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TMI Blog2007 (11) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the business, but under the Act all expenses incurred after the date of setting up are allowed as a deduction u/s 28. This decision has been applied in its recent judgment in the case of CIT vs. Hughes Escorts Communications Ltd.[ 2007 (9) TMI 261 - DELHI HIGH COURT] . The fact that the foreign loan and FIPB approval for equity investment by the Whirlpool Corporation of USA were given in January, 1996 does not mean that the business was not set up before these events. These are not statutory formalities and even without the foreign loan and the equity participation the assessee company was in a position to carry on the business in accordance with the objects clause of its memorandum of association from November, 1995 when it had its own offices, branches and regional managers and staff, computers installed and was ready to commence its activities. The expenses were incurred through Kelvinator and Expo Machinery and evidence to this effect is placed at the paper book. Thus, it is clear that the business was set up from 1st Nov., 1995, by which date the company was ready and in a position to commence its business. We accordingly hold that the assessee had set up its busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, drafts, bills of exchanges, commercial paper, bill of lading and so on and so forth, to finance private industrial enterprise in India by way of loans or advances and to infuse capital in them and to carry on the business of hire purchase, general finance brokers and bill brokers. The first board meeting was held on 12th Aug., 1995 in which additional directors, executives and auditors were appointed. On 4th Sept., 1995, the company placed orders for purchase of computers and peripherals. During the months of September and October, 1995, various key employees such as branch managers, regional managers, consumer finance managers, company secretary and finance manager and accounts manager, etc. were appointed. On 30th Oct., 1995, M/s S.R. Batliboi Consultants (P) Ltd. sent their invoice to the company for recruitment charges which were paid by the company through Kelvinator of India Ltd., another company. During the period from 4th Jan., 1996 to 21st Jan., 1996, the assessee applied for approval of the Foreign Investment Promotion Board (FIPB) for investment by Whirlpool Financial Corporation of USA through its wholly-owned subsidiary by name Whirlpool Financial (Mauritius) Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Delhi High Court in its recent judgment, dt. 17th Sept. 2007 in ITA Nos. 1687 and 1688 of 2006 in the case of CIT v. Hughes Escorts Communications Ltd. [reported at (2007) 213 CTR (Del) 45--Ed.] (copy of the judgment filed before us) and it has been held that where the business has been set up, though the same has not been commenced, the expenditure incurred after the date of setting up has to be allowed as a deduction. But the question as to when it can be said that a business is set up must largely depend on the facts of each case and the nature of the business. There can be no hard and fast rule by which it can be determined as to when the business was set up. In the judgment of the Bombay High Court cited supra, it was a case of a manufacturing concern. It was held that the business was set up when the first order of purchase of raw material was placed and not when the factory was started (at a later point of time). In CIT vs Sarabhai Sons (P) Ltd. (1973) 90 ITR 318 (Guj), the Gujarat High Court was dealing with a company established for the manufacture of scientific instruments. It was held that the purchase of land, placing of orders for machinery and raw ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dging would necessarily comprise of variegated activities commencing from the stage of acquisition of a proper and suitable building making it more suitable for the hotel business, purchasing linen, cutlery, furniture, etc., appointing staff of managers, cooks, bearers and ultimately reaching the stage of receiving customers and that it would be de hors commercial sense to hold that one would be reaching the stage of having set up the business only when one reaches the stage of receiving customers. It was ultimately held that where there are several integrated activities to be undertaken serially, one forming the foundation for the other, it can be said that the business was 'set up' when the first of such activities was undertaken. It was ultimately held that the business was set up when the building was acquired and was placed at the disposal of the firm. In ITO v. M. Varadarajan (1989) 34 TTJ (Mad) 247 : (1989) 30 ITD 414 (Mad), the Madras Bench of the Tribunal held in the case of a sole-selling agent that his business could be said to have been set up once he obtained the sole-selling agency and it could not be said that it was set up only when he obtained the first bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Rs. 17,500 for November, and Rs. 25,000 each for December, 1995 and January, 1996 have also been paid. It is thus clear that the establishment and staff were put in place by the end of October, 1995 and the company was ready to commence its business from 1st Nov., 1995. M/s S.R. Batliboi Consultants (P) Ltd. had also submitted their bill dt. 30th Oct., 1995 for Rs. 2,91,486 for professional services rendered in connection with recruitment of 19 candidates for the post of accounts manager and incidental expenses. The fact that the foreign loan and FIPB approval for equity investment by the Whirlpool Corporation of USA were given in January, 1996 does not mean that the business was not set up before these events. These are not statutory formalities and even without the foreign loan and the equity participation the assessee company was in a position to carry on the business in accordance with the objects clause of its memorandum of association from November, 1995 when it had its own offices, branches and regional managers and staff, computers installed and was ready to commence its activities. The expenses were incurred through Kelvinator and Expo Machinery and evidence to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinions are possible and that the AC) had not brought on record any material fact to show that the assessee has either concealed its income or furnished inaccurate particulars of the income. Me also noted that merely because the directors in their report had stated that the business operations had commenced on 1st Feb., 1996, it cannot be concluded that the business was also set up only on that date. He thus cancelled the penalty. We are in full agreement with his decision. As already noted by us while deciding the assessee's appeal, the question as to when a business can be said to have been set up is essentially one of fact and would depend on the facts of each case and having regard to the nature and type of the particular business. The assessee has, by placing all the facts before the AO, taken the position that the business was set up on 1st Nov., 1995 with which the AO did not agree. That does not amount to furnishing of any inaccurate particulars of income nor can it be said that the assessee concealed its income by claiming even pre-set up expenses as deduction. At best, it can only be a debatable point. When all the facts are placed by the assessee before the AO, who ..... X X X X Extracts X X X X X X X X Extracts X X X X
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