Case Law Details
Business is said to have been set up when it is established and ready to be commence. However, there may be an interval between a business which is set up and a business which is commenced. However, all expenses incurred during the interregnum between setting up of business and commencement of business would be permissible deductions.
RELEVANT EXTRACT OF THE JUDGMENT
3. The Respondent – Assessee is an asset management company. During the assessment proceedings, the Assessing Officer noted that the respondent – assessee had shown the business loss of Rs.1.17 crores and Miscellaneous Income of Rs.24,720/- for the subject assessment year. The Assessing Officer disallowed the business loss (arising in view of expenditure) claimed by the respondent – assessee on the ground that business has not been set up during the year under consideration and no evidence in regard to the same was produced. So far as miscellaneous income of Rs.24,720/- is concerned, the Assessing Officer brought it to tax as income from other sources.
4. Being aggrieved the respondent – assessee carried matter in Appeal. By the order dated 13th December, 2011 the Commissioner of Income Tax (Appeal) [CIT (A)] upheld the order of Assessing Officer disallowing business loss of Rs. 1.17 crores on the ground that the respondent – assessee had not furnished any evidence to prove that any activities of managing the investments or funds have been carried on during the year under consideration. So far as the grievance in respect of Miscellaneous Income of Rs.24,720/- was concerned, it was held that the same arises on account of interest on fixed deposit and is correctly assessed as income from other sources.
5. Being aggrieved the respondent filed further appeal to the Tribunal. The Tribunal by the impugned order recorded the fact that the expenses of Rs. 1.17 crores was disallowed as business has not been set up in the year under consideration by the lower authorities. The impugned order also makes reference to the fact that the company was incorporated in the year 2006 and the Assistant Registrar of Companies has issued a certificate that the company had commenced business with effect from 1st October, 2006. Further the impugned order records the fact that from the balance sheet and profit and loss account filed which includes Director’s report, it is clear that the company has taken steps for commencing business of venture capital fund. It has engaged legal and financial advisors. It had also incurred expenditure to decide the appropriate tax efficient structure for the funds and employed necessary personnel for purpose of running its business. The impugned order records the fact that human capital is key to the business of asset management. Further, the impugned order relied upon a decision of the Co-ordinate bench of the Tribunal is case of HSBC Securities India Holdings Pvt. Ltd. decided in ITA No.3181/M/1999 decided on 28th November, 2001 wherein it was held that the business would be held to be set up as and when assessee had taken business premises and has taken steps to recruit employees and has incurred expenses for promoting its business activity In fact the impugned order also records the fact that in subsequent assessment year 2009-10 similar expenditure as claimed in the subject Assessment Year have been allowed by the Assessing Officer as business expenses. In the aforesaid circumstances the Tribunal held that expenses incurred are to be allowed as business loss as same had been incurred after the business has been set up. So far as Miscellaneous Income of Rs.24,720/- is concerned, the impugned order records the fact that similar income claimed by the assessee has been categorised as income from other sources, by the Assessing Officer for subsequent assessment year 2009-10 and accepted by the assessee.
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