M/S MULTI ACT REALTY ENTERPRISES PVT. LTD, MUMBAI V. INCOME TAX OFFICER WARD-8(2)(3), MUMBAI

ITA 7274/MUM/2011

• Counselvise Citation: 727419914 RSA 2011
• Duration Of Justice: 3 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 10-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-10-2011
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR SONI
• Keywords: Business income; Business expenditure; Commercial expediency; Revenue expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER & SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER . / ITA NO.7274/MUM/2011 ( / ASSESSMENT YEAR : 2008-09 ) M/S. MULTI ACT REALTY ENTERPRISES PVT. LTD. 2 ND FLOOR, ICC CHAMBERS II, SAKI VIHAR ROAD, POWAI MUMBAI 400 072 .. / APPELLANT V/S ITO - 8 ( 2 ) ( 3 ) , AAYAKAR BHAVAN, MUMBAI- .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACN3295K APPELLANT BY : SHRI SATISH MODY (AR) REVENUE BY : SHRI VIJAY KUMAR SONI (DR) ! '# / DATE OF HEARING 10.08.2015 $% &' ! '# / DATE OF ORDER 28.08.2015 / ORDER PER ASHWANI TANEJA, A.M. THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AG AINST ORDER DATED 12.09.2011, PASSED BY THE LD. COMMISSIONE R OF INCOME TAX (APPEALS)17,MUMBAI, FOR THE ASSESSMENT YEAR 200 8-09. DURING THE COURSE OF HEARING, THE ASSESSEE SUBMITTED FOLLOWIN G GROUND AS REVISED GROUND: MULTI ACT REALTY ENTERPR ISES 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DISALLOWING AS BUSINESS EXPENDITURE THE SUM OF RS.2,69,275/- INCURRED BY THE APPELLANT FOR MAINTAINING AND RUNNING AND FURTHER NOT ALLOWING THE SET OFF OF THE SAME AS PER THE PROVISION S OF SECTION 71 OF THE I.T. ACT AGAINST THE INTEREST INCOME ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. IT IS SEEN BY US THAT AFORESAID GROUND IS MODIFIE D GROUND AND DOES NOT REQUIRE ANY EXAMINATION OF NEW FACTS. THEREF ORE, AFTER OBTAINING CONSENT OF BOTH THE PARTIES IN THIS REGARD, THIS GROUND IS ADMITTED FOR ADJUDICATING THIS APPEAL. 4. BRIEF FACTS AS PER ASSESSMENT ORDER ARE THAT THE AS SESSEE WAS IN THE BUSINESS OF DEALING IN IMMOVABLE PROPERTIES AND DEVELOPMENT RIGHTS ETC. IT WAS OBSERVED FOR BY THE AO THAT NO BUSINES S INCOME WAS EARNED BY THE ASSESSEE COMPANY DURING THE YEAR. H OWEVER, IN THE INCOME TAX EXPENDITURE ACCOUNT, THE ASSESSEE HAS DEBITED VARIOUS EXPENSES SUCH AS TRAVELLING EXPENSES, CONVEY ANCE, PRINTING & STATIONERY, AUDIT FEES, PROFESSIONAL FEES, SUNDRY EXPE NSES AND INTEREST ON STATUTORY PAYMENTS ETC. AGGREGATING TO RS .2,69,275/-. THE AO DISALLOWED THESE EXPENSES ON THE GROUND THAT THERE WAS NO BUSINESS INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR. THE ASSESSEE CONTESTED THIS ISSUE BEFORE THE LD. CIT(A), WHEREIN THE LD. CIT(A) CONFIRMED THE DISALLOWANCE ON THE GROUND THAT N O BUSINESS WAS CARRIED OUT DURING THE YEAR. BEFORE US, THE LD. COUNSEL APPEARING ON THE BEHALF OF THE ASSESSEE SUBMITTED THAT ROUTINE B USINESS EXPENSES INCURRED DURING THE NORMAL COURSE HAVE BEEN WRONGLY DISALLOWED BY THE AUTHORITIES BELOW AND REQUESTED F OR REVERSING THE ACTION OF AO AND LD. CIT(A). ON THE OTHER HAND, THE L D. DR RELIED UPON THE ORDERS OF LD. CIT(A) AND THE AO. MULTI ACT REALTY ENTERPR ISES 3 5. WE HAVE CAREFULLY CONSIDERED ARGUMENTS MADE BY B OTH THE SIDES. IT IS NOTED FROM THE FACTS ON RECORD THAT THE A SSESSEE HAD PURCHASED RESIDENTIAL FLATS AT ASHOKA TOWERS FOR THE PURPOSE OF RESALE/LEASE. IT IS ALSO ADMITTED FACT THAT IT IS MAIN OBJECT OF THE ASESSEE COMPANY. UNDER THESE CIRCUMSTANCES, WE HAVE TO EXAMINE WHETHER THERE WAS COMMENCEMENT OF THE BUSINESS DURIN G THE YEAR OR NOT. IN THIS REGARD, WE SHALL FIRST REFER TO THE DEF INITION OF TERM PREVIOUS YEAR AS DEFINED IN SECTION 3 OF THE INCOM E TAX ACT 1961, AND THE SAME IS REPRODUCED HERE FOR THE SAKE OF READ Y REFERENCE: 3. FOR THE PURPOSES OF THIS ACT, PREVIOUS YEAR ME ANS THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSME NT YEAR: PROVIDED THAT, IN THE CASE OF A BUSINESS OR PROFESSI ON NEWLY SET UP, OR A SOURCE OF INCOME NEWLY COMING IN TO EXISTENCE, IN THE SAID FINANCIAL YEAR, THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINESS OR PROFESSION OR, AS THE CASE MAY BE, THE DATE ON WHICH THE SOURCE OF INCOME NEWLY COMES INTO EXISTENCE AND ENDING WITH THE SAID FINANCIAL YEAR . (EMPHASIS SUPPLIED) THE PERUSAL OF AFORESAID CLAUSE WOULD SHOW THAT RELE VANT DATE FOR COMMENCEMENT OF THE BUSINESS WOULD BE THE DATE OF SETT ING UP OF BUSINESS. IT HAS BEEN HELD IN VARIOUS JUDGMENTS TH AT SETTING UP OF BUSINESS AND COMMENCEMENT OF BUSINESS MAY BE TOO DIFFERENT AND INDEPENDENT EVENTS. FOR THE PURPOSE OF DEDUCTIBILITY OF THE BUSINESS EXPENSES, THE REFERENCE POINT WOULD BE INITIAL SETTIN G UP OF THE BUSINESS. THE COMMENCEMENT OF THE BUSINESS MAY TAKE PL ACE AT LATER DATE. THUS, EVEN IF THE ASSESSEE DOES NOT EARN ANY B USINESS INCOME DURING THE YEAR, BUT IF THE BUSINESS IS SET UP, IT WO ULD AMOUNT TO CARRYING ON THE BUSINESS UNDER THE INCOME TAX LAW AND THEREFORE, THE BUSINESS EXPENSES WOULD STAND ALLOWABLE. MULTI ACT REALTY ENTERPR ISES 4 6. IN FOLLOWING CASES IT HAS BEEN HELD THAT WHETHER INCOME HAS BEEN EARNED OR NOT AND WHETHER ULTIMATE BENEFIT HAS ACCRUED IMMEDIATELY OR NOT, THE EXPENSES INCURRED SHALL BE AL LOWABLE IF THESE HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR FO R COMMERCIAL EXPEDIENCY:- 1. EASTERN INVESTMENTS LTD. VS. CIT (20 ITR 1) (SC) 2. J.R. PATEL & SONS PVT. LTD. 69 ITR 782 (GUJ) 3. RAIPUR MFG. CO. LTD. ( 84 ITR 508,516 ) (GUJ) 4. SECURITY PRINTERS OF INDIA PVT. LTD. (78 ITR 766,774) (ALL) 5. TATASONS LTD. (18 ITR 460,467) (BOM) 6. WALCHAND & CO. P. LTD. (65 ITR 381, 385) (SC) 7. J.K. WOOLEN MANUFACTURES (72 ITR 612) (SC) 8. ALUMINIUM CORP. OF INDIA LTD. (86 ITR 11, 17) (SC) 9. ORISSA CEMENT LTD. (73 ITR 14, 17) (DEL) IN FOLLOWING CASES IT HAS BEEN HELD THAT EXPENSES SHA LL BECOME DEDUCTIBLE AFTER SETTING UP OF THE BUSINESS, EVEN IF C OMMENCEMENT OF BUSINESS HAS NOT YET TAKEN PLACE: 1 . CIT VS. RALLIWOLF LTD. (121 ITR 262) (BOM) 2.SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. (91 ITR 170) (GUJ) 3.WESTERN INDIA VEGETABLE PRODUCTS LTD . (26 ITR 151) 4.RAMARAJA SURGICAL COTTONS MILLS LTD. (63 ITR 478) 5 . CIT V. WHIRLPOOL OF INDIA LTD 318 ITR 347 (DELHI HIGH COURT) IN THE CASE OF CIT VS SARDAR SAROVAR NARMADA NIGAM LTD 364 ITR 477 (GUJ) IT HAS BEEN HELD THAT WHERE BUSINESS OF THE ASSESSE E CONSISTS OF DIFFERENT CATEGORIES, THEN COMPANY CAN BE SAID TO HAVE SET UP ITS BUSINESS FROM THE DATE WHEN ONE OF CATEGORIES OF ITS BUSINESS WAS STARTED AND ALL THE REVENUE EXPEND ITURES AFTER SUCH DATE ARE ALLOWABLE. MULTI ACT REALTY ENTERPR ISES 5 HONBLE MUMBAI BENCH OF INCOME TAX APPELLATE TRIBUN AL IN THE CASE OF M/S DHL EXPRESS (I) PVT. LTD. V. ACIT 124 TTJ 108 HELD AS UNDER: A UNIT CANNOT BE SAID TO HAVE BEEN SET UP UNLESS IT IS READY TO DISCHARGE THE FUNCTION FOR WHICH IT IS BEI NG SET UP. IT WAS FURTHER HELD THAT SETTING UP OF BUSIN ESS IS DISTINCT FROM COMMENCEMENT OF BUSINESS AND EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSIN ESS ARE DEDUCTIBLE AS REVENUE EXPENDITURE. IT WAS HELD AS HELD BY THE HONBLE DELHI HIGH COURT IN CIT VS. ESP N SOFTWARE INDIA (P) LTD. 301 ITR 368 THAT THE DATE O F SETTING UP OF BUSINESS AND DATE OF COMMENCEMENT OF BUSINESS ARE DISTINCT AND THE EXPENSES INCURRED AFT ER THE SETTING UP OF THE BUSINESS ARE DEDUCTIBLE AS REVENUE EXPENDITURE. 7. IN THE CASE BEFORE US, IT MAY BE SEEN THAT THE ASSES SEE HAS ALREADY PURCHASED RESIDENTIAL FLAT FOR THE PURPOSE O F RESALE/LEASE, AND THEREFORE ASSESSEE WAS APPARENTLY READY TO DO ITS BU SINESS. UNDER THESE CIRCUMSTANCES, IT CAN BE SAID THAT THE BUSINESS IS SET UP BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. FOR TH E DEDUCTIBILITY OF EXPENSES INCURRED AFTER THIS STAGE, EARNING OF THE B USINESS INCOME IS NOT A MANDATORY CONDITION UNDER THE LAW. THE ASSESSEE MAY NOT HAVE BEEN SUCCESSFUL IN GETTING CUSTOMERS OR EARNING THE B USINESS INCOME, BUT IF THE ASSESSEE HAS DONE REQUISITE PREPARATIONS AND IF THE ASSESSEE CAN BE SAID TO BE IN A POSITION TO CATER TO ITS CUSTOMERS, THEN IT CAN BE SAID THAT BUSINESS IS SET UP AND IT WOUL D AMOUNT TO CARRYING ON THE BUSINESS AND ACCORDINGLY THE EXPENS ES WOULD STAND ALLOWABLE TO THE ASSESSEE, IRRESPECTIVE OF THE FACT WH ETHER ACTUALLY ASSESSEE GOT ANY CUSTOMER AND EARNED ANY BUSINESS IN COME DURING THE YEAR OR NOT. THUS, THE DISALLOWANCE MADE BY THE AO IS CONTRARY TO LAW AND FACTS AND THE SAME IS DELETED AND THE AO IS DI RECTED TO ALLOW MULTI ACT REALTY ENTERPR ISES 6 THE EXPENSES CLAIMED BY THE ASSESSEE AMOUNTING TO RS .2,69,275/-. THUS, REVISED GROUND OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DAY OF AUGUST, 2015. SD/- SD/- (JOGINDER SINGH) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 28 .08.2015 PATEL $% ! '() *)' / COPY OF THE ORDER FORWARDED TO : (1) +' / THE ASSESSEE; (2) , / THE REVENUE; (3) -'() / THE CIT(A); (4) -' / THE CIT, MUMBAI CITY CONCERNED; (5) )01 '2, # 2, / THE DR, ITAT, MUMBAI; (6) 14 5 / GUARD FILE. )' ' / TRUE COPY $% / BY ORDER 6 / 7 , / (DY./ASSTT. REGISTRAR) # 2, / ITAT, MUMBAI