A.C.I.T.-10(1), MUMBAI V. STRATADIGM EDUCATION AND TRAINING PVT. LTD., MUMBAI

ITA 6839/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7560 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 10-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'SMC' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA NO. 6839/MUM/2011 (ASSESSMENT YEAR: 2008-09) A C I T - 10(1) M/S. STRATADIGM EDUCATION AND 455, AAYAKAR BHAVAN TRAINING PVT. LTD. 4TH FLOOR, M.K. ROAD VS. 314, SAI CHAMBERS, SANTACRUZ (E) MUMBAI 400020 MUMBAI 400055 PAN - AALCS 6475 P APPELLANT RESPONDENT APPELLANT BY: SHRI ARUNKUMAR RESPONDENT BY: SHRI PRITESH MEHTA DATE OF HEARING: 21.03.2012 DATE OF PRONOUNCEMENT: 21.03.2012 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXI, MUMBAI DATED 05.07.2011 AND IT PERTAINS TO A.Y. 200 8-09. 2. THE ONLY GROUND URGED IN THE APPEAL FILED BY THE RE VENUE READS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER ON THE DISALLOWANCE OF EXPEND ITURE OF RS.9,08,492/- BY TREATING IT AS PRE-OPERATIVE EXPEN SES WITHOUT APPRECIATING THE FACT THAT PRE-OPERATIVE EXPENSES A RE CAPITAL IN NATURE. 3. THE FACTS OF THE CASE ARE NARRATED IN BRIEF. ASSESS EE COMPANY DECLARED TOTAL LOSS OF ` 10,01,342/- WHICH WAS ORIGINALLY PROCESSED UNDER SE CTION 143(1) OF THE ACT BUT SUBSEQUENTLY TAKEN UP FOR SCR UTINY. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE WAS ENGAGED IN THE BUSINESS OF PROVIDING TRAINING, EDUCATION, ETC. AND THE ONLY CLIENT OF THE ASSESSEE WAS M/S. B.A. CONTINUUM SOLUTIONS PVT. LTD . AND THE ASSESSEE RECEIVED A SUM OF ` 13,74,475/- FROM THE SAID CLIENT. IN THE OPINION OF THE AO ITA NO. 6839/MUM/2011 STRATADIGM EDUCATION AND TRAINING P. LTD. 2 THE ENTIRE INCOME WAS EARNED ON THE LAST DAY OF THE ACCOUNTING YEAR, I.E. 31.03.2008, AS AN ADVANCE WHEREAS THE SERVICES WERE RENDERED IN THE SUBSEQUENT YEAR AND HENCE THE INCOME RECEIVED SHOUL D BE TREATED AS PRE- OPERATIVE INCOME IN WHICH EVENT ASSESSEE IS NOT ENT ITLED TO CLAIM DEDUCTION OF ANY EXPENDITURE IN THE PRE-OPERATIVE PERIOD. IN THI S REGARD THE AO OBSERVED THAT AS PER THE COPY OF AGREEMENT BETWEEN THE ASSES SEE AND M/S. B.A. CONTINUUM SOLUTIONS PVT. LTD. THE EFFECTIVE DATE IS 1 ST OF JULY 2008. IN OTHER WORDS THE TRAINING SERVICE AGREEMENT COMMENCED MUCH AFTER THE END OF THE FINANCIAL YEAR. THEREFORE WHATEVER AMOUNT RECEIVED CAN BE BOOKED AS PRE- OPERATIVE INCOME OR TRIAL RUN INCOME WHEREAS THE AS SESSEE HAS DEBITED A SUM OF ` 22,82,967/- AS EXPENDITURE IN THE P & L ACCOUNT, CO NSISTING OF EMPLOYEE COSTS, PROFESSIONAL FEES, TRAVELLING EXPENSES, ETC. ; SINCE THE BUSINESS IS NOT YET COMMENCED, THE SAID EXPENDITURE CANNOT BE ALLOWED A S DEDUCTION AGAINST PRE-OPERATIVE INCOME. HE ACCORDINGLY COMPLETED THE ASSESSMENT. 4. ON AN APPEAL FILED BY THE ASSESSEE COMPANY THE LEAR NED CIT(A) NOTICED THAT THE PREMISE ON WHICH THE AO CONCLUDED THAT IT IS PRE-OPERATIVE INCOME IS WRONG. UPON VERIFICATION OF THE DETAILS FILED BY THE ASSESSEE HE CONCLUDED THAT THE BUSINESS ACTIVITY OF THE ASSESSEE WAS CARR IED ON IN THE MONTHS OF FEBRUARY AND MARCH 2008 WHEREAS THE BILLING WAS DON E ON 31.03.2008 FOR THE ACTIVITIES DONE EARLIER. THUS THE IMPUGNED INCO ME CANNOT BE TREATED AS PRE-OPERATIVE INCOME. CONSEQUENTLY THE EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE DISALLOWED. IN PARA 2.2 OF HIS ORDER THE CIT(A) OBSERVED THAT THE ASSESSEE IS PROVIDING TRAINING TO TWO COMPANIES, I. E. M/S. WELLS FARGO INDIA SOLUTIONS LTD. AND M/S. B.A. CONTINUUM SOLUTIONS PV T. LTD. IN THE EARLIER YEAR AND THUS THE WRITTEN AGREEMENTS ENTERED INTO W ITH M/S. B.A. CONTINUUM SOLUTIONS PVT. LTD. EFFECTIVE FROM 1 ST JULY 2008 SHOULD NOT BE LOOKED INTO IN ISOLATION TO CONCLUDE THAT THE ASSES SEE HAS NOT COMMENCED ANY BUSINESS IN THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR UNDER CONSIDERATION. THE LEARNED CIT(A) HAD ALSO TAKEN NO TE OF THE FACT THAT THE AFOREMENTIONED TWO COMPANIES HAVE ISSUED TDS CERTIF ICATES IN RESPECT OF THESE PAYMENTS MADE, THEREBY ACKNOWLEDGING THAT THE SE TWO COMPANIES RECEIVED TRAINING SERVICES FROM THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. HE FINALLY CONCLUDED AS UNDER: - ITA NO. 6839/MUM/2011 STRATADIGM EDUCATION AND TRAINING P. LTD. 3 IN VIEW OF ABOVE DISCUSSION, IT IS HELD THAT THE A PPELLANTS BUSINESS WAS SET UP DURING THE YEAR, COMMENCED DURING THE YE AR, THE INCOME FROM OPERATIONS AT RS.13,74,475/- WAS BUSINESS INCO ME AND ALSO THAT THE EXPENSES CLAIMED AT RS.22,82,967/- WERE AL LOWABLE AS BUSINESS EXPENSES. THE AO IS DIRECTED TO CONSIDER T HE ENTIRE RECEIPTS FROM OPERATIONS AT RS.13,74,475/- AS BUSINESS INCOM E AND ALLOW THE VARIOUS BUSINESS EXPENSES CLAIMED BY THE APPELLANT. 5. AGGRIEVED REVENUE IS IN APPEAL BEFORE US. THOUGH TH E LEARNED D.R. STRONGLY RELIED UPON THE ORDER OF THE AO TO SUBMIT THAT THE WRITTEN AGREEMENT ENTERED INTO WITH M/S. B.A. CONTINUUM SOL UTIONS PVT. LTD. WOULD PROVE THAT NO SERVICES WERE RENDERED IN THE PREVIOU S YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, NO MATERIAL, W HATSOEVER, WAS FURNISHED BEFORE ME TO CONTRADICT THE FINDINGS OF T HE LEARNED CIT(A). UPON HEARING THE LEARNED COUNSEL FOR THE ASSESSEE AS WEL L AS THE LEARNED D.R. I AM OF THE FIRM VIEW THAT THE ORDER PASSED BY THE LEARN ED CIT(A) DO NOT CALL FOR ANY INTERFERENCE. AS PRONOUNCED IN THE OPEN COURT T HE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH 2012. SD/- (D. MANMOHAN) VICE PRESIDENT MUMBAI, DATED: 21 ST MARCH 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXI, MUMBAI 4. THE CIT X, MUMBAI CITY 5. THE DR, SMD BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.