIONS FOR WH ICH IT IS SET UP. PRE- SETTING UP WOULD MEAN DOING OF ALL THE NECESSARY TH INGS CULMINATING INTO THE ATTAINMENT OF THE STAGE OF READY TO DISCHARGE FUNCTIONS. IN THE CASE OF A MANUFACTURING UNIT, THE SETTING UP WOULD MEAN INS TALLING ALL THE NECESSARY MACHINES ETC. FOR MANUFACTURE. PRE-SETTIN G UP WOULD MEAN THE PHASE DURING WHICH THE PLACE FOR BUSINESS IS ACQUIR ED, MACHINERY PURCHASED AND THEN FINALLY INSTALLED, SO THAT THE S TAGE OF SETTING UP OF BUSINESS IS ATTAINED, NAMELY, READY FOR STARTING TH E MANUFACTURING ACTIVITY. IN THE CASE OF A TRADER, SETTING UP OF A BUSINESS M EANS THE STAGE UP TO WHICH THE PLACE OF BUSINESS IS ACQUIRED AND THE THINGS NE CESSARY TO START TRADING, ARE DONE. THE SUM AND SUBSTANCE OF THE SETTING UP O F A BUSINESS IS TO FULLY GEAR UP FOR UNDERTAKING THE WORK FOR WHICH THE BUSI NESS IS TO BE CARRIED ON AND REACHING A STAGE WHEN SUCH THE BUSINESS ACTIVIT Y CAN BE CARRIED ON THE BLOW OF A WHISTLE. THE THIRD STAGE IS THE ACTUAL C OMMENCEMENT OF BUSINESS. THIS STAGE SIMPLY MEANS TAKING A FIRST ST EP IN THE DOING OF THE OVERALL INCOME PRODUCING ACTIVITY. IN THE CASE OF A MANUFACTURING UNIT, THIS STAGE WOULD COME WHEN RAW MATERIAL ETC. IS PROCURED FOR THE START OF ACTUAL ITA NO.5917/DEL/2010 5 MANUFACTURING. A TRADER CAN BE SAID TO HAVE COMMENC ED HIS BUSINESS ON PURCHASING MATERIAL TO BE SOLD TO THE CUSTOMERS. TH E SECOND STAGE CAN BE TERMED NORMALLY AS A WAITING PERIOD BETWEEN THE RE ADY TO START PHASE AND THE ACTUAL STARTING OF BUSINESS. THUS IT IS EVIDENT THAT THE THIRD STAGE OF COMMENCEMENT OF BUSINESS CAN EITHER COINCIDE WITH T HE DOING OF WORK IN THE ACTUAL EXECUTION OF ORDER RECEIVED FROM CUSTOME RS FOR SALE OR PROVISION OF SERVICES ETC. OR EVEN PRIOR TO THAT WHEN THE BUS INESSMAN PURCHASES OR MANUFACTURES THE GOODS FOR SALE, WITHOUT THERE BEIN G ANY ADVANCE ORDER. 6. IN CIT VS. ESPN SOFTWARE INDIA PVT. LTD. (2009) 184 TA XMAN 452 (DEL), THE ASSESSEE ACQUIRED LICENSE FROM ITS PARENT COMP ANY ON 15.8.95 TO SUB-LICENSE ESPN SERVICES FOR DISTRIBUTION OF PROGR AMMES IN INDIA. BY VIRTUE OF THE LICENCE, THE ASSESSEE ENTERED INTO AN AGREEMENT ON 01.10.95 WITH A COMPANY AND APPOINTED IT AS THE SOLE DISTRIB UTOR FOR ESPN PROGRAMMES IN INDIA. CERTAIN EXPENSES WERE INCURRED WHICH WERE CLAIMED AS DEDUCTION. THE AO OPINED THAT THE BUSINESS OF TH E ASSESSEE DID NOT COMMENCE DURING THE RELEVANT YEAR AND TREATED ALL E XPENSES AS HAVING BEEN INCURRED PRIOR TO COMMENCEMENT OF BUSINESS. THE TRI BUNAL HELD THAT THE BUSINESS WAS SET UP ON 15.08.95 ON THE DATE OF ACQU IRING OF LICENCE FROM ITA NO.5917/DEL/2010 6 ITS PARENT COMPANY. THE HONBLE HIGH COURT UPHELD T HE VIEW TAKEN BY THE TRIBUNAL. IN CIT VS. SAMSUNG INDIA ELECTRONICS LTD. (2013) 356 I TR 354 (DEL) , IT HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT THAT A BUSINESS IS SET UP WHEN IT IS ESTABLISHED AND IS READY TO COMME NCE BUSINESS. 7. ADVERTING TO THE FACTS OF THE INSTANT CASE, IT IS FOUND THAT THE ASSESSEE HAS BEEN INCORPORATED WITH THE MAIN OBJECTS OF CARR YING ON OF THE BUSINESS OF FRUITS AND VEGETABLES AND OTHER AGRICULTURAL PRO DUCE APART FROM THE BUSINESS OF FLORICULTURE AND HORTICULTURE. THE ASS ESSEE APPOINTED SHRI RAVI DEOL AS ITS CEO W.E.F. 6.9.2004 BEING THE DATE OF I TS INCORPORATION AND OTHER PERSONNEL WERE EMPLOYED IN MARKETING, FINANCE , HR, ETC., IN THE MONTHS OF OCTOBER AND NOVEMBER, 2004. THE ASSESSEE ENTERED INTO AGREEMENT WITH M/S GLOBAL AGRI SYSTEMS WHICH IS DAT ED 30.11.2004, WHEREBY THEY WERE APPOINTED AS CONSULTANTS FOR PROV IDING SERVICES IN THE NATURE OF DEVELOPMENT OF BUSINESS PLAN, ETC. THE A SSESSEE ALSO PRODUCED BEFORE THE LD. CIT(A) COPIES OF E-MAIL CORRESPONDEN CE BETWEEN ITS OFFICIALS AND EMPLOYEES. THIS SHOWS THAT THE ASSESSEE SET UP ITS BUSINESS ON 6.9.2014 ITSELF AND, HENCE, ALL THE REVENUE EXPENSE S INCURRED AFTER THIS DATE ARE DEDUCTIBLE. IT IS A MATTER OF RECORD THAT THE ASSESSEE VOLUNTARILY ITA NO.5917/DEL/2010 7 DISALLOWED A SUM OF RS.31,29,921 AS PRE-OPERATIVE E XPENSES INCURRED PRIOR TO THE SETTING UP OF BUSINESS. WE HAVE PERUSED THE DETAILS OF SUCH EXPENSES WHICH HAVE BEEN INCORPORATED IN THE PAPER BOOK. ON GOING THROUGH SUCH DETAILS, IT IS NOTICED THAT THE EXPENS ES OF RS.3.14 CRORE ARE OF THE REVENUE NATURE AND INCURRED AFTER THE SETTING U P OF THE BUSINESS. IN OUR CONSIDERED OPINION, THE LD. CIT(A) RIGHTLY APPRECIA TED THE FACTS IN DELETING THE ADDITION. WE, THEREFORE, UPHOLD THE SAME. 8. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . THE ORDER PRONOUNCED IN THE OPEN COURT ON 08.08.201 6. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 08 TH AUGUST, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.