Tribunal allows business loss claim, cites pre-business expenses as deductible. Upholds CIT(A)'s decision on TDS exemption.

The Tribunal allowed the assessee's appeal, reversing the disallowance of the business loss claimed, citing precedents that expenses incurred before commencing business should be treated as business expenditure. Additionally, the Tribunal upheld the CIT(A)'s decision to delete the addition under section 40(a)(ia) for payments made to HUDA, based on the classification of EDC as statutory fees exempt from TDS. The Revenue's appeal was dismissed.

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Issues Involved:
1. Disallowance of business loss claimed by the assessee.
2. Deletion of addition under section 40(a)(ia) for payments made to HUDA.

Summary:

Issue 1: Disallowance of Business Loss Claimed by the Assessee

The assessee's appeal challenges the disallowance of a business loss of Rs.4,58,06,150/- by the AO, who argued that no business activity was undertaken during the year under consideration. The assessee contended that it had set up its business by establishing administrative infrastructure for acting as a "Development Manager" for a real estate project in Gurgaon and had entered into a collaboration agreement for developing land in Faridabad.

The AO noted that the assessee, incorporated on 12.01.2015, had not received any revenue but claimed substantial business-related expenses, leading to a business loss of Rs.4,06,96,408/-. The AO questioned the capitalization of these expenses since no revenue was earned.

The assessee argued that setting up a business does not necessitate immediate income generation, citing several judicial precedents, including Maruti Insurance Broking Private Limited and Whirlpool India Ltd, which support the notion that expenses incurred between setting up and commencing business should be allowed as business expenditure.

The Tribunal, after careful consideration, noted that the AO had acknowledged the initial business activities of the assessee. The Tribunal relied on the jurisdictional High Court's decision in Maruti Insurance Broking Private Limited, which held that expenses incurred to keep the business primed up should not be capitalized but allowed as business expenditure. Consequently, the Tribunal allowed the assessee's appeal, reversing the disallowance of the business loss.

Issue 2: Deletion of Addition under Section 40(a)(ia) for Payments Made to HUDA

The Revenue's appeal contested the CIT(A)'s decision to delete the addition of Rs.1,32,792,000/- under section 40(a)(ia), related to payments made to HUDA as External Development Charges (EDC). The AO had added this amount, arguing that the payment was subject to TDS provisions, based on a Supreme Court judgment and a CBDT OM.

The CIT(A) allowed the appeal, noting that section 40(a)(ia) applies to expenses claimed in the P&L account. Since the payment was not debited to the P&L account but shown as an asset, the CIT(A) directed the AO to verify this and delete the addition if confirmed.

The Tribunal upheld the CIT(A)'s decision, referencing the jurisdictional High Court's ruling in BPTP Ltd. v. PCIT, which classified EDC as statutory fees exempt from TDS. The Tribunal also noted other case laws supporting the non-requirement of TDS on EDC payments to HUDA. Thus, the Tribunal dismissed the Revenue's appeal.

Conclusion:

The assessee's appeal was allowed, reversing the disallowance of the business loss, and the Revenue's appeal was dismissed, upholding the deletion of the addition under section 40(a)(ia). The Tribunal pronounced the order on 24th March 2023.

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