ITAT Upholds Deletion of Disallowance made by AO on ground of Incurred Expenditure as Revenue Expenditure of Business [Read Order]

The New Delhi bench of the Income Tax Appellate Tribunal (ITAT) upheld the deletion of disallowance made by the assessing officer on the ground of incurred expenses as the revenue expenditure of the business of the assessee. 

Capricorn Identity Services P. Ltd, the respondent-assessee was a private company and filed the return of income for the assessment proceedings before the assessing officer. The assessing officer made disallowance as the incurred income was not from business activities. 

The revenue appealed against the order passed by the Commissioner of Income Tax (Appeals) for deleting the disallowance made by the assessing officer. 

Maimun Alam, the counsel for the revenue contended that the Commissioner decided the case because the business activities of the assessee company had not commenced during the relevant assessment year. 

It was further submitted that the Commissioner of Income Tax (Appeals) had granted relief to the assessee without any basis and is liable to be deleted. 

Mukesh Jain, Sahil Gupta, and Samyak Jain, the counsels for the assessee contended that the Commissioner after considering the audited accounts and other relevant document of the assessee noted that the assessee has an import license and the value of import was shown which was satisfied by the seller company but the sales were not effective during the year even though purchases were made and all necessary preparation was already done.

The bench observed that in several cases there is a gap or an interval between setting up and commencement and in the present case the setup was ready but in the absence of administrative approval sales could not be started and thus the period in which impugned expenses incurred was to be considered as a time gap or interval between setting up and commencement. 

The bench also held that the expenditure incurred by the assessee during such a period had to be held as revenue expenditure.  The two-member bench comprising Chandra Mohan Garg (Judicial) and M. Balaganesh, (Accountant) held that the decision made by the Commissioner of Income Tax (Appeals) by deleting the disallowance made by the assessing officer was as per the law while dismissing the appeal filed by the revenue.

To Read the full text of the Order CLICK HERE

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