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2016 (4) TMI 735 - ITAT AHMEDABAD

2016 (4) TMI 735 - ITAT AHMEDABAD - TMI - Allowability of deduction - commencement of business - Held that:- There is enough material on record to indicate that the business has actually commenced in 2008-09. Learned CIT(A) has categorically given findings on that aspect and learned Departmental Representative has not been able to controvert the same. The mere fact that the assessee had received advance for work cannot lead to the conclusion that the business had commenced. In any event, this ad .....

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r, AM And Kul Bharat, JM For the Petitioner : Shiva Sevak For the Respondent : Sanjay R Shah ORDER Per Pramod Kumar, AM 1. By way of this appeal, the Assessing Officer has challenged correctness of the order dated 24th October, 2011, passed by the ld. CIT(A), in the matter of assessment under section 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year 2008-09. 2. Grievances raised by the Assessing Officer are as follows "1. The Ld. CIT(A) has erred in .....

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rn of income on 25th September, 2008, declaring interest income on deposits amounting to ₹ 58,539/- under the head "income from other sources". The stand of the assessee was that since the assessee has not commenced its business during the relevant period, computation of income under the head "profit and gains" from business was not necessary. In the course of the scrutiny assessment proceedings, the Assessing Officer noted that the assessee has claimed foreign exchange .....

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r further observed that while the assessee may be correct, so far as accounting practice is concerned, but no deduction can be allowed, for the purpose of computing his profit under the Income Tax Act for contingent liability. The Assessing Officer further noted that the assessee has incurred a loss of ₹ 1,33,97,654/- which pertained to salary and other expenses relating to business "evidencing that business of the assessee has commenced although no income has been booked". The A .....

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under :- (i) Income from other sources Rs.58,539/- (ii) Loss from Business Add: Rs.1,33,97,654/- Disallowance as discussed above Rs.13,49,875/- Net Loss from Business Rs.1,20,47,779/- 5. Income assessed u/s. 143(3) of the I.T. Act, 1961. Issue Demand Notice and Challan, Accordingly." 4. Aggrieved by the stand so taken, the assessee carried the matter in appeal before the learned CIT(A). 5. As regards the first point i.e. commencement of business, the learned CIT(A) was of the view that the .....

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er the Letter of Approval, it needs to commence the service activity within stipulated period unless it is extended by appropriate authority. The appellant had sought extension to start commercial activities initially up to December 31, 2008 and later on up to April 30, 2009 which was duly granted by the Development Commissioner. Had the appellant already commenced the service activity, there would have not been any necessity to seek such extension, 4.7. The company inaugurated its facility in N .....

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vernment agencies regarding the revenues earned by it. The Annual Performance Report for the Financial Year 2008-09 clearly mentions that Financial Year 2008-09 (i.e. Assessment Year 2009-10) is the first year of operations. 4.10. The evidences adduced by the appellant in support of its claim clearly indicates that the appellant did not carry out any commercial activities in FY 2007- 08. Further, the AO has only relied upon accounting treatment to construe that the appellant commenced provision .....

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any income. As discussed above, the accounting treatment of charging certain expense to Profit & Loss Account was in order to comply with accounting standards and therefore it cannot be interpreted to mean that the appellant provided any services. 4.11. The contention of the appellant that its business has not commenced during the year gets support from its audited annual accounts, letter of extension by Development Commissioner of Kandla Special Economic Zone, the newspaper clippings, Annu .....

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usiness/provision of services. Provision of service is physical revenue generating activity and receipt of advance does not indicate that services were actually provided. 4.13. The services can be provided and business can be said to have commenced when the basic facilities required for providing service (in case of appellant) is ready. The evidences produced by the appellant does indicate that the facilities were not ready to commence provision of service by March 2008 or even November 2008 whe .....

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ation of liability, learned CIT(A) reversed the stand of the Assessing Officer and held that the disallowances cannot be made for the reasons set out below:- "5. Fifth ground is an alternative ground which relates to granting deduction of foreign exchange loss of ₹ 13,49,875/- in case it is held that the business operations have commenced during the year. As it has been decided above that the business operations have not started during the year this ground has not been adjudicated sep .....

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