TaxTMI 
TaxTMI 
2014 (1) TMI 593
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....s "AO") have erred in law and on the facts and circumstances of the case in determining the taxable income at Rs. 64,04,523 and rejection of the returned loss claimed by the appellant amounting to Rs. 3,46,38,360 is not justified. 3. The learned Commissioner of Income-tax (Appeals), as well as the learned Assessing Officer has erred by making incorrect allegations and concluding that no business activity of the appellant had commenced during the relevant year. 4. The learned Commissioner of Income-tax (Appeals), as well as the learned Assessing Officer has erred in law and on the facts and circumstances of the case by disallowing the expenditure of Rs.4,71,624 on account of professional fees paid to M/s. Wilbur Smith Associates by contending that the business of the appellant not commenced as no revenue has been earned in the relevant year by utilisation of services of Wilbur Smith. 5. The learned Commissioner of Income-tax (Appeals), as well as the learned Assessing Officer has erred in allowing the interest expenditure only to the extent of Rs. 36,40,000 o....
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....ed by the assessee as business expenditure which is substantially disallowed by the Department on the ground that the business of the assessee has not commenced. 3.4. Apropos ground No. 4, during the financial year 2006-07, the appellant issued a work order to M/s. Wilbur Smith Associates for consultancy pertaining to its main activity related to creation of data on mobility services for generating clientele. The professional fee paid to them was Rs. 4,71,408, it has been considered to be preliminary expenses by the Assessing Officer, thus substantially disallowed and added back to the income in terms of section 35D. 3.5. The appellant had filed the return of income for the assessment year 2007-08 on October 31, 2007 on the same lines as earlier including assessment year 2003-04 declaring its income under the head "Business", declaring a business loss of Rs. 3,46,38,360. The Assessing Officer rejected computation of income as returned by the appellant and recomputed the taxable income at Rs. 64,04,523 refusing the assessee's claim in respect of business expenditure. 3.6. The assessee's return and computation under the head "Profits and gains of business or profession" for the im....
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....t into being till the financial year under consideration. So far as the assessee's argument that in the earlier years the income has been assessed as business income goes, needless to state that as per the Income-tax Act, each year is independent as the authorities as empowered to take a view each year on the basis of facts of the case. Hence, the interest income earned for the year, i.e., Rs. 1,06,59,001 is being assessed as income from other sources. The assessee paid Rs. 4,42,11,258 to the Ministry of Urban Development on Rs. 7,00,00,000 for the period from 1994-95 to 2006-07, i.e., for 12 years. The rate of interest works out as 5.2 per cent. The interest allowable for this year works out to Rs. 36,40,000 which is allowed as deduction. The rest of the interest paid is apportioned to (deduction of Rs. 33,60,000 in 11 preceding assessment years). From the above facts and figures, the following is concluded : (a) There is no business conducted by the assessee so far. (b) The income is in the nature of 'income from other sources'. (c) The assessee-company had to make payment in the year 2001 only as per request of the Ministry of Urban Development, Government of India. (d) Th....
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....terest or otherwise and to lend money with or without securities to such companies, firms or persons and on such terms and conditions as may seem expedient and in particular to customers and others having dealings with this company." (iv) The Hyderabad Light Rail Project was not further carried on by the Government of India and was suspended for an indefinite period. Due to policies and various other issues about financial resources the new projects were not forthcoming from State Governments and local bodies. The money lying with the company lay at its disposal, which was invested by it as a matter of business expediency. (v) During the assessment proceedings for the year 2003-04, the Assessing Officer asked information in relation to the business activities of the appellant and the nature of its income, which was duly explained. After considering the facts and circumstances of the case, the Assessing Officer accepted that the income is appropriately charged under the head "Income from business and profession". Copy of the assessment order dated October 14, 2005 passed under section 143(3) of t....
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.... and of the amount as determined by the Ministry of Urban Development in the year of request against a sum that was used by the company for 12 years, therefore, the said interest should be apportioned over the last 12 years. The relevant extract of the order is reproduced for your reference : 'From the above facts and figures following is concluded"(d) the assessee-company had to make payment in the year 2007 only as per request of the Ministry of Urban Development, Government of India . . ." The assessee paid Rs. 4,42,11,258 to the Ministry of Urban Development on Rs. 7,00,00,000 for the period from 1994-95 to 200607, i.e., for 12 years. The rate of interest works out to 5.2 per cent. The interest allowable for this year works out to Rs. 36,40,000 which is allowed as deduction. The rest of the interest paid is apportioned to (deduction of Rs. 33,66,000) in 11 preceding assessment years). . .' We have prepared the response to the unsustainable contentions of the learned Assessing Officer as stated in his order in the following paragraphs under the headings a....
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....es" instead of business income, because no business activities has been conducted by the appellant-company during the year. While analysing the issue the Assessing Officer has rightly pointed out that no share capital was ever issued to the Ministry of Urban Development (MoUD) as well as no venture in the nature of trade was actually brought into till the financial year under consideration. It has also been rightly held by the Assessing Officer that each year is independent and the authorities are empowered to take a view each year on the basis of facts of the case. 5.3 In view of the above discussion, I am of the considered view that the Assessing Officer has rightly restricted the claim of interest to the tune of Rs. 36,40,000 out of total claim of Rs. 4,42,11,258 and has apportioned rest of the interest in 11 preceding assessment years. The action of the Assessing Officer is upheld in this regard. Ground Nos.5 and 6 are decided against the appellant." Aggrieved the assessee is before us. 4. Learned counsel for the assessee at the outset requested for admission of additional evidence filed by an application dated April 4, 2011, pleading that some of the documents could be obta....
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....have been allowed in past. The assessee's computation on similar lines has been consistently allowed under the head "Business". Reference is made to the assessment order for the assessment year 2003-04 in which the assessee's income has been assessed under the head "income from business and profession". 5.3. The Assessing Officer, to justify his somersault, has held that every year is a different unit in income-tax proceedings and principle of res judicata does not apply. There is no debate on this issue, however, the learned Assessing Officer has failed to appreciate the hon'ble Supreme Court's judgment in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC), in which the principle of consistency has been propounded. It has been held that if there is no change in the facts and circumstances of the case, settled propositions should not be unsettled in normal course. No abnormal circumstances have been observed by the Assessing Officer. The assessee relies on the principle of consistency. 5.4. The assessee's claim about its being a joint venture between the Central Government and other stakeholders ; the process being subject to various approvals ; the board of directors ....
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....e wound up the joint venture. On the contrary, the activities have increased after this assessment year, which are accepted by the Department. In this back drop learned counsel proceeded to counter the Assessing Officer's observations, which are reproduced above in the Assessing Officer's findings. (a) There is no business conducted by the assessee so far-The assertion is wrong, the assessee carried on business and in this year there were business activities which are wrongly held as pre-operative in nature. (b) The income is in the nature of "income from other sources"The accounting principles recognise the interest income earned during the business activities as "income from business". However, the income-tax law by a fiction has created a separate head on its taxation system, i.e., "income from other sources". Thus, even if the income is held as "income from other sources", there cannot be denial of the fact that the assessee was carrying on its business activities and the expenditure incurred during the course thereof, even in terms of interest, will amount to business expenditure. In case of a loss ret....
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....ilbur Smith Associates, itself indicates that the assessee indulged in the process of its consultancy business. Thus, the Assessing Officer's observation in this behalf also is wrong. 5.7. It is pleaded that the assessee has no issue if the income from interest is treated as "income from other sources", but the fact of the matter remains that the payment of returns made to Government of India has to be treated as "business expenditure". The assessee's denial to the Government of India for not giving any returns on their advance would have amounted to a serious breach between the assessee's joint venture and the Government of India and in that case the assessee's business could have never survived having taken a dispute with the Government of India. It is thus vehemently argued that the payment of returns on the Government of India's investment was inevitably a business necessity imperative for the existence of the assessee's business. The refusal thereof would bring down the assessee's business, thus the payment was made in order to defend the title of the business of the assessee. Therefore, the assessee's business being in continuance since 1994 the payment of returns which is t....
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....me from other sources". The Assessing Officer has rightly treated that the amount on returns amounts to interest paid by the assessee for utilisation of funds for past 12 years. The proportionate interest has been allowed against the interest income for the year in question and the balance treated as not relatable to this year. The Government of India asked the assessee in 2001 itself to refund its amount, if the assessee was carrying on any business, in that case a provision should have been made in the books of account in 2001 and the assessee should have claimed the interest on accrual basis. This also indicates that the assessee was not carrying on any business. Reliance is placed on the ratio of the decisions of the hon'ble Supreme Court in the cases of- (i) Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) ; (ii) Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802 (SC). 6.1. The learned Departmental representative thus contends that : (i) The assessee has failed to demonstrate and there was no business activity of the assessee which had commenced during this year. (ii) The one-twelfth of the interest expenditure was right....
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....nitial work of soliciting the clientage explaining them the productivity of urban mass transportation policies. The resources of the clients also depends upon the Government policies, planning, health and subsidy issues, etc., offered by the Government. The fact that revenue has been generated in the immediately succeeding year itself indicates that the assessee had undertaken business activities during the year. The crucial point of commencement of business is not only the earning of revenue because in many cases the generation of revenue may be deferred and activities are carried out earlier. Thus the assessee claims that this fact itself is suggestive of the continuance of the assessee's business. Thus, the assessee in fact has raised three aspects- (i) It was already into business right from 1994-95, which continued. (ii) There was a lull in the intervening period due to various factors including Government policies and availability of resources with the prospective clients. (iii) In any case, the assessee's business was set up in this year, which also makes the assessee eligible for expenditure incurred post its setting up. 7.2. After a careful consideration and in the giv....