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2021 (4) TMI 277 - HC - Income TaxAllowability of pre-operative expenses - date of business of the assessee as set-up - reference to steps which the assessee had taken in AY 2008-2009 such as getting itself incorporated and having a PAN number and TAN number allotted to it - HELD THAT:- The reason that we have only emphasised on the steps taken by the assessee in the previous AY, i.e., AY 2009-2010 is to show that, both, CIT(A) and the Tribunal were correct in concluding, in our view, that the assessee had set-up its business and was ready to carry on the same in the previous AY, i.e., AY 2009-2010. Revenue's submission that the business of the assessee was set-up only on 29.10.2009, in our opinion, is not correct. The submission is predicated on one singular fact, which is, that the assessee had launched its experience centre i.e. physical outlet on 29.10.2009. As correctly argued by assessee that there is a difference between setting-up of business and commencement of business. The fact that the assessee had executed lease deeds for its premises, engaged senior employees, carried out local purchase, and sales could not have been possible had it not set-up its business. The fact that the assessee had set-up an experience centre in the FY 2009-2010, which was another mode or platform for selling its goods, cannot have us hold that the assessee had not set-up its business in the previous AY. Therefore, the stated absence of the assessee on an online platform, in our view, is non-sequitur in the fact situation obtaining in the instant case. Disallowance of advertising expenditure - HELD THAT:- The submissions made on behalf of the revenue lacked conviction. Although, Revenue did draw our attention to the AO’s view qua the issue, which was, that the advertising expenditure had been incurred to build a brand, i.e., goodwill and therefore, should not be allowed as a deduction, it does not impress us. There is nothing on record to show that the expenditure incurred by the assessee, towards advertising, was not laid out or expended, wholly and exclusively, for the purposes of business. The expenditure incurred, in our view, being a business expenditure, which was incurred wholly and exclusively for the purposes of business, and did not lead to the creation of a capital asset in the assessment year in issue, ought to have been allowed by the AO. The rationale adopted by the A.O. for disallowing the expenditure was completely flawed. Goodwill, which is built, based on the reputation acquired by the business over the years, is an intangible asset, which is monetized, ordinarily, when the business is sold. Therefore, for the A.O. to disallow advertising expenditure on this basis was completely erroneous. Thus, the deletion of the addition made by the A.O. qua expenditure incurred on advertising both by the CIT(A) and the Tribunal, to our minds, was in order. The extent of expenditure on advertising does not, in our view, decide as to whether the expenditure incurred is of a revenue nature or of a capital nature. There is nothing on record, as indicated above, to show that a capital asset was created. In sum, it fulfilled the criteria for allowability of such expenditure, as provided, in Section 37 of the Act. The expenditure was incurred for the subject AY and, therefore, the addition made by the A.O. was rightly deleted by the CIT(A); a decision which was sustained by the Tribunal. Assessee appeal allowed.
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