Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH: ‘D’: NEW DELHI
Before: SHRI CHANDRA MOHAN GARG, & SHRI L.P. SAHU,
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
Both these appeals filed by the Revenue are directed against the separate orders of the CIT(A)-XIII, New Delhi, dated 07/05/2012 for AY 2006-07 and dated 04.05.2012 for A.Y 2007-08 respectively.
The Revenue has raised the following grounds of appeal:
“1. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in allowing the business loss claimed by the assessee amounting to Rs.67,72,057/- which was disallowed by the AO treating the same as pre-operative expenditure related to investments?
2. Whether in the facts and circumstances Ld CIT(A) was right in holding that the credit of Rs. 78,86,140/- appearing in the name of Sh. Mast Ram, which assessee during the course of assessment proceedings claimed to be in the name of M/s Vikram Electric Equipment Pvt Ltd as genuine ?
3. Whether in the facts and circumstances of the case and without prejudice above grounds Ld CIT(A) was right in holding that the payment allowed to M/s Vikram Electric Equipment Pvt Ltd for consolidation of land are not in the nature of commission ?
4. Whether in the facts and circumstances of the case Ld CIT(A) has erred in not holding that consolidation charges are merely different nomenclature for commission as such liable for deduction of tax and consequent disallowance u/s 40(i)(a) of the I. T. Act, 1961 in the event of default?”
The brief facts of the case are that the assessee filed its return of income declaring loss of Rs. 68,51,574/- and AO had completed the assessment u/s 143(3) of the Income tax Act, 1961 [for short, 'the Act'] at an income of Rs. 78,86,140/-. In the assessment order AO has mentioned that the assessee has not started its business in the relevant year as the land purchased had been declared as investment and not stock in trade. During the year, the assessee has received unsecured loan of Rs. 33.39 crores from DLF Universal Limited and also accepted unsecured loan of Rs. 16,92,20,500/- each from M/s Ciel Builders & Developers Pvt. Ltd. and M/s Odette Builders & Construction Pvt. Ltd which was utilized in repayment of loan from DLF Universal Ltd. The AO has held in his order that all expenses claimed by the assessee are pre-operative hence business loss is assessed at Nil. During the course of assessment, the AO asked the assessee to prove the identity of Mast Ram to whom an amount of Rs. 78,86,140/- was payable. In the assessment order, the AO has observed that assessee has taken U-turn and changed the name of the creditor from Mast Ram to M/s Vikram Electrical Equipment Pvt. Ltd. Further the AO has noticed that payment made to M/s Vikram Electrical Equipments Pvt. Ltd. was in the nature of commission and, therefore, liable for deduction of TDS. Further the AO held that amount payable to M/s Vikram Electrical Equipment Pvt. Ltd. was a bogus creditor. Therefore, said amount of Rs. 78,86,140/- was disallowed by AO by treating it as bogus creditor and also held that the assessee has contravened TDS Provisions.
Ground No. 1
At the very outset of the hearing of Ground No. 1 of the appeal of the Revenue, the business loss claimed by the assessee amounting to Rs.67,72,057/- which was disallowed by the AO treating the same as pre-operative expenditure related to investments, the rival representatives agreed that the issue is squarely covered in favor of the assessee vide order dated 14.10.2015 in Ground No. 1 dealt at para 11 page 11 of the order of the ITAT Delhi ‘B’ Bench in in the case of M/s DLF Homes Panchkula Pvt Ltd wherein on identical facts and circumstances, the ITAT has held as under:
“11. 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 an admitted fact that the AO accepted the incurring of expenditure for business purpose, his only objection was that those expenses were capital in nature and not revenue in nature as claimed by the assessee, on the basis that the commercial activity of the assessee did not commence. In the instant case it is an admitted fact that the assessee company was incorporated on 09.04.2007 and it acquired development rights on 172.46 acres of land for the purpose of Real Estates Development at Village Bhagwanpur, Tehsil Kalka, District Panchkula. The assessee acquired the approval from the State Government for setting up of residential township on 136.89 acres, the approval was published in Official Gazette on 26.09.2007 and the expenses in question were incurred by the assessee for its business purposes. However, the project which was started in this year did not reach to the stage where revenue could be recognized but it cannot be said that the expenses incurred by the assessee were not for the business purposes. On a similar issue the Hon'ble Jurisdictional High Court affirmed the decision of the ITAT Delhi, in deleting the similar type of addition which was made by the AO in similar circumstances in the case of CIT Vs Dhoomketu Builders and DLF Homes Panchkula Pvt. Ltd. development Pvt. Ltd. (supra). The Hon'ble Jurisdictional High Court in the said case has held as under:
"There is a difference between the setting up and commencement of business. When a business is established and is ready to commence business then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But there may be an interregnum, there may be an interval between a business which is set up and a business which is commenced and all expenses incurred after the setting up of the business and before the commencement of the business, all expenses during the interregnum, would be permissible deductions. The question as to when a business can be said to have been set up is a question of fact to be ascertained on the facts and circumstances of each case and considering the nature and type of the particular business and no universal test or formula applicable to all types of businesses can be laid down. The commencement of real estate business would normally start with the acquisition of land or immovable property. When an assessee whose business is to develop real estate, 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 land may be the first step in the commencement of the business but section 3 of the Act does not speak of commencement of the business, it speaks only of setting up of the business."
12. We, therefore, keeping in view the ratio laid down by the Hon'ble Jurisdictional High Court in the aforesaid referred to case, do not see any infirmity in the order of the ld. CIT(A). Accordingly, we do not see, any merit in this appeal of the department.”
We have heard the arguments of both the sides and carefully perused the relevant material placed on record before us. We have also carefully treaded through the Tribunal order [supra] and find that the Tribunal has decided the issue in favour of the assessee. We find that the facts and circumstances of the case are exactly identical to those in the case of DLF Homes [supra]. Accordingly, respectfully following our own order, we dismiss the ground No. 1 of appeal raised by the revenue. Ground No. 1 stands dismissed.
Gruond No. 2, 3 and 4
Vide ground Nos. 2, 3 and 4, Revenue has disputed the credit of Rs. 78,86,140/- appearing in the name of Shri Mast Ram, which the assessee claimed to be in the name of M/s Vikram Electric Equipment Pvt. Ltd held by the ld. CIT(A) as genuine. During the course of assessment proceedings, the AO treated the expenditure as bogus creditor and also held that the TDS was not deducted on this payment although same was applicable. When the aggrieved assessee went in appeal before the ld. CIT(A), it was held by the ld. CIT(A) that the cost incurred in purchase of land including Rs. 78,86,140 paid to M/s Vikram Electric Equipment Pvt. Ltd was duly reflected in the books of accounts of the assessee and the same was capitalised in the books of the assessee. The ld. CIT(A) came to the conclusion that the AO was not correct in treating the credit as bogus. The ld. CIT(A) further held that the provisions of section 40(a)(ia) are not attracted in this case as the assessee has not claimed any deduction for any expenses on account of payment made to M/s Vikram Electric Equipment Pvt. Ltd either in its profit and loss account or in the computation of taxable income filed.
Both us also, the rival representatives reiterated their submissions made before the lower authorities. The ld. AR furnished a copy of the Tribunal order dated 11.2.2016 in the case of Philana Builders and Developers P. Ltd in for A.Y 2007-08 stating that the issue is covered by the aforementioned Tribunal decision. The ld. DR fairly concurred to the submission of the ld. AR.
We have heard the arguments of both the sides and carefully perused the relevant material placed on record before us. At the very outset, we find that the issue under consideration is squarely covered by the Tribunal order dated 11.2.2016 in the case of Philana Builders and Developers P. Ltd in for A.Y 2007-08 wherein at para 9 page 10 of the order, the Tribunal has given a finding in this context as under:
“We have perused the agreement in this regard. It is seen that clause 3.2 of the MOU between the assessee and Vikram Electric Equipment P. Ltd. makes it clear that Vikram Electric Equipment P. Ltd. or its agent agreed to assign their rights to purchase the land in favour of the assessee. It would be appropriate to reproduce here, the said clause 3.2: 3.2 In consideration of the consolidator or its agent/nominee assigning its right to purchase the land in favour of the Buyer Company and causing the land owners to execute the sale deeds directly in favour of the Buyer Company, the Buyer Company shall pay the consolidator such sum as may be mutually agreed. However, it is specifically agreed by the consolidator that no sum shall accrue to it on this account till it procures 27 acres of land for the Buyer company (unless the Buyer Company decides to procure less than 27 acres through the consolidator) and all the issues relating to possession and mutation of such land are settled to the satisfaction of the Buyer Company. 9.1. The above clause also makes it evident that unless the assessee decided to procure less than 27 acres of land through 9
Vikram Electric Equipment P. Ltd. Vikram Electric Equipment P. Ltd. was to procure 27 acres of land for the assessee, failing which, no payment was to be made by the assessee to Vikram Electric Equipment P. Ltd. 9.2. This clearly shows that Vikram Electric Equipment P. Ltd. was transacting on a principle to principle basis and it cannot be said that the payment was made by the assessee to Vikram Electric Equipment P. Ltd. for rendering of any service. The provisions of sec. 194H of the Act are, therefore, not at all applicable. 9.3. Moreover, the amount paid to Vikram Electric Equipment P. Ltd. was duly reflected by the assessee in the purchases closing stock. No sales had been made during the year under consideration. It has not been shown to be otherwise. In such a scenario, in our considered opinion, no disallowance is called for. 9.4. Pertinently, no addition having been made for the year by the Assessing Officer, the alternate contention of the assessee to the effect that no addition can be made during the year, stands accepted by both the Authorities below. 9.5. The provisions of section 40(a)(ia) of the Act in any case do not apply, the assessee having not claimed any deduction for any expenses on account of payment to Vikram Electric Equipment P. Ltd. either in its profit and loss account or in the computation of taxable income filed. It was only that the Assessing Officer recorded a loss of Rs. 19,700/-. This obviously, did not include any addition of either Rs. 4.02 crores or Rs. 1.24 crores.
9.6. In view of the above discussions, the grievance of the assessee is found to be correct and is accepted as such.
In that view of the matter, respectfully following the Tribunal order [supra] and find no discrepancy in the finding of the ld. CIT(A), we decline to interfere with the same. Accordingly, we dismiss Ground No. 2 of the Revenue’s appeal.
ITA No. 4347/Del/2012 [A.Y 2007-08]
This appeal has been fixed for hearing in view of the recent CBDT Instruction No. 21/2015 dated 10.12.2015, revising the monetary limit of Rs.10 lakhs for not filing the appeal before the Tribunal in terms of section 268A(1) of the Income-tax Act.
The CBDT in its recent Circular No. 21/2015 dated 10.12.2015 has provided that no departmental appeal shall be filed before the ITAT wherein the tax effect involved is less than Rs.10 lakhs. Further, in para 10 of the Circular, it is provided that this instruction would apply retrospectively and the pending appeals below the specified tax limit of Rs.10 lakhs may be withdrawn/not pressed.
The learned CIT-DR appearing on behalf of the Revenue before us, at the outset, submitted that appeal can be withdrawn only after getting the approval of competent authority. He further referred to para 7 of the Circular to submit that dismissal of appeal, however, in any case, on account of low tax effect should not be considered as a precedence in the matters of subsequent years where the tax effect is above the monetary limit prescribed by this Circular and the issue should be decided on merits.
The learned counsel for the assessee, on the other hand, stated that the Circular is squarely applicable to the present appeal of the Revenue.
After considering the rival submissions, we find that prima facie, the tax effect involved in this appeal by the Revenue is below Rs. 10.00 lakhs and, therefore, we deem it proper to dismiss the appeal particularly because the pending appeal is covered by Circular in view of para 10 of the circular. However, we may clarify that if on receipt of this order, the Assessing Officer finds that the tax effect is above Rs.10 lakhs or in any other manner, the Circular is not applicable in view of exceptions culled out in the Circular, he will be at liberty to file miscellaneous application for recalling of this order which the Tribunal will consider in accordance with law. We further find considerable force in the contention of the CIT/DR that this order cannot be considered as an acceptance by the Revenue on the issue involved in this appeal and will not be an estoppel for the Revenue to take up the issue, involved in this appeal, before ITAT on merits if the tax effect in those years is more than Rs.10 lakhs.
Keeping in view the above Circular and the provisions of section 268A of the Income-tax Act, 1961 and without going into merits of the case, we dismiss the instant appeal filed by the Revenue as tax effect in the appeal is less than Rs.10 lakhs.
In the result, the appeal of the Revenue stands dismissed.