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TMI Blog2017 (10) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... orting or otherwise dealing in chemicals, chemical compounds, organic and inorganic forms in solid, liquid and gaseous etc., Therefore, assessee is into composite business of manufacturing as well as trading into chemicals. Since the assessee is into the business of trading and manufacturing of chemicals and since the assessee has commenced its activities in trading during this Assessment Year the expenses relating to the trading activities cannot be denied for the reason that assessee has not commenced its manufacturing operations of chemicals. We also see no reason for denying the expenses simply because assessee has incurred huge expenses towards salary and other expenses in trading activity which has only commenced during this Assessment Year. Thus, we direct the Assessing Officer to accept the assessee’s claim for expenses as returned by the assessee in its return of income and allow the loss claimed by the assessee on account of the claim for such expenses. Grounds raised by the assessee are allowed. - ITA.No.5490/MUM/2016 - - - Dated:- 11-10-2017 - SHRI G.S. PANNU, HON'BLE ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER For The Assessee : S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which according to him is not allowable u/s. 37(1) of the Act. 4. On appeal by the assessee Ld.CIT(A) upheld the action of the Assessing Officer in denying the expenses claimed by the assessee observing that assessee was in the process of setting up of manufacturing facility for chemical products in Dahej Industrial Area, Ankleshwar, Gujarat and in the current Assessment year assessee had commenced its trading operations of importing chemical products from Philippines and selling the same in local market. Ld.CIT(A) also observed that the increase in salary expenses shows that one Mr. M.R. Sawant, was appointed as Country Manager who had been paid gross salary of ₹.31.46 lakhs during the year and his appointment letter stated that he was appointed as Country Manager-India Surfactants based in Mumbai and not as a Country Manager Stepan (India) Pvt. Ltd., which is in contrast to the appointment letter in respect of Ms. Prachi Bade which does not referred to India Surfactants. Ld.CIT(A) also observed that the extent of trading conducted by the assessee during the year is not commensurate with the salary offered to Mr. M.R. Sawant and the details of rendered services are not av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that these two employees rendered services only in the trading operations of the company, therefore employee cost incurred by the company are essentially for the trading activities undertaken by the company. 6. Learned Counsel for the assessee referring to the observations of the Ld.CIT(A) submits that Ld.CIT(A) wrongly presumed that the appointment letter issued to Mr. M.R. Sawant is different to that of Ms.Prachi Bade since in the appointment letter of Mr. M.R. Sawant it was mentioned that he was appointed as Country Manager-India Surfactants. Learned Counsel for the assessee submits that India Surfactants is a name of the chemical in which the assessee is dealing with. Therefore, he submits that both the employees are employed in the trading activities of the assessee and no part of their services were related to the setting up of chemical plant. 7. Learned Counsel for the assessee further relying on the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Ralliwof Ltd. [121 ITR 262] submits that when the business of the assessee is a composite business i.e., manufacturing as well as the trading and the assessee has commenced its trading business t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employee cost relating to trading activity. On a specific query by the Assessing Officer the assessee also replied why the employee expenses in respect of trading activity was claimed as deduction against profit earned in trading business and why such expenses have not been capitalized, stating that none of these expenses related to the proposed manufacturing facility but were incurred in the operations of trading activity. Assessee also submitted that expenditure directly connected with the proposed manufacturing plant have been capitalized during its pre-operative period and also furnished such details to the Assessing Officer. The duties and activities undertaken by the employees Mr. M.R. Sawant and Ms.Prachi Bade were also furnished to the Assessing Officer and it was submitted that these employees were rendering services in the trading operations of the assessee. In our considered view the Assessing Officer and the First Appellate Authority have not appreciated the submissions of the assessee in a proper perspective. The Memorandum of Association clearly shows that assessee is into business of manufacturing, producing, buying, purchasing, selling, distributing, supplying, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e essential parts of the business of the assessee-company, then simply because in the relevant accounting period no manufacturing activity was started, it cannot be said merely for that reason that the assessee's business was not set up during the relevant accounting period. It is undoubtedly true that in the relevant accounting period there were no sales effected of the spares by the assessee, but it had effected purchases, which could be utilized either for manufacturing of the various items or for sale of spares. The very fact that in the relevant accounting period purchases were effected by the company would go to show that there was material on the basis of which the Tribunal could have taken the view that trading in spare parts was a part of one of the activities of the assessee-company, and by purchasing the various the assessee could be said to have commenced the business. Bearing in mind one of the objects for which the company was formed, it could not be said that the finding of the Tribunal that carrying on business in spare parts was an integral activity for which the assessee-company was, inter alia, incorporated is perverse or based on no evidence. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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