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TMI Blog2016 (9) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred after 11-10-2006 having been incurred after setting up of business are deductible as revenue expenditure. Expenses incurred on account of due diligence of a proposed investment - Held that:- It is clear that expenses incurred on account of due diligence of a proposed investment is clearly made as part of the business activities of the assessee and, therefore, the impugned expenses are expenses incurred in the ordinary course of its business. The other reasoning given by the Ld. CIT(A) was that no investment was made during the year under consideration and funds were parked in the bank. On this aspect also, we differ with the reasoning given by the Ld. CIT(A). Though, clear facts are not before us with respect to the making of investment in this year or next year, but even if investments were not made during the year under consideration, it cannot be said that these expenses were not incurred for the purpose of business. It is well settled law that results of the business activities or fruits of efforts to a business organisation may yield in the concerned year or in subsequent years or never. But that would not mean that the expenses incurred would not be expenses incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company was to carry out business of asset management, consumer finance, leasing and financing and in trusteeship of Mutual Funds, offshore funds, pension funds, etc. The AO discussed this issue at para 4 on page 2 - 5 of the Assessment Order. During the course of assessment, the AO observed that during the year, the assessee has received only interest income on fixed deposits placed with Citibank N.A, Mumbai, against which the assessee has claimed various expenditure aggregating to ₹ 204,86,458/-, which includes an amount of ₹ 1,25,80,076/- paid towards consultancy charges to a law firm namely M/s. Amarchand Mangaldas Suresh A. Shroff Co. During the course of assessment, the AO asked the assessee as to why such consultancy charges should not be disallowed since consultancy charges paid have not resulted into interest income. The AO further asked the assessee to explain the nexus between the interest income and that of consultancy charges paid. In response to the same, the assessee made its submissions. It was clarified that an amount of ₹ 1,25,80,078/- was paid to M/s, Amarchand Mangaldas Suresh A. Shroff Co. out of which the assessee itself has di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find force in the arguments of the assessee. It was held by the Ld.CIT(A) that the impugned expenses have been incurred by the assessee for making investment in shares which is shown as investment in the balance sheet, therefore, such expenditure incurred is for making investment; hence, cannot be allowed as business expenditure. It was also held by the Ld.CIT|(A) that business of the assessee company, as an NBFC is to promote, acquire or invest by way of capital or debt in securities of body corporate, trust or societies. In the present case, the assessee has not made any investment in capital or debt in securities of body corporate, trust or societies, but rather, has parked its surplus funds available in Banks on which it has received interest income. Under these circumstances, it was held that the said expenses cannot be said to be incurred for the purpose of business and, therefore, disallowance made by the Assessing Officer was confirmed. 6. Being aggrieved, assessee filed appeal before the Tribunal. During the course of hearing ld. Counsel drew our attention on the balance-sheet of the assessee company for the year under concern showing that assessee had setup its bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year. 10. It may be noted from the perusal of the proviso to section 3 that in the case of newly set up business, the previous year shall be the period beginning with the date of setting up of the business or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year. Thus, we need to find out when the business of the assessee company can be said to be set-up . The business may be commenced subsequently, but for the purpose of allowing the expenses, it has to be seen that when the business can be said to be setup . It is noted from the Notes to the Computation Sheet attached with the return of income that assessee had clearly given its date of setting up of business as 11th October, 2006 being the date on which the assessee company received NBFC registration certificate from RBI. We agree with the assessee company s contention that on this date, the assessee was legally and commercially competent to do its business. In our view the expression setting up mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are not allowable and, therefore, these are disallowed. 11.1. With regard to the remaining expenses of Rs. One crore, it is noted that this amount has been paid to the aforesaid law firm on account of provision for legal and professional services rendered for the purpose of diligence of the investments to be made by the assessee company into the share capital of other companies. The lower authorities have held that these expenses are not incurred for the purpose of business of the assessee and, therefore, not allowable. In this regard, we do not agree with the reasoning given by the Ld. CIT(A). The admitted facts on record, as was noted by the Ld. CIT(A) are that assessee company is a registered NBFC company with RBI and its activity includes whole spectrum of activities pertaining to advisory, investment and funding. Under these circumstances, it is clear that expenses incurred on account of due diligence of a proposed investment is clearly made as part of the business activities of the assessee and, therefore, the impugned expenses are expenses incurred in the ordinary course of its business. The other reasoning given by the Ld. CIT(A) was that no investment was made during ..... X X X X Extracts X X X X X X X X Extracts X X X X
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