Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (2) TMI 341 - ITAT DELHI

2016 (2) TMI 341 - ITAT DELHI - TMI - Disallowance of office expenses - commencement of business - whether what is required to start is business as only setting up of the infrastructure and appointment of the directors and managers as well as other staff? - Held that:- The assessee has already appointed its directors and the employees and also installed the requisite infrastructure for the purpose of carrying out the business activity of investment by procuring funds from its parent company and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

business cannot said to be set up. In view of the above facts and circumstances as well as the judgement of the Hon'ble High Court I am of the considered view that the assessee has set up its business at the beginning of the financial year under consideration as the assessee was not require to do anything more whatever already completed for start of the business. Accordingly the claim of expenses is allowable claim. The orders of the authorities below are set aside and the claim of the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and professional expenses of ₹ 1,83,090/- by wrongly treating the same as capital in nature. 2. That the ld. CIT (A) erred in law and on facts in confirming the AO's action of disallowing of salary expenses of ₹ 1,31,158/- by wrongly treating the same as capital in nature. 3. That the ld. CIT (A) erred in law and on facts in confirming the AO's action of disallowing of software expenses of ₹ 1,59,455/- by wrongly treating the same as capital in nature. 4. That the ld. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

penses of ₹ 4,74,5277- being excessive and ad hoc in nature. 7. Without prejudice to ground No.1 to 6 the Id CIT (A) wrongly confirmed the action of AO in not allowing the depreciation on disallowed expenses being capital in nature. 8. That the order of the ld. CIT (A) is bad in law and against the facts of the case. 3. The assessee company was incorporated on 28.07.2009 vide Certificate of incorporation dated 28.07.2009. The assessee stated that its main object is to carry on business of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cal, administrative and other executive supervisory and technical services. The AO found that the assessee company has not carried any business activity during the year under consideration. However, the assessee claimed expenses of ₹ 9,62,027/- on account of share capital expenses, legal and professional fee, network system and salary. Out of ₹ 9,62,027/-, the assessee company Has sue motto added back share capital expenditure of ₹ 4,87,500/- to arrive at business loss of ͅ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

any revenue during the entire financial year as the company was a new entrant in the line of business. It was further submitted that out of the expense of ₹ 9,62,027/- of ₹ 4,87,500/- incurred on account of share capital expenses was disallowed by the assessee itself. The remaining amount of ₹ 4,74,527/- includes a sum of ₹ 1,83,090/- on account of legal and professional fees pertaining to statutory audit, RBI compliance etc. Therefore, expenses are statutory requirement .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

AO that except the expenses incurred of share capital expenses all other expenses are allowable business expenses for the assessee company. The AO did not accept the claim of the assessee and held that no business activity has been done by the assessee during the year consideration, therefore the expenses cannot be allowed. However, certain expenses are needed for the existence of the company hence, the AO allowed a sum of ₹ 20,000/- and remaining amount of ₹ 4,54,527/- was disallow .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

5. Before the Tribunal the ld counsel for the assessee has submitted that since the assessee is an investment company and is a subsidiary of Mahale GMBH. It is pointed out that prior to incorporation of the assessee company, the assessee needed approval from Foreign Investment Promotion Board (FIPB), which was obtained by the assessee on 08th August 2008. The copy of the approval of FIPB is placed at Page 39 of the PB. Thus, the ld AR has contended that when the assessee has completed all the re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

roup of company. Therefore the assessee has incurred the expenses for the software which has provided back bone of the assessee is nature of business. The ld AR has submitted that on 09.02.2011, the assessee received fund from its patent company which was invested on 14.02.2011. Thus during the year under consideration the assessee carried out certain business activity and therefore finding of the AO as well as learned Commissioner of Income-tax (Appeals) that the assessee has not set up its bus .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

received the fund from its parent company and investment to same in the group company in the month of February 2011. In support of his contention he has relied upon the decision of the Hon'ble jurisdictional High Court in the CIT Vs. Wirlpool India Ltd. 318 ITR 347. On the other hand the ld DR has relied upon the finding of the authorities below and submitted when the AO as well as learned Commissioner of Income-tax (Appeals) has given a finding that no business activity has been carried out .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent by availing funds from its foreign parent entity, therefore the approval FIPB was required. It is also not in dispute after incorporation of the assessee company as well as obtaining the approval, the assessee was not required to obtain any further approval or permission from any other authority for commencement of its business activity of investment. Further, the assessee has acquired/ installed the requisite software which claimed to be back bone of the business activity of the assessee fo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the business it can be said that the assessee was ready to start and commence its business. There is difference between setting up of business and commencement of business. The setting up of business is a stage when the assessee is ready to start the business whereas the commencement of the business is a stage when the assessee actually starts the business. Therefore there may be a time gap between the setting up of business and commencement of business. Hence the assessee has reached to a s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ar being the financial year immediately preceding Assessment Year and in the case of business or profession newly set up or newly came into existence the FY/ previous year shall be period beginning with the date of setting up of business or profession as the case may be. Thus, the date on which the source of earning the income came into existence will be beginning of the previous year and ending of the financial year. In the case in hand the assessee has already placed all the requisite things a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

held that a business is set up though the same may not have commenced and the expenditure incurred after the date of setting up has to be allowed as a deduction. It was further held that the question as to when the business is set up depends on the facts of each case and the nature of the business and no hard and fast rule can be laid down as to when the business was set up. 6. In view of the above, the following paragraph of the judgment of the ITAT which exhaustively details the facts and the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e selling agency or financial business or it is a hospitality industry (such as a hotel) or a service industry (such as financial or marketing services). The assessee before us is a financial company authorized to advance loans for interest to facilitate customers to purchase consumer durables, though the business is not limited to advancing monies for acquiring consumer durables. We have already referred to the memorandum of association in this regard. The business is not also limited to consum .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ause prior thereto the company, though it did not have a bank account, was incurring the expenditure through Kelvinator India Ltd. or Expo Machinery Ltd. The absence of a bank account cannot impede the setting up of the business. We may advert to the evidence in this behalf. Computers and peripherals were purchased vide order placed on HCL Hewlett Packard Ltd. of Noida on 4-9-1995 and the required end-user certificate was also issued. The total cost of the purchase was ₹ 29.84 lakhs (pages .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eproduced here for the sake of brevity. The office rent of ₹ 17,500 for November and ₹ 25,000 each for December 1995 and January 1996 have also been paid. It is thus clear that the establishment and staff were put in place by the end of October 1995 and the company was ready to commence its business from 1-11-1995. M/s S.R. Batliboi Consultants (P.) Ltd. had also submitted their bill dated 30-10-1995 for ₹ 2,91,486 for professional services rendered in connection with recruitme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

um of association from November 1995 when it had its own offices, branch and regional managers and staff, computers installed and was ready to commence its activities. The expenses were incurred through Kelvinator and Expo Machinery and evidence to this effect is placed at pages 24-31 and at other pages (e.g., Page 52) of the paper book. From the above evidence it is clear that the business was set up from 1-11-1995, by which date the company was ready and in a position to commence its business. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Wealth-tax Act, 1957 along with its proviso and the language of the main section and the proviso were wholly different. In the proviso, the requirement was specifically of the company commencing operations but in the main section the expression used was different viz., of setting up of the unit. In the light of the relevant provisions, the facts of that case and the claim of the assessee to get the benefit of a deduction, the Supreme Court interpreted the provisions applicable to mean that actua .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version