Avantha Consulting Services Ltd, Gurgaon V. DCIT Circle1(1), Gurgaon

MA 314/DEL/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 9299 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 31-12-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-12-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 23-07-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business expenditure; Opportunity of being heard
• Section: 37; 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘A‘ BENCH DELHI BEFORE: SHRI KUL BHARAT, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER MA No. 314/Del/2023 (Arising out of ITA No.1239/Del/2019) (Assessment Year: 2015-16) Avantha Consulting Services Ltd., First India Place, Tower-C, M.G. Road, Gurgaon 122002 Vs. The DCIT, Circle-1(1), Gurgaon PAN/GIR No. AALCA 6351 Q (Appellant) .. (Respondent) Assessee by Shri Upvan Gupta, Adv. Revenue by Shri Kanv Bali, Sr. DR Date of Hearing 22/12/2023 Date of Pronouncement 01/01/2024 O R D E R PER DR. B.R.R. KUMAR (A.M): For the sake of ready reference, the miscellaneous application filed by the assessee is reproduced below:- This has reference to the appellate order dated 21.04.2023 passed by this Hon'ble Tribunal in the captioned matter (copy attached as Annexure 1). It is respectfully submitted that, the said appellate order contains a mistake apparent from records, which calls for being rectified vide amendment to the said appellate order, for the following reasons: The assessee company was incorporated in May 2013 for the purpose of carrying on life insurance business. As on 31.03.2015, i.e., at the end of the relevant assessment year, the assessee's application for grant of licence to carry on the life insurance business was pending before the Insurance Regulatory and Development Authority of India (IRDAl), due to which, the assessee had not commenced its business operations. However, in order to maintain corporate identity, status and existence, the assessee company was required to incur certain mandatory and statutory expenses during the relevant assessment year, inter alia, on account of auditor's fees, CFO/ CEO salary, company secretary salary, ROC fees, board meeting expenses and directors sitting fees, aggregating to INR 46,76,255. MA No. 314/Del/2023 Avantha Consulting Services Ltd., 2 The aforesaid expenses, it is respectfully submitted, were incurred by assessee wholly and exclusively for the purpose of business and maintaining existence of the corporate identity/ status of the assessee company. The same were, therefore, allowable as deduction under the provisions of section 37 of the Income-tax Act, 1961 ('the Act"). Reliance in this regard is placed on the decision of Delhi High Court in the case of Maruti Insurance Broking (P.) Ltd. vs DCIT: 127 taxmann.com 685, wherein, it was held that, where assessee prior to obtaining IRDA license to conduct insurance business had acquired necessary wherewithal and physical infrastructure for carrying on its business and was only waiting for approval of its application for commencement, expenditure incurred between setting up and commencement of business was to be allowed as business expenditure. Copy of the said decision of Delhi High Court is attached herewith as Annexure 2. The relevant extract of the aforesaid decision of Delhi High Court is reproduced hereunder for ready reference: "6. As noticed above, the assessee did all that, which was necessary, to set up the insurance broking business. Only to recapitulate, the assessee, after its incorporation opened a bank account, entered into an agreement for deputing employees (who were to further its insurance business), gave necessary training to the employees, executed operating lease agreements, and resultantly, set up offices at 29 different locations across the country. Besides this, as noticed above, the application for obtaining a license from IRDA was also filed on 1-12-2010. In the instant case, IRDA took more than a year in dealing with the assessee's application for issuance of a license. The license was issued only on 2-2-2012 although the assessee was all primed up, i.e., ready to commence its business, if not earlier, since 1-6-2011. 7. Given this position, we are of the view that the finding recorded by the Tribunal that the assessee set up its business only on 2-2-2012 was perverse and erroneous in law. The assessee, having acquired the necessary wherewithal and physical infrastructure for carrying on its business - it was only waiting for the approval of its application for commencement. The Tribunal failed to appreciate the difference between the assessee being ready to commence business and the date from which it conducts business or, as in this, allowed to conduct. It has to be understood that business does not conform to, metaphorically speaking, the "cold start" doctrine. There is, in most cases, hiatus between the time a person or entity is ready to do business and when business is conducted. During this period, expenses are incurred towards keeping the business primed up. These expenses cannot be capitalized as suggested by the authorities below. 8. We are of the view that if Mr. Bhatia's submission was to be accepted, then, it is quite likely that if, in a given situation, the statutory authority, which is required to grant the approval, delays the issuance of the license, the expenses incurred, in the interregnum, would not be allowed as business expenditure. As noticed above, in this case, the AO, based on the facts noted above, has concluded that the expenses incurred by the assessee are preoperative and have to be capitalised. This approach destroys business efficacy and is not countenanced by the law." In view of the aforesaid, it is respectfully submitted that, in the present case, on identical facts, the assessee had applied for IRDA licence, which was issued in a delayed manner. Accordingly, the expenses incurred in the interregnum calls for being allowed as business expense under the provisions of section 37 of the Act. The assessee had raised the aforesaid issue of allowance of deduction for business expenditure incurred under the provisions of section 37 of the Act vide Ground of appeal nos. 1 and 1.2, which were, inadvertently, not adjudicated/ disposed off by this Hon'ble Tribunal in the appellate order. MA No. 314/Del/2023 Avantha Consulting Services Ltd., 3 It is respectfully submitted that, the aforesaid mistake constitutes a mistake apparent from record, which calls for being rectified by this Hon'ble Tribunal under the provisions of section 254(2) of the Act. The assessee shall always remain indebted and highly obliged for the aforesaid act of kindness by your Honours. The assessee shall be pleased to provide any further information/clarification in this regard, as may be required by the Hon’ble Tribunal. 2. The grounds raised by the assessee in his appeal are as under:- 1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) -1, Gurgaon ["the CIT(A)"] erred in not allowing expenses of Rs.46,76,255/- incurred by the appellant during the course of its business operations. 1.2 On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in not considering that the said expenses were incurred wholly and exclusively for the activities to earn income as well as to maintain the appellant's establishment as corporate entity and to comply with its statutory obligations. 1.3 On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in upholding an invalid assessment order, which was passed in gross violation of CBDT instructions issued in relation to scope of enquiry in cases under ‘ Limited Scrutiny’. 3. In this background, the grounds raised by the assessee in the miscellaneous application are as under:- 1. In view of the aforesaid, it is respectfully submitted that, in the present case, on identical facts, the assessee had applied for IRDA licence, which was issued in a delayed manner. Accordingly, the expenses incurred in the interregnum calls for being allowed as business expense under the provisions of section 37 of the Act. 2. The assessee had raised the aforesaid issue of allowance of deduction for business expenditure incurred under the provisions of section 37 of the Act vide Ground of appeal nos. 1 and 1.2, which were, inadvertently, not adjudicated/ disposed off by this Hon'ble Tribunal in the appellate order. 4. With regard to the issue no. 1 & 2 allowing the deduction u/s. 37, we find that the grounds have not been raised by the assessee in the form 36 filed before the Tribunal. Further para no. 12 of the order of the ITAT, the Tribunal has dully dealt with the issue of allowability of these expenses, the relevant para of the order of the ITAT dealing with the issue is reproduced below:- MA No. 314/Del/2023 Avantha Consulting Services Ltd., 4 12. The ld. AR argued that the company was incorporated in May 2013 to undertake and carry on the business of life insurance. As on 31s t March 2015, the company’s applications for issue of necessary licenses were pending before the Insurance Regulatory and Development Authority of India (‘IRDA’). In view of the pending licences, the business of the company has not commenced during the A.Y. 2015-16. It was argued the employee remuneration and other expenses as depicted in the table above have been incurred which are statutory in nature and mandatorily require to be spent in order to maintain the corporate status of the company. It was argued that the expenses have a direct nexus with the earning o f the interest income and thus been claimed u/s 57(iii) of the Act. It was argued that the expenses for the A.Y. 2015-16 were accepted by the department. The ld. AR relied on the judgment of Hon’ble High Court of Delhi in Maruti Insurance Broking (P.) Ltd. Vs DCIT 127 taxmann.com 685. 5. The provisions of Section 254(2) of the Income Tax Act reads as under: “254... (2) The Appellate Tribunal may, at any time within [six months from the end of the month in which the order was passed], with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the [Assessing] Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub- section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard.” 6. We further find that the Hon’ble Apex Court in the case of CIT Vs. Reliance Telecom Ltd. (2021) 133 taxmann.com 41 has held that “while considering the application under section 254(2), the Tribunal is not required to visit its earlier order and to go into details on merits and if the assessee was of the opinion that the order passed by the Tribunal was erroneous, either on facts or on law, then in that case the only remedy available to the assessee was to prefer appeal before High Court.” 7. Keeping in view, the entire facts on record, we hold that the grounds taken up by the assessee in the miscellaneous application do not fall under the provisions of Section 254(2) of the I.T Act, 1961. MA No. 314/Del/2023 Avantha Consulting Services Ltd., 5 8. In the result, miscellaneous application of the assessee is dismissed. Order pronounced in the open court on 01/01/2024. Sd/- (KUL BHARAT) Sd/- (DR.B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated 01/01/2024 NV Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, DELHI