Expenses incurred during pre-operative stages can be claimed as deductions if the business is ready for commencement.

ORDER

PER MANJUNATHA G., A.M :

This appeal filed by the Revenue is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 13.11.2024 relating to the assessment year 2018-19.

2. The grounds raised by the Revenue read as under :

“1. The order passed u/s. 250 of the IT Act, by the Ld.CIT(A) is erroneous both on facts and in law and is prejudicial to the interests of the revenue.

2. The Ld.CIT(A) erred in allowing the claim of the assessee to treat the amount of Rs.1,74,17,720/- as pre-operative expenditure in spite of the fact that the assessee had not submitted any evidences to prove that the said expenditure is of revenue expenditure.

3. The Ld.CIT(A) erred in allowing the claim of the assessee by quoting the decisions of Hon'ble Delhi High Court in the case of four WC &C India (P) Ltd. v DCIT & Pr.CIT v. Miele India(P) Ltd. though the facts are distinguishable to the facts of the present case.

4. The Ld.CIT(A) erred in allowing the claim of the assessee to treat the expenditure of Rs.1,74,17,720/- as revenue expenditure, ignoring the contention of the AO that the assessee being in the process of research and development was in its preoperative stage of business operation and that the expenditure is held to be capitalized as pre- operative/preliminary expenditure.

5. The Ld.CIT(A) erred in allowing the expenditure as revenue expenditure going by the nature of expenses such as salaries and wages, interest on loans, legal & professional charges, rent etc. in the absence of submission of information by the assessee such as supporting ledger accounts with corresponding invoices etc. or any explanation in this regard by the assessee to prove that such expenditure was actually incurred.

6. The Ld.CIT(A) erred in allowing the expenditure of Rs.1,74,17,720/- as revenue expenditure u/s. 37 of the IT Act and thereby allowing double benefit to the assessee to claim it as current year loss as against the contention of the AO to treat the same as preliminary expenditure applying the provisions of section 35D of the Act.

7. The Ld.CIT(A) erred in giving relief to the total amount of share capital of Rs.4,80,00,000/- as against the specific finding of the AO in his remand report that the confirmation in respect of contribution of Rs.20,83,834/- by Shri Arun Natarajan, is not found to be satisfactory.

8. The Ld.CIT(A) erred in ignoring the findings of the AO in remand report with regard to the investment of Rs.20,83,834/- and allowing the same simply stating that the AO has not qualified the comments further as to the cryptic nature of the bank transaction and further holding that since the said amount was debited as cheque payment from Shri Arun Natarajan's bank account and presuming that the amount invested is from his savings from his business and salary income, though from the ITR it is evident that the assessee's total income is of Rs.12,32,450/-only during the relevant A.Y. 2018-19.

9. The Ld.CIT(A) erred in appreciating the remand report submitted by the AO by erroneously holding that Rs.4,59,16,166/- stands explained, however, in view of Assessing Officer's report, the A.O has not submitted any categorical acceptance appreciating the evidences.

10. Any other ground that may be urged at the time of hearing.”

3. The brief facts of the case are that the assessee company filed its return of income for the A.Y. 2018-19 declaring total income of Rs. Nil. The case of the assessee was selected for scrutiny under the E-assessment Scheme to verify investments/advances/loans and business loss claimed by the assessee.