AI Drafter 
TaxTMI 
TaxTMI 
2024 (11) TMI 488
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.... business was acquired by assessee on 30.11.2008 and any payment in the nature of salary expenditure before 30.11.2008 is of preoperational expenditure only and can only be amortised u/s. 35D of the Act, 2. The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 2. Briefly stated facts of the case are that the assessee company M/s BNP Paribas Securities Pvt Ltd, (BNP Paribas Securities) was incorporated on 29.05.2008 and under slump sale agreement, which registered on 19.11.2008, the assessee acquired equity research business of M/s BNP Paribas India Solutions Pvt. Ltd. (BNP Paribas Solutions). In the year under consideration, the assessee filed return of income on 30.09.2009 declaring total income of Rs. Nil after claiming current year loss of Rs. 26,78,16,233/-. In the case of the assessee assessment u/s 143(3) of the Income-tax Act, 1961 (in short 'the Act') was completed on 30.12.2011, wherein the Assessing Officer made various additions including addition for disallowance of pre-commencement expenses of Rs. 20,80,75,902/-. 3. On further appeal, the Ld. First Appellate Authority upheld the ....
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....oresaid expenses cannot be considered as pre-incorporation expenses since BNPP SIPL was incorporated in India on 29 May 2008 (copy of Certificate of Incorporation has been enclosed as Annexure 3) and had commenced its business operations on 1 June 2008 by acquiring the equity research division from BNPP ISPL under a slump sale. 8. With the employees on payroll of BNPP SIPL, the equity research business of BNPP SIPL commenced from 1 June 2008. We have attached the list of employees engaged by BNPP SIPL during the period between June 2008 to December 2008 as Annexure 14. 9. The Appellant had issued employment letters to these employees on 31 May 2008 which was effective from 1 June 2008 (copy of sample employment letter issued by BNPP SIPL is enclosed as Annexure 15). 10.BNPP SIPL had also directly paid salaries to the employees from June 2008 on which tax was deducted at source under section 192 of the Act. Withholding tax returns filed by BNPP SIPL (evidencing deduction of tax at source from salaries paid by BNPP SIPL to its employees) for the period June 2008 to December 2008 is enclosed as Annexure 16. 11.The Appellant had applied for registrat....
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....terval between a business which is setup 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........" m. Typically, the date of set-up of business and readiness to commence business in the context of service companies is generally determined on the basis of the following: * Date of appointment of key personnel and other qualified personnel; Date of regulatory approvals/ other approvals, if required, for set up; * Date on which premises for carrying out business is leased/ purchased n. In other words, the date of set-up shall be the date on which the entity is ready to discharge the functions for which it is set-up while actual date of rendering the services under a contractual obligation may follow. 16.In view of the above, we humbly submit the following: a. Employees are the key resource for rendering equity research services by BNPP SIPL to its customers and since, employees were transferred to BNPP SIPL effective from 1 June 2008, BNPP SIPL commenced its business operations in June 2008.. The effective da....
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....addition in the hands of BNPP SIPL amounting to Rs 20,80,75,902. Such action of the Learned AO should be set-aside and the appeal of BNPP SIPL should be allowed. 8. I have carefully considered the assessment order and the appellant submissions on the above issue. On perusal of the underlying facts governing the issue under consideration, there appears to be a dispute regarding the date of commencement of the business of the appellant. As per the appellant, the company was incorporated on 29th May 2008 and commenced its operation from 1st June 2008. Further it was submitted that as per the slump sale agreement, BNP Paribas India solutions private limited transferred its employees to the appellant company with effect from 1st June 2008 and it was only the tangible assets which were transferred with effect from 14th November 2008. Accordingly, the appellant argued that equity research business of the appellant commenced its operation from 1st June 2008 and submitted that the learned assessing officer erred in invoking the provisions of section 35D of the Act, for disallowing expenditure incurred by the appellant up to 31st December 2008. On the other hand, the assessing offic....
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.... setting up of the business and before the commencement of the business would be permissible as deductions. The fact that the company was incorporated, and the employees were in place to render their services to the appellant's equity research business shows that the business had been setup and commenced its operations. Accordingly, the expenses of the nature as disallowed by the assessing officer were allowable as expenditure under section 37 of the Income Tax Act. It is to be further noted that for the purpose of disallowances as per section 35D of the Act, the expenses are to be the ones, which would come within the ambit of those expenses listed under section 35D of the Act. By mere narration in the profit on loss account-it is clear that-the expenses are in the nature of personnel and operating cost of the appellant and the appellant submitted before the assessing officer that no pre incorporation expenses were booked in the profit and loss account pertaining to the assessment year under consideration. Considering the fact that the appellant company had commenced its operation from 1st June 2008 onwards and the expenses claimed in the profit and loss account are i....
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....le of amount under section 37(1) of the Act. The Assessing Officer also worked out eligible amount being 5% of the capital deployed at Rs. 1,60,00,000/- and on amortizing the same over 5 years, the deduction for the current year was worked out at Rs. 32,00,000/- u/s 35D of the Act and made disallowance for the balance amount accordingly. The Ld. CIT(A) however after verification of the various documents and submission of the assessee held that business of the assessee was commenced from 01.06.2008 and therefore, no disallowance is warranted and whole of the expenditure of Rs. 20,80,75,902/- was allowable. 6. Before us, the Ld. counsel for the assessee referred to appointment letter issued to various employees on 31.05.2008 which are available on Paper Book pages 26 to 33. He further referred to the quarterly TDS return of the assessee company which is available on Paper Book pages 34 to 37 and submitted that tax was duly deducted on the salary payment to the concerned employees. Ld. counsel further referred to Paper Book pages 38 to 41, which is registration of the assessee under 'Employees Provident Fund' dated 31.12.2008, however same is effective from 01.06.2008. The Ld. coun....