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2019 (6) TMI 608 - AT - Income TaxDisallowance of pre-operative stage expenses - distinction between setting off of business or commencement of business - HELD THAT:- Perusal of the balance sheet and P&L account, apparently shows that the assessee has raised substantial funds through equity capital, employee personnel, entered into lease agreements to take hotel properties on lease and started improvements on the properties and all these facts have been brought on record by the AO, but he has failed to make distinction between setting off of business or commencement of business. When the assessee has taken sufficient steps by way of raising sufficient funds employing skilled personnel and by entering into lease agreements with the hotels on which improvements have been started, it amounts to setting off of business and as such, previous year expenses incurred in the business are permissible deductions. We are of the considered view that the CIT (A) has rightly allowed the expenses having been incurred by the assessee after setting off of the business though before commencement of the business. Moreover, the assessee itself has capitalized many of its expenditure and only claimed the expenses which are of revenue in nature. Interest income to be set off u/s 71 being inextricably linked with the business of the assessee - HELD THAT:- When it is proved that the assessee has set up the business, earned the income from interest during the construction period and has set off of the same against the loss under the head PGBP as per section 71 of the Act, CIT (A) has rightly deleted the addition as the funds parked in the bank on which interest has been earned were inextricably linked with the setting up of the hospitality business. So, following the decision rendered in Indian Oil Panipat Power Consortium [2009 (2) TMI 32 - DELHI HIGH COURT] income earned by the assessee from interest during the period prior to the commencement of business and at the stage of setting up of business, the same is of the nature of capital receipt and as such loss incurred by the assessee under the head PBGP is eligible to be set off against the interest income earned during the year under assessment. So, we are of the considered view that the ld. CIT (A) has rightly directed the AO that interest income be set off u/s 71 being inextricably linked with the business of the assessee. Contentions raised by the ld. DR for the Revenue and the decision rendered by the coordinate Bench of the Tribunal in case of Orient Cosmetics Ltd. vs. DCIT [1999 (8) TMI 126 - ITAT MADRAS-A] is not applicable to the facts and circumstances of the case. Consequently, appeal filed by the Revenue is hereby dismissed.
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