TaxTMI 
TaxTMI 
2025 (6) TMI 406
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....s to hold share of subsidiary companies. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in directing the AO to allow deduction of expenditure as business expenditure. 3. The appellant crave leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 3. Brief facts of the case are that, the Assessee Company incorporated on 14/06/2006. As per the Memorandum of Association, the main object of promoting, establishing, formatting, acquiring or investing by way of capital or that and also dealing in shares, stocks government bounds etc. The Assessee filed return decaling loss of Rs. 3,01,42,660/- for the year under consideration, which was processed u/s 143(1) of the Income Tax Act, 1961 ('Act' for short). The case of the Assessee was selected for scrutiny u/s 143 (2) of the Act and notice u/s 143(2) of the Act was issued to the Assessee. Assessment order came to be passed u/s 143(3) of the Act on 30/11/2009, wherein an amount of Rs. 3,02,18,433/- has been disallowed by the A.O. finding the absence of any business activities of business expenses ....
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....ssued to the subscribers on 31/08/2006 and the Assessee has made investment in the shares of Flextronics Software on 31/08/2006 itself. Therefore, the Assessee has commenced the activity of investing in Companies engaged in developing marketing software as on 31/08/2006. The ld. Assessee's Representative further submitted that the Assessee has set up the business on 14/06/2006 itself and commenced the business from 31/08/2006, when the appellant made investment in the shares of Flextronics Software. The Ld. Assessee's Representative submitted that for setting and commence of business, it is not necessary that the income should be earned. The expenses incurred by the Assessee after the business was set up on 14/06/2006 are allowable business expenditure. The ld. Assessee's Representative relying on the orders of the Ld. CIT(A), sought for dismissal of the Appeal filed by the Department of Revenue. 7. We have heard both the parties and perused the material available on record. The main ground of challenge by the Department is that the Ld. CIT(A) committed error holding that the 'Assessee has commenced its business on 11/08/2006' ignoring the fact that there was no busi....
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....16.05.2007 185 6 Fresh certificate of incorporation consequent upon change of name to Aricent Technologies (Holdings) Limited 28.05.2007 64 7 Certificate issued by ROC confirming amalgamation of companies 13.08.2007 62 10. Further as per the notes to account to financial statement, the Assessee has mentioned the above said business of the Assessee, investment made by it and also mentioned the amalgamation approved by Hon'ble High Court. 11. The only reason assigned by the A.O. for disallowing the expenditure alleging that, no business of the Assessee undertaken during the Assessment Year. As per Section 4 of the Act, income-tax is chargeable in respect of the total income of the Assessee for any "previous year". The term "previous year" is defined in section 2(34) of the Act read with section 3 of the Act to mean financial year immediately preceding the assessment year. Proviso to the said section, which defines the term 'previous year' in relation to, inter alia, a newly set up business or profession, reads as under: "Provided that, in the case of a business or profession newly set up, or a source of income newly coming into ex....
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....of business and actual commencement thereof. The Courts nave considered the issue as to when a business could be said to have been set up. 15. The Hon'ble High Court of Bombay in the case of Western India Vegetable Products Ltd. Vs. CIT: 26 ITR 151 held as under:- "The important question that has got to be considered is from which date are the expenses of this business to be considered permissible deductions and for that purpose the section that we have got to look to is Section 2(11) and that section defines the "previous year" and for the purpose of a business the previous year begins from the date of the setting up of the business. Therefore it is only after the business is set up that the previous year of that business commences and in that previous year the expenses incurred in the business can be claimed as permissible deductions. Any expenses incurred prior to the setting up of a business would obviously not be permissible deductions because those expenses would be incurred at a point of time when the previous year of the business would not have commenced. It seems to us, that the expression "setting up" means, as is defined in the Oxford English Dic....
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.... setting-up of the business. When the assessee in the present case was in a position to apply for the tender, borrowed money for interest albeit from its holding company and deposited the same with NGEF Ltd. on the same day, it shows that the assessee's business had been set-up and it was ready to commence business. The learned senior standing counsel for the revenue would, however, state that till the land is acquired, the business is not set- up. The difficulty in accepting the argument is that an assessee may not be successful in acquiring land for long period of time though he is ready to commence his business in real estate, and that would result in the expenses incurred by him throughout that period not being computed as a loss under the head "business" on the ground that he is yet to set-up his business. That would be an unacceptable position. The other argument of the learned standing counsel for the revenue that the tax auditors of the assessee have themselves pointed out that the assessee is yet to commence its business is also irrelevant because of the distinction between the commencement of the business and setting-up of the same." Similar ratio has been laid down by....