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2019 (6) TMI 1467 - AT - Income TaxDisallowance u/s 35D - assessee has not produced any proof of having doing any specific business activity during the relevant assessment year - proof of starting business activity - HELD THAT - On a specific query from the Bench, what is the nature of activity of the assessee, it was submitted that the assessee imports the navigation equipments and supply it to Original Equipment Manufacturers (in short OEMs ) when asked, AR as to the date of the first import to which the Ld.AR submitted that the first import was in June, 2016 and the first sale was in July, 2015. It was a submission that the Managing Director appointed was an employee and was not a shareholder. As perused the P L A/c, Balance sheet of the assessee company for the year ended 31.03.2015 which was shown in Page Nos.179 to 223 of the paper book. The Directors Report was at Page No.179. In the Director s Report, under the highlights of performance, it has been categorically admitted that the year ended 31.03.2015 is the first year of operation of the assessee company and the business activities are yet to be commenced. It has also mentioned that the Directors are confident to commence the business activities soon. Page No.181 is the extract of the annual return for the year ended 31.03.2015 under the Companies Act. The turnover of the assessee company has been shown at NIL. Page No.193 is the statement of P L A/c for the year ended 31.03.2015. The Revenue is shown at NIL. The Excise Duty (products which have dealt with by the assessee being an excisable product) is shown at NIL. Other income being interest income shown at Page No.129. Salaries are shown at 13,51,285/-. Staff welfare is shown at ₹ 1,61,308/-. There were no details about number of employees. The assessee is dealing with M/s.Hyundai Motor India Ltd., and the salary payment is to only one employee being the Director. The decision the case of Ascendas is not applicable in the assessee s case as the primary requirement of funds and the certificate for inflow has been received only on 28.03.2015 and nothing has been shown to prove commencement of business. Thus, clearly nothing has been shown that the assessee has started any business activity during the relevant assessment year. This being so, we do not find any reason to interfere with the order of the Ld.CIT(A) and consequently, uphold the same. - Decided against assessee.
Issues Involved:
1. Treatment of Revenue Expenditure claimed under Section 35D of the Income Tax Act. 2. Determination of the "setting up" of business versus the "commencement" of business. Detailed Analysis: 1. Treatment of Revenue Expenditure claimed under Section 35D of the Income Tax Act: The core issue in the appeal was the treatment of ?48,72,391/- claimed by the assessee as Revenue expenditure under Section 35D of the Income Tax Act. The Assessing Officer (AO) had disallowed this claim on the grounds that the business activities had not yet commenced during the relevant assessment year (AY 2015-16). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, leading to the appeal before the ITAT. The assessee argued that the business had been "set up" in the Financial Year 2014-15, and therefore, the expenses incurred should be allowed as Revenue expenditure in the same year. The assessee provided a chronological sequence of events to establish the setting up of the business, including the incorporation of the company, opening of a bank account, receipt of share capital, leasing of premises, appointment of personnel, and obtaining statutory approvals. 2. Determination of the "setting up" of business versus the "commencement" of business: The assessee contended that the AO and CIT(A) had failed to distinguish between the "setting up" of business and the "commencement" of business. The assessee cited various judicial precedents, including the Madras High Court's decision in Ascendas IT Park Chennai Ltd. vs. DCIT, which emphasized that the date of setting up of business is the initial stage in the chain of events leading to full-fledged operations and is distinct from the commencement of business. The assessee argued that the Revenue Authorities had incorrectly placed the assessee on the same footing as a manufacturing concern, where the commencement of business is marked by the production of goods. In contrast, the assessee's business, which involved trading, could be set up with the availability of financial resources, appointment of personnel, leasing of premises, and obtaining statutory approvals. The assessee provided evidence of having received ?1.22 crores as share capital, appointed a Managing Director and an Executive Assistant, leased a residential cum office premises, and obtained necessary statutory registrations and approvals. The assessee also cited several judicial decisions supporting the contention that expenses incurred after the setting up of business but before the commencement of revenue generation should be allowed as Revenue expenditure. Tribunal's Decision: The Tribunal examined the Profit & Loss Account and Balance Sheet of the assessee for the year ended 31.03.2015. The Director's Report categorically stated that the business activities were yet to commence. The Tribunal noted that the first import and sale occurred only in the subsequent financial year, and the primary requirement of funds and the certificate for inflow were received only on 28.03.2015. The Tribunal concluded that the assessee had not provided sufficient evidence to prove that any business activity had commenced during the relevant assessment year. Consequently, the Tribunal upheld the order of the CIT(A), disallowing the Revenue expenditure claimed by the assessee. Conclusion: The appeal filed by the assessee was dismissed, and the Tribunal upheld the decision of the CIT(A) in confirming the treatment of the Revenue expenditure claimed under Section 35D of the Income Tax Act. The Tribunal emphasized the distinction between the "setting up" and "commencement" of business and found that the assessee had not commenced any business activity during the relevant assessment year.
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