AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (2) TMI 80
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....ervices of the three employees were utilized wholly and exclusively for the purpose of trading as the manufacturing activity was yet to start. 2. Whether in the facts and circumstances of the case, the Ld. CIT (A) deleted the above disallowance of 50% of depreciation of office equipments amounting to Rs. 12,81,810/- on the ground that there cannot be any partial disallowance of depreciation once the asset is put to use, completely ignoring the fact, mentioned by the Assessing Officer in the assessment order, that the assessee failed to substantiate that the above assets were used wholly and exclusively for the purpose of trading as the manufacturing activity was yet to start. 3. That the order of the Ld. CIT (A) is erroneous and is not tenable on facts and in law. 4. That the grounds of appeal are without prejudice to each other. (i) That the appellant craves leave to add, alter, amend or forgo any ground(s) of the appeal raised above at the time of the hearing. 3. The brief facts of the case are that the assessee company was engaged in the business of trading polypropylene compound used in the automotive industry. The Assessee Company started its trading operations in FY ....
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....sessing Officer has held that the expenditure related to salar.ies of the personnel stated above should be disallowed 50% on adhoc basis as the manufacturing activity of the company has not yet started, the sales personnel are only dealing with traded items and not their own manufactured items. He held that the "assessee failed to substantiate that they were exclusively engaged for the purchase of goods and sales thereof........... for merely a short period of trading activiti1s which took place more or less with the single party even below the purchase price, the assessee claimed entire personnel expenditure in respect of above mentioned personnel against trading activities as revenue expenditure Assessee Company failed to substantiate the claimed expenses were wholly and exclusively incurred for the trading activities" 5.3 The appellant has contended "that the primary role of the above mentioned personnel was to develop the market of company's products in India. It is clear from the profile of the employees including expatriate Mr. Yasuo Watanabe, that the employees are specially engaged for sales activity of the Appellant company. It is important to mention that the produc....
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....ing satisfied." 5.5.2 The jurisdictional Delhi High Court discussed the issue of "commencement of business" and "setting up of business" in the case of Commissioner of Income-tax v. L.G. Electronic (India) Ltd. (2005) 199 CTR 205 (Del). 'The only issue that has been raised is with regard to deduction for expenses claimed by the assessee which was disallowed by the Assessing Officer on the ground that the assessee had not commenced its business during the assessment year. The claim of the assessee pertains to expenses incurred on travelling and conveyance, rent, telephone expenses, brokerage, maintenance and sales promotion. The Assessing Officer was of the view that the business of the assessee would commence with the first purchase of stock-in-trade and since no trading activities had taken place, the assessee 'could not request for capitalization of the expenses incurred. The Commissioner of Income-tax (Appeals) noted that there was a distinction between commencement of business and setting up of business and the two dates need not necessarily overlap. It was held that section 3 of Act refers to the date of setting up the business and as such it is only thereafter t....
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....t the business was set up all related expenditures will have to be allowed as deduction. Hence, we do not find any infirmity in the impugned order passed by the Ld. CIT(A) on the issue in dispute and hence, we uphold the same by dismissing the appeal filed by the Revenue. 9. With regard to ground no. 3, relating to addition of Rs. 12,81,810/- being 50 % depreciation on office equipment etc. is concerned, we find that the Ld. First Appellate Authority has also elaborately discussed the issue in dispute by considering the submissions of the Ld. Counsel of the assessee and adjudicated the issue in dispute vide para no. 6 to 6.3 at pages 7 to 8 of the impugned order which are reproduced hereunder:- "6. The third ground of appeal is regarding disallowance of Rs. 12818101- being 50% depreciation on office equipment etc.. The AO has held that the contention that assets namely * Office equipments, * Computers * Furniture and Fixtures were wholly and exclusively meant for the trading activities is without any basis. 6.1 The appellant company has contended that it had set up it trading activities in the AY 2009-10. For the purpose of undertaking trading activities it had deploye....