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2017 (10) TMI 879 - AT - Income TaxAllowable deduction u/s 37(1) - allowability of employee expenses as business expenditure - commencement of activities in trading - Held that:- Assessee in the course of Assessment Proceedings furnished the complete details in respect of the expenses incurred by the assessee in respect of the employee cost relating to trading activity. On a specific query by the Assessing Officer the assessee also replied why the employee expenses in respect of trading activity was claimed as deduction against profit earned in trading business and why such expenses have not been capitalized, stating that none of these expenses related to the proposed manufacturing facility but were incurred in the operations of trading activity. Assessing Officer and the First Appellate Authority have not appreciated the submissions of the assessee in a proper perspective. The Memorandum of Association clearly shows that assessee is into business of manufacturing, producing, buying, purchasing, selling, distributing, supplying, merchandising, trading, importing, exporting or otherwise dealing in chemicals, chemical compounds, organic and inorganic forms in solid, liquid and gaseous etc., Therefore, assessee is into composite business of manufacturing as well as trading into chemicals. Since the assessee is into the business of trading and manufacturing of chemicals and since the assessee has commenced its activities in trading during this Assessment Year the expenses relating to the trading activities cannot be denied for the reason that assessee has not commenced its manufacturing operations of chemicals. We also see no reason for denying the expenses simply because assessee has incurred huge expenses towards salary and other expenses in trading activity which has only commenced during this Assessment Year. Thus, we direct the Assessing Officer to accept the assessee’s claim for expenses as returned by the assessee in its return of income and allow the loss claimed by the assessee on account of the claim for such expenses. Grounds raised by the assessee are allowed.
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