2019 (3) TMI 1951 - AT - Income Tax

Allowance of business loss - assessing the commencement of the business of the assessee by which the claim of the assessee was allowed - Whether CIT(A) admitted additional evidence without giving opportunity to the Assessing Officer under Rule 46A of Income Tax Rule - HELD THAT - CIT(A) has considered the incorporation certificate which was obtained w.e.f. 16.12.2011. The CIT(A) has considered the expenses from pre-incorporation period and post of incorporation period. CIT(A) has considered the invoices for the payment to interior designer and invoices to purchase the computer in the month of January which shows about the activities business. The payment was also made to Microsoft as License fee. The assessee incurred expenses upon the employees in the shape of Salary, Professional Fees, travelling for Work, Office Expenses, Telephone Expenses etc. w.e.f. January, 2012 onwards. The assessee has also entered into an Investment Management Agreement with IL FS on 1st February, 2012 and also applied for Credit Alpha Alternative Fund s as Venture Capital Fund with SEBI on 07.02.2012. All these facts speak about the initiation of the business. On appraisal of the order, we nowhere found that the additional evidence if any was admitted by CIT(A) without giving an opportunity of being heard to the AO in view of the provisions u/s 46A of the Act. The documents which has been considered by the CIT(A) were already on record which were not considered by the AO. Nothing came into noticed that the new documents were considered by the CIT(A) while allowing the claim of the assessee. As relying ON M/S. AXIS PVT. EQUITY LTD. 2017 (2) TMI 340 - BOMBAY HIGH COURT we noticed that the factual position in connection engaged of legal and financial advisors and incurred expenditure to decide appropriate tax efficient structure for funds and employment to the personnel for the purpose of running its business has been considered for the establishment and commencement of the business and accordingly allowed the business loss. Since, no new evidence was considered by CIT(A), therefore, the plea taken by revenue on account of giving an opportunity u/s 46A of the Act has no force. Taking into account of all the facts and circumstances, we are of the view that the CIT(A) has rightly allowed the claim of the Assessee. Finding no reason to interfere with the finding of the CIT(A), we affirm the finding of the CIT(A) on all the issues and decide these issues in favour of the assessee

Summary

Issues Involved:
Allowance of business loss without opportunity under Rule 46A and commencement of business.

Analysis:

Issue 1 to 5: The revenue challenged the allowance of the assessee's claim regarding business loss without providing an opportunity under Rule 46A and the assessment of the commencement of the business. The CIT(A) allowed the claim, stating that a private limited company can start its business upon obtaining an incorporation certificate without needing a business commencement certificate. The CIT(A) found that the assessee started its business in January 2012 after obtaining the incorporation certificate. The CIT(A) classified expenses into pre-incorporation and post-incorporation periods, allowing only post-incorporation expenses. The CIT(A) noted that expenses like professional fees, salary, and traveling were incurred only after the business commenced, serving as conclusive evidence. The CIT(A) considered various agreements and activities as proof of business initiation. The ITAT observed that the CIT(A) correctly analyzed the situation and relied on relevant legal precedents. No new evidence was admitted without giving an opportunity to the AO under Rule 46A. The ITAT affirmed the CIT(A)'s decision, dismissing the revenue's appeal.

In conclusion, the ITAT upheld the CIT(A)'s decision, emphasizing the commencement of business and the allowance of business loss based on the evidence presented. The judgment highlighted the importance of considering expenses incurred post-commencement as valid business expenses and the legal precedents supporting the assessee's position.