DCIT Vs PPFAS Asset Management Pvt. Ltd. (ITAT Mumbai)
As SEBI approval mandatory is to commence business, assessee admissible to claim business expenses only after obtaining the necessary approval. Since commencement of business require SEBI approval, expenses claimed post approval would qualify as business expense.
Facts –
The assessee was incorporated on 08.08.2011 as a Private Limited Company. Assessee was required to obtain SEBI approval for undertaking its business. SEBI approval was granted on 17.10.2012.
AO contended that the expenses claimed by the assessee cannot be allowed as business/revenue expenses on the grounds that the assessee had no business activity as it has not obtained necessary approvals to initiate business activities.
Held –
Non granting of approval by SEBI directly impede the commencement of business of the assessee and in the absence of the said approval of the SEBI , the doctrine of impossibility will come into play and the assessee will never be in a position to commence its business. The grant of approval by SEBI was on 17.10.2012 which is the relevant date when the business of the assessee before us was set up and it was ready to commence business. The assessee, thus, shall be entitled to claim expenses w.e.f. 17.10.2012 as deduction as business expenses provided other ingredients of allowability of these expenses
Thus, we hold that the business of the assessee before us was set up and ready to commence its business on 17.10.2012 when it got approval from SEBI vide Sub-regulation (2) of Regulation 21 of the 1996 Regulation. We, therefore, hold that the assessee is entitled to a deduction of admissible business expenses incurred by it on or after 17.10.2012 when the business can be said to have been set up by the assessee.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal, filed by Revenue, being ITA No. 6687/Mum/2017, is directed against appellate order dated 15.09.2017 in Appeal no. CIT(A)-6/IT-42/268/2016-17, passed by learned Commissioner of Income Tax (Appeals)-6, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2013-14, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 29.02.2016 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 2013-14.
2. The grounds of appeal raised by Revenue in Memo of Appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-
” Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the disallowance of various expenses of Rs.1,99,35,754/-u/s.37(1) of the I.T. Act since the assessee could not commence business without obtaining approval of SEBI and the approval is beyond the purview of the A.Y. under consideration.”
The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal.”
3. The assessee is an asset management company incorporated on 8th August 2011. It is undisputed that the assessee is required to obtain Securities and Exchange Board of India(hereinafter called “the SEBI” ) approval for undertaking such business. The solitary question which has arisen in this appeal before us is whether the assessee has set up his business during the impugned assessment year so as to claim deduction of expenses incurred by it as revenue/business expenses keeping in view provisions of Section 37(1) of the 1961 Act r.w.s. 3 of the 1961 Act. The assessee was incorporated on 08th August 2011. The assessee has incurred an expenses of Rs. 1,99,35,754/- during the impugned assessment year which was claimed as an business expense /revenue expenses, as detailed here under:-
