Case Law Details
RELEVANT PARAGRAPH
4.1 The Assessing Officer from the details filed noticed that the assessee has claimed a sum of Rs. 3,24,91,003/- as deferred revenue expenditure. The assessee vide letter dated 15th December, 2005 submitted that a new call center was in the process of being completed, but was not completed during the year. The expenditures is revenue in nature and therefore, this has been claimed in the current year. According to the Assessing Officer, setting up of call center is a new business of the assessee. The expenses are in the nature of preliminary expenses and are required to be capitalized. These expenses are not attributed the business of the assessee in the current year. Hence, these do not qualify to be set off against income to which they have no nexus. In view of the above, the Assessing Officer disallowed the claim of Rs.3,24,91,003/-. However, the Assessing Officer held that the assessee will be entitled to capitalize the Same as preliminary expenses of call Center” venture.
4.2 Before the learned Commissioner (Appeals), it was submitted that the assessee has earned income of Rs. 1,95,24,601/-from the call center during the year ending 31st March, 2003 i.e. relevant to the asst. year under consideration. It was submitted that the list of expenses were furnished before the Assessing Officer and these list show that the; payments were largely consist of staff salaries, electricity charges, dish net charges, traveling expenses, staff food expenses etc. There was business of call center functioning during the year and such business was substantial. The fact that the assessee described the revenue expenditure as deferred revenue expenditure does not militate against the claim nor does not justify the inference that the amount paid is in the nature of capital expenditure. The call center is only an extension of-new line of business and not of new business by itself. There was already an established facility by leasing or otherwise. It is incorrect tb assume that there was no business at all. The law required that there should be a business during the year for allowing the expenses incurred during the year. Even there was a particular activity which forms part of business yet to be started or discontinued, deduction cannot be disallowed. Once business is set up, deduction becomes admissible by tests laid down by the following decisions:-
1) Ramraju Surgical Cotton Mills Ltd. v CIT (1967) 63 ITR 478 (SO
2) CIT v Sarabhai Management Corporation Ltd. (1991) 192 ITR 151 (SC)
Please become a Premium member. If you are already a Premium member, login here to access the full content.
