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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
ORDER Per N. K. Saini, AM: These two appeals by the assessee are directed against the separate orders each dated 26.11.2012 of ld. CIT(A)-XXXIII, New Delhi.
2. Since the issues involved in these appeals are common which were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity. & 650/Del/2013 2 Malti Builders Pvt. Ltd.
3. At the first instance, we will decide the appeal in 2008-09. Following grounds have been raised in this appeal: “1. BECAUSE the "CIT(A)" has erred in law and on facts in upholding the denial of 'appellant's claim for business loss of Rs. 13,12,408/- as represented by various expenses particularly after holding that business stood already commenced.
2. BECAUSE the "business loss" of Rs.13,12,408/- (as has been claimed as set off against the income under the head 'Income from House Property') could not have been denied even on the ground that the same was covered by various deductions allowed in the computation of income under the head 'Income from House Property', as such statutory deduction is separately provided for, in the computation of income under section 22 of the Act, under the head 'Income From House Property'.
3. BECAUSE in any case and wholly without prejudice to the contentions put-forth in grounds no. 1 to 2 hereinfore, the sums aggregating Rs.13,12,408/- as had been claimed as business loss, was even liable to be held as expenditure incurred by the appellant in maintaining its "corporate status" and on such a reckoning also, the sums in question was liable to be held as allowable and thereby eligible for set off against other incomes of this very assessment year.
4. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice.” & 650/Del/2013 3 Malti Builders Pvt. Ltd.
4. From the above grounds, it is gathered that the grievance of the assessee relates to the denial of assessee’s claim for business loss of Rs.13,12,408/- against the positive income under other heads.
Facts of the case in brief are that a search and seizure operation was carried out on 20.01.2009 on the business premises of the assessee. Thereafter, a notice u/s 153A of the Income Tax Act, 1961 (hereinafter referred to as the Act) was issued on 11.10.2010. In response, the assessee filed the return of income declaring an income of Rs.24,14,980/- on 12.11.2010. Subsequently, the case was taken up in scrutiny. The AO during the course of assessment proceedings noticed that the assessee had income from house property, dividend and short term capital gains and had set off loss declared under the head business with income from house property. The AO further observed that there was no business activity, so there could not have been business income/loss. He accordingly held that the expenses debited in the profit & loss account including depreciation of Rs.10,50,307/- and finance charges of Rs.2,32,143/- etc. were not eligible for deduction against the rental income declared by the assessee, as benefit of 30% deduction of the annual value, u/s 24 of the Act had already been claimed by the assessee against “income from house property”. Accordingly, the loss under the head business and profession amounting to Rs.13,12,408/- was not allowed to be carried forward or set off against income from house property.
ITA Nos. 649 & 650/Del/2013 4 Malti Builders Pvt. Ltd. 6. Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submission which read as under: “14. By way of grounds of appeal
No. 3.1 to 3.3 and 4.1 to 4.4, appellant has challenged the disallowance of loss of Rs. 13,12,408/- under the head "Income from business".
15. In this relation it is submitted that as the real estate business of the appellant stood already setup, whether there was any business activity during the year or not is not relevant. However, even during the year the appellant had made further advances of Rs. 48,84,085 (2,09,29,361 - 1,60,45,276) towards the purchase of properties. Kind attention is invited to Schedule-7 to Annual accounts, the relevant extract of which is given hereunder: Extract of Schedule-7 to Annual Accounts for the year ending 31-03-2008 "Advance for property Y.E. 31.03-2008 Y.E. 31-03-2007 Lifestyle Buildcon (P) Ltd. 93,00,000 93,00,000 Princeton Realtors (P) Ltd. ------ 18,03,276 Omaxe Ltd.” 1,16,29,361 49,42,000" Therefore, the finding of the Ld. A.O. that "there was no business activity during the year" is wholly erroneous as being contrary to the facts on record.
16. On perusal of records, it will be seen that said loss (as disallowed) is made up of following revenue expenditure: S.No. Head of Expenses Amount
1. Auditor 's Remuneration 9,000 2. Car Maintenance Charges 19,000 3. Finance Charges (Car) 2,32,143 4. Interest paid on IDS 680 & 650/Del/2013 5 Malti Builders Pvt. Ltd. 5. Legal Expenses 1,481 6. Postage Expenses 399 7. Printing & Stationery 1,615 8. Remuneration to Directors 1,50,000 9. Rent paid 1,00,000 10. ROC Filing Fees 3,300 11. Secretarial Audit Fees 1.500 12. Salary to Staff 48,000 13. Preliminary Expenses written off 32,568
14. Depreciation (as claimed in 1TR) 7,12,725 Less: Round off (3) Total Rs. 13,12,408
Further, it is submitted that the appellant had set up its business of dealing in real estates in the year ending 31-03- 2007 itself when it advanced money towards the purchase of shops in the course of its business, therefore the loss under the head 'Income from business' occasioned due to aforesaid expenditure of revenue nature incurred by the assessee company is liable to be allowed while computing income. It is a trite law that once a business has been set up all the expenditure of revenue nature in relation to the said business are allowable as expenditure and the fact that no revenue have started flowing (i.e. sale has not taken place) has no bearing on the allowability of such expenditure. When the facts of the present case are seen, it will be observed that even the A.O. has not disputed the faction of having been set up business by the assessee company. The only objection he has raised is that there is no business activity during the year. In support of the above contention the reliance was placed on the following decisions: (i) Western India Vegetable products Ltd. Vs. CIT (1954) 26 ITR 151 (Bom.)
& 650/Del/2013 6 Malti Builders Pvt. Ltd. (ii) CIT Vs. whirlpool of India Ltd. (2009) 518 ITR 347 (iii) CIT Vs. Ramper Timber Turnery (1981) 129 ITR 58 (All.)”
The ld. CIT(A) after considering the submissions of the assessee confirmed the action of the AO by observing in para 4.3 of the impugned order as under: “I have considered the assessment order, written submission & facts on record. It is undisputed fact that the appellant has declared rent received as the major source of Income apart from small portion of receipt of Dividend from Mutual fund i.e. Rs. 2,17,488 & Rs. 6,046 as short term capital gain on investment. The appellant company is not an investment company as seen from its Memorandum of Association (MOA). Main object as per MOA are as under:- "1. To acquire, buy, purchase for re-sale, sub-lease, exchange, hire or otherwise lands, buildings, real estate of any and every tenure and description or any interest in the same and to construct, re-construct, erect, develop, improve, alter, enlarge, decorate, furnish and maintain buildings, multi-storied and commercial buildings, apartments, houses, bunglows, flats, world class hi-tech township, shops, hotels, restaurants, factories, warehouses, godowns, cinema house, hospitals, nursing homes, colonization, group housing schemes and to deal with and to improve the property of the Company of any other property.
To sell, lease, sub-lease, let, mortgage, exchange or otherwise, dispose off the lands, houses, buildings, apartments, flats, shops and any other property of the Company or others and to sell to builders and other person on security of all descriptions whether real or personal of & 650/Del/2013 7 Malti Builders Pvt. Ltd. any lands, buildings, apartments, properties and conveyances to such persons and on such terms and conditions, as may seem expedient and in particular to the customers and other dealing with the Company and to guarantee the performance of contracts by any such persons.
To carry on the business of builders and contractors for construction of re-enforced concrete, press tressed concrete, dams, bridges, tunnels, air fields, canals, locks, power houses, reservoirs, towers, refineries, and buildings, private or public and all other works or conveyances whatsoever and generally to carry on the business of architects, surveyors, estimators, designers, decorators, wood workers, labour supplier, estate agents, commission agents in all their respective branches.
To apply for tender, purchase, or otherwise acquire any contracts and concessions for or in relation to the construction, execution, carrying out equipment, improvement, management, administration, or control of works and to conveyances and to undertake, execute, carry out, dispose off or otherwise turn to account the same. To sub-let all or any contracts from time to time and on such terms and conditions as may be thought expedient.
5. To act as an agent for purchasing, selling and letting on hire, land, agricultural land and houses whether multi- storied, commercial land or residential buildings on commission basis." A perusal of above objects clearly reveals that the appellant company basically has the object related to real estate which includes building construction, sale & purchase of property & lease/sublease of property acquired. The entire reliance on Judicial pronouncement by Ld. AR is to prove that in instant & 650/Del/2013 8 Malti Builders Pvt. Ltd. case, business Expenses should be allowed as business has commenced though there is no receipt from business activity. In support of its contention, the appellant has given the details of advances given to various person for acquiring space in upcoming real estate project & has stated that the appellant has raised share capital. I agree with the view of Ld. AR that business has commenced. Even Assessing Officer has not doubted the same. Assessing officer has only stated that there is no business activity during the year. A.O. is not questioning the commencement of business. Apparently A.O. is trying to link the allowability of these expense under the head house property income. The appellant company has made investment mainly in commercial complexes & other immovable property amounting to Rs.12,44,06,945 & deriving rental income of Rs.53,16,128 as per Audited Report filed during the appellate proceeding. Therefore, the appellant has started business mainly of leasing of assets which is one of the objects of the appellant company. None of the expense in question is towards the construction business. The Expenses innumerated in para-3 are either Directors remuneration, vehicle Expense including interest on loan for vehicle, Rent paid & Depreciation. Total such expense has been computed at Rs. 13,12,408. The issue in nut shell is allowability of Expense of Rs. 13,12,408. None of these Expense are towards separate business such as independent construction etc. The appellant company is aimed at acquiring property & leasing the same. Some time appellant also sales the property. Therefore, dominant activity of appellant company is leasing of immovable property & getting rent. At least during this year, the appellant's business can be safely said to be leasing of immovable property. The purchase & sale is only incidental ITA Nos. 649 & 650/Del/2013 9 Malti Builders Pvt. Ltd. to this business. This being the situation now the issue is whether appellant company can be given two deduction one under section 24 under 'Income from house property' & another business Expense as stated above. The income derived from the property is assessable under the head 'Income from house property' by virtue of various Judicial pronouncement. Therefore, deduction u/s 24 is a statutory deduction on account of various incidental Expense related to earning of Income. If separate allowance of Expenditure which is in question is allowed. I apprehend that such allowance will amount to double deduction from same set of Income. One on statutory basis u/s 24 without any supporting & other expense on payment/ accrual basis, which is spent for earning same income. Therefore, I conclude that such expense which has been disallowed by the Assessing Officer is correct as Assessing Officer has allowed statutory deduction u/s 24 of I.T. Act. Accordingly, I confirm the addition made by Assessing Officer. This ground of appeal
is dismissed.”
8. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee was running the business and this fact has been accepted by the ld. CIT(A) at page no. 8 of the impugned order wherein it has been categorically stated that the business of the assessee has been commenced and even the AO had not doubted the same. It was contended that the expenses incurred by the assessee were related to the business, so the loss was to be allowed to be set off against the positive income under various other heads as per the provisions of Section 71 of the Act. It was further submitted that for the assessment year 2010-11, & 650/Del/2013 10 Malti Builders Pvt. Ltd. the claim of the assessee was accepted in the regular assessment. A reference was made to page no. 40 of the assessee’s paper book which is the copy of the intimation u/s 143(1) of the Act. The reliance was placed on the decision of the ITAT Delhi Bench “B”, New Delhi in the case of DCIT Vs Fortune Garments Ltd. (2011) 7 ITR (Trib.) 243 (Del.) wherein it has been held that when the assessee company was neither dissolved nor its business was closed and was holding regular meeting of its directors and also filing the return, the expenses claimed by the assessee were allowable.
9. In his rival submissions the ld. DR strongly supported the orders of the authorities below and further submitted that the assessee was not having business income and there was no business activity. Therefore, the loss claimed under the head business could not have been settled against the other income and the AO rightly disallowed the same. It was further submitted that the res judicta is not applicable in the income tax matters and, even if the claim of the assessee was accepted for the assessment year 2008-09 in the intimation issued u/s 143(1) of the Act. It cannot be said that the claim of the assessee for the subsequent year was valid.
10. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is not in dispute that the assessee was involved in the real & 650/Del/2013 11 Malti Builders Pvt. Ltd. estate business which was already set up. The assessee incurred the expenses amounting to Rs.13,12,408/- in its regular course of business but there was no positive income under the head “business and profession”. Therefore, there was a loss of Rs.13,12,408/-, the said loss was claimed to be set off by the assessee against the income earned under different heads. The ld. CIT(A) also accepted in the impugned order at page no. 8 that the business of the assessee had already commenced and the same was not doubted by the AO. The aforesaid relevant observations by the ld. CIT(A) read as under: “I agree with the view of Ld. AR that business has commenced. Even Assessing Officer has not doubted the same. Assessing Officer has only stated that there is no business activity during the year.”
11. From the above narrated facts, it is clear that the business of the assessee had already commenced and even in the intimation issued by the department u/s 143(1) of the Act, the loss claimed by the assessee to be set off against the positive income was accepted which is evident from the acknowledgment of the Income Tax Returns and computation of income placed at page nos. 26 & 27 respectively of the assessee’s paper book. In the present case, it is clear that business of the assessee had already commenced and there was loss under the head “business & profession”. So, it could have been set off against the positive income as per the provisions contained u/s 71(2) of the Act which read as under: & 650/Del/2013 12 Malti Builders Pvt. Ltd. “(2) Where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head "Capital gains" (whether relating to short-term capital assets or any other capital assets).” 12. From the aforesaid provisions, it is clear that if in any of the assessment year, the net result of computation under any head of income, other than capital gain is a loss and the assessee has no income under the head capital gains. He shall be entitled to have the amount of such loss set off against his income, if any, assessable under any head of income including the head capital gains. In the present case, the assessee was having positive income of Rs.37,21,290/- under then head “income from house property”, Rs.6,096/- under the head “short term capital gains”. Therefore, the loss under the head “business or profession” was to be set off against the positive income under other heads of income. We, therefore, considering the totality of the facts as discussed hereinabove, set aside the impugned order passed by the ld. CIT(A) and direct the AO, to allow the claim of the assessee for setting off the business loss against the income earned under other heads during the year relevant to the assessment year under consideration.
ITA Nos. 649 & 650/Del/2013 13 Malti Builders Pvt. Ltd. 13. In for the assessment year 2009-10, the facts are identical as were involved in the assessment year 2008-09, the only difference is in the figures involved. Therefore, our findings given in respect of assessment year 2008-09 in the former part of this order shall apply mutatis mutandis for the assessment year 2009-10.
In the result, the appeals of the assessee are allowed. (Order Pronounced in the Court on 22/06/2017)