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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI RAJESH KUMAR, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri Atul Ambavat (AR) Department by: Shri Abi Rama Kartikiyen (DR) Date of Hearing: 07.03.2019 Date of Pronouncement: 27.03.2019 O R D E R
PER AMARJIT SINGH, JM:
The present appeal has been filed by the revenue against the order dated 03.05.2017 passed by the Commissioner of Income Tax (Appeals)-12, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2012-13.
The revenue has raised the following grounds: - "1 On the facts and circumstances of case and in law, the Ld. CIT(A) admitted additional evidence without giving opportunity to the Assessing Officer under Rule 46A of Income Tax Rule".
ITA. No. 5294/M/2017 A.Y.2012-13
2. On the facts and circumstances of case and in law, the Ld. CITA) erred in holding that the business of the assessee is commenced in January 2012 and that the expenses incurred by assessee are after commencement of business." 3. "On the facts and circumstances of case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.1,10,10,025/- on account of business expenses and Rs.2,06,1011- on account of unabsorbed depreciation without giving - an opportunity to the Assessing Officer to examine the additional evidence." 4. "On the facts and circumstances of case and in law, the Ld. CIT(A) erred in holding that the payment of professional fees, salary, travelling etc., incurred on the Directors is conclusive evidence of the business being started." 5. "The appellant prays that the order of the CIT(Appeals) of the above grounds be set aside and that of the AO be restored." 6. "The appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary."
The brief facts of the case are that the assessee filed its return of income electronically on 14.09.2012declaring total loss to the tune of Rs.1,12,17,126. Thereafter, the return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, the case was selected for scrutiny under CASS. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee showed the business loss in sum of Rs.2,39,70,421/- and short term capital gain loss in sum of Rs.58,03,440/- and claimed to carry forward for set-off in subsequent assessment years. On perusal of the financial of assessee company, it came into notice that the assessee has claimed the various expenses under the head Finance Cost of Rs.28,172/-, Employee Benefit A.Y.2012-13 Expense of Rs.1,13,97,862/-, Depreciation of Rs.47,61,316/- and other expense of Rs.1,25,43,387/-. The assessee company has no revenue form business activity, therefore, notice was given and after the reply of the assessee, the claim of the loss was declined and the entire business loss in sum of Rs.2,39,70,421/- was disallowed and added to the income of the assessee. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
ISSUE NO.1 to 5 4. Issue nos. 1 to 5 are inter-connected, therefore, are being taken up together for adjudication. Under these issues the revenue has challenged the allowance of the claim of the assessee in connection with the business loss without giving an opportunity of being heard to the assessee in view of the provisions u/s 46A of the I.T. Act, 1961 and wrongly assessing the commencement of the business of the assessee by which the claim of the assessee was allowed. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record.: - “7. I have carefully perused the assessment order and the appellant's written submissions. Under the Companies Act, 1956 a private limited company can start its business on obtaining incorporation certificate even without obtaining business commencement certificate. The A.O. failed to accept that the requirement to obtain business commencement certificate to start business after obtaining the incorporation certificate is only required in case of a public limited company. The appellant, being a private limited company started its business since January 2012 after A.Y.2012-13 obtaining incorporation certificate from 16/12/2011. The Appellant has rightly classified the expenses into pre-incorporation period and post- incorporation period and has claimed only expenses pertaining to post - incorporation period and disallowed the expenses pertaining to pre- incorporation period. The A.O. erred in observing that the interior work invoices and computer purchase invoices were submitted in the month of March. The A.O. also failed to appreciate that the payment to interior work were continuously made from January and it is customary for the interior designer to raise the invoice after the work is completed. Similar is the case with computers. Majority of the computers were purchased in January when the business actually began and there are also payment of Microsoft License Fees in December which is a conclusive proof of commencement of business. All other expenses incurred like Salary, Professional Fees, Travelling for work, Office Expenses, Telephone expenses etc. were also consistently incurred from January 2012 onwards. The company is said to have commenced its business as and when the operations of the company start. The A.O. misinterpreted the meaning of pre- commencement expenses without taking into consideration the fact that the expenses namely professional fees, salary, travelling etc. are incurred only after a business has commenced. The incurring of the above expenses is conclusive evidence of the business operations being started. The appellant has entered into an Investment management agreement with IL & FS on 1st February 2012 and had applied for Credit Alpha Alternative Funds' as Venture Capital Fund with SEW on 7/2/2012. So, it is very much evident that business activities has already been initiated. The Accounting Standard 9, issued by the Institute of Chartered Accountants of India for Revenue-Recognition, also reiterates that revenue should be recognized only when there is certainty in realization of the consideration and not otherwise. Reliance is placed on the case of Hon'ble Mumbai High Court 26 ITR 151 (Bom) in Western India Vegetable Products Ltd. Vs CIT and ACT 6(1), Mumbai vs Department of Income tax dated 20/9/ 2012(Indivision Investment Advisors Limited) in which it was held that when the business was established and was ready to commence business, the business has to be taken as set up and expenses have to be allowed.”
On appraisal of the above said finding, we observed that the CIT(A) has considered the incorporation certificate which was A.Y.2012-13