Puro Wellness Pvt. Ltd., Ahmedabad V. The ACIT, Circle-3(1)(1), Ahmedabad

ITA 14/AHD/2022

AI Insights

Puro Wellness Pvt. Ltd. appealed against the order of the Commissioner of Income-tax (Appeals), which had disallowed various expenses and depreciation claimed for the assessment year 2017-18, on the grounds that no business activities were conducted during the year. The Tribunal considered additional evidences presented by the assessee, which included documentation of business activities such as hiring employees, renting office space, and engaging in product development and marketing. The Tribunal found these evidences sufficient to demonstrate that the assessee had commenced business activities, thus meriting a reevaluation of the disallowed expenses.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299911 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 21-03-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 12-01-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard; Additional evidence
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE MRS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No. 14/Ahd/2022 िनधा रणवष /Assessment Year: 2017-18 Puro Wellness Pvt. Ltd., 5, Springvalley, B/h. Karnavati Club, Sarkhej Highway Ganhinagar, Ahmedabad PAN : AAICP 7156 P Vs. The ACIT, Circle-3(1)(1), Ahmedabad / (Appellant) / (Respondent) Assessee by : Shri Dhrunal Bhatt, AR Revenue by : Shri B.P. Makwana, Sr. DR सुनव ई क त र ख/Date of Hearing : 22.03.2023 घोषण क त र ख /Date of Pronouncement: 29.03.2023 आदेश/O R D E R The present appeal has been filed by the assessee against order of the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as "CIT(A)" for short] dated 17.11.2021 passed under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] for the Assessment Year (AY) 2017-18. 2. The solitary ground raised by the assessee reads as under:- “Learned AO erred in law as well as on facts in making addition of expenses of Rs.5,02,75,201/- and disallowance of depreciation of Rs.28,79,617/- by considering that there was no business activity carried out during the year. Hon. CIT(A) has also erred in not considering the same.” 3. The learned Counsel for the assessee stated that the solitary grievance of the assessee was against disallowance of various expenses incurred by the assessee on account of the findings of the authorities below that no business activity was carried out by the assessee during the year. He pointed out that the various expenses disallowed were as follows:- (SMC) ITA No. 14/Ahd/2022 Puro Wellness Pvt Ltd Vs. ACIT AY : 2017-18 2 i) Employee benefit expenses - Rs.1,83,17,837/- ii) Other expenses - Rs. 3,19,57,364/- Total - Rs.5,02,75,201/- iii) Depreciation Rs. 28,79,617 4. The learned Counsel for the assessee stated that his only plea before me was that necessary evidences proving the commencement of business activity during the year could not be adduced by the assessee to the authorities below. The reason for the same it was stated was that the assessee-company was newly incorporated and it was the first year of its business; that the assessee-company did not have sufficient supporting staff to represent the case before the Assessing Officer, and before the learned CIT(A) in fact, none appeared, and therefore, the assessee was unable to bring out the facts to prove its stand that its business had actually commenced during the year and there was no question of disallowing all the expenses as done by the authorities below. He placed before me a chart of the activities undertaken by the assessee during the year at Paper-Book page Nos. 6 & 7 as under:- Puro Wellness Private Limited Details of Activities undertaken during the Financial Year 2016-17 Sr. No Sub Sr. No. Particulars Period Remarks 1 Incorporation of Company. Jul-16 All documents like AOA, MOA filed for Incorporation of Company. 2 Statutory Registration Applications and Certificates. July 16 to Mar 17 All registration like PAN Card, TAN- No., FSSAI License, IEC Code, Trade Mark etc taken within a period from July 16 to Mar 17, except GST No which was issued on 1st July 2017. 3 Office Premises on Rent Jul-16 Office space was taken from Pallazzio Hotels and Leisure Limited in Lower Parel for conducting business activities. 4 i Hiring of Employees. July 16 to Mar 17 Employees hiring was started for various position after incorporation of Company to conduct the business activities and employee’s strength keep continued to increase during the period as and when required. (SMC) ITA No. 14/Ahd/2022 Puro Wellness Pvt Ltd Vs. ACIT AY : 2017-18 3 ii Hiring of Legal Consultant on Retainership Basis and the Appointment of Statutory Auditor Aug-16 Legal consultant and the auditor were hired and appointed for legal work and auditing of financials of the Company. 5 i Product Innovation and Clinical Trials. July 16 to Mar 17 Product Innovation for Rock Salt, Monk Fruit and others were started after immediately the formation of the Company, for clinical trials under a large range of laboratory tests like Nutritional Testing, Heavy Metal Testing, Microbial Testing, Mineral Testing, NOTS Testing, Pesticides Testing, FSSAI Leval Validation and Mesh Size etc. ii Vendor Identification and Product Sample Collection from Vendors. July 16 to Mar 17 Vendor identification and collection of product samples were started simultaneously. iii Documents and Presentation for Registration of Innovative Product under Start up India Programme of Government of India July 16 to Mar 17 Innovative Product study documentation and presentation were started to prepare for registration under Start up India Programme of Government of India. 6 Promotional Activities of the product0 Aug-16 Product Promotional activities started for product launch and marketing 7 Barcode Designing and Registration of the product Nov-16 Product designing and barcode registration for the product applied and done 8 Leave and License Agreement of Commercial Warehouse for Storage. Dec-16 Leave and license agreement for commercial warehouse was done for storage of finished goods for secondary distribution. 9 Hiring of Market Research Agency for Market Study/Survey etc. of the Product. Jan-17 Ormax consultant was hired for market study for rock salt market share and geographies for initial launch of product. 10 Hiring of Advertisement Agency on Retainership basis for the Product Packaging Designing, Marketing, Ads, Jan-17 Jack in the Box Communication Private Limited was hired as additional help regarding product designing, marketing, corporate presentation etc. i Identification, Negotiation and Finalization of 3PS begun for Commercial Production of the Product. From Jan 17 Onward 3P production facility identification started for finalization for commercial production of product. ii Identification, Negotiation and Finalization of Raw Material, Packing Material Vendors begun for Sourcing of Raw Material and Packing Materials. From Jan 17 Onward Simultaneously, Sourcing suppliers identification, negotiation started for raw material, packing material etc. iii Identification, Negotiation and Finalization of Distributors, Channel Partners across Pan India begun for Secondary Distribution of the Product From Jan 17 Onward Simultaneously, finished goods distribution model and channel partner were identified and negotiated for terms and conditions for primary and secondary sales of finished goods. 11 Hiring of Science & Technology Park, Pune to Evaluate the Innovative Product and Application for Registration under Start up India programme of Government of India Mar-17 After all the innovative product study documents and presentation prepared, Science & Technology Park, Pune was hired for evaluation of innovation of products to apply and registration under Start up India Programme of Government of India. 5. The learned Counsel for the assessee also submitted all the evidences to substantiate the activities carried out by the assessee-company as detailed in the chart above in the paper-book Page Nos. 8 to 26 as under :-. (SMC) ITA No. 14/Ahd/2022 Puro Wellness Pvt Ltd Vs. ACIT AY : 2017-18 4 i. Copy of the lease agreement for obtaining office space was taken from Pallazzio Hotels and Leisure Limited in Lower Parel for conducting business activities; ii. Registration under Maharashtra Shops & Establishment Act; iii. List of employees appointed during the year; iv. Leave and license agreement for commercial warehouse was done for storage of finished goods for secondary distribution; v. Engagement of jack in the Box Communication Private Limited was hired as additional help regarding product designing, marketing, corporate presentation; vi. Copy of Trade Mark, IEC Code, Registration under Start-up Registration. 6. The learned Counsel for the assessee contended that these were all additional evidences now being filed before me and since they went to the root of the matter proving the fact that the assessee had carried out the business activities during the year so as to be eligible to claim all expenses incurred by it, he pleaded that all evidences, therefore, be admitted for adjudication. Describing the nature of the business activities undertaken by it, the learned Counsel for the assessee referred to the chart filed before me pointing out that the commencement of business was evident from the fact that it had started the initial activities necessary for any business to commence its business by taking premises on rent, hiring employees, hiring legal consultant, conducting product innovation and clinical trials, identifying vendors and product sample collection from vendors, registration of innovative product under start-up India programme and conducting promotional activities of the product to be sold. He further pointed out that the fact that in the immediately succeeding year the assessee had managed the turnover of Rs.6.7 crores is evidence of the fact (SMC) ITA No. 14/Ahd/2022 Puro Wellness Pvt Ltd Vs. ACIT AY : 2017-18 5 that it had commenced all basic activities for conducting its business, of identifying its market product, vendors, and setting up its business in leased premises with all necessary infrastructure by way of employing personnel for carrying out its business as also the legal consultant to assist in carrying out its business. He placed before us a copy of assessee- company’s audited balance-sheet for the immediately succeeding year ending 31 st March, 2018 pointing out the fact that its turnover for the said year was Rs.6.7 crores. The application of the assessee seeking admission of the additional evidences filed before me is reproduced hereunder:- “Respected Your Honnours, Please be kind enough to admit additional Evidences at pages no 1 to 26 of the Paper- Book filed before Your Honors. This Paper-Book- contains the additional Evidences in form of Various documents, which the Appellant could not file before the Assessing Officer nor CIT(A) during the Appellate Proceeding as explained hereafter. 1. Reason for Non Filing of Documents during the Assessment proceedings or before CIT(A) The Assessee is a newly established company and the entire efforts of the Company’s management was to launch the products in the market. The Company did not have the services of an experienced person in direct taxation matters who could make sound submissions before the Assessing Officer and during Appellate Proceedings. The Company could not make proper presentation on the facts of the case, which we now realise, were necessary for proper appreciation of the fact in order to reach conclusion whether the Assessee had set up/ commenced business or not which has a major impact on admissibility of expenses. Further, unfortunately, various notices sent on Email ID, in connection with the hearing of the appeals also went un-noticed and the Assess.ee could not submit evidences including additional evidences. Consequently the CIT(A) passed the order based on the records available. 2. Prayer Before Your Honour : In this background, the Appellant humbly prays to the Hon’ble Bench that these additional evidences may kindly be admitted in the interest of natural (SMC) ITA No. 14/Ahd/2022 Puro Wellness Pvt Ltd Vs. ACIT AY : 2017-18 6 justice and also for the fair and effective disposal of appeal. The Appellant also prays that the matter may be sent back to the Assessing Officer or CIT(A) so that he gets an opportunity to rebut the same. Needless to say, for this act of kindness, the appellant shall forever pray and remain grateful. Place : Mumbai For Puro Wellness Pvt Ltd Date: 24.01.2023 Sd/- Authorised Signatory” 7. The ld. DR objected to the same contending that, in any case, there was not a single rupee of turnover shown by the assessee during the year and the high expenses on employees and other activities did not justify the same that the authorities below had rightly found no business activities to have commenced by the assessee and accordingly disallowed all expenses incurred by the assessee. He vehemently objected to the admission of the additional evidences. 8. I have heard both the parties and have gone through the orders of the authorities below. I am convinced with the contention of the learned Counsel for the assessee and find that he has made out a reasonable case for the admission of the additional evidences. It is not disputed that this was the first year of working of the assessee-company and both before the Assessing Officer and leaned CIT(A) the assessee was not represented properly. Necessary evidences proving the conduct of its business activities were not filed before the Assessing Officer and before the learned CIT(A). The assessee remained unrepresented. The reason for the same explained by the assessee that it did not have the services of experienced persons being a new company is highly plausible and, therefore, is accepted. Further, I note that the evidences now filed by the assessee do add strength to the contention of the assessee that it did commence its business activity during the year. Therefore, I admit the additional evidences filed by the (SMC) ITA No. 14/Ahd/2022 Puro Wellness Pvt Ltd Vs. ACIT AY : 2017-18 7 assessee and restore the issue back to the Assessing Officer to consider the issue of allowances of expenses incurred by the assessee during the year afresh after considering all the evidences and explanation furnished by the assessee. Needless to say the Assessing Officer would give reasonable opportunity of being heard to the assessee. In view of the above, the appeal of the assessee is allowed for statistical purposes. 9. In effect, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 29 th March, 2023 at Ahmedabad. Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 29/03/2023 **bt आदेश आदेशआदेश आदेश क琉 क琉क琉 क琉 灹ितिलिप 灹ितिलिप灹ितिलिप 灹ितिलिप अ灡ेिषत अ灡ेिषतअ灡ेिषत अ灡ेिषत/Copy of the Order forwarded to : 1. अपीलाथ牸 अपीलाथ牸अपीलाथ牸 अपीलाथ牸 / The Appellant 2. 灹瀄यथ牸 灹瀄यथ牸灹瀄यथ牸 灹瀄यथ牸 / The Respondent. 3. संबंिधत संबंिधतसंबंिधत संबंिधत आयकर आयकरआयकर आयकर आयु猴 आयु猴आयु猴 आयु猴 / Concerned CIT 4. आयकर आयकरआयकर आयकर आयु猴 आयु猴आयु猴 आयु猴)अपील अपीलअपील अपील (/ The CIT(A)- 5. िवभागीय िवभागीयिवभागीय िवभागीय 灹ितिनिध 灹ितिनिध灹ितिनिध 灹ितिनिध ,आयकर आयकरआयकर आयकर अपीलीय अपीलीयअपीलीय अपीलीय अिधकरण अिधकरणअिधकरण अिधकरण/DR,ITAT, Ahmedabad, 6. गाड榁 गाड榁गाड榁 गाड榁 फाईल फाईलफाईल फाईल /Guard file. आदेशानुसार आदेशानुसारआदेशानुसार आदेशानुसार/ BY ORDER, TRUE COPY सहायक सहायकसहायक सहायक पंजीकार पंजीकारपंजीकार पंजीकार (Asstt. Registrar) आयकर आयकरआयकर आयकर अपीलीय अपीलीयअपीलीय अपीलीय अिधकरण अिधकरणअिधकरण अिधकरण ITAT, Ahmedabad 1. Date of dictation ...24.03.2023... 2. Date on which the typed draft is placed before the Dictating Member :..... 24.03.2023.......... 3. Other Member........................ 4. Date on which the approved draft comes to the Sr.P.S./P.S...27.03.2023....................... 5. Date on which the fair order is placed before the Dictating Member for pronouncement......29.03.2023. 6. Date on which the fair order comes back to the Sr.P.S./P.S...29.03.2023................ 7. Date on which the file goes to the Bench Clerk......30.03.2023.......... 8. Date on which the file goes to the Head Clerk... 9. The date on which the file goes to the Assistant Registrar for signature on the order............ 10. Date of Despatch of the Order..................