DCIT, New Delhi V. M/s. DLF Hotels Holdings Ltd., New Delhi

ITA 128/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7346 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TARWINDER KAUR
• Keywords: Business expenditure; Proportionate interest; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE S H.G.D.AGRAWAL, VICE PRESIDENT, AND SH. I.C.SUDHIR, JUDICIAL MEMBER I.T.A .NO. - 128/ DEL/201 3 (ASSESSMENT YEAR - 2007 - 08 ) DCIT, CIRCLE - 10(1), NEW DELHI (APPELLANT) VS DLF HOTELS HOLDINGS LTD., 9 TH FLOOR, DLF CENTRE, SANSAD MARG, NEW DELHI PAN - AACCD5033D (RESPONDENT) APPELLANT BY S MT .TARWINDER KAUR, SR. DR RESPONDENT BY SH.R.S.SINGHVI & SH. SATYAJEET GOEL, CA ORDER PER I .C.SUDHIR , JM THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: - I). WHETHER THE LD. CIT(A) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW WAS CORRECT IN DELETING ADDITION OF RS.3,03,071/ - MADE BY THE AO ON ACCOUNT OF DISALLOWING THE SET OFF OF NON - OPERATIVE BUSINESS EXPENDITURE FROM THE INCOME FROM OTHER SOURCES I.E. INTEREST INCOME. II). WHETHER THE LD. CIT(A) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW WAS JUSTIFIED IN ALLOWING THE PRE - OPERATIVE EXPENDITURE TO THE TUNE OF RS.3,07,88,744/ - TO BE CAPITALIZED WHEREAS THE ASSESSEE ITSELF HAS ADMITTED THAT CARRY FORWARD OF THE EXPENDITURE TO SUBSEQUENT YEARS IS NOT TO BE ALLOWED? 2. AT THE OUTSET OF HEARING LD. AR POINTED OUT THAT THE GROUNDS RAISED BY THE REVENUE ARE COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS KARNAL COOPERATIVE (2000) 243 ITR 2 (SC) AND CIT VS BO KARO STEEL 236 I TR 315 (SC) AS WELL AS BY THE DECISION OF HON BLE 2 I.T.A .NO. - 128/DEL/2013 JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF INDIAN OIL, PANIPAT CONSORTIUM LTD. VS ITO (2009) 315 ITR 255 (DEL). 3. LD. DR ON THE OTHER HAND TRIED TO JUSTIFY THE ASSESSMENT ORDER ON THE ISSUES. GROUND NO. - 1 4. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WA S ENGAGED IN HOSPITALITY BUSINESS DURING THE YEAR. IT HAD RAISED SHARE CAPITAL AND ALSO LOANS FROM ITS HOLDING COMPANY AND SUBSIDIARY COMPANY. THE FUNDS RAISED BY THE ASSESSEE WERE UTILIZED FOR BUSINESS ACTIVITIES OF THE ASSESSEE COMPANY. IT MADE ADVANCE FOR CAPITAL WORK IN PROGRESS (CWIP) AND HAD ALSO ADVANCED LOANS TO ITS SUBSIDIARY COMPANIES. THE INTEREST RECEIVED FROM ADVANCE WERE SET OFF AGAINST INTEREST PAID AND EXPENSES INCURRED DURING THE YEAR. THE AO HOWEVER DID NOT ALLOW THE SET OFF INTEREST INCOME OF R S.3,03,071/ - AGAINST THE PRE - OPERATIVE EXPENSES INCURRED BY THE ASSESSEE AND ADDED RS.3,03,071/ - AS INCOME OF THE ASSESSEE. 5. THE SUBMISSIONS OF THE ASSESSEE REMAINED THAT THE ASSESSEE HAD RECEIVED LOAN FROM DLF HOME DEVELOPERS LTD. & MS. DLF LTD. ON WHIC H WERE OUTSTANDING AT RS.24,80,64,000/ - AS ON 31.03.2007. THE INTEREST PAID BY THE ASSESSEE ON THESE BORROWING AT RS.25,85,957/ - HAS BEEN CHARGED IN P&L ACCOUNT AS FINANCE CHARGES. THE ASSESSEE ALSO ADVANCED RS. 3,78,65,000/ - TO ITS SUBSIDIARY COMPANY M /S DLF HOTEL RESORTS LTD. (KNOWN AS DLF HILTON HOTEL LTD.) & M/S BEDELIA BUILDERS & CONSTRUCTIONS PVT. LTD. THE ASSESSEE HAD 3 I.T.A .NO. - 128/DEL/2013 RECEIVED INTEREST ON THIS ADVANCE AMOUNTING TO RS.10,08,250/ - . SINCE THERE WAS DIRECT NEXUS OF THE FUNDS, IT CLAIMED THE PROPORT IONATE DEDUCTION OF INTEREST CHARGED IN P&L ACCOUNT . PR OPORTIONATE DEDUCTION WA S WORKED OUT TO RS.7,05,179/ - WHICH WAS CLAIMED AGAINST THE INTEREST INCOME AND THE NET INCOME OF RS.3,03,071/ - WAS COMPUTED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE NET INCOME HOWEVER WAS SET OFF AGAINST THE OTHER EXPENSES INCURRED DURING THE YEAR AND NET EXPENSES WERE CLAIMED TO BE ALLOWED. THE AO HAS OVERLOOKED THE CLAIM OF THE ASSESSEE INASMUCH AS THE ASSESSEE REQUESTED TO ALLOW THE CAPITALIZATION OF EXPENSES IN CWIP NET OF THIS INTEREST INCOME. 6. THE LD. CIT(A) HAS HOWEVER DEL E TED THE ADDITION FOLLOWING ABOVE CITED DECISIONS. 7. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE F IRST A PPELLATE ORDER ON THE ISSUE IS FULLY COVERED BY THE CITED DECISIONS. FOR READY - REFERENCE, THE RELEVANT EXTRACT OF PARA NO - 5.2 OF THE FIRST APPELLATE ORDER IS BEING REPRODUCED HEREUNDER: - 5.2. DECISION I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND OBSERVATION OF THE ASSESSING OFFICER. IT IS SEEN THAT APPELLANT COMPANY WAS INCORPORATED ON 30.08.2006 WITH THE PRIMARY OBJECTIVE TO ENGAGE IN THE HOSPITALITY BUSINESS. IN FURTHERANCE OF THIS OBJECTIVE THE APPELLANT COMPANY TOOK LOAN FROM DLF HOME D EVELOPERS AND DLF LTD. OF RS.24,80,64,000/ - . OUT OF THESE FUNDS, THE APPELLANT GIVEN ADVANCE OF RS.15,53,74,547/ - FOR CAPITAL WORK IN PROGRESS AND PART OF THE AMOUNT WAS GIVEN AS LOAN TO SUBSIDIARY COMPANIES. ON THIS ADVANCE APPELLANT HAD RECEIVED INTERE ST OF RS.10,08,250/ - . SINCE THERE WAS A DIRECT NEXUS BETWEEN THE FUNDS BORROWED AND FUNDS ADVANCED OUT OF THEM, THEREFORE, PROPORTIONATE INTEREST WAS CLAIMED AS SET OFF AGAINST THE INTEREST OF RS.25,85,957/ - PAYABLE ON THE LOANS TAKEN. THE PROPORTIONATE INTEREST WAS WORKED OUT AT RS.7,05,179/ - WHICH WAS SET OFF AGAINST THE INTEREST PAYABLE OF 4 I.T.A .NO. - 128/DEL/2013 RS.25,85,957/ - AND THE BALANCE INTEREST RECEIVED OF RS.3,03,071/ - WAS COMPUTED AS INCOME FROM OTHER SOURCES AND WAS SET OFF AGAINST THE PRE - OPERATIVE EXPENSES INCURR ED BY THE APPELLANT FOR CAPITAL WORK IN PROGRESS. THIS SET OFF HAS BEEN DISALLOWED BY THE ASSESSING O F FICER. THE APPELLANT IN THIS REGARD HAS RELIED UPON THE JUDGEMENT OF CIT VS KARNAL COOPERATIVE 243 ITR 002 (SC), CIT VS BOKARO STEEL 236 ITR 315 (SC) AN D DELHI HIGH COURT JUDGEMENT IN THE CASE OF INDIAN OIL PANIPAT CONSORTIUM LTD. VS ITO 315 ITR 255 (DEL) WHEREIN IT WAS HELD THAT SINCE THE INCOME WAS EARNED PRIOR TO THE COMMENCEMENT OF THE BUSINESS IT WAS IN THE NATURE OF CAPITAL RECEIPTS. HENCE, SAME WA S REQUIRED TO BE SET OFF AGAINST THE PRE - OPERATIVE EXPENSES. THE FACTS OF THE APPELLANT CASE ARE IDENTICAL WITH THAT OF ABOVE CITED JUDICIAL PRONOUNCEMENT. THE APPELLANT TOOK LOANS FROM DLF HOME DEVELOPER AND DLF LTD. ON INTEREST. PART OF THE MONEY OF RS .15,53,74,547/ - WAS UTILIZED FOR CAPITAL WORK IN PROGRESS AND PART OF THE MONEY WHICH WAS NOT REQUIRE IMMEDIATELY AND WAS GIVEN ON INTEREST TO SUBSIDIARY COMPANIES ON WHICH INTEREST OF RS.10,08,250/ - WAS RECEIVED. A PART OF THIS INTEREST OF RS.7.05,179/ - WAS SET OFF AGAINST INTEREST PAYABLE AS THERE WAS A DIRECT NEXUS BETWEEN THE FUNDS BORROWED AND FUNDS ADVANCED OUT OF SUCH BORROWED FUNDS. THE BALANCE INTEREST OF RS.3,03,071/ - WAS SET OFF AGAINST PRE - OPERATIVE EXPENSES WHICH WERE CAPITAL IN NATURE. THE RECEIPTS OF THE INTEREST PRIOR TO COMMENCEMENT OF THE BUSINESS FROM THE FUNDS RAISED FOR SETTING UP OF BUSINESS WAS IN CAPITAL IN NATURE AND THE SAME WAS SET OFF AGAINST THE PRE - OPERATIVE EXPENSES WHICH WERE ALSO IN CAPITAL IN NATURE. THEREFORE, THE ASSES SING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE SET OFF OF INTEREST WHICH WAS IN CAPITAL NATURE AGAINST THE PRE - OPERATIVE EXPENSES, WHICH WERE ALSO CAPITAL IN NATURE. HENCE, THE DISALLOWANCE OF SET OFF IS DELETED AND INCOME OF RS.3,03,071/ - ADDED AS INC OME FROM OTHER SOURCES IS ALSO DELETED. 8. WE FIND THAT THE FIRST APPELLATE ORDER ON THE ISSUE IS COMPREHENSIVE, REASONED ONE AND SUPPORTED BY THE CITED DECISIONS. WE ARE THUS NOT INCLINED TO INTERFERE THEREWITH. THE SAME IS UPHELD. THE GROUND NO. - 1 IS REJECTED. GROUND NO. - 2 9. THE RELEVANT FACTS OF THE CASE ARE THAT THE AO DID NOT ALLOW CARRY FORWARD/CAPITALIZATION OF THE PRE - OPERATIVE EXPENSES INCURRED BY THE ASSESSEE FOR SETTING BUSINESS. 5 I.T.A .NO. - 128/DEL/2013 10. THE ASSESSEE OBJECTED THE ABOVE ACTION OF THE AO BEFORE THE LD. CIT(A) WITH THIS CONTENTION THAT THE AO HAS FAILED TO APPRECIATE THE CLAIM FOR ALLOWABILITY OF EXPENSES, MADE THROUGH NOTE TO THE COMPUTATION OF INCOME. IT WAS SUBMITTED THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE AO OUGHT TO HAVE TREA TED THE ENTIRE EXPENDITURE AS PER P&L ACCOUNT AS PRE - OPERATIVE EXPENDITURE TO BE CAPITALIZED. IT WAS SUBMITTED THAT IT WAS EXPLAINED TO THE AO THAT THE ASSESSEE HAD INCURRED NET EXPENDITURE OF RS.3,07,88,744/ - AFTER SET - OFF RS.7,05,179/ - ON ACCOUNT OF INT EREST RECEIVED. IN THE RETURN FILED BY THE COMPANY THE EXPENDITURE INCURRED WAS CAPITALIZED IN ACCORDANCE WIT H THE SETTLED PRINCIPLES OF ACCOUNTANCY. IT HAD NEITHER CLAIMED THE DEDUCTION FOR THE SAME NOR IT HAD BEEN CARRIED FORWARD FOR SET OFF IN THE SU BSEQUENT YEAR. IT WAS SUBMITTED THAT THE BUSINESS LOSS DURING THE YEAR WAS THE SUM TOTAL OF ALL EXPENSES CHARGED IN THE P&L ACCOUNT FOR THE YEAR WHICH WERE NOT CLAIMED FOR COMPUTATION OF INCOME FOR THE YEAR BUT WERE CLAIMED TO BE CAPITALIZED IN CAPITAL WO RK IN PROGRESS. 11. CONSIDERING THE ABOVE SUBMISSIONS THE LD. CIT(A) HAS DECIDED THE ISSUE CONCLUDED HIS FINDING IN PARA 6.2 OF THE FIRST APPELLATE ORDER , REPRODUCED HEREUNDER: - 6.2. DECISION I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND OBSERVATION OF THE ASSESSING OFFICER. IT IS SEEN THAT APPELLANT HAD CLAIMED RS.3,07,88,744/ - AS AMOUNT CAPITALIZED IN CAPITAL WORK IN PROGRESS. THE APPELLANT CLAIMS THAT DURING THE COURSE OF ASSESSMEN T PROCEEDINGS IT WAS EXPLAINED TO THE ASSESSING OFFICER THAT NET EXPENDITURE INCURRED OF RS.3,07,88,744/ - AFTER SET - OFF RS.7,05,179/ - ON ACCOUNT OF INTEREST RECEIVED HAS TO BE CAPITALIZED IN ACCORDING WITH THE SETTLED PRINCIPLES OF ACCOUNTANCY. IT HAS NEI THER CLAIMED THE DEDUCTION FOR THE SAME NOR HAS CLAIMED IT BEEN CARRIED FORWARD FOR SET - OFF IN THE SUBSEQUENT YEAR. THE APPELLANT HAS GIVEN 6 I.T.A .NO. - 128/DEL/2013 ADVANCE FOR CAPITAL WORK IN PROGRESS OF RS.15,53,74,547/ - . DURING THE YEAR OUT OF THE SAME AN EXPENDITURE OF RS.3, 07,88,744/ - WHICH WAS PRE - OPERATIVE IN NATURE WAS CAPITALIZED AS CAPITAL WORK IN PROGRESS. THIS EXPENDITURE HAS BEEN INCURRED FOR SETTING OF THE BUSINESS BY THE APPELLANT AND APPELLANT HAS NOT CLAIMED ANY CARRY FORWARD AND SET OFF OF THE SAME AGAINST FUT URE PROFITS. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN NOT ALLOWING CAPITALIZATION OF PRE - OPERATIVE EXPENSES. HENCE, THE DECISION OF THE ASSESSING OFFICER IS SET ASIDE AND EXPENDITURE TO THE TUNE OF RS.3,07,88,744/ - IS ALLOWED TO BE CAPITALIZ ED AS PRE - OPERATIVE EXPENSES. 12. SINCE THE CLAIMED EXPENDITURE WAS INCURRED FOR SETTING OF BUSINESS BY THE ASSESSEE AND THE ASSESSEE HAD NOT CLAIMED ANY CARRY FORWARD AND SET - OFF THE SAME AGAINST THE FUTURE PROFITS; THUS THE AO WAS NOT JUSTIFIED IN NO T ALLOWING CAPITALIZATION OF PRE - OPERATIVE EXPENS ES. UNDER THESE FACTS, WE ARE O F THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY ALLOWED THE EXPENDITURE TO BE CAPITALIZED AS PRE - OPERATIVE EXPENSES. THE SAME IS UPHELD. THE GROUND NO - 2 IS ACCORDINGLY REJECTED. 13. IN THE RESULT THE APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 7 T H OF OCTOBER 2014. S D / - S D / - ( G.D.AGRAWAL ) ( I.C.SUDHIR ) VICE PRESIDENT JUDICIAL MEMBER DATED: 2 7 / 1 0/2014 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI