Adani Estate Pvt. Ltd., Ahmedabad V. The Dy.CIT., Circle-1, Ahmedabad

ITA 1142/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76786 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 18-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO.1142/AHD/2011 (ASSESSMENT YEAR: 2006-07) ADANI ESTATE PVT. LTD. ADANI TOWNSHIP & ESTATE CO. AHMEDABAD V/S DCIT CIRCLE-1, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAFCA 6390M APPELLANT BY : SHRI VIJAY RANJAN RESPONDENT BY : SHRI R.K. DHANISTA, SR. D.R. ( )/ ORDER DATE OF HEARING : 15-05-2014 DATE OF PRONOUNCEMENT : 30 -05-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-VI, AHMEDABAD DATED 05.10.2010 FOR A.Y. 2006-07. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN TH E BUSINESS OF REAL ESTATE DEVELOPMENT. ASSESSEE FILED ITS RETURN OF INCOME FO R A.Y. 06-07 ON 20.12.2006 DECLARING TOTAL INCOME OF RS. 18,73,610/ -. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAM ED UNDER SECTION 143(3) AND THE TOTAL INCOME WAS ASSESSED AT RS. 32,08,955/ -. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 05.10.2010 DISMISSED THE APPEAL OF ASSESSEE. AGGRIE VED BY THE ORDER OF ITA NO 1142 /AHD/2011 . A.Y. 2006- 07 2 CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING EFFECTIVE GROUND:- 1. WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE, THE LD. CIT(A). SHOULD HAVE REALIZED AND HELD THAT IN THIS CASE, TH OUGH DEVELOPMENT OR CONSTRUCTION ACTIVITY HAD NOT TAKEN PLACE, BUT ACTUALLY, THE BUSINESS HAD BEEN SET UP AND FURTHER THAT THE INCOME THAT AROSE FROM THE MONIES ADVANCED TO THE BIFR COM PANY VIZ. COLUMBIA CHROMES [INDIA] PVT. LTD. [CCPL FOR BREVITY] WAS IN CONNECTION WITH THE ASSESSEE'S BUSINESS, AS IT WAS NOT SIMPLICITER INTEREST WHICH IS EARNED ON BANK DEPOSI TS, ETC. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) SHOULD HAVE REALIZED AND HELD ALSO THAT THE TRANSACTION OF GIVING MONEY TO CCPL FOR EARNING INCOME AND PAYMENT OF PROFESSIONAL FEES TO RSM & CO. WERE IN CONNECTIO N WITH THE ASSESSEE'S BUSINESS, WHICH HAD BEEN SET UP AND THEREFORE, FEES PAID TO RSM & C O. RS. 13,22,400 DESERVED TO BE ALLOWED AS DEDUCTION IN COMPUTATION OF TOTAL INCOME . 4. THOUGH 2 DIFFERENT GROUNDS ARE RAISED, BUT BOTH ARE INTER CONNECTED AND THEREFORE CONSIDERED TOGETHER. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O . NOTICED THAT ASSESSEE HAD PAID RS. 13,22,400/- TO RSM & CO. AS FEES FOR L EGAL AND PROFESSIONAL SERVICES AND THE SAME WAS CONSIDERED AS BUSINESS EX PENDITURE. A.O ALSO NOTICED THAT NO BUSINESS INCOME WAS GENERATED BY TH E ASSESSEE DURING THE YEAR BUT HAD EARNED INTEREST INCOME TO THE TUNE OF RS. 32,31,835/- FROM THE LOANS AND ADVANCES GIVEN TO ITS SUBSIDIARIES OUT OF THE SHARE APPLICATION MONEY RECEIVED BY IT. AGAINST SUCH INCOME, ASSESSEE HAD CLAIMED LEGAL AND PROFESSIONAL CHARGES PAID TO RSM & CO. A.O WAS OF T HE VIEW THAT SINCE THE ASSESSEE HAD NOT UNDERTAKEN ANY PROJECT AND SINCE N O INCOME FROM BUSINESS ACTIVITIES WAS GENERATED, THE INTEREST INCOME CANNO T BE CONSIDERED AS BUSINESS INCOME. ACCORDING TO HIM, THE INCOME IS T O BE CONSIDERED AS INCOME FROM OTHER SOURCES AND AGAINST WHICH ONLY THE EXPENSES INCURRED FOR EARNING SUCH INCOME CAN BE ALLOWED. A.O WAS THEREFO RE OF THE VIEW THAT SINCE THE LEGAL AND PROFESSIONAL FEES WAS NOT INCURRED TO EARN INTEREST INCOME IT CANNOT ALLOWED TO THE ASSESSEE AND HE ACCORDINGLY D ISALLOWED THE CLAIM OF LEGAL AND PROFESSIONAL FEES OF RS. 13,22,400/- AND PRELIMINARY EXPENSES WRITTEN OFF OF RS. 4,200/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER O F A.O BY HOLDING AS UNDER:- ITA NO 1142 /AHD/2011 . A.Y. 2006- 07 3 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANTS SUBMISSION. IT IS NOT IN DISPUTE THAT THE BUSINESS OF APPELLANT HA S NOT COMMENCED TILL THE END OF FINANCIAL YEAR AND THEREFORE EXPENSES INCURRED FOR SETTING UP FOR BUSINESS HAS TO BE CAPITALIZED. DURING THIS PERIOD APPELLANT EARNED INTEREST INCOME FROM W HICH LEGAL AND PROFESSIONAL EXPENSES WERE CLAIMED. THESE EXPENSES ARE NOT RELATING TO EA RNING INTEREST INCOME TAXABLE IN OTHER SOURCES HEAD. SINCE THESE EXPENSES WERE NOT INCURRE D, WHOLLY AND EXCLUSIVELY FOR EARNING INTEREST INCOME, NO EXPENSES CAN BE ALLOWED FROM SU CH INCOME. IN VIEW OF THIS AND THE DECISION OF HONORABLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALIES AND CHEMICALS REPORTED IN 227 ITR 172, APPELLANT IS NOT ENTITLED TO CLAIM THESE EXPENSE OUT OF INTEREST INCOME SINCE THESE ARE NOT INCURRED FOR EARNING THESE INCOME. IN VIEW OF THIS ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S NOW IN APPEAL BEFORE US. 7. BEFORE US, THE LD. A.R. REITERATED THE SUBMISSIO NS MADE BEFORE CIT(A). HE FURTHER SUBMITTED THAT THE LEGAL AND PROFESSIONAL F EES PAID TO RSM & CO. AS WELL AS THE PRELIMINARY EXPENSES WRITTEN OFF SHOULD BE ALLOWED UNDER SECTION 71 OF THE ACT AS IT BEING IN THE NATURE OF BUSINESS LOSS. HE FURTHER SUBMITTED THAT THOUGH THE PLEA OF SET OFF OF LOSS UNDER SECTI ON 71 WAS NOT TAKEN AS A GROUND IN APPEAL BEFORE CIT(A), BUT HOWEVER THE SUB MISSIONS TO THAT EFFECT WERE MADE BEFORE CIT(A) BUT CIT(A) DID NOT ADJUDICA TE THE ISSUE. HE THEREFORE SUBMITTED THAT THE ASSESSEE BE ALLOWED SE T OFF OF LOSS UNDER SECTION 71(1) AND FOR WHICH HE RELIED ON THE DECISION IN TH E CASE OF BATRA FILM PVT. LTD. VS. CIT(A) 179 ITR 134 (PUNJAB). 8. ON THE OTHER HAND, THE LD. D.R, WITH RESPECT TO THE DISALLOWANCE OF EXPENSES AS BUSINESS INCOME, SUPPORTED THE ORDER OF A.O AND CIT(A). WITH RESPECT TO ALTERNATE PLEA OF ALLOWING SET OFF OF LOSS U/S. 71 OF THE ACT, LD. D.R. SUBMITTED THAT NO SPECIFIC GROUND WAS TAKEN BEFORE CIT(A). HE THEREFORE SUBMITTED THAT SINCE THE ALTERNATE CLAIM OF ASSESSEE OF LOSS UNDER SECTION 71 HAS NOT BEEN ADJUDICATED BY CIT(A), THE MATTER BE REMITTED BEFOR E CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, THE ASSESSEE HAS TAKEN AN ALTERNATE PLEA FOR ALLOWING OF LOSS ON ACCOUNT OF FEES PAID TO RSM & CO. AND THE PRELIMINA RY EXPENSES BE ALLOWED UNDER SECTION 71 OF THE ACT AND FOR WHICH HE PLACED RELIANCE ON THE DECISION ITA NO 1142 /AHD/2011 . A.Y. 2006- 07 4 IN THE CASE OF BATRA FILM PVT. LTD. (SUPRA). WE FIN D THAT BEFORE CIT(A) THOUGH NO GROUND WITH RESPECT TO ALLOWANCE OF LOSS UNDER S ECTION 71 WAS TAKEN BUT HOWEVER THE SUBMISSIONS WERE MADE BY ASSESSEE. WE A LSO FIND THAT THERE IS NO FINDING OF CIT(A) ON THE ALLOWING OF SETTING OFF OF LOSS UNDER SECTION 71. WE ARE THEREFORE OF THE VIEW THAT THE MATTER WITH RESP ECT TO THE ALTERNATE PLEA OF SETTING OFF OF LOSS U/S 71 OF THE ACT NEEDS TO BE E XAMINED BY CIT(A). WE THEREFORE REMIT THE ISSUE TO THE FILE OF CIT(A) TO DECIDE THE ISSUE IN THE LIGHT OF THE DECISIONS RELIED BY ASSESSEE AND ANY OTHER DECI SION WHICH THE ASSESSEE MAY RELY UPON. CIT(A) WILL THEREAFTER DECIDE THE IS SUE AND PASS A SPEAKING ORDER. NEEDLESS TO STATE, CIT(A) SHALL GRANT ADEQUA TE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. THUS THESE GROUNDS OF ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 30 - 05 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT ,AHMEDABAD