Sahitya Housing P. Ltd., Hyderabad V. Assistant Commissioner of Income Tax, Hyderabad

ITA 289/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1333 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 21-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 289/HYD/2012 ASSESSMENT YEAR 2008-09 M/S. SAHITYA HOUSING PVT. LTD., HYDERABAD PAN: AAICS7065A VS. THE ACIT CIRCLE-3(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI S. RAMA RAO RESPONDENT BY: SRI NARAHARI BISWAL DATE OF HEARING: 0 2 . 0 1.201 3 DATE OF PRONOUNCEMENT: 22 . 0 2 . 2 0 13 O R D E R PER CHANDRA POOJARI, AM: THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV, HYDERABAD DATED 30.11.2011 FOR ASSESSMENT YEAR 2008-09. 2. THE MAIN GRIEVANCE OF THE ASSESSEE IN THIS APPEAL I S WITH REGARD TO DISALLOWANCE OF LOSS FROM SAHITYA HE IGHTS AT RS. 2,09,47,994. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE. FROM THE CONSOLIDATED PROFIT AND LOSS A/C., THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE HAD DEBITED LOSS OF RS. 2,09,47,994 TOWARDS THE VENTURE 'SAHITYA HEIGHTS'. THE ASSESSEE FILED LETTERS ON 10.11.2010 AND 15.12.2010 ALONG WITH COPIES OF AGREEMENT, LEDGER ACCOUNT COPIES OF EXPENDITURE INCURRED AND A DETAILED NOTE ON 'SAHITY A HEIGHTS' VENTURE TO EXPLAIN THE REASONS FOR THE ABO VE LOSS. FROM THE LEDGER ACCOUNT AND THE SAID NOTE, HOWEVER, THE ASSESSING OFFICER FOUND THAT THE VENTURE HAD BEEN S TATED AS ITA NO. 289/HYD/2012 M/S. SAHITYA HOUSING PVT. LTD. ======================== 2 NOT HAVING MATERIALISED. NO INCOME HAD BEEN DERIVE D OUT OF THE SAID VENTURE. THE ASSESSEE HAD ALSO MENTIONED THEREIN THAT OUT OF THE TOTAL LOSS OF RS. 2,09,47,994, AN A MOUNT OF RS. 53,62,418 HAD BEEN PAID ON ACCOUNT OF THE DELAY ED CHARGES ON WHICH NO TDS HAD BEEN MADE. THE ASSESSI NG OFFICER CONCLUDED THAT BY VIRTUE OF NON-DEDUCTION O F TAX, THE AMOUNT OF RS. 53,62,418 WAS TO BE DISALLOWED. BESID ES, HE NOTED THAT SINCE THE ENTIRE EXPENDITURE HAD BEEN IN CURRED TOWARDS A PROJECT WHICH HAD NOT MATERIALISED, THE E NTIRE EXPENDITURE WAS TO BE TREATED AS CAPITAL LOSS AND D ISALLOWED. ACCORDINGLY, THE AMOUNT OF RS. 2,09,47,994 WAS DISA LLOWED AND ADDED BACK TO THE TOTAL INCOME CHARGEABLE TO TA X. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS IN TH E BUSINESS OF REAL ESTATE. IT HAD CHOSEN AN AREA FOR PURCHASE AND HAD AGREED TO PURCHASE THE SAME FROM AGRICULTURISTS DURING THE PERIOD 2005-06. SINCE THE ASSESSEE PROPOSED TO SELL THE LAND, IT PLOTTED THE LAND ON PAPER AND ADVERTISED FOR SALE. SOME OF THE INTENDING PURCHASERS ALSO PAID ADVANCES AND FROM OU T OF SUCH ADVANCES, THE ASSESSEE INCURRED EXPENDITURE BY WAY OF COMMISSION ETC. SUCH COMMISSION WAS NOT DEBITED IN THE RELEVANT PREVIOUS YEAR. THE ASSESSEE ADVANCES AS ALSO ADMISS ION FEE FROM THE INTENDING PURCHASERS. SUCH ADMISSION FEE WAS CR EDITED TO THE P & L ACCOUNT, WHILE THE ADVANCES RECEIVED WERE KEP T IN THE OUTSTANDING LIABILITIES AS ADVANCES. THE COMMISSION PAYMENTS WERE DEBITED TO THE P & L ACCOUNT. HOWEVER, DURING THE YEAR UNDER CONSIDERATION ALL THE LAND OWNERS WENT BACK AND REF USED TO TRANSFER THE LAND TO THE ASSESSEE. THEREFORE, THE V ENTURE FAILED AND THE AMOUNTS WERE REQUIRED TO BE REFUNDED TO THE PRO BABLE PURCHASERS, WHO HAD PAID ADVANCES. THE REPRESENTATI VE ARGUED THAT THE AMOUNT OF COMMISSION PAID ALSO REPRESENTED LOSS FROM THE ITA NO. 289/HYD/2012 M/S. SAHITYA HOUSING PVT. LTD. ======================== 3 VENTURE. BESIDES, AT THE TIME OF REPAYMENT OF THE AMOUNTS, THE ASSESSEE HAD TO PAY ADDITIONAL AMOUNTS FOR ITS FAI LURE TO REGISTER THE PLOTS. SUCH ADDITIONAL AMOUNT PAID AND COMMISSI ON HAD NOT BEEN DEBITED TO THE P & L ACCOUNT EARLIER AND THE O THER EXPENDITURE INCURRED ON BEHALF OF 'SAHITYA HEIGHTS' VENTURE WERE DEBITED TO THE P & L ACCOUNT OF SAHITYA HEIGHTS ITS ELF, WHICH AGGREGATED TO RS. 2,09,47,994/-. ACCORDINGLY, THE S AID AMOUNT WAS CLAIMED AS DEDUCTION. 4. THE REPRESENTATIVE OF THE ASSESSEE ARGUED THAT THE ASSESSING OFFICER'S PRESUMPTION THAT THE LOSS IS CAPITAL LOSS IS NOT CORRECT. HE AVERRED THAT THE ASSESSEE, BY SUFFERING THE SAID LO SS, DID NOT ACQUIRE ANY ASSET OF ENDURING NATURE. BESIDES, THE EXPENSES, WHEN INCURRED, WERE REVENUE IN NATURE AND HAD BEEN INCUR RED DURING THE COURSE OF TRADING. ACCORDINGLY, HE ARGUED THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING THE AMOUNTS . HE POINTED OUT THAT THE ASSESSING OFFICER HAS MENTIONED IN THE ASS ESSMENT ORDER THAT THE DELAY CHARGES PAID WERE SUBJECTED TO TDS. HOWEVER, HE CONTENDED THAT SUCH AMOUNT DID NOT REPRESENT INTERE ST AS THE SAME WAS PAID AS ADDITIONAL AMOUNT IN VIEW OF THE A SSESSEE'S FAILURE TO REGISTER THE PLOTS, AS PROMISED AT THE T IME OF COLLECTION OF ADVANCES. HE MAINTAINED THAT THE AMOUNT WAS NOT A LOAN TAKEN OR A DEPOSIT OBTAINED AND, THEREFORE, THE AMOUNTS PAID COULD NOT BE CONSIDERED AS INTEREST PAYMENT. FINALLY, HE SUBMITT ED THAT THE CIT(A) IS NOT JUSTIFIED IN DISALLOWING RS. 2,09,47, 994/-. 5. FURTHER HE SUBMITTED THAT THE ASSESSEE CARRIED ON T HE BUSINESS ACTIVITY IN THE A.Y. 2005-06 AND THE INTEN TION OF HE ASSESSEE IS NOT TO ACQUIRE ANY CAPITAL ASSET. WHAT EVER THE ACTIVITIES CARRIED ON BY THE ASSESSEE IS ADVENTURE IN THE NATURE OF TRADE. HE RELIED ON THE JUDGEMENT OF KAR NATAKA HIGH COURT IN THE CASE OF CHAMUNDI HOTELS PVT. LTD. V. CIT (166 ITR 683) WHEREIN THE HIGH COURT HELD THAT THE QUESTION ITA NO. 289/HYD/2012 M/S. SAHITYA HOUSING PVT. LTD. ======================== 4 WHETHER THE INCOME IS FROM BUSINESS OR FROM PROPERT Y CANNOT BE DECIDED BY CONSIDERING THE ACTIVITIES OF THE ASSESSEE ONLY FOR ONE YEAR. THE WORDS USED IN THE DEFINITION OF 'BUSINESS' ARE WIDE ENOUGH WHICH INCLUDES ANY TR ADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. IT C ONNOTES SOME REAL, SUBSTANTIVE AND SYSTEMATIC OR ORGANISED SOURCE OF ACTIVITY OR CONDUCT WITH A SET PURPOSE. IT IS, THEREFORE, NECESSARY FOR THE AUTHORITIES TO CONSIDER THE NATUR E OF INCOME EARNED BY THE ASSESSEE NOT FOR AN ISOLATED Y EAR BUT FOR A NUMBER OF YEARS. 6. THE DR RELIED ON THE ORDER OF THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE THE ASSESSEE PURC HASED LAND FROM SOME AGRICULTURISTS AND PLANNED TO MAKE P LOTS IN THAT LAND. HOWEVER, THE ACTION OF MAKING PLOTS IS ONLY IN PAPERS. ONLY BY MAKING PLOTS IN PAPER, THE ASSESSE E COLLECTED CERTAIN ADVANCES FROM THE PROSPECTIVE CUS TOMERS. IN OTHER WORDS, THE PROJECT 'SAHITYA HEIGHTS' NEVER COMMENCED. THE ASSESSEE ALSO ADMITTED THE FACT THA T THE AGRICULTURISTS WENT BACK FROM THEIR PROMISE TO SELL THE LAND TO THE ASSESSEE. IN SPITE OF THIS, THE ASSESSEE CL AIMED EXPENDITURE RELATING TO EARLIER YEAR FOR THE ASSESS MENT YEAR UNDER CONSIDERATION. BASICALLY, TO CLAIM DEDUCTION THERE SHOULD BE EXISTENCE OF BUSINESS AND EXPENDITURE HAS TO BE INCURRED FOR THE PURPOSE OF BUSINESS. IN THE PRESE NT CASE, THE EXPENDITURE INCURRED IS NOT IN THE ASSESSMENT Y EAR UNDER CONSIDERATION AND ALSO NOT RELATING TO CARRYI NG ON OF BUSINESS OF THE ASSESSEE BUT FOR THE PURPOSE OF COM MENCE- MENT OF BUSINESS OF THE ASSESSEE. THE EXPENDITURE I NCURRED IS FOR THE PURPOSE OF COMMENCEMENT OF BUSINESS OF T HE ITA NO. 289/HYD/2012 M/S. SAHITYA HOUSING PVT. LTD. ======================== 5 ASSESSEE WHICH CANNOT CONSTRUED AS WHOLLY AND EXCLU SIVELY LAID DOWN FOR THE PURPOSE OF THE BUSINESS. THERE I S A DIFFERENCE BETWEEN EXPENDITURE INCURRED FOR THE PUR POSE OF BUSINESS AND EXPENDITURE INCURRED FOR THE PURPOSE O F COMMENCEMENT OF BUSINESS. IN THE PRESENT CASE, THE EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE CONS TRUED AS EXPENDITURE INCURRED FOR CARRYING ON THE BUSINES S OF THE ASSESSEE. BEING SO, IT CANNOT BE ALLOWED AS BUSINE SS EXPENDITURE. THE REASON GIVEN BY THE CIT(A) IS JUS TIFIED THE ORDER OF THE CIT(A) IS CONFIRMED. THE CLAIM OF THE ASSESSEE IS REJECTED. 8. IN THE RESULT, ASSESSEE'S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2013. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 22 ND FEBRUARY, 2013 TPRAO COPY FORWARDED TO: 1. M/S. SAHITYA HOUSING PVT. LTD., C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYA'S RESIDENCY, ROAD NO. 9, HIMAYATHNAGAR, HYDERABAD. 2. THE ACIT, CIRCLE - 3(1), HYDERABAD. 3. THE CIT(A) - I V, HYDERABAD. 4. THE CIT - III , HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD.