DLM Estates Pvt Ltd., CHENNAI V. ITO (OSD), CHENNAI

ITA 1903/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9574 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 27-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Section: 143(3); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1903/MDS/2015 ( / ASSESSMENT YEAR: 2006-07) M/S. DLM ESTATES PVT.LTD., 6, DR.T.V.NAIDU ROAD, CHETPET, CHENNAI-600 031. VS THE INCOME TAX OFFICER (OSD) COMPANY CIRCLE-I(4 ), CHENNAI. PAN:AACCD2376F ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. LALITH MEHTA, AUTHORIZED REPRESENTATIVE /RESPONDENT BY : MR. P.RADHAKRISHNAN, JCIT /DATE OF HEARING : 2 ND MARCH, 2016 /DATE OF PRONOUNCEMENT : 4 TH MAY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS)- 1, CHENNAI, DATED 28.05.2015 IN ITA NO.178/08-09/A- III PASSED UNDER SECTION 143(3) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER THE CRUXES OF THE ISSUES ARE AS FOLLOWS:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION OF ` 23,854/- MADE BY THE LEARNED ASSESSING OFFICER IN RELATION TO DISALLOWANCE OF DIVIDEND INCOME EXEMPT UNDER SECTI ON 10(34) OF THE ACT. 2 ITA NO.1903 /MDS/2015 II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED BY CONFIRMING THE DISALLOWANCE OF ` 8,47,841/- MADE BY THE LEARNED ASSESSING OFFICER AS PRE-OPERAT IVE EXPENSES CLAIMED BY THE ASSESSEE UNDER SECTION 37 O F THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FILED ITS RETURN FOR THE ASSESSMENT YEAR 2006-07 ON 16.10.2006 DECLARING LOSS OF ` 8,47,841/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) WAS IS SUED TO THE ASSESSEE ON 4.10.2007 AND THE ASSESSMENT WAS COMPLE TED ON 08.12.2008 UNDER SECTION 143(3) OF THE ACT. GROUND NO.1:- DISALLOWANCE OF DIVIDEND INCOME UNDER SECTION 10(34) OF THE ACT FOR RS. 23,854/- : 4. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE L EARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS PURCHASED MUTUAL FUND ON 30.08.2005 FOR ` 1,49,00,000/- AND SOLD THE SAME ON 13.9.2005 FOR ` 1,49,23,854/- AND CLAIMED THE DIFFERENCE AMOUNT AS DIVIDEND ` 23,854/- WHICH IS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT THE DIFFEREN CE AMOUNT OF RS.23,854/- SHOULD BE TREATED AS SHORT TERM CAPI TAL GAINS 3 ITA NO.1903 /MDS/2015 AND NOT AS DIVIDEND INCOME. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER BECAUSE THE ASSESS EE HAS NOT FURNISHED ANY EVIDENCE TO PROVE THAT IT HAD REC EIVED DIVIDEND INCOME WHEREIN DIVIDEND DISTRIBUTION TAX W AS PAID BY THE DIVIDEND PAYER COMPANY VIZ., M/S. PRINCIPLE PNB ASSET MANAGEMENT CO. PVT.LTD. 5. BEFORE US, THE ASSESSEE SUBMITTED A LETTER FROM M/S. PRINCIPLE PNB ASSET MANAGEMENT CO.PVT.LTD., DATED 24.12.2008 STATING THAT THE AMOUNT PAID BY THEM WAS DIVIDEND WHEREIN DIVIDEND DISTRIBUTION TAX OF 22.44 % WAS PAID. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE ARGUED BY STATING THAT THIS LETTER W AS NOT BEFORE THE REVENUE AUTHORITIES ON EARLIER OCCASIONS AND THEREFORE RELIANCE NEED NOT BE PLACED ON THE SAME A ND THE ORDER OF THE REVENUE MAY BE CONFIRMED. 6. AFTER HEARING BOTH SIDES, WE ARE OF THE CONSIDER ED VIEW THAT IN THE INTEREST OF THE JUSTICE, THE MATTER HAS TO BE REMITTED BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER F OR VERIFYING 4 ITA NO.1903 /MDS/2015 THE LETTER SUBMITTED BY THE ASSESSEE BEFORE US WHIC H WAS ISSUED BY M/S. PRINCIPLE PNB ASSET MANAGEMENT CO. P VT.LTD., CONFIRMING THE PAYMENT RECEIVED BY THE ASSESSEE TO BE DIVIDEND INCOME WHEREIN DIVIDEND DISTRIBUTION TAX O F 22.44% WAS PAID. ACCORDINGLY, WE HEREBY REMIT THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR FRESH CONSIDERATION WITH A DIRECTION TO ADMIT ANY ADDITIO NAL EVIDENCE SUBMITTED BY THE ASSESSEE AND AFTER EXAMIN E THE SAME PASS APPROPRIATE ORDERS AS PER MERIT AND LAW. GROUND NO.2: DISALLOWANCE OF ` 8,47,841/- AS PRE-OPERATIVE EXPENSES UNDER SECTION 37 OF THE ACT. 7. THE ASSESSEE HAD INCURRED EXPENDITURE FOR RS.8,47,841/- DURING THE RELEVANT ASSESSMENT YEAR. THE LEARNED ASSESSING OFFICER DISALLOWED THE EXPENSE CL AIMED BY THE ASSESSEE SIMPLY BECAUSE OF THE REASON THAT THE ASSESSEE COMPANY HAS NOT COMMENCED ITS BUSINESS OPERATIONAL AND THEREFORE PRE-OPERATIVE EXPENSES CANNOT BE ALLOWED AS DEDUCTION UNDER SECTION 37 OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALSO CONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER BECAUSE THE ASSESSEE 5 ITA NO.1903 /MDS/2015 HAD NOT PRODUCED ANY EVIDENCE TO SHOW THAT IT HAS S TARTED ITS BUSINESS OPERATIONS DURING THE RELEVANT ASSESSMENT YEAR. 8. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED BEFORE US THAT THE ASSESSEE HAS STARTED ITS BUSINES S AND IT WAS IN THE INCUBATION STAGE. IT WAS FURTHER SUBMIT TED THAT IN REAL ESTATE BUSINESS THE COMMERCIAL TRANSACTIONS MA TURE AFTER EXTENSIVE FIELD WORK AND NEGOTIATIONS THUS THERE WI LL BE LONG GESTATION PERIOD. HENCE, IT WAS PLEADED THAT THE L OSS ARISING DUE TO SUCH EXPENDITURES MAY BE ALLOWED DURING THE RELEVANT ASSESSMENT YEAR. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE OPPOSED TO THE SUBMISSIONS AND PLEADED FOR SUSTAINING THE ORDE RS OF THE REVENUE. 10. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND MERIT IN THE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTATIVE . THE EXPENSES INCURRED BY THE ASSESSEE CANNOT BE SIMPLY BRUSHED ASIDE BY STATING THAT THE ASSESSEE HAS NOT STARTED ITS 6 ITA NO.1903 /MDS/2015 BUSINESS ACTIVITIES. IN FACT, THE EXPENSES INCURRED BY THE ASSESSEE SHOWS THAT THE ASSESSEE HAD STARTED ITS BU SINESS ACTIVITIES. EARNING OF INCOME IS NOT THE ONLY INDIC ATOR TO ESTABLISH THAT THE ASSESSEE HAS STARTED ITS BUSINES S ACTIVITIES. THEREFORE, WE HEREBY DIRECT THE LEARNED ASSESSING O FFICER TO ALLOW THE EXPENDITURE CLAIMED BY THE ASSESSEE AS DE DUCTION BY TREATING THE SAME AS THE BUSINESS EXPENSE INCURR ED BY THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 4 TH MAY 2016 SD/- SD/- (.. . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) ' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ' /CHENNAI, ' /DATED 4 TH MAY, 2016 SOMU )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /