Entire Expenses connected with Setting Up of Business are “Capital” in Nature, Not Allowable as Deduction: ITAT [Read Order]

Expenses - Setting Up of Business - Deduction - ITAT - taxscan

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently in an appeal filed before it, held that the entire expenses connected with setting up of business are “capital” in nature, and hence that the same is not allowable as deduction.

The aforesaid observation was made by the Delhi ITAT, when an appeal was filed before it by the assessee, as against the order dated 12.02.2016, passed by the Commissioner of Income tax (Appeals), Gurgaon, (the Commissioner), u/s 250 of the Income Tax Act, 1961, pertaining to the assessment year 2012-13.

The facts of the case were that in the instant case, the Assessee had declared a total loss of Rs. 12,18,787/- by filing its return of income u/s 139 of the Income Tax Act, on 26.09.2012, which was selected for scrutiny. Consequently notice /s 143(2) of the Income Tax Act was issued to the Assessee, in response to which the Assessee filed all the details/documents/explanation as required by the AO.

 Ultimately, the AO vide order dated 20.02.2015, completed the assessment u/s 143(3) of the Income Tax Act, whereby the income of the Assessee was determined at Rs. 48,03,984/- by disallowing the interest income. Also, the AO subsequently, vide order dated 10.3.2015, passed u/s 154 of the Income Tax Act, revised the assessment order dated 20.2.2015 and determined the income from interest at Rs. 18,07,793/-.

Being aggrieved by the same, the assessee challenged the said addition before the Commissioner, who vide impugned order affirmed the addition under consideration, thus leaving the assessee agitated, to prefer the instant appeal before the Delhi ITAT.

Hearing the opposing contentions as submitted by Shri Anuj Garg, the Sr. DR, on the Revenue’s behalf, with no representation being made on behalf of the assessee, and thereby perusing the materials available on record, the ITAT Panel comprising of Anil Chaturvedi, the Accountant Member, along with Narender Kumar Choudhry, the Judicial Member, observed:

“We have given thoughtful consideration to the facts and circumstances of the case and observe that both the authorities below have given concurrent findings that deduction can be claimed only after the business has commenced. Till such time the coming into existence of new sources of income, whole expenses whether revenue or capital, connected with setting up of such business would be capital expenditure and, therefore, not allowable as deduction. The learned Commissioner specifically held that since there is no setting up of business by the appellant/Assessee for the year under consideration, the Assessing Officer was correct in treating the income of Rs. 18,07,793/- as income from other sources and at the same time disallowing the business loss claimed by the Assessee.”

Thus, dismissing the assessee’s appeal, the Delhi ITAT held:

“The Assessee before us, failed to controvert the findings of the authorities below and even otherwise we also do not find any reason/material to controvert such findings. Hence, we are inclined not to interfere in the conclusion drawn by the learned Commissioner. Consequently, appeal filed by the Assessee is liable to be dismissed.”

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