Ascendas IT Park Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 1256/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9573 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 25-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH IRS
• Keywords: Capital asset; Business expenditure; Reason to believe; Revenue expenditure
• Section: 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , ! ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.1256/MDS/2015 ! # $# / ASSESSMENT YEAR : 2005-2006 M/S. ASCENDAS IT PARK CHENNAI LIMITED, IST FLOOR, INTERNATIONAL TECH PARK, PINNACLE BUILDING, TARAMANI ROAD, TARAMANI, CHENNAI 600 113. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1) CHENNAI. [PAN AAECA 7979D ] ( / APPELLANT) ( /RESPONDENT) %& ' ( / APPELLANT BY : SHRI. RAGHUNATHAN SAMPATH, ADV )*%& ' ( /RESPONDENT BY : SHRI. A.V. SREEKANTH, IRS, JCIT. ' + / DATE OF HEARING : 18-02-2016 ,-$ ' + / DATE OF PRONOUNCEMENT : 04-05-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, CHENNAI IN ITA NO.298/08-09/A-1, DT 30.01.2015 FOR THE ASSESSMENT YEAR 2005- ITA NO.1256/MDS/2015 :- 2 -: 2006 PASSED U/S.143(3) R.W.S. 147 AND 250 OF THE I NCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 2. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE T HAT THE WORK BUSINESS IS ONE OF WIDE IMPORT AND IN FISC AL STATUTES, IT MUST BE CONSTRUED IN A BROAD SENSE RAT HER THAN A RESTRICTED SENSE. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FAC T THAT WHERE THE TAX PAYER IS ENGAGED IN REAL ESTATE ACTIV ITY, THE BUSINESS CAN BE CONSIDERED TO BE SET UP WHEN TH E PRIMARY ACTIVITY, IE. ACQUISITION OF LAND TAKES PLA CE AND THE SUBSEQUENT BUSINESS EXPENDITURE INCURRED FROM THEREON IS TO BE ALLOWED AS REVENUE EXPENDITURE. 3. THE BRIEF FACTS OF THE CASE THAT T HE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF DEVELOPING AND LEASING O F PROPERTIES OF HI TECH & IT OFFICE SPACES. DURING THE PREVIOUS YEAR ASSESSEE COMPANY CARRIED ON THE BUSINESS OF DEVELOPING AN IT PARK AND FILED RETURN OF INCOME DISCLOSING LOSS OF =1,49,96,8 27/-. THE RETURN OF INCOME WAS PROCESSED UNDER SEC 143(1) AND LO SS WAS ACCEPTED. SUBSEQUENTLY, THE ASSESSING OFFICER ISSUED NOTICE U/SEE 148 OF THE ACT WERE THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT THE EXPENSES CLAIMED BY THE ASSESSEE I N THE PRE- COMMENCEMENT PERIOD SHOULD BE CAPITALIZED AND INTEREST ON DEPOSITS TAXABLE UNDER THE HEAD 'INCOME FROM OTHER S OURCES'. THE ASSESSEE SUBMITTED EXPLANATION WITH SUPPORTING (ANNX 1 ITA NO.1256/MDS/2015 :- 3 -: AND 2) THAT THE MARKETING DIVISION OF THE ASSESSEE PREMISES HAD COMMENCED IN PREVIOUS YEAR AND CONSEQUENTLY EXPENDITUR E IS CHARGED TO PROFIT AND LOSS ACCOUNT AS REVENUE IN NATUR E BUT THE LD. ASSESSING OFFICER PASSED RE-ASSESSMENT ORDER DAT ED 12/12/08 BY TREATING THE INTEREST ON DEPOSITS =17,42,295/- AS THE INCOME FROM OTHER SOURCES AND RAISED A DEMAND. THE LEARNED ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF REVENUE EXPENDITURE OF =1,49,63,881/- AND TREATED AS PRIOR PERIOD EXPENDITURE AND INTEREST INCOME IS SEPARATELY TAXED. THE LD. ASSESSING OFFICER RELIED ON THE DECISION OF TUTICORIN ALKALI CHEMICALS AND FERTILISER LIMITED VS CIT 227 ITR 172 (SC). AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE GROUNDS AND FINDI NGS OF THE ASSESSING OFFICER ON THE CLAIM OF INTEREST ON DE POSITS SET OFF AGAINST THE EXPENDITURE AND THE ASSESSEE CONTENTIO N BEING SET UP OF COMMERCIAL BUSINESS OPERATIONS. THE LD. AUTHO RISED REPRESENTATIVE SUBSTANTIATED ARGUMENTS AND FILED SU BMISSIONS AND SUPPORTED THE FACTS WITH JUDICIAL DECISIONS. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE WRITTEN ITA NO.1256/MDS/2015 :- 4 -: SUBMISSIONS AND FACTUAL OBSERVATIONS OF ASSESSING O FFICER AND IS OF THE OPINION THAT PURCHASE OF LAND BY THE ASSESSEE COMPANY FOR CONSTRUCTION OF I.T. PARKS CANNOT BE TERMED AS COMMENCEMENT OF BUSINESS AND EXHAUSTIVELY DISCUSSED A T PARA 4.2 OF THE ORDER AS UNDER:- 4 . 2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ID.AR . THE ID . AR ARGUES THAT THE COMMENCEMENT OF THE BUSINESS IN THE CASE OF I.T.PAR KS IS DIFFERENT FROM THE REGULAR BUSINESS . HE IS OF THE OPINION THAT ONCE THE ADVANCES WERE PAID TO ACQUIRE LAND FOR CON STRUCTION OF I . T . PARKS, THE BUSINESS COMMENCE . THE APPELLANT ARGUES THAT IT ITSELF HAS CAPITALIZED SOME PART OF THE PRE - OPE R ATIVE EXPENDITURE AND SOME WAS CLAIMED AS REVENUE. AS SEE N FROM THE FACTS OF THE CASE THE ISSUE IN QUESTION IS THE TREATMENT GIVEN TO THE INTEREST INCOME EARNED FROM THE BANKS OF RS.17 , 42 , 295 PRIOR TO THE COMMENCEMENT OF BUSINESS. THERE WAS NO DISPUTE WITH REGARD TO THE TREATMENT GIVEN T O THE EXPENDITURE INCURRED BY THE APPELLANT TILL THE COMM ENCE OF BUS I NESS . AS PER THE DEC I SION OF THE HON ' BLE SUPREME COU R T IN THE CASE OF TUT I COR I N ALKALI CHEMICALS & FERT I L I ZERS LTD (SUPRA), THE INCOME EARNED PRIOR TO THE COMMENCEMENT OF THE BUSINESS NEEDS TO BE ASSESSED UNDER INCOME FROM O THER SOURCES AND ALL THE EXPENDITURE INCURRED TILL SUC H COMMENCEMENT NEEDS TO BE CAPITALIZED. SINCE NO BUS INESS HAS COMMENCED DURING THE FINANCIAL YEAR RELEVANT TO A.Y. 2005-06 BY GENERATING ANY INCOME BY THE APPELLANT C OMPANY, THE BANK INTEREST EARNED DURING THE YEAR FROM THE E XPENDITURE OF THE COMPANY FOR THE YEAR WHEN THE BUSINESS HAS N OT COMMENCED, IS NOT IN ORDER. THE ACTION OF THE ASSE SSING OFFICER BY BRINGING TO TAX SUCH BANK INTEREST EARNE D PRIOR TO THE COMMENCEMENT OF BUSINESS UNDER INCOME FROM OTHER SOURCES IS WELL WITHIN THE LAW. I DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE ASSESSING OFFICER. THEREFORE, I DO NOT WANT TO ITA NO.1256/MDS/2015 :- 5 -: INTERFERE IN THE DECISION TAKEN BY THE ASSESSING OF FICER. THE GROUND IS DISMISSED. AND DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVE D BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE REITER ATED THE SUBMISSIONS OF ASSESSMENT AND APPELLATE PROCEEDINGS ON THE ISSUE OF DEFINITION OF COMMENCEMENT OF BUSINESS IN BROADER SENSE AND APPLICABILITY. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT APPRECIATING THE FACTS THAT ASSESSEE IS EN GAGED IN REAL ESTATE ACTIVITY AND THE BUSINESS IS PRESUMED AS COMMENCED ON ACQUISITION OF LAND AND ANY EXPENDITURE INCURRED DURING THE SAID P ERIOD IS TREATED AS REVENUE EXPENDITURE. THE LD. AUTHORISED REPRESENTA TIVE SUBSTANTIATED WITH WRITTEN SUBMISSIONS ON THE MAIN OBJECTS OF T HE ASSESSEE COMPANY AS DEVELOPMENT OF I.T. PARK AND INDUSTRIAL PARK AND CONSTRUCTION AND MAINTENANCE OF INFRASTRUCTURE FO R IT AND INDUSTRIAL PARKS BY ACQUIRING LAND FOR DEVELOPMENT. THE ASSES SEE TOOK POSSESSION OF THE LAND IN MAY, 2004 AND ADVANCED MO NEY TO THE CONTRACTORS TO COMMENCE CONSTRUCTION OF PARK DURIN G FINANCIAL YEAR 2004-05. THE COMPANY HAS CAPITALIZED EXPENDITURE I NCURRED IN CAPITAL ASSETS WHICH ARE IN THE NATURE OF PROJECT MANAGEME NT FEES, PROPERTY ITA NO.1256/MDS/2015 :- 6 -: MANGEMENT FEES AND OTHER EXPENSES AND THE INTEREST ON FIXED DEPOSITS IN BANK =17,42,295/- IS CREDITED TO PROFIT AND LOSS ACCOUNT AND SETOFF OF AGAINST THE BUSINESS EXPENDITURE. THE LD . AUTHORISED REPRESENTATIVE RELIED ON THE JUDICIAL DECISIONS AND PRODUCED MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIA TION AND SUBSTANTIATED THE GROUNDS WITH TRIBUNAL DECISIONS IN THE CASE OF ARCANE DEVELOPERS PVT. LTD VS. ITO & OTHERS IN ITA 4632/DEL/2010 DATED 22.06.2012 AND EMPHASIZED ON HIGH COURT DECISION OF CIT VS. M/S. DHOOMKETU BUILDERS & DEVELOPMENT PVT. LTD. IN ITA 528 & 529/2012, DT 23.04.2013 AND PRAYED FOR ALLOWING THE APPEAL. 6. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF LOWER AUTHORITIES AND VEHEMENTLY OPPOSE D THE GROUNDS OF THE ASSESSEE AND PRAYED FOR DISMISSING THE APPEAL. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AUTHORISED R EPRESENTATIVE BASIC CONTENTION THAT THE BUSINESS OF THE ASSESSEE WAS SE TUP ON ACQUISITION OF LAND AND CLAIMED EXPENDITURE IN PROFIT AND LOSS ACCOUNT DUE TO COMMENCING BUSINESS OPERATIONS DURING THE YEAR AND THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO TH E ANNUAL REPORT OF THE COMPANY AND REFERRED TO SCHEDULE OF PROFIT AND LOSS ACCOUNT WERE THE ASSESSEE HAS OFFERED INCOME IN THE PROFIT AND L OSS ACCOUNT AND ITA NO.1256/MDS/2015 :- 7 -: CLAIMED EXPENDITURE. FURTHER OFFERED THE NET LOSS AS PER RETURN OF INCOME. THE DECISIONS RELIED BY THE ASSESSEE ON AC QUISITION OF LAND IS DEEMED AS BUSINESS BEEN SET UP BUT THE ASSESSEE COM PANY WAS INCORPORATED ON 03.11.2003 WHICH FALLS IN THE FINAN CIAL YEAR 2003-2004 RELEVANT TO ASSESSMENT YEAR 2004-05. BUT THE MAIN ACTIVITIES OF THE BUSINESS STARTED IN THE FINANCIAL YEAR 2004-05 RELE VANT TO CURRENT ASSESSMENT YEAR WERE THE ASSESSEE HAS ADVANCED MONE Y FOR PURCHASE OF LAND AND THE CONSTRUCTION OF TECH PARK WAS COMME NCED AND ALSO CAPITALIZATED THE EXPENDITURE IN THE BOOKS OF ACCOU NT. GENERALLY IN THE FIRST YEAR OF OPERATIONS, WERE THE ASSESSEE ACQUIR ED THE LAND CANNOT BE TREATED AS COMMENCEMENT OF BUSINESS. IT IS IN T HE NATURE OF GESTITATION PERIOD WERE THE ASSESSEE COMPANY YET TO START BUSINESS ACTIVITIES. ON PERUSAL OF OBJECTS OF MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION ASSESSEE IS CARRYING ON TH E BUSINESS IN INDIA INCLUDING MAINTAINING, ESTABLISHING, DEVELOPING AND CONSTRUCTION OF COMMERCIAL COMPLEX AND RESIDENTIAL BUILDING. THE ASSESSEE HAS CLAIMED SET OFF ON ASSUMPTION THAT BUSINESS HAS B EEN SETUP AND INCOME HAS TO BE ADJUSTED AGAINST THE PROJECT COST. THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE DECISIONS, ARE ON DIFF ERENT BUSINESS PROSPECTIVE AND MAIN OBJECT AS PER MOA OF THE COMPA NY IS NOT ACQUISITION OF LAND. AS PER THE BALANCE SHEET AS O N 31.03.2005, THE ASSESSEE HAS DISCLOSED FIXED ASSETS INCLUDING CAPIT AL WORK IN PROGRESS ITA NO.1256/MDS/2015 :- 8 -: AND PRE-OPERATIVE EXPENSE PENDING CAPITALIZATION. THE ASSESSEE COMPANY HAS KNOWLEDGE OF VARIOUS EXPENDITURE INCUR RED AND IDENTIFIED CERTAIN CATEGORY OF EXPENDITURE HAS CHAR ACTERISTIC OF PRE- OPERATIVE EXPENSES WHICH LD.ASSESSING OFFICER REFE RRED AT PAGE 2 OF ASSESSMENT ORDER. THE LD. ASSESSING OFFICER RELIED ON THE ACCOUNTING TREATMENT BY THE ASSESSEE COMPANY AND THE DEFINITIO N OF THE BUSINESS WERE THE COMPANY HAS SUO-MOTU CAPITALIZED EXPENSES =2,74,97,341/- TO THE DATE OF ESTABLISHING AND COMPLETION OF IT PA RKS AND CHARACTERISTIC OF EXPENDITURE REMAIN ON PAR WITH P RE-OPERATIVE EXPENDITURE. THE ASSESSING OFFICER RELIED ON SUPRE ME COURT DECISION OF TUTICORIN ALKALI CHEMICALS AND FERTILISER LIMITED (SUPRA) WERE IT WAS HELD THAT INTEREST ON BANK DEPOSITS RECEIVED BEFORE COMMENCEMENT OF OPERATIONS OF THE BUSINESS SHOULD BE OFFERED SEPAR ATELY AS INCOME FROM OTHER SOURCES. THE ASSESSEE HAS ACQUIRED THE PROPERTY AND ALSO INVESTED IN BANK DEPOSITS FURTHER YET TO COMMENCE I TS BUSINESS OPERATIONS AND FREEHOLD LAND WAS DISCLOSED IN SCHED ULE OF FIXED ASSETS AS AT 31.03.2005 AND THE ASSESSEE INCURRED GENERAL AND ADMINISTRATIVE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT AS THE PRE-OPERATIVE EXPENDITURE AND SETOFF WITH INTEREST INCOME CANNOT BE CONSIDERED. CONSIDERING THE PROVISIONS, FINANCIAL STATEMENTS, J UDICIAL DECISIONS, WRITTEN SUBMISSIONS AND MATERIAL PAPERS FILED, THE ACTION OF SET OFF INTEREST INCOME WITH EXPENDITURE IS NOT PERMITTED I N THE CIRCUMSTANCES ITA NO.1256/MDS/2015 :- 9 -: WERE ASSESSEE HAS NOT SET UP THE BUSINESS OR COMMEN CED THE BUSINESS AND ALSO NOT SUBMITTED COMMENCEMENT OF BUSINESS CE RTIFICATE ISSUED BY REGISTRAR OF COMPANIES UNDER COMPANIES ACT, 1956 . WE ARE OF THE OPINION THAT THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) HAS ELABORATELY DEALT ON THE DISPUTED ISSUE IN CONFIRMI NG THE ORDER OF ASSESSING OFFICER AND WE ARE NOT INCLINED TO INTERF ERE WITH THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND UPHOLD THE SAME AND DISMISS THE GROUNDS OF APPEAL. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED ON WEDNESDAY, THE 4TH DAY OF MAY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI 0 / DATED:04.05.2016 KV 1 ' )!+23 43$+ / COPY TO: 1 . %& / APPELLANT 3. 5+ () / CIT(A) 5. 389 )!+! / DR 2. )*%& / RESPONDENT 4. 5+ / CIT 6. 9:# ; / GF