INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Disallowance as pre-operative expenses - Assessee's business was setup and commenced during year under consideration -

AO disallowed expenditure claimed by assessee-company. He alleged that although, the business of the assessee had been set up for the year under consideration, but the business had not been commenced, as there was no revenue from business operations and consequently, the expenditure incurred under the head 'Income from business' could not be allowed as deduction. He further, alleged that the said expenditure was to be treated as pre-operative expenses and should be amortized, as per the provisions of section 35D. However, CIT(A) deleted the disallowance made by the AO.Held: Assessee claimed that it started production of finished goods and also, installed said equipments at one of its clients and the said equipment was operational in the year of consideration and based on fuel savings effected by the clients, the assessee also earned revenue. Further, the assessee also claimed that it had set up its plant for manufacturing of finished goods and also, produced finished goods in the year under consideration. Further, the assessee filed necessary evidences to prove that it commenced its business activity and also generated income from business operations. Thus, it was very clear that the business of the assessee was set up and commenced during the year under consideration and consequently, necessary expenditure incurred for the purpose of business was required to be allowed as deduction, whether or not any revenue was generated for the year under consideration. Accordingly, CIT(A) was right in deleting the addition made towards disallowances of expenditure.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010-11

INCOME TAX ACT, 1961

Section 68

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