Case Law Details
PCIT Vs Imperative Hospitality Pvt Ltd (Delhi High Court)
Introduction: The Delhi High Court recently delivered its judgment in the case of PCIT (Principal Commissioner of Income Tax) vs. Imperative Hospitality Pvt Ltd for the assessment year 2012-13. The appeal focused on two primary issues: the disallowance of expenses incurred during the pre-operative stage and the deletion of an addition categorized as “Income from Other Sources.” In this article, we provide a comprehensive analysis of the court’s decision.
1. Pre-Operative Stage Expenses Disallowance: The Assessing Officer (AO) had disallowed a deduction of Rs. 5,75,23,000 claimed by the assessee, Imperative Hospitality Pvt Ltd. These expenses were related to the pre-operative stage of the business. The Tribunal observed that there is a distinction between the date when a business is set up and the date when it is commenced. The expenses incurred between these two dates are considered revenue expenditure. Therefore, the Tribunal upheld the view taken by the Commissioner of Income Tax (Appeals) [CIT(A)].
It is worth noting that the pre-operative stage period extended to two succeeding years, and the AO made no addition concerning the expenses incurred during this period for the subsequent year (AY 2013-14). This fact, along with the principle of consistency, supported the Tribunal’s decision. As a result, the High Court found no substantial question of law regarding this issue.
2. Deletion of Addition under “Income from Other Sources”: The respondent/assessee had included Rs. 3,39,98,651 under the head “Income from Other Sources.” This income was set off against losses incurred under the head “Profits and Gains from Business and Profession,” utilizing Section 71 of the Income Tax Act, 1961.
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