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Issues involved: Assessment of revenue expenditure u/s. 35D for initial marketing expenses incurred before and after commencement of business.
Summary: The appeal was filed by the Revenue against the order of Ld. CIT (A)- VIII, Ahmedabad dated 13-3-2007 for the assessment year 2002-03. The assessee, a limited company engaged in IT enabled services, declared a total loss in the original return of income for A.Y. 2002-03. The Assessing Officer (A.O.) reopened the assessment to verify the correctness of the loss declared and issued a notice u/s. 148. The dispute arose regarding the treatment of traveling expenditure as deferred revenue expenditure in the books of accounts. The A.O. disallowed a portion of the expenditure as revenue expenditure, relying on various decisions. The CIT (A) allowed the appeal of the assessee, considering the expenses as incurred after setting up the business and hence allowable as revenue expenditure. The Revenue appealed against this decision. Before the Tribunal, the Revenue argued that the majority of the expenditure was incurred before the commencement of commercial production and should not be allowed as revenue expenditure. The assessee contended that the business was set up in April 2001, and all necessary approvals and infrastructure were in place by then, justifying the marketing expenses as revenue expenditure. The Tribunal noted that the essential activity for starting the business had commenced in April 2001, and therefore, the expenses were allowable as revenue expenditure. The Tribunal upheld the order of the CIT (A) and dismissed the appeal of the Revenue. The Tribunal cited relevant legal precedents to support its decision, emphasizing the distinction between setting up and commencement of business. It concluded that the assessee had commenced business in April 2001, making the expenses allowable as revenue expenditure. The Tribunal found no infirmity in the order of the CIT (A) and upheld the decision, dismissing the appeal of the Revenue. Judgment: The appeal of the Revenue was dismissed by the Tribunal, upholding the order of the CIT (A) regarding the treatment of initial marketing expenses as revenue expenditure incurred after the commencement of business in April 2001.
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