Business set-up permits deduction of project-related expenditure even before income starts in a real estate venture.

Expenditure on office, administrative and project-related costs was deductible where the real estate business had been set up and was ready to commence, even though no business income had yet been earned. Obtaining the commencement certificate, securing the sanctioned plan, and entering into a project management agreement showed that the business had moved beyond mere preparation. The costs could not be disallowed solely because the project had not generated income, and the disallowance was therefore not sustainable.

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Issues: Whether the assessee was entitled to claim deduction of office, administrative and other project-related expenditure even though no business income had been declared, on the ground that the business had already been set up and commenced.

Analysis: The expenditure was examined in the context of the distinction between setting up of business and actual commencement of income-generating operations. The record showed that the assessee had obtained the commencement certificate, secured the sanctioned plan, and entered into a project management agreement for the real estate project. In a real estate business, steps taken towards acquisition and development of property may demonstrate that the business has been set up and is ready to commence, even if income has not yet been earned. On that basis, the expenditure could not be disallowed merely because the project had not yet generated income.

Conclusion: The assessee was entitled to deduction of the expenditure, and the disallowance was not sustainable.

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