Dakshin Shelters Pvt.Ltd., Hyderabad V. DCIT, Central Circle-2, Hyderabad

ITA 1985/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61876 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 01-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LUKAS P ETER
• Assessee Lawyers: RAJ IV DEV
• Keywords: Business income; Business expenditure; Search and seizure

Judgement Text

ACIN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI SKTIJIT DEY, JUDICIAL MEMBER ITA NOS.1983 TO 1985/HYD/2011 ASSESSMENT YEAR: 2006-07 TO 2008-09 DAKSHIN SHELTERS PVT. LTD., -V- DY. CIT, CC-2, HYDERABAD. HYDERABAD. PAN:AACCD 2682 C ( APPELLANT) (RESPONDENT) APPELLANT BY SHRI RAJ IV DEV RESPONDENT BY SRI LUKAS P ETER DATE OF HEARING : 13-03-2012 DATE OF PRONOUNCEMENT : 04-05-2012. ORDER PER SAKTIJIT DEY, AM: THESE THREE APPEALS BY THE ASSESSEE ARE AGAINST TWO ORDER DATED 18-10-2011, ONE FOR THE ASSESSMENT YEAR 2006-07 AND THE OTHER FOR ASSESSMENT YEARS 2007-08 AND 2008-09. AS THE ISSUES INVOLVED IN THESE THREE APPEALS ARE COMMON, THESE ARE CLUBBED TOGETHER AND DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. GROUNDS RAISED IN ALL THESE APPEALS ARE MORE OR LESS COMMON. THE FACTS, IN BRIEF, ARE THAT THE ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 2 ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS. FOR ACHIEVING THE OBJECT SET OUT IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION, THE ASSESSEE HAS ACQUIRED LAND ON OUTRIGHT BASIS AND HAS ENTERED INTO DEVELOPMENT AGREEMENT FOR DEVELOPMENT AND CONSTRUCTION OF PROJECT AT VATTINAGULA PALLY. DURING THE FINANCIAL YEAR 2005- 06, THE ASSESSEE HAD INCURRED COST OF RS.76,42,493/- IN THE PROJECT WHICH HAS BEEN TRANSFERRED TO WORK IN PROGRESS. A SEARCH AND SEIZURE OPERATION WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 9-10-2007. BOOKS OF ACCOUNT AND OTHER RECORDS WERE SEIZED. NOTICE WAS ISSUED UNDER SECTION 153C CALLING FOR RETURN FOR TH E ASSESSMENT YEARS 2002-03 TO 2007-08. 3. THE ASSESSEE FILED ITS RETURN FOR THE ASSESSMENT YEAR 2006-07 2007-08 ONLY SINCE IT WAS INCORPORATED ON 11-8-2005. FOR ALL THE THREE ASSESSMENT YEARS I.E., ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09 RETURNS WERE FILED DECLARING LOSS. IN THE ASSESSMENT PROCEEDINGS, THE AO WHILE GOING THROUGH ACCOUNTS FOUND THAT FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSEE HAS CLAIMED CERTAIN BUSINESS EXPENDITURE LIKE ADMINISTRATIVE EXPENSES OF RS.3,68,133/-, INTEREST ON SECURED LOAN OF RS.8,48,672/- AND PRELIMINARY EXPENSES OF RS.33,700/- TOTALLING TO ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 3 RS.12,50,505/-. IT WAS FOUND BY THE AO THAT THE ASSESSEE HAS CREDITED INTEREST INCOME OF RS.11,34,534/- TO THE PROFIT & LOSS A/C AND HAS COMPUTED NET LOSS. THE AO WHILE COMPLETING THE ASSESSMENT DISALLOWED EXPENDITURE OF RS.12,50,505/- ON THE GROUND THAT THE ASSESSEE HAS NOT STARTED RECOGNISING ITS REVENUE DURING THE YEAR AND THE INTEREST INCOME CREDITED TO THE PROFIT & LOSS A/C IS NOT BUSINESS INCOME BUT INCOME FROM OTHER SOURCES. BEING AGGRIEVED BY THE ASSESSMENT ORDER, APPEAL WAS FILED BEFORE THE CIT (A). THE CIT (A) OBSERVED THAT THE ASSESSEE HAS NO T CARRIED ON ANY BUSINESS ACTIVITY DURING THE YEAR AND HAS NOT EARNED ANY INCOME. ACCORDING TO THE CIT (A) FOR ANY EXPENDITURE TO BE CLAIMED AS DEDUCTION, IT SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INCOME. THE CIT (A) OBSERVED THAT THE INTEREST IS EARNED ON DEPOSITS MADE IN THE BANK AND IS NOT RELATED TO ANY BUSINESS ACTIVITY. THE CIT (A) FURTHER OBSERVED TH AT THE EXPENSES INCURRED BY THE ASSESSEE HAD TO BE CAPITALISED AND TAKEN TO THE WORK IN PROGRESS. THE CIT (A) HELD THAT SUCH EXPENDITURE CANNOT BE SET OF F AGAINST INTEREST INCOME. 4. THE LEARNED AR SUBMITS THAT THE FINDING OF THE AO AND CIT (A) THAT THE ASSESSEE HAS NOT SET UP AND COMMENCED ITS BUSINESS IS NOT CORRECT. ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 4 TAKING US THROUGH THE ANNUAL REPORT OF THE COMPANY, THE LEARNED AR SUBMITTED THAT DURING THE FINANCIAL YEAR, THE ASSESSEE HAS ACQUIRED LAND AND ENTERED INTO DEVELOPMENT AGREEMENT FOR THE PURPOSE OF REAL ESTATE DEVELOPMENT AND CONSTRUCTION OF PROJECT AT VATTINAGULA PALLY AND TH E ASSESSED DURING THE FINANCIAL YEAR 2005-06 HAS INCURRED COST OF RS.76,42,493/- WHICH HAS BEEN TRANSFERRED TO WORK IN PROGRESS. THE ASSESSEE HAS INVESTED A SUM OF RS.4,28,21,000/- FOR PURCHASE AND REGISTRATION OF LAND. THE LEARNED AR SUBMITTED THAT DURING THE FINANCIAL YEAR 2005-06, THE ASSESSEE HAD GIVEN AN AMOUNT OF RS.50 LAKH AS ADVANCE FOR LAND AND RS.6,09,25,000/- AS ADVANCE FOR LAND DEVELOPMENT. THE LEARNED AR SUBMITTED THAT THE FACTS CLEARLY DEMONSTRATE THAT THE ASSESSE E HAS SET UP AND COMMENCED ITS BUSINESS OF REAL ESTATE. THE LEARNED AR SUBMITTED THAT THE RELIANCE PLACED BY THE AO ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF TUTICORINE & ALKALI CHEMICALS AND FERTILISERS LTD. REPORTED IN 227 ITR 172 AND CIT VS. BOKARO STEELS LIMITED (236 ITR 315) ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE SINCE THE HONBLE SUPREME COURT HAS INTERPRETED THE WORDS SET UP AND COMMENCEMENT OF BUSINESS IN THE CONTEXT OF MANUFACTURING CONCERNS INVOLVING ERECTION OF PLANT AND MACHINERY. THE LEARNED AR SUBMITTED THAT ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 5 SINCE THE ASSESSEE HAS ACQUIRED LAND, ENTERED INTO DEVELOPMENT AGREEMENT AND HAS STARTED DEVELOPMENT WORK, ITS BUSINESS HAS BEEN SET UP AND COMMENCED AND THEREFORE THE ASSESSEE IS ENTITLED TO CLAIM THE EXPENDITURE INCURRED UNDER ADMINISTRATIVE HEAD AND INTEREST ON UNSECURED LOAN AGAINST THE INTEREST INCOME CREDITED TO THE PROFIT & LOSS A/C. THE LEARNED AR HAS SUBMITTED A CHART SHOWING DETAILS OF WORK IN PROGRESS, DEVELOPMENT COST AND DETAILS OF ADVANCE PAID FOR LAND DEVELOPMENT AGAINST DEVELOPMENT AGREEMENT. THE LEARNED AR FURTHER SUBMITTED THAT THE ACCOUNTS HAVING BEEN PREPARED IN ACCORDANCE WITH THE ACCEPTED ACCOUNTING STANDARD, THE TREATMENT OF VALUATION OF WORK IN PROGRESS SHOULD HAVE BEEN ACCEPTED. THE LEARNED AR SUBMITTED THAT THE INTEREST PAID ON UNSECURED LOAN SHOULD HAVE BEEN ADJUSTED AGAINST INTEREST INCOME CREDITED TO PROFIT & LOSS A/C SINCE THEY ARE INTER-LINKED TO EACH OTHER THE SAME LOAN TAKEN BY THE ASSESSEE WAS GIVEN AS ADVANCE ON WHICH INTEREST WAS EARNED. IN SUPPORT OF HIS CONTENTION, THE LEARNED AR RELIED ON THE FOLLOWING DECISION OF DIFFERENT BENCHES OF THE TRIBUNAL:- I) SUPERLIGHT MKTG. (P) LTD. VS. ITO, WARD- 9(4),DELHI (2005) 4 SOT 348 (DELHI) ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 6 II) SWIRE HOLDINGS (P) LTD. VS. ITO, WARD- 12, (2006) 6 SOT 61 (BANG) III) DHOOMKETU BUILDERS & DEVELOPMENT (P.) LTD. VS. ADDITIONAL CIT, RANGE-10 (49 SOT 312 (DELHI) 5. THE LEARNED DR WHILE SUPPORTING THE FINDINGS OF THE AO AND THE CIT (A) SUBMITTED THAT SINCE THE ASSESSEE HAS NOT DECLARED ANY INCOME FROM BUSINESS, IT CANNOT BE SAID THAT THE ASSESSEE HAS COMMENCED ITS BUSINESS. INCOME EARNED FROM INTEREST ON BANK DEPOSITS IS INCOME FROM OTHER SOURCES AND CANNOT BE CLUBBED IN THE PROFIT & LOSS A/C TO SET UP THE BUSINESS EXPENDITURE. THE LEARNED DR SUBMITTED THAT THE ENTIRE EXPENDITURE CLAIM SHOULD BE TAKEN TO WORK IN PROGRESS AND CAPITALISE IT. THE LEARNED DR ALSO RELIED ON THE DECISION OF HONBLE AP HIGH COURT IN THE CASE OF CIT VS. COROMANDEL FERTILISERS LIMITED REPORTED IN 261 ITR 408. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED DOCUMENTS PLACED BEFORE US. WE FIND THE SOLE ISSUE IN WHICH THE DISPUTE LIES IS WHETHER THE ASSESSEE HAS SET UP AND COMMENCED ITS REAL ESTATE BUSINESS DURING THE RELEVANT PREVIOUS YEAR AND WHETHER THE ASSESSEE CAN CLAIM BUSINESS EXPENDITURE AGAINST INTEREST INCOME CREDITED TO P & ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 7 L A/C. FROM THE FACTS AVAILABLE ON RECORD, IT IS SEEN THAT DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE HAS PURCHASED LAND ON OUTRIGHT BASIS, GOT IT REGISTERED AND HAS ENTERED INTO A DEVELOPMENT AGREEMENT FOR DEVELOPMENT AND CONSTRUCTION OF REAL ESTATE PROJECT. THE WORK OF DEVELOPMENT OF ITS REA L ESTATE PROJECT HAS ALREADY STARTED AND THE ASSESSEE DURING THE FINANCIAL YEAR 2005-06, HAS INCURRED A COST OF RS.76,42,493/-. IN THIS VIEW OF THE FACT, IT HAS TO BE ASSUMED THAT THE ASSESSEE HAS ALREADY COMMENCED ITS BUSINESS AND THEREFORE THE EXPENSES CLAIMED BY IT ARE ALLOWABLE EXPENSES. FROM THE DECISIONS OF DIFFERENT BENCHES OF ITAT CITED SUPRA ARE DIRECTLY COVERING THE ISSUE IN THE PRESENT APPEALS. 7. IN THE CASE OF SUPERLIGHT MKTG. (P) LTD. VS. ITO, WARD-9(4), THE ITAT, DELHI BENCH WHILE EXAMINING A SIMILAR ISSUE OF REAL ESTATE BUSINESS, HAS ALLOWED ADMINISTRATIVE EXPENSES DEBITED TO PROFIT & LOSS A/C AGAINST INTEREST INCOME BY OBSERVING IN THE FOLLOWING MANNER:- THE FACT OF THE PRESENT CASE NARRATED BY US N PARAS 2 AND 3 OF THIS ORDER ARE NOT IN DISPUTE. AS ALREADY NOTICED WHILE NARRATING THE FACTS, IN OUR VIEW PURCHASE OF LAND FOR THE PURPOSE OF DIVISIONS INTO PLOTS WOULD AMOUNT TO ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 8 COMMENCEMENT OF BUSINESS. A COPY OF THE LICENCE GRANTED BY THE DIRECTOR, TOWN & PLANNING TO THE ASSESSEE AND ITS ASSOCIATED CONCERNS ALSO GOES TO SHOW THAT NECESSARY LICENCE HAD BEEN GIVEN BY THE AUTHORITIES SUBJECT TO FULFILMENT OF CERTAIN CONDITIONS. IT IS ALSO SEEN THAT THE ASSESSES HAVE ALSO ENTERED INTO AGREEMENT FOR DEVELOPMENT OF PLOTS WITH THE PROSPECTIVE BUYERS AND HAVE RECEIVED ADVANCES FROM THEM. IN THE LIGHT OF THE AFORESAID EVIDENCE AVAILABLE ON RECORD AND THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT ASSESSES HAVE COMMENCED THEIR BUSINESS AND HAVE CLAIM FOR DEDUCTION TOWARDS ADMINISTRATIVE EXPENSES ARE FULLY BE ALLOWED. THE LD. COUNSEL FOR THE ASSESSEE ALSO PUTS FORWARD ALTERNATIVE ARGUMENTS WITH REGARD TO THE ALLOWABILITY OF THOSE EXPENSES WHICH ARGUMENTS ARE NOT CONSIDERED IN VIEW OF OUR CONCLUSION THAT THE ASSESSES HAVE COMMENCED THEIR BUSINESS. 8. IN CASE OF SWIRE HOLDINGS (PVT.) LIMITED (SUPRA), THE ITAT, BANGALORE BENCH B, BANGALORE WHILE CONSIDERING A SIMILAR ISSUE HAS OBSERVED IN THE FOLLOWING MANNER:- I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS. THE FACT THAT THE ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 9 ASSESSEES MAIN BUSINESS IS REAL ESTATE BUSINESS IS NOT IN DISPUTE. THE FACT THAT THE ASSESSEE HAD ADVANCED MONEY TO VARIOUS LAND OWNERS FOR THE PURPOSE OF ACQUIRING AND DEALING IN LANDED PROPERTIES IS NOT IN DISPUTE. THEREFORE, AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MOMENT COMPANY IS INCORPORATED AND THE AMOUNTS HAVE BEEN ADVANCED FOR THE PURPOSE OF ACQUIRING AND DEALING IN LANDED PROPERTY, THE BUSINESS OF THE ASSESSEE SHOULD HAVE BEEN TREATED AS COMMENCED. INTEREST EARNED THEREBY CANNOT BE TREATED AS PRE-OPERATIVE. THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. VS. CIT (1997) 227 ITR 172 (SCV) ELATES TO THE ASSESSEE-COMPANY INCORPORATED ON DECEMBER 3, 1971 FOR THE PURPOSE OF MANUFACTURING HEAVY CHEMICALS SUCH AS AMMONIUM CHLORIDE AND SODA ASH. THE TRIAL PRODUCTION OF THE FACTORIES OF THE COMPANY WAS COMMENCED ON JUNE 30, 1982. FOR THE PURPOSE OF SETTING UP OF FACTORIES, THE ASSESSEE HAD TAKEN TERM LOANS FROM VARIOUS BANKS AND FINANCIAL INSTITUTIONS. THAT PART OF BORROWED FUNDS WHICH HAS NOT IMMEDIATELY REQUIRED BY THE COMPANY WAS KEPT INVESTED IN SHORT TERM DEPOSITS WITH BANKS. THE ASSESSEE- COMPANY EARNED INTEREST INCOME FROM VARIOUS LOANS GIVEN BY THE COMPANY AND ALSO FROM THE BANK DEPOSITS. ON THE AFORESAID FACTS, THE ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 10 HONBLE SUPREME COURT HELD THAT THE ASSESSEE COMPANY COULD NOT CLAIM ANY RELIEF UNDER SECTION 70 AND 71 SINCE ITS INCOME OR LOSS INCURRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEARS. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR T ASSESSEE, THE DECISIONS RELIED ON BY THE AUTHORITIES BELOW ARE FACTUALLY DISTINGUISHABLE. IN THE CASE OF THE ASSESSEE NEITHER SETTING UP FACTORY OR ERECTION OF MACHINERY IS REQUIRED. THE MOMENT JTHE ASSESSEE COMPANY INCORPORATED AND THE AMOUNTS ADVANCED, IT WILL LEAD TO THE CONCLUSION THAT THE BUSINESS OF THE ASSESSEE HAS BEEN COMMENCED. THEREFORE, I FIND MUCH MORE IN THE STAND TAKEN BY HE ASSESSEE. THE INCOME SHOWN BY THE ASSESSEE HAS TO BE TREATED AS INCOME FROM BUSINESS AND NECESSARY BENEFITS OR DEDUCTIONS CLAIMED BY THE ASSESSEE HAVE TO BE ALLOWED IN ACCORDANCE WITH LAW. IT IS ORDERED ACCORDINGLY. 9. IN THE CASE OF DHOOMKETU BUILDERS & DEVELOPMENT (P.) LTD. VS. ADDITIONAL CIT, RANGE-10 (49 SOT 312 (DELHI), THE ITAT DELHI BENCH HAS OBSERVED AS UNDER:- 7. SECTION 2(13) PROVIDES THE DEFINITION OF EXPRESSION 'BUSINESS' ACCORDING TO WHICH BUSINESS INCLUDES ANY TRADE, COMMERCE, ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 11 MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERRED A LARGE NUMBER OF DECISIONS NOTICED ABOVE. SIMILARLY, THE ASSESSING OFFICER HAS MADE A REFERENCE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD.S CASE (SUPRA). IN VARIOUS AUTHORITATIVE PRONOUNCEMENT OF HON'BLE SUPREME COURT AND HON'BLE HIGH COURT, MEANING AND SCOPE OF EXPRESSION, BUSINESS HAS BEEN PROPOUNDED. IT IS NOT NECESSARY TO RECITE AND RECAPITULATE OF THOSE DECISIONS BUT ON THE STRENGTH OF THEM, IT WOULD BE SUFFICE TO SAY THAT WORD 'BUSINESS' HAD A WIDE IMPORT AND IT MEANS AN ACTIVITY CARRIED ON CONTINUOUSLY AND SYSTEMATICALLY BY A PERSON BY THE APPLICATION OF HIS LABOUR AND SKILL WITH A VIEW TO EARN AN INCOME. SECTION 3 OF THE INCOME-TAX ACT, 1961 DEFINES 'PREVIOUS YEAR'. PREVIOUS MEANS THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR. THE PROVISO APPENDED TO THIS SECTION FURTHER CONTEMPLATES THAT IN CASE OF A BUSINESS NEWLY SET UP IN THE SAID FINANCIAL YEAR, THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF SET UP OF THE BUSINESS. THE EXPRESSION 'SET UP' HAS NOT BEEN DEFINED ANYWHERE IN THE ACT BUT IT IS UNDERSTOOD IN THE COMMON PARLANCE AND HAS BEEN EXPLAINED IN A LARGE NUMBER OF DECISIONS. ACCORDING TO THE MEANING EXPOUNDED IN THE AUTHORITATIVE PRONOUNCEMENT, IF AN ASSESSEE IS IN A POSITION TO ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 12 DELIVER THE GOODS MEANS THAT THE BUSINESS IS SET UP. ACTUAL DELIVERY IS IMMATERIAL. FOR EXAMPLE, IF A PERSON WANTS TO CARRY ON THE BUSINESS OF TRANSPORTATION, THE MOMENT HE PURCHASED THE VEHICLE FOR TRANSPORTING THE GOODS AND ARRANGED THE SPACE THEN IT WOULD INDICATE THAT BUSINESS HAS BEEN SET UP, IT IS IMMATERIAL WHETHER HE WAS ABLE TO ACTUALLY TRANSPORTED THE GOODS OR NOT. IN THE CASE OF HUGHES ESCORTS COMMUNICATIONS LTD.'S CASE (SUPRA), HON'BLE DELHI HIGH COURT HAS CONSIDERED THIS EXPRESSION AND AFTER REFERRING THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA VEGETABLE PRODUCTS LTD. V. CLT [1954] 26 ITR 151 HAS OBSERVED THAT HON'BLE BOMBAY HIGH COURT HAS DRAWN A DISTINCTION BETWEEN THE CONCEPT OF COMMENCEMENT AND SETTING UP OF A BUSINESS. HON'BLE DELHI HIGH COURT HAS REPRODUCED THE OBSERVATIONS OR THE HONBLE MUMBAI HIGH COURT WHICH READ AS UNDER: 'THE BOMBAY HIGH COURT, WHICH WAS IN THIS CASE DEALING WITH THE CORRESPONDING PROVISION OF THE INDIAN INCOME-TAX ACT, 1922, THEN EXPLAINED THE DISTINCTION BETWEEN THE CONCEPTS OF COMMENCEMENT AND SETTING UP OF A BUSINESS (PAGES 158 AND 159): 'IT SEEMS TO US, THAT THE EXPRESSION 'SETTING UP' MEANS, AS IS DEFINED IN THE OXFORD ENGLISH DICTIONARY, 'TO PLACE OIL FOOT' OR 'TO ESTABLISH', AND IN CONTRADICTION TO 'COMMENCE'. THE DISTINCTION IS THIS THAT WHEN A BUSINESS IS ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 13 ESTABLISHED AND IS READY TO COMMENCE BUSINESS THEN IT CAN BE SAID OF THAT BUSINESS THAT IT IS SET UP. BUT BEFORE IT IS READY TO COMMENCE BUSINESS IT IS NOT SET UP. BUT THERE MAY BE AN INTERREGNUM, THERE MAY BE AN INTERVAL BETWEEN A BUSINESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED AND ALL EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND BEFORE THE COMMENCEMENT OF THE BUSINESS, ALL EXPENSES DURING THE INTERREGNUM, WOULD BE PERMISSIBLE DEDUCTIONS UNDER SEC. 10(2). IN THIS CASE, THE ITAT, DELHI BENCH HAS HELD THAT EVEN PARTICIPATING IN THE TENDER PROCESS WOULD AMOUNT TO SETTING UP OF BUSINESS. FROM THE ANALYSIS OF THE CITED DECISIONS OF THE TRIBUNAL, IT WILL BE SEEN THAT BUSINESS IS TAKEN TO BE SET UP AN D COMMENCED IN CASE OF A REAL ESTATE BUSINESS, ONCE THE ASSESSEE STARTS THE ACTIVITY OF PURCHASING LAND , ENTERING INTO DEVELOPMENT AGREEMENT AS PER THE TERMS OF MEMORANDUM AND ARTICLES OF ASSOCIATION. THE DECISIONS RELIED UPON BY THE REVENUE ARE CLEARLY DISTINGUISHABLE ON FACTS INVOLVED IN THE PRESENT APPEALS. THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISE RS LTD.S CASE (227 ITR 172) CIT VS. BOKARO STEELS LIMITED (236 ITR 315) HAS INTERPRETED THE WORD SET UP AND COMMENCEMENT OF BUSINESS IN THE CONTEXT ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 14 OF A MANUFACTURING UNIT INVOLVING DIFFERENT STAGES TILL MANUFACTURE OF FINAL PRODUCT. SIMILARLY, THE DECISION OF HONBLE A.P. HIGH COURT IN THE CASE OF CIT VS. COROMANDEL FERTILISERS LTD (SUPRA) IS ALSO INVOLVING A MANUFACTURING CONCERN. IN VIEW OF THE FACT THAT THE ASSESSEE HAS ALREADY ACQUIRED LAND ENTERED INTO DEVELOPMENT AGREEMENT AND HAS STARTED DEVELOPMENT AND CONSTRUCTION WORK FOR THE REAL ESTATE PROJECT, IT HAS SET UP AND COMMENCED IT S BUSINESS AND THEREFORE ENTITLED TO CLAIM EXPENSES AS INCURRED WHICH WAS DEBITED TO PROFIT & LOSS A/C AGAINST INTEREST INCOME. IN VIEW OF THE ABOVE, WE ALLOW THE GROUNDS RAISED BY THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION. 10. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE STAND ALLOWED. ORDER WAS PRONOUNCED IN THE COURT ON 04 -5-2012. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER DATED THE 4 TH MAY, 2012 COPY FORWARDED TO: 1. DAKSHIN SHELTERS PVT. LTD., NEAR MERIDIAN SCHOOL,MADHAPUR, HYDERABAD-500 081. 2. DCIT, CC-2, AAYAKAR BHAVAN, HYDERABAD. 3. THE CIT(A)-I, HYDERABAD. 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD JMR* ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 15 ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 16 ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 17 ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 18 ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 19 ITA NOS. 1983 TO 1985 OF 2011 DAKSHIN SHELTERS PVT. LTD. =============================== 20