ACIT, CIRCLE-20(2), NEW DELHI vs. RHC IT SOLUTIONS PVT. LTD., NEW DELHI

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ITA 2416/DEL/2019Status: DisposedITAT Delhi23 May 2025AY 2015-16Bench: SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER, SHRI NAVEEN CHANDRA (Accountant Member)5 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee's business had commenced, citing a previous order for an earlier assessment year. Therefore, disallowance of expenses on finance cost and depreciation was invalid. The issue of restricting other expenses was to be adjudicated with a related appeal.

What were the facts?

The assessee-company, engaged in software development, filed its return declaring a loss. The AO disallowed expenses on the grounds that the business had not commenced operations and assessed income accordingly. The CIT(A) deleted the disallowance for finance cost and depreciation and restricted other disallowances.

What were the issues?

Whether the disallowance of expenses for finance cost and depreciation is justified when the business operations have commenced. Whether the restriction of other expenses is proper.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI ‘F’ BENCH,

Before: SHRI SATBEER SINGH GODARA, & SHRI NAVEEN CHANDRA

For Respondent: Shri V.K. Dubey, Sr. DR
Hearing: 07.05.2025Pronounced: 23.05.2025

This appeal by the Revenue is directed against the order of the ld. CIT(A)- 07, New Delhi dated 21.01.2019 for A.Y 2015-16. Page 1 of 6

2.

The grounds raised by the Revenue read as under:

1.

"Whether the Ld. CIT(A) has erred in law and on the facts case, in deleting the disallowance of Rs. 2,10,44,717/- on account of finance cost and depreciation of Rs. 6,90,799/- made by the AO without consideration the fact that assessee company had not commenced its business operations during the year at all.

2. Whether on the facts and under the circumstances of the case, the Ld. CIT (A) has erred in law to restrict the expenses to 20% from 50% made by AO without giving any justification.

3. The appellant craves to be allowed to add any fresh ground(s) of appeal and/or delete or amend any of the ground(s) of appeal.”

3.

Facts in brief are that the assessee-company is engaged in the business of development of software. The assessee company e-filed its original return of income for A.Υ. 2015-16 on 30.11.2015 declaring loss of Rs. 4,00,44,189/-. The case was selected for scrutiny assessment under CASS and statutory notice u/s 143(2) of the Income-tax Act, 1961 [the Act, for short] was issued on 11.04.2016.

4.

The Assessing Officer, during the course of assessment proceedings, held that the assessee company has not started its business operations during the year at all and has not recognized any revenue during the period under consideration. Even in the past years from AY 2011-12 to AY 2014-15, the business was not commenced. The AO disallowed maximum expenses except required for day to day running of the company and assessed the income u/s 143(3) at 29,37,380/-.

7.

Aggrieved, the assessee went in appeal before the ld. CIT(A).

Following the decision of his predecessor in AY 2014-15, the CIT(A) held that just because assessee has not recognized any revenue during the year, does not mean that its business has not commenced and deleted the addition made on account of finance cost and depreciation. The CIT(A) further restricted the disallowance of other expenses to 20% from 50% made by the AO.

8.

Now the aggrieved Revenue is in appeal before us.

9.

Before us, none appeared on behalf of the assessee. However, we find that the assessee has filed written submissions. We decided to adjudicate the appeal with the assistance of the ld. DR. We have heard the ld. DR at length and perused the written submissions furnished on record.

10.

In the written submissions, the assessee has furnished a copy of the Hon’ble ITAT in the assessee’s own case for assessment year 2012-

13.

We find that the coordinate bench of ITAT in for assessment year 2012–13 vide order dated 31.12. 2019 has held that:

“merely because the assessee went on acquiring more assets including computers, laptops, software, biometric attendance system, etc, recruiting additional employees and consultants and also acquiring software tools required for the software development, it cannot be said that till such time the business has not set unlike in any other industry where the installation of the plant and machinery, the production will go on, in software industry new requirements of clients necessitates the acquisition of new software tools and hiring of the employees with such new programming skills”.

The ITAT further held that assessee has set up its business as on 31.1.2012 and is entitled to claim the business expense.

11.

Respectfully following the above ITAT order, we hold that as the assessee business has commenced as on 30.1.2012 and therefore there is no question of raising the issue of commencement of business in the impugned assessment year for disallowance of expenses. In view of the same, disallowance of expense on finance cost and depreciation is held as invalid and AO is directed to delete the said addition. Ground No. 1 of the Revenue is dismissed.

12.

With respect to the ground No. 2 regarding restriction of the disallowance of expenses to 20% from 50%, the same is to be adjudicated along with appeal filed by the assessee in as the issues are common. The ground no 2 is therefore is left open. dismissed.

Order pronounced in open court on 23.05.2025.

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