1.  Sukhdev Singh Vs. The JCIT(TDS), I.T.A. No. 116/Chd/2014, Date of Order: 29.09.2014, ITAT - Chandigarh

Penalty u/s 271C cannot be levied where assessee was under bonafide belief that TDS is not to be deducted on payment made to non-banking financial institution.

Facts of the case that the assessee has not deducted the tax at source as required under chapter XVIII – B of the Income Tax Act, 1961. During assessment proceeding AO levied penalty proceeding u/s 271C of the Act. Assessee submitted that omission to deduct TDS was under bonafide belief that TDS was not to be deducted on payment made to non-banking financial institution as in the case of the banks. He has already been penalized by way of addition at the time of assessment by way of disallowance of interest under section 40(a)(ia) of the Act.

Hon’ble ITAT held that Section 273B of the Income Tax Act provides that no penalty under section 271C shall be imposable on the person or the assessee as the case may be, for any failures referred to in the said provisions, if he proves that there was reasonable cause for the said failure. We are of the view that the levy of penalty in the facts and circumstances of the case is not warranted.

In the result, the appeal filed by the assessee is allowed.

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2.  Carefour WC & C India Pvt. Ltd. Vs. DCIT, I.T.A. No. 42/2014, Date of Order: 22.09.2014, Delhi High Court

Expenses incurred between the dates of commencement of business to setting up of business are allowable expenditure under Income Tax Act.

Assessee, a company was incorporated on September 19, 2007 under the Companies Act, 1956, to carry on trading activity. However no trading activity was took place during the year. The assessee company filed return of income for A.Y. 2008-09 and claim prior period expenses. Assessing Officer in 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.

Hon’ble High Court held that assessee start activities, like a bank account was opened and employees were also appointed, which would lay foundation for trading activity. TDS deduction for the said employees was also placed on record. Registration under the Shops and Establishment Act was also effected. These activities are the first stage activities which would lay foundation for placing orders for procuring the stock and storing them in a warehouse/shop followed by the third stage of marketing them. Suffice to state for a foreign entity without establishing itself under the local laws, appointing personnel, identifying the prospective manufacturers, clients etc. obtaining storage facilities followed by stock-in-trade, the business of trading cannot commence.

The Tribunal missed the point, that the assessee as a prudent trader could not have made purchases without undertaking the aforesaid exercise. The said exercise was a precursor to commencement but post set up. The aforesaid activities demonstrate setting up of the business by the appellant-assessee with a commitment to commence the business.  Expenses are incurred for the purpose of business and such expenses are of not capital in nature and are not expressly disallowable under the other provisions of the Act. Moreover it was the case of the revenue that the assessee has claimed deduction of expenditure, prior to the setting up of business.

Appeal of assessee is allowed.

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