A division bench of the Bombay High Court recently held that pre-operative expenses incurred by the assesse-Companies are ‘revenue’ in nature even if the same was shown as capital in the Books of Accounts by the Assessee.
A bench comprising Justices S.V Gangapurwala and A.M Badar was hearing two appeals filed by the Revue against M/s. Reliance Supply Chain Solutions Ltd and M/s. Reliance Foot Print Limited.
In the instant case, the Assessing Officer held that the pre-operative expenditure incurred by the Assessees for expansion of his business before the commencement of his business is capital expenditure since the Assessee itself had shown the same as a capital in its books of account. It was therefore observed that the amount is not deductible from the total income.
On appeal, both the appellate authorities had concluded the matter in favour of the assesse with a specific finding that the expenditure must be treated as revenue expenditure.
The bench noted that it is not relevant as to how the Assessee shows a particular income or expenditure in the books of account. Further, Assessee had incurred expenditure on account of expansion of business and the Assessee had commenced the business.
“In the present case, the Commissioner (Appeals) and the Tribunal has specifically on appreciation of factual matrix arrived at a conclusion that the expenditure are directly identifiable with the operations and maintenance of the existing stocks i.e. with regard to the payment of salary, travelling and conveyance allowance, telephone expenses, professional fees paid, audit fee and other miscellaneous expenses.”
Read the full text of the Order below.
