2013 (8) TMI 1029 - AT - Income Tax

Summary

Issues involved: Confirmation of disallowance of expenses by AO, Setting up of business activity, Nature of miscellaneous income

Confirmation of disallowance of expenses by AO: The AO disallowed various expenses claimed by the assessee in the profit and loss account amounting to Rs. 1,17,94,457 on the grounds that the business activity was not set up during the relevant assessment year. The AO observed that the assessee failed to provide evidence to prove that the expenses were incurred wholly and exclusively for the purpose of business. The miscellaneous income of Rs. 24,720 earned by the assessee was treated as income from other sources.

Setting up of business activity: The Tribunal found that the assessee had indeed set up its business during the previous year relevant to the assessment year in question. Various documents such as the certificate of incorporation, commencement of business, and memorandum of association were presented as evidence. The Tribunal noted that the company had taken steps towards forming a venture capital fund, engaged legal and financial advisors, recruited personnel, and incurred expenses for promoting its business activity. Citing a precedent case, the Tribunal held that when a business premises is taken, personnel are recruited, and expenses are incurred for promoting business activity, it indicates that the business has been set up. Therefore, the Tribunal directed the AO to allow the various expenses claimed by the assessee in its profit and loss account.

Nature of miscellaneous income: The Tribunal upheld the decision of the AO and CIT(A) in treating the miscellaneous income of Rs. 24,720 as income from other sources, as similar treatment was accepted by the assessee in the subsequent assessment year. The Tribunal confirmed the order of the CIT(A) on this issue.

In conclusion, the appeal of the assessee was allowed in part, with the Tribunal directing the AO to allow the expenses incurred by the assessee in its profit and loss account after establishing that the business activity had been set up. The nature of the miscellaneous income was confirmed as income from other sources based on the treatment in the subsequent assessment year.