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2017 (1) TMI 946 - ITAT MUMBAIAllowable business expenditure - whether the business of the assessee was set up during the year under consideration? - Held that:- Most of the employees had been already appointed in the preceding year. The sales order was received as early as in the beginning of the Financial Year i.e. 08.04.2009. Office premises were hired, computers, other assets and requisite infrastructure were put in place to enable the assessee to carry on its business and some purchases were also made. Expenses incurred by the assessee were of routine nature i.e. salary, audit fee, bank charges, rent, traveling expenses, installation expenses and various other routine administrative expenses. Further, share capital and unsecured loan were received aggregating to ₹ 3.32 crores. The surplus funds were kept in the bank. All the facts put together clearly indicate that the entire infrastructure was put into place to make the assessee ready to cater to its customers. On the top of it, it is also noted that similar expenses were claimed by the assessee in the immediately preceding year which have not been disallowed by the AO. However, no income was booked in the Profit & Loss A/c since execution of sales orders was not completed during the year. But, as discussed above, receipt of income would be essential to determine factum of commencement of income. As far as, ‘setting-up’ of business is concerned, it takes place as soon as an assessee becomes ready to cater to its customers. As discussed in detail above, the expenses shall be allowable from the stage of ‘setting up’ of the business in view of proviso to section 3 of the Act which says that in the case of a business or profession newly set up in a financial year, the previous year shall be the period beginning with the date of setting up of the business and ending with the said financial year. Thus, taking into account all the facts and circumstances of the case, it would not be difficult to reach to the conclusion that business of the assessee was ‘set up’ during the year as the facts strongly indicate that business was duly ‘set up’ during the year. Under these circumstances, it can be easily said that the assessee had ‘set up’ its business and therefore, expenses incurred during the year should be allowed as business expenses. As the expenses claimed in the profit and loss account are apparently revenue in nature, and nothing wrong had been pointed out by any of the lower authorities on merits of these expenses. Thus it is held that expenses claimed by the assessee in the return of income are allowable and therefore AO is directed to delete the disallowance.
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