TMI Blog2018 (9) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... nd incurred various administrative and sale expenditure. As rightly noted by Ld. CIT(A), the assessee had participated in three bids during the impugned AY, out of which one bid was successful which is not disputed by the revenue. The aforesaid factor raises a strong pointer in assessee’s favor that the assessee was ready with all the necessary infrastructure to deliver the proposed goods / services to the prospective customers. Another noteworthy factor is that this is not the first year of assessee’s 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, claimed business expenditure in that year and carried forward business losses to the extent of ₹ 5.06 Crores, which has not been disputed by the revenue at any point of time so far. - decided in favour of assessee. - I.T.A. No. 712/Mum/2016 - - - Dated:- 7-9-2018 - SHRI C.N. PRASAD, JM AND SHRI MANOJ KUMAR AGGARWAL, AM Revenue by : R. P. Meena, Ld.CIT DR Assessee by : Vijay Mehta, Ld. AR ORDER Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 performance testing of super critical stream generators (boilers) for thermal plants and also supplying related spares. But it had not actually started earning income from business activity and therefore, the expenditure could not be 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 determination of income at ₹ 14.73 Lacs. 3.2 The Ld. AO also noted that the assessee had made investment of ₹ 2302.42 Lacs which called for disallowance u/s 14A. Accordingly, applying Rule 8D, the aggregate disallowance was worked out at ₹ 16.64 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for ₹ 8.38 Lacs and expense disallowance u/r 8D(2)(iii) for ₹ 8.26 Lacs. After adjustin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year: Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous 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 which the source of income newly comes into existence and ending with the said financial year. On perusal of above section, it is provided that previous year starts if business or profession was newly set up or source of income newly coming into existence in the said financial year. So according to Section 3, previous 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 income during the year. Section 3 is examined, not only earning of business income but also if the unit is set-up, then that year's expenses or income has to be allowed. Now, it is to be examined whether the business was set-up in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Maharashtra State Power Company Limited, Koradi 3 x 660 MW Super Critical Boiler 26.06.2009 Contract awarded From the above data it is dear that the appellant had 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, regarding 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 customer s appellant had bid in this financial year and regarding Maharashtra State Power Company Limited bid was submitted on 26.06.2009 and the contract was awarded to the company. Now it has to be examined whether bidding of the contract and receipt of order will be enough to satisfy the condition for the set-up in order to allow the expenditure to the business expenditure incurred by the appellant. This identical issue was considered by CIT Anr. VS MFAR Construction Ltd. [48 DTR(Kar) 363] (Karnataka High Court) where it is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 50 Crores was much more than the investments of ₹ 23.02 Crores and therefore, no disallowance was called for in terms of judgment of Hon ble 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 bidding process would not entitle the assessee to claim deduction of expenditure since manufacturing facility was not ready for production during impugned AY. The same has been controverted by Ld. Authorized representative for assessee [AR], Shri Vijay Mehta, who supported the stand taken by Ld. first appellate authority. 6.1 We have carefully heard the rival contentions and perused relevant material on record including various judicial pronouncements 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 ₹ 5.39 Lacs. However, the earning of the business income, in our opinion, was not a sine qua non to enable the assessee to claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interregnum, there may be an interval between a business which is set up and a business which is commenced and all expenses incurred after the setting up of the business and before the commencement of the business, all expenses during the interregnum, would be permissible deductions under section 10(2) The ratio of the above decision has been followed by various courts of the country from time to time. The Hon ble Delhi High Court 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, Hon ble 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] Hon ble Allahabad High Court rendered in J.K.Manufacturers Ltd. Vs CIT [300 ITR 297]. However, we find that the decision of Hon ble Allahabad H ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
