DCIT., CIRCLE-1(1), HYDERABAD vs. ARCHEESH HEALTH CARE PRIVATE LIMITED, K V RANGA REDDY

Facts

The Revenue appealed against the order of the CIT(A) that allowed the assessee's claim for pre-operative expenses of Rs. 1,74,17,720/- and deleted additions made by the AO towards share capital and unsecured loans. The assessee had claimed expenses before commencing business operations, while the AO treated them as capital expenditure. The AO also made additions for share capital and loans from related parties under Section 68.

Held

The Tribunal held that expenditure incurred between setting up of business and its commencement, if revenue in nature, should be allowed as deduction. The Tribunal also found no error in the CIT(A)'s deletion of additions made by the AO towards share capital, as the assessee had discharged the onus of proving the genuineness and creditworthiness of the transactions.

Key Issues

Whether expenditure incurred before commencement of business is revenue or capital expenditure and whether additions for share capital/loans under Section 68 are justified.