TMI Blog2009 (9) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure was treated as pre-operative expenditure and, therefore, according to the AO, it should have been, at best, be capitalized as pre-operative expenses. CIT (A) reversed the finding of the AO and which finding has been confirmed by the ITAT. ITAT has reproduced the relevant portion of the discussion contained in the order of the CIT(A), which would indicate that the assessee is in the business of development of software for various industries and as a policy decision it had decided to pursue only prestigious companies in India and for the purpose of getting orders, it had recruited various skilled personnel. HELD THAT:- This was clearly a wrong approach, as rightly observed by the CIT(A), who opined that in an industry li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy commenced, the provisions of section 35D would not get attracted at all. We, therefore, find that no question of law arises and dismiss the appeal. In favour of assessee - A.K. SIKRI VALMIKI MEHTA, JJ. JUDGMENT A.K. Sikri, J. Ms. Prem Lata Bansal : for the Appellant. For the relevant assessment year, i.e., assessment year 2003-04, the respondent/assessee had filed the return declaring a loss of ₹ 2.48 crores. The Assessing Officer (AO) found that the assessee had claimed expenditure of ₹ 2.53 crores against a meagre income of ₹ 4,93,343. He, thus, raised certain queries to the assessee but was not satisfied with the explanation and, therefore, disallowed the aforesaid expenditure of ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the CIT(A), which would indicate that the assessee is in the business of development of software for various industries and as a policy decision it had decided to pursue only prestigious companies in India and for the purpose of getting orders, it had recruited various skilled personnel. According to the CIT(A), the only objection of the Assessing Officer is that since the assessee-company had not obtained any orders to start revenue generation activities, its business could not have been said to have been set up. 5. This was clearly a wrong approach, as rightly observed by the CIT(A), who opined that in an industry like software development business activities start with pursuing of the companies to get orders and all activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure incurred for carrying on any of these activities including the first activity is also deductible in computing the profits and gains of the assessee for the relevant year when the activity is undertaken. In Sarabhai Management Corpn. Ltd. v. CIT [1976] 102 ITR 25 , the Gujarat High Court took the same view and held that the business commences with the first activity for acquiring by purchase or otherwise, immovable property. There may be an interval between the setting up of the business and the commencement of the business. All expenses incurred during that interval are also permissible for deduction. In CIT v. Sarabhai Management Corpn. Ltd. [1991] 192 ITR 151 (SC) the decision of the Gujarat High Court was affirmed and we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores with the help of seven employees only which clearly indicates that their efforts made in the year under consideration has shown the fruitful result in the succeeding years. Thus the expenses incurred by the assessee are under the normal circumstances of the business. As pointed out by the Ld. Counsel for the assessee it is also relevant that these expenses have been incurred after setting up of the business. Assessee has already filed the return for the earlier year wherein losses declared by it has been accepted. This is not the first year of the business. It is irrelevant to say that assessee should show income if it wants to claim expenses as business expenses. In view of the above, we do not find any merit in this appeal it is d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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