TaxTMI 
TaxTMI 
2018 (10) TMI 1022
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....o the commencement of commercial operation. 4. The facts as called out from the case are that the assessee is a private limited company and engaged in the activity of providing services. The assessee in the year under consideration has shown income from interest and miscellaneous activity for Rs. 6,85,650/- and Rs. 1540/- respectively in its books of accounts. The assessee in its profit and loss has claimed an expense of Rs. 7,05,341/- only. 4.1 The AO during the assessment proceedings observed that the assessee has not commenced its commercial operation as evident from its audited financial statement. Thus, the AO was of the view that the income earned on the fixed deposit before the commencement of commercial operation should be treated as income from other sources. Similarly, the AO also observed that the expenses claimed by the assessee prior to the commencement of its commercial operation cannot be allowed as deduction. Accordingly, the AO called upon the assessee to explain the facts as discussed above. 4.2 The assessee in compliance to it submitted that it has already shown interest income on the FDR under the head income from other sources. Therefore, there is no questio....
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....he A.O. in the assessment order. It is observed from the order of assessment that that A.O. has made an addition of Rs. 7,05,341/- on account of expenses debited to Profit & Loss A/c. and treating Rs. 6,87,190/- as Income from Other Sources. In the order of assessment it has been mentioned by the A.O. that no commercial activity was undertaken by the appellant during the year under assessment. The only income that the appellant has shown is income on account of interest on Fixed Deposit of Rs. 6,85,650/- and other income of Rs. 1,540/-. Based on the Audit Report, A.O. has observed that appellant has not yet commenced its commercial production. Relying on the judgment of Hon'ble Supreme Court in the case of Tuticorin Alkali Fertilizers Ltd. 93 Taxman 502, A.O. did not allow business expenses and considered Rs. 6,87,190/- under the head Income from Other Sources. During the appellate proceedings appellant has relied upon the contention made before the A.O. It is noticed from the Director's Report wherein it has been clearly mentioned that company has not carried out any commercial activity during the year. Further at Note No.4 of Significant Accounting Policies, it is again r....
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.... whether the assessee has commenced its business commercially or not. As per the AO the business did not commence during the previous year, therefore, no expense incurred by the assessee can be allowed in the year under consideration. The view taken by the AO was subsequently confirmed by the Ld. CIT(A). From the preceding discussion, we find that the business of the assessee was setup during the year under consideration. This submission of the assessee has not been challenged by any of the lower authority. Therefore, we can draw a conclusion that the business of the assessee was setup in the year under consideration meaning thereby, it was ready for commercial operation. We also note that in the immediate succeeding assessment year the assessee has shown in its books of accounts the income from the business. Therefore, we hold that the business of the assessee was set up during the year. Accordingly the assessee was eligible for deduction of the expenses incurred by it during the year under consideration. 8.1 In this regard, we placed our reliance on the order of Mumbai Tribunal in the case of Reliance Gems and Jewels Ltd. in ITA No. 3855/ Mum/ 2013, wherein it was held as under....
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....t-assessee, expenses incurred during the months of April and May, 2004, were on account of training given to the recruited employees. This is cler from the reply given by the appellant/assessee dated 14.11.2007. The issue which arises is, whether the business had been setup as on 1st April, 2004 or was it setup only on 1st June, 2004. There is a distinction between "setting up of business" and "commencement of business". 10.5. While deciding the issue, the Hon'ble High Court of Delhi elaborately discussed and considered the decision of the Hon'ble High Court of Bombay given in the case of Western India Vegetable Products Ltd. Vs CIT 26 itr 151 (Bom). Further reliance was placed on the decision in the case of CIT Vs E-Funds International India (2007) 162 Taxman 01 (Del) wherein also the issue considered was whether the business was setup the moment the assessee employed 30-40 employees. This claim was accepted by the Hon'ble High Court of Delhi after noticing that the assessee had certain infrastructure facilities at the relevant time. 10.6. Once again the Hon'ble High Court of Delhi had an occasion to consider a similar issue in the case of CIT Vs Hughes Escorts ITA. No.3855/....