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Judgment
PER M. BALAGANESH, A. M.:
The appeal in ITA No.2725/Del/2019 for AY 2015-16, arises out of the order of the ld. Commissioner of Income Tax (Appeals)-7, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 21.01.2019 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.12.2017 by the Assessing Officer, ACIT, Circle-20(2), New Delhi (hereinafter referred to as ‘ld. AO’).
The assessee has raised the following grounds of appeal before us:-
“1.That the CIT(A) erred in upholding disallowance on account of expenses of Rs.33,06,371 incurred by the company on Advertisement and Sales Promotion without appreciating the correct facts and circumstances of the case of the Appellant Company.
2.That the CIT(A) erred in holding that the expenditure incurred by the company on Recruitment and Training of Rs.43,63,580 was not allowable as revenue expenses and the same was to be capitalized along with the cost of software.
3.That the CIT(A) also erred in upholding disallowance in regard to other expenses aggregating to Rs. 1,83,52,447 to the extent of 20% thereof i.e. Rs.36,70,489 without appreciating that the whole of the expenditure was duly allowable as revenue expenditure.
4.That the CIT(A) also erred in not allowing deduction on account of payment of Gratuity and payment of Leave Encashment of Rs.6,18,939 and Rs.1,06,414 respectively in terms of Section 40A(7) and 43B of the Act without appreciating that since the company had made additions in computation of taxable income in A.Y.2014-15, deduction for the same was duly allowable in this year on actual payment basis.
5.That the CIT(A) also erred in not directing the Assessing Officer to allow deduction for an amount of Rs.37,86,778 claimed by the company as deduction u/s 40(a)(ia) of the Income-tax Act without appreciating that since the company had disallowed the aforesaid amount in Computation of Taxable Income for the A.Y.2014-15 deduction for the same was duly allowable in this year since TDS had been duly deposited in this year.
6.That the order passed by the CIT(A) is without correctly appreciating the facts and circumstances of the case and also the contentions made before him.
7.That the appellant crave leave to add and modify any of the grounds of the appeal at any time hereinafter before the date of hearing.”
We have heard the rival submissions and perused the materials available on record. The Assessee Company is engaged in the business of development of software. The return of income for the assessment year 2015-16 was filed by the Assessee Company on 30-11-2015 declaring loss of Rs. 4,00,44,189. The learned AO during the course of assessment proceedings held that the Assessee Company had not started its business operations during the year, since no revenue has been recognized during the period under consideration. The learned AO relied on the earlier action taken in the assessment in assessment years 2011-12 to 2014-15, wherein there was a finding that the business was not commenced. Accordingly, the assessment was completed under Section 143(3) of the Act after disallowance of expenses on adhoc basis determining total income at Rs. 29,37,380. The learned CIT(A) held that merely because Assessee had not recognized any revenue during the year, it does not mean that the business had not commenced and deleted the addition on made on account of finance cost and depreciation. Further, the learned CIT(A) restricted the disallowance of other expenses to 20% from 50% made by the learned AO. Further, we find that this Tribunal in the revenue appeal for assessment year 2015-16 in ITA No. 2416/ Del / 2019 dated 23-05-2025 had categorically held that the Assessee's business had already commenced as on 30-1-2012 and since the business had already set up and commenced, the Assessee would be entitled to claim the business expenses. Further, the Tribunal had also held that Assessee would be entitled for deduction of finance cost and depreciation by dismissing the revenue’s appeal.
The grounds raised by the Assessee in its appeal are only claiming deduction of business expenses and challenging the action of the learned CIT(A) in restricting the disallowance to 20% of such expenditure as against 50% made by the learned AO. It is pertinent to note that the books of accounts of the Assessee had not been rejected by the lower authorities by applying the provisions of section 145(3) of the Act. The genuineness of incurrence of the aforesaid expenditures and its nexus with the business carried out by the Assessee are not doubted by the revenue at all. Since the business of the Assessee had already been set up and commenced as on 30-1-2012, the revenue expenses incurred by the Assessee would be eligible for deduction as a whole after the date of set up of business. There cannot be any adhoc disallowance of expenses thereon. Hence, we direct the learned AO to allow the entire expenditure.
We find that Assessee vide Ground No. 5 had sought deduction of Rs. 37,86,778, which was disallowed under Section 40(a)(ia) of the Act in assessment year 2014-15 for non-remittance of tax deducted at source. The Assessee in the ground had pleaded that the tax has been duly remitted to the account of the Central Government during assessment year 2015-16 and hence, the Assessee would be eligible for deduction of Rs. 37,86,778. This matter needs to be factually verified by the Learned AO and on verification if it is found that TDS has been remitted to the account of the Central Government during the year under consideration, then Assessee should be granted deduction of Rs. 37,86,778 in assessment year 2015-16. With these observations, the Ground No. 5 raised by the Assessee is allowed for statistical purposes by restoring to the file of Learned AO.
In the result, the appeal of the Assessee is allowed for statistical purposes.