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2014 (12) TMI 64 - HC - Income TaxExpenses treated as pre-operative expenses and disallowed - Business of assessee set up or not – Held that:- CIT(A) rightly deleted the Disallowance after observing that the business of the assessee had been set up and the expenditure incurred was business expenditure - the assessee had explained and asserted that the business of the assessee had in fact commenced because they had started oil exploration operations - it is not a case where the business had merely been set up, but a case where the actual operations had commenced - oil exploration itself was one of the business activities undertaken by the assessee - oil production would be the second stage of business activity, but this would not undo the commercial and business activities relating to oil exploration – relying upon CIT versus Sponge Iron India Ltd. [1992 (10) TMI 67 - ANDHRA PRADESH High Court] - for commencement of business all activities which go on to make business need not be started simultaneously. As soon as an activity which is an essential activity in the course of carrying on the business is started, the business must be said to have commenced - revenue would be generated once the oil production commenced had capitalised the expenditure on oil exploration cost and the same was reflected as “capital work in progress” in the balance sheet – the assessee had themselves added back the Registrar of Companies’ filing fee and had applied/claimed the expense u/s 35D - The depreciation had also been added back by the assessee - This factual position was ignored in the assessment order, without any explanation - other expenditure was not directly relatable and having nexus with the oil exploration costs – AO had also disallowed ₹ 2,90,854/- u/s 35D of the Act being expenses relating to increase in the authorised capital - once it was held that the business had been set up or rather the business had commenced, the addition made by the AO disallowing the claim u/s 35D of the Act has to be rejected – Decided against revenue.
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