TMI Blog2016 (2) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is allowed. - Decided in favour of assessee - ITA No. 5553/Del/2014 - - - Dated:- 22-12-2015 - Vijay Pal Rao, JM For the Petitioner : Shri Rajan Bhatia, Adv For the Respondent : Dr Anjula Jain, Sr DR ORDER This appeal of the assessee is directed against the order dated 20.08.2014 of the ld CIT(A)-IX, New Delhi for the Assessment Year 2011-12. 2. The assessee has raised the following grounds:- 1. That the ld. CIT (A) erred in law and on facts in confirming the AO's action of disallowing of legal 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y has been performed by the assessee company during the year under consideration. The assessee filed letter dated 03.10.2013 and submitted before the AO that the assessee is a subsidiary of Mahle GMBH (a German based company) and during the FY 2010-11, the assessee company has incurred a loss of ₹ 9,62,027/-. The company could not generate 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 to run a company. Further, the expenses of ₹ 1,59,455/- relates to the software charges pertaining to the communication system of the company was incurred. The maintenance of communication system is the backbone of the assessee company, therefore these are the allowable claim. The remaining expenses of ₹ 1,31,158/- relates to salary incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business itself contrary to the record as well as actual fact that the assessee has actually carried out the business activity. The ld AR has further submitted that the legal and professional expenses are nothing but statutory audit fee which is accounted at the end of the year whereas, the assessee has already set up and commenced it's business therefore at least the said amount cannot be disallowed even in the case if the set up of the business is considered on the date when the assessee has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rement allowing the expenses is only the set up of business and not the commencement of the business. Section 3 of the Income Tax Act defines the previous year 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 as a source of earning of income and therefore when the assessee was not require to do anything more to start its business activity then it will be regarded as set up of business of the assessee. In the case of CIT Vs. Whirlpool India Ltd. (supra) the Hon'ble jurisdictional High Court while dealing with the identical issue of setting up of business by a company rendering financial services has held as under:- 5. This Court in the case of Hughes Escorts Communications (supra) has clearly held that a business is set up though the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The total cost of the purchase was ₹ 29.84 lakhs (pages 21-23 of the paper book). Branch managers at Bhopal, Bhubaneswar and Pune were appointed in October 1995 (pages 37-42 of the paper book). Regional managers at Bombay, Calcutta and Gauhati were appointed during the same time (pages 43 to 48 of the paper book). Page 2 of the assessment order shows that the salaries were paid from November 1995 including allowances, bonus, gratuity and contribution to provident and other funds. The amount of such payments have also been given therein and are not reproduced 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 recruitment of 19 candidates for the post of accounts manager and incidental expenses. The fact that the foreign loan and FIPB approval for equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees 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 investing the same in the Indian group companies. Hence the assessee has already completed all the requisite acquisition and installation of facilities then the business of investment was set up by the assessee though it was commenced later on when the assessee has actually invested in the group of companies on 14.12.2011. It is a case of service/ investment company and not manufacturing or other production activity where a manufacturing facilities is required to be constructed prior to that the 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 is allowed. 8. In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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