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2019 (7) TMI 877 - MADRAS HIGH COURTMaintainability of the appeal u/s 260A - impact of pendency of rectification before Tribunal - HELD THAT:- To be noted that the power under Section 254(2) of the Act is a power given to rectify errors. The scope of the said power is no longer res integra and by now, is well settled. The present appeal is u/s 260A of the Act wherein, the Court on being prima facie satisfied that there are substantial questions of law to be decided, has admitted the appeal, vide order dated 21.12.2018. In such circumstances, the pendency of a petition for rectification u/s 254(2) can have no impact on this appeal. Accordingly, we hold that this appeal is maintainable. Power of Tribunal for enhancement - AO disallowed of operating expenses, financial expenses and depreciation for the reason that the commercial operation of manufacture and sale of commercial vehicles has not been commenced - CIT(A) held the claim of assessee for set of business as it had already commenced activities relating to design and also the pre-activities essential for commencement of manufacture - HELD THAT:- The AO at no point of time, disputed the date on which the business of the assessee was set up. The only dispute raised by the AO was that the assessee has not commenced its commercial activity, viz., manufacture and sale of vehicles. Thus, the Tribunal proceeded on basis, which is prejudicial to the assessee in the sense what was not the subject matter of dispute before the AO has been raised by the Tribunal for the first time. In other words, the benefit which accrued to the assessee not only in the assessment year under consideration, but also the earlier assessment year 2009-10 has been taken away by the Tribunal. The question is whether this can be done. The definite answer to this question is an emphatic no. Tribunal committed an error in venturing into an issue which was never an issue before the AO and unsettling the date on which the business of the assessee was set up and as the Tribunal has no jurisdiction to do so and the said finding has necessarily to be set aside. Set up of business by appellant or not - HELD THAT:- We fully endorse the view taken by the CIT(A) in holding that the assessee had commenced, performed activities relating to designing of commercial vehicles and related products R&D, buying and selling of parts and in the process of construction of factory building for manufacture of commercial vehicles. Thus, the test laid down in the aforementioned decisions if applied to the facts of the case, we have no hesitation to hold that the business of the assessee had been set up in the previous assessment year for which the assessment had been completed by the Assessing Officer. Therefore, the Tribunal erred in holding that merely because the manufacturing and sale of the vehicle did not take place, the business of the assessee has not been set up. The manufacturing activity of the assessee is a part of the composite business activities of the assessee and this was not commenced because, the construction of the building and installation of plant and machinery was in progress. Disallowance of expenses under the head “operating expenses, financial expenses and depreciation” - assessee not yet started commercial operations - meaning of composite business and allowability of expenses - HELD THAT:- A new line of business was also treated to be a composite business when it is established that there is a unity of control and management and common fund apart from other features. The unity of control, management, etc., of the assessee in respect of each of its activity has not been disputed by the Revenue. In such circumstances, the assessee on showing that it has commenced several of its activities in the bunch of activities for which it was incorporated would definitely qualify for deduction of the expenditure incurred by it under the head operating expenses, financial expenses and depreciation. AO committed an error in disallowing the expenses. The Tribunal went on to decide an issue which was never disputed by the Assessing Officer, viz., as to whether the business of the assessee was set up or not. As held by us earlier, the Tribunal cannot take away the benefit given to the assessee by the AO and therefore, the order of the Tribunal is without jurisdiction - Decided in favour of the assessee.
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