TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 431
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....t'). The remaining seven appeals of the assessee are against respective orders of the Ld. Commissioner of Income-tax (Appeals) confirming the orders of the assessment framed under section 143(3) of the Act for each of the assessment years. As the grounds raised in various appeals and issues involved are common, these appeals were heard together and disposed off by way of this consolidated order for the sake of convenience and to avoid repetition of facts. 2. First, we take up the seven appeals arising from order of the Ld. Commissioner of Income-tax (Appeals) for assessment years from 1996-97 to assessment year 2002-03. The grounds raised in these appeals are reproduced as under: A. Grounds of appeal for assessment year 1996-97 1. That the learned Commissioner of Income Tax (Appeals) has erred both on facts in law in upholding the findings of learned AO, who had held that, the assessee is not an 'authority' within the meaning of section 10(20A) of the Act and thus was not eligible to the claim of exemption u/s 10(20A) of the I.T. Act. 2. That the learned Commissioner of Income Tax (Appeals) has further erred in failing to appreciate that Rs. 2,39,452/- was not an....
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.... being of allowable nature, deduction for the same deserves to be fully allowed. 3. In the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeal) has erred in not allowing deduction of Rs. 8,07,227/- under section 35-D of the Income-tax Act. This deduction being admissible deserves to be fully allowed. 4. In the facts and in the circumstances of the case, the Commissioner of Income-tax(Appea1) has erred in not allowing deduction of Rs. 1,75,49,218/- on account of the claim for depreciation. The claim for depreciation being admissible deserves to be fully allowed. 5. The appellant craves leave to add, amend, modify or alter any of the grounds of appeal stated above either before or at the time of hearing of this appeal. D. Grounds of appeal for assessment year 1999-2000 1. On the facts and circumstances of the case the learned Commissioner of Income tax (Appeals) has erred in law in holding that the provisions of section 10C20A) are not applicable in the case of the appe11ant. Exempt ion under section 10(20A) being available to the appellant under the law the same deserves to be allowed. 2. In the facts and circumstances of the case the....
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....ellant and the same is liable to be fully allowed at Rs. 14,67,87,754. 5(a) Without prejudice to the above the Ld. CIT (Appeals) has erred in reducing the claim of deduction of expenses for earning of interest income from Rs. 56,21,803/- to Rs. 37,94,354.00. The claim for deduction of expenses at Rs. 56,21,803/- for earning of interest income being based on the formula evolved by the CIT, Delhi IV, New Delhi during the proceedings U/s 263 of the I.T. Act for Assessment Years 1998-99 and 1999-2000 deserves to be fully allowed. This claim for deduction of expenses for earning of interest income being in accordance with the provisions of law contained in Section 57 of the I.T. Act deserves to be fully allowed. 5(b) Deduction of expenses of Rs. 56,21,803/- claimed by the appellant as deduction for earning of interest income deserves to be fully allowed to the appellant. 6. The appellant craves leave to add alter or modify any ground of appeal either before or at the time of hearing of appeal. F. Grounds of appeal for assessment year 2001-02 1. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-tax (Appeals) has erred in law in holding that ....
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....law in holding that the provisions of Section 10(20A) are not applicable in the case of the appellant. Exemption U/s 10(20A) being available to the appellant under the law the same deserves to be allowed. 2. On the facts and in the circumstances of the case, the Ld. CIT (Appeals) has erred in law in holding that the business of the appellant did not commence during the period under assessment. The business of the appellant company as per its Memorandum & Articles of Association having commenced during the period under assessment, the finding of the Ld. CIT (Appeals) on this point deserves to be cancelled. 3. On the facts and in the circumstances of the case, the Ld. CIT(Appeals) has erred in not allowing deduction of Rs. 31,84,59,233/- as deduction of business expenses. The business of the appellant company having been commenced, the claim for deduction of business expenses of Rs. 31,84,59,233/- being in accordance with the provisions of law deserves to be fully allowed. 4. On the facts and in the circumstances of the case, the Ld. CIT(Appeals) has erred in disallowing claim for deduction of business expenses of Rs. 31,84,59,233/-. These expenses having been incurred wholl....
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....e assessee that above additional grounds arises from the order of the assessment and goes to the very root of the matter. It was further submitted that all the facts relating to determination of the above grounds are on record and no fresh evidence are required for determination of the aforesaid legal grounds. The assessee in its application for admission of the additional ground relied on the decision of the Hon'ble Supreme Court in the case of NTPC Vs. CIT reported in 229 ITR 383. 5. The Learned DR, on the other hand, opposed admission of the additional ground. 6. We have heard the parties on the admissibility of the additional ground. We find that the issues raised in the additional ground are legal in nature and all the facts in relation to the issues raised are available on record and no investigation of the fresh facts is required. In view of these facts and circumstances and respectfully following the finding of the Hon'ble Supreme Court in the case of NTPC Vs CIT (supra), we admit the additional ground. 7. A summary of the grounds and additional grounds raised in various appeals by the assessee is reproduced as under for convenience: Issue Involved 1346/D/18 2398....
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....India and Government of National Capital Territory (NCT) of Delhi, through a corporate structure, namely, the Delhi Metro Rail Corporation (DMRC) Limited, i.e., the assessee, was incorporated as a company under the Companies Act, 1956 and accordingly was registered as a company on 03/05/1995. The main objective of the "MRTS" project was stated to be providing for nonpolluting, efficient and affordable rail-based Mass Rapid Transit System for the National Capital Territory of Delhi, duly integrated with other modes of transport. The assessee company claimed that it was constituted for the purpose of planning, designing, development, construction, maintenance, operation and financing of Mass Rapid Transit System and other transport etc. Assessment year 1996-97 (ii) During the financial year 1995-96 corresponding to assessment year 1996-97, the assessee shown receipts of Rs. 2,80,52,272/- and expenditure of Rs. 80,52,272/- . The un-used funds remained with the assessee company were deposited in various banks. The receipts of the company came in the form of equity contribution released by the Government of NCT of Delhi and Government of India. The expenditure reported during the ....
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.... said that the business of the assessee had commenced and thus the claim of the assessee under section 35D of the Act cannot be accepted in the year under consideration. The Ld. CIT(A), thus upheld the action of the Assessing Officer of assessing the amount of Rs. 2,39,452/- under the head "Income from other sources" rejecting the claim of set off of preliminary expenses of Rs. 8,07,227/- under section 35D of the Act (vi) Against the order passed by the ld. CIT(A) dated 12.10.1999, the assessee preferred appeal before the Income-tax Appellate Tribunal ( ITAT) . The ITAT in an order dated 18.7.2006 passed in ITA No. 1481/Del/2000 restored the appeal of the assessee to the learned CIT(A), with the direction to record his findings on the issue whether the assessee is entitled to claim exemption u/s 10(20A) of the Act for the year under consideration. The relevant findings are as under: "5. After going through the order of ld. CIT(A) both the parties agreed that ld. CIT(A) has not given any finding on the issue of applicability of the provisions of section 10(20A) of the Income Tax Act, 1961 to the assessee although this ground was taken as ground no. 3 in the appeal filed before....
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....ion u/s 10(20A) of the Act and mentioned that business of the assessee commenced in terms of the main object as specified in Memorandum and Articles of Associations for which it has been set up. The Assessing Officer in order passed u/s 143(3) of the Act on 08.11.1999 rejected the claim of exemption of income u/s 10(20A) of the Act. The Assessing Officer also held that the business of the assessee was not commenced and disallowed the claim of preliminary expenses written off of Rs. 8,07,227/- u/s 35D of the Act and consultancy expenses of Rs. 65,40,000/-. The Assessing Officer assessed the total income at Rs. 37,44,777/-. (iii) On further appeal by the assessee, the Ld. CIT(A) upheld the rejection of exemption u/s 10(20A) of the Act ,disallowance of preliminary expenses written off of Rs. 8,07,227/- u/s 35D of the Act and consultancy expenses of Rs. 65.40 lakhs. For assessment year 1998-99 (i) In the concerned year, the issued and subscribed share capital stands at Rs. 2,05,61,04,000/-. During the year, the assessee purchased various item under fixed assets like computer, telephone equipment, car, furniture & fixture etc., amounting to Rs. 79,84,243/- and claimed depreciat....
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....r assessment year 1999-2000 (i) As per the balance-sheet as on 31.03.199, the subscribed share capital of Rs. 40,46,10,400/- and share application money of Rs. 40,00,00,000/- is appearing in balance sheet. During the year, the assessee purchased fixed assets items like computer, air conditioning, electrical equipments, furniture & fixture etc. and claimed depreciation on the same. During the year capital workin- progress was valued at Rs. 57,59,14,052/- and advance for capital expenditure was shown at Rs. 23,89,19,303/-. In profit and loss account, interest income of Rs. 36,58,38,183/- and misc. income of Rs. 26,15,340/- has been shown. On expense side, expenditure of Rs. 825,48,214/- was debited which included employees remuneration and benefit of Rs. 2,06,21,133/-, Administrative & other expenses of Rs. 4,90,38,445/-, depreciation of Rs. 1,12,46,873/-, preliminary expenses written off of Rs. 8,07,227/-. The assessee transferred incidental expenses during the construction of Rs. 7,56,54,241/- to Capital work-inprogress leaving expenses of Rs. 68,93,973/- under the profit and loss account and computed net profit of Rs. 36,15,59,550/-. (ii) The assessee filed return of income ....
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....to incidental expenditure during construction and transferred to capital work-in-progress and incidental expenditure not related to construction have been transferred to deferred revenue expenditure. The assessee further noted that deferred revenue expenditure would be proportionally charged off over a period of five years stating from the year in which the assets are first put to use. (ii) The assessee filed return of income on 31.01.2000 declaring total income of Rs. 59,57,94,426/- under business head. The assessee later on revised the return on 27.03.2002 , computing the income at NIL as under: Revised Computation of Total Income and Tax Payable (iii) The Assessing Officer in assessment order dated 31.03.2003 rejected the claim of exemption of income u/s 10(20A) of the Act. The AO held that business of the assessee was not commenced and he assessed the interest income from fixed deposits with Banks under the head " Income from other sources" as against claim of the assessee as income under the head "profit and gains of the business and profession". The Assessing Officer also rejected claim of the assessee to allow expenses of Rs. 14,67,87,754/- against the income from othe....
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....f set off of preliminary expenses written off u/s 35D of the Act, and deduction of expenses against the interest on fixed deposits. He also disallowed the claim of expenses of Rs. 7,76,000/- against income from other sources for earning the interest income. (iv) On further appeal, the learned CIT(A) rejected the claim of exemption of income u/s 10(20A) of the Act. He also upheld that business of the assessee was not commenced during the year and hence justified the action of the AO of holding the consultancy charges paid on preoperative expenses eligible for amortization u/s 35D(2)(a) of the Act. On the issue of allowing expenses against interest income, he accepted the claim of the assessee and allowed expenses of Rs. 7,76,600/- against the interest income. For assessment year 2002-03 (v) The assessee filed return of income on 31.10.2002 declaring total income of Rs. 40,03,08,800/-, which was computed as under: Income from Business/Profession: Interest Income on Bank Deposits Rs. 71,94,57,145 Consultancy Fees Received Rs. 3,10,837 Rs. 71,97,67,982 Less : Expenses incurred for earning of (a) Interest income as per statement enclosed Rs. 28,80,19,287 ....
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....emption u/s 10(20A) of the Act. It was submitted that assessee came to be constituted on 3.5.1995 as a joint venture company between the 'Government of India' and 'Government of Delhi'. It was submitted that assessee was incorporated with the objective of planning, development, construction, maintenance, operation and financing of mass transit and urban transport system in the National Capital Territory for the purpose of development and improvement of the city of Delhi. It was submitted that section 10(20A) of the Act exempts any income of any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both. It was submitted that in order to claim exemption under this section, the assessee must satisfy following two conditions: i) It must be an "Authority" constituted in India by or under any 'law'; and ii) The law must be enacted for the purpose specified in this sub-section 13.1 It was submitted that assessee is a joint venture company formed by two governments, i.e. Government of India an....
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.... The Group of Ministers recommended to the Cabinet for in principle approval for the preparation of DPR subject to certain conditions such as pricing of Govt. land at market value, no change in FSI, conducting environment impact assessment study etc. 23.5.1994 Supplementary note was sent by MOUD to the Cabinet. Referring to the outcome of the presentation made to Group of Ministers on 25.4.1994, approval of the Cabinet was sought for: i. to go ahead in principle for Delhi MRTS Project; ii. to take up the preparation of DPR; iii. To take up environment assessment study; iv. To approve financing pattern; v. For railway land; vi. Allowing participation of private sector; vii. Posing the project for assitance to international aid agencies; viii. Constitution of GOM; ix. Constitution of Empowered Committee; x. Setting up of DMRC Ltd.; xi. Constitution of a Cell in Ministry; 19.7.1994 The meeting of Cabinet took place. The Cabinet approved the proposal of MOUD with the stipulation that the total cost of Phase-I of the Project as well as the sources of financing indicated in the note of MOUD will be considered as indicative. 3 .5.1995 Company was incorpor....
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....4860 Crores at April'96 prices; iii. Land; iv. Implementation of Project by GOI and GNCTD in equal proportion; v. Financing Plan; vi. Provision of planned funds towards equity capital, land acquisition cost, etc.; vii. Approval to Delhi Govt. to nominate equal number of Directors on the DMRC Board; viii. Chairman and MD to be appointed by GOI and GNCTD respectively; ix. Authorising the Empowered Committee to grant all necessary Govt. sanctions to avoid cost escalation due to delays"; 13.2 It was submitted by referring to supplementary note for the Cabinet dated 16.9.1996 that the Government of India had sought to implement the project through DMRC Ltd. which had come into existence on 3.5.1995. Reliance was also placed on the cabinet note dated 19.7.1994, which, inter-alia, provided as under: "x) Setting up of a company under the Companies Act for implementation of Delhi MRTS project with participation by Govt. Of India, Govt. Of NCt of Delhi and others." 13.3 It was submitted that having regard to the substance of the formation of the company since the implementation of the project have to be done by the company, it cannot be stated that the implementation of th....
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....that no rolling stock, metro railway tracks, machinery, plant, tools, fittings, material or effects used or provided by a metro railway administration for the purposes of traffic on its railway, or its stations or workshops, or offices shall be liable to be taken in execution of any decree or order of any court or of any local authority or person having by law the power to attach or distrain property or otherwise to cause the property to be taken in execution, without the previous sanction of the Central Government. g) Section 90 of DMR Act further provides that all persons in the employment of the metro railway administration shall when acting or purporting to act in pursuance of the provisions of this Act, be deemed to be public servants within the meaning of section 21 of the Indian Penal Code (45 of 1860). h) The members of the Committee for fixation of fare for carriage of passengers u/s 33 of DMR Act is to be nominated by the Central Government and the Government of the National Capital Territory of Delhi respectively. i) The period for making fare fixation u/s 36 of DMR Act is required to be specify by the Central Government. 13.4 The assessee also sought to place....
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....1, 65 to 79 of Delhi Metro Railway (Operation and Maintenance) Act, 2002 and to arrest without warrant or other written authority by any metro railway official or by a police officer not below the rank of a head constable or by any other person whom such metro railway official or police may call to his aid. 13.6 It was submitted that there is no requirement under section 10(20A) of the Act to be mandatorily constituted by an Act of Parliament or State Legislature. The incorporation of company under the Companies Act' 1956 also meets the conditions prescribed in section 10(20A) of the Act, since it is a company constituted under any law. It was submitted that, there is a mandatory precondition in section 10(23BB) and, 10(23BBA) of the Act that, an authority should be either established or constituted or appointed by Central, State or Provincial Act and, not simply constituted by or under any law in India; whereas for the purposes of section 10(20A) of the Act, there is no such requirement that, the authority must be established by an Act of Parliament placed before both the Houses or even by the State Legislature, as is the requirement in the aforesaid provisions. It was thus subm....
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....al States have set up statutory Housing Boards for the framing and execution of housing and other development schemes. These Boards are autonomous organizations and they play an important role in implementing the housing programmes of Government for the common good. As these Boards are serving an important public purpose and do not exist for private profit, the Finance Act, 1970 has made a specific provision in a new clause (20A) of section 10 exempting the income of such Boards from tax altogether. This provision exempts from tax any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both. This provision has been made with effect from 1-4-1962 that being the date of commencement of the Income-tax Act. [Section 10(20A) inserted by section 4(a) of the Finance 13.10 It was also submitted that the aforesaid sub-section was omitted by the Finance Act 2002, when a Circular No. 8/2002 dated 27.08.2002 had been issued by the CBDT wherein it was stated as under: "Income of certain ....
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....s well as Metro Railway ( Construction of Works) Act as such are Acts by the government to regulate its funding and operation. 14.1 The Ld. DR distinguished the decision in the case of Gujarat Industrial Development Corporation Vs. CIT (supra) stating that sad Corporation was constituted under an Act of the state government of Gujarat and thus, a statutory body, whereas the assessee has been incorporated as a company under the companies act, 1956 and registered as a Government company as defined in section 617 of the Companies Act. 14.2 The Ld. DR relied on the decision of the coordinate bench of the Tribunal in the case of Uttarakhand Purv Sainik Kalyan Nigam Ltd. Vs ACIT (2019) 102 taxmann.com 227 ( Delhi - Trib)/ 175 ITD 107 wherein the exemption sought under section 10(26BBB) of the Act claiming to be a Corporation established by Central, State or provincial Act was denied for the assessee being merely registered under the Companies Act. 14.3 The Ld. DR also referred to the decision of the Hon'ble Supreme Court in the case of CIT Vs. Canara Bank (2018) 406 ITR 161 (SC). The Ld. DR also relied on following decisions: 1. Agricultural Produce Market Committee Vs. CIT [200....
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....ted. (iii) The said authority must be constituted for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, developing a improvement of cities, towns and villages or for both. 15.2 Before us, the Ld. Sr. counsel referred to the Memorandum and Article of Association of the assessee company available on pages 38 to 133 of the paper-book for assessment year 1997-98. The main objects of the company as per Clause IIIA of the Memorandum of Association, available on page 42 of the said paper book reads as under: A: Main Objects of the Company to be pursued by the Company on its incorporation: (a) Planning, designing, development, construction, maintenance, operation and financing of Mass Transit and other Urban Transport and People Mover Systems of all types and description in the National Capital Territory of Delhi and other areas of the National Capital Region (NCR), either individually of In association with other Undertakings or Companies in India and/or abroad, including but not limited to : (i) Feasibility Reports, Detailed Project Reports, Techno-Economic investigations, site selection, supply of basic engineerin....
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....s Uttarakhand Purv Sainik Kalyan Nigam Limited (supra) cited by the Ld. DR. In this case, the assessee was incorporated on 01/03/2004 under the provisions of the Companies Act, 1956. It was claimed that it was established for the welfare and economic upliftment of ex-servicemen, being citizens of the India and the assessee claimed benefit of exemption under section 10(26BBB) of the Act. The relevant section prescribed that any income of a Corporation established by Central, State or Provincial Act for the welfare and economic upliftment of the ex-servicemen being the citizens of India is exempted from the Income-tax. Before the Tribunal, the assessee contended that the assessee has been established under the Companies Act, and thus, it should be treated as an established under Central Act. The Tribunal after considering submission of the parties , held that the assessee is merely registered under the Companies Act and not established by or under a Central Act. The relevant finding of the Tribunal is reproduced as under: "5. We have considered the rival submissions and perused the material available on record. Section 10(26BBB) of the I.T. Act provides that the income which do no....
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....t order and the A.O. without examining and without verifying the contents of the reply of the assessee has partly disallowed the exemption under section 10(26BBB) of the I.T. Act in a sum of Rs. 52,23,503/-. The A.O. in the assessment order has nowhere mentioned or concluded that assessee has satisfied the conditions of Section 10(26BBB) of the I.T. Act. Therefore, it is a case where A.O. did not make any enquiry with regard to applicability of substantive provisions of Section 10(26BBB) of the I.T. Act. The A.O. has failed to apply his mind to the facts and circumstances of the case. The A.O. did not make any enquiry into the issue involved in the present appeal. The A.O. merely reproduced the reply of the assessee and accepted the claim of assessee partly. Therefore, there is no question of taking any possible view into the matter as is contended by Learned Counsel for the Assessee. During the course of arguments, the Learned Counsel for the Assessee was not able to satisfy as to how the assessee satisfied the requirements of Section 10(26BBB) of the I.T. Act and how the Judgments, relied upon by him are applicable to the facts and circumstances of the case. The Ld. D.R. on the o....
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....ail (Operation and Maintenance) Act, 2002 have been legislated by the Parliament, but these Acts do not contain any section or law related to constituting or establishing of the assessee company. The Learned Senior Counsel was asked to produce a copy of any Notification issued under the Metro Railways (Construction of Works) Act, 1978 or Delhi Metro Rail (Operation and Maintenance) Act, 2002, in relation to constitution of the assessee company however, he failed to produce any such Notification issued under those Acts for constitution of the assessee company. Thus, it is evident that the assessee company is merely registered under the Companies Act. 15.8 The Hon'ble Supreme Court in the case of Canara Bank (supra) has discussed in detail as what is a Corporation, under the Companies Act and an authority established by or under the Central, State or Provincial act. In the said case, New Okhla Industrial Development Authority (NOIDA) which has been constituted by notification dated 17/04/1996 issued under section 3 of the Uttar Pradesh Industrial Area Development Act, 1976, was held to be a Corporation established by a State Act and, therefore, entitled to exemption from payment ....
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....any created by the Companies Act. In paragraph No. 25 following was held: "25 A company incorporated under the Companies Act is not created by the Companies Act but comes into existence in accordance with the provisions of the Act. It is not a statutory body because it is not created by the statute. It is a body created in accordance with the provisions of the statute." 20. Mathew J., writing concurrent opinion while discussing the public corporation held that such corporations are created by State. In Executive Committee of Vaish Degree College, Shamli and Others vs. Lakshmi Narain and Others, (1976) 2 SCC 58, the question for consideration fell as to whether the Executive Committee of a degree college is a statutory body. Contention before the Court was that the Executive Committee was the statutory body since it was affiliated to the Agra University which was established by the statute. The Executive Committee was further covered by the statute framed by the Agra University. In the above context, this Court held that there is a clear distinction between a body which is created by the Statute and a body which having been come into existence is governed in accordance with th....
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.... 23. Another judgment which had occasion to consider the expression established by or under the Act is a judgment of this Court in Dalco Engineering Private Limited vs. Satish Prabhakar Padhye and Others (2010) 4 SCC 378. The Court had occasion to examine the provision of Section 2k, of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995, specifically expression "establishment" means a Corporation established by or under Central, Provincial or State Act. This Court held that the phrase established by or under the Act is a standard term used in several enactments to denote a statutory corporation established or brought into existence by or under the statute. On Company it was held that the company is not established under the Companies Act and an incorporated company does not "owe" its existence to the Companies Act. In paragraph No. 20 following has been laid down: "20. A "company" is not "established" under the Companies Act. An incorporated company does not "owe" its existence to the Companies Act. An incorporated company is formed by the act of any seven or more persons (or two or more persons for a private company) assoc....
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....corporation as contained in Section 2(b) which is to the following effect: "2(b) Financial Corporation means a Financial Corporation established under Section 3 and includes a Joint Financial Corporation established under Section 3A;" 26. Section 3 deals with establishment of State Financial Corporation which provides as follows: "3. Establishment of State Financial Corporations.: (1) The State Government may, by notification in the Official Gazette, establish a Financial Corporation for the State under such name as may be specified in the notification. (2) The Financial Corporation shall be a body corporate by the name notified under sub-section (1), having perpetual succession and a common seal, with power, subject to the provisions of this Act, to [acquire, hold and dispose of] property and shall by the said name sue and be sued." 27. This Court clearly in above case, Dalco Engineering (supra) has held that such Financial Corporations are established by an Act or under an Act. In paragraph No. 23 of the judgment following has been held: "23. We may next refer to The State Financial Corporations Act, 1951 which provides for establishment of various financial cor....
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....mber (f) Five members to be nominated Member by the State Government by notification. (g) Chief Executive Officer. Member Secretary (4) The headquarters of the Authority shall be at such place as may be notified by the State Government. (5) The procedure for the conduct of the meetings for the Authority shall be such as may be prescribed. (6) No act or proceedings of the Authority shall be invalid by reason of the existence of any vacancy in or defect in the constitution of the Authority." 30. When we compare the provisions of Section 3 of 1976 Act with those of The State Financial Corporations Act, 1951, it is clear that the establishment of Corporation in both the enactments is by a notification by State Government. In the present case, notification has been issued in exercise of power of Section 3, the Authority has been constituted. It is useful to extract paragraph No. 2 of the Notification dated 12.04.1976: "2. The Governor is hereby further pleased, in exercise of the powers under Section 3 of the said Act, to constitute, in respect of the above-mentioned Industrial Development Area, for the purposes of the said Act, an Authority to be called the ....
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....ld as under: "3. The assessee-company was registered as a Government public company, as defined in s. 617 of the Companies Act, 1956 for a large number of objects which are mentioned in cls. (1) to (42) of the memorandum of association, which includes the objects like (a) modernization, maintenance and operation of the irrigation system, (b) development of field channels and field drains within the command of each outlet, (c) consolidation of holdings and redrawing of field boundary, (d) development of ground water to supplement surface irrigation, (e) development of marketing and processing and communication, (f) town planning, etc., etc. During the two years under consideration, no activity of any sort mentioned in its objects was taken up and the only income derived was from interest earned on fixed deposit, etc. It claimed its income to be exempt under s. 10(20A) of the Act. This claim has been negatived throughout, and in our view rightly, because the assessee was not an authority constituted by or under any law enacted either for the purposes of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of citi....
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....e matter to the authorities concerned to consider whether the U.P. Forest Corporation is entitled to take advantage of the provisions of s. 11 of the IT Act. The same treatment may be given to the assessee herein by relegating them to go before the authorities to advance their case that they are entitled to the advantage of the provisions of s. 11 of the Act. 11. Here again, we are not able to accept the suggestion made by the learned senior counsel for the reason that in that case during the course of assessment proceedings for 1977-78, 1980-81 and 1984- 85, the Forest Corporation claimed its status to be that of a local authority entitled to exemption under s. 10(20). The AO rejected the claim and in respect of asst. yRs. 1977-78 and 1980-81, he taxed it in the status of artificial juridical person and in respect of the asst. yr. 1984-85 as a company. The assessee then filed an appeal in respect of the asst. yRs. 1977-78 and 1980-81 and the CIT(A) came to the conclusion that the respondent was a local authority and as such its income was exempted from tax. That order was challenged in appeal by Revenue before the Tribunal, which set aside the order of the CIT(A). Instead of fo....
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.... counsel has placed reliance on the decision of the Hon'ble Supreme Court in the case of Gujarat Industrial Development Corporation Vs. CIT (supra) to support the contention that assessee is an authority constituted by or under Central Act i.e. the Companies Act, 1956. But in the said case the Hon'ble Supreme Court has observed that said assessee-company was created under the Gujarat Industrial Development Act, 1962, whereas in the instant case, the assessee has been registered with the Companies Act only and not created under the Companies Act or any other Central or State Act and thus the ratio of the said decision cannot be imported over to the fact of the instant case. In the case of Vidarbha Irrigation Development Corporation (supra) also, the issue whether the assessee was constituted by under Central or State Act was not in dispute and thus, the ratio of the said decision cannot be applied over the facts of the instant case. 15.14 Similarly, the ratio of the other decisions relied upon by the assessee are not applicable over the facts of the instant case. The Ld. Senior counsel also placed reliance on the decision of the Hon'ble Delhi High Court wherein the tax levied by t....
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....ed. 16. In other grounds raised in appeals before us, the issues of assessing interest income from fixed deposits with bank by the Assessing Officer, non-allowance of expenditure including professional and consultancy expenses claimed in the profit and loss account, non-allowance of deduction under section 35D of the Act etc. have been raised. In assessment year 2002-03, the assessee has also raised the issue of quantum of expenditure allowed against interest income assessed under "Income from other sources". In the additional grounds raised in all the respective appeals, the assessee has requested for adjustment of interest earned on fixed deposit against the cost of the project and in alternative claimed for capitalization of the entire expenditure claimed in the profit and loss account for adding to the cost of the project. In these issues, the main issue of contention is whether the business of the assessee was set up or not. 16.1 The Ld. Senior Counsel of the assessee contended that the respective lower authorities have denied the claim of adjustment of interest income earned on fixed deposit against the cost of the project, allowance of expenses claimed in profit and loss....
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....hi. It was submitted that as per its memorandum the main objectives to be pursued by the assessee includes, inter alia, planning, designing, development, construction, maintenance, operation, and financing of the Mass Transit and other Urban Transport and People Mover Systems of all types and description, in the National Capital Territory of Delhi and other areas of the National Capital Region. A copy of the Memorandum of Association is placed on record. It was submitted that during the assessment year 1997-98, the assessee had undertaken, inter alia, planning, designing and financing activities in respect of its Mass Rapid Transit System Project. The major steps taken during the year as a part of implementing the project includes: (a) Signing of the Loan Agreement by GOI with OEC (Japan) on 25th February 1997; (b) Finalisation of the work for appointment of General Consultants i.e. inviting expressions of interest from reputed General Consultancy Firms, Preparation of Bid Documents, etc; (c) Purchase of Office building at NBCC place on Bhishma Pitamaha Marg at a cost of Rs. 16.73 crores from the Ministry of Urban Affairs and Employment, Government of India, New Delhi; ....
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....ng the assessment year 1997-98, the assessee had commenced the planning, designing and financing activities in respect of its Mass Rapid Transit System Project, activities, which must necessarily precede all other activities and hence, business activity of the assessee is to be considered as commenced. On the adverse finding by the lower authorities to the effect that the stage-1 has not commenced, the assessee submitted that on setting up of office and appointment of key executives and consultants, the DMRC i.e. assessee started the work of planning and designing of the MRTS project. The DMRC appointed M/s. Rail India Technical & Economic Services Ltd. (RITES) as consultants, who did substantial planning work for the Metro and who were paid on progressive completion of their work. It was submitted that an amount of Rs. 3,42,00,000/- was paid/payable for the work done during the assessment year 1998-99. It was submitted that details of consultancy fee paid during the various assessment years are on record. Copies of letter of appointment of "RITES" as Standing Technical Consultants were also placed on record. It was submitted that in succeeding assessment years, the assessee comp....
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....t year 1997-98 to AY 2001-02 was consist mainly of the interest income earned on the fixed deposit and there was no revenue from the operational activity. Regarding the consultancy expenses claimed to have been incurred by the assessee, the Ld. DR submitted that those consultancy charges were paid mainly for setting up the business of Metro rail network and not for earning income from consultancy. According to him, no income from consultancy has been shown by the assessee upto assessment year 2001-02. He submitted that providing consultancy is not the objective of the company and any small amount of income of approx. Rs. 3.00 lakhs shown to have earned by way consultancy, can not lead to result that business of the assess was set up. 18. We have heard the rival submission of the parties and relevant judicial decisions on the issue as when the business of an assessee could be called as set up. To decide the present controversy, we need to refer to section 3 of the Income-tax Act, which states that the "financial year" immediately preceding the "assessment year", would be the previous year, but for newly set up business or profession , or source of income newly coming into existenc....
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....ut 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). . . ." 18.3 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 otherwise immovable property. There may be an interval between the setting up of the business and the commencement of the business. All expenses incurred during that interval are also permissible for deduction. 18.4 The decision of Hon'ble Gujarat High Court in the case of Sarabhai Management Corpn. Ltd. (supra) has been affirmed by the Hon'ble Supreme Court in the case of CIT v. Sarabhai Management Corpn. Ltd. [1991] 192 ITR 151, where the Hon'ble Supreme Court went a step ahead that even the activities at a preparatory stage are also admissible. It is well settled that all the expenses incurred after the business had been set up are allowable as business de....
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....tion work had not commenced. It could not be said that business of assessee CIT Vs. Sponge Iron India Ltd.(1993) 201 ITR 770(AP) Where hotel building of assesses was not complete, merely because banquet hall is incomplete hotel building was let out by assessee, it would not follow that hotel business as such was set up by assesses by the date of letting out banquet hall. CIT V. Plem Hotel (P) Ltd. (1994) 209 ITR 616(Bom.) (Emphasis supplied externally) 18.6 In view of the above judicial pronouncement, we can conclude that when a business is ready to commence, that means business has been set up though it may not have been actually commenced. The businesses mentioned in the above judicial pronouncement are of or engaged either in the trading or manufacturing or service of the products, In case of trading concern, when an assessee is ready with his set up of shops etc and the moment he buys or purchases goods of stock-in-trade, he is ready to commence his business of trading and his business can be called as set up. In case of manufacturing, when an assessee set up his manufacturing apparatus like factory etc alongwith plant and machinery and all power or water connecti....
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.... be called as setup only when the entire construction work related to infrastructure including construction of Metro Station was completed and the assessee company was ready to operate the Metro rail. Since, the assessee was not ready to commence or operate the railway network till assessment year 2002-03 , which was the source of revenue generation of the assessee , , business of the assessee was not set up till that period. In the case of the Saurashtra Cement and Chemical Industries Limited (supra) relied upon by the assessee, company was engaged in manufacturing and sale of cement and thus in that case extraction of limestone was one of the step of manufacturing activity, which was ready to commence and hence the business of manufacturing of assessee was held to be setup. The limestone itself was a saleable commodity, though might not have been sold. But in the instant case the assessee is not engaged in manufacturing and it is engaged in providing services of rail transport and the said service cannot be provided until and unless the entire infrastructure for running Metro rail, is established. The claim of the assessee that it was also engaged in providing consultancy service....
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....as approved by the cabinet would consist of a 55.3 K.M. railway network, of which 11 K.M. will be an underground Metro Corridor (Central Secretariat-Connaught Circus-New Delhi Railway Station- Chawri Bazar-Delhi Junction-ISBT-Old Secretariat-Delhi University) and 44.3 K.M. will be "at grade''/"elevated" rail corridors (Shahdara-ISBT-Nangloi and Pul Bangash-Holambi Kalan). The formal commencement date for the project has been decided as 1st April, 1997 and the stipulated completion period as agreed to with the OECF (Japan) will be eight years. Pending appointment of the General Consultant, RITES have been providing interim consultancy to DMRC w.e.f. LI.97. The following major steps have been taken towards implementation of the project during the of the year: (i) Signing of loan agreement by GOI with OECF (Japan) on 25th February, 1997; (ii) Nation of preliminary work for appointment of General Consultant i.e. inviting expressions of interest from reputed general consultancy firms, preparation of bid documents, etc. (iii) Purchase of office building at NBCC place on Bhishma Pitamaha Marg (Opp. Lodhi Road) at a cost of Rs. 16.73 crores from the the Ministry of Urban Affair....
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....ct, 1956, read with Companies (Particulars of Employees) Rules, 1975 is required to be given. IV. ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO (PURSUANT TO SECTION 217(1)(E) OF THE COMPANIES ACT, 1956) Since the implementation of the project on the ground has not yet been started, no steps have been taken for conservation of energy and technology absorption. The company has bad no foreign exchange earnings and outgoes during the year. V. ACKNOWLEDGEMENTS Your Directors place on record their appreciation for the Cooperation & assistance received from the MOUAE, OECF, RITES, NBCC and Railway Board. For & on behalf of Board of Directors Sd/- (N.P. Singh) Chairman." 18.12 It is evident from the admission of the directors that there were no regular employees on the rolls of the assessee company during the year and no work for implementation of the project of Delhi MRTS consisting of 55.3 kms. railway network. Thus, business of the assessee cannot be called as set up. 18.13 According to the Ld. CIT(A) also in assessment year 1997- 98, the business of the assessee was not set up. The relevant finding of the Ld. CIT(A) is....
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....of business by the appellant and accordingly the AO's action in denying the appellant's claim of expenditure incurred on professional and consultancy charges amounting to Rs. 65.40 Lakhs is held to be justified and is confirmed." 18.14 In view of the above observation of the Ld. CIT(A), as well as our finding in above Paras, we hold that business of the assessee was not set up in assessment year 1997-98. 18.15 In AY 1998-99 to AY 2002-03 the respective the Ld. CIT(A) has followed the same finding and held that business of the assessee was not set up. The relevant finding of the Ld. CIT(A) in AY 1998-99 is reproduced as under: "5. The next ground of appeal relates to addition of consultancy charges amounting to to,Rs. 3,44,23,404/-. The claim represented to Rs. 48,000/-, internal audit fee paid to M/s Jain Kapila Associates, Chartered Accountants and the balance amount due for technical consultancy and other work-relating Delhi Metro Rail Project paid/payable to Rail India Technical & Economic Services Ltd. (RITES). The Assessing Officer held that the appellant had not commenced business this year and, therefore, the aforementioned expenses were in the nature pre-operatives e....
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....sition of land and rehabilitation of the affected person and inviting tender for civil work was undertaken during the year. In the annexure to revised audit report, which is part of Annual Report, the Auditor in clause -3 has also mentioned that the company has not started construction activity during the year. In view of the above factual observations, we are of the view that business of the assessee was not set up. We concur with the finding of the Ld. CIT(A) in AY 1998-99 and accordingly uphold the same. 18.17 In AY 1999-2000, we find that the assessee started construction activity for implementation of project through outsourcing of work. The assessee shown capital work-inprogress of Rs. 57,59,14,052/- at the end of the financial year relevant to AY 1999-2000. The capital work-in-progress include project & plan report (Rs. 46,95,000/-), Grade level work (Rs. 91,34,595/-), earth work for rail corridor (Rs. 74,388,119/-); Elevated Portion Rail Corridor (Rs. 3,415,495/-), Yamuna Bridge Works (Rs. 71,471,264/-) etc. From the capital work-in-progress shown by the assessee, it is evident that construction work of Delhi MRTS was not completed during the year. This fact has been admi....
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....y of interest income under the head "Income from other sources" or not, the Ld. counsel of the assessee contended that in the assessment year 1996-97, the assessee declared interest income of Rs. 2,39,452/-. It was submitted that this interest income was fixed deposits placed with banks on funds raised by way of share capital/share application money from the Union Government and Government of NCT of Delhi for the purpose of the project. It was contended that the aforesaid income is merely incidental and therefore such interest income is not eligible to tax. Reliance was placed on the judgment of Hon'ble Jurisdictional High Court in the case of Indian Oil Panipat Power Consortium Ltd. v. ITO 315 ITR 255. It was contended that the aforesaid judgment has further been followed by the Hon'ble High Court of Delhi in the following cases: a) CIT vs. Panem Coal Mines Ltd ITA No 639/2008 dated 17.09.2009; b) CIT vs. Petronet LNG Ltd ITA No. 290/2011 & 292/2011 dated 17.02.2011; c) CIT vs. Jaypee DSC Ventures Ltd. ITA 357/2010 dated 11.03.2011; d) Petronet LNG Ltd. v. CIT ITA No. 4191/D/2003 and 4371/D/2009 dated 17.2.2011 20.1 The assessee also placed reliance on the judgment o....
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.... business income, and is eligible for set off against the business expenses incurred and claimed by the appellant or alternatively adjusted against the cost of the project. 21. The Ld. DR, on the other hand, submitted that from the chart of total receipt as well as receipt earned from interest during the assessment year 1996-97 to 2001-02, as follows, it appears that there was hardly any business receipt apart from the interest and thus business had neither been set up nor commenced: AY. Total Receipts Receipts from Interest Earned Expenses 1997-98 38,16,684 38,02,921 74,19,134 1998-99 15,44,65,452 15,26,70,209 5,95,61,700 1999-2000 36,58,38,682 36,58,38,183 9,18,25,170 2000-2001 59,67,94,426 59,67,94,426 14,67,87,754 2001-02 88,11,43,805 88,11,43,805 21,47,87,281 21.1 The Ld. DR submitted that business of the assessee commenced on 24/12/2002 and prior to that it was in the process of setting up the Metro network in National Capital Region. The Ld. DR submitted that during those years, the assessee had claimed expenses on account of consultancy charges paid for setting up the business an....
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....rces 6. Thermal Powertech Corporation India Ltd. Vs DCIT [2017] 81 taxmann.com 168 (Hyderabad - Trib.)/[2017] 164 ITD 449 (Hyderabad - Trib.) (Copy Enclosed) where Hon'ble ITAT held that where assessee-company formed to build, own and operate a power plant, deposited unutilized borrowed funds in short term fixed deposits during construction of power plant, interest earned on those deposits was to be taxed as income from other sources 7. Shree Maheshwar Hydel Power Corporation Ltd. Vs CIT 120181 96 taxmann.com 167 (Bombay) (Copy Enclosed) where Hon'ble Bombay High Court held that where assessee raised amounts from Debentures and deposited same with bank and, interest earned by assessee from said deppsits, was not inextricably linked with setting up of capital assets, said interest tficome could not be capitalized 8. Kakinada SEZ (P.) Ltd. T20131 31 taxmann.com 165 (Hyderabad - Trib.)/[2013] 141 ITD 635 (Hyderabad - Trib.) (Copy Enclosed) where Hon'ble ITAT Hyderabad held that where loans taken for business purposes was invested in fixed deposits, interest paid or borrowed funds cannot be deducted while computing interest income from those fixed deposits under section ....
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....rter on fixed deposits kept by it with bank as margin money or security for bank guarantee in order to avail of credit facility for its export business has to be treated as 'income from other sources. 14. CIT Vs Rassi Cement Ltd H9981 100 Taxman 568 (Andhra Pradesh)/f1998l 232 ITR 554 (Andhra Pradesh)/[1999] 153 CTR 140 (Andhra Pradesh) (copy enclosed) where Hon'ble AP High Court held that interest earned by assessee on surplus funds deposited in banks during installation of assessee-company had to be taken as income from other sources and could not be treated as a part of capital structure" 22. We have heard the rival submissions and perused the relevant mental on record including the case laws relied upon by both the parties. The assessee has made alternative claims on this issue. The first claim is that the interest income earned on fixed deposit with banks should not be taxable under the head "income from other sources" and it should be treated as part of "business income" and adjusted against business expenditure. The second claim is that the interest income should be adjusted against the cost of project or capital work in progress. In few assessment years, the Assessi....
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....Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd (supra) has held "interest income earned on fixed deposits, before commencement of the business is taxable as income under the head "income from other sources". In that case the assessee company during construction and establishment of its factory, before commencement of the manufacturing activities, invested funds borrowed for the purpose of setting up factories in short-term deposits with banks and earned interest thereon. In its return, it disclosed the interest earned as income from other sources and after setting off same against business loss claimed carry forward of remaining loss. Later on, it filed revised return claiming that interest and finance charges along with the other production expenses will have to be capitalized and therefore, the interest income should go to reduce the preproduction expenses, which would ultimately be capitalized and as such, the interest income was not accessible to tax. The Assessing Officer as well as the Tribunal rejected the claim of the assessee. In view of the conflicting decision of the various High Courts on the issue in dispute, the Tribunal made refer....
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....ome will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilizing borrowed capital." 22.5 Thus, Hon'ble Supreme Court has laid down the principal that irrespective whether the funds used for the purpose of earning interest income is owned or borrowed, if it is lying ideal and invested, then the interest income which flows from those investments would be clearly revenue in nature and taxable. But, if something is received in place of the property (investment) that will be in the nature of capital receipt. 22.6 The facts of the instant case are exactly identical to the case of Tuticorin Aalkali Chemicals and Fertilizers Ltd. (supra). 22.7 In the case of Indian Oil Panipat Power Consortium Limited (supra) relied upon by the Ld. Counsel of the assessee, the title of the land which was to be purchased was in question and under litigation. The Ld. first appellate authority observed that the funds were placed in f....
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....t of the infrastructure but due to litigation on the title of the properties, same were parked with the bank for ready access of the funds and therefore the Hon'ble High Court held that the interest earned on such fund was capital receipt. Thus in the above case prime purpose of investing fund in banks was easy access for purchase of land, but in the instant case before us, the construction work of the infrastructure for Metro rail network was in progress and there was no litigation as to the title of the land and the ideal funds available with the assessee were deposited with banks with the objective of earning interest. Before us, the Ld. senior counsel of the assessee has filed a copy of various guidelines issued for investment of surplus funds by Central public sector enterprises. In compliance to the guidance, the assessee has made investment in fixed deposits from time to time. The Ld. Council has also filed copies of minuts of the meeting of various dates on the investment made by the assessee. On perusal of those minutes of meeting, it is evident that the assessee is made investment of the surplus fund available with the objective of earning highest interest. The assessee h....
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....- Director (P&P) Shri Satish Kumar - Director (RSE) Smt. Saroj Rajware - FA&CAO An amount of Rs. 67 Crores has been received from GNCTD towards equity. Quotations were invited from the banks on our panel and 14 banks have responded. The highest rates received for different periods are tabulated. Best rates for one year have been quoted by Vijaya Bank at 11.15% followed by Oriental Bank of Commerce at 11.05% State Bank of India has quoted 10.25%. Keeping in view the next maturity coming up end of December, 1999. It is proposed to invest Rs. 67 crores with Vijaya Bank for one year and one day at the rate of 11.15%. 22.9 In view of the facts that investment in fixed deposit has been made with the purpose of earning interest, the ratio of the decision in the case of Indian oil Panipat Power construction Ltd(supra) cannot be applied over the facts of the instant case. The facts of the above case being different from the instant case where funds have been invested in fixed deposit for earning interest as against the fixed deposit made for the business purpose22.10 In the case of Jaypee DSC ventures Ltd (supra), the assessee furnished performance guarantee in favour of th....
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....are allowable and deductible from income assessable under section 56 of the Act . According to the Assessing Officer there was no expenditure being incurred for earning the interest income on fixed deposits and thus claim of the expenditure was denied by the Assessing Officer. The Ld. CIT(A), however, following the finding of the CIT in order passed under section 263 of the Act for assessment year 1998-1999 and 1999-2000, allowed Rs. 37,94,354/-. The relevant finding of the Ld. CIT(A) is reproduced as under: "Ground No. 3 relates to the non-allowance of deduction of Rs. 56,21,803/- claimed as deduction in the return for earning of interest income. As per formula of CIT, Delh- IV, Now Delhi during the course of proceedings under section 263 of the income-tax Act, 1961 for the assessment years 98-99 and 99 00. The Assessing Officer lias not allowed the expenses on the ground that the appellant company has not filed the details of expenses incurred for earning the interest before tier. The expenses claimed by the appellant company at Rs. 14,67,67,754/- for earning interest income were not allowed by tire Assessing Officer in view of the decision of the Hon'ble S.C in the case o....
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....1998-99 and 1999-2000. It has already been mentioned in our letter dated 20.11.2003 that after going through the relevant records and examining the matter in greater detail in the proceedings u/s 2.63 the id. CIT, Delhi-IV, allowed deduction of expenses for earning of interest income as follows:- Asstt. Year Interest Income Deduction of expenses allowed in order u/s 263 by CIT, Delhi-IV, New Delhi 1998-99 Rs. 15,44,65,452/- Rs. 31,35,830/- 1999-2000 Rs. 36,58,38,183/- Rs. 34,49,413/- It has been further stated that "in para IV on page of the order u/s 263 for A.Y. 1999-2000 tire Ld. CIT Delhi-IV, New Delhi has observed as under:- The assessee was allowed specific opportunities to provide separate breakup of expenses relating for interest income & other expenses related to business which had not as yet commenced. However, assessee has expressed its inability to provide such break-up. Under such circumstances & by keeping in view the reasons given under order u/s 263 of even date for asstt. year 1998-99 an expenditure of Rs. 34,49,413/- is held as Incurred wholly and exclusively for earning Interest Income and the balance amount of Rs. 5,20,70,154/-( ....
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....xpenses related to business which had not as yet commenced. However the assessee has expressed its inability to provide such breakup. Under such circumstances <& by keeping in C.. 'lew the reasons given under order u/s 263 of even date for asstt. year 1998-99, an expenditure of Rs. 34,49.4 13/- is held as incurred wholly and exclusively for earning interest income and the balance amount of Rs. 5,20,70,154 (Rs. 5,55,19,567 - Rs. 34,49,413/-i's not relatable to interest income and is, therefore, being disallowed." The appellant company has shown interest income of Rs. 59,67,94,426/- against which claimed expenses of Rs. 56,21,803/- in the year under consideration on proportionate basis as allowed by the CIT, Delhi-IV, New Delhi in the order passed under section 263 of the Income-tax Act, 1961 for the assessment year 1999-00. The interest income was earned at Rs. 15.47 crores in the asstt. year 98- 99 and Rs. 36.58 crores in the asstt. year 99-00. Against these interest income the relatable expenses were allowed at Rs. 31,35,830/- and Rs. 34,49,413/- respectively. It means that the relatable expenses allowed in the asstt. year 99-00 comes Rs. 34,49,413/-i.e. 10% more than t....
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....he interest income earned from fixed deposit, which according to the assessee is in the nature of the business income. We do not agree with the contention of the assessee. It is for the assessee to demonstrate as how the expenditure incurred is wholly and exclusively for the purpose of earning interest income on fixed deposit. Before the Ld. CIT during proceeding under section 263 of the Act for assessment year 1998-99 and 99-2000 also the assessee expressed its inability to provide break-up of the expenses relating to the interest income and under those circumstances the Ld. CIT estimated expenditure of Rs. 34,49,413/- for assessment year 1998-99. The Ld. CIT(A) has further progressively increased the expenses which could be allowable, by 10% for the year 2000-01, 2001-02 and 2002-03. In the assessment year 2001-02 , the claim of the assessee was only of Rs. 7,76,600/- and therefore he restricted the claim of expenses to that extent. In absence of a specific demonstration by the assessee that particular expenses relates to the interest income and in absence of any documentary evidence in support of such a claim, we may not like to disturb the expenses already allowed by the Ld. CI....
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.... to claim such deduction under section 35D of the Act after setting up of the business. 27.1 The Ld. CIT(A) in assessment year 1998-99 has confirmed the disallowance on similar grounds. Accordingly, we uphold the finding of the Ld. CIT(A) on the issue in dispute and the ground No.3 of ITA No. 1346/del/2018 for assessment year 1996-97, ground No. 3 of ITA No. 2398/del/2001 for assessment year 1997-98 , ground No. 3 of ITA No. 1144/del/2002 for assessment year 1998-99 and ground No. 3 of ITA No. 3356/del/2002 for AY 1999-2000 raised on this issue are accordingly dismissed. 28. The next issue raised various appeals before us is related to not allowing deduction in respect of expenses claimed in the profit and loss account including professional and consultancy charges incurred by the assessee. The Ld. CIT(A) in relevant years has held that company was in the process of setting up the business and therefore the Assessing Officer were justified in holding that professional or consultancy charges paid were preoperative expenses eligible for amortisation under section 35D(2)(a) of the Act. It is now well settled law that, once business is set up , then only expenditure is allowable as....
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.... 32 of the Income-tax Act, 1961 is admissible only in a case where the assets in question "are used for the purposes of the business." The provisions of section 32 are applicable only in cases where the business is carried on. Where the business has not yet been set up there is no question of allowing depreciation. The primary condition for application of Part D of Chapter -IV of the Income Act .......to computation of profits and gains of business or profession is that the business is carried on. When an assessee does not carry on business at all these computation provisions have no application and the income that he receives cannot bear the character of profits of business. New Savan Sugar & Gur Refining Co. Ltd. Vs. CIT (1969) 74 ITR 7(SC). Senairam Doongarmall Vs. CIT (1961) 42 ITR 392 (SC)." 30. The Ld. Sr. Counsel of the assessee relied on the decision of Hon'ble Delhi high Court in the case of CIT Vs Oswal Agro Mill Ltd. reported in 341 ITR 467 (Delhi) and decision in the case of National Thermal Power Corporation Vs. CIT, reported in 357 ITR 253. The Ld. DR, on the other hand, relied on the finding of the lower authorities. 31. We have heard both the parties on....
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....t of the question of allowability of expenses for earning of interest income and holding that out of expenses of Rs. 67,75,851 allowed by the Assessing Officer for earning of interest income, expenses amounting to Rs. 20,90,552 did not relate to earning of interest income. The exercise of jurisdiction u/s 263 being not in accordance with the provisions of law, the order dated 18.3.2003 u/s 263 passed by the CIT, Delhi-IV deserves to be cancelled. 2. The Assessing Officer having come to the conclusion that expenses of Rs. 67,75,851 were allowable as deduction under section 57 of the Income-tax Act for earning of interest income, in the facts and circumstances of the case the CIT, Delhi-IV has erred in law and on facts in holding that expenses of Fes. 20,90,552 out of expenses of Rs. 67,75,851 allowed as deduction by the Assessing Officer were disallowable being not relatable to interest income. Such change of opinion being not permissible under the provisions of section 263 of the Income-tax Act, 1961, the order of the C.I.T., Delhi-IV being illegal deserves to be cancelled. 3. On the facts and in the circumstances of the case the Commissioner of Income-tax, Delhi-IV has erred....
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....ses of Rs. 20,90,552 were disallowable being not relatable to interest income, being illegal deserves to be cancelled. 7. On the facts and in the circumstances of the case the CIT, Delhi-IV has erred in law and on facts in holding that expenses amounting to Rs. 20,90,552 did not relate to earning of interest income. The figure of expenses of Rs. 20,90,552 being based on estimate and not on any material on record, the order of the CIT, Delhi-IV is bade in law. Such estimation being not permissible under the proceedings under section 263, the order of the CIT, Delhi-IV is bad in law and therefore the same deserves to be cancelled. 8. On the facts and in the circumstances of the case the CIT, Delhi-IV erred in calling upon the appellant for production of books and other records to come to a conclusion that out of expenses of Rs. 67,75,851 already allowed by the Assessing Officer for earning of interest income, some expenses were disallowable. The CIT being required to have such details ready before him before issue of notice under section 263, the order passed is bad in law and, therefore, the same deserves to be cancelled. 9. On the facts and in the circumstances of the case....
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....ommissioner of Income-tax, Delhi-IV has erred in law in exercising jurisdiction under section 263 of the Income-tax Act,1961 and holding that out of expenses of Rs. 5,55,19,567/- allowed by expenses of by the DOT,Circle-10(1),New Delhi expenses of Rs. 5,20,70,154/- were disallowable being not relatable to interest income. The assessment order dated 26.2,2002 of the DOT, Circle 10(1), New Delhi being not erroneous in so far as it was not prejudicial to the interest of revenue, the order u/s 263 dated 18.3.2003 passed by the CIT, Delhi-IV being illegal deserves to be cancelled. 4. The Assessing Officer having held that interest income of the appellant was to be taxed under the head "Income from other sources" and that expenses of Rs. 5,55,19,567/- were allowable as deduction against inte/est income of Rs. 36,58,38,183/- under section 57 of the Income-tax Act,1961,the CIT, Delhi-IV in the facts and circumstances of the case has erred in law in invoking the provisions of section 263 to hold that expenses of Rs. 5,20,70,154,/- were disallowable being not relatable to interest income. The order of the Assessing Officer being not erroneous in so far as it was not prejudicial to the int....
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....ed is bad in law and, therefore, the same deserves to be cancelled. 9. On the facts and in the circumstances of the case the CIT, Delhi- IV has erred in law in not justifying the disallowance of expenses on facts. The total expenses having been incurred for the purpose of business are liable to be fully allowed. 10. In the facts and circumstances of the case the CIT, Delhi-IV has erred in law in invoking the provisions of section 263 of the Income-tax Act,1961.The assessment order dated 26.2.2002 passed by the Assessing Officer having been the subject matter of appeal before the CIT(Appea!s)-XIlI, New Delhi, the order passed by the CIT, Delhi-IV is without jurisdiction and, therefore, the same is liable to be cancelled. 11. The learned CIT, Delhi-IV has illegally invoked section 263 of the Income-tax Act,1961. As such, the proceedings u/s 263 of the Income-tax Act deserve to be cancelled. 12. The appellant craves leave to add, alter or modify any ground of appeal either before or at the time of hearing of the appeal 33. So far as orders u/s 263 of the Act are concerned for A.Y. 1998-99 and A.Y. 1999-2000, it was submitted by the Ld. Senior counsel that, the same are f....
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....of section 263 of the income Tax Act as in doing so the learned CIT failed to appreciate that the orders of assessment for both assessment year 1998-99 and, 1999-00, were neither erroneous nor was prejudicial to the interest of revenue. In fact, the perusal of the order of assessment for AY 1998-99 would show that, the learned AO had duly considered the claim of expenses and, held as under: "The remaining expenses except depreciation are allowed as expenses against income from other sources u/s 57" 36. In fact, before coming to the aforesaid conclusion, the learned AO had called for all the necessary details, 35 It was therefore submitted that, the conclusion of learned CIT to hold that the learned A.O has not applied his mind to the claim of deduction is factually misplaced. It was submitted that the ld AO passed the assessment order after thoroughly investigating the matter and not only after taking into account all the necessary records and information, copies of which are placed in the PB for 1998-99. It was also submitted that likewise details had been called for and, the same were duly furnished for A.Y. 1999-2000. 36 It was submitted that the CIT failed to appreciat....
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....255. 40 It was submitted that since the orders of assessment were neither erroneous and, nor prejudicial to the interest of revenue, therefore in the absence of the satisfaction of both the preconditions, it was respectfully submitted that the provisions u/s 263 of the Act could not have validly been invoked. 41 The assessee also submitted that, the scope of appellate powers of the Hon'ble Income Tax Appellate Tribunal are confined to such issues and, grounds, which have been stated by the learned CIT in his notice and, no more. Reliance was placed on the following judgments i) Jagadhri Electric and Supply Co. v CIT 140 ITR 490 (P&H) ii) L.F.D. Silva v. CIT 92 ITR 547 (Kar) 2: clear view on the wall and nice is in a will of a will nearly and easier usually a visit and 11, he will to the Ministry of Hilo maximally iii) CIT V. Late .T.S. Srinivasa Iyer 192 ITR 50 (Mad) iv) Jagjit Industries Ltd v ACIT 60 ITD 295 (Del) v)) Satishbhai Jayantilal Shah v. Asstt. CIT 61 ITD 307 (Ahd-) 37. The Ld. DR, on the other hand, submitted that no enquiries were done by the Assessing Officer on the issue of quantum of expenditure allowable against the interest income as per the ....
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....CTR 1 (SC) (Copy Enclosed) Where Hon'ble Supreme Court held that where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) was justified 4. Raimandir Estates (P.) Ltd. Vs PCIT [70 taxmann.com 124 (Calcutta)/[2016] 240 Taxman 306 (Calcutta)/[2016] 386 ITR 162 (Calcutta)/[2016] 287 CTR 512] (Copy enclosed) Where Hon'ble Calcutta High Court held that where assessee with a small amount of authorised share capital, raised a huge sum on account of premium and chose not to go in for increase of authorised share capital merely to avoid payment of statutory fees and Assessing Officer passed assessment order without carrying out requisite enquiry into increase of share capital including premium received by assessee, Commissioner was justified in treating assessment order as erroneous and prejudicial to interest of revenue 5. Raimandir Estates (P.) Ltd. Vs PCIT [2017] 77 taxmann.com 285 (SC)/[2017] 245 Taxman 127 (SC) Hon'ble Supreme Court has dismissed SLP against High Court's ruling that where assessee with a small amo....
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....dustries Ltd. [2017] 85 taxmann.com 10 (Bombay) Hon'ble Bombay High Court held that where Assessing Officer allowed claim of deduction under section 80HHC without examining said claim with reference to unabsorbed depreciation and investment allowance as referred to in sections 32 and 32A respectively, Commissioner was justified in invoking revision under section 263." 38. We have heard the rival submissions and perused the relevant material on record. In the instant case, the Assessing Officer in order u/s 143(3) of the Act for assessment year 1998- 99, had allowed the expenditure claimed in the profit and loss account, other than the additions made , as the expenditure against the interest income as per the provisions of section 57 of the Act. The detail of expenditure allowed by the Assessing Officer against interest income in assessment year 1998-99 is as under: (Figures in Rupess) 1997-98 Expenditure Advertisement A/c 1,401,669 AGM/ Board Meeting Expenses 29,431 Audit Fees 3,000 Bank Charges 3,621 Books and Periodicals 105,749 Brokerage 6,000 Business Promo....
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....e failure on the part of the assessee, the Ld. CIT estimated such expenditure for assessment year 1998-99 as under: "iii) However, a fraction or these expenses incurred was reliable to earning interest income During the course of proceedings u/s 263, the counsel of the assessee was asked to segregate expenses which were relatable to interest income and which were not relatable to interest income. The assessee's counsel submitted that it was not possible to segregate expenses ort the above said lines as no such record was maintained. However, she pointed out that besides interest income of Rs. 15,44,65,452/- there was income of Rs. 17,95,243 from sale of tender documents. She further pointed out that expenses on advertisement etc. amounting to Rs. 15,49,470/- (Rs. 14,01,669 + Rs. 29,431 + Rs. 3000 + Rs. 3,621 + Rs. 1,05,749 + Rs. 6,000) v/ere relatable to income from sale of tender documents and should therefore, not be disallowed. This argument of the assessee's counsel is acceptable. After excluding these expenses from the expenses in question of Rs. 67,75,852/-, the balance figure comes to Rs. 52,26,382 (Rs. 67,75,852 - Rs. 15,43,470) which consists mainly of salary, b....
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....ding year is not related to earning of interest income, e.g., consultancy fees, salaries to staff other than that engaged relearning interest income, foreign tours & travels of consultants & engineers, wage electricity expenses etc. IV. The assessee was allowed specific opportunities to provide separate breakup of expenses relating for interest income & other expenses related to business which had not as yet commenced. However the assessee has expressed its inability to provide such breakup. Under such circumstances & by keeping in view the reasons given under order u/s 263 of even date for asstt. year 1998- 99, an expenditure of Rs. 34,49,413/- is held as Incurred wholly & exclusively for earning Interest income and the balance amount of Rs. 5,20,70,154 (Rs. 5,55,19,567 - Rs. 34,49,413) is not relatable to interest income and is, therefore, being disallowed." 38.5 After going through the order under section 263 and the records before us particularly the paper book filed in ITA No. 1144/Del/2002 for assessment year 1998-99 which contains query letter issued by the Assessing Officer and replies filed by the assessee in the course of the assessment proceedings, we find that the ....
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....and running expenses etc. From a prima-facie perusal of these expenses, one can infer that all those expenses are not related to earning of the interest income on fixed deposits made with banks. In such circumstances, it cannot be said that the commissioner has substituted his opinion in place of that of the Assessing Officer but the commissioner has found that those expenses cannot be allowed without an enquiry. 38.7 Further, the assessee has challenged the estimating of quantum of expenses allowable deduction by the Ld. CIT. But we find that, the Ld. CIT asked specifically to the assessee for submitting the expenses related to the interest income, however no such details were furnished by the assessee before the Ld. CIT. Even such detail has not been furnished before us also. In such circumstances, we are of the opinion that the Ld. CIT is justified in estimating the expenditure relatable to the interest income, which could be allowed under section 57 of the Act. The Hon'ble Supreme Court in the case of Maharaja BP Singh Deo (supra) held that assessment must be based on some relevant material and it is not a power that can be exercised under the sweet will and pleasure of the c....