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Income Tax Appellate Tribunal, ‘C/SMC’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO
आदेश / O R D E R
Per V. Durga Rao, Judicial Member:
This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals)-6, Chennai in dated 27.12.2018 relevant to the Assessment Year 2013-14.
The only issue involved in this appeal is whether the business loss claim amount liable or not?
In the assessment order, the Assessing Officer (AO) has noted that while pursuing statement of income, the assessee-company has claimed under the loss of Rs. 26,59,169/- as per the profit and loss account for the Financial Year 2012-13. The Assessing Officer (AO) has asked the assessee to explain why the loss has to be allowed when there was no sales and purchase. The ld. counsel for the assessee has submitted that Financial Year 2012-13, the assessee- company has paid advance for the purchase of raw material. The A.O has considered the same and observed that there was no business performed, the claim of loss claimed by the assessee is disallowed. On appeal before the Ld. CIT(A), it was submitted that the assessee has already set up the business and the assessee also paid an amount of Rs. 95,000/- for purchase of the raw material therefore, the business of the assessee has commenced and the loss claimed by the assessee is to be allowed. The Ld. CIT(A) after considering the explanation of the assessee, he has observed that the raw material not reached the premises of the assessee therefore, it cannot be said that the assessee-company ready to start the manufacturing/production activity during the year. The commencement of the business is only possible only when the assessee is ready to start his operations and confirmed the order of the A.O.
On being aggrieved, the assessee carried the matter before the Tribunal.
The ld. counsel for the assessee has submitted that the assessee has set up the company. The case of the assessee is that he has taken electricity connection and also filed import purchase details before the A.O for April, 2012 and March 2013, proof of documents for import of advance payment to FEMA Declaration to HSBC, Mylapore & Form A1 for import, Export proforma invoice of SCG Performance Chemicals Co. Ltd., Thailand and purchase order and letter of advance remittance details and submitted that the assessee already set up a company and also advance paid to purchase of the raw material though raw material not reached the place of the business of the assessee, the assessee has commenced his business. In support of his contention, he relied on the judgment of the Hon’ble Delhi High Court of in the case of CIT v. LG Electronic (India) Ltd. [2006] 282 ITR 545 (Del.) and submitted that the loss claimed by the assessee is allowed.
On the other hand, the ld. Departmental Representative has strongly supported the orders passed by the authorities below.
Both the parties have been heard, perused the material available on record and gone through the orders of the authorities below.
The assessee is engaged in the business of engineering industry and claimed the business loss of Rs. 26,59,169/- for the year under consideration. The case of the assessee is that the assessee-company is ready for the commencement of the business and placed the order for raw material and advance also paid therefore, the loss claimed by the assessee has to be allowed. The case of the A.O is that the assessee-company has not performed any business activities therefore, the same cannot be allowed. On appeal, the Ld. CIT(A) has confirmed the order of the A.O by observing that the assessee has paid the advance for the raw material and the raw material not reached to the assessee-company therefore, it cannot be said that the assessee commenced his business. It is found that when the assessee has set up an industry by obtaining all necessary permissions and advance paid for the purpose of obtaining the raw material, the same is accepted by the A.O therefore, the raw material not reached the place of the assessee, it cannot be said that the assessee has not commenced the business. Once the assessee is setup entire business activity and waiting for the raw material, it has not reached because of various reasons therefore, it cannot be said that the assessee is not commenced his business. In this context, the Hon’ble Delhi High court in the case of CIT v. LG Electronic (India) Ltd. (supra), has observed that there is a distinction between the commencement and setting up of the business beyond two dates need not necessarily overlap and section 3 refers to date of setting up of the business and as such it is only thereafter, that previous years of newly set up business would commence and, therefore, expenses incurred prior thereto could be taken into account for the purpose of determining profits of a newly set up business. In the present case, the assessee has already set up the business and it commences only once raw material reaches. The assessee has already paid advance for supply of raw materials and therefore, the loss claimed by the assessee during the year under consideration cannot be disallowed on the ground that the assessee is not commenced the business. Therefore, respectfully following the judgment of Hon’ble Delhi High Court in the case of CIT v. L.G.
Electronic (India) Ltd. (supra), the order passed by the Ld. CIT(A) is allowed. Thus, the appeal filed by the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on 17th November, 2021 in Chennai.