9911796707
TMI Blog2013 (1) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... certain disallowances were made. In these circumstances, it would be unfair for the revenue to contend for each successive assessment year that the assessee had to establish that it "commenced business." The evidence on record clearly shows that substantial services were being rendered and salaries etc. were disbursed even though on reimbursement basis. The mere fact that other service charges are meager in nature would not, in any way, influence the decision as to whether business was commenced. Furthermore, in line with the decision of this Court in ESPN Software (P.) Ltd. (2008 (3) TMI 90 - DELHI HIGH COURT) the question of date of commencement of business is one of fact. It is setting-up of business and not commencement that is to be considered. Having regard to these circumstances, it is held that the findings of the Tribunal in the impugned common judgment and order are sound and do not call for interference. The question of law is accordingly answered in favour of the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... imary to kick start the business, hence, benefit of enduring nature was likely to be obtained. Therefore, such expenditure cannot be allowed as a revenue expenditure as such expenditure has been incurred by the assessee to create an infrastructure for facilitation of future business, hence, benefit of enduring nature was imposed to be derived. However, it cannot be denied that some expenses would be required under the stated heads for running the day-to-day business of the company. Therefore, 20% of these sums of (total Rs. 3,77,15,537/-) i.e. Rs. 5,43,707/- is allowed while computing the total income of the assessee company. The balance amount of Rs. 3,01,74,830/- is disallowed as expenses of capital nature." 4. The assessee carried the matter in appeal to the CIT (Appeals), who accepted its contentions and held that the individual items of expenses though substantial were incurred on business operations at the initial stage and were, therefore, revenue in nature. The reasoning of the appellate commissioner is found in the following extract of his order, allowing the assessee's appeal: "Substantial expenses have been incurred on account of postage, telephone, telex, travelling a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nent to bring on record that we are upholding the order of CIT(A) for treating the expenditure as revenue expenditure, here we are not deciding the issue regarding date of setting up of business or commencement of business and allowability or otherwise of expenses accordingly." 6. For the succeeding years, the assessee had claimed substantial expenses which resulted in loss. As against this, it also disclosed service charges that were collected by it and were considerably lower than expenditure which it disclosed to the income tax authorities. The following chart would indicate the amounts received as services, charged towards the assessee's income and the expenses claimed by it which resulted in loss, for the relevant assessment years: S. No. A.Y. Service Charges (Rs.) Expenses claimed against service charges (Rs.) 1. 1999-00 750 15,77,59,491 2. 2000-01 25,286 12,09,05,151 3. 2001-02 25,000 8,35,88,123 4. 2003-04 NIL 2,57,52,332 5. 2005-06 NIL 7,92,791 7. In respect of the subsequent assessment years, the AO and the CIT(A) was of the opinion that the loss claimed could not be allowed and that the evidence on record for all the relative period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99. It was argued that the explanation sought for by the AO, directly related to the question whether the assessee had started its business in order to justifiably claim the expenses for that assessment year. The AO completed the assessment and confirmed the order under Section 143(3). Certain additions were made while finalizing the assessment. The relevant discussion by the AO in his order for that year would disclose that he had accepted the assessee's contention with respect to commencement or starting of business. Those determinations were not disturbed by the CIT(A) as well as the Tribunal. Thus, finality having been achieved in respect of the question of date of commencement of business, on account of merger of the findings of the AO with those of the Tribunal, the question of reopening or revisiting that issue did not arise. 12. Learned counsel argued that even though there is no inflexible rule that a view taken in proceedings under the Income Tax Act cannot be reopened for all times to come, at the same time, the Courts are alive as to the types of matters which can be re-agitated. He highlighted that the date of commencement of business is one such instance where the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by it have to be allowed u/s 37(1) even if no custom has been obtained from outside parties. Accordingly, we are of the view that income of the assessee has to be computed under the head "profits and gains of business or profession" in relation to expenses incurred after setting up of the business. In other words, the assessee is entitled to deduction of revenue expenses debited in profit and loss account on the basis of various provisions of the Act contained in chapter IV and depreciation on fixed assets as per Income Tax Rules." 15. For assessment year 1999-2000, reassessment proceedings were commenced. The Tribunal held that the reasons recorded for reopening the proceedings were justified. However, it followed its reasoning for the other year and dismissed the appeal on merits. Similarly, it held that the findings of the CIT(A) for the assessment years 2000-01, 2003-04 and 2005-06 had to be set-aside since the issue had been concluded on the question of commencement of business. The disallowance of expenditure claimed was solely on the ground that the assessee had been unable to establish when it started the business. 16. The question as to when can it be said that the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s soon as an essential activity of that business is started. Thus, a business commenced when the purchase of stock and trade, the date when the sale is made is not material in that respect." 20. This Court also followed the previous ruling of the Gujarat High Court in CIT v. Saurastra Cement & Chemical Industries Ltd. [1973] 91 ITR 170. The Court further held importantly that "a finding regarding the date when the business was set-up is a finding of fact.". 21. This Court is of the opinion that reasoning given by the AO in his order for the assessment year 1998-99 is clear and conclusive. It accepted the assessee's contentions with regard to having commenced business with effect from 01.01.1997. It was only on the basis of such a fundamental premise that income was assessed and certain disallowances were made. In these circumstances, it would be unfair for the revenue to contend for each successive assessment year that the assessee had to establish that it "commenced business." The evidence on record clearly shows that substantial services were being rendered and salaries etc. were disbursed even though on reimbursement basis. The mere fact that other service charges are meagre i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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