2014 (3) TMI 933 - AT - Income Tax

Disallowance on account of presenting up expenses Held that - The Assessing Officer went wrong in making addition and in holding that the claim of the assessee cannot be allowed being preset up expenses - the CIT(A) rightly observed that when similar kind of expenditure was incurred in the earlier assessment year which was allowed, then the stand cannot change without any basis and the addition was deleted - the addition made by the AO on wrong assumption was rightly deleted by the CIT(A) - the order of the CIT(A) upheld Decided against Revenue.

Summary

Issues:
1. Disallowance of presetting up expenses by the Assessing Officer.
2. Appeal against the order of Commissioner of Income Tax(A)-XIX, New Delhi.

Issue 1: Disallowance of presetting up expenses by the Assessing Officer

The appeal pertains to the disallowance of Rs.1,26,67,497 made by the Assessing Officer on account of presetting up expenses. The Assessing Officer contended that the expenses were incurred for the promotion and development of the set-top box business during the pre-setup period. The Assessing Officer held that such expenses cannot be allowed as deductible as they were incurred before the business was set up, as per the Income Tax Act, 1961. The Assessing Officer relied on judicial pronouncements to support this view, stating that expenses incurred before setting up a business are not deductible in the computation of income for the previous year. The Commissioner of Income Tax(A) allowed the appeal, noting that similar expenditures were allowed in the earlier assessment year. The Commissioner observed that the set-top box business was part of the existing business of providing services, and hence, the addition made by the Assessing Officer was deleted.

Issue 2: Appeal against the order of Commissioner of Income Tax(A)-XIX, New Delhi

The Revenue filed an appeal against the order of the Commissioner of Income Tax(A)-XIX, New Delhi, dated 29.07.2011. The sole ground of appeal was related to the disallowance of presetting up expenses. The Revenue contended that the Commissioner erred in deleting the disallowance made by the Assessing Officer. However, during the hearing, neither the assessee nor their representative appeared. The Tribunal proceeded to decide the appeal on merits after hearing the ld. DR. The Tribunal upheld the decision of the Commissioner, stating that the Assessing Officer's addition was rightly deleted as similar expenditures were allowed in the earlier assessment year. The Tribunal found no ambiguity or perversity in the impugned order and confirmed the deletion of the addition.

In conclusion, the Tribunal dismissed the appeal of the Revenue, upholding the decision of the Commissioner of Income Tax(A) to delete the disallowance of presetting up expenses. The Tribunal found that the expenses were part of the existing business activities and were allowable deductions based on the facts and circumstances of the case.