TMI Blog2020 (10) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... case, there is no dispute with regard to the fact that the assessee has started acquiring lands in 2007 itself. Accordingly, we set aside the view expressed by Ld CIT(A) on this point and direct the AO to hold that the assessee has set up its business. all the expenses related to the project should be taken to Work in Progress . Remaining expenses should be allowed as deduction. If any common expenses have been incurred, then it may be split into project related item and general item on a rational basis. Since this exercise has to be carried out, we restore this issue to the file of AO. Interest income under the head income from other sources - HELD THAT:- In the instant case also, the assessee has failed to demonstrate the business compulsion for making deposits with banks. Accordingly, following the above decision GLOBAL ENTROPOLIS (VIZAG) PVT. LTD. [ 2019 (9) TMI 37 - ITAT BANGALORE] we hold that the Ld CIT(A) was justified in assessing the interest income under the head Income from other sources in assessment years 2012-13 and 2014-15. - ITA No.1341/Bang/2017, ITA Nos.121 & 122/Bang/2019 - - - Dated:- 12-10-2020 - Shri B. R. Baskaran, Accountant Member And Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Item, For the year ended 31.3.2014 (Rs.) For the year ended 31.3.2013 (Rs.) For the year ended 31.3.2012 (Rs.) Income Sales - - - Other Income - 1,13,912 17,99,099 Expenditure Employee costs and benefits 69,44,754 76,29,613 1,26,14,418 Finance cost 10,76,42,880 9,23,82,796 8,62,56,952 Depreciation and amortization 5,79,337 7,88,397 10,45,871 Other expenses 1,70,82,727 6,83,03,568 2,96,43,966 Loss before tax 13,22,49,698 16,89,90,462 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P L account, it can be seen that the expenses debited are normal running expenses such as employee cost, finance cost, depreciation and other expenses in the nature of professional fees, advertisement, publicity, rent, travel conveyance etc 1.6. All the above activities would clearly establish the fact that the appellant had not only set up the business but also commenced the same. 1..7.-The Learned - Assessing Officer disallowed these expenses only on the premise that the Appellant had not declared any income. It is settled principle of law that there is no requirement that there should be immediate benefit to the assessee or there should be earning of income in order to allow the expenditure. The following a few cases are cited in this regard: Eastern Investments Ltd. Vs. CIT (20 ITR 1) (SC) J.R. Patel Sons Pvt. Ltd. 69 ITR 782 (Guj) Raipur Mfg. Co. Ltd. (84 !TR 508,516) (Guj) Security Printers of India Pvt. Ltd. (78 ITR 766,774) (All) Tatasons Ltd. (18 ITR 460,467) (Born) Walchand Co. P. Ltd.(65 ITR 381, 385) (SC) J.K. Woolen Manufactures (72 ITR 612) (SC) Aluminium Corp. of India Ltd. (86 ITR 11, 17) (SC) Orissa Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered. It is observed that it is only after the business is set up that the previous year of that business commences and any expenses incurred prior to the setting up of a business would not be a permissible deduction. It observed : . . The distinction is this that when a business is established and is ready to commence business then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But there may be an interregnum, there may be an interval between a business which is set up and a business which is commenced and all the expenses incurred after the setting up of the business and before the commencement of the business, all expenses during the interregnum would be permissible deductions under section 10(2). . . (p. 158) 1.11. In Sarabhai Management Corpn. Ltd. v. Commissioner of Income-tax (1976) 102 ITR 25 (Guj), the Gujarat High Court held that as soon as the company acquired immovable property and carried on various activities for procuring necessary facilities, the business was said to commence even though the actual letting of the property took place in the subsequent previous year. This decision has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses incurred subsequent to the same, including depreciation are allowable even if the business had not commenced. 1.17. In the case of Commissioner of Income Tax Anr. Versus MFAR Construction Ltd 2010 (9) TMI 1091 - KARNATAKA HIGH COURT, the expenditure incurred by a construction company at the time of setting up of the business was allowed even though no income was generated. 1.18. In the case of IBC Knowledge Park (supra), the High Court held that 'Sale of construct property is not a sine qua non for commencement of business and it allowed the expenses incurred by the Assessee though there was no sale. 1.19. The above principles have been followed by the Hon'ble Delhi High Court in the case of CIT vs Arcene Developers Pvt Ltd [2014] 368 ITR 627 (Del) and CIT vs Dhoomketu Builders Development Pvt Ltd [2014] 368 1TR 680 (Del). 1-.20.In the case of Dhoomketu Builders (supra), the Hon'ble Delhi High Court held that the commencement of the real estate business would normally start with acquisition of land or immovable property and when an Assessee whose business is to develop real estate is in a position to perform certain acts towards the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt Ltd (2018)(4) TMI 1565 (Bang) and it was held that when the assessee is carrying on the business of real estate development and the assessee has acquired properties for the purpose of development, the business of the assessee ought to have been considered as having been set up. Accordingly, it was held that all the revenue expenses have therefore to be allowed as deduction in computing income from business. Accordingly, he submitted that the assessee s business was set up in 2007 itself, when it started acquiring lands for real estate development. Hence the tax authorities are not correct in observing that the assessee has not set up its business. Accordingly, he submitted that all the revenue expenses claimed by the assessee should be allowed as deduction. 8. The Ld A.R submitted that the AO has observed that the assessee has not declared any business income. He submitted that the assessee is following the accounting standards and guidance notes issued for recognizing income. He submitted that the policy adopted by the assessee for revenue recognition is given in Annual Report as under:- 1.5 Revenue Recognition Revenue is recognized to the extent that it is pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has not commenced its business activities and hence the expenses claimed by it cannot be allowed as deduction. He submitted that the Ld CIT(A) has examined the issues in proper perspective and hence his decision does not call for any interference. With regard to interest income, the Ld D.R submitted that the assessee has failed to show the business compulsion for making deposits and hence the interest income was rightly assessed as income under the head Income from other sources. 11. We heard rival contentions and perused the record. The first issue relates to the disallowance of expenses claimed by the assessee. We notice that the tax authorities have disallowed the claim holding that the assessee has not set up its business. The settled principle is that the expenses incurred after setting up of business and when it is ready for actual commencement of business, is allowable as deduction. 12. The assessee is engaged in the business of real estate development, i.e., it is engaged in the business of acquiring land and developing the same into residential/commercial properties. The question as to when the business can be set up in this kind of business was examined by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y following the views expressed by ITA Noe.2648 to 2653/B/17 the Hon'ble ITAT, it is held that the acquisition of lands for purposes of real estate development would amount to setting up and commencement of business and the expenses claimed by the appellant are allowable. We find no grounds to interfere with the order of the CIT(A). The appeal for AY 13-14 is dismissed. We notice that the co-ordinate bench, in the above cited case, has followed the decision rendered by another co-ordinate bench in the case of Bangalore Goa Estate Pvt Ltd (supra), which in turn has followed the decision rendered by Hon ble Delhi High Court in the case of CIT vs. Dhoomketu Builders and Development P Ltd (2014)(368 ITR 680)(Delhi). 13. In the case of Dhoomketu Builders and Development P Ltd (supra), the Hon ble Delhi High Court has examined an identical issue and decided the same as under:- 9. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself. Accordingly, as per the ratio laid down in the above said cases, the assessee has already set up its business. Accordingly, the view taken by the tax authorities are liable to be set aside. Accordingly, we set aside the view expressed by Ld CIT(A) on this point and direct the AO to hold that the assessee has set up its business. 15. As stated earlier, the settled position of law is that, when the business is ready to commence, then the expenses incurred thereafter is allowable as deduction. Since we have held that the assessee has already been set up, expenses incurred in running the business of the assessee is allowable as deduction, even though no business income is available and declared by the assessee. Since the assessee was in the stage of construction of the buildings, as per the policy for revenue recognition under percentage of completion method and also as per the guidance notes issued in this regard, the assessee has decided to recognise income only when the work is completed atleast 25%. Since the stage of construction was less than 25%, the assessee did not declare any business income. However, the same cannot debar the assessee to claim revenue expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee from deposits kept with banks for temporary period and the interest earned on staff loans were held to be business income of the assessee in the above said case. Accordingly he submitted that the tax authorities are not justified in the instant case in assessing the interest income as income from other sources. 6. On the contrary, the Ld D.R submitted that the assessee has not shown that the deposits/loans are inextricably connected with the business activities of the assessee. He further submitted that the issue before Hon ble Karnataka High Court was whether the interest income can be said to have been derived from the export business in the context of deduction allowed u/s 10A of the Act. The Hon ble Karnataka High Court held that the incidental activity of parking of surplus funds with the banks or advancing of staff loans by such special category of assessees covered u/s 10A or 10B of the Act is the integral part of their export business activity and business decision taken in view of the commercial expediency. Accordingly it was held that the interest income cannot be delinked from its profits and gains derived by the undertaking engaged in the export ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
