The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) while granting relief to Honda Access held that pre -operative expenses of developing business activities should not be disallowed.
The assessee, Honda Access India Pvt is a subsidiary of Honda Access Corporation, Japan and engaged in the business of manufacturing, trading etc. of automobile accessories, auto parts and fittings of all kinds. The assessee’s case was selected for scrutiny after filing the return of income at loss of Rs. 1,18,79,282/-.
After the scrutiny, the AO concluded that the company has not begun its business operation and it is still in the incorporation process. Accordingly, disallowances of group commission, business promotion vehicle running expenses and R & D expenses to the extent of Rs. 12,25,073/- was done and the loss was reduced to 10,654,210.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] who uphold the order and enhance the addition made by the AO. Thereafter the assesee filed a second appeal before the tribunal.
Before the bench, Manuj Sabharwal, the counsel for the assessee argued that Tax Authorities did not consider that the assessee was under process of setting up of the business during the year under consideration.
The assessee initiated the process of negotiations for the procurement of the parts from various vendors. The confirmation of business activity given by V Access India Pvt. Ltd.
Bhopal Singh, department representative, relied upon the decision of the Supreme Court in Commissioner of wealth Tax V. Ramaraju Surgical Cotton Mills Ltd. argued that in the absence of plant and machinery being installed the business could not be said to be set up
The tribunal after reviewing the facts observed that assessee incurred brokerage and commission expenses, business promotion expenses were towards vendor selection and development and vehicle running expenses etc for the development business activities.
Hence, a bench consisting of two members, N.K.Billaiya, (Accountant Member) Dr. S. Anubhav Sharma (Judicial Member) observed that Tax Authorities below erred in concluding that assessee’s business was not ‘set up’ during previous year, to deny the claim of loss or to categorize certain expenses as pre-operative expenses.
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