2017 (9) TMI 1222 - AT - Income Tax

Disallowances of business expenses - business has actually not commenced - CIT-A allowed claim - Held that - In the earlier year already finding has been given that business of the assessee has been set up, then consequently in this year it cannot be held that no business has been set up. Thus, the order of the Learned CIT (Appeals) as incorporated above is not only based on correct appreciation of facts but is also in consonance with earlier year s precedence and therefore, the order of the Learned CIT(Appeals) is confirmed. - Decided against revenue

Summary

Issues:
- Disallowance of business expenses for a company that had not commenced business activities.
- Allowance of brought forward losses and unabsorbed depreciation for a company that had not commenced business activities.

Issue 1: Disallowance of Business Expenses
The case involved an appeal by the revenue against the deletion of an addition of ?1,89,69,082 on account of disallowance of business expenses for a company that had not yet commenced business activities. The Assessing Officer disallowed the expenses, citing that the business had not started during the relevant period. However, the assessee contended that business operations had begun, with substantial capital expenditure and business setup activities undertaken. The Learned CIT (Appeals) accepted the assessee's arguments, emphasizing that all revenue expenses after setting up the business, but before commencement, are allowable. The order referenced various legal precedents, distinguishing between setting up and commencing business activities. The Tribunal upheld the CIT's decision, noting that the business had been set up, and expenses were allowable under the Income Tax Act.

Issue 2: Allowance of Brought Forward Losses
The cross objection raised by the assessee pertained to the non-adjudication by the CIT (Appeals) regarding the non-allowance of brought forward losses and unabsorbed depreciation from earlier years. It was acknowledged by both parties that if the business loss was accepted, it should be allowed to be carried forward as per the law. Consequently, the Assessing Officer was directed to revise the earlier assessment order in line with the ITAT decision, providing the necessary relief of set off of brought forward loss. The cross objection by the assessee was allowed based on this reasoning.

In conclusion, the appellate tribunal dismissed the revenue's appeal while allowing the assessee's cross objection. The judgment emphasized the distinction between setting up and commencing business activities, affirming the allowability of expenses incurred after business setup but before actual commencement. The decision also highlighted the importance of carrying forward losses in accordance with the law, ensuring fairness and compliance in tax assessments.