Case Law Details
Maruti Insurance Broking Pvt Ltd Vs DCIT (Delhi High Court)
As noticed above, the assessee did all that, which was necessary, to set up the insurance broking business. Only to recapitulate, the assessee, after its incorporation opened a bank account, entered into an agreement for deputing employees (who were to further its insurance business), gave necessary training to the employees, executed operating lease agreements, and resultantly, set up offices at 29 different locations across the country. Besides this, as noticed above, the application for obtaining a license from IRDA was also filed on 01.12.2010. In the instant case, IRDA took more than a year in dealing with the assessee’s application for issuance of a license. The license was issued only on 02.02.2012 although the assessee was all primed up, i.e., ready to commence its business, if not earlier, since 01.06.2011.
Assessee set up its business only on 02.02.2012 was perverse and erroneous in law. The assessee, having acquired the necessary wherewithal and physical infrastructure for carrying on its business – it was only waiting for the approval of its application for commencement. The Tribunal failed to appreciate the difference between the assessee being ready to commence business and the date from which it conducts business or, as in this, allowed to conduct. It has to be understood that business does not conform to, metaphorically speaking, the “cold start” doctrine. There is, in most cases, hiatus between the time a person or entity is ready to do business and when business is conducted. During this period, expenses are incurred towards keeping the business primed up. These expenses cannot be capitalized as suggested by the authorities below.
We are of the view that if Mr. Bhatia‟s submission was to be accepted, then, it is quite likely that if, in a given situation, the statutory authority, which is required to grant the approval, delays the issuance of the license, the expenses incurred, in the interregnum, would not be allowed as business expenditure. As noticed above, in this case, the AO, based on the facts noted above, has concluded that the expenses incurred by the assessee are preoperative and have to be capitalised. This approach destroys business efficacy and is not countenanced by the law.
FULL TEXT OF THE JUDGMENT/ORDER of DELHI HIGH COURT
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