Iffco Ebazar Ltd. vs ACIT – Dispute Over Business Commencement for AY 2016-17

Iffco Ebazar Ltd. vs ACIT – Dispute Over Business Commencement for AY 2016-17

Case Number: ITA 6534/DEL/2019

Appellant: Iffco Ebazar Ltd., New Delhi

Respondent: ACIT Circle-12(1), New Delhi

Assessment Year: 2016-17

Order Type: Final Tribunal Order

Date of Order: 2021-01-07

Pronounced on: 2021-01-07

Background of the Case

Iffco Ebazar Ltd., a company incorporated with the objective of engaging in the wholesale trading of various goods and services, filed its return of income for the assessment year 2016-17, declaring a loss of Rs. 1,34,46,032/-. The case was selected for scrutiny, and the Assessing Officer (AO) raised concerns about whether the company’s business had commenced during the year, which would affect the claim of business loss.

The AO noted that the revenue generated during the year was minimal, with only Rs. 5,175/- from operations and Rs. 1,21,659/- from other sources, such as interest and miscellaneous income. The AO questioned the legitimacy of the business activities, suggesting that the company was still in the process of setting up its business and had not yet commenced operations. As a result, the AO disallowed the claimed business loss.

Appellant’s Argument

The appellant, represented by its counsel, argued that the business had indeed commenced during the assessment year. The company had made a sale of goods (Harpic) and had incurred expenses related to its operations. The appellant emphasized that even a single transaction could constitute the commencement of business, referencing the decision in the case of ITO vs. Amrit Foods (P) Ltd., where it was held that a single purchase and sale could be considered a business activity.

The appellant further argued that the AO’s decision to disallow the business loss was based on a misunderstanding of the nature of the transactions and the business operations. The company had made efforts to set up its business, as evidenced by the purchase of fixed assets and the hiring of employees, and the sale of goods during the year confirmed the commencement of business activities.

Tribunal’s Decision

After hearing the arguments and reviewing the evidence, the Income Tax Appellate Tribunal (ITAT) ruled in favor of the appellant. The Tribunal agreed that the business had commenced during the assessment year, citing the sale of goods as a clear indication of business activity. The Tribunal also referenced the precedent set in ITO vs. Amrit Foods (P) Ltd., affirming that even a single transaction could be sufficient to establish the commencement of business.

The Tribunal concluded that the AO’s decision to disallow the business loss was incorrect and ordered the deletion of the addition in dispute. The Tribunal did not find it necessary to adjudicate the other grounds raised by the appellant, as the primary issue of business commencement had been resolved in the appellant’s favor.

Conclusion

The case of Iffco Ebazar Ltd. vs ACIT highlights the importance of understanding the nuances of business commencement in the context of income tax assessments. The Tribunal’s decision reinforces the principle that even minimal business activity, such as a single transaction, can establish the commencement of business operations.

This ruling is significant for businesses that are in the early stages of their operations, as it provides clarity on the criteria for determining when a business has commenced. By recognizing the efforts made by the appellant to set up and start its business, the Tribunal has ensured that the company can claim the business losses incurred during the year, which will be carried forward for future adjustments.

The decision serves as a reminder to both taxpayers and tax authorities to carefully consider the facts and circumstances of each case before making determinations about the commencement of business and the eligibility of claims related to business losses.

Iffco Ebazar Ltd. vs ACIT – Dispute Over Business Commencement for AY 2016-17