RAYGADA MINERALS AND CHEMICALS P.LTD,NEW DELHI vs. DCIT, CIRCLE-21(1), NEW DELHI

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ITA 1231/DEL/2018Status: DisposedITAT Delhi17 November 2021AY 2013-143 pages

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

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that there is a distinction between pre-operative and pre-commencement expenses. Expenses incurred after a company is set up, even before revenue generation, can be allowed under Section 37 if they are for the purpose of business.

What were the facts?

The assessee claimed expenses for employee benefits and other expenses. The AO and CIT(A) disallowed these expenses, considering them pre-operative expenses as the business had not commenced.

What were the issues?

Whether expenses incurred before actual commencement of business but after the company is set up are allowable as business expenditure.

Which sections of the Income-tax Act were involved?

Section 3,Section 37

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Delhi Bench “F”, NEW DELHI

Before: SHRI AMIT SHUKLADr. B.R.R. KUMAR

For Respondent: Ms. Shivani Bansal, Sr. DR
Hearing: 13.09.2021Pronounced: 17.11.2021

PER B.R.R.KUMAR, ACCOUNTANT MEMBER :

1.

This appeal has been filed by the assessee against the order of the ld. CIT(A)-7, New Delhi, dated 12.12.2017.

2 The Ld. CIT(A) confirmed the disallowance made by the AO of Rs. 39.80 Lakhs on account of employee benefit and Rs. 56.07 lakhs on account of other expenses on the grounds that the assessee has not commenced its business. The Ld. CIT(A) held that Raygada Minerals and Chemicals P. Ltd. these expenses are in the nature of pre-operative expenses and hence, cannot be allowed.

3.

We find section 3 of the Income Tax Act reads as under :-

“For the purposes of this Act, “previous year” means the financial year immediately preceding the assessment year:

Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.”

4.

From the above, we find that the section deals with setting up of business. There is a difference between pre-operative expenses and pre-commencement expenditure. A company set up when the company is about to start the business and operational activities. The company may not earn revenues which may results in profits in the initial stages but it does not mean that the company has not been set up. In the instant case, the expenses of employees and other expenses claimed by the assessee are in the nature of expenses allowed u/s 37 of the Income Tax Act. Hence, the disallowance made by the AO is hereby directed to be deleted.

5.

In the result, the appeal of the assessee is allowed. Order pronounced in open court on 17th day of November, 2021.

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