FAMILY REALTORS PVT. LTD.,,NEW DELHI vs. ITO, NEW DELHI

ORDER

Per L.P. Sahu, ACCOUNTANT MEMBER:

“1. That the Ld. CIT (A) has erred both in law and on facts of the case in sustaining the disallowance of expenses made by the Assessing Officer of Rs. 95,474 on the grounds that appellant has not set-up his business and not commenced any commercial activities during the year.

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2. That the Ld. CIT (A) has erred both in law and on facts of the case in dismissing the appeal of the appellant company on the ground that the appellant has purchased agricultural land in Delhi and no step was taken by the appellant to convert this Agricultural land into Non Agricultural Land. The Ld. CIT (A) failed to appreciate that purchase of agricultural land in itself is first step towards commencement of real estate business and whether appellant has taken steps towards its conversion or not is irrelevant in determining the question under appeal i.e. whether appellant has commenced the business or not during the year.

3. That the finding of the Ld. CIT (A) that the appellant company had not shown any inventory in the Balance Sheet is perverse to the facts of the case. This can be easily noted from the fact that Appellant has shown the purchase of agricultural land as its Inventory of goods in the duly Audited Balance Sheet for the year since its inception. The accounting treatment of agricultural land as inventory was explained at the time of assessment proceedings to Ld. AO as well as to Ld. CIT (A). It is information available on records. The Ld. CIT (A) has failed to appreciate the fact that the purchase of agricultural land is shown as stock of goods and failed to note that the net effect of opening and closing stock is very much reflected in Schedule 'C'- Current assets and loans and advances Inventories (valued at cost) of the audited Balance Sheet as at 31 March, 2009.”

ITA No. 5241/Del./2012 4 S.No. Description of Expenditure Amount (Rs. 1 E-Filing of Annual Return 3,933 2 Inspection of Revenue Records 1,000 3 Accounting, secretarial and Taxation Service charges 66,180 4 Audit Fee 19,303 5 ROC filing fee 600 6 Preliminary expenses written off 4,238 Total 95,474 These expenses have a direct link with the procurement of land during the year under consideration. As per note 02 of the “notes to the accounts”, it has been stated that “stock in trade consists agricultural land is valued at cost including stamp duty, brokerage and other direct expenses incurred/attributed on its purchase.” In view of this accounting policy, the expenses incurred on legal and professional charges should have been included in the value of “land cost” in absence of any other activity during the year. The ld. AO after relying on some case laws, disallowed the expenses claimed by the assessee. Aggrieved by the addition, the assessee appealed before the first appellate authority. The assessee made detailed written submissions before the first appellate authority and he also relied on some case laws. The Ld. CIT(A) after considering the submissions of the assessee and order of the assessing officer, observed as under :

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“However, it is seen that no step has been taken by the appellant to get this agricultural land as nonagricultural land for developing the sale into real estate project. It is a known fact that real estate project cannot be started on agricultural land. Therefore, it cannot be said that appellant has commenced or set-up his business activity. Hence, the decision of the assessing officer that appellant has not set up his business and has not commenced any commercial activity is upheld”.

Aggrieved by this order the assessee is in appeal before the ITAT.

ITA No. 5241/Del./2012 6 activities but has suffered loss during the year. He further submitted that the Ld. assessing officer has rejected the reply of appellant while explaining the query as to why the business expenditure incurred should not be disallowed. The Ld. assessing officer has decided to conclude only on the basis of the fact that the appellant company has not routed its closing stock through profit and loss account and has directly taken the same the current assets in the balance sheet. He further submitted that out of business expenses of Rs. 95,474/- the amount of Rs. 71,333/- has been incurred directly with the procurement of land during the year under consideration. In fact, these expenses of Rs. 71333/-relate to administration expenses like accounting charges, secretarial charges and taxes and charges for the company. Out of Rs.71333/-, Rs. 66180/- is on account of fee payable for rendering accounting as well as Secretariat service and remaining expenses are towards fee for documents filed with Registrar of companies, Delhi and NCT which are clearly in the nature of indirect expenses. Hence these are not directly related to the purchase of land. All the cost which were directly attributed for the purchase of land has been considered by the ITA No. 5241/Del./2012 7 appellant directly in its cost of land. He further relied on the judgements as relied before the Ld. CIT(A).

ITA No. 5241/Del./2012 8 S.No. Assessment year Area (in acres) Cost of land (Rs.) 1. 2008-09 12.96 41,27,35,581/- 2. 2009-10 1.59 5,03,89,329/- Total 14.55 46,31,24,910/- The notes to accounts prepared by the assessee company in respect of accounting policies adopted which are the integral part of the financial statements, clearly say that stock in trade consist of agricultural land and is valued at cost including stamp duty, brokerage and other direct expenses incurred/attributed on its purchase. The assessee company has started his business from the last years. It is clear from the financial statements prepared by the assessee that no sales have been undertaken by the assessee during this financial year. The assessee has not shown the purchase made during the year in the profit and loss account, which will not affect profits of the company because there is no any revenue generated during this year but this procedure seems to be not correct. The only administrative expenditures have been debited into the profit and loss account which were necessary for the company. The Ld. assessing officer has not doubted any expenditures incurred by the assessee. In case of private limited company there is no requirement to obtain any certificate of commencement of business from the Registrar of ITA No. 5241/Del./2012 9 companies as per Companies Act 1956. We are, therefore, inclined to accept the version of the assessee.