TaxTMI 
TaxTMI 
2018 (10) TMI 1263
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....s and the appellant being a private limited company, had started its business from the date of incorporation itself i.e 30lh September, 2006. 2. The learned Commissioner of Income tax (Appeals) erred in upholding the conclusion arrived at the learned Assessing officer, that in the absence of receipts from business, the expenditure incurred thereto is for setting up of business and hence ought to be disallowed. The appellant submits that it had put necessary infrastructure in place for its business. The appellant submits that for allowability of expenses what is relevant is whether an assessee is ready to commence its business and mere fact that it has not received any business receipt cannot be a ground for disallowance of expenses incurred wholly & exclusively for the purposes of business. 3. Without prejudice to what has been stated above, the appellant submits that the learned Commissioner of Income-tax (Appeals) ought to have held that the appellant set up its business on 15th December, 2006 i.e. the date of its entering into Investment Management Agreement (IMA) and ought to have allowed various expenses incurred after this date as having been incurred wholly....
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....owability of expenses of Rs. 12,71,38,147/ -not related to any business activity during the previous year relevant to the assessment year under consideration. 6. After considering assessee's reply, AO held has under:- "I have gone through the submission of the assessee. The assessee claimed that the assessee started business activities but I am inclined not to accept the same for the reasons mentioned below :- 1. The assessee has stated business activity is not the question. The question is whatever amounts incurred by the assessee was for the business or not and whether it is properly reflected in the books of accounts. 2. The claim of the assesseee as to allowance of deduction of expenditure subsequent to the date of entering into Investment Management Agreement is also not acceptable on the ground that only entering into Investment Management Agreement did not confer the assessee to expend without getting any corresponding reimbursement as per agreement dated 12-12-2006. in fact, though there was reflection of expenses in the accounts, there was no reimbursement of the same or even, no effect was made for reimbursement of expenses as appearing from the accounts. 3....
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....pany and was incorporated on 30th September, 2006. Pursuant to its incorporation it started its business activities. The assessee is an Asset Management Company (AMC) formed to manage the mutual fund schemes of A1G Global Investment Group Mutual fund ("the Fund") in accordance with the Investment Management Agreement (IMA) entered into between the assessee and AIG Trustee Company (India) Private Limited ("Trustee company"). The expenditure so incurred after incorporation was disallowed by the AO on the plea that assessee has not started any business activity. From the record we found that on its incorporation, the assessee undertook the following activities which are necessary for its business: * Complying with SEBI requirements as per the terms of in principle approval and preparation of final application to SEBI for registration of Fund. * Preparation and finalization of IMA and Trust Deed. * Identifying new office location and Finalizing office lease. * Setting up of office infrastructure. * Hiring of key employees. * Developing Product Literature. * Negotiations with R&T Agent, Custodian, Fund accountants. 12. Fr....
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....terms of SEBI Regulations and the agreement with the Trustee Company; it is required to incur these expenses for the purpose of its business. We also observe that the Assessing Officer has not appreciated the fact that entering into agreement is sufficient enough to carry on its business. It could not have carried on its business of Asset Management Company without entering into t Investment Management Agreement. Accordingly, AO was not correct in holding that entering into agreement did not confer upon the assessee to expand without getting any corresponding reimbursement of expenses. From the record, we also found that the accounts and schedules thereto are prepared as per companies Act, 1956 and in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India. The accounts of assessee are duly audited. Further no event has occurred in its case subsequent to the date of Balance Sheet which requires .adjustment of profit/loss in accounts. Thus, the comments of AO in respect of Accounting Standards were uncalled. 16. In view of the judicial pronouncements cited by learned AR we observe that there is a distinction between setting up of the bus....