Nadish Real Estate Pvt. Ltd., New Delhi v. DCIT, New Delhi

ITA 4516/DEL/2010 | 2006-2007
Pronouncement Date: 08-07-2011 | Result: Dismissed

Appeal Details

RSA Number 451620114 RSA 2010
Assessee PAN AACCN2671D
Bench Delhi
Appeal Number ITA 4516/DEL/2010
Duration Of Justice 8 month(s) 27 day(s)
Appellant Nadish Real Estate Pvt. Ltd., New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 08-07-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 08-07-2011
Date Of Final Hearing 05-07-2011
Next Hearing Date 05-07-2011
Assessment Year 2006-2007
Appeal Filed On 12-10-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `E: NEW DELHI BEFORE SHRI C.L.SETHI JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T. A. NO.4516/DEL/2010 ASSESSMENT YEAR : 2006-07 NADISH REAL ESTATE PVT. LTD. DY. COMMISSIONER OF INCOME-TAX 1-E NAAZ CINEMA COMPLEX VS. CIRCLE 13(1) NEW DE LHI. JHANDEWALAN EXTENSION NEW DELHI. PAN: AACCN2671D (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRADEEP DINODIA ADVOCATE. RESPONDENT BY: SMT. SRUJANI MOHANTY SR. DR. O R D E R PER C.L. SETHI JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 1 0.08.2010 OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FOR TH E ASSESSMENT YEAR 2006-07. 2. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL IS AS UNDER:- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LEARNED CIT(APPEALS) HAS ERRED IN LAW IN HOLDIN G THAT THE APPELLANT HAS NOT SET UP ITS BUSINESS DURING THE PR EVIOUS YEAR AND HENCE CONFIRMING THAT THE DISALLOWANCE OF ADMIN ISTRATIVE EXPENSES AMOUNTING TO RS.38 86 482/- CLAIMED BY THE APPELLANT. 2 3. THE ASSESSEE FILED RETURN OF INCOME ELECTRONICAL LY (E-RETURN) ON 28.11.2006 DECLARING A LOSS OF RS.38 86 482/-. TH E CASE WAS SELECTED FOR SCRUTINY. NOTICE U/S 142(1) AND 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEES AUTHORIZED REPRESENTATIVE S ATTENDED THE ASSESSMENT PROCEEDINGS AND FILED VARIOUS DETAILS AS CALLED FOR BY THE ASSESSING OFFICER. BOOKS OF ACCOUNTS WERE ALSO PRO DUCED AND EXAMINED ON TEST-CHECK BASIS. ON EXAMINATION OF THE PROFIT AND LOSS ACCOUNT IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD DEBITED EXP ENSES OF RS.38 91 002/- UNDER DIFFERENT HEADS. NO BUSINESS ACTIVITY WAS RE FLECTED IN THE PROFIT & LOSS ACCOUNT. THE AO THEREFORE ASKED THE ASSESSEE TO S HOW CAUSE AS TO WHY THE EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT BE NO T DISALLOWED AS THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION. IN RESPONSE THERETO THE ASSESSEE S UBMITTED A REPLY DATED 20.10.2008 BY SUBMITTING THAT DURING THE RELEVANT Y EAR THE ASSESSEE COMPANY HAD BORROWED AN INTEREST BEARING LOAN AND H AS PAID ADVANCE FOR PURCHASE OF LAND AMOUNTING TO RS.39 65 000/- AND S INCE THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY HAS BEEN COMMENCED BY MAKING ADVANCE FOR PURCHASE OF LAND ALL THE EXPENSES INCURRED DUR ING THE YEAR ARE ALLOWABLE U/S 36(1)(III) AS REVENUE EXPENDITURE. THE ASSESSE E PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DC IT VS. CORE HEALTH 3 CARE LTD. (2008) 298 ITR 194. THE SUBMISSION OF TH E ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO. THE AO STATED THAT IN THE CASE OF CORE HEALTH CARE LTD. (SUPRA) THE ASSESSEE HAD PURCHASED NEW M ACHINES WITH THE BORROWED FUNDS BUT THE SAME COULD NOT PUT TO USE. THE INTEREST PAID ON THE BORROWED FUND WAS ALLOWED AS DEDUCTION AS THE AMOUN T WAS UTILIZED FOR THE PURPOSE OF BUSINESS. HOWEVER IN THE ASSESSEES CA SE THE ASSESSEE HAD TAKEN LOAN OF RS.28 CRORES FROM DLF ON 2.02.2006 AND 11.0 2.2006 AND REFUND THE SAME ON 28.03.2006. THE AO FURTHER NOTED THAT THE PURPOSE FOR WHICH THE INTEREST BEARING LOAN WAS TAKEN FROM DLF REMAINED U N-SUBSTANTIATED. THE AO THEREFORE DISALLOWED THE ASSESSEES CLAIM OF E XPENSES AMOUNTING TO RS.38 86 482/- AND DETERMINED THE ASSESSEES TOTAL INCOME AT `NIL. 4. ON AN APPEAL THE LEARNED CIT(A) CONFIRMED THE A OS ORDER BY HOLDING THAT THE ASSESSEE HAD NOT YET SET UP ITS BU SINESS DURING THE YEAR UNDER CONSIDERATION. THE CIT(A) ALSO OBSERVED THAT THOUG H THE ASSESSEE HAD SHOWN ADVANCE FOR PURCHASE OF LAND AMOUNTING TO RS. 39 65 000/- NONE OF THE DEALS FOR PURCHASE OF LAND WERE MATURED AND CHE QUES HAD BEEN RECEIVED BACK AS PER ASSESSEES OWN ADMISSION. SINCE BUSINE SS HAD NOT BEEN SET UP DURING THE YEAR UNDER CONSIDERATION THE LEARNED CI T(A) HELD THAT THE ASSESSEE IS NOT ENTITLED FOR ITS CLAIM OF EXPENSES AS SHOWN IN THE PROFIT & LOSS ACCOUNT. THE LEARNED CIT(A) FURTHER OBSERVED THAT THESE EXPENSES ARE 4 REQUIRED TO BE CAPITALIZED FOR INCOME-TAX PURPOSES. RELEVANT PORTION OF THE CIT(A)S ORDER IS EXTRACTED BELOW FOR READY REFEREN CE:- 3.3 XX XX XX XX XX XX XX XX XX AFTER GOING THROUGH THE ABOVE I DO NOT AGREE WITH THE LD. AR THAT EXPENSES ARE REQUIRED TO BE ALLOWED DURING THE YEAR UNDER CONSIDERATION AS THE BUSINESS HAD NOT BEEN SET UP S O FAR. THE PROFIT AND LOSS ACCOUNT REVEALED THAT THE APPELLANT HAD NOT EARNED ANY INCOME. EXPENDITURE AS REFLECTED IN PR OFIT & LOSS ACCOUNT CONSISTED OF INTEREST ON 9% DEBENTURES IN TEREST ON LOAN FROM M/S. DLF UNIVERSAL LTD. BANK CHARGES FE E AND TAXES AUDIT FEE AND PRELIMINARY EXPENSES. THE APP ELLANT HAD NEITHER TAKEN ANY PREMISES ON RENT OR ON OWNERSHIP BASIS FROM WHERE IT CAN START ITS BUSINESS ACTIVITIES NOR EMPL OYED ANY STAFF IN THE YEAR UNDER CONSIDERATION. THE GROSS BLOCK A S PER BALANCE SHEET AS ON 31.03.2006 SHOWS `NIL BALANCE THOUGH THE APPELLANT COMPANY HAS BEEN STATED TO BE IN THE BUSI NESS OF REAL ESTATE. WITH ABOVE FACTS IN VIEW I AM OF THE VIEW THAT THE APPELLANTS BUSINESS HAS NOT BEEN SET UP DURING THE YEAR UNDER CONSIDERATION THOUGH THE APPELLANT HAD SHOWN ADVANC E FOR PURCHASE OF LAND AMOUNTING TO RS.39 65 000/-. IT I S TO BE NOTED THAT AS PER ARS OWN ADMISSION NONE OF THE DEALS FOR PURCHASE OF LAND HAVE MATURED AND THE CHEQUES HAD BEEN RECEI VED BACK. AS THE BUSINESS HAD NOT BEEN SET UP DURING THE YEAR UNDER CONSIDERATION HENCE THE APPELLANT IS NOT ENTITLED FOR ITS CLAIM OF EXPENSES AS SHOWN IN PROFIT AND LOSS ACCOUNT. IN F ACT THESE EXPENSES ARE REQUIRED TO BE CAPITALIZED FOR INCOME- TAX PURPOSES. IT IS FURTHER OBSERVED THAT THE RATIO OF THE CASE L AW OF CIT VS. SARABHAI MANAGEMENT CORPORATION LTD. (SUPRA) IS OF NO HELP TO THE APPELLANT AS IT WAS HELD BY THE HONBLE SUPREME COURT THAT IN THE CASE OF A COMPANY FORMED FOR LEASING OF PROP ERTY IT COULD NOT BE SAID THAT THE BUSINESS WAS NOT SET UP TILL T HE FIRST LEASE TOOK PLACE; THE EARLIER PART OF THE ACTIVITIES NAM ELY ENGAGING STAFF BUYING THE EQUIPMENT AND MAKING THE STAFF FA MILIAR WITH THE SAEM ARE ALL PART OF THE BUSINESS AND THE BUSIN ESS CAN BE SAID TO BE SET UP EVEN EARLIER. HERE AS MENTIONED EARLIER THE 5 APPELLANT IS FOUND TO HAVE NOT ENGAGED ANY STAFF AN D/OR TAKEN ANY PREMISES TO CARRY OUT ITS BUSINESS ACTIVITIES. THE FACTS OF THE CASE LAW OF TETRON COMMERCIAL LTD. (SUPRA) IS A LSO NOT APPLICABLE AS IN THAT CASE THE ASSESSEE WAS ENGAGE D IN THE BUSINESS OF REAL ESTATE AND USED BORROWED FUNDS FOR ACQUIRING IMMOVABLE PROPERTY TO BE USED IN THE BUSINESS OF RE AL ESTATE. IT WAS HELD THAT THE INTEREST ON BORROWED FUNDS WAS DE DUCTIBLE U/S 36(1)(III) SINCE IT IS NOT RELEVANT AS TO WHETHER T HE FUNDS WERE USED FOR CAPITAL EXPENDITURE OR FOR REVENUE EXPENDI TURE. SIMILARLY THE CASE LAW OF DCIT VS. CORE HEALTH CAR E LTD. (SUPRA) IS ALSO NOT APPLICABLE AS THE FACTS ARE DIS TINGUISHABLE FROM THE PRESENT CASE. 5. HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. DURING THE YEAR THE ASSESSEE HAD TAKEN LOAN FROM DL F UNIVERSAL LTD. ON WHICH INTEREST HAS BEEN PAID. THE ASSESSEE HAS CL AIMED THAT THE ASSESSEE HAD ADVANCED THE AMOUNT TO LAND OWNERS FOR PURCHASE OF LAND WHICH GOES TO SHOW THAT THE ASSESSEE HAS SET UP ITS BUSINESS OF P URCHASING LAND OR OTHER PROPERTY FOR DEVELOPING THE SAME BY CONSTRUCTING TH EREUPON RESIDENTIAL OR COMMERCIAL COMPLEX ETC. BUT THE ASSESSEE HAS NOT PR ODUCED ANY COPY OF SALE AGREEMENT ALLEGEDLY ENTERED INTO WITH THE LANDLORD. IT IS THE ASSESSEES OWN CASE THAT THE AGREEMENT TO PURCHASE LAND WAS NOT MA TERIALIZED AND THE CHEQUES ISSUED TO SOME OF THE LAND OWNERS WERE CANC ELLED. IT IS THUS CLEAR THAT THE ASSESSEE HAD NOT ACQUIRED ANY LAND FOR THE PURPOSE OF ITS BUSINESS OF DEVELOPING AND CONSTRUCTING PROPERTY. IN THE CASE OF SARABHAI MANAGEMENT CORPORATION LTD. VS. CIT (1991) 192 ITR 151 (SC) T HE HONBLE APEX COURT 6 HAS EXPLAINED THE STAGE WHEN THE ASSESSEE ENGAGED I N THE BUSINESS OF REAL ESTATE DEVELOPMENT WILL BE DEEMED TO HAVE SET UP IT S BUSINESS. IT WAS HELD THEREIN THAT IN THE BUSINESS OF REAL ESTATE DEVELOP MENT FOLLOWING ACTIVITIES ARE INVOLVED:- (1) FIRST BUSINESS ACTIVITY IS TO ACQUIRE EITHER BY PUR CHASE OR BY ANY OTHER MANNER IMMOVABLE PROPERTY. (2) SECOND CATEGORY OF BUSINESS ACTIVITY IS TO PUT THE IMMOVABLE PROPERTY IN PROPER SHAPE SO THAT IT CAN BE GIVEN ON LEASE OR LICENCE BASIS. (3) THIRD CATEGORY IS ACTUALLY TO GIVE THE SAID DEVELOP ED PROPERTY ON LEASE ETC. 7. IN ORDER TO HOLD THAT THE BUSINESS OF REAL ESTAT E DEVELOPMENT HAS BEEN SET UP THE ASSESSEE SHOULD HAVE STARTED THE FIRST ACTIVITY TO ACQUIRE EITHER BY PURCHASE OR BY ANY OTHER MANNER IMMOVABLE PROPERTY. IN THE PRESENT CASE THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT TH E ASSESSEE HAS ACQUIRED ANY PROPERTY FOR THE PURPOSE OF HIS BUSINESS ACTIVITY D URING THE YEAR UNDER CONSIDERATION. MERE SHOWING CERTAIN AMOUNT AS ADVA NCE FOR PURCHASE OF LAND WITHOUT PRODUCING ANY EVIDENCE IN SUPPORT THER EOF CANNOT BE THE BASIS TO HOLD THAT THE ASSESSEE HAD STARTED THE ACTIVITY OF ACQUIRING BY WAY OF PURCHASE ANY PROPERTY FOR THE PURPOSE OF HIS BUSINE SS. THE AMOUNT CLAIMED TO HAVE BEEN ADVANCED BY THE ASSESSEE HAS NOT BEEN ENCASHED BY THE ALLEGED SELLER BUT THE CHEQUES ISSUED TO THEM WERE ULTIMATE LY CANCELLED. THE ASSESSEE HAS NOT PRODUCED ANY AGREEMENT TO SELL ENT ERED INTO BY INTENDED 7 SELLERS TO PROVE THAT THE ASSESSEE HAS ACTUALLY ENT ERED INTO A LEGAL CONTRACT OF PURCHASING THE LAND FROM THE LAND OWNERS. THEREFOR E THE ASSESSEES STAND THAT THE ASSESSEE HAD ADVANCED THE MONEY FOR PURCHA SE OF LAND IS NOT SUBSTANTIATED BY EVIDENCES AND IT IS THUS REJECTE D. SINCE THE ASSESSEE HAD NOT STARTED FIRST BUSINESS ACTIVITY OF ACQUIRING EI THER BY PURCHASE OR BY ANY OTHER MANNER ANY IMMOVABLE PROPERTY FOR DEVELOPMENT IN THE COURSE OF ASSESSEES BUSINESS ACTIVITY IT CANNOT BE SAID THA T THE ASSESSEES BUSINESS OF REAL ESTATE DEVELOPMENT HAS ACTUALLY BEEN SET UP. WE ARE THEREFORE OF THE CONSIDERED VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY CONFIRMED THE AOS ORDER IN DISALLOWING THE ASSESSEES CLAIM OF EXPENS ES AMOUNTING TO RS.38 86 482/-. THE LEARNED CIT(A) IS FURTHER JUST IFIED IN HOLDING THAT ALL THESE EXPENSES INCURRED BEFORE THE BUSINESS WAS SET UP ARE TO BE CAPITALIZED. THE ASSESSEE SHALL BE AT LIBERTY TO CAPITALIZE THE EXPENSES TOWARDS ASSETS ACQUIRED IN FUTURE FOR INCOME-TAX PURPOSES AS SO H ELD BY THE LEARNED CIT(A). 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 9. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 8 TH JULY 2011. SD/- SD/- (SHAMIM YAHYA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 8 TH JULY 2011. 8 ITA NO.4516/DEL/2010 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.