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TMI Blog2016 (6) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. CIT(A) and we uphold and sustain the same for the reasons as indicated above. We order accordingly. - Decided against assessee - I. T. A. No. 4610 / Mum/ 2013 - - - Dated:- 13-6-2016 - Shri C. N. Prasad, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : None Fore the Revenue : Shri S. Senthil Kumaran, DR ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the assessee company, being ITA No. 4610/Mum/2013, is directed against the appellate order dated 07-02-2013 passed by learned Commissioner of Income Tax (Appeals)- 7, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2009-10, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 28-12-2011 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- On the facts and circumstances of the case, the learned CIT(A) has: 1. erred in confirming a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per its Memorandum of Association(MOA) , one of the objects of the assessee company is to engaged in the business of infrastructure projects in India. The assessee company made a bid for contract with Indian Railways for manufacturing and supplying locomotives to Indian Railways in relation to the manufacturing facility at Marhorwa , Bihar. The assessee company explained that the assessee company had paid 1,35,74,240/- to BMR for consultancy and advisory services for upcoming Indian Railways(IR) business project as stated above. The assessee company submitted that no agreement was entered into with BMR . The assessee company submitted that for availing these services from BMR for which there is no agreement other than invoices raised giving details of services rendered. The assessee company submitted that these expenses were incurred during the course of business of the assessee company although no income has been generated and hence these expenses should be allowed as business expenses. It was observed by the A.O. from the Profit and loss account for year ended 31st March, 2009 that an amount of ₹ 9,13,79,857/- was received by the assessee company on account of service cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe of its present business of infrastructure projects to manufacture and supply of train locomotives etc. For this purpose, the assessee company incurred an expenditure of ₹ 1,35,74,240/- towards professional charges paid to consultants for assisting in the bidding for government contracts relating to setting up a manufacturing facility for manufacturing and supply of locomotives to Indian Railways. The proposal was cleared on technical and financial parameters, however, on account of decision by the Ministry of Railway, the said project was dropped. It was observed by the A.O. that apart from professional fees to BMR, no other expenses were claimed by the assessee company for such a project forming part of a purported separate line of business. The assessee company has obtained necessary approvals/clearance from the corporate law/government authorities and the proposal was cleared on technical parameters. Except for the professional fees of ₹ 1,35,74,240/- to BMR, no other expenses had been claimed by the assessee company. The details of services received from BMR stated about only of advice and research on government regulations and rules rendered by BMR The invoices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious tax costs associated with the project and also required assistance in the bidding process. Further, the assessee company desired to understand the incentives which were offered by the different Indian States for the said project to minimize overall tax cost. For this purpose, the assessee company engaged the services of BMR for consulting, advisory and other services like advice on various customs, excise and transfer pricing laws for manufacture and supply of locomotives to Railways and taxation etc. . For the above services rendered, the BMR raised invoices amounting to ₹ 1,35,74,240/- and the copies of the invoices capturing the details of the services were submitted to the A.O. The assessee company submitted that the invoices along with time costs demonstrate the nature of services rendered by BMR and the amounts charged which are incurred by the assessee company is wholly and exclusively in the course of its business. The assessee company has relied upon various case laws to support its contention. It is the contention of the assessee company that the A.O. has erred in disallowing the expenses in relation to the expenses such as advises on new objective without any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the assessee company was to engage in the business of infrastructure business, including but not limited, to manufacture and supply of rail locomotives , spares, ancillary equipments and perform, carry out and engage in any acts , deeds , things, service in relation thereto. The assessee company submitted the acknowledgment of Rites Limited acknowledging the receipt of bid, thereby considering the assessee company as an eligible candidate for bidding and submitted that it cannot be disregarded that the expenses incurred in relation to bid were business expenses of the assessee company. The relevant draft agreement and the relevant request for qualification were submitted. It was submitted that the Indian Railways contract is to be entered between the Director Mechanical Engineering Works, Ministry of Railways and Marhowra Diesel Locomotive Company Limited which was to be incorporated as a Special Purpose Vehicle(SPV) by the proposed bidder/consortium companies and hence the A.O. s comments that different concerns are parties to the agreement is untenable. It was submitted that draft bid documents were submitted by the assessee company before the learned CIT(A) and not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire costs from its holding company along with mark up of 5%. The assessee company has amended the object clause in MOA during the relevant previous year and contemplates to enter into an entirely different line of business which is an altogether different source of income vis- -vis existing business of the assessee company of rendering sourcing services to GE Global Sourcing LLC USA, by proposing to set up a manufacturing facilities for manufacturing and supplying locomotives to Indian Railways at Marhowra, Bihar. The assessee company has filed bids with Rites Limited, Ministry of Railways for award of the manufacturing facility at Marhowra, Bihar for manufacturing and supplying of locomotives to Indian Railways. From the records before us, it emerges that this is entirely a new line of business whereby new source of income will emerge and there is no connection with the existing business and source of the income of the assessee company. The assessee company has participated in the bid with Rites Limited, Ministry of Railways in consortium with bid partners for setting up manufacturing facility for manufacturing and supplying of locomotives to Indian Railways and not even the bids ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case as set out above. The reference is drawn to provisions of Sections 3 and 4 of the Act which stipulates as under: [ Previous year defined. 3. For the purposes of this Act, previous year means the financial year immediately preceding the assessment year : Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.] Charge of income-tax. 4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and [subject to the provisions (including provisions for the levy of additional income-tax) of, this Act] in respect of the total income of the previous year [* * *] of every person : Provided that where by virtue of any provision of this Act income-tax is to be charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because those expenses would be incurred at a point of time when the previous year of the business would not have commenced. We must therefore look at the decision of the Tribunal as really referring to the setting up of the business in the language of Section 2(11) and not expenses connected with the commencement of the business. Mr. Palkhiwalla says that if that be the correct approach, then the Tribunal has misdirected itself in considering the commencement of the business and not the setting up of the business. Let us try and understand whether there is any difference between the two expressions setting up and commenced and if so, what is the difference. It has often been said that the English language does not contain synonyms and every English expression must mean something different, however slight the difference, from any other expression. English language is full of nuances and if possible we must give a different meaning to the expression setting up from the expression commenced . Mr. Joshi very strongly relied on a judgment of Mr. Justice Rowlatt reported in Birmingham and District Cattle By-products Co. Ltd. v. Commissioners of Inland Revenue [1919] 12 Tax Cas 92 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is important to consider whether the expression used in the Indian statute for setting up a business is different from the expression Mr. Justice Rowlatt was considering, viz., commencing of the business. 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. But there may be an interregnum, there may be an interval between a business which is set up and a business which is commenced ' and all expenses incurred after the setting up of the business and before the commencement of the business, all expenses during the interregnum, would be permissible deductions under Section 10(2). Now applying that test to the facts here, the company actually commenced business only on the 1st of November 1946, when it purchased a ground-nut oil mill and was in a position to crush ground-nuts and produce oil. But prior to this there was a period when the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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