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2016 (9) TMI 104 - AT - Income TaxDisallowance of consultancy charges paid to the legal advisor firm - whether the said amount was not incurred for the purpose of business as the same was incurred prior to commencement of business of the assessee - Held that:- The business can be ‘set-up’ when the company is ready to discharge the function for which it is incorporated. It was also held that expenditure incurred after the setting up of business is deductible as revenue expenditure. It is also brought to our notice that one of the objects for which the company was incorporated was to make investment in other companies, and the assessee company had received funds in the form of share capital or other sources before 11-10-2006 and it had started making due diligence for potential investee companies immediately after getting NBFC registration certificate on 11-10-2006, then it can be said that assessee company was ready to commence its business and thus its business was set-up on 11-10-2006. Thus, we find that in principle, the expenses incurred after 11-10-2006 having been incurred after setting up of business are deductible as revenue expenditure. Expenses incurred on account of due diligence of a proposed investment - Held that:- It is clear that expenses incurred on account of due diligence of a proposed investment is clearly made as part of the business activities of the assessee and, therefore, the impugned expenses are expenses incurred in the ordinary course of its business. The other reasoning given by the Ld. CIT(A) was that no investment was made during the year under consideration and funds were parked in the bank. On this aspect also, we differ with the reasoning given by the Ld. CIT(A). Though, clear facts are not before us with respect to the making of investment in this year or next year, but even if investments were not made during the year under consideration, it cannot be said that these expenses were not incurred for the purpose of business. It is well settled law that results of the business activities or fruits of efforts to a business organisation may yield in the concerned year or in subsequent years or never. But that would not mean that the expenses incurred would not be expenses incurred during the course of business. Thus, we find that approach of the lower authorities in disallowing these expenses was contrary to law and facts.
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