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TMI Blog2024 (6) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... riod beginning with the date of setting-up of the business. Accordingly, till the time the business is set-up, all the expenses, even if revenue in nature, would have to be capitalized which is the stand of lower authorities in the present case. As a natural corollary, if the business is set-up, the expenditure would be allowable notwithstanding the fact that no business income was earned by the assessee during the year. The gestation period, in the kind of business in which the assessee was engaged, would generally be long and it is quite natural that it would take substantial time to start the actual business operations and generate business income. Quite clearly, without testing trail run production, the assessee could have never been able to commence its business. We are of the considered opinion that the generation of actual business income was not an essential element to allow the business expenditure. What was required to be seen was whether the business had been set-up or not. We would hold that the assessee was correct in adopting setup date as 01-10-2009 and therefore, the revenue expenditure claimed under powertrain segment post 01-10-2009 would be allowable to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent sale would not be available. The same was stated to be in accordance with CBDT Circular No.704 dated 28-04-1995. However, Ld. CIT(A) rejected the arguments of the assessee and upheld the addition. We find that the gains on sale of mutual funds have been offered to tax by the assessee under income from other sources and therefore, the assessee is precluded to take benefit of cited circular of CBDT. The assessee, in books of accounts, has followed particular methodology to compute the gains. In our opinion, the same gains should have been offered by the assessee to tax. Therefore, we see no reason to interfere in the impugned order, on this issue. The corresponding grounds stand dismissed. - Hon ble Shri Mahavir Singh, VP And Hon ble Shri Manoj Kumar Aggarwal, AM For the Appellant : Shri N.V.Balaji (Advocate)-Ld.AR For the Respondent : Shri V.Nandakumar (CIT) -Ld.DR ORDER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2010-11 arises out of the order of learned Commissioner of Income Tax (Appeals)-3, Chennai [CIT(A)] dated 19-09-2022 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee was also undertaking infrastructure and support services from the beginning of the financial year i.e., 01 April 2009. 2.10 The learned CIT(A) has erred in law and facts by not adjudicating the ground wherein the assessee has stated that treatment of an amount of INR 8,71,14,293 in the books of accounts i.e., capitalization of an expenditure incurred in relation to power train in books shall not influence in the treatment of the same for Income-tax purpose. 2.11 The learned CIT(A) has erred in law and facts by not adjudicating the ground wherein it was stated that the learned AO has erred in law and in fact in considering based on surmises and conjectures Production Trial Expenses of INR 6,68,46,676 as capital in nature. 2.12 The learned CIT(A) has erred in law and facts by not adjudicating the ground wherein it was stated that the learned AO has erred in law and in facts by treating the Technical Assistance fee to be capital in nature since the same pertains to installation of plant and machinery based on surmises and conjectures and thereby, disallowing the same. 2.13 It is humbly prayed that 1st October 2009 be treated as the date of Set Up and the disallowances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in law and facts by taxing the differential amount between the gain recorded in the books of accounts to and that offered to tax under the Income-tax. 5.3 It is humbly submitted that the addition be deleted. As is evident, four issues fall for our consideration viz. (i) Disallowance of expenditure incurred during set-up of business; (ii) Depreciation Disallowance; (iii) Disallowance u/s 43B; (iv) Addition on account of Short-Term Capital Gains. 2. The Ld. AR advanced arguments and placed on record issue-wise chart. Reliance has been placed on various judicial decisions. The Ld. CIT-DR, on the other hand, supported the findings given by lower authorities. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. The assessee being resident corporate assessee is stated to be engaged in manufacturing of powertrains. It has started providing infrastructure services to its group companies w.e.f. 01-04-2009. The assessee company was incorporated on 25-09-2007. During this year, the assessee completed set up of activity of powertrain plant and commenced commercial production on 05-02-2010. The assessee earned service income of Rs. 32.09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssistance fees of Rs. 503.56 Lacs. The Ld. AO held that the same were capital in nature. Since entire expenditure of Rs. 46.06 Crores pertaining to powertrain business was already disallowed, no separate disallowance was made for the same. 3.4 During appellate proceedings, the assessee reiterated that one round of trial run production of power train was completed on 25-09-2009 and accordingly, date of setup of business was adopted as 01-10-2009 since machinery installed by the assessee was put to use. The relevant date for claiming of expenditure would be date of setup of business. Reliance was placed on various judicial decisions to support the same and the case laws being cited by Ld. AO were distinguished on facts. The cases being relied on by the assessee include the decisions of Chennai Tribunal in Orient Cosmetics Ltd. (74 ITR 135) and the decision in Madras Fertilizers Ltd. (209 ITR 174). Another submission was that the assessee started rendering infrastructure support service from 01- 04-2009 itself and therefore, all expenses incurred in relation to these services as incurred throughout the year were to be allowed. The same were wrongly disallowed. 3.5 The Ld. CIT(A) rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s set-up, all the expenses, even if revenue in nature, would have to be capitalized which is the stand of lower authorities in the present case. As a natural corollary, if the business is set-up, the expenditure would be allowable notwithstanding the fact that no business income was earned by the assessee during the year. 6. As per the decision of Hon ble Bombay High Court in the case of Western India Vegetable Products v. CIT 26 ITR 151 (Bom.), what is to be considered is the set-up of the business and not the commencement of business. Quite clearly, the two-term setting-up and commencement of business carries different connotations. What is to be seen is whether the business is set-up or not whereas actual commencement of business may or may not happen. Once the business is held to be set-up, the deduction of business expenditure would be available to the assessee. When a business is established and is ready to commence business then it could be said that the business has been set-up. There may be an interval or time gap between the setting-up of the business and the commencement of the business but still all the expenses incurred during that interval would be permissible deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced on 14-09-2009. The trial run production was exported to Japan and therefore, this fact could not be disputed. In such a case, the powertrain business could be said to have been setup during September, 2009 itself and the assessee s approach to adopt the date of commencement as 01-10-2009 could not be faulted with. It could be concluded that though actual production started much later on, the business had already been set-up and the assessee undertook all preliminary steps to commence the business. The gestation period, in the kind of business in which the assessee was engaged, would generally be long and it is quite natural that it would take substantial time to start the actual business operations and generate business income. Quite clearly, without testing trail run production, the assessee could have never been able to commence its business. We are of the considered opinion that the generation of actual business income was not an essential element to allow the business expenditure. What was required to be seen was whether the business had been set-up or not. In view of these observations, we would hold that the assessee was correct in adopting setup date as 01-10-2009 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f total remuneration of the employees and dependent on the performance of an individual and not based on the profits of the company. It was also submitted that since the assessee was incurring losses, the subject payment could not be treated as bonus u/s 36(1)(ii). However, the Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us. 9.3 We are of the considered opinion that 36(1)(ii) refers to any sum paid to an employee as bonus for services or commissions for services rendered where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission. The simple test, as per settled legal principle is that had the bonus or commission not been paid, it would have added to the profits or dividend of the company. Thus, the deduction is permissible if the sum paid is bonus or commission for services rendered. In the present case, bonus is payable to employees who have rendered services to the assessee and the same form part of CTC of employees. Therefore, impugned disallowance, in our considered opinion, is not sustainable. The impugned disallowance, therefore, stand deleted. 10. Addition on account of Shor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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