Business set-up test under income tax law bars loss and depreciation claims during mere preparatory stage.

Business expenditure becomes allowable only after the business is set up and ready to commence operations; mere preparatory steps are insufficient. The assessee failed to substantiate that its proposed leasing business had reached that stage, because the record showed only limited evidence of managerial appointments and no reliable proof of office infrastructure, staff deployment, operational readiness, regulatory compliance, or supplier arrangements. As a result, the claimed loss and depreciation from inception were not deductible as business expenditure, and the disallowance was sustained.

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Issues: Whether the assessee had set up its business during the relevant previous year so as to claim the loss and depreciation incurred from inception as deductible business expenditure.

Analysis: The governing test is not actual commencement of revenue generation, but whether the business has been set up and is ready to commence operations. Expenditure incurred after such setting up is ordinarily allowable, while expenses incurred before that stage are not deductible as business expenditure and cannot support depreciation or loss claims under the Act. On the facts, the assessee's claim was unsubstantiated: apart from some material regarding appointment of managerial personnel, there was no reliable evidence of office infrastructure, staff deployment, operational readiness, regulatory compliance, supplier tie-ups, or other functional steps showing that the proposed leasing business had been set up. The record instead indicated only a preparatory stage.

Conclusion: The assessee had not proved that its business was set up during the year, and the claimed loss and depreciation were not allowable.

Final Conclusion: The disallowance was sustained and the assessee's appeal failed.

Ratio Decidendi: For income-tax purposes, business expenditure becomes allowable only after the business is set up and is ready to commence operations; expenditure incurred merely in the preparatory stage is not deductible as business loss or depreciation.

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