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TMI Blog2022 (6) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... that Lebara group went through restructuring due to which the legal personnel left the company which led to late filing of the appeal. The Ld. Sr. DR opposed condonation of delay. Considering the factual matrix, the bench formed an opinion that the delay was to be condoned, however, with a cost of Rs.25,000/-. The assessee, vide letter dated 12.04.2022, placed on record copy of DD NO.267993 dated 11.04.2022 and submitted that the cost has been deposited in Tamil Nadu State Legal Services Authority as directed by the bench. Finding the same in order, we condone the delay and admit the appeals for adjudication on merits. 3. The appeal assails common appellate order dated 09.11.2017. The grounds taken in AY 2012-13 read as under: - 1. The order of the Ld. CIT(A) and the AO is contrary to the provisions of the Income-tax Act, 1961 ('the Act') and bad in law. 2. The Ld. CIT(A) failed to appreciate the fact that where the Appellant is engaged in infrastructure activity/hotel business, the business can be considered to be set up when the primary activity, i.e. acquisition of land takes place and the subsequent business expenditure incurred thereafter is to be allowed as ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. AO erred in law and facts in initiating penalty under section 271(l)(c) of the Act, when the claim was disallowed only on account of difference of opinion and hence, no penalty is warranted. As evident, the substantial question that arises for our consideration is to determine the fact whether the business of the assessee was set up during this year or not. 4. The learned AR, drawing our attention to the documents placed in the paper book, submitted that assessee had duly set-up its business during AY 2012-13 and therefore, the business expenditure would be allowable deduction. To support the same, reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. The decision as relied upon by Ld. AR include the decision of Hon'ble High Court of Madras in M/s Ascendas IT Park Chennai Ltd. V/s DCIT (TCA No.668 of 2016 dated 27.04.2017) as well as in CIT V/s Club Resorts P. Ltd. (203 CTR 587); the decision of Hon'ble Delhi High Court in CIT V/s Samsung India Electronics Ltd. (356 ITR 354) & Carefour WC&C India Pvt. Ltd. V/s DCIT (368 ITR 692); the decision of Hon'ble High Court of Bombay in Western India Vegetable Products V/s CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessed as 'Income from other sources and the business expenditure as claimed by the assessee were disallowed. Appellate Proceedings 7.1 During appellate proceedings, the assessee submitted that it was incorporated on 09.12.2010 and it acquired land and partially completed building on 20.06.2011. It entered into an agreement with IHCL on 26.08.2011 for rendering hotel services. Accordingly, the assessee started business activities from inception and put in place all mechanisms to start business activity. Relying on the decision of Hon'ble High Court of Madras in in CIT V/s Club Resorts P. Ltd. (203 CTR 587), the assessee submitted that it carried out various preparatory activities to start a business. It had commenced business operations and therefore the business expenditure would be allowable expenditure. 7.2 However, Ld. CIT(A) formed an opinion that business expenditure was required to be capitalized along with the cost of the hotel building as per the decision of Hon'ble Supreme Court in M/s Tuticorin Alkali Chemicals & Fertilizers Ltd (227 ITR 172). Reliance was also placed on various other decisions as enumerated in the impugned order to support the said conclusion. Final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments, it could be said that though the business was in pre-commencement stage, however, the assessee had undertaken substantial activities to make the business ready for commencement. However, it could not be said that the business was not set-up since the assessee had procured the land and partially constructed building during the year which was a very vital step to commence business activities considering the fact that the assessee was engaged in hospitality business. On the basis of all these facts, it could be said that though the business was set-up, however, it was in pre-commencement stage during the year and the business could not be commenced due to long gestation period. 9. We find that the term 'previous year' as defined in Section 3 of the Act would mean the financial year immediately preceding the assessment year. However, in the case of newly set-up business, the previous year shall be the period beginning with the date of setting-up of the business. Accordingly, till the time the business is set-up, all the expenses, even if revenue in nature, would have to be capitalized which is the stand of lower authorities in the present case. As a natural corollary, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions, it could be said that when a business is established and is ready to start business it can be said to have been set-up. The business must be put into such a shape that it can start functioning as a business or a manufacturing organization. In case the setting-up of business would require different activities, the assessee could be said to have set-up its business from the date when one of the categories of its business was started and it is not necessary that all the categories of its business activities must start either simultaneously or that the last stage must start before it can be said that the business was set up. The test to be applied is as to when a businessman would regard a business as being commenced and the approach must be from a common-sense point of view. 11. The Hon'ble High Court of Madras in the case of in CIT V/s Club Resorts P. Ltd. (203 CTR 587) held as under: - 5. Heard counsel. The assessee is not a construction company. The completion of the construction at the project site could not be an indicator for the commencement of the business of the company. The assessee had not carried out the construction on its own excepting that it gives the work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Products Ltd. (supra) as well as various other decisions, held as under: 43. In Western India Vegetable Products Ltd. (supra), it was pointed out that there is a clear distinction between a person commencing a business and a person setting up a business for the purposes of the Indian Income-tax Act (Act XI of 1922), the setting up of the business and not the commencement of the business is to be considered. It was held that when a business is established and is ready to commence business, then it can be said of that business that it is set up. Further, it was held that there may be an interval between the setting up of the business and the commencement of the business and all its expenses incurred during that interval would be permissible as deductions. In the said case, the company actually commenced business only on 1st November, 1946 when it purchased the groundnut oil mills, but prior to this date, there was a period when the business could be said to have been set up and the company was ready to commence business and that there was evidence before the Tribunal to hold that the assessee company set up its business as from 1st September, 1946. 44. In Prem Conductors (P.) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been set up only in March, 1995 and not earlier. Dismissing the appeal of the Revenue, the Court held that the business of an assessee involved different activities in which the first step was to purchase the equipments for which purchase order was placed in July, 1995, application to DoT for licence was made and the signals were received after the equipment was installed in the premises of the customer and in such circumstances, the business of the assessee was held to have been set up in July, 1994 when they placed the purchase order for the equipments and expenses would be deductible as revenue expenses. 47. In Omniglobe Information Tech India P. Ltd. (supra), it was held that the assessee's business was set up when they acquired necessary infrastructure from its sister concern and also started making payment of salary and wages and giving training by professional experts under the supervision and control of the assessee. 48. In Dhoomketu Builders and Development P. Ltd. (supra), the assessee was in the business of real estate development and had obtained loan from its holding company, participated in a tender notified by the Official Liquidator of the Karnataka High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure and the expenditure so incurred was pursuant to the letter of intent granted to it by Neyveli Lignite Corporation and the assessee is, therefore, entitled to regard the expenditure so incurred, as the expenditure incurred by its during the previous year relevant to the assessment year 1981-82. 51. In Club Resorts P. Ltd. (supra), the assessee was in the business of promoting time share units at places of tourist interest. The question was whether the expenditure incurred on maintenance of staff, etc., could be treated as a business expenditure. The Court affirmed the view of the Tribunal and held that there are various stages; the first of which being to set up one or more operating offices from which sales personnel were to be sent to solicit customers which were already started by the assessee; and the second stage was launching a massive publicity campaign, which the assessee had already been doing, it had already acquired land and started construction, which were the subsequent changes. Accordingly, it held that the office expenses that had been incurred were clearly revenue in nature. 52. The above decisions clearly set out the legal position. In terms of the Memorandu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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