COMMISSIONER OF INCOME TAX Vs. RAMA KRISHNA JEWELLERS

JUDGEMENT

(1.) The present appeal has been filed by the assessee under Section 260A of the Income Tax Act, 1961 ('Act', in short), challenging the order dated August 16, 2013 passed by the Income Tax Appellate Tribunal (Tribunal, in short) whereby the Tribunal has upheld the order of the Commissioner of Income Tax (Appeals) dated March 02, 2012, affirming the findings of the Assessing Officer in the assessment order dated December 10, 2010. The following question of law was framed on April 15, 2014 for consideration of this Court: "Did the Tribunal fall into error in holding that the assessee had not set up its business till 31.03.2008".

(2.) Some of the relevant facts are, the assessee company was incorporated on September 19, 2007 under the Companies Act, 1956, to carry on trading activities which primarily included wholesale trading of all kinds of consumer goods durables, articles and products. The year 2008-09 was the first year of assessment. The assessee company filed an E-Return of income for the assessment year 2008-09. The appellantassessee claimed expenses amounting to Rs.9,03,03,547/- and claimed a business loss of Rs. 8,64,07,610/- after setting off income from other sources amounting to Rs. 38,95,937/-. Show cause notice dated October 21, 2010 was issued to the assessee as to why the business loss claimed may not be disallowed. The case of the appellant-assessee was that the loss had occurred on account of expenses incurred for earning and conducting business in India. The Assessing Officer was of the view that the expenditure incurred was prior to commencement of business as it was not fully set up. Thus expenditure was not allowed as a deduction. Sections 28 to Section 43D of the Act, which relates to the computation of business income were elucidated upon. The Assessing Officer supported his conclusion considering the case of a manufacturing concern, which could be said to be set up only when it was ready for production. In case of a trader, the Assessing Officer was of the view that the distinction may not be significant once there were stocks to be sold. In other words, according to him, the manufacturing concern is said to be set up only when production gets started and in the case of the trader, when the stocks are available to be sold. In paras 3.1 to 3.3 and 3.5 to 3.7 of the Assessment Order, the following was his conclusion:

(3.) 7 In view of the above discussion, the reply submitted by the assessee is not acceptable. As no business activities have been carried out as per audit report as discussed above and in view of the various decisions, the expenses claimed as revenue expenditure are not allowed and the loss from business is disallowed and the business income is taken at Nil. For the facts discussed, I am satisfied that the assessee Company has concealed the particulars of its income/submitted wrong particulars of its income, therefore, penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 are initiated on this account."