TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 877
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.... ii. Whether the Tribunal erred in law in holding that the business of the appellant was not set up despite uncontroverted material/facts available on record to establish that the appellant's business had already commenced? iii. Whether the Tribunal erred in law in disputing set up of business of the appellant during the relevant year, which fact stands accepted/finalized in the preceding year? and iv. Whether, on the facts and circumstances of the case, the order of the Tribunal is perverse being passed without considering the contemporaneous material available on record?" 3.The assessee filed its return of income for the assessment year under consideration (2010-11), on 29.09.2010, declaring an income of Rs.NIL. The return was processed under Section 143(1) of the Act. Upon the case being selected for scrutiny, notice under Section 143(2) of the Act was issued on 15.09.2011. The assessee through its authorised representative appeared before the Assessing Officer and filed details which were called for. 4.In this appeal, we are concerned about the disallowance of expenses as made by the Assessing Officer while completing the assessment under Section 143(3) of the Act by....
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....unal in the case of ITO vs. Omni Global Information Technologies India P Ltd., I.T.A.No.1380/Del/2016, dated 15.04.2019. Reference was also made to the order passed by the TPO dated 20.11.2013 stating that the assessee did not commence commercial production of manufacture and sale of commercial vehicles and on activities towards setting up of its facilities and its operations for which it received support for its group companies. It was stated that the assessee has not rebutted the said observation made by the TPO. 7.In the light of the above, the Assessing Officer disallowed the expenditure incurred by the assessee under the head "operating expenses, financial expenses and depreciation". 8.Aggrieved by such order, the assessee filed appeal before the Commissioner of Income-tax (Appeals)-1, Chennai ("the CIT(A)", for brevity) in I.T.A.No.100/14-15 (New No.I.T.A13/CIT(A)-1/2014-15). Assailing the order passed by the Assessing Officer, the assessee contended that the business was already set up considering that prior to the year under consideration and further during the relevant year, activities in pursuance of the objects set out in the Memorandum of Association have commenced. ....
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....at the business of the assessee had been set up and had already commenced, they prepared profit and loss account for the relevant previous year, i.e., 01.04.2009 to 31.03.2010, relevant to the assessment year under consideration and claimed the following expenditure:- (i) Operating Expenses : Rs. 19,39,47,503/- (ii) Financial Expenses : Rs. 1,46,26,492/- (iii) Depreciation : Rs. 46,19,716/- Total : Rs. 21,31,93,711/- 12.It was stated that the aforementioned expenses related to and have been incurred wholly and exclusively for purposes of business of the assessee and such expenses have no connection with the plant under erection for which, expenses incurred have been separately capitalized under the head "capital work in progress". To support their stand, reference was made to the accounting policies forming part of audited accounts. Further, it was stated that the expenditure related to construction of manufacturing facility was capitalized as part of work in progress forming part of audited accounts and no depreciation on the same has been claimed during the year under consideration as evident from Note-4 on 'Fixed Assets' to the financial statem....
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....ity and activities relating to research and development have been capitalised as a part of "capital work in progress". On facts, the CIT(A) found that none of the expenditure debited to P&L account are towards setting up of the manufacturing facility and they relate to other business activity listed in the Memorandum of Association. 17.Reference was also made to the certificate of commencement of business issued by the Registrar of Companies dated 18.12.2007, which entitles the assessee to carry on its business activities as outlined in the Memorandum of Association. It was pointed out that the Assessing Officer has accepted the computation of income under the head "profits and gains of business or profession" except for disallowance of operating expenses, financial expenses and depreciation debited to the profit and loss account and allowed the carry-forward of loss and therefore, after allowing the loss to be carried forward, the Assessing Officer is not correct in holding that the assessee has not commenced commercial operations. Accordingly, the CIT(A) held that the disallowance was held to be not sustainable, but allowable under Section 37(1) of the Act and the Assessing Offi....
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.... dated 17.10.2008 for a period of 99 years; purchase order issued to Ricardo for development of LDMT vehicle (prototype), dated 05.11.2008; purchase order issued to Magna for development of HDT (prototype), dated 08.11.2008; report on joint assessment of prototypes carried out by the assessee and Ricardo UK, dated 19.03.2009; purchase order issued by Daimler AG Procurement Trucks & Buses for local procurement of components by the assessee, dated 30.04.2009; letter issued by the assessee to supplier (M/s.Bharat Forge Limited), dated 20.08.2009; licence issued by the Inspector of Factories, dated 18.11.2009; inauguration of test track facility on 15.03.2010; and test report on the results of testing activity undertaken on prototypes for the HDT trucks, dated 30.03.2010, submitted that the business of the assessee was already set up and although manufacturing activity did not commence, still the activities essential for undertaking manufacture of commercial vehicles comprising of development of prototype vehicles, testing these vehicles, identification of suppliers, nomination of suppliers, etc., had all been done which will go to show that the business of the assessee had been set up....
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....oduction, that is, manufacture of sale of vehicles is not relevant for determining as to whether an assessee has set up his business or not. 24.The learned Senior Counsel referred to the key events/activities undertaken by the assessee, since it is incorporation up to the end of the relevant previous year 2009-10, i.e., assessment year 2010-11 which have been referred to in paragraph 2.11 of the memorandum of grounds of appeal wherein, the date, event/activity, brief description of the activity/supporting documents have been given and page numbers indicated. Further, it is submitted that though the principles of res judicata do not apply to income tax proceedings, principles of consistency will cover income tax proceedings and referred to the decision in Shasun Chemicals & Drugs Ltd., vs. CIT, (2016) 388 ITR 1 (SC). 25.Referring to Section 3 of the Act, it is submitted that the same provides for while "previous year" generally means the financial year immediately preceding the assessment year, in the case of a business or profession newly set up, the period beginning with the date of setting up of business or profession shall be the previous year. Thus, it is submitted that compu....
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....ann. Com 236 (SC); and the decision in Chemplast Sanmar Ltd., vs. Assistant Commissioner of Income-Tax, [2019] 412 ITR 323 (Madras). 28.On the above submissions, the learned Senior Counsel prayed for allowing the appeal and answering the substantial questions of law in favour of the assessee. 29.Ms.R.Hemalatha, learned Senior Standing Counsel for the Revenue raised a preliminary objection to the maintainability of this appeal. It is her submission that the assessee has filed a petition for rectification before the Tribunal under Section 254(2) of the Act and the petition is still pending before the Tribunal and the assessee cannot avail parallel remedies for the same relief. The learned counsel referred to the certificate of incorporation and fresh certificate of incorporation of change of name and the certificate for commencement of business and submitted that the said certificate only states that the assessee is entitled to commence business ad therefore, cannot be treated as a conclusive date of commencement of business. The learned counsel referred to the assessment order dated 28.02.2014 and submitted that the assessee was in the process of registering and executing the leas....
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....e Assessing Officer is that the commercial operation of manufacture and sale of commercial vehicles has not been commenced so far and therefore, the expenditure incurred by the assessee under the aforementioned three heads cannot be allowed. 36.Mr.Ajay Vohra, learned Senior Counsel is right in his submission that there was no dispute raised by the Assessing Officer with regard to the date on which the assessee had set up its business. This date stood concluded in the previous assessment year 2009-10. The assessee carried the matter by way of appeal to the CIT(A) contenting that as per the objections set out in the Memorandum of Association, the assessee company had been incorporated for design and development of commercial vehicles suited to the Indian Market; research and development activities; sourcing of components for sale in domestic/global market and construction of manufacturing facility for undertaking manufacture of commercial vehicles. Thus, the four activities mentioned in the Memorandum of Association was stated to be a bundle of activities of the assessee company. The assessee substantiated the activities which it had commenced under the aforementioned four activitie....
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....een taken away by the Tribunal. The question is whether this can be done. The definite answer to this question is an emphatic no. 39.We are supported by the decision in the case of Mcorp Global (P.) Ltd. (supra), wherein the Apex Court referred to its earlier decision in Hukumchand Mills Ltd., vs. CIT, [1967] 63 ITR 232 (SC), wherein it was held that under Section 33(4) of the Act (equivalent to Section 254(1) of the Act), the Tribunal was not authorized to take back the benefit granted to the assessee by the Assessing Officer and that the Tribunal has no power to enhance the assessment. 40.This Court in Sanmar Speciality Chemicals Ltd. (supra), after referring to the decisions in Hukumchand Mills Ltd. (supra), Mcorp Global (P.) Ltd. (supra) and Fidelity Shares & Securities Ltd., vs. Dy. CIT, [2017] 390 ITR 268 (Guj.), held that the Tribunal has no power under the Act to enhance the assessment in an appeal. Thus, the Tribunal committed an error in venturing into an issue which was never an issue before the Assessing Officer and unsettling the date on which the business of the assessee was set up and as the Tribunal has no jurisdiction to do so and the said finding has necessaril....
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....o be the commencement of the business. It was further pointed out that one business activity may precede the other and what is required to be seen is whether one of the essential activities for the carrying on of the business of the assessee company as a whole was or was not commenced. 45.In Ralliwolf Ltd. (supra), the Court referred to the Oxford English Dictionary meaning for the expression "setting up" and held that the distinction is that when a business is established and is ready to commence, then it can be said that business that it is set up. 46.In Hughes Escorts Communications Ltd. (supra), the assessee carried on business of satellite business communications for which an equipment is used. The said equipment can be used only after establishing, maintaining and using the communication facilities on a licence from the Department of Telecommunications (DoT). The assessee therein made an application to the DoT for grant of such licence and a licence agreement was entered into and even prior to that the assessee placed a purchase order for purchase of the equipments from USA. In the return of income, the assessee claimed expenditure, which was rejected by the Assessing Offic....
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.... October, 2007, employees were also appointed during the relevant years, tax deducted at source, registration under the Shops and Establishments Act was also effected and these activities were the first stage activities which would lay the foundation for placing orders for procuring the stock and storing them in a warehouse undertaken by the assessee was a precursor to commencement but post-set up and the activities demonstrated that setting up of the business by the assessee with a commitment to commence the business. Therefore, the order of the Assessing Officer disallowing the business loss was held to be not justified. 50.In Franco Tosi Ingegneria (supra), the assessee, a non-resident company secured a letter of intent from Neyveli Lignite Corporation on 13.04.1981 for carrying out certain works to establish a project office and to commence activities in India from that date. However, it secured the approval of the Reserve Bank of India for establishing its project office only, subsequently. It obtained registration under the Companies Act subsequent to 13.04.1981 and in such scenario, the Income-tax Officer disallowed the expenditure incurred for the period prior to October ....
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....ssee had been set up in the previous assessment year for which the assessment had been completed by the Assessing Officer. Therefore, the Tribunal erred in holding that merely because the manufacturing and sale of the vehicle did not take place, the business of the assessee has not been set up. The manufacturing activity of the assessee is a part of the composite business activities of the assessee and this was not commenced because, the construction of the building and installation of plant and machinery was in progress. 54.Ms.R.Hemalatha placed reliance on Ramaraju Surgical Cotton Mills Ltd. (supra). We may point out that the said decision arose under the provisions of the Wealth Tax Act and the test to be applied therein is quite different and distinct from the test which we are required to apply in the present case and therefore, the said decision does not render any assistance to the case of the Revenue. 55.In Speciality Paper Ltd. (supra), the relief was denied to the assessee company, as they were holding trial production and having their plant and machinery being tested to ascertain the quantity and quality of the production so satisfactory. This was held to not satisfy ....
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....e general insurance business carried on by the company were distinct and separate and the loss carried forward from the previous year in respect of life insurance business could not be set off under Section 24(2) of the 1922 Act against the profit of the general insurance business. The Apex Court held that the life insurance business and general insurance business constituted the same business within the meaning of Section 24(2) of the 1922 Act, as the company was entitled to carry on life insurance business and general insurance business under its Memorandum of Association and the businesses were attended to by the branch managers and agents without any distinction. There was one common administrative organization and the expenses incurred in connection with the business were common. 62.In Produce Exchange Corporation Ltd. (supra), the Hon'ble Supreme court applied the test laid down in Prithvi Insurance Co. Ltd. (supra) and held that in the said case there was a common management and other lines of businesses, unity of trading organisation, common employees, common administration, a common fund and a common place of business. 63.In Veecumsees (supra), the Court found that ....