2018 (3) TMI 534 - HC - Income Tax

Disallowance of returned loss holding that the assessee s business has not been set up - grievance of the Appellant is that the business has been set up as it evident from the fact that the Appellant had purchased two vehicles and also taken office on hire - Held that - In the present facts, the purchase of two cars was preparatory to setting up of business. However, in the absence of necessary permission for operating license as required from the Regulatory Authorities, was not produced before the Authorities and the absence of various other requirement to conclude has been set up was found on facts by all the Authorities under the Act, to be lacking. Finding of fact arrived at by the Authorities under the Act, cannot be said to be perverse. No substantial question of law.

Summary

Issues:
1. Disallowance of returned loss by the Tribunal
2. Perversity of the Tribunal's order

Issue 1: Disallowance of returned loss by the Tribunal
The Appellant-Assessee claimed a business loss for the Assessment Year 2005-06, seeking a carry forward loss. The Assessing Officer disallowed the business loss as no evidence of commencing business had been led. The Commissioner of Income Tax (Appeals) dismissed the Assessee's appeal. The Tribunal, in its order, examined the facts and noted that the company had appointed key personnel, acquired office premises, and furniture, but crucial details regarding infrastructure setup were missing. The Tribunal emphasized the lack of evidence supporting the claim that the business had been set up. It highlighted various essential aspects such as staff appointments, office premises acquisition, hardware and software procurement, necessary licenses, capital arrangements, and legal issues study that were not substantiated by the Assessee. The Tribunal concluded that the company was in the setting up stage and disallowed the claim for business expenditure, stating that only post-setup expenses could be claimed as business expenditure.

Issue 2: Perversity of the Tribunal's order
The Appellant contended that the business had been set up, citing the purchase of two vehicles and office hiring as evidence. However, the Court referred to the Western India Vegetable Products Ltd. case, emphasizing that a unit cannot be considered set up unless it is ready to function for its intended purpose. The Tribunal's test of whether the company was in a position to commence its business by having operational infrastructure in place was crucial. The Court differentiated between setting up and commencing business, noting that the operational infrastructure was lacking. The Court rejected the reliance on the Sarabhai Management Corporation case, highlighting the differences in the activities undertaken to establish business commencement. The absence of necessary permissions and requirements to conclude that the business had been set up led all authorities to find that the business setup claim was lacking factual support. Consequently, the Court upheld the Tribunal's decision, stating that the findings were not perverse and did not raise substantial questions of law.

In conclusion, the Appeal challenging the disallowance of the returned loss by the Tribunal was dismissed, emphasizing the importance of substantiating business setup claims with concrete evidence and fulfilling necessary requirements for business commencement.