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2009 (2) TMI 236 - ITAT BOMBAY-JDisallowance of expenditure - pre-demerger expenses - When the business of the assessee company can be said to be set up - assessee company was incorporated on 24th April, 2001 - assessee claimed that the business could be said to have commenced right from the date of incorporation of the company and thus all the expenditure incurred after the date of incorporation was allowable expenditure - AO noted that the assessee was able to start its business only after the order of the Hon'ble Bombay High Court which allowed the assessee to commence its business from 1st Jan., 2002 - claim of the assessee that there was a difference between set up and commencement of business and all the expenses incurred after the set up of the business were allowable as revenue expenditure was rejected by the AO HELD THAT:- The crucial date for the setting up of the business is the date on which the Hon'ble Bombay High Court had accorded approval to the scheme of arrangement agreed upon between the assessee and the AFL Ltd. Without the approval of the Hon'ble Court to the scheme of arrangement agreed upon, the said scheme could not be acted upon nor the permissions thereafter be obtained. Drawing strength from the ratio laid down by the Hon'ble Bombay and Delhi High Courts in the cases decided in Western India Vegetable Products Ltd. vs. CIT [1954 (3) TMI 59 - BOMBAY HIGH COURT], CIT vs. Western India Seafood (P) Ltd.[1981 (2) TMI 46 - GUJARAT HIGH COURT], Hotel Alankar vs. CIT [1981 (2) TMI 46 - GUJARAT HIGH COURT] and CIT vs. ESPN Software India (P) Ltd.[2008 (3) TMI 90 - DELHI HIGH COURT], we are of the view that after the approval of scheme of arrangement by the Hon'ble Court on 2nd Nov., 2001, the assessee was ready to commence business and it could be said that the business has been set up though the appointed date of starting the operations of the business is from 1st Jan., 2002. The business in the case of the assessee commences from 1st Jan., 2002. As the date of setting up of business and date of commencement of business are distinct the expenses incurred after the setting up of the business are deductible as revenue expenditure as held by the Hon'ble Delhi High Court in CIT vs. ESPN Software India (P) Ltd. Respectfully following the ratio laid down by the Hon'ble Delhi High Court in CIT vs. ESPN Software India (P) Ltd., we direct the AO to allow the expenditure incurred after the setting up of the business i.e., after 2nd Nov., 2001 as revenue expenditure though in the case of the assessee the commencement of business takes effect from 1st Jan., 2002. The grounds of appeal Nos. 1 and 2 raised by the assessee are thus allowed.
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