2013 (9) TMI 1223 - AT - Income Tax

Summary

Issues involved:
The issue involved in this case is whether the assessee has set up its business during the relevant assessment year and if the depreciation and expenses claimed by the assessee should be disallowed.

Summary:

Issue 1: Setting up of Business
The appeal by the assessee was against the order of CIT-10 u/s. 263 for assessment year 2005-06, where the CIT contended that the business was not set up during the year, hence depreciation and expenses claimed should be disallowed. The assessee argued that business activity started in the previous year and was further developed in the relevant year. The ITAT examined the Memorandum and Articles of Association of the assessee company, which included sub-leasing of property as one of its activities. It was found that the assessee had entered into a lease agreement with MIDC for land development, and the business activities were commenced by incurring expenses for land development and generating income through sub-leasing. The ITAT concluded that the assessee had indeed set up its business activity during the relevant year.

Issue 2: Disallowance of Depreciation and Expenses
The CIT had disallowed depreciation and preliminary expenses claimed by the assessee, arguing that since the business was not set up, these expenses should be disallowed. The ITAT found it surprising that only certain expenses were considered for disallowance while others were not. It was held that since the business was set up and activities were commenced, the order passed by the AO was not erroneous. The ITAT allowed the assessee's appeal, stating that the CIT had no jurisdiction to set aside the original order.

In conclusion, the ITAT ruled in favor of the assessee, stating that the business was indeed set up during the relevant year, and the depreciation and expenses claimed were justified. The appeal by the assessee was allowed.