1989 (5) TMI 156 - AT - Income Tax

Summary

Issues involved:
1. Whether the business in Tephguard Agencies had commenced during the relevant previous year for the assessment year and if the expenses related to that business could be allowed as revenue expenditure.
2. Disallowance of expenses claimed by the assessee for the new line of business.

Detailed Analysis:

Issue 1:
The case involved determining whether the business in Tephguard Agencies had commenced during the relevant previous year and if the expenses related to that business could be treated as revenue expenditure. The assessee, engaged in ship chandling business, started a new line for the supply of Tephguard oil. The Income-tax Officer treated the loss relating to this new business as a capital loss due to the absence of purchases and sales during the relevant year. However, the Commissioner (Appeals) held that the business had commenced based on the agreement with Air Control Systems and the advertisements made by the assessee. The Commissioner directed the Income-tax Officer to allow the business loss to a certain extent but disallowed some expenses not verifiable under the agreement.

Issue 2:
The department appealed against the Commissioner's decision, arguing that the expenses were incurred before the business setup and should not be allowed as deductions. The department contended that in the absence of purchases, the business should not be considered as commenced. The assessee, on the other hand, argued that the business had started with the acceptance of the marketing proposal and the commencement of advertising and order booking activities. The assessee cited precedents to support the argument that business commencement does not require actual purchases or sales but significant business activities. The Tribunal upheld the Commissioner's decision, stating that the business had commenced with the acceptance of the proposal and the necessary steps taken for marketing, even without actual purchases due to external difficulties.

In conclusion, the Tribunal dismissed the departmental appeal and upheld the Commissioner's decision that the business in Tephguard Agencies had commenced during the relevant year, allowing the expenses as revenue expenditure. The Tribunal also dismissed the assessee's cross-objection regarding the disallowance of certain expenses, finding the Commissioner's decision reasonable based on the verifiability of expenses.