M/s Surya Infra IT Parks Private Limited, Hyderabad V. Commissioner of Income Tax-II, Hyderabad

ITA 863/HYD/2014

• Counselvise Citation: 86322514 RSA 2014
• Duration Of Justice: 1 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 08-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Keywords: Business income; Business expenditure; Assessment record
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P.MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 863/HYD/2014 ASSESSMENT YEAR: 2009-10 M/S SURYA INFRA IT PARKS PVT. LTD., HYDERABAD. PAN AAICS9567K VS. THE COMMISSIONER OF INCOME- TAX II, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.V.S.S. PRASAD REVENUE BY : SHRI B. KURMI NAIDU DATE OF HEARING : 05-11-2015 DATE OF PRONOUNCEMENT : 30-11-2015 O R D E R PER S. RIFAUR RAHAMAN, A.M.: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER DATED 25/02/2014 OF LD. CIT III, PASSED U/S 263 OF THE INCOME-TAX ACT (ACT), HYDERABAD FOR THE AY 2009-10. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTIONS, RUNNING, CONDUCTING, MAINTAINING AND MANAGING LEASING AND TO ACT AS DEVE LOPER OF PRIVATE INFORMATION TECHNOLOGY PARKS. THE ASSESSEE FILED IT S RETURN OF INCOME FOR THE AY 2009-10 ON 23/09/2009 ADMITTING LOSS OF RS. 8,94,094. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 17/05/2011 A ND TOTAL INCOME OF THE ASSESSEE WAS DETERMINED AT LOSS OF RS . 8,94,094. 3. SUBSEQUENTLY, CIT, BY VIRTUE OF HIS POWERS VESTE D U/S 263 OF THE INCOME-TAX ACT, 1961 ( IN SHORT ACT), ASSESSMENT RECORDS WERE CALLED AND EXAMINED BY HIM. BASED ON THE FOLLOWING OBSERVA TION BY HIM, HE 2 ITA NO. 863 /HYD/2014 M/S SURYA INFRA ITT PARKS PVT. LTD. DIRECTED THE AO TO CARRY OUT THE VERIFICATIONS ON T HE BELOW OBSERVATIONS AND REDO THE ASSESSMENT SINCE THE AO C OMPLETED THE ASSESSMENT WITHOUT MAKING PROPER VERIFICATION, WHIC H WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. A) THE BUSINESS OF THE ASSESSEE HAD NOT COMMENCED, IT IS NOT ELIGIBLE TO CLAIM EXPENDITURE. B) INTEREST INCOME WAS ERRONEOUSLY CONSIDERED UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION. 4. THE ASSESSEE FILED ITS OBJECTIONS FOR THE ABOVE REOPENING OF THE ASSESSMENT U/S 263. IN ITS OBJECTION, THE ASSESSEE HAD SUBMITTED THAT THE BUSINESS HAD COMMENCED AND IT WAS ITS FOURTH YE AR OF OPERATION, IT HAD ACCORDINGLY FILED ITS RETURN OF INCOME. ALL THESE FACTS WERE BROUGHT TO THE NOTICE OF THE AO DURING THE ASSESSME NT PROCEEDINGS. THE AO HAD CONSIDERED AND APPLIED HIS MIND IN ALL T HESE ASPECTS BEFORE PASSING ORDER U/S 143(3). THE ASSESSEES SUB MISSIONS WERE REJECTED AND THE ORDER U/S 263 WAS PASSED. 5. AGGRIEVED WITH THE ABOVE ORDER, NOW, THE ASSESSE E IS IN APPEAL BEFORE US. 6. LD. AR SUBMITTED THAT THE COMPANY WAS INCORPORAT ED ON 04/05/2005. SINCE THE COMPANY WAS SET UP AND COMMEN CED THE NEGOTIATIONS FOR ACQUIRING LAND ETC., ONLY BY SETTI NG UP OF OPERATION, IT WAS ABLE TO ACQUIRE LAND ADMEASURING ACRES 20 GUNTA S 09, FORMING PART OF SURVEY NOS. 310,311 & 318 SITUATED AT VILLA GE POPPALGUDA, HYDERABAD (PAGES 105 TO 139 OF THE PAPER BOOK). THE ABOVE LANDS WERE PURCHASED AS BELOW: A) LAND ADMEASURING ACRE 15 GUNTAS 30 VIDE SALE DE ED NO. 10550/06 ON 31/07/2006 (PAGES 162 TO 191 OF PAPER BOOK). B) LAND ADMEASURING ACRE 4 GUNTAS 19 VIDE SALE DEE D NO. 10549/06 ON 31/07/2006 (PAGES 192 TO 222 OF PAPER BOOK) 3 ITA NO. 863 /HYD/2014 M/S SURYA INFRA ITT PARKS PVT. LTD. THE ABOVE LANDS WERE PURCHASED DURING THE FY 2006-0 7. IT SHOWS THAT THE BUSINESS IS SET UP. THE PURCHASE WAS MATER IALIZED IN JULY, 2006 BUT THE SIMILAR NEGOTIATIONS, ETC., WERE COMME NCED FROM THE DAY, THE COMPANY WAS INCORPORATED. 6.1 THE LD. AR ALSO SUBMITTED THAT THE ASSESSEE WAS FILING ITS RETURN OF INCOME SINCE INCORPORATION AND IT WAS DULY ACCEP TED BY THE DEPARTMENT. HE SUBMITTED THAT THE ASSESSEE WAS ELIG IBLE TO CLAIM BUSINESS OPERATIVE EXPENDITURE AND INTEREST INCOME SHOULD BE TREATED AS BUSINESS INCOME. THE LD. AR RELIED ON THE FOLLOW ING CASES TO SUPPORT HIS CONTENTIONS: 1 WESTERN INDIA VEGETABLE PRODUCTS LTD. V. COMMISS IONER OF INCOME-TAX [1954] 26 ITR 1 5 151 (BOM.) (HC) 2 CIT V. ARCANE DEVELOPERS (P.) LTD [2014]42 TAXMA NN.COM 10 (DELHI) (HC) 3 CIT V DHOOMKETU BUILDERS & DEVELOPMENT (P.) LTD [2013] 34 TAXMANN.COM 18 (DELHI) (HC) 4 UE DEVELOPMENT INDIA (P.) LTD V. ACIT [2013] 35 TAXMANN.COM 607 (BANG) 5 CIT V. SAMSUNG INDIA ELECTRONICS LTD [2013] 37 T AXMANN.COM 239 (DELHI) (HC) 6.CIT V. SARDAR SAROVAR NARMADA NIGAM LTD. [2013] 37 TAXMANN.COM 344 (GUJARAT) (HC) 7 CIT V. RALIIWOLF LTD. (1980) 1211TR 262 (BOM.) ( HC) 8 CIT V. SAURASHTRA CEMENT & CHEMICAL INDUSTRIES L TD.[1973] 91 ITR 170 (GUJ.)(HC) 9 HOTEL ALANKAR V. CIT [1982]133 ITR 866 (GUJ.) (H C) 10. CIT V. TAMIL NADU DAIRY DEVELOPMENT CORPORATIO N LTD [1995] 216 ITR 535 (MAD.) 11. EVEREADY INDUSTRIES INDIA LTD. VS. COMMISSIONE R OF INCOME-TAX [2010] 323 ITR 312(CAL.) (HC) 7. THE LD. DR RELIED ON THE CITS ORDER U/S 263. 8. WE HAVE CONSIDERED THE ARGUMENTS OF BOTH THE SID ES AND PERUSED THE MATERIAL INFORMATION AND FACTS ON THE R ECORD. THE QUESTION WHICH ARISES FOR CONSIDERATION IS AS TO WH EN THE ASSESSEE 4 ITA NO. 863 /HYD/2014 M/S SURYA INFRA ITT PARKS PVT. LTD. SAID TO HAVE COMMENCED ITS BUSINESS. IT HAS TO BE O BSERVED THAT THERE IS A DISTINCTION BETWEEN SETTING UP OF THE BU SINESS 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 BUS INESS BY REFERRING TO THE PROVISIONS OF SECTION 3 OF THE ACT . IN THIS PRESENT CASE, THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF TECHNOLOGY PARK. IN THIS LINE OF BUSINESS, THE PROC ESS COMMENCES FROM THE DATE OF NEGOTIATION FOR ACQUIRING LAND, AC TUAL PURCHASE OF THE LAND AND THEN ACTUAL DEVELOPMENT OF SUCH LAND. THE CONCEPT OF COMMENCEMENT WILL CHANGE ACCORDING TO THE NATURE A ND FACTS OF THE PARTICULAR INDUSTRY. IT MAY VARY DEPENDING UPON THE BUSINESS MODEL AND BUSINESS CYCLE OF THE INDUSTRY. IN THE PRESENT CASE UNDER CONSIDERATION, THE BUSINESS SAID TO HAVE SET UP, WH EN IT IS READY OR ESTABLISHED TO COMMENCE ITS OPERATION, FOR WHICH, W E REFER TO THE CASE LAW WESTERN INDIA VEGETABLE PRODUCTS LTD., 26 ITR 1 51 (BOM.). SIMILARLY, IN THE CASE OF ARCANE DEVELOPERS (SUPRA) DATE OF SETTING UP OF BUSINESS DEPENDS UPON FACTS AND THE NATURE OF TH E BUSINESS. THIS IS THE REASON WHY WE HAVE REFERRED TO THE OBJECTS F OR INCORPORATION OF THE COMPANY AND THE MAIN BUSINESS ACTIVITIES IN WHI CH ASSESSEE WAS ENGAGED. 9. THE RATIO OF THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DHOOMKETH BUILDERS & DEVELOPMENT (P ) LTD., (SUPRA) ARE EXACTLY SIMILAR TO THE PRESENT CASE UNDER CONSI DERATION. THE RATIO OF THE JUDGMENT IS AS UNDER: 9. THE TRIBUNAL HAS OBSERVED THAT HAVING REGARD T O THE BUSINESS OF THE ASSESSEE, WHICH IS THE DEVELOPMENT OF REAL ESTATES , THE PARTICIPATION IN THE TENDER REPRESENTS COMMENCEMENT OF ONE ACTIVITY WHI CH WOULD ENABLE THE ASSESSEE TO ACQUIRE THE LAND FOR DEVELOPMENT. IF T HE ASSESSEE IS IN A POSITION TO COMMENCE BUSINESS, THAT MEANS THE BUSI NESS HAS BEEN SET-UP. THE ACTS OF APPLYING FOR PARTICIPATION IN THE TEND ER, THE BORROWING OF MONIES FOR INTEREST FROM THE HOLDING COMPANY, THE DEPOSIT OF THE BORROWED MONIES ON THE SAME DAY WITH NGEF LTD. AS EARNEST M ONEY WERE ALL ACTS WHICH CLEARLY ESTABLISH THAT THE BUSINESS HAD BEEN SET-UP. THE COMMENCEMENT OF REAL ESTATE BUSINESS WOULD NORMALL Y START WITH THE ACQUISITION OF LAND OR IMMOVEABLE PROPERTY. WHEN A N ASSESSEE WHOSE BUSINESS IT IS TO DEVELOP REAL ESTATES, IS IN A PO SITION TO PERFORM CERTAIN 5 ITA NO. 863 /HYD/2014 M/S SURYA INFRA ITT PARKS PVT. LTD. ACTS TOWARDS THE ACQUISITION OF LAND, THAT WOULD C LEARLY SHOW THAT IT IS READY TO COMMENCE BUSINESS AND, AS A COROLLARY, TH AT IT HAS ALREADY BEEN SET-UP. THE ACTUAL ACQUISITION OF LAND IS THE RESU LT OF SUCH EFFORTS PUT IN BY THE ASSESSEE; ONCE THE LAND IS ACQUIRED THE ASSESS EE MAY BE SAID TO HAVE ACTUALLY COMMENCED ITS BUSINESS WHICH IS THAT OF D EVELOPMENT OF REAL ESTATE. THE ACTUAL ACQUISITION OF THE LAND MAY BE A FIRST STEP IN THE COMMENCEMENT OF THE BUSINESS, BUT SECTION 3 OF THE ACT DOES NOT SPEAK OF COMMENCEMENT OF THE BUSINESS, IT SPEAKS ONLY OF SE TTING-UP OF THE BUSINESS. WHEN THE ASSESSEE IN THE PRESENT CASE WA S IN A POSITION TO APPLY FOR THE TENDER, BORROWED MONEY FOR INTEREST ALBEIT FROM ITS HOLDING COMPANY AND DEPOSITED THE SAME WITH NGEF LTD. ON T HE SAME DAY, IT SHOWS THAT THE ASSESSEE'S BUSINESS HAD BEEN SET-UP AND IT WAS READY TO COMMENCE BUSINESS. THE LEARNED SENIOR STANDING COU NSEL FOR THE REVENUE WOULD, HOWEVER, STATE THAT TILL THE LAND IS ACQUIR ED, THE BUSINESS IS NOT SET- UP. THE DIFFICULTY IN ACCEPTING THE ARGUMENT IS TH AT AN ASSESSEE MAY NOT BE SUCCESSFUL IN ACQUIRING LAND FOR LONG PERIOD OF TI ME THOUGH HE IS READY TO COMMENCE HIS BUSINESS IN REAL ESTATE, AND THAT WOU LD RESULT IN THE EXPENSES INCURRED BY HIM THROUGHOUT THAT PERIOD NO T BEING COMPUTED AS A LOSS UNDER THE HEAD 'BUSINESS' ON THE GROUND THAT HE IS YET TO SET-UP HIS BUSINESS. THAT WOULD BE AN UNACCEPTABLE POSITION. THE OTHER ARGUMENT OF THE LEARNED STANDING COUNSEL FOR THE REVENUE THAT THE TAX AUDITORS OF THE ASSESSEE HAVE THEMSELVES POINTED OUT THAT THE ASSE SSEE IS YET TO COMMENCE ITS BUSINESS IS ALSO IRRELEVANT BECAUSE O F THE DISTINCTION BETWEEN THE COMMENCEMENT OF THE BUSINESS AND SETTI NG-UP OF THE SAME. CONSIDERING THE ABOVE OBSERVATION AND MATERIAL FACT S OF THIS CASE, WE ARE OF THE OPINION THAT THE ASSESSEES BUSINESS HAD COMMENCED SINCE INCORPORATION AND THE ASSESSEE IS ELIGIBLE TO CLAIM THE EXPENDITURE INCURRED FOR RUNNING OF THE BUSINESS ACTIVITIES. HE NCE, THE ASSESSEE IS ELIGIBLE FOR THE BUSINESS EXPENDITURE OF RS. 29,54, 923/-. 10. THE OTHER ISSUE UNDER CONSIDERATION IS THE TREA TMENT OF INTEREST INCOME WHETHER INCOME FROM BUSINESS OR FROM OTHER S OURCES. AS OBSERVED ABOVE, THE ASSESSEE HAD SET UP THE BUSINES S PRIOR TO THIS AY 2009-10, ASSESSEE IS ELIGIBLE TO TREAT THE INTER EST INCOME EARNED DURING THIS YEAR EARNED OUT OF THE EXCESS FUNDS AVA ILABLE IN THE BUSINESS. IT WAS EARNED BY THE ASSESSEE WHILE CARRY ING ON THE BUSINESS ACTIVITIES. SIMILAR VIEW WAS UPHELD IN THE CASE OF DAKSHIN SHELTERS PVT. LTD. IN ITA NOS 1983 TO 1985/HYD/2011 BY THE COORDINATE BENCH OF ITAT, HYDERABAD WHEREIN IT WAS ALLOWED TO CLAIM EXPENSES AS INCURRED WHICH WAS DEBITED TO PROFIT & LOSS A/C AGAINST INTEREST INCOME. SIMILAR VIEW ALSO EXPRESSED BY THI S COORDINATE BENCH IN THE CASE OF ITO VS. TRIDENT SHELTERS PVT. LTD., ITA NO. 1160/HYD/2012. 6 ITA NO. 863 /HYD/2014 M/S SURYA INFRA ITT PARKS PVT. LTD. 11. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED AND THE ORDER PASSED U/S 263 IS SET ASIDE. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2015 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD, DATED: 30 TH NOVEMBER, 2015 KV COPY TO:- 1) M/S SURYA INFRA IT PARKS PVT. LTD., C/O PRASAD & PRASAD, CAS., FLAT NO. 301, 3 RD FLOOR, MJ TOWERS, ROAD NO. 12, BANJARA HILLS, HYDERABAD 500 034. 2)CIT-III, HYDERABAD 3) ADDL. CIT, RANGE 3, HYDERABAD 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.