TaxTMI 
TaxTMI 
2017 (1) TMI 946
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.... 3. The learned CIT(A) has not appreciated the fact that intact as a part of trading activity the appellant has acquired certain goods and as no sales could be effected has considered the same as stock in hand. 3.1. Your appellant therefore submits that business intact is set up and certain activities out of various activities envisaged have been initiated and carried out. 4. The learned CIT (A) has wrongly construed that your appellant is engaged in the business of manufacturing whereas in fact the activity relates to Trading which is also evident from the Registration Certificate issued by the Sales Tax authorities. 5. Your appellant therefore submits that the expenditure of Rs. 75,28,9311 is incurred for the business and that the same be allowed to be carried forward. 6. Your appellant craves, leave to add, alter, amend, withdrawal all or any of the grounds of appeal as the circumstances of the appeal may require." 2. During the course of hearing, arguments were made by Shri Nishant Thakkar & Mis. Jasmin Amalsadvala, Authorised Representatives (AR) on behalf of the assessee and by Shri Prakash Mane, Departmental Representative (CIT-DR) on behalf of the Revenue. 3. The....
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....f the year it was not clear in the mind of the assessee if it would use these machineries as plant & machinery (i.e. capital asset) or it would start trading the same. He further observed that the assessee, vide pare 1 & 2 of its own reply, had admitted that since there were no sales orders received in the aforesaid period, the assessee was not eligible for such expenses and hence he disallowed the entire returned loss of Rs. 75,28,931/. 3.2. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and made detailed submissions therein to demonstrate that business of the assessee was duly set up and therefore entire expenses of the revenue nature incurred by the assessee were allowable. But, Ld. CIT(A) was not impressed with the submissions of the assessee. It was held by him that business of the assessee was manufacturing of storage tank and assessee did not make requisite arrangements to manufacture the same during the year under consideration. It was also noted that the amount of purchase claimed to be made during the year was quite insignificant and there was no income from sales. After considering the entire facts of the case, Ld. CIT(A) distinguished the judgments....
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.... case of some of the customers of the assessee. This fact remained undisputed that in the preceding year i.e. A.Y. 2009-10, the assessee had filed return wherein administrative expenses were claimed to the tune of Rs. 28,91,448/- and return was filed at loss of Rs. 31,60,164/-, which was accepted by the AO and no disallowance was made, thereby confirming the claim of the assessee that business has already been 'set up'. Apart from the above, it is noted by us that during the year, the assessee had received sales order from M/s. Purti Sakhar Karkhana Ltd., vide order dated April 8, 2009. The assessee had also made purchases during the year aggregating to Rs. 8,14,566/- The first purchase was made on 18.05.2009 from M/s. Kira Equipment Pvt. Ltd. The assessee had also appointed various employees having requisite skill and qualification to carry out the project of the assessee. The details of employee appointed during the year shows that some of the employees were appointed in the earlier year and some were employed during the year under consideration. It is also seen that the assessee had arranged it office premises and also open bank accounts and transactions were done through bankin....
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.... 'setting up of business' and 'commencement of business' may be too different and independent events. For the purpose of deductibility of the business expenses, the reference point would be initial setting up of the business. The commencement of the business may take place at later date. Thus, even if the assessee does not earn any business income during the year, but if the business is set up, it would amount to carrying on the business under the income tax law and therefore, the business expenses would stand allowable. 6. In following cases it has been held that whether income has been earned or not and whether ultimate benefit has accrued immediately or not, the expenses incurred shall be allowable if these have been incurred for the purpose of business or for commercial expediency:- 1. Eastern Investments Ltd. Vs. CIT (20 ITR 1) (SC) 2. J.R. Patel & Sons Pvt. Ltd. 69 ITR 782 (Guj) 3. Raipur Mfg. Co. Ltd. (84 ITR 508,516) (Guj) 4. Security Printers of India Pvt. Ltd. (78 ITR 766,774) (All) 5. Tatasons Ltd. (18 ITR 460,467) (Bom) 6. Walchand & Co. P. Ltd.(65 ITR 381, 385) (SC) 7. J.K. Woolen Manufactures (72 ITR 612) (SC) 8. Aluminium Corp. of India Ltd.....
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....expenses would stand allowable to the assessee, irrespective of the fact whether actually assessee got any customer and earned any business income during the year or not. Thus, the disallowance made by the AO is contrary to law and facts and the same is deleted and the AO is directed to allow the expenses claimed by the assessee amounting to Rs. 2,69,275/-. Thus, revised ground of the assessee is allowed." 3.6. Thus, from the aforesaid legal position, it becomes clear that setting up of the business is the crucial event for determining the starting point for allowing the business expenses. It was also observed in the aforesaid judgment that even if the assessee has not been successful in earning the business income, but if the assessee has done requisite preparations and if assessee can be said to be in a position to cater to its customers, then it can be said that business is 'set up', and therefore expenses would become allowable thereafter. 3.7. Now, to decide whether the assessee had reached to the above position or not, no straight jacket formula can be given. Various factors depending upon the nature of the business need to be taken into account and properly analysed to de....