TaxTMI 
TaxTMI 
2015 (11) TMI 492
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....ced that the assessee was mainly engaged in development of housing project at Panchkula and had not started income recognition because the project was at very initial stage. The AO further observed that the assessee had shown income of Rs. 1,50,898/- which was mainly because of liability return back and there was no income on account of business activity. However, in the expenditure side the assessee had booked expenditure of Rs. 3,73,40,511/-. According to the AO the assessee should have capitalized all those expenses because the business operation of the assessee has not started. He, therefore, added back the expenditure in excess of income amounting to Rs. 3,71,92,193/- to the income of the assessee. 4. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: "11. The Assessment Order passed by the Assessing Officer is based on wrong interpretation of law, All expenses are allowable after business have been set up. Allowability of expenses cannot be denied merely because no revenue has been earned during the year. Assessing Officer has also mentioned in the Assessment Order that Assessee was incorporated on 09.04.2007 and is engaged i....
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....t notification, the Company filed its objection under Section 5A of the Land Acquisition Act, 1894 on behalf of the land owning company for release of 27 acres of land from the land acquisition proceedings in line with the conditions given in State Government's Memo No. 6/30- 2007/2TCP dated October 26, 2007 regarding government policy for release of land from acquisition proceedings. The management is confident that the Company shall receive approval for release of land from acquisition notification from the State Government shortly and is in the process of undertaking the project layout and other development activities for execution of the project. The management believes that upon launch of the project, the balance project costs shall be funded out of advances from customers and from funding in the form of compulsorily convertible debentures for which the Company already has commitment from its existing debenture holders to the extent of Rs. 146,250,000 as at the balance sheet date. Accordingly, these financial statements have been prepared on a going concern basis. 8. As per the information available with the Company, no transactions have been entered with supplier....
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....development work started and all expenses incurred after the commencement of business are allowable. Keeping in view the nature of expenses and commercial expediency of the business, you will kindly appreciate that all expenses have been incurred wholly and exclusively for the purpose of business and are allowable as revenue expenditure." 5. The reliance was placed on the following case laws: CIT Vs Modi Olivetti Ltd. 84 TTJ 1038 (Del) CIT Vs Berger Paints (India) Ltd. 254 ITR 503 DCIT Vs Core Healthcare Ltd. 308 ITR 263 CIT Vs Salora International Ltd. 308 ITR 199 CIT Vs Aluminium Industries Ltd. 234/214 ITR 541 (Ker) Empire Jute Co. Ltd. Vs CIT 124 ITR 1 (SC) CIT Vs Citi Financial Consumer Finance Ltd. 2011 335 ITR 29 (Del) 6. It was further submitted that there is a distinction between setting up of the business and the commencement of the business and as per Income Tax Act, 1961 what is relevant is the setting up of business and not commencement of the business. It was contended that the expenditure incurred after the business is set up may be allowed u/s 30 to 37 of the Act even if it is incurred before the b....
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....s on purchasing various inventories which is shown as work in progress at Schedule-5 page 11 of the paper book. The description of Schedule-5 shows that appellant has undertaken various activities on the land acquired like land development survey expenses, procuring of development rights, brokerage expenses, project management expenses etc. All these expenses prove that business activities of the appellant has already started during the year and expenses incurred on the project have been capitalized, except the routine expenses on running the company which have been claimed as business expenditure. The project has started during the year and work is in progress, therefore, no revenue could be recognized during the year by appellant company. However, facts prove that appellant was in the business and same continued in the subsequent year. If there are no Sales in a particular year that does not mean that appellant was not doing its business activities. In the construction business revenues are recognized after the project raised to some stage. In the current year the project was started and it did not reach to the stage where revenue could be recognized. Therefore, the observation o....
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....e incurring of expenditure for business purpose, his only objection was that those expenses were capital in nature and not revenue in nature as claimed by the assessee, on the basis that the commercial activity of the assessee did not commence. In the instant case it is an admitted fact that the assessee company was incorporated on 09.04.2007 and it acquired development rights on 172.46 acres of land for the purpose of Real Estates Development at Village Bhagwanpur, Tehsil Kalka, District Panchkula. The assessee acquired the approval from the State Government for setting up of residential township on 136.89 acres, the approval was published in Official Gazette on 26.09.2007 and the expenses in question were incurred by the assessee for its business purposes. However, the project which was started in this year did not reach to the stage where revenue could be recognized but it cannot be said that the expenses incurred by the assessee were not for the business purposes. On a similar issue the Hon'ble Jurisdictional High Court affirmed the decision of the ITAT Delhi, in deleting the similar type of addition which was made by the AO in similar circumstances in the case of CIT Vs Dhoomk....