AI Drafter 
TaxTMI 
TaxTMI 
2018 (12) TMI 1566
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....idiary of HBT Real Estate Holdings Ltd., Mauritius for the purpose of development and construction of real estate projects in India. It has been stated that the assessee had entered into a Memorandum of Understanding with Shyam Communications System for the purpose of building a project, Skyview Corporate Park (SCP) located on NH-8, New Delhi. It has been also noted that appellant is developing master-planned corporate community called Skyview Corporate Park (SCP) in Sector 74A, NH-8, Gurgaon, Phase I of the development which contains two identical commercial building of nine floors. In its entirety, the 21 acre Skyview Corporate Park will comprise of 4 additional towers with a total commercial area of over 1.9 million square feet. The Assessing Officer further noted that though the assessee has not earned any revenue except interest of Rs. 31,10,952/-, however total project expenses have been capitalized to capital WIP except of Rs. 1,00,17,751/- to the extent of loss under the head 'business or profession' which was also related to project and he, therefore, proposed to show cause as to why not these expenses of Rs. 1,00,17,751/- be also capitalized to capital WIP. The as....
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....ATE PRIVAE LIMITED Assessment Year Expenditure incurred and debited to the Profit & Loss A/c expenditur e incurred being cost of the project Treatment by assessee Treatment by the AO 2009-10 22,98,897 1, 63, ,60,75,339 Not claimed as revenue expenditure while computing taxable income Position adopted by assessee not challenged by AO 2010-11 43,72,284 ,32,92,65,75 6 Not claimed as revenue expenditure while computing taxable income Posi tion adopted by assessee not challenged by AO 2011-12 1,28,07,638 3 9,39,12,933 Claimed as revenue expenditure while computing taxable income P Position adopted by assessee not challenged by AO Apart from the aforesaid business loss, it has also incurred capital expenditure on the development of project. The said expenditure which was directly in addition to the project was capitalized. During the instant assessment year, the assessee had incurred expenditure of Rs. 75,75,13,050/- which expenditure was directly relatable to the project and was capitalized. However apart from the aforesaid expenditure, it had incurred Rs. 1,19,36,5....
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.... business which is that of development of real estate. The actual acquisition of the land may be a first step in the commencement of the business but section 3 of the Act does not speak of commencement of the business, it speaks only of setting up of the business. When the assessee, in the present case, was in a position to apply for the tender, borrowed money for interest albeit from its holding company and deposited the same with NGEF Ltd. on the same day, it shows that the assessee's business had been set up and it was ready to commence business. The learned senior standing counsel for the Revenue would, however, state that till the land is acquired, the business is not set up. The difficulty in accepting the argument is that an assessee may not be successful in acquiring land for a long period of time though he is ready to commence his business in real estate and that would result in the expenses incurred by him throughout that period not being computed as a loss under the head "Business" on the ground that he is yet to set up his business. That would be an unacceptable position. The other argument of the learned standing counsel for the Revenue that the tax auditors of the....
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....ssessee is building of above mentioned corporate park and therefore, all the expenses whether direct or indirect should be accounted for as capital work in progress and are not allowable as revenue expenditure under section 37(1) of the Act on the ground that there is no revenue from business in the instant assessment year. 6.2 The crux of the appellant's submission is that expenses which were incurred entirely for the purpose of running the general administration of the business of the company have been debited to P&L account and are allowable u/s 37 of the Act. Expenses related to project were capitalized to the cost of the project. It was submitted that the appellant has followed AS-10 issued by ICAI in preparing its financial statements. 6.3 It is observed that the genuineness of the expenditure has not been disputed and break-up of the expenditure incurred is as under:- Nature of expenses Amount Remarks Rent 27,24, 782 The said expenditure pertains to rent paid for space occupied for setting up the marketing centre of the company. The company had taken an office space located at 701, 7th Floor, Time Tower, M.G. Road, Gurgaon on lease. The said ex....
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....expenditure. The basis adopted by the Assessing Officer that there is no income in the instant year is not relevant test for determining the allowability of expenditure claimed by the appellant company. The Apex Court in the case of CIT(A) vs. Rajendra Prasad Mody reported in 115 ITR 519 has held as under: "What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. S. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income shoul....
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....s receipt of income or not. That is the plain requirement of proper accounting and the interpretation of s. 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income. It is true that the language of s. 37(1) is a little wider than that of s. 57(iii), but we do not see how that can make any difference in the true interpretation of s. 57(iii). The language of s. 57(Hi) is clear and unambiguous and it has to be construed according to its plain natural meaning and merely because a slightly wider phraseology is employed in another section which may take in something more, it does not mean that s. 57(iii) should be given a narrow and constricted meaning not warranted by the language of the section and, in fact, contrary to such language. This view which we are taking is clearly supported by the observations of Lord Thankerton in Hughes v. Bank of New Zealand (1938] 6 ITR 636, 644 (HL). where the learned Law Lord said: "Expenditure in course of the trade which is un-remunerative is none the less a proper deduction, if wholly and exclusively made for the purposes ....
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....ness activity was earned by the assessee during the year. While passing the order, the assessing officer held that there is no business activity carried out by the assessee and hence disallowed the administrative expenses and depreciation claimed by the assessee should be disallowed. The same view was upheld by the CIT(A) and he agreed that the disallowance of depreciation and administrative expense is justified. The Tribunal decided in Favour of the appellant holding that only business income can prove the existence of business is not correct. The relevant portion of the order is as under:- "it may be true that the business receipts are not there but it cannot be said that the business activities are not there.... It was further submitted that prior condition to be satisfied any business activity is to first invest and spend for the business. Income will generate thereafter only. In a particular year income may be there and may not be there. Occurrence of some income is not the criteria to prove that the business activities are there. But concurrence of expenses for the purpose of business is certainly the criteria to establish that the business activities are th....
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.... was in this case dealing with the corresponding provision of the Indian Income-tax Act, 1922, then explained the distinction between the concepts of 'commencement' and 'setting up' of a business : ". . . It seems to us, that the expression 'setting up' means, as is defined in the Oxford English Dictionary, 'to place on foot' or 'to establish', and in contradistinction to 'commence'. The distinction is that when a business is established and is ready to commence business then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But there may be an interregnum, there may be an interval between a business which is set up and a business which is commenced and all expenses incurred after the setting up of the business and before the commencement of the business, all expenses during the interregnum would be permissible deductions under section 10(2). . . ." 6.11. In the case of Sarabhai Management Corpn. Ltd. [1976] 102 ITR 25 (Guj.), the Hon'ble Gujarat High Court has held that the business commences with the first activity for acquiring by purchase or other....