2010 (1) TMI 4 - HC - Income Tax

Nature of Expenses - . The assessee had shown expenditure as deferred revenue expenditure in its books. However, it had claimed it as revenue expenditure in its return. The Assessing Officer had disallowed the same and the Commissioner of Income-tax (Appeals) had confirmed the disallowance. The total extent of disallowance was Rs 31,54,846/-. The Income-tax Appellate Tribunal has allowed the deduction on the ground that, although the said sum had been shown differently in the books, the same was allowable as per law. held that - we are of the view that no interference whatsoever is called for with regard to the expenses incurred after 30.05.2000 which are in the sum of Rs 23,35,481/-. But, with regard to the balance sum of Rs 8,19,365/-, which are expenses for the pre-commencement period, we find that there is no discussion with regard to this in the impugned order - However, we are not inclined to interfere with the impugned order because the tax effect in respect of the said expenditure of Rs 8,19,365/- would be less than Rs 4 lakhs

Summary

Issues:
1. Allowance of deferred revenue expenditure claimed as revenue expenditure.
2. Classification of expenditure incurred before and after the commencement of business activities.

Analysis:
1. The appeal pertains to the assessment year 2001-02 challenging the disallowance of deferred revenue expenditure claimed as revenue expenditure. The Income-tax Appellate Tribunal allowed the deduction, emphasizing that despite the differing book treatment, the expenditure was allowable as per law. The total disallowance amount was Rs 31,54,846.

2. The revenue contended that the disallowed sum comprised two components: Rs 8,19,365 incurred pre-commencement of business activities and Rs 23,35,481 incurred post-commencement. The revenue argued that the pre-commencement expenditure was akin to pre-operative expenses due to being incurred before any business activity began, relating to the assessee's networking, call center, and e-business operations.

3. The High Court, after considering the revenue's submissions and absence of representation from the assessee, upheld the Tribunal's decision regarding the post-commencement expenditure of Rs 23,35,481. However, concerning the pre-commencement expenses of Rs 8,19,365, the Court noted the lack of discussion in the Tribunal's order but refrained from interference due to the tax effect being less than Rs 4 lakhs. Consequently, the appeal was disposed of accordingly on January 12, 2010, by Justices Badar Durrez Ahmed and Siddharth Mridul.