The Income Tax Appellate Tribunal (ITAT), Pune Bench, has ruled that expenses made during the new business’s setup and commencement of its activity are deductible. The appellant, Messung Systems Private Limited, a company registered with Ministry of Corporate Affairs,is doing the business of trading Programmable Logic Controllers (PLC) and its component parts. A total revenue of Rs. 27,83,430 was reported in the return of income for the assessment year 2014–15, which was filed on September 30, 2014. According to an order dated November 29, 2016, issued pursuant to Section 143(3) of the Income Tax Act, 1961 (the “Act”), the assessment was completed at a total income of Rs. 2,21,92,970. The business loss experienced as a result of the expenses incurred from the date the business was set off against the interest income gained on the deposits made out of the funds was not allowed, which resulted in a discrepancy between the returned revenue and assessed income. The appellant corporation spent some money and made interest revenue on FDs while also selling the appellant’s business and starting a new one. The appellant corporation asserted the offset of incurred costs against interest income. The Assessing Officer filed the interest income of Rs. 2,21,92,972 under the heading “Income from other sources” for taxation because he believed that the preoperative expenses could not be deducted from the interest income. On appeal, the CIT(A) upheld the decision of the AO and ruled that the appellant had not operated a business and that the assessee’s expenses were pre-operative costs that could not be deducted. The assessee argued that the costs incurred between starting up and conducting actual company should be eligible for a deduction. However, the revenue was dependent on the CIT’s directive (A). The assessee spent various revenue expenditures in the form of salary and other expenses that are included in the Paper Book in the course of starting a new business by locating some distribution businesses. According to the Assessing Officer, all of these expenses were incurred during the process of launching a new firm, making them merely pre-operative costs that cannot be written off. It was established legislation that expenses incurred between the time the business was established and when it first opened might be deducted. A Coram made up of Shri Inturi Rama Rao, an accountant, and Shri S S Viswanethra Ravi, a judge, noted that the Assessing Officer and the CIT(A) had neglected to look into the connection between the expenses incurred and the new firm that was allegedly established. The Tribunal believed that the assessee had established a new business, and that the expenses incurred between the time of the establishment of the new business and the start of operations could be deducted from and offset against the interest income received on fixed deposits by the assessee and reported under the heading “Income from the other sources.” After giving the assessee a fair chance to be heard, the Tribunal allowed the appeal but remitted the case to the Assessing Officer’s file for further review.
Messung Systems Private Limited vs ITO
