ITO, NEW DELHI vs. M/S. JINDAL REALTY PVT. LTD., NEW DELHI

आदेश/ORDER

PER SUSHMA CHOWLA,VP The present three appeals filed by assessee and the Revenue are against separate orders of CIT(A)-VII, New Delhi dated 16.08.2010; CIT(A)-17, New Delhi dated 22.01.2016; and CIT(A)-VIII, New Delhi dated 23.05.2014 relating to assessment years 2007-08 to 2009-10 respectively against the orders passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).

2. That the Commissioner of Income Tax (Appeals)-VII, New Delhi has grossly erred on facts and in the circumstances of the case In holding that administrative and statutory nature of expenditure on electricity & water charges, insurance, legal & professional charges, audit fees, misc. expenses, telephone expenses and preliminary expenses totaling at Rs. 10,62,688 should be capitalized as work in progress and the same are not allowable as expenditure in the present year following Special Bench decision of Mumbai Tribunal in the case of Wall Street Construction Ltd. vs. JCIT(2006) 101 ITD 156( Mum.)(SB)/[2006] 102 n J (Mumbai) (SB).

3. That the Commissioner of Income Tax (Appeals)-VII, New Delhi has grossly erred on facts and in the circumstances of the case in not appreciating the point that the facts in the case before the special bench in Wall Street Construction case (supra) are materially different from the facts in the case of the appellant company thus ruling out application of such case.

4. That the Commissioner of Income Tax (Appeals)- VII, New Delhi has grossly erred on facts and in the circumstances of the case and in law in relating the interest earnings of Rs. 81,75,460- (Rs.6,58,863/- for bank interest & Rs. 75,16,597/- for interest from loans & advances given to various persons & corporate bodies) as income earned from investment of surplus funds.

6. That the Commissioner of Income Tax (Appeals)-VII, New Delhi has grossly erred on facts and in the circumstances of the case in deviating from the point of reasoning given by the AO and further therefore erred in not adjudicating key issue in relation to the point of commencement of business operations of the appellant company.”

5. The issue raised in the ground of appeal nos. 2 and 3 is against the disallowance of administrative and other expenditure totaling to Rs.10,62,688/- should be capitalized as work in progress.

8. Briefly, in the facts of the case, the assessee company was incorporated on 25.08.2005. The object of the assessee concern was to carry on the business of real estate. The assessee had claimed in Assessment Year 2006-07 that it has commenced its business, once it had made investment in purchase of land for setting up of projects at Sonepat and also advanced money for investment in purchase of Man Singh Road property. While completing the assessment for assessment year 2006-07, the Assessing Officer had observed that the assessee had failed to adduce any evidence with regard to commencement of its business activities. Further the assessee had earned interest on loan and advances which were given to different entities and also bank interest on FDRs, the Assessing Officer held that since no business activity was carried on during the year, no business income or loss could be computed in the hands of the assessee. Hence, the interest income which was claimed to be business income and was set off against interest expenditure was assessed as income from other sources and no benefit of interest paid was allowed in the hands of the assessee. The interest expenditure was held to be pre-operative business expenses and also administrative expenses claimed by the assessee for carrying on the business, were also not allowed as business expenditure.

9. The Assessing Officer during the instant assessment year i.e. A.Y. 2007- 08, applied the same principle as in Assessment Year 2006-07 and vide para 6 and 7 held that the business of the assessee had not commenced and further treated the interest income as income from other sources. He did not allow set off of interest expenditure against the interest income and all other expenses i.e. administrative and other expenses were also not allowed in the hands of the assessee being pre-operative expenses. The Ld. CIT(A) has upheld the order of the Assessing Officer, against which the assessee is in appeal before us.

“19. Applying the above said proposition to the facts of the present case, we hold that in the case of the assessee where substantial activities were carried out by the assessee, since the date of incorporation which had culminated in raising loans, making investment in purchase of land, which was reflected as stock in trade and also advancing loans to associate concerns for purchasing different pieces of land, in order to fulfil the condition of Land Bank of 100 Acres or more, to develop the township in Haryana and where the assessee is entered into development agreement at the close of the present year/beginning of the next year, then assessee can be said to have set up and commenced its business. Further, the assessee having also invested substantial amount in the purchase of another property in the year itself, thus, set up of its business as per its Memorandum of Understanding was done, since it was engaged in the business of real estate. It is held that there is no merit in the order of the authorities below in this regard and the same are reversed. Accordingly, we hold that the assessee having not only set up its business but had also commenced its business during the previous year itself. Hence, ground no.1 of the assessee is allowed.”

20. Now coming to the second issue raised by the assessee, it is consequent to the first issue raised in the present appeal. Once the business had been set up and also commenced in instant year itself, then the interest expenses claimed by the assessee and any other expenditure claimed by the assessee is to be allowed as business expenditure. The assessee had also parked certain funds temporarily in the bank FDRs, on which it had earned interest which is to include also as business income in the hands of the assessee. Accordingly, ground no 2 and 3 raised by the assessee also stand decided in the favour of the assessee and same is dismissed.

“22. The last issue raised vide ground no.5 is taxability of interest income, which we have already held as business income; even otherwise the said interest income needs to be set up of against interest expenditure as funds have been borrowed by the assessee and only surplus borrowed funds have been invested in bank FDRs. Accordingly, the ground no. 5 raised by the assessee is allowed.” 16. The present assessment was made in the hands of the assessee, following the same reasoning as in Assessment Year 2006-07 both by the Assessing Officer and the CIT(A), since the issues have already been decided by the Tribunal in earlier year in assessee’s own case, we hold that as the business of the assessee had already commenced in Assessment Year 2006-07, then the interest expenditure and all other expenses both administrative and other expenses are to be allowed as business expenditure. The interest income is to be taxed as business income and the interest expenditure is to be set off against the said business income. During the year under consideration, the assessee had capitalized interest expenditure of Rs.40.78 Corers, hence, there is no issue of its allowability.

Order pronounced in the open court on 18th day of August, 2020.