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2020 (2) TMI 460 - AT - Income TaxDisallowance of expenses as business not set up - HELD THAT - Undisputed facts in the instant case is that the assessee has applied for grant of Direct Broker Licence to the Insurance Regulatory and Development Authority on 01.12.2010 which was granted to the assessee only in February, 2012, therefore in view of RAMARAJU SURGICAL COTTON MILLS LIMITED 1966 (10) TMI 41 - SUPREME COURT we hold that the business of the assessee has been set up only in February, 2012. Accordingly, the order of the CIT(A) holding that the business of the assessee was not set up during the relevant period and, therefore, the entire expenses has to be disallowed as business expenditure is upheld. The various decisions relied on by the ld. Counsel for the assessee are distinguishable and not applicable to the facts of the present case. Accordingly, the grounds raised by the assessee are dismissed.
Issues Involved:
1. Whether the business expenses claimed by the assessee should be allowed as revenue expenditure or capitalized as preoperative expenses. 2. Determination of the date of setting up of business for the purpose of allowing business expenses. 3. Allowability of set-off of business loss against income from other sources. Detailed Analysis: 1. Whether the business expenses claimed by the assessee should be allowed as revenue expenditure or capitalized as preoperative expenses: The assessee claimed expenses amounting to ?2,78,22,376/- as business expenses incurred during the course of its business. The AO noted that the assessee had not commenced any business activity during the relevant previous year and had only earned some interest on fixed deposits. Consequently, the AO treated these expenses as preoperative expenses and capitalized them, disallowing the claim for revenue expenditure. The CIT(A) upheld the AO's decision, distinguishing the various decisions relied upon by the assessee. 2. Determination of the date of setting up of business for the purpose of allowing business expenses: The assessee argued that it had set up its business on 01.12.2010, as it had applied for a direct broker license from IRDA and had put in place the necessary infrastructure facilities. However, the AO and CIT(A) held that the business could not be considered set up until the license was granted by IRDA in February 2012. The Tribunal noted that the critical date for the allowability of expenses is the date of setting up of the business, not the actual commencement of business. However, it agreed with the AO and CIT(A) that the business could not be considered set up until the license was granted, as the assessee could not discharge its core function of issuing insurance policies without the license. 3. Allowability of set-off of business loss against income from other sources: The assessee sought to set off the business loss against income from other sources under the provisions of Chapter VI of the Act. However, since the Tribunal upheld the decision to treat the expenses as preoperative and capitalized them, the question of setting off business loss did not arise. Conclusion: The Tribunal upheld the decision of the CIT(A) and AO, concluding that the business of the assessee was not set up during the relevant period, as the necessary IRDA license was only granted in February 2012. Therefore, the expenses incurred prior to this date were correctly treated as preoperative expenses and capitalized. The appeal filed by the assessee was dismissed.
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