2005 (5) TMI 554

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....ting to Rs. 2,70,661 (in the case of the assessee in ITA No. 4142/Del./2004) and a sum of Rs. 2,62,915 (in the case of the assessment in ITA No. 4143/Del./2004) on the ground that the business of the assessees had not commenced and, therefore, the expenditure in connection with business cannot be allowed as deduction. The facts and circumstances under which the disallowance was made by the Assessing Officer are identical. These appeals were heard together and a common order is being passed for the sake of convenience. 2. Both the assessees are promoters and developers of land at Gurgaon. For assessment year 2001-02, the assessee in ITA No. 4142/Del./2004 filed return of income declaring 'nil' income. There was, however, book profit under....

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....ertain other companies to carry out joint development of the land acquired separately by each of the parties to the joint development agreement. Copy of the said agreement dated 5-8-1996 has been placed before us. The land to be developed by the assessees together with its associates was known as Mayfield Gardens. In connection with the grant of licence, the Director of Town & Planning asked the assessees to provide a Bank Guarantee and the FDR on which interest was received which have been credited in the P & L A/c. by both the assessees was taken out for the purpose of providing as security to the book for the bank guarantee provided by the Bank on behalf of the assessee to the Director of Town Planning. 3. In the light of the aforesai....

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....eld that expenses which were incidental to earn interest income were to be allowed as deduction. He found postage and telegram, filing fee, bank charges and audit fees were allowable as expenses in earning the interest income and consequently disallowed a sum of Rs. 2,70,661 in the case of the assessee in ITA No. 4142/Del./2004 and a sum of Rs. 2,62,950 in the case of the assessee in ITA No. 4143/Del./2004. On appeal by the assessee, the CIT(A) upheld the order of the Assessing Officer by holding that the business of the assessee had not commenced and merely acquiring a land for the purpose of joint development with various other companies and getting the licence from HUDA for construction of residential complex cannot be construed as facto....

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....aid financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year." It is on the basis of this definition that the Hon'ble Bombay High Court held that for the purpose of Indian Income-tax Act, it is the setting up of the business and not the commencement of the business that is to be considered. The Hon'ble High Court further held that when the business is established and ready to commence the business, then it cannot be said that business itself is set up but before it is ready to commence, it is not set up. It further held that there may be time gap....