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TMI Blog2018 (10) TMI 1263X X X X Extracts X X X X X X X X Extracts X X X X ..... d earlier, it has already started its activities for launching of fund. We hold that the AO was not justified in not accepting the claim of the assessee that its business activities are commenced from the date of its incorporation. Accordingly, we direct the AO to verify the expenses alleged to incur wholly and exclusively for the purpose of the business to allow the same as per law - decided in favour of assessee for statistical purposes - ITA No.2470/Mum/2011 - - - Dated:- 10-10-2018 - Shri R.C. Sharma, AM And Shri Amarjit Singh, JM For the Assessee : Shri Percy Pardiwalla Shri Nitesh Joshi For the Revenue : Shri Chaitanya Anjaria ORDER PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)- 14, Mumbai dated 03/01/2011 for A.Y.2007-08 in the matter of order passed u/s.143(3) of the IT Act. 2. The following grounds have been taken by the assessee:- 1. The (earned Commissioner of Income tax (Appeals) erred in upholding the action of the learned Assistant Commissioner of Income tax (herein after referred to as the Assessing officer ) in disallowing the expenditure to the extent of ₹ 8,39,03,909/- on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts contention that the business ' was set on the date of incorporation is not accepted, to hold that the date on which IMA was entered into by the appellant ought to be the date on which the business of the appellant was started and all the expenses incurred on or after the said date is allowable. and to modify the assessment in accordance with the provisions of the Act. 6. Each of the above grounds of appeal are independent without prejudice to each other. 7. The appellant craves liberty to add, to alter and / or amend the grounds of appeal as and when given. 3. Rival contentions have been heard and record perused. 4. Facts in brief are that the assessee is a company incorporated under the provisions of the Companies Act, 1956. During the previous year relevant to assessment year under appeal the assessee filed its return of income returning a net loss of ₹ 6,78,64,993/-. The learned Assistant Commissioner of Income-tax, made certain disallowances, which are subject matter of this appeal and determined the net taxable income of the assessee at ₹ 5,92,73,150/-. 5. In the assessment order, AO observed that during the previous year relevant to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim for expenditure of ₹ 12,71,38,147/- is disallowed and added back to the total income of the assessee. 7. By the impugned order CIT(A) confirmed the action of the AO against which assessee is in further appeal before us. 8. Learned AR appearing on behalf of the assessee drawn our attention to the details of expenditure so incurred relates to grant electricity charges, repairs and maintenance etc., and relied on the following judicial pronouncements in support of the contention that expenditure incurred after business is set up is to be allowed as revenue expenditure. 1. Axis (P) Equity Ltd., 391 ITR 370 (Bombay HC) 2. Multi Act Realty Enterprises Pvt. Ltd., ITAT Mumbai Bench in ITA No.7274/Mum/2011 order dated 28/08/2015 3. HSBC Securities India Holdings Pvt. Ltd., ITAT Mumbai Bench in ITA No.3181/Mum/99 dated 28/11/2001 4. Axis Private Equity Ltd., ITAT Mumbai Bench in ITA No.3045/Mum/2013 dated 19/08/2013. 9. On the other hand, learned DR relied on the orders of the lower authorities. 10. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We observe that the Assessing officer failed to appreciate the business of the mutual fund industry and disallowed the expenses. The assessee is an Asset Management Company established under the SEBI (Mutual Funds) Regulations, 1996 (SEBI Regulations, 1996). The assessee has been appointed as an Asset Management Company of the Fund. The assessee is incorporated to manage the schemes of the Fund in accordance with the provisions of the IMA. The business activities that assessee company can carry as an Asset Management Company is regulated by the said Regulations. Further the duties, responsibilities and obligations of the assessee are also provided in the Regulations. The manner in which the AMC is to be remunerated for carrying on its business as an Asset Management Company is also provided in the Regulation. The SEBI Regulations require the AMC to-carry on various activities which include right from launching of the scheme, managing the funds, compliance with the Regulations, providing quarterly reports, maintenance of books of accounts, issue of unit certificates or statement of account, etc 15. We also observe that the expenses incurred by the assessee are its routine expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r such a type of business had been established so as to be ready to commence business. In the service sector or that which is engaged in trading activity, business can be said to have been set up if, correspondence was entered into with various parties to make them aware of the products in which the assessee was dealing, letters had been written to various prospective customers giving them quotations, a business place or an office had been acquired. These were essential activities in the course of carrying on the business and therefore in these types of business such activities can be said to be determinative of the question whether the business had been set up and that it was ready to commence . The actual receipt of an order from a prospective client for supply of product or services cannot postpone the setting up of the business. 17. In the instant case, assessee is engaged in the business of asset management positively and incase of service industry the criteria for determining when the business can be said to have been set up will differ and would be based on the facts of each case. In the instant case, assessee company has been incorporated to manage the assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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