SHRI PRATIK GOYAL, AJMER V. INCOME TAX OFFICER, WARD-1-3, AJMER

ITA 696/JPR/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6282 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 11-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P P MEENA JCIT DHK
• Keywords: Capital asset; Business income; Business expenditure; Question of law; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 37(1); 37

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH HKKXPAN] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA-@ ITA NO. 696/JP/2017 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2013-14 PRATIK GOYAL, 95/1, NAVGARH COLONY, PUSHKAR ROAD, AJMER. CUKE VS. INCOME TAX OFFICER, WARD 1(3), AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AGHPG 1358 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MAHENDRA GARGIEYA (ADV) JKTLO DH VKSJ LS@ REVENUE BY : SHRI P.P. MEENA (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 19/07/2018 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 24/07/2018 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THE APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(A), AJMER DATED 22/06/2017 FOR THE A.Y. 2013 -14. 2. THE ASSESSEE IS INDIVIDUAL, THE RETURN OF INCOME WAS ELECTRONICALLY FILED ON 30/09/2013 DECLARING TOTAL INCOME OF RS. 4 ,66,990/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF T HE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WAS ISSUED ON 03/09/2014. TH E ASSESSING OFFICER FINALIZED THE ASSESSMENT U/S 143(3) OF THE ACT BY A SSESSING TOTAL INCOME ITA 696/JP/2017_ PRATIK GOYAL VS ITO 2 OF ASSESSEE AT RS. 30,63,685/- AND THE SAME HAS BEE N SUSTAINED BY THE LD. CIT(A). 3. NOW THE ASSESSEE IS IN APPEAL BEFORE THE ITAT BY T AKING FOLLOWING GROUNDS OF APPEAL: 1. THE IMPUGNED ADDITIONS AND DISALLOWANCES MADE I N THE ORDER U/S 143(3) OF THE ACT DATED 21.03.2016 ARE BAD IN L AW AND ON FACTS OF THE CASE, FOR WANT OF JURISDICTION AND VAR IOUS OTHER REASONS AND HENCE THE SAME KINDLY BE DELETED. 2. RS.20,22,110/-: THE ID. CIT(A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE MA DE BY THE AO OF THE INTEREST PAID ON THE BORROWED CAPITAL USE D FOR BUSINESS PURPOSES AND RIGHTLY CLAIMED U/S 36(1)(III ) OF THE ACT. THE DISALLOWANCE SO MADE BY THE AO AND CONFIRMED BY THE ID. CIT(A), BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, KINDLY BE DELETED IN FULL. 3. RS.5,74,585/-: THE ID. CIT(A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE DENIAL OF THE BENEFIT OF THE SET OFF OF THE UNABSORBED BUSINESS LOSSES OF RS.5,74,585/- CARRIED FORWARD FROM A.Y.2012-13. THE UNABSORBED BUSINESS L OSSES SO NOT PERMITTED TO BE SET OFF, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, THE AO KINDLY BE DIRECTED TO ALLOW T HE BENEFIT OF THE SET OFF AS CLAIMED. 4. THE ID. AO FURTHER ERRED IN LAW AS WELL AS ON TH E FACTS OF THE CASE IN CHARGING INTEREST U/S 234B OF THE ACT. THE APPELLANT TOTALLY DENIES ITS LIABILITY OF CHARGING OF ANY SUC H INTEREST. THE INTEREST SO CHARGED, BEING CONTRARY TO THE PROVISIO NS OF LAW AND FACTS, KINDLY BE DELETED IN FULL. 5. THE APPELLANT PRAYS YOUR HONOUR INDULGENCES TO A DD, AMEND OR ALTER OF OR ANY OF THE GROUNDS OF THE APPEAL ON OR BEFORE THE DATE OF HEARING. ITA 696/JP/2017_ PRATIK GOYAL VS ITO 3 4. GROUNDS NO. 1 AND 5 OF THE APPEAL ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 5. GROUND NO. 3 OF THE APPEAL WAS NOT PRESSED AT THE TIME OF HEARING, THEREFORE, THE SAME IS DISMISSED AS NOT PR ESSED. 6. IN THE GROUND NO. 2 OF THE APPEAL, THE ASSESSEE HAS CHALLENGED THE SUSTAINING THE ADDITION OF RS. 20,22,110/-, WHIC H WAS INTEREST PAID ON A BORROWED CAPITAL. THE ASSESSEE CLAIMED THIS AS B USINESS EXPENDITURE AND ALLOWABLE EXPENSES AS PER PROVISIONS OF SECTION 36(1)(III) OF THE ACT. THE LD AR PLEADED THAT THE A SSESSEE HAS SET UP THE BUSINESS DURING THE F.Y. 2012-13 AND THE ASSESSEE M ADE PAYMENT OF INTEREST OF RS. 7.00 LACS ON BORROWED CAPITAL, WHICH HAS BEEN ALLOWED. HE HAS ALSO CLAIMED THAT THE PAYMENT OF INTEREST ON BORROWED FUND HAS ALSO ALLOWED IN THE A.Y. 2015-16 IN SUPPORT OF IT, H E HAS FILED THE COPY OF ORDER U/S 143(3) OF THE ACT DATED 29/12/2017. HE HA S ALSO PLACED RELIANCE ON THE VARIOUS CASE LAWS. THE LD AR HAS ALS O FILED WRITTEN SUBMISSIONS, THE CONTENTS OF THE SAME ARE REPRODUCE D AS UNDER: 1. AT THE OUTSET, WE STRONGLY RELY UPON OUR DETAILED W RITTEN SUBMISSION FILED BEFORE CIT(A) DATED 28.03.2017 (PB 39-43) , DATED 17.04.2017 (PB 44) , DATED 24.04.2017 (PB 51-52 & PB 53) (REPRODUCED IN THE ORDER OF CIT(A) ALSO) AND THE COUNTER COMMENTS SUBMITTED VIDE LETTE R DATED 13.06.2017 (PB 54-56) (REPRODUCED AT ORDER OF CIT(A) PG 22) AS ALSO THE WRITTEN SUBMISSION FILED BEFORE THE AO (REPRODUCED AT PG 3 OF AO). ITA 696/JP/2017_ PRATIK GOYAL VS ITO 4 2. BUSINESS ALREADY SET UP: 2.1 THE ONLY ISSUE WHICH APPEARS TO BE INVOLVED IN THE PRESENT CASE IS WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE SHAPE OF INTEREST ON BORROWED CAPITAL WHICH WAS UTILIZED FOR THE PURC HASE OF THE LAND, COULD BE ALLOWED AS A BUSINESS EXPENDITURE OR NOT. FOR TH AT PURPOSE THE AUTHORITIES BELOW HAVE MADE THE DISALLOWANCE MAINLY ON THE REASON THAT SUCH EXPENDITURE WAS INCURRED PRIOR TO THE COMMENCE MENT OF BUSINESS AND THEREFORE SHOULD HAVE BEEN CAPITALIZED. HOWEVER, THE AUTHORITIES BELOW HAVE PROCEEDED ON A MISCONCEPTION AND IGNORED A WELL SETTLED LAW THAT THERE IS A DIFFEREN CE BETWEEN THE SETTING UP AND THE COMMENCEMENT OF BUSINESS. ANY EXPENDITURE WHICH HAS BEEN INCURRED AFTER THE SETTING UP OF BUSINESS THOUGH IT MAY BE BEFORE/AFTER THE COMMENCEMENT OF THE BUSINESS EVEN THEN, IS FULLY AL LOWABLE AS AN EXPENDITURE INCURRED FOR THE PURPOSE OF THE BUSINESS U/S 36(1)(III) AND/OR 37(1). 2.2 IN THE PRESENT CASE, THERE ARE SEVERAL INDICATIONS, WHICH GO TO SHOW THAT THE ASSESSEE HAD NOT ONLY SET UP THE BUSINESS OF REAL ESTATE BUT EVEN COMMENCED SUCH BUSINESS AS EVIDENCED FROM THE CHRONOLOGY OF THE FOLLOWING EVENTS (AT A GLANCE TABLE IS ALSO ENC LOSED WITH THE WS): THE APPELLANT PURCHASED THE AGRICULTURAL LAND AT F OYSAGAR ROAD, AJMER ON 14.12.2011 & 30.01.2012 I.E. IN A.Y. 2012-13 ( ADMITTED BY AO AT PAGE 2 PB 9) . THE ASSESSEE STARTED THE PROCESS OF GETTING THE SA ID LAND CONVERTED (FROM AGRICULTURE TO RESIDENTIAL) U/S 90A OF RAJASTHAN LA ND REVENUE ACT, 1956 (PB 16) . RS.2 LAKH WERE DEPOSITED TOWARDS SECURITY AMOUNT ( ) FOR SAID CONVERSION U/S 90A OF RAJASTHAN LAND REVENUE ACT, 1 956 ON DATED 15.02.2013 (PB 11 & 64) . ITA 696/JP/2017_ PRATIK GOYAL VS ITO 5 FURTHER DEPOSIT OF RS.50,000/- MADE TO THE UIT TOW ARDS THE APPROVAL OF THE LAYOUT PLAN ON DATED 05.03.2013. (PB 64) THE SITE PLAN SUBMITTED BY THE ASSESSEE WAS APPROV ED BY AJMER DEVELOPMENT AUTHORITY (ADA) ON 15.03.13 (PB 12) [A.Y.2013-14] I.E. DURING THE YEAR UNDER CONSIDERATION [CIT(A) PAG 25 TOP]. (HOWEVER, THE AO HAS WRONGLY MENTIONED THE SAID APPROVAL DATE TO BE 18.06.15 [A.Y.2016-17] WHICH, IN FACT, IS NOT THE APPROVAL D ATE BUT RATHER THE DATE ON WHICH DEMAND NOTICE (PB 16-17) WAS ISSUED BY ADA AFTER SETTLEMENT OF DISPUTE OF TITLE OF LAND IN OUR FAVOR BY SDM COURT. THERE MAY ALSO BE A GAP BETWEEN THE SETTING UP AND THE FIRST STEP DUE TO VA RIETY OF REASONS BEING THE POSSIBLE DISPUTES, LITIGATIONS, DELAY IN GETTIN G PERMISSION AND SO ON. HERE ALSO THE DELAY IN SALE OCCURRED BECAUSE OF THE CIVIL LITIGATION. DISPUTE AROSE IN LAND AND PENDING BEFORE SDO FOR A .Y. 2014-15 FOR RS. 20,62,059/- (APPEAL PENDING). COPY OF PROCEEDINGS BEFORE SDM, AJMER ON 21.05.201 4 (PB 15) SETTLING THE DISPUTE BETWEEN THE PARTIES, WHO WERE OBJECTING TRANSFER TO SHRI GOYAL. THE FINAL MUTATION IN THE NAME OF ASSESSEE WAS DON E ON 10.10.2014. ORDER DATED 15.12.2014 PASSED BY ADA CONVERTING TH E LAND U/S 90A FOR AGRICULTURAL TO NON-AGRICULTURAL USE. (PB 13-14) COPY OF DEMAND RAISED BY ADA VIDE ITS LETTER NO.16 51 DATED 18.06.2015 (PB 16) .SUCH EXPENDITURE WERE DEBITED IN THE LAND A/C DATE D ON 23.06.2015 & 24.06.2015 WHEN DEPOSITED. RECEIPT OF PATTA ON DATED 15.07.2015 FOR A.Y. 2016 -17 THEREAFTER, IN LATER YEARS, THE ASSESSEE INCURRED FURTHER EXPENSES (VIZ. ROAD CONSTRUCTIONS, BOUNDARY AND GATE, DRAINAGE, LI GHT & POLE ETC.) OF RS. 60 LACS APPROX. ON THE DEVELOPMENT/DEVELOPMENT CHAR GES. ALTHOUGH THE FIRST SALE OF THE PLOT COULD BE IN A. Y. 2016-17 YET HOWEVER, THAT DID NOT MEAN THAT THE BUSINESS WAS NOT IN EXIS TENCE IN THE SUBJECTED YEAR AY 2013-14 BECAUSE IT WAS ALREADY SET UP IN A.Y.2012-13 , AS AFORESAID. THE SECOND FULL YEAR SALE FOR A.Y. 2017-18 FOR RS. 7,91,806/-. ITA 696/JP/2017_ PRATIK GOYAL VS ITO 6 THE ASSESSEE DECLARED A HUGE GROSS PROFIT OF RS.39 ,68,069/- (PB 34) IN A.Y.2016-17AND RS.20,59,727/- IN A.Y.2017-18WHICH, HAS PROVED THE FACT THAT THE REAL ESTATE BUSINESS WHICH WAS SET UP IN A.Y.2012-13 WAS GOING ON IN FULL SWINGS. 2.3 IN THE BUSINESS OF REAL ESTATE, THERE ARE THREE STAGES VIZ FIRST IS THE ACQUISITION OF LAND; SECOND IS THE PROCESS OF CONST RUCTION OF BUILDING AND THE THIRD IS THE ACTUAL DISTRIBUTION OR SALE OF THE BUILDING. THE FIRST STEP IN TIME LAYS FOUNDATION FOR SECOND STEP AND COMPLETION OF SECOND STEP LAYS THE FOUNDATION FOR THIRD ACTIVITY. ALL THREE ACTIVITIES ARE ESSENTIAL FOR RUNNING A BUSINESS AND THUS, EXPENDITURE AT EACH EN TRY POINT IS AN EXPENSE IN RELATION TO WHOLE BUSINESS. THE ASSESSEE, THEREFORE, RIGHTLY UNDERTOOK THE FIRST STEP OF REAL ESTATE BUSINESS BY ACQUIRING THE SUBJECTED LAND (WHICH WAS USED AS STOCK-IN-TRADE AND DEVELOPE D AS PER BUSINESS PLANNING), DURING THE YEAR UNDER CONSIDERATION AND LAID DOWN THE FOUNDATION OF REAL ESTATE BUSINESS. 2.4 IN THE FACTS OF THE PRESENT CASE THEREFORE, IT CANN OT BE DISPUTED THAT THE ASSESSEE HAD ALREADY SET UP ITS BUSINESS IN A.Y .2012-13 ONLY BY TAKING SO MANY STEPS AS NARRATED HEREINABOVE. NOTAB LY, THE LOWER AUTHORITIES ALSO HAVE NOT RAISED ANY DISPUTE ON THI S ASPECT. 3.DISTINCTION BETWEEN SETTING UP AND COMMENCEMENT O F BUSINESS: THE ONLY OBJECTION OF AO WAS THAT SUBJECTED EXPENDI TURE WAS INCURRED PRIOR TO THE COMMENCEMENT OF BUSINESS. BUT THE SETT LED LAW IS THAT THERE IS A DIFFERENCE BETWEEN THE SETTING UP OF BUSINESS AND COMMENCEMENT OF BUSINESS. AN EXPENDITURE IS FULLY ALLOWABLE U/S 36( 1)(III) AND/OR 37(1), IF THE BUSINESS IS FOUND SET UP WITHOUT WAITING FOR THE VE RY COMMENCEMENT OF THE SAME. 4. SUPPORTING CASE LAWS: THIS PROPOSITION IS SUPPORTED BY VARIOUS CASE LAWS AS CITIED BELOW. ITA 696/JP/2017_ PRATIK GOYAL VS ITO 7 4.1 THERE IS A DISTINCTION BETWEEN 'SETTING UP OF BUSI NESS' AND 'COMMENCEMENT OF BUSINESS' AND ALL EXPENDITURE AFTE R 'SETTING UP' IS DEDUCTIBLE BUSINESS EXPENDITURE EVEN IF THE BUSINES S HAS NOT COMMENCED AS HELD IN CIT V/S AXIS PVT. EQUITY LTD. (2017) 98 CCH 38 (MUM )(DPB 1- 5). IN THIS CASE, THE AO DISALLOWED THE CLAIM OF BUSIN ESS LOSS OF RS.1.17 CR BY ALLEGING THAT SUCH EXPENDITURE/LOSS WAS CLAIMED BY THE ASSESSEE BEFORE THE COMMENCEMENT OF BUSINESS AND WAS NOT ALL OWABLE, WHICH WAS EVEN CONFIRMED BY THE CIT(A). HOWEVER, THE LD. TRIB UNAL ALLOWED THE CLAIMED LOSS SAYING THAT THE BUSINESS HAD ALREADY B EEN SET UP HENCE THE EXPENDITURE EVEN THOUGH INCURRED PRIOR TO THE COMME NCEMENT OF BUSINESS, WAS FULLY ALLOWABLE. THE ITAT FOLLOWED THE HSBC SEC URITIES INDIA HOLDINGS PVT. LTDDECIDED IN ITA NO.3181/M/1999 DECIDED ON 28 TH NOVEMBER, 2001 AND WESTERN INDIA VEGETABLE PRODUCTS LTD. VS. CIT ( 1954) 26 ITR 151 WHICH WAS RENDERED ON SIMILAR FACTS. IN FURTHER APP EAL BY THE REVENUE, THE HONBLE HIGH COURT ALSO AFFIRMED THE VIEW TAKEN BY THE TRIBUNAL. 4.2 KINDLY REFER CIT V/S DHOOMKETU BUILDERS & DEVELOPMENT PVT. LTD(2013) 87 DTR 0249 (DEL)(DPB 6-13) WHEREIN, IT WAS HELD THAT: LOSSBUSINESS SET-UPCOMMENCEMENT OF BUSINESSDIST INCTION CARRY FORWARD OF LOSSDETERMINATIONASSESSEE WAS TO CARRY ON BUSINESS OF REAL ESTATE DEVELOPMENT, INCLUDING PURC HASE & SALE OF LAND ASSESSEE HAD TAKEN A LOAN TO PARTICIPATE IN TENDER TO BUY LANDHOWEVER FAILED TO BUY LANDINTEREST WAS RECEIVED ON EARNEST MONEY SUBMITTED FOR TENDERASSESSEE FILED ITS RETURN DECLARING LOSS UND ER HEAD BUSINESS WHICH REPRESENTED DIFFERENCE BETWEEN INTEREST RECEI VED ON EARNEST MONEY AND INTEREST PAID ON LOAN OBTAINEDAO OPINED THAT A SSESSEE WAS NOT SUCCESSFUL IN ACQUIRING LAND, IT CANNOT BE SAID THA T BUSINESS WAS SET-UP IN RELEVANT A.Y.HE ASSESSED INTEREST INCOME UNDER HEA D INCOME FROM OTHER SOURCES & DID NOT ALLOW INTEREST PAID BY ASSE SSEE AGAINST INTEREST INCOMECARRY FORWARD OF LOSS WAS NOT PERMITTEDCIT (A) ALLOWED DEDUCTION OF INTEREST PAID WHILE COMPUTING INCOME U NDER RESIDUAL HEAD BUT CARRY FORWARD WAS NOT ALLOWEDTRIBUNAL ALLOWED ASSE SSEES APPEAL HOLDING THAT BUSINESS OF ASSESSEE WAS SET UP IN A.Y . ITA 696/JP/2017_ PRATIK GOYAL VS ITO 8 HELD , DECISION OF TRIBUNAL WAS BASED ON RELEVANT TESTS THAT HAD BEEN HANDED DOWN JUDICIALLY FOR PURPOSE ASCERTAINING AS TO WHEN A BUSINESS CAN BE SAID TO HAVE BEEN SET-UPIN CASE OF PRECISIO N ELECTRICALS VS COMMISSIONER OF INCOME-TAX (1989) 176 ITR 453 IT WA S HELD THAT QUESTION AS TO WHEN BUSINESS OF ASSESSEE HAD COMMEN CED IS A QUESTION OF FACT & IF TRIBUNAL AS, AFTER APPRECIATING ENTIRE MATERIAL ON RECORD, FOUND THAT BUSINESS OF ASSESSEE WAS SET-UP ON A PARTICULA R DATE, IT WOULD BE A FINDING OF FACT FROM WHICH NO QUESTION OF LAW CAN B E SAID TO ARISE ATTEMPT, THEREFORE, SHOULD BE TO SEE AS TO WHETHER TRIBUNAL HAD TAKEN NOTE OF APPROPRIATE CIRCUMSTANCES & APPLIED PROPER TESTS IN ARRIVING AT CONCLUSION WHICH IT DIDTRIBUNAL HAD OBSERVED THAT HAVING REGARD TO BUSINESS OF ASSESSEE, PARTICIPATION IN TENDER REPRESENTED COMMENCEMENT OF ONE ACTIVITY WHICH WOULD ENABLE ASS ESSEE TO ACQUIRE LAND FOR DEVELOPMENTIF ASSESSEE WAS IN A POSITION TO COMMENCE BUSINESS THAT MEANS BUSINESS HAS BEEN SET-UP ACTS OF APPLYING FOR PARTICIPATION IN TENDER, BORROWING OF MONIES FOR INTEREST, DEPOSIT OF BORROWED MONIES ON SAME DAY AS EARNEST MONEY WERE ALL ACTS WHICH CLEARLY ESTABLISHED THAT BUSINESS HAD BEEN SET-UPC OMMENCEMENT OF REAL ESTATE BUSINESS NORMALLY STARTS WITH ACQUISITI ON OF LAND OR IMMOVEABLE PROPERTY WHEN AN ASSESSEE WHOSE BUSINESS IT IS TO DEVELOP RE AL ESTATES, IS IN A POSITION TO PERFORM CERTAIN ACTS T OWARDS ACQUISITION OF LAND, THAT WOULD CLEARLY SHOW THAT IT IS READY T O COMMENCE BUSINESS AND, AS A COROLLARY, THAT IT HAS ALREADY B EEN SET-UPACTUAL ACQUISITION OF LAND MAY BE A FIRST STEP IN COMMENCE MENT OF BUSINESS, BUT SECTION 3 DOES NOT SPEAK OF COMMENCEM ENT OF BUSINESS, IT SPEAKS ONLY OF SETTING-UP OF BUSINESS FINDING OF TRIBUNAL WAS A FINDING OF FACT & IT COULD NOT BE SA ID THAT FINDING WAS WITHOUT ANY BASIS OR MATERIALTRIBUNAL DID TAKE NOT E OF DISTINCTION BETWEEN COMMENCEMENT OF A BUSINESS & SETTING-UP OF A BUSINESS REVENUES APPEAL DISMISSED APPLICATION: THE ABOVE CASE DIRECTLY APPLIES ON THE FACTS OF TH E PRESENT CASE IN AS MUCH AS HERE ALSO, THE ASSESSEE BORROWED MONEY, TOOK STEP FOR THE CONVERSION OF THE LAND THEN TOOK STEPS FOR NECESSARY APPROVALS, AS STATED. 4.3 IN TETRON COMMERCIAL LTD. V/S CIT (2003) 182 CTR 0124 (KOL) (DPB 14-23) , IT WAS HELD THAT: IF IT IS FOUND THAT THE CAPITAL WAS BORROWED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE, THE INTEREST PAYABLE THER EON IS ADMISSIBLE ITA 696/JP/2017_ PRATIK GOYAL VS ITO 9 UNDER S. 36(1)(III). IT IS IMMATERIAL WHETHER THE S AME IS IN THE NATURE OF CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. IF THE EXPENDITURE IS A BUSINESS EXPENDITURE RELATES TO ANY OF THE STAGE OF THE BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE, WHETHER ISOLATED TRANSA CTION OR NOT, IS ADMISSIBLE FOR DEDUCTION UNDER THE SAID SECTION . A BUSINESS COMMENCES WITH THE ACTIVITIES UNDERTAKEN EVEN AT THE PREPARAT ORY STAGE FOR SETTING UP OF THE BUSINESS. ACQUISITION OF IMMOVABL E PROPERTY FOR BEING USED IN THE BUSINESS BY BORROWED CAPITAL ENTI TLES THE ASSESSEE TO CLAIM BENEFIT OF THE SECTION ON THE INTEREST PAI D THEREON, EVEN IF THE ASSET ACQUIRED IS NOT UTILIZED FOR THE PURPOSE OF BUSINESS IN THE RELEVANT PREVIOUS YEAR.IN THE BUSINESS OF REAL ESTA TE, THERE ARE THREE STAGES : ONE IS THE ACQUISITION OF LAND AND OTHER I S THE PROCESS OF CONSTRUCTION OF BUILDING AND THE THIRD IS THE ACTUA L DISTRIBUTION OR SALE OF THE BUILDING. SIMILARLY, IN OTHER BUSINESS ALSO THERE ARE THREE STAGES. HERE AT THE FIRST STAGE, IT HAS BEEN ACQUIR ED AND WORKS WERE IN PROGRESS. IT IS NOT NECESSARY TO SHOW THAT THE WORK IS IN PROGRESS. IT IS THE NATURE OF THE EXPENSES THAT WOULD DETERMINE THE CHA RACTER IN WHATEVER MANNER IT MIGHT BE SHOWN IN THE ACCOUNTS O F THE ASSESSEE. IN THIS CASE THE QUESTION WAS AT THE SECOND STAGE A ND AS SUCH THE BUSINESS SHALL BE DEEMED TO HAVE BEEN COMMENCED. B USINESS IN AN ADVENTURE OR UNDERTAKING TO GAIN PROFIT OUT OF THE TRANSACTION. EVEN IF IT IS ONE TRANSACTION, STILL THEN IT IS AN ADVENTURE AND A BUSINESS. IF SOMEONE STARTS A BUSINESS AND THEN LEAVES IT AFTER ONE TRAN SACTION, EVEN THEN IT WOULD BE A BUSINESS. AS SUCH A SPORADIC ACTION CANN OT BE SINGLED OUT TO DISCARD THAT IT IS NOT PART OF THE BUSINESS.EDWARD S (H.M. INSPECTOR OF TAXES) VS. BAIRSTOW & HARRISON 36 TAX CASES 207 (HL ) APPLIED 4.4 ALSO IN CIT V/S SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD (1973) 91 ITR 0170 (GUJ) (DPB 24-35) , IT WAS HELD THAT: BUSINESS INCOMECOMMENCEMENT OF BUSINESSBUSINESS IS NOTHING MORE THAN A CONTINUOUS COURSE OF ACTIVITIES ALL ACTIVITIES WHICH GO TO MAKE UP BUSINESS NEED NOT BE STARTED SIMULTANEOUSLY IN ORDER THAT BUSINESS MAY COMMENCEBUSINESS WOULD COMMENCE WHEN ACTIVITY WHICH IS FIRST IN POINT OF TIME AND WHICH MUST NECESSARILY PRECEDE THE OTHER ACTIVITIES IS STARTEDBUSINESS OF THE ASSESSE E MANUFACTURING CEMENT CONSISTED OF THREE CATEGORIES OF ACTIVITIES, NAMELY (I) EXTRACTING LIMESTONE FROM LEASED LAND (II) MANUFACTURE OF CEME NT BY USER OF PLANT AND MACHINERY (III) SELLING MANUFACTURED CEMENTTHESE A CTIVITIES COMBINED TOGETHER CONSTITUTED BUSINESSHENCE BUSINESS COMMEN CED WHEN THE FIRST CATEGORY OF ACTIVITIES, NAMELY EXTRACTION OF LIMESTONE COMMENCED ITA 696/JP/2017_ PRATIK GOYAL VS ITO 10 4.5 ALSO IN CIT V/S ARCANE DEVELOPERS PVT. LTD (2013) 95 DTR 49 (DEL) (DPB 36-41) , IT WAS OBSERVED THAT: 7 SETTING UP OF BUSINESS TAKES PLACE WHEN THE BUSINES S IS READY AND FIRST STEPS ARE TAKEN . IN CASE OF REAL ESTATE BUSINESS, THE SAID SETTING UP OF BUSINESS WAS COMPLETE WHEN FIRST STEP S WERE TAKEN BY THE RESPONDENT-ASSESSEE TO LOOK AROUND AND NEGOTIATE WI TH PARTIES. THERE CAN BE A GAP BETWEEN SETTING UP AND WHEN FIRST STEP S WERE TAKEN BY THE RESPONDENT AND FINALISATION OF THE FIRST WRITTE N AGREEMENT. BUSINESS ACTIVITIES OF THE RESPONDENT DID NOT REQUIRE CONSTR UCTION OF A FACTORY, MACHINERY ETC. NEGOTIATIONS ARE REQUIRED TO ENTER I NTO A WRITTEN UNDERSTANDING AND IT IS OBVIOUS THAT THE LOAN WAS T AKEN FOR BUSINESS AND TO PROCEED FURTHER AND CONCLUDE THE DEAL. THE AFORE SAID FACTS HAVE BEEN EXAMINED AND HIGHLIGHTED BY THE FIRST APPELLATE AUT HORITY. THE SAID FINDINGS OF FACT HAVE BEEN AFFIRMED BY THE TRIBUNAL. A PRAGM ATIC AND A PRACTICAL VIEW HAS TO BE TAKEN. 4.6 IN CIT V/S SAMSUNG INDIA ELECTRONICS LTD. (2013) 356 I TR 354 (DEL) HAD HELD AS UNDER: 7. THE AFORESAID DISTINCTION IS RELEVANT WHEN WE EXAMINE AND REFERS TO THE DEFINITION OF PREVIOUS YEAR. FOLLOWING THE SA ID JUDGMENT, IN THE CASE OF CIT V. L.G. ELECTRONIC (INDIA) LTD. [2006] 282 ITR 545 (DELHI), IT HAS BEEN OBSERVED THAT THE DATE OF SETTING UP OF BUSINESS AN D DATE OF COMMENCEMENT OF BUSINESS MAY BE TWO SEPARATE DATES. THIS DECISION IN THE CASE OF L.G. ELECTRONICS (SUPRA) HAS BEEN FOLLO WED IN CIT V. ESPN SOFTWARE INDIA P. LTD., [2008] 301 ITR 368 (DELHI) WHEREIN IT HAS BEEN HELD THAT A BUSINESS WILL COMMENCE WITH THE FIRST PURCHASE OF STOCK-IN-TRADE AND THE DATE ON WHICH THE FIRST SALE IS MADE IS IMMATERIAL. SIMILARLY, FOR MANUFACTURING, SEVERAL ACTIVITIES I N ORDER TO BRING OR PRODUCE FINISHED PRODUCTS HAVE TO BE UNDERTAKEN, BUT BUSINESS COMMENCES WHEN THE FIRST OF SUCH ACTIVITIES IS TAKE N. 4.7 IN CIT V/S ESPN SOFTWARE INDIA (P) LTD(2008) 218 CTR 0 427 (DEL), IT WAS HELD THAT BUSINESS EXPENDITUREALLOWABILITYSETTING UP OR CO MMENCEMENT OF BUSINESS WHAT IS RELEVANT FOR PURPOSES OF IT ACT I S SETTING UP OF BUSINESS AND NOT COMMENCEMENT OF BUSINESSCIT(A) AN D TRIBUNAL HAVING GIVEN A FINDING OF FACT THAT ASSESSEE HAD SET UP ITS BUSINESS ON ITA 696/JP/2017_ PRATIK GOYAL VS ITO 11 15TH AUG., 1995, THE DAY ON WHICH IT OBTAINED LICEN SE TO DISTRIBUTE ESPN CHANNEL SERVICES AND WAS ENTITLED TO CLAIM EXP ENDITURE INCURRED ON OR AFTER THAT DATE AS REVENUE EXPENDITURE, NO SUBST ANTIAL QUESTION OF LAW AROSE 4.8 CIT VS. IBC KNOWLEDGE PARK P. LTD. (2016) 136 DTR 65/287 ITR 261 (KAR) (DPB 51-55) THE RATIO SO LAID IN THE ABOVE CASES SQUARELY APPLY ON THE FACTS OF THE PRESENT CASE WHERE THE REVENUE HAS NOT DISPUTED THE FACT OF SETT ING UP OF BUSINESS BUT AS A MISCONCEPTION OF LAW, IGNOR ED THE SAME AND THEREFORE, SUCH EXPENDITURE ARE ALLOWABLE. THE AO [ IN REMAND REPORT CIT(A) PAGE 7] HAS VAGUELY ALLEGED THAT THE NOTICE OF DEMAND FROM ADA WAS RAISED ON DATED 18.06.2015 FALLING IN A.Y.2016- 17 HENCE, THERE WAS NO COMMENCEMENT IN THIS YEAR BUT IGNORED THE OTHER STEPS WHICH WERE ADMITTEDLY TAKEN BY THE ASSESSEE AND SUPPORTING EVI DENCES OF WHICH WERE ALREADY AVAILABLE ON RECORD SHOWING THAT BUSINESS H AS ALREADY SET UP BUT THE CIVIL LITIGATION, DELAYED PERMISSION. 5. THE OBSERVATION & CONCLUSION OF THE AO THAT THE ASS ESSEE PURCHASED THE LAND FOR THE PURPOSE OF INVESTMENT AND NOT FOR BUSINESS , IS COMPLETELY UNFOUNDED. THE CONTROVERSY INVOLVED IS NOT NEW. THE QUESTION WHETHER A PARTICULAR ASSESSEE IS A TRADER OR AN INVESTOR AND HAS BEEN HOLDING THE LAND/S (OR SHARES) AS ITS STOCK IN TRADE OR AS A CA PITAL ASSETS, HAS OFTEN GIVEN RISE TO DISPUTE AND LITIGATION. OVER THE YEAR , THE HONBLE COURTS HAVE LAID DOWN CERTAIN PARAMETERS TO BE TAKEN INTO ACCOU NTS IN DETERMINING THIS QUESTION. EVEN THE CENTRAL BOARD OF DIRECT TAXES (F OR SHORT 'CBDT' ) HAS TAKEN NOTE OF THOSE PARAMETERS AND WITH A VIEW TO A VOID/TO REDUCE LITIGATION AND THE UNCERTAINTY IN THE MATTER, INSTR UCTED THEIR ASSESSING OFFICERS TIME TO TIME TO BE TAKEN INTO ACCOUNT. THE SE PARAMETERS MAINLY ARE VOLUME, FREQUENCY, CONTINUITY & REGULARITY OF T RANSACTIONS, TREATMENT IN THE ACCOUNTS, NATURE AND QUANTITY & COMMODITY DEALT WITH, INTENTION OF THE OWNER ETC. APPLYING THE ABOVE PRINCIPLES, IN THE IN STANT CASE, IT IS AN ESTABLISHED FACT APPARENT FROM THE FACE OF RECORD A DMITTEDLY AVAILABLE WITH THE AO. 6. FURTHER THE TITLE OF COLUMN 51 IS NO ACCOUNT CASE OF THE ITR FORM (PB 7), WHEREIN THE ASSESSEE IS SUPPOSED TO GIVE THE DETAI LS OF SUCH BUSINESS FOR WHOSE ACCOUNTS ARE NOT BEING MAIN TAINED. IN SUCH COLUMN, THE ASSESSEE HAS SHOWN THE PROFIT WHICH ARO SE ON ACCOUNT OF THE CONVERSION OF THE SILVER HITHERTO KEPT BY THE ASSES SEE AS ITS CAPITAL ASSET WHICH WAS NOW CONVERTED INTO STOCK-IN-TRADE AS ALSO THE COMMISSION ITA 696/JP/2017_ PRATIK GOYAL VS ITO 12 INCOME OF RS.1.66 LAKHS EARNED IN CONNECTION WITH C OMMISSION AGENCY BUSINESS AND HAS ALSO CLAIMED THE SUBJECTED INTERES T OF RS.20,22,110/-. THE VERY FACT OF SHOWING SUCH RECEIPT AND EXPENDITU RE IN COLUMN 51 OF THE ITR FORM GOES TO SHOW THAT SUCH TRANSACTION WERE RELATED TO A BUSINESS (THOUGH ACCOUNT WERE NOT MAINTAINED) HENCE IT WAS THE BUSINESS INCOME ONLY FROM THE TWO OTHER BUSINESS NA MELY COMMISSION AGENCY & REAL ESTATE. HAD IT BEEN SHOWN BY THE ASSE SSEE HIMSELF IN THE ITR IN THE COLUMN RELATING TO OTHER SOURCES OR CAPI TAL GAIN OF THE ITR THEN POSITION MIGHT HAVE BEEN DIFFERENT. THIS FACT HAS BEEN ADMITTED BY THE AO ALSO. SIMILAR WAS THE POSITION IN AY 2012-13 ALSO (KINDLY REFER COLUMN 51 AT PB- 61) I.E. THE FIRST YEAR WHEN THE LAND WAS PURCHASED AND SOME INTEREST WAS PAID, HOWEVER, THE INTEREST SO CLAIMED WAS NOT DISALLOWED THEREIN. 7. NATURE OF TRANSACTION IS MATERIAL AND NOT ITS DE SCRIPTION: 7.1 THE REPETITIVE ALLEGATION BY THE AO THAT THE INTER EST WAS CLAIMED IN THE CAPITAL A/C AND THE LAND WAS SHOWN AS INVESTMENT IN ITS PERSONAL BALANCE SHEET IS A MISCONCEPTION OF FACTS AND LAW WHICH WRO NGLY PREVAILED OVER HIM. 7.2.1 FIRSTLY, THE LAW IS WELL SETTLED THAT THE ACCOUNTI NG ENTRIES ARE NOT DECISIVE OF TRUE CHARACTER OF THE TRANSACTION AS HE LD IN KEDARNATH JUTE MFG. CO. LTD. V/S CIT (1971) 82 ITR 363 (SC). MOREOVER, SUCH PRESENTATION IN BALANCE SHEET IS ALSO IRRELEVANT IN AS MUCH AS A TAXPAYER IS FREE TO EMPLOY, FOR THE PURPOSE OF HIS TRADE, HI S OWN METHOD OF KEEPING ACCOUNTS AS HELD IN INVESTMENT LTD. V/S CIT (1970) 77 ITR 533 (SC). ALSO, THE ENTRIES MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT ARE NOT DETERMINATIVE. WHAT IS NECESSARY TO BE CONSIDERED I S THE NATURE OF THE TRANSACTION AS HELD IN SUTLEJ COTTON MILLS LTD.V/S CIT (1979) 116 ITR 1 (SC). 7.2.2 SECONDLY, WITH REGARD TO THE REPEATED ALLEGATION O F THE AO THAT SUCH TRANSACTION WERE DEBITED IN THE PERSONAL SET OF ACC OUNTS, IT MAY FIRSTLY BE CLARIFIED THAT THE ASSESSEE WAS RUNNING THREE DIFFE RENT BUSINESSES IN ITS DIFFERENT PROPRIETARY NAMELY M/S SANWALIYA SETH JEW ELLERS RELATING TO TRADING OF SILVER, SECOND WAS THE REAL ESTATE BUSIN ESS IN ITS PROPRIETARY NAMELY M/S SHREE JI VIHAR (EARLIER KNOWN AS M/S SAN WALIYA SETH BUILDERS) AND THIRD WAS THE COMMISSION AGENCY BUSINESS (WITHO UT GIVING ANY NAME TO IT). WHEREAS, THE ASSESSEE WAS HAVING SEPARATE B OOKS OF ACCOUNT FOR ITA 696/JP/2017_ PRATIK GOYAL VS ITO 13 M/S SANWALIYA SETH JEWELLERS, BECAUSE OF VOLUMINOUS TRANSACTION AND DUE TO THE REQUIREMENT OF TAX AUDIT, HOWEVER AT THE SAME TIME, IN THE INITIAL YEARS DUE TO THE SMALLNESS OF TRANSACTIONS RELATING TO REAL ESTATE BUSINESS IN M/S SHREE JI VIHAR, AS A MATTER OF CONVENIENCE, NO SEPARATE BOOKS WERE MAINTAINED AND THE TRANSACTIONS WERE ENTERED I N THE EXISTING SET OF ACCOUNTS ONLY OF THE ASSESSEE WHICH HAS BEEN NAMED BY THE AO AS PERSONAL SET OF ACCOUNTS. THEREFORE, IN THE INITIAL YEAR OF REAL ESTATE BUSINESS, WHEN THE ASSESSEE WAS IN PROCESS OF PURCH ASE OF THE LAND, CONVERSION OF AGRICULTURAL TO RESIDENTIAL AND SO ON , THE RELATED EXPENDITURE I.E. INTEREST AND OTHER RELATED EXPENSES BEING RS.2 0,22,110/- WERE DEBITED IN CAPITAL A/C AND THE BALANCE SHEET. SIMILARLY, TH E COMMISSION INCOME (RELATING TO THE COMMISSION BUSINESS OF GOLD AND SI LVER) OF RS.1,66,000/- WAS ALSO CREDITED TO SAME VERY (PERSONAL) CAPITAL A /C. FURTHER, THE PROFIT OF THE OTHER PROPRIETARY NAMELY SANWALIYA SETH JEWELLE RS OF RS.22,84,225/- WAS ALSO CREDITED TO THE SAME CAPITAL A/C. IF THE A O WAS CORRECT WHY HE SHOULD HAVE TAXED COMMISSION INCOME. IF THE AO WAS CORRECT WHY HE SHOULD HAVE TAXED COMMISSION INCOME. HOWEVER, IN THE LATER YEARS, WHEN THE REAL ESTATE B USINESS PICKED UP THE MOMENTUM AND THE ASSESSEE WAS ABLE TO SELL PLOT AND VOLUME OF ACTIVITIES INCREASED, THE RECEIPTS CROSSED THE PRESCRIBED LIMI T FOR GETTING THE ACCOUNTS TAX AUDITED U/S 44AB (I.E. FROM A.Y. 2016- 17) AND THE ASSESSEE PREPARED SEPARATE ACCOUNTS FOR M/S SHREE JI VIHAR. THE LAW DOES NOT REQUIRE THE ASSESSEE TO ALWAYS MAI NTAIN SEPARATE ACCOUNTS HOWEVER, IF WITH THE HELP OF THE EXISTING ACCOUNT ITSELF ONE IS ABLE TO ASCERTAIN AND COMPUTE THE INCOME OF THE CLAIMED BUSINESS, MERELY PRESENTATION AND ACCOUNTING ENTRIES MADE BY THE ASS ESSEE IN ITS OWN MANNER, IS NOT DECISIVE OF THE TRUE NATURE OF THE T RANSACTION. AFTER ALL THE SUBSTANCE ALWAYS PREVAIL OVER THE FORM, AS AFORESAI D. 8.1 INTEREST ON BORROWED CAPITAL ALLOWABLE EVEN IF UTILIZED FOR CAPITAL ASSET: ALTERNATIVELY AND WITHOUT PREJUDICE TO ABOVE CONTEN TION, IT IS SUBMITTED THAT IN THIS CASE, A BUSINESS WAS ALREADY IN EXISTENCE, FOR THE PURPOSE OF WHICH BORROWING WERE MADE AND INTEREST W AS PAID AND CLAIMED U/S 36(1)(III) AND/OR 37(1) OF THE ACT. HOWEVER, EV EN ASSUMING FOR A MOMENT THAT THE BORROWINGS WERE UTILIZED TOWARDS TH E INVESTMENT IN LAND AND THEREFORE, INTEREST EXPENDITURE WAS I.R.T. A CA PITAL ASSET EVEN THEN, SO LONG AS S.36(1)(III) IS CONCERNED, IT IS FULLY ALLO WABLE IN AS MUCH AS THE SAID PROVISION DO NOT MAKE ANY DISTINCTION BETWEEN THE N ATURE OF UTILIZATION OF BORROWED FUNDS VIZ WHETHER IT IS UTILIZED TOWARDS T HE ACQUISITION OF THE ITA 696/JP/2017_ PRATIK GOYAL VS ITO 14 REVENUE ASSET OR A CAPITAL ASSET. HENCE, ALSO THE C LAIMED INTEREST WAS FULLY ALLOWABLE. THERE ARE VARIOUS DECISION TO SUPP ORT THIS CONTENTION. 8.2.1 KINDLY REFER CIT V/S RAJEEVA LOCHAN KANORIA (1994) 121 CTR 0342 (KOL) (DPB 42-48) , WHEREIN IT WAS HELD THAT THE ENQUIRY THAT IS TO BE MADE IS WHETHER THE PAYMENT OF INTEREST WAS IN RESPECT O F THE CAPITAL BORROWED FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS . THE AMOUNT BORROWED MAY BE UTILISED FOR THE PURPOSE OF ACQUISITION OF STOCK -IN-TRADE OR FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASSETS. SO LONG T HE MONEY IS UTILISED FOR BUSINESS PURPOSES, THE INTEREST IS ALL OWABLE AS DEDUCTION. IT IS WELL SETTLED THAT BUSINESS EXPENDITURE IS NO T CONFINED TO EXPENSES INCURRED ON REVENUE ACCOUNT. CAPITAL EXPEN DITURE MAY NOT BE ALLOWED AS A DEDUCTION UNDER SECTION 37 BECAUSE THE SECTION SPECIFICALLY BARS ANY DEDUCTION OF EXPENDITURE OF CAPITAL NATURE . BUT SECTION 36 IS DIFFERENTLY WORDED. THERE IS NO BAR IN SECTION 36(1 )(III) TO ALLOWANCE OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED, WHICH HAS BEEN UTILISED FOR PURCHASE OF CAPITAL ASSETS. 8.2.2 ALSO KINDLY REFER CIT V/S ASSOCIATED FIBER & RUBBER INDUSTRIES (P.) LTD. [1999] 236 ITR 471/102 TAXMAN 700 (SC) , WHEREIN IT WAS HELD THAT WHERE THE MACHINERY ACQUIRED THROUGH BORROWED CAP ITAL HAD NOT BEEN ACTUALLY USED IN THE BUSINESS AT THE TIME WHEN THE ASSESSMENT WAS MADE, EVEN THEN THE SAME WERE TO BE TREATED AS BUSI NESS ASSETS HAVING BEEN PURCHASED FOR THE PURPOSE OF THE BUSINESS ONLY . THEREFORE, THE INTEREST PAID ON THE AMOUNT BORROWED FOR THE PURCHA SE OF SUCH MACHINERY IS AN AMOUNT DEDUCTIBLE, ONCE THE OTHER INGREDIENTS ARE FULFILLED. IT IS SHOWN IN THE BALANCE SHEET UNDER THE CAPITAL AND AS SET HEADING AS AN ASSET BUT NOT A STOCK-IN-TRADE. THE DESCRIPTION IN THE BOOKS OF ACCOUNT WOULD BE IMMATERIAL. IF IT IS A STOCK-IN-TRADE, IN THAT EVENT, THE AMOUNT INVESTED WOULD BE A REVENUE EXPENDITURE AND NOT A C APITAL EXPENDITURE. [PARA 8] 8.2.3 ALSO REFER CIT VS AXIS PVT. EQUITY LTD. (2017) 98 CCH 38 (MUM HC)(DPB 1-5 PR. 7 & 8). 9. AFTER EFFECTS OF THE IMPLICATION IF AOS STAND I S ACCEPTED: FURTHER ALTERNATIVELY ALSO, THE IMPLICATION FLOWING FROM TH E STAND OF THE REVENUE, IF ASSUMING, IS ACCEPTED SHALL BE RESULTING INTO A LOS S IN AS MUCH AS IF THE SUBJECTED ASSET IS TREATED AS A CAPITAL ASSET, THE RESULTANT GAIN WOULD ATTRACT TAX @ 20% ONLY AND THE BENEFIT OF THE INDEX ATION IN ADDITION THERETO, WHEREAS THE ASSESSEE HAD ALREADY BEEN PAYI NG TAX @ 30% ITA 696/JP/2017_ PRATIK GOYAL VS ITO 15 (WHEN IT HAS ALREADY OFFERED A HUGE AMOUNT OF GROSS PROFITS OF RS.39,68,069/- IN A.Y. 2016-17 (PB 34) AND RS.20,59,727/- IN A.Y.2017- 18IN THE REAL ESTATE BUSINESS) . THUS, THERE IS A DIRECT LOSS OF REVENUE. 10.1 PAST HISTORY: SIMILARLY, IN A.Y.2012-13 ALSO I.E. THE FIRST YEAR WHEN THE LAND WAS PURCHASED AND INTEREST OF RS.7,49,158/ - WAS SIMILARLY CLAIMED YET HOWEVER, THE INTEREST SO CLAIMED WAS NOT DISALLOWED THEREIN. THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCE S THERE WAS NO REASON YET TO MAKE A DISALLOWANCE THEREIN. KINDL Y REFER GODREJ BOYCE MFG. CO. V/S DCIT (2017) 151 DTR 89 (SC), WHEREIN IT WAS HELD THAT: 38. X X X X X X WHILE IT IS TRUE THAT THE PRINCIPLE OF RES JUDICATA WOULD NOT APPLY TO ASSESSMENT PROCEEDINGS UNDER THE ACT, THE NEED FOR CONSISTENCY AND CERTAINTY AND EXISTENCE OF STRONG AND COMPELLIN G REASONS FOR A DEPARTURE FROM A SETTLED POSITION HAS TO BE SPELT O UT WHICH CONSPICUOUSLY IS ABSENT IN THE PRESENT CASE. IN THIS REGARD WE MA Y REMIND OURSELVES OF WHAT HAS BEEN OBSERVED BY THIS COURT IN RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321/60 TAXMAN 248 (SC). 'WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RE S JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT Y EAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FO LLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERE NT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND P ARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING TH E ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHAN GED IN A SUBSEQUENT YEAR.' 10.2 LATER YEARS: NOTABLY, EVEN IN THE LATER YEARS I.E. A.Y.2015-16 (EXCEPT AY 14-15) ALSO, EVEN THOUGH THE ASSESSEE DI D NOT SALE ANY PLOT, THE CLAIM OF INTEREST OF RS.17,28,861/-, SIMILARLY MADE HAS BEEN ALLOWED VIDE THE SCRUTINY ASSESSMENT ORDER DATED 29.12.2017 U/S 143(3) (PB 62- 63) . 11. CASES CITED BY REVENUE ARE COMPLETELY DISTINGUI SHABLE: 11.1 THE AO RELIED UPON CERTAIN DECISIONS. HOWEVER, ALL THOS E CASES WERE BASED ON THE PECULIAR FACTS AVAILABLE IN THOSE CASES ONLY WH ICH ARE NOT OBTAINING IN THE PRESENT CASE. THEY WERE RENDERED IN DIFFERENT L EGAL FACTUAL CONTEXT AND THEREFORE HENCE ARE NOT AT ALL APPLICABLE BEING COM PLETELY DISTINGUISHABLE AND HENCE, KINDLY BE IGNORED. ITA 696/JP/2017_ PRATIK GOYAL VS ITO 16 11.2 IN THE CASE OF CIT VS. VARDHMAN POLYTEX LTD. (2008) 214 CTR 0561 (P&H) ALSO, A VIEW WAS TAKEN THAT THE INTEREST PAYA BLE ON THE LOAN RAISED FOR THE PURCHASE OF NEW ASSET FOR THE PERIOD PRIOR TO THE SETTING UP OF A NEW UNIT SHOULD BE CAPITALIZED AND IS NOT ALLOWABLE U/S 36(1)(III). HOWEVER THE HONBLE SUPREME COURT HAS REVERSED THE SAID DEC ISION IN THE CASE OF VARDHMAN POLYTEX LTD. VS. CIT (2012) 349 ITR 0690/( 2012) 254 CTR 0102 (SC) (DPB 49-50) FOLLOWING THEIR EARLIER DECISION IN THE CASE OF COR E HEALTH CARE LIMITED (2008) 298 ITR 194/3 DTR 49 (SC ). 12. HOWEVER, DESPITE THESE DETAILED SUBMISSIONS FILED B EFORE THE LD. CIT(A) AND THE VARIOUS DECISIONS CITED, THE LD. CIT (A) HAS VERY SUMMARILY REJECTED THE GROUNDS BY MERELY REPEATING WHAT THE A O HELD. HIS FIRST GROUND OF REJECTION THAT BORROWED FUNDS WERE NOT UTILIZED IN RUNNING THE BUSINESS OF WHOLESALE TRADING OF JEWELLERY, IS NOTH ING BUT A PURPORTED MISCONCEPTION ASSUMED BY HIM, WITHOUT APPRECIATING THAT REAL ESTATE BUSINESS HAD ALREADY BEEN SET UP. HIS SECOND GROUND THAT TRANSACTIONS WERE ENTERED INTO THE PERSONAL SET/CAPITAL A/C IS A GAIN IGNORING THE SETTLED LAW THAT SUBSTANCE ALWAYS PREVAILS OVER THE FORM. S O WOULD BE THE REPLY TO THE THIRD GROUND THAT NO REAL ESTATE BUSINESS OR LAND DEVELOPMENT W AS CARRIED OUT BY THE APPELLANT. 7. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THE A SSESSING OFFICER HAS DISALLOWED THE INTEREST PAID ON THE BORROWED CAPI TAL FOR THE REASON THAT THIS WAS THE INTEREST PAID BY THE ASSESSEE BEFO RE COMMENCEMENT OF THE BUSINESS AND IT SHOULD BE CAPITALIZED AND THE B ORROWED MONEY WAS NOT UTILIZED FOR BUSINESS PURPOSES. FROM THE FACTS ON RECORD, WE FIND THAT THE ASSESSEE HAS PURCHASED AGRICULTURAL LAND O N 14/12/2011 AND 30/01/2012 DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR 2012-13. THE ASSESSEE HAS ALSO STARTED THE PROCESS OF GETTING TH E LAND CONVERTED FROM ITA 696/JP/2017_ PRATIK GOYAL VS ITO 17 AGRICULTURE TO RESIDENTIAL BY APPLYING FOR CONVERSI ON OF SECTION 90A OF RAJASTHAN LAND REVENUE ACT, 1956. THE ASSESSEE HAS ALSO PRODUCED EVIDENCE OF PAYMENT OF RS. 2.00 LACS TOWARDS THE SE CURITY FOR CONVERSION U/S 90A OF RAJASTHAN LAND REVENUE ACT, 1956 ON 15/2 /2013. THE ASSESSEE HAS FURTHER DEPOSITED RS. 50,000/- TO THE UIT TOWARDS THE APPROVAL LAYOUT PLAN ON 05/3/2013. THE ASSESSEE HAS ALSO SUBMITTED SITE PLAN APPROVED BY THE AJMER DEVELOPMENT AUTHORITY ON 15/3/2013. DUE TO SOME DISPUTE AROSE IN RESPECT OF LAND, THE CONST RUCTION WAS DELAYED. THUS, THE ACTS OF THE ASSESSEE SHOWS THAT HE WAS PURSU ING THE BUSINESS OF REAL ESTATE DURING THE RELEVANT PERIOD. THE LAND WAS PURCHASED FOR THE PURPOSE OF DOING THE BUSINESS OF REAL ESTATE BY DEVELOPING THE PLOTS ETC. REFLECTING THE LAND AS INVESTMENT IN BOOKS DOE S NOT REFLECT THE TRUE NATURE OF THE TRANSACTION. IN FACT THE PURCHASE OF LAND, IMMEDIATELY APPLYING FOR THE CONVERSION OF LAND TO RESIDENTIAL AND ALSO GETTING THE SITE PLANT APPROVED ESTABLISHES THAT THE ASSESSEE WA S VERY MUCH IN THE BUSINESS OF REAL ESTATE DURING THE RELEVANT PERIOD AND HE HAD SET UP SUCH BUSINESS. THE PROCESS OF CONVERSION OF THE LAN D AND THEN GETTING THE APPROVAL OF THE SITE PLAN ESTABLISHES THAT THE ASSESSEE HAS ALREADY SET UP ITS BUSINESS DURING THE FINANCIAL YEAR RELEV ANT TO ASSESSMENT YEAR 2012-13. THE INTEREST PAID ON THE BORROWED CAPITAL F OR ACQUIRING LAND HAS BEEN ALLOWED TO THE ASSESSEE AS BUSINESS EXPENDI TURE. IN SUCH A ITA 696/JP/2017_ PRATIK GOYAL VS ITO 18 SITUATION, WE DIRECT TO DELETE THE ADDITION CONFIRME D BY THE LD. CIT(A). THIS VIEW IS ALSO GETS SUPPORT FROM VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE (SUPRA). 9. ISSUE INVOLVED IN ROUND NO. 4 OF THE APPEAL IS C HARGING INTEREST U/S 234B OF THE ACT. SINCE WE DELETE THE ADDITION CO NFIRMED BY THE LD. CIT(A) WITH REGARD TO INTEREST PAID ON BORROWED CAPITA L, THEREFORE, THIS IS CONSEQUENTIAL IN NATURE AND DOES NOT REQUIRE ANY AD JUDICATION. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/07/2018. SD/- SD/- FOT; IKY JKO HKKXPAN (VIJAY PAL RAO) (BHAGCHAND) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24 TH JULY, 2018 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI PRATIK GOYAL, AJMER. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 1(3), AJMER. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 696/JP/2017) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR