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2016 (2) TMI 664 - ITAT DELHI

2016 (2) TMI 664 - ITAT DELHI - TMI - Allowance of business expenditure - incorporation of business - Held that:- CIT (A) has rightly taken into consideration all the aspects. It is clear that the business of the assessee was set up since incorporation as it was having Carrefour Franchise Right and the expenses claimed by it for carrying out search for potential franchisees are expenses incurred post set up of business and are allowable as business expenditure. The AO erred in understanding the .....

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Respondent : Sh. Rupesh Jain, Adv. ORDER PER SUCHITRA KAMBLE, JM This appeal is filed by the Revenue against the order dated 2/3/2012 passed by the Ld. CIT(A) s VI, New Delhi. 2. The grounds of appeal are as under:- 1. The Ld. CIT(A) has erred on facts and in law in deleting addition made by the A.O amounting to ₹ 5,24,17,631/- on account of business expenditure. The Ld. CIT(A) has erred in concluding that the assessee s business was set up during the year. In para 5.4 of his order the Ld. .....

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bfranchise those rights. The assessee is a group subsidiary of Carrefour Group, second largest retailer of the world. For the relevant assessment year, the assessee filed its return of income on 30/9/2008 declaring a loss of ₹ 4,80,72,481/-. During the course of assessment, the A.O observed that the assessee company claimed expenses amounting to ₹ 6,32,57,573/- and claimed business loss of ₹ 5,89,12,423/-, after absorbing the income from other sources amounting to ₹ 43,45 .....

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ing Stock; (iv) Shortage/excess, if any With these observations the A.O requested the assessee company to explain as to why business loss claimed should not be disallowed. In response to the show cause notice, the assessee company explained that during the relevant assessment year, the assessee acquired an office premises w.e.f. 1/10/2007, opened its bank account on 4/10/2007 and incurred routine business expenses such as legal and professional charges, travel and conveyance, meeting and confere .....

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d approvals etc. and on this account incurred expenses to the tunes of ₹ 2.8 crores which indicates that the assessee had set up its business operations. During the relevant previous years, the assessee identify various franchisees and discussed with them regarding terms of franchisee, technical services and other commercial agreements. In view of these facts, it was submitted by the assessee that it had done all the activities which were essential for the set up of the business. Therefore .....

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1 vide order dated 10/12/2010. Aggrieved by the disallowances and additions made in the assessment order, the assessee filed the appeal before CIT(A). 5. The CIT(A) held as under: However, whether business is set-up and ready to commence is a matter of fact which is to be examined in light of facts of each case. In the present case, the appellant, who is in the business of providing business franchisee rights, has received the authorization from Carrefour group to sub-franchise the rights, has h .....

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452) 2009 considered that date of acquiring a distributor license of ESPN Programme is a date of business set up and all expenses should be allowed from that date. Recently, similar view has been given by Mumbai ITAT in the case of De Beers India Prospecting Pvt. Ltd. (ITA no. 4(D/Mum/2006) dated 16 Dec 2011 wherein it was held that the approval received from FBPB and Government for carrying out operation relating to prospecting of diamonds and starting of prospecting activity before actual mini .....

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on ble Supreme Court and Hon ble High Court (including Jurisdictional Delhi High Court), it can be said that the key business activity of the appellant has started. 5.4 Based on the above principles laid down by the Hon ble Supreme Court and Hon ble High Court and the facts of the present case, it is clear that the business of the appellant was set up since incorporation as it was having Carrefour Franchise Right and the expenses claimed by it for carrying out search for potential franchisees ar .....

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usiness expenditure and the disallowance made by the Ld. AO is deleted and hence, the action of the Ld. AO is reversed. 6. The AR submitted that the present case is covered by assessee s group company case, Carrefour WC & C India Pvt. Ltd. Vs. DCIT ITA No. 42/2014 decided on 22.09.2014 wherein the Hon ble Delhi High Court has granted the relief in favour of the assessee therein. The same is annexed at page 96 to 118 of the paper book filed by the assessee. The AR further submitted that there .....

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