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TMI Blog2008 (8) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... continuously. The steps shown by the assessee are of preliminary steps in the direction of setting up of the business. There is nothing on the record which can suggest the potentiality and capability of the assessee to deliver the goods or invite the customer for supply of those goods. It was merely incorporated its director was exploring how to carry out the manufacturing activity. He was also exploiting the available market in India. In the next accounting year, assessee was able to arrange office space, residential space for the director and also the space for the goods. The AO has considered these lease agreement, etc., and all other relevant activities of the assessee and, thereafter, granted the deduction of expenditure in the next year. Thus, merely on the basis of incorporation of a company it cannot be concluded that business was set up. As observed carrying on a business is a regular and systematic activity. Nothing that sort of facts or circumstances could be brought before us. In the case of ESPN Software India (P.) Ltd.[ 2008 (3) TMI 90 - DELHI HIGH COURT] , learned DR rightly highlighted that assessee got a license for providing ESPN Services and also appointed di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common order. 2. The first grievance in assessment year 1998-99 is that learned CIT(Appeals) has erred in confirming the disallowance of Rs. 26,94,550. 3. The brief facts of the case are that assessee is a private limited company, incorporated on 5-12-1997. It filed its return of income on 27-11-1998 declaring total loss of Rs. 26,94,550, for the accounting period 5-12-1997 to 31-3-1998. The learned Assessing Officer on scrutiny account, found that in the computation of loss filed by the assessee in return of income, it has shown loss from business to be carried forward at Rs. 6,51,743. According to the Assessing Officer, there are certain ambiguity and errors in the computation. Anyway, the facts relevant for the present dispute are that the assessee had incurred expenses of Rs. 26,56,199 which it claimed as revenue expenses. It has first shown interest income on FDR at Rs. 16,34,795 as income from other sources. After setting this income against the expenditure, loss was claimed at Rs. 10,21,404. But in the note, assessee taken a plea that interest income is not due to be recovered because FDRs will mature in May, 1998 and thus it is not taxable. In this way, ultimately a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent expenditures which have been claimed by the assessee to have been made out of the bank account of the MD opened in ABN Amro Bank, DLF Centre, Sansad Marg, (11-3755130). The said payments were made by cheque through the bank account of Frank Van Ooijen and later on the amount of total expenditure made by Frank Van Ooijen of Rs. 18,19,569 was out of the total expenditure made by Frank Van Ooijen was out of the remittances of US$ 50,000 from Akzo Nobel, Netherlands. This amount was transferred by Akzo Nobel, Netherlands in the personal bank account of Frank Van Ooijen. 7. Later on, the assessee passed trading entry in their books debiting the expenses amount and crediting the Frank Van Ooijen account of Rs. 18,19,568.92 which was passed on 23-10-1999. Further, this amount has been paid back by the assessee company, Akzo Nobel Car Refinishes India Pvt. Ltd. to Frank Van Ooijen by cheque of the account of the assessee. This information was supplied by the assessee vide his letter dated 9-2-2001 in para 3. Therefore, on the one hand the assessee wants to say that the business has commenced and the expenditure was made by Frank Van Ooijen on behalf of the company making the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court. Drawing parity of facts with this judgment, learned counsel submitted that in the case of assessee, no license was required for trading activities and, therefore, the moment the assessee was in a position to deliver the paint to the customers, it should be construed that business has been set up. It is immaterial whether the assessee had actually sold the paint or not. The potentialities of the assessee for carrying out the trading activities is only required to be seen for deciding the issue that business has been set up. For buttressing his contentions he relied upon the decision of ITAT in ITO v. Hindustan Diamond Co. (P.) Ltd. [1986] 19 ITD 184 (Bom.). He further relied upon in the case of Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 (Bom.). He also contended that the director had visited various places with a view to find out the customer and submitted his monthly report to the principal company at Netherlands. Learned counsel also referred the memorandum of association wherein it has been provided that assessee can buy, sell these products under its ancillary activities. He also pointed out that in the next year the assessee has not star ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting period relevant to this assessment year and, therefore, it is entitled for deduction of business expenses as claimed in the return. 12. Section 2(13) provides the definition of expression "business" accord-ing to which business includes any trade, commerce manufacture or any adventure or concern in the nature of trade, commerce or manufacture. In various authoritative pronouncements of Hon ble Supreme Court and Hon ble High Courts, meaning and scope of expression "business" has been propounded. It is not necessary to recite and recapitulate of those decisions but on the strength of them, it would be suffice to say that word "business" has a wide import and it means an activity carried on continu-ously and systematically by a person by the application of his labour and skill with a view to earn an income. Section 13 of the Income-tax Act, 1961 defines "previous year". Previous year means the financial year immedi- ately preceding the assessment year. The proviso appended to this section further contemplates that in case of a business newly set up in the said financial year the previous year shall be the period beginning with the date of setting up of the business. The expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. Whether a business has been set up or not is a question of fact which will vary in each case. In the present case, assessee failed to demonstrate either with the direct evidence or with the circumstantial evidence that its business was set up in the accounting period. Whatever has been pointed out, i.e., incorporation of the assessee and appointment of the director are concerned, we are of the view that these two factors are not sufficient to record a finding that business has been set up. In view of the above discussion, the first ground of appeal raised by the assessee is rejected. 13. The next ground of appeal is inter-connected with the ground No. 1 raised in assessment year 1999-2000. The grievance of the assessee in these grounds of appeal is that learned CIT(Appeals) has erred in confirming the addition of Rs. 16,34,795 and Rs. 14,29,450 in assessment years 1998-99 and 1999-2000 respectively. The learned counsel for the assessee submitted that in assessment year 1998-99 the assessee had made a deposit of Rs. 8,50,00,000. This deposit was made for a period of three months, i.e., February to March. The FD was to be matured in May, 1998. Hence, the interest incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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