DRAEGER MEDICAL (I) P. LTD, MUMBAI V. ITO RG 8(1)(3), MUMBAI

ITA 9234/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92410 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 31-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Business income; Revenue expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I.T. A. NO. 9234 / MUM/20 10 ( / ASSESSMENT YEAR : 20 0 6 - 07 ) DRAEGER MEDICAL (INDIA) P VT .LTD. GROUND FLOOR, GOLDLINE BUSINESS CENTRE , LINKWAY INDUSTRIAL ESTATE , LINK ROAD, MALAD (E), MUMBAI - 400064 / VS. INCOME TAX OFFICER, WARD 8( 1)(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AACCD3263D / APPELLANT BY SHRI PRAKASH K JOTWANI / RE SPONDENT BY S HRI LOVE KUMAR / DATE OF HEARING : 18.3.2015 / DATE OF PRONOUNCEMENT : 17. 4.2015 / O R D E R PER B.R. BASKARAN (AM) THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 26.10.2010 PASSED LD CIT(A) - 16,MUMBAI FOR ASSESSMENT YEAR 2006 - 07 CONFIRMING (A) DISALLOWANCE OF EXPENDITURE OF RS.14,61,519/ - . (B) ASSESSMENT OF FOREIGN EXCHANGE FLUCTUATION ON SHARE APPLICATION MONEY AS INCOME FROM OTHER SOURCES. 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE COMPANY WAS INCORPORATED ON 14.01.2004 WITH THE OBJECTIVE OF CARRYING ON BUSINESS OF IMPORT, EXPORT, DISTRIBUTION, DEALERS ETC. OF MEDICAL APPLIANCES AS WELL AS UNDERTAKING OF CONSULTANCY SERVICES IN THE FI ELD OF MEDICAL TECHNOLOGY. IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2006 - 07, THE ASSESSEE DID NOT GENERATE ANY INCOME, BUT HAD INCURRED EXPENSES TO THE TUNE OF RS.14,61,519/ - , I.T.A. NO. 92 34 / MUM/ 2010 2 WHICH MAINLY CONSISTED OF RENT AND SALARY EXPENSES. BESIDES THE A BOVE, THE ASSESSEE HAD ALSO INCURRED EXPENSES TOWARDS INSURANCE CHARGES AND AUDITORS REMUNERATION. THE AO TOOK THE VIEW THAT THE ASSESSEE CANNOT BE CONSIDERED TO HAVE SET UP THE BUSINESS, SINCE IT DID NOT GENERATE ANY INCOME AND THE ACTIVITIES LIKE RENTIN G IN OF PREMISES AND EMPLOYMENT OF PERSONNEL CANNOT BE CONSIDERED TO BE COMMENCEMENT OF BUSINESS ACTIVITIES. ACCORDINGLY HE DISALLOWED THE CLAIM OF EXPENDITURE, REFERRED ABOVE. 3. THE ASSESSEE HAD REALISED GAIN ON FOREIGN EXCHANGE FLUCTUATIONS ON THE SHARE APPLICATION MONEY RECEIVED BY IT. THE ASSESSEE HAD OFFERED THE SAME AS ITS BUSINESS INCOME AND ACCORDINGLY SET IT OFF OF THE SAME AGAINST THE ABOVE SAID EXPENDITURE. SINCE THE AO TOOK THE VIEW THAT THE ASSESSEE HAS NOT SET UP ITS BUSINESS, HE DID NOT ALLOW THE EXPENDITURE CLAIMED BY THE ASSESSEE. THE AO TOOK THE VIEW THAT THE ABOVE SAID FOREIGN EXCHANGE FLUCTUATION GAIN IS ASSESSABLE AS OTHER SOURCES INCOME AND ACCORDINGLY ASSESSED THE SAME AS INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM OT HER SOURCES. 4. THE LD CIT(A) ALSO CONFIRMED THE ORDER OF THE ASSESSING OFFICER. HENCE, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE EXPENDITURE INCURRED PRIOR TO SETTING UP OF THE BUSINESS IS R EQUIRED TO BE CAPITALIZED AND THE EXPENDITURE INCURRED THEREAFTER CAN BE CLAIMED AS REVENUE EXPENDITURE. THE DISPUTE IN THIS CASE IS ABOUT DATE OF SETTING UP OF THE BUSINESS. SINCE THE ASSESSEE DID NOT GENERATE ANY INCOME DURING THE YEAR UNDER CONSIDERAT ION AND SINCE IT HAD INCURRED ONLY ADMINISTRATIVE EXPENSES, THE TAX AUTHORITIES HAVE TAKEN THE VIEW THAT THE BUSINESS WAS NOT SET UP DURING THE YEAR UNDER CONSIDERATION. HOWEVER, WE NOTICE THAT THEY HAVE FAILED TO NOTE DOWN THE IMPORTANT PRINCIPLE THAT TH ERE IS DIFFERENCE BETWEEN DATE OF SETTING UP OF BUSINESS AND ACTUAL COMMENCEMENT OF BUSINESS. IT IS WELL SETTLED PROPOSITION THAT THERE MAY EXIST AN INTERVAL BETWEEN THE DATE OF SETTING UP OF I.T.A. NO. 92 34 / MUM/ 2010 3 BUSINESS AND ACTUAL COMMENCEMENT OF ACTIVITIES. HENCE, WHA T IS REQUIRED TO BE SEEN IS; WHETHER THE BUSINESS WAS SET UP AND IT WAS READY TO COMMENCE THE BUSINESS. IF THAT IS SO, THEN THE EXPENDITURE INCURRED AFTER THE DATE OF SETTING UP OF BUSINESS WHEN IT WAS READY TO COMMENCE THE BUSINESS IS ALLOWABLE AS REVENU E EXPENDITURE. FOR THESE PROPOSITIONS, WE MAY GAINFULLY REFER TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CWT VS. RAMARAJU SURGICAL COTTON MILLS LTD (63 ITR 478) AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA VEGET ABLE PRODUCTS LTD VS. CIT (26 ITR 151). 6. THE FACTS PREVAILING IN THE INSTANT CASE IS THAT THE ASSESSEE IS ENGAGED IN TRADING ACTIVITIES. HENCE THE COMPLEX ACTIVITIES INVOLVED IN THE CASE OF MANUFACTURING INDUSTRIES ARE NOT APPLICABLE TO THIS ASSESS EE. THE ASSESSEE COMPANY WAS INCORPORATED ON 14.01.2004 AND IT HAS CAPITALIZED EXPENSES OF RS.97,572/ - , I.E., ACCORDING TO THE ASSESSEE THEY ARE THE EXPENSES INCURRED UP TO THE DATE OF SETTING UP OF BUSINESS. THE ASSESSEE, BEING A TRADING COMPANY, HAS CLA IMED TO HAVE SET UP THE BUSINESS AS SOON AS THE PREMISES WERE TAKEN ON RENT AND IMPORTANT EMPLOYEES WERE EMPLOYED. WE FIND FORCE IN THIS SUBMISSION. IT IS FURTHER NOTICED THAT THE INSURANCE CHARGES OF RS.42,680/ - HAS ALSO BEEN INCURRED BY THE ASSESSEE IN CONNECTION WITH THE IMPORT OF GOODS, MEANING THEREBY THE ASSESSEE HAS ALSO STARTED ITS BUSINESS ACTIVITIES. WE HAVE ALREADY NOTICED THAT THE ASSESSEES BUSINESS ALSO CONSISTED OF IMPORTING OF GOODS. HENCE WE ARE OF THE VIEW THAT THE ASSESSEE HAS COMMENC ED ITS ACTIVITIES AS SOON AS THE PREMISES WERE TAKEN ON RENT AND EMPLOYEES WERE EMPLOYED. IN OUR VIEW THE GENERATION OF REVENUE MAY NOT BE AN IMPORTANT CRITERIAN IN THIS REGARD. FROM THE FACTS DISCUSSED ABOVE WE ARE OF THE VIEW THAT THE ASSESSEE HAS SET UP ITS BUSINESS DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION OF EXPENSES INCURRED BY IT AS REVENUE EXPENDITURE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DI RECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. I.T.A. NO. 92 34 / MUM/ 2010 4 7. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF FOREIGN EXCHANGE GAIN AS INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES, THOUGH THE ASSESSEE CLAIMED THE SAME TO BE BUSINESS I NCOME. SINCE THE GAIN HAS BEEN REALIZED IN CONNECTION WITH THE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE, WE AGREE WITH THE VIEW TAKEN BY THE AO THAT THE SAME IS NOT RELATED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. SINCE THE ASSESSEE HAS OFFERE D THE SAME AS ITS INCOME AND SINCE WE HAVE HELD THAT THE EXPENDITURE INCURRED FOR ITS BUSINESS IS ALLOWABLE, THE FOREIGN EXCHANGE IS ELIGIBLE FOR SET OFF AGAINST THE BUSINESS LOSS AS PER THE PROVISIONS OF THE ACT. WE DIRECT THE ASSESSING OFFICER ACCORDING LY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE AB OVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17TH APRIL 2015 . 17TH APRIL , 2015 SD SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 17TH APRIL ,2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI