Delhi HC upholds Deletion of Disallowance on Expenses Incurred during Pre-Operative Stage [Read Order]

The Delhi High Court upheld the deletion of disallowance on expenses incurred during pre-operative stage.

The appellant/revenue, via the instant appeal, seeks to assail the order dated 10.06.2019 passed by the Income Tax Appellate Tribunal [“ITAT”]. The Tribunal was confronted with two issues. First, the deletion of disallowance was made by the Commissioner of Income Tax (Appeals) [“CIT(A)”] qua expenses incurred at pre-operative stage expenses amounting to Rs.5,75,23,000/-, debited in the profit and loss account by the respondent/assessee.

The Tribunal, noticed quite correctly that there is a distinction between the date when the business was set up and the date when the business was commenced. The expenses incurred between these two dates have rightly been categorized as revenue expenditure. Therefore, the Tribunal proceeded to sustain the view taken by the CIT(A), insofar as the first issue is concerned.

A Division Bench comprising Justices Rajiv Shakdher and Girish Kathpalia observed that “We may note something which Mr Sanjeev Menon, learned standing counsel, who appears on behalf of the appellant/revenue, has brought to our notice, that since the pre-operative stage period spilled over to two succeeding years as well, the matter came up before the AO and that the AO made no addition with regard to the expenses incurred during this period.

“In this regard, Mr Menon has placed before us a hard-copy of the order dated 30.06.2016 passed by the AO for AY 2013-14. Apart from the aforementioned reason, following the principle of consistency, in our view, no substantial question of law arises, insofar as the first issue is concerned” the Court concluded.

To Read the full text of the Order CLICK HERE

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