| The Tax Publishers2020 TaxPub(DT) 4224 (Bang-Trib) : (2021) 191 ITD 0466 : (2021) 086 ITR (Trib) 0719 INCOME TAX ACT, 1961
Section 37(1)
Since business of assessee had already been set up, expenses incurred in running the business were allowable as deduction, even though no business income was available and declared by assessee.
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Business expenditure - Expenses incurred after set-up of business - AO denied deduction on the ground of no business income -
Assessee company was incorporated in year 2007 with the object of carrying on business of real estate development. It acquired 314 acres of land from the year 2007 onwards. The acquistion of land was completed by September 2009. In all the 3 years under consideration, i.e., assessment year 2012-13 to 2014-15, assessee did not declare any business income. It has declared other income in assessment years 2012-13 and 2013-14, which consisted of interest income earned by it. The assessee, however, claimed expenses incurred by it as deduction in the profit & loss account. The assessee set off interest income against the expenses and accordingly declared loss from business income. Assessee had not declared any business income in all the three years, AO took the view that expenses claimed by the assessee were not allowable as deduction. Held:As assessee had started acquiring pieces of land in 2007 itself, therefore, assesssee had already set up its business. When business was ready to commence, then expenses incurred thereafter is allowable as deduction. Since business of assessee had already been set up its business. When business was ready to commence then expenses incurred thereafter is allowable as deduction. Since business of assessee had already been set up, expenses incurred in running the business were allowable as deduction, even though no business income was available and declared by assessee. Since assesssee was in the stage of construction of the buildings, as per policy for revenue recognition under percentage of completion methos and also as per the guidance notes issued in this regard, asessee decided to recognise income only when the work was completed atleast 25%. Since, stage of construction was less than 25%, assessee did not declare any business income. However, same could not debar assessee to claim revenue expenses as deduction. Accordingly, disallowance was deleted.
REFERRED :
FAVOUR : In assesse's favour
A.Y. : A.Y. 2014-15
IN THE ITAT, BANGALORE BENCH
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