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TMI Blog2014 (7) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to file its return of income u/s 139(1) of the Act because he statutorily required to file return of its income in response to notice u/s. 153A of the Act and he has done accordingly and make claim of loss - Neither the AO nor CIT(A) has doubted the genuineness of claim of loss rather on technical issue that it has not claimed the loss in the return of income to be filed u/s. 139(1) of the Act, disallowed the loss - the claim of loss of assessee is allowed – decided in favour of Assessee. Reduction of income – Already offered to tax – Held that:- The assessee rightly stated that three amounts totalling to ₹ 12,37,178/having been already subjected to tax, a sum of ₹ 64,53,786/standing on the debit side of P&L Account under the head 'Pre-commissioning Revenue Expenses' should be increased to ₹ 76,90,964/during the relevant assessment year - the plea of assessee is genuine and accordingly, the matter is remitted back to the AO – Decided in favour of Assessee. - IT(SS)A No.89/Kol/2011 - - - Dated:- 30-5-2014 - Mahavir Singh And Shamim Yahya, JJ. For the Appellant : Shri S K Tulsiyan, Adv. For the Respondent : Shri Ravi Jain, CIT, DR OR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,14,101/- Upfront fees ₹ 13,10,000/- Insurance other charges ₹ 23,29,685/- ₹ 64,53,786/- Before us it was explained that all the expenses incurred were for the procurement of raw material before start of commercial production in the factory of the assessee company. It was further explained that the business of the assessee company was to produce sponge iron for which iron ore, coal and other similar products formed part of raw material which ultimately will give end product i.e. sponge iron. The assessee explained that besides the direct cost of the said raw material certain other expenses like upfront fee, interest on working capital and insurance and other charges for procurement of raw material etc. had to be incurred. The assessee claimed that by very nature these expenses are revenue and which were debited as Pre-commissioning Revenue Expenses . Assessee explained that this means that these were before the production starts but actually the business was set up before the start of commercial production. The assessee ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court derived in the case in Western India Vegetable Products Ltd., where that court was concerned with the interpretation of the expression set up as used in section 2(11) of the Income-tax Act. The court held: It seems to us that the expression 'setting up' means, as is defined in the Oxford English Dictionary, 'to place on foot' or 'to establish', and in contradistinction to 'commence'. The distinction is this 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. But before it is ready to commence business it is not set up . This view was expressed when that court was considering the difference between the meaning of the expression setting up a business and commencing of business . In that case before us, the proviso does not even refer to commencement of the unit. The criterion for determining the period of exemption is based on the commencement of the operation for the establishment of the unit. These operation for establishment of the unit cannot be simultaneous with the setting up of the until, as urged on behalf of the Commissioner, but must precede the actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellate Assistant Commissioner and having scrutinized 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. As we have often said, we are not concerned with the sufficiency of evidence on a reference. It is only if there is no evidence which would justify the decision of the Tribunal that a question of law would arise which would invoke our advisory jurisdiction which after all is a very limited jurisdiction. In the above case before Hon'ble Bombay High Court, the assessee company's object was to run oil mill and in this line of business operation it was the case of the AO that assessee's business was set up only when it made first purchase of groundnut oil. Hon'ble Bombay High Court upheld ITAT's view that the first purchase of raw material is indicative of setting up of business but still some time would have been ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the business would be held to be set up. The carrying on the first activity is the integral part to the carrying on the business leads up to setting up of or commencement of business. From the facts of the assessee's case, the main business activity being production of sponge iron, the procurement/purchase of raw material being coal and iron ore is thus very much a business activity. It is clear in the present case, when its business object and main business activity is production and sale of sponge iron the related activity of procurement of material for production amounts to setting up of business. From the sanction letters of the bank it is clear that the cash credit limit shown was extension of working capital and the very fact that the loan was sought for working capital and the same was duly explained by the bank for such purpose clearly reconfirms the commencement of assessee's business. Working capital employment means that the working of the business has started and that means when no doubt that business has commenced its working. In such circumstances and going by the very nature of the expenses incurred i.e. interest on working capital, upfront free and ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g assessment or reassessment proceeding means any proceeding initiated or pending before the A.O. Hence the A.O has not to proceed with the proceedings of the assessee which were pending on the date of search. 4.4 Moreover the legal obligation of the assessee under section 139 is not waived, or abate after search proceeding will be further clear from the reading of the provision of subsection 2 of section 153A of the Act, which reads, as under: (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. The plain reading of above section clarify that if the proceeding initiated or assessment made under section 153A is annulled the abated assessment or reassessment proceeding will be revived. Further section 153(4) provide special limit for completing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for a particular assessment year. Ld. counsel for the assessee also explained the provision with respect to pendency of proceedings vis- -vis second proviso to section 153A and section 245A of the Act wherein this pendency of assessment is discussed. In term of the above, Ld. counsel for the assessee stated that the Income-tax act nowhere deals with what forms pendency of assessment but a suitable support can be drawn and import can be taken from section 245A of the Act. In view of the above, Ld. counsel finally stated that both the authorities below have erred in not appraising the fact that there was a search in the case of the assessee as on 20.09.2007 and the due date of filing of return of income for AY 2007-08 u/s. 139(1) of the Act was to end on 31.10.2007. It means that there is no requirement for filing of return in response to notice u/s. 139(1) of the Act as there was a search and pursuant to search assessment has to be framed u/s. 153A of the Act. On the other hand, the Ld. CIT, DR heavily relied on the order of CIT(A) and reasoning given by him. 10. We have heard rival submissions and gone through facts and circumstances of the case. The facts are very cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letion of assessment where a search is initiated under section 132 or books of account, or other documents or any assets are requisitioned under section 132A after 3lst May, 2003. In such cases, the Assessing Officer shall issue notice to such person requiring him to furnish, within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which. the search was conducted under section 1 32 or requisition was made under section 132A. 65.5 The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search u/s. 132 or requisition shall not abate. Save as otherwise provided in the proposed section 153A, section 153B and section 153C, all other provisions of this Act sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently assessment is also pending. 12. Further, in this connection reliance was placed by the assessee on section 245A of the Act wherein the issue of pendency of assessment has elaborately considered, however, a relation to case before Settlement Commission. It is to be recorded that pendency of assessment has nowhere been defined in the Act. Thus, it is suitable draw support and import and meaning of pendency of assessment from section 245A of the Act as the said section lays down in clear terms what amounts to 'pending assessment'. The provisions of section 245A of the Act i.e. the definition section in Chapter XIX-A for settlement of cases explains the pending assessment by way of Explanation appended to this section. The relevant Explanation reads as under: 245A. ExplanationFor the purposes of this clause- (i) a proceeding for assessment or reassessment or recomputation referred to in clause (i) of the proviso shall be deemed to have commenced from the date on which a notice under section 148 is issued; (ii) a proceeding for assessment or reassessment for any of the assessment years referred to in clause (b) of section 153A in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue that it has not claimed the loss in the return of income to be filed u/s. 139(1) of the Act, disallowed the loss. In view of the above facts and circumstances, we allow the claim of loss of assessee and reverse the orders of the lower authorities. We direct the AO accordingly. 13. The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming receipt of ₹ 96,972/-. For this assessee has raised following ground no.4: 4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in upholding the order of the AO in treating the amount of ₹ 96,972/as the income of the appellant company disregarding thereby the fact that the said receipt had been directly linked to the acquisition of fixed assets. 14. Ld. counsel for the assessee did not press this ground of appeal of assessee at the time of hearing. Hence, the same is dismissed being not pressed. 15. The next issue in this appeal of assessee is as regards to addition confirmed by CIT(A) on account of assessee's claim of reduction of income, being already offered to tax in assessment years 2005-06, 2006-07, for an amount of ₹ 12,37,178/leading to double ..... X X X X Extracts X X X X X X X X Extracts X X X X
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