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ACIT, Circle-6 (1) , New Delhi Versus M/s Mitsui Prime Advanced Composites India Pvt. Ltd.

2016 (2) TMI 80 - ITAT DELHI

Disallowance of salary expenditure - CIT(A) allowed the claim - Held that:- Once it is established that the business was set up all related expenditures will have to be allowed as deduction. Hence, we do not find any infirmity in the impugned order passed by the Ld. CIT(A) on the issue in dispute and hence, we uphold the same by dismissing the appeal filed by the Revenue. - Decided against revenue

Disallowance of depreciation - CIT(A) allowed the claim - Held that:- Act does not allow .....

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sal, AR ORDER Per H S Sidhu, JM The Revenue has filed this Appeal against the Order dated 09.5.2013 passed by the Ld. CIT(A)-IX, New Delhi relevant for the assessment year 2009-10. 2. The grounds of appeal read as under:- The DCIT/ACIT Circle-6(1), New Delhi is hereby directed to file an appeal in the above mentioned case before the Income Tax Appellate Tribunal, New Delhi on the following ground (s) ofappeal.- 1. Whether in the facts and circumstances of the case, the Ld. CIT (A) erred in delet .....

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s of the case, the Ld. CIT (A) deleted the above disallowance of 50% of depreciation of office equipments amounting to ₹ 12,81,810/- on the ground that there cannot be any partial disallowance of depreciation once the asset is put to use, completely ignoring the fact, mentioned by the Assessing Officer in the assessment order, that the assessee failed to substantiate that the above assets were used wholly and exclusively for the purpose of trading as the manufacturing activity was yet to s .....

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tions in FY 2008-09 (AY 2009-10) while the commercial production was started on June 15, 2009 (i.e. FY 2009-10). 3.1 For the year under consideration, the Assessee filed its original return of income u/s. 139(1) of the Act on September 30, 2009 declaring a business loss of ₹ 12,29,71,472/-. The assessee suo moto revised its return of income on 22.3.2010 declaring a business loss of ₹ 1,24,87,861/- by disallowing expenses on setting up of manufacturing process claimed in the original .....

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ho vide impugned order 09.5.2013 by deleting the additions in dispute partly allowed the appeal of the assessee. 5. Aggrieved with the aforesaid order dated 09.5.2013, Revenue is in appeal before us. 6. Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal. 7. On the contrary, Assessee herself relied upon the order of the Ld. CIT(A) and requested that the same may be upheld. 8. We have heard both the parties and perused the records, especially the .....

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under:- S.No. Name Designation Amount Rs. (Salaries) 1 Yasuo Watanabe General Manager- Sales & Marketing 1,27,81,456/- 2 Roopesh Saxena Executive Sales & Marketing 1,34,317/- 3 Arun Mishra Manager- Sales & Marketing 6,18,538/- Total 1,35,34,312 5.1 The appellant has declared sales of ₹ 19758359/- against purchases of ₹ 20465302/-, all related to the automotive industry. 5.2 The Assessing Officer has held that the expenditure related to salar.ies of the personnel stated ab .....

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entire personnel expenditure in respect of above mentioned personnel against trading activities as revenue expenditure Assessee Company failed to substantiate the claimed expenses were wholly and exclusively incurred for the trading activities" 5.3 The appellant has contended "that the primary role of the above mentioned personnel was to develop the market of company's products in India. It is clear from the profile of the employees including expatriate Mr. Yasuo Watanabe, that the .....

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anies in India using the services of its sales and marketing personnel. What is important is that whether an activity, in the list of activities which culminate into set up of business, has been initiated. In the Appellant's case, the trading activities, which is one of the main business activity, as also stated in the Memorandum of Association of the Appellant were carried out in A. Y. 2009-10 hence, salary expenses incurred, being a normal business expenditure should be allowed as deductio .....

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ctivity. These personnel have devoted their energies for the jobs assigned to them by the Appellant Company, and that to successfully. The ad-hoc disallowance does not hold any merit once it is clear that the personnel have carried out activities for the appellant. It is not relevant whether the manufacturing activity has started or not once it is established that the trading activity has been started and the business has been "set up" for the purpose of Section 3. 5.5.1 In the case of .....

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iable conditions of the Act being satisfied." 5.5.2 The jurisdictional Delhi High Court discussed the issue of "commencement of business" and "setting up of business" in the case of Commissioner of Income-tax v. L.G. Electronic (India) Ltd. (2005) 199 CTR 205 (Del). 'The only issue that has been raised is with regard to deduction for expenses claimed by the assessee which was disallowed by the Assessing Officer on the ground that the assessee had not commenced its bu .....

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t there was a distinction between commencement of business and setting up of business and the two dates need not necessarily overlap. It was held that section 3 of Act refers to the date of setting up the business and as such it is only thereafter that the previous year of the newly set up business would commence. It was held that the expenses incurred prior thereto could be taken into account for the purposes of determining the profits of a newly set up business. Section 3(1) of the Act reads a .....

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on which the source of income newly comes into existence and ending with the said financial year ... " There is no doubt that the date of setting up a business and the date of its commencement could be two separate dates. Section 3(1) of the Act, as it stood at the relevant time (and even as it stands today) has reference to the date of setting up the business, the Commissioner of Income-tax (Appeals) and the Tribunal merely relied on the explicit language of the section to come to the conc .....

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set up all related expenditures will have to be allowed as deduction. Ground of appeal no. 2 is upheld. The addition of RS.6767156/- is deleted." 8.1 In view of the above, we are of the view that no interference is called for in the well reasoned order passed by the Ld. CIT(A), because the Ld. CIT(A) has decided the issue in dispute in favor of the assessee after appreciating the evidence filed by the assessee as well as various decisions rendered by the Hon'ble Jurisdictional High Cou .....

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10/- being 50 % depreciation on office equipment etc. is concerned, we find that the Ld. First Appellate Authority has also elaborately discussed the issue in dispute by considering the submissions of the Ld. Counsel of the assessee and adjudicated the issue in dispute vide para no. 6 to 6.3 at pages 7 to 8 of the impugned order which are reproduced hereunder:- "6. The third ground of appeal is regarding disallowance of ₹ 12818101- being 50% depreciation on office equipment etc.. The .....

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tax audit report has also certified the same. All conditions of Section 32 are met. 6.2 The facts of the case were considered, the Act clearly states that depreciation shall be allowed if the assets are "put to use" during the year. Just because manufacturing activity has not commenced does not imply that the goods have been only partially been put to use. As soon as they were employed in the office for trading purposes it Can be said that the assets were put to use. In such case, comp .....

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us year is not a condition for allowing deduction as investment allowance or depreciation. What is needed is that the machines must be used for the assessee's business. Whether the assessee is able to successfully commence commercial production or commercial production is delayed on account of defect in trial production does not affect the allowability of deduction on account of depreciation and investment allowance if from the material on record, it can reasonably be inferred that machines .....

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