TMI Blog2014 (4) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... on record or the assessee’s explanations, with the expenses as incurred itself revealing the state of preparedness of the company toward commencing its business can be taken out - the company is clearly in the setting up stage - it is only the expenditure, post set-up, that could be claimed as a business expenditure, while the company has claimed the entire expenditure incurred by it since inception, including as it appears expenditure on its’ incorporation itself, which are only capital costs - No case for allowance of the assessee’s claim u/s. 37(1) or section 32(1) is made out – Decided against Assessee. - I.T.A. No. 309/Mum/2012 - - - Dated:- 17-4-2014 - Shri I. P. Bansal, JM And Shri Sanjay Arora, AM,JJ. For the Appellant : Shri B. P. Agarwal For the Respondent : Shri M. L. Perumal ORDER Per Sanjay Arora, A. M. This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-5, Mumbai ( CIT(A) for short) dated 11.11.2011, dismissing the assessee s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year (A.Y.) 2005-06 vide order dated 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478 (SC); the apex court in the latter cases approving and applying the principles laid down in Western India Vegetable Products Ltd. (supra), also stating the facts of the said cases as well as quoting there-from to bring forth clarity to the matter. The law was, in fact, well settled, and the question stands answered by the hon ble courts on the facts of a particular case, as was in the case of Sarabhai Management Corpn. Ltd. vs. CIT [1976] 102 ITR 25 (Guj.), since confirmed by the apex court and relied upon by the assessee before him, which did not differ in ratio from that in Western India Vegetable Products Ltd. (supra). The matter was also examined by him from the stand point of the allowability of an expense u/s.37 of the Act. A number of decisions were relied upon by him, as under, also stating the question/s referred to the hon ble courts and the basis of its answer; all leading to the same afore-stated ratio; where the business had not been set up, the expense could not be regarded as an expense of the business, much less as incurred wholly and exclusively for the purposes of business, so as to meet the mandate of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up a business and for the purposes of the Indian Incometax Act the setting up of the business and not the commencement of the business that is to be considered. It is only after the business is set up that the previous year of that business commences and any expense incurred prior to the setting up of a business would not be permissible deduction. When a business is established and is ready to commence business then it can be said of that business that it is set up; but before it is ready to commence business it is not set up. There may however be an interval between the setting up of the business and the commencement of the business and all expenses incurred during that interval would be permissible deductions. The first question, then, that falls for consideration is when the business can be said to have been set up. As explained, it is when the company (entity) can discharge the functions for which it (the firm) is established; the apex court applying the principle laid down in Western India Vegetable Products Ltd. (supra) in Ramaraju Surgical Cotton Mills Ltd. (supra) to decide if in the facts and circumstances of the said case could the company s unit be said to have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the necessary software for operating its computer systems, even assuming the same to have been purchased in the numbers necessary to complete a transaction observing the operating guidelines? Have the operating licenses/permits, as required from the regulatory authorities, been obtained? Whether, the firm arrangements for capital - both owned as well as borrowed (by way of lines of credit) for either operational leases or fleet management (which is its other principal business), both being highly capital incentive, been formalized? Has the company entered into a relationship with any vehicle supplier in-as-much as, as distinct from a financial lease, the risk and reward of the ownership in case of an operating lease rests with the lessor, so that the terms of the lease could not be agreed upon (with the customers) unless it has a complete understanding of the product, the risks associated with the ownership and management thereof, including by way of insurance, costs, applicable taxes. Why, even a financial lease or arrangement would require an arrangement/s or tie up with the vehicle supplier or manufacturer, enabling competitive offers to the customers through their preferred fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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