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TMI Blog2010 (1) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case in holding that the advertisement expenses incurred by the appellant are attributable to contract activity and has to be allocated to the contract and not to be allowed as revenue expenditure especially when the same were allowed by the learned AO after due examination of the matter. 3. The appellant craves leave to add, amend, alter, change, vary or substitute any of the aforesaid grounds or raise any additional grounds, if it becomes necessary to do so in the interest of justice." 2. The assessment order in the present case is dt. 30th Nov., 2007 passed under s. 143(3) of the Act. The contents of assessment order are as under:- "Assessee filed its return of income on 27th Oct., 2005 at a loss of Rs. 28,59,844. The return was processed. The case was picked up for scrutiny and a notice under s. 143(2) was sent to assessee on 26th Oct., 2006. Sh. Manoj Bhola and Sh. Mohit Jain appeared for the assessee from time to time. Assessee is in the business of real estate development. The assessee was asked to file various details as per order-sheet. The assessee filed details and the same were perused. Nothing adverse came to notice. Assessed at retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon by the assessee during the course of assessment proceedings to contend that in the case of real estate business, when the assessee acquires the immovable property either by purchase or by any other manner, it is said that the business of the assessee has cdmmenced. 6. On the issue regarding advances taken for purchase of land, it was submitted by the assessee that it had paid advance of Rs. 1,62,53,00,050 for purchase of land from DDA; the same was reflected under the head current assets as on 31st March, 2004. On execution of lease deed, the said amount representing advance for purchase of land was transferred from current assets to "leasehold land account" under the fixed assets. Thus, it was submitted that the said account was never squared up and it was stated that it is incorrect to say that no details or confirmations were filed. It was submitted that the information relating to name, address, PAN and income-tax particulars of the party from whom advances were taken in asst. yr. 2004-05 is duly available in the assessment record. Vide letter dated 19th June, 2008 the copy of account of DLF Universal Ltd. relating to squared up advances of Rs. 162.53 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the assessment record. Learned CIT observed that this aspect was also not examined by the AO, which is regarding squaring up of the account. Thereafter learned CIT observed that assessment record reveals that assessment proceedings were started on 4th Oct., 2007 and those were completed on 30th Nov., 2007 without making proper enquiries i.e. in a hasty manner. Referring to the decision of Hon'ble Karnataka High Court in the case of Thalibai F. Jain and Ors. vs. ITO and Anr. 1975 CTR (Kar) 66 : (1975) 101 ITR 1 (Kar) and decision of Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT and Ors. 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del), learned CIT invoked powers under s. 263 and passed the impugned order. Learned CIT restored the assessment back to the file of AO and in this manner order under s. 263 has been passed. The assessee is aggrieved, hence in appeal. 10. Learned Authorised Representative after narrating the facts submitted that on merits advertisement expenditures are to be held to be revenue expenditure and for this proposition he relied on following decisions:- 1. CIT vs. Brilliant Tutorials (P) Ltd. (2007) 210 CTR (Mad) 49 : ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. CIT vs. Hughes Escorts Communications Ltd. (2007) 213 CTR (Del) 45 : (2009) 311 ITR 253 (Del). 2. CIT vs. L.G. Electronics (India) Ltd. (2005) 199 CTR (Del) 205 : (2006) 282 ITR 545 (Del). 3. CIT vs. Club Resorts (P) Ltd. (2006) 203 CTR (Mad) 587 : (2006) 287 ITR 552 (Mad). 4. CIT vs. Herbalife International Ind. (2008) 297 ITR 303 (Del). SLP dismissed by Supreme Court in (2008) 297 ITR (St.) 17. 5. CIT vs. Whirlpool of India Ltd. (2009) 28 DTR (Del) 164 : (2009) 318 ITR 347 (Del). 6. Sarabhai Management Corporation Ltd. vs. CIT 1975 CTR (Guj) 111 : (1976) 102 ITR 25 (Guj). Approved by Hon'ble. Supreme Court in CIT us. Sarabhai Management Corporation Ltd. (1992) 102 CTR (SC) 164 : (1991) 192 ITR 151 (SC). 12. It was further submitted that the issues raised by CIT in the notice issued for invocation of powers under s. 263 were also deliberated upon by the AO during the year under consideration. Firstly, reference was made to letter dt. 1st Nov., 2007 filed before AO during the course of assessment proceedings, a copy of which is placed at pp. 12 to 14 of the paper book. In that letter after describing the brief note on business act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO it was submitted that the question regarding allowability or otherwise of advertisement expenses was enquired into by the AO. The necessary facts were submitted to the AO along with legal propositions and AO being satisfied has admitted the claim of the assessee. Thus, it was submitted that the order of AO cannot be said to be either erroneous or prejudicial to the interest of Revenue as the matters sought to be revised by learned CIT were gone into by the AO during the course of assessment proceedings and powers under s. 263 could not be exercised by the CIT to substitute his opinion on the AO. It was further submitted that vide letter dt. 13th Nov., 2007 submitted before AO during the course of assessment proceedings a copy of which was given by him during the course of hearing to us as well as to learned Departmental Representative, it was submitted that the confirmations of unsecured loans were already submitted. Thus, it was pleaded that learned CIT is wrong in invoking power under s. 263 and for this purpose reliance was placed by learned Authorised Representative on following decisions:- 1. CIT vs. Ashish Rajpal (2009) 23 DTR (Del) 266 : (2009) 180 Taxman 623 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon by CIT, it was submitted by learned CIT (Departmental Representative) that order of CIT under s. 263 should be held valid. On merits, it was submitted by learned CIT (Departmental Representative) that assessee could not support its case and, therefore, CIT was right in observing that these additions were to be made. 17. We have carefully considered the rival submissions in the light of material placed before us. The law regarding applicability or otherwise of s. 263 is well settled. In order to invoke the provisions of s. 263 the order passed by AO should not only be erroneous but should also be prejudicial to the interest of Revenue. Thus, both the conditions should be fulfilled simultaneously. If any one of them is absent it will be held that the provisions of s. 263 were not lawfully invoked. The term "erroneous" though has not been defined specifically under the IT Act, 1961, but it is now well settled that each and every type of mistake or error committed by AO cannot be said to be an error on the part of AO to bring his order to be covered under the provisions of s. 263. An incorrect assumption of facts, or an incorrect application of law can only satisfy the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elp of material placed on record it has been demonstrated by the learned Authorised Representative of the assessee that an enquiry was put by the AO and detailed reply was given and after being satisfied the AO had accepted the claim of the assessee. The view adopted by AO also cannot be described to be impossible view because with the help of decisions of jurisdictional High Court it has been demonstrated by learned Authorised Representative that in a case where assessee is engaged in the business activity of real estate, the business is set up when first activity is started i.e. purchase of land. Here in the present case it is the case of learned CIT that the lease agreement was entered into by the assessee in subsequent assessment year and, therefore, even purchase of land was not effected during the year under consideration. As against that assessee has been able to show that entire sale consideration of the purchase of land was paid during the year under consideration and details of such payments are incorporated in the letter submitted by the assessee with learned CIT vide letter dt. 19th June, 2008 and the details of which have already been incorporated in this order while s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditures incurred by the assessee starting from second category till the end of the financial year were hold to be business expenditures. 20. Hon'ble Delhi High Court in the case of CIT vs. Hughes Escorts Communications Ltd. (supra) in a case where assessee company was incorporative with the object of setting up satellite business communication systems had placed a project order dt. 28th July, 1994 with a foreign company for a purchase of a very small aperture terminal (V Sat) equipment and it was claimed by the assessee that date on which purchase order was placed should be reckoned as date on which its business was set up and expenditure incurred by it after such date could not be capitalized but was to be treated as revenue expenditure and Hon'ble High Court has upheld the order of Tribunal vide which it was held that expenditures incurred by the assessee after the placement of purchase order dt. 28th July, 1994 were deductible as revenue expenditures. 21. In the case of CIT vs. L.G. Electronics (India) Ltd. (supra) their Lordships of Delhi High Court after analyzing s. 3 of IT Act describing definition of previous year have arrived at a conclusion that from the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case are viewed from the abovementioned legal proposition then it will be clear that the business of the assessee was set up with the acquisition of land which even according to lease deed was acquired w.e.f. 22 Dec., 2003. The genuineness of lease deed cannot be doubted as the same is executed between the assessee and President of India through Administration Office of DDA. A question was raised by the AO and reply was given by the assessee to contend that advertisement and publicity expenses are allowable in view of decision of Hon'ble Gujarat High Court in the case of Sarabhai Management Corporation Ltd. (supra) and such proposition of law was accepted by the AO. Thus, the view taken by AO cannot be said to be erroneous which will render the assessment order as erroneous. It has already been mentioned that to render an order erroneous there should either be an incorrect assumption of facts or an incorrect application of law. The both conditions which can render the order "erroneous" are absent as neither the AO has drawn incorrect assumption of facts nor AO has rendered incorrect application of law when he accepted the claim of the assessee that advertisement and publicity ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 - 9,00,000 1,74,08,13,195 Cr. 30.09.2004 Ch. No. 400419 - 14,00,000 1,74,22,13,195 Cr. 06.10.2004 Ch. No. 400430 - 2,00,000 1,74,24,13,195 Cr. 06.12.2004 Ch. No. 285040 - 21,00,000 1,74,45,13,195 Cr. 20.12.2004 Ch. No. 328482 49,20,00,000 - 1,25,25,13,195 Cr. 27.12.2004 Ch. No. 771118 50,00,00,000 - 75,25,13,195 Cr. 17.01.2005 Ch. No. 328484 23,00,00,000 - 52,25,13,195 Cr. 17.03.2005 Ch. No. 771144 30,00,00,000 - 22,25,13,195 Cr. 17.03.2005 Ch. No. 771145 22,25,13,195 - - Cr. Total 1,74,45,13,195 1,74,45,13,195 Cr. 28. From the above copy of account and reply of the assessee it can be seen that up to 31st March, 2004 the unsecured loan obtained by the assessee from its group concern was 1,62,53,00,000 and rest of the amount obtained by the assessee during the year from 1st April, 2004 to 6th Dec., 2004 was a sum of Rs. 11,92,13,195 which was repaid by the assessee from 20th Dec., 2004 to 17th March, 2005. Complete copy of account along with confirmation was submitted and the objection of learned CIT is with regard to a sum of Rs. 11,92,13,195. When the creditor is known and its existence is established by fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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