Court dismisses appeals challenging disallowed loss claim, questions provision applicability, remits matter for reevaluation.

The appeals challenging the disallowance of loss claimed by the assessee for not setting up its business were dismissed by the court. The court noted the distinction between "setting up of business" and "commencement of production" in mineral exploration and found merit in the argument that the business was set up. However, the court questioned the applicability of a specific provision and proposed remitting the matter for reevaluation. Ultimately, due to the expiration of the period for carrying forward losses, the court dismissed the appeals for statistical purposes, leaving the issue open for future consideration if necessary.

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Issues:
Whether the disallowance of loss claimed by the assessee on the grounds of not setting up its business was justified.

Analysis:
The appeals challenged orders passed by Ld. CIT(A)-3, Bengaluru for the assessment years 2012-13 and 2013-14. The main issue in both years was the disallowance of loss claimed by the assessee on the basis that it had not set up its business. The assessee, a joint venture company for mineral exploration, had not commenced commercial production but had incurred various expenses. The AO disallowed the claimed loss, stating the company had not started any activity. The Ld. CIT(A) agreed, citing a Tribunal decision and dismissing the appeals.

The Ld. A.R. argued that the company had set up its business by obtaining a reconnaissance license, and the exploration process was lengthy. The bench noted the provisions of section 35E of the Act, dealing with deduction of mineral prospecting expenses. The Ld. A.R. contended that as the years under consideration fell beyond the 4-year period in sec. 35E, normal provisions should apply.

The Ld. D.R. supported the Ld. CIT(A)'s order, referencing a Bombay High Court decision on the necessity of proving business set up. The bench highlighted the distinction between "setting up of business" and "commencement of production," emphasizing that revenue generation was not the sole criterion for setting up a business in mineral exploration. The bench found merit in the assessee's argument that the business was set up, but questioned the applicability of sec. 35E to the case.

The bench proposed remitting the matter to the AO for reevaluation under sec. 35E, which both parties agreed to. However, considering the expiration of the period for carrying forward losses, the bench deemed it unnecessary to remit the matter. The appeals were dismissed for statistical purposes, leaving the issue open for consideration in a future year if needed.

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