DCIT CIR 2(2)(1), MUMBAI V. L & T MHI BOILERS P.LTD, MUMBAI

ITA 712/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1746 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MEENA LD
• Assessee Lawyers: VIJAY MEHTA LD AR
• Keywords: Business income; Depreciation; Business expenditure; Earning of tax free income
• Section: 14A

Judgement Text

ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE SHRI C.N. PRASAD, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.712/MUM/2016 ( ASSESSMENT YEAR:2009-10) DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2(2)(1) ROOM NO.545, AAYKAR BHAVAN, M.K.ROAD, MUMBAI-400 020 VS. L & T MHI BOILERS PRIVATE LIMITED 3 RD FLOOR, L & T HOUSE, N.M.MARG, BALLARD ESTATE, FORT MUMBAI-400 098 !' # PAN/GIR NO.AABCL-2635-C ( '$ APPELLANT ) : ( %'$ RESPONDENT ) REVENUE BY : R.P.MEENA, LD.CIT DR ASSESSEE BY : VIJAY MEHTA, LD. AR &' DATE OF HEARING : 10/07/2018 ()*' / DATE OF PRONOUNCEMENT : 07/09/2018 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2009-10 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-5 [CIT(A)], MUMBAI, APPEAL NO.IT-248/12-13/193/15-16 DATED 09/11/2015 BY RAISING THE FOLLOWING GROUNDS OF APPEAL. 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FA CTS OF THE CASE. 2 ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE EXPENSES TO THE TUNE OF RS.14,67,24 ,757/- WHEN THE BUSINESS HAS NOT BEEN SET UP. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE AS PER RULE 8D(2)(II ), THEREBY OVERLOOKING THE CRUCIAL FACT THAT THIS METHOD OF CALCULATION HAS BE EN PRESCRIBED BY THE STATUE AND HELD AS A REASONABLE METHOD BY THE HONBLE BOMBAY H IGH COURT IN GODREJ & BOYCE MFG. CO. LTD. 328 ITR 81 (BOM). THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX-2(2) MUMBAI [AO] U/S 143 (3) OF THE INCOME TAX ACT, 1961 ON 22/02/2013 WHEREIN THE INCOME OF THE ASSESSEE WA S ASSESSED AT RS.14.73 LACS UNDER NORMAL PROVISION AF TER CERTAIN DISALLOWANCE AS AGAINST RETURNED LOSS OF RS.1452.51 LACS FILED BY THE ASSESSEE ON 29/09/2009. THE ISSUE INVOLVED UNDER AP PEAL IS ALLOWABILITY OF EXPENSES AS CLAIMED BY THE ASSESSEE DURING IMPUGNED AY. 2. FROM THE LETTER OF AUTHORITY AS PLACED ON RECORD BY LD. AR, IT APPEARS THAT THE NAME OF THE ASSESSEE HAS BEEN CHANGED TO L&T-MHPS BOILERS PRIVATE LIMITED, WHICH HAS NOT BEEN BROUGHT TO THE NOTICE OF THE BE NCH BY THE RESPECTIVE REPRESENTATIVES. NEVERTHELESS, WE PR OCEED TO ADJUDICATE THE ISSUE ON MERITS. 3.1 THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF SUPER CRITICAL BOILERS REFLECTED CERTAIN INCOMES AGGREGATING TO RS.68 LACS IN THE CR EDIT SIDE OF PROFIT AND LOSS ACCOUNT AND CLAIMED AN EXPENDITURE OF RS.1467. 24 LACS AGAINST THE SAME, THE DETAILS OF WHICH HAS BEEN EXTRACTED AT PARA NO.4.1 OF THE QUANTUM ASSESSMENT ORDER. THE LD. AO OPINED THAT OTHER INCOMES IN THE 3 ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 SHAPE OF DIVIDEND INCOME, SALE OF INVESTMENT, DEPUTATION FEE S AND SALE OF ASSETS WERE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND THE EXPENDITURE AGAINST THE SAME COULD NOT BE ALLOWED T O THE ASSESSEE SINCE IT HAS NOT ACTUALLY STARTED EARNING INCOME FROM BUSINE SS ACTIVITY. THE ASSESSEE DEFENDED THE SAME, INTER-ALIA, BY SUBMITTING THAT IT HAD PARTICIPATED IN VARIOUS BIDDING FOR THE ORDERS AND PURSUANT TO THE SAME, RECEIVED CONTRACTS STARTING FROM JULY, 2009 ONWARDS AND THEREFORE, THE EXPENDITURE WAS ALLOWABLE AS BUSINESS EXPENDITURE. HOWEVER, LD. AO NOTED THAT THE ASSESSEE WAS IN THE BUSINESS OF DESIGNING, ENGINEERING, MANUFACTURING, ERECTION & COMMISSIONING AND PERFORM ANCE TESTING OF SUPER CRITICAL STREAM GENERATORS (BOILERS) FOR THERMAL PL ANTS AND ALSO SUPPLYING RELATED SPARES. BUT IT HAD NOT ACTUALLY STARTED EAR NING INCOME FROM BUSINESS ACTIVITY AND THEREFORE, THE EXPENDITURE COULD NOT B E ALLOWED AS BUSINESS EXPENDITURE. RESULTANTLY, THE OTHER INCOME WAS TREATED AS INCOME FROM OTHER SOURCES WHEREAS THE BUSINESS EXPENDITURE AS CLAIMED BY THE ASSESSEE WAS NOT ALLOWED WHICH RESULTED INTO DETERM INATION OF INCOME AT RS.14.73 LACS. 3.2 THE LD. AO ALSO NOTED THAT THE ASSESSEE HAD MAD E INVESTMENT OF RS.2302.42 LACS WHICH CALLED FOR DISALLOWANCE U/S 1 4A. ACCORDINGLY, APPLYING RULE 8D, THE AGGREGATE DISALLOWANCE WAS WO RKED OUT AT RS.16.64 LACS WHICH COMPRISED-OFF OF INTEREST DISALLOWANCE U /R 8D(2)(II) FOR RS.8.38 LACS AND EXPENSE DISALLOWANCE U/R 8D(2)(III) FOR RS .8.26 LACS. AFTER ADJUSTING THE SUO-MOTO DISALLOWANCE OF RS.2.51 LACS AS OFFERED BY THE 4 ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 ASSESSEE U/S 14A, THE NET ADDITION THUS PROPOSED WA S RS.14.13 LACS. SINCE ENTIRE EXPENDITURE WAS ALREADY DISALLOWED, SE PARATE ADDITION IN THIS RESPECT WAS NOT MADE IN THE QUANTUM ASSESSMENT ORDE R. 4. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 09/11/2015, WHEREI N THE MATTER WAS CONCLUDED IN THE FOLLOWING MANNER:- 4. I HAVE CONSIDERED THE APPELLANTS SUBMISSION AND THE AOS ORDER. IN THIS CASE APPELLANT HAD EARNED THE FOLLOWING AS OTHER INCOME AND CLAIMED FOLLOWING EXPENSES: OTHER INCOME EARNED INCOME FROM DEPUTATION RS.5,39,750 DIVIDEND INCOME FROM INVESTMENT RS.59,93,497 PROFIT FROM SALE OF INVESTMENT RS. 2,42,178 PROFIT FROM SALE OF ASSET RS.5,167 MISCELLANEOUS. INCOME RS.20,000 TOTAL RS.68,00,592/- EXPENSES CLAIMED STAFF EXPENSES RS. 4,85,51,010 SALES, ADMINISTRATION AND OTHER EXPENSES RS. 7,28, 97,398 PRELIMINARY EXPENSES WRITTEN OFF RS. 74,00,000 INTEREST AND BROKERAGE EXPENSES RS.1,16,775 DEPRECIATION RS.12,40,937 AMORTISATION OF INTANGIBLE ASSETS RS.1,65,18,637 TOTAL RS.14,67,24,757 ACCORDING TO AO APPELLANT HAD OFFERED THE INCOME UN DER 'INCOME FROM OTHER SOURCES' AND THERE WAS NO INCOME OFFERED FROM ANY BUSINESS A CTIVITY. AS APPELLANT HAD FAILED TO OFFER ANY INCOME FROM BUSINESS ACTIVITY OR STARTED EARNING ANY INCOME FROM BUSINESS ACTIVITIES, THEN ON THIS GROUND AO HAD DISALLOWED T HE CLAIM OF BUSINESS EXPENSES OF APPELLANT OF RS.14,67,24,457/-. HERE THIS ISSUE COM ES UNDER THE PURVIEW OF SECTION 3 OF THE INCOME TAX ACT WHICH IS PROVIDED AS UNDER: SECTION 3: FOR THE PURPOSES OF THIS ACT 'PREVIOUS YEAR' MEANS THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR: PROVIDED THAT, IN THE CASE OF A BUSINESS OR PROFESS ION NEWLY SET UP, OR A SOURCE OF INCOME NEWLY COMING INTO EXISTENCE, IN THE SAID FINANCIAL YEAR, THE PREVIOUS 5 ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINESS OR PROFESSION OR, AS THE CASE MAY BE, THE DATE ON WHIC H THE SOURCE OF INCOME NEWLY COMES INTO EXISTENCE AND ENDING WITH THE SAID FINAN CIAL YEAR. ON PERUSAL OF ABOVE SECTION, IT IS PROVIDED THAT PR EVIOUS YEAR STARTS IF BUSINESS OR PROFESSION WAS NEWLY SET UP OR SOURCE OF INCOME NEW LY COMING INTO EXISTENCE IN THE SAID FINANCIAL YEAR. SO ACCORDING TO SECTION 3, PRE VIOUS YEAR FOR ANY INCOME HAS TO BE CONSIDERED THE PERIOD BEGINNING WITH SETTING UP OF BUSINESS OR THE DATE ON WHICH THE SOURCE OF INCOME NEWLY COMES INTO EXISTENCE. AO IN THE ASSESSMENT ORDER HAD DISALLOWED THE CLAIM OF THE APPELLANT ON THE GROUND THAT APPELLANT WAS NOT EARNING ANY BUSINESS INCOME OR STARTED EARNING ANY BUSINESS INC OME DURING THE YEAR. SECTION 3 IS EXAMINED, NOT ONLY EARNING OF BUSINESS INCOME BUT A LSO IF THE UNIT IS SET-UP, THEN THAT YEAR'S EXPENSES OR INCOME HAS TO BE ALLOWED. NOW, I T IS TO BE EXAMINED WHETHER THE BUSINESS WAS SET-UP IN THE CASE OF THE APPELLANT. T HE TERM SET-UP WAS EXAMINED, SET UP WAS INTERPRETED BY SUPREME COURT IN CWT VS. RAMARAJ U SURGICAL COTTON MILLS LTD. (1967) (63 ITR 478 SC) AS 'A UNIT CANNOT BE SAID TO HAVE BEEN SET UP UNLESS IT IS READY TO DISCHARGE THE FUNCTION FOR WHICH IT IS BEING SET UP. IT IS ONLY WHEN THE UNIT HAS BEEN PUT INTO SUCH A SHAPE THAT IT CAN START FUNCTIONING AS A BUSINESS OR A MANUFACTURING ORGANIZATION THAT IT CAN BE SAID THAT THE UNIT HAS BEEN SET UP'. HERE FROM THE ABOVE SUPREME COURT DECISION IT IS CLEAR THAT IF ANY BUSI NESS WAS PUT INTO SHAPE WHICH CAN START FUNCTIONING, THEN IT CANNOT BE CONSIDERED AS A SETUP. 4.1 NOW WE MAY CONSIDER WHETHER THE CASE COMES UNDE R THE PURVIEW OF SET-UP IN VIEW OF ABOVE SUPREME COURT DECISION. THE APPELLANT'S AC TIVITIES WERE DISCUSSED ABOVE. THE APPELLANT'S MAIN ACTIVITIES ARE - ONE, BIDDING OF T HE CONTRACT AND AFTER THAT MANUFACTURING OF CONTRACT AWARDED. FOR BIDDING OF THE CONTRACT AP PELLANT HAS TO PARTICIPATE IN THE ACTIVITIES INVOLVED IN THE BIDDING SUCH AS - INVITA TION OF TENDER BID ISSUED BY THE CUSTOMER, PURCHASE OF TENDER DOCUMENT, TECHNICAL AN D COMMERCIAL ANALYSIS OF THE BID, PREPARATION OF DETAILED PROPOSAL COVERING TECHNICAL AND COMMERCIAL ASPECTS, SUBMISSION OF TECHNICAL AND COMMERCIAL BID, EVALUATION BY CUST OMERS OF BIDS SUBMITTED BY THE EPC CONTRACTORS, AWARDING OF CONTRACT AND ACTIVITIES IN VOLVED AFTER RECEIPT OF THE CONTRACT ARE DESIGN AND ENGINEERING, PROCUREMENT & MANUFACTURE O F COMPONENTS REQUIRED, ERECTION OF BOILER AT SITE AND COMMISSIONING OF BOILER AT SI TE. HENCE, MAINLY THERE ARE TWO ACTIVITIES, ONE IS FOR BIDDING PURPOSE AND OTHER IS ACTIVITY AFTER RECEIPT OF THE CONTRACT. APPELLANT HAD FILED A DATA REGARDING PARTICIPATION IN FOLLOWING TENDERS: NAME OF THE CUSTOMER PRODUCE DATE OF BID/REQUEST SUBMISSION REMARK ANDHRA PRADESH POWER DEVELOPMENT COMPANY LTD. 2 X 800 MW SUPER CRITICAL BOILER 04.03.2008 - JAYPEE NILGRIE SUPER THERMAL POWER PROJECT 2 X660MW SUPER CRITICAL BOILER 15.01.2009 CONTRACT AWARDED VIDEOCON GROUP OF COMPANY 2 X 800 MW SUPER CRITICAL BOILER 21.08.2008 - MAHARASHTRA STATE POWER COMPANY 3 X 660 MW SUPER 26 .06.2009 CONTRACT AWARDED 6 ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 LIMITED, KORADI CRITICAL BOILER FROM THE ABOVE DATA IT IS DEAR THAT THE APPELLANT H AD PARTICIPATED IN BID FOR ANDHRA PRADESH POWER DEVELOPMENT COMPANY. LTD. ON 4.3.2008 ON WHICH HE SUBMITTED THE BID, JAYPEE NILGRIE SUPER THERMAL POWER PROJECT BID WAS SUBMITTED ON 15.1.2009, CONTRACT WAS ALSO AWARDED TO THE APPELLANT, REGARDI NG VIDEOCON GROUP OF COMPANY, APPELLANT PARTICIPATED IN THE BID ON 21.8.2008. OUT OF THE FOUR TENDERS MENTIONED IN THE TABLE, FOR THE ABOVE THREE CUSTOMERS APPELLANT HAD BID IN THIS FINANCIAL YEAR AND REGARDING MAHARASHTRA STATE POWER COMPANY LIMITED B ID WAS SUBMITTED ON 26.06.2009 AND THE CONTRACT WAS AWARDED TO THE COMPANY. NOW IT HAS TO BE EXAMINED WHETHER BIDDING OF THE CO NTRACT AND RECEIPT OF ORDER WILL BE ENOUGH TO SATISFY THE CONDITION FOR THE SET-UP IN O RDER TO ALLOW THE EXPENDITURE TO THE BUSINESS EXPENDITURE INCURRED BY THE APPELLANT. THI S IDENTICAL ISSUE WAS CONSIDERED BY CIT & ANR. VS MFAR CONSTRUCTION LTD. [48 DTR(KAR) 3 63] (KARNATAKA HIGH COURT) WHERE IT IS HELD AS UNDER: 'SETTING UP OF A BUSINESS MAY REQUIRE SEVERAL FACTO RS LIKE INVESTMENT IN BUILDING AND OTHER PERMANENT STRUCTURES WHICH CANNOT BE INTE GRAL PART OF A BUSINESS THOUGH IT COULD BE INCIDENTAL PART OF BUSINESS. IF INTEGRAL PART OF A BUSINESS REQUIRES EXPENDITURE, IT WOULD MEAN WITHOUT THE SAI D INTEGRAL ACTIVITY, THE MAIN BUSINESS CANNOT BE PROCEEDED WITH. THEREFORE, WHENE VER SUCH EXPENDITURE IS CLAIMED, THE CRITERIA WOULD BE WHAT EXACTLY IS THE NATURE OF BUSINESS THE ASSESSEE HAS UNDERTAKEN AND DEPENDING UPON THE NATU RE OF BUSINESS, ONE HAS TO SEE WHETHER SUCH EXPENDITURE WAS SPENT TOWARDS I NTEGRAL PART OF THE BUSINESS OR NOT. WHEN ONCE IT BECOMES INTEGRAL PART OF THE B USINESS LIKE THE CASE ON HAND, EXPENDITURE TOWARDS SOIL TESTING, SUBMISSION OF TEN DERS, PAYMENT OF ARCHITECT FEE ETC. WOULD BE INTEGRAL PART OF THE BUSINESS OF THE ASSESSEE. IF IT IS INTEGRAL PART, IT HAS TO BE HELD AS COMMENCEMENT OF WORK AND RIGHT LY HELD TO BE ALLOWABLE.' IN THE ABOVE CASE AND ALSO IN THE CASE OF CWT VS. R AMARAJU SURGICAL COTTON MILLS LTD.(1967)(63 (TR 478 SC) WHERE IT IS HELD THAT IF ONE ACTIVITY OF BUSINESS IS CARRIED OUT THEN IT IS TO BE HELD THAT BUSINESS HAS SET-UP AS B USINESS IS A CONTINUOUS ACTIVITY. IN THE CASE OF THE APPELLANT, APPELLANT HAD NOT ONLY RECRU ITED THE EMPLOYEES ALSO CONDUCTED TRAINING CLASSES FOR THE EMPLOYEES. OUT OF THE 4 PR OJECTS WHICH APPELLANT BID, 2 PROJECTS WERE AWARDED TO THE APPELLANT, ONE CONTRACT PERTAIN ED TO THIS ASSESSMENT YEAR. WHEN WE EXAMINE THE TOTAL ACTIVITIES OF BUSINESS OF THE APPELLANT, THERE ARE 2 MAJOR ACTIVITIES, SUBMISSION OF BID AND MANUFACTURE OF THE ITEM AFTER THE CONTRACT WAS AWARDED TO HIM. ALREADY APPELLANT HAD CARRIED THE ACTIVITY OF BIDDI NG AND GETTING CONTRACTS. THIS ITSELF SHOWS APPELLANT HAS NOT ONLY STARTED THE BUSINESS B UT HAS ALSO SET UP THE BUSINESS BY BIDDING AND OBTAINING CONTRACTS. HENCE, IN VIEW OF THE KARNATAKA HIGH COURT DECISION IN CIT & ANR VS MFAR CONSTRUCTION LTD.[48DTR(KAR) 360] , THE APPELLANT IS ELIGIBLE FOR THE BUSINESS EXPENDITURE INCURRED DURING THE ASSESSMENT YEAR AS APPELLANT'S BUSINESS SET- UP AS REQUIRED U/S 3 OF THE I.T. ACT. HENCE AO'S DI SALLOWANCE OF BUSINESS EXPENDITURE FOR RS,14,67,24,757/- IS DELETED. THIS GROUND OF AP PEAL IS ALLOWED . 7 ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 THE DISALLOWANCE U/S 14A FOR RS.14.13 LACS, AS PROP OSED BY LD. AO, WAS DELETED BY OBSERVING THAT THE SHARE CAPITAL OF RS.50 CRORES WAS MUCH MORE THAN THE INVESTMENTS OF RS.23.02 CRORES AND TH EREFORE, NO DISALLOWANCE WAS CALLED FOR IN TERMS OF JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN CIT VS. RELIANCE UTILITIES POWER LTD. [313 ITR 340] & CIT VS. HDFC BANK [366 ITR 505] . AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 5. THE LD. DEPARTMENTAL REPRESENTATIVE [DR], SHRI R.P.MEENA, SUBMITTED THAT THEIR MERE PARTICIPATION IN THE BIDD ING PROCESS WOULD NOT ENTITLE THE ASSESSEE TO CLAIM DEDUCTION OF EXPENDIT URE SINCE MANUFACTURING FACILITY WAS NOT READY FOR PRODUCTION DURING IMPUGN ED AY. THE SAME HAS BEEN CONTROVERTED BY LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR], SHRI VIJAY MEHTA, WHO SUPPORTED THE STAND TAKEN BY LD. FIRST APPELLA TE AUTHORITY. 6.1 WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS A ND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING VARIOUS JUDICIAL PRONO UNCEMENTS CITED BEFORE US. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS NOT REFLECTED ANY MAJOR INCOME FROM BUSINESS ACTIVITIES DURING THE IMPUGNED AY EXCEPT INCOME FROM DEPUTATION FOR RS.5.39 LACS. HOWEVER, THE EARNING OF THE BUSIN ESS INCOME, IN OUR OPINION, WAS NOT A SINE QUA NON TO ENABLE THE ASSESSEE TO CLAIM THE BUSINESS EXPENDITURE AS PER STATUTORY PRO VISIONS PROVIDED OTHER CONDITIONS AS ENVISAGED BY LAW WERE FULFILLED BY TH E ASSESSEE. 8 ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 6.2 UPON PERUSAL OF NATURE OF EXPENSES INCURRED BY THE ASSESSEE, WE FIND THAT THE OUT OF TOTAL EXPENDITURE OF RS.14.67 CRORE S, THE MAJOR EXPENSES PERTAINS TO STAFF EXPENSES FOR RS.4.85 CRORES , SALES, ADMINISTRATION & OTHER EXPENSES FOR RS.7.28 CRORES AND AMORTIZATION OF INTANGIBLE ASSETS FOR RS.1.65 CRORES WHICH DEMONSTRATE THAT THE ASSESSEE HAD ALREADY REC RUITED EMPLOYEES DURING THE IMPUGNED AY AND INCURRED VARIO US ADMINISTRATIVE AND SALE EXPENDITURE. AS RIGHTLY NOTED BY LD. CIT(A), T HE ASSESSEE HAD PARTICIPATED IN THREE BIDS DURING THE IMPUGNED AY, OUT OF WHICH ONE BID WAS SUCCESSFUL WHICH IS NOT DISPUTED BY THE REVENUE. TH E AFORESAID FACTOR RAISES A STRONG POINTER IN ASSESSEES FAVOR THAT THE ASSES SEE WAS READY WITH ALL THE NECESSARY INFRASTRUCTURE TO DELIVER THE PROPOSE D GOODS / SERVICES TO THE PROSPECTIVE CUSTOMERS. ANOTHER NOTEWORTHY FACTOR IS THAT THIS IS NOT THE FIRST YEAR OF ASSESSEES EXISTENCE SINCE THE DOCUMENTS ON RECORD REVEAL THAT THE ASSESSEE HAD FILED RETURN OF INCOME FOR IMMEDIATELY PRECEDING AY 2008-09 ALSO WHEREIN IT HAS, ON IDENTICAL FACTUAL MATRIX, C LAIMED BUSINESS EXPENDITURE IN THAT YEAR AND CARRIED FORWARD BUSINE SS LOSSES TO THE EXTENT OF RS.5.06 CRORES, WHICH HAS NOT BEEN DISPUTED BY THE REVENUE AT ANY POINT OF TIME SO FAR. 6.3 THE VARIOUS JUDICIAL AUTHORITIES, FROM TIME TO TIME, IN NUMBER OF DECISIONS HAVE OPINED THAT SETTING-UP OF THE BUSINE SS IS THE TIME WHEN AN ENTITY IS IN A POSITION TO RENDER SERVICES TO ITS C USTOMERS. IF THE ENTIRE INFRASTRUCTURE IS PUT IN PLACE TO COMMENCE BUSINESS THEN IT CAN SAFELY BE CONCLUDED THAT THE BUSINESS HAS BEEN SET-UP NOTWITH STANDING THE FACT THAT 9 ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 THE ACTUAL COMMENCEMENT OF THE BUSINESS HAS NOT TAK EN PLACE. THE HONBLE BOMBAY HIGH COURT IN THE LANDMARK CASE OF WESTERN INDIAN VEGETABLES PRODUCTS LTD. V. CIT [1954] 26 ITR 151 APTLY EXPLAINED THE DISTINCTION BETWEEN CONCEPT OF COMMENCEMENT AND SET TING UP OF BUSINESS AND OBSERVED AS UNDER: 'IT SEEMS TO US, THAT THE EXPRESSION 'SETTING UP' M EANS, AS IS DEFINED IN THE OXFORD ENGLISH DICTIONARY, TO PLACE ON FOOT OR TO ESTABLISH, AND I N CONTRADISTINCTION TO 'COMMENCE'. THE DISTINCTION IS THIS THAT WHEN A BUSINESS IS ESTABLI SHED AND IS READY TO COMMENCE BUSINESS THEN IT CAN BE SAID OF THAT BUSINESS THAT IT IS SET UP. BUT BEFORE IT IS READY TO COMMENCE BUSINESS IT IS NOT SET UP. BUT THERE MAY BE AN INTE RREGNUM, THERE MAY BE AN INTERVAL BETWEEN A BUSINESS WHICH IS SET UP AND A BUSINESS W HICH IS COMMENCED AND ALL EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND B EFORE THE COMMENCEMENT OF THE BUSINESS, ALL EXPENSES DURING THE INTERREGNUM, WOUL D BE PERMISSIBLE DEDUCTIONS UNDER SECTION 10(2)' THE RATIO OF THE ABOVE DECISION HAS BEEN FOLLOWED B Y VARIOUS COURTS OF THE COUNTRY FROM TIME TO TIME. THE HONBLE DELHI HIGH C OURT IN CIT V. L.G. ELECTRONIC (INDIA) LTD. [282 ITR 545] & CIT VS HUGHES ESCORTS COMMUNICATIONS LTD . [311 ITR 253] & ALSO IN CIT VS. DHOOMKETU BUILDERS AND DEVELOPMENT P. LTD. [368 ITR 680] DERIVED RATIO FROM THE ABOVE DECISION. FURTHER, HONBLE BOMBAY HIGH COURT IN CIT VS AXIS PRIVATE EQUITY LIMITED [IT APPEAL NO. 1204 OF 2014 30/01/2017] EXPRESSED SIMILAR VIEW. THE LD. CIT-DR HAS RELIED UPON THE DECISION OF HON BLE CALCUTTA HIGH COURT RENDERED IN VIDEO PLAZA VS. ITO [81 TAXMANN.COM 359] & HONBLE ALLAHABAD HIGH COURT RENDERED IN J.K.MANUFACTURERS LTD. VS CIT [300 ITR 297]. HOWEVER, WE FIND THAT THE DECISION OF HONBLE ALLAH ABAD HIGH COURT WAS RENDERED IN A SITUATION WHEREIN IT WAS FACTUAL FINDING THAT THE ASSESSEE 10 ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 DID NOT AT ALL CARRY OUT ANY BUSINESS DURING THE YE AR UNDER QUESTION AND THEREFORE DISTINGUISHABLE ON FACTS. SIMILARLY, THE DECISION OF HONBLE CALCUTTA WAS RENDERED IN A SITUATION WHERE THE ASSE SSEE WAS CONSTRUCTING RESTAURANT CUM HOTEL PROJECT WHICH WAS NOT COMPLETED DURING IMPUGNED AY AND THE ASSESSEE CLAIMED DEDUCTION OF BANK CHARGES WHICH WERE DISALLOWED BY THE HONBLE COURT AND ALLOWED TO BE C APITALIZED. BE THAT AS THE CASE MAY BE, WE ARE BOUND BY THE DECISION OF OU R JURISDICTIONAL HIGH COURT AS CITED ABOVE AGAINST WHICH NO CONTRARY JUDG MENT OF THE SAME COURT HAS BEEN PLACED BY THE REVENUE ON RECORD. THEREFORE , WE RESPECTFULLY FOLLOW THE SAME. 6.4 FINALLY, AFTER CAREFUL CONSIDERATION OF OVERALL FACTUAL MATRIX, WE FIND OURSELVES IN AGREEMENT WITH THE CONCLUSION REACHED UPON BY LD. CIT(A) AND THEREFORE, FIND NO INFIRMITY IN THE SAME. THIS GROUND OF APPEAL STANDS DISMISSED. 7. SO FAR AS THE DISALLOWANCE U/S 14A IS CONCERNED, THE UNDISPUTED FACT IS THAT ASSESSEES OWN FUNDS IN THE SHAPE OF SHARE CAPITAL FAR EXCEEDED THE INVESTMENTS MADE BY THE ASSESSEE AND THEREFORE, NO INTEREST DISALLOWANCE WAS CALLED FOR AGAINST THE SAME IN TER MS OF THE JUDGMENTS OF HONBLE BOMBAY HIGH COURT AS RELIED UPON BY LD. CIT (A). THE ASSESSEE HAS MADE SUO-MOTO EXPENSE DISALLOWANCE OF RS.2.51 LACS COMPUTED @0.5% OF AVERAGE INVESTMENTS CONSIDERING THOSE INVE STMENTS WHICH HAVE YIELDED EXEMPT INCOME DURING THE IMPUGNED AY. THE S AME IS IN LINE WITH THE DECISION OF DELHI TRIBUNAL (SPECIAL BENCH) REND ERED IN ACIT VS. VIREET 11 ITA NO.712/MUM/2016 L & T MHI BOILERS PVT.LTD ASSESSMENT YEAR-2009-10 INVESTMENT (P.) LTD. [82 TAXMANN.COM 415] AND THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) IN DELETING TH E SAME. THIS GROUND OF REVENUES APPEAL STANDS DISMISSED. 8. IN NUTSHELL, THE REVENUES APPEAL STAND DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH SEPTEMBER, 2018 SD/- SD/- (C.N.PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 07.09.2018 SR.PS:-THIRUMALESH ( COPY OF THE ORDER FORWARDED TO : 1. )*+,-. ( THE APPELLANT 2. 234-. ( THE RESPONDENT 3. 84984 :; < )*+, = ( THE CIT=A< 4. 84984 :; ( CIT CONCERNED 5. DEFG+42H;HIJ K 849)*+,L4)IJ9M K ( DRK ITATK MUMBAI 6. GOPQ, ( GUARD FILE '# $ %'&/ BY ORDERK ( / %)'*+,-'& =DY.(ASSTT.REGISTRAR< *&-.*/0&1 2 / ITAT2 MUMBAI