TMI Blog2018 (12) TMI 1566X X X X Extracts X X X X X X X X Extracts X X X X ..... AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER For The Appellant : Sh. Amit Kutoch, SR. DR For The Respondent : Sh. Salil Aggarwal, Sr. Adv, And Sh. R. P. Mall, Adv ORDER PER SUCHITRA KAMBLE, JM This appeal is filed by the Revenue against the order dated 19/2/2018 passed by CIT(A)-4, New Delhi for Assessment Year 2012-13. 2. The grounds of appeal are as under:- 1. Whether the Ld.CIT(A) has erred on facts and in law in deleting the disallowance of revenue expenses u/s 37(1) of the Act claimed in return of income of ₹ 1,00,17,751/- ignoring the fact that there was no (Revenue from) business inexistence carried out during the relevant Assessment Year. 3. The assessee furnished return of income on 1/11/2012 declaring loss of ₹ 69,06,799/-. During the assessment proceedings, it was observed by the Assessing Officer that assessee company was incorporated on 12/6/2008 as a wholly owned subsidiary of HBT Real Estate Holdings Ltd., Mauritius for the purpose of development and construction of real estate projects in India. It has been stated that the assessee had entered into a Memorandum of Understanding with Shyam Communications Syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly related to the case of the assessee. The Ld. DR relied upon the decision of the Hon ble Bombay High Court in case of ALD Automotive Pvt. Ltd. Vs. DCIT (2018) 254 Taxmann 233 also referred case of Video Plaza Vs. ITO that of Hon ble Calcutta High Court being 385 ITR 404. 7. The Ld. AR submitted that the assessee company was incorporated on 12.06.2008 and is a wholly owned subsidiary of HBT Real Estate Holdings Ltd., Mauritius. The aforesaid company had been incorporated for the purpose of development and construction of Real Estate Projects in India. The authorized capital of the assessee company is ₹ 2.65,00,000. It had furnished the returns of income for the AYs 2009-10, 2010-11 and 2011-12. From the perusal of the details tabulated, the Ld. AR pointed out that it had incurred certain expenditure and claimed the same as business loss (for AY 2011-12) and carried forward the same to be set off, which business loss was accepted. HMS REAL ESTATE PRIVAE LIMITED Assessment Year Expenditure incurred and debited to the Profit Loss A/c expenditur e incurred being cost of the project Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajiv Mehrotra Sons, Ms. Vijaya Arora, Mr. Sumit Arora and Mr. Surinder Mohan Arora. The said agreement is dated 08.09.2008. It was agreed under the said agreement that the assessee will fund the entire development cost and will manage the construction. It is thus evident that the business had commenced soon the aforesaid agreement had been entered into. The High Court of Delhi in the case of CIT vs. Dhoomketu Builders and Development Pvt. Ltd. reported in 368 ITR 680, in para 9 has held as under: The Tribunal has observed that having regard to the business of the assessee, which is the development of real estates, the participation 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 position to commence business that means the business has been set up. The acts of applying for participation in the tender, the borrowing of monies for interest from the holding company, the deposit of the borrowed monies on the same day with NGEF Ltd. as earnest money were all Acts which clearly establish that the business had been set up. The commencement of real estate business would normally star ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. The CIT(A) held as under:- Examination of the issue Decision:- I have considered the submissions made by the appellant and perused the order of assessment and evidence placed on record. The undisputed facts are that appellant was a company which has been incorporated under the Companies Act, 1956 to inter-alia carry out development works as builders, owners, lesser, managers, contractors etc. in respect of all kinds of building whether residential, commercial houses etc. The appellant had entered into a development agreement with M/s. Shyam Communication Systems and Rajiv Mehrotra Sons (HUF), Ms. Vijaya Arora, Mr. Sumit Arora and Mr. Surinder Mohan Arora for developing land owned by the owners and located at Sector- 74A, Gurgaon, Haryana. Subsequent to the entering of aforesaid agreement, the appellant has undertaken construction work and capitalized expenditure in accordance with Accounting Standard-10 issued by the Institute of Chartered Accountants of India. For the instant assessment year, the appellant furnished a return of income declaring loss of ₹ 69,06,799/- in the following manner:- Sr. No. Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd loss account. Repairs and maintenance Others 412.64 1 The said expenditure was incurred by the assessee in relation to repair and maintenances carried out in marketing centre including electricity and other maintenance expenses. The said expenses not being directly relatable to the project was debited to profit and loss account. Legal and professional fess 600,23 8 The said expenditure was incurred by the assessee for seeking assistance from professionals on various matters such as fee paid for filing of income tax return, obtaining transfer pricing certificate and other tax related queries. The said expense not being directly relatable to the project was debited to profit and loss account. Marketing expenses 39,38, 439 The said expenditure was incurred by the assessee in relation to printing of brochures, audio video models, etc. for attracting customers. The said expense not being directly relatable to the project was debited to profit and loss account. Payment to auditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure. It may be pointed out that an identical view was taken by this court in Eastern Investments Ltd. v. CIT f1951] 20 ITR 1, 4 (SC), where interpreting the corresponding provision in s. 12(2) of the Indian I.T. Act, 1922, which was ipsissima verba in the same terms as s. 57(iii), Bose J., speaking on behalf of the court, observed: It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned. It is indeed difficult to see how, after this observation of the court, there can be any scope for controversy in regard to the interpretation of s. 57(iii). It is also interesting to note that, according to the revenue, the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meager, the expenditure would be eligible for deduction. This means that in a case where the expenditure is ₹ 1,000, if there is income of even Re. 1, the expenditure would be deductible and there would be resulting loss of ₹ 999 under the head Income from other sources . But if there is no income, then, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a receipt on the credit / side to justify the deduction of an expense. 6.5 In the case of AB Multiplex v. ACIT ITA No. 739/D/2014, the facts of the case were that a company was engaged in the business of builder and developers. Its commercial project Corporate suit was under construction. The expenses directly related to project were added to the inventories (project under construction (as per its accounting policies). However, certain expenses like office remuneration and ROC filing fee were claimed as expenses in the profit and loss account being administrative expenses and not directly related to the project. It was submitted by the taxpayer that such expenses were required to be incurred even if no project was going on and no business was being carried on during the year. The AO held that once assessee did not have any business income and thus, no business was carried out by the assessee during the year., The Tribunal held as under: All the expenses directly attributable to the project were charged to the construction work in progress account and only those administrative expenses which were necessary for maintenance of basic infrastructure of the company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up. Further, it is not in dispute that appellant had entered into a collaboration agreement in assessment year 2009-10 and therefore, setting up of business cannot be disputed. 6.8 I have carefully looked into the legal and factual aspects of the case. The stand of the AO that in absence of any business income, project being incomplete, general expense are disallowable is contrary to well settled legal principles. It is the setting up of business which is relevant for allowing expenses and not the actual commencement of business. The business of the appellant is to earn rental income from commercial mall and construction of mall is essential for that. I find that construction was in full swing which is evident by the fact that capital work in progress as on 31/03/2011 was ₹ 181.92 crores and as on 31/03/2012 at ₹ 204.04 crores. A marketing centre has been set up to display projects completed by the group outside India, to market its product though audio visual media and other such activities. Under such factual matrix, it is not possible to infer that appellant's business was not set up. 6.9 In ACIT Vs ASF Linsignia SEZ Pvt. Ltd. in ITA No. 6732 6733/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up of the business and the commencement of the business. All expenses incurred during that interval are also permissible for deduction. 6.12. The decision of Hon'ble Gujarat High Court in the case of Sarabhai Management Corpn. Ltd. (supra) has been affirmed by the Hon'ble Supreme Court in the case of CIT v. Sarabhai Management Corpn. Ltd. [1991] 192 ITR 151, where the Hon'ble Supreme Court went a step ahead that even the activities at a preparatory stage are also admissible. It is well settled that all the expenses incurred after the business had been set up are allowable as business deduction under section 37 of the Act. There may be interval between the setting up of the business and the actual commencement of the business but all the expenses incurred during the interval of setting up of the business and the commencement of the business are also permissible for deduction as so held in the above referred decisions. 6.13. Thus, it is clear that it is now well settled law that, once business is set up expenditure is allowable as business expenditure, as has also been held by another judgment of Jurisdictional High Court in the case of CIT vs. Dhoomketu Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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