2019 (6) TMI 1467

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....he Ld.AR placed written submissions before us, which are as follows: The Appellant has contested the action of the Assessing Officer, in allowing the expenses (incurred after the date of "set up" of the business) under Section 35D, instead of allowing it fully in the previous year in which the business has been "set up". 1. At the outset, the Appellant submits that for the purposes of Income Tax Act, previous year is defined in Section 3 to mean the financial year immediately preceding the assessment year. The proviso to that section is reproduced below for ready reference. "Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year". 1.1 In the case of a newly set up business, the date of "setting up to the business" is to be considered, for allowability of revenue expenses in the respective financial year, and not the date commencement of billing or rea....

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....cing the following evidences. 4.1 Availability of Financial Resources. 4.2 Appointment of Personnel. 4.3 Leasing of place of work. 4.4 Obtention of statutory registrations and approvals. 4.1 Availability of Financial Resources An amount of Rs. 1.22 crores has been received into bank account as share capital and notably retained in current account signifying the intention of the Appellant keep himself in a state of readiness for business expenditure. (Paper Book Page No. 69) 4.2 Appointment of Personnel The parent Company had appointed a Managing Director on 11 September 2014, to initiate the incorporation of the Appellant Company and to further take all steps necessary for setting up and running the business. He has undertaken a set of tasks including preliminary discussions with suppliers & customers, appointment of support staff, and obtention of statutory approvals. An executive assistant has also been appointed on 17-11-2014. (Paper Book Page No. 41) (Paper Book Page No. 117) 4.3 Leasing of Premises As a cost optimisation plan in the initial stages of business, the Appellant had leased out a residential cum office premises, for being used to run the activ....

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....;s case the Director is an employee appointed under contract as a Key Management Person (KMP) to set up the business & run the business, and is not a promoter. . 7. A reading of Para 7 of the Order of the Learned CIT (Appeals) clearly demonstrate that he has upheld the Order the A.O. based only on following aspects. a) The test of whether business operations have started gets established only when income is earned. b) The Assessee has not given proof of manufacturing / trading activity. c) Disclosure in Director's report that no business activities were conducted. (Paper Book Page No. 13) While existence the above aspects prove set up of business, the corollary is not true. In other words a business which has been "set up" NEED NOT carry all these attributes. The Learned Assessing Officer ought to have relied on the wisdom bestowed through Judgements of the various Honourable Courts, including Jurisdictional Court, to carefully assess whether business has been set up, instead of relying on his own surmise about commencement of business activity. 8. The Order of the Learned Appellate Authority in Para 8 (Paper Book Page No. 15) has concluded that the expenses bein....

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.... The Delhi High Court in CIT Vs Arcane Developers (P) Ltd. upheld the ratio that setting up business takes place when business is ready and FIRST steps are taken. 9.7 In the case of Dhoomketu Builders the Delhi High Court has categorically emphasised the need to distinguish between commencement of business and setting up of business while ruling in favour of the Assessee. 9.8 The Delhi ITAT in the case of JCdecaux Advertising India (P) Ltd. articulated three stages in business operation Viz. (i) Setting up (ii) Post setting up before commencement (iii) Commencement and thereafter, while holding that in the case of a trader, setting up of a business means the stage up to which place of business is acquired and things necessary to start trading are done. 9.9 Besides this there are several Judgements some of which is given below, supporting the contentions of the Appellant. 1. CIT Vs Sarabhai Management Corporation (1991) 192 ITR 151 (SC). 2. CIT Vs Whirlporl India Ltd (2009) 318 ITR 347. 3. CIT Vs ESPN Software India (P) Ltd., (2008) 301 ITR 368 (Delhi). 4. CIT Vs Sauer Danfoss (P) Ltd. (2012) 208 Taxmann 50 (Delhi). 5. CIT Vs Franco Tosi Ingegnaria (2000) 241 ITR 168....