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2016 (4) TMI 503 - ITAT MUMBAI

2016 (4) TMI 503 - ITAT MUMBAI - TMI - Disallowance of office expenses - commencement or non commencement of business - Held that:- CIT(A) while deleting the disallowance so made by the AO has considered all the documents placed by the assessee. On verification of the details so placed by the assessee, the CIT(A) found that the assessee had sent an introductory letters to various clients urging for the business and calling for their requirements of the product. The date of letter was August, 21, .....

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- Decided in favour of assessee

Set off and carry forward the business loss - Held that:- We found from the findings of the CIT(A) that the assessee had already commenced its business activities from A.Y. 2008-09, therefore, the assessee should be allowed carry forward of the expenditure from the assessment year under consideration - Decided in favour of assessee - ITA No.333/Mum/2013 - Dated:- 4-3-2016 - SHRI B.R.BASKARAN, AM & SHRI SANDEEP GOSAIN, JM For The Revenue : Smt. Anu .....

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e Ld. CIT(A) erred in not considering the fact that the first sale of the assessee was concluded in August, 2008 and hence August, 2008 should have been taken as the date of commencement of business. 3. On the facts and circumstances of the case as well as in law, the Ld.CIT(A) erred in holding that the business of the assessee started on 21.08.2007, ignoring the fact that the first sale was concluded in August, 2008. 4. On the facts and circumstances of the case as well as in law, the Ld.CIT(A) .....

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stored. 2. Brief facts giving rise to this appeal are that the assessee is engaged in the business of trading of lipids and excipients for pharma and cosmetic industry. The assessee had incorporated as a private company on July 18, 2007, as a wholly owned subsidiary of Gattefosse Holding, France. The assessee filed its original return of income by way of e-filing declaring total income at ₹ 71,29,048/-. The case of the assessee was selected for scrutiny. During the assessment proceeding, t .....

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pers filed during the course of appellate proceedings. The issue here to be decided is when is the business set up. Sec. 3 of the Income-tax Act provides as under: "Sec.3 - Here in the provision) previous year commences for the business or provision when it is set up or when new income comes into existence.' Now we have to further decide on which is the date of set up of the business. Various tests were applied by the High Courts and Supreme Court regarding the issue of set up and comme .....

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prior to the setting up of a business would not be a permissible deduction. When a business is established and is ready to commence business then it can be said of that business that it is set up but before it is ready to commence business it is 'not set up. There may however be an interval between the setting up of the business and the commencement of the business and all expenses incurred during that interval would be permissible deductions", (i) Prem Conductors Pvt. Ltd. vs. CIT (19 .....

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0 "the Gujarat High Court held that , "Business" connotes a continuous course of activities. All the activities which go. to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which much necessarily preceded all other activities is started". (iii) Sarabhai Management Corp. Ltd. vs. CIT (1965) 102 ITR 25, "the Hon'ble Gujarat High Court has r .....

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39;business. All the activities will not have to be conducted at the same time or started simultaneously. Some activities or business starts earlier or some later. The business is set up when it is ready to commence." This means when the first activity of the business is started then it can be taken as business is set up by applying the above tests. On verification of the details filed it was found that in the paper book on page 40 assessee had sent an introductory letters to various client .....

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;s addition is deleted. This ground of appeal is allowed. 3. The 5th ground of appeal is that the A.O. erred in holding that brought forward business loss of the immediate preceding previous year is not eligible for set off against the business profit of' the year under consideration. 3.1 The A.O. in his order has not allowed assessee to carry forward the business loss as the business was not commenced during the A.Y.2008-09. Since earlier I held that business had commenced from A.Y.2008-09, .....

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administrative expenses and finance cost, therefore, the AO rightly disallowed the same. It was also the contention of ld. DR that there was no business activity of the assessee in previous year, therefore, the AO disallowed the loss of ₹ 11,59,064/- carried forward from previous year to be set off against the current year income, which is just and proper. Hence, the CIT(A) has wrongly allowed the claim of the assessee. 4. On the other hand, ld. AR contended that the assessee is in the bus .....

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T(A) after considering all the documents placed on record has deleted the disallowance so made by the AO. 5. We have heard rival contentions of the parties and perused the record carefully. We found that the CIT(A) while deleting the disallowance so made by the AO has considered all the documents placed by the assessee. On verification of the details so placed by the assessee, the CIT(A) found that the assessee had sent an introductory letters to various clients urging for the business and calli .....

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herefore, no disallowance of expenditure upto 8th August, 2008 is warranted. Ld. AR placed an order of the Tribunal in the case of Reliance Gems & Jewels Ltd., ITA No.3855/Mum/2013, order dated 28-10-2015, wherein similar disallowance was deleted in favour of the assessee after relying various judicial pronouncements. The relevant observations of the Tribunal are as under :- 10. We have given a thoughtful consideration to the rival submissions and have carefully perused the orders of the aut .....

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e head profits and gains 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 .....

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ollowing facts: The Assessing 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 o .....

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tup as on 1st April, 2004 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 .....

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e moment the assessee 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 o .....

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