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TMI Blog2018 (9) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... d employees during the impugned AY and incurred various administrative and sale expenditure. As rightly noted by Ld. CIT(A), the assessee had participated in three bids during the impugned AY, out of which one bid was successful which is not disputed by the revenue. The aforesaid factor raises a strong pointer in assessee’s favor that the assessee was ready with all the necessary infrastructure to deliver the proposed goods / services to the prospective customers. Another noteworthy factor is that this is not the first year of assessee’s existence since the documents on record reveal that the assessee had filed return of income for immediately preceding AY 2008-09 also wherein it has, on identical factual matrix, claimed business expenditure in that year and carried forward business losses to the extent of 5.06 Crores, which has not been disputed by the revenue at any point of time so far. - decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... d pursuant to the same, received contracts starting from July, 2009 onwards and therefore, the expenditure was allowable as business expenditure. However, Ld. AO noted that the assessee was in the business of designing, engineering, manufacturing, erection & commissioning and performance testing of super critical stream generators (boilers) for thermal plants and also supplying related spares. But it had not actually started earning income from business activity and therefore, the expenditure could not be allowed as business expenditure. Resultantly, the other income was treated as Income from other sources whereas the business expenditure as claimed by the assessee was not allowed which resulted into determination of income at ₹ 14.73 Lacs. 3.2 The Ld. AO also noted that the assessee had made investment of ₹ 2302.42 Lacs which called for disallowance u/s 14A. Accordingly, applying Rule 8D, the aggregate disallowance was worked out at ₹ 16.64 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for ₹ 8.38 Lacs and expense disallowance u/r 8D(2)(iii) for ₹ 8.26 Lacs. After adjusting the suo-moto disallowance of ₹ 2.51 Lacs as offered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the period beginning with setting up of business or the date on which the source of income newly comes into existence. AO in the assessment order had disallowed the claim of the appellant on the ground that appellant was not earning any business income or started earning any business income during the year. Section 3 is examined, not only earning of business income but also if the unit is set-up, then that year's expenses or income has to be allowed. Now, it is to be examined whether the business was set-up in the case of the appellant. The term set-up was examined, set up was interpreted by Supreme Court in CWT vs. Ramaraju Surgical Cotton Mills Ltd. (1967) (63 ITR 478 SC) as "A unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up. It is only when the unit has been put into such a shape that it can start functioning as a business or a manufacturing organization that it can be said that the unit has been set up". Here from the above Supreme Court decision it is clear that if any business was put into shape which can start functioning, then it cannot be considered as a setup. 4.1 Now we may cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure incurred by the appellant. This identical issue was considered by CIT & Anr. VS MFAR Construction Ltd. [48 DTR(Kar) 363] (Karnataka High Court) where it is held as under: "Setting up of a business may require several factors like investment in building and other permanent structures which cannot be integral part of a business though it could be incidental part of business. If integral part of a business requires expenditure, it would mean without the said integral activity, the main business cannot be proceeded with. Therefore, whenever such expenditure is claimed, the criteria would be what exactly is the nature of business the assessee has undertaken and depending upon the nature of business, one has to see whether such expenditure was spent towards integral part of the business or not. When once it becomes integral part of the business like the case on hand, expenditure towards soil testing, submission of tenders, payment of architect fee etc. would be integral part of the business of the assessee. If it is integral part, it has to be held as commencement of work and rightly held to be allowable." In the above case and also in the case of CWT vs. Ramaraju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt Income from Deputation for ₹ 5.39 Lacs. However, the earning of the business income, in our opinion, was not a sine qua non to enable the assessee to claim the business expenditure as per statutory provisions provided other conditions as envisaged by law were fulfilled by the assessee. 6.2 Upon perusal of nature of expenses incurred by the assessee, we find that the out of total expenditure of ₹ 14.67 Crores, the major expenses pertains to staff expenses for ₹ 4.85 Crores, sales, administration & other expenses for ₹ 7.28 Crores and amortization of intangible assets for ₹ 1.65 Crores which demonstrate that the assessee had already recruited employees during the impugned AY and incurred various administrative and sale expenditure. As rightly noted by Ld. CIT(A), the assessee had participated in three bids during the impugned AY, out of which one bid was successful which is not disputed by the revenue. The aforesaid factor raises a strong pointer in assessee's favor that the assessee was ready with all the necessary infrastructure to deliver the proposed goods / services to the prospective customers. Another noteworthy factor is that this is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [81 Taxmann.com 359] & Hon'ble Allahabad High Court rendered in J.K.Manufacturers Ltd. Vs CIT [300 ITR 297]. However, we find that the decision of Hon'ble Allahabad High Court was rendered in a situation wherein it was factual finding that the assessee did not at all carry out any business during the year under question and therefore distinguishable on facts. Similarly, the decision of Hon'ble Calcutta was rendered in a situation where the assessee was constructing restaurant cum hotel project which was not completed during impugned AY and the assessee claimed deduction of Bank Charges which were disallowed by the Hon'ble Court and allowed to be capitalized. Be that as the case may be, we are bound by the decision of our jurisdictional High Court as cited above against which no contrary judgment of the same court has been placed by the revenue on record. Therefore, we respectfully follow the same. 6.4 Finally, after careful consideration of overall factual matrix, we find ourselves in agreement with the conclusion reached upon by Ld. CIT(A) and therefore, find no infirmity in the same. This ground of appeal stands dismissed. 7. So far as the disallowance u/s 14A is concerned, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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