INTERNATIONAL BIOTECH PARK LTD, MUMBAI V. JCIT RG 15(3), MUMBAI

ITA 3322/MUM/2010

• Counselvise Citation: 332219914 RSA 2010
• Duration Of Justice: 3 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 20-08-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 28-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SHUKLA
• Assessee Lawyers: NEEERAJ SHETH
• Keywords: Business income; Depreciation
• Section: 143(3); 147; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 3322/MUM/2010 ASSESSMENT YEAR : 2005-06 INTERNATIONAL BIOTECH PARK LTD. 5 TH FLOOR, METROPOLITAN BLDG. BLOCK-E BANDRA KURLA COMPLEX MUMBAI-400 051. PAN NO.AABCI 1236 J VS. CIT - 10 ROOM NO.574, 5 TH FLOOR AYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NEEERAJ SHETH REVENUE BY : SHRI P.K. SHUKLA DATE OF HEARING : 20/08/2013 DATE OF PRONOUNCEMENT : 11 / 0 9 /2013 O R D E R PER B. RAMAKOTAIAH, AM: THIS APPEAL BY ASSESSEE IS AGAINST THE ORDER OF CIT -10 U/S. 263 DATED 31.03.2010 FOR ASSESSMENT YEAR 2005-06. THE A SSESSEE FILED RETURN OF INCOME DECLARING LOSS OF RS.44,81,336/-. ORDER U /S. 143(3) WAS PASSED BY AO ON 17.12.2007 ASSESSING AT LOSS RS.44,81,340/-. THE LD. CIT INITIATED PROCEEDINGS U/S 263 OF THE IT ACT 1961 ON THE REASON THAT ASSESSEE HAS NOT SET UP THE BUSINESS DURING THE YEA R, THEREFORE, SINCE THE BUSINESS DURING THE YEAR HAS NOT BEEN COMMENCED, DE PRECIATION AND EXPENDITURE CLAIM TO THE EXTENT OF RS.2,95,145/- A ND RS.18,970/- RESPECTIVELY CAN NOT BE ALLOWED AS REVENUE EXPENDIT URE WHICH WAS TO BE CAPITALIZED. THE ASSESSEE CONTESTED THE PROCEEDINGS STATING THAT AO EXAMINED THE ISSUES AT THE TIME OF COMPLETION OF TH E ASSESSMENT. IT WAS SUBMITTED THAT ASSESSEES BUSINESS ACTIVITY STARTED IN MARCH, 2004 IN ITA NO.3322/M/10 A.Y.05-06 2 ASSESSMENT YEAR 2004-05 WHEN THE LEASE AGREEMENT WA S ENTERED BY ASSESSEE WITH MIDC AND FURTHER THESE ASPECTS WERE E XAMINED IN ASSESSMENT YEAR 2006-07 WHEREIN AO WAS OF THE VIEW THAT THE BUSINESS HAS NOT COMMENCED IN THAT YEAR, WHEREAS THE LD. CIT (A)-21 VIDE HIS APPELLATE ORDER IN THAT YEAR HAS ALREADY HELD THAT THE ASSESSEE HAS COMMENCED BUSINESS. ACCORDINGLY IT WAS SUBMITTED TH AT THERE IS NO REASON FOR INITIATING PROCEEDINGS U/S. 263. IT WAS FURTHER CONTENDED THAT AO ON THE BASIS OF THE FINDINGS IN ASSESSMENT YEAR 2006-07 INITIATED PROCEEDINGS U/S. 147 AND THEY WERE DROPPED AND THER EFORE, REVISION U/S. 263 IS NOT JUSTIFIED. LD. CIT HOWEVER WAS OF THE OP INION THAT BUSINESS WAS NOT SET UP AND ASSESSEE IS IN THE PROCESS OF L AND DEVELOPMENT WORK WHICH WAS SHOWED AT RS.23.15 CRORES, BUILDING CONST RUCTION WORK RS.3.37 CRORES. THEREFORE, ASSESSEE HAS NOT SET UP ITS BUSINESS. SINCE THERE IS NO BUSINESS SET UP DURING THE YEAR, THE DE PRECIATION AND EXPENSES SHOULD HAVE BEEN DISALLOWED. 2. IN THE COURSE OF ARGUMENTS LD. COUNSEL APART FRO M STATING THE FACTS, ALSO BROUGHT TO OUR NOTICE THE ORDER OF THE ITAT IN ASSESSMENT YEAR 2006-07 WHICH AFFIRMED THE CIT(A)S FINDING ON THE REVENUE APPEAL IN ITA NO.224/MUM/2010 DATED 23.11.2012. HE ALSO RELIED ON VARIOUS PRINCIPLES LAID DOWN ON THE ISSUE OF SETTING UP OF THE BUSINESS AND COMMENCEMENT OF THE BUSINESS. THE LD. DR HOWEVER SU PPORTED THE ORDERS OF CIT AND PLACED ON RECORD A WRITE-UP ON TH E ISSUE AND DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PIEM HOTEL PVT. LTD.(209 ITR 616) TO SUBMIT THAT SINCE ASSESSEES BUSINESS OF BIOTEC H PARK WAS NOT READY FOR BUSINESS, IT CAN NOT BE STAT ED THAT ASSESSEE HAS SET UP THE BUSINESS AND ACCORDINGLY THE ORDER OF CI T IS TO BE UPHELD. THE LD. COUNSEL IN REPLY SUBMITTED THAT THE ASSESSEE WA S NOT ONLY DEVELOPING A BIOTECH PARK BUT ALSO SUB-LEASING PLOTS WHICH WER E OBTAINED FROM MIDC AND SUB-LEASING OF FLATS WAS PART OF THE BUSIN ESS ACTIVITY READY DURING THE YEAR AND REFERRED TO THE INCOME RECEIVED LATER IN THE YEAR OF ITA NO.3322/M/10 A.Y.05-06 3 RS.4,05,29,208/- ON SUB-LEASING OF THE PLOTS AND FI NDING OF THE LD. CIT(A) IN ASSESSMENT YEAR 2006-07 TO STATE THAT ASSESSEE C OMMENCED BUSINESS BY ENTERING INTO LEASE AGREEMENT WITH MIDC FOR LAND IN MARCH, 2004. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND EXA MINED PAPER BOOK ON RECORD AND ALSO VARIOUS CASE LAW RELIED UPO N BY THE PARTIES. AS SEEN FROM THE ORDER OF CIT U/S. 263, THE MAIN THRUS T OF THE ARGUMENT WAS ON THE BASIS OF FINDINGS GIVEN BY ASSESSING OFF ICER IN ASSESSMENT YEAR 2006-07 THAT ASSESSEE HAS NOT COMMENCED BUSINE SS EVEN IN THAT YEAR. AS RIGHTLY SUBMITTED BY THE ASSESSEE, THIS FINDING OF AO IN AY2006-07 WAS NOT UPHELD. ON THE BASIS OF MEMORAND UM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE COMPANY, IT WAS ACCE PTED THAT ONE OF THE ACTIVITIES OF THE ASSESSEE COMPANY WAS SUB-LEASING OF MOVABLE OR IMMOVABLE PROPERTY ACCORDING TO THE OBJECT CLAUSE O F THE COMPANY. SUB- LEASING INCOME WAS SHOWN AS BUSINESS INCOME OF THE ASSESSEE COMPANY. IT WAS FURTHER HELD BY CIT(A) THAT IT TOOK LAND ON LEASE DURING ASSESSMENT YEAR 2004-05 ON AN AGREEMENT WITH MIDC. LD. CIT(A) FURTHER HELD THAT THE ASSESSEE WAS FORMED AS A RESULT OF JOINT VENTUR E BETWEEN MIDC AND TCL URBAN INFRASTUCTURE HOLDING LTD. WITH THE MAIN OBJECT OF DEVELOPMENT OF BIOTECH PARK AND TECHNO PARK AND IND USTRIAL DEVELOPMENT CENTRES. IT WAS FURTHER HELD THAT FOR T HE PURPOSE OF ITS OBJECTIVES THE ASSESSEE WAS TO DEVELOP LAND, CREATE INFRASTRUCTURE FACILITIES WHICH WERE TO BE MADE AVAILABLE TO OTHER PARTIES. IT WAS FURTHER NOTICED THAT SINCE THE ASSESSEE COMPANY WAS NOT HAV ING LAND OF ITS OWN, THE LAND FOR THIS PURPOSE WAS MADE AVAILABLE BY MID C ON LEASE BASIS AND SO ASSESSEE COULD NOT SELL THE DEVELOPED LAND ON OW NERSHIP BASIS TO OTHER PARTIES. THE LD. CIT(A) FINALLY CONCLUDED THAT WITH THE PURCHASE OF LAND AND INCURRING VARIOUS EXPENSES FOR DEVELOPMENT OF L AND THE ASSESSEE SAID TO HAVE SET UP /COMMENCED ITS ACTIVITIES. THESE FIN DINGS WERE UPHELD BY THE ITAT IN THE ABOVE REFERRED ORDER IN ASSESSMENT YEAR 2006-07 IN ASSESSEES OWN CASE. THEREFORE, WE ARE OF THE OPINI ON THAT THE ASSESSEE ITA NO.3322/M/10 A.Y.05-06 4 DID COMMENCE ITS BUSINESS ACTIVITY BY ENTERING INTO LEASE OF LAND IN MARCH 2004 IN ASSESSMENT YEAR 2004-05 AND SETTING U P BUSINESS ACTIVITY IN 2005-06 BY INCURRING EXPENDITURE FOR DEVELOPING THE LAND AND ULTIMATELY RECEIVED INCOME BY SUB-LEASE OF LAND IN ASSESSMENT YEAR 2006-07 WHICH WERE ACCEPTED AS ASSESSEES BUSINESS ACTIVITIES. IN THE LIGHT OF THE FACTS, WE DO NOT SEE ANY MERIT IN THE CONTENTION OF THE CIT THAT ASSESSEE HAS NOT SET UP BUSINESS ACTIVITY. 4. IT IS ALSO SURPRISING TO SEE THAT TOTAL EXPENDIT URE CLAIMED IN PROFIT & LOSS A/C. WAS OF TUNE OF RS.61,28,430/- WHICH IN CLUDE PERSONAL EXPENSES OF RS.1,34,990/- OPERATING AND OTHER EXPEN SES OF RS.57,87,162 AND DEPRECIATION AND PRELIMINARY EXPENSES (SECTION 35D). THE ASSESSEE HAD CLAIMED TOTAL LOSS AT RS.44,81,336/- AFTER SETT ING OFF INCOME FROM OTHER SOURCES RS.22,21,427/- . WE WERE NOT SURE WHY ONLY DEPRECIATION CLAIM OF RS.2,95,145/- AND PRELIMINARY EXPENSES OF RS.18,970/- WERE ONLY CONSIDERED BY CIT FOR DISALLOWANCE. IF HIS STA ND WERE TO BE ACCEPTED THEN THE OTHER EXPENDITURE CLAIMED AS PERSONNEL AND OPERATING EXPENSES ALSO REQUIRE TO BE CAPITALIZED. THERE IS NO CONSIST ENCY IN THE STAND OF THE CIT. BE THAT AS IT MAY, WE ARE OF THE OPINION THAT SINCE ASSESSEE HAS COMMENCED ITS BUSINESS AND SET UP BUSINESS ALSO, TH E ORDER PASSED BY AO IN THE ORIGINAL INSTANCE IS NOT ERRONEOUS AND PR EJUDICIAL TO THE INTERESTS OF THE REVENUE. THEREFORE, CIT HAS NO JUR ISDICTION TO SET ASIDE THE SAME. ASSESSEES GROUNDS ARE ALLOWED. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER, 2013. SD/- SD/- (SANJAY GARG) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 11/09/2013. JV. ITA NO.3322/M/10 A.Y.05-06 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.