2015 (8) TMI 359 - AT - Income Tax

Disallowance of expenditure u/s 14A - disallowance of claim of loss as the entire expenditure was directly attributable to earning of exempt income - Held that - In facts prevailing in the instant case, we are of the view that the assessee should be considered to have been set up its business on the date of its incorporation and hence the expenses incurred after that date should be allowed as revenue expenditure. The view taken by the tax authorities that the first MOU was entered in the succeeding year should be considered as date of setting up of business is not in accordance with the settled principles discussed above. Accordingly we set aside the order of Ld CIT(A). As noticed the assessing officer did not have occasion to examine the expenditure claim put forth by the assessee, since he had treated all the expenses as prior period expenditure . Since we have reversed the view taken by the assessing officer, we are of the view that all the expenditure claimed by the assessee need to be examined at the end of the assessing officer. Accordingly, while holding that the assessee s business can be considered to have been set up on the date of incorporation and hence the expenditure incurred after that date is allowable as revenue expenditure in the facts and circumstances of this case, we restore the matter of examining the expenditure claim to the file of the assessing officer with the direction to examine them after affording necessary opportunity of being heard to the assessee and take appropriate decision in accordance with the law. In view of the above, we are unable to agree with the view of the tax authorities that all the expenses should be considered as having been incurred for earning the exempted dividend income. Accordingly, we reverse the order of Ld CIT(A) on that issue also and restore the same to the file of the AO, who directed to examine the applicability of the provisions of sec. 14A of the Act also afresh. - Decided in favour of assessee for statistical purposes.

Summary

Issues: Disallowance of expenditure claimed by the assessee for the assessment year 2007-08.

Detailed Analysis:
1. The appeal challenged the order confirming the disallowance of expenditure of Rs. 61,01,298 claimed by the assessee for the assessment year 2007-08.
2. The assessing officer disallowed the claim citing that the entire expenditure was directly linked to earning exempt income and the business was not set up during the relevant period.
3. The appellate authority upheld the assessing officer's decision.
4. The assessee argued that the business was set up on the date of incorporation, supported by recruitment of employees and incurring various expenses.
5. The Tribunal noted that expenses incurred after setting up the business are allowable as revenue expenditure.
6. Citing relevant case laws, the Tribunal emphasized that the date of setting up a business determines the deductibility of expenses.
7. The Tribunal highlighted that for consultancy services, the date of opening the office can be considered as the date of setting up the business.
8. The Tribunal found that the assessee had recruited employees, initiated projects, and contacted potential clients before the incorporation date, indicating the business was operational.
9. The Tribunal disagreed with the tax authorities' view that the first MOU date should be considered as the setting up date and directed the assessing officer to re-examine the expenditure claims.
10. The Tribunal directed the assessing officer to evaluate the expenditure claims and applicability of relevant provisions afresh, reversing the order of the appellate authority.
11. Ultimately, the appeal of the assessee was treated as allowed for statistical purposes, emphasizing the need for a fresh examination of the expenditure claims.

This detailed analysis of the judgment highlights the key arguments, legal principles, and the Tribunal's decision regarding the disallowance of the expenditure claimed by the assessee for the assessment year 2007-08.