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TMI Blog2014 (11) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... ss with the execution of contract awarded by NDMC - The authorities below have tagged the setting up of business with the provision of space for advertisement by NDMC. This is certainly a post commencement business stage of the assessee. Such an event would mark the generation of actual income on commencement of business and cannot be construed as the setting up of business - the assessee’s business was set up when it prepared itself for undertaking the activity of building BQSs on receipt of contract from NDMC - not only the business of the assessee was set up but had also commenced in the instant year - As section 3 read with section 4 refers to the starting of previous year from the date of setting up of a new business, the business stood already set up in the preceding year and as such there can be no question of canvassing a view that the business would be set up in a subsequent year when BQSs would be ready for providing space to the assessee for advertisement - relying upon CIT vs. ESPN Software India Pvt. Ltd. 2008 (3) TMI 90 - DELHI HIGH COURT] – thus, the business was set up in the preceding year. Claim for deduction – Held that:- The AO also held such expenditure t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crore by treating it as capital expenditure, against which the assessee is not aggrieved inasmuch as it has not pressed ground no.3 on this issue. The second expenditure amounting to ₹ 3,17,91,180/- was incurred and claimed by the assessee as deductible. The AO accepted such expenditure as of the revenue nature but refused to allow deduction on the ground that the business of the assessee had not commenced. In reaching this conclusion about the non- commencement of business, the AO held that the business would commence only when the BQSs would be ready for providing space for advertisement to the assessee, being the very reason for which the assessee company entered into an agreement with the NDMC. This resulted into disallowance of ₹ 3.17 crore. The ld. CIT (A) upheld the assessment order. The assessee is aggrieved against treating the business as not set up and consequently not allowing deduction for this revenue expenditure. 5. We have heard the rival submissions and perused the relevant material on record. Section 3 of the Income-tax Act, 1961 (hereinafter also called 'the Act ) defining Previous year provides, inter alia, that in the case of a business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taking a first step in the doing of the overall income producing activity. In the case of a manufacturing unit, this stage would come when raw material etc. is procured for the start of actual manufacturing. A trader can be said to have commenced his business on purchasing material to be sold to the customers. Similarly, a building contractor can be said to have commenced his business when he undertakes the actual contract work pursuant to the award of contract. The second stage can be termed normally as a waiting period between the 'ready to start phase and the actual starting of business. Thus it is evident that the third stage of commencement of business can either coincide with the doing of work in the actual execution of order received from customers for sale or provision of services etc. or even prior to that when the businessman purchases or manufactures the goods for sale, without there being any advance order. 8. Now, let us examine the facts of the case to determine if the business was set up in the instant year. In this regard, it is relevant to note that the assesee formally signed contract with the NDMC on 08.03.2006, which falls in the preceding year. On 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities below have tagged the setting up of business with the provision of space for advertisement by NDMC. This is certainly a post commencement business stage of the assessee. Such an event would mark the generation of actual income on commencement of business and cannot be construed as the setting up of business. In our considered opinion, the assessee s business was set up when it prepared itself for undertaking the activity of building BQSs on receipt of contract from NDMC. It cannot be related to the completion of construction of BQSs. As the setting up of the business was over in the preceding year, at the maximum, on entering into manufacturing agreement for manufacture and installation of BQSs on 30.03.2006, we hold that not only the business of the assessee was set up but had also commenced in the instant year. As section 3 read with section 4 refers to the starting of previous year from the date of setting up of a new business, we have no hesitation in holding that the business stood already set up in the preceding year and as such there can be no question of canvassing a view that the business would be set up in a subsequent year when BQSs would be ready for providing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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