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Issues:
- Justification of deleting addition of expenses by CIT(A) - Interpretation of setting up vs. commencement of business Analysis: - The appeal addressed the deletion of an addition of Rs. 6,13,603 by the CIT(A) for the assessment year 1992-93, focusing on the justification of deleting the expenses claimed by the assessee. The Assessing Officer disallowed the expenses on the grounds that the assessee had not commenced its business, citing lack of manufacturing activities and no sale or purchase transactions. The expenses in question included finance charges, preliminary expenses, and administrative charges related to obtaining an allocation letter for export purposes. The Assessing Officer disallowed the claim and assessed interest income under a different category. The CIT(A) accepted the assessee's arguments, stating that the business had been set up, and relied on precedents to allow the deduction of expenses. - The key issue revolved around the distinction between setting up and commencement of business. The Tribunal noted that the activities undertaken by the assessee indicated the business had been set up during the relevant accounting year. Despite certain setbacks such as a failed deal due to a bounced cheque, the assessee had engaged in activities necessary for conducting business, including obtaining a bank guarantee for export purposes. The Tribunal emphasized that setting up a business precedes the actual commencement of operations, and expenses incurred during this phase are eligible for deduction as revenue expenditure. Citing relevant judgments, including those from the Bombay and Gujarat High Courts, the Tribunal upheld the CIT(A)'s decision to delete the addition of expenses, stating that the assessee had taken all necessary steps to establish the business, even if manufacturing operations had not yet begun. The appeal was dismissed, affirming the CIT(A)'s order.
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