As per the Income Tax act expenditure during the year amounting to setting up cannot be treated as preoperative expense

Last updated: 03 February 2012

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
In the return of income filed, the assessee computed the loss of ` 12,28,782/-. From the perusal of the balance sheet, the Assessing Officer observed that the assessee had debited loss amounting to ` 12,28,782/- during the year. The assessee company was incorporated in January, 2007. However, no sale and purchases were entered into by the assessee. In the absence of sale and purchase, the Assessing Officer observed that there was no business activity and there was no business income. Therefore, the expenses incurred by the assessee are pre-operative in nature and loss claimed by the assessee cannot be allowed. Therefore, he disallowed the loss and computed the income of the assessee at nil. The disallowance of loss was agitated in an appeal filed before the CIT (A). It was submitted that the assessee is engaged in the business of import and export of kitchen ware items. The first financial statement was prepared for the year ended on 31st March, 2007. The company had started business activity for trading of kitchen wares in Chennai and incurred expenses and depreciation amounting to ` 12,28,782/-.

Citation :
ITO, Ward 2 (4),Room No.381, CR Building,New Delhi.(Appellant)Vs. Berger Impex India (P) Ltd.,9, Itaslian Compound, Itt Bhati,Goregaon Mulund, Link Road,Goregaon East,Mumbai.PAN: AADCB0255A (Respondent)