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2020 (9) TMI 612 - AT - Income TaxPre-operative expenses disallowance - assessee had not commenced its business activities of manufacturing/production - HELD THAT:- The assets required to commence the business of trading in the form of computer, furniture etc were also acquired by the assessee and it had appointed necessary personnel to carry on its business operations. The premises was also taken on lease by the assessee to carry on its business and although the CIT(A) has raised some objection regarding the size of the said premises being insufficient for setting up of the assessee’s business, we find merit in the contention of assessee that the said objection is not sustainable keeping in view the nature of the assessee’s business. All these steps taken by the assessee-company during the year under consideration especially the major step taken by procuring the goods from its parent company on 21.02.2011, in our opinion, were sufficient to show that the business was duly set-up and it was ready to commence. As observed that the authorities below, however, could not properly appreciate this position and treated the expenses in question claimed by the assessee as pre-operative expenses on the ground that the business had not commenced in the absence of any sale made by the assessee during the year under consideration. As held in the case of CIT vs. Sarabhai Management Corporation Ltd. [1991 (8) TMI 6 - SUPREME COURT] where the business activities constituted of acquisition of property, putting it into shape and lease it out, it could not be said that the business was not setup till the first lease took place. As held that earlier part of the activities, namely, engaging staff, buying the equipment and making the staff familiar therewith are all part of the business and the business can be said to be set-up even earlier. In the case of Western India Vegetable Products Ltd. vs. CIT [1954 (3) TMI 59 - BOMBAY HIGH COURT] held that for the purpose of the Indian Income-tax Act, the setting up a business and not the commencement is to be considered. It was held that when a business is established and is ready to commence business, then it can be said that business has been set up. Explaining further, the Hon’ble Bombay High Court clarified that there may be an interval between the setting up of the business and the commencement of business and all the expenses incurred during that intervening period would be permissible deduction. We are of the view that the business of the assessee was set-up on 21.02.2011 and it was, therefore, eligible for deduction on account of expenses incurred after that date. We delete the disallowance made by the AO and confirmed by CIT(A) by treating the expenses incurred by the assessee-company under the head “personnel cost, general and administrative expenses” as pre-operative expenses and allow this appeal of the assessee. - Decided in favour of assessee.
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