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TMI Blog2024 (7) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... learned senior counsel representing Ms. K.Prabhavathi, learned counsel for appellant and Sri Vijhay K Punna, learned standing counsel for Income Tax Department appearing on behalf of the respondent. 3. The brief facts leading to filing of present appeal are as under: 4. The appellant-company was incorporated on 19.12.1997 for carrying on business of consultants and advisors for supply of industrial computer software systems for use in oil, gas, water pipelines etc. The appellant filed its return on 24.12.1999 for the assessment year 1999-2000 declaring a loss of Rs. 55,68,141/-. The said return was processed under Section 143(1) of the Act, 1961 on 29.12.2000 and a refund of Rs. 4,194/- was issued to the appellant company. 5. The case of the appellant was selected for scrutiny and notices have been issued under Section 143(2) of the Act, 1961 to the appellant. During the course of assessment proceedings, the Assessing Officer observed that appellant has incurred certain expenditure and claimed the same as business loss and called for explanation from the appellant. That in response, the appellant submitted all the documents as called for by the Assessing Officer in support of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be claimed or allowed in the hands of the other and opined that First Appellate Authority has committed an error in allowing the appeal of the appellant and, therefore, set aside the order of the CIT(A), dated 20.12.2004 and allowed the appeal filed by the respondent herein vide order dated 08.02.2006. 9. Aggrieved by the order of Tribunal dated 08.02.2006, the appellant filed the present appeal. 10. The learned standing counsel for the appellant during the course of hearing submitted that the order of Tribunal is erroneous, unjust and contrary to the facts of the case and bad in law. That the Tribunal has failed to appreciate the material on record and the explanation offered before CIT(A). That the Tribunal grossly erred in concluding that appellant-company has not engaged in business and expenditure claimed by the appellant- company is totally disallowed without ascertaining and apportioning for the expenditure properly attributed to the assessee business. That even if the tax liability determined for the assessment year under consideration is meager, the business loss to be carried forward denied by the Assessing Officer amounts to Rs. 55,68,141/-, which has substantial i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Act when such payment had been made for the purpose of assessee's business." 14. In Samsung India Electronics Ltd., (supra), the Hon'ble Division Bench of Delhi High Court held as under: "24. ...... The finding of the Tribunal that a part of the advertisement expenditure is reimbursed by the parent company is not under challenge. This itself should settle the issue in favour of the assessee because even if it is assumed that a part of the expenditure inured for the benefit of the parent company, the assessee is getting compensated for it. The view that in any case, expenditure, the benefit of which inures partly to the assessee and partly to another person, cannot be allowed as a deduction, we are afraid, is not the correct view to take in law since it has been settled by a long line of cases that expenditure incurred by the assessee in the running of his business cannot be disallowed merely on the ground that a part of the expenditure results in some benefit to a third party. ...." 15. In Royal Calcutta Turf Club (supra), the issue before the Bench was whether the expenditure incurred for running the school for jockeys is deductible. The business of the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax [2012) 17 taxmann.com 160 (Delhi)]; ii) Crescent Organics (P.) Ltd., v. Deputy Commissioner of Income-tax Range-8(1), Mumbai [2014] 49 taxmann.com 128 (Bombay)]; iii) P.Amarnath Reddy v. Assistant Commissioner of Income Tax, Central Circle-III(3), Chennai [2021] 128 taxmann.com 244 (Madras)] 18. In Mira Kulkarni (supra), the assessee was the owner of the property and a portion of property is leased to a company, under an agreement, for being used as a hotel and the assessee was entitled to minimum guaranteed amount per quarter or 30% of gross operating profits whichever was higher; that as per the terms of agreement all facilities, amenities including salaries to staff etc., to be maintained by hotel. The assessee declared income earned under said agreement as income from business and she claimed reduction in respect of foreign travel expenditure, repairs, maintenance expenses and salary under Section 37(1) of the Act, 1961. The Hon'ble High Court of Delhi held that as per the terms of agreement, all facilities, amenities and business activities were to be maintained by the hotel and insofar as the foreign travel expenditure, there was no evidence or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... npower, but for providing support services for the works contract undertaken by the parent company and are not connected or related to the business activity of the appellant. 23. The Appellate Authority by relying upon the decision of Madras High Court in case of CIT vs. Electron India [241 ITR 166] held that business can be said to have been commenced the very moment the party is ready to receive the clients and for the purpose of being in readiness to receive the client, the party has to stay ready for which expenses are required to be incurred to provide services and consultation to its clients. By observing so, the appellate authority allowed the appeal filed by the appellant company and thereby set aside the assessment order of A.O. 24. In CIT vs. Electron India (supra), the Hon'ble Madras High Court held as under: "Thus in the case of a professional, the date on which he is ready to receive clients should be the date of commencement. In the case of trader, acquisition of goods for sale would amount to commencement, though no sale might have been occurred. In the case of manufacture, the fact that the production unit is set up so as to enable manufacture without actually m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. [Explanation 3.-For the removal of doubts, it is hereby clarified that the expression "expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law" under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee,- (i) for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or (ii) to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person; or (iii) to compound an offence under any law for the time being in force, in India or outside India]. (2) [***] (2B) Notwithstanding anything cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed in the hands of the other. 33. The judgments relied upon by the learned counsel for appellant will not support the contentions of the appellant company since the expenses incurred in those cases are part of its own business and are related to preparedness of those companies towards training and to strengthen the business. However, in the present case, it is not the case of the appellant that expenses are incurred for its own business or towards training etc., but were incurred for overseeing the project of the holding company and was incurred towards travel, administrative and other expenses of its staff and personnel. 34. As per Section 37 of the Act, 1961, the prerequisites for allowing deduction are that the expenditure should have been incurred in respect of a business carried on by the assessee and should be spent wholly and exclusively for its own business. In the present case, admittedly, the expenditure sought to be deducted was incurred for overseeing the project of the holding company. Further, in order to be deductible as a business loss, the expenditure must be in the nature of trading loss, not as capital loss springing directly out of trading activity and it m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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