TaxTMI 
TaxTMI 
2010 (1) TMI 967
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....d in law and on facts of the appellants case in holding that the advertisement expenses incurred by the appellant are attributable to contract activity and has to be allocated to the contract and not to be allowed as revenue expenditure especially when the same were allowed by the learned assessing officer after due examination of the matter. 3. The appellant craves leave to add, amend, alter, change, vary or substitute any of the aforesaid grounds or raise an additional ground, if it becomes necessary to do so in the interest of justice. 2. The assessment order in the present case is dated 30-11-2007, passed under Section 143(3) of the Act. The contents of the assessment order are as under: The assessee filed its return of income on 27-10-2005 at a loss of Rs. 28,59,844. The return was processed. The case was picked up for scrutiny and a notice under Section 143(2) was sent to the assessee on 26-10-2006. Sh. Manoj Bhola and Sh. Mohit Jain appeared for the assessee from time to time. The assessee is in the business of real estate development. The assessee was asked to file various details as per order sheet. The assessee filed details and the same were....
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....business demand such type of advertisements and publicity as a prudential activity in order to attract prospective clients/customers and those activities starts soon after acquisition of land. Reference was made to the various decisions of the hon'ble Supreme Court and the High Court which were relied upon by the assessee during the course of assessment proceedings to contend that in the case of real estate business, when the assessee acquires the immovable property either by purchase or by any other manner, it is said that the business of the assessee has commenced. 6. On the issue regarding advances taken for purchase of land, it was submitted by the assessee that it had paid advance of Rs. 1,62,53,00,050 for purchase of land from the Delhi Development Authority the same was reflected under the head current assets as on 31-3-2004. On execution of lease deed, the said amount representing advance for purchase of land was transferred from current assets to "leasehold land account" under the fixed assets. Thus, it was submitted that the said account was never squared up and it was stated that it is incorrect to say that no details or confirmations were filed. It was submitted ....
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....ved that the assessee had raised fresh loans amounting to Rs. 11,92,13,195 which were squared up during the year and the submission of the assessee in this regard were that the assessee had paid an advance of Rs. 1,62,53,00,050 for purchase of land from the Delhi Development Authority which was reflected under the head "current assets" as on 31-3-2004. On execution of lease deed, the said amount representing the advance for purchase of land was transferred from "current assets" to "leasehold land account" under the fixed assets and the information relating to name, address, permanent account number and the income-tax particulars are available in the assessment record. The learned Commissioner of Income-tax observed that this aspect was also not examined by the assessing officer, which is regarding squaring up of the account. Thereafter the learned Commissioner of Income-tax observed that the assessment record reveals that assessment proceedings were started on 4-10-2007 and those were completed on 30-11-2007, without making proper enquiries, i.e., in a hasty manner. Referring to the decisions of the hon'ble Karnataka High Court in the case of Thalibhai F. Jain v. ITO (1971) 101....
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....003, the assessee got the perpetual leasehold rights on the said land and reference was made to paragraph 4 of the lease deed. On 18-3-2004 the balance amount of 75 per cent, was paid. Thus, it was submitted that entire consideration of land was paid by 18-3-2004, which falls within the financial year related to the relevant assessment year and only the execution of lease deed was done in the assessment year 2005-06. It was submitted that business is set up on completion of the first activity, i.e., acquisition of land and any expenditure shown thereafter is allowable as revenue expenditure and reference was made to the following decision to contend that there is no infirmity in the order of the assessing officer vide which such expenditures were allowed on completion of the first activity, i.e., acquisition of land by the assessee: CIT v. Hughes Escorts Communications Ltd. (2009) 311 ITR 253 (Del). CIT v. L.G. Electronic (India) Ltd. (2006) 282 ITR 545 (Del). CIT v. Club Resorts Pvt. Ltd. (2006) 287 ITR 552 (Mad). CIT v. Herbalife International Ltd. (2008) 297 ITR 303 (Delhi). SLP dismissed by the Supreme Court in Herbalife International Ltd. v.....
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....ivities and all the activities that go to make up the business need not start simultaneously nor commence business. The business would commence when the activity which is first in point of time and which must necessarily precede the other activity is started. Referring to this decision it was submitted that the company is involved in the second category during the year under consideration, i.e., development of property, therefore, it can be said that assessee has commenced its business. It was submitted that once the business is set up all expenses are allowable as bona fide expenses and for this proposition reliance was placed on the decision of the hon'ble Delhi High Court in the case of CIT v. Funds International India (2007) 162 Taxman 1 and CIT v. Club Resorts Pvt. Ltd. (2006) 287 ITR 552 (Mad). 13. Referring to the above reply submitted to the assessing officer it was submitted that the question regarding allowability or otherwise of advertisement expenses was enquired into by the assessing officer. The necessary facts were submitted to the assessing officer along with legal propositions and the assessing officer being satisfied has admitted the claim of the assessee. ....
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....ive an occasion to the Commissioner of Income-tax to pass orders under Section 263 of the Act, merely because he has different opinion in the matter. It is only in the case of "lack of enquiry" that such a course of action would be open. It was submitted that while holding so their Lordships of the Delhi High Court have considered the decision of Gee Vee Enterprises v. Asst. CIT (1975) 99 ITR 375 (Del) relied upon by the Commissioner of Income-tax for invoking powers under Section 263. Thus, it was submitted by the learned authorised representative that the order passed by the learned Commissioner of Income-tax under Section 263 should be quashed. 16. On the other hand, it was submitted by the learned departmental representative that the learned Commissioner of Income-tax was right in invoking the provisions of Section 263 as assessment was framed in undue haste. He submitted that, as pointed out by the Commissioner of Income-tax, the assessment proceedings were started on 4-10-2007, and were completed on 30-11-2007 without making proper enquiries. Relying on the decision of the hon'ble Karnataka High Court and the hon'ble Delhi High Court as relied upon by the Commissio....
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....ad enquired about this aspect and such fact is discernible from the copy of letter filed by the assessee dated 1-11-2007 a copy of which is placed at pages 12 to 14 of the paper book. In the start of the letter it has been mentioned that certain queries were raised vide order sheet dated 11-10-2007 and reply regarding advertisement and publicity expenses were given at point No. 5. The details of reply has already been described in the above part of this order and briefly stated it was submitted by the assessee that during the year the land was acquired and development work was started and the assessee engaged in the real estate business, the huge expenditures on advertisement and publicity was required. Thus, it is a case where while examining the claim of the assessee regarding advertisement and publicity a question was put by the assessing officer to the assessee and a detailed reply was submitted along with necessary details and in such a situation, where the assessing officer has enquired into an issue and being satisfied not made any addition, there is no requirement in law to make a detail discussion of that issue in the assessment order passed by the assessing officer and su....
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....till 21-12-2008 thereafter at 2Vi per cent, of the premium or such other enhancement and so on. Thus, it is clear from the perpetual lease that the assessee is holding this land from 22-12-2003. Therefore, the findings of the learned Commissioner of Income-tax that the business of the assessee was not set up in the year under consideration for the reason that the lease deed was executed in the subsequent year is not factually correct. 19. The hon'ble Gujarat High Court in the case of Sarabhai Management Corporation Ltd. v. CTT (1976) 102 ITR 25 (Guj) by analysing the judicial pronouncements have arrived at a conclusion that in a case where the business activity of the assessee is real estate then the first business activity is to acquire either by purchase or by any other manner immovable property so that the property can be ultimately given out either on leave or on licence basis or on lease to others together with the appurtenant services. The second category of the business activity is to put these buildings and building accommodation and lands and gardens into proper shape and set up the appurtenant services so that ultimately the property can be given out on leave and l....
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.... CIT v. Club Resorts Pvt. Ltd. (2000) 287 ITR 552 (Mad) the hon'ble Madras High Court in a case where the assessee was carrying on business of promoting time share units at places of tourists interest and marketing such time share units, for development of projects of construction of the said units the assessee required to maintain regular staff members and to incur office expenses which was disallowed under Section 37(1) and it was held that even at the stage of development of projects, such expenses were allowable as business expenditure and the order of the Tribunal was upheld. 23. In the case of CIT v. Herbalife International Ind. (2008) 297 ITR 303 (Delhi) the assessee-company was engaged in trading of health care and nutritional products entered into an agreement with other company on 9-2-1999. The purchase orders were placed with other company in 9-3-1999 which had in turn placed orders with different vendors. A loss of Rs. 24 lakhs was declared and claimed to be carried forward as business loss. The assessing officer took a view that the assessee did not commence its business on 9-2-1999, such expenditure could not be allowed. Taking into consideration the date of pl....
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....h is raised by the Commissioner of Income-tax in his order is with regard to squared up credit in the name of M/s. DLF Universal Ltd. It is observed by the learned Commissioner of Income-tax that during the year under consideration the assessee has raised fresh loans amounting to Rs. 11,92,13,195 which have been squared up during the year. According to the learned Commissioner of Income-tax the assessee neither disclosed that loan raised and squared up to the tune of Rs. 11,92,13,195 nor the assessing officer has examined this issue of squared up account. It has already been mentioned earlier that M/s. DLF Universal Ltd. is a group concern of the assessee and vide reply dated 1-11-2007 submitted to the assessing officer during the year under consideration, the copy of which is placed at pages 12 to 14 of the paper book the reply of the assessee as per point No. 3 was as under: 3. During the year the assessee-company has received secured loan from UTI bank Ltd. and unsecured loan from M/s. DLF Ltd. (earlier known as DLF Universal Ltd.). A copy of account, which is self explanatory, duly confirmed by M/s. DLF Ltd. is enclosed vide annexure II. Regarding the confirmation from....
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....mation was submitted and the objection of the learned Commissioner of Income-tax is with regard to a sum of Rs. 11,92,13,195. When the creditor is known and its existence is established by furnishing permanent account number and other details with confirmation then unless any material is brought on record to doubt such particulars, the credit has to be accepted and this is what was done by the assessing officer. The learned Commissioner of Income-tax even could not bring any material on record to say that such squared up credit in the name of group concern of the assessee was not genuine. When particulars were furnished to the assessing officer and he has applied his mind then the legal proposition and the decision taken by us with regard to allowability or otherwise of advertisement and publicity expenses will also equally apply to this aspect. Therefore, on this aspect also the learned Commissioner of Income-tax was wrong in invoking his power under Section 263. 29. Now coming to the issue that whether the assessing officer has done 29 the assessment in haste and without making proper enquiry, it may be mentioned that it is not a clear case where no enquiry at all has been don....