T.V. RAJAGOPALA RAO, J.M.: ORDER This appeal is filed by assessee against order of CIT, Trivandrum, dt. 22nd April, 1983 under s. 263 of IT Act, 1961 ( Act ) and it pertains to asst. yr. 1979-80. learned CIT felt that assessment completed by ITO on 30th April, 1981 under s. 143(3) of Act was erroneous as well as prejudicial to interests of Revenue and it required revision by him for reason that while completing assessment, claim for advertisement, publicity and business promotion expenditure totaling to Rs. 71,521 was allowed as deduction instead of restricting allowance as per terms of s. 37(3A) of Act in view of fact that total of such expenditure exceeded Rs. 40,000. assessee filed his reply dt. 16th April, 1983 before CIT objecting to revision and contending that order of ITO was neither erroneous nor prejudicial to interests of Revenue and hence there was no need to invoke revisional powers under s. 263. CIT for reasons contained in impugned order held that there was no substance in objections filed by assessee and his assumption of jurisdiction was quite in order. He, accordingly, set aside assessment for being redone. He directed ITO that while framing reassessment, assessee should be given reasonable opportunity of being heard on points mentioned in para Nos. 5 and 6 of his order and allow appropriate deductions after duly taking into consideration finding given by him in his order in para No. 4. Aggrieved against said order of CIT this present appeal is filed by assessee. 2 . two main points in controversy are, whether graded disallowance contemplated under s. 37(3A) is to be applied to whole of expenditure incurred towards advertisement, publicity and business promotion expenses by assessee or whether such disallowance is to be applied for such expenses incurred for each business held by assessee. second question is, whether Radhas Perfumery Enterprises which was previously run by firm and which came into exclusive ownership of assessee from 1st April, 1978 is industrial undertaking set up for manufacture or production of any article and if so, whether expenditure on advertisement, publicity and sales promotion by said business is exempt from operation of sub-s. (3A) of s. 37 by virtue of s. 37(3D). 3 . assessee has got interest in two distinct and separate proprietary business concerns (i) Radha s Perfumery Enterprises, and (ii) Kerala Sabdam, which is weekly magazine. 4 . In this appeal, it was firstly urged by learned counsel for appellant-assessee that each business should be taken separately for purposes o f disallowances under s. 37(3A). learned counsel submitted that following is bifurcation of advertisement, publicity and business promotion expenses incurred by his two concerns : Advertisement Business Publicity Total charges promotion Radha s Perfumery Enterprises 33 ,010 12,137 45,247 Kerala Sabdam 9,537 16,737 26,274 Weekly 71,521 further case of assessee was that following three items of expenditure which formed part of Rs. 12,137 mentioned above did not come u n d e r category of either advertisement, publicity or sales promotion expenses : Travelling expenses incurred by Rs. Dr .Rajakrishnan 1,028.00 Advertisement in small newspapers 3,075.00 Canvassing expenses paid to Dr. Rajakrishnan 1,281.40 Menon and Shri Sasidharan 5,384.40 If this amount is excluded from Rs. 45,247 then resultant figure would fall below Rs. 40,000 in which case s. 37(3A) would be inapplicable even in case of Radha s Perfumery Enterprises. Under circumstances, learned counsel for assessee maintained that assumption of jurisdiction under s. 263 by CIT is not warranted and, therefore, his impugned order is liable to be set aside. learned counsel for assessee brought to our notice commentary in Sampath Iyengar s Law of Income-tax, Seventh edn., Vol. 2, where learned author while discussing law under s. 28 of Act, states as follows : "... This clause also lays down that profits of each and every business carried on by assessee will have to be separately computed, but should thereafter be all put together and aggregated to arrive at profits and gains taxable under this head." (p. 1111) This statement of law by learned author is dependent upon decisions of Madras High Court in South Indian Industrial Ltd. vs. CIT (1935) 3 ITR 11 (Mad) and Ram Chandra Munna Lal vs. CIT (1949) 17 ITR 394 (Punj) as well as decision of Supreme Court in CIT vs. P. M. Muthuraman Chettiar (1962) 44 ITR 710 (SC). learned counsel submitted that s. 28 is provision under which profits and gains of business or profession will be computed. When profits or gains from each business are to be separately computed then provisions of s. 37 (3A) should also be applied to each of businesses carried on by assessee. learned counsel also submitted that harmonious construction of provisions of s. 37(3A) would also justify his stand. 5. Sec. 37(3A) omitting unnecessary portion reads as follows : "(3A) Notwithstanding anything contained in sub-s. (1) but without prejudice to provisions of sub-s. (2B) or sub-s. (3), where aggregate expenditure incurred by assessee on advertisement, publicity and sales promotion in India exceeds forty thousand rupees, so much of such aggregate expenditure as is equal to amount calculated as provided hereunder shall not be allowed as deduction, namely : (i) where such aggregate expenditure does 10 per not exceed 1/4 per cent of cent of . turnover or, as case may adjusted be, gross receipts of expenditure; business or profession (ii) and (iii) ** ** ** Explanation : For purposes of this sub-section, (a) adjusted expenditure means aggregate expenditure incurred by assessee on advertisement, publicity and sales promotion in India as reduced by so much of such expenditure as is not allowed under sub s. (1) and as further reduced by so much of such expenditure as is not allowed (under sub- s. (2B), or sub-s. (3), or both); (b) turnover and gross receipts mean turnover or gross receipts, as case may be as reduced by any discount or rebate allowed by assessee." 6 . learned counsel further submitted that Departmental Circular No. 240 dt. 17th May, 1978 (see Taxman s Direct Taxes Circulars, Vol. II, 1985 edn., p. 767 also) supports his viewpoint. said circular as far as relevant for our purpose is as follows : "In order to place curb on extravagant and socially wasteful expenditure on advertisement, publicity and sales promotion at cost of Exchequer, Finance Act, 1978 has inserted new sub-s. (3A) in s. 37 for disallowance of part of such expenditure in computation of taxable profits ..." (p. 773) 7 . learned counsel for assessee submits that taxable profits of each business is to be computed under s. 28 and so disallowance under s. 37(3A) is to be made from out of profits earned in each of businesses. 8 . As against this contention, learned Departmental Representative contended that wordings used in sub-s. (3A) are : "where aggregate expenditure incurred by assessee on advertisement, publicity and sales promotion in India exceeds Rs. 40,000". sub-section, therefore, according to him, contemplated total expenditure incurred by assessee and not by each of business belonging to assessee. When his attention is drawn to sub-s. (3A) (i) of s. 37 and his explanation is sought for as to how he would reconcile wordings used in sub-s. (3A) on one hand and sub-s. (3A) (i) on t h e other, learned Departmental Representative tried to explain that for quantifying disallowance only s. 37(3A) may be used. But that is quite different from saying aggregate expenditure incurred by assessee on advertisement, etc., should not considered for disallowance under s. 37(3A). This argument of learned Departmental Representative is not appealing to u s . Each business carried on by assessee is separate and distinct from another. Radha s Perfumery Enterprises is engaged in manufacturing soaps Radha s Ayurvedic Soap, whereas Kerala Sabdam is weekly, published by assessee. Two separate books of account were maintained for two business. Profit and loss account and balance sheets were separately maintained and in fact, profits derived by each of business were separately arrived at and subsequently they were aggregated. When in fact profits and losses suffered by two businesses are to be separately computed under provisions of s. 28 unless disallowance for each of business is quantified, real profits in each of business cannot be known. Further, as per Departmental Circular No. 240 dt. 17th May, 1978 legislature inserted sub-s. (3A) of s. 37 in order to disallow part of wasteful expenditure on advertisement, publicity and sales promotion in computing taxable profits. It is common knowledge that taxable profits shall be determined for each business. Therefore, even on rational interpretation of Departmental circular, one can not escape coming to conclusion that disallowance under s. 37(3A) should be made for each of business carried on and not from out of total income or aggregate sums, all expenditures on advertisement, publicity and sales promotion expenses of all business put together. In this regard, we uphold argument of learned counsel for assessee. 9 . It is contended by learned Departmental Representative that even assuming that disallowance should be made for each of business separately even then in case of Radha s Perfumery Enterprises total expenditure coming under that head was Rs. 45,247. learned Departmental Representative further argued that no doubt assessee who has now come forward with plea that three items mentioned above aggregating Rs. 5,384.40 should not be considered as expenditure coming under this head, in fact did not canvas before CIT that Rs. 1,281.40 paid as canvassing expenses to Dr. Radhakrishnan Menon and Shri Sasidharan did not come under sales promotion expenses. Therefore, for first time item of Rs. 1,281.40 is sought for exclusion. He argues that excluding Rs. 1, 281.40 from Rs. 5,384.40 amount sought for exclusion was Rs. 4,103 and even if that amount is excluded from total of Rs. 45,247 incurred as expenditure for business promotion and publicity expenses, remaining would exceed Rs. 40,000 and, therefore, in that way t h e assumption of jurisdiction by learned CIT is quite valid. From impugned order of CIT it would appear to us that exclusion of Rs. 1,281.40 was not sought for. However, for reasons which we presently set out, assumption of jurisdiction by learned CIT appears to us to be not valid. 10. next contention of assessee was that he became proprietor of Radha s Perfumery Enterprises only from 1st April, 1978 and, therefore, he must be deemed to have started manufacture or production only from 1st April, 1978 and is such, entire expenditure on advertisement, publicity and sales promotion incurred by him for purposes of said business is not liable for disallowance under s. 37(3A) as it comes under exempted category of business within meaning of s. 37(3D) which is as follows : "In case where assessee has set up industrial undertaking for manufacture or production of any articles, nothing in sub-s. (3A) shall apply in respect of any expenditure on advertisement, publicity or sales promotion incurred by assessee, for purpose of business of such undertaking, in previous year in which such undertaking begins to manufacture or produce such articles and each of two previous years immediately succeeding that previous year." 11. learned Departmental Representative opposed this argument and invited our attention to wordings of sub-s. (3D). According to him, important test is, who had set up industrial undertaking. Under said sub- section emphasis is on undertaking and not on assessee. According to him, business can continue irrespective of firm being dissolved. In this case, retiring partners allowed remaining partner to carry on business and, therefore, continuing partner, who is assessee herein, was continuing business previously carried on by firm. Thus, there is no scope to hold that assessee had set up industrial undertaking for manufacture or producting of any article. 12. On other hand, learned counsel for assessee argues that from date when assessee became sole proprietor he must be deemed to have set up industrial undertaking. 13. After hearing both sides, we are of view that argument of learned counsel for Department appears to us to be fallacious. What is meant by setting up was explained by Hon ble Supreme Court CWT vs. Ramaraju Surgical Cotton Mills Ltd. (1967) 63 ITR 478 (SC). At page 479 in head tote of decision of Supreme Court held that unit cannot be said to have been set up unless it is ready to discharge function for which it is being set up. It is only when unit has been put into such shape that it can start functioning as business or manufacturing organisation that it can be said that unit has been set up. Admittedly Radha s Ayurvedic Soap was product which was being manufactured by partnership firm of three partners out of which assessee is one. On 1st April, 1978 remaining two partners retired from partnership and in retirement deed dt. 1st April, 1978, copy of which is filed before us, it is clearly stated from 1st Sept., 1977 to 31st March, 1978 they carried on business in name and style of Radha s Perfumery Enterprises and from 1st April, 1978 business was taken over by continuing partner, assessee herein, and retiring partners should receive amount due to them respectively in respect of shares in said business and capital, stock, effects and goodwill thereof. retiring partners should withdraw from business leaving same to be carried on by continuing partner, assessee herein, for his own benefit or otherwise as he may think proper. Therefore, reading of retirement deed dt. 1st April, 1978 executed by retiring partners would leave us in no doubt to come to conclusion that Radha s Ayurvedic Soap manufacturing was already commenced and continued for some time by firm and subsequently right of carrying on such business was made over to assessee. We fully agree with learned Departmental Representative that stress in sub-s. (3D) of s. 37 was on undertaking but not on assessee. If that be so, manufacture of Radha s Ayurvedic Soap began only from 1st Sept., 1977. For Radha s Perfumery Enterprises accounting year was from 1st Sept., 1977 to 31st March, 1978. That means in accounting year relevant to asst. yr. 1979-80 that is on 1st April, 1978 business came into hands of assessee as proprietary concern. Therefore, while submitting his return for this assessment year, he disclosed profits of Radha s Perfumery Enterprises only from 1st April, 1978 to 30th Nov., 1978. It cannot be disputed that in hands of firm manufacture of Radha s Ayurvedic Soap would be new undertaking. Under sub-s. (3D) exemption would be available in year in which industrial undertaking begins to manufacture and succeeding two previous years. Now question that falls for consideration is what will happen if in succeeding two years there is change in ownership of business. Whether on that ground s. 37(3D) exemption should be denied. This aspect is clearly governed by Bombay Bench decision in ITO vs. Ciffies Chemicals & Pharmaceuticals (P) Ltd. (1985) 21 TTJ (Bom) 409. There Bombay Tribunal held that : "... This clearly shows that irrespective of whether industrial undertaking set up by assessee was previously used by some other person o r is formed by splitting up or reconstruction of business already in existence, cl. (3D) of s. 37, exempting that industrial undertaking from operation of s. 37(3A) for year in which undertaking begins manufacture or production and for subsequent two succeeding years will be applicable. This also stands to reason because irrespective of whether industrial undertaking was earlier used by some other person or has been formed by transfer to new business of machinery or plant previously used for any other purpose, more expenses will be necessary for advertisement, publicity and sales promotion in year in which industrial undertaking begins manufacture of production and for two succeeding years than in case of other similar concerns or in case of that concern itself after third year ..." (p. 411) From facts of Bombay Bench case, manufacture of pharmaceutical products was suspended for some time and it was revived again. question is whether person who had revived industry can be said to have set up industry and whether his incomes under excluded category of business. Tribunal held that industrial undertaking set up by assessee for manufacture and production of pharmaceutical products will be governed by provisions of s. 37(3D) for year of commencement of manufacture and succeeding two years. In this case also manufacture began only from 1st Sept., 1977 and as assessee continued manufacture from 1st April, 1978 and as accounting year fell in second year of business after unit began manufacturing, assessee, in our opinion, following Bombay Tribunal decision is entitled to exemption under s. 37(3D). In view of this finding, assumption of jurisdiction by learned CIT under s. 263 would not be valid. 14. In result, appeal is allowed and revisional orders of CIT are hereby cancelled. *** DR. B.A. RAJAKRISHNAN v. INCOME TAX OFFICER