Koncept Nirmaan Private Limited, Secunderabad V. Dy.CIT, Central Circle-2, Hyderabad

ITA 913/HYD/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1813 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 17-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 12-05-2014
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: RAJEEV DAVE
• Keywords: Business income; Depreciation; Business expenditure; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 913/HYD/2014 ASSESSMENT YEAR: 2009-10 KONCEPT NIRMAAN PVT. LTD., SECUNDERABAD [PAN: AACCK6139M] VS THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI RAJEEV DAVE, AR FOR REVENUE : SHRI RAJAT MITRA, DR DATE OF HEARING : 17-08-2015 DATE OF PRONOUNCEMENT : 21-08-2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, HYDERABAD DATED 03-03-2014. ASSESSEE IS AGGRIEVED ON THE DISALLOWANCE OF EXPEND ITURE CLAIMED AT RS. 41,40,615/-. 2. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE BUSI NESS OF REAL ESTATE DEVELOPMENT AND CONSTRUCTION. FOR THE YEAR UNDER C ONSIDERATION, ASSESSEE DECLARED TOTAL LOSS OF RS. 18,79,561/-. IN ARRIVING AT THE ABOVE I.T.A. NO. 913/HYD/2014 KONCEPT NIRMAAN PVT. LTD., :- 2 -: AMOUNT, ASSESSEE HAS ADMITTED RECEIPT OF RS. 22,97, 077/- AS INCOME IN THE P&L A/C AND CLAIMED EXPENDITURE OF RS. 41,73,09 4/- INCLUDING DEPRECIATION AND PRELIMINARY EXPENSES WRITTEN-OFF. ASSESSING OFFICER (AO) WAS OF THE OPINION THAT OUT OF RS. 22,97,077/- , AN AMOUNT OF RS. 20 LAKHS WAS COMPENSATION RECEIVED FOR CANCELLATION OF SALE AGREEMENT, THEREFORE, THE AMOUNT CANNOT BE CONSIDERED AS BUSIN ESS RECEIPT. THE BALANCE AMOUNT BEING INTEREST INCOME, HE WAS OF TH E OPINION THAT EXPENDITURE CLAIMED RS. 16,80,863/- BEING ADMINISTR ATIVE AND OTHER EXPENSES AND RS. 24,59,752/- BEING INTEREST AND FIN ANCIAL CHARGES CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. HE AC CORDINGLY DISALLOWED THE ABOVE TWO AMOUNTS ON THE REASON THAT ASSESSEE H AS NOT DONE ANY BUSINESS DURING THE YEAR. INCIDENTALLY, HE ALSO RE LIED ON THE ORDER IN THE CASE OF DAKSHIN SHELTERS PVT. LTD., VS. DCIT IN ITA NOS. 1983 TO 1985/HYD/2011 DT. 04-05-2012 FOR THE AYS. 2006-07 T O 2008-09, WHEREIN IN THAT CASE, ASSESSEE EARNED ONLY INTEREST INCOME AND CLAIMED EXPENDITURE. IT WAS HELD BY THE CIT(A) THAT ASSESS EE HAS NOT SET UP THE BUSINESS, THEREFORE, EXPENDITURE CANNOT BE ALLOWED. RELYING ON THE ABOVE DECISION OF CIT(A), AO HELD THAT IN THE PRES ENT CASE, INCOME EARNED IS ONLY FROM RECEIPT OF INTEREST WHICH IS NO T A DIRECT BUSINESS ACTIVITY OF THE COMPANY. HENCE, EXPENDITURE CLAIME D CANNOT BE ALLOWED. 3. BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT ASS ESSEE HAS STARTED ITS BUSINESS ACTIVITY IN FINANCIAL YEAR 2007-08 REL EVANT TO THE AY. 2008- 09 ITSELF AND ASSESSEE HAS OFFERED A PROFIT BEFORE TAX OF RS. 4,27,99,756/- IN THAT YEAR. IT WAS ALSO BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT ASSESSEE HAS IN FACT ACQUIRED MORE PROPERTY DURING THE YEAR AND IN ONE TRANSACTION, WHICH WAS ENTERED IN EARLIER YEAR, ASS ESSEE HAS TO CANCEL THE SALE AGREEMENT CUM GPA ON LAND AT BOLARUM AND IN THE BARGAIN, ASSESSEE RECEIVED RS. ONE CRORE WHICH INCLUDED A CO MPENSATION OF RS. 20 LAKHS OFFERED ON THE INCOME DURING THE YEAR. SI NCE ASSESSEES I.T.A. NO. 913/HYD/2014 KONCEPT NIRMAAN PVT. LTD., :- 3 -: BUSINESS IS IN REAL ESTATE, THE COMPENSATION RECEIV ED AGAINST CANCELLATION OF AGREEMENT IS A BUSINESS TRANSACTION ITSELF. LD. CIT(A) WHILE ADMITTING THAT ASSESSEE HAS COMMENCED THE BUS INESS OPERATIONS IN EARLIER YEAR AND THE PRINCIPLES LAID DOWN BY THE ITAT IN THE CASE OF DAKSHIN SHELTERS PVT. LTD., VS. DCIT IN ITA NOS. 19 83 TO 1985/HYD/2011 DT. 04-05-2012 (SUPRA) DOES NOT APPLY TO THE FACTS OF THE CASE, HE WAS OF THE OPINION THAT ASSESSEE HAS N OT DONE ANY BUSINESS ACTIVITY DURING THE YEAR AND THEREFORE, ON THE PRIN CIPLE OF MATCHING CONCEPT, EXPENDITURE CANNOT BE ALLOWED. ACCORDINGL Y, ASSESSEES CONTENTIONS WERE REJECTED AND ORDER OF THE AO WAS C ONFIRMED BY THE CIT(A). 4. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERU SING THE DOCUMENTS PLACED ON RECORD, WE ARE OF THE OPINION T HAT ORDER OF THE CIT(A) CANNOT BE SUSTAINED. THERE IS NO DISPUTE WI TH REFERENCE TO THE FACT THAT ASSESSEE IS IN REAL ESTATE BUSINESS AND S TARTED THE BUSINESS OPERATIONS MUCH EARLIER TO THE IMPUGNED ASSESSMENT YEAR. IN AY. 2008- 09 ITSELF, ASSESSMENT U/S. 143(3) WAS COMPLETED ON THE ASSESSED INCOME AT RS. 4,08,67,552/-. THEREFORE, THE ISSUE OF SET UP OF BUSINESS WHICH WAS CONSIDERED IN THE ABOVE REFERRED DECISION OF DA KSHIN SHELTERS PVT. LTD., VS. DCIT IN ITA NOS. 1983 TO 1985/HYD/2011 DT . 04-05-2012 (SUPRA) DOES NOT APPLY TO THE FACTS OF THE CASE. 5. THE ONLY ISSUE FOR CONSIDERATION IS WHETHER THE EXPENDITURE CLAIMED BY ASSESSEE IS ALLOWABLE OR NOT? THERE IS NO DISPU TE WITH REFERENCE TO THE QUANTIFICATION OF EXPENDITURE BEING ADMINISTRAT IVE EXPENDITURE AND FINANCIAL CHARGES. THE ONLY REASON FOR DISALLOWANC E SEEMS TO BE THAT ASSESSEE HAS NOT DONE ANY BUSINESS DURING THE YEAR. WE ARE UNABLE TO UNDERSTAND WHAT THE OFFICERS MEANT BY NOT DOING BU SINESS DURING THE YEAR. AS FAR AS ASSESSEE IS CONCERNED, ASSESSEES BUSINESS OPERATIONS I.T.A. NO. 913/HYD/2014 KONCEPT NIRMAAN PVT. LTD., :- 4 -: HAVE STARTED MUCH EARLIER I.E., IN AY. 2008-09 ITSE LF AND THERE WERE SUBSTANTIAL INCOMES. AS SEEN FROM THE ORDERS PLACE D ON RECORD, IN AY. 2010-11 ONWARDS I.E., SUBSEQUENT YEARS ALSO THERE I S SUBSTANTIAL INCOMES OFFERED BY THE ASSESSEE WHICH WAS ALSO NOT DISPUTED BY REVENUE. DURING THE YEAR, ASSESSEE ALSO HAD RECEIP TS TO AN EXTENT OF RS. 22,97,077/-. OUT OF WHICH ONLY AN AMOUNT OF RS. 2, 97,077/- WAS INTEREST INCOME. BALANCE RS. 20 LAKHS WAS RECEIVED ON CANCELLATION OF SALE CUM DEVELOPMENT AGREEMENT DURING THE YEAR. IT WAS THE CONTENTION OF ASSESSEE THAT IT PAID AN AMOUNT OF RS. 80 LAKHS FOR ACQUIRING A PARTICULAR LAND IN BOLARUM FOR DEVELOPMENT OF A PRO JECT WHICH DID NOT MATERIALIZE. ACCORDINGLY, IT RECEIVED A FURTHER AM OUNT OF RS. 20 LAKHS AS COMPENSATION DURING THE YEAR. THERE IS NO DISPUTE WITH REFERENCE TO THE YEAR OF RECEIPT BEFORE THE AO. EVEN THOUGH ASSESSE E SUBMITTED THAT IT HAS CANCELLED THE AGREEMENT IN IMPUGNED ASSESSMENT YEAR, FOR THE REASONS BEST KNOWN TO THE CIT(A), HE CONSIDERED THA T COMPENSATION WAS RECEIVED IN EARLIER YEAR, VIDE PARA 4.6 OF THE ORDE R. THIS OPINION OF THE CIT(A) IS NOT BORNE OUT OF THE FACTS ON RECORD. BE THAT AS IT MAY, THE CONTENTION THAT COMPENSATION RECEIVED CANNOT BE TRE ATED AS BUSINESS INCOME IS NOT CORRECT. SINCE ASSESSEE IS IN THE R EAL ESTATE BUSINESS, ANY AMOUNT RECEIVED AS COMPENSATION IN THE BUSINESS IS TO BE IN THE NATURE OF BUSINESS INCOME. NOT ONLY THAT, ASSESSEE ALSO H AS ENTERED INTO AGREEMENTS ON THREE OTHER PROPERTIES AND SO THERE C ANNOT BE ANY DISPUTE ABOUT ASSESSEE BEING IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. JUST BECAUSE, THERE ARE NO OTHER PROJECT RECEIPTS, IT CA NNOT BE CONSIDERED THAT ASSESSEE HAS NOT DONE ANY BUSINESS. THE AMOUNT OF RS. 20 LAKHS RECEIVED IN THE YEAR ITSELF IS BUSINESS INCOME, AGA INST WHICH BUSINESS EXPENDITURE CAN BE CLAIMED. EVEN OTHERWISE, RECEIP T OF AMOUNTS DURING THE YEAR IS NOT A CONDITION PRECEDENT FOR ALLOWING EXPENDITURE. SOMETIMES, THERE WILL BE MORE RECEIPTS, SOMETIMES T HERE WILL BE LESS RECEIPTS RESULTING IN INCOME OR LOSS IN A YEAR. I NCIDENTALLY, IN THIS YEAR, I.T.A. NO. 913/HYD/2014 KONCEPT NIRMAAN PVT. LTD., :- 5 -: THE EXPENDITURE PARTICULARLY FINANCIAL CHARGES ARE MORE THAN RECEIPTS OFFERED BY ASSESSEE. THIS DOES NOT MEAN THAT ASSES SEE IS NOT IN THE BUSINESS. CONSIDERING THE FACTS OF THE CASE AND AL SO THE FACT THAT ASSESSEES BUSINESS RECEIPTS ARE THERE TO CLAIM EXP ENDITURE, DISALLOWANCE OF EXPENDITURE ON THE REASON THAT THERE IS NO BUSIN ESS IS NOT CORRECT. AO IN FACT RELIED ON CO-ORDINATE BENCH DECISION IN THE CASE OF DAKSHIN SHELTERS PVT. LTD., VS. DCIT IN ITA NOS. 1983 TO 19 85/HYD/2011 DT. 04- 05-2012 (SUPRA), WHEREIN THE ISSUE WAS WHETHER ASSE SSEE HAS STARTED THE BUSINESS OR NOT? THAT ISSUE DOES NOT ARISE IN THIS CASE. AS IT HAS STARTED THE BUSINESS AND OFFERED THE AMOUNT OF INCO ME IN THE EARLIER YEAR ITSELF, WHY AO HAS RELIED ON THE ABOVE SAID DECISIO N COULD NOT BE UNDERSTOOD. LD. CIT(A) HOWEVER, RIGHTLY DISTINGUIS HED THE FACTS TO THAT EXTENT, BUT DID NOT NOTICE THAT ASSESSEES BUSINESS HAS ALREADY STARTED IN EARLIER YEAR AND HAS RECEIVED COMPENSATION AS PART OF BUSINESS TRANSACTIONS. THE THRESHOLD CONDITION FOR DEDUCTION OF ANY EXPENDITURE UNDER THE HEAD BUSINESS IS THAT THE BUSINESS SHOU LD BE CARRIED ON BY ASSESSEE DURING THE YEAR. THE HONBLE SUPREME COUR T IN THE CASE OF RAJASTHAN STATE WAREHOUSING CORPORATION VS. CIT [24 2 ITR 450 (SC)] HAS HELD THAT WHERE AN ASSESSEE CARRIES ON BUSINESS CONSISTING OF VARIOUS VENTURES WITH SOME OF THEM YIELDING TAXABLE INCOME AND OTHERS NOT, THE ENTIRE EXPENDITURE WHICH IS WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF PROFESSION OR BUSINESS EXPENDED DURING T HE PREVIOUS YEAR WILL BE ALLOWABLE AS LONG AS THEY ARE NOT IN THE NATURE OF CAPITAL OR PERSONAL EXPENDITURE. IN THIS CASE, THERE IS NO DOUBT WITH REFERENCE TO NATURE OF EXPENDITURE BEING REVENUE EXPENDITURE. THERE IS AL SO NO DISPUTE THAT ASSESSEE IS CARRYING ON THE BUSINESS DURING THE YEA R. JUST BECAUSE THERE ARE NO BUSINESS RECEIPTS FROM THE PROJECT, EV EN THOUGH THERE WERE RECEIPTS FROM CANCELLATION OF AN AGREEMENT, IT CANN OT BE CONSIDERED THAT ASSESSEE IS NOT CARRYING ON BUSINESS. WE ARE OF TH E OPINION THAT ASSESSEES CLAIM OF EXPENDITURE IS JUSTIFIED ON FAC TS OF THE CASE. I.T.A. NO. 913/HYD/2014 KONCEPT NIRMAAN PVT. LTD., :- 6 -: THEREFORE, ALLOWING THE GROUNDS OF ASSESSEE, WE DIR ECT THE AO TO ALLOW THE EXPENDITURE. 6. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST, 2015 SD/- SD/- (P. MADHAVI DEVI) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 21 ST AUGUST, 2015 TNMM COPY TO 1. KONCEPT NIRMAAN PVT. LTD., 617, SWAPNALOK COMPLE X, 92/93, S.D. ROAD, SECUNDERABAD. 2. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2 , HYDERABAD. 3. CIT(APPEALS)-III, HYDERABAD. 4. CIT-II, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.