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Income Tax Appellate Tribunal, DELHI BENCH “SMC-1” NEW DELHI
Before: SHRI S.V. MEHROTRA :
Appellant by : Shri S. Srinivasan CA Respondent by : Ms. Anchal Khandelwal Sr. DR Date of hearing : 04/07/2016. Date of order : 08/07/2016. O R D E R PER S.V. MEHROTRA, A.M:
This is assessee’s appeal against the order dated 1.09.2014, passed by the ld. CIT(A)-XVIII, New Delhi, relating to A.Y. 2011-12. 2. Ground of appeal
, raised by the assessee in its appeal, are as under: “Based on the facts and circumstances of the case, the appellant respectfully submits that:
1. The Learned Commissioner of Income Tax (Appeals) has erred - b) in disallowing a sum of Rs. 29,72,282/- being the expenditure incurred after commencement of the business especially when i) the details of expenses incurred were submitted; ii) the expenses have been incurred during the course of the business and have been incurred were all revenue in nature 2. The Learned Commissioner of Income Tax (Appeals) has further erred In concluding that the amount of Rs. 29,72,282/- is not revenue in nature only because in the notes to Accounts it was mentioned that the "company was in the process of setting up of a business and has not provided any consultancy services" and not considering the facts and documents produced before him.
3. The appellant prays for appropriate relief based on the said grounds of appeal
and the facts and circumstances of the case.
4. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.
Brief facts of the case are that the assessee company had filed its return of income declaring loss of Rs. 22,28,073/-. The AO noticed that assessee company was incorporated on 1.12.2010 to provide career counseling services to students and also in providing consultancy and advisory services to institutions and other government bodies in the education sector. He noted from the P&L A/c that assessee company was in receipt of interest income only and no business activity had been recorded. The AO further noticed from the notes to account that it was stated therein that during the period covered by the financials, the company was in the process of setting up of the business and had not provided any consultancy services. He, therefore, concluded that company had not yet started its business activities and was under process of setting up of business.
After considering the detailed reply of assessee, reproduced at pages 2 to 4 of his order, the AO disallowed the assessee’s claim of expenses and made addition of Rs. 29,72,282/-. In appeal, ld. CIT(A) confirmed the addition.
Aggrieved, the assessee is in appeal before the Tribunal.
Ld. counsel for the assessee submitted that assessee itself had excluded prreliminary expenses claimed in the P&L A/c. Ld. counsel referred to Schedule I, Significant accounting policies and notes to account, contained at page 74, wherein, inter alia, it is stated as under:
“Consultancy Income: Revenue is recognized as and when the services are rendered. During the period covered by the financials, the Company was in the process of setting up of the business and has not provided any consultancy services”. 5. Ld. counsel pointed out that with reference to these notes only the AO concluded that assessee’s business had not set up. Ld. counsel pointed out that assessee had taken the office on rent on 1.2.2011 and on that date the business got set up because the nature of the assessee’s business was of imparting consultancy services. In this regard ld. counsel referred to page 4 of CIT(A)’s order, wherein, inter alia, it is stated that finalizing of office space and signing of lease agreement for Delhi and Chennai. The Delhi Office was taken on rent w.e.f. 01.02.2011 and Chennai office w.e.f.
25.02.2011. He, therefore, submitted that expenses incurred after 1.2.2011 for Delhi office should have been allowed.
Ld. DR relied on the order of ld. CIT(A).
I have considered the submissions of both the parties and have perused the record of the case. The nature of activities undertaken by assessee are not disputed. For imparting consultancy services, the first step, which is necessary for commencement of assessee’s business, is to have an office, which, as per assessee, was taken on 1.2.2011. I am in agreement with the submission of ld. counsel for the assessee that the date of setting up of business is to be the date of entering into lease agreement for office. Ld. counsel was required to produce the lease-deed. However, the same was not available with him and, therefore, I restore the matter to the file of AO for the limited purpose of the verification of date of entering into lease agreement and if the lease was entered into on 1.2.2011, as claimed by assessee, then all the expenses incurred thereafter have to be allowed.
In the result, assessee’s appeal is partly allowed for statistical purposes.
Order pronouncement in open court on 08/07/2016.