2021 (12) TMI 1197 - AT - Income Tax

Business loss claim - disallowance of loss as there was no sales and purchase - distinction between the commencement and setting up of the business - case of the assessee is that the assessee-company is ready for the commencement of the business and placed the order for raw material and advance also paid therefore, the loss claimed by the assessee has to be allowed - HELD THAT - It is found that when the assessee has set up an industry by obtaining all necessary permissions and advance paid for the purpose of obtaining the raw material, the same is accepted by the A.O therefore, the raw material not reached the place of the assessee, it cannot be said that the assessee has not commenced the business. Once the assessee is setup entire business activity and waiting for the raw material, it has not reached because of various reasons therefore, it cannot be said that the assessee is not commenced his business. Hon ble Delhi High court in the case of CIT v. LG Electronic (India) Ltd. 2005 (5) TMI 30 - DELHI HIGH COURT has observed that there is a distinction between the commencement and setting up of the business beyond two dates need not necessarily overlap and section 3 refers to date of setting up of the business and as such it is only thereafter, that previous years of newly set up business would commence and, therefore, expenses incurred prior thereto could be taken into account for the purpose of determining profits of a newly set up business. In the present case, the assessee has already set up the business and it commences only once raw material reaches. The assessee has already paid advance for supply of raw materials and therefore, the loss claimed by the assessee during the year under consideration cannot be disallowed on the ground that the assessee is not commenced the business. Appeal filed by the assessee is allowed.

Summary

Issues:
- Whether the business loss claim amount is liable or not?

Analysis:
The appeal pertains to the business loss claim of the assessee for the Assessment Year 2013-14. The Assessing Officer (AO) disallowed the loss claim of the assessee amounting to ?26,59,169 as there were no sales and purchases conducted by the company. The assessee contended that they had paid an advance for the purchase of raw material, indicating the commencement of business activities. However, the AO and the Commissioner of Income Tax (Appeals) held that the business had not commenced as the raw material had not reached the company's premises. The Tribunal considered the submissions of both parties. The assessee argued that they had set up the company, obtained necessary permissions, and made advance payments for raw materials, thereby commencing the business. They relied on a judgment of the Delhi High Court to support their claim. The Departmental Representative supported the lower authorities' decisions.

The Tribunal observed that there is a distinction between setting up and commencing a business, as highlighted in the judgment cited by the assessee. The Tribunal agreed with the assessee that once the business is set up and operational, the commencement occurs when the raw material is received. Since the assessee had already paid for the raw material and was waiting for its delivery, the business was considered to have commenced. Therefore, the loss claimed by the assessee could not be disallowed solely on the ground that the raw material had not reached the company's premises. Citing the judgment of the Delhi High Court, the Tribunal allowed the appeal filed by the assessee, overturning the decisions of the lower authorities.

In conclusion, the Tribunal found that the assessee had indeed commenced their business activities by setting up the company, obtaining necessary permissions, and making advance payments for raw materials. The delay in receiving the raw material did not negate the fact that the business had commenced. Therefore, the Tribunal allowed the appeal filed by the assessee, ruling in favor of allowing the business loss claim amounting to ?26,59,169 for the relevant assessment year 2013-14.