DCIT 3(3)(1), MUMBAI V. ROLTA POWER P.LTD, MUMBAI

ITA 6708/MUM/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5895 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 16-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Earning of tax free income; Period of limitation; Condonation of delay; Revised return; Capital expenditure; Rule 8D; Set aside
• Section: 142(1); 14A; 115JB; 143(2); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE S HRI G.S. PANNU (VP ) AND SHRI RAM LAL NEGI (JM) ITA NO. 6708 /MUM/2016 ASSESSMENT YEAR: 2011 - 2012 THE DCIT - 3(3)(1), ROOM NO. 609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S ROLTA POWER PVT. LTD., 21 ST FLOOR, MAKER TOWER F, CUFFE PARADE, MUMBAI - 400005 PAN: AADCR8964L (APPELLANT) (RESPONDENT) CO NO. 284/MUM/2017 (ARISING OUT OF ITA NO. 6708/MUM/2016) ASSESSMENT YEAR: 2011 - 2012 M/S ROLTA POWER PVT. LTD., 21 ST FLOOR, MAKER TOWER F, CUFFE PARADE, MUMBAI - 400005 PAN: AADCR8964L VS. THE DCIT CIRCLE - 3(3)(1), ROOM NO. 609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) REVENUE BY : SHRI MANOJ KUMAR SINGH (D R) ASSE SSEE BY : SHRI SHEKHAR GUPTA (A R) DATE OF HEARING: 25 /09 /201 8 DATE OF PRONOUNCEMENT: 21 / 12 /201 8 O R D E R PER RAM LAL NEGI, JM THESE ARE THE APPEAL AND CROSS OBJECTION FILED BY THE REVENUE A ND THE ASSESSEE RESPECTIVELY AGAINST THE ORDER 12.08.2016 PASSED BY THE C OMMISSIONER OF INCOME TAX (APPEALS) (FOR SHORT THE CIT (A)) - 18 , MUMBAI , FOR 2 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 THE ASSESSMENT YEAR 2011 - 12 , WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). ITA NO. 6708 /MUM/2016 (ASSESSMENT YEAR: 2011 - 2012 ) 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF GENERATION, SUPPLY AND DISTRI BUTION OF P OWER AND E NERGY AS WELL AS BUSINESS OF TRADING IN SECURITIES , FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 2,40,87,869/ - , UND E R THE NORMAL PROVISIONS OF THE ACT AND RS. 2,41,03,967/ - UND ER SECTION 115JB OF THE ACT. IN RESPONSE TO THE NOTICES U/S 143(2) AND 142(1) OF THE ACT ISSUED BY THE AO , THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED AND SUBMITTED THE DETAILS CALLED FOR. 3. IT WAS NOTICED THAT THE ASSESSEE HAD SHOWN THE INCOM E FROM SALE OF SHARES IN THE P&L ACCOUNT AMOUNTING TO RS. 18,32,72,570/ - . AGAINST THE SAID INCOME, THE ASSESSEE HAD DEBITED THE FOLLOWING ITEMS OF EXPENSES: - (I) COST OF SALES (SHARES): RS. 17,94,17,921/ - (II) MANPOWER OF EXPENSES: RS. 83,20,655/ - (III) FINANCE CO ST: RS. 16,03,977/ - (IV) OTHER EXPENSES: RS. 1,77,50,678/ - (V) DEPRECIATION: RS. 2,83,306/ - 4. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENSES RELATED TO BUSINESS OF POWER GENERATION SHOULD NOT BE DISALLOWED SINCE THE BUSINESS OF POWER GENER ATION HAD NOT STARTED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS FURTHER ASKED TO EXPLAIN AS TO WHY DISALLOWANCE U/S 14A SHOULD NOT BE WORKED OUT AS PER RULE 8D OF THE INCOME TAX RULES IN VIEW OF THE FACT THAT THE ASSESSEE HAD CLOSING INVESTMENT OF RS. 4,93,91,413/ - IN SHARES. THE ASSESSEE WAS FURTHER ASKED TO SHOW CAUSE AS TO WHY PRE - OPERATIVE EXPENSES OF RS. 27,11,214/ - DEBITED IN P & L ACCOUNT SHOULD NOT BE DISALLOWED. IN RESPONSE THEREOF THE ASSESSEE MADE WRITTEN SUBMISSIONS STATING THAT THE 3 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 ASSESSEE IS IN THE BUSINESS O F INSTALLING OF POWER PROJECTS AND IN THE PROCESS OF SETTING UP OF ITS SOLAR POWER PROJECTS. HOWEVER, THE AO REJECTING THE CONTENTION OF THE ASSESSEE DISALLOWED THE MANPOWER EXPENSES AMOUNTING TO RS. 83,20,655/ - , OTHER EXPENSES AMOUNTING TO RS. 1,77,50,678/ - AND DEPRECIATION AMOUNTING TO RS. 2,83,303/ - HOLDING THAT THE BUSINESS OF THE ASSESSEE OF POWER AND ELECTRICITY GENERATION HAS NOT BEEN SET UP DURING THE YEAR UNDER CONSIDERATION. 5. IT WAS FURTHER NOTICE D THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE ACCOUNT FOR SHARE TRADING ACTIVITIES AN D ALSO NOT IDENTIFIED EXPENSES ATTRIBUTABLE FOR MAKING OF INVESTMENT. ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY DISALLOWANCE U/S 14A AS PER RULE 8D SHOULD NOT BE MADE IN THI S CASE. IN REPLY THE ASSESSEE SUBMITTED THAT SINCE THE ASSESSEE COMPANY HAD NOT EARNED ANY DIVIDED INCOME THE QUESTION OF DISALLOWANCE U/S 14A DOES NOT ARISE. W ITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE SUBMITTED THAT THE WORKING OF DISALLOWANCE U/S 14A R EAD WITH RULE 8D COMES TO RS. 15,40,106/ - . THE AO , HOWEVER , REJECT ING THE CONTENTION OF THE ASSESSEE WORKED OUT THE DISALLOWANCE AT RS. 15,34,979/ - AND DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 11,40,525/ - UNDER THE NORMAL PROVISIONS OF THE ACT. IN THE FIRST APPEAL, THE LD. CIT (A) ALLOWED THE EXPENSES OF RS. 2,63,54,636/ - (LESS RS. 5,27,190/ - PERTAINING TO THE EARLIER YEAR) AND ALSO DEL E TED THE ADDITION OF RS., 15,34,975/ - MADE U/S 14A OF THE ACT. AGAINST THE SAID FINDINGS, THE REVENUE IS IN APPE AL BEFORE THE TRIBUNAL. 6 . THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUND S OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE DI SALLOWANCE OF RS. 2,58,27,446/ - IN RESPECT OF POWER & ELECTRICITY WITHOUT APPRECIATING THE FACT THAT THE SUBSEQUENT YEARS I.E. IN A.Y. 2013 - 14, THE ASSESSEE HAS WITHDRAWN THE CLAIM OF BUSINESS LOSS OF RS. 1,16,19,758/ - BY FILING A REVISED RETURN OF INCOME AND IN A.Y. 2014 - 15, THE ENTIRE EXPENDITURE INCURRED IN RESPECT 4 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 OF SETTING UP OF POWER PLANT UNIT HAS BEEN CLAIMED AS CAPITAL EXPENDITURE AND TRANSFERRED TO CAPITAL WORK IN PROGRESS WHICH IS IN CONSONANCE WITH THE STAND TAKEN BY THE ASSESSING OFFICER IN TH E YEAR UNDER CONSIDERATION I.E. A.Y: 2011 - 12 WHEREIN THE CLAIM OF SIMILAR EXPENDITURE INCURRED FOR SETTING UP OF POWER PLANT WAS TREATED AS CAPITAL IN NATURE INSTEAD OF REVENUE AS CLAIMED BY THE ASSESSEE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE AMOUNT OF DISALLOWANCE U/S 14A OF THE I.T. ACT, 1961 HAS TO BE COMPUTED AS PER RULE 8D OF I.T. RULES, 1962 AS HELD IN THE ORDER OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF M/S GODREJ & BOYCE MANUFACTURING CO. LTD. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN NOT APPRECIATING THE CBDT CIRCULAR NO. 5 OF 2014 DATED 11/02/2014 LAYING DOWN THE CONDITION THAT IT IS NOT NECESSARY THAT EXEMPT INCOME SHOULD NECESSARILY BE INCLUDED IN A PARTICULAR YEARS INCOME FOR THE DISALLOWANCE U/S 14A OF THE I.T. ACT, 1961 TO BE TRIGGERED . 7. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT SINCE THE ASSESSEE HAS NOT STARTED THE PR OJECT DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE AO HAS RIGHTLY DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE. THE ASSESSEE HAS SUBMITTED THE COPY OF PROJECT CONSULTING AGREEMENT DATED 17.01.2010 ENTERED INTO WITH M/S MITICO N CONSULTANCY SERVICES LTD. AND COPY OF CORRESPONDENCES MADE WITH M/S RAJASTHAN RENEWABLE ENERGY CORPORATION LTD. FROM THE AFORESAID DOCUMENTS, IT CAN BE INFERRED THAT THE ASSESSEE HAD APPLIED FOR SETTING UP OF 05 MW SOLAR PV POWER PROJECT IN RAJASTHAN AND SOUGHT ALLOTMENT OF LAND AND OTHER APPROVALS FROM THE GOVT. IT WAS FURTHER NOTICED THAT THE SAID PROJECT WAS TO BE SET UP UNDER THE SUPERVISION OF PROJECT CONSULTANT. THE AFORESAID FACTS FURTHER SUGGEST THAT THE ASSESSEE HA D ONLY STARTED NEGOTIATION FOR P URCHASING/ACQUISITION OF LAND FOR THE PROJECT. HENCE, THERE IS NO SUBSTANCE IN 5 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 THE CONTENTION OF THE ASSESSEE THAT IT IS IN THE BUSINESS OF INSTALLING OF POWER PROJECT AS THE INSTALLATION WORK WAS TO BE CARRIED OUT BY THE CONTRACTOR UNDER THE SUPERVISION O F THE CONSULTANT. HENCE , THE ASSESSEE WAS ONLY IN THE PROCESS OF ASSIGNING INSTALLATION WORK TO THE ENTITIES WHICH WERE DOING THE BUSINESS OF INSTALLATION OF POWER PROJECT. IN THE LIGHT OF THE AFORESAID FACTS, T HE LD. DR SUBMITTED THAT THE LD.CIT (A) OUGHT TO HAVE CONFIRMED THE FINDINGS OF THE AO. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE FINDINGS OF THE LD. CIT (A) SUBMITTED THAT DURING THE RELEVANT PERIOD THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SETTING UP OF POWER PROJECTS GEN ERATION AND DISTRIBUTION. THE ASSESSEE HAS NEVER CLAIMED TO BE ENGAGED IN INSTALLING OF POWER PROJECTS. THE LD. CIT (A) HAS RIGHTLY POINTED OUT THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE SUCH AS PROCESS OF REGISTRATION WITH THE STATE GOVT., APPOINTMENT OF CONSULTANT, APPOINTMENT OF WORKFORCE, PURCHASE OF OFFICE EQUIPMENTS ARE ESSENTIAL FOR SETTING UP OF BUSINESS WITHOUT WHICH THE BUSINESS CANNOT BE COMMENCED. THEREFORE, THE PRE - OPERATIVE EXPENSES INCLUDING COMMUNICATION EXPENSES, MANPOWER EXPENSES, PROF ESSIONAL FEES, TRAVELING EXPENSES, BUSINESS PROMOTION EXPENSES AND SUBSCRIPTING EXPENSES, PRINTING AND STATIONERY EXPENSES ETC. ARE THE REGULAR BUSINESS EXPENSES IN RELATION TO SETTING UP ACTIVITIES ESSENTIAL FOR COMMENCEMENT OF THE BUSINESS. HENCE, THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT (A). MOREOVER, THE LD. CIT (A) HAS PASSED THE ORDER FOLLOWING THE DECISION OF THE ITAT, MUMBAI RENDERED IN ITA NOS. 4843 AND 759/MUM/2006 . 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO GONE THROUGH THE RELEVAN T MATERIAL ON THE RECORD. THE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT (A) HAS WRONGLY ALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE AMOUNTING TO RS. 2,63,54,636/ - EXCEPT AN AMOUNT OF RS. 5,27,190/ - . WE NOTICE THAT T HE LD. CIT (A) HAS PARTLY ALLOWED THI S GROUND OF APPEAL OF THE ASSESSEE HOLDING THAT THE ASSESSEE HAD COMMENCED ITS BUSINESS DURING THE YEAR RELEVANT TO THE 6 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 ASSESSMENT YEAR UNDER CONSIDERATION. THE RELEVANT PARAS OF THE ORDER OF THE LD. CIT(A) READ AS UNDER : - 5.1.8 IT APPEARS THAT THE A SSESSING OFFICER HIMSELF AGREED THAT SETTING UP OF THE BUSINESS OF THE APPELLANT HAD COMMENCED. HIS ONLY OBJECTION APPEARS TO BE THAT THIS PROCESS WAS IN VERY INITIAL STAGE. IT HAS TO BE KEPT IN MIND THAT UNLIKE MANY OTHER BUSINESS ACTIVITIES SUCH AS R ETAIL OUTLET, TRADING, CONTRACT WORK, CONSULTANCY ETC. POWER GENERATION IS A LONG GESTATION ACTIVITY WHICH IS REGULATED BY SEVERAL RULES & REGULATIONS OF THE STATE AND CENTRAL GOVERNMENT. IT ACQUIRES SEVERAL CLEARANCES/LICENSES AND CREATION OF HUGE INFRAST RUCTURE MUCH BEFORE THE MACHINERY IS EVEN INSTALLED AND POWER STARTS GETTING GENERATED. THE BUSINESS ACTIVITY OF POWER GENERATION CANNOT BE SAID TO START FROM ACTUAL GENERATION OF THE FIRST UNIT OF ELECTRICITY. BEING AN EXTREMELY SCIENTIFIC AND TECHNICAL B USINESS, IT REQUIRES A HUGE AMOUNT OF PRIOR ACTIVITY, DESIGNING, PURCHASES AND INSTALLATION OF EQUIPMENT ETC. 5.1.9 THE ASSESSING OFFICER HAS NOT DOUBTED OR DISPROVED THAT THIS ACTIVITY WAS NOT GOING ON, THAT THE WORK OF FEASIBILITY REPORTS, PROJECT REP ORTS, IDENTIFICATION OF LAND AMONGST OTHERS HAD NOT ALREADY COMMENCED WITH THE APPOINTMENT OF CONSULTANCY FIRM. THE ASSESSING OFFICER HAS ALSO NOT DENIED EMPLOYMENT OF MANPOWER OR PURCHASE OF EQUIPMENT ETC. IT CANNOT BE EXPECTED THAT A POWER COMPANY WILL S TART HIRING ENGINEERS, TECHNICIANS OR OTHER SUPPORT STAFF ONLY FROM THE DATE THE FIRST UNIT OF POWER IS GENERATED BECAUSE WITHOUT SUBSTANTIAL PREPARATION. 5.1.10 HONBLE ITAT MUMBAI IN ITA NO.S 4843 & 759/MUM/2006 SHAPPORJI PALLONJI POWER CO. LTD. PAN N O. : AAACS9195F VS. THE INCOME TAX OFFICER - 3(3)(2) HAD RULED: - IT IS WELL SETTLED LAW THAT WHETHER THE BUSINESS IS SET UP OR NOT, DEPENDS ON FACTS AND CIRCUMSTANCES OF EACH CASE AND THERE MAY NOT BE ANY SIMILARITY BETWEEN TWO CASES. THE BUSINESS IS SAID TO HAVE BEEN SET UP WHEN ONE AMONGST ALL THE INTEGRATED ACTIVITIES , WHICH NECESSARILY PRECEDES THE COMMENCEMENT OF BUSINESS AND WHICH IS FIRST IN POINT OF TIME, HAS BEEN TAKEN UP. A BUSINESS COMPRISE OF VARIOUS ACTIVITIES BEFORE IT IS SET UP AND READY FO R 7 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 COMMENCEMENT . THE BUSINESS ACTIVITIES MAY BE CLASSIFIED INTO TWO BROAD CATEGORIES, FIRSTLY THE ACTIVITIES WHICH ARE IN FURTHERANCE OF SETTING UP OF A BUSINESS AND SECONDLY THE ACTIVITIES WHICH ARE IN FURTHERANCE OF COMMENCEMENT AND OF BUSINESS AFTER IT H AS BEEN SET UP. BUSINESS IS SET UP WHEN IT IS READY FOR TAKE OFF BUT THE ACTIVITIES FOLLOWING THE SETTING UP OF BUSINESS PRIOR TO ITS COMMENCEMENT CONSTITUTE THE ESSENTIAL ACTIVITIES FOR COMMENCEMENT OF BUSINESS AND THE EXPENDITURE INCURRED IN CARRYING ON SUCH ACTIVITIES IS ALLOWABLE DEDUCTION UNDER THE HEAD INCOME FROM BUSINESS. 5.1.11 IN THE INSTANT CASE ALSO, IN MY OPINION, THE ACTIVITIES UNDERTAKEN BY THE APPELLANT SUCH AS PROCESS OF REGISTRATION WITH THE STATE GOVERNMENT, APPOINTMENT OF CONSULTA NT, APPOINTMENT OF WORKFORCE, PURCHASE OF OFFICE EQUIPMENT ETC. ARE ACTIVITIES FOLLOWING SETTING UP OF BUSINESS PRIOR TO ITS COMMENCEMENT AND WOULD CONSTITUTE ESSENTIAL ACTIVITIES WITHOUT WHICH THE BUSINESS OF THE APPELLANT WOULD NEVER COMMENCE. TO DENY S UCH ESSENTIAL EXPENDITURE WOULD BE TO IGNORE THE COMMERCIAL REALITY OF LONG - GESTATION IS LESS SUCH AS POWER GENERATION. THEREFORE, IN MY VIEW, THE RATIO OF THE ABOVE QUOTED DECISION OF HONBLE ITAT MUMBAI APPLIES TO THE FACT AND CIRCUMSTANCES OF THE INSTAN T CASE. THE DISALLOWANCE OF EXPENDITURE BY THE ASSESSING OFFICER ON THE REASONING THAT THE BUSINESS OF THE APPELLANT WITH RESPECT TO POWER AND ELECTRICITY HAS NOT BEEN SET UP IS NOT A SUSTAINABLE DISALLOWANCE. 5.1.12 HOWEVER, IT IS NOTED THAT CONSULTA NCY CHARGES OF RS. 5,27,190/ - HAS BEEN PAID DURING ASSESSMENT YEAR 2010 - 11. THEREFORE, THIS AMOUNT CANNOT BE ALLOWED IN THE INSTANT ASSESSMENT YEAR 2011 - 12. TO REMOVE THE DOUBTS, IT IS CLARIFIED THAT THE AMOUNT OF RS. 27,11,214/ - CLAIMED AS PRE - OPERATIVE EXPENSES INCLUDE COMMUNICATION EXPENSES, MANPOWER EXPENSES, PROFESSIONAL FEES, TRAVELLING EXPENSES, BUSINESS PROMOTION EXPENSES, FEES AND SUBSCRIPTION EXPENSES, PRINTING AND STATIONERY, MISCELLANEOUS EXPENSES, AUDIT FEES AND DEPRECIATION. DESPITE THE NOME NCLATURE, THESE ARE REGULAR BUSINESS EXPENSES IN RELATION TO SETTING UP ACTIVITIES ESSENTIAL FOR COMMENCEMENT OF 8 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 BUSINESS. THEREFORE, THIS AMOUNT INCLUDED IN TOTAL EXPENSES CLAIMED OF RS. 2,63,54,66 ( LESS RS. 5,27,190/ - PERTAINING TO EARLIER YEAR) HAS TO BE ALLOWED. ACCORDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 9. WE NOTICE THAT THE LD. CIT (A) HAS PARTLY ALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE BY FOLLOWED THE DECISION OF THE COORDINATE BENCH RENDERED IN THE CASE OF SHAPPORJI PALLONJI POW ER CORPORATION LTD. ITA NOS. 4843 AND 759/MUM/2006 IN WHICH IT HAS BEEN HELD THAT THE BUSINESS ACTIVITIES MAY BE CLASSIFIED INTO TWO BROAD CATEGORIES, FIRSTLY THE ACTIVITIES WHICH ARE IN FURTHERANCE OF SETTING UP OF A BUSINESS AND SECONDLY THE ACTIVITIES W HICH ARE IN FURTHERANCE OF THE COMMENCEMENT OF THE BUSINESS AFTER IT HAS BEEN SET UP. THE BUSINESS IS SET UP WHEN IT IS READY FOR TAKEOFF BUT THE ACTIVITIES FOLLOWING THE SETTING UP OF BUSINESS PRIOR TO ITS COMMENCEMENT CONSTITUTE THE ESSENTIAL ACTIVITIES FOR COMMENCEMENT OF BUSINESS AND THE EXPENDITURE INCURRED IN CARRYING ON SUCH ACTIVITIES IS ALLOWABLE DEDUCTION UNDER THE HEAD INCOME FROM BUSINESS. SINCE, THE FINDINGS OF THE LD. CIT (A) ARE BASED ON THE DECISION OF THE COORDINATE BENCH, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A ) TO INTERFERE WITH . WE THEREFORE UPHOLD THE FINDINGS OF THE LD.CIT (A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 10. VIDE GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT (A) IN HOLDING THAT IF THERE IS NO INCOME EARNED BY THE ASSESSEE WHICH IS CLAIMED TO BE EXEMPT, NO DISALLOWANCE U/S 14A CAN BE MADE. THE LD. DR SUBMITTED THAT SINCE THE AO HAS COMPUTED THE DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1963 (RULES),THE LD. CIT (A) HAS WRONGLY DELETED THE ADDI TION MADE BY THE AO. THEREFORE, THE ORDER IS ERRONEOUS AND LIABLE TO BE SET ASIDE. 11. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE FINDINGS OF THE LD. CIT (A) IS BASED ON THE DECISIO N OF THE ITAT, MUMBAI IN DELITE ENTERPRISES ITA NO. 2983/M/2005 (BOM ), THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT (A) TO INTERFERE WITH. 9 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 12. WE HAVE PERUSED THE RELEVANT MATERIAL ON RECORD. THE FINDINGS OF THE LD. CIT (A) IS BASED ON THE DECISION OF THE COORDINATE BENCH RENDERED IN THE CASE OF DELITE ENTERPRISES (SUPRA) IN WHICH IT HAS BEEN HELD THAT IF THERE IS NO INCOME EARNED BY THE ASSESSEE WHICH IS CLAIMED TO BE EXEMPT, NO DISALLOWANCE U/S 14A CAN BE MADE . THE RELEVANT PARAS OF THE CIT (A) ORD ER READ AS UNDER: - 5.3.1 THIS GROUND IS WITH RESPECT TO DISALLOWANCE OF RS. 15,34,975/ - U/S 14A OF THE ACT, THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE FROM PARA 24 - 30 OF HIS ORDER. AT PARA 25, THE ASSESSING OFFICER HAS MENTIONED THAT THE APPELLANT VI DE LETTER DATED 12/03/2014 HAD CONTENDED THAT DURING THE YEAR THE APPELLANT COMPANY HAS NOT EARNED ANY DIVIDEND INCOME AND HENCE, THE QUESTION OF DISALLOWANCE U/S 14A DOES NOT ARISE. THE ASSESSING OFFICER HAS REJECTED THIS CONTENTION AND COMPUTED DISALLOWA NCE UNDER RULE 8D. 5.3.2 IN DOING SO, THE ASSESSING OFFICER HAS IGNORED THE CATEGORICAL RULING OF JURISDICTIONAL BENCH OF HONBLE ITAT MUMBAI IN DELITE ENTERPRISES (ITA NO. 2983/M/2005) (BOM), WHEREIN IT WAS HELD THAT IF THERE IS NO INCOME EARNED BY T HE ASSESSEE WHICH IS CLAIMED TO BE EXEMPT, NO DISALLOWANCE U/S 14A CAN BE MADE. THIS RATIO HAS ALSO BEEN FOLLOWED IN OTHER CASES, INCLUDING MAGNA PUBLISHING CO. VS. ITO ITA NO. 5536/MUM/2014. ACCORDINGLY, DISALLOWANCE OF RS. 15,34,975/ - U/S 14A IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 13. WE FURTHER NOTICE THAT THE FINDINGS OF THE LD. CIT (A) ARE BASED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT (2015) 778 ITR 33 (DEL) , IN WHICH IT HAS BEEN HELD THAT THERE S HOULD BE AN ACTUAL RECEIPT OF INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. SINCE, THE FINDINGS OF THE LD.CIT (A) ARE BASED ON TH E DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL AND THE DECISION OF THE 10 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 HONBLE HIGH COURT DISCUSSED ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A). HENCE, WE UPHOLD THE FINDINGS OF THE LD. CIT (A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. CO NO. 284/MUM/2017 (ASSE SSMENT Y EAR: 2011 - 2012 ) THE ASSESSEE HAS FILED THE CROSS OBJECTION AGAINST THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUND: THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT ADJUDICATING THE GROUND THAT PROFIT ON SALE OF SHARES SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. 2. SINCE, THERE IS A DELAY OF 232 DAYS IN FILING THE PRESENT CO, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE APPLICATION FOR CONDONATION OF DELAY FILED BY THE ASSESSEE DULY SUPPORTED BY AN AFFIDAVIT SWORN BY SH. SHEKHAR GUPTA , CHARTERED ACCOUNTANT, MAY BE ALLOWED AND T HE ASSESSEE MAY BE ALLOWED TO ARGUE THE CO ON MERITS. THE LD. COUNSEL FURTHER SUBMIT TED THAT THE DELAY WAS NOT INTENTIONAL OR DELIBERATE ACT OF THE ASSESSEE BUT THE SAME HAS BEEN CAUSED DUE TO OMISSION ON THE PART OF SH. SHEKHAR GUPTA, CA IN ADVISING THE ASSESSEE COMPANY FOR FILING CROSS OBJECTION. THE LD. COUNSEL FURTHER SUBMITTED THAT S INCE THE CONCERNED CA HAS SUBMITTED AN AFFIDAVIT IN SUPPORT OF THE CONTENTION OF THE ASSESSEE, THE DELAY ME BE CONDONED IN THE INTEREST OF JUSTICE. 3. ON THE OTHER HAND, THE LD. DR OPPOSED THE APPLICATION AND SUBMITTED THAT THE REASON FURNISHED BY THE ASS ESSEE IS NOT SUFFICIENT TO CONDONE THE DELAY OF 232 DAYS IN FILING THE PRESENT CO. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT RECORD. THE CONCERNED CA HAS ADMITTED IN HIS AFFIDAVIT THAT THE ASSESSEE COULD NOT FILE THE PRESENT CO DUE TO THE OMISSION ON HIS PART IN ADVISING THE COMPANY DUE TO THE CIRCUMSTANCES BEYOND HIS CONTROL. SUB - SECTION 5 OF 11 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 SECTION 253 OF THE INCOME TAX ACT PROVIDES THAT THE TRIBUNAL MAY ADMIT APPEAL OR PERMIT FILING OF MEMORANDUM OF CROSS - OBJECTION OF RESPON DENT AFTER EXPIRY OF RELEVANT PERIOD OF LIMITATION REFERRED TO IN SUB - SECTION 3 AND 4 SECTION 253, IF IT IS SATISFIED THAT THERE WAS SUFFICIENT CAUSE FOR NOT PRESENTING IT WITHIN THAT PERIOD. THE HONBLE HIGH COURTS AND THE HONBLE SUPREME COURT HAVE LAID DOWN IN SO MANY CASES THAT THE ADJUDICATING AUTHORITY SHOULD CONSIDER THE EXPRESSION SUFFICIENT CAUSE WITH JUSTICE ORIENTED APPROACH. FOLLOWING THE AFORESAID PRINCIPLE OF LAW, WE ALLOW THE APPLICATION OF THE ASSESSEE FOR CONDONATION OF DELAY AND PERMITTED THE LD. COUNSEL FOR THE ASSESSEE TO ARGUE THE CASE ON MERITS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT (A) HAS NOT DECIDED THE ISSUE RAISED BEFORE IT THAT AO HAS ERRED IN NOT ALLOWING THE CLAIM OF THE ASSESSEE THAT THE PROF IT ON SHARES TRANSACTION SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THE LD. COUNSEL FURTHER SUBMITTED THAT SINCE THE LD. CIT (A) HAS NOT ADJUDICATED THE SAID GROUND, THE SAME MAY BE SET ASIDE TO THE FILE OF THE LD. CIT (A) FO R ADJUDICATION. 6 . ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE LD. CIT (A) HAS NOT ADJUDICATED THE SAID ISSUE CONSIDERING THE WRITTEN SUBMISSION MADE BY THE ASSESSEE, THE ASSESSEE IS ESTOPPED FROM TAKING THIS PLEA AT THIS STAGE. 7 . WE HAVE PERUSED T HE ORDER PASSED BY THE LD. CIT (A). THE LD. CIT (A) HAS NOT ADJUDICATED THE SAID ISSUE FOR THE REASONS MENTIONED HEREIN BELOW: 5.2.1 IN THEIR WRITTEN SUBMISSION DATED 19/08/2016 AT PARA 3, THE APPELLANT HAS STATED THAT IN CASE DECISION FOR GROUND NO. 1 IS ALLOWED THEN THE APPELLANT WITHDRAWS GROUND NO. 2. GROUND NO. 3 IS WITHOUT PREJUDICE GROUND TO GROUND NO. 2. THEREFORE, IN VIEW OF THE DECISION AT GROUND NO. 1, THESE GROUNDS DO NOT SURVIVE AND HENCE ARE NOT ADJUDICATED. 8 . IT IS CLEAR FROM THE ORDER OF THE LD. CIT (A) THAT THE SAID ISSUE WAS NOT ADJUDICATED BY THE LD. CIT (A) IN VIEW OF THE WRITTEN SUBMISSION DATED 12 ITA NO. 6708/MUM/2016 & CO 284/MUM/2017 ASSESSMENT YEAR: 2011 - 12 19.08.2016 MADE BY THE ASSESSEE. SINCE, THE LD. CIT (A) HAS DECIDED GROUND NO. 1 IN FAVOUR OF THE ASSESSEE, THE LD. CIT (A) TREATED THE A SSESSEES GROUND NO. 2 AS WITHDRAWN. IN THE CROSS APPEAL OF THE REVENUE, WE HAVE ENDORSED THE STAND OF THE CIT (A) ON ASSESSEES GROUND NO. 1 OF APPEAL BEFORE HIM. HENCE, WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE LD. CIT(A) OUGHT TO HAVE DECIDED THE SAID ISSUE. HENCE, WE DISMISS THE CROSS OBJECTION FILED BY THE ASSESSEE. IN THE RESULT, APPEAL FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE, ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DECEMBER, 2018 . SD/ - SD/ - ( G.S. PANNU ) ( RAM LAL NEGI ) VICE PRESIDENT JUDICIAL MEMBER MUMBAI ; DATED: 21 / 12 / 2018 ALINDRA 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