TMI Blog2018 (10) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... red interest and financial expenditure relating to the business after setting up of the business. CIT(A) has rightly allowed the interest expenditure relating to the current AY and, therefore, upholding the order of CIT(A), we dismiss the grounds raised by the revenue in this regard. - decided in favour of assessee. - ITA No. 606/Hyd/2017 And CO No. 20/Hyd/2017 - - - Dated:- 3-10-2018 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Revenue : Smt. Alka Rajvanshi Jain For The Assessee : Shri B. Ramakrishnan ORDER PER S. RIFAUR RAHMAN, A.M.: This appeal filed by the Revenue is directed against the order dated 24/01/2017 of CIT(A) 4, Hyderabad for AY 2008-09. The assessee also filed CO against the said order of CIT(A). 2. Brief facts of the case are, the assessee company, filed its return of income for AY 2008-09 admitting loss of ₹ 64,10,83,920/-. The AO reopened the case by issue of notice u/s 148. After verifying the information furnished by the assessee against the notices issued by AO, the AO completed the assessment by making addition of ₹ 64,38,02,573 towards disallowance of expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the assessee, the CIT(A) deleted the disallowance made by the AO by observing as under: 6.1 have carefully considered the assessment order and submissions of the appellant and case laws relied upon by the appellant. The appellant submitted that the company is doing the business in development of properties and developed both for residential and business purpose and has borrowed funds and acquired the land and its development rights by paying the amount which was apparent from the audited accounts of the appellant. The Assessing officer has not disputed the land purchase and the work in progress disclosed by the appellant. Keeping in view of the nature of the business of the appellant, once the funds were utilized for the purpose of land and the same were accounted for then it should be treated as business was started. Therefore, the Assessing Officer's contention that the business was not started and the business loss was not be allowed was not having any base and so not logical. It was further observed that, the interest under other income disclosed by the appellant was of mainly from interest income on advances to holding companies and subsidiaries. At the same ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing cases: 1. CIT Vs. Orient Craft Ltd., [2013] 29 Taxmann.com 32 (Delhi) 2. PCIT Vs. Tupperware India Pvt. Ltd. [2013] 65 Taxmann.com 17 (Delhi) 3. CIT Vs. Kelvinator of India Ltd., [2010] 187 Taxman 312 (SC) 7. Ld. DR, on the other hand, submitted that assessee was supplied with reasons for reopening by the AO and the reasons for reopening clearly indicate that there is escapement of income and the reopening was proper. In this process, he relied on the orders of revenue authorities. 8. Considered the rival submissions and material on record. We notice that assessment was completed u/s 143(1) and notice for reopening of assessment was issued after four years of intimation u/s 143(1). Assessee filed a CO challenging the reopening of the assessment beyond the four years and also without any tangible material on record. In this regard, the assessee has relied on the decision in the case of CIT Vs. Orient Craft Ltd. (supra), wherein the Hon ble Delhi High Court has held as under: 14. Certain observations made in the decision of Rajesh Jhaveri (supra) are sought to be relied upon by the revenue to point out the difference between an assessment and an intimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements. 15. In the present case the reasons disclose that the Assessing Officer reached the belief that there was escapement of income on going through the return of income filed by the assessee after he accepted the return under Section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer, both strongly deprecated by the Supreme Court in CIT vs. Kelvinator (supra). The reasons recorded by the Assessing Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words reason to believe vis- -vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential raw material for the manufacture of cement - is too remote to be in proximity to the business of manufacture of cement to form the first stage of commencement of the business of manufacture of cement. It was not the case of the assessee that the plant and machinery had been erected within a short span of time after commencement of the quarrying of limestone. There was no material available on record as to when the plant and machinery for the manufacture of cement had been erected. What activities constitute commencement of business is a mixed question of fact and law and it has to be decided on the facts of each case. In the instant case, it was not possible to hold that the assessee had set up the business and commenced the manufacture of cement as such. 10. On the other hand, ld. AR submitted that assessee is into real estate business and assessee has commenced commercial activities and set up the business as soon as assessee enters into agreement to purchase the properties. He submitted that a real estate business having a long gestation period and also the current project involved is having a long construction period. Further, he submitted that just b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers. On the top of it, it is also noted that similar expenses were claimed by the assessee in the immediately preceding year which have not been disallowed by the Assessing Officer. However, no income was booked in the profit and loss account since execution of sales orders was not completed during the year. But receipt of income would be essential to determine factum of commencement of income. As far as, 'setting-up' of business is concerned, it takes place as soon as the assessee becomes ready to cater to its customers. The expenses shall be allowable from the stage of 'setting up' of the business in view of proviso to section 3 which says that in the case of a business or profession newly set up in a financial year, the previous year shall be the period beginning with the date of setting up of the business and ending with the said financial year. Thus, taking into account all the facts and in the circumstances of the case, it would not be difficult to reach to the conclusion that business of the assessee was 'set up' during the year as the facts strongly indicate that business was duly 'set up' during the year. Under these circumstan ..... 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