Indian Rotorcraft Limited, Hyderabad V. Dy. Commissioner of Income Tax , Circle-2(1), Hyderabad

ITA 427/Hyd/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4469 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 11-03-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 28-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B-SMC, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 427/HYD/2018 ASSESSMENT YEAR: 2014-15 M/S. INDIAN ROTORCRAFT LIMITED, HYDERABAD. PAN AACCI4741F VS. DCIT, CIRCLE 2(1) HYDERABAD. (APPLICANT) (RES PONDENT) ASSESSEE BY : SRI A. SRINIVAS REVENUE BY : SRI SOLGY JOSE T. KOTTARAM DATE OF HEARING : 11-03-2019 DATE OF PRONOUNCEMENT : 22-03-2019 ORDER PER P. MADHAVI DEVI, J.M.: THIS IS ASSESSEES APPEAL FOR THE A.Y 2014-15 AGAI NST THE ORDER OF THE CIT(A)-8, HYDERABAD DATED 11.12.20 17. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE ORDER OF THE APPELLATE COMMISSIONER IS CONT RARY TO THE LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE APPELLATE COMMISSIONER ERRED IN CONFIRMING T HE ORDER OF THE A.O IN NOT ALLOWING THE CARRY-FORWARD OF BUS INESS LOSS AS CLAIMED BY THE ASSESSEE. 3. THE APPELLATE COMMISSIONER FAILED TO APPRECIATE THE RATIO OF DECISION GIVEN IN M/S. BOKARO STEEL LTD., (236 I TR 315 (SC). 4. THE APPELLATE COMMISSIONER ERRED IN NOT ALLOWING THE SET- OFF OF BUSINESS LOSS AGAINST THE INTEREST EARNED ON FIXED DEPOSITS. 2 ITA.NO. 427/HYD/2018 M/S. INDIAN ROTORCRAFT LIMITED, HYD. 5. THE APPELLATE COMMISSIONER ERRED IN CONFIRMING T HE ACTION OF THE A.O CHARGING THE INTEREST ON FIXED DEPOSITS AS INCOME FROM OTHER SOURCES. 6. ANY OTHER GROUND WHICH THE APPELLANT MAY URGE EI THER BEFORE OR AT THE TIME OF HEARING . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY ENGAGED IN THE BUSINESS OF FLIGHT ASSEMBLY, END USE R CUSTOMIZATION AND DELIVERY OF AGUSTA WESTLANDS AW 109 FAMILY HELICOPTERS, FILED ITS RETURN OF INCOME FOR THE A.Y 2014-15 ON 26.09.2014 ADMITTING LOSS OF RS. 2,39,05 ,060/- AFTER SET OFF OF CURRENT YEAR LOSS OF RS. 33,29,185 /- FROM INCOME FROM OTHER SOURCES. 3. DURING THE ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT PURSUANT TO SELECTION FOR SCRUTINY UNDER CASS, THE A.O OBSERVED THAT THE ASSESSEE HAS SHOWN NIL REVENUE FROM BUSINESS OPERATIONS AS IT HAS NOT COMMENCED ITS BUS INESS BUT CLAIMED EXPENSES OF RS. 3,17,42,273/- IN ITS PR OFIT AND LOSS ACCOUNT. HE OBSERVED THAT THE ASSESSEE HAS ALS O ADDED BACK EXPENSES TO THE TUNE OF RS. 46,13,627/- AS CA PITAL EXPENDITURE AND THEREBY CLAIMED REVENUE EXPENSES OF RS. 2,71,28,646/- ONLY. THE ASSESSEE WAS, THEREFORE, A SKED TO FURNISH JUSTIFICATION OF EXPENSES SINCE BUSINESS HA D NOT COMMENCED YET. THE ASSESSEE SUBMITTED THE DETAILS BY A LETTER DATED 22.11.2016. SINCE, THE ASSESSEE HAD NO T COMMENCED ITS OPERATIONS, THE A.O HELD THAT THE EXP ENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT AS REVENUE EXPENDITURE ARE NOT TO BE ALLOWED. HE THEREFORE RE DUCED THE BUSINESS LOSS AND INTEREST INCOME WAS ASSESSED SEPARATELY AS INCOME FROM OTHER SOURCES. 3 ITA.NO. 427/HYD/2018 M/S. INDIAN ROTORCRAFT LIMITED, HYD. 3.1. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BE FORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE A.O AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS DIFFERENCE BETWEEN THE SETTING UP OF BUSINESS AN D COMMENCEMENT OF BUSINESS AND IT IS NOT DISPUTED THA T THE ASSESSEE HAD SET UP THE BUSINESS BUT HAD NOT COMMEN CED THE BUSINESS OPERATIONS. HE DREW OUR ATTENTION TO T HE PROFIT AND LOSS ACCOUNT, TO DEMONSTRATE THAT THE EXPENDITU RE CLAIMED WAS MAINLY TOWARDS EMPLOYEE BENEFIT EXPENS ES. HE SUBMITTED THAT AFTER THE BUSINESS HAS BEEN SET U P, THE ASSESSEE HAD TO EMPLOY, EMPLOYEES FOR CARRYING OUT THE CONSTRUCTION ACTIVITY AND THEREFORE THE EXPENDITURE IS BUSINESS EXPENDITURE AND ITS BUSINESS LOSS CAN BE S ET OFF AGAINST THE INCOME UNDER THE HEAD INCOME FROM OTHE R SOURCES. FOR THIS PURPOSE, HE PLACED RELIANCE UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. AXIS PVT EQUITY LTD IN INCOME TAX APPEAL NO . 1204/2014 DATED 30.01.2017. HE ALSO PLACED RELIANCE UPON THE FOLLOWING OTHER DECISIONS IN SUPPORT OF HIS CON TENTIONS. 1. ACIT VS. VALMARK DEVELOPERS PVT LTD., IN ITA NO . 2684 TO 2653/BANG/2017. 2. PRATIK GOYAL VS. ITO IN ITA NO. 696/JP/2017. 3. HYDERABAD HI-TECH TEXTILE PARK PVT LTD., VS. ITO IN ITA NO. 587/HYD/2016. 4. SURYA INFRA IT PARK PVT LTD., VS. CIT, IN ITA NO . 863/HYD/2014. 5. ITO VS. TRIDENT SHELTERS PVT LTD., IN ITA NO. 1160/HYD/2012. 6. DAKSHIN SHELTERS PVT LTD., VS. DCIT IN ITA NO. 1 983 TO 1985/HYD/2011. 4 ITA.NO. 427/HYD/2018 M/S. INDIAN ROTORCRAFT LIMITED, HYD. 5. THE LD. DR, ON THE OTHER HAND, SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATER IAL PLACED ON RECORD, WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAD SET UP ITS BUSINESS AND IT WAS YET TO COMMENCE ITS OPERATIONS. IN SIMILAR CIRCUMSTANCES T HE HONBLE BOMBAY HIGH COURT (CITED SUPRA) HAS HELD TH AT ALL EXPENSES INCURRED IN THE INTERREGNUM PERIOD BETWEEN SETTING UP OF BUSINESS AND COMMENCEMENT OF BUSINESS WOULD BE PERMISSIBLE DEDUCTIONS. FOR THE SAKE OF R EADY REFERENCE, THE RELEVANT PARAS OF THE SAID JUDGMENT ARE REPRODUCED HEREUNDER: 6. THE GRIEVANCE OF THE REVENUE BEFORE US IS ONLY WITH REGARD TO THE IMPUGNED ORDER ALLOWING THE EXPENDITURE OF R S. 1.17 CRORES AS BUSINESS LOSS. THIS CONCLUSION OF THE TR IBUNAL IS PREMISED ON THE FACT THAT THE BUSINESS HAS BEEN SET UP DURING THE YEAR UNDER CONSIDERATION. IT IS SUBMITTED BY T HE REVENUE THAT NO EVIDENCE WAS PRODUCED BY THE ASSESSEE TO SH OW THAT ANY ACTIVITIES OF MANAGEMENT OF FUNDS HAVE BEEN TAK EN BY THE RESPONDENT ASSESSEE DURING THE ASSESSMENT YEAR. THUS NO EXPENDITURE RESULTING IN BUSINESS LOSS COULD BE ALL OWED AS THE BUSINESS HAD NOT COMMENCED. ACCORDING TO THE REVEN UE, THERE IS NO DISTINCTION BETWEEN SETTING UP OF BUSINESS AN D COMMENCEMENT OF BUSINESS. THEREFORE, NO EXPENDITUR E INCURRED BEFORE COMMENCEMENT OF BUSINESS CAN BE ALLOWED. 7. WE NOTE THAT A SIMILAR ISSUE VIZ. DISTINCTION BE TWEEN SETTING UP OF BUSINESS AND COMMENCEMENT OF BUSINESS HAD COME UP FOR CONSIDERATION BEFORE THIS COURT IN WESTERN I NDIA VEGETABLE PRODUCTS LTD., VS. CIT. THIS COURT HAD H ELD THAT BUSINESS IS SAID TO HAVE BEEN SET UP WHEN IT IS EST ABLISHED AND READY TO BE COMMENCE. HOWEVER, THERE MAY BE AN INT ERVAL BETWEEN A BUSINESS WHICH IS SET UP AND A BUSINESS W HICH IS COMMENCED. HOWEVER, ALL EXPENSES INCURRED DURING T HE INTERREGNUM, BETWEEN SETTING UP OF BUSINESS AND COM MENCEMENT OF BUSINESS WOULD BE PERMISSIBLE DEDUCTIONS. IN TH IS CASE, THE CIT(A) HAD DISALLOWED THE EXPENDITURE AS BUSINESS L OSS ONLY ON THE GROUND THAT IT HAD NOT COMMENCED BUSINESS. HOW EVER, THE 5 ITA.NO. 427/HYD/2018 M/S. INDIAN ROTORCRAFT LIMITED, HYD. IMPUGNED ORDER OF THE TRIBUNAL ON EXAMINATION OF FA CTS FOUND THAT THE BUSINESS OF THE RESPONDENT ASSESSEE HAS BEEN SET UP IN THE SUBJECT ASSESSMENT YEAR AND CONSEQUENTLY, TH E BUSINESS LOSS ARISING ON ACCOUNT OF EXPENDITURE AS CLAIMED B Y THE RESPONDENT ASSESSEE WAS ALLOWABLE. WE ALSO NOTE THAT THE IMPUGNED ORDER OF THE TRIBUNAL PLACED RELIANCE UPON THE ORDER OF ITS CO-ORDINATE BENCH IN HSBC SECURITIES INDIA HOLD INGS PVT LTD., (SUPRA) WHEREIN ON SIMILAR FACTS IT HAD HELD THAT WHEN EXECUTIVES ARE EMPLOYED AND THE INFRASTRUCTURE IS R EADY TO COMMENCE BUSINESS, IT CAN BE SAID THAT THE BUSINESS HAS BEEN SET UP FOR CARRYING ON BUSINESS AS SHARE BROKERS. 6.1. RESPECTFULLY FOLLOWING THE SAME, I DIRECT THE A.O TO ALLOW THE BUSINESS LOSS AS CLAIMED BY THE ASSESSEE TO BE SET OFF AGAINST THE INCOME FROM OTHER SOURCES. ACCORDI NGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. SD/- (P. MADHAVI DEVI) JUD ICIAL MEMBER HYDERABAD, DATED: 22 ND MARCH, 2019 KRK 6 ITA.NO. 427/HYD/2018 M/S. INDIAN ROTORCRAFT LIMITED, HYD. 1) M/S. INDIAN ROTORCRAFT LTD., 1 ST FLOOR, BLOCK-E, OLD PROJECT SITE OFFICE, GMR HYDERABAD INTERNATIONAL AI RPORT, SHAMSHABAD, HYDERABAD 500409. 2) DCIT, CIRCLE 2(1) HYDERABAD. 3) CIT(A)-8, HYDERABAD. 4) PR.CIT-2, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD. 6) GUARD FILE.