Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2022 (3) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (3) TMI 462 - AT - Income TaxDisallowing claim of loss - Setting up of business - Scope of setting up of business" and actual "commencement of business" - whether the CIT(A) was justified in holding that the assessee has not set up its business during the year under consideration and hence, the A.O. was justified in disallowing the claim of loss? - HELD THAT:- There is no dispute with regard to the fact that there could be a time gap between "setting up of business" and actual "commencement of business". It is also settled principle that the expenses incurred after setting up of business is allowable as deduction. Hence the answer to the question as to whether the assessee has set up its business or not would depend upon the facts prevailing in each of the case. In the instant case, A.R. has shown to us that the assessee has taken a premises on rent, employed few employees, purchased certain assets. In the case of Omniglobe Information Tech India P Ltd. [2014 (9) TMI 6 - DELHI HIGH COURT] the Hon'ble Delhi High Court was considering the question of "setting up" of business in the context of a BPO Service industry. Since the assessee is in service industry providing IT application maintenance support services its requirement of man power and electronic equipment would depend upon the nature and type of work, i.e., type of IT application, it is getting. Hence, in the instant case, the assessee could plan its further recruitment of employees, depending upon the nature and type of work it is getting, which is essential to determine the skill set required for executing the said work. The directors have stated in the Directors' report that the nature of work required to be performed under the agreement entered with its AE would require 25 employees. In the instant case, in our view, this kind of decision is taken after setting up of business but before actual commencement of operations. Accordingly, we are of the view that the Ld. CIT(A) was not justified in observing that the assessee is in the process of setting up of business, since it has not yet completed recruitment of 25 employees. We are of the view that the assessee has set up its business during the year under consideration. Accordingly, the expenses incurred by the assessee are allowable as deduction and in the case of loss, it is entitled to carry it forward. Accordingly, we reverse the order passed by Ld. CIT(A) and direct the AO allow the expenses and also carry forward of loss We are of the view that the assessee has set up its business during the year under consideration. Accordingly, the expenses incurred by the assessee are allowable as deduction and in the case of loss, it is entitled to carry it forward. Accordingly, we reverse the order passed by Ld. CIT(A) and direct the AO allow the expenses and also carry forward of loss. - Decided in favour of assessee.
|