TATA LOCKHEED MARTINAEROSTRUCTURES LTD., HYDERABAD V. DCIT -1(3)(2), MUMBAI

MA 55/MUM/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8716 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 12-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 28-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS JATHIL AKSHMI NAYAK
• Keywords: Capital asset; Business expenditure; Rectification of order; Search and seizure; Capital expenditure; Set aside

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 ASSESSMENT YEAR 2011 - 12 TATA LOCKHEED MARTIN AEROSTRUTURES LIMITED PLOT NO. 21, SURVEY NO. 1/1 HARDWARE PARK, IMARAT KANCHA RAVIRYALA VILLAGE , MAHESHWARAM MANDAL, HYDERABAD - 501218 TELANGANA, INDIA PAN AADCT5968N V. DCIT - 1(3)(2) ROOM NO. 540, 5 TH FLOOR, AAYAKAR BHAVAN M K ROAD, MUMBAI - 400020 APPLICANT RESPONDENT ASSESSEE BY MS. AARTI VISSANJI REVENUE BY MRS. JATHILAKSHMI NAYAK, DR DATE OF HEARING : 21 - 06 - 2019 DATE OF PRONOUNCEMENT : 12 - 07 - 2019 ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS MISCELLANEOUS A PPLICATION BEARING MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 FOR ASSESSMENT YEAR 2011 - 12 , FILED BY ASSESSEE U/S 254(2) OF THE INCOME - TAX ACT, 1961( HEREINAFTER CALLED THE ACT) BEING AGGRIEVED BY APPELLATE ORDER DATED 08.08 .2018 PASSED BY INCOME - TAX APPELLATE TRIBUNAL, E BENCH, MUMBAI ( HEREINAFTER CALLED THE TRIBUNAL) U/S 254(1) OF THE 1961 ACT IS SEEKING R ECTIFICATION OF MISTAKES APPARENT FROM RECORDS , WHEREIN TRIBUNAL HAD ALLOWED GROUND NUMBER 2(A) TO 2(C) IN AN APPEAL FILED BY REVENUE VIDE APPELLATE ORDER DATED 08.08.2019 . THE ASSESSEE MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 2 | P A G E IS NOT AGGRIEVED BY ADJUDICATION OF GROUND NUMBER 1 BY TRIBUNAL VIDE O RDER DATED 08.08.2018 , IN AN APPEAL FILED BY REVENUE . THUS, WE SHALL CONFINE OUR DISCUSSION IN THIS MA QUA GROUND NUMBER 2(A) TO 2(C) FILED BY REVENUE IN MEMO OF APPEAL FILED WITH THE TRIBUNAL IN ITS APPEAL WHICH WAS DECIDED BY TRIBUNAL VIDE ITS ORDER DATE D 08.08.2018 IN FAVOUR OF REVENUE . THE CONTROVERSY BETWEEN RIVAL PARTIES AROSE AS TO WHETHER ASSESSEE HAS SET UP ITS BUSINESS OR NOT DURING THE YEAR UNDER CONSIDERATION , WHICH HAD A BEARING ON ALLOWABILITY OF EXPENSES TO THE TUNE OF RS.2,10,11.032/ - AS CL AIMED BY ASSESSEE WHILE COMPUTING INCOME OF THE ASSESSEE FOR RELEVANT AY UNDER CONSIDERATION BEFORE THE BENCH . THE TRIBUNAL ON APPRECIATION OF MATERIAL ON RECORD GAVE FINDING OF FACT THAT BUSINESS OF THE ASSESSEE WAS NOT SET UP DURING THE YEAR UNDER CONSIDERATION AND CONSEQUENTLY THESE EXPENSES CANNOT BE ALLOWED AS BUSINESS EXPENSES FOR YEAR UNDER CONSIDERATION , VIDE APPELLATE ORDER DATE D 08.08.2018 PASSED BY TRIBUNAL, WHICH IS PRODUC ED HEREUNDER: 11. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING CASE LAWS CITED BY BOTH THE RIVAL PARTIES BEFORE US. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 5TH APRIL, 2010 WITH THE MAIN OBJECT OF DOING BUSINESS OF ASSEMBLY, MANUFACTURE AND SUPPLY OF ADVANCE SPACE, AVIATION, HOMELAND SECURITY AND DEFENCE RELATED TECHNOLOGIES. THE ASSESSEE ENTERED INTO JOINT VENTURE AGREEMENTS WITH LOCKHEED M ARTIN AEROSTRUCTURE CORPORATION ,USA A WHOLL Y OWNED SUBSIDIARY OF LOCKHEED MARTIN CORPORATION OF USA FOR THE PURPOSE OF ASSEMBLING, MANUFACTURING AND SUPPLYING OF C130/C130J AIRCRAFT STRUCTURAL ARTICLES I.E. EMPENNAGES AND CENTER WING BOX (FINISHED PRODUCTS). THE ASSESSEE IS A J.V COMPANY FORMED BY TATA ADVANCED SYSTEMS LTD. AND LOCKHEED MARTIN AEROSTRUCTURE CORPORATION(LMAC), WHEREIN TATA S HOLD 74% AND LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA HOLDS 26% OF THE EQUITY OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY IS SETTING UP MANUFACTURING UNI T AT ADIBATLA VILLAGE, HYDERABAD TO ASSEMBLE, MANUFACTURE AND SUPPLY TO LOCKHEED MARTIN AEROSTRUCTURE CORPORATION,USA OR ITS AFFILIATES OF C - 130/C130J AIRCRAFT STRUCTURAL ARTICLES CONSISTING OF EMPENNAGES AND CENTER WING BOXES. THE AFORESAID PROJECT FOR SE TTING UP MANUFACTURING/ASSEMBLY UNIT AT HYDERABAD IS UNDER CONSTRUCTION/IMPLEMENTATION UP TO THE END OF THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR.SO FAR SO GOOD. THE ASSESSEE HAS CLAIMED AS PER ITS JV AGREEMENT THAT THE JV PARTNERS AND THE ASSESSEE COMPANY HAS EXECUTED DEFINITIVE AGREEMENTS , WHICH INCLUDES SUPPLY AGREEMENT FOR SUPPLY OF FINISHED GOODS CONSISTING OF MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 3 | P A G E CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFTS TO LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA AND/OR ITS AFFIL IATES. THE COPIES OF SUPPLY AGREEMENT WAS FURNISHED BEFORE THE AUTHORITIES BELOW (PB/PAGE 3) . THE ASSESSEE COMPANY INCURRED TOTAL EXPENSES OF RS. 3.39 CRORES OUT OF WHICH EXPENSES AGGREGATING TO RS. 1.29 CRORES WERE DISALLOWED BY THE ASSESSEE ITSELF , WHI LE CLAIM FOR DEDUCTION OF EXPENSES TO THE TUNE OF RS. 2.10 CRORES AS REVENUE EXPENSES WAS MADE BY THE ASSESSEE FROM THE INCOME OF THE ASSESSEE COMPUTED WITHIN PROVISIONS OF THE 1961 ACT WHICH WAS DENIED BY REVENUE, WHICH IS A SUBJECT MATTER OF DISPUTE BETW EEN RIVAL PARTIES. THE AFORESAID EXPENSES TO THE TUNE OF RS. 2.10 CRORES WHICH WERE CLAIMED AS REVENUE EXPENSES AND WHICH ARE SUBJECT MATTER OF DISPUTE BETWEEN RIVAL PARTIES ARE MAINLY IN THE NATURE OF PERSONNEL EXPENSES , OFFICE AND ADMINISTRATIVE EXPENSE S. THE ASSESSEE IS CLAIMING THAT ITS BUSINESS WAS SET UP AND HENCE THE ASSESSEE IS ENTITLED FOR CLAIMING DEDUCTION OF SAID EXPENSES AS REVENUE EXPENSES WHILE COMPUTING INCOME UNDER THE PROVISIONS OF THE 1961 ACT WHILE IT IS THE SAY OF THE REVENUE THAT NO D EDUCTION OF THESE PERSONNEL, ADMINISTRATIVE AND OFFICE EXPENSES CAN BE ALLOWED AS BUSINESS EXPENSES AS THE BUSINESS OF THE ASSESSEE HAS NOT YET BEEN SET UP TILL THE END OF RELEVANT PREVIOUS YEAR AND THESE EXPENSES BEING PRE - OPERATIVE EXPENSES PARTAKE THE C HARACTER OF CAPITAL EXPENDITURE WHICH ARE NOT ALLOWABLE AS DEDUCTION WHILE COMPUTING INCOME OF THE ASSESSEE WITHIN THE MANDATE OF THE 1961 ACT. THE DETAILS OF SAID EXPENSES ARE AS UNDER: S.NO. PARTICULARS AMOUNT (RS) REMARKS 1 PERSONNEL EXPENSES (A] SALARIES AND ALLOWANCES 8138161 SALARIES PAID TO EMPLOYEES (B) CONTRIBUTION TO PROVIDENT FUND AND ALLIED FUNDS 177169 COMPANY'S SHARE OF CONTRIBUTION TO PROVIDENT FUND (C) STATT WELFARE EXPENSES 121849 WELFARE EXPENSES 2 OFFICE AND ADMINISTRATIVE EXPENSES (A) RENT 1552580 RENT PAID IN RESPECT OF OFFICE IN HENGUMPET. HYDERABAD. (B) ELECTRICITY CHARGES 185770 ELECTRICITY CHARGES INCURRED TOR BEGUMPET. HYDERABAD MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 4 | P A G E (C) RATES AND TAXES 104485 TAXES PAID TO GOVERNMENT AND LOCAL AUTHORITIES. ROC TILING FEE (D) LEGAL AND PROFESSIONAL CHARGES 5757293 FEES PAID FOR MANAGEMENT CONSULTANCY, LEGAL CONSULTANCY. CHARTERED ACCOUNTANT SERVICES, COMPANY SECRETARY SERVICES ETC. (E) TRAVELLING AND CONVEYANCE EXPENSES 4405805 TRAVELLING EXPENSES, BOARDING & LODGING EXPENSES OF EMPLOYEES ON OFFICIAL TOURS. (F) COMMUNICATION EXPENSES 124879 TELEPHONE, MOBILE AND INTERNET CHARGES (G) AUDIT FEES 75000 STATUTORY AUDIT FEE (H) BUSINESS PROMOTION EXPENSES 43644 EXPENSES INCURRED TOWARDS BUSINESS PROMOTION ETC. (I) PRINTING AND STATIONERY 221104 PRINTING AND STATIONERY EXPENSES INCURRED. (J) MISCELLANEOUS EXPENSES 103242 MEMBERSHIP AND SUBSCRIPTION CHARGES AND OFFICE EXPENSES. 21011032 MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 5 | P A G E IT HAPPENED SO THAT THE ASSESSEE WAS SETTING UP MANUFACTURING/ASSEMBLY UNIT AT HYDERABAD FOR MANUFACTURING/ ASSEMBLY OF CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFT WHICH UNDISPUTEDLY WAS NOT SET UP TILL THE END OF THE RELEVANT PREVIOUS YEAR UNDER CONSTRUCTION . THERE IS NO DISPUTE SO FAR AS THIS FACTUAL MATRIX IS CONCERNED. THE DISPUTE AROSE BECAUSE THE ASSESSEE FOR ITS MANUFACTURING/ASSEMBLY UNIT WHICH WAS BEING SET UP AT HYDERABAD FOR MANUFACTURING/ ASSEMBLY PROCESS FOR CENTER WING BOX AND EMPENNAGES (FINISHED PRODUCTS) ) FOR C130/C130J AIRCRAFTS, REQUIRED TOOLS AND JIGS FOR THIS MANUFACTURING/ASSE MBLY UNIT WHICH WAS BEING SET UP AT HYDERABAD. SINCE THESE TOOLING AND JIGS ARE REQUIRED AS PART OF THE MANUFACTURING/ASSEMBLY UNIT BEING SET UP AT HYDERABAD BY ASSESSEE, THESE TOOLINGS AND JIGS PARTAKE THE CHARACTER OF CAPITAL GOODS. AS PER JV AGREEMENT B ETWEEN LOCKHEED MARTIN AND THE ASSESSEE COMPANY, TOOLS AND JIGS REQUIRED FOR PRODUCTION/ASSEMBLY PROCESS WERE TO BE PROVIDED BY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA TO THE ASSESSEE (PAGE 5/PB) AS PER CLAUSE 7 ON PAGE 4 OF BUSINESS PLAN, WHICH BUS INESS PLANS WAS SUBMITTED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. HOWEVER, LOCKHEED MARTIN AEROSTRUCTURE CORPORATION , USA SUGGESTED THAT THESE TOOLS AND JIGS REQUIRED FOR ASSEMBLY/PRODUCTION PROCESS BEING SET UP AT HYDERABAD BE BUILT INDIGENOUSLY BY THE ASSESSEE COMPANY WHEREIN SUB - CONTRACT WAS AWARDED TO THE ASSESSEE COMPANY BY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA. ACCORDINGLY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION , USA ISSUED PURCHASE ORDERS FOR CENTER WING BOX AND EMPENNAGE TOOLING O N 18TH FEBRUARY 2011 FOR US$ 25,93,697/ - AND US $ 1,27,68,133/ - RESPECTIVELY(PB/PAGE 5) IN FAVOUR OF THE ASSESSEE COMPANY . THE COPIES OF THE SAID PO S WERE ENCLOSED AND ARE AS PART OF PAPER BOOK(PB/PAGE 12 AND 40). THE ASSESSEE COMPANY INSTEAD OF MANUFACT URING THE SAID TOOLS AND JIGS ITSELF INITIATED THE TOOL/JIGS MANUFACTURED/ASSEMBLED BY OUTSOURCING THE SAME TO INDIGENOUS MANUFACTURERS AND SUPPLIERS VIZ. TAL MANUFACTURING SOLUTIONS LIMITED, TATA TECHNOLOGIES LIMITED AND TATA CONSULTANCY SERVICES LIMITED. THE SAID SUB - SUB - CONTRACTS AWARDED BY THE ASSESSEE COMPANY TO THESE THREE VENDOR COMPANIES ARE PART OF PAPER BOOK FILED BY THE ASSESSEE WITH THE TRIBUNAL(PB /PAGE 70 - 74). LOCKHEED MARTIN AEROSTRUCTURE CORPORATION,USA SHARED NECESSARY ENGINEERING DRAWINGS , DRAWINGS AND SPECIFICATIONS ALONG WITH SOURCE BOOK FOR MANUFACTURING/ASSEMBLING OF TOOLS/JIGS, BASED ON WHICH ASSEMBLY OPERATION SHEETS ARE PREPARED. THESE ASSEMBLY OPERATION SHEETS ARE CATEGORIZED IN SUB ASSEMBLY, MAJOR ASSEMBLY AND FINAL INTEGRATION. T HESE ASSEMBLY OPERATION SHEETS ARE REQUIRED IN ASSEMBLY PROCESSES FOR CENTER WING BOX AND EMPENNAGES . THESE ASSEMBLY OPERATION SHEETS ACTS AS GUIDE TO STAFF FOR VARIOUS OPERATIONS INVOLVED IN THE ASSEMBLY PROCESS AND ALSO ACTS AS TRACKER FOR VARIOUS FUNCT IONS INVOLVED IN A PROCESS. THE ASSESSEE COMPANY PLACED ORDERS WITH TCS AND TATA TECHNOLOGIES LIMITED ON 5TH MARCH 2011 , FOR DEVELOPMENT OF MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 6 | P A G E ASSEMBLY OPERATIONS SHEETS AND THE SAID ASSEMBLY OPERATIONS SHEETS WERE REVIEWD BY THE EMPLOYEES OF THE ASSESSEE CO MPANY. THESE OPERATIONAL DETAILS ARE EXTRACTED FROM WRITTEN SUBMISSIONS FILED BEFORE THE AUTHORITIES BELOW(PB/PAGE 1 - 6) . THE WRITTEN SUBMISSIONS WITH RESPECT TO NATURE OF ACTIVITIES CARRIED ON BY THE ASSESSEE. WHICH WERE SUBMITTED BY THE ASSESSEE BEFORE L EARNED CIT(A) VIDE SUBMISSIONS DATED 22.12.2015 (PAGE 79/PB) AS ANNEXURE B (PAGE 83/PB) IS REPRODUCED HERE UNDER: - ANNEXURE 'B' TATA LOCKHEED MARTIN AEROSTRUCTURES LIMITED NATURE OF ACTIVITIES CARRIED OUT BY THE APPELLANT DURING THE YEAR ENDED 31ST MARCH, 2011 1. FACILITY: LAND WAS ACQUIRED AND CONSTRUCTION WORK OF THE PROJECT WAS STARTED. THE TOTAL AMOUNT OF CAPITAL EXPENDITURE INCURRED, INCLUDING PRE - OPERATIVE EXPENSES, O F RS. 150.28 LAKHS AS UPTO 31ST MARCH, 2011 WAS RS. 765.26 LAKHS THE CONSTRUCTION WORK, INCLUDING SUPERVISION OF THE PROJECT WAS OUTSOURCED. 2. MANPOWER: (A) MANPOWER RECRUITMENT STARTED IN AUGUST 2010 AND AS ON MARCH, 2011, EMPLOYEE HEADCOUNT WAS SIXTY O NE - MAJORITY OF THEM HAVING 'TECHNICAL BACKGROUND / QUALIFICATION'. (B) MOST OF THE EMPLOYEES WERE INVOLVED IN THE TECHNICAL ACTIVITY OF REVIEW OF ASSEMBLY OPERATION SHEETS GIVEN BY SERVICE PROVIDERS AND ALSO DETAILED VERIFICATION OF TOOLS PROVIDED BY THE S UPPLIERS. 3. TOOLING: (A) . ASSEMBLY PROCESS FOR FINISHED PRODUCTS REQUIRED TOOLS AND JIGS. AS A PART OF JV AGREEMENT BETWEEN LOCKHEED MARTIN AND THE APPELLANT, TOOLS /JIGS REQUIRED FOR PRODUCTION / ASSEMBLY PROCESS WERE TO BE PROVIDED BY LOCKHEED MARTIN TO THE APPELLANT (REFERENCE IS DRAWN TO CLAUSE 7 ON PAGE 4 OF THE BUSINESS PLAN) [ REFER PAGE NO. 33 OF PAPER BOOK NO.I]. HOWEVER, LOCKHEED MARTIN SUGGESTED TO - BUILD ALL THE TOOLS REQUIRED FOR ASSEMBLY / PRODUCTION PROCESS INDIGENOUSLY. ACCORDINGLY, LOCKH EED MARTIN ISSUED PURCHASE ORDERS FOR CENTER WING BOX AND EMPENNAGE TOOLING ON 18TH FEBRUARY, 2011 FOR US$ 25,93,697 AND US$ 1,27,68,133 RESPECTIVELY [REFER PAGE NOS. 34 TO 91 OF PAPER BOOK NO.I]. (B) ACCORDINGLY, THE APPELLANT INITIATED THE PROCESS OF TOO L BUILDING BY OUTSOURCING THE SAME TO VARIOUS - INDIGENOUS MANUFACTURERS AND SUPPLIERS, WHICH IS EXPLAINED AS UNDER: - (I) PLACED ORDERS WITH TAL MANUFACTURING SOLUTIONS LIMITED FOR MANUFACTURE, SUPPLY, INSTALLATION AND COMMISSIONING OF TOOLS REQUIRED FOR BOT H CENTER WING BOX AND EMPENNAGE STRUCTURES ON 28TH FEBRUARY 2011 FOR 477.32 LAKHS. MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 7 | P A G E ACCORDINGLY, THE APPELLANT PAID AN ADVANCE OF RS. 84.85 LAKHS TO TAL MANUFACTURING SOLUTIONS LIMITED ON 7TH MARCH 2011 AS PER THE PO TERMS TO START THE TOOL MANUFACTURING AC TIVITY [REFER PAGE NO. 92 OF PAPER BOOK \ NO.1]. (II) TOOL DESIGN AND DIGITIZATION OF DRAWINGS IS A PART OF TOOLING ACTIVITY FOR BOTH CENTER WING BOX AND EMPENNAGE STRUCTURES AND THE APPELLANT HAS PLACED ORDERS FOR THIS ACTIVITY ON TATA TECHNOLOGIES LIMIT ED AND TATA CONSULTANCY SERVICES LIMITED ON 5TH MARCH, 2011[REFER PAGE NOS. 93 TO 96 OF PAPER BOOK NO.I]. NOTE: ON 4LH MAY, 2011, THE APPELLANT HAS RAISED ITS FIRST INVOICE AGAINST CENTER WING BOX TOOLING FOR US$ 18,15,587.90. BY END OF MARCH 2013, THE AP PELLANT HAS COMPLETED TOOLING ACTIVITY IN CENTER WING BOX AND INVOICED TO LOCKHEED MARTIN THE AGREED VALUE AS PER PO [REFER PAGE NO. 91 OF PAPER BOOK NO.I]. 4. MANUFACTURING / ASSEMBLY: (A) LOCKHEED MARTIN HAS SHARED ENGINEERING DRAWINGS AND SPECIFICATIO NS ALONG WITH SOURCE BOOK, BASED ON WHICH THE ASSEMBLY OPERATION SHEETS (AOS) ARE PREPARED. AOS ARE CATEGORIZED IN SUB ASSEMBLY, MAJOR ASSEMBLY AND FINAL INTEGRATION. (B) ASSEMBLY OPERATION SHEETS ARE REQUIRED IN ASSEMBLY FOR FINISHED PRODUCTS. AOS ACT AS GUIDE TO STAFF FOR VARIOUS OPERATIONS INVOLVED IN THE ASSEMBLY PROCESS AND ALSO ACTS AS TRACKER FOR VARIOUS FUNCTIONS INVOLVED IN A PROCESS. THE APPELLANT PLACED ORDER WITH TATA CONSULTANCY SERVICES LIMITED AND TATA TECHNOLOGIES LIMITED ON 5TH MARCH, 2011, FOR DEVELOPMENT OF AS SEMBLY OPERATION SHEETS AND THE AOS SO PREPARED WERE REVIEWED BY THE EMPLOYEES OF THE APPELLANT [REFER PAGE NOS. 98 & 99 OF PAPER BOOK NO.I]. 5. FROM THE ABOVE FACTS, IT IS OBSERVED AS UNDER: - . (A) THE APPELLANT HAS SECURED ORDERS F OR SUPPLY OF FINISHED PRODUCTS BY ENTERING INTO SUPPLY AGREEMENT; (B) THE APPELLANT COMMENCED FOLLOWING ACTIVITIES DURING THE YEAR: (I) SETTING - UP OF THE PROJECT; (II) EXECUTION OF PO'S FOR CENTER WING BOX AND EMPENNAGE TOOLING, A REVENUE GENERATING ACT IVITY. ' . (III) THE EMPLOYEES WERE FULLY INVOLVED IN DETAILED VERIFICATION OF THE TOOLS PROVIDED BY THE VENDORS. (IV) ON 4LH MAY, 2011, THE APPELLANT HAS RAISED ITS FIRST INVOICE AGAINST CENTER WING BOX TOOLING FOR US$ 18,15,587.90. BY END OF MARCH 2013 , THE APPELLANT HAS COMPLETED TOOLING ACTIVITY IN CENTER WING BOX AND INVOICED TO LOCKHEED MARTIN THE AGREED VALUE AS PER PO.; AND MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 8 | P A G E (V) REVIEW OF ASSEMBLY OPERATION SHEETS BY THE EMPLOYEES. ASSEMBLY OPERATION SHEETS GUIDES THE EMPLOYEES FOR VARIOUS OPERATIO NS INVOLVED IN THE ASSEMBLY PROCESS AND ALSO ACTS AS TRACKER FOR VARIOUS FUNCTIONS INVOLVED IN THE PROCESS I.E. PROVIDES KNOWLEDGE / TECHNIQUE OF PRODUCTION. (B) REVENUE EXPENSES CHARGED OFF TO THE PROFIT AND LOSS ACCOUNT HAVE NO CONNECTION WITH THE SETTIN G - UP - OF THE PROJECT BUT HAD DIRECT NEXUS / CONNECTION WITH EXECUTION OF PO'S FOR TOOLING AND PRODUCTION OF FINISHED GOODS, BEING BOTH REVENUE GENERATING ACTIVITIES; (C) IT HAD STARTED THE ACTIVITY OF PLANNING THE PRODUCTION OF FINISHED PROD UCTS BY MAKING THE EMPLOYEES GO THROUGH THE STEPS INVOLVED IN ASSEMBLING THE FINISHED PRODUCTS (I.E. REVIEW OF ASSEMBLY OPERATION SHEETS), BEING AN ESSENTIAL ACTIVITY FOR CARRYING ON THE BUSINESS OF THE APPELLANT. (D) THE EXPENDITURE WHICH WAS INCURRED DURING THE YEAR I S FOR THE ACTIVITIES AS MENTIONED IN PARA NO. (B)* (II) TO (V) WHICH RELATED TO THE CARRYING ON OR CONDUCT OF THE BUSINESS AS THE SAME RELATED TO PROFIT EARNING PROCESS AND NOT FOR ACQUISITION OF ANY ASSET. (E) THE APPELLANT HAD COMMENCED THE WORK FOR PROD UCTION OF FINISHED PRODUCTS. (F) HENCE, THE ABOVE FACTORS CLEARLY ESTABLISHED THAT THE APPELLANT HAD SET - UP AND COMMENCED ITS BUSINESS DURING THE YEAR. 6. PROCESS FLOW CHART IS ENCLOSED TO EXPLAIN THE FLOW OF ACTIVITIES CARRIED OUT DURING THE YEAR ENDED 3 1ST MARCH, 2011 SO , IN NUTSHELL WHAT TRANSPIRES IN SHORT IS THAT THE ASSESSEE COMPANY IS A JV COMPANY FORMED BY TATA ADVANCED SYSTEMS LIMITED AND LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA, WHEREIN TATA S HOLD 74% OF EQUITY CAPITAL WHILE 26% IS HELD BY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA. THE JV AGREEMENT PROVIDED THAT THE ASSESSEE COMPANY WILL ASSEMBLE, MANUFACTURE AND SUPPLY C130/130J AIRCRAFT STRUCTURAL ARTICLES I.E. CENTER WING BOX AND EMPENNAGES TO LOCKHEED MARTIN AEROSTRUCTURE CORPORATION,USA AND / OR ITS AFFILIATES. THE MANUFACTURING/ASSEMBLY UNIT OF THE ASSESSEE COMPANY FOR MANUFACTURING/ASSEMBLY OF CENTER WING BOX AND EMPENNAGE FOR C130/C130J AIRCRAFTS WAS BEING SET UP AT HYDERABAD WHICH DID NOT BECOME OPERATIONAL TILL THE END OF THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. THE ITEM TO BE ASSEMBLED/MANUFACTURED NAMELY CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT BEING HIGHLY SPECIALISED, T ECHNICAL , COMPLEX AND GUARDED TECHNOLOGY, THE LOCKHEED MARTIN AEROSTRUCTURE CORPORATION ,USA WAS TO UNDERTAKE THE JOB OF IMPLEMENTING THE PROJECT VIDE AGREEMENT ENTERED INTO WITH THE ASSESSEE WHICH , INTER - ALIA, PROVIDED FOR SUPPLY OF ENGINEERING DESIGNS, DRAWINGS, TOOLS , JIGS , TECHNICAL KNOWHOW ETC. . THUS, ON THE ONE HAND LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA WAS EQUITY SHAREHOLDER OF ASSESSEE COMPANY INFUSING 26% CAPITAL AND AT SAME TIME WAS INVOLVED IN SETTING UP OF MANUFACTURING/ASSEMBLY UN IT BY THE ASSESSEE FOR CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT AND SAID LOCKHEED MARTIN MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 9 | P A G E AEROSTRUCTURE CORPORATION, USA AND/OR ITS AFFILIATES WERE ALSO THE CUSTOMER FOR FINAL PRODUCT NAMELY CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRA FT MANUFACTURES/ASSEMBLED BY ASSESSEE. THUS, LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA AND / OR ITS AFFILIATES WERE PERFORMING MULTIPLE ROLES AT THE SAME TIME SO FAR AS DEALING WITH THE ASSESSEE COMPANY ARE CONCERNED VIZ. EQUITY INVESTORS, PARTICIPATI NG IN SETTING UP OF MANUFACTURING / ASSEMBLY UNIT FOR CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT FOR WHICH TECHNICAL KNOWHOW WAS HELD BY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA AND SAID COMPANY NAMELY LOCKHEED MARTIN AEROSTRUCTURE CORPOR ATION, USA WAS ALSO BUYER OF THE FINAL PRODUCT BEING CENTER WING BOX AND EMPENNAGES FOR C130/C130J ASSEMBLED/MANUFACTURED BY THE ASSESSEE IN ITS UNIT AT HYDERABAD WHICH WAS UNDER THE STAGE OF IMPLEMENTATION AT THE YEAR END AND PRODUCTION COULD NOT BE COMME NCED BY THE END OF THE PREVIOUS YEAR AND NOT EVEN TRIAL RUNS STARTED. THE SAID LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA NOW UNDER AN OBLIGATION TO SUPPLY TECHNICAL KNOW HOW, DRAWINGS, ENGINEERING DESIGNS ETC TO THE ASSESSEE FOR SETTING UP ITS ASSEMBL Y/MANUFACTURING UNIT FOR CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT WAS ALSO,INTERALIA, REQUIRED TO SUPPLY TOOLS AND JIGS. THESE TOOLS AND JIGS BEING SUPPLIED AT THE TIME OF OR BEFORE SETTING UP OF THE PROJECT ARE PART OF CAPITAL ASSETS WHICH N EEDS TO BE CAPITALISED. THE SAID LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA WHO WAS , INTER - ALIA, UNDER AN OBLIGATION TO SUPPLY ENGINEERING DESIGNS, DRAWINGS, TOOLS , JIGS ETC. BUT LOCKHEED MARTIN AEROSTRUCTURE CORPORATION , USA INSTEAD OF SUPPLYING SO ME OF THE TOOLS AND JIGS ITSELF INSTEAD AWARDED THE WORK TO MANUFACTURE/ASSEMBLE THESE TOOLS AND JIGS TO THE ASSESSEE INDIGENOUSLY BY WAY OF SUB - CONTRACT FOR WHICH NECESSARY DESIGNS AND DRAWINGS WERE SUPPLIED BY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, U SA. THE ULTIMATE RESPONSIBILITY FOR EXECUTION OF THE AGREEMENT FOR SETTING UP MANUFACTURING/ASSEMBLY UNIT AT HYDERABAD RESTED WITH LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA UNDER THE MAIN CONTRACT AWARDED BY THE ASSESSEE TO LOCKHEED MARTIN AEROSTRUCTU RE CORPORATION, USA BUT CERTAIN PORTION OF THE CONTRACT WITHIN THE MAIN CONTRACT WAS CARVED OUT AND ASSIGNED BY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA TO ASSESSEE ITSELF AS SUB - CONTRACT TO MANUFACTURE THESE TOOLS AND JIGS REQUIRED FOR THE PROJECT I NDIGENOUSLY OF COURSE FOR WHICH TECHNICAL SPECIFICATION, DESIGNS AND DRAWINGS WERE SUPPLIED BY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA AND ULTIMATE TECHNICAL SUPERVISION AND OTHER RESPONSIBILITIES VESTED WITH LOCKHEED MARTIN AEROSTRUCTURE CORPORATIO N, USA FOR SUCCESSFUL IMPLEMENTATION OF SUPPLIES OF TOOLS AND JIGS FOR THE PROJECT UNDER IMPLEMENTATION WHICH WERE MANUFACTURED INDIGENOUSLY BY ASSESSEE THROUGH SUB - SUB CONTRACTORS/ VENDORS NAMELY TCS ETC. APPOINTED BY THE ASSESSEE TO SUPPLY TO ITS OWN ASS EMBLY/MANUFACTURING UNIT BEING SET UP AT HYDERABAD WHICH HAD NOT BECOME OPERATIONAL EVEN BY YEAR END AND NOT EVEN TRIAL RUNS STARTED BY THE END OF THE RELEVANT PREVIOUS YEAR. THE ASSESSEE ON ITS PART ON RECEIPT OF THE SAID SUB - CONTRACT FROM LOCKHEED MARTIN AEROSTRUCTURE CORPORATION,USA FOR SUPPLYING SOME OF THE TOOLS AND JIGS WHICH WERE TO BE CONSUMED/UTILISED BY THE ASSESSEE ITSELF IN ITS MANUFACTURING/ASSEMBLY UNIT BEING SET UP AT HYDERABAD FURTHER OUTSOURCED THE SAID JOB OF SUPPLYING TOOLS MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 10 | P A G E AND JIGS TO TC S, TATA TECHNOLOGIES LIMITED AND TAL MANUFACTURING SUPPLIES LIMITED FOR WHICH SUPERVISION WAS DONE BY THE ASSESSEE UNDER SUB - CONTRACT AWARDED BY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION , UAS FOR WHICH FINAL RESPONSIBILITY VESTED WITH LOCKHEED MARTIN AERO STRUCTURE CORPORATION, USA AS MAIN CONTRACTOR/VENDOR WHILE THE ASSESSEE ITSELF WAS RESPONSIBLE AS SUB - CONTRACTOR/VENDOR. THE ULTIMATELY RESPONSIBILITY FOR COMPLETE EXECUTION OF MAIN CONTRACT REMAINED WITH LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA W.R. T. SETTING UP OF MANUFACTURING/ASSEMBLY UNIT FOR THE ASSESSEE COMPANY AT HYDERABAD WHILE THE ASSESSEE AS SUB - CONTRACTOR/VENDOR BECOME RESPONSIBLE FOR TOOLS AND JIGS MANUFACTURED BY IT THROUGH TCS, TAL MANUFACTURING SOLUTIONS LIMITED AND TATA TECHNOLOGIES L IMITED TO THE MAIN VENDOR NAMELY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA. BUT THE FACT REMAINED THAT THESE TOOLS AND JIGS WERE TO BE USED/CONSUMED IN THE MANUFACTURING/ASSEMBLY UNIT BEING SET UP BY THE ASSESSEE AT HYDERABAD FOR MANUFACTURING OF CENT ER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFTS WHICH PROJECT WAS UNDER IMPLEMENTATION AS AT THE END OF THE RELEVANT PREVIOUS YEAR . IN NUTSHELL THE ACTIVITIES OF THE ASSESSEE FOR MANUFACTURING OF TOOLS AND JIGS INDIGENOUSLY UNDER SUB - CONTRACT FROM LOC KHEED MARTIN AEROSTRUCTURE CORPORATION, USA ARE DIRECTED TOWARDS SETTING UP OF THE MAIN ASSEMBLY/MANUFACTURING UNIT FOR MANUFACTURE/ASSEMBLY OF CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT AT HYDERABAD FOR WHICH MAIN CONTRACT WAS AWARDED BY THE A SSESSEE IN FAVOUR OF THE SAME LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA. UNDER THESE CIRCUMSTANCES, CAN IT BE SAID THAT THE ASSESSEE COMPANY WHO PARTICIPATED IN THE SETTING UP OF ITS OWN MANUFACTURING/ASSEMBLY UNIT AT HYDERABAD UNDER A SUB - CONTRACT FR OM LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA FOR WHICH MAIN CONTRACT WAS AWARDED BY THE ASSESSEE ITSELF IN FAVOUR OF THE SAME LOCKHEED MARTIN AEROSTRUCTURE CORPORATION , USA WHEREIN THE ASSESSEE BY GETTING SOME OF THE TOOLS/JIGS MANUFACTURED/ ASSEMBLE D BY FURTHER SUB - SUB - CONTRACTING TO TCS, TATA TECHNOLOGIES LIMITED AND TAL MANUFACTURING SUPPLIES LIMITED EVER INTENDED TO ENTER INTO AN BUSINESS OF MANUFACTURING /ASSEMBLY OR SUPPLIES OF TOOLS AND JIGS RATHER ITS ACTIVITIES AND EFFORTS WERE ALL DIRECTED T OWARDS THE BUSINESS OF SETTING UP OF MANUFACTURING /ASSEMBLY UNIT BEING SET UP AT HYDERABAD FOR MANUFACTURING/ASSEMBLY OF CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT. THUS, WE CONCLUDE THAT THE ASSESSEE NEVER INTENDED TO SET UP ANY BUSINESS OF M ANUFACTURING/ASSEMBLY OF TOOLS AND JIGS REQUIRED FOR SUPPLIES TO BE MADE TO ITS ASSEMBLY/MANUFACTURING UNIT BEING SET UP AT HYDERABAD WHICH WAS UNDER IMPLEMENTATION AS AT YEAR END FOR WHICH EVEN TRIAL RUN DID NOT STARTED BY YEAR END. THE ACTIVITIES OF SUPP LY OF TOOLS/JIGS BY THE ASSESSEE AS SUB - CONTRACTOR/VENDOR TO LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA WHICH WAS EXECUTED BY ASSESSEE THROUGH SUB - SUB CONTRACTORS/VENDORS NAMELY TCS ETC FOR ULTIMATE SUPPLY OF TOOLS/JIGS TO THE ASSESSEE ITSELF TO BE USE D FOR ITS MANUFACTURING/ASSEMBLY UNIT AT HYDERABAD WHICH WAS UNDER IMPLEMENTATION AT THE YEAR END WERE ALL INEXTRICABLY LINKED TO THE ASSESSEE S MAIN ACTIVITY OF SETTING UP OF MANUFACTURING /ASSEMBLY UNIT AT HYDERABAD FOR MANUFACTURE / ASSEMBLY OF CENTER W ING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT AND WHICH IN ITSELF IS NOT AN MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 11 | P A G E INDEPENDENT ACTIVITY PER - SE TO BE CATEGORISED AS SEPARATE BUSINESS ACTIVITY. THE ASSESSEE CLAIMS THAT IT KEPT HIGHLY TECHNICAL AND SUPERVISORY STAFF TO OVERSEE THESE ACTIVITIES IN CLUDING REVIEWING OF ASSEMBLY OPERATION SHEETS SUPPLIED BY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA BUT IN OUR CONSIDERED VIEW THESE ARE NORMAL REQUIREMENTS IN CONNECTION WITH SETTING UP OF MANUFACTURING / ASSEMBLY UNIT AT HYDERABAD FOR MANUFACTURING /ASSEMBLY OF CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT , WHICH IS HIGHLY TECHNICAL AND COMPLEX ACTIVITY REQUIRING HIGHLY SPECIALISED TECHNICAL STAFF. THE ACTIVITIES OF ASSEMBLY AND MANUFACTURING OF CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT BEING HIGHLY COMPLEX , TECHNOLOGICALLY SOPHISTICATED ACTIVITY INVOLVING GUARDED TECHNOLOGY NEED HIGHLY SPECIALISED , EXPERIENCED AND TECHNICAL PERSONNELS , AND THE ASSESSEE CANNOT AFFORD TO APPOINT NECESSARY STAFF ONLY AFTER THE UNIT BECOMES OPER ATIONAL AS BY THE TIME UNIT GOES INTO PRODUCTION , THE ASSESSEE OUGHT TO HAVE ALL SPECIALISED, TRAINED, EXPERIENCE AND TECHNICAL STAFF WITH I S READY AND WELL VERSED/TRAINED TO HANDLE ACTUAL MANUFACTURING/ASSEMBLY OF CENTER WING BOXES AND EMPENNAGES FOR C13 0/C130J AIRCRAFTS. THE APPOINTING OF TECHNICAL AND SPECIALISED STAFF PRIOR TO UNIT BEING INSTALLED AND READY TO COMMENCE PRODUCTION WILL NOT MAKE THE SAME AS REVENUE EXPENSES EVEN THOUGH THESE TECHNICAL AND SPECIALISED STAFF WERE REVIEWING THE ASSEMBLY OPE RATION SHEETS FOR MANUFACTURING/ASSEMBLY OF CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFT FOR WHICH ORDER WAS ALREADY RECEIVED BY THE ASSESSEE FROM LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA, AS ALL THESE ARE PREOPERATIVE EXPENSES WHICH NEED ED TO BE CAPITALISED AS PART OF THE COST OF THE PROJECT BECAUSE THERE WAS NO POSSIBILITY OF COMMENCING PRODUCTION/MANUFACTURING/ASSEMBLY UNLESS THE UNIT IS READY TO COMMENCE PRODUCTION WHICH IN THE INSTANT CASE EVEN BY THE YEAR END UNIT WAS NEITHER INSTALL ED NOR TRIAL RUNS COMMENCED. WE HAVE CAREFULLY GONE THROUGH THE CASE LAWS CITED BY LEARNED COUNSEL FOR THE ASSESSEE AND WE HAVE OBSERVED THAT THOSE CASE LAWS WERE DECIDED ON THEIR OWN FACTUAL MATRIX WHICH HAS NO APPLICABILITY SO FAR AS PECULIAR FACTUAL MAT RIX AS IS APPLICABLE TO THE ASSESSEE IN THE INSTANT CASE . HOWEVER, FOR THE SAKE OF COMPLETENESS , WE WILL NOW REFER TO ALL THE CASE LAWS RELIED UPON BY THE ASSESSEE : A) THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA VEGETABLE PROD UCTS LIMITED V. CIT REPORTED IN (1954) 26 ITR 151(BOM.) . IN THIS DECISION THE HON BLE HIGH COURT OF THE BOMBAY HELD THAT THE PREVIOUS YEAR OF THE BUSINESS WILL COMMENCE FROM SETTING UP OF BUSINESS WHICH IS RELEVANT FOR CLAIMING DEDUCTION OF EXPENSES AS BU SINESS EXPENSES. THERE IS NO DISPUTE AS TO THIS PROPOSITION OF LAW IS CONCERNED BUT IN THE INSTANT CASE WE HAVE HELD THAT THE ASSESSEE BY TAKING SUB - CONTRACT FROM LOCKHEED MARTIN, USA FOR INDIGENOUSLY MANUFACTURING /ASSEMBLING OF TOOLS AND JIGS TO BE ULTIM ATELY SUPPLIED TO ITSELF TO BE USED/CONSUMED IN ITS PROJECT FOR MANUFACTURING/ASSEMBLY OF CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFT HAD NEVER INTENDED TO SET UP BUSINESS OF ASSEMBLING/MANUFACTURING OF TOOLS AND JIGS WHICH ULTIMATELY IT SUB - S UB CONTRACTED TO TCS ETC. AS THE BUSINESS IT INTENDED TO SET UP WAS FOR MANUFACTURING /ASSEMBLING OF CENTER WING BOXES AND EMPENNAGES FOR MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 12 | P A G E C130/C130J AIRCRAFT AT HYDERABAD WHICH WAS NOT READY TO COMMENCE PRODUCTION EVEN BY YEAR END. B) THE DECISION OF ITAT , MUMBAI IN THE CASE OF HAGWOODS COMMERCIAL DEVELOPERS P. LTD. & ORSS IN ITA NO. 1306/MUM/2015 & ORS. FOR AY 2012 - 13 , VIDE CONSOLIDATED ORDER DATED 08.02.2017. THE ASSESSEE HAS RELIED UPON THIS CASE AND IT CONTENDED THAT EVEN WHEN SHOPPING MALL WAS UNDER CONSTRUCTION , THE EXPENSES WERE ALLOWED AS BUSINESS EXPENSES. WE ARE AFRAID THAT THE ASSESSEE S COUNSEL TOTALLY MISCONSTRUED THE FACTS OF THAT CASE . IN THAT CASE , OF WHICH BOTH OF US WERE MEMBERS OF THE DIVISION BENCH WHO PASSED THE ORDER, THE TAXPAYER WAS ENGAGED IN DEVELOPMENT AND SALE OF RESIDENTIAL PROJECT AS WELL CONSTRUCTION OF MALL. SINCE THE RESIDENTIAL PROJECT WAS FOR SALE AND ACTIVITIES STARTED, THE BUSINESS WAS HELD TO BE SET UP. THE MALL WAS BEING CONSTRUUCTD BY THE TAXPAYER FOR WHICH DIRECT COSTS WERE CAPITALISED AND INDIRECT OVERHEADS WERE CHARGED AS REVENUE EXPENSES. ON THOSE FACTUAL MATRIX, THE TRIBUNAL HELD THAT BUSINESS WAS SET UP AS THE TAXPAYER WAS DEVELOPING RESIDENTIAL PROJECT FOR SALE AND IT IS NOT NECESSARY THAT TILL MALL IS CONSTR UCTED , THE INDIRECT COST REPRESENTING BY OVERHEADS ALSO NEEDED TO BE CAPITALISED RATHER THESE INDIRECT OVERHEAD COSTS WERE HELD TO BE REVENUE EXPENSES. THUS THIS CASE WAS DECIDED ON PECULIAR FACTUAL MATRIX PREVAILING ON ITS OWN FACTS AND HAS NOT RELEVANT TO THE INSTANT CASE BEFORE US. C) THE DECISION OF ITAT, MUMBAI IN THE CASE OF ACIT V. RELIANCE DEFENCE & OFFSHORE ENGINEERING CO. LTD. IN ITA NO. 4692/MUM2014 AND ITA NO. 372/MUM/2015 FOR AY 2008 - 09 & 2009 - 10, VIDE CONSOLIDATED ORDER DATED 31.08.2017. IN THIS CASE THE TAXPAYER WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SHIP BUILDING AND SHIP REPAIRING YARD. THE TAXPAYER RECEIVED ORDERS AND ADVANCE PAYMENTS FOR SUPPLIES OF SHIP BUILDING FOR WHICH THE TAXPAYER PURCHASED STEEL FOR SHIP BUILDING . VARIOUS ACTIVITIES STARTED TOWARDS SHIP BUILDING AND ON THOSE FACTUAL MATRIX , IT WAS HELD THAT THE ASSESSEE HAS SET UP THE BUSINESS AND EXPENSES WERE ALLOWED. BUT IN THE INSTANT CASE BEFORE US, IT IS OBSERVED THAT THE ASSESSEE IS TO INDIGENOUSLY SUPPLY TOOLS AND JIGS UNDER A SUBCONTRACT FROM LOCKHEED MARTIN, USA WHICH SUPPLIES ARE TO BE UTILISED/CONSUMED BY THE ASSESSEE ITSELF IN ITS MANUFACTURING/ ASSEMBLY UNIT BEING SET UP AT HYDERABAD WHICH WAS UNDER IMPLEME NTATION AS AT THE YEAR END AND NOT EVEN TRIAL RUN COMMENCED TILL THE END OF PREVIOUS YEAR. THUS, ON THAT FACTUAL MATRIX IT IS HELD THAT THE ASSESSEE NEVER INTENDED TO SET UP ANY BUSINESS FOR SUPPLY OF TOOLS AND JIGS FOR ITS OWN UNITS AS ITS EFFORTS FOR SUP PLY OF TOOLS AND JIGS ARE DIRECTED TOWARDS SETTING UP ITS OWN MANUFACTURING/ASSEMBLY UNITS FOR MANUFACTURE AND ASSEMBLY OF CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFT AND NOT FOR SETTING UP MANUFACTURING /ASSEMBLY UNITS FOR TOOLS/JIGS. D) TH E DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD.(1972) 91 ITR 170,(GUJ. HC) . IN THIS CASE , THE TAXPAYER WAS ENGAGED IN MANUFACTURE AND SALE OF CEMENT. THE TAXPAYER OBTAINED MINING LEASE FOR QUARR YING LIMESTONE AND STARTED MINING OPERATIONS. THE LIMESTONE WAS RAW MATERIAL FOR MANUFACTURING OF CEMENT. IT WAS HELD THAT MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 13 | P A G E THIS ACTIVITY OF EXTRACTING LIMESTONE BY QUARRYING THE LEASED LAND WAS NECESSARY FOR THE PURPOSES OF ACQUIRING RAW MATERIAL TO BE UTI LISED IN MANUFACTURING OF CEMENT.THE SECOND ACTIVITY CONSTITUTED THE ACTIVITY OF MANUFACTURING OF CEMENT BY USER OF PLANT AND MACHINERY SET UP FOR THAT PURPOSE AND THE THIRD CATEGORY CONSISTED OF SELLING MANUFACTURED CEMENT. ALL THESE THREE ACTIVITIES CONS TITUTED BUSINESS OF THE TAXPAYER. IT WAS HELD THAT IT IS NOT NECESSARY THAT ALL THE THREE ACTIVITIES SHOULD COMMENCE , THEN THE BUSINESS WAS DEEMED TO BE SET UP. IT WAS HELD THAT WITH THE COMMENCEMENT OF FIRST ACTIVITY BUSINESS WAS SET UP AS IT LAID FOUNDA TION FOR THE SECOND ACTIVITY AND COMMENCEMENT OF SECOND ACTIVITY LAID THE FOUNDATION OF THIRD ACTIVITY. BUT THE INSTANT CASE BEFORE US IS DISTINGUISHABLE AS THE ASSESSEE NEVER INTENDED TO SET UP BUSINESS OF MANUFACTURING/ASSEMBLY OF TOOLS AND JIGS REQUIRED FOR SETTING UP ASSESSEE S OWN UNIT AT HYDERABAD FOR MANUFACTURING/ASSEMBLY OF CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFTS. EVEN IF THE TOOLS AND JIGS ARE REQUIRED FOR THE MANUFACTURING AND ASSEMBLING OF CENTER WING BOXES AND EMPENNAGES FOR C 130/C130J AIRCRAFTS, THE SAID ACTIVITY FOR GETTING IT MANUFACTURED/ASSEMBLED THROUGH SUB - SUB CONTRACTORS/VENDORS NAMELY TCS ETC BY THE ASSESSEE WILL NOT CONSTITUTE SETTING UP OF A SEPERATE BUSINESS OF MANUFACTURING/ASSEMBLING OF TOOLS AND JIGS AS IT IS NOT THE INTENTIONS OF THE ASSESSEE TO SET UP THE SAID BUSINESS OF MANUFACTURING /ASSEMBLING OF TOOLS AND JIGS AND IT HAPPENS SO THAT THE MAIN CONTRACTOR/VENDOR NAMELY LOCKHEED MARTIN, USA TO WHOM THE ASSESSEE AWARDED CONTRACT , INTER - ALIA FOR TOOLS AND JIGS H AS SUB - CONTRACTED THE WORK OF SUPPLY OF TOOLS AND JIGS TO THE ASSESSEE BACK TO BE MANUFACTURED/ASSEMBLED INDIGENOUSLY, WHICH WORK/CONTRACT WAS FURTHER SUB - SUB CONTRACTED BY THE ASSESSEE TO TCS ETC. . THUS, IT IS CLEAR THERE WAS NEVER AN INTENTION ON PART O F THE ASSESSEE TO SET UP THIS BUSINESS OF MANUFACTURING TOOLS AND JIGS. E) THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RALLIWOLF LIMITED (1978) 121 ITR 262(BOM. HC). IN THIS CASE, HON BLE COURT DISTINGUISHED BETWEEN SET UP OF BUSINESS AND COMMENCEMENT OF BUSINESS AND HELD THAT EXPENSES SHALL BE ALLOWABLE FROM THE DATE BUSINESS IS SET UP. THIS CASE WE ARE AFRAID IS OF NO HELP TO THE ASSESSEE AS IN THE INSTANT CASE BEFORE US , WE HAVE HELD THAT THE ASSESSEE NEVER INTENDED TO SET UP BUSINE SS OF MANUFACTURING/ASSEMBLING OF TOOLS AND JIGS. F) THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF PREM CONDUCTORS P. LTD. V. CIT (1976) 108 ITR 654(GUJ. HC). THE STRONG RELIANCE IS PLACED BY LEARNED COUNSEL FOR THE ASSESSEE ON THIS CASE. IN T HIS CASE THE ASSESSEE TOOK OVER RUNNING CONCERN FROM ITS PROMOTERS. IT WAS NOT A CASE OF SETTING OF NEW INDUSTRIAL UNDERTAKING. THE TAXPAYER SECURED ORDERS FROM ELECTRICITY BOARDS, PURCHASED RAW MATERIAL ETC TO KEEP THINGS READY FOR PRODUCTION ONCE THE MAC HINERIES ARE INSTALLED ETC. . UNDER THESE CIRCUMSTANCES HON'BLE GUJARAT HIGH COURT HELD THAT BUSINESS SHALL BE DEEMED TO BE SET UP AND EXPENSES ALLOWABLE FROM DATE WHEN ORDERS WERE SECURED BY THE TAXPAYER ALTHOUGH FACTORY HAS NOT COMMENCED PRODUCTION WHICH SHALL BE ALLOWABLE. THIS CASE IS MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 14 | P A G E DISTINGUISHABLE AS THE ASSESSEE ALTHOUGH SECURED ORDERS FOR CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFT EVEN PRIOR TO SETTING UP OF UNIT AT HYDERABAD FOR MANUFACTURING/ASSEMBLING OF CENTER WING BOXES AND EMPEN NAGES FOR C130/C130J BUT THE DIFFERENCE IS THAT THE ASSESSEE HAS UNDERTAKEN JOB OF GETTING TOOLS AND JIGS WHICH WERE REQUIRED IN ITS UNIT UNDER IMPLEMENTATION AT HYDERABAD MANUFACTURED/ASSEMBLED THROUGH SUB - SUB CONTRACTORS NAMELY TCS ETC AND WE HAVE HELD T HAT IT COULD NOT BE INTENTION OF THE ASSESSEE TO SET UP BUSINESS OF MANUFACTURING/ ASSEMBLY OF TOOLS AND JIGS. THE ASSESSEE IN THE INSTANT CASE DID NOT PURCHASE ANY RAW MATERIAL ETC RATHER IT WAS IMPLEMENTING SETTING UP OF UNIT FOR MANUFACTURING / ASSEMBLI NG OF CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT WHEREIN TOOLS AND JIGS REQUIRED FOR THE MANUFACTURING/ASSEMBLING UNIT WAS GOT INDIGENOUSLY SUPPLIED BY THE ASSESSEE THROUGH SUB - SUB CONTRACTORS NAMELY TCS ETC WHEREIN THE MAIN CONTRACT WAS AWARDE D BY THE ASSESSEE TO LOCKHEED MARTIN, USA WHO SUBCONTRACTED PORTION OF THE MAIN CONTRACT TOWARDS SUPPLYING OF TOOLS AND JIGS FOR USAGE/CONSUMPTION IN ITS UNDER IMPLEMENTATION PROJECT AT HYDERABAD. THIS CASE THUS IS DISTINGUISHABLE AS IT WAS NEVER THE INTEN TION OF THE ASSESSEE TO SET UP BUSINESS OF MANUFACTURING OF TOOLS/JIGS TO BE SUPPLIED FOR IN HOUSE CONSUMPTION IN ITS UNDER IMPLEMENTATION UNIT FOR MANUFACTURING/ASSEMBLY OF CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFTS AND THE CASE RELIED UPON BY LEARNED COUNSEL FOR THE ASSESSEE IS NOT RELEVANT FOR DECIDING DISPUTE BETWEEN RIVAL PARTIES THUS, BASED ON OUR DETAILED REASONING AND DISCUSSIONS AS SET OUT ABOVE, WE DO NOT FIND ANY MERITS IN THE CONTENTIONS OF THE ASSESSEE AND THUS, THE APPELLATE OR DER OF LEARNED CIT(A) IS SET ASIDE AND ADDITIONS AS WERE MADE BY THE AO ARE SUSTAINED WITH THE CONCLUSIONS AND REASONING AS ARE ARRIVED AT BY US AS ABOVE. THE GROUND NO 2(A) TO 2(C) ARE ALLOWED WITH ABOVE CONCLUSIONS AND REASONING AS SET OUT IN OUR ORDER. WE ORDER ACCORDINGLY. 12. IN THE RESULT , APPEAL OF THE REVENUE IS PARTLY ALLOWED AS INDICATED ABOVE. 2. THE ASSESSEE HAS NOW STATED BEFORE THE BENCH VIDE MISCELLANEOUS APPLICATION THAT MISTAKES HAD CREPT IN THE ORDER OF THE TRIBUNAL DATED 08.08.2018 WHICH NEED TO BE RECTIFIED U/S 254(2) OF THE 1961 ACT AND TO SUBSTANTIATE THE SAME , THE ASSESSEE HAS NOW FILED DURING THE COURSE OF MA PROCEEDINGS TWO AGREEMENTS NAMELY JV AGREEMENT DATED 07.05.2010 BETWEEN TATA ADVANCED SYSTEMS LIMITED ( HEREINAFTER CALLED TATA) AND LOCKHEED MARTIN AEROFRAME CORPORATION (HEREINAFTER CALLED LOCK H EED MARTIN) AND ALSO TOOLING AGREEMENT BETWEEN AFORESAID PARTIES . THE SAID AGREEMENTS ARE NOW FILED IN THIS MA PROCEEDINGS BEFORE THE TRIBUNAL FOR THE FIRST TI ME, VIDE FRESH PAPER BOOK( PAGE 107 - 208 ) FILED WITH TRIBUNAL . THE MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 15 | P A G E CLAIM IS MAD E BY LEARNED SENIOR COUNSEL FOR THE ASSESSEE , M S . AARTI VISSANJI THAT THESE TWO AGREEMENTS WERE FILED BEFORE LEARNED ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDING S AS WELL BEFORE LEARNED CIT(A) AND ARE PART OF THE RECORD . IT IS ALSO CLAIMED BY LEARNED COUNSEL FOR ASSESSEE THAT THESE TWO AGREEMENTS WERE HOWEVER NOT FILED BEFORE THE TRIBUNAL WHEN APPEAL OF THE REVENUE WAS HEARD BEFORE THE BENCH ON 10.07.2018 . THUS, IT IS SUBMITTED THAT THESE DOCUMENTS ARE NOT STRICTLY ADDITION AL EVIDENCES AS THESE DOCUMENTS WERE VERY MUCH BEFORE THE LOWER AUTHORITIES DURING ASSESSMENT AS WELL IN FIRST APPELLATE PROCEEDINGS BEFORE LEARNED CIT(A) AND ARE PART OF THE RE CORD . ON STRENGTH OF THESE TWO AFORESAID AGREEMENTS NAMELY JV AGREEMENT DATED 07.05.2010 AND TOOLING AGREEMENTS , CONTENTIONS ARE NOW BEING MADE BY LEARNED COUNSEL FOR ASSESSEE BEFORE THE BENCH THAT TRIB UNAL ERRED IN HOLDING THAT TOOLINGS ARE REQUIRED TO BE CAPITALISED IN T HE BOOKS OF ACCOUNTS OF THE ASSESSEE. IT IS SUBMITTED THAT TOOLS ARE SUPPLIED FREE OF COST AS WELL FREE OF RENT, BY OVERSEAS JV PARTNER AS PART OF JV AGREEMENT IN DISCHARGE OF ITS CONTRACTUAL OBLIGATION UNDER JV AGREEMENT. THE SAID TOOLINGS ARE REQUIRED TO BE INSTALLED AT ASSESSEES MANUFACTURING AND ASSEMBLING UNIT AND SHALL CONTINUE TO BE OWNED BY OVERSEAS JV PARTNER LOCKHEED MARTIN , USA . O UR ATTENTION WAS DRAWN TO THE TOOLING AGREEMENT . THE SAID AGREEMENT STATES THAT THE ASSESSEE REQUIRES SUBSTANTIAL TOOLING IN ORDER TO COMMENCE MANUFACTURING OF AIRCRAFT STRUCTURES. THE AGREEMENT FURTHER PROVIDES THAT LOCKHEED MARTIN IS PROCURING FROM ASSESSEE THE FABRICATION OF CERTAIN TOOLING FOR MANUFACTURING OF EMPENNAGES AND CENTER WING BEAM STRUCTURES FOR C - 130 A IRCRAFT , INSTEAD OF SUPPLYING IT DIRECTLY TO ASSESSEE TO FULFIL ITS JV OBLIGATION UNDER JV AGREEMENT . THESE TOOLING ARE LOANED BY LOCKHEED MARTIN TO ASSESSEE WITHOUT ANY RENT AND TITLE OF THESE TOOLINGS SHALL ALWAYS REMAIN WITH LOCKHEED MARTIN ,USA . NO LIE N SHALL BE CREATED BY ASSESSEE ON THESE TOOLINGS AND THESE TOOLS SHALL BE RETURNED TO LOCKHEED MARTIN BY ASSESSEE AS AND WHEN DIRECTED BY LOCKHEED MARTIN. THE LEARNED COUNSEL FOR ASSESSEE SUBMITTED THAT IT NEVER INTENDED TO SET UP BUSINESS OF MANUFACTURING OF TOOLS. MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 16 | P A G E 2.2 THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE HAS STATED THAT S ECOND MISTAKE THAT CREPT IN TRIBUNALS ORDER DATED 08.08.2018 IS AS TO THE FINDING BY TRIBUNAL AS RECORDED IN ITS ORDER THAT OVERSEAS JV COMPANY IS RESPONSIBLE FOR IMPLEMENTING TH E PROJECT. OUR ATTENTION WAS DRAWN TO JV AGREEMENT DATED 07.05.2010, CLAUSE 13.5 WHICH SAYS THAT TATA AND JVC I.E. ASSESSEE COMPANY SHALL BE RESPONSIBLE FOR BUILDING AND CONSTRUCTION OF JVC FACILITY I.E. MANUFACTURING AND ASSEMBLY UNIT AT HYDERABAD WHICH SHALL BE IN ACCORDANCE WITH THE DESIGN AND SPECIFICATIONS AGREED TO IN WRITING BETWEEN TATA AND LOCKHEED MARTIN . IT IS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE T HAT IT IS INDIAN JV PARTNER I.E. TATA AS WELL ASSESSEE WHO ARE RESPONSIBLE FOR SETTING UP AND IMPLEMENTING THE PROJECT AND NOT LOCKHEED MARTIN ,USA AS PER TERMS OF JV AGREEMENT . 2.3 IT IS ALSO CLAIMED BY LEARNED COUNSEL FOR ASSESSEE THAT THE ASSESSEE HAS INCURRED THESE EXPENSES TO THE TUNE O F RS.2,10,11,032/ - TOWARDS EXECUTING SUPPLY CONTRACT ENTERED INTO WITH LOCKHEED MARTIN, USA FOR SUPPLYING AIRCRAFT STRUCTURES, WHICH IS A REVENUE EXPENSES ALLOWABLE AS DEDUCTION WHILE COMPUTING INCOME OF THE ASSESSEE. 2.4 THUS, IN NUT - SHELL IT IS CLAIMED T HAT MISTAKES CREPT IN TRIBUNALS ORDER IN HOLDING THAT TOOLS ARE TO BE CAPITALISED IN ITS BOOKS OF ACCOUNTS SINCE THEY ARE OWNED BY LOCKHEED MARTIN, USA AND SECONDLY MISTAKE CREPT IN TRIBUNAL ORDER WHEN IT HELD THAT LOCKHEED MARTIN , US A IS RESPONSIBLE FOR SETTING UP AND IMPLEMENTING THE PROJECT FOR ASSEMBLY AND MANUFACTURING OF AIRCRAFT STRUCTURES AT HYDERABAD . 2.4 THUS PRAYERS ARE MADE TO RECTIFY THE SE MISTAKES AND ALLOW THESE EXPENSES OF RS. 2,10,11,032/ - AS REVENUE EXPENSES SO FAR AS GROUND NUMBER 2(A) TO 2(C) RAISED BY REVENUE IN ITS APPEAL 2.5 THE LEARNED DR OBJECTED TO MA FILED BY THE ASSESSEE AND SUBMITTED THAT WELL REASONED ORDER IS PASSED BY TRIBUNAL WHEREIN CORRECT FINDING OF FACTS ARE RECORDED BY TRIBUNAL . THE LEARNED DR SUBMITTED THAT THE ASSESSEE IS SEEKING REVIEW OF ORDER PASSED BY TRIBUNAL UNDER THE GARB OF RECTIFICATION APPLICATION FILED VIDE THIS MA WHICH IS NOT PERMISSIBLE WITHIN MANDATE OF SECTION 254(2) MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 17 | P A G E OF THE 1961 ACT . THE LEARNED DR WOULD CONTEND THAT TRIBUNAL HAS LIMITED POWERS U /S 254(2) OF THE 1961 ACT. 3. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD . WE HAVE OBSERVED THAT TRIBUNAL HAS PASSED DETAILED ORDER DATED 08.08.2018 WHILE ADJUDICATING GROUND NUMBER 2(A) TO (C) RAISED BY REVENUE IN MEMO OF APPEA L FILED WITH TRIBUNAL. THE CONCLUSION ARRIVED AT BY TRIBUNAL IN THE SAID ORDER ARE REPRODUCED/EXTRACTED ABOVE IN THIS ORDER VIDE PARA 1 . THE ASSESSEE HAD FILED PAPER BOOK IN PROCEEDINGS BEFORE THE TRIBUNAL WHEN THE APPEAL WAS HEARD ON 10.07.2018. THESE TWO AGREEMENTS NAMELY JV AGREEMENT DATED 07.05.2010 AND TOOLING AGREEMENT WERE NOT EARLIER FILED WHEN THE APPEAL WAS HEARD ON 10.07.2018 BUT ARE NOW FILED BY ASSESSEE IN THIS MA PROCEEDINGS. THESE AGREEMENTS ARE FILED VIDE PAPER BOOK /PAGE 107 - 208 WHICH ARE PLACED IN MA FILE. IT IS ADMITTED POSITION THAT PRODUCTIONS HAS NOT COMMENCED IN ITS MANUFACTURING AND ASSEMBLING UNIT WHICH WAS BEING SET UP BY ASSESSEE AT HYDERABAD, TILL THE END OF THE PREVIOUS YEA RELEVANT TO IMPUGNED ASSESSMENT YEAR . THE ASSESSEE HAS FILED JV AGREEMENT DATED 07.05.2010 BETWEEN TATA ADVANCED SYSTEMS LIMITED, INDIA AND LOCKHEED MARTIN AEROFRAME CORPORATION, USA . W E HAVE CAREFULLY PERUSED THE AFORESAID JV AGREEMENT AND TOOLING AGREEMENT . THE SAID JV AGREEMENT DATED 07.05.2010 ENVISAGES SETTING UP OF JV COMPANY IN INDIA , WHICH WAS SET UP IN INDIA VIZ. ASSESSEE COMPANY, IN PURSUANCE TO JV AGREEMENT . IT IS ALSO MENTIONED IN THIS AGREEMENT THAT THERE ARE SOME OFFSET OBLIGATIONS ON LOCKHEED MARTIN AND IN DISCHARGE OF THE SAME, EXPORTS MADE BY ASSESSEE COMPANY SHALL BE ADJUSTED . THE SAID LOCKHEED MARTIN IS INVESTING ITS CAPITAL IN ASSESSEE COMPANY TO THE EXTENT OF 26% WHICH CAN BE LATER INCREASED TO 49% AS AND WHEN LAW PERMITS. THE TATAS HE LD 74% IN CAPITAL CONTRIBUTION OF ASSESSEE COMPANY , WHICH IS SUBJECT TO DILUTION TO 51% OWING TO LOCKHEED MARTIN INCREASING ITS STAKE TO 49% AS DETAILED ABOVE . THE SAID LOCKHEED MARTIN HAS REPRESENTATIONS IN THE BOARD OF DIRECTORS OF ASSESSEE COMPANY. THE TECHNICAL ASSISTANCE FOR SETTING UP MANUFACTURIN G AN D ASSEMBLING UNIT AT HYDERA B A D FOR ASSEMBLY , MANUFACTURE AND SUPPLY OF C130/C130J AIRCRAFT STRUCTURAL ARTICLES CONSISTING OF EMPENNAGES AND CENTER WING BEAMS, MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 18 | P A G E WAS PROVIDED BY LOCKHEED MARTIN, USA, WHICH ENVISAGES SUPPLY OF ENGINEERING DESIGNS, DRAWINGS, T OOLS , JIGS , TECHNICAL KNOWHOW ETC. BY LOCKHEED MARTIN TO ASSESSEE. . THIS JV COMPANY VIZ . ASSESSEE ENTERS INTO A SUPPLY CONTACT WITH LOCKHEED MARTIN CORPORATION WITH REGARD TO ASSEMBLY , MANUFACTURE AND SUPPLY OF C130/C130J AIRCRAFT STRUCTURAL ARTICLES C ONSISTING OF EMPENNAGES AND CENTER WING BEAMS BY THE ASSESSEE COMPANY. THE ASSESSEE COMPANY CANNOT SUPPLY ANY OF THE AIR CRAFT STRUCTURES PRODUCED BY IT TO ANY OTHER BUYER EXCEPT LOCKHEED MARTIN. THUS, THERE IS A SOLE BUYER FOR ENTIRE MANUFACTURING AND ASSE MBLY OF AIRCRAFT STRUCTURES VIZ. LOCKHEED MARTIN. THE ASSESSEE ALSO CANNOT ENTER INTO ANY OTHER ACTIVITIES FOR EXPANSION OR DIVERSIFICATION, OTHER THAN SET OUT IN JV AGREEMENT UNLESS CONSENTED BY LOCKHEED MARTIN. THE PERMISSION TO USE TRADE MARK AND MANUF ACTURING LICENSE WAS GRANTED BY LCOKHEED MARTIN IN FAVOUR OF ASSESSEE. THE JV AGREEEMNT PROVIDE THAT LOCKHEED MARTIN SHALL PROVIDE MASTER TOOLING TO ASSESSEE AS WELL CERTAIN ADDITIONAL TOOLING TO BE FABRICATED BY ASSESSEE COMPANY, TITLE /OWNERSHIP TO THE SAID TOOLING SHALL REMAIN WITH LOCKHEED MARTIN. THUS, IT CAN BE SEEN THAT LOCKHEED MARTIN HAS SIGNIFICANT ROLE AND RESPONSIBILITIES VIZ ASSESSEE COMPANY AS CULLED OUT FROM THIS JV AGREEMENT BUT STRICTO SENSE , IT IS TATAS AND ASSESSEE COMPANY WHO WE RE RESPONSIBLE FOR IMPLEMENTING MANUFACTURING AND ASSEMBLY UNIT AT HYDERABAD. SO FAR AS FINDING OF THE TRIBUNAL THAT LOCKHEED MARTIN IS RESPONSIBLE FOR SETTING UP ITS HYDERABAD UNIT STAND CORRECTED AS IT IS THE TATAS AND ASSESSEE COMPANY WHO WERE IN STRIC TO SENSE RESPONSIBLE FOR THE BUILDING AND CONSTRUCTION OF THE JVC FACILITY WHICH SHALL BE IN ACCORDANCE WITH THE DESIGN AND SPECIFICATION AGREED TO IN WRITING BETWEEN TATA AND LOCKHEED MARTIN. IT IS A MATTER OF RECORD AS WE HAVE SEEN ABOVE, LOCKHEED MARTIN HAS A SIGNIFICANT ROLE TO PLAY IN ASSESSEES BUSINESS ACTIVITIES VIZ. LOCKHEED MARTIN, USA IS A FINANCIAL CONTRIBUTOR TO ASSESSEE HOLDING 26% EQUITY WITH RIGHTS TO ENHANCE IT FURTHER TO 49% WHENEVER LAW PERMITS, PROVISION OF TECHNICAL ASSISTANCE, TRADE MA RK , LICENSES AND TOOLS TO THE ASSESSEE. THE SAID LOCKHEED MARTIN ALSO HAVE PARTICIPATION IN THE MANAGEMENT THROUGH PRESENCE OF ITS NOMINEES ON BOARD OF DIRECTORS OF ASSESSEE COMPANY. IT IS ALSO A MATTER OF RECORD THAT THE SAID LOCKHEED MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 19 | P A G E MARTIN IS THE SOLE BUYER OF ASSESSEE COMPANYS FINAL PRODUCTS VIZ. AIRCRAFT STRUCTURES. THE ASSESSEE CANNOT DIVERSIFY ITS BUSINESS ACTIVITIES BEYOND JV AGREEMENT UNLESS PERMITTED BY LOCKHEED MARTIN. THE EXPORT OF FINAL PRODUCTS VIZ. AIRCRAFT STRUCTURAL TO LOCKHEED MARTIN, US A SHALL BE ADJUSTED BY LOCKHEED MARTIN AGAINST ITS OFFSET OBLIGATION. 3.2 THE TOOLING WHICH ARE TO BE SUPPLIED BY LOCKHEED MARTIN IN DISCHARGE OF ITS JV OBLIGATION WAS UNDER INSTRUCTION FROM LOCKHEED MARTIN IS TO BE FABRICATED IN INDIA BY ASSESSEE ON BEHA LF OF LOCKHEED MARTIN , FOR SETTING UP ASSESSEES MANUFACTURING AND ASSEMBLING UNIT AT HYDERABAD . THESE TOOLINGS WILL BE PROVIDED FREE OF COST AS WELL FREE OF RENT BY LOCKHEED MARTIN TO ASSESSEE OF WHICH TITLE /OWNERSHIP SHALL ALWAYS REMAIN WITH LOCKHEED M ARTIN. THUS SAID LOCKHEED MARTIN ,USA PLACED PURCHASE ORDER S ON THE ASSESSEE FOR PURCHASING TOOLS FROM ASSESSEE, WHICH WILL BE FABRICATED BY ASSESSEE ON BEHALF OF LOCKHEED MARTIN AND SHALL BE DEPLOYED AT ASSESSEES HYDERABAD UNIT FOR ASSEMBLY , MANUFACTURE AND SUPPLY OF C130/C130J AIRCRAFT STRUCTURAL ARTICLES CONSISTING OF EMPENNAGES AND CENTER WING BEAM S. THE TITLE /OWNERSHIP TO THESE TOOLS SHALL REMAIN WITH LOCKHEED MARTIN BUT SAME ARE DEPLOYED AT ASSESSEES HYDERABAD MANUFACTURING AND ASSEMBLY UNIT FOR AS SEMBLY , MANUFACTURE AND SUPPLY OF C130/C130J AIRCRAFT STRUCTURAL ARTICLES CONSISTING OF EMPENNAGES AND CENTER WING BEAMS. AS PER TOOLING AGREEMENT ENTERED INTO WITH LOCKHEED MARTIN, THE SUBSTANTIAL TOOLINGS ARE REQUIRED TO COMMENCE MANUFACTURING OF AIRCRAFT STRUCTURES. THUS, THESE TOOLING ARE PART OF CAPITAL EXPENDITURE FOR SETTING UP MANUFACTURING AND ASSEMBLY UNIT FOR AIRCRAFT STRUCTURES AT HYD ERABAD ALBEIT SAME WERE PROVIDED BY LOCKHE ED MARTIN, USA UNDER JV AGREEMENT , THE LOCKHEED MARTIN SHALL CONTINUE TO BE THE OWNER OF THESE TOOLS AND WILL BE DEALT WITH IN ITS BOOKS OF ACCOUNTS BY LOCKHEED MARTIN . THE ASSESSEE WAS TO BE PROVIDED WITH THESE TOOLS BY LOCKHEED MARTIN FREE OF COST WITH OUT ANY RENT. THE LOCKHEED MARTIN IN ORDER TO PROVIDE THESE TOOLS TO ASSESSEE VIDE ITS CONTRACTUAL OBLIGATION, INSTEAD PURCHASED THESE TOOLS FROM ASSESSEE WHO IN - TURN GO T IT FABRICATED FROM TCS , TATA TECHNOLOGIES LIMITED AND TAL MANUFACTURING SOLUTIONS LI MITED . THUS, T HE ASSESSEE IN ORDER TO GET THESE MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 20 | P A G E TOOLS MANUFACTURED GRANTED FURTHER SUB - CO NTRACT TO TCS ,TTL AND TAL . THUS, TO THE EXTENT THE TR IBUNAL ORDER DATED 08.08.2018 HE LD THAT THESE TOOLS ARE TO BE CAPITALISED IN THE BOOKS OF ACCOUNTS OF THE ASSESSE E IS DEFINITELY AN MISTAKE WHICH CREPT IN THE ORDER DATED 08.08.2018 DEHORS JV AGREEMENT AND TOOLING AGREEMENT NOW PRODUCED BEFORE THE BENCH IN MA PROCEEDINGS AND WE HOLD THAT THIS MISTAKE WHERE - EVER IT OCCURS IN THE APPELLATE ORDER DATED 08.08.2018 PASSED BY TRIBUNAL STANDS CORRECTED , BECAUSE THESE TOOLS WERE THE PROPERTY OF LOCKHEED MARTIN, USA AND NOT THE ASSESSEE AND ACCORDINGLY SHALL BE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS OF LOCKHEED MARTIN. 3.3 THE CLAIM OF THE ASSESSEE THAT IT RAISED FIRST INVOICE FOR TOOLING AGAINST PO ON 04.05.2011 AND TOOLING ACTIVITY GOT COMP L ETED BY MARCH 2013 , CANNOT BE THE BASIS FOR HOLDING THAT ITS BUSINESS WAS SET UP IN PREVIOUS YEAR ENDED 31.03.2011, AS THE MANUFACTURING AND ASSEMBLING UNIT FOR AIR CRAFT STRUCTURES AT HYDERABAD WAS NOT SET UP BY END OF PREVIOUS YEAR VIZ. 31.03.2011 AND SECONDLY IT WAS HELD BY TRIBUNAL VIDE ORDER DATED 08.08.2018 THAT TOOLING CANNOT BE THE BUSINESS OF THE ASSESSEE AS THESE TOOLING S ARE FABRICATED BY ASSESSEE ON BEHAL F OF LOCKHEED MARTIN WHO WAS OBLIGATED TO PROVIDE TOOLING TO ASSESSEE VIDE JV AGREEMENT, WHICH TOOLINGS ARE TO BE INSTALLED AT ASSESSEES MANUFACTURING AND ASSEMBLING UNIT AT HYDERABAD AND THE SAID TOOLING ARE REQUIRED TO COMMENCE ASSESSEES BUSINESS OF MA NUFACTURING AND ASSEMBLING OF AIRCRAFT STRUCTURES , AS IS EMANATING FROM CLAUSES OF TOOLING AGREEMENT . THE RESPONSIBILITY FOR SUPPLY OF TOOLING IS THAT OF LOCKHEED MARTIN UNDER JV AGREEMENT , TO BE INSTALLED AT ASSESSEES MANUFACTURING AND ASSEMBLY UNIT AT HYDERABAD. INSTEAD OF SUPPLYING TOOLING DIRECTLY , LO CKHEED MARTIN ISSUED PURCHASE ORDERS IN FAVOUR OF ASSESSEE FOR GETTING IT FABRICATED LOCALLY IN INDIA , WHICH WAS UNDERTAKEN BY ASSESSEE THROUGH TAL , TTL AND TCS BY SUB - CONTRACTING JOB OF FABRICATING TOO LING TO THESE THREE ENTITIES . UNDER THESE CIRCUMSTANCES C AN IT BE SAID THAT TOOLING IS BUSINESS OF ASSESSEE. THE ANSWER IS EMPHATIC NO, WHICH WAS ALSO HELD BY TRIBUNAL VIDE ORDER DATED 08.08.2018. THE SAID FINDING OF TRIBUNAL TO ARRIVE AT DECISION HAS REM AINED UNSHAKEN IN THIS MA MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 21 | P A G E PROCEEDINGS . T HE FACTUM REMAINS THAT ASSESSEES MANUFACTURING AND ASSEMBLING UNIT AT HYDERABAD HAS NOT BECOME OPERATIONAL TILL THE END OF PREVIOUS YEAR . THE ASSESSEE DID GOT ORDERS FOR CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFT EVEN PRIOR TO SETTING UP OF UNIT AT HYDERABAD FOR MANUFACTURING/ASSEMBLING OF CENTER WING BOXES AND EMPENNAGES FOR C130/C130J BUT IT DID PREPARATORY STEPS BY EMPLOYING PERSONNEL AND THE FACT REMAINS THAT THE SAID UNIT AT HYEDRANAD HAS N OT BECOME OPERATIONAL BY THE END OF THE PREVIOUS YEAR AS EVEN TRIAL RUNS DID NOT COMMENCE BY YEAR END . THE DECISION TAKEN BY TRIBUNAL IN ITS ORDER DATED 08.08.2018 HAS REMAINED UNSHAKEN DESPITE MISTAKES AS POINTED OUT BY LEARNED COUNSEL FOR THE ASSESSEE BA SED ON THE STRENGTH OF JV AGREEMENT AND TOOLING AGREEMENT WHICH ARE PRODUCED BY ASSESSEE BEFORE TRIBUNAL ONLY DURING MA PROCEEDINGS AND THE SAID MISTAKES ARE ALREADY RECTIFIED VIDE THIS MA ORDER , AS DETAILED ABOVE IN THIS MA ORDER . THE TRIBUNAL ORDER DATED 08.08.2018 DULY DELIBERATED AND DEALT WITH SUPPLY ORDERS AND EMPLOYMENT OF PERSONNEL BY ASSESSEE TO ARRIVE AT ITS DECISION/CONCLUSIONS , WHICH ARE REPRODUCED HEREUNDER(PAGE 25 - 26 OF TRIBUNAL DATED 08.08.2018): THE ASSESSEE CLAIMS THAT IT KEPT HIGHLY TEC HNICAL AND SUPERVISORY STAFF TO OVERSEE THESE ACTIVITIES INCLUDING REVIEWING OF ASSEMBLY OPERATION SHEETS SUPPLIED BY LOCKHEED MARTIN AEROSTRUCTURE CORPORATION, USA BUT IN OUR CONSIDERED VIEW THESE ARE NORMAL REQUIREMENTS IN CONNECTION WITH SETTING UP OF M ANUFACTURING / ASSEMBLY UNIT AT HYDERABAD FOR MANUFACTURING/ASSEMBLY OF CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT , WHICH IS HIGHLY TECHNICAL AND COMPLEX ACTIVITY REQUIRING HIGHLY SPECIALISED TECHNICAL STAFF. THE ACTIVITIES OF ASSEMBLY AND MAN UFACTURING OF CENTER WING BOX AND EMPENNAGES FOR C130/C130J AIRCRAFT BEING HIGHLY COMPLEX , TECHNOLOGICALLY SOPHISTICATED ACTIVITY INVOLVING GUARDED TECHNOLOGY NEED HIGHLY SPECIALISED , EXPERIENCED AND TECHNICAL PERSONNELS , AND THE ASSESSEE CANNOT AFFORD TO APPOINT NECESSARY STAFF ONLY AFTER THE UNIT BECOMES OPERATIONAL AS BY THE TIME UNIT GOES INTO PRODUCTION , THE ASSESSEE OUGHT TO HAVE ALL SPECIALISED, TRAINED, EXPERIENCE AND TECHNICAL STAFF WITH IT READY AND WELL VERSED/TRAINED TO HANDLE ACTUAL MANUFAC TURING/ASSEMBLY OF CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFTS. THE APPOINTING OF TECHNICAL AND SPECIALISED STAFF PRIOR TO UNIT BEING INSTALLED AND READY TO COMMENCE PRODUCTION WILL NOT MAKE THE SAME AS REVENUE EXPENSES EVEN THOUGH THESE TECH NICAL AND SPECIALISED STAFF WERE REVIEWING THE ASSEMBLY OPERATION SHEETS FOR MANUFACTURING/ASSEMBLY OF CENTER WING BOXES AND EMPENNAGES FOR C130/C130J AIRCRAFT FOR WHICH ORDER WAS ALREADY RECEIVED BY THE ASSESSEE FROM LOCKHEED MARTIN AEROSTRUCTURE CORPORAT ION, USA, AS ALL THESE ARE PREOPERATIVE EXPENSES WHICH NEEDED TO BE CAPITALISED AS PART OF THE COST OF THE PROJECT BECAUSE THERE WAS NO POSSIBILITY OF COMMENCING PRODUCTION/MANUFACTURING/ASSEMBLY UNLESS THE UNIT IS READY TO MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 22 | P A G E COMMENCE PRODUCTION WHICH IN THE INSTANT CASE EVEN BY THE YEAR END UNIT WAS NEITHER INSTALLED NOR TRIAL RUNS COMMENCED . THUS, IN OUR CONSIDERED VIEW , THIS MA IS TO BE PARTLY ALLOWED SO FAR AS TO CORRECT MISTAKE WHICH CREPT IN TRIBUNAL ORDER DATED 08.08.2018 WHICH WERE OWING TO NON PRODUCTION OF JV AGREEMENT AND TOOLING AGREEMENT BEFORE THE TRIBUNAL WHEN THE APPEAL WAS ORIGINALLY HEARD ON 10.07.2018, WHICH MISTAKES WE DEALT WITH AS ABOVE AND ORDERED FOR THEIR CORRECTION BUT SO FAR AS ULTIMATE DECISION /CONCLUSIONS TAKEN BY TRIBUNAL VI DE ORDER DATED 08.08.2018 THAT THE BUSINESS OF THE ASSESSEE WAS NOT SET UP TILL THE END OF PREVIOUS YEAR AND THE ASSESSEE CANNOT BE ALLOWED DEDUCTION OF RS. 2,10,11,032/ - AS REVENUE EXPENSES FOR THE YEAR UNDER CONSIDERATION HAD NOT BEEN SHAKEN IN THIS MA P ROCEEDINGS AS THESE MISTAKES AS POINTED OUT BY ASSESSEE WHICH CREPT IN THE AFORESAID ORDER DATED 08.08.2018 PASSED BY TRIBUNAL ARE NOT SIGNIFICANT TO RECALL THE ORDER OF THE TRIBUNAL QUA GROUND NO. 2(A) TO 2(C). THE SCOPE UNDER SECTION 254(2) OF THE 1961 A CT IS VERY LIMITED TO CORRECTING MISTAKES APPARENT FROM RECORDS AND NOT TO REVIEW THE DECISION TAKEN EARLIER BY TRIBUNAL. WE HAVE ORDERED RECTIFICATION OF MISTAKES WHICH CREPT IN THE ORDER DATED 08.08.2018 PASSED BY TRIBUNAL VIDE THIS MA ORDER WHICH IN OUR CONSIDERED VIEW SHALL REDRESS GRIEVANCE OF THE ASSESSEE BUT WE ARE AFRAID THAT THE FINAL DECISION TAKEN BY THE TRIBUNAL VIDE ITS ORDER DATED 08.08.2018 CANNOT BE CHANGED AS IT REMAINED UNSHAKEN. THUS , THIS MA IS PARTLY ALLOWED AS INDICATED ABOVE. WE ORDE R ACCORDINGLY. 3 . IN THE RESULT, M.A. NO. 55 /MUM/201 9 ARISING OUT OF APPEAL IN ITA NO. 2667/MUM/2016 FOR AY 2011 - 12 FILED BY ASSESSEE STAND PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 1 2 .07.2019 1 2 .07.2019 S D / - S D / - ( SAKTIJIT DEY ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MA NO. 55/MUM/2019 ARISING OUT OF ITA NO. 2667/MUM/2016 23 | P A G E MUMBAI, DATED: 1 2 .0 7.2019 COPY TO NISHANT VERMA SR. PRIVATE SECRETARY 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI