TMI Blog2017 (1) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... owed by the AO. However, no income was booked in the Profit & Loss A/c since execution of sales orders was not completed during the year. But, as discussed above, receipt of income would be essential to determine factum of commencement of income. As far as, ‘setting-up’ of business is concerned, it takes place as soon as an assessee becomes ready to cater to its customers. As discussed in detail above, the expenses shall be allowable from the stage of ‘setting up’ of the business in view of proviso to section 3 of the Act which says that in the case of a business or profession newly set up in a financial year, the previous year shall be the period beginning with the date of setting up of the business and ending with the said financial year. Thus, taking into account all the facts and circumstances of the case, it would not be difficult to reach to the conclusion that business of the assessee was ‘set up’ during the year as the facts strongly indicate that business was duly ‘set up’ during the year. Under these circumstances, it can be easily said that the assessee had ‘set up’ its business and therefore, expenses incurred during the year should be allowed as business expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. During the course of hearing, arguments were made by Shri Nishant Thakkar Mis. Jasmin Amalsadvala, Authorised Representatives (AR) on behalf of the assessee and by Shri Prakash Mane, Departmental Representative (CIT-DR) on behalf of the Revenue. 3. The solitary issue raised in this appeal is whether the business of the assessee was set up during the year under consideration and accordingly whether the expenses incurred by the assessee during the year were allowable as business expenses or not. 3.1. The brief facts in this regard are that the assessee company was incorporated on 27.03.2008. It was not informed that the assessee company proposed to do the business of trading and installation commissioning of specialized storage tanks. No major operations were done in financial years 2007-08. In financial year 2008-09 ( i.e. A.Y. 2009-10), expenses were incurred for the purpose of setting up of the business and these expenses were claimed as business expenses in the return filed which were allowed by the AO u/s 143(1). In the impugned F.Y. i.e. 2009-10 (pertaining to A.Y. 2010-11), the assessee filed its return of income claiming expenses incurred under various heads a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rangements to manufacture the same during the year under consideration. It was also noted that the amount of purchase claimed to be made during the year was quite insignificant and there was no income from sales. After considering the entire facts of the case, Ld. CIT(A) distinguished the judgments relied upon by the assessee and concluded that business of the assessee was not set up till the end of the financial year i.e. 31st March, 2010. Under these circumstances, all the expenses were held to be disallowable and thus order of the AO was upheld. 3.3. Still being aggrieved, the assessee filed appeal before the Tribunal. During the course of hearing, Shri Nishant Thakkar Ms. Jasmin Amalsadvala, Ld. Counsels of the assessee vehemently supported the claim made by the assessee. It was submitted that both the authorities have wrongly narrated the fact of manufacturing. The correct fact is that the assessee was engaged in the business of trading of storage tanks and in certain cases, the storage tanks were also installed and commissioned at the premises of the customers. Our attention was drawn upon various evidences enclosed in the paper book showing that during the year under co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The details of employee appointed during the year shows that some of the employees were appointed in the earlier year and some were employed during the year under consideration. It is also seen that the assessee had arranged it office premises and also open bank accounts and transactions were done through banking channels only. Under these given facts we have to decide by the assessee it could be business of the assessee was set up. 3.5. We have gone through the financial statement filed along with the return of income. Admittedly, no revenue has been shown during the year. The assessee has not claimed that its business was commenced during the year. The assessee has claimed that its business was set up during the year and the expenses were allowable after the setting up its business, even if business is not yet commenced. We find force in the argument of the Ld. Counsel. On legal principle, this issue has already been settled in many judgments. This issue was also decided by the coordinate bench in the case of Multi Act Realty Enterprises Pvt. Ltd. v. ITO (supra), wherein in the similar circumstances, it was held that there was a difference between setting up of business an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J.R. Patel Sons Pvt. Ltd. 69 ITR 782 (Guj) 3. Raipur Mfg. Co. Ltd. (84 ITR 508,516) (Guj) 4. Security Printers of India Pvt. Ltd. (78 ITR 766,774) (All) 5. Tatasons Ltd. (18 ITR 460,467) (Bom) 6. Walchand Co. P. Ltd.(65 ITR 381, 385) (SC) 7. J.K. Woolen Manufactures (72 ITR 612) (SC) 8. Aluminium Corp. of India Ltd. (86 ITR 11, 17) (SC) 9. Orissa Cement Ltd. (73 ITR 14, 17) (Del) In following cases it has been held that expenses shall become deductible after setting up of the business, even if commencement of business has not yet taken place: 1.CIT Vs. Ralliwolf Ltd. (121 ITR 262) (Bom) 2.Saurashtra Cement Chemical Industries Ltd. (91 ITR 170) (Guj) 3.Western India Vegetable Products Ltd. (26 ITR 151) 4.Ramaraja Surgical Cottons Mills Ltd. (63 ITR 478) 5.CIT vs Whirlpool of India Ltd 318 ITR 347 (Delhi) In the case of CIT vs Sardar Sarovar Narmada Nigam Ltd 364 ITR 477 (Guj) it has been held that where business of the assessee consists of different categories, then company can be said to have set up its business from the date when one of categories of its business was started and all the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be said to be in a position to cater to its customers, then it can be said that business is set up , and therefore expenses would become allowable thereafter. 3.7. Now, to decide whether the assessee had reached to the above position or not, no straight jacket formula can be given. Various factors depending upon the nature of the business need to be taken into account and properly analysed to decide this fact that whether the assessee was in a position to cater to its customers or not. With a view to find answer to this question, it was firstly noted by us from the perusal of the financial statements of the assessee and other documentary evidences brought before us that various employees were appointed by the assessee possessing requisite skill to carry out sales orders. Most of the employees had been already appointed in the preceding year. The sales order was received as early as in the beginning of the Financial Year i.e. 08.04.2009. Office premises were hired, computers, other assets and requisite infrastructure were put in place to enable the assessee to carry on its business and some purchases were also made. It is also noted that expenses incurred by the assessee were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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