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TMI Blog2014 (8) TMI 715X X X X Extracts X X X X X X X X Extracts X X X X ..... application with SEBI - Only the permission for commencement of business was awaited - The business was ready for commencement subject to grant of registration - it cannot be said that assessee’s explanation of claiming expenses for the period 25-4-2005 to 15-1-2006 could be branded as mala fide - The assessee having complied with all the requirements was sanguine of getting registration and therefore treated its business as being set up from the date of making application - the assessee’s intention since beginning was to act as member of NSE also has to be given due weightage - penalty is not leviable - the assessee having filed all the relevant information along with the return, it cannot be said that assessee had concealed particulars of its income to attract penalty u/s 271(1)(c) – Relying upon Reliance Petro Products Ltd. v. CIT [2010 (3) TMI 80 - SUPREME COURT] - Decided in favour of Assessee. - ITA No. 5135/Del/2012 - - - Dated:- 14-8-2014 - Shri S. V. Mehrotra And Shri C. M. Garg,JJ. For the Appellant : Shri Sanjay Gupta CA For the Respondent : Smt. Shalini Verma Sr. DR ORDER Per S. V. Mehrotra, A. M: This appeal, by the assessee, is directe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred expenses to pay to ROC. Normal expenses of ₹ 1,500/- are allowed and balance amount is disallowed as capital expenditure. Further, in earlier year, i.e. year of formation of company, the assessee company had subscribed capital of ₹ 1,00,000/- on which it is entitled to expenses of ₹ 5,000/- under section 35D of the Act and these expenses are to be amortized in five instalments of ₹ 1,000/- each. Thus, expenses of ₹ 1,000/- are allowed and balance amount is disallowed as capital expenditure. 2.4. The assessing officer computed assessee s income as under: Interest income as discussed ₹ 2,84,694/- Less: Filing fee as discussed above 1,500 Preliminary expenses do- 1,000 Audit fee 11,000 ₹ 13,500/- Income from other sources assessed ₹ 2,71,194/- 2.5. Assessing officer, accordingly, initiated penalty proceedings u/s 271(1)(c) of the Act. 2.6. In the penalty order, the assessing officer observed that assessee filed a very cryptic reply and stated that it had produced all the relevant information and there was no concealment of facts and it was further stated that the additions were made due to diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as merely a case of difference of opinion and, therefore, no penalty can be levied. The assessee relying on the decision in the case of Reliance Petro Products (supra), pointed out that as in the said decision, in the present case also the details of the explanation filed by the assessee were not found to be inaccurate but only the assessing officer observed that assessee had advanced a wrong claim/ deduction. The assessee further pointed out that, in any view of the matter, the assessing officer had wrongly calculated penalty amount because depreciation was allowable as per the Act, since date of commencement of the business had been taken as 16-1-2006. 2.9. Ld. CIT(A) did not accept the assessee s contention for the following reasons: (i) The assessee is a registered share broker of National Stock Exchange. (ii) The date of setting up of the business will be the date on which registration was granted by NSE to the assessee for conducting share broking business. (iii) The registration by NSE was not granted during the year, therefore, business of stock and share trading cannot be said to be set up during the year. Therefore, the argument of the assessee that the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of various expenses claimed for the period from 25-4-2005 to 15-1-2006 could not be said to be a mala fide claim because assessee had complied with all the requirements for obtaining the membership of NSE on 25-4-2005. therefore, the assessee s business had been set up and only the commencement of business was awaited which also became clear on 16-1-2006. 3.3. Ld. Counsel referred to the decision of the ITAT in the case of Whirlpool of India Ltd. v. JCIT 114 TTJ 211 and pointed out that in this case assessee had, by placing all the facts before assessing officer, taken the position that the business was set up on 1-11-1995 with which assessing officer did not agree. This does not amount to furnishing of any inaccurate particulars of income. In this case the company was engaged in rendering financial services and the Tribunal concluded that it was possible to say that the business was set up when the directors are appointed; staff, such as, regional and branch managers are appointed and their salaries were paid; computers are acquired and installed and the company is ready to commence business. It was held that it cannot be said that business was set up only when the bank accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has claimed revenue expenditure of ₹ 1146396.88 which was incurred after applying for the membership i.e after setting up of the Business. The above significance of dates can be summarized as follows: S.No. Particulars Dates 1. Incorporation of the Company 24-11-2004 2. Application for Empanelment with NSE 25-04-2005 3. Letter for further formalities 14-06-2005 4. Letter for Interview 05-08-2005 5. Demand Advise 02-09-2005 6. SEBI Registration 28-10-2005 7. Receipt of Deposit of ₹ 127 Lacs 08-11-2005 8. Certificate of Registration 16-01-2006 9. SEBI Registration for Capital Market 20-01-2006 10. SEBI Registration for Future opinion 24-01-2006 11. Deposit of Bank Guarantee 07-02-2006 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish bank guarantee of ₹ 25,00,000/- to carry out activities equipment such as VSAT, servers had to be installed and the same was dispatched on 7-3-2006 by NSE. 5.1. From the above uncontroverted factual aspects it is evident that from the date of incorporation of company itself, the assessee s intention was to obtain the membership of stock exchange and in order to pursue that object the assessee had to comply with various legal requirements. It is true that assessee could not commence the business without registration being granted but the fact of overwhelming legal requirements to be complied with by assessee before getting the registration cannot be over looked. 5.2. The assessee s claim is that from the date it filed application with NSE viz. 25-4-2005 it had set up its business and only the formal registration from NSE was awaited. In the backdrop of these facts the assessee s submission is that it was highly debatable whether the date of set up should be taken as 25-4-2005 considering the requirement to be fulfilled or only after the formal registration is granted by NSE should the business be taken as set up. The submission is that it is highly debatable issue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 materials were merely operations for the setting up of the business and the business was actually set up only when the machinery was installed and the factory was ready to commence business. In Prem Conductors (P) Ltd. v. CIT 1976 CTR (Guj) 324 : (1977) 108 ITR 654 (Guj), the Gujarat High Court held that even securing orders by a manufacturing concern in advance of production can amount to setting up of the business. In CIT v. Sarabhai Management Corpn. Ltd. (1991) 192 ITR 151 (SC), the Supreme Court, affirming the view of the Gujarat High Court in Sarabhai Management Corporation Ltd. v. CIT (1976) 102 ITR 25 (Guj) held that in the case of a company formed for leasing of property it could not be said that the business was not set up till the first lease took place; the earlier part of the activities, namely, engaging staff, buying the equipment and making the staff familiar with the same are all part of the business and the business can be said to be set up even earlier. A case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it could not be said that it was set up only when he obtained the first business. 5.4. The question, whether a business can be said to have been set up, is dependent on the facts of each case and largely on the nature of business proposed to be undertaken. In the present case the nature of business proposed to be undertaken was such that without complying with various requirements, the assessee could not make application for registration. The application could be made to SEBI only when the assessee had fulfilled/ complied with basic conditions necessary for grant of registration. Therefore, it cannot be disputed that there can be one point of view that the business had been set up after all the necessary formalities had been fulfilled for making the assessee eligible for filing the application with SEBI. Only the permission for commencement of business was awaited. The business was ready for commencement subject to grant of registration. Therefore, in our opinion, under such circumstances it cannot be said that assessee s explanation of claiming expenses for the period 25-4-2005 to 15-1-2006 could be branded as mala fide. The assessee having complied with all the requiremen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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