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TMI Blog2016 (12) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO while computing the total income without making proper application of mind and without raising specific query or discussion on the pre-requisite factors such as use for business during the financial year, details of trial runs, commencement of business itself etc. 2. On the facts and circumstances of the case and in law the learned Principal CIT erred in directing the AO to disallow the claim of depreciation on computers of Rs. 59,55,717/- by stating that since the business itself did not commence nor operated in F.Y. 2009-10, the entire expenditure that would have been incurred in setting up of business would have to be treated as pre-operative or pre- commencement expenditure & has to be capitalized and although computers were installed with software, the system was not in the real sense ready for use since no evidences were submitted for necessary training and online trial runs. 3. The appellant company craves leave to add, to amend, alter I delete and / or modify the above grounds of appeal on or before the final date of hearing 2. During the course of hearing, arguments were made by Shri Vijay Mehta, Authorised Representative (AR) on behalf of the Assessee and by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had been undoubtedly 'set up' during the year, which is also evident from the fact that AO had made certain disallowances and finally computed income of the assessee under the head 'income from business'. The action of AO in computing income under the head business and making certain disallowance has not been disturbed or doubted by the Ld. CIT. Thus, setting up of business is duly established by the own action of the AO which remained unchallenged by the Ld. CIT. In addition to that, on facts also it was shown to us that assessee was committed to make sale of lottery tickets from the 1st April 2010 and therefore, before the said date assessee had made all requisite arrangements to do business. Immediately after the agreement was entered with the Punjab Government, premises were hired, staff was employed, retailers were appointed and computers were installed in ready to go mode and all other required infrastructure was properly installed in proper working mode. Under these circumstances, it could be clearly said that business of the assessee was duly set up. Reliance was placed in this regard on the judgment of Hon'ble Delhi High Court in the case of CIT vs. Hughes Escorts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s business during the year under consideration at all. It was further submitted that unless the assessee brings on record, the evidences with regard to actual date of usages of the computers, the depreciation on the same cannot be allowed under the law. With regard to the evidences shown by the Ld. Counsel, it was submitted by the Ld. CIT-DR that none of these evidences conclusively proved about the installation of computers and usages of the same, and in any case since first sale had taken place one 01.04.2010, therefore, these computers could not have been used in the year under consideration. It was further submitted that AO had not examined these evidences properly and therefore Ld. CIT had rightly disallowed the depreciation claimed on computers. 3.4. In reply, the Ld. Counsel submitted that all the evidences were examined by the AO and there was no doubt about the fact that computers were provided to the Retail Distributors and these were duly installed as per the evidences brought on record and no such material has been brought on record by the CIT which could raise any suspicion with regard to these evidences. Thus, valid claim of the assessee could not have been disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the said financial year. 4.2. Thus, a plain reading of the aforesaid provisions clearly shows that for a new business or a source of income newly coming into existence, the previous year is the period beginning with the date of setting-up of the business. The courts have explained from time to time that date of setting up of the business is the time when an entity is in a position to cater to its customers. In other words, when the entire infrastructure is put in place to commence the business, then, it can be said that business is set-up. Even if actual commencement of business may not have taken place, but once the company comes in a position to do its business, then that date can be taken up as date of setting-up of business. The law in this regard was also explained by Hon'ble Bombay High Court in its landmark judgment in the case of Western Indian Vegetables Products Limited v CIT 26 ITR 151; at page 157 Hon'ble High Court observed that once it is known what the business of the assessee is then: "......the important question that has got to be considered is from which date are the expenses of this business to be considered permissible deductions and for that purpose the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace. 4.4. Now, turning back to the facts of the case, we need to find whether the business of the assessee was set-up during the year under consideration, so as to enable it to claim depreciation on the amount of computers purchased and claimed to be used during the year under consideration. 4.5. The brief background of the business of the assessee is that during the year the assessee had set up lottery business after entering into an agreement with the Punjab Government, as has also been stated by the Ld. CIT himself in first para of his order. Documents and evidences submitted before the AO as well as Ld. CIT show that assessee had entered into an agreement dated 15.01.2010 with the Government of Punjab to become Sole Selling Agent of the Government of Punjab for doing lottery business. As per clause 5 of the said agreement, the assessee was permitted to hold the first draw in respect of weekly lottery schemes on 01.04.2010. Thus, under these circumstances, the assessee started making all requisite arrangements so as to enable it to issue first draw of lottery on 01.04.2010. It was shown to us with the help of certain evidences that assessee had paid requisite 'deposit amount' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all requisite arrangements and also conducted trial runs before 31.03.2010 so that these computers may function properly for selling the lottery tickets online. The assessee also furnished copy of ledger accounts to the AO showing proper details of purchasing of computers from M/s HCL Infos system Ltd., M/s Posiflex Technology (India) Pvt. Ltd. and M/s Redington (India) Ltd. As per ledger accounts, entire amount had been paid by cheques/other banking channels and no transaction was done in cash. Our attention was also drawn upon the certificate issued by M/s Skill Lotto Solutions Pvt. Ltd., software providers, certifying that the said company had installed software on all the 2300 computers located at the respective premises of various Retail Distributors of the assessee company. The relevant part of the certificate reads as under: "Date: April 16th, 2010 WHOMSOEVER IT MAY CONCERN This is to state that we, Skill Lotto Solutions Private Limited having registered office at No.11, Ponnappa Lane, Triplicane, Chennai-600005 have installed Mylott software for operating online lottery trade on 2,300 computers of various retailers of Shri Arihant Traders for the business of operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g huge financial loss to the assessee. Thus, it was in assessee's own interest to keep the computers ready for use with effect from the morning of 01.04.2010. Under these circumstances, it was not justified on the part of Ld. CIT to make doubts and suspicion about installation and working of the computers by 31.03.2010 that too without any contrary material in his possession. In our view, the role of income tax authorities is certainly not to reject the claims of the assessee by following an approach of hair splitting and creating unnecessary and baseless doubts. Unless a claim is found to be bogus, then same should not generally be rejected so long as it is made in accordance with law. By creating unnecessary litigation, the faith of taxpayers is eroded. In the case before us, even in the worst case, presumably, if we accept the allegation of Ld. CIT as correct, the impugned claim of depreciation if not allowed in this year, even then it will be allowable in the next year when admittedly sale of lottery tickets had taken place. In this regard we are reminded of a recent judgment of Hon'ble Supreme Court in the case of CIT v. Excel Industries Ltd. 358 ITR 295 to deal with such situ ..... 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