2016 (4) TMI 735 - AT - Income Tax

Allowability of deduction - commencement of business - Held that - There is enough material on record to indicate that the business has actually commenced in 2008-09. Learned CIT(A) has categorically given findings on that aspect and learned Departmental Representative has not been able to controvert the same. The mere fact that the assessee had received advance for work cannot lead to the conclusion that the business had commenced. In any event, this advance was received from a group entity and it is not a condition precedent for receiving the money that the business had actually commenced. As for the grievance raised by the Assessing Officer regarding allowability of deduction, we find that the learned CIT(A) has not really adjudicated on this, and this issue has been treated as infructuous. Grievance of the Assessing Officer is thus clearly ill conceived. - Decided in favour of assessee

Summary

Issues:
1. Challenge to correctness of the order dated 24th October, 2011, passed by the ld. CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2008-09.
2. Dispute over whether the business had commenced during the relevant period and the deletion of the addition of &8377; 13,49,875/- made by the AO on account of deduction of foreign exchange loss.

Analysis:

Issue 1: Challenge to Correctness of the Order
The Assessing Officer challenged the correctness of the order dated 24th October, 2011, passed by the ld. CIT(A) regarding the assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2008-09. The Assessing Officer contended that the business had commenced during the relevant period based on the advance money received from customers towards services. The Assessing Officer disallowed the deduction of foreign exchange loss, asserting that the loss shown on account of revaluation of liability cannot be allowed as a deduction for computing profit under the Income Tax Act. Despite the Assessing Officer's view that the business had initiated operations evidenced by incurring a loss, the CIT(A) found that the commercial activities had not commenced during the relevant period. The CIT(A) supported this conclusion with evidence such as correspondences, annual accounts, and performance reports, indicating that the business operations started in January 2009, not during the assessment year 2008-09.

Issue 2: Dispute Over Commencement of Business and Deletion of Addition
Regarding the commencement of business, the Assessing Officer argued that the receipt of advance money signified the commencement of business operations, while the CIT(A) disagreed, emphasizing the lack of physical revenue-generating activities. The CIT(A) highlighted that the facilities required for providing services were not ready until January 2009, as evidenced by the inauguration and annual accounts. Additionally, the CIT(A) referenced legal precedents to support the position that without the necessary facilities in place, business commencement cannot be established. On the issue of the deletion of the addition of &8377; 13,49,875/- made by the AO on account of foreign exchange loss, the CIT(A) held that since the business operations had not started during the year, this ground was not adjudicated separately. The ITAT upheld the CIT(A)'s findings, stating that there was enough material on record to support the conclusion that the business had commenced in 2008-09 and that the Assessing Officer's grievances were ill-conceived. Consequently, the ITAT dismissed the appeal, affirming the CIT(A)'s decision.

This detailed analysis covers the issues raised in the legal judgment, providing a comprehensive understanding of the dispute and the final decision rendered by the ITAT.