M/s. Radha Raj Infrastructure Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 4572/DEL/2011

• Counselvise Citation: 457220114 RSA 2011
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 19-12-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 13-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS PRATIMA KAUSHIK
• Assessee Lawyers: MRS SWEETY K OTHARI CAS
• Keywords: Business income; Business expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO. 4572/DEL/2011 ASSTT. YR: 2008-09 M/S RADHA RAJ INFRASTRUCTURE PVT. LTD. VS. ITO, W ARD-15(1), 5190, LAHORI GATE, NEW DELHI. NEW DELHI. PAN/GIR NO. AADCR5123P (APPELLANT) ( RESPONDENT ) APPELLANT BY : SHRI V.K. BINDAL & MRS. SWEETY K OTHARI CAS RESPONDENT BY : MRS. PRATIMA KAUSHIK SR. DR O R D E R PER R.P. TOLANI, J.M : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DA TED 20-7-2011, RELATING TO A.Y. 2008-09 . SOLE GROUND RAISED IS AS UNDER. THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN DISALLOWING VARIOUS EXPENSES AGGREGATING TO RS. 9,1 3,172/- ON ESTABLISHMENT, TRAVELING & CONVEYANCE ETC. INCURRED FOR CARRYING ON THE REAL ESTATE BUSINESS AND CLAIMED IN THE RETURN OF INCOME BESIDES IGNORING THE EXISTENCE OF BUSINESS O F THE APPELLANT AND NECESSITIES FOR SUCH EXPENSES. THUS E XPENSES INCURRED MUST BE ALLOWED AS BUSINESS LOSS. 2. BRIEF FACTS ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CONTRACTORS, BUILDERS, TOWN PLANNERS AND INFRASTRU CTURE DEVELOPERS. DURING THE IMPUGNED YEAR THE ASSESSEE WAS CARRYING ON REAL ESTATE BUSINESS AND HAD ADVANCED MONIES FOR ACQUIRING THE PROPERTY AT DISTR ICT PANCHKULA (HARYAN), WHICH WAS HELD AS STOCK IN TRADE. DUE TO DISPUTE WI TH THE SELLERS, THE MATTER WENT INTO LITIGATION BEFORE THE PROPERTY COULD BE ACQUIRED. THE ASSESSEE WAS ALREADY RUNNING A HOTEL, WHICH WAS LET OUT, EARNING RENTAL WHICH WAS OFFERED ITA 4572/DEL/11 RADHA RAJ INFRASTRUCTURE 2 BY THE ASSESSEE AS BUSINESS INCOME. AO, HOWEVER, H ELD THE RENTAL INCOME FROM LETTING OUT OF HOTEL AS HOUSE PROPERTY INCOME. ACCORDING TO ASSESSEE, IT WAS ALREADY INTO BUSINESS; ASSESSEE INCURRED ESTABL ISHMENT EXPENSES OF RS. 9,25,283/- FOR CONDUCTING ITS ABOVE BUSINESS. THE S AME INCLUDED MONTHLY SALARY OF RS. 6,48,000/-. FOR CARRYING OUT BUSINESS AND LOOKING AFTER THE LITIGATION RELATING TO ASSESSEE, THE ASSESSEE HAD T O INCUR THESE EXPENSES FOR RUNNING THE OPERATIONS OF THE COMPANY. ASSESSEE PLA CED RELIANCE ON FOLLOWING JUDGMENTS: - CIT VS. SARABHAI MANAGEMENT CORPORATION LTD. (1991) 192 ITR 151 (SC); - CIT VS. WESTERN INDIA SEA FOOD (P) LTD. (1992) 199 ITR 777 (GUJ) - CIT VS. KANORIA GENERAL DEALERS PVT. LTD. (1986) 91 ITR 524 (CAL). - HOTEL HANS (P) LTD. VS. ACIT (2007) 15 SOT 348 (DEL HI). 3. AO, HOWEVER, DISALLOWED THE EXPENDITURE ON THE G ROUND THAT SINCE THE RENTAL INCOME WAS CONSIDERED AS INCOME FROM HOUSE P ROPERTY AND ALLOWED STANDARD DEDUCTION, THE EXPENDITURE WAS DISALLOWABL E. ACCORDING TO LEARNED COUNSEL, AO FAILED TO TAKE INTO CONSIDERATION THAT THE ASSESSEE WAS ALREADY IN BUSINESS AND IF ONE OF THE BUSINESS REC EIPT IS ULTIMATELY HELD TO BE INCOME FROM HOUSE PROPERTY, IT DOES NOT PROVE THA T THE ASSESSEE WAS NOT RUNNING THE BUSINESS AND THE EXPENDITURE INCURRED B Y THE ASSESSEE TO CARRY ON ITS BUSINESS OPERATIONS, WAS TO BE ALLOWED AS BUSIN ESS EXPENDITURE. CIT(A), HOWEVER, HELD THAT THE ADVANCE FOR PURCHASE OF PROP ERTY HAD NOT MATERIALIZED AND IN THAT SENSE, ASSESSEES BUSINESS HAD NOT COMM ENCED AT ALL AND THEREFORE CANNOT BE ALLOWED AS BUSINESS EXPENDITURE . 4. LEARNED COUNSEL CONTENDS THAT THE ASSESSEES FIR ST CONTENTION IS ASSESSEE WAS ALREADY INTO BUSINESS AND BUSINESS ASS ET WAS ACQUIRED, WHICH, THOUGH WAS RENTED OUT AND FOR ACQUISITION OF OTHER ASSET, ADVANCE WAS GIVEN. THE ACQUISITION WAS DELAYED DUE TO LITIGATION WITH THE SELLER. THE ITA 4572/DEL/11 RADHA RAJ INFRASTRUCTURE 3 EXPENDITURE WAS NECESSARY TO CARRY OUT THE MINIMUM BUSINESS OPERATION FOR RUNNING A COMPANY AND FACING THE LITIGATION. THUS, THE ASSESSEES BUSINESS WAS SET UP ONLY TO COMPEL BUSINESS OPERATIONS QUA T HE NEW ACQUIRED PROPERTY WAS NOT COMMENCED. SINCE THE ASSESSEES BU SINESS WAS SET UP, THE EXPENDITURE WAS ALLOWABLE. RELIANCE IS PLACED ON HO NBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. HUGHES ESCORTS COMM UNICATIONS LTD. (2009) 311 ITR 253. IT IS PLEADED THAT HONBLE DELH I HIGH COURT HAS CLEARLY HELD THAT THERE ARE TWO STAGES INVOLVED WITH BUSINE SS OPERATIONS (I) SETTING UP OF BUSINESS; AND (II) ACTUAL COMMENCEMENT OF OPE RATIONS. IN THIS CASE BY ACQUISITION OF EARLIER HOTEL, ACCORDING TO OBJECTS, WAS SETTING UP OF THE BUSINESS. SIMILARLY, WHEN THE ASSESSEE MADE EFFORT TO PURCHASE THE LAND FOR CONSTRUCTION OF ANOTHER HOTEL, THE ADVANCES HELD AS BUSINESS ASSET. FROM ANY ANGLE, THE ASSESSEES BUSINESS WAS SET UP AND EXPEN DITURE WAS ALLOWED U/S 37 IN VIEW OF HONBLE DELHI HIGH COURT JUDGMENT WHICH LAYS DOWN THIS PRINCIPLE. 5. ON QUERY FROM BENCH, AS TO WHETHER IF ANY EXPEND ITURE CLAIMED IN THE P&L A/C PERTAINS TO LETTING OUT OF THE PROPERTY, LE ARNED COUNSEL CONTENDS THAT FOR THIS THE MATTER MAY BE SET ASIDE, RESTORED BACK TO THE FILE OF AO. 6. LEARNED DR IS HEARD, WHO SUPPORTS THE ORDER OF L OWER AUTHORITIES AND CONTENDS THAT ASSESSEES FIRST HOTEL WAS LET OUT AN D ASSESSEE HAS HOUSE PROPERTY INCOME, THEREFORE, THE SAME WAS NOT COMMEN CEMENT OF THE ASSESSEES BUSINESS AND IN RESPECT OF OTHER, MERE G IVING OF ADVANCE, DID NOT AMOUNT SETTING UP OF BUSINESS. 7. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. WE FIND MERIT IN THE ARGUMENT OF LEARNED COUNSEL FOR THE ASSESSEE. IN OUR VIEW WHEN THE ASSESSEE HAS ALREAD Y ACQUIRED A BUSINESS ASSET AND WAS IN THE PROCESS OF ACQUIRING ANOTHER P ROPERTY, IN OUR VIEW THE ITA 4572/DEL/11 RADHA RAJ INFRASTRUCTURE 4 ASSESSEE HAD COMMENCED ITS BUSINESS. EVEN IF HE ASS UMED THAT THE HOTELS RENTAL INCOME WAS HELD TO BE HOUSE PROPERTY INCOME, THE PLEA OF SETTING UP OF BUSINESS GOES IN FAVOUR OF THE ASSESSEE. OUR VIEW IS FORTIFIED BY THE ITAT DECISION IN THE CASE OF HOTEL HANS (P) LTD.; AND HO NBLE DELHI HIGH COURT DECISION IN THE CASE OF HUGHES ESCORTS COMMUNICATIO NS LTD. (SUPRA). IN VIEW THEREOF, WE HOLD THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS TO BE ALLOWED AS BUSINESS EXPENDITURE. HOWEVER, THERE IS A POSSIBILITY THAT SOME EXPENDITURE RELATABLE TO LET OUT PROPERTY MAY HAVE CREPT IN THE EXPENDITURE CLAIMED BY THE ASSESSEE, WHICH HAS NOT BEEN VERIFIE D. IN VIEW THEREOF, WE SET ASIDE THE ISSUE FOR VERIFICATION OF THE EXPENDITURE ON THIS SUSPICION TO AO. IF ANY EXPENDITURE RELATABLE TO LET OUT PROPERTY IS FO UND TO BE INCLUDED IN THE EXPENDITURE, THE SAME SHOULD BE EXCLUDED IN VIEW OF THE FACT THAT STANDARD DEDUCTION IN RESPECT OF HOUSE PROPERTY INCOME HAS B EEN ALLOWED TO THE ASSESSEE. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED WITH THESE OBSERVATIONS. ORDER PRONOUNCED IN OPEN COURT ON 06-01-2012. SD/- SD/- ( K.G. BANSAL ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 06-01-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR