2020 (10) TMI 648 - AT - Income Tax

Disallowance of office, administrative costs and other relevant expenses as prior period expenses - non commencement of business - Whether to claim the expenditure as deduction, it is necessary to declare income under the provisions of Chapter XIV-C of the Act? - CIT(Appeals) observed that the expenditure claimed by the assessee was directly related to construction activity and it can be allowed only once the said project is completed or capable of yielding income - HELD THAT - When the assessee in the present case was in a position to apply for the tender, borrowed money for interest albeit from its holding company and deposited the same on the same day, it shows that the assessee's business had been set-up and it was ready to commence business. Difficulty in accepting the argument of revenue stating that till the land is acquired, the business is not set-up is that an assessee may not be successful in acquiring land for long period of time though he is ready to commence his business in real estate, and that would result in the expenses incurred by him throughout that period not being computed as a loss under the head 'Business' on the ground that he is yet to set-up his business. That would be an unacceptable position. As seen from the evidence filed by the assessee, the assessee has already commenced its business by entering into agreement with the landlord and also requisite licence and permission from BBMP. It cannot be said that assessee has not commenced the business. Hence the assessee is entitled to claim deduction. Accordingly, we allow the ground raised by the assessee.

Summary

Issues Involved:
Disallowance of office, administrative costs, and other expenses as prior period expenses without declaring income under Chapter XIV-C of the Act.

Analysis:
The appeal was against the disallowance of expenses amounting to ?65,86,224 by the CIT(Appeals) for not declaring any income from business operations. The AO disallowed the expenditure as it was claimed without income declaration. The CIT(Appeals) linked the allowance of expenditure to the completion of the project capable of generating income. The assessee argued that the commencement of the project itself should allow for business deductions, citing various precedents. The Tribunal noted that the Delhi High Court held that certain actions towards business setup, like applying for tenders and borrowing money, indicate business commencement. The Tribunal agreed that the assessee had commenced business based on agreements and permissions obtained. Hence, the expenditure was deemed allowable.

The Tribunal addressed the additional ground raised by the assessee regarding the deductibility of expenditure upon project completion or income generation. However, since the main ground was allowed, the additional ground was considered infructuous and dismissed. Consequently, the appeal was partly allowed, emphasizing that the assessee had commenced business and was entitled to claim the deduction for the expenses incurred.