DCIT, New Delhi V. M/s. Canton Buildwell Pvt. Ltd., New Delhi

ITA 770/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7606 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B NEW DELHI AND SHRI J.SUDHAKAR REDDY, J.M AND SHRI C.M. GARG, JM ITA NO: 770/DEL/2013 AY : - 2009-10 DCIT, VS. M/S. CANTON BUILDWELL PVT. LTD., CIRCLE 3 (1) 11, BABAR LA NE, NEW DELHI. BENGALI MARKET, NEW DELHI. (PAN AACCC7148L) (APPELLANT) (RESP ONDENT) APPELLANT BY :SH RI VED JAIN, CA, MS. RANO JAIN, CA, SHRI V. MOHAN, ADVOCATE RESPONDENT :SMT PARMINDER KAUR, SR. DR O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRE CTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 5.11.20 12 FOR THE ASSESSMENT YEAR 2009-10. 2. FACTS IN BRIEF :- THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BU SINESS OF DEVELOPING / CONSTRUCTING MULTI STORIED COMPLEX AS PART OF ITS EXCLUSIVE SEZ PROJECT PROPOSED TO BE CALLED ASF INSIGNIA. IT FILED ITS RETURN OF INCOME DECLARING LOSS OF RS. 59,10,387/-. THE AO DISALLOWED THE EXPENSES CLA IMED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT COMMENCED ITS BUSI NESS DURING THE RELEVANT ACCOUNTING PERIOD. ITA N O. 770/DEL/2013 AY 2009-10 DCIT VS . CANTON BUI LDWELL PVT. LTD. 2 3. BEFORE THE FIRST APPELLATE AUTHORITY THE AS SESSEE SUBMITTED THAT IT STARTED THE BUSINESS OF SEZ. IT CONTENDED THAT STAFF WERE RECRU ITED, BANK LOANS WERE OBTAINED, LAND WAS PURCHASED, DEVELOPMENT COMMENCED AND APPRO VALS FOR SEZ WAS GRANTED BY THE GAZETTE NOTIFICATION DATED 17 TH DECEMBER, 2007. IT FURTHER CLAIMED THAT THE STAFF RECRUITED BY THE COMPANY ALSO STARTED PROM OTING ASSESSEES BUSINESS AND DURING THE YEAR THE ASSESSEE SIGNED AGREEMENT WITH TATA CONSULTANCY SERVICES FOR USE OF SEZ. HENCE IT WAS ARGUED THAT THE ASSESSEE C OMMENCED ITS BUSINESS AND THE EXPENDITURE IN QUESTION, WHICH WAS DISALLOWED BY TH E AO, HAS TO BE ALLOWED AS IT IS INCURRED IN THE REVENUES FIELD DURING THE YEAR. TH E FIRST APPELLATE AUTHORITY AGREED WITH THE CONTENTION OF THE ASSESSEE AND GRANTED REL IEF. ALTERNATIVELY THE FIRST APPELLATE AUTHORITY HELD THAT IN CASE THE VIEW HAS TO BE TAKEN THAT THE ASSESSEE HAS NOT COMMENCED ITS BUSINESS, THEN THE ASSESSEE COMPA NY CANNOT BE ASSESSED ON THE INTEREST RECEIVED DURING THE YEAR ON THE FIXED DEPO SITS, AS THE SAME HAS TO BE SET OFF AGAINST PRE OPERATIVE EXPENSES. 4. AGGRIEVED THE REVENUE HAS FILED THIS APPEA L ON THE FOLLOWING GROUNDS :- 1. WHETHER THE LD. CIT(A) HAS ERRED ON FACTS AND IN L AW IN DELETING THE ADDITION OF RS. 91,54,917/- ON ACCOUNT OF DISALLOWA NCE OF BUSINESS EXPENSES IGNORING THE FACTS THAT - (A) THE ASSESSEE HAD NOT COMMENCED ITS BUSINESS DURIN G THE RELEVANT ACCOUNTING PERIOD. (B) THE ASSESSEE COMPANY ITSELF ADMITTING THE FACT THAT THE MOST OF WORK DONE DURING THE YEAR IS CAPITAL WORK IN PRO GRESS FOR ACQUIRING FIXED ASSETS. ITA N O. 770/DEL/2013 AY 2009-10 DCIT VS . CANTON BUI LDWELL PVT. LTD. 3 5. WE HAVE HEARD SMT. PARMINDER KAUR, SR. DR ON BEHALF OF THE REVENUE AND SHRI VED JAIN, CA, MS. RANO JAIN, CA AND SHRI V MOHAN, ON BEHALF OF THE ASSESSEE. 6. ON A CAREFUL CONSIDERATION OF THE FACTS A ND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORD AND THE ORDER S OF THE AUTHORITIES BELOW WE HOLD AS FOLLOWS :- 6.1. AT THE OUTSET WE OBSERVE THAT THE ALTERNA TIVE FINDING OF THE FIRST APPELLATE AUTHORITY, THAT THE INTEREST INCOME ON FIXED DEPOSI TS HAS TO BE SET UP OFF AGAINST THE PRE OPERATIVE EXPENSES, IF IT IS HELD THAT THE BUSI NESS OF THE ASSESSEE HAS NOT COMMENCED, HAS NOT BEEN CHALLENGED BY THE REVENUE. 6.2. BE IT AS IT MAY, IN THE CASE ON HAND, THE EXPENSES INCURRED, WHICH HAVE BEEN DISALLOWED BY THE AO, ARE IN THE NATURE OF REV ENUE EXPENSES I.E. BUSINESS PROMOTION, OFFICE MAINTENANCE, TRAVELLING, SALARIES ETC. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS NOT BROUGHT ANY EVIDENCE THAT IT HAS BEEN CARRYING ON SYSTEMATIC AND CONTINUOUS BUSINESS ACTIVITY. THE ASSESSEE ON T HE OTHER HAND SUBMITS THAT IT HAS PURCHASED LAND, COMMENCED DEVELOPMENT AND HAS ALSO OBTAINED THE REQUIRED PERMISSIONS / APPROVALS FOR THE SEZ, PROMOTIONAL AC TIVITIES OF THE SEZ HAD COMMENCED AND COMMERCIAL AGREEMENT WAS ENTERED INTO WITH TATA CONSULTANCY SERVICE FOR LEASING OUT THE SEZ. WE FIND THAT THE M INISTRY OF COMMERCE HAS GRANTED APPROVAL TO THE ASSESSEE SEZ ON 30 TH MAY, 2008. THE GOVT. OF INDIA HAS NOTIFIED THIS SEZ AS INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY ENABLED SERVICES SPECIAL ECONOMIC ZONE ON 17 TH DECEMBER, 2007. THE EXPENSES WHICH ARE NOT DIRECTLY LINKED WITH THE CONSTRUCTION ACTIVITY HAVE BEEN CLAIMED AS REVENUE EXPENSES ITA N O. 770/DEL/2013 AY 2009-10 DCIT VS . CANTON BUI LDWELL PVT. LTD. 4 BY THE ASSESSEE. IN OUR VIEW THE ASSESSEE HAS SET UP ITS BUSINESS AND THE EXPENDITURE ON REVENUE ACCOUNT HAS TO BE ALLOWED AN D WAS RIGHTLY ALLOWED BY THE FIRST APPELLATE AUTHORITY. IT IS WELL SETTLED THAT EXPENDITURE HAS TO BE ALLOWED ON SETTING UP OF THE BUSINESS AND THEY MIGHT BE A GAP BETWEEN THE DATE ON WHICH THE BUSINESS IS SET UP AND THE DATE OF COMMENCEMENT OF THE BUSINESS. THE CONTENTION OF THE ASSESSEE ALSO FINDS SUPPORT FROM THE JUDGMEN TS OF THE HIGH COURT IN THE CASE OF CIT VS. SARABHAI MANAGEMENT CORPORATION LTD. 102 ITR 25 (GUJ) AND CIT VS. HUGHES ESCORTS COMMUNICATION LTD. 311 ITR 253 (DEL ). 6.3. THE FIRST APPELLATE AUTHORITY AT PARA 5.5 HELD AS FOLLOWS :- IN THE PRESENT CASE BEFORE ME, THE APPELLANT COMPA NY, AS STATED HEREIN ABOVE, HAS STARTED SYSTEMATIC BUSINESS ACTIVITIES. IT HAS RECRUITED THE VARIOUS STAFF AND THE STAFF(S) (SIC) (ARE) ENGAGED IN CARRY ING ON THE BUSINESS ACTIVITY. FURTHER, IT HAS ENTERED INTO A COMMERCIAL AGREEMENT WITH TATA CONSULTANCY SERVICES FOR LEASING OUT THE SEZ WHICH IS THE BUSIN ESS OF THE APPELLANT COMPANY. THUS THE FACTS OF THIS CASE ARE DIFFERENT THAN THE CASE LAW RELIED UPON BY THE ASSESSING OFFICER OF AKZO NOBEL CAR REF INISHES INDIA PRIVATE LIMITED (SUPRA) 6.4. THEREAFTER HE RELIED ON THE DECISION OF DE LHI HIGH COURT IN THE CASE OF CIT VS. HUGHES ESCORTS COMMUNICATION LTD. 311 ITR 253 AND THE JUDGMENT OF THE HONBLE HIGH COURT IN THE CASE OF CIT VS. ESPN SOFTWARE IND IA (P) LTD. 301 ITR 368 (DEL.) AND CAME TO THE CONCLUSION THAT THE BUSINESS ACTIV ITY COULD BE SAID TO HAVE BEEN SET UP ON OBTAINING OF THE REQUIRED LICENCE FROM THE AUTHORITY. 7. ON THE GROUND THAT THE ASSESSEE HAS OBTAIN ED APPROVAL OF THE SAID SPECIAL ECONOMIC ZONE FROM THE MINISTRY OF COMMERCE AND AS THE ASSESSEE ENTERED INTO AN AGREEMENT WITH TCS FOR THE LEASE OF THE SEZ AREA, I S PROOF OF THE FACTS THAT THE ASSESSEE HAS SET UP HIS BUSINESS, THE FIRST APPELLA TE AUTHORITY DIRECTED THE AO TO ITA N O. 770/DEL/2013 AY 2009-10 DCIT VS . CANTON BUI LDWELL PVT. LTD. 5 ALLOW THE REVENUE EXPENDITURE INCURRED BY THE ASSES SEE. WE FIND NO INFIRMITY IN THIS ORDER OF THE FIRST APPELLATE AUTHORITY. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH NOVEMBER, 2014. SD/- SD/- (C.M.GARG) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 11 TH NOVEMBER, 2014 *VEENA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASST. REGISTRAR