TMI Blog2017 (5) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... successive officer. Review of the order cannot be done in the form of reopening of assessment without there being any tangible material to form a different opinion, when the assessment is reopened within the four years from the end of the assessment year. It cannot be stated that assessee has not commenced business during the impugned AY. This is a fact on record that assessee commenced its lab facility, which is its main activity on 8th February, 2006 i.e. almost 50 days prior to the close of the accounting year. Not only there is an evidence that employees have been recruited and paid salaries to them, but also orders for procurement of raw material have been placed and some of the raw material purchased and utilized during the year and Assessee’s claim of depreciation was allowed by the AO in the original assessment. Assessee has commenced its business activity during the year under consideration and on merits, assets have been put to use. Thus reopening of assessment is bad in law - Decided in favour of assessee. - I.T.A. No. 1164/HYD/2016 - - - Dated:- 5-5-2017 - SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Shri S.P. Chidambaram For The Revenue : Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully functional laboratory was inaugurated on 8th February, 2006 and majority of the equipment was installed and due to late arrival of material for testing, tests started on 1st April, 2006, which is the date of starting of commercial operations, but, assessee s business has commenced during the year under consideration. It also made alternation contention that the commencement of the business has to be taken into consideration from the date of entry into agreement with the foreign company i.e. 01/06/2005 or from the date of starting laboratory i.e. on 8th February, 2006. 4. CIT(A) did not agree with the contentions of the assessee and rejected the grounds raised by the assessee and upheld the action of the AO. Ld. CIT(A) also did not agree that the amount disallowed should be capitalized to the assets and depreciation should have been allowed on the assets put to use by the assessee company on the reason that it is premature to give such direction when assets are not yet used. 5. Assessee is aggrieved and raised the following substantive grounds of appeal: 1. The order of the Learned Commissioner of Income-tax (Appeals)-5 ['CIT(A)'], dated 31 May 2016 in uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmencement of business and held that upon recruitment of employees and expenditure under different heads was incurred is indicative that business was set up. It was concluded that business as service provider, cannot exist without said activity being undertaken both at very initial stage and after business has commenced. 6.2 Ld. Counsel also relied on the decision of Hon ble Delhi High Court in the case of CIT Vs. ESPN Software India (P.) Ltd., [2009] 184 Taxman 452 (Delhi) for a similar proposition that assessee has commenced its business when it acquired licence, therefore, there is no infirmity with regard to the findings of the authorities below. 6.3 Ld. Counsel also relied on the decision of Prem Conductors Pvt. Ltd. Vs. CIT, [1977] 108 ITR 654 (Guj.) for the proposition that when a business is established and is ready to start business, it can be said to be set up. All the activities which go to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precede all the other activities is started. 6.4 Ld. Counsel also relied o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has correctly claimed the revenue expenditure. The issue of commencement of business is necessary to examine for allowing expenditure. It is the first year of business commencement and the AO will certainly examine the commencement of business before allowing loss or profit of the year. Therefore, it cannot be said that AO has not applied his mind when he allowed the loss as claimed with certain disallowances. 8.1 The Hon ble Supreme Court in the case of Kelvinator of India Ltd. (supra) has held as under: Prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions and fulfillment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 (w.e.f. 1st April, 1989), they are given a go by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may justify the AO to initiate a proceeding under s. 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-so (1) of s. 143 or sub-so (3) of s. 143. When a regular order of assessment is passed in terms of the said sub-so (3) of S. 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of d. (e) of S. 114 of the Indian Evidence Act the judicial and off icial acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasi judicial function to take benef it of its own wrong. 8.3 In conclusion, the Hon ble Delhi High Court has held that an assessment cannot be reopened on a mere change of opinion; reason to believe that the income chargeable to tax has escaped assessment is one of the conditions precedent for invoking the jurisdiction of the AO for reopening assessment u/s 147. ..... 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