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2016 (9) TMI 104 - ITAT MUMBAI

2016 (9) TMI 104 - ITAT MUMBAI - TMI - Disallowance of consultancy charges paid to the legal advisor firm - whether the said amount was not incurred for the purpose of business as the same was incurred prior to commencement of business of the assessee - Held that:- The business can be ‘set-up’ when the company is ready to discharge the function for which it is incorporated. It was also held that expenditure incurred after the setting up of business is deductible as revenue expenditure. It is als .....

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-2006. Thus, we find that in principle, the expenses incurred after 11-10-2006 having been incurred after setting up of business are deductible as revenue expenditure. - Expenses incurred on account of due diligence of a proposed investment - Held that:- It is clear that expenses incurred on account of due diligence of a proposed investment is clearly made as part of the business activities of the assessee and, therefore, the impugned expenses are expenses incurred in the ordinary course of .....

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. It is well settled law that results of the business activities or fruits of efforts to a business organisation may yield in the concerned year or in subsequent years or never. But that would not mean that the expenses incurred would not be expenses incurred during the course of business. Thus, we find that approach of the lower authorities in disallowing these expenses was contrary to law and facts. - I.T.A. No. 2940/Mum/2011 - Dated:- 27-7-2016 - SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI AS .....

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cumstances of the case, PineBridge Investments Capital India Private Limited (Formerly known as AIG Capital India Private Limited) [hereinafter referred to as the Appellant] craves to prefer an appeal against the order passed by the Commissioner of Income-tax (Appeals) - 14, Mumbai [hereinafter referred to as the learned CIT (A)], under section 250 of the Income-tax Act, 1961 (Act) in respect of the order passed by the Income-tax officer - 6(1)(4), Mumbai (the AO) under section 143(3) of the Act .....

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ltancy charges paid to the legal advisor firm, M/s Amarchand Mangaldas Suresh A Shroff Company on the ground that the said amount was not incurred for the purpose of business as the same was incurred prior to commencement of business of the assessee. 4. The brief facts as culled out from the orders of the lower authorities are that the assessee company was incorporated during the year under consideration on 25-04-2006. The assessee company is an investment holding company of AIG group and is reg .....

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placed with Citibank N.A, Mumbai, against which the assessee has claimed various expenditure aggregating to ₹ 204,86,458/-, which includes an amount of ₹ 1,25,80,076/- paid towards consultancy charges to a law firm namely M/s. Amarchand Mangaldas & Suresh A. Shroff & Co. During the course of assessment, the AO asked the assessee as to why such consultancy charges should not be disallowed since consultancy charges paid have not resulted into interest income. The AO further as .....

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as expenditure. The submission of the Assessee Company could not satisfy the AO and therefore AO disallowed the consultancy charges claimed as expenditure of ₹ 1,02,01 400. 5. Being aggrieved, assessee filed appeal before Ld. CIT(A) and made detailed submissions. The arguments made by the assessee before the Ld. CIT(A) as discussed by Ld.CIT(A) in his order are reproduced below: It has claimed that the appellant is a registered NBFC with RBI and its activity includes Asset Management, Con .....

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sh A. Shroff & Co. (AMS) for due diligence carried out for investment purposes. Since the appellant company is engaged in the business of making investment, such fees paid is 'for the purpose of business , therefore, the same needs to be allowed u/s 37(1) of the I.T. Act, 1961. The appellant claimed that as per provisions of section 37(1), such expenditure incurred is allowable as this expenditure is neither a capital expenditure nor an expenditure of personal in nature. The appellant fu .....

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Mills 103 ITR 66. (f) Madhavprasad Jatia Vs. CIT 118 ITR 200 (SC), and (g) S.A. Builders Ltd Vs. CIT288 ITR 1(SC). 6. Ld. CIT(A) considered the submission of the assessee, but he was not satisfied and did not find force in the arguments of the assessee. It was held by the Ld.CIT(A) that the impugned expenses have been incurred by the assessee for making investment in shares which is shown as investment in the balance sheet, therefore, such expenditure incurred is for making investment; hence, c .....

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, it was held that the said expenses cannot be said to be incurred for the purpose of business and, therefore, disallowance made by the Assessing Officer was confirmed. 6. Being aggrieved, assessee filed appeal before the Tribunal. During the course of hearing ld. Counsel drew our attention on the balance-sheet of the assessee company for the year under concern showing that assessee had setup its business during the year under consideration. Law in this regard is well settled that expenses incur .....

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other expenses incurred subsequent to this date were claimed as business expenses. It is further submitted that these expenses have been incurred in the normal course of business and, therefore, allowable as revenue expenses. 7. Per contra, the ld. DR submitted that expenses can be incurred only after making investment and not prior to that and therefore, these were rightly disallowed by the lower authorities. 8. We have gone through the orders of lower authorities and submissions made before u .....

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nsideration in the form of legal fee paid to a law firm needs to be capitalised or allowed as revenue expense, under the law? 9. We have pondered over all these issues. As far as first dimension is concerned, i.e. from what stage the expense can be treated as allowable in the case of a company, we shall make first of all, reference to section 3 of the Income-tax Act, 1961, which defines previous year , as under: 3. For the purposes of this Act, previous year means the financial year immediately .....

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newly set up business, the previous year shall be the period beginning with the date of setting up of the business or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year. Thus, we need to find out when the business of the assessee company can be said to be set-up . The business may be commenced subsequently, but for the purpose of allowing the expenses, it has to be seen that when the business can be said to be setup . I .....

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ctionary, "to place on foot" or "to establish", and in contradistinction to "commence". The distinction is this that when a business is established and is ready to be commenced then it can be said that business is set up . But before it is ready to commence business, it is not set up. In other words, for setting up of business, what is required is readiness for commencement of business and actual commencement of business would not be necessary. In this regard, we ca .....

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ness can be set-up when the company is ready to discharge the function for which it is incorporated. It was also held that expenditure incurred after the setting up of business is deductible as revenue expenditure. It is also brought to our notice that one of the objects for which the company was incorporated was to make investment in other companies, and the assessee company had received funds in the form of share capital or other sources before 11-10-2006 and it had started making due diligenc .....

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m of ₹ 4,21,400 and ₹ 1,60,000 (aggregating to ₹ 2,01,400) were stated to have been incurred on account of reimbursement of expenses for purchase of stamp paper. During the course of hearing it was stated by the Ld. Counsel that no details are available about the nature and purposes of these expenses. Under these circumstances, we find that these expenses are not allowable and, therefore, these are disallowed. 11.1. With regard to the remaining expenses of Rs. One crore, it is .....

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