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TMI Blog2018 (10) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of the expenses incurred by it during the year under consideration. In the case in hand, we note that the assessee has recruited the employees and incurred the salary expenses therefore, the ratio laid down in the preceding orders are squarely applicable to the facts of the case in hand. Therefore, respectfully following the same we reverse the order of authorities below. - Decided in favour of assessee. - ITA No.3514/Ahd/2016 - - - Dated:- 3-10-2018 - Shri Waseem Ahmed, Accountant Member And Smt Madhumita Roy, Judicial Member For the Appellant : Ms. Vyoma Rav, A.R. For the Respondent : Shri Om Prakash Pathak, Sr. D.R. ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: This is an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals)-9, Ahmedabad, vide Appeal No.CIT(A)-9/258/ITO Wd.3(1)(1)/15-16 dated 21.10.2016 for the Assessment Year (AY) 2013-14. 2. Assessee has raised following grounds of appeal: 1. That the ld CIT(A) has erred in confirming the disallowance of ₹ 705341/- by not allowing as business expenditure. It should be held allowable as business expenditure on facts as well as law. 2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Goldmines Ltd. Vs. ACIT in ITA No. 7656/2010. 4.5 The assessee also submitted that as per its accounting policy, the income shall be recognized on accrual basis once, the commercial operations is commenced. 4.6 However, the AO disregarded the contention of the assessee by observing that the expenses can be claimed only on the commencement of commercial operation. As in the case on hand, the assessee has specified in its audit report that the commercial operation has not yet been commenced. Then, there is no question of allowing the deduction of expenditure. Accordingly, the AO disallowed the expenses and added to the total income of the assessee. 5. Aggrieved assessee preferred the appeal to Ld.CIT(A). The assessee before the Ld. CIT(A) submitted that its business has been setup and the expenses have been incurred in connection with the travelling, salary and wages of the employees. 5.1 The assessee also submitted that commercial activity does not mean generation of fund but it depends upon the intention of the assessee to conduct its business operation for which the assessee is under obligation to incur routine business expenses. Thus, even the fund has not been gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. It is observed from the order of assessment that A.O. has not doubted the genuineness of the expenditure incurred by the appellant prior to the commencement/set up of business. Therefore, agreeing with the stand taken by the A.O. I hereby confirm the disallowance of ₹ 7,05,341/-. 5.3 Further, I also hold that A.O. has correctly categorized interest income from the fixed deposits under the head income from other sources. Thus, ₹ 6,87,190/- is treated as income under the head income from other sources. Thus, ground Nos.2 3 raised by the appellant are hereby dismissed. 5.2 Being aggrieved by the order of Ld. CIT(A) assessee is in second appeal before us. 6. The Ld. AR before us filed a paper book which is running from pages 1 to 50 and submitted that the interest income on the FDR has already been offered to tax under the head income from other sources. Therefore, the finding of the lower authorities that interest income has been offered to tax under the head business income is erroneous. The Ld. AR reiterated the submission as made before the Ld. CIT(A). 7. On the other hand, the Ld. DR submitted that the commercial activity of the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness and as per the details exhibited at page- 10 of the Paper Book about 16 employees are for the job of quality assurance. The assessee is in the business of Merchandising of diamonds/gold/jewelleries. Undisputedly, this line of business requires expertise who have proficiency in understanding the carats of diamonds and related jewellery, without such recruitment, it would be a futile exercise to commence the business. 10.3. The Hon ble High Court of Delhi in the case of Omniglobe Information Tech India Pvt. Ltd. in Income Tax appeal No. 257 of 2012 had the occasion to consider the following substantial question of law: Did the Tribunal fall into error in holding that the assessee had setup its business w.e.f. 1.6.2004 and not w.e.f. 1.4.2004, as held in the impugned order. ITA. No.3855/M/2013 10.3. In that case, the Hon ble High Court had to consider the following facts: The Assessing officer as well as the Tribunal have held that the appellant assessee had commenced its operations only from 1.6.2004 i.e. the date on which the appellant assessee entered into service agreement with its parent company and, therefore, the expenditure incurred between 1.4.2004 to 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under: In view of the aforesaid discussion, we do not think that the reasoning given by the Tribunal and the AO shows that the business of the appellantassessee had not been setup. The business of the appellant had been setup as the appellant assessee had acquired the necessary infrastructure from their sister concern, M/s. Agilis, and had also started making payment of salary and wages. This training was given by professional experts under the supervision and control of the appellant assessee. The moment the said operations were commenced, the business had been setup and the subsequent rendering of service to third parties would be at a later date when the actual services were rendered to the parent/holding company. 11. After considering the facts of the case in hand in the light of the decisions referred to hereinabove, in our considered opinion, upon recruitment of employees, the factum that expenditure under the different heads, as noticed above at para-7 was incurred is indicative that business was set up. ITA. No.3855/M/2013 11.1. Therefore in our understanding of the law, the claim of the expenditure is allowable. We, accordingly, set aside the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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