TaxTMI 
TaxTMI 
2014 (8) TMI 715
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....was as under: "The assessee is a registered broker of NSE and the membership of the NSE was obtained in the year February 2006. the assessee has performed trial run in the March 2006 itself, as trading is totally linked with the connectivity of the network. The first trading was started on 03-4-2006 (Monday) as 1st & 2nd April being holiday. Further, vide letter dated 31-10-2008 the assessee company, stated that after getting the NSE certificate its business was set up and ready to commence. Thus, the business had commenced during the year under consideration. The assessee being a share broker of NSE and ahs to obtain certificate from the NSE which was obtained by the assessee on 16-01-2006. Since the assessee has completed all the formalities for carrying business but could not do any business as non availability of prospective clients." 2.2. Considering the above reply, the assessing officer concluded that assessee company did not commence business during the year under consideration. He observed that process of setting up of business cannot be held as commencement of business. He concluded that business of the assessee company commenced from the first working day of next asse....
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....ate of commencement of business. (iii) There is no disclosure in the notes on account or in the audit report regarding the set up/ commencement of business during the year under consideration. (iv) It is a case of wrong deduction of the claim as made by the assessee and therefore in view of the decision of Hon'ble Delhi High Court in the case of CIT Vs. Escorts Finance Ltd. 183 Taxman 453, penalty u/s 271(1)(c) is leviable. (v) The assessee has not been able to substantiate its claimed made during the assessment proceedings, hence as well as in the appellate proceedings. 2.8. Before ld. CIT(A), the assessee submitted that it had not concealed any income as there was no item of receipt which was suppressed. The assessee had furnished all the particulars which were required to be submitted in this case. The assessee further pointed out that additions were made purely on difference of opinion on the issue of commencement of the business. The assessee further referred to the decision of ld. CIT(A) wherein he had neither agreed with the conclusion of assessing officer in taking the date of commencement of business as 3-4-2006, nor agreed with the assessee taking the date of setting ....
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.... to NSE on 25-4-2005 which date was treated as the date of setting up of business and the expenses incurred thereafter were claimed as business expenses. The assessing officer, however, took the date of first dealing on the stock exchange, which was 3-4-2006 as the date of commencement of assessee's business. He, therefore, had disallowed the entire expenses claimed by assessee. Ld. CIT(A) took the date of grant of registration by NSE viz. 16-1-2006 as the date of setting up of business and allowed the expense thereafter. The entire dispute is in regard to the claim of expenses made for the period 25-4-2005 to 16-1-2006. 3.1. Ld. Counsel referred to page 33 & 34 of the PB, wherein application for obtaining membership for capital market and future and option segment with NSE dated 25-4-2005 is contained. Along with the application various annexures were filed and the details of directors and dealers with supporting documents were furnished. The balance-sheet of 31-3-2005 with auditors report was also filed. The reference letter from HDFC bank was also furnished. The assessee had given all the details of its office premises etc. as per the requirement of SEBI. The SEBI vide its lett....
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....ed as under: "As per object clause of the memorandum of association of the assessee, the main object of the assessee was to carryon the business of stock and share broking. The Company was incorporated on 24.11.2004 under the Indian Companies Act, 1956 with authorized Capital of Rs. 200 Lacs being minimum capital for the companies obtaining membership of Stock Broker. To carry on the business activities it has to be registered with National Stock Exchange (NSE) and/or Bombay Stock Exchange. The assessee decided to get registered with NSE. There are certain requirements such as qualified persons, minimum area and the Net worth etc to be complied with for getting registered. As per the requirement of minimum two qualified persons and minimum Net worth of Rs. 100 lacs besides deposit of Rs. 125 lacs. The assessee issued capital of Rs. 150 Lacs and appointed two qualified persons on the board and applied for the Membership of NSE on 25.04.2005. NSE vide its letter dated 14.06.2005 asked to complete certain formalities which were complied with. After interviewing and the necessary formalities issued letter in the month of Sep, 2005 for deposit of Rs. 127 lacs and the same was deposited....
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....red with NSE and/ or Bombay Stock Exchange. There are certain requirements, such as, qualified persons, minimum area and the net worth etc. to be complied with for getting registered. As per the requirements, minimum two qualified persons and minimum worth of Rs. 1,00,00,000/-, besides deposit of Rs. 1,25,00,000/-, was required . To comply with this, the assessee issued capital of Rs. 1,50,00,000/- and appointed two qualified persons on the Board and applied for the membership of NSE on 25-4-2005. NSE vide its letter dated 14-6-2005 asked to complete certain formalities which were complied with. After necessary formalities were completed, NSE issued letter in the month of September 2005 for deposit of Rs. 1,27,00,000/- and the same was deposited in NSE on 8-11-2005. Finally, NSE issued membership certificate on 16-1-2006 and asked to furnish bank guarantee of Rs. 25,00,000/- to carry out activities equipment such as VSAT, servers had to be installed and the same was dispatched on 7-3-2006 by NSE. 5.1. From the above uncontroverted factual aspects it is evident that from the date of incorporation of company itself, the assessee's intention was to obtain the membership of stock exch....
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....ations Ltd. (reported at (2007) 213 CTR (Del) 45'Ed. ) (copy of the judgment filed before us) and it has been held that where the business has been set up, though the same has not been commenced, the expenditure incurred after the date of setting up has to be allowed as deduction. But the question as to when it can be said that a business is "set up" must largely depend on the facts of each case and the nature of the business. There can be no hard and fast~ rule by which it can be determined as to when the business was set up. In the judgment of the Bombay High Court cited supra, it was a case of a manufacturing concern. It was held that the business was set up when the first order of purchase of raw material was placed and not when the factory was started (at a later point of time). In CIT v. Sarabhai Sons (P) Ltd. (1973) 90 ITR 318 (Guj), the Gujarat High Court was dealing with a company established for the manufacture of scientific instruments. It was held that the purchase of land, placing of orders for machinery and raw materials were merely operations for the setting up of the business and the business was actually set up only when the machinery was installed and the fact....
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....ely reaching the stage of receiving customers and that it would be de hors commercial sense to hold that one would be reaching the stage of having set up the business only when one reaches the stage of receiving customers. It was ultimately held that where there are several integrated activities to be undertaken serially, one forming the foundation for the other, it can be said that the business was 'set up' when the first of such activities was undertaken. It was ultimately held that the business was set up when the building was acquired and was placed at the disposal of the firm. In ITO v. M Voradarajan (1989) 34 TTJ (Mad) 247 : (1989) 30 ITD 414 (Mad), the Madras Bench of the Tribunal held in the case of a sole-selling agent that his business could be said to have been set up once he obtained the soleselling agency and it could not be said that it was set up only when he obtained the first business." 5.4. The question, whether a business can be said to have been set up, is dependent on the facts of each case and largely on the nature of business proposed to be undertaken. In the present case the nature of business proposed to be undertaken was such that without complyin....