Year-wise tax effect and real estate business set-up govern maintainability and deduction of revenue expenditure

Revenue appeals were held not maintainable for assessment years where the tax effect fell below the prescribed monetary limit, because the threshold had to be applied year-wise even though the first appellate order was common to multiple years. The composite-order exception could not defeat the monetary-limit benefit for individual years with low tax effect. For assessment year 2013-14, the real estate business was treated as set up upon acquisition of land for development, so the revenue expenditure incurred after that stage and the resulting business loss were allowable. The low-tax-effect appeals were dismissed and the remaining challenge failed on merits.

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Issues: (i) whether revenue appeals involving assessment years with tax effect below the prescribed monetary limit were maintainable where one common appellate order covered multiple assessment years; and (ii) whether the assessee's real estate business had been set up so as to allow revenue expenditure and the resulting business loss for assessment year 2013-14.

Issue (i): Whether revenue appeals involving assessment years with tax effect below the prescribed monetary limit were maintainable where one common appellate order covered multiple assessment years.

Analysis: The appeals for several assessment years arose from a common order of the first appellate authority. The decisive question was whether the departmental monetary limit had to be tested separately for each assessment year or whether the existence of one assessment year with higher tax effect permitted appeals for all years covered by the composite order. The Tribunal applied the jurisdictional High Court view that the tax effect must be considered year-wise, and that the composite-order exception could not be used to deny the benefit of the monetary limit where the individual tax effect for a particular year was below the threshold. The Tribunal also treated the circular relied upon by the Revenue as pari materia with the earlier circular considered by the High Court.

Conclusion: The appeals for assessment years 2009-10 to 2012-13 and 2014-15 were not maintainable and were dismissed for low tax effect.

Issue (ii): Whether the assessee's real estate business had been set up so as to allow revenue expenditure and the resulting business loss for assessment year 2013-14.

Analysis: The assessee was engaged in real estate development and trading in transfer development rights. The controversy was whether acquisition of land for development amounted to setting up of the business, even if no revenue had yet been earned. The Tribunal followed the principle that for a real estate developer, business set-up may occur upon acquisition of land intended for development, and that revenue expenses incurred for the business after such set-up are allowable. Since the assessee had acquired property for development, the Tribunal held that the business had been set up and the expenses debited to the profit and loss account were deductible.

Conclusion: The disallowance was not justified and the assessee was entitled to allowance of the revenue expenditure and business loss for assessment year 2013-14.

Final Conclusion: All the revenue appeals failed, with the low-tax-effect appeals dismissed on maintainability grounds and the remaining appeal dismissed on merits after holding that the real estate business had been set up.

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