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TMI Blog2015 (4) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year begins from the date of setting up of the business. Therefore, it is only after the business is set up that the previous year of that business commences and in that previous year the expenses incurred in the business can be claimed as permissible deductions. Any expenses incurred prior to setting up a business would obviously not be permissible deductions because those expenses would be incurred at a point of time when the previous years of the business would not have commenced. Thus the decision of the ITAT does not call for any interference - decided against revenue. - ITA 241/2015 - - - Dated:- 23-4-2015 - Hon'ble Mr. Justice S. Ravindra Bhat And Hon'ble Mr. Justice R. K. Gauba,JJ. For the Appellant : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge of its obligations under the NDMC contract. This was of the capital nature. The AO disallowed the claim of ₹ 18.36 crore by treating it as capital expenditure. The assessee accepted this. The other head of expenditure i.e. one in advertisement in the present case was ₹ 3,17,91,180/-; it was claimed as deductible. The AO treated the same as revenue expenditure but refused to allow deduction on the ground that the business of the assessee had not commenced and while so concluding, the AO held that the business would commence when the BQSs would be ready for providing space for advertisement, being the very reason for which the assessee company entered into an agreement with the NDMC. On appeal, the CIT (Appeals) confirmed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial etc. is procured for the start of actual manufacturing. A trader can be said to have commenced his business on purchasing material to be sold to the customers. Similarly, a building contractor can be said to have commenced his business when he undertakes the actual contract work pursuant to the award of contract. The second stage can be termed normally as a waiting period between the ready to start‟ phase and the actual starting of business. Thus it is evident that the third stage of commencement of business can either coincide with the doing of work in the actual execution of order received from customers for sale or provision of services etc. or even prior to that when the businessman purchases or manufactures the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of BQSs was not set up but insofar as the assessee is concerned, it had certainly commenced its business with the execution of contract awarded by NDMC. The ITAT held that the authorities below have tagged the setting up of business with the provision of space for advertisement by NDMC. This is certainly a post commencement business stage of the assessee. Such an event would mark the generation of actual income on commencement of business and cannot be construed as the setting up of business. The ITAT was of the opinion that the assessee s business was set up when it prepared itself for undertaking the activity of building BQSs on receipt of contract from NDMC. It cannot be in relation to the completion of construction of BQSs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessee from making the first purchase (that was a case of wholesale business) after necessary legal approvals but the fact that the appellant wanted to commence actual trading after negotiations with other parties would not postpone the date when the business was set up. 9. It is also noted that the Tribunal relied upon the decision of the Bombay High Court in Western India Vegetables Products Ltd. v. CIT (1954) 26 ITR 151 wherein the issue was as follows:- The important question that has got to be considered is from which date are the expenses of this business to be considered permissible deductions and for that purpose the section that we have got to look to is section 2(11) and that section defines the previous year‟ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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