Dy. Commissioner of Income Tax , Circle-16(1), Hyderabad V. NSL Mining Resources India Private Limited , Hyderabad

ITA 1411/Hyd/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5307 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2016-2017
• Appeal Filed On: 12-09-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 142(1); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad Before Shri Inturi Rama Rao, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No.1411/Hyd/2019 Assessment Year: 2016-17 The Dy.Commissioner of Income Tax, Circle 16(1), Hyderabad. Vs M/s. NSL Mining Resources India Private Limited, Hyderabad. PAN : AADCN0483C. (Appellant) (Respondent) Assessee by: None Revenue by: Sri KPRR Murthy Date of hearing: 19.09.2022 Date of pronouncement: 20.09.2022 O R D E R Per Laliet Kumar, J.M. This appeal is filled by the Revenue feeling aggrieved with the order of Commissioner of Income Tax (Appeals) – 4, Hyderabad dt.17.01.2019 for the assessment year 2016-17 on the following ground : “The ld.CIT(A) erred in deleting the disallowance made by the AO and thereby allowing loss claimed by the assessee has not carried any business operations during the year.” Page 2 of 7 2. The brief facts of the case are that assessee is a company engaged in the business of purchase, taking lease or acquire iron ore mines and other mines and filed its return of income for A.Y. 2016-17 on 23.11.2016 admitting total loss of Rs.2,62,18,813/-. The return of income was processed u/s 143(1) of the Act and subsequently, the case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued and duly served on the assessee company. Finally, the assessment was completed by the Assessing Officer by disallowing the loss claimed by the assessee company amounting to Rs.2,62,18,813/- and treating the interest income of Rs.24,847/- under Income from Other Sources. 3. Feeling aggrieved with the order of Assessing Officer, assessee carried the matter before ld.CIT(A), who partly allowed the appeal of assessee by holding as under : “ 4.3 I have carefully examined the assessment order, submissions of the AR and the case laws quoted therein. As for the sec 3 of the Act, the "previous year" provides, inter alia, that in the case of a business or profession, newly set up, the previous year shall be the period beginning with "the date of setting up of the business" ending with the said financial year. Sec 4 of the Act states that the income tax shall be charged for any assessment year in respect of the total income of the "previous year". On a conjoint reading of these sections, it clearly emerges that the income of a newly set up business is calculated, starting with the date of setting up and ending with the financial year. The relevant point to be highlighted is that the previous year in the case of a newly set up business, or in other words, the starting point of taxability of income or allowability of deduction, is the "setting up of the business" and not the commencement of business. In one of the case laws, the stages of the business operations are elaborately discussed as under :- (i) up to the setting up of business (ii) post setting up but before commencement of business (iii) commencement of business and thereafter. Page 3 of 7 Setting up of a business refers to a situation in which the business is ready to discharge the functions for which it is set up. Pre-setting up would mean doing of all the necessary things culminating into the attainment of the stage of "ready to discharge" functions. The sum and substance of the setting up of a business is to fully gear up for undertaking the work for which the business is to be carried on and reaching a stage when such business activity can be carried on the blow of a whistle. In this regard, it is relevant to note that the appellant company formally signed contracts with the lease license holders in April, 2008 with Rotita Infra Mining Private Limited and on 5th October, 2009 with Agnes Bruno Limited, the relevant documents of which were submitted along with submissions. Subsequently, it has entered into the agreement with the above parties on is" March, 2012 has entered into mining lease transfer agreement with the above mentioned parties whereby the Government records are updated with the name of the Company as licensee, copies of which were also enclosed. From the series of the above activities, it can be seen that the company has set up its activities. 4.4 To strengthen the issue further, the case law of CIT vs. ESPN Software India (P) Ltd (2009) 184 taxmann 452/(2008) 301 ITR 368 (Delhi) may be examined, wherein it was held that ... the assessee acquired licence from its parent company on 15.08.95 to sub-licence ESPN services for distribution of programmes in India. BY virtue of license, the assessee entered into an agreement on 01.10.95 with a company and appointed it as the sale distributor for ESPN programmes in India. Certain expenses were incurred which were claimed as deduction. The AO opined that the business of the assessee did not commence during the relevant year and treated all expenses as having been incurred prior-to commencement of business. The Tribunal held that the business was set up on 15.08.95 on the date of acquiring of licence from its parent company. The Hon'ble High Court upheld the view taken by the Tribunal. Similarly in the CIT v Samsung India Electronics Ltd (2013) 356 ITR 354/218 taxman 66/37 taxmann.com 239 (Delhi) it has been held by the Hon'ble High Court that a business is set up when it is established and is ready to commence business. The Hon'ble Bombay High Court in Western India Vegetable Products Ltd. v. CIT (1954) 26 ITR 151 has held that the first purchase of raw material should be considered as the date of setting up of the business. 4.6 Reliance is also placed on the case of DCIT, Circle-2(1), Hyderabad vs. Karvy Global Services Limited pronounced by the Page 4 of 7 Hon'ble IT AT, Hyderabad vide ITA No.1160/Hyd/2012 dated os" June, 2018, wherein it was held that - "It is now practically well settled by various pronouncements hat a business is a set up as soon as it is ready to commence operations and it is not necessary that actual revenue/production should also be received/commenced. Assessee is eligible for claiming the expenditure once it is established that business is set up. " "We are of the opinion that the business has been set up which is the requirement u/s 3 of the Act and accordingly, assessee's claim of loss is allowable. There is no merit in the contentions of Revenue that assessee should commence commercial operations. " 4.5 In view of the above discussion, I am of the considered opinion that the claim of the appellant company on this issue is justified as the business was set up in the preceding years. Therefore, the disallowance of loss of Rs.2,62, 18,813/- made by the AO is directed to be deleted and claim made by the appellant-company is accepted. Hence, the appeal raised on this ground is allowed. 5. With regard to treatment of Rs.24,847/- as "Income from Other Sources", being Interest Income, the addition made by the AO is confirmed and the ground raised on this issue dismissed.” 4. Feeling aggrieved with the order of ld.CIT(A), Revenue is now in appeal before us. 5. On the date of hearing, none appeared on behalf of the assessee. 6. On the other hand, ld.DR strongly relied on the order of Assessing Officer and submitted that ld.CIT(A) erred in deleting the disallowance made by the Assessing Officer and thereby allowing loss claimed by the assessee. Ld.DR further submitted that the matter may kindly be remitted back to the ld.CIT(A) as the assessee company name has been struck off from the record of the Registrar Page 5 of 7 of Companies being a paper company. However, it was submitted that once the name of the company was struck of being a paper entity, then the ld.CIT(A) should verify about the activities and commencement of business by the assessee company. 7. We have heard the ld.DR and perused the material available on record and also the orders passed by the lower authorities. On perusal of the impugned order passed by ld.CIT(A), we found that Ld.CIT(A) after relying on the decisions cited in her order and in view of sections 3 and 4 of Income Tax Act, deleted the disallowance made by the AO holding that the claim of assessee company was justified as the business was set up in the preceding years. 8. Before us, ld.DR has pointed out that the name of the assessee company has been struck off from the record of Registrar of Companies and no business activities were carried out by the assessee company. However, ld.DR praying to remand the issue to the file of ld.CIT(A) stating that ld.CIT(A) erred in deleting the disallowance made by the Assessing Officer. In view of the above, we are of the view that the ends of justice will be met if the matter may be sent back to the file of ld.CIT(A) with a direction to decide the issue after verifying all the documents to prove that whether the activities of assessee company had taken place during the year under consideration or not by issuing notices to the eligible person(s) / company / Director of the company as the name of the assessee company has been struck off from the record of the Registrar of Companies. The above said exercise be carried out Page 6 of 7 after considering the documents available on record and affording the opportunities of hearing to the assessee in accordance with law. 9. The assessee shall be at liberty to file documents, if any, as required for proving its case and the ld.CIT(A) shall consider the evidences, if any, filed by the assessee. Needless to say the ld.CIT(A) shall examine those documents / evidence filed by the assessee and also the other documents available on record. After considering the documents filed by the assessee and the submissions made by the assessee, the ld.CIT(A) shall pass a detailed speaking order dealing with the contentions of the assessee. 10. In the result, the appeal of the Revenue is treated as allowed for statistical purposes. Order pronounced in the Open Court on 20 th September, 2022. Sd/- Sd/- (INTURI RAMA RAO) ACCOUNTANT MEMBER (LALIET KUMAR) JUDICIAL MEMBER Hyderabad, dated 20 th September, 2022. TYNM/sps Page 7 of 7 Copy to: S.No Addresses 1 M/s. NSL Mining Resources India Private Limited, 6-3- 680/8/3, 3 rd Floor, Shahani Residency, Thakur Mansion Lane, Somajiguda, Hyderabad. 2 Deputy Commissioner of Income Tax, Circle 16(1), Hyderabad. 3 CIT(Appeals) –4, Hyderabad. 4 PCIT -4, Hyderabad. 5 DR, ITAT ‘A’ Bench, Hyderabad. 6 Guard File By Order