Case Law Details
ACIT Vs Capricorn Identity Services P Ltd (ITAT Delhi)
This case analysis focuses on the disallowance of expenses by the Assessing Officer on the grounds that the business had not commenced, rendering the expenses non-allowable as revenue. The ld. CIT(A) (Commissioner of Income Tax – Appeals), after considering the audited accounts and relevant documents of the assessee, found that the delay in sales was due to the non-receipt of administrative approval, despite the purchases being made and necessary preparations being completed. The analysis examines how the Hon’ble jurisdictional High Court of Delhi’s judgment in the case of Carefour Wc & C Pvt. Ltd. vs. DCIT influenced the decision regarding the treatment of the expenses.
Analysis: In this case, the Assessing Officer disallowed the expenses incurred by the assessee on the grounds that the business had not commenced during the relevant period. The disallowance was based on the argument that expenses are only allowable as revenue when there is income-generating activity.
However, the ld. CIT(A) reviewed the audited accounts and other relevant documents and noted that the assessee possessed an import license, with the value of imports shown at Rs. 50,34,375/-. The seller company had already satisfied the import requirements. Despite having made purchases and completed necessary preparations, the sales could not be effectively carried out during the year due to the absence of administrative approval, which was a formal requirement to commence sales.
The ld. CIT(A) referred to the judgment of the Hon’ble jurisdictional High Court of Delhi in the case of Carefour Wc & C Pvt. Ltd. vs. DCIT. The High Court held that for the commencement of business, there should be an income-generating asset or income-earning structure in place. It acknowledged that there can be a time gap or interval between the setup and the actual commencement of business.
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