Family Realtors Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 5241/DEL/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3053 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 10-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: GAURAV GOEL
• Keywords: Business expenditure
• Section: 28

Judgement Text

IN THE INCOME - TAX APPELLATE TRIBUNAL, DELHI BENCH B , NEW DELHI BEFORE : SHRI I.C. SUDHIR , JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 5241/DEL./2012 ASSESSMENT YEAR: 2009 - 10 FAMILY REALTORS PVT. LTD., 304, 3 RD FLOOR, KIANCHAN HOUSE, KARAMPURA COMMERCIAL COMPLEX NEW DELHI. PAN - AABCF1592Q (APPELLANT) V S.. INCOME TAX OFFICER , WARD 11(2), NEW DELHI (RESPONDENT) ASSESSEE BY SH . GAURAV GOEL, C.A. REVENUE BY SH . ANIL KUMAR SHARMA, SR. DR ORDER P ER L.P. SAHU, ACCOUNTANT MEMBER: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) - XIII, NEW DELHI DATED 01.08.2012 FOR THE ASSESSMENT YEAR 200 9 - 1 0 ON THE FOLLOWING GROUNDS : 1. THAT THE LD. CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN SUSTAINING THE DISALLOWANCE OF EXPENSES MADE BY THE ASSESSING OFFICER OF RS. 95,474 ON THE GROUNDS THAT APPELLANT HAS NOT SET - UP HIS BUSINESS AND NOT COMMENCED ANY COMMERCIAL ACTIVITIES DURING THE YEAR. DATE OF HEARING 01.05.2017 DATE OF P RONOUNCEMENT 26 .05. 2017 2 ITA NO. 5241/DEL./2012 2. THAT THE LD. CIT (A) HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN DISMISSING THE APPEAL OF THE APPELLANT COMPANY ON THE GROUND THAT THE APPELLANT HAS PURCHASED AGRICULTURAL LAND IN DELHI AND N O STEP WAS TAKEN BY THE APPELLANT TO CONVERT THIS AGRICULTURAL LAND INTO NON AGRICULTURAL LAND. THE LD. CIT (A) FAILED TO APPRECIATE THAT PURCHASE OF AGRICULTURAL LAND IN ITSELF IS FIRST STEP TOWARDS COMMENCEMENT OF REAL ESTATE BUSINESS AND WHETHER APPELLA NT HAS TAKEN STEPS TOWARDS ITS CONVERSION OR NOT IS IRRELEVANT IN DETERMINING THE QUESTION UNDER APPEAL I.E. WHETHER APPELLANT HAS COMMENCED THE BUSINESS OR NOT DURING THE YEAR. 3. THAT THE FINDING OF THE LD. CIT (A) THAT THE APPELLANT COMPANY HAD NOT S HOWN ANY INVENTORY IN THE BALANCE SHEET IS PERVERSE TO THE FACTS OF THE CASE. THIS CAN BE EASILY NOTED FROM THE FACT THAT APPELLANT HAS SHOWN THE PURCHASE OF AGRICULTURAL LAND AS ITS INVENTORY OF GOODS IN THE DULY AUDITED BALANCE SHEET FOR THE YEAR SINCE I TS INCEPTION. THE ACCOUNTING TREATMENT OF AGRICULTURAL LAND AS INVENTORY WAS EXPLAINED AT THE TIME OF ASSESSMENT PROCEEDINGS TO LD. AO AS WELL AS TO LD. CIT (A). IT IS INFORMATION AVAILABLE ON RECORDS. THE LD. CIT (A) HAS FAILED TO APPRECIATE THE FACT THAT THE PURCHASE OF AGRICULTURAL LAND IS SHOWN AS STOCK OF GOODS AND FAILED TO NOTE THAT THE NET EFFECT OF OPENING AND CLOSING STOCK IS VERY MUCH REFLECTED IN SCHEDULE 'C' - CURRENT ASSETS AND LOANS AND ADVANCES INVENTORIES (VALUED AT COST) OF THE AUDITED BALA NCE SHEET AS AT 31 MARCH, 2009. 2. THE BR IEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS A PRIVATE LIMITED COMPANY INCORPORATED ON 24 TH OF JANUARY 2007 VIDE CERTIFICATE OF INCORPORATION NO. U45201DL2007PTC158394 AND ENGAGED IN THE BUSINESS OF DEVE LOPMENT OF REAL ESTATE AS PER ITS MAIN OBJECT CLAUSE AS PER MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY. THE ASSESSEE FILED HIS RETURN OF 3 ITA NO. 5241/DEL./2012 INCOME ON 24/09/2009 DECLARING LOSS OF RS. 95 , 474/ - . THE CASE WAS SELECTED FOR HIS SCRUTINY AND STATUTORY NO TICES WERE ISSUED TO THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE COMPANY HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE RELEVANT FINANCIAL YEAR AND CLAIMED A LOSS OF RS. 95,474/ - . THE ASSESSEE PURCHASED CERTAIN AGRICULTURAL LANDS D URING THE CURRENT ASSESSMENT YEAR AS WELL AS IN THE PREVIOUS YEAR , WHICH WERE NOT PASSED THROUGH THE PROFIT AND LOSS ACCOUNT AND HE SHOWED DIRECTLY IN THE BALANCE SHEET UNDER THE CURRENT ASSETS AS A CLOSING STOCK. THE LD. ASSESSING OFFICER OBSERVED THAT AS PER PROVISIONS OF SECTION 29, THE INCOME REFERRED TO SECTION 28 IS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. HENCE, THE EXPENSES ALLOWABLE UNDER SECTIONS 30 TO 43D ARE ALLOWED ONLY IN CASES WHERE THE ASSESSEE CARRIE S ON ANY BUSINESS ACTIVITY DURING THE PREVIOUS YEAR. FURTHER THE LEARNED ASSESSING OFFICER ALSO NOTED THAT OUT OF TOTAL BUSINESS EXPENSES OF RS. 95,474, THE MAIN HEAD OF EXPENSES IS LEGAL AND PROFESSIONAL CHARGES AMOUNTING TO RS. 71,333. THE BREAKUP OF THE SE EXPENSES IS AS UNDER. 4 ITA NO. 5241/DEL./2012 S.NO. DESCRIPTION OF EXPENDITURE AMOUNT (RS. 1 E - FILING OF ANNUAL RETURN 3,933 2 INSPECTION OF REVENUE RECORDS 1,000 3 ACCOUNTING, SECRETARIAL AND TAXATION SERVICE CHARGES 66,180 4 AUDIT FEE 19,303 5 ROC FILING FEE 600 6 PRELIMINARY EXPENSES WRITTEN OFF 4,238 TOTAL 95,474 THESE EXPENSES HAVE A DIRECT LINK WITH THE PROCUREMENT OF LAND DURING THE YEAR UNDER CONSIDERATION. AS PER NOTE 02 OF THE NOTES TO THE ACCOUNTS , IT HAS BEEN STATED THAT STOCK IN TRADE CONSISTS AGRIC ULTURAL LAND IS VALUED AT COST INCLUDING STAMP DUTY, BROKERAGE AND OTHER DIRECT EXPENSES INCURRED/ATTRIBUTED ON ITS PURCHASE. IN VIEW OF THIS ACCOUNTING POLICY, THE EXPENSES INCURRED ON LEGAL AND PROFESSIONAL CHARGES SHOULD HAVE BEEN INCLUDED IN THE VALUE OF LAND COST IN ABSENCE OF ANY OTHER ACTIVITY DURING THE YEAR. THE LD. AO AFTER RELYING ON SOME CASE LAWS, DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE. AGGRIEVED BY THE ADDITION, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY. THE ASSESS EE MADE DETAILED WRITTEN SUBMISSIONS BEFORE THE FIRST APPELLATE AUTHORITY AND HE ALSO RELIED ON SOME CASE LAWS. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ORDER OF THE ASSESSING OFFICER, OBSERVED AS UNDER : 5 ITA NO. 5241/DEL./2012 HOWEVER, IT IS SEEN THAT NO STEP HAS BEEN TAKEN BY THE APPELLANT TO GET THIS AGRICULTURAL LAND AS NONAGRICULTURAL LAND FOR DEVELOPING THE SALE INTO REAL ESTATE PROJECT. IT IS A KNOWN FACT THAT REAL ESTATE PROJECT CANNOT BE STARTED ON AGRICULTURAL LAND. THEREFORE, IT CANNOT BE SAID THAT APPELLANT HAS COMMENCED OR SET - UP HIS BUSINESS ACTIVITY. HENCE, THE DECISION OF THE ASSESSING OFFICER THAT APPELLANT HAS NOT SET UP HIS BUSINESS AND HAS NOT COMMENCED ANY COMMERCIAL ACTIVITY IS UPHELD . AGGRIEVED BY THIS ORDER THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 3. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAD STARTED ITS BUSINESS BECAUSE IT WAS FORMED FOR THE REAL ESTATE SECTOR BUSINESS. IN THE REAL ESTATE SECTOR IT IS FIRST AND FOREMOST REQUIREMENT TO B UY A PIECE OF LAND . T HEREAFTER IT IS USED AS PER THE REQUIREMENTS. THERE WAS NO ANY SALE TRANSACTION. THEREFORE THE PURCHASES HA VE BEEN PASSED DIRECTLY INTO THE BALANCE SHEET. THIS IS A COMPANY AND STARTED ITS BUSINESS ACTIVITIES IMMEDIATELY AFTER SETTING UP OF ITS BUSINESS. FURTHER, EARNING OF REVENUE IS NOT THE SOLE CRITERIA FOR DECIDING AS TO WHEN A BUSINESS HAS COMMENCED. THE FACT THAT THE APPELLANT COMPANY WAS NOT ABLE TO FETCH ANY REVENUE DURI NG THE YEAR DOES NOT MEAN THAT THE APPELLANT COMPANY HAS NOT COMMENCED THE BUSINESS. THE APPELLANT HAS NOT EARNED ANY PROFIT FROM THE BUSINESS 6 ITA NO. 5241/DEL./2012 ACTIVITIES BUT HAS SUFFERED LOSS DURING THE YEAR. HE FURTHER SUBMITTED THAT THE LD. ASSESSING OFFICER HAS REJECTE D THE REPLY OF APPELLANT WHILE EXPLAINING THE QUERY AS TO WHY THE BUSINESS EXPENDITURE INCURRED SHOULD NOT BE DISALLOWED. THE LD. ASSESSING OFFICER HAS DECIDED TO CONCLU DE ONLY ON THE BASIS OF THE FACT THAT THE APPELLANT COMPANY HAS NOT ROUTED ITS CLOSING STOCK THROUGH PROFIT AND LOSS ACCOUNT AND HAS DIRECTLY TAKEN THE SAME THE CURRENT ASSETS IN THE BALANCE SHEET. HE FURTHER SUBMITTED THAT OUT OF BUSINESS EXPENSES OF RS. 95 , 474/ - THE AMOUNT OF RS. 71 , 333/ - HAS BEEN INCURRED DIRECTLY WITH THE PROCUREMENT OF LAND DURING THE YEAR UNDER CONSIDERATION. IN FACT, THESE EXPENSES OF RS. 71333/ - RELATE TO ADMINISTRATION EXPENSES LIKE ACCOUNTING CHARGES, SECRETARIAL CHARGES AND TAXES AND CHARGES FOR THE COMPANY. OUT OF RS.71333/ - , RS. 66180/ - IS ON ACCOUNT OF FEE PAYABL E FOR RENDERING ACCOUNTING AS WELL AS SECRETARIAT SERVICE AND REMAINING EXPENSES ARE TOWARDS FEE FOR DOCUMENTS FILED WITH REGISTRAR OF COMPANIES , DELHI AND NCT WHICH ARE CLEARLY IN THE NATURE OF INDIRECT EXPENSES. HENCE THESE ARE NOT DIRECTLY RELATED TO TH E PURCHASE OF LAND. ALL THE COST WHICH WERE DIRECTLY ATTRIBUTED FOR THE PURCHASE OF LAND HAS BEEN CONSIDERED BY THE 7 ITA NO. 5241/DEL./2012 APPELLANT DIRECTLY IN ITS COST OF LAND. HE FURTHER RELIED ON THE JUDGEMENTS AS RELIED BEFORE THE LD. CIT (A) . 4. ON THE OTHER HAND THE LEAR NER D .R. REL IED ON THE ORDER OF THE LOWER AUTHORITIES . HE FURTHER SUBMITTED THAT THE LD. LOWER AUTHORITIES HA VE DONE GOOD ORDER AND IT DOES NOT REQUIRE ANY INTERFERENCE . 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIALS AVAILABLE ON RECORDS AND CASE LAW S AS SUBMITTED BY THE ASSESSEE , WE FIND THAT THE ASSESSEE COMPANY HAS GOT REGISTRATION ON 24 TH OF JANUARY 2007 WITH THE REGISTER OF COMPANIES AND ITS MAIN OBJECTS ARE PURCHASING, ACQUIRING, TAKE ON LEASE OR IN ANY OTHER SUCH LAWFUL MANNER ANY LAND, BUILDINGS AND STRUCTURES AND TO DEVELOP THE SAME AND DISPOSE OF OR MAINTAIN THE SAME, CONSTRUCT, BUILD TOWNSHIP, HOUSES, MARKETS, COMMERCIAL COMPLEX WITH ALL RELATED CONVENIENCES THEREON. TH E COMPANY HAS PURCHASED 14.55 ACRES OF THE LAND AT VILLAGE B AKKARWALA , DELHI DURING THE TWO FINANCIAL YEARS. THE DETAILS ARE AS UNDER : 8 ITA NO. 5241/DEL./2012 S.NO. ASSESSMENT YEAR AREA (IN ACRES) COST OF LAND (RS.) 1. 2008 - 09 12.96 41,27,35,581/ - 2. 2009 - 10 1.59 5,03,89,329/ - TOTAL 14.55 46,31,24,910/ - THE NOTES TO ACCOUNTS PREPARED BY THE ASSESSEE COMPANY IN RESPECT OF ACCOUNTING POLICIES ADOPTED WHICH ARE THE INTEGRAL PART OF THE FINANCIAL STATEMENTS , CLEARLY SAY THAT STOCK IN TRADE CONSIST OF AGRICULTURAL LAND AND IS VALUED AT COST INCLUDING STAMP DUTY, BROKERAGE AND OTHER DIRECT EXPENSES INCURRED/ATTRIBUTED ON ITS PURCHASE. THE ASSESSEE COMPANY HAS STARTED HIS BUSINESS FROM THE LAST YEARS. IT IS CLEAR FROM THE FINANCIAL STATEMENTS PREPARED BY THE ASSESSEE THAT NO SALES HAVE BEEN UNDERTAKEN BY THE ASSESSE E DURING THIS FINANCIAL YEAR. THE ASSESSEE HAS NOT SHOWN THE PURCHASE MADE DURING THE YEAR IN THE PROFIT AND LOSS ACCOUNT , WHICH WILL NOT AFFECT PROFITS OF THE COMPANY BECAUSE THERE IS NO ANY REVENUE GENERATED DURING THIS YEAR BUT THIS PROCEDURE SEEM S TO B E NOT CORRECT. THE ONLY ADMINISTRATIVE EXPENDITURES HA VE BEEN DEBITED INTO THE PROFIT AND LOSS ACCOUNT WHICH WERE NECESSARY FOR THE COMPANY. THE LD. ASSESSING OFFICER HAS NOT DOUBTED ANY EXPENDITURES INCURRED BY THE ASSESSEE. IN CASE OF PRIVATE LIMITED COM PANY THERE IS NO REQUIREMENT TO OBTAIN ANY CERTIFICATE OF COMMENCEMENT OF BUSINESS FROM THE R EGIST RAR OF 9 ITA NO. 5241/DEL./2012 COMPANIES AS PER C OMPANIES A CT 1956. WE ARE, THEREFORE, INCLINED TO ACCEPT THE VERSION OF THE ASSESSEE. 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 26.05.2017 . SD/ - SD/ - ( I.C. SUDHIR ) ( L.P. SAHU ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26.05.2017 *AKS * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR, ITAT 6 . GUARD FILE ASSISTANT REGISTRAR