TaxTMI 
TaxTMI 
2019 (4) TMI 816
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....spectively. The assessee declared loss to the tune of Rs.44,70,035/-. Upon scrutiny, the AO also observed that the assessee claimed expenditure amounting to more than Rs.1.92 crores, but had not claimed any business income from its activity. An amount of Rs.85,83,365 shown in the P&L accounts, was held to be income from other sources. The assessee therefore preferred a revision petition filed under Section 264, which was declined. 3. The assessee in furtherance of its claim before the CIT had urged that it had, in fact, set up a business inasmuch as various preliminary steps had been taken by it which included the appointment of key personnel, preparation of draft model Development Agreement and initiation of process to tender financial and advisory services. The CIT however rejected the assessee's claim for revision affirming the view of the AO. The relevant extract of the CIT's revisional order, is reproduced below:- "8. It is clear that the assessee company is providing services. As it was established by the government for specific purpose of developing old stations, merely allotment of stations for feasibility studies would not mean that it has necessary infrastructure partic....
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....t least one of the consultants for Architectural and technical feasibility studies is appointed The first consultant was appointed on 01.02.2013 after issuing tender notice on 18.09.2012. 9. Therefore, in my considered opinion, the entire set up key persons of the assessee company have been appointed who can decide how to go about tendering, selecting the consultants and advisors were in place only on 12.11.2012; (ii) the draft model development agreement is finalized in end of October 2012 (iii) financial and bid advisory services were not appointed even till the end of the previous year and (iv) the first consultant for Architectural and technical feasibility studies was appointed only on 01.02.2013; in my considered view, the business was not set up till the end of the previous year. 10. In view of the above, no expense can be allowed u/s 37(1) of the Act. Only amortization of certain preliminary expenses is permitted u/s 35D of the Act and debit of these are allowed after commencement of business as per the provisions of that section. Hence, I refuse to revise the impugned order dated 15.01.2016, passed under section 143 (3) of the Act, on the grounds raised by the Assessee ....
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....ncial and bid advisory services were not appointed even till the end of the previous year and (iv) the first consultant for Architectural and technical feasibility studies was appointed only on 01.02.2013." 8. It was submitted that until something substantial in regard to the business plan and development of railway stations actually crystallized, the assessee could not have been said to have commenced or set up its business or be engaged in part of its business. 9. The commercial activity the petitioner is, undoubtedly, engaged in is setting up as an SPV providing services. These services are of specific kind, i.e., preparation of development plans and projects for the development of railway stations. The Indian Railways apparently conceived the idea of setting up the petitioner as a special purpose vehicle to re-develop its railway stations. Each of the railway stations, therefore, as part of its plan needs to be bid for separately and each station needs to be presented with a development plan. Not only was the SPV/petitioner required to draw a development plan but also engaged itself in the entire project. 10. The MoU entered between the petitioner's promoters i.e. IRCON and....
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....f construction and maintenance costs, field/geotechnical surveys, preparation of master plan for the redevelopment of station, identification of land areas/spaces that can be used for commercial development, development of alternative financial models, land valuation, project implementation mechanism, phasing and construction methodology, specific technical details, tender drawings, draft of station specific maintenance contract to be entered with zonal railway etc. The output of this study should enable the SPV to proceed ahead with the invitation of bids for appointment of Developer for the station. 3.3 Rehabilitation of identified structures/ encumbrances at the Project site: Railway's assistance shall be sought in removal of encroachments and religious structures, if any on the project site. 3.4 Designing, financing and constructing each Project and maintaining the identified components during the specified period including subcontracting the Project work. Maintaining the station areas handed over to the zonal railway, if the zonal railway so desire, through a separate contract to be executed with the zonal railway. xxxx xxxx xxxx xxxx 7.0 PROJECT TERM Th....
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....d and is ready to commence business then it can be 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). . . ." (P.158) The above decision has been followed in a large number of decisions including this Court in L.G. Electronic (India) Ltd.'s case (supra)." 12. In Dhoomketu Builders (supra), the assessee which was in realty business, tendered for the purpose of land acquisition and obtaining a loan from its holding company which deposited it as earnest money. It could not acquire the land and hence, the earnest money was returned to it. Since this was the first assessment year, the AO was of the view that it had not commenced business because its commercial activity was aborted. This Court in its judgment turned down the Revenue's contentions, and held as follows :- "8. On a careful consideration of the issue in....
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....holesale trading of all kinds of goods. It claimed expenses as business losses. The AO rejected its claim for deduction on expenditure holding that they did not commence any business as they did not sell goods. This Court allowed and observed as follows:- "11. On a reading of the above referred quotations, it is clear that it is only after the business is set up, that the expenses incurred in the business can be claimed as permissible deduction under Section 37 of the Act. For commencement of a business, there must be in place some income generating asset or income earning structure. In several cases, there is a gap or an interval between setting up and commencement. When the business is set up, is a mixed question of law and fact and depends upon the line, nature and character of the business/professional activity. For example, for manufacturing business, purchase of new material or electricity connection may be relevant point to determine setting up but in case of a property dealer, the moment, he puts up a chair and table, or starts talking, his business is set up. The present assessee was engaged and incorporated for carrying on trading activities in different commodities. Th....