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TMI Blog2020 (6) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... income of Rs. 79,00,208/- on advances for purchase of land) on loans taken for purchase of stock in trade comprising of land during the previous year should be capitalized as work in progress and the same are not allowable as expenditure in the present year following Special Bench decision of Mumbai Tribunal in the case of Wall Street Construction Ltd. vs. JCIT(2006) 101 ITD 156( Mum.)[SB)/[2006] 102 TTJ (Mumbai) (SB). 3. That the Commissioner of Income Tax (Appeals) -XI11, New Delhi has grossly erred on facts and in the circumstances of the case in holding that administrative and statutory nature of expenditure on electricity & water charges, insurance, legal & professional charges, audit fees, misc. expenses, printing & stationary, rates & Taxes, telephone expenses, filing fees, preliminary expenses write off & bank charges totaling at Rs. 35,97,061 are not allowable as revenue expenditure in the present year. 4. That the Commissioner of Income Tax (Appeals)-XIII, New Delhi has grossly erred on facts and in the circumstances of the case and in law in further holding that administrative and statutory nature of expenditure on electricity & water charges, insurance, legal & pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive & other expenses aggregating to Rs. 33,62,870/- on a/c of electricity & water charges Rs. 2,57,029/-, Insurance Rs. 2,79,951/-, Legal & Professional Charges Rs. 27.88 lacs, audit fees Rs. 22,448/-, Misc. expenses Rs. 5,385/- printing & stationery Rs. 2,990/- rates 7 taxes Rs. 200, telephone exp. Rs. 5,567/- & filing fee Rs. 1300/- besides interest payment of Rs. 4,71,55,160/- to the corporate bodes as detailed supra and bank charges of Rs. 1,46,381/- and preliminary expenses Rs. 87,810/- to arrive at the business loss of Rs. 4,13,20,059/- after claiming depreciation of Rs. 28,602/- on the fixed assets. The assessee company has neither hired any person for running day to day activities nor paid any remuneration to the directors." 5. The Assessing Officer concluded by holding as "I hold that the interest earned on loan & advances given to various persons & corporate bodies and bank interest FDRs is income from other sources as the Company has not commenced any business activity during the year and since its business had not started, there could not be any computation of business income or loss incurred by the assessee in the relevant accounting year. In such a situation, the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year under consideration the assessee has merely acquired raw land worth around Rs. 10.94 Crores from certain parties by making first purchase on 12.01.06. Apart from this there is a Board resolution dated 01.03.06 whereby the appellant has been sanctioned to enter into development agreement and financial assistance with their associate companies for acquisition of land. The development agreements with the associate companies have been entered in the next financial year & application for license for developing township at Sector 33,34, & 35 Sonepat has been made by the appellant before Director, Town & Country Planning, Chandigarh in July 2008. Prior to this on 21.10.05 & 26.10.05 the appellant has entered into agreement to sell for purchase of a property at 5, Man Singh Road, New Delhi. Considering the above sequence of events in my considered view, the mere purchase of land in itself would not result in either setting up of business or its commencement. Rather this is only a preparatory stage in order to start the business. This fact is also evidenced by the fact that there are no salary expenses which shows that there are no employees in the company, nor the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are placed in paper book. Then he pointed out that board resolution was passed on 01.03.2006 for entering into development agreement which was entered into at the start of the next year. The Ld. AR for the assessee also pointed out that the above said projects were approved in the succeeding years and this was in line with the business activity undertaken by the assessee. He then referred the balance sheet placed at pages 30 and 36 of the paper book, wherein, assets were shown under loans and advances. Undoubtedly, no income was generated during the year but assessee had actually commenced the business and not only set up the business. It was reiterated by the Ld. AR for the assessee that funds were borrowed, portion of land was acquired and advance was given for acquisition of balance land and steps were taken to enter into development agreement. He further referred to various case laws to point out that in line with aforesaid steps taken, the business could be said to have commenced. He stressed that purchase of land itself was start of business activity and specially where funds were borrowed and land was acquired, substantial activities having been taken place, it could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the company Under section 12 of the Companies Act, 1956 25/08/05 2 Board's Sanction for property acquisition Board Resol. 11/10/05 3 Board's sanction for borrowings for land acquisition Board Resol. 11/10/05 4 First loan transaction for land purchase Bank Statement 13/10/05 5 First Purchase of land Title Deed 12/01/06 6 Copy of agreements to sell for purchase of Mansingh Road Property 21/10/05 & 26/10/05 7 Board sanction for execution of development agreement and financial assistance for land acquisition Board resolution 01/03/06 8 Entering into Development Agreement Board Resolution dt.01.03.06 03/04/06 14/04/06 20/04/06 08/05/06 18/05/06 05/06/06 28/08/06 & 20/1007 9 Application for license 23/07/08 10 Receipt of letter of intent 20/07/09 13. A perusal of the said list of events alongwith relevant documents placed in paper book establishes that the first land was purchased at Sonepat vide deed dated 12.01.2006 and the said land had been reflected as stock in trade in the balance sheet as on 31.03.2006. Further, the Board Resolution dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(Guj.) held that "business" connotes a continuous course of activities. All the activities which go to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precede all other activities. is started. 16. The Hon'ble Delhi High Court in case of Dhoomketu Builders & Development (P.) Ltd. vs ACIT 368 ITR 680 (Del.) was considering the case of a person engaged in realty business, who had participated in an auction to acquire a piece of land. It was noted that in order to bid for the land, loan was obtained from its holding company and the same was deposited as earnest money to bid for the land. However, there was no success in auction, but the interest paid on borrowed loans and interest received on earnest money was net off and the loss was claimed to be carried forward. The Tribunal held in such facts there was setting off of business and the same was held to be finding of facts by the Hon'ble High Court. 17. The Hon'ble Delhi High Court in CIT vs Arcane Developers (P) Ltd. 368 ITR 627 (Del.) while deciding the issue of allowability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing different pieces of land, in order to fulfil the condition of Land Bank of 100 Acres or more, to develop the township in Haryana and where the assessee is entered into development agreement at the close of the present year/beginning of the next year, then assessee can be said to have set up and commenced its business. Further, the assessee having also invested substantial amount in the purchase of another property in the year itself, thus, set up of its business as per its Memorandum of Understanding was done, since it was engaged in the business of real estate. It is held that there is no merit in the order of the authorities below in this regard and the same are reversed. Accordingly, we hold that the assessee having not only set up its business but had also commenced its business during the previous year itself. Hence, ground no.1 of the assessee is allowed. 20. Now coming to the second issue raised by the assessee, it is consequent to the first issue raised in the present appeal. Once the business had been set up and also commenced in instant year itself, then the interest expenses claimed by the assessee and any other expenditure claimed by the assessee is to be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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