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Income Tax Appellate Tribunal, DELHI BENCH “B” BENCH NEW DELHI
Before: SHRI N.K. SAINI & SHRI AMIT SHUKLA
PERAMIT SHUKLA, JUDICIAL MEMBER: The appeal in has been filed against order dated 31.3.2016,passed by the Learned CIT(Appeals)-1, Noida for the quantum of assessment passed u/s 143(3) r.w.s. 147 for the A.Y. 2006-07; whereas the appeal in ITA No. 4861/Del/2016 has been has been preferred against order dated 19.6.2016, passed by Page 1 of 7 the Learned CIT(Appeals)-1, Noida levying penalty u/s 271(1)(C) for the same A.Y. 2006-07.
We will first take up the quantum appeal being ITA No. 3101/Del/2016. In the grounds of appeal
various grounds have been raised, however the Learned counsel for the assessee submitted that she is pressing only ground no. 3 which reads as under:-
3. That, in view of the facts and circumstances, the ld. CIT (A) has erred in law and on facts in making, the enhancement of Rs. 35,17,108/- to the income of the appellant, which is purely illegal, bad in law and based on surmises and conjectures.”
Since only the aforesaid ground has been argued and pressed before us, therefore, all other issues raised in the various grounds of appeal are dismissed as not pressed.
4. At the stage of the assessment, the main dispute of the assesse and the Assessing Officer was with regard to the status of the assessee authority, as to whether it is a local authority or not. The ld. Assessing Officer held that the assessee’s status should taken as ‘Artificial Juridical Person’ (AJP) under the provisions of the Income Tax Act and not local authority as claimed by the assessee, hence it is liable to be taxed. The Assessing Officer has assessed the income of the assessee at Rs. 14,75,758/-,which includes surplus amount of Rs. 6,80,737/- and disallowance of various expenses made u/s 40(a)(ia) of Rs. 7,95,021/-. In the first appellate proceedings, the Learned CIT(Appeals), upheld the order of the Assessing Officer and also confirm the entire assessment/additionmade him. Thereafter, the Ld. CIT (A) on the perusal of the balance sheet and the income and expenditure account noted that the assessee has not yet commenced its business activities and therefore, it is not entitled to claim any expenses as revenue expenditure, albeit all the expenses should have been capitalized. In support of his view, he strongly relied upon the decision of Hon’ble Supreme Court in the case of Tutikorin Alkali Chemicals and Fertilizers Ltd. vs. CIT (1997) 227 ITR 172and hence notice of enhancement was issued by the Learned CIT (Appeals) u/s 251(1)(a) requiring the assessee to show cause as to why the entire receipts of Rs. 49,92,866/- should not be treated as taxable income. In response, the assessee furnish various details including tax deducted on salary, house rent payment made to contractors etc. and how all the expenses debited are revenue in nature. However, the Ld. CIT(Appeals) held that, since the assessee has not commenced its business activity, therefore, the entire receipt of Rs. 49,92,866/- is treated as income of the assessee and the entire expenses debited to the income and expenditure of account should be disallowed as same are pre-operative expenses which needs to be capitalized.
Before us the Learned Counsel, Ms. Raj Rani Lakra, submitted that the assessee was very much engaged in the activities as was required under the Statutory Act under which assessee authority was established and its business operation had commenced in the earlier years only. She drew our attention to income and expenditure account placed in the paper book at page 23 and pointed out that the assessee has shown lease rental income of Rs. 20,109/- on the land allotted by the assessee to the allottees, which is one of the part Page 3 of 7 of its functions, that is, to allocate and transfer either by way of sale on lease or otherwise plots of land of industrial, commercial or residential purposes. Thus, expenditure debited to the income and expenditure account cannot be treated as pre-operative expenses. Hence the same should be allowed.
On the other hand, the ld. DR strongly relied upon the order of the CIT(A) and submitted that the receipt of Rs. 49,92,866/- which has been enhanced by the Ld. CIT(Appeals) should be confirmed because, the expenditure debited does not show that these expenses relates to business operation of the assessee during the year. Hence, the entire expenses has rightly been held as pre-operative.
We have heard the rival submissions on the limited issue of enhancement made by the Ld. CIT(Appeals), whereby he has enhanced the assessed income from Rs. 14,75,758/- to Rs. 49,92,866/-. The assessee is “Yamuna Expressway Industrial Development Authority” which has been constituted under ‘Uttar Pradesh Industrial Area Development Act 1976’ and one of the functions performed under the Act, besides several others is as under:- “(f) to allocation and transfer either by way of sale or lease or otherwise plots of land for industrial, commercial and residential purposes.”
On a perusal of income and expenditure account of assessee, it is seen that assessee has shown income by way of lease rent which is in pursuance of aforesaid function only and interest income from FDRs. The lease rent is part of its operation carried out by it and Page 4 of 7 therefore, it cannot be reckoned that the assessee had not commenced its business operations. From a perusal of the nature of the expenses debited to the income and expenditure account, it is seen that they are routine expenses like salary, electricity, telephone, travelling, vehicle running and maintenance, securities expenses, depreciation, house rent, computer expenses, office expenses, legal expenses, etc., which are normal business expenditurewhich needs to be allowed. Pre-operative expenditure alludes to the expenses before starting of manufacturing activities or before commencement of business. Commencement of business does not mean day to day business operations but setting up of business and starting of the activities. The Learned CIT (Appeals) has not brought on record as to how it can be said that the business operation of the assessee had not commenced or the assessee has not started its business activity, especially when there is no dispute regarding this in the earlier year. Thus, we are unable to agree with the finding of the Learned CIT (Appeals) that the assessee has not commenced his business activity and therefore, the entire expenditure debited needs to be capitalized. Accordingly, enhancement made by the Learned CIT (Appeals) on this ground is set aside and the income assessed by the Assessing Officer is restored.
Accordingly, ground no. 3 as raised by the assessee is allowed.
Now we will take up the appeal in 271(1)(c) by the Learned CIT(Appeals) on the income enhanced by him. Since, we have already set aside/deleted the enhancement made by Learned CIT(Appeals) in the quantum proceedings, therefore, the levy of penalty u/s 271© on Page 5 of 7 the enhancement income has no legs to stand and the same is directed to be deleted. Thus, the appeal of the assessee is allowed.
In the result, the quantum appeal of the assessee in is partly allowed; and penalty appeal in is allowed.
Order pronounced in the open court on 21.04.2017.