INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - AO on account of delayed approval accorded by IRDA alleged no set up of business by assessee -

Assessee claimed deduction of business expenses. AO disallowed deduction holding that since licence was issued by IRDA on 2-2-2012, assessee's business could not have been set up prior to that date, and therefore, entire business expenditure was required to be disallowed, and capitalized as pre-operative expenses. Tribunal upheld this. Held: Assessee, after its incorporation opened a bank account, entered into an agreement for deputing employees (who were to further its insurance business), gave necessary training to the employees, executed operating lease agreements, and resultantly, set up offices at 29 different locations across the country. Besides this, application for obtaining a license from IRDA was also filed on 1-12-2010. IRDA took more than a year in dealing with assessee's application for issuance of a license. The license was issued only on 2-2-2012, although assessee was all primed up, i.e., ready to commence its business, if not earlier, since 1-6-2011. Therefore, finding recorded by the Tribunal that the assessee set up its business only on 2-2-2012 was perverse and erroneous in law. Assessee having acquired necessary wherewithal and physical infrastructure for carrying on its business was only waiting for the approval of its application for commencement. Tribunal failed to appreciate difference between assessee being ready to commence business and the date from which it conducts business or, allowed to conduct same. Therefore, business expenses as claimed by assessee were deductible.

REFERRED : Marvel Polymers (P) Ltd. v. CIT--II (2007) 165 Taxman 618 (Delhi) : 2007 TaxPub(DT) 1402 (Del-HC) and Western India Vegetable Products Ltd. v. CIT (1954) 26 ITR 151 (Bom-HC) : 1954 TaxPub(DT) 0084 (Bom-HC).

FAVOUR : In assessee's favour.

A.Y. : 2012-13

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