What did the Tribunal hold?

The Tribunal held that the disallowance of business expenditure was unjustified, as evidenced by raw material consumption and work-in-progress, indicating business commencement. The business loss was allowed to be set off against income from other sources.

The assessee, a real estate developer, reported interest income and claimed business expenditure. The Assessing Officer disallowed the expenditure, stating the business had not commenced. The CIT(A) confirmed this.

What were the issues?

Whether the assessee's real estate business had commenced during the year, and if so, whether business expenditure was allowable.

M/S. Baibhav Properties Pvt… vs ITO | ITAT Cuttack 2017

Income Tax Appellate Tribunal, CUTTACK

Before: SHRI N.S SAINI

For Respondent: Shri D.K.Pradhan, DR

This is an appeal filed by the assessee against the order of CIT(A)-

1, Bhubaneswar, dated 19.9.2016 for the assessment year 2012-13.

The sole issue involved in this appeal is that the CIT(A) erred in

confirming Rs.43,74,405/- shown in the profit and loss account as income

from other sources.

I have heard the rival submissions, perused the orders of lower

authorities and materials available on record. In the instant case, the

assessee is engaged in the business of real estate development. During

2 ITA No. 07/ CTK/2017 Asse ssment Year :20 12- 201 3

the year under consideration, the only revenue of the assessee was interest

income of Rs.43,74,405/-. The assessee claimed business expenditure of

Rs.29,01,409/- and set off from the said interest income and disclosed net

income of Rs.14,72,996/- as its total income. The Assessing Officer

observing that no revenue was earned from real estate business held that

the business of the assessee has not commenced by the end of the relevant

previous year and, therefore, disallowed the entire business expenditure.

He treated the interest income of Rs.43,74,405/- as “ income from other

sources” and as no expenditure was found to be incurred for earning

interest income., he computed the income at Rs.43,74,405/-.

On appeal, the CIT(A) confirmed the action of the Assessing Officer.

In my considered view simply because no revenue was generated

during the year, from this fact alone, it cannot be concluded that no actual

business was commenced. I find on perusal of assessee’s audited financial

statement that raw material consumed during the year was

Rs.1,43,75,246/- and the inventory in the form of work-in-progress as at

the end of the relevant previous year was Rs.1,43,75,246/-. The above

facts are not in dispute. The above evidences show that the assessee

commenced its business of real estate development during the year under

consideration. Therefore, in my considered view, the lower authorities were

not justified in holding that business was not commenced during the year

and consequently in disallowing business loss of Rs.29,01,409/-. As

3 ITA No. 07/ CTK/2017 Asse ssment Year :20 12- 201 3

the business loss of the current year is allowed to be set off against “income

from other sources”, I, therefore, set aside the orders of lower authorities

and delete the disallowance of Rs.29,01,409/-. Thus, the grounds of appeal

of the assessee are allowed.

In the result, appeal filed by the assessee is allowed.

Order pronounced in the open court on 15 /06/2017 in the presence of parties. Sd/- (N.S Saini) ACCOUNTANT MEMBER

Cuttack; Dated 15 /06/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The appellant : M/s. Baibhav Properties (P) Ltd., Plot No.717, BJB Nagar, Bhubaneswar. 2. The Respondent. ITO, Ward - 1(1),Bhubaneswar

The CIT(A) -1, Bhubaneswar 4. Pr.CIT-1, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//

BY ORDER,

SR.PRIVATE SECRETARY ITAT, Cuttack

M/S. BAIBHAV PROPERTIES PVT. LTD.,BHUBANESWAR vs. ITO, WARD-1(1), BHUBANESWAR

What did the Tribunal hold?

What were the facts?

What were the issues?

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