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Reliance Gems and Jewels Ltd. Versus The DCIT 3 (3) Mumbai

Disallowance of the claim for deduction u/s. 37((1) - recruitment of employees before commencement of business - Held that:- The undisputed fact is that the assessee has recruited employees for the purpose of its business and as per the details exhibited at page-10 of the Paper Book about 16 employees are for the job of quality assurance. The assessee is in the business of Merchandising of diamonds/gold/jewelleries. Undisputedly, this line of business requires expertise who have proficiency in u .....

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MBER For The Appellant : Shri F.V. Irani For The Respondent : Shri Vivek Anand Ojha ORDER PER N.K. BILLAIYA, AM: This appeal by the assessee is preferred against the order of the Ld. CIT(A)-7, Mumbai dated 19.03.2013 pertaining to Assessment year 2008-09. 2. The sole grievance of the assessee is that the Ld. CIT(A) erred in confirming the disallowance of the claim for deduction u/s. 37((1) in respect of Revenue expenditure incurred during the year amounting to ₹ 87,26,446/-. 3. The assesse .....

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was confronted on this issue. In its reply vide letter dated 11.5.2010 the assessee stated that the expenditure is allowable because they are revenue expenditure incurred wholly for the purpose of business, they are not personal expenditure and they are not capital expenditure and therefore eligible for allowance u/s. 37(1) of the Act. 5. The AO rubbished the claim of the assessee and disallowed the entire claim of expenditure. According to the AO, as per the Income Tax Act, the expenses are all .....

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k which contains details of revenue expenses incurred during the year, the said details read as under: Sr. No. Description Amount 1. Salaries, Wages and Bonus 74,01,305/- 2. Contribution to PF, Gratuity, ESI, Pension scheme etc. 9,11,647/- 3. Employee Welfare and other amenities 5,27,133/- 4. Travelling expenses 2,02,602/- 5. Professional fees 12,500/- 6. Communication expenses 1,62,987/- 7. Printing and Stationery 696/- 8. Audit fees 12,000/- 8. The Ld. Counsel strongly submitted that the setti .....

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are allowable u/s. 37(1) of the Act. 9. Per contra, the Ld. Departmental Representative strongly supported the findings of the Revenue authorities. It is the say of the Ld. DR that the decision relied upon by the assessee and other related decisions are all relating to service industries and therefore same cannot be applied on the facts of the case in hand. 10. We have given a thoughtful consideration to the rival submissions and have carefully perused the orders of the authorities below in the .....

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ns of business or profession. 10.2. The undisputed fact is that the assessee has recruited employees for the purpose of its business and as per the details exhibited at page-10 of the Paper Book about 16 employees are for the job of quality assurance. The assessee is in the business of Merchandising of diamonds/gold/jewelleries. Undisputedly, this line of business requires expertise who have proficiency in understanding the carats of diamonds and related jewellery, without such recruitment, it w .....

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sessing officer as well as the Tribunal have held 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 and, therefore, the expenditure incurred between 1.4.2004 to 31.5.2004 should be capitalized. Tribunal, in its impugned order had also observed that the appellant assessee had entered into a lease agreement and had hired premises as its office, only on 15.6.2005. Commissio .....

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004 or was it setup only on 1st June, 2004. There is a distinction between setting up of business and commencement of business . 10.5. While deciding the issue, the Hon ble High Court of Delhi elaborately discussed and considered the decision of the Hon ble High Court of Bombay given in the case of Western India Vegetable Products Ltd. Vs CIT 26 itr 151 (Bom). Further reliance was placed on the decision in the case of CIT Vs E-Funds International India (2007) 162 Taxman 01 (Del) wherein also the .....

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purchased VSAT equipment, it should be said that the business has been setup. 10.7. A similar view was taken in the case of Whirlpool of India Ltd 318 ITR 347 wherein the Hon ble High Court has observed that : The business was set up when directors were appointed, staff, such as regional and branch managers were appointed and their salaries were paid. In other words, it can be said that at that time, the company was ready to commence business. 10.8. The Hon ble High Court of Delhi has considered .....

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