TMI Blog2020 (9) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales: B1. Allowability of general expenses accruing no benefits : 1.1 Section 37 of the Act inter-alia provides that any expenditure laid out or expended wholly and exclusively for the purposes of the business shall be treated as an allowable expenditure while computing the taxable income. 1.2 The said section does not require a taxpayer to receive any benefit from the expenses incurred for the purpose its business. In this connection, the Supreme Court in the case of Easter Investments Ltd. Vs. CIT 20 TTR 1 (1951) has laid down the following principles : a. Though the question must be decided on the facts of each case, the final conclusion is one of law; b. It is not necessary to show that the expenditure was a profitable one or that any profit was, in fact, earned or not; c. It is enough to show that the money was expended not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying out the business.; d. Beyond that, no hard and fast rule can be laid down to explain what is meant by the word solely occu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, the High Court allowed the taxpayer's claim of business loss. Based on the above pronouncement of Delhi High Court, it can be inferred that the expenditure incurred for marketing purpose by a taxpayer shall be treated as an allowable expenditure although the taxpayer has not earned any income during the relevant previous year. 1.10 Further, the Third Member Bench of Pune Tribunal in case of Styler - India (P) Ltd. vs. JCIT (2008) 116 TTJ 333 (Pune ITAT) allowed exhibition / launch expenses incurred for taking pan in an Auto Fair although no income was earned by the taxpayer in the year under consideration. The tribunal observed that the said expenses shall be allowed as deductible expenses as they were incurred after the set-up of business to propagate the taxpayers business. B3. Applicability to India Kawasaki Based on the above judicial precedents, India Kawasaki humbly submits that the selling and marketing expenses of ₹ 1.81 million incurred for promoting sale of its product (Ninja 250 motorbikes) should be allowed under section 37 of the Act. 3. The Assessing Officer did not find any merit in the submissions made on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be taken to be a premises meant for the purpose of setting up of business of the nature undertaken by the appellant. The appellant being a multinational company and considering the investments involved, the premises so taken on lease cannot be said to be taken for the purpose of business. The appellant claimed that it had sourced CKD units from its parent company and produced the invoice dtd.21/2/2011. A perusal of this invoice does not indicate that it has been generated by the Japanese company, as none of the descriptions therein are mentioned in Japanese language. The duties if any payable are also not mentioned in this invoice. The appellant also did not produce the shipping bill to authenticate its claim even on specific query by the undersigned. The appellant could not produce evidence of loading of CKD parts into the ship/flight before the end of the year. As seen from the evidence filed, the customs duty challans are dtd.15/4/2011 i.e. subsequent to the financial year 2010-11. The payments were also made for this purchase only in April 2011. Considering these basic facts, I do not find that the appellant had actually set up the business as claimed. The action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness and once the business is set-up, the expenses of revenue nature incurred after the setting up are allowable as deduction. 7. The ld. DR on the other hand strongly relied on the orders of the authorities below in support of the revenue s case on this issue. He submitted that there was no sale effected by the assessee-company during the year under consideration as clearly pointed out by the Assessing Officer and since the business had not commenced, the expenses were rightly disallowed as preoperative expenses. He also submitted that whatever activities that were claimed to be started/undertaken by the assessee-company were only miniscule activities as rightly pointed out by the ld. CIT(A) going by the nature of the assessee s business and on the basis of the same, the assessee cannot be said to have commenced its business. 8. We have considered the rival submissions and also perused the relevant material available on record. It is observed that various steps were taken by the assessee-company to commence its business of trading and distribution of completely knocked down parts of motorbikes. As explained on behalf of the assessee before the authorities below as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 9. Keeping in view the legal position emanating from the judicial pronouncements discussed above and having regard to the facts of the case, 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. In that view of the matter, we delete the disallowance made by the Assessing Officer and confirmed by the ld. 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. 10. In the result, the appeal of the assessee is allowed. Order prono ..... X X X X Extracts X X X X X X X X Extracts X X X X
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