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2016 (2) TMI 488 - ITAT HYDERABAD

2016 (2) TMI 488 - ITAT HYDERABAD - TMI - Allowance of business expenditure - Commencement of business - whether there is a distinction between setting up of the business and commercialization of the operation, which generates actual revenue to the business? - Held that:- In this present case, the assessee is in the business of construction and development of technology park. In this line of business, the process commences from the date of negotiation for acquiring land, actual purchase of the l .....

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the business activities. Hence, the assessee is eligible for the business expenditure of ₹ 29,54,923/-. - Decided in favour of assessee

Treatment of interest income - whether income from business or from other sources - Held that:- As observed above, the assessee had set up the business prior to this AY 2009-10, assessee is eligible to treat the interest income earned during this year earned out of the excess funds available in the business. It was earned by the assessee while c .....

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ifaur Rahman, AM For the Appellant : Shri P V S S Prasad For the Respondent : Shri B Kurmi Naidu ORDER Per S Rifaur Rahman, AM This appeal by assessee is directed against the order dated 25/02/2014 of ld. CIT - III, passed u/s 263 of the Income-tax Act (Act), Hyderabad for the AY 2009-10. 2. Briefly the facts of the case are that the assessee company is engaged in the business of constructions, running, conducting, maintaining and managing leasing and to act as developer of private information t .....

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the verifications on the below observations and redo the assessment since the AO completed the assessment without making proper verification, which was erroneous and prejudicial to the interests of revenue. a) The business of the assessee had not commenced, it is not eligible to claim expenditure. b) Interest income was erroneously considered under the head 'profits and gains of business and profession'. 4. The assessee filed its objections for the above reopening of the assessment u/s 2 .....

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efore us. 6. Ld. AR submitted that the company was incorporated on 04/05/2005. Since the company was set up and commenced the negotiations for acquiring land etc., only by setting up of operation, it was able to acquire land admeasuring acres 20 guntas 09, forming part of survey Nos. 310,311 & 318 situated at Village Poppalguda, Hyderabad (pages 105 to 139 of the paper book). The above lands were purchased as below: a) Land admeasuring acre 15 guntas 30 vide sale deed No. 10550/06 on 31/07/2 .....

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epted by the department. He submitted that the assessee was eligible to claim business operative expenditure and interest income should be treated as business income. The ld. AR relied on the following cases to support his contentions: 1 Western India Vegetable Products Ltd. v. Commissioner of Income-tax [1954] 26 ITR 151 (BOM.) (HC) 2 CIT v. Arcane Developers (P.) Ltd [2014]42 taxmann.com 10 (Delhi) (HC) 3 CIT V Dhoomketu Builders & Development (P.) Ltd [2013] 34 taxmann.com 18 (Delhi) (HC) .....

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R 535 (Mad.) 11. Eveready Industries India Ltd. vs. Commissioner of Income- tax [2010] 323 ITR 312(Cal.) (HC)" 7. The ld. DR relied on the CIT's order u/s 263. 8. We have considered the arguments of both the sides and perused the material information and facts on the record. The question which arises for consideration is as to when the assessee said to have commenced its business. It has to be observed that there is a distinction between setting up of the business and commercialization .....

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h land. The concept of commencement will change according to the nature and facts of the particular industry. It may vary depending upon the business model and business cycle of the industry. In the present case under consideration, the business said to have set up, when it is ready or established to commence its operation, for which, we refer to the case law Western India Vegetable Products Ltd., 26 ITR 151 (Bom.). Similarly, in the case of Arcane Developers (supra) date of setting up of busine .....

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to the business of the assessee, which is the development of real estates, the part icipat ion in the tender represents commencement of one activity which would enable the assessee to acquire the land for development. If the assessee is in a posit ion to commence business, that means the business has been set-up. The Acts of applying for part icipat ion in the tender , the borrowing of monies for interest from the holding company, the deposit of the bor rowed monies on the same day with NGEF Ltd .....

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result of such ef for ts put in by the assessee; once the land is acquired the assessee may be said to have actually commenced its business which is that of development of real estate. The actual acquisit ion of the land may be a f irst step in the commencement of the business, but section 3 of the Act does not speak of commencement of the business, it speaks only of sett ing-up of the business. When the assessee in the present case was in a posit ion to apply for the tender , borrowed money fo .....

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