Appeal details
Counselvise Citation
[2018] 121 COUNSELVISE.COM (IT) 6074 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 1 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-06-2018
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
23-05-2018
Assessment Year
2006-2007
Appeal Filed On
01-05-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1659/HYD/16 2007-08 DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD M/S. KARVY GLOBAL SERVICES LIMITED, HYDERABAD [PAN: AACCK5037C] 745/HYD/17 2006-07 FOR REVENUE : SMT. GEETENDER MANN, DR FOR ASSESSEE : SHRI P. MURALI KRISHNA, AR DATE OF HEARING : 23-05-2018 DATE OF PRONOUNCEMENT : 08-06-2018 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE ARE REVENUE APPEALS AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, HYDERABAD, DATED 29-06-2016 & 25-01-2017 FOR THE AYS. 2007-08 AND 20 06-07 RESPECTIVELY ON THE ISSUE WHETHER ASSESSEES CLAIM OF LOSS IN THE IMPUGNED YEARS IS ALLOWABLE, AS REVENUE CONTENDS THAT THE BUSINESS HAS NOT COMMENCED. 2. BRIEFLY STATED, ASSESSEE-COMPANY FILED ITS RETURN O F INCOME FOR THE AY.2007-08 DECLARING LOSS OF RS. 8,42 ,21,637/-. THE ASSESSMENT WAS REOPENED U/S. 147 OF THE INCOME TA X ACT [ACT] ON THE REASON THAT ASSESSEE HAS NOT COMMENCED M/S. KARVY GLOBAL SERVICES LIMITED :- 2 - : COMMERCIAL OPERATIONS DURING THE YEAR UNDER CONSIDE RATION AND AS THE ASSESSEE IS IN PRE-OPERATIVE STAGE, THE LOSS CLAIMED CANNOT BE ALLOWED. AFTER GIVING OPPORTUNITY TO ASSESS EE AND TAKING OBJECTIONS FROM ASSESSEE, AO WAS OF THE VIEW THA T ASSESSEE FAILED TO PROVE SATISFACTORILY THAT THE BUSINE SS HAS COMMENCED DURING THE FINANCIAL YEAR AND THE EXPENDI TURE WHATEVER INCURRED WAS TREATED AS PRE-OPERATIVE EXPEND ITURE. ACCORDINGLY, LOSSES IN BUSINESS OF RS. 11,59,07,789 /- IN THE REVISED COMPUTATION WAS NOT ALLOWED. CONSEQUENT TO THE STA ND TAKEN IN AY. 2007-08, THE ASSESSMENT IN AY. 2006-07 WA S ALSO REOPENED AND RELYING ON THE FINDINGS IN THE AY. 2007 -08, AO HAS BROUGHT TO TAX THE SHORT TERM CAPITAL GAIN OFFERED I N THE RETURN OF INCOME AND THE LOSS CLAIMED RS. 16,10,97,71 2/- WAS DISALLOWED. AGGRIEVED, ASSESSEE PREFERRED APPEALS B EFORE THE LD.CIT(A). 3. BEFORE THE LD.CIT(A) IT WAS CONTENDED THAT ASSESSEE-COMPANY WAS INCORPORATED TO CARRY ON THE BUSI NESS AND PROVIDING INFORMATION TECHNOLOGY ENABLED SERVICE S (ITES) AND OTHER RELATED SERVICES AND ALL DIVISIONS OF COM PANY HAVE NOT BECOME OPERATIVE. THEREFORE, P&L A/C WAS NOT DRAWN . HOWEVER, AS SOME OF THE VERTICLES HAVE GENERATED REVE NUE, IT BECAME MANDATORY FOR ASSESSEE TO OFFER THE REVENUE TO T AX. IN THE PROCESS OF COMPUTING PROFITS AND GAINS FROM THE BU SINESS, ASSESSEE HAS CLAIMED VARIOUS EXPENDITURE AS IT HAD I NCURRED LOSS MORE THAN THE REVENUES WHICH WAS CARRIED FORWAR D. ASSESSEE RELIED ON VARIOUS PRINCIPLES ON SETTING UP OF BUSINESS AND COMMENCEMENT OF BUSINESS AND RELIED ON M/S. KARVY GLOBAL SERVICES LIMITED :- 3 - : SECTION 3 OF THE ACT SPECIFIES WHICH ABOUT SETTING UP OF THE BUSINESS AND NOT COMMENCEMENT OF BUSINESS. IT RELIED ON THE DECISION OF THE ITAT IN THE CASE OF M/S. SURYA INFRA IT PARKS PVT. LTD., VS. CIT IN ITA NO. 863/HYD/2014, DT. 30-11- 2015 AND ALSO THE DECISION OF HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. M/S. DHOOMKETU BUILDERS & DEVELOPMEN T PVT. LTD., [34 TAXMANN.COM 18] (DELHI). IT ALSO RELIED ON THE DECISION OF ITAT IN THE CASES OF DAKSHIN SHELTERS PV T. LTD., VS. DY.CIT IN ITA NOS. 1983 TO 1985/HYD/2011, DT. 04-05-2 012 AND ITO VS. M/S. TRIDENT SHELTERS PVT. LTD., IN ITA N O. 1160/HYD/2012, DT. 22-01-2014. ASSESSEE ALSO RELIED ON THE PRINCIPLES LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SPONGE IRON INDIA LTD., [201 ITR 77 0] (AP) AND ALSO ON THE PRINCIPLES LAID DOWN BY THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF WESTERN INDIA VEGETABLE PRODUCTS LTD., VS. CIT [26 ITR 151] AND CIT VS. SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD., [91 ITR 170] (GUJARAT). IT ALSO RELIED ON VARIOUS OTHER CASE LAW AS EXTRACTED BY THE CIT(A) IN HIS ORDER. 4. AFTER CONSIDERING THE ABOVE, LD.CIT(A) ALLOWED TH E CONTENTIONS OF ASSESSEE BY STATING AS UNDER: 6. I HAVE CONSIDERED THE ASSESSMENT ORDER, GROUND S OF APPEAL AND THE AR SUBMISSIONS IN THIS REGARD. THE ONLY ISS UE INVOLVED IN THIS APPEAL IS WITH REGARD TO AO'S ACTION IS NOT ALLOWIN G THE EXPENDITURE OF RS. 11,44,94,078/- INCURRED AS REVENUE EXPENDITURE. AO WAS OF THE VIEW THAT THE ASSESSEE HAS NOT COMMENCED ITS BUSINE SS DURING THE YEAR UNDER APPEAL, THE EXPENDITURE INCURRED PRIOR T O THE COMMENCEMENT OF BUSINESS IS CAPITAL IN NATURE AND H ENCE THE ASSESSEE'S CLAIM DOES NOT HOLD ANY MERIT. M/S. KARVY GLOBAL SERVICES LIMITED :- 4 - : 6.1. IN THIS REGARD, I HAVE PERUSED THE CASE LAWS R ELIED UPON BY THE AR. THE HON'BLE ITAT, HYDERABAD IN THE CASE OF M/S. SURYA INFRA IT PARKS PVT. LTD VS. CIT IN ITA NO. 863/HYD/2014, DAT ED 30.11.2015 HAS HELD AS UNDER: THE QUESTION WHICH ARISES FOR CONSIDERATION IS AS TO WHEN THE ASSESSEE SAID TO HAVE COMMENCED ITS BUSINESS. IT HA S TO BE OBSERVED THAT THERE IS A DISTINCTION BETWEEN SETTING UP OF T HE BUSINESS AND COMMERCIALIZATION OF THE OPERATION, WHICH GENERATES ACTUAL REVENUE TO THE BUSINESS. WHAT IS RELEVANT UNDER THE INCOME-TAX ACT IS THE SET UP OF THE BUSINESS AND NOT THE COMMENCEMENT OF THE BUSINE SS BY REFERRING TO THE PROVISIONS OF SECTION 3 OF THE ACT''. THE HON'B LE ITAT HAS LARGELY RELIED ON THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT V DHOOMKETU BUILDERS & DEVELOPMENT (P.) LTD 34 TAXMANN.COM 18 (DELHI) (HC). 6.2. SIMILAR VIEW WAS ALSO TAKEN BY THE HON'BLE TRI BUNAL IN THE CASE OF DAKSHIN SHELTERS PVT. LTD. IN ITA NOS 1983 TO 1985/HYD/2011 AND IN THE CASE OF ITO VS. TRIDENT SH ELTERS PVT. LTD., ITA NO. 1160/HYD/2012. 6.3. IN VIEW OF THE ABOVE, THE AO SHOULD HAVE CONSI DERED THE ASSESSEE'S PLEA THAT ONCE THE BUSINESS IS SET UP, T HE ASSESSEE IS ELIGIBLE TO CLAIM THE EXPENDITURE IRRESPECTIVE OF T HE COMMENCEMENT OF COMMERCIAL OPERATIONS, IN LIGHT OF DECIDED CASE LAW S ON THIS SUBJECT. THEREFORE THE AO IS DIRECTED TO ALLOW THE BUSINESS LOSS OF RS. 11,44,94,078/-. HENCE, THE GROUNDS RAISED IN THIS R EGARD ARE ALLOWED. 4.1. FOLLOWING THE ORDER IN AY. 2007-08, LD.CIT(A) VIDE THE ORDER DT. 25-01-2017 ALLOWED THE CONTENTIONS OF ASSE SSEE IN AY. 2006-07 AS WELL. REVENUE HAS RAISED COMMON GROUNDS IN BOTH THE YEARS AND MAINLY CONTESTING THAT ASSESSEE HAS NOT COMMENCED BUSINESS OPERATIONS, SO THE LOSS IS NOT TO B E ALLOWED. 5. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE NO T IN A POSITION TO APPRECIATE THE STAND TAKEN BY THE REVEN UE. IT IS NOW PRACTICALLY WELL SETTLED BY VARIOUS JUDICIAL PRONOUNCEMENTS THAT A BUSINESS IS A SET UP AS SOON AS I T IS M/S. KARVY GLOBAL SERVICES LIMITED :- 5 - : READY TO COMMENCE OPERATIONS AND IT IS NOT NECESSARY THA T ACTUAL REVENUE/PRODUCTION SHOULD ALSO BE RECEIVED/COMMENCED. ASSESSEE IS ELIGIBLE FOR CLAIMI NG THE EXPENDITURE ONCE IT IS ESTABLISHED THAT BUSINESS IS SET U P. THE PRINCIPLES LAID DOWN BY VARIOUS CO-ORDINATE BENCHES, FOLLOWING THE PRINCIPLES ON THE ISSUE ESTABLISHED BY VARIOUS HO N'BLE HIGH COURTS AND HONBLE SUPREME COURT HAVE BEEN FOLLOWED BY THE LD.CIT(A). WE HAVE ALSO EXAMINED THE STATEMENTS OF COMPUTATION FILED AND ORDERS OF THE AUTHORITIES. ASSES SEE HAS INDEED COMPLETED CERTAIN PROJECTS AND RECEIVED REVENU E RECEIPTS ALSO AGAINST WHICH THE EXPENDITURES WERE CLAIM ED. SINCE ASSESSEES BUSINESS WAS SET UP, WE ARE IN AGRE EMENT WITH THE FINDINGS OF THE LD.CIT(A) THAT THE LOSS IS ALLO WABLE. 6. THERE IS NO NEED TO DISCUSS THE VARIOUS PRINCIPL ES LAID DOWN IN VARIOUS JUDGMENTS, WHICH ARE EXTRACTED I N THE ORDER OF THE CIT(A) IN THE ASSESSEES SUBMISSIONS. W E ARE OF THE OPINION THAT THE BUSINESS HAS BEEN SET UP WHICH IS THE REQUIREMENT U/S. 3 OF THE ACT AND ACCORDINGLY, ASSES SEES CLAIM OF LOSS IS ALLOWABLE. THERE IS NO MERIT IN TH E CONTENTIONS OF REVENUE THAT ASSESSEE SHOULD COMMENCE COMMERCIAL OPERATIONS. CONSEQUENTLY BOTH THE APPEALS ARE DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JUNE, 2018 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 8 TH JUNE, 2018 TNMM M/S. KARVY GLOBAL SERVICES LIMITED :- 6 - : COPY TO : 1. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD. 2. M/S. KARVY GLOBAL SERVICES LIMITED, NO. 46, AVEN UE NO. 4, KARVY HOUSE, STREET NO. 1, ROAD NO. 10, BANJARA HILLS, HYDERABAD. 3. CIT(APPEALS)-2, HYDERABAD. 4. PR.CIT-2, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.
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