TMI Blog2003 (10) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... hed. 2. The learned CIT(A) has erred in law and on facts in confirming the action of AO in holding that the business of the appellant has not commenced during the year under consideration and further erred in confirming the action of AO in taxing the entire income of the appellant amounting to Rs. 9,56,337 under the head "income from other sources". As a matter of fact the business of the appellant has already commenced during the year under consideration and therefore the entire income of the appellant is required to be assessed under the head 'profits and gains from business or profession'. 3. The learned CIT(A) has erred in law and on facts in not appreciating that the income of Rs. 840 has been added twice. The appellant has returned income of Rs. 840 while its entire income including this Rs. 840 is already added in the total income of Rs. 9,56,337 and to this figure, learned AO has added the figure of returned income of Rs. 840. Thus there is duplication of addition of Rs. 840. 4. The learned CIT(A) has erred in law and on facts in not properly appreciating various authorities cited before him and further erred in law and on facts in applying the ratio of the authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of the appellant amounting to Rs. 5,21,125 under the head "income from other sources". As a matter of fact the business of the appellant has already commenced during the year under consideration and therefore the entire income of the appellant is required to be assessed under the head 'profits and gains from business or profession'. 3. Learned CIT(A) has erred in law and on facts in holding that though the business of the appellant has commenced in as much as the appellant has exported traded goods out of India but business expenses shall not be allowed to be claimed as the main business has not commenced. This artificial distinction of main and other business drawn by the learned CIT(A) is against the scheme of the Act and uncalled for. 4. Learned CIT(A) has erred in law and on facts in not allowing the deduction under s. 80HHC of the Act on the export sales of Rs. 70,43,549. 5. The learned CIT(A) has erred in law and on facts in not properly appreciating various authorities cited before him and further erred in law and on facts in applying the ratios of the authorities which are not applicable to the peculiar facts of the present case and which are distinguishabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 2,29,000 made on account of unexplained share application money." F. The assessee has submitted an application for entertaining additional grounds of appeal for asst. yr. 1995-96, which are reproduced below: "1. Alternatively and without prejudice to any of the contentions raised hereinabove, learned CIT(A) has erred in law and on facts in not appreciating that if the income is required to be assessed under the head 'income from other sources' under s. 56 of the Act, expenditure for earning such income including expenditure for maintenance of corporate status to be allowed as deduction under s. 57(iii) of the act. 2. Alternatively and without prejudice to any of the contentions raised hereinabove, learned CIT(A) has erred in law and on facts in not granting deductions as prescribed under s. 42 of the Act looking to the nature and type of business being carried on by the appellant. 3. Learned CIT(A) as well as learned AO have erred in not considering various facts, submissions, explanations and clarifications as given by the appellant. Both the lower authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reaching to an erroneous and incorrect conclusion in law as well as on facts. 5. Alternatively and without prejudice to any of the contentions raised hereinabove, learned CIT(A) has erred in law and on facts in not appreciating that if the income is required to be assessed under the head 'income from other sources' under s. 56 of the Act, expenditure for earning such income including expenditure for maintenance of corporate status has to be allowed as deduction under s. 57(iii) of the Act. 6. Alternatively and without prejudice to any of the contentions raised hereinabove, learned CIT(A) has erred in law and on facts in not granting deductions as prescribed under s. 42 of the Act looking to the nature and type of business being carried on by the appellant. 7. Learned CIT(A) as well as learned AO have erred in not considering various facts, submissions, explanations and clarifications as given by the appellant. Both the lower authorities have further erred in not appreciating the facts and law in their proper perspective. Learned AO seriously erred in law in not observing and acting against the principles of natural justice in as much as time granted to the appellant for clari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scope of problems connected with drilling and testing of the wells and also commissioning, erection of equipments and related activities in the field of extraction of crude oil and other products of the earth. 3.The learned counsel explained that the business activities of the appellant-company can be broadly classified into four different categories: I. Seismic Survey II. Work-Over Operations III. Undertaking Exploitation of Gas Field Exports 3.1 He drew our attention to the prospectus issued by the appellant-company on 31st March, 1994, in which it was, inter alia, stated that the commercial operations of the company commenced from April, 1992. The learned counsel drew our attention to the following contents of the said prospectus: The commercial operations of the company commenced from April, 1992. The nature of these operations being providing technical services and development of gas/oil fields, involves various stages such as: (a) Collection of data (b) Technical analysis of feasibility (c) Commercial viability (d) Preparation of bid documents for submission to ONGC/Govt. of India. The documents for award of a contract by the ONGC/GOI being time consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded previous years balance of Rs. 5,46,044. The details of income and expenditure shown by the assessee in its P L a/c for asst. yr. 1993-94 are as under: Particulars Sch. Amount Rs. 31-3-1993 Income Income 10 9,56,337 9,56,337 Expenses Interest and financial charges 11 1,43,035 Administrative and general exp. 12 8,12,465 9,55,500 Profit before taxes 837 Provision for taxes 500 Profit transferred to balance sheet 337 3.5 Further details of income and expenditure pertaining to asst. yr. 1993-94 are as under: Schedule : 10 Income Particulars Amount Rs. 31-3-1993 Interest on fixed deposit with bank 8,24,087 -- Interest on loans 96,250 -- Miscellaneous income 36,000 -- 9,56,337 -- Schedule : 11 Interest and finance charges Interest on overdraft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting to Rs. 22,88,794 as per details mentioned below: Rs. Interest and financial charges 10 1,83,848 Administrative, selling 11 15,78,196 Preliminary expenses written off 8 5,26,750 22,88,794 Further details of interest and financial charges, administrative and selling expenses have been given in separate schedule submitted in the paper book. 3.8 In asst. yr. 1996-97, the assessee has shown income of Rs. 42,41,742 which mainly consists of interest on fixed deposit with bank, dividend from UTI and interest on margin money, etc. The assessee has debited the following amounts in its P L a/c: Rs. Interest and financial charges 10 7,83,571 Administrative expenses 11 18,34,792 Preliminary expenses written off 8 5,39,966 Depreciation for the year -- 4,18,559 Provision for taxation -- 4,50,000 40,26,883 The details of interest expenses and administrative expenses have been separately given at p. 41 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Miscellaneous expenses 10,250 33,434 Total 18,34,792 15,78,196 3.9 The learned counsel contended that the interest income derived by the assessee should be assessed as income from business and deduction in respect of revenue expenses claimed by the assessee should be allowed against such income. Even if the income from interest and dividend are assessed as income from other sources, the entire expenses debited in the P L a/c should be allowed as deduction under s. 57(iii) of the Act. The learned counsel contended that business of the company is said to have been set up at a time when it is ready to commence its business. In the present case, the prospectus issued by the company on 31st March, 1994 clearly shows that commercial operations of the company had commenced from April, 1992. The prospectus also gives details of various projects undertaken by the assessee, progress in the fields of seismic survey, work-over operations and also in relation to exploitation of Baola gas field. The AO should have allowed deduction in respect of entire expenses, as the business of the appellant-company had already been set up from asst. yr. 1993- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city of the assessee. Seismic survey Seismic survey can be carried on both land and sea. The survey carried on land is called terrestrial seismic survey whereas that carried on the sea bed is called marine seismic survey. Since the case before the Tribunal was only with reference to the activity of seismic survey carried on land I shall restrict myself only to terrestrial seismic survey. There are two methods of doing seismic survey on land. They are: 1. Geophone method 2. Vibrosis method In the geophone method a large area having the potential of petroleum reserve is wired. These wires are connected to a geophone. A blast is caused in the area inside the earth. The geophone records the reflection of waves from the various layers of the earth crust. These are recorded on a graph by the geophone. The data is then analysed to determine whether the area has petroleum or gas reserves. In the vibrosis method a truck mounted machine is used to determine the reserve of gas or petroleum. In this method also the sound vibrations from the machine is recorded on the on-board computer to analyse the data. Work over This is a method used to find out the potential of the oil bearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the activity of export of medicine carried out by the assessee only once in its lifetime cannot be considered as business activity of the appellant-company, as such activity of exporting medicine was clearly beyond the main object clause of the memorandum of association of the company. 4.3 As regards the business activity of oil fields are concerned, Shri Sanjay Prasad, the learned senior Departmental Representative drew our attention to the director's report dt. 1st Oct., 1996 submitted at p. 28 of the paper book, which shows that the commercial production of Baola gas field could not be started till that date due to various reasons stated in the director's report. The audit note no. 1 given along with the audited balance sheet for the year ended on 31st March, 1996 shows that no capital equipment had been acquired by the company till 31st March, 1996. The learned senior Departmental Representative also drew our attention to Sch. 13 of the said audit report in which it was inter alia stated as under: (i) The company is in the business of production of gas/oil at various proposed sites for which substantial expenses are required to be incurred and which are recoverable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz., the acquisition of a property for being let out can be said to be only a preparatory stage analogous to the acquisition of buildings, plant and machinery in a manufacturing business, the subsequent activities certainly constitute activities in the course of the carrying on of the assessee's business. The Hon'ble Supreme Court has thus drawn clear distinction between the preparatory stage and subsequent activities in the course of carrying on of the assessee's business resulting in setting up of the business. The learned senior Departmental Representative submitted that the leading judgment on the aforesaid point is that of the Hon'ble Bombay High Court in the case of Western India Vegetable Products Ltd. vs. CIT (1954) 26 ITR 151 (Bom), which has been discussed and referred to in various other judgments relied upon by the learned counsel. The company in that case was registered on 29th Dec., 1945 with the object of running an oil mill and it obtained a certificate of commencement of business on 20th April, 1946. The first purchase of raw material was made on 1st Sept., 1946, though the business really commenced only on 1st Nov., 1946, when it purchased the groundnut oil mill, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills Ltd.. This was a case relating to exclusion of net wealth employed in the new and separate unit under s. 5(1)(xxi) of the WT Act, 1957. The Hon'ble Supreme Court held that a unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up. The word "set up" used in s. 5(1)(xxi) is equivalent to the word "established", but operations for establishment cannot be equated with the establishment of the unit itself or its setting up. This judgment of the Hon'ble apex Court does not in any manner go against the principles of law laid down in various judgments of the Hon'ble Gujarat High Court. In fact, the Hon'ble Gujarat High Court in the case of Sarabhai Management Corpn. Ltd. has specifically referred to various judgments including the above referred judgment of the Hon'ble apex Court. The learned senior Departmental Representative also relied upon the judgment of the Hon'ble Gujarat High Court in the case of Addl. CIT vs. Speciality Paper Ltd. The said judgment has been elaborately explained by the Hon'ble Gujarat High Court in a subsequent judgment in the case of Hotel Alankar vs. CIT. The relevant extracts from the said judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw materials were operations for the setting up of the business. In that case, the business could not be said to have been set up until July, 1966, when the machinery had been installed and the factory was ready to commence business. This judgment of the Hon'ble Gujarat High Court has been explained by the same Division Bench in the case of CIT vs. Saurashtra Cement Chemical Industries Ltd. at pp. 178-179. This has also been considered by the Hon'ble Gujarat High Court in the case of Sarabhai Management Corpn. Ltd., which has been later on confirmed by the Hon'ble Supreme Court in the case of CIT vs. Sarabhai Management Corpn. Ltd.. It will be appropriate to reproduce the relevant extracts from the judgment of the Hon'ble Gujarat High Court in the case of Sarabhai Management Corpn. Ltd. at pp. 32 to 34: "The decision in Sarabhai Sons (P) Ltd. has been explained by the same Division Bench in CIT vs. Saurashtra Cement Chemical Industries Ltd. in these terms: "That decision raised the question as to when a certain business carried on by the assessee could be said to have been set up; whether it was set up prior to 31st March, 1966, or subsequent to that date." and the Divisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid the foundation for the third activity. The business consisted of a continuous process of these three activities and when the first activity was started with a view to embarking upon the second and the third activities, it clearly amounted to commencement of the business. It may be that the whole business was not set up when the activity of quarrying the leased area of land and extracting limestone was started. That would be set up only when the plant and machinery was installed, the manufacture of cement started and an organisation for sale of manufactured cement was established. But, as pointed out above, business is nothing more than a continuous course of activities and all the activities which go to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precede the other activities is started. Take, for example, a case where an assessee engages in the business of a trader which consists of purchasing and selling goods. The assessee must necessarily purchase goods in order to be able to sell them and purchase of goods must, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to be set up will be required to be answered on the facts of that case. On principle, the Hon'ble Bombay High Court held that only expenditure for carrying on the business after its set up is allowable as business expenditure. It will therefore depend on the facts of each case as to when the business can be said to have been set up. Various other judgments relied upon by the learned senior Departmental Representative lay down the same principle that the expenses incurred after setting up of the business including depreciation and investment allowance will be allowable if the assessee establishes that it had set up the business. It has also been approved in all those decisions that setting up of a business is not the same as commencement of the business. The question as to what activities constitute setting up of a business and commencement of a business, has to be decided on the facts of each case. 7. We will now briefly examine the principles of law laid down by the Hon'ble Gujarat High Court and the Hon'ble apex Court in various judgments cited by the learned counsel for the assessee. Western India Vegetable Products Ltd. vs. CIT: In this case, the company was registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut in the statement of the case, scrutinised the various details of the expenses given in the order of the AAC and having scrutinised those expenses the Tribunal has come to the conclusion even on an interpretation more favourable to the assessee than the one we are giving to the expression "setting up" that these expenses do not show that the business was set up prior to the 1st of September, 1946. In our opinion, it would be difficult to say that the decision of the Tribunal is based upon a total absence of any evidence." CIT vs. Saurashtra Cement and Chemical Industries Ltd: The head note of the above judgment is reproduced below: "Business" connotes a continuous course of activities. All the activities which go to make up the business and not be started simultaneously in order that the business may commence. The business would commence when the activity is first in point of time and which must necessarily precede all other activities is started. A company was formed in 1956 for the manufacture and sale of cement. As part of its business the assessee obtained a mining lease for quarrying limestone and started the mining operations in 1958. It claimed the expenditure incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty which was started earlier than the actual commencement of the production in the instant case could be said to have been an essential part of the business activity of the assessee. The company can be said to have set up its business from the date when one of the categories of its business activity is 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. Again, as Bhagwati C.J., has emphasised in Saurashtra Cement Chemical Industries' case, 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." Again, at p. 666, the Hon'ble Gujarat High Court has observed as under: "The business of the company was to manufacture aluminium and other conductors and to sell them. In the instant case, the company has started securing orders well in advance of the date on which it actually started production of aluminium conductors. The selling of aluminium conductors manufactured by it is as much a part of the business activity of the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omponent activities had commenced before the actual date of going into production. As pointed out in Sarabhai Management Corpn. Ltd.'s case what is material is the date when the company went into one or the other business activity and started one or the other component business activities of the company. In the instant case that was certainly done from the very date of the incorporation of the company. Under these circumstances, the assessee-company was entitled to have the loss of Rs. 46,970 for asst. yr. 1965-66 treated as business loss and also to have the loss of Rs. 58,600 incurred by it during the period 1st Jan., 1965 to 26th June, 1965, in the previous year relevant to asst. yr. 1966-67, treated as a business loss. The Tribunal was in error when it overlooked this distinction between the component business activity and the business activity as a whole and the Tribunal was in error in holding that the assessee had not commenced its business prior to 26th June, 1965." CIT vs. Western India Seafood (P) Ltd: The Hon'ble Gujarat High Court after referring to all the above referred judgments, has held as under: "In the light of the aforesaid settled legal position, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date when one of the essential categories of its business activities is started and it is not necessary that all 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. (e) The question as to when business can be said to have been set up and commenced will depend on facts and surrounding circumstances of each case. The test to be applied is as to when a businessman would regard a business as being set up and/or commenced and the approach must be from a common-sense point of view. 9. Applying these tests to the facts of various cases, the Hon'ble High Courts have rendered the above referred decisions as to when on the facts of a particular case the business can be said to have been set up. 9.1 In the case of Western India Vegetable Products Ltd. vs. CIT, the company incorporated for running an oil mill purchased groundnut oil mill in a working condition on 1st Nov., 1946. But the assessee made purchase of raw material in September, 1946. It also started placing orders for raw materials and sales and so on prior to transaction of purchase of raw materials in September, 1946 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deduction in respect of expenses incurred during asst. yr. 1965-66 and claimed it as business loss and also claimed deduction in respect of expenses incurred from 1st Jan., 1965 to 26th June, 1965. The Hon'ble High Court held that one of the essential activities of the business viz., the activity of securing orders had practically started since very date of incorporation of the company and it was obvious that the business activity of the company started from the day of its incorporation and not form the day when the production of aluminium conductors commenced. The Hon'ble High Court held that the assessee was entitled to get the deduction of business expenditure and was eligible to treat such loss as business loss. 9.5 The facts of all these cases very aptly demonstrate the illustrations as to how the various principles and tests laid down in these judgments should be applied, on the basis of which one can arrive at a proper decision as to when the business can be said to have been set up on the given facts and circumstances. 10. Let us now examine the facts of the present case on the basis of principles of law emerging from the above referred decisions by applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MOU with ZNGF, the assessee was ready to provide such technical services, requiring specialised machinery and trained manpower. The bank guarantee in respect of both the commercial bid given for seismic processing to ONGC was given after certain negotiations on 2nd July, 1993. The aforesaid facts viz. technical collaboration agreement executed on 25th Oct., 1993 approved by the RBI on 8th Jan., 1994, and MOU with ZNGF for joint venture executed on 28th Oct., 1993 and various documents referred to above, show that the assessee can be said to have set up its business of starting activity of seismic survey only in asst. yr. 1994-95 and not in asst. yr. 1993-94. 13. The activity of work-over operations as per chart submitted by the assessee at p. 122 of paper book shows that the very first tender for hiring of equipments and services for work-over operations was given by the assessee on ONGC on 12th Nov., 1993 and bank guarantee for Rs. 5,85,300 was given on 19th Nov., 1993. Subsequently, the extended bank guarantee for Rs. 5,85,300 was furnished on 30th March, 1995. The original bid was returned back by ONGC for cancellation on 25th Sept., 1995. The offer was renewed by ONGC on 4th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has exported medicines to the tune of Rs. 70,43,549 in the month of February, 1994. It is true that the export of medicines is not covered by the main object clause of the appellant-company. The learned senior Departmental Representative is therefore right in contending that this export activity is not one of the authorised business of the appellant-company. But the uncontroverted fact is that the assessee did in fact made export sales of Rs. 70,43,549 in asst. yr. 1994-95. The assessee may be liable for consequences contemplated in the Companies Act for carrying out an unauthorised business but this activity of export of medicines carried out by the assessee in asst. yr. 1994-95 has generated profit on such export sales, which has been held to be liable to tax as income from business by the CIT(A) in asst. yr. 1994-95. The Revenue has not preferred any appeal or cross-objections against such finding given by CIT(A) before the Tribunal. The finding so given by CIT(A) in asst. yr. 1994-95 have thus achieved finality. No sales were made by the assessee in asst. yr. 1993-94. No income from business has been derived by the assessee in any of the years under consideration except the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tus that the company was ready to provide technical oil field services viz. seismic survey on the strength of the said collaboration agreement. The company had also started effective steps by giving tenders for seismic survey and work-over operations. The prospectus issued on 31st March, 1994 inter alia indicates that the company upto that date had submitted bids for various oil field services and contracts aggregating to Rs. 800 lakhs besides the bid given for development of Baola gas field located near Ahmedabad. 20. The promoters and directors of the company possess technical qualifications and rich experience in this line of business. The details of such qualifications and experience of various promoters and directors, technical advisors have been given at pp. 9-10 of the said prospectus. 21. The details of administrative and general expenses placed at pp. 25-26 of the paper book inter alia show that the company has paid directors remuneration of Rs. 60,000 in asst. yr. 1994-95 as against nil remuneration to directors in asst. yr. 1993-94. The said details also indicate that the company has incurred various other expenses of revenue nature which were necessary for corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23.1 It would be imperative to state here that the CIT(A) in asst. yr. 1994-95 has inter alia given a definite finding in para 3.3(2) that the assessee's net income from export sales has to be calculated and brought to tax as income from business. The Revenue has not preferred any appeal against such finding given by the CIT(A) nor they have filed any cross-objection. Therefore, the finding of the CIT(A) that the net income from export sales is assessable as income from business, has achieved finality. 23.2 After giving our deep and thoughtful consideration to the entire relevant facts and material, we are of the considered opinion that the business of the assessee was set up in asst. yr. 1994-95. The assessee is therefore entitled to grant of deduction in respect of revenue expenditure incurred for the purposes of aforesaid business from asst. yr. 1994-95 and onwards. The loss arising due to such permissible deduction of revenue expenditure should be treated as a business loss and the same should be set off against current year's income from other sources assessed by the AO as per s. 71 of the Act and the unabsorbed amount should be carried forward as business loss in subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction on the ground that business had already been commenced by the assessee in asst. yr. 1993-94, is not acceptable as the business cannot be treated as having been set up in asst. yr. 1993-94. The disallowance of 90 per cent of the total expenditure debited in the P L a/c and claimed as deduction is therefore confirmed. 25.3 Ground No. 3 raised by the assessee is correct. The income of Rs. 840 shown by the assessee in its return of income is already included in the total income of Rs. 9,56,337 credited in its P L a/c. Since the entire income of Rs. 9,56,337 has been assessed by the AO as income from other sources, the inclusion of the sum of Rs. 840 shown in the return of income once again has resulted in double addition. The AO is directed to exclude the income of Rs. 840. 25.4 Ground No. 4 and 5 for asst. yr. 1993-94 are argumentative in nature. We have already given finding that the business cannot be treated to have been set up in asst. yr. 1993-94. We have also given our finding with regard to assessability of interest income etc. under the head "income from other sources" and deduction of 10 per cent of the total expenditure out of such income. Hence, ground No. 4 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related expenses including expenses on purchase of goods etc. 2. After that, the net income from export sales has to be calculated and brought to tax as income from business. 3. Income by way of interest and dividend to be taxed under the head "income from other sources". 4. Other expenses not related to export sales will not be allowed as the main business of the appellant has not commenced during the year. The AO is therefore, directed to recalculate the amount of income after proper verification on the lines suggested above and to subject that amount to income-tax. 26.2.1 We agree with the finding given by the learned CIT(A) that the income from export sales has to be computed after allowing deduction in respect of purchase of goods and other expenses incurred in relation to such exports, as assessee's income from business. It would be worthwhile to state that the Revenue has not preferred any appeal against the order of the CIT(A) for asst. yr. 1994-95. Therefore the finding given by the CIT(A) that the net income from export sales has to be brought to tax as income from business, has achieved finality and the same cannot be disturbed in the absence of cross-appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn nor at the time of reassessment proceedings. Since this is not a mistake apparent from the records, this contention of the assessee is rejected. 7. The assessee's contention that the income from export sales amounting to Rs. 70,43,549 has been treated as income from other sources and that no expenditure related to earning of export income has been allowed to the assessee, it is seen that the export sales amounting to Rs. 70,43,549 cannot be treated as income from other sources, as this is a business income of the assessee. It is also seen that the assessee has debited in its P L a/c, purchases for resale amounting to Rs. 59,06,950 and clearing and forwarding amounting to Rs. 5,96,238 totalling to Rs. 65,03,188 which are directly related to the export sales and hence allowable, which has remained to be allowed while passing the order under s. 143(3) r/w s. 147. Since this is a mistake apparent from records, the same is rectified under s. 154 of the Act. 8. Subject to above, the total income of the assessee is revised as under: Rs Rs. Export Sales 70,43,549 Less: Purchase for resale and clearing and forwarding charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94-95. 27.2 As regards ground No. 2, the AO is directed to allow 90 per cent of the total business expenditure debited in the P L a/c which are expenditure of revenue nature, as the business had been set up by the assessee in asst. yr. 1994-95. The balance 10 per cent of the total expenditure debited in the P L a/c will be allowed as deduction under s. 57(iii) against income from other sources assessed by the AO. The AO should also consider the allowability of amortisation of preliminary expenses as per the relevant provisions in the IT Act. The business loss arising due to allowability of business expenditure as aforesaid will be eligible to be set off against income from other sources of the current year under consideration in accordance with s. 71 of the IT Act. 27.3 As regards ground No. 3, since the business of the assessee had already been set up in asst. yr. 1994-95, the assessee would be entitled to grant of depreciation on depreciable assets in accordance with the provisions of law. 28. Additional Grounds for asst. yr. 1995-96: 28.1 The assessee has raised various additional grounds for asst. yr. 1995-96 which have been mentioned in para 6 of this order. The additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said case of Hindustan Tea Trading Co. Ltd. has also considered the decision in the case of CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (Del) which was affirmed by the Hon'ble Supreme Court in the case reported in CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC). After taking into consideration all the above referred judgments, the Hon'ble Calcutta High Court observed that when the assessee had furnished income-tax file numbers of the various subscribers, it was for the ITO to enquire into the same and find out the creditworthiness of the subscribers and genuineness of the transaction. Even though despite service of notices, 14 persons failed to respond, it was incumbent on the income-tax authority to ascertain from the income-tax file numbers, whether the files were in existence and on the basis of such files whether the identity of the shareholders could be established. Until such enquiry was made, it could not be said that the income-tax authority had acted upon the materials so disclosed. 29.3 The principles of law laid down by the Full Bench of Hon'ble Delhi High Court in the case of CIT vs. Sophia Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -97 (ITA No. 981/Ahd/2003) 30.1 The first ground relating to alleged invalidity of proceedings initiated under s. 147 was not pressed by the learned counsel for the assessee at the time of hearing. Hence, the same is rejected, as not pressed. 30.2 Ground Nos. 2 to 5 relate to the main issue i.e. allowability of various expenditure of revenue nature debited in the P L a/c either as business expenditure under s. 28 to 37 or as deduction under s. 57(iii) and also the issue relating to assessability of interest income and dividend income etc. under the head "income from other sources" as against income from business claimed by the assessee. We have already held that the interest income and dividend income received by the assessee is assessable as income from other sources. Accordingly the aggregate income of Rs. 42,41,742 derived by the assessee by way of interest on fixed deposit with bank, dividend from UTI, interest on margin money and other interest/kasar income has rightly been assessed by the AO as income from other sources in view of the judgment of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilisers Ltd. vs. CIT and the judgment of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elates to the main issue common for asst. yrs. 1993-94 to 1997-98 which has been elaborately discussed and decided hereinbefore. The CIT(A) in asst. yr. 1997-98 has held that the business activities of the assessee have started from asst. yr. 1997-98. He has therefore directed the AO to allow deduction in respect of business expenditure, as claimed by the assessee. We have held in this order that the business of the assessee should be treated to have been set up from asst. yr. 1994-95. The assessee is therefore entitled to get deduction in respect of business expenditure of revenue nature from asst. yr. 1994-95 and onwards. We will however like to add that the income of the assessee aggregating to Rs. 13,41,562 representing interest income and dividend income and share processing charge as per details mentioned in para 2 of the assessment order should be assessed as income from other sources. Deduction of 10 per cent of the total revenue expenditure debited in the P L a/c should be allowed under s. 57(iii) against such income from other sources. The balance 90 per cent of the expenditure of revenue nature debited in the P L a/c should be allowed as deduction as business expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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