2017 (2) TMI 340 - HC - Income Tax

Allowance of deduction the expenses - business of the Assessee Company was not set up - distinction between setting up of business and commencement of business - Held that - Tribunal on examination of facts found that the business of the respondent assessee has been set up in the subject assessment year and consequently, the business loss arising on account of expenditure as claimed by the respondent assessee was allowable. Thus when executives are employed and the infrastructure is ready to commence business, it can be said that the business has been set up for carrying on business. - Decided in favour of assessee.

Summary

Issues:
- Appeal challenging order of Income Tax Appellate Tribunal for Assessment Year 2007-08
- Deduction of expenses claimed by assessee in Profit and Loss Account
- Business set up during relevant year
- Distinction between setting up and commencement of business
- Allowability of business loss incurred before commencement of business

Analysis:
1. The appeal under Section 260A of the Income Tax Act, 1961 challenges the order of the Income Tax Appellate Tribunal for Assessment Year 2007-08. The main question raised is whether the Tribunal was correct in allowing the deduction of expenses claimed by the assessee in its Profit and Loss Account without considering that the business of the company was not set up during the relevant year.

2. The respondent, an asset management company, claimed business loss and miscellaneous income for the assessment year. The Assessing Officer disallowed the business loss on the grounds that the business was not set up during the year and no evidence was provided. The miscellaneous income was treated as income from other sources. The Commissioner of Income Tax (Appeal) upheld the disallowance of business loss and assessed the miscellaneous income as per the Assessing Officer's decision.

3. The Tribunal, in the impugned order, noted that the company had taken steps to commence business, engaged advisors, and incurred expenses related to business activities. It referred to a previous decision where business set up was considered when certain criteria were met. The Tribunal allowed the expenses as business loss, considering that they were incurred after the business was set up. The Revenue contended that no evidence was presented to show management activities during the assessment year.

4. The High Court referred to a previous case to distinguish between setting up and commencement of business. It held that expenses during the period between setting up and commencement of business are deductible. The Tribunal's decision was based on factual findings and previous case law, which the Revenue failed to challenge. Therefore, no substantial question of law was found, and the appeal was dismissed.

5. The judgment emphasizes the importance of distinguishing between setting up and commencement of business for the purpose of allowing deductions. It underscores the need for factual evidence to support claims of business activities and expenses incurred. The decision provides clarity on the interpretation of business set up and supports the Tribunal's findings based on established legal principles and precedents.