2007 (7) TMI 704 - HC - Income Tax

Summary

Issues:
The judgment deals with the issue of whether the Assessee had commenced business activity during the relevant previous year for the assessment year 1998-99.

Details of the Judgment:

1. The Assessee, as per its Memorandum and Articles of Association, was established to engage in the business of manufacturing footwear and trading of goods.

2. The Assessing Officer disallowed certain expenses claimed by the Assessee in the profit and loss account, stating that the Assessee had not commenced any business activity during the relevant previous year.

3. The Commissioner of Income Tax (Appeals) allowed the Assessee's appeal, holding that the business had commenced during the relevant previous year, directing the Assessing Officer to allow the expenses claimed.

4. The Revenue appealed to the Income Tax Appellate Tribunal, which overturned the Commissioner's decision, leading the Assessee to approach the High Court under Section 260-A of the Income Tax Act, 1961.

5. The Assessee argued that various factors indicated the commencement of business activity, such as obtaining a completion certificate, electric connection, excise license, registration with various departments, purchase of raw materials, and registration with the Provident Fund Commissioner.

6. The Tribunal considered all facts and found that the only business activity conducted by the Assessee was a single transaction of purchasing and selling footwear for the purpose of registration with the Sales Tax department, not as part of its trading activity.

7. Regarding manufacturing activity, it was noted that the Assessee was granted an excise license, employed labor, and registered with the Provident Fund Commissioner only at the end of the relevant previous year, with no substantive steps taken to indicate the commencement of business.

8. Referring to a Supreme Court case, it was highlighted that being "set up" precedes "commencement," requiring the unit to be ready to discharge its intended function, which was not the case for the Assessee based on the available facts.

9. The Tribunal, considering the peculiar facts of the case, concluded that the Assessee was not ready to commence business activity, and while the view may be debatable, it was not unreasonable based on the circumstances.

10. The High Court held that no substantial question of law arose for consideration, as the Tribunal's view, though debatable, did not warrant interference, leading to the dismissal of the appeal.