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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 ..... d and the same was wrongly denied by the Ld. CIT and therefore his action is reversed. The claim of depreciation is directed to be allowed. Since, we have allowed the claim on merits, the other issue with regard to jurisdictional validity of impugned order passed u/s 263 becomes academic and therefore, we are not going into the same at this stage. - ITA NO.2255/Mum/2015 - - - Dated:- 21-9-2016 - Shri C.N. Prasad, Judicial Member, and Shri Ashwani Taneja, Accountant Member For The Assessee : Shri Vijay Mehta (AR) For The Revenue : Shri Sanjay Singh (CIT-DR) ORDER Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Assessee against order of Ld. Commissioner of Income Tax -20 Mumbai, {(in short CIT }, passed u/s 263 dated 30.03.2015 for A.Y. 2010-11 on the following grounds: Being aggrieved by the order passed under section 263 by the Principal Commissioner of Income-tax - 20, this appeal petition is submitted on the following grounds which may considered without prejudice to one another:- 1.On the facts and circumstances of the case and in law the learned Principal CIT erred in setting aside the assessment order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business of the assessee as well as installation and usage of computers were duly explained and after verification of the same only and due application of mind, the AO not only allowed the depreciation upon computers but allowed other business expenses also and assessed the income of the assessee under the head income from business . But, Ld. CIT was not satisfied with the submissions of the assessee and he revised the order of u/s 263 and also directed the AO to disallow the depreciation claimed by the assessee on the amount of computers purchased during the year. But, other expenses allowed by the AO under the head business were not disputed by the Ld. CIT. 3.1. Being aggrieved, the assessee filed an appeal before the Tribunal wherein the order of the CIT has been contested on its maintainability with regard to the assumption of the jurisdiction u/s 263 as well as allowbility of depreciation on computers which has been directed to be disallowed by the Ld. CIT. During the course of hearing, though Ld. Counsel made arguments on both the aspects, but it was also requested that if depreciation is found to be allowable as per law and facts of the case, then jurisdictional a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and play basis, then it can be said that computers were used for the purpose of business of the assessee. Reliance was placed in this regard on the decisions of the Chandigarh Bench of the Tribunal in the case of Turbo Scaffolding Pvt. Ltd. vs ACIT in ITA No.486/Chd/2015 dated 21.01.2016. It was also submitted that once the assessee had provided the computers to its Retail Distributors for the purpose of doing business by them which was ultimately meant for the business of the assessee, then as far assessee is concerned computers can be deemed to be put to use when these were handed over by the assessee to the Retail Distributors for the purpose of business. Ld. Counsel drew parity between the facts of this case with the facts of leasing business where the assets are deemed to be put to use as soon as the Lessor hands over the assets to the Lessee. Reliance in this regard was placed on the following judgments: (i) CIT v. Kotak Mahindra Finance Ltd. 317 ITR 236 (Bom) (ii) CIT v. Reetu Finlease Pvt. Ltd. 286 ITR 652 (Del) 3.3. Per contra, Ld. CIT-DR vehemently opposed in detail all the arguments of Ld. Counsel. It was submitted that the assessee was permitted to make first s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses after commencement of business is concerned, it is firstly essential to understand the law with regard to allowability of business expenses viz. from what stage onwards the expenses are allowed. The business of the assessee may have many stages. For example, first of all a company is incorporated and then it makes requisite arrangements to put together and install requisite infrastructure to enable it to carry on its business. Thereafter, eventually, after making further efforts, actual commencement of business takes place. Thus, at least three stages are involved. Under these circumstances, a question arises that expenses shall be allowable from what stage. In this regard, one need not labour much, as answer of this question has been given in the statute itself. We can make reference of section 2(34) of the Act which defines the term previous year , which in turn refers to section 3 of the Act, and section 3 defines previous year 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 business or professions newly set up, or a source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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) 4.3. The above decision has been followed on many occasions by various courts of the country in large number of decisions. Hon ble Delhi High Court has also taken a similar view, following aforesaid decision explaining it further in detail in its judgment in the case of CIT v. L.G. Electronic (India) Ltd. 282 ITR 545 (Delhi) and CIT v. Hughes Escorts Communications Ltd. (Delhi)(supra). It is further noted by us that no contrary judgment or any contrary view was brought to our notice by Ld. CIT-DR. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from time to time. The AO issued its notice u/s 142(1) dated 13.09.2012 asking the assessee to produce details of lottery business with all details of the transactions till date and also asked the assessee to produce with regard to claim of depreciation, nature of assets and date put to use and allowability of the same viz-a-viz commencement of the business during the year. The assessee furnished its detailed reply vide its letter dated 10.10.2012 wherein it gave details on the nature of business activity and setting-up and commencement of business. It was explained that the assessee entered into lottery business after applying for and winning the Tender to run and operate lotteries form the State Government of Punjab. The lotteries were online lotteries (i.e. paper less) which were operated and run through computer terminals. Since the assessee was the Sole Distributer, it set-up a network of Retail Distributers for the lottery tickets and for this purpose assessee was required to provide to its Retail Distributers, against security deposit amount, computer terminals along with other accessories for selling lottery tickets online. Accordingly, the assessee purchased computers fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for rejecting the valid claim of the assessee. One cannot ignore the sound judicious principles while examining validity of claims of assessee. 4.8. Thus, the factual situation that merges before us about setting-up of business is that assessee had put up entire infrastructure in place and was in a ready to go position before 31-3-2010. Under these circumstances, and in view of the legal position discussed above, it can be unhesitatingly said that the assessee had set-up its business during the year under consideration. Therefore, assessee was very much entitled to claim depreciation on the computers purchased by assessee and installed on the respective premises of the Retail Distributors meant for online sale of lottery tickets of the assessee. As far as allegation of absence of actual user of the computers by the assessee is concerned, we differ with the views of the Ld. CIT as well as Ld. CIT-DR on this aspect for various reasons. First of all, the evidences show that the assessee had purchased the computers and had installed them on the premises of the Retail Distributors and also installed requisite software to make them operational for online sale of lottery tickets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch to the public coffers...... 4.9. Apart from the above, it has been contended that since the assessee had handed over the computers to its Retail Distributors for online sale of lottery tickets of the assessee, therefore as far as assessee is concerned, the moment these computers were handed over to the Retail Distributors by the assessee, it amounts to user of the computers in assessee s hands. We are inclined to accept this argument also in view of peculiar facts of this case. The assessee had supplied these computers to its Retail Distributors and also got installed therein requisite software and also carried out trial runs. There may be some debate or discussion on the date of actual user by these Retail Distributors but as far as assessee is concerned, these can be deemed to be put to use the moment these computers and their software were provided by the assessee to its Retail Distributors for online sale of lottery tickets. Our view find support from the judgment of Hon ble Bombay High Court in the case of CIT v. Kotak Mahindra Finance Ltd.(supra) as well as Judgment of Hon ble Delhi High Court in the case of CIT v. Reetu Finlease Pvt. Ltd.(supra). 4.10. Thus, fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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