TMI Blog2012 (12) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... t of consultants or on rent or on staff salary or all other expenses of revenue nature etc. should be allowed as deduction, as against from 7.3.2003 taken by the Assessing Officer. All expenses incurred form 1.4.2002 to 31.12.2002 should be treated as pre-operative expenses and should be capitalized on which the assessee is entitled to get depreciation at the applicable rates. - Order of CIT(A) sustained. - I.T.A. No. 194/Del/2011 AND ITA No. 213/Del/2011 - - - Dated:- 20-7-2012 - SHRI U.B.S. BEDI, AND SHRI SHAMIM YAHYA, JJ. Assessee by : Sh. Pradeep Dinodia/ R.K. Kapoor, CA Department by : S h. K.V.K. Singh, Sr. D.R. ORDER PER SHAMIM YAHYA : AM These cross appeals by the assessee and the revenue emanate out of order of the Ld. Commissioner of Income Tax (Appeals) dated 01.11.2010 and pertain to assessment year 2003-04. 2. The grounds raised in the Assessee s appeal read as under:- i) That on the facts and in the circumstances of the case and contrary to the provisions of law, the Ld. Commissioner of Income Tax (A) has erred in holding that the business of the appellant company has been set up on 1.1.2003. ii) That the Ld. Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company took place during the year under consideration. Regarding the commencement of business Assessing Officer referred to the information available in the Director s Report This is the first year of commercial operation of the company, and during the year under review, the company has completed its multiplex project at City Centre, Gurgaon, which has been made functional with effect from 07th March, 2003. The company has managed to enter into marketing alliance with Coke, Hyndai, L oreal and Nestle during the year for building the strong brand image of the company. 4.2 From the above contention, the Assessing Officer inferred that commencement of the business of the assessee took place on 07.3.2003, meaning thereby that the company was operational for only 24 days during the year. 4.3 Assessing Officer further noted that perusal of P L account reveals that income for this period has been shown at Rs. 51,48,311/- as against expenditure of Rs. 2,94,36,172/-. The assessee was asked, vide order sheet entries dated 28.12.2005 and 10.1.2006, to file details and justification for this lopsided ratio of income / expenditure. In this regard, assessee submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer held that in the absence of the requisite details in this regard, the entire amount of Rs. 3,65,500/- was disallowed while computing the total income of the assessee. Accordingly, in this manner Assessing Officer made total disallowance of Rs. 50,44,500/- under the head professional and consultancy fees. 4.5 As regards rent of Rs. 43,98,345/- is concerned, Assessing Officer noted that the same was paid w.e.f. January, 2003, whereas, as already pointed out above, the business of the assessee company commenced in March, 2003. Hence, proportionate claim for Rs. 29,32,230/- for the month of January and February, 2003 was disallowed as pre-operative expenditure. 4.6 Assessing Officer further noted that the assessee has incurred a sum of Rs. 1493204/- which was for launching /brand building exercise. Assessing Officer opined that this expenditure was capital in nature, hence, disallowed the entire amount. 4.7 Assessing Officer further noted that the assessee has claimed a sum of Rs. 23,77,335/- on account of maintenance and repair (building). Assessing Officer noted that such expenditure were for the period December to February, 2003 Assessing Officer held that sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2002 and when assessee appointed consultants. It was further submitted that 7.3.2003 was the first day of opening up the theatre for public shows and it was submitted before opening for the public, lots of necessary preopening activities were carried out in the beginning of the year, which also culminated in inviting public figures/ faces in the show business in November, 2002 onwards. Thus, it was urged that on the facts of the case, it can be safely concluded that the business of the assessee was set up in the beginning of the year and all expenses on consultation, rent, maintenance charges, advertisement and publicity etc. are fully allowable as revenue expenses. 5.2 Thus, it was contended before the Ld. Commissioner of Income Tax (A) that Assessing Officer, contrary to the provisions of law and without considering the actual facts and in the circumstances of the case, disallowed all the expenses incurred during the period from 1.4.2002 to 6.3.2003 i.e. the expenses incurred after the setting up the business up to actual commencement of multiplex at Gurgaon. It was further submitted by the assessee that without prejudice, and in the alternate it was claimed that all expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details of various agreements provided by the appellant it can reasonably be held that the date on which the building for cinema was occupied on rent i.e. 01.01.03 can safely be held as the cutoff date. In fact it is in January 2003 that the appellant has also entered into agreement with distributors media agencies; telephone lines were installed in January 2003 even trial run of the Cinema was carried out in Dec. 2002 fixed assets purchased. I therefore, hold that the date of set up of the business should be taken as 01st January 2003 and therefore, all the expenses which the assessee has incurred after 01.01.2003 whether on the payment of consultants or on rent or on staff salary or all other expenses of revenue nature etc. should be allowed as a deduction, as against the 07.03.03 taken by the A.O. Further considering, the alternate ground raised by the appellant all expenses incurred from 01.04.02 to 31.12.02 should be treated as pre-operative expenses and should be capitalized on which the appellant is entitled to get depreciation at the applicable rates, and in accordance with law. 6. Against the above order, both assessee and revenue are in cross appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as the cut off date. Ld. Commissioner of Income Tax (A) further fond that it was in January, 2003 that the assessee has also entered into agreement with distributors and media agencies; telephone lines were installed in January, 2003 and even trial run of the Cinema was carried out in Dec, 2002 and fixed assets purchased. Thereafter, Ld. Commissioner of Income Tax (A) held that the date of setup of the business should be 1.1.2003 and hence all the expenses which the assessee has incurred after 1.1.2003 whether on the payment of consultants or on rent or on staff salary or all other expenses of revenue nature etc. should be allowed as deduction, as against from 7.3.2003 taken by the Assessing Officer. Further, Ld. Commissioner of Income Tax (A) held that as per the alternate ground raised by the assessee all expenses incurred form 1.4.2002 to 31.12.2002 should be treated as pre-operative expenses and should be capitalized on which the assessee is entitled to get depreciation at the applicable rates. 10. From the above discussion, we find that Ld. Commissioner of Income Tax (A) has judiciously decided 1.1.2003 as the date on which the business has been set up. In our consider ..... X X X X Extracts X X X X X X X X Extracts X X X X
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