Tribunal allows appeal on business setup timing, emphasizes readiness over commencement.

The Tribunal partially allowed the appeal, overturning the CIT(A)'s decision. It held that the assessee had indeed set up its business during the assessment year, allowing the claimed expenses and loss carry-forward. The Tribunal emphasized the distinction between setting up and commencing business, focusing on the readiness to start operations as the decisive factor. Additionally, the Tribunal rejected the additional ground raised by the assessee regarding the limited scrutiny issue, emphasizing the importance of factual certainty in legal proceedings.

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Issues:
- Whether the assessee has set up its business during the assessment year under consideration.
- Whether the additional ground raised by the assessee regarding the limited scrutiny issue is admissible.

Analysis:

Issue 1: Setting up of Business
The appeal challenged the disallowance of the claim of loss by the Assessing Officer (AO) based on the contention that the business was not set up during the year under consideration. The AO observed that the assessee did not generate any revenue, signed a service agreement in November 2015, and did not commence business activities. Relying on a Supreme Court decision, the AO held that the business was not set up, leading to the disallowance of the claimed loss. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the business was not fully ready to start services. The CIT(A) referred to the company's objective to commence operations from April 1, 2015, and the recruitment of only 2 employees out of the required 25. The CIT(A) dismissed the appeal, distinguishing a Delhi High Court decision cited by the assessee. The Tribunal noted the expenses incurred by the assessee, such as office setup, employee recruitment, and asset purchases, as indicative of business setup. The Tribunal emphasized that there can be a gap between setting up and commencing business, citing relevant case law. It concluded that the assessee had set up its business during the assessment year, allowing the expenses and loss carry-forward.

Issue 2: Additional Ground on Limited Scrutiny
The assessee raised an additional ground related to the limited scrutiny issue, arguing that the AO exceeded the scope of scrutiny. The Tribunal highlighted the necessity of having all relevant facts available before raising legal issues. As the assessee had not confirmed the absence of administrative approval for converting limited scrutiny into complete scrutiny, the Tribunal deemed the additional ground raised on presumption invalid. It emphasized the importance of factual certainty in legal proceedings and rejected the additional ground.

In conclusion, the Tribunal partially allowed the appeal, reversing the CIT(A)'s decision and directing the AO to allow the expenses and loss carry-forward. The judgment clarified the distinction between setting up and commencing business, emphasizing readiness to start operations as the key factor.

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