The DCIT, Circle-4,, Ahmedabad v. Hazira Gas Pvt.Ltd.,, Ahmedabad

ITA 1929/AHD/2007 | 2003-2004
Pronouncement Date: 07-05-2010 | Result: Dismissed

Appeal Details

RSA Number 192920514 RSA 2007
Assessee PAN AAGCS0824D
Bench Ahmedabad
Appeal Number ITA 1929/AHD/2007
Duration Of Justice 2 year(s) 11 month(s) 30 day(s)
Appellant The DCIT, Circle-4,, Ahmedabad
Respondent Hazira Gas Pvt.Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 07-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 07-05-2010
Date Of Final Hearing 26-04-2010
Next Hearing Date 26-04-2010
Assessment Year 2003-2004
Appeal Filed On 08-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL VP AND BHAVNESH SAINI JM) ITA NO.1929/AHD/2007 A. Y.: 2003-04 THE D. C. I. T. CIRCLE-4 NAVJIVAN TRUST BUILDING OFF ASHRAM ROAD NAVRANGPURA AHMEDABAD VS HAZIRA GAS PVT. LTD. 101 ABHIJEET-II MITHAKALI CIRCLE NAVRANGPURA AHMEDABAD PA NO. AAGCS 0824 D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI AMARJIT SINGH DR RESPONDENT BY SHRI S. N. SOPARKAR AND PM MEHTA AR O R D E R PER BHAVNESH SAINI: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-VIII AHMED ABAD DATED 28 TH FEBRUARY 2007 FOR ASSESSMENT YEAR 2003-04 ON THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS O F THE CASE IN DIRECTING THE A. O. TO DELETE THE DISALLOWANCE O F RS.26 40 31 938/- BEING THE BUSINESS EXPENDITURE IN THE NATURE OF PRE-OPERATIVE EXPENSES IGNORING THE F ACT THAT THE ASSESSEE COMPANY DID NOT CARRY OUT ANY COMMERCIAL TRANSACTION LIKE BUYING OR SELLING OF L N G OR C N G GAS DURING THE YEAR AS PER THE MAIN OBJECTIVE OF THE COMPANY DURING THE YEAR UNDER APPEAL. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. ITA NO.1929/AHD/2007 HAZIRA GAS PVT. LTD. 2 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE AO V IDE PARA 4 OF THE ASSESSMENT ORDER DEALT WITH THE ABOVE ISSUE AND HEN CE CONCLUDED THAT THE ASSESSEE DID NOT CARRY OUT PROPOSED ACTIVITIES DURING THE YEAR AND HENCE ALL THE EXPENSES WERE IN THE NATURE OF PRE-OP ERATIVE EXPENSES THAT SHOULD BE CAPITALIZED. HE RELIED UPON THE DECISION IN THE CASE OF CHELLAPALLY SUGAR MILLS LTD. VS CIT 98 ITR 167 (SC) MINING MACHINERY & EXPLOSIVES PVT. LTD. VS CIT 202 ITR 710 (CAL) AND O THER DECISIONS TO HOLD THAT THE EXPENSES WERE IN CONNECTION WITH SETTING U P OF THE BUSINESS AND HENCE CANNOT CONSTITUTE EXPENSES IN THE NORMAL OPER ATION AND HENCE WERE NOT ALLOWABLE FOR THIS YEAR. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) AND IT WAS CONTENDED THAT AS PER THE FOREIGN COLLABORATION APPROVAL 3 OF THE GROUP CONCERNS WANT TO IMPLEMENT VARIOUS ACTIVITIES AND THE ASSESSEE IS REQUIRED TO CARRY OUT THE ACTIV ITIES OF IMPORT OF L N G SOURCING OF NATURAL GAS FROM DOMESTIC SOURCES AND C ARRY OUT SALE OF THE SAME. THE MAIN OBJECT OF THE ASSESSEE BEING BUYING AND SELLING AND DISTRIBUTION OF NATURAL GAS AND C N G NECESSARY IN FRASTRUCTURE WAS SET UP AND THE ASSESSEE COMPANY STARTED MARKET EXPLORAT ION THROUGH THE MAIN ESTABLISHMENT AND LONG TERM ARRANGEMENTS FOR T RANSPORT OF GAS THROUGH THE PERMITTED INFRASTRUCTURE (GAIL AND GUJA RAT STATE PETRONET LTD.) WERE UNDER NEGOTIATION AND IN THAT RESPECT TH E ACTIVITIES WITH REFERENCE TO THE OBJECTIVES REALLY COMMENCED DURING THE YEAR. THUS IT WAS CONTENDED THAT THE AO DID NOT APPRECIATE THE TR UE NATURE OF ASSESSEES BUSINESS AND MADE HIS OWN INTERPRETATION NARROWLY AND ALSO RELYING ON OBSERVATIONS OF TRANSFER PRICING OFFICER TO BE UNDULY INFLUENCED WITHOUT CONSIDERING THE FACTS RELEVANT F OR DECIDING THE ISSUE. TO A SPECIFIC QUERY AS TO THE ACTUAL MARKETING ACTI VITIES CARRIED OUT DURING THE RELEVANT PREVIOUS YEAR IT WAS EXPLAINED THAT THE ASSESSEE ENTERED INTO PROTRACTED NEGOTIATION BETWEEN GAS MAR KET AND POTENTIAL CUSTOMERS AND ENTERED INTO CONFIDENTIALITY AGREEMEN T AND MEMORANDUM OF UNDERSTANDING (MOU) BETWEEN THE PARTIES. FURTHER PROTRACTED NEGOTIATIONS WHICH TOOK PLACE AFTER EXECUTION OF TH E MOU MAY RESULT IN ITA NO.1929/AHD/2007 HAZIRA GAS PVT. LTD. 3 ENTERING INTO WHAT IS CALLED HEADS OF AGREEMENT WHI CH WOULD SPELL OUT THE TERMS AND CONDITIONS FOR IMPLEMENTATION AGREED TO BETWEEN THE PARTIES. IT WAS ALSO EXPLAINED THAT THE ASSESSEE CA RRIED OUT MARKETING ACTIVITIES BY ENTERING INTO MOU WITH SEVERAL AUTHOR ITIES FOR THE PURPOSE OF BUSINESS. IT WAS ALSO EXPLAINED THAT THE ASSESSEE C ARRIED OUT COMMERCIAL ACTIVITIES WHICH INCLUDES ENTERING IN SUPPLY AGREEM ENT WITH OVERSEAS L N G SUPPLIERS FOR SUPPLY OF L N G. THE EXPLANATIO N OF THE ASSESSEE IS REPRODUCED BY THE LEARNED CIT(A) AT PAGE 2 OF THE I MPUGNED ORDER. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION OF THE A SSESSEE AND THE MATERIALS ON RECORD HELD THAT THE EXPENSES HAVE TO BE ALLOWED AS BUSINESS EXPENSES UNDER THE HEAD REVENUE AND NOT TO BE CAPITALIZED. THE AO WAS ACCORDINGLY DIRECTED AND THE APPEAL OF THE A SSESSEE WAS ALLOWED. THE FINDINGS OF THE LEARNED CIT(A) IN PARA 3.3 ARE REPRODUCED AS UNDER: 3.3 FROM THE WRITTEN SUBMISSION IT IS CLEAR THAT A S THE APPELLANTS AREA OF OPERATIONS WAS RELATING TO MARK ETING EXPENSES WERE MAINLY IN THE FORM OF MARKET EXPLORAT ION AND CONNECTED FINALIZATION OF MOUS FOR FURTHER FOLLOW U P. THOUGH NO SALE TOOK PLACE DURING THE YEAR THE COMMENCEMENT OF INITIAL STEPS OF THE APPELLANTS ACTIVITIES IS NOT IN DOUBT . CONSIDERING THE PECULIAR NATURE OF THE ASSESSEES BUSINESS AREA OF OPERATIONS AS THE ISSUE CANNOT BE ADVERSELY DECIDED IN THE ABSENCE OF SALE ALONE. THE ISSUE OF GAS DISTRIBUTIO N BEING A REGULATED ACTIVITY THE APPELLANTS CLAIM IS TO BE CONSIDERED TAKING AN OBJECTIVE VIEW OF THE SCOPE OF BUSINESS. IN THAT VIEW OF THE MATER THE AOS CONCLUSION IS MERELY ON THE FACT THAT THERE WAS NOT EVEN A SINGLE TRANSACTION OF EITHER P URCHASE OR SALE OF GAS. THE INCURRING OF EXPENSES OF VARIOUS N ATURE WAS NOT IN DOUBT. IT IS ALSO NOTED BY THE AO IN PARA 4. 2 THAT EXPENDITURE ON PERSONNEL EXPENSES ADMINISTRATIVE A ND DEPRECIATION WERE CLAIMED. IN THE LIGHT OF THE ABOV E REMARKS AND DISCUSSION I AM TO HOLD THAT THE BUSINESS OF T HE APPELLANT INSOFAR AS THE MAIN OBJECT WAS CONCERNED WAS SET U P AND NECESSARY MARKET EXPLORATIONS AND CONNECTED MOUS WE RE TAKEN UP AND HENCE THE EXPENDITURE INCURRED WERE AF TER SETTING UP OF THE BUSINESS AND CANNOT BE APPORTIONE D TO ANY CAPITAL ASSET. IN SHORT THE SAID EXPENSES HAVE TO BE ALLOWED AS BUSINESS EXPENSE UNDER THE HEAD REVENUE AND NO T TO BE CAPITALIZED. THE AO IS HENCE DIRECTED TO RECOMPUTE THE LOSS ITA NO.1929/AHD/2007 HAZIRA GAS PVT. LTD. 4 RETURNED FOR THIS YEAR AS BUSINESS LOSS AND DEPRECI ATION. THIS GROUND IS THUS ALLOWED. 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIV ITY DURING THE ASSESSMENT YEAR IN QUESTION AND HAS NOT MADE ANY SI NGLE TRANSACTION IN RESPECT OF PURCHASE OR SALE OF GAS THAT IS THE MAIN OBJECT OF THE COMPANY. THEREFORE BUSINESS OF THE ASSESSEE HAS NOT COMMENC ED DURING THE YEAR UNDER CONSIDERATION. THE LEARNED DR RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS MADRAS AUTO SERVICE (P) LTD. 233 ITR 468 (SC) IN WHICH IT WAS HELD DISMISSING THE APPEAL THAT RIGHT FROM INCEPTION THE BUILDING WAS OF THE OWNERSHIP OF THE LESSOR. THEREFORE BY SPENDING THIS MONEY THE ASSE SSEE DID NOT ACQUIRE ANY CAPITAL ASSET. THE ONLY ADVANTAGE WHICH THE ASSESSEE DERIVED BY SPENDING THE MONEY WAS THAT IT GOT THE L EASE OF A NEW AT LOW RENT. FROM THE BUSINESS POINT OF VIEW THEREFOR E THE ASSESSEE GOT THE BENEFIT OF REDUCED RENT. THE HIGH COURT HAD THEREFORE RIGHTLY CONSIDERED THIS AS OBTAINING A BUSINESS ADV ANTAGE. THE EXPENDITURE WAS THEREFORE TO BE TREATED AS REVENU E EXPENDITURE. THE LEARNED DR RELIED UPON THE ORDER OF ITAT DELHI BENCH IN THE CASE OF AKZO NOBEL CAR REFINISHES INDIA (P) LTD. VS DCIT 25 SOT 226 IN WHICH IT WAS HELD MERELY ON BASIS OF INCORPORATION OF A COMPANY IT CANNOT BE CONCLUDED THAT BUSINESS HAS BEEN SET-UP BECAUSE CARRYING ON BUSINESS WOULD REQUIRE ACTIVITIES SYSTEMATICALLY AN D CONTINUOUSLY. 5. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND SUBMITTED THAT THE FACTS OF THE CASE HAVE NOT BEEN PROPERLY APPREC IATED BY THE AO. THE ASSESSEE HAS NOT SET UP ANY BUSINESS BECAUSE THE AS SESSEE IS A TRADING CONCERN DEALING IN SALE AND PURCHASE OF GASES. IN T HE TRADING ACTIVITIES SET UP IS NOT NECESSARY. HE HAS SUBMITTED THAT THE AO WAS EXPLAINED THAT THE OBJECTIVE OF THE ASSESSEE WAS TO SUPPLY NA TURAL GAS TO MEET THE ITA NO.1929/AHD/2007 HAZIRA GAS PVT. LTD. 5 FUEL REQUIREMENTS. IT WAS ALSO EXPLAINED THAT GOVER NMENT OF INDIA HAD EXPRESSLY CONVEYED THAT IT HAVE NOTED THAT ROYAL DU TCH SHELL GROUP HAS PERMITTED THE ASSESSEE COMPANY FOR IMPLEMENTING THE OBJECT ENVISAGED BY ORIGINAL APPROVAL OF GOVERNMENT OF INDIA FOR CAR RYING OUT IMPORT OF L N G SOURCING OF NATURAL GAS FROM DOMESTIC SOURCE S AND TRANSPORTING/SELLING RE-GASIFIED L N G AND NATURAL GAS FROM DOMESTIC SOURCES. IT WAS THEREFORE EXPLAINED THAT THE MAIN OBJECT OF THE ASSESSEE COMPANY ON ITS INCORPORATION WAS TO CARRY ON BUSINE SS OF BUYING SELLING SUPPLYING MARKETING DISTRIBUTING IMPORTING AND/O R TRADING IN NATURAL GAS INCLUDING LIQUIFIED NATURAL GAS ( L N G ) COMP RESSED NATURAL GAS ( C N G ) AND OTHER ITEMS OF NATURAL GAS ASSOCIATE D GASEOUS SUBSTANCES BY THE ASSESSEE INCORPORATED IN THE ASSESSMENT ORDE R BY THE AO AND ALSO REFERRED TO PAGE 8 OF THE ASSESSMENT ORDER IN WHICH IN PARA 11( C ) IT WAS EXPLAINED THAT DURING THE COURSE OF THE PREVIOUS Y EAR CORRESPONDING TO THE PRESENT ASSESSMENT YEAR THE ASSESSEE COMPANY W AS INVOLVED IN CARRYING OUT NEGOTIATION WITH LARGE NUMBER OF POTEN TIAL CUSTOMERS AND ALSO WITH GAIL AND GUJARAT STATE PETRONET LTD. HAVI NG THE NECESSARY GAS TRANSPORTATION INFRASTRUCTURE IN THIS CONNECTION THE ASSESSEE ATTACHED THE DETAILS OF POTENTIAL CUSTOMERS WITH WHOM IT HAD CARRIED OUT NEGOTIATION FOR SUPPLY OF GAS AND WITH A VIEW TO DE MONSTRATE THE PROTRACTED NATURE OF THE NEGOTIATION THE ASSESSEE F ILED COPIES OF SEVERAL MOUS AND AGREEMENTS TO EXPLAIN THAT THE ASSESSEE HA D COMMENCED ITS BUSINESS BY SECURING THE ORDERS FOR SALE OF THE GAS ES. THE LEARNED COUNSEL RELIED UPON THE ORDER OF ITAT AHMEDABAD BEN CH IN THE CASE OF GENERAL MOTORS INDIA VS JCIT IN ITA NO.283/AHD/1999 DATED 14-10-2005 IN WHICH THE TRIBUNAL RELIED UPON THE DE CISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF PREM CONDU CTORS PVT. LTD. VS CIT 108 ITR 654 (GUJ) HOLDING IN PARA 5 AS UNDER: 5. THE ABOVE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT WOULD BE SQUARELY APPLICABLE TO THE FACT S OF THE ASSESSEES CASE. THEIR LORDSHIPS OF THE HONBLE ITA NO.1929/AHD/2007 HAZIRA GAS PVT. LTD. 6 JURISDICTIONAL HIGH COURT HAVE CLEARLY HELD THAT TH E BUSINESS OF THE ASSESSEE IS COMMENCED AS SOON AS TH E ASSESSEE STARTED SECURING ORDERS FOR THE GOODS TO B E PRODUCED LATER ON. THEREFORE THE BUSINESS OF THE ASSESSEE-COMPANY WOULD ALSO BE DEEMED TO BE COMMENCED AS SOON AS THE ASSESSEE-COMPANY STARTED BOOKING FOR THE SALE OF THE CARS. HOWEVER WE FIND THAT BEFORE THE AO THE ASSESSEE NEVER CLAIMED THAT IT HA S STARTED BOOK OF THE CARS DURING THE YEAR UNDER CONSIDERATION. THE FACT WHETHER THE ASSESSEE STARTE D BOOKING OF THE CARS DURING THE ACCOUNTING YEAR RELE VANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND IF I T STARTED FROM WHICH DATE NEEDS VERIFICATION AT THE END OF THE AO. WE THEREFORE SET ASIDE THE ORDER OF TH E AUTHORITIES BELOW ON THIS POINT AND RESTORE THE MAT TER BACK TO THE FILE OF THE AO. WE DIRECT HIM TO RE- ADJUDICATE THE MATTER AS PER ABOVE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND ALLOW DEDUCTI ON FOR THE EXPENDITURE FROM THE DATE WHEN THE BUSINESS IS COMMENCED BY THE ASSESSEE I.E. FROM THE DATE WHEN BOOK OF CAR IS STARTED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO REFERR ED TO PB -6 TO 38 WHICH ARE VARIOUS MOUS AND AGREEMENTS FOR SUPPLY OF THE GASES TO THE BUYERS ENTERED INTO BY THE ASSESSEE AS A SELLER. HE HAS THEREFORE SUBMITTED THAT IN THE CASE OF THE ASSESSEE BEING TR ADING IN GASES THE BUSINESS OF THE ASSESSEE HAD COMMENCED BY BOOKING O RDERS FOR SALE OF THE GASES. THEREFORE THE LEARNED CIT(A) WAS JUSTIF IED IN DELETING THE DISALLOWANCE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE MAIN OBJECT OF THE ASSESSEE COMPANY IS TO CARRY OUT BUSINESS OF BUYING SELLING SUPPLYING MARKETING DISTRIBUTING IMPORTING AND/OR TRADING I N NATURAL GAS INCLUDING RE-GASIFIED L N G LIQUIFIED NATURAL GAS C N G AND OTHER FORM OF NATURAL GAS ASSOCIATED GASEOUS SUBSTANCES. THE GOV ERNMENT OF INDIA HAD GRANTED APPROVAL OF THE OBJECT OF THE ASSESSEE FOR THE ABOVE PURPOSE TO MEET OUT THE REQUIREMENTS OF THE GASES. THE ASSE SSEE FILED DETAILED ITA NO.1929/AHD/2007 HAZIRA GAS PVT. LTD. 7 REPLY BEFORE THE AO AND THE LEARNED CIT(A) TO EXPLA IN THAT IN ORDER TO ACHIEVE THE OBJECTIVE OF THE ASSESSEE IT HAD ENTER ED INTO SEVERAL AGREEMENTS AND MOUS FOR SALE AND PURCHASE OF THE GA SES. THE DETAILS SUBMISSIONS OF THE ASSESSEE HAVE BEEN INCORPORATED BY THE AO IN THE ASSESSMENT ORDER. THE LEARNED CIT(A) ALSO BRIEFLY N OTED VARIOUS STAGES OF THE ASSESSEE WHICH WERE CARRIED OUT TOWARDS BUSINES S ACTIVITIES INCLUDING MARKETING ACTIVITIES AND COMMERCIAL ACTIVITIES CARR IED OUT BY THE ASSESSEE. THE ASSESSEE IN THE PAPER BOOK FILED THE FOLLOWING MOU AND AGREEMENT: (1) PB -6 MOU DATED 26-03-2002 BETWEEN THE ASSESS EE (SELLER) AND SURAT ELECTRICITY CO. LTD. (BUYER) FOR PURCHASE AND SALE OF THE NATURAL GAS. (2) MOU DATED 11-12-2002 BETWEEN THE ASSESSEE (SELL ER) AND RASTRIYA CHEMICALS & FERTILIZERS LTD. FOR PURCHASE OF GAS (3) HEADS OF AGREEMENTS DATED 02-02-2004 BETWEEN TH E ASSESSEE AND RASTRIYA CHEMICALS & FERTILIZERS LTD. FOR PURCHASE OF GAS 8. THE ABOVE WOULD SHOW THAT THE ASSESSEE HAD COMME NCED ITS BUSINESS BY SECURING ORDERS FOR PURCHASE AND SALE O F GASES. THE CASE OF THE ASSESSEE IS THUS OF TRADING IN GASES WHICH WAS NOT PROPERLY APPRECIATED BY THE AO AND THE AO TOOK IT TO BE A BU SINESS NOT COMMENCED BECAUSE THE ASSESSEE WAS IN THE PROCESS O F SETTING UP OF THE UNIT. ITAT AHMEDABAD BENCH IN THE CASE OF GENERAL M OTORS INDIA LTD. (SUPRA) CONSIDERING THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF PREM CONDUCTORS PVT. LTD. HELD THAT THE BUSINESS OF THE ASSESSEE HAS COMMENCED AS SOON AS THE ASSESSEE STARTED SECURING ORDERS FOR THE GOODS TO BE PRODUCED LATER ON. THE AO WAS ACCORDINGLY DIR ECTED TO ALLOW DEDUCTION FOR THE EXPENDITURE FROM THE DATE WHEN BO OKING OF CARS HAS STARTED. THE LEARNED COUNSEL FOR THE ASSESSEE ON TH E BASIS OF THE FINDINGS GIVEN BY THE LEARNED CIT(A) AND THE DETAILS FILED I N THE PAPER BOOK HAS BEEN ABLE TO SATISFY THAT THE ASSESSEE HAS COMMENCE D ITS BUSINESS ITA NO.1929/AHD/2007 HAZIRA GAS PVT. LTD. 8 ACTIVITIES DURING THE YEAR UNDER CONSIDERATION. THE LEARNED CIT(A) WAS THEREFORE JUSTIFIED IN HOLDING THAT EVEN THOUGH NO SALE TOOK PLACE DURING THE YEAR THE COMMENCEMENT OF INITIAL STEPS OF THE A SSESSEES ACTIVITIES IS NOT IN DOUBT. THE LEARNED CIT(A) WAS ALSO JUSTIFIED IN HOLDING THAT THE ISSUE OF GAS DISTRIBUTION BEING A REGULATED ACTIVIT Y THE ASSESSEES CLAIM IS TO BE CONSIDERED TAKING THE OBJECTIVES IN VIEW OF T HE SCOPE OF THE BUSINESS. THE LEARNED CIT(A) WAS ALSO JUSTIFIED IN HOLDING THAT THE BUSINESS OF THE ASSESSEE WAS SET UP AND NECESSARY M ARKETING EXPLORATION AND CONNECTED MOU WERE TAKEN UP. HENCE THE EXPENDI TURE INCURRED WAS AFTER SET UP OF THE BUSINESS AND CANNOT BE APPORTIO NED TO ANY CAPITAL ASSET. 9. THE AO NOTED THE DECISION OF CHELLAPALLY SUGAR M ILLS LTD. VS CIT 98 ITR 167 (SC) WHEREIN IT IS HELD THAT EXPENSES INCURRED BEFORE COMMENCEMENT OF PRODUCTION IN A SEPARATE DISTINCT U NIT WHICH HAS NO CONNECTION WITH THE EXISTING BUSINESS WITH REFER ENCE TO WHICH CAPITAL WAS BORROWED CAN BE CAPITALIZED AND ADDED T O THE COST OF THE FIXED ASSETS. THE AO ALSO REFERRED TO THE DECISION IN THE CASE O F MINING & EXPLOSIVE PVT. LTD. 202 ITR 710 IN WHICH I T HAS BEEN HELD THAT EXPENDITURE INCURRED IN CONNECTION WITH SET UP OF A BUSINESS IS NOT DEDUCTIBLE AS THE BUSINESS IS NOT SET UP. BOTH THE ABOVE DECISIONS RELIED UPON BY THE AO ARE DISTINGUISHABLE WITH THE FACTS OF THE PRESENT APPEAL AS NOTED ABOVE. THE ASSESSEE INCURRE D THE EXPENDITURE FOR THE PURPOSE FOR BUSINESS IN BUSINESS IN THE PRESENT APPEAL AND THAT IT BEING A TRADING CONCERN HAS NO RELEVANCY FOR SET UP OF THE BUSINESS AS IS ARGUED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE DECISIONS RELIED UPON BY THE AO ARE THEREFORE NOT APPLICABLE TO TH E FACTS OF THE CASE. 10. THE LEARNED COUNSEL FOR THE ASSESSEE IN THE PAP ER BOOK ALSO REFERRED TO PB-39 WHICH IS DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA VEGETABLE PRODUCTS LTD. ( 26 ITR 151) IN WHICH ITA NO.1929/AHD/2007 HAZIRA GAS PVT. LTD. 9 IT WAS OBSERVED THAT WHEN A BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS THEN IT CAN BE SAID OF THAT BUSIN ESS THAT IT IS SET UP. BUT BEFORE IT IS READY TO COMMENCE BUSINESS IT IS N OT SET UP. BUT THERE MAY BE INTERREGNUM THERE MAY BE A INTERVAL BETWEEN A BUSINESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED AND ALL EXPENSES INCURRED AFTER THE SET UP OF THE BUSINESS AND BEFORE COMMENC EMENT OF THE BUSINESS ALL EXPENSES DURING THE INTERREGNUM WOULD BE PERMISSIBLE DEDUCTION U/S 10(2) OF THE IT ACT. THE FACTS AND C IRCUMSTANCES NOTED ABOVE AND THE FINDING OF FACTS RECORDED BY THE LEAR NED CIT(A) ON THE BASIS OF MATERIAL BEFORE HIM IT IS CLEAR THAT IN THE CAS E OF THE ASSESSEE THE BUSINESS OF SALE AND PURCHASE OF GASES HAVE BEEN CO MMENCED DURING THE ASSESSMENT YEAR IN QUESTION. THE FINDING OF FACTS R ECORDED BY THE LEARNED CIT(A) HAVE NOT BEEN REBUTTED THROUGH ANY MATERIAL ON RECORD. THE DETAILS OF THE MOUS FILED IN THE PAPER BOOK SHOW TH AT THE ASSESSEE ENTERED INTO AGREEMENTS OF SALE OF THE GASES WITH O THER PARTIES IN THE ASSESSMENT YEAR IN QUESTION OR BEFORE. SINCE THE AS SESSEE HAS BEEN ABLE TO SATISFY THAT IT STARTED SECURING ORDERS FOR SALE OF GASES THEREFORE THE ASSESSEE HAD COMMENCED ITS BUSINESS ACCORDINGLY. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT( A) IN ALLOWING DEDUCTION OF THE EXPENDITURE IN THIS CASE. WE ACCORDINGLY CON FIRM HIS ORDER AND DISMISS THE APPEAL OF THE REVENUE. 11. AS A RESULT THE DEPARTMENTAL APPEAL STANDS DIS MISSED. ORDER PRONOUNCED ON 07-05-2010 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 07 -05-2010 LAKSHMIKANT/- ITA NO.1929/AHD/2007 HAZIRA GAS PVT. LTD. 10 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD