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2014 (9) TMI 6 - HC - Income TaxEffective date for set up of business – 1.4.2004 or 30.6.2004 - Approval as 100% EOU taken and operations commenced from 1.4.2004 - AO and ITAT observed that the appellant assessee had commenced its operations only from 1.6.2004, i.e. the date on which the appellant assessee entered into "service agreement" with its parent company - AO and ITAT capitalized the expenditure incurred between 1.4.2004 to 31.5.2004 - Held that:- Keeping in view the nature of business activity of the appellant-assessee, it cannot be held that training, imparting skills to employees recruited, or, testing their performance can be treated as a pre-setup expenditure - The appellant assessee had either employed or taken help of trainers/seniors for the said purpose - The moment employees were recruited and enrolled, and infrastructure to use their service was in place, setup was complete - It was indicative of the fact that business operations had been setup. The reasoning given by the Tribunal and the AO cannot be said to show that the business of the appellant-assessee had not been setup - The business of the appellant had been setup as the appellant-assessee had acquired the necessary infrastructure from their sister concern, M/s Agilis, and had also started making payment of salary and wages - This training was given by professional experts under the supervision and control of the appellant-assessee - The moment the operations were commenced, the business had been setup and the subsequent rendering of service to third parties would be at a later date when the actual services were rendered to the parent/holding company – relying upon CIT Vs. Saurashtra Cement and Chemical Industries Limited [1972 (8) TMI 19 - GUJARAT High Court]. Upon recruitment of employees, the factum that expenditure under the different heads, as noticed above, was incurred is indicative that business was set up - Training to the employees was given to ensure that when the work was undertaken and performed, there were no glitches, trouble or problems - It is not indicative of the fact that necessary infrastructure was not there and actual business could not have commenced or was not set up - Training was post set up as the employees were recruited - The training continued even when the business was in operation. It was part and parcel of the business activities as a service provider – Decided in favour of assessee.
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