Reliance Gems & Jewels Ltd vs. DCIT (ITAT Mumbai)

DATE: October 28, 2015 (Date of pronouncement)
DATE: November 5, 2015 (Date of publication)
AY: 2008-09
FILE: Click here to download the file in pdf format
S. 37(1): A business is “set up” the moment employees are recruited for the purpose of the business. All expenditure incurred thereafter is allowable as a deduction even if the business has not commenced

Setting up of business is different from commencement of business and the expenditures are allowable on setting up of business. The assessee has recruited employees for the purpose of its business and about 16 employees are for the job of quality assurance. The assessee is in the business of Merchandising of diamonds/gold/jewelleries. Undisputedly, this line of business requires expertise who have proficiency in understanding the carats of diamonds and related jewellery, without such recruitment, it would be a futile exercise to commence the business. In our considered opinion, upon recruitment of employees, the factum that expenditure under the different heads was incurred is indicative that business was set up.

(Western India Vegetable Products Ltd. Vs CIT 26 ITR 151 (Bom), Omniglobe Information Tech India Pvt. Ltd. in Income Tax appeal No. 257 of 2012, CIT Vs E-Funds International India (2007) 162 Taxman 01 (Del), CIT Vs Hughes Escorts Communications Ltd (2009) 311 ITR 253 (Delhi) and Whirlpool of India Ltd 318 ITR 347 followed)

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