2017 (10) TMI 879

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....rred in law and on facts, in disallowing other expenses such as professional fees, rent, security, telephone, conveyance etc., on ad-hoc basis, without considering the submissions of the Appellant appreciating the fact that the same are incurred wholly and exclusively for the purpose of Appellant's trading business and it should be allowable as deduction u/s. 37(1) of the Act. 3. Briefly stated facts are that, the assessee for the Assessment Year 2012-13 filed its return of income on 29.11.2012 declaring loss of Rs..70,23,812/-. The assessment was completed u/s. 143(3) of the Act on 27.03.2015 determining the income/loss at Nil by the Assessing Officer. The Assessing Officer rejected the claim for loss made by the assessee holding that assessee has not carried out its business activities and is in the process of setting up of manufacturing facilities at Dahej Industrial Area, Ankleshwar, Gujarat for manufacture of Ethoxylates, Specialty Chemicals. The Assessing Officer was of the view that the assessee has not started its business activity during the year but only shown purchases and sale of traded goods on which profit of Rs..5,12,666/- was shown by the assessee. Assessing Offic....

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....t to the notice of the Assessing Officer. Learned Counsel for the assessee referring to Page No.24 of the Paper Book which is the letter filed before the Assessing Officer in the course of the Assessment Proceedings submits that, the fact that the company was in the process of setting up of manufacturing facility in the Dahej Industrial Area, Ankleshwar, Gujarat for production of chemicals and also the company undertaken its trading operation in chemical business was brought to the notice of the Assessing Officer. The Learned Counsel for the assessee further submits that in response to the query from the Assessing Officer as to why the employee cost which was claimed as deduction from its business income or trading operations and why such employee expenses were not capitalized to capital work in progress in relation to setting up of proposed manufacturing facility, it was submitted that expenditure which was directly connected with the proposed manufacturing plant have been capitalized during its pre-operative period for which the details were already furnished and the employees expenses in question are not directly related to setting up of the plant and hence there is no question ....

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....erring to Para 4.4 of the Assessment Order submits that no documentary evidence produced by the assessee incurring the expenses and therefore the Assessing Officer rightly disallowed the claim of the assessee. He strongly placed reliance on the orders of the Assessing Officer and the Ld.CIT(A) in denying the claim for expenses and the loss claimed by assessee. 10. We have heard the rival submissions, perused the orders of the authorities below. The undisputed fact is that the assessee is into the composite business of manufacturing and trading of chemicals. During the assessment year the assessee commenced its business of trading in chemicals and was also in the process of setting up of plant for manufacturing of chemicals. Assessing Officer while completing the assessment denied the expenses claimed in respect of the trading activities on the ground that the assessee has earned only Rs..5,12,666/- as income from trading operations and whereas the assessee incurred huge salary and other expenses. He was also of the view that since assessee had not commenced the manufacturing operations no activity has been commenced during the Assessment Year and assessee is not entitled for deduc....

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....hat when a business is established and is ready to be commenced then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But there may be an interregnum, there may be an interval between a business which is set up and a business which is commenced and all expenses incurred after the setting up of the business and before the commencement of the business, all expenses during the interregnum, would be permissible deductions under s. 10(2) of the 1922 Act. In the instant case, the Tribunal had found that trading in spare parts was a part of the activities of the assessee-company. The assessee by purchasing items during the relevant accounting period could be said to have commenced business. On examination of facts, the Tribunal was satisfied that the assessee was carrying on business in spare parts as an integral activity associated with manufacture. This was one of the grounds on which the Tribunal took the view that the assessee carried on business during the relevant accounting period. Further, one of the primary objects for which the assessee-company was incorporated, the manufacture of the various items mentioned in t....