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2023 (9) TMI 1154 - ITAT MUMBAINature of expenses - revenue v/s capital/deferred revenue expenditure - expenses incurred by the assessee consisted of exhibition expenses, foreign & local travelling, telephone calls etc. - as per AO these expenses have resulted in building up a benefit of “intangible nature” that may accrue in future and the above said expenditure is capital in nature - CIT(A) observed that these expenses can at best be treated as “pre-commencement” expenses made by the company in order to explore the market abroad - HELD THAT:- The fact that the assessee has started manufacturing of packaging machines would show that the business of the assessee has been set up and even commenced. It is well settled proposition of law that the revenue expenses incurred after the setting up of the business is allowable as deduction, even if the business has not commenced. Hence, the view taken by the learned CIT(A) that pre-commencement expenses are not allowable as revenue expenditure cannot be sustained. A Perusal of the said expenditure would show that all the expenses have been incurred in the normal course of carrying on business in order to capture the market. Hence, in our view, these expenditures cannot be considered as capital in nature. Further, we are of the view that the Assessing Officer was not justified in holding that these expenditure would create an asset of intangible nature “in future” and further, the AO has taken this view only on surmises and conjectures without any basis Whether the assessee is entitled to claim expenses fully for income tax purposes, when it has treated the same as deferred revenue expenditure in the books of accounts? - It is well settled proposition of law that the entries made in the books of account are not relevant for the purpose of computing total income. The action of the assessee in treating this expenditure as deferred revenue expenditure in the books of account will not bar the assessee from claiming it as revenue expenditure for the income tax purposes. If the claim of the assessee is allowable in terms of sec. 30 to 37 of the Income tax Act, the same should be allowed. In this case, it is not the case of the AO that the above said expenses are not allowable under any of the provisions of the Act. The tax authorities have also taken a view that the assessee has not shown any sales in the books of account. It is well settled proposition of law that, once the assessee has set up his business, all revenue expenses are allowable as deduction irrespective of the receipt of income. In support of this proposition, the Ld A.R brought to our attention the decision of Hon'ble Supreme Court rendered in the case of CIT Vs. Rajendra Prasad Mody [1978 (10) TMI 133 - SUPREME COURT] Accordingly, we reject the view taken by the tax authorities on this proposition. Thus we are of the view that the learned CIT(A) was not justified in confirming the disallowance made by the Assessing Officer. Decided in favour of assessee.
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