AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (2) TMI 341
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....cts and circumstances of the case erred in law in not holding that the order passed by the AO u/s 143 (3) of the IT Act, 1961 is bad in law 5. That the ld. CIT (A) erred in law and on facts in not accepting assessee's submissions filed during appeal proceeding in support of the contention. 6. Without prejudice to ground No.1 to 3 above the Id CIT (A) erred in law and on facts in confirming the action of the AO of disallowance of expenses of Rs. 4,54,257/-out of claimed expenses of Rs. 4,74,5277- being excessive and ad hoc in nature. 7. Without prejudice to ground No.1 to 6 the Id CIT (A) wrongly confirmed the action of AO in not allowing the depreciation on disallowed expenses being capital in nature. 8. That the order of the ld. CIT (A) is bad in law and against the facts of the case. 3. The assessee company was incorporated on 28.07.2009 vide Certificate of incorporation dated 28.07.2009. The assessee stated that its main object is to carry on business of an investment company and for that purpose to acquire such share, stock, debentures including debentures stock, bonds, securities by original subscription, purchase, exchange etc. as ma....
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....ee company. The AO did not accept the claim of the assessee and held that no business activity has been done by the assessee during the year consideration, therefore the expenses cannot be allowed. However, certain expenses are needed for the existence of the company hence, the AO allowed a sum of Rs. 20,000/- and remaining amount of Rs. 4,54,527/- was disallowed. 4. The assessee challenged the action of the AO before learned Commissioner of Income-tax (Appeals), but could not succeed. The learned Commissioner of Income-tax (Appeals) confirmed the disallowance made by the AO on the grounds that in the absence of inception of company the assessee is not entitled for expenses claimed. Therefore, the learned Commissioner of Income-tax (Appeals) has denied the claim of the assessee on the ground that the assessee has not set up or commenced the business. 5. Before the Tribunal the ld counsel for the assessee has submitted that since the assessee is an investment company and is a subsidiary of Mahale GMBH. It is pointed out that prior to incorporation of the assessee company, the assessee needed approval from Foreign Investment Promotion Board (FIPB), which was obtained by the ass....
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....s relevant material has been considered. There is no dispute that the assessee company was incorporated on 28.07.2009, further the approval of the FIBI at pg. 39 of the PB was taken prior to incorporation. Since the assessee claimed to have engaged in the business investment by availing funds from its foreign parent entity, therefore the approval FIPB was required. It is also not in dispute after incorporation of the assessee company as well as obtaining the approval, the assessee was not required to obtain any further approval or permission from any other authority for commencement of its business activity of investment. Further, the assessee has acquired/ installed the requisite software which claimed to be back bone of the business activity of the assessee for connecting with the parent company for the purpose of availing the fund and investing the same in the other group of companies. The assessee has put all the things at place and reached to the point from whether the assessee could start and commence its business activity then the said stage will be considered and regarded as setting up of business of the assessee. In the case in hand when the assessee has put all the requis....
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....e can be laid down as to when the business was set up. 6. In view of the above, the following paragraph of the judgment of the ITAT which exhaustively details the facts and the reasons as to why the business is set up not on 1-2-1996 as contended by the Assessing Officer but on 1-11-1995 is reproduced below and with which we concur :- "4. It may thus be seen that the question when a business may be said to have been set up is dependent on the facts of each case and largely on the nature of the business proposed to be undertaken. Different considerations may apply depending on whether the business is that of manufacture of a product, or leading of property, or sole selling agency or financial business or it is a hospitality industry (such as a hotel) or a service industry (such as financial or marketing services). The assessee before us is a financial company authorized to advance loans for interest to facilitate customers to purchase consumer durables, though the business is not limited to advancing monies for acquiring consumer durables. We have already referred to the memorandum of association in this regard. The business is not also limited to consumers who pro....
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....rry on the business in accordance with the objects clause of its memorandum of association from November 1995 when it had its own offices, branch and regional managers and staff, computers installed and was ready to commence its activities. The expenses were incurred through Kelvinator and Expo Machinery and evidence to this effect is placed at pages 24-31 and at other pages (e.g., Page 52) of the paper book. From the above evidence it is clear that the business was set up from 1-11-1995, by which date the company was ready and in a position to commence its business." 7. The counsel for the revenue has relied upon the decision in the case of CWT v. Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478 (SC) to canvass the proposition that it is only when actual business operation was commenced, a business is set up. We feel that the decision of the Supreme Court in Ramaraju Surgical Cotton Mills Ltd.'s case (supra) is not applicable to the facts of the present case because the said judgment was dealing with the provision of section 5(1)(xxi) of the Wealth-tax Act, 1957 along with its proviso and the language of the main section and the proviso were wholly different. In ....