INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Disallowance of office, administrative costs and other relevant expenses as prior period expenses - Allegation of revenue that untill land was acquired, the business was not set up

Assessee challenged order of CIT(A) confirming disallowance of office, administrative costs and other relevant expenses as prior period expenses by holding that in order to claim the expenditure as deduction, it is necessary to declare income under the provisions of Chapter XIV-C. CIT(A) held that expenditure claimed by assessee were directly related to construction activity and it could be allowed only once said project was completed or capable of yielding income. Held: When assessee was in a position to apply for the tender, borrowed money for interest albeit from its holding company and deposited same on the same day, it showed that assessee's business was set up and it was ready to commence business. Argument of revenue could not be accepted that till land was acquired, the business was not set-up as an assessee may not be successful in acquiring land for long period of time though he is ready to commence his business in real estate, and that would result in the expenses incurred by him throughout that period not being computed as a loss under the head 'Business' on the ground that he is yet to set up his business. That would be an unacceptable position. As seen from the evidence filed by assessee, it already commenced its business by entering into agreement with the landlord and also requisite licence and permission. It could not be said that assessee did not commence business, thus, it was entitled to claim deduction.

REFERRED : National Thermal Power Company Limited v. CIT (1998) 229 ITR 383 (SC) : 1998 TaxPub(DT) 0342 (SC) CIT-IV v. M/s. Dhoomketu Builders & Development (P) Ltd. (2013)34 taxmann.com 18 (Del) : 2013 TaxPub(DT) 1760 (Del-HC) CIT v. Espn Software India (P) Ltd. (2008) 184 Taxman 452 (Del) : 2008 TaxPub(DT) 1756 (Del-HC) CIT, Gujarat I v. Saurashtra Cement and Chemical Industries Limited. (1973) 91 ITR 170 (Guj) : 1973 TaxPub(DT) 0307 (Guj-HC) Gundathur Thimmappa and Sons v. CIT (1968) 70 ITR 70 (Mys) : 1968 TaxPub(DT) 0091 (Mys-HC) Western India Vegetable Products Ltd. v. CIT (1954) 26 ITR 151 (Bom) : 1954 TaxPub(DT) 0084 (Bom-HC) Vardhman Developers Ltd. v. ITO (2015) 55 taxmann.com 370 (Mum) : 2015 TaxPub(DT) 0970 (Mum-Trib) UE Development India (P) Ltd. v. Asstt. CIT (2013) 35 taxmann.com 607 (Bang) : 2013 TaxPub(DT) 2258 (Bang-Trib) ITO, Ward 2 (4), New Delhi v. Berger Impex India (P) Ltd. [ITA No. 4019/Del/2010, dt. 27-1-2012]

FAVOUR : In assessee's favour

A.Y. : 2012-13

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