October 2019

Business expenditure Difference between setting up of business and starting commercial activities Company formed to design, manufacture and sell commercial vehicles Commencement of research and development and construction of factory Business had been set up Assessee entitled to deduction of operating expenses, financial expenses and depreciation

K.B.Bhujle
Advocate

3.       Daimler India Commercial Vehicles P. Ltd. vs. Dy. CIT.; [2019] 416 ITR 343 (Mad.) Date of order: 5th July, 2019 A.Y.: 2010-11

 

Business expenditure Difference between setting up of business and starting commercial activities Company formed to design, manufacture and sell commercial vehicles Commencement of research and development and construction of factory Business had been set up Assessee entitled to deduction of operating expenses, financial expenses and depreciation

 

The assessee was a company. In terms of its memorandum of association, it was incorporated for a bundle of activities, viz., designing, manufacturing, distributing, selling, after-sales engineering services and research and development of commercial vehicles and related products and components for the domestic Indian and overseas market. The AO disallowed the operating expenses, financial expenses and depreciation. The reason given by him was that the commercial operation of manufacture and sale of commercial vehicles had not commenced so far and, therefore, the expenditure incurred by the assessee under the three heads could not be allowed.

 

The Tribunal upheld the order on the ground that the business of the assessee had not been set up.

 

On appeal by the assessee, the Madras High Court reversed the decision of the Tribunal and held as under:

 

(i)   There is a clear distinction between a person commencing a business and a person setting up a business. When a business is established and ready to commence business, then it can be said of that busi

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