1986 (7) TMI 143 - AT - Income Tax

Appellate Tribunal affirms claimed loss for assessment year 1979-80.

The Appellate Tribunal ITAT BOMBAY-C upheld the allowance of the assessee's claimed loss for the assessment year 1979-80. The Tribunal determined that the ... Carry Forward And Set Off Issues:1. Allowance of claimed loss by the assessee for the assessment year 1979-80.Analysis:The judgment by the Appellate Tribunal ITAT BOMBAY-C revolves around the question of whether the claimed loss by the assessee should be allowed for the assessment year 1979-80. The assessee, a company engaged in the import and export of diamonds and precious stones, claimed a net loss of Rs. 11,12,558 in its return for the relevant accounting year ending on 31-3-1979. The Income Tax Officer (ITO) initially disallowed the loss on the grounds that the business had not yet commenced, resulting in the net loss being taken as nil. However, the Commissioner (Appeals) held that the business had been set up during the year, making the loss claim eligible for allowance and carry-forward. This decision led to an appeal by the revenue and cross-objections by the assessee.The assessment was conducted under section 143(3) read with section 144B of the Income-tax Act, 1961, with the primary reason for disallowing the loss being the absence of any trading activity such as purchase or sale of goods. The revenue contended that without any transaction, the business could not be deemed to have commenced. The Commissioner (Appeals) supported their decision by citing relevant High Court rulings. The department's representative emphasized the necessity of at least one transaction to establish the commencement of business, distinguishing between setting up and commencing business based on legal precedents.The Commissioner (Appeals) highlighted various events that took place before the end of the accounting year, indicating the establishment of the business. These events included the appointment of key personnel, office accommodation hiring, registration under the Shops and Establishment Act, and obtaining foreign exchange for diamond imports. The Chairman and Managing Director's overseas visit for diamond purchase further demonstrated the readiness of the assessee to engage in business activities. The Tribunal emphasized the distinction between setting up a business, which had been accomplished by the assessee, and the actual commencement of business, as supported by legal interpretations and precedents.Referring to a case involving a company engaged in the manufacture of scientific instruments, the Tribunal differentiated the circumstances by emphasizing that in the case at hand, the assessee was fully prepared and equipped to engage in business activities related to the purchase and sale of diamonds and precious stones. The readiness to transact and explore business opportunities, including the overseas visit, indicated the establishment of the business. Consequently, the Tribunal affirmed the Commissioner (Appeals)'s decision to allow the claimed loss. As a result, both the appeal by the revenue and the cross-objections were dismissed, upholding the allowance of the assessee's claimed loss for the assessment year 1979-80.