Appeal details
Counselvise Citation
50722514 RSA 2011
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 2 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-06-2012
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
B
Next Hearing Date
18-08-2011
Assessment Year
2007-2008
Appeal Filed On
28-03-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER SL. NO. ITA NO. AY APPELLANT RESPONDENT 1 137/HYD/11 2006-07 LANCO MANTRI TECHNOLOGY PARK PVT. LTD., HYDERABAD DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), HYDERABAD 2 317/HYD/11 2007-08 LANCO HILLS TECHNOLOGY PARK PVT. LTD., HYDERABAD DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), HYDERABAD 3 507/HYD/11 2007-08 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 16(1), HYDERABAD LANCO HILLS TECHNOLOGY PARK PVT. LTD., HYDERABAD ASSESSEE BY : MR. P. MURALI MOHANA RAO REVENUE BY : MR. B.V. PRASAD REDDY DATE OF HEARING : 30/04/2012 DATE OF PRONOUNCEMENT : 08/ 06/2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THE APPEAL BEING ITA NO. 137/HYD/2011 IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 29/10/20 10 FOR AY 2006-07. THE APPEALS BEING ITA NO. 317/HYD/11 AND 5 07/HYD/11 ARE THE CROSS APPEALS DIRECTED AGAINST THE ORDER OF CIT(A)-V, HYDERABAD DATED 03/01/11 FOR THE ASSESSMENT YEAR 20 07-08. SINCE IDENTICAL ISSUES ARE INVOLVED IN THESE APPEAL S, THEY WERE 2 ITA NO. 137, 317 & 507/HYD/11 LANCO MANTRI TECHNOLOGY PARK PVT. LTD. LANCO HILLS TECHNOLOGY PARK PVT. LTD. HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PA SSED FOR THE SAKE OF CONVENIENCE. 2. THE ISSUE IN ALL THE APPEALS ARE WHETHER THE VAR IOUS EXPENDITURE INCURRED BY THE ASSESSEE SHOULD BE ALLO WED AS REVENUE EXPENDITURE OR SHOULD BE ADDED TO CAPITAL W ORK IN PROGRESS AND WHETHER THE INCOME EARNED SHOULD BE AS SESSED TO TAX. ITA NO. 137/HYD/11 - LANCO MANTRI TECHNOLOGY PARK P VT. LTD. FOR AY 2006-07: 3. THE FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAG ED IN THE BUSINESS OF DEVELOPING AN INTEGRATED IT PARK AT MAN IKONDA, HYDERABAD. THE COMPANY WAS INCORPORATED ON 07/09/20 04 AS A SPECIAL PURPOSE VEHICLE (SPV) OF M/S LANCO INFRATEC H LTD. AND M/S MANTRI DEVELOPERS PVT. LTD. THE COMPANY WAS FORMED TO EXECUTE THE WORKS OF CONSTRUCTION OF INFORMATION TECHNOLOGY PARKS AND THE DEVELOPMENT OF RESIDENTIAL TOWERS. THE ASSESSEE HAS COMMENCED BUSINESS FOR THE AY 2006-07 ITSELF. THIS IS REFLECT ED BY WAY OF CLOSING WORK IN PROGRESS AS ON 31.3.2006 AT RS. 4,2 6,66,360/- CONSISTING OF LAND DEVELOPMENT EXPENSES, PERSONNEL AND ADMINISTRATIVE EXPENSES, INTEREST CHARGES ETC. OUT OF THIS THE ASSESSEE HAD CLAIMED RS. 15,69,289/- AS DEDUCTION R ESULTING IN A LOSS OF EQUAL AMOUNT. HOWEVER THE AO HAS DISALLOWED THE ENTIRE LOSS OF RS. 13,49,370/ CLAIMED BY THE ASSESSEE. AGG RIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) IN PARA 4.3 HAS HELD THAT THE BUSINE SS OF THE ASSESSEE HAS COMMENCED AND ALL REVENUE EXPENDITURE IS TO BE 3 ITA NO. 137, 317 & 507/HYD/11 LANCO MANTRI TECHNOLOGY PARK PVT. LTD. LANCO HILLS TECHNOLOGY PARK PVT. LTD. ALLOWED. HE HAS HOWEVER HELD THAT CONSULTANCY CHARG ES AND LEGAL CHARGES ARE TO BE CAPITALISED AND AUDITORS REMUNER ATION AND DONATIONS ARE TO BE ALLOWED. STILL AGGRIEVED, THE A SSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHO RITIES BELOW. IT IS THE CONTENTION OF THE ASSESSEE THAT THE CIT(A ) HAS NOT CONSIDERED THE CLAIM FOR DEDUCTION OF EXPENDITURE I N THE PROPER PERSPECTIVE. THE EXPENDITURE WHICH HAVE NO DIRECT N EXUS WITH THE PROJECT CANNOT BE CAPITALISED TO WORK IN PROGRESS B UT SHOULD BE ALLOWED AS A REVENUE EXPENDITURE. THE CIT(A) HAS AG REED IN PRINCIPLE TO THIS AVERMENT OF THE ASSESSEE. HE HAD STATED THAT THE BUSINESS OF THE ASSESSEE HAS COMMENCED AND THIS FIN DING HAS NOT BEEN CHALLENGED BY THE DEPARTMENT. IN THIS VIEW OF THE MATTER WE DIRECT THE ASSESSING OFFICER TO ALLOW EXPENDITURE W HICH ARE NOT DIRECTLY ATTRIBUTABLE TO THE DEVELOPMENT OF PROJECT BUT ARE EXPENSES INCURRED FROM YEAR TO YEAR FOR GENERAL RUN NING OF THE BUSINESS. WHATEVER EXPENSES WHICH ARE DIRECTLY ATTR IBUTABLE TO THE PROGRESSING OF THE PROJECT SHALL BE CAPITALISED AND ADDED TO THE WORK IN PROGRESS. SUBJECT TO THE ABOVE DIRECTIO NS , WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE OF ALLOWABILITY OF THE EXPENDITURE TO THE FILES OF THE AO FOR CONSI DERING THE ISSUE DE NOVO IN ACCORDANCE WITH THE PROVISIONS OF THE AC T. 6. IN THE RESULT, THE ASSESSEES APPEAL IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES. 4 ITA NO. 137, 317 & 507/HYD/11 LANCO MANTRI TECHNOLOGY PARK PVT. LTD. LANCO HILLS TECHNOLOGY PARK PVT. LTD. AY 2007-08: ITA NO 317/H/11- LANCO HILLS TECHNOLOGY PARK PVT. LTD.: 7. THE ASSESSEES APPEAL FOR AY 2007-08 IS SIMILAR TO THEIR APPEAL FOR AY 2006-07. THEY HAD CLAIMED AN EXPENDIT URE OF RS. 75,02,990/- RESULTING IN A LOSS OF AN EQUAL AMOUNT. THE AO HELD THAT AS IT IS PREOPERATIVE EXPENSES THEY HAVE TO BE CAPITALISED. ON APPEAL THE CIT(A) DISMISSED THE APPEAL HOLDING A S UNDER: 7.1.8. GIVEN THE ABOVE FACTS AND CIRCUMSTANCES, IT IS CLEAR THAT THE PREOPERATIVE EXPENSES ARE TO BE CAPI TALIZED AND HAVE BEEN CORRECTLY CAPITALIZED BY THE AO. THER EFORE, THE QUESTION OF ALLOWING BUSINESS LOSS DOES NOT ARI SE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE ARE UNABLE TO ACCEPT THE CONC LUSION OF THE CIT(A). FOR THE AY 2006-07, THE CIT(A) HAS CONCLUDE D THAT THE ASSESSEE HAS SET UP BUSINESS AND HENCE CERTAIN EXPE NDITURE ARE ALLOWABLE AS REVENUE DEDUCTION FOR THE YEAR. WE CAN NOT UNDERSTAND HOW FOR THE SUBSEQUENT YEAR, FOR THE YEA R UNDER THIS APPEAL THE EXPENSES OF THE ASSESSEE SHOULD BE CONSI DERED AS PREOPERATIVE EXPENSES. FOR THE AY 2006-07 ALSO WE H AD SET ASIDE THE ISSUE OF DEDUCTION OF EXPENSES WITH THE DIRECTI ON TO THE ASSESSING OFFICER TO ALLOW EXPENDITURE WHICH ARE NO T DIRECTLY ATTRIBUTABLE TO THE DEVELOPMENT OF PROJECT BUT ARE EXPENSES INCURRED FROM YEAR TO YEAR FOR GENERAL RUNNING OF T HE BUSINESS. WHATEVER EXPENSES WHICH ARE DIRECTLY ATTRIBUTABLE T O THE PROGRESSING OF THE PROJECT SHALL BE CAPITALISED AND ADDED TO THE WORK IN PROGRESS. 5 ITA NO. 137, 317 & 507/HYD/11 LANCO MANTRI TECHNOLOGY PARK PVT. LTD. LANCO HILLS TECHNOLOGY PARK PVT. LTD. 9. FOR THIS AY ALSO, SUBJECT TO THE ABOVE DIRECTION S, THE ISSUE OF ALLOWABILITY OF THE EXPENDITURE IS SET ASIDE TO THE FILES OF THE AO FOR CONSIDERING THE ISSUE DE NOVO IN ACCORDANCE WIT H THE PROVISIONS OF THE ACT. 10. IN THE RESULT, THE ASSESSEES APPEAL IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES. AY 2007-08: ITA NO 507/H/11- DEPARTMENTAL APPEAL: 11. THE ASSESSEE HAD DEPOSITED CERTAIN SUMS WITH TH E BANKS AND THE INTEREST RECEIVED THEREFROM WAS REDUCED FROM TH E WORK IN PROGRESS BY THE ASSESSEE. THE ASSESSING OFFICER HAS TREATED THE SAME AS INCOME FROM OTHER SOURCES. THE CIT(A) IN PA RA 7.1.7 HAS HELD THAT IN THE CASE OF THE ASSESSEE THE BUILDING IS NOT READY. HENCE THE INTEREST INCOME SHOULD BE CONSIDERED AS A CAPITAL RECEIPT. WE ARE UNABLE TO ACCEPT THE DECISION OF TH E CIT(A). FOR THE AY 2006-07 ITSELF IT HAS BEEN HELD BY THE CIT(A ) THAT THE ASSESSEE HAS SET UP THE BUSINESS AND THE REVENUE EX PENDITURE WHICH ARE IN THE NATURE OF PERIOD COST ARE TO BE AL LOWED AS REVENUE DEDUCTION AND NOT CAPITALISED. THAT BEING S O WE DONOT SEE HOW FOR THE AY 200708 THE INTEREST INCOME CAN B E CONSIDERED AS A CAPITAL RECEIPT. IN ANY EVENT THE ISSUE IS SQU ARELY COVERED BY THE DECISION OF THE APEX COURT INN THE CASE OF M/S. TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD V CIT (227 ITR 172) W HEREIN IT HAS BEEN HELD THAT INTEREST INCOME FROM DEPOSITS EVEN D URING PREOPERATIVE PERIOD IS ASSESSABLE AS INCOME FROM OT HER SOURCES. THE DECISIONS RELIED ON BY THE CIT(A) ARE DISTINGUI SHABLE ON FACTS. RESPECTFULLY FOLLOWING THE DECISION OF THE APEX COU RT IN THE CASE 6 ITA NO. 137, 317 & 507/HYD/11 LANCO MANTRI TECHNOLOGY PARK PVT. LTD. LANCO HILLS TECHNOLOGY PARK PVT. LTD. OF M/S. TUTICORIN ALKALI CHEMICALS & FERTILISERS LT D V CIT (227 ITR 172), WE SET ASIDE THE DECISIONS OF THE CIT(A) AND RESTORE THE ORDER OF THE AO TREATING THE INTEREST INCOME OF RS. 22,75,642/- AS INCOME FROM OTHER SOURCES. HOWEVER THIS INCOME MAY BE SET OFF AGAINST EXPENDITURE THAT IS FOUND TO BE ALLOWABLE A S A DEDUCTION, PURSUANT TO THE ORDER GIVING EFFECT TO THE ORDER OF THIS TRIBUNAL IN ASSESSEES APPEAL FOR THIS YEAR IN ITA NO 317/H/11. 12. IN THE RESULT, APPEAL BY THE REVENUE IS ALLOWE D. 13. TO SUM UP, APPEALS OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVE NUE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 08/06/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAG HAVAN) ACCOUNTANT MEMBER JUDICIAL MEMB ER HYDERABAD, DATED: 8 TH JUNE, 2012 KV COPY TO:- 1) LANCO MANTRI TECHNOLOGY PARK PVT. LTD., LANCOHILLS TECHNOLOGY PARK PVT. LTD., C/O P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500 082. 2) THE DY.. COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), HYDERABAD 3) THE CIT (A), HYDERABAD 4) THE CIT-IV, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD 7 ITA NO. 137, 317 & 507/HYD/11 LANCO MANTRI TECHNOLOGY PARK PVT. LTD. LANCO HILLS TECHNOLOGY PARK PVT. LTD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 04/06/12 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 06/06/12 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER
