M/s Kingfisher Training & Aviation Services Limited, Bangalore v. ACIT, Bangalore

ITA 13/BANG/2010 | 2005-2006
Pronouncement Date: 28-01-2011 | Result: Dismissed

Appeal Details

RSA Number 1321114 RSA 2010
Bench Bangalore
Appeal Number ITA 13/BANG/2010
Duration Of Justice 1 year(s) 23 day(s)
Appellant M/s Kingfisher Training & Aviation Services Limited, Bangalore
Respondent ACIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 28-01-2011
Date Of Final Hearing 06-01-2011
Next Hearing Date 06-01-2011
Assessment Year 2005-2006
Appeal Filed On 05-01-2010
Judgment Text
ITA.13/BANG/2010 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A' BANGALORE BEFORE DR. O. K. NARAYANAN VICE PRESIDENT AND SMT. P. MADHAVI DEVI JUDICIAL MEMBER I.T.A NO.13/BANG/2010 (ASSESSMENT YEAR : 2005-06) M/S. KINGFISHER TRAINING & AVIATION SERVICES LTD. NO.35/2 CUNNINGHAM ROAD BANGALORE 560 052 .. AP PELLANT V. ASST. COMMISSIONER OF INCOME-TAX CIRCLE -11(5) BANGALORE .. RESPONDENT APPELLANT BY : SHRI. S. VISHNU MURTHY CA RESPONDENT BY : SMT. JACINTA ZINIK VASHAI ADDL.CI T O R D E R PER DR. O. K. NARAYANAN VICE PRESIDENT : THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2005-06. THE APPEAL IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX(A)-I AT BANGALORE DATE D.25.09.2009. THE APPEAL ARISES OUT OF THE ASSESSMENT COMPLETED U /S.143(3) OF THE IT ACT 1961. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE OPERATI ON OF AIR- TRANSPORTATION AND OTHER AIR SERVICES. IT FILED IT S RETURN OF INCOME FOR ITA.13/BANG/2010 PAGE - 2 THE IMPUGNED ASSESSMENT YEAR DECLARING A LOSS OF ` 14 34 10 006/-. IN THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSME NT YEAR THE ASSESSEE HAD INCURRED AN EXPENDITURE OF ` 14 70 45 569/- TOWARDS VARIOUS EXPENSES RELATING TO PRE-OPERATION ACTIVITI ES. THE ASSESSEE ALSO HAD EARNED INCOME BY WAY OF BANK INTEREST OF ` 52 06 685/-. AS THERE WAS AN INTERVAL BETWEEN THE RECEIPT OF FUNDS AND UT ILIZATION OF THE FUNDS THE ASSESSEE HAD KEPT CERTAIN FUNDS AVAILABL E AS SHORT TERM BANK DEPOSITS AND EARNED INTEREST INCOME AS ABOVE. IN F ILING THE RETURN OF INCOME THE ASSESSEE SET OFF THE INCOME TOWARDS THE EXPENSES AND DECLARED A LOSS OF ` 147 045 569/-. 3. IN ASSESSMENT THE OFFICER HELD THAT EXPENSES CL AIMED BY THE ASSESSEE CANNOT BE ALLOWED AS BUSINESS EXPENDITURE AS THE ASSESSEE HAD NOT COMMENCED ITS BUSINESS. WHEN THIS MATTER WAS P UT TO THE ASSESSEE THE ASSESSEE REPLIED THAT SO LONG AS THE EXPENSES INCURRED ARE TREATED AS PRELIMINARY EXPENSES AND ALLOWED TO BE A MORTIZED THEY DO NOT HAVE ANY OBJECTION TO THE PROPOSAL OF THE ASSES SING AUTHORITY. THE ASSESSING AUTHORITY THEREFORE DID NOT CONSIDER THE SAID AMOUNT OF EXPENDITURE FOR THE PURPOSE OF COMPUTING THE TAXABL E INCOME OF THE ASSESSEE. ITA.13/BANG/2010 PAGE - 3 4. THE ASSESSING OFFICER FURTHER HELD THAT THE BANK INTEREST RECEIVED BY THE ASSESSEE HAS TO BE ASSESSED AS INCO ME FROM OTHER SOURCES. ACCORDINGLY SHE DETERMINED A TAXABLE INC OME OF ` 53 06 685/- AS AGAINST THE LOSS RETURNED BY THE ASS ESSEE. THE ASSESSING OFFICER HELD THAT INTEREST INCOME CANNOT BE SET OFF AGAINST THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY. ASSESSMENT ORDER HAS BEEN CONFIRMED IN FIRST APPEAL. THE ASSESSEE I S AGGRIEVED AND THEREFORE THE SECOND APPEAL BEFORE US. 5. THE RELEVANT GROUNDS RAISED BY THE ASSESSEE BEFO RE THE TRIBUNAL READ AS BELOW : I) THE APPELLATE AUTHORITY HAS ERRED IN HOLDING THA T THE APPELLANT HAS NOT SET UP AND CARRIED ON THE BUSINES S DURING THE PREVIOUS YEAR. II) THE APPELLATE AUTHORITY HAS ERRED IN NOT DISTINGUISHING THE SERVICE INDUSTRY FROM MANUFACTUR ING INDUSTRY AND THAT THE CONSIDERATION FOR DETERMINING THE COMMENCEMENT OF BUSINESS IS SERVICE INDUSTRY ARE DI FFERENT THAN THAT ARE IN THE MANUFACTURING INDUSTRY. III) THE APPELLATE AUTHORITY HAS ERRED IN NOT APPRE CIATING THAT SECTION 35D IS A BENEFICIAL PROVISION INTENDED TO ENABLE ASSESSES TO CARRY FORWARD THEIR LOSS CLAIMS FROM A LONGER PERIODS AND IT WAS INTRODUCED ESPECIALLY TO BENEFIT LARGE ITA.13/BANG/2010 PAGE - 4 MANUFACTURING/PROCESS INDUSTRIES WHICH TAKE LONG GE STATION PERIODS. IV) THE APPELLATE AUTHORITY HAS ERRED IN HOLDING T HAT THE EXPENSES INCURRED BY THE COMPANY ARE TO BE CONSIDER ED UNDER THE PROVISIONS OF SECTION 35D. V) THE APPELLATE AUTHORITY HAS ERRED IN NOT APPLYIN G THE RATIO OF THE DECISION RENDERED IN COMMISSIONER OF I NCOME-TAX V. ESPN SOFTWARE INDIA P LTD (2008) 301 ITR 368 (DE LHI) WHEREIN IT WAS HELD THAT AS SOON AS AN ACTIVITY WHI CH IS AN ESSENTIAL ACTIVITY IN THE COURSE OF CARRYING ON OF THE BUSINESS IS STARTED THE BUSINESS MUST BE SAID TO HAVE COMME NCED AND THE ASSESSEE IS ENTITLED TO CLAIM EXPENDITURE INCUR RED ON OR AFTER THAT DATE AS REVENUE EXPENDITURE. VI) SINCE THE PREVIOUS YEAR OF THE APPELLANT COMMEN CED WITH THE SETTING UP OF THE BUSINESS THE AA HAS ERR ED IN HOLDING THAT THE APPELLANT HAS NOT CARRIED ON ANY B USINESS DURING THE PREVIOUS YEAR ENDING 31ST MARCH 2005. 6. WE HEARD BOTH SIDES IN DETAIL. IT IS THE CASE O F THE ASSESSEE THAT IT HAD IN FACT SET UP THE BUSINESS READY TO COMMENC E AND THEREFORE THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE RELEVAN T PREVIOUS YEAR HAS TO BE TREATED AS BUSINESS EXPENDITURE ENTITLED TO B E DEDUCTED/CARRIED FORWARD SO THAT THE EXPENSES SHOULD BE SET OFF AGAI NST THE INTEREST INCOME AND THE BALANCE LOSS SHOULD BE ALLOWED TO BE CARRIED FORWARD. ITA.13/BANG/2010 PAGE - 5 GREAT RELIANCE HAS BEEN PLACED BY THE ASSESSEE ON T HE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF ESPN SOFTWA RE INDIA P LTD (2008) 301 ITR 368 (DELHI). IN THE SAID DECISION T HE HON'BLE DELHI HIGH COURT HAS HELD THAT THERE IS A DISTINCTION BET WEEN SETTING UP OF THE BUSINESS AND COMMENCEMENT OF THE BUSINESS. WHA T IS RELEVANT UNDER THE INCOME-TAX ACT IS THE SETTING UP OF THE B USINESS AND NOT THE COMMENCEMENT OF THE BUSINESS. IT IS BASED ON THE A BOVE RATIO THAT THE ASSESSEE HAS VEHEMENTLY ARGUED THAT IT HAD SET UP I TS BUSINESS AND THEREFORE THE EXPENSES SHOULD BE TREATED AS BUSINES S EXPENDITURE IN THE IMPUGNED ASSESSMENT YEAR. 7. ON GOING THROUGH THE FACTS OF THE CASE WE FIND T HAT THE ASSESSEE WAS INCORPORATED AS A PUBLIC LIMITED COMPANY ON 26. 07.2004 AND OBTAINED CERTIFICATE OF COMMENCEMENT OF BUSINESS ON 24.08.2004 AND NO OBJECTION CERTIFICATE WAS OBTAINED FROM GOVERNM ENT OF INDIA TO COMMENCE ITS AIRLINES ACTIVITIES FROM 24.08.2004 AN D HAD ENTERED INTO AN AGREEMENT FOR PURCHASE/LEASE OF AIRCRAFTS ON 18. 12.2004. IN ADDITION TO THAT THE ASSESSEE COMPANY HAD ALSO REC RUITED PERSONNEL TO INVOLVE IN ITS BUSINESS ESTABLISHED VARIOUS BRANCH OFFICES AND INITIATED OTHER WORKS TO OPERATIONALISE ITS ACTIVITIES. ITA.13/BANG/2010 PAGE - 6 8. BUT WE ARE AFRAID THAT THE ABOVE ACTIVITIES ALON E DO NOT AMOUNT TO SETTING UP OF THE BUSINESS TO GET THE BENEFIT OF THE DECISION OF THE HON'BLE DELHI HIGH COURT DELIVERED IN THE CASE OF E SPN SOFTWARE INDIA P LTD (2008) 301 ITR 368 (DELHI). EVEN WHEN THE DISTINCTION BETWEEN SETTING UP OF THE BUSINESS AND COMMENCEMENT OF BUSINESS IS BORNE IN MIND IT IS NECESSARY FOR THE ASSESSEE TO ESTABLISH AT LEAST THE SETTING UP OF THE BUSINESS TO CLAIM EXPENSES AND DE DUCTIONS FOR INCOME-TAX PURPOSES . IN THE PRESENT CASE THE ASSESSEE HAS NOT PROCURED ANY AIRCRAFT TO COMMENCE ITS BUSINESS OPER ATIONS WHICH IS AIR TRANSPORTATION TILL THE END OF THE PREVIOUS YE AR. IT HAD ENTERED INTO AN AGREEMENT FOR PURCHASE/LEASE OF AIRBUS. THE SOU L OF THE BUSINESS PROPOSED TO BE CARRIED ON BY THE ASSESSEE IS THE AI RCRAFT. WHEN THE AIRCRAFT ITSELF WAS NOT AVAILABLE AT THE DISPOSAL O F THE ASSESSEE COMPANY TILL THE END OF THE PREVIOUS YEAR THERE IS NO SUBS TANCE IN THE ARGUMENT THAT THE ASSESSEE HAD SET UP THE BUSINESS BY THE EN D OF THE IMPUGNED PREVIOUS YEAR. 9. WHAT IN FACT THE ASSESSEE HAS CARRIED OUT IN THE RELEVANT PREVIOUS YEAR WAS THE NECESSARY CORPORATE AND FINANCIAL ACTI VITIES AND OTHER ORGANIZATIONAL ACTIVITIES. THE ESSENTIAL FACTOR TO CARRY ON THE BUSINESS HAS NOT BEEN SET UP. AS FAR AS THE ASSESSEE IS CON CERNED PROCUREMENT OF THE AIRCRAFT EITHER ON LEASE OR BY PURCHASE IS T HE MOST IMPORTANT ITA.13/BANG/2010 PAGE - 7 ASPECT TO BE CONSIDERED WHEN THE QUESTION OF SETTIN G UP OF THE BUSINESS IS TO BE EXAMINED. IF THERE IS NO AIRCRAFT THERE IS NO SETTING UP OF THE BUSINESS. THEREFORE WE FIND THAT THE LOWER AUTHOR ITIES ARE JUSTIFIED IN REJECTING THE GROUNDS OF THE ASSESSEE. 10. IN RESULT THIS APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY THE 28TH DAY OF JANUARY 2011 AT BANGALORE. SD/- SD/- (P. MADHAVI DEVI) (DR. O. K. NARAYANAN) JUDICIAL MEMBER VICE PRESIDENT