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TMI Blog2010 (5) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... s) ought to have upheld the order of the Assessing Officer." 2. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. 3. Briefly, the facts of the case are that the Assessing Officer vide paragraph 4 of the assessment order dealt with the above issue and hence concluded that the assessee did not carry out proposed activities during the year and hence all the expenses were in the nature of pre-operative expenses that should be capitalised. He relied upon the decision in the case of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC), Mining Machinery & Explosives (P.) Ltd. v. CIT [1993] 202 ITR 710 (Cal) and other decisions to hold that the expenses were in connection with setting up of the business and hence cannot constitute expenses in the normal operation and hence were not allowable for this year. The addition was challenged before the learned Commissioner of Income-tax (Appeals) and it was contended that as per the foreign collaboration approval of the group concerns want to implement various activities and the assessee is required to carry out the activities of import o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant's area of operations was relating to marketing, expenses were mainly in the form of market exploration and connected finalization of memorandum of understandings for further follow up. Though no sale took place during the year the commencement of initial steps of the appellant's activities is not in doubt. Considering the peculiar nature of the assessee's business area of operations as the issue cannot be adversely decided in the absence of sale alone. The issue of gas distribution being a regulated activity, the appellant's claim is to be considered taking an objective view of the scope of business. In that view of the matter, the Assessing Officer's conclusion is merely on the fact that there was not even a single transaction of either purchase or sale of gas. The incurring of expenses of various nature was not in doubt. It is also noted by the Assessing Officer in paragraph 4.2 that expenditure on personnel expenses, administrative and depreciation were claimed. In the light of the above remarks and discussion, I am to hold that the business of the appellant insofar as the main object was concerned, was set up and necessary market explorations and connected memorandum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary. He has submitted that the Assessing Officer was explained that the objective of the assessee was to supply natural gas to meet the fuel requirements. It was also explained that the Government of India had expressly conveyed that it have noted that Royal Dutch Shell Group has permitted the assessee-company for implementing the object envisaged by original approval of the Government of India for carrying out import of LNG, sourcing of natural gas from domestic sources and transporting/selling, regasified LNG and natural gas from domestic sources. It was, therefore, explained that the main object of the assessee-company on its incorporation was to carry on the business of buying, selling, supplying, marketing, distributing, importing and/or trading in natural gas including liquified natural gas (LNG), compressed natural gas (CNG) and other items of natural gas, associated gaseous substances by the assessee incorporated in the assessment order by the Assessing Officer and also referred to page 8 of the assessment order in which in paragraph 11(c), it was explained that during the course of the previous year corresponding to the present assessment year, the assessee-company was inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he buyers entered into by the assessee as a seller. He has, therefore, submitted that in the case of the assessee being trading in gases, the business of the assessee had commenced by booking orders for sale of the gases. Therefore, the learned Commissioner of Income-tax (Appeals) was justified in deleting the disallowance. 7. We have considered the rival submissions and the material available on record. It is not in dispute that the main object of the assessee-company is to carry out the business of buying, selling, supplying, marketing, distributing, importing and/or trading in natural gas including regasified LNG, liquified natural gas, CNG and other form of natural gas, associated gaseous substances. The Government of India had granted approval of the object of the assessee for the above purpose to meet the requirements of the gases. The assessee filed a detailed reply before the Assessing Officer and the learned Commissioner of Income-tax (Appeals) to explain that in order to achieve the objective of the assessee, it had entered into several agreements and memorandum of understandings for sale and purchase of the gases. The detailed submissions of the assessee have been incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the scope of the business. The learned Commissioner of Income-tax (Appeals) was also justified in holding that the business of the assessee was set up and necessary marketing exploration and connected memorandum of understanding were taken up. Hence, the expenditure incurred was after setting up of the business and cannot be apportioned to any capital asset. 9. The Assessing Officer noted the decision of Challapalli Sugars Ltd.'s case (supra) wherein it is held that "expenses incurred before commencement of production in a separate distinct unit which has no connection with the existing business with reference to which capital was borrowed can be capitalised and added to the cost of the fixed assets." The Assessing Officer also referred to the decision in the case of Mining Machinery & Explosives (P.) Ltd. v. CIT [1993] 202 ITR 710 (Cal.) in which it has been held that "expenditure incurred in connection with setting up of a business is not deductible as the business is not set up." Both the above decisions relied upon by the Assessing Officer are distinguishable on the facts of the present appeal as noted above. The assessee incurred the expenditure for the purpose of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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