AI Drafter 
TaxTMI 
TaxTMI 
2020 (9) TMI 612
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....sonnel cost and general and administrative expenses respectively. In the computation of total income, the said expenses to the extent of Rs. 84,12,461/- were disallowed and added back by the assessee as "pre-operative expenses" and remaining amount of Rs. 38,93,218/- was claimed as deduction. Since the assessee had not shown any sales and turnover during the year under consideration, the Assessing Officer called upon the assessee to justify its claim for deduction on account of expenses to the extent of Rs. 38,93,218/-. In reply, the following submissions were made on behalf of the assessee in writing :- "B. Rationale for claiming selling and marketing expenses as tax deductible expenditure in absence of sales: "B1. Allowability of general expenses accruing no benefits : 1.1 Section 37 of the Act inter-alia provides that any expenditure laid out or expended wholly and exclusively for the purposes of the business shall be treated as an allowable expenditure while computing the taxable income. 1.2 The said section does not require a taxpayer to receive any benefit from the expenses incurred for the purpose its business. In this connection, the Supr....
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....incurred by an assessee for promotion of his business, there is no legal obligation imposed on the assessee to prove that the expenditure was necessary for promotion of his business. So long as the expenditure is incurred by an assessee for promotion of sale of product, the assessee is entitled, under Section 37(1) of the Act, to claim exemption from tax on such amount of expenditure. 1.9 In case of CIT vs. E Funds International India (2007) 163 Taxman 1 (Delhi HC), the Delhi High Court stated that the taxpayer may not have earned any income during the relevant previous year but the fact that the taxpayer had taken necessary steps to obtain business including efforts for marketing shows that it has commenced business in the relevant previous year. Accordingly, the High Court allowed the taxpayer's claim of business loss. Based on the above pronouncement of Delhi High Court, it can be inferred that the expenditure incurred for marketing purpose by a taxpayer shall be treated as an allowable expenditure although the taxpayer has not earned any income during the relevant previous year. 1.10 Further, the Third Member Bench of Pune Tribunal in case of Styl....
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....s and setting up a business which the Assessing Officer could not properly understand and appreciate. It was contended that all the expenses of revenue in nature incurred after the setting up of a business were allowable as deduction. 5. The submissions made on behalf of the assessee-company were not found acceptable by the ld. CIT(A) and he proceeded to confirm the disallowance made by the Assessing Officer on account of personnel cost and general and administrative expenses amounting to Rs. 38,93,218/- by treating the same as pre-operative expenses for the following reasons given in para 4.3 of his impugned order :- "4.3. The above submissions of the appellant have been examined. The appellant had taken a shop on lease measuring 235 sq.ft. and this cannot be taken to be a premises meant for the purpose of setting up of business of the nature undertaken by the appellant. The appellant being a multinational company and considering the investments involved, the premises so taken on lease cannot be said to be taken for the purpose of business. The appellant claimed that it had sourced CKD units from its parent company and produced the invoice dtd.21/2/2011. A perusal of t....
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....bt raised by the ld. CIT(A) on the basis of the size of the premises taken by the assessee on lease was unsustainable as the said premises was sufficient for the assesseecompany to commence its business of trading and distribution. He submitted that the facts that the required registration was obtained by the assessee company, the required assets were purchased and even the required staff was hired, were sufficient to show that the assessee-company was ready to commence the business and the ld. CIT(A) was not justified in treating the expenses in question as pre-operative expenses on the ground that there was no sale or turnover during the year under consideration. He contended that there is distinction between the commencement of business and setting up of business and once the business is set-up, the expenses of revenue nature incurred after the setting up are allowable as deduction. 7. The ld. DR on the other hand strongly relied on the orders of the authorities below in support of the revenue's case on this issue. He submitted that there was no sale effected by the assessee-company during the year under consideration as clearly pointed out by the Assessing Officer and since ....