TaxTMI 
TaxTMI 
2017 (9) TMI 656
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....s justified in holding that the business of the assessee was set up during the previous year under consideration while the assessee has not done any business activity during the previous year under consideration." 2. "Whether on the facts and in the circumstance?; of the case and in law, the Ld. CIT(A) is justified in holding that the general administrative expenses are deductible as revenue expenses and interest income of the assessee is assessable to tax as income from business and profession while the business of the assessee was not set up during the previous year under consideration." 3. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance u/s.14A w.r.t. to interest expenses of Rs. 49,97,97,672/- while the assessee has not maintained separate pool of funds for general operating expenses and for capital expenses end investment." In ground no.3 for A.Y. 2009-10, the amount of Rs. 49,97,97,672/- be read as Rs. 58,93,07,820/- 4. Ground no.1 relates to the issue as to when the business was set up. The brief facts of the case are that the assessee is engaged in the bu....
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....6-07) made to Gujarat Maritime Board (GMB). - (Page 544). 11 March 7, 2007 Reply from GMB (Ref No.: GMB/N/PVT/380(10)/720- 12094) - (Page 545) 12 March 15,2007 Entered into Technical Service Agreement for design of 74. 5K DWT Bulk Carrier (Page 474) 13 April 12, 2007 Letter from GMB raising few queries on the request - (Pages 546 & 547) 14 April 19, 2007 Clarification given by Pipavav Shipyard Ltd to GMB in response to their letter dtd. 12.04.2007 (Ref No.PSL/GMB/03/07-08) (pages 548 to 550) 15 April 16, 2807 Letter of permission no. K/IM/LQP/1733/T3/1Q17 for manufacture of fabricated block for ship building. 16. June 25, 2007 Permission under Section 35(1) of the GMB Act to start construction activities for the shipyard project at Pipavav Port, received from GMB (Ref No.: GMB/N/PVT/428/163) - (Pages 551 & 552). 17 July 01, 2007 Central Sales Tax registration (CST) under Gujarat VAT from the Assistant Commissioner of Commercial Tax- Gujarat Sr. No. Date Particulars 18. August'08, 2007 License for Private Bonded Warehouse u/s 58 and 65 of the custom act 1962 issued by the assistant Commi....
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....s in ship building industry the business activity begins much before the construction activity commences. The ship building industry works on 'make-to-order' principle and not on 'off the shelf' availability of products. No ship owner will construct the project unless it has certain orders in place. The assessee had duly received orders prior to January and, therefore, the business was duly set up. It was also pointed out that all necessary permission for setting up of plant was duly received by the assessee. Although the business of the assessee was set up when the orders were received, the assessee had conservative approach decided to consider set up of business when it started purchasing steel. Reliance in this regard was placed on the decisions of Hon'ble Gujarat High Court in the case of CIT vs. Sarabhai Sons (P) Ltd 90 ITR 318 and CIT vs. Saurashtra Cement & Chemical Industries Ltd. 91 ITR 153. 6. The learned DR, on the other hand, relied on the order of the Assessing Officer and took a view that during the year, the assessee has not constructed any ship or started construction of ship, therefore, it cannot be said that the assessee had commenced business. 7. We have he....
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....owever, there may be an interval between a business which is set up and a business which is commenced. This has been so held by the Hon'ble Bombay High Court in the case of Western India Vegetable Products Ltd. vs. CIT 26 ITR 151 (Bom). The relevant test, in our opinion, for allowing expenditure is not when the assessee had commenced the business but when the business has been set up. A business is said to be set up when it is ready to start the business. The Hon'ble Supreme Court in the case of CIT vs. Sarabhai Management Corporation Ltd. (supra), took a view that business commences when the property is made ready and the assessee is in a position to offer services to the licensee in a case of the company, whose business is to give property on leave and license basis, expenses incurred thereafter are allowable as a deduction. We have also gone through the decision of Hon'ble Gujarat High Court in the case of CIT vs. Saurashtra Cement & Chemical Industries Ltd. 91 ITR 153 (Guj), on which the learned AR has vehemently relied. We noted that in this case, the Hon'ble Gujarat High Court has held that business connotes a continuous course of activities. All the activities which go to ma....
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....the ship, procurement of raw materials, erection and building of ship, elaborate and comprehensive testing analysis and inspection and delivery of the ship. We noted that the assessee has also entered into technical service agreement for technical assistance, got various permissions for the construction of ship yard activities from Gujarat Maritime Board and also got registration under the Sales tax as well as Excise and Customs Act done. The assessee has started purchasing steel for ship building activity. All these activities are preparatory activity for construction of ship carried out up to January. These activities, in our opinion, are such that the assessee has set up business. We, therefore, do not find any illegality or infirmity in the order of the CIT(A). We accordingly dismiss ground no.1 taken by the Revenue. 8. Ground no.2 relates to the claim of administrative expenses and chargeability of the interest income under the head 'Income from business'. The facts relating to this ground are that the Assessing Officer noted that the assessee has debited following amounts of expenditure against the interest income [the only source of income]: Material consumed Rs. 159.44 l....
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....curity deposit by way of Fixed Deposits of the equivalent amount of the bank guarantee furnished. The assessee vide its letter dated 21.12.2010 furnished to the Assessing Officer complete corelation of the FDs kept for bank guarantee and the consequential receipt of interest on FDs. In view of the decision of the jurisdictional High Court in the case of CIT vs. Paramount Premises (P) Ltd 109 ITR 259 (Bom), wherein it has held that when an assessee was required to give a guarantee to the bank in respect of the land on lease for construction work for that purpose, certain amounts were kept in fixed deposits on which the assessee earned interest. Since the entire interest sprang from the business activity of the assessee and did not arise out of any independent activity, interest income was to be considered as business income. Interest so received earned by the assessee on the FDs kept for the purpose of guarantee amounting to Rs. 2556.66 lacs has to be assessed as income under the 'Income from business'. Similar view has been taken by the Hon'ble Patna High Court in the case of Shyam Bihari vs. CIT 345 ITR 283, wherein it was held that interest accrued on security deposit which was k....