DhoomKetu Builders & Developers Pvt. Ltd., New Delhi v. Addl. CIT, New Delhi

ITA 1428/DEL/2011 | 2006-2007
Pronouncement Date: 30-11-2011 | Result: Allowed

Appeal Details

RSA Number 142820114 RSA 2011
Assessee PAN AACCD2755L
Bench Delhi
Appeal Number ITA 1428/DEL/2011
Duration Of Justice 8 month(s) 9 day(s)
Appellant DhoomKetu Builders & Developers Pvt. Ltd., New Delhi
Respondent Addl. CIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 30-11-2011
Date Of Final Hearing 29-09-2011
Next Hearing Date 29-09-2011
Assessment Year 2006-2007
Appeal Filed On 21-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI K.D. RANJAN ITA NO. 1428/DEL/2011 ASSESSMENT YEAR: 2006-07 DHOOMKETU BUILDERS & DEVELOPMENT VS. ADDITIONAL C IT PVT. LTD. 1.E NAAZ CINEMA COMPLEX RANGE-10 JHANDEWALAN EXTENSION NEW DELHI. NEW DELHI. (PAN: AACCD2755L) (APPELLANT) (RESPONDENT) ITA NO. 1723/DEL/2011 ASSESSMENT YEAR: 2006-07 ADDITIONAL CIT V.S DHOOMKETU BUILDERS & DEVELOP MENT RANGE 10 PVT. LTD. 1.E NAAZ CINEMA COMPLEX NEW DELHI. JHANDEWALAN EXTENSION NEW DELHI. (PAN: AACCD2755L) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRADEEP DI NODIA CA RESPONDENT BY: SHRI ROHIT GARG SR. DR DATE OF HEARING : 29.09.2011 DATE OF PRONOUNCEMENT : 30.11.2011 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE AND REVENUE ARE IN CROSS-APPEAL AGAIN ST THE ORDER OF LEARNED CIT(APPEALS) DATED 24.12.2010 PASSED FOR AS SESSMENT YEAR 2006- 07. THE SUBSTANTIAL GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE INTER- CONNECTED WITH THE SOLITARY GROUNDS OF APPEAL TAKEN BY THE REVENUE. THE GRIEVANCE OF THE ASSESSEE IS THAT LEARNED CIT(APPEA LS) HAS ERRED IN LAW IN 2 HOLDING THAT INCOME OF THE ASSESSEE IN THIS YEAR IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND NOT FROM PROFIT AN D GAINS OF BUSINESS OR PROFESSION. HE FURTHER ERRED IN NOT PERMITTING THE ASSESSEE TO CARRY FORWARD THE NET BUSINESS LOSS CLAIMED BY IT AT RS.1 17 12 4 73. ON THE OTHER HAND THE GRIEVANCE OF THE REVENUE IS THAT THE LEARNED CIT(AP PEALS) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO SET OFF THE INTE REST PAID BY THE ASSESSEE AT RS.1 79 37 534 FROM THE INTEREST INCOME OF RS.62 28 333 AND DETERMINING THE NET LOSS AT RS.1 17 12 472 THOUGH WITHOUT PERM ISSION TO CARRYING FORWARD. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY WAS INCORPORATED ON 22.6.2005. ACCORDING TO THE MEMORAN DUM OF ASSOCIATION IT WAS TO CARRY ON THE BUSINESS OF REAL ESTATE DEVELOP MENT. IT IS A 100% SUBSIDIARY OF DLF LTD. WHICH IS ALSO ENGAGED IN THE SAME BUSINESS. IT HAS FILED ITS RETURN OF INCOME ON 18.11.2006 DECLARING A LOSS OF RS.1 17 12 472. THE RETURN WAS PROCESSED UNDER SEC. 143(1) BUT SUBS EQUENTLY THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICES UNDER SEC. 143(2) AND 142(1) OF THE INCOME-TAX ACT 1961 ALONGWITH QU ESTIONNAIRE WERE ISSUED. 3 3. DURING THE SCRUTINY OF THE ACCOUNTS IT CAME TO THE NOTICE OF THE ASSESSING OFFICER THAT OFFICIAL LIQUIDATOR OF THE H ON'BLE HIGH COURT OF KARNATAKA FLOATED A TENDER FOR SALE OF 140 ACRES OF LAND OF M/S. NGPF LTD. (GOVERNMENT OF INDIA MINISTRY OF COMPANY AFFAIRS). THE ASSESSEE HAS RAISED AN INTEREST BEARING UNSECURED LOANS OF RS.18 6 CRORES ON 29.11.2005 FROM ITS HOLDING COMPANY I.E. DLF LTD. AND HAS DEPO SITED THE ABOVE AMOUNT OF RS. 186 CRORES ON THE SAME DAY AS EARNEST MONEY IN RESPONSE TO THE TENDER INVITED BY THE OFFICIAL LIQUIDATOR. THE BID HOWEVE R COULD NOT MATERIALIZED AND ULTIMATELY THE AMOUNT OF RS.186 CRORES WAS RETU RNED TO THE ASSESSEE ALONG WITH INTEREST. AN INTEREST OF RS.62 08 333 AF TER DEDUCTING TDS OF RS.13 97 583 WAS GIVEN TO THE ASSESSEE. THE ASSESSE E HAS REMITTED BACK THE MONEY OF HOLDING COMPANY. IT HAS PAID INTEREST OF R S.1 79 37 534 TO M/S. DLF LTD. ON THE ABOVE BORROWINGS AFTER DEDUCTING TD S OF RS.40 25 183. ASSESSING OFFICER FORMED AN OPINION ON THE BASIS OF OBSERVATIONS OF THE AUDITOR THAT ASSESSEE HAS NOT COMMENCED ANY BUSINES S ITS INTEREST INCOME DESERVES TO BE ASSESSED AS INCOME FROM OTHER SOURCE S. IN OTHER WORDS THE ASSESSING OFFICER IS OF THE VIEW THAT THE ASSESSEE HAS NOT COMMENCED ANY BUSINESS ACTIVITY THEREFORE IT IS NOT ENTITLED FO R INTEREST EXPENSES AS CLAIMED BY IT SIMILARLY THE INTEREST INCOME RECEIVED BY TH E ASSESSEE DESERVES TO BE ASSESSED AS AN INCOME FROM OTHER SOURCES AND NOT AS A BUSINESS INCOME. 4 IN THIS WAY ASSESSING OFFICER DISALLOWED THE CLAIM OF ASSESSEE OF ALLEGED INTEREST EXPENSES AMOUNTING TO RS.1 79 37 534. HE A SSESSED THE INTEREST EARNED BY THE ASSESSEE AS INCOME FROM OTHER SOURCES AT RS.62 25 061. 4. DISSATISFIED WITH THE ACTION OF THE ASSESSING OF FICER ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(APPEALS ). IT FILED WRITTEN SUBMISSIONS WHICH HAVE BEEN REPRODUCED BY THE LEARN ED FIRST APPELLATE AUTHORITY IN THE IMPUGNED ORDER. IT WAS CONTENDED B Y THE ASSESSEE THAT THERE IS MATERIAL DIFFERENCE BETWEEN SET UP OF THE BUSINE SS AND COMMENCEMENT OF THE BUSINESS. THE BUSINESS OF THE ASSESSEE MIGHT HA VE NOT BEEN COMMENCED BUT IT HAS BEEN SET UP. THE ASSESSEE POINTED OUT T O THE LEARNED FIRST APPELLATE AUTHORITY THAT IT IS ENGAGED IN THE BUSIN ESS OF REAL ESTATES DEVELOPMENT. THE MOMENT IT PARTICIPATED IN THE TEND ER IT WILL DEMONSTRATE THAT BUSINESS HAS BEEN ACTUALLY COMMENCED. APART FR OM THAT FACTOR IF ASSESSEE HAS STARTED ANY OF THE ACTIVITIES I.E. IDE NTIFYING THE SPACE FOR THE OFFICE ETC. IT WOULD AMOUNT TO SET UP OF THE BUSIN ESS AND THERE CAN BE A GAP BETWEEN THE SET UP OF A BUSINESS AND COMMENCEMENT O F THE BUSINESS. UNDER THE INCOME-TAX ACT 1961 ALL EXPENSES INCURRED AFT ER THE BUSINESS IS SET UP ARE ALLOWABLE EXPENSES IF THE SAME ARE ALLOWABLE O THERWISE AS PER LAW. LEARNED COMMISSIONER TOOK INTO CONSIDERATION ALL TH ESE FACTORS. HE MADE A 5 REFERENCE TO THE DECISION OF HON'BLE DELHI HIGH COU RT IN THE CASES OF INDIAN OIL PANIPAT CONSORTIUM LTD. VS. ITO REPORTED IN 315 ITR 255 TUTICORN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT REPORTE D IN 277 ITR 172 AND CIT VS. BOKARO STEELS LTD. REPORTED IN 236 ITR 315. HE NOTICED THE ARGUMENTS OF THE ASSESSEE AND OBSERVED THAT TENDER FOR LAND DURING THE YEAR DID NOT MATERIALIZED THEREFORE THE BUSINESS OF TH E ASSESSEE OF REAL ESTATES DEVELOPMENT PER SE CANNOT BE SAID TO HAVE COMMENCE D. HE MADE A REFERENCE TO THE AUDITORS REPORT AND HOLD THAT ASS ESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITY IN THE YEAR HOWEVER LEARNED FIR ST APPELLATE AUTHORITY WAS OF THE OPINION THAT EVEN IF ASSESSEE HAS INCOME FROM OTHER SOURCES THEN CORRESPONDING EXPENSES DIRECTLY INTERLINKED TO SUCH INCOME DESERVES TO BE ALLOWED UNDER SEC. 57(III) OF THE ACT. HE FOUND THA T ASSESSEE HAD EARNED INTEREST INCOME OF RS.62 28 333. IT HAS PAID INTERE ST ALSO THUS THERE IS A DIRECT LINK BETWEEN THE INTEREST EXPENSES VIS--VIS THE INTEREST INCOME THEREFORE A SET OFF OF THE INTEREST PAID IS TO BE GRANTED AGAINST THE INTEREST INCOME. IN THIS WAY LEARNED FIRST APPELLATE AUTHOR ITY HAS DETERMINED THE NET LOSS OF RS.1 17 12 472 UNDER THE HEAD INCOME FROM OTHER SOURCES BUT DID NOT PERMIT TO CARRY FORWARD THIS AMOUNT. THE LE ARNED COUNSEL FOR THE ASSESSEE REITERATED HIS CONTENTIONS AS WERE RAISED BEFORE THE LEARNED FIRST APPELLATE AUTHORITY. HE POINTED OUT THAT BUSINESS I NVOLVES A SERIES OF 6 ACTIVITIES AND A BUSINESS CAN BE SAID TO HAVE SET U P ON COMPLETION OF FIRST ACTIVITY IN THE SERIES OF ACTIVITIES. FOR BUTTRESSI NG HIS PROPOSITION HE RELIED UPON THE FOLLOWING DECISIONS: CIT VS. HUGHES ESCORTS COMMUNICATIONS LTD. 311 ITR 253 CIT VS. L.G. ELECTRONICS INDIA LTD. (2006) 282 ITR 554 (DEL.) CIT VS. CLUB RESORTS PVT. LTD. (2000) 287 ITR 552 (MAD.) CIT VS. HERBAL LIFE INTERNATIONAL LTD. 297 ITR 303 (DEL.) SLP DISMISSED BY THE SUPREME COURT IN 297 ITR (ST) 17 (S.C) CIT VS. WHILPOOL OF INDIA LTD. (2009) 318 ITR 347 SARABHAI MANAGEMENT CORPN. LTD. VS.CIT (1976) 102 ITR 25 (GUJ). APPROVED BY THE HON'BLE SUPREME COURT IN 192 ITR 1 51 5. ON THE OTHER HAND LEARNED DR RELIED UPON THE OR DER OF THE ASSESSING OFFICER. 6. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. THE SOLE ISSUE BEFORE US IS WHETH ER ASSESSEE IS ABLE TO DEMONSTRATE THAT ITS BUSINESS IN RESPECT OF REAL ES TATES DEVELOPMENT WAS SET UP DURING THE ACCOUNTING PERIOD RELEVANT TO THIS AS SESSMENT YEAR AND 7 THEREFORE IT IS ENTITLED FOR CARRY FORWARD OF NET BUSINESS LOSS SUFFERED IN THE YEAR. 7. SECTION 2(13) PROVIDES THE DEFINITION OF EXPRESS ION BUSINESS ACCORDING TO WHICH BUSINESS INCLUDES ANY TRADE COM MERCE MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE CO MMERCE OR MANUFACTURE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERRED A LARGE NUMBER OF DECISIONS NOTICED ABOVE. SIMILARLY THE ASSESSING OFFICER HAS MADE A REFERENCE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TU TICORIN ALKALI CHEMICAL & FERTILIZERS LTD. IN VARIOUS AUTHORITATIVE PRONOU NCEMENT OF HON'BLE SUPREME COURT AND HON'BLE HIGH COURT MEANING AND S COPE OF EXPRESSION BUSINESS HAS BEEN PROPOUNDED. IT IS NOT NECESSARY T O RECITE AND RECAPITULATE OF THOSE DECISIONS BUT ON THE STRENGTH OF THEM IT WOULD BE SUFFICE TO SAY THAT WORD BUSINESS HAD A WIDE IMPORT AND IT MEANS AN A CTIVITY CARRIED ON CONTINUOUSLY AND SYSTEMATICALLY BY A PERSON BY THE APPLICATION OF HIS LABOUR AND SKILL WITH A VIEW TO EARN AN INCOME. SECTION 3 OF THE INCOME-TAX ACT 1961 DEFINES PREVIOUS YEAR. PREVIOUS MEANS THE FI NANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR. THE PROV ISO APPENDED TO THIS SECTION FURTHER CONTEMPLATES THAT IN CASE OF A BUSI NESS NEWLY SET UP IN THE SAID FINANCIAL YEAR THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE 8 DATE OF SET UP OF THE BUSINESS. THE EXPRESSION SET UP HAS NOT BEEN DEFINED ANYWHERE IN THE ACT BUT IT IS UNDERSTOOD IN THE COM MON PARLANCE AND HAS BEEN EXPLAINED IN A LARGE NUMBER OF DECISIONS. ACCO RDING TO THE MEANING EXPOUNDED IN THE AUTHORITATIVE PRONOUNCEMENT IF AN ASSESSEE IS IN A POSITION TO DELIVER THE GOODS MEANS THAT THE BUSINESS IS SET UP. ACTUAL DELIVERY IS IMMATERIAL. FOR EXAMPLE IF A PERSON WANTS TO CARRY ON THE BUSINESS OF TRANSPORTATION THE MOMENT HE PURCHASED THE VEHICLE FOR TRANSPORTING THE GOODS AND ARRANGED THE SPACE THEN IT WOULD INDICATE THAT BUSINESS HAS BEEN SET UP IT IS IMMATERIAL WHETHER HE WAS ABLE TO ACT UALLY TRANSPORTED THE GOODS OR NOT. IN THE CASE OF CIT VS. HUGHES ESCORTS COMMU NICATION LTD HON'BLE DELHI HIGH COURT HAS CONSIDERED THIS EXPRESSION AND AFTER REFERRING THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F WESTERN INDIA VEGETABLE PRODUCTS LTD. VS. CIT REPORTED IN 26 ITR 151 HAS OBSERVED THAT HON'BLE BOMBAY HIGH COURT HAS DRAWN A DISTINCTION B ETWEEN THE CONCEPT OF COMMENCEMENT AND SETTING UP OF A BUSINESS. HON'BLE DELHI HIGH COURT HAS REPRODUCED THE OBSERVATIONS OF THE HON'BLE MUMBAI H IGH COURT WHICH READ AS UNDER: THE BOMBAY HIGH COURT WHICH WAS IN THIS CASE DEAL ING WITH THE CORRESPONDING PROVISION OF THE INDIAN INCOME-TAX AC T 1922 THEN EXPLAINED THE DISTINCTION BETWEEN THE CONCEPTS OF C OMMENCEMENT AND SETTING UP OF A BUSINESS (PAGES 158 AND 159): 9 IT SEEMS TO US THAT THE EXPRESSION SETTING UP M EANS AS IS DEFINED IN THE OXFORD ENGLISH DICTIONARY TO PLACE ON FOOT OR TO ESTABLISH AND IN CONTRADICTION TO COMMENCE. THE DISTINCTION IS THIS THAT WHEN A BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS THEN IT CAN BE SAID OF THAT BUSINESS THAT IT IS SET UP. BUT BEFORE IT IS READY TO COMMENCE BUSINESS IT IS NOT SET UP. BUT TH ERE MAY BE AN INTERREGNUM THERE MAY BE AN INTERVAL BETWEEN A BUS INESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED AND ALL EXPENS ES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND BEFORE THE COMME NCEMENT OF THE BUSINESS ALL EXPENSES DURING THE INTERREGNUM WOUL D BE PERMISSIBLE DEDUCTIONS UNDER SEC. 10(2). 8. ADVERTING TO THE FACTS OF PRESENT CASE WE FIND THAT BUSINESS OF ASSESSEE IS DEVELOPMENT OF REAL ESTATES. IT HAS PAR TICIPATED IN A TENDER FLOATED BY THE OFFICIAL LIQUIDATOR KARNATAKA HIGH COURT. TO OUR MIND THE PARTICIPATION IN THE TENDER IS STARTING OF ONE ACTI VITY WHICH ENABLE THE ASSESSEE TO ACQUIRE THE LAND FOR DEVELOPMENT. THE A CTUAL DEVELOPMENT OF THE LAND IS IMMATERIAL FOR CONSTRUING THAT BUSINESS OF THE ASSESSEE HAS BEEN SET UP. THE REVENUE AUTHORITIES HAVE ERRED IN NOT APPRE CIATING THESE FACTS RATHER CONSIDERING THE CONCEPT WHETHER THE ASSESSEE HAS A SURPLUS FUND WHICH HAS BEEN INVESTED BY IT AND IT HAD EARNED INTEREST INCO ME ON SUCH FUNDS. THE INVESTMENT OF RS. 186 CRORES WAS NOT AS A DEPOSIT O UT OF SURPLUS FUND RATHER IT WAS EARNEST MONEY PAID BY THE ASSESSEE FOR THE P URCHASE OF LAND. THUS 10 ASSESSEE HAS DEMONSTRATED THAT ITS BUSINESS WAS SET UP DURING THE ACCOUNTING PERIOD RELEVANT FOR THIS ASSESSMENT YEAR. THE OBSER VATIONS OF THE AUDITOR ARE WITH REGARD TO COMMENCEMENT OF BUSINESS AND NOT SET UP OF THE BUSINESS. IN THE LIGHT OF PARTICIPATION IN THE TENDER SUCH OBSER VATIONS WOULD NOT BE A DECISIVE FACTOR. THUS CONSIDERING THE FACTS AND CI RCUMSTANCES WE ARE OF THE OPINION THAT INCOME OF THE ASSESSEE HAS TO BE ASSES SED UNDER THE HEAD BUSINESS INCOME AND CONSEQUENTLY LOSS COMPUTED BY THE LEARNED FIRST APPELLATE AUTHORITY AT RS.1 17 12 473 DESERVES TO B E PERMITTED FOR CARRY FORWARD. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED AND THAT OF THE REVENUE IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 30.11.201 1 SD/- SD/- ( K.D. RANJAN ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30/11/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR