TaxTMI 
TaxTMI 
2020 (2) TMI 460
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....78,22,376/- as business expenses incurred in the course of the business which includes 1/5 of the preoperative expenses capitalized in the previous financial year, i.e., 2010-11. From the details furnished by the assessee, he noted that during relevant previous year, no business activity commenced by the assessee company and only it has earned some interest on fixed deposits. He, therefore, asked the assessee to explain as to why these expenses should not be treated as preoperative expenses and capitalized as per the provisions of the Act. 4. The assessee, in a detailed reply, submitted that it has already set up its business to carry out the business of procuring and soliciting general insurance business in terms of the guidelines laid down by the IRDA. Since the assessee had already applied for licence and had put in place necessary infrastructure facilities, it demonstrates that the assessee's business was set up on 01.12.2010 and the assessee was ready to discharge the function as insurance broker immediately on grant of formal licence to operate from IRDA. The fact that the licence to operate as insurance broker was granted only in February, 2012 was of little consequence for....
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....holding that the appellant's business was not set up during the relevant year, without appreciating that the date of actual grant of license and actual commencement of operations was immaterial. 3. That on the facts and circumstances of the case and in law, the appellant should be allowed set-off of business loss against income from other sources in accordance with provisions of Chapter VI of the Act. The appellant craves leave to add, alter, amend or vary the aforesaid grounds of appeal at or before the time of hearing." 7. The ld. Counsel for the assessee filed the following chart giving the sequence of events:- Date Particulars Relevant Page No. of PB 24.11.2010 Date of Incorporation 29.11.2010 Mr. Surendra Srivastava appointed as the Chief Executive Officer ("CEO") and Principle Officer 31A 29.11.2010 Agreement entered into with Maruti Suzuki India Ltd ("MSIL" ) for deputation of employees from MSIL to the appellant and providing them 32-35 Pursuant to the deput ation, the empl oye es had undergone 100 hours of mand at ory broker training 29.11.2010 1st Board of Di re ct ors Meeting held 36-48 01.12.2010 Applicati on made for gr ant of D....
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.... of the assessee was set up. Accordingly, the deduction claimed was held to be allowable. He also relied on the following decisions:- 1. CIT v. ESPN Software: 301 ITR 368 (Del.) 2. CIT vs. Hughes Escort Communications: 311 ITR 253 (Del.) 3. Western India Vegetable Products Ltd. v. CIT: 26 ITR 151 (Bom.) 4. Daimler India Commercial Vehicles (P.) Ltd vs. DCIT: 416 ITR 343 (Mad) 5. CIT vs. Franco Tosi Ingegneria: 241 ITR 268 (Mad.) 6. Religare Macquarie Wealth Management Ltd v. ACIT: 2396/Del/2013 (Del. Trib.) 7. DCIT v. Gujarat Nre Coke Limited: 115 TTJ 822 (Kol Trib.) 8. DCIT v. PPFAS Asset Management (P.) Ltd.: 176 ITD 541 (Mum. Trib.) 9. He accordingly submitted that since the business of the assessee has already been set up, therefore, the expenditure incurred by the assessee should be allowed as a revenue expenditure and the grounds raised by the assessee should be allowed. 10. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). He submitted that the ld.CIT(A) has categorically held that for claiming business expenditure the primary condition is carrying on of business during the relevant previous year. The question as to when the busines....
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....t could have commenced business activities. There is no dispute over the fact that the appellant obtained the approval from IRDA only in February, 2012 and that no income was booked by them during the year. Therefore the simple fact of having applied for the License does not give the benefit of the business having been set up. The issue of commencement of business has been decided by the Hon'ble Supreme Court in its landmark judgment in the case of CWT Vs Ramaraju Surgical Cotton Mills Ltd. {1967} 63 ITR 478 (SC). The Hon'ble Supreme Court has given situation when a business can be said to have been set up or commenced. The Hon'ble Supreme Court has pointed out that a unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up. It is only when the unit has been put to such a shape that it can start functioning as a business or manufacturing organization that can be said that the unit has set up. The Hon'ble High Court of Kerala in S.P.V. Bank Ltd. Vs CIT (1980) 126 ITR 773 (Kerala) has held that in order to sustain a claim or deduction by way of business expenditure the expenditure must have been laid out or ex....
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.... said to have been set up unless it is ready to discharge the function for which it is being set up. 13. We find some force in the above argument of the ld. DR. Admittedly, the assessee, in the instant case has applied for licence to IRDA, vide application dated 01.12.2010 and was awarded licence as a direct broker of IRDA only in February, 2012. Before the licence was awarded by IRDA, the assessee under no circumstances could have discharged the function for which it is being set up. We find the Hon'ble Supreme Court in the case of CWT vs. Ramaraju Surgical Cotton Mills Ltd. (supra) has held that a unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up. It is only when the unit had been put into such a shape that it could start functioning as a business or a manufacturing organization that it can be said that the unit had been set up. The relevant observation of the Hon'ble Supreme Court reads as under:- "It has been urged before us by learned counsel for the Commissioner that the main provision of clause (xxi) should be interpreted in conjunction with the second proviso so as to give a harmonious construction to both p....
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....at the unit has been set up. The expression used in the proviso, under which the period for which the exemption is available is to be deter- mined, is not the same as used in the principal clause. In the proviso, the period of five successive years of exemption has to commence with the assessment year next following the date on which the company commences operations for the establishment of the unit. Operations for the establishment of a unit, from the very nature of that expression, can only signify steps that have to be taken to establish the unit. The word "set up" in the principal clause, in our opinion, is equivalent to the word "established", but operations for establishment cannot be equated with the establishment of the unit itself or its setting up. The applicability of the proviso has, therefore, to be decided by finding out when the company commenced operations for establishment of the unit, which operations must be antecedent to the actual date on which the company is held to have been set up for purposes of the principal clause. This is also the meaning that the Bombay High Court derived in the case of Western India Vegetable Products Ltd.(,) where that Court was conce....