M/s Crown Home Engineers Pvt Ltd , Bangalore V. The Assistant Commissioner of Income tAx Circle-2(1)(1), Bangalore

ITA 1572/BANG/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6921 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 18-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R PREMI J BENGALURU
• Assessee Lawyers: BHARAT L
• Section: 113; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO. 1572/BANG/2017 ASSESSMENT YEAR: 2012-13 CROWN HOME ENGINEERS PVT. LTD, NO. 413, 4 TH FLOOR, 84 BARTON CENTRE, M.G. ROAD, BANGALORE 560 001. PAN: AACCC 9758Q VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI BHARAT.L, CA RESPONDENT BY : SMT. R.PREMI, JCIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 09.09.2020 DATE OF PRONOUNCEMENT : 10.09.2020 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE CIT(APPEALS), BENGALURU-2, BENGALURU DATED 12.04.20 17. 2. THE ASSESSEE HAS RAISED GROUNDS THAT THE CIT(APP EALS) ERRED IN CONFIRMING DISALLOWANCE OF RS.65,86,224 BEING OFFIC E, ADMINISTRATIVE COSTS AND OTHER RELEVANT EXPENSES AS PRIOR PERIOD EXPENSE S BY HOLDING THAT IN ORDER TO CLAIM THE EXPENDITURE AS DEDUCTION, IT IS NECESSARY TO DECLARE INCOME UNDER THE PROVISIONS OF CHAPTER XIV-C OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE AO NOTI CED THAT ASSESSEE HAS NOT DECLARED ANY INCOME FROM BUSINESS OPERATIONS, W HEREAS IT HAS CLAIMED OTHER EXPENDITURE AND LOSS AT RS.65,86,224. AS EX PENDITURE WAS CLAIMED ITA NO. 1572/BANG/2017 PAGE 2 OF 5 WITHOUT DECLARING ANY INCOME AND CLAIMING LOSS, THE CLAIM WAS NOT ALLOWED BY THE AO WITHIN THE MEANING OF SECTION 28 WHILE CO MPUTING INCOME U/S. 29 OF THE ACT. THEREFORE THE ENTIRE AMOUNT OF EXPENDI TURE OF RS.65,86,244 TO THE EXTENT OF LOSS CLAIMED WAS DISALLOWED. 4. THE CIT(APPEALS) OBSERVED THAT THE EXPENDITURE C LAIMED BY THE ASSESSEE WAS DIRECTLY RELATED TO CONSTRUCTION ACTIV ITY AND IT CAN BE ALLOWED ONLY ONCE THE SAID PROJECT IS COMPLETED OR CAPABLE OF YIELDING INCOME. ACCORDING TO HIM, THE EXPENDITURE CANNOT BE ALLOWED UNLESS THE ASSESSEE EARNS INCOME FROM THE PROJECT. AGAINST THIS, THE A SSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE MAIN CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS T HAT TO CLAIM EXPENDITURE, THE ASSESSEE HAS TO SET UP AND COMMENCED THE BUSINE SS. IN THE PRESENT CASE, HE DREW OUR ATTENTION TO THE COPY OF COMMENCE MENT CERTIFICATE ISSUED BY BBMP VIDE ORDER DATED 30.4.2012 PLACED ON RECORD AT PAGE 102 OF PB. ATTENTION WAS ALSO DRAWN TO PROJECT MANAGEM ENT AGREEMENT DATED 18.3.2010 WITH DR. M.P. SOMA PRASAD, LANDLORD OF TH E PROJECT, WHICH IS PLACED ON RECORD AT PAGES 103 TO 113 OF PB. IT IS A LSO SUBMITTED THAT THE SANCTIONED PLAN OF THE PROJECT WAS OBTAINED ON 6.6. 2011 WHICH IS BEFORE THE END OF FY 2011-12. HE SUBMITTED THAT EARNING INCOM E IS NOT A CRITERION TO FOR ALLOWING EXPENDITURE. THE ASSESSEE IS IN THE F IELD OF REAL ESTATE PROJECTS AND COMMENCEMENT OF THE PROJECT ITSELF IS ENOUGH TO ALLOW BUSINESS DEDUCTION. THE LD. AR RELIED ON VARIOUS DECISIONS AS FOLLOWS:- 1 VARDHMAN DEVELOPERS LTD. HON. ITAT (MUMBAI) 55 TAXMANN.COM 370 2 BERGER IMPEX INDIA (P) LTD. HON. ITAT DELHI ITA NO.4019/DE1/2010 3 WESTERN INDIA VEGETABLE PRODUCTS LTD. [1954]-HON. B OMBAY HIGH COURT-26 ITR 151 4 ESPN SOFTWARE INDIA (P.) LTD [2009]-HON. DELHI HIGH COURT- 184 TAXMAN 452 ITA NO. 1572/BANG/2017 PAGE 3 OF 5 5 SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. [1973R -ION. GUJARAT HIGH COURT- 91 ITR 170 6 DHOOMKETU BUILDERS & DEVELOPMENT (P.) LTD. [2013]-H ON. DELHI COURT-34 TAXMANN.COM 18 7 UE DEVELOPMENT INDIA (P.) LTD. [2013]-HON. BANGALOR E ITAT- 35TAXMANN.COM 607 6. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . IN OUR OPINION, THERE IS MERIT IN THE PLEA OF ASSESSEE. THE HONBL E DELHI HIGH COURT IN THE CASE OF CIT V. DHOOMKETU BUILDERS & DEVELOPMENT (P) LTD. , 34 TAXMANN.COM 18 (DELHI) HAS HELD 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 WHIC H WOULD ENABLE THE ASSESSEE TO ACQUIRE THE LAND FOR DEVELOPMENT. IF TH E ASSESSEE IS IN A POSITION TO COMMENCE BUSINESS, THAT MEANS THE BUSIN ESS HAS BEEN SET-UP. THE ACTS OF APPLYING FOR PARTICIPATION IN THE TENDE R, THE BORROWING OF MONIES FOR INTEREST FROM THE HOLDING COMPANY, THE DEPOSIT OF THE BORROWED MONIES ON THE SAME DAY WITH AS EARNEST MONEY WERE ALL ACTS WHICH CLEARLY ESTABLISH THAT THE BUSINESS HAD BEEN SET-UP. THE CO MMENCEMENT OF REAL ESTATE BUSINESS WOULD NORMALLY START WITH THE ACQUI SITION OF LAND OR IMMOVABLE PROPERTY. WHEN AN ASSESSEE WHOSE BUSINESS IS TO DEVELOP REAL ESTATES, IS IN A POSITION TO PERFORM CERTAIN ACTS T OWARDS THE ACQUISITION OF LAND, THAT WOULD CLEARLY SHOW THAT IT IS READY TO C OMMENCE BUSINESS AND, AS A COROLLARY, THAT IT HAS ALREADY BEEN SET-UP. THE A CTUAL ACQUISITION OF LAND IS THE RESULT OF SUCH EFFORTS PUT IN BY THE ASSESSEE; ONCE THE LAND IS ACQUIRED THE ASSESSEE, IT MAY BE SAID TO HAVE ACTUALLY COMME NCED ITS BUSINESS WHICH IS THAT OF DEVELOPMENT OF REAL ESTATE. THE AC TUAL ACQUISITION OF LAND MAY BE A FIRST STEP IN COMMENCEMENT OF BUSINESS, BU T SECTION 3 DOES NOT SPEAK OF COMMENCEMENT OF BUSINESS, IT SPEAKS ONLY O F SETTING-UP OF THE BUSINESS. WHEN THE ASSESSEE IN THE PRESENT CASE WAS IN A POSITION TO APPLY FOR THE TENDER, BORROWED MONEY FOR INTEREST A LBEIT FROM ITS HOLDING ITA NO. 1572/BANG/2017 PAGE 4 OF 5 COMPANY AND DEPOSITED THE SAME ON THE SAME DAY, IT SHOWS THAT THE ASSESSEE'S BUSINESS HAD BEEN SET-UP AND IT WAS READ Y TO COMMENCE BUSINESS. THE REVENUE WOULD, HOWEVER, STATE THAT TI LL THE LAND IS ACQUIRED, THE BUSINESS IS NOT SET-UP. THE DIFFICULTY IN ACCEP TING THE ARGUMENT IS THAT AN ASSESSEE MAY NOT BE SUCCESSFUL IN ACQUIRING LAND FOR LONG PERIOD OF TIME THOUGH HE IS READY TO COMMENCE HIS BUSINESS IN REAL ESTATE, AND THAT WOULD RESULT IN THE EXPENSES INCURRED BY HIM THROUGHOUT T HAT PERIOD NOT BEING COMPUTED AS A LOSS UNDER THE HEAD 'BUSINESS' ON THE GROUND THAT HE IS YET TO SET-UP HIS BUSINESS. THAT WOULD BE AN UNACCEPTAB LE POSITION. THE OTHER ARGUMENT OF THE REVENUE THAT THE TAX AUDITORS OF TH E ASSESSEE HAVE THEMSELVES POINTED OUT THAT THE ASSESSEE IS YET TO COMMENCE ITS BUSINESS IS ALSO RELEVANT BECAUSE OF THE DISTINCTION BETWEEN THE COMMENCEMENT OF THE BUSINESS AND SETTING-UP OF THE SAME. 7. AS SEEN FROM THE EVIDENCE FILED BY THE ASSESSEE, THE ASSESSEE HAS ALREADY COMMENCED ITS BUSINESS BY ENTERING INTO AGR EEMENT WITH THE LANDLORD AND ALSO REQUISITE LICENCE AND PERMISSION FROM BBMP. IT CANNOT BE SAID THAT ASSESSEE HAS NOT COMMENCED THE BUSINES S. HENCE THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION. ACCORDINGL Y, WE ALLOW THE GROUND RAISED BY THE ASSESSEE. 8. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND W ITH REGARD TO ALLOWABILITY OF THE ABOVE EXPENDITURE AS DEDUCTION IN THE YEAR WHEN THE PROJECT IS COMPLETED OR CAPABLE OF YIELDING INCOME AS FOLLOWS:- THE APPELLANT PRAYS TO SUBMIT THE UNDER-MENTIONED ADDITIONAL GROUND OF APPEAL WHICH WERE NOT URGED SPECIFICALLY IN THE ORIGINAL GROUNDS OF APPEAL FILED AT THE TIME OF INS TITUTION OF APPEAL. THESE GROUNDS DO NOT INVOLVE ANY INVESTIGAT ION OF ANY FACTS OTHERWISE ON THE RECORD OF THE DEPARTMENT AND ARE ALSO PURE QUESTIONS OF LAW, WHICH GOES INTO THE VERY ROOT OF THE MATTER OF JURISDICTION AND VALIDITY OF THE IMPUGNED ADDITION AND THEREFORE, IT IS PRAYED THAT THE ADDITIONAL GROUND MAY KINDLY BE ADMITTED AND ITA NO. 1572/BANG/2017 PAGE 5 OF 5 DISPOSED OFF ON MERITS FOR THE ADVANCEMENT OF SUBST ANTIAL CAUSE OF JUSTICE. RELIANCE IS PLACED ON THE DECISION OF T HE SUPREME COURT IN NATIONAL THERMAL POWER CO. LTD. V. CIT (22 9 ITR 383) AND DECISION OF THE KARNATAKA HIGH COURT IN GUNDATH UR THIMMAPPA & SONS V. CIT (70 ITR 70). 1. WITHOUT PREJUDICE TO GROUND NO. 1-4, THE LAO AND THE LAA ERRED IN NOT CONSIDERING THAT THE EXPENDITURE I NCURRED TOWARDS PROJECTS SHOULD BE ALLOWED AS DEDUCTIBLE EX PENDITURE WHEN THE SAID PROJECT IS COMPLETE OR CAPABLE OF YIE LDING INCOME. 9. SINCE WE HAVE ALLOWED THE MAIN GROUND OF ASSESSE E, THIS ADDITIONAL GROUND HAS BECOME INFRUCTUOUS AND DISMISSED ACCORDI NGLY. 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF SEPTEMBER, 2020. SD/- SD/- ( N V VASUDEVAN ) ( CHANDRA POOJARI ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 10 TH SEPTEMBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.