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Income Tax Appellate Tribunal, ‘C’ BENCH, MUMBAI
Before: SHRI G.S. PANNU, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-22, Mumbai, dated 30.01.2014, which in itself arises from the assessment order passed by the A.O u/s. 143(3) of the Income tax Act, 1961, (for short „Act‟), dated 31.12.2012. The P a g e | Panchkutir Developers Vs. DCIT assessee assailing the order of the CIT(A) had raised the following grounds of appeal before us:-
“Being aggrieved by the order passed by the learned Commissioner of Income tax (Appeals)-22 [CIT(A)], Mumbai, the Assessee/Appellant is in appeal on following amongst the other grounds.
1. On the facts and in the circumstances of the case and in law, the learned CIT(A)-22 erred in a holding that assessee has not commenced its business during the year.
2. On facts and in the circumstances of the case and in law, the ld.CIT(A)-22 erred in: a) Observing and in absence of any revenue/business receipts, business of the appellant has not commenced. b) Observing that no evidence was produced to explain the exact nature of Liasoning activity carried on by NSS Associates and recording that in absence of clarity on submission of proposal before Slum Redevelopment Authority (SRA), that the contention of appellant that business has commenced cannot be accepted. c) Holding mere payment of advance towards purchase of land does not amount commencement of business. d) In disallowing Finance Cost and treating it as capital expenditure and directing it to add to CWIP since business activity of the appellant has not commenced. e) Disallowance of employee cost, administrative and other expenses; f) In holding that purchase of land alone does not amount to commencement of business inspite of favorable decisions produced on the subject; 3. All above grounds of appeal are without prejudice to one another. The appellant craves leave to add to, alter, amend, modify or delete any or all of the grounds of appeal raised as above.”
Briefly stated, the facts of the case are that the assessee company which is engaged in the business of developing/constructing real estate for residential and retail area had filed its „return of income‟ for A.Y. 2010-11 on 25.08.2010, declaring loss of Rs. 2,52,04,755/-. The „return of income‟ filed by the assessee was processed as such u/s 143(1) of the „Act‟. The case of the assessee was thereafter taken up for scrutiny assessment and a notice u/s 143(2) was issued and duly served upon it.
P a g e | Panchkutir Developers Vs. DCIT
The assessee in the course of its business had purchased a large tract of land which was covered by slums in Village Hariyali, Taluka :Kurla, Vikhroli (E), Mumbai from Hindustan Construction Co. Ltd. (HCCL), vide deed of conveyance, dated. 30.06.2008. Thereafter the assessee entered into an agreement with M/s NSS Accociates, dated 02.12.2009 for the purpose of liaisoning with Slum Rehabilitation Authority (for short „SRA‟) to get the final approval for redeveloping the aforesaid land which was in occupation of the slum dwellers. That as per the terms of the agreement the assessee had agreed to pay 20% of the profits to M/s NSS Associates. The assessee had further agreed to pay a sum of Rs. 28.25 crore as advance to M/s NSS Associates, which was to be adjusted/deducted from the 20% profit payable to the latter. Thus, on the date of the execution of the agreement an amount of Rs. 25 crore was paid by the assessee to M/s NSS Associates (supra).
That during the course of the assessment proceedings it was observed by the A.O that the income from the sales and other incomes was reflected by the assessee at Rs. Nil and the Project Work In Progress was shown at Rs. 83,13,08,660/-. That as per the „Profit & loss a/c‟ the loss of the assessee stood reflected at Rs. 2,51,94,755/-. The A.O observing that the assessee had claimed the finance costs for acquiring the capital Work in Progress as a revenue expenditure, thus called upon it to explain as to why the same may not be capitalized. The assessee submitted before the A.O that the interest expenditure incurred in respect of the funds which were utilized for acquiring the land could not be capitalized/allocated to WIP, since as per Accounting Standard 16 (AS-16) interest could only be considered as part of cost only if the same is an „eligible asset‟. In the backdrop of P a g e | Panchkutir Developers Vs. DCIT the aforesaid contention, it was thus submitted by the assessee that as „Land‟ did not qualify as an „eligible asset‟ as per AS-16, therefore, no part of the interest expenditure relatable to the interest bearing funds was liable to be capitalized and thus disallowed. The A.O deliberated on the aforesaid contentions of the assessee and did not find favor with the same, for the reason that the assessee had not recognized any revenue in the form of sale/receipt/other income till the end of the year under consideration. The A.O while framing the assessment observed that as no sales or income was booked by the assessee till date, therefore, the finance costs or other costs which were claimed by the assessee as a revenue expenditure were thus not allowable as a revenue expenditure and were liable to be capitalized. The A.O observed that the assessee had shown loans & advances of Rs. 9,62,12,597/-, which included an amount of Rs. 7,99,31,920/- given to Mr. P.V Nayak towards purchase of land prior to 31.03.2009, however, no development/transactions had taken place during the year and neither the land deal was completed nor any refund was received by the assessee. The A.O further observed that an amount of Rs. 95,00,000/- was also given to M/s Sumoto Estates Pvt. Ltd. for purchase of land prior to 31.03.2009, however, no development/transaction took place during the year under consideration. It was thus in the backdrop of the aforesaid facts concluded by the A.O that all the loans & advances were outstanding as such, for the last two years, except for a service tax of Rs. 52,30,212/-. The A.O finally observed that all the aforesaid advances were sourced/funded from the borrowed funds, and though the assessee had claimed interest incurred on the borrowed funds as a revenue expenditure, however, the advances given from these borrowed funds had not yielded any income to the assessee. The A.O further deliberating on the claim of the assessee that the interest
P a g e | Panchkutir Developers Vs. DCIT pertaining to the funds utilized for acquiring of land for construction activity was not to be capitalized/allocated to WIP, since as per Accounting Standard 16 (AS-16) interest can only be considered as part of cost only if the same is on an „eligible asset‟, while for „Land‟ did not qualify as an „eligible asset‟, however, did not find favor with the same. The A.O observed that the assessee had acquired land for the purpose of construction activity and the same being part of Capital WIP was for income-tax purposes included in „Capital assets‟. The A.O observed that as the land which had been acquired by the assessee out of the borrowed funds and shown as capital WIP was necessarily in full commercial strength an „eligible asset‟ or „qualifying asset‟ for the purpose of capitalizing the cost of borrowing/finances, thus in the backdrop of his said view disallowed the finance cost of Rs. 2,45,27,079/- incurred by the assessee for acquiring capital WIP. That except for the interest of Rs. 76,31,115/- which was relatable to the funds which were used for making the aforesaid advances, the A.O capitalized the balance amount of interest of Rs. 1,68,95,965/- [i.e Rs. 2,45,27,079/- (-) Rs. 76,31,115/-] under the head capital WIP.
The A.O further observed that as the assessee who had not commenced its business activity, had thus not booked any sale or any other income till date, therefore, all other expenses related to employee cost claimed at Rs. 1,38,740/- and administrative and other expenses of Rs. 5,28,936/- claimed by the assessee as a „revenue expenditure‟ were also to be disallowed and thus capitalized.
The A.O further observed that the assessee had in its „balance sheet‟ shown expenditure of Rs. 9,33,88,292/- which had been incurred during the year and had been capitalized. The A.O observed
P a g e | Panchkutir Developers Vs. DCIT that the aforesaid expenditure included an amount of Rs. 1,27,48,207/- towards legal, profession and consultancy charges. That on verification of the nature of the aforesaid expenses, it was observed by the A.O that out of the same an amount of Rs. 1,15,01,437/- was booked against the bills raised by M/s NSS Associates. The A.O observed that the assessee had neither explained and established the exact nature of services rendered/work carried out by the aforesaid concern and the purpose and use of the same for the business activities of the assessee, nor substantiated the benefit which was derived by the assessee by incurring the said expenditure. The A.O further observed that the assessee had also failed to submit bills/vouchers and basis of working of the fees vis-à-vis receipts in respect of the services rendered by M/s NSS Associates. The A.O thus in the backdrop of his aforesaid observations that no sales, other income or receipts had been booked by the assessee during the year, therefore, concluded that the services of the aforesaid concern, viz. M/s NSS Associates were not used for the business of the assessee. The A.O thus in view of his aforesaid observations reduced the expenditure of Rs. 1,15,01,437/- claimed by the assessee as professional expenses from the WIP.
That before the CIT(A) the assessee in order to substantiate its claim that its business had commenced during the year, thus filed before him the sample copies of the invoices which were raised by M/s NSS Associates on the assessee towards architectural project consultation services, issue of fresh D.P remark and sanction from commissioner, as under:-
Date of Invoice Invoice No. Amount Nature of work 10.03.2010 NSS/HCC/VI/002 Rs. 4.31 lac Architectural &
P a g e | Panchkutir Developers Vs. DCIT Project consultation services. 28.12.2009 NSS/HCC/VI/002 Rs. 22.06 lac Issue of fresh D.P remark & Sanction from Commissioner 04.03.2010 NSS/HCC/VI/002 Rs. 62.06 lac Architectural & Project consultation services. 21.12.2009 NSS/HCC/VI/002 Rs. 30.15 lac Architectural & Project consultation services.
The CIT(A) after deliberating on the aforesaid invoices, though observed that the same were raised by M/s NSS Associates towards submission of Annexure-2 for 1503 tenants and submission of Slum Rehabilitation Scheme for 1500 tenants, however, held that from the details filed it could not be concluded as to whether the proposal before the SRA was filed on or before 31.03.2010. The CIT(A) further observed that no evidence was produced before him to show the exact nature of liasioning activity that was carried out by M/s NSS Associates with the government authorities before 31.03.2010. The CIT(A) on the basis of his aforesaid observations thus concluded that the contention of the assessee that it had commenced its business, could not be accepted.
The CIT(A) further deliberated on the „Memorandum of Understanding‟ („MOU‟) entered into by the assessee with M/s Sumoto Estates Pvt. Limited, dated. 30.09.2008. It was observed by the CIT(A) that the agreement revealed that it was a sale-cum-development agreement for an agreed lump sum consideration of Rs. 9,50,20,000/- for purchase of land by the assessee, out of which an amount of Rs.
P a g e | Panchkutir Developers Vs. DCIT 95 lac was paid by the assessee on the date of the agreement itself. That it was however observed by the CIT(A) that as per Clause (iii) of the agreement, the possession of the land was to be delivered to the assessee only on the payment of the balance purchase consideration. The CIT(A) thus holding a conviction that unless the possession of the land was given to the assessee, no entitlement as regards the same would get vested with the assessee on a mere payment of advance. The CIT(A) thus on the basis of his aforesaid observations rejected the claim of the assessee that it had commenced its business activity.
The CIT(A) deliberating on the issue pertaining to the disallowance of the finance cost of Rs. 1,68,95,095/-(supra) , did not find favor with the claim of the assessee that it was not capitalized in the WIP in terms of AS-16. The CIT(A) further observed that as the business of the assessee had not commenced, therefore, the claim of the assessee that the interest expenditure relatable to the funds utilized for acquiring the land also could not be allowed u/s 36(1)(iii).
The CIT(A) adverting to the disallowance of employees cost, administrative and other expenses, being of the view that the business of the assessee had not commenced, therefore, rejected the claim of the assessee that the same were in the nature of day-to-day expenses and thus were allowable as revenue expenditure. The CIT(A) on the basis of his aforesaid observations further upheld the disallowance of the claim of expenditure of Rs. 1,27,48,207/- paid by the assessee to M/s NSS Associates, and held that the same could not be allowed as a revenue expenditure. The CIT(A) thus in the backdrop of his aforesaid observations dismissed the appeal of the assessee.
The assessee being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The ld. Authorized
P a g e | Panchkutir Developers Vs. DCIT representative (for short „A.R‟) for the assessee drew our attention to Para 4.1 of the order passed by the A.O, wherein the latter had concluded that neither the business of the assessee had commenced, nor the deal pertaining to purchase of land was completed. The ld. A.R in order to controvert the said observations of the A.O took us through the „Deed of conveyance‟ dated. 30.06.2008 executed between the assessee (the „buyer‟) and „HCCL‟(the „seller‟), which revealed that the assessee had agreed to purchase the „land‟ for an aggregate consideration of Rs. 6,19,00,000/-, which was to be paid in terms of payment mentioned in „Annexure 1‟ (forming part of the conveyance deed). It was submitted by the ld. A.R that the fact that the assessee had purchased the „land‟, in itself evidenced the fact that the assessee had set up its business. The ld. A.R further in order to drive home his contention that the assessee had set up its business, therein submitted that the assessee had as on 02.12.2009 appointed a Project Management Consultant, viz. M/s NSS Associates for the redevelopment of the aforesaid land as per the requirements of SRA. The ld. A.R drew our attention to the „Agreement for Project Management‟ (Page 32 -47) of „APB‟. The ld. A.R took us through the scope of work of M/s NSS Associates at Page 35-38 of the „APB‟, which included the work of rendering unto the assessee the vacant plot suitable for construction of rehabilitation building (Page 37). The ld. A.R further submitted that M/s NSS Associates, in terms of the agreement with the assessee had embarked upon and taken the requisite steps. It was submitted by the ld. A.R that M/s NSS Associates had during the year sought for a Spot Verification Report from the SRA, and vide its letter dated. 14.03.2010 (filed with the office of Assistant Registrar , SRA , MHADA, Mumbai on 15. 03.2010) had submitted the General Body resolution for obtaining a Spot Verification Report from the department (Page 85 of „APB‟). It was P a g e | Panchkutir Developers Vs. DCIT rather averred by the ld. A.R that the work in respect of the SRA project had already started in the preceding year when the „land‟ was purchased by the assessee. The ld. A.R further drew our attention to the „Memorandum of Understanding‟ executed between the assessee and M/s Sumoto Estates Private Ltd., as per which the latter had agreed to transfer the vendor development rights in respect of the property to the assessee for a consideration of Rs. 9,50,20,000/-, out of which an amount of Rs. 95,00,000/- was paid by the assessee at the time of execution of the „MOU‟, while for the balance consideration of Rs. 8,55,20,000/- was to be paid at the time of delivery of the original deeds, documents and writings alongwith the possession of the property to the assessee.
The assessee in the backdrop of the aforesaid facts, viz. (i). execution of the „Deed of conveyance‟ dated. 30.06.2008 between the assessee (the „buyer‟) and „HCCL‟(the „seller‟); (ii). appointment of a Project Management Consultant, viz. M/s NSS Associates on 02.12.2009 for the redevelopment of the aforesaid land as per the requirements of SRA; and (iii). execution of a „Memorandum of Understanding‟ between the assessee and M/s Sumoto Estates Private Ltd., as per which the latter had agreed to transfer the vendor development rights in respect of the property to the assessee for a consideration of Rs. 9,50,20,000/-, out of which an amount of Rs. 95,00,000/- was paid by the assessee at the time of execution of the „MOU‟, thus submitted that the said facts duly established beyond any scope of doubt that the business of the assessee had been set-up. It was thus averred by the ld. A.R that once the business of an assessee is set-up, then the expenses incurred by him subsequent thereto would be allowable as a „loss‟ under the head “business”. The ld. A.R in order to drive home his aforesaid contention relied on the judgment
P a g e | Panchkutir Developers Vs. DCIT of the Hon’ble High Court of Delhi in the case of : CIT Vs. M/s Dhoomketu Builders & Development Pvt. Ltd. (2014) 364 ITR 680 (Del). The ld. A.R assailing the order of the CIT(A) who had disallowed the interest expenditure relatable to the interest bearing funds which were utilized by the assessee for purchase of „land‟, therein submitted that as AS-16 was applicable in respect of „qualifying assets‟, and the „land‟ was not a qualifying asset, therefore, the interest component relatable to purchase of „land‟ could not be capitalized in the WIP. It was thus averred by the ld. A.R that the interest expenditure pertaining to the funds utilized for acquiring „land‟ was allowable as a revenue expenditure and had wrongly been disallowed by the A.O. The ld. A.R further assailed the disallowance of the „development cost‟ by the A.O. The ld. A.R adverting to the disallowance of the legal, professional and consultation charges aggregating to Rs. 1,27,48,207/- incurred by the assessee, therein submitted that the lower authorities had wrongly disallowed the same for the reason that the incurring of the said expenses had not led to generation of any revenue in the hands of the assessee. The ld. A.R referring to the nature of the business of the assessee submitted that the SRA projects involves certain time for starting as the approval of various authorities are required. The ld. A.R submitted that the nature of activities that were to be performed by M/s NSS Associates (supra) were at length spelt out in the „Agreement‟ for „Project Management‟ as was executed by the assessee with the said concern on 02.12.2009. The ld. A.R in order to fortify his aforesaid contention drew our attention to Page 35- 38 of the „APB‟, which is the relevant extract of the „Agreement for Project Management‟ and spells out the services which were to be performed by M/s NSS Associates (supra). The ld. A.R further assailed the disallowance of the employees cost of Rs. 1,38,740/- and Administrative expenses of Rs. 5,28,936/-, and averred that the said
P a g e | Panchkutir Developers Vs. DCIT expenses were incurred by the group company on sharing on day to day basis and having been incurred in the course of the business of SRA project, were thus allowable in the hands of the assessee and had wrongly been disallowed by the lower authorities. Per Contra, it was submitted by the ld. Departmental representative (for short „D.R‟) that as the business of the assessee had not commenced, therefore, the CIT(A) had rightly upheld the order of the A.O and disallowed the various expenses which were claimed by the assessee as „revenue expenditure‟. It was further averred by the ld. D.R that as M/s NSS associates did not apply for the approval of rehabilitation in the year under consideration, therefore, the expenses relatable to the services rendered by the latter even on the said count had rightly been disallowed by the lower authorities. The ld. D.R in order to buttress his contention that the business of the assessee had not commenced during the year, therein took support of the fact that as the possession of the ‟land‟ as per the terms of the agreement was not delivered to the assessee and was kept in abeyance, subject to the payment of the balance consideration by the assessee, therefore, no entitlement in respect of the same got vested with the assessee. The ld. A.R controverting the aforesaid contention of the department submitted that even giving of advance substantially evidenced the setting up of the business of the assessee. The ld. A.R referring to Page 85 of the „APB‟ submitted that the verification of the proposed S.R scheme was filed by M/s NSS associates on behalf of the assessee on 15.03.2010, which thus disproved the contention raised by the revenue.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We have given a thoughtful consideration to the facts of the case and find substantial force in the contention of the ld.
P a g e | Panchkutir Developers Vs. DCIT A.R that in the backdrop of the aforesaid facts, viz. (i). execution of the „Deed of conveyance‟ dated. 30.06.2008 between the assessee (the „buyer‟) and „HCCL‟(the „seller‟); (ii). appointment of a Project Management Consultant, viz. M/s NSS Associates on 02.12.2009 for the redevelopment of the aforesaid land as per the requirements of SRA; and (iii). execution of a „Memorandum of Understanding‟ between the assessee and M/s Sumoto Estates Private Ltd., as per which the latter had agreed to transfer the vendor development rights in respect of the property to the assessee for a consideration of Rs. 9,50,20,000/- , out of which an amount of Rs. 95,00,000/- was paid by the assessee at the time of execution of the „MOU‟, it stood established beyond any scope of doubt that the business of the assessee had been set-up. We find that the aforesaid contention of the assessee is supported by the judgment of the Hon’ble High Court of Delhi in the case of : CIT Vs. Dhoomketu Builders & Development Pvt. Ltd. (2013) 216 Taxmann 76 (Delhi), wherein the Hon‟ble High Court while upholding the order of the Tribunal had held as under:-
“9. The Tribunal has observed that having regard to the business of the assessee, which is the development of real estates, the participation in the tender represents commencement of one activity which would enable the assessee to acquire the land for development. If the assessee is in a position to commence business, that means the business has been set-up. The acts of applying for participation in the tender, the borrowing of monies for interest from the holding company, the deposit of the borrowed monies on the same day with NGEF Ltd. as earnest money were all acts which clearly establish that the business had been set-up. The commencement of real estate business would normally start with the acquisition of land or immoveable property. When an assessee whose business it is to develop real estates, is in a position to perform certain acts towards the acquisition of land, that would clearly show that it is ready to commence business and, as a corollary, that it has already been set-up. The actual acquisition of land is the result of such efforts put in by the assessee; once the land is acquired the assessee may be said to have actually commenced its business which is that of development of real estate. The actual acquisition of the land may be a first step in the commencement of the P a g e | Panchkutir Developers Vs. DCIT business, but section 3 of the Act does not speak of commencement of the business, it speaks only of setting-up of the business. When the assessee in the present case was in a position to apply for the tender, borrowed money for interest albeit from its holding company and deposited the same with NGEF Ltd. on the same day, it shows that the assessee’s business had been set-up and it was ready to commence business. The learned senior standing counsel for the revenue would, however, state that till the land is acquired, the business is not set- up. The difficulty in accepting the argument is that an assessee may not be successful in acquiring land for long period of time though he is ready to commence his business in real estate, and that would result in the expenses incurred by him throughout that period not being computed as a loss under the head “business” on the ground that he is yet to set-up his business. That would be an unacceptable position. The other argument of the learned standing counsel for the revenue that the tax auditors of the assessee have themselves pointed out that the assessee is yet to commence its business is also irrelevant because of the distinction between the commencement of the business and setting-up of the same.” We have deliberated on the facts involved in the case of the assessee before us, in the backdrop of the judgment of the Hon’ble High Court of Delhi in the case of Dhoomketu Builders & Development Pvt. Ltd.(supra) and are of the considered view that for the reasons culled out by us hereinabove, it can safely be concluded that the business of the assessee had remained set-up during the year under consideration. We find that the High Court of Delhi in the case of CIT Vs. Arcane Developers Pvt. Ltd. (2014) 221 Taxmann 475 (Del) had observed that in case of a real estate business the setting up of business was complete when first steps were taken by the assessee to look around and negotiate with parties. The Hon‟ble High Court referring to the „MOU‟ executed by the assessee with the third parties observed that there can be a gap between setting up and when first steps were taken by the respondent and finalisation of the first written agreement. The High Court further was of the view that the carrying out of negotiations by the assessee with the third parties, as P a g e | Panchkutir Developers Vs. DCIT well as raising of the loan were the steps taken by the assessee for the business and to proceed further and conclude the deal.
We now in the backdrop of our aforesaid observations that the business of the assessee was set-up during the year, now advert to the issue as to whether the expenses incurred by the assessee and claimed as „revenue expenditure‟ would be allowable pursuant to such setting up of the business, or not. We find that the Hon’ble High Court of Delhi in its aforesaid judgment in the case of Dhoomketu Builders & Development Pvt. Ltd. (supra) had observed that once it is established that the assessee had set-up its business and was ready to commence its business, the expenses incurred by the assessee after such setting up of the business and prior to the acquiring of the land which may take substantial time, cannot be refused to be computed and has to be allowed as a “loss” under the head business. We further find that a similar view was again arrived at by the Hon‟ble High Court in the case of Arcane Developers Pvt. Ltd.(supra), wherein the High Court had held that as there may be an interval between the date of setting up of business and commencement of business, therefore, all expenses incurred after the setting up of the business and before the commencement of the business, would be permissible as deductions. We thus in the backdrop of the facts of the case read in light of the settled position of law, are thus of the considered view that the expenses incurred by the assessee after setting up of its business and prior to the acquiring of the land would duly be allowed in the hands of the assessee. We thus in the backdrop of our aforesaid observations, being of the considered view that the business of the assessee could safely be held to have remained set up during the year under consideration, therefore, the latter was entitled to claim the expenses incurred subsequent to P a g e | Panchkutir Developers Vs. DCIT setting up of the business and set aside the disallowance of the following expenses made by the A.O:-
S.No. Particulars of expense Amount 1. Interest expenditure relatable to Rs. 76,31,115/- amounts advanced by the assessee for purchase of land to Mr. P.V Nayak (Rs. 7,99,31,920/-) and M/s Sumoto Estates Pvt. Ltd. (Rs. 95,00,000/-).
2. Employees Cost Rs. 1,38,740/- (that as the said expense was capitalised by the A.O, therefore, consequentially the WIP to the said extent is also directed to be reduced).
3. Administrative and other expenses Rs. 5,28,936/- (that as the said expense was capitalised by the A.O, therefore, consequentially the WIP to the said extent is also directed to be reduced).
The Ground of appeal No. 2 and 3 are thus allowed in terms of our aforesaid observations.
15. We now advert to the disallowance of expenditure incurred by the assessee against the bills of Rs.1,15,01,437/- of M/s NSS Associates and other legal, professional and consultancy charges, all aggregating to Rs. 1,27,48,207/-. We have deliberated at length hereinabove on the facts emerging from the records in respect of the nature of the services which were availed by the assessee from M/s NSS Associates. We find that the assessee had as on 02.12.2009 appointed M/s NSS Associates as a Project Management Consultant, viz. for the redevelopment of the aforesaid land as per the requirements of SRA. The assessee had drawn our attention to the „Agreement for Project Management‟ (Page 32 -47) of „APB‟. We find
P a g e | Panchkutir Developers Vs. DCIT that the scope of work of M/s NSS Associates had clearly been spelt in the „Agreement for Project Management‟, which we find was also available before the lower authorities. We are unable to comprehend as to how both the A.O and CIT(A) had concluded that the assessee had failed to explain and establish the exact nature of services rendered by M/s NSS Associates. We are of the considered view that not only the nature of services rendered by M/s NSS Associates could be gathered from a perusal of the „Bills‟ raised by it on the assessee (copies of which were placed on record of the lower authorities by the assessee), but even otherwise the copies of the correspondences of M/s NSS Associates with SRA (Page 85-94), and the correspondence of SRA with M/s NSS Associates (Page 69-84 & Page 97-100) of the „APB‟ produced before us, therein evidences the services which were rendered by M/s NSS Associates to the assessee. We further find that the issue that had primarily weighed in the mind of the CIT(A) while rejecting the claim of the assessee in respect of the expenses incurred by the assessee as regards the services rendered by M/s NSS Associates was that the business of the assessee had not commenced during the year. We have deliberated on the issue and are of the considered view that in light of our aforesaid observations that the nature of services rendered by M/s NSS Associates had been established beyond any scope of doubt, thus, are unable to persuade ourselves to be in agreement with the view arrived at by the lower authorities that the assessee had failed to establish the nature of liasioning services which were rendered by M/s NSS Associates (supra) to the assessee. We further on the basis of our aforesaid observations that the allowability of the expenses incurred by the assessee after setting up of its business are to be allowed, thus are of the considered view that the claim of the assessee in respect of the amount paid to M/s NSS Associates could not be rejected for the P a g e | Panchkutir Developers Vs. DCIT reason that the business of the assessee had not commenced. We may however observe that it is beyond our comprehension that now when the A.O had concluded that the amount paid by the assessee to M/s NSS Associates (Rs. 1,15,01,437/-) alongwith other legal, professional or consultancy expenses were capitalized by the assessee in the capital WIP, then how the CIT(A) had concluded that the same cannot be allowed as a „revenue expenditure‟. We are of the considered view that there is a prima facie mistake on the part of the CIT(A) while recording the aforesaid observation. We thus set aside the reduction of the capital WIP by the A.O by an amount of Rs. 1,27,48,207/- (supra), and direct that the same be raised by the aforementioned amount. The Ground of appeal No. 4 is allowed
16. We now take up the issue as regards the allowablity of the interest expenditure of Rs. 1,68,95,965/- incurred by the assessee for acquiring capital WIP, which we find was disallowed by the lower authorities as a „revenue expenditure‟, as claimed by the assessee, and was capitalized to the capital WIP. We are of the considered view that as observed by us hereinabove that the expenses incurred by the assessee after setting up of its business are to be allowed, thus are of the considered view that no infirmity as regards the allowability of the aforesaid interest expenditure/finance cost, therefore, does emerge on claiming of the said expense as a „revenue expenditure‟ by the assessee. We are of the considered view that the said interest expenditure which had been incurred by the assessee as regards the capital borrowed for purchasing the „land‟ and the amount spent on its development, which is the „inventory‟ of the assessee before us, is allowable u/s 36(1)(iii). We thus in the backdrop of our aforesaid observations allow the interest expenditure/finance cost to the extent of Rs. 1,68,95,965/- (supra) incurred by the assessee, as a „revenue
P a g e | Panchkutir Developers Vs. DCIT expenditure‟, as claimed by the latter in its „return of income‟. The Ground of appeal
No. 1 is allowed.
17. The Ground of appeal No. 5 being general in nature is dismissed as not pressed.
18. The appeal of the assessee is allowed.
Order pronounced in the open court on 01.09.2017 Sd/- Sd/- (G.S.PANNU) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER भ ुंफई Mumbai; ददन ुंक 01.09.2017 Ps. Rohit Kumar आदेश की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to : 1. अऩीर थी / The Appellant प्रत्मथी / The Respondent. 2. आमकय आम क्त(अऩीर) / The CIT(A)- 3. आमकय आम क्त / CIT 4. विब गीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भ ुंफई / 5. DR, ITAT, Mumbai 6. ग र्ड प ईर / Guard file. सत्म वऩत प्रतत //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीऱीय अधिकरण, भ ुंफई / ITAT, Mumbai
P a g e | Panchkutir Developers Vs. DCIT