By Jagdish D. Shah, Jagdish T. Punjabi Charted Accountants
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S/s. 3, 28 – In a case where premises are taken on rent, manpower was hired, registration under MVAT and CST was obtained and deposit was paid to company whose vehicles were to be sold and sales of some spare parts had been sold, it cannot be said that the business of sales-cum-service centre has not been set up merely because sale of cars has not taken place.
Facts:
The assessee was to commence a business of sale-cumservice centre. During the previous year it took the premises on rent, hired man power who were paid salaries by cheque, obtained registration required under Maharashtra VAT Act, 2002 and Central Sales Tax Act, 1956 and also deposited certain amount with Mahindra & Mahindra Ltd., whose vehicles were to be sold by the assessee. The assessee had also sold some spare parts.
The Assessing Officer (AO) disallowed expenses aggregating to Rs. 56,80,117 incurred towards financial charges and staff administrative charges on the ground that the sale of cars had not taken place during the previous year and therefore the business was not set up and hence deduction of expenses was not permissible.
Aggrieved, the assessee preferred an appeal to the CIT(A) who allowed the appeal.
Held:
The Tribunal noted that the term `previous year’ as defined in s. 3 has a relationship with setting up of the business and not with the commencement of the business. It noted that the Apex Court has in the case of CIT vs. Ramaraju Surgical Cotton Mills Ltd. (63 ITR 478)(SC) has held that the business is set up when it is ready to discharge the functions for which it is being set up and the Delhi High Court has in the case of CIT vs. Samsung India Electronics Ltd. (356 ITR 354)(Del) has held that business commences on doing first activity like purchase of raw materials, etc.
Considering the ambit of the term `setting up of the business’ in the light of the above mentioned judicial pronouncements the Tribunal held that any income arising after the date of setting up of the business is chargeable to tax and, similarly, any expenditure incurred after the setting up of the business is deductible subject to other relevant provisions. The activities carried out by the assessee, amply demonstrate that the business was set up though sale of vehicles did not take place during the year. The Tribunal noted that it was not the case of the AO that the expenses were non-genuine or capital in nature. The Tribunal upheld the order passed by CIT(A).
The appeal filed by the revenue was dismissed.
