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2019 (7) TMI 431
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....e Income-tax Act, 1961 (in short 'the Act'). 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 er....
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....eduction of Rs. 3,44,23,404/- on account of professional and consultancy charges. The expenses incurred under this head 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....
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....o be fully allowed. 4. The deduction of expenses is liable to be allowed U/s 37 of the Income Tax Act, 1961 fully to the appellant. The claim of expenses has been illegally disallowed to the appellant 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 ....
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....d, modify or alter any of the grounds of the appeal stated above either before or at the time of the hearing of this appeal. G. Grounds of appeal for assessment year 2002-03 1. On the facts and in the circumstances of the case, the Ld. CIT (Appeals) has erred in 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. 31,84,5....
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....se ought to have been reduced from the cost of project and thus was required to be reduced from the computation of total income. b) That the expenditure claimed and disallowed in the alternative and without prejudice ought to have been capitalized and added to the cost of project. ................ 4. It was contended on behalf of the 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....
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....ssee has filed paper-books for all the years involved containing the Annual Reports, return of income etc. Briefly stated facts of the case as culled out from the order of the lower authorities and paper-book(s) of the assessee company for assessment year involved are summarized as under: (i) On the recommendation of M/s. Rail India Technical and Economic Services Ltd ('RITES') for the financing of the Mass Rapid Transit System (MRTS) project for NCR Region as a joint venture of Government of 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....
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....rpose of section 35D of the Act and therefore, he assessed the income shown from interest at Rs. 2,39,452/- under the head "Income from other sources" in the assessment order passed u/s 143(3) of the Act on 29.11.1999, as against returned loss of Rs. 5,67,775/-. (v) The ld. CIT(A)-6, Delhi vide his appellate order dated 12.10.1999, in appeal no. 9/1999-2000 decided the appeal of the assessee. According to the Ld. CIT(A), since there was no income or expenditure other than interest on funds lying with the bank, it cannot be 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 appe....
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....34/- and reported net loss of Rs. 36,02,450/-. The expenses debited included consultancy expenses of Rs. 65,40,000/- (Rs. 65,00,000/- to M/s. RITES for technical consultancy & Rs. 40,000/- to Jain Kapila & Associates for Internal Audit Fee), Advertisement (Rs. 33,338/-), Honorarium charges (Rs. 15,000/-), Printing and Stationary (Rs. 2,235/-), Preliminary expenses written off of Rs. 8,07,227/-, Staff Welfare (Rs. 2296/-) etc. (ii) The assessee filed return of income on 28.11.1997 declaring loss of Rs. 36,02,450/-. In the return of income, the assessee claimed exemption 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....
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....f the Assessing Officer and after examination of the record, issued show cause notice to the assessee under section 263 of the Act. According to the Ld. CIT, the Assessing Officer had erroneously allowed expenses against interest income and thus after taking into consideration submission of the assessee, he, in order dated 18/03/2003 u/s 263 of the Act, held the order of the Assessing Officer as erroneous and prejudicial to the interest of Revenue and computed the expenses , to be allowed against interest income under section 57 of the Act. In compliance, the Assessing Officer passed consequential order. For 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 inco....
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....inst the receipts, the assessee reported expenditure of Rs. 13,50,92,518/- which comprised of employees remuneration and benefits (Rs. 4,71,67,078/-), Administrative & other expenses (Rs. 7,15,89,352/-); depreciation (Rs. 1,49,06,402/-) etc. The assessee added provision written back of Rs. 44,403/- and expenditure not related to construction of Rs. 94,07,630/- to the gross receipt Rs. 62,03,42,171/-. The assessee adjusted entire income against the expenditure and balance profit of Rs. 49,47,01,686/- was transferred towards capital work-in-progress. In Schedule 12 of the Annual Report, the assessee has reported that expenses during the year are booked 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 ....
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....g small adjustments to income of Rs. 66,11,719/- for revenue expenditure, the balance profit of Rs. 71,09,78,474/- was adjusted against the capital work-in-progress. (ii) The assessee filed return of income on 30.10.2001 declaring business income of Rs. 8,80,367,205/- after claiming expenses of Rs. 776,600/- against interest receipts of Rs. 8,81,713,805/-. This income was claimed as exempt u/s 10(20A) and thus filed NIL income for the purpose of Income-tax. (iii) The Assessing Officer in assessment order dated 21.03.2003 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 thus he disallowed the claimed of 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 ....
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....ial denial of Rs. 31,84,59,233/- as business expenses. But under the head "Income from other source", he allowed expenses of Rs. 41,73,789/- out of expense of Rs. 28,80,19,287/- claimed and disallowed the balance. 11. In background of above facts, now, we take up the various issues involved in the grounds raised in all the appeals. 12. The first issue raised in the grounds is whether the assessee is entitled to the claim of exemption u/s 10(20A) of the Act. 13. Before us, the learned Senior Advocate, Shri C.S. Aggarwal filed a paper-book (combined for all years) containing pages 1 to 76 and a separate paper book for assessment year 1997-98 containing pages 1 to 432 in addition to the year wise paper-book filed earlier by the assessee. The Ld. Senior Counsel contended that assessee is an 'authority' eligible for claim of exemption 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 t....
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....ral persons or it may employ the instrumentality or agency or juridical persons to carry out its functions. Thereafter reference was made to chronological sequence of events to support that the claim of exemption that it is an authority having its own right and powers and enacted under law for the purpose of dealing with and satisfying the needs of transportation and for the purpose of planning, development or improvement of cities, towns and villages or both: "DATE EVENT/ITEM OUTCOME 13.1.1994 First Cabinet note by MOUD was Union Cabinet decided to meet on 27.1.1994. sent to Cabinet for seeking in principle approval of Delhi MRTS Project. 27.1.1994 Union Cabinet met. Decided that a presentation on Delhi MRTS be made to Group of Ministers. 25.4.1994 Presentation to Group of Ministers was made. 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. Ref....
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....may discuss these at its special meeting. It was further decided that the matter may be referred again to the Cabinet in its next meeting to be held on 17.9.1996. 16.9.1996 Empowered Committee met and discussed the comments of MOUD and Minutes of PIB. It was decided that a supplementary note for the Cabinet would be prepared by MOUD wherein land cost should be recalculated on the basis that it will be taken on lease both from Railways and GNCTD and IDC will be included in the capital cost of the Project. 16.9.1996 Supplementary note from MOUD incorporating therein the suggestions from Empowered Committee was circulated to the Cabinet members. Final approval was sought from Cabinet. 17.9.1996 Cabinet meeting took place. Cabinet considered the note dated 9-12.9.1996 and supplementary note dated 16.9.1996 and approved the following proposals: i. Alignment-Approval of 55.3 kms. long alignment; ii. Capital cost- 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 ....
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.... be appointed by the Central Government. Further, section 14 of DMR Act provides that the metro railway in the metropolitan city of Delhi shall not be opened for the public carriage of passengers except with the previous sanction of the Central Government. The power u/s 18 of DMR Act for closing of metro railway and reopening of closed metro railway u/s 19 of DMR Act also vests with the Central Government. d) Section 86 of DMR Act provides that the metro railway administration shall, in the discharge of its duties and functions under this Act, be bound by such directions on questions of policy as the Central Government may give in writing to it from time to time. e) Section 88 provides protection of action taken in good faith by any metro railway administration official or against any other person, for anything is in good faith done or intended to be done in pursuance of this Act or any rules, regulations or orders made thereunder. f) Section 89 of DMR Act provides 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....
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....2002. It was submitted that Hon'ble Supreme Court in the case reported in 1981 AIR (SC) 487-503 Ramana Shetty Vs. International Airport Authority has held that power/authority to issue directions, disobedience of which would be punishable as a criminal offence, constitutes an "authority". It was submitted that section 62(3) of Delhi Metro Railway (Operation and Maintenance) Act, 2002 contemplates that if a DMRC official directs any person to leave any compartment, carriage or premises and he refuses to go he shall be punishable with imprisonment for a term which may extent to six months or with a fine which may extend to one thousand rupees or with both. Similarly section 36 of Metro Railway (Construction of Works) Act, 1978 applicable to DMRC also envisages penalty for failure to comply with directions issued u/s 21 of Metro (Construction of Works) Act, 1978. It was also submitted that section 82 of Delhi Metro Railway (Operation and Maintenance) Act, 2002 empowers to punish a person who commits any offence mentioned in sections 59, 61, 65 to 79 of Delhi Metro Railway (Operation and Maintenance) Act, 2002 and to arrest without warrant or other written authority by any metro railwa....
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....e Central on Statue Act. All what it provides that, it must be constituted in India by or under any law, which in the case of the appellant is duly satisfied. 13.8 The appellant also relied on notes on clauses of the Finance Bill to insertion of section 10(20A) of the Act which states as under: "Sub-clause (a) seeks to insert a new clause (20A) in section 10 of the Income Tax Act retrospectively from the 1st April, 1962, i.e., the date of commencement of the Income tax Act. The effect of the proposed amendment is that income of the Housing Boards or other statutory authorities set up for the purpose of dealing with or satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages will be exempt from income tax" 13.9 It was submitted that Central Board of Direct Taxes after the insertion of the aforesaid provisions issued a circular. In the Circular No. 45 issued by CBDT dated 02.09.1970 wherein it is provided as under: "State housing boards, development boards, etc. 41. Several States have set up statutory Housing Boards for the framing and execution of housing and other develop....
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....ng reasons: (i) For claiming the exemption the assessee must be an "authority" but the assessee is simply a joint-venture registered under section 617 of the Companies Act and it is not an authority. (ii) For claiming the exemption, the authority must be constituted in India by or under any law but the assessee has not been constituted by under any law and it is only registered under the Companies Act. (iii) For claiming the exemption, the authority must be constituted 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. If argument of the Ld. Counsel of the assessee is accepted, then any company registered under the Companies Act would be eligible for exemption under section 10(20A) of the Act, but the same is not true. (iv) Merely obtaining of necessary approvals for its Constitution, funding and functioning from the Central Government, do not prove that, the assessee has been constituted by or under any law. The Operation and Maintenance Act (2002) as well as Metro Railway ( Construction of Works) Act as such are A....
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....es Promotion Corpn. Of Tamil Nadu Ltd. [2008] 167 Taxman 36 (Madras)/[2009] 311 ITR 197 (Madras)/[2007] 212 CTR 334 (Madras.) 15. We have heard the rival submissions and perused the relevant material on record. The issue before us is whether the assessee is entitled to benefit of section 10(20A) of the Act or not. The section 10(20A) of the Act has been omitted by the Finance Act, 2002, w.e.f., 01/04/2003. To decide the controversy, it is relevant to reproduce the provisions of section 10(20A) of the Act, prior to the omission, inserted by the Finance Act, 1970 w.e.f. 01/04/1990, as under: "Section 10(20A) 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;" 15.1 The plain reading of the above section makes it clear that for eligibility of the exemption under the section, following requirements must be satisfied: (i) The entity claiming the exemption must be an authority. (ii) The said authority must be constituted in India by or under a....
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....ort and engaged in research of all problems relating to mass transit, urban transport and other people mover Systems and promotion or proposition of such methods, studies and measures as may be considered desirable by or beneficial to the interest of the company. 15.3 According to the main object clause the assessee company has been constituted for planning, designing and development of Metro-Rail for national Capital Territory of Delhi and other areas of national capital region. Thus, in view of the learned Counsel, the assessee fulfils the third condition of the section 10(20A) of the Act as mentioned above. The Revenue has also not seriously objected on this eligibility condition. 15.4 As far as the remaining two eligibility conditions of section 10(20A) i.e. "the assessee should be an authority" and "the authority should be constituted in India by or under any law enacted", is concerned, the Ld. Senior Counsel has submitted that the assessee fulfils both the conditions. 15.5 Let us, first examine the second condition first i.e. whether the assessee was constituted in India by or under any law enacted. In this reference, we may like to refer to the decision of the coord....
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....t. Since the assessee has admittedly not been established by Central, State or Provincial Act, it is disqualified on this point itself for exemption under the above provision. We may also note that the word 'Corporation' established by Central, State or Provincial Act, is a standard term used in several enactments to denote statutory Corporation established or brought into existence by or under same statute. On the other hand, a Company is not established under the Companies Act. A registered Company, does not owe its existence to the Companies Act. An incorporated Company is formed by the act of required persons associated for any lawful purposes subscribing their name to the Memorandum of Association and by complying with the requirements of the Companies Act in respect of registration. A Company is incorporated and registered under the Companies Act and not established under the Companies Act. Thus, the A.O. miserably failed to enquire and investigate into the substantive provisions of Law - whether assessee is entitled for exemption under section 10(26BBB) of the I.T. Act. The impugned assessment order shows that A.O. asked for the explanation of assessee and the entire reply o....
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.... assessee have no merit and the same is accordingly dismissed. 15.6 In the instant case before us also, the assessee-company has been constituted under the provisions of the Companies Act, 1956. A copy of certificate of incorporation issued by the Additional Registrar of Companies is available on page 40 of the paper book for assessment year 1997-98 which reads as under: "I hereby certify that Delhi Metro Rail Corporation limited is this day incorporated under the Companies Act, 1956 ( No. 1 of 1956) and the companies limited. Given under my hand at New Delhi this 3rd day of May 1995." 15.7 The Ld. counsel has referred to various correspondence among the Ministry of Urban Development and other stakeholders, which have been enclosed with the synopsis and filed along with the paper book. A summary of chronological event resulting into formation of the assessee company and associated Cabinet Committee meeting notes submitted by the learned Senior counsel before us have been reproduced above. We find that though formation of the assessee has been discussed in this cabinet note, however, the assessee has been incorporated under the Companies Act, 1956 only, though Metro R....
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....by 1976 Act rather it has been established under the 1976 Act, hence it is not covered by Notification dated 22.10.1970 whereas the respondent submits that Authority has been established by the 1976 Act hence, it fulfills the condition as enumerated under Notification dated 2.10.1970. Alternatively, it is submitted that words "by and under" have been interchangeably used in the IT Act, 1961 and there is no difference, even if, the Authority is established under the 1976 Act. 19. Section 194A(3)(iii) clauses (b), (c) and (d) refer to expression "established". In sub clause (b) expression used is "established by or under a Central, State or Provincial Act", in sub clause (c) the expression used is "established under the Life Insurance Corporation Act" and in sub clause (d) expression used is "established under the Unit Trust of India Act". The Section thus uses both the expressions "by or under". The expression established by or under an Act have come for consideration before this Court on several occasions. In this context, it shall be useful to refer to few judgments of this Court. In Sukhdev Singh (supra), the Court had occasion to consider the status of company ....
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....ion 21 of the IPC (Indian Penal Code). This Court again held that expression Corporation means a Corporation created by the legislature. In paragraph No. 7 following was held: "7 In our opinion, the expression 'corporation' must, in the context, mean a corporation created by the legislature and not a body or society brought into existence by an act of a group of individuals. A cooperative society is, therefore, not a corporation established by or under an Act of the Central or State Legislature." 22. Further noticing the distinction between Corporation established by or under Act or body created by or under Act, following was held in paragraph No. 10: "10. There is a distinction between a corporation established by or under an Act and a body incorporated under an Act. The distinction was brought out by this Court in Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi. It was observed: [SCC p. 435: SCC (L&S) p. 115, para 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." There is thus a well-marked distinction between a body cr....
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....y or under". The word "established" refers to coming into existence by virtue of an enactment. It does not refer to a company, which, when it comes into governed in accordance with the the Companies Act. But then, difference between "established existence, is provisions of what is the by a Central Act" and "established under a Central Act" 22. The difference is best explained by some illustrations. A corporation is established by an Act, where the Act itself establishes the corporation. For example, Section 3 of the State Bank of India Act, 1955 provides that a bank to be called State Bank of India shall be constituted to carry on the business of banking. Section 3 of the Life Insurance Corporation Act, 1956 provides that 3. Establishment and incorporation of Life Insurance Corporation of India.-(1) With effect from such date as the Central Government may, by notification in the Official Gazette, appoint, there shall be established a Corporation called the Life Insurance Corporation of India. State Bank of India and Life Insurance Corporation of India are two examples of corporations established by "a Central Act"." 25. This Court has also referr....
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.... for the development of certain areas in the State into industrial and urban township and for masses connected through with". 29. Thus, the Act itself provides for constitution of an authority. Section 2(b) of the 1976 Act defines Authority as authority constituted under Section 3 of the Act. Section 3 which is very relevant for the present case is as follows: "3. (1) The State Government may, by notification, constitute for the purposes of this Act, An authority to be called (Name of the area) Industrial Development Authority, for any industrial development area. (2) The Authority shall be a body corporate. (3) The Authority shall consist of the following :- (a) The Secretary to the Government, Uttar Pradesh, Industries Department or his Nominee not below the rank of Joint Secretary-ex-official. Member Chairman (b) The Secretary to the Member Government, Uttar Pradesh, Public works Department or his nominee not below the rank of Joint Secretary ex-official. Member (c) The Secretary to the Government, Uttar Pradesh, Local Self-Government or his nominee not below the rank of joint Secretary-ex official. Member ....
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....officio Member (Nominated under Clause (f)) (viii) Chief Engineer, Irrigation Department UP, Ex-officio Member (Nominated under(f)) (ix) Chief Town and Country Planner, UP, Ex-officio Member (Nominated under Clause(f)) (x) District Magistrate, Bulandshahr, Ex-officio Member (Nominated under Clause(f)) (xi) Chief Executive Officer Member Secretary (Under Clause (g))" 31. This Court having already laid down in Dalco Engineering (supra) that establishment of various financial corporations under State Financial Corporation Act, 1951 is establishment of a Corporation by an Act or under an Act. We are of the view that the above ratio fully covers the present case and we have no doubt that the Authority have been established by the 1976 Act and it is clearly covered by the Notification dated 22.10.1970. It is further relevant to note that composition of the Authority is statutorily provided by Section 3 of 1976 Act itself, hence, there is no denying that Authority has been constituted by Act itself. 15.10 In the instant case before us the assessee has not produced before us any notification issued by or under any Central, Stat....
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....ing, development or improvement of cities, towns and villages, or for both. It is also an admitted case that the assessee has been incorporated under the provisions of the Companies Act, 1956. Hence, the assessee cannot claim the benefit under s. 10(20A) of the IT Act, 1961, though it might come with the later part of the provisions of s. 10(20A) of the IT Act, 1961. 9. For arriving at the opinion, we can take the support of similar view taken by the Allahabad High Court in the case of Sharda Sahayak Samadesh Kshettra Vikas Nigam Ltd. vs. CIT (2000) 162 CTR (All) 220 : (2000) 244 ITR 364 (All), in which, while answering the question as to whether the Tribunal was justified in holding that the assessee company was not an authority as envisaged in s. 10(20A) of the IT Act, 1961 has held that the assessee company was not entitled to exemption under cl. (20A) of s. 10 of the IT Act, inasmuch as it was registered as a Government public company as defined in s. 617 of the Companies Act, 1956 and not an authority constituted 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, developm....
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....o the conclusion that the respondent was a local authority and entitled to exemption under s. 10(20) of the Act, however relegated the assessees before the authorities to seek the claim under s. 11 of the Act. The facts of the present case are not comparable to that of the decision of the Supreme Court so as to grant the relief by way of relegation to the authorities. In that case, the Supreme Court has also given a cautionary note that the High Court would not have entertained the writ petitions and granted the relief. Hence, we are not able to accept the contention and the contention is rejected. 12. The reliance made in Gujarat Industrial Development Corporation & Ors. vs. CIT (1997) 142 CTR (SC) 181 : (1997) 227 ITR 414 (SC) by the assessee does not also advance the case of the assessee in view of the fact that the assessee in the cited case was an authority created under the provisions of Gujarat Industry Development Act, 1962 which satisfied the requirement of s. 10(20A) of the Act. But the assessee in this case was incorporated under the Companies Act. 13. In the light of the above discussions, the question of law Nos. 1 and 2 in Tax Case Nos. 112 to 114 of....
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.... specified that the assessee should be an authority constituted in India by or under Central, State or Provincial Act. 15.15 The reliance placed by the Ld. counsel on the CBDT circular (supra) is also of no assistance to the assessee as the said circular was in relation to income of the housing boards or other statutory authorities set up by the state government for the purpose of dealing with or satisfying the need for housing accommodation or for the purpose of planning development or improvement of the cities, towns and villages. 15.16 In view of the decisions discussed above and keeping in view the facts & circumstances of the case, we reject the contention of the Ld. counsel of the assessee that the language employed in section 10(20A) of the Act is wider and it is not necessary that the assessee be creature of Central or State Act, as provided in section 10(23BB) and section 10(23BBA) of the Act. 15.17 Thus, the assessee failed to satisfy the condition of "authority constituted by under any Central, State of Provincial Act". In view of the failure to satisfy this condition, the assessee cannot be granted benefit of exemption under section 10(20A) of the Act. Since we....
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....ement of business. Reliance was placed on the following judgments: a) Western India Vegetable Products v. CIT 26 ITR 151, 158-9 (Bom) b) Sarabhai Management Corp. Ltd. v. CIT 102 ITR 25 (Guj) affirmed by Apex Court in the case of CIT v. Sarabhai Management Corp. Ltd. 192 ITR 151 16.2 The assessee specifically relied on the judgment of Hon'ble Delhi High Court in the case of CIT v. Jubilant Offshore Drilling (P) Ltd. ITA No. 694/2014 dated 24.11.2014 wherein the Hon'ble Court has held as under: "8. Noticeably, the respondent assessee had themselves added back the Registrar of Companies' filing fee of Rs. 20,80,000/- and had applied/claimed the said expense under Section 35D of the Act. The depreciation of Rs. 26,65,819/- had also been added back by the respondent assessee. This factual position was ignored in the assessment order, without any explanation. Other expenditure was not directly relatable and having nexus with the oil exploration costs. This is not the finding of the assessing officer or an issue raised before us. They are clearly business expense. 9. The Assessing Officer had also disallowed Rs. 2,90,854/- under Section 35D of t....
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....and development of the project is taken up. Similarly Stage-3 being operation and maintenance of the project can commence only after Stage -2 of the project is completed. It was further submitted that during the previous year relevant for the assessment year 1997-98 first stage of the project comprising of planning, designing and financing activities of the project were initiated by the assessee, hence it could certainly be concluded that the business activity of the assessee had commenced in assessment year1997-98. Reference was made to the judgment of Hon'ble Gujarat High Court in the case of CIT V. Saurashtra Cement and Chemical Industries Limited (1973) 91 ITR 170 (Guj). In the said case the company was formed for the manufacture and sale of cement. The activities, which constitute business of the assessee, could be divided into three categories, first category being extraction of Limestone, second category being manufacture of cement and third category being sale of cement. The Hon'ble High Court in the said case has held that, business connotes a continuous course of activities. All the activities, which go to make up the business, need not be started simultaneously in order ....
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....996-97 itself led to commencement of business and, even if it is held the same was only leading to construction activities, the business can be said to have commenced, though the submission of assessee is that, assessee was independently engaged is business of actual planning and designing of Metro systems. It was submitted that, the moment, the assessee started incurring of expenses on planning and designing, which was F.Y. 1996-97 itself, business had commenced. The aforesaid conclusion further show that, the learned AO admits that, planning and, designing is the business of the appellant but however unless such planning and, designing is of Metro System, the business cannot be said to have commenced. It was submitted that, perusal of the consultancy services obtained by the assessee would show that, such reports from "RITES" were in respect of only planning and, designing of Metro Systems and, accordingly it has to be held that, assessee has commenced business in assessment year 1997-98 which subsequently undisputedly led to construction activities. 16.7 In view of the above arguments, we can summaries that according to the Ld. Sr. Counsel of the assessee , business of the as....
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....usiness and profession which was carried on by the assessee any time during the previous year, is chargeable to tax. For any income to be classified as income under the head "profit and gains of the business of profession "it must be an activity which is connected in some manner or form with the business of the assessee . The term "business" has been defined in section 2(13) as including any trade, commerce or manufacture or any adventure or concern in the nature of the trade, commerce or manufacture. . 18.2 We find that In the case of CIT Vs Hughes Escorts Communication [2009] 311 ITR 253, it has been held that "the expenses incurred in the previous year, prior to the commencement of the business but after the setting up of its business, which two dates need not be the same, would be deductible as revenue expenses". In the said case, while making distinction between the setting up and commencement of a business the Hon'ble Court has relied upon the Bombay High Court in Western India Vegetables Products Ltd. (supra) In this case, the Bombay High Court, which was in this case dealing with the corresponding provision of the Indian Income-tax Act, 1922, then explained the distincti....
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....mmenced its business. I have considered the facts of the case including the objects of the company and the directors report extract of which has been reproduced above. On the facts and in the circumstances of the case, the conclusion is inescapable that till 31.3.1998 the business of the appellant had not been set up. In this connection, the following decisions are relevant:- The mere purchase and erection of machinery will not amount to starting of the business, though they may be essential preliminary steps for starting the business. The assessee can be taken to have started the business only when his plant and machinery go into products. K. Sampath Kisser V. CIT,(1986) 158 ITR 25(Mad.) A manufacturing concern cannot be sold to have set up its business simply by installing the machinery and giving it a trial with a hire generator set. CIT Vs. Forging & Stamping (P.) Ltd. (1979) 119 ITR 616 (Bomb.) A business is set up only when it is ready to commences mere obtaining a land on lease and placing of orders of raw materials and machinery will not mean that business has been set up. CIT V. Sarabhai Sons (P) Ltd. (1973) 90 ITR 318 ....
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....y, then business can be called as set up. In the case of Plem Hotel Private Limited (supra), the Hon'ble Bombay High Court has held that by merely letting out of banquet Hall without completing the hotel building, it cannot be said that hotel business was set up by the assessee by the date of letting out banquet Hall. In the instant case before us, also the assessee is engaged in providing services of rail transport by way of construction of Metro railway network in Delhi NCR region. 18.7 The claim of the assessee that business of the assessee consist of 3 stages i.e. stage I : planning, designing and financing of the MRTS project stage II; construction and development of the MRTS project and stage III; operation and maintenance of the MRTS project. According to the assessee , above broader stages of the project are interrelated and commencement of the one must necessarily precede that of the other . Stage one of the project being planning, designing and financing of the project needs to be commenced before a stage - 2, being construction and development of the project is taken up. Similarly, stage III , being operation and maintenance of the project can commenced only after Sta....
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....acility cannot be called as set up. 18.9 In the instant case before us, during assessment year 1996- 97, the company had no person under its employment which is evident from page -4 of the Annual Report as under: "EMPLOYEES: In the Financial Year 1995-96, there was no employee in the Company and the work relating to the company was mainly performed by the employees of Ministry of Urban Affairs and Employment. The Board Places on record its appreciation of the services rendered by the employees of Ministry of Urban Affairs and Employment." 18.10 The assessee did not incur any expenses on capital workin- progress for the project of Metro railway network. On page 2 of the Annual Report under the heading "Present Activities", it is reported that during the period under AY 1996-97, the company was registered though it could not be made functional immediately and effective steps were taken to set the final investment approval from the cabinet for the implementation of Delhi MRTS project. In view of the circumstances, we hold that the business of the assessee cannot be treated as setup as far as assessment year 1996-97 is concerned. 18.11 In the remaining assess....
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....fore depreciation & tax (-)5.68 (-)36.02 (v) Depreciation Nil Nil (vi) Provision of taxation Nil Nil (vii) Net profit/loss (-)5.68 (-)36.02 (i) Paid up equity share capital 161.04 161.05 (ii) Share application money pending allotment 119.52 5794.99 Toal 280.52 5956.04 Reserves Nil Nil Dividend (Proposed) Nil Nil During the financial year, total receipts of the company, mainly from the contribution towards equity from Govt. of India and GNCTD were Rs. 56,75,20,000/-, the break-up of which is as under: GOI - Rs. 52,00,00,000/- GNCTD - Rs. 4,75,52,000/- The total expenditure during the year was Rs. 17,39,30,992/-, the break-up of which is as under: Revenue Expenditure - Rs. 66,07,592/- Capital Expenditure - Rs. 16,73,23,400/- The capital expenditure during the year was mainly due to the purchase of building and revenue expenditure was mainly due to the payment of consultancy fees to RITES. III. EMPLOYEES During the year under review, steps have been initiated to em....
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....towards commencement of business. These activities are obviously pre-operative before commencement of business". In this regard to the reliance placed by the appellant on the decision of Saurashtra Cement and Chemicals (supra) the AO has stated : "But the facts of the case of the assessee company for this year are different. Details filed during the course of assessment proceedings and as discussed in para 2.2 above show that a few steps were taken during the year by the company to set in motion the process of commencement of business. A reliance on Gujarat High Court decision is not correct for in the said decision the High Court made a distinction between commencement of business and setting up of business. Setting up of business has been considered at the stage of commercial operation whereas commencement of business has been considered at the stage when preparations for setting up business were under way. In Saurashtra Chemicals the High Court held that limestone extraction prior to manufacture of cement can be considered as commencement of business and this lead to setting up of production of cement. Going by the same logic the moment assessee undertakes planning, designing, d....
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....ries including Managing Director was appointed corporate office of the company became functional, general consultants were appointed who started mobilization and started review of technical parameters of the project. Action relating to acquisition of land and rehabilitation of project affected persons have been undertaken. Four tender packages for civil work were considered and contract for the first two packages were under finalization during the year. The report further states under the head conservation of energy that the company did not commence any-ground operation. An analysis of the activities carried out during the year indicate that these "Activities were preponderantly aimed towards operationalising the organization and not towards commencement of business. These activities are obviously pre-operative before commencement of business. 6. In appeal it was submitted that the Assessing Officer had erred in holding that the appellant had not commenced its business. I have considered the facts of the case including the objects of the company end the directors' report extract of which has been reproduced above. On the facts and in the circumstances of the case, the conc....
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....ls of capital work-in-progress (Schedule -5 of Annual Report), the work of MRTS project which included Earth Work for Rail Corridor, Elevated portion of Rail Corridor, Yamuna Bridge Words, Station & Building etc. continued during the year. Again in this year also the Auditor, in clause-3 of annexure to the Audit Report has reported that work of the project was not completed. In view of the construction work of the project not completed, the business of the assessee cannot be said as ready for commencement. 18.19 Facts & circumstances in assessment year 2001-02 & 2002-03 are similar. The Auditor in annexure to the Audit Report for assessment year 2001-02 has mentioned that work of the project was not completed. 18.20 In view of our observation above, we hold that business of the assessee was set up only in the period immediately before the date when the assessee carried on commercial run of the Metro rail. The Ld. Assessing Officer has reported this date of running the Metro train as 25/12/2002 on page 8 of the assessment order for assessment year 2002-3. This factual information has not been disputed by the assessee before us. The date of setting up of business can only be in....
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....s been earned on the fixed deposits from the amount contributed by the shareholders as is evident from the chart enclosed with submissions as was in the case of CIT vs. Petronet LNG Ltd (supra), wherein their lordships has held that if the interest is earned on the funds which are to be utilized for purchase of capital asset/ setting up of the business and that is inextricably linked with the setting up of the business, said interest will not be treated as income under the head "income from other sources" and therefore submitted that such an amount of interest cannot be included in the income of the assessee, and same should be capitalized towards the cost of the project. Reliance was also placed on the following judgments: a) CIT v. Bokaro Steel Ltd. 236 ITR 315 (SC) b) CIT v. U.P. State Industrial Development Corporatiion 225 ITR 703 (SC) c) karnal Cooperative Sugar Mills Ltd. v. CIT 233 ITD 531 (P&H) d) CIT v. Karnataka Power Corporatioin 247 ITR 268 (SC) e) Bongaigon Refinery Petrochemicals Ltd. v. CIT 251 ITR 329 (SC) f) CIT v. Vidyut Steel Ltd. 82 Taxman 94 (AP) 20.3 It was further submitted on behalf of the assessee th....
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....ses incurred for earning that income. In support of his claim that interest income earned on FDR is chargeable under the head "Income from other sources", the Ld. DR relied on the following decisions: 1. Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs CIT T19971 93 Taxman 502 (SC)/[1997] 227 ITR 172 (SC)/[1997] 141 CTR 387 (SC) where Hon'ble Supreme Court held that interest income earned on short-term deposit of funds before commencement of business during setting-up of factory could not be set off against loss of the company 2. CIT Vs Coromandal Cements Ltd [998] 234 ITR 412 (SC)/[1999] 153 CTR 209 (SC) where Hon'ble Supreme Court held as follows: The point in dispute has now been concluded by a decision of this court in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172. In view of that the appeal is allowed. The judgment under appeal is set aside. 3. CIT Vs Indian Vaccines Corporation Ltd [2014] 44 taxmann.com 130 (Delhi)/[2014] 222 Taxman 207 (Delhi)(MAG)/[2014] 363 ITR 295 (Delhi) Where Delhi High Court held that Where there was no inextricable link between investment and project, interest i....
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.... Trib.) (Copy Enclosed) where Hon'ble ITAT Delhi held that in absence of any material to show that amount invested in fixed deposit was actually out of amount borrowed by assessee for acquiring capital asset, interest earned on fixed deposit would be assessed as income from other sources. 10. MKR Frozen Food Exports Ltd. VS ITO r20101 126 ITD 1 (Delhi) (Copy Enclosed) Assessee was engaged in business of export of frozen foods and meals - For this purpose, overdraft facilities were taken from bank to meet liquidity requirements - Subsequently, when assessee earned profit, money so generated was placed in fixed deposits with a bank - Assessee contended that deposits were placed with a view to reduce interest liability, and, therefore, interest income would partake character of profits and gains of business and became eligible for deduction under section 10B - Whether since interest earned from bank deposits did not have direct or proximate connection with business of export of EOU, same would be taxable under residuary head, i.e., 'Income from other sources' and was not eligible for deduction under section 10B - Held, yes. 11. Conventional ....
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....ng the interest income under the head "Income from other sources". In those assessment years, the assessee has disputed the quantum of expenses allowed against the interest income under the head "Income from other sources". 22.1 The Ld. counsel has submitted that funds deposited in the banks were inextricably connected to the setting up of the business of the assessee and therefore interest income earned on the fixed deposits with bank is eligible for setting off against project expenses. According to the Revenue Authorities, the business of the assessee was not set up during the period under consideration i.e. AY 1996-97 to AY 2002-03 and no income was shown during the period under the head "profit and gains of the business "and thus the interest income earned should be taxed under the head "Income from other sources" and the expenditure claimed under section 35D should also be allowed in the year of setting up the business. 22.2 In our opinion, for any income to be classified as income under the head "profit and gains of the business of profession " it must be an activity which is connected in some manner or form with the business of the assessee . 22.3 In the instant ca....
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....ion 257 of the Act. The Hon'ble Supreme Court observed in para 12 that "if a company has not commenced business, there cannot be any question of assessment of its profit and gain of the business". On the issue as under which head the income earned by the company would be taxed before it commences a business, the Hon'ble Supreme Court described with three examples that (a) if company invests the surplus fund in its hand for purchase of land or house property and later sale, then the profit or gains made by the company, would be assessable under the head "capital gains" (b) if a company purchases a rented house and gets rent, which will be assessable to tax under section 22 of the Act as Income from House Property and (c) if a company (also as in the case before the Lordship), keep the surplus fund in short-term deposit in order to earn the interest, then such interest would be chargeable under the head "Income from other sources". The Hon'ble Supreme Court further held that the interest earned would be in the nature of revenue, observing as under: "13. The company has chosen not to keep its surplus capital idle, but has decided to invest it fruitfully. The fruits of such in....
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....quidity was insured and money would remain available when required for purchase of land and infrastructure development. The Ld. first apellate authority observed that the interest earned was "inextricably" linked with the setting up of the power plant. Based on the reasoning, the first appellate authority applied the judgment of the Hon'ble Supreme Court in "Bokaro Steel Ltd." (supra) and allowed the claim of the assessee directing the Assessing Officer to consider the interest income for capitalization and adjusting against the preoperative expenses. In view of the finding of the fact by the first appellate authority, the Hon'ble Delhi High Court concluded that the assessee's income was an income connected with business and thus it cannot be held that income derived from parking the funds temporarily with bank would result in the character of the funds being changed and brought to tax under the head "Income from other sources". The Hon'ble High Court in para 5.2 has observed as under: "5.2 It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the devel....
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....tive schemes of interest of the various banks and thereafter only investment has been made after selection of the appropriate bank. Minutes of one of such meetings, available on page 46 of the paper book filed, combined for all the years of the appeal is reproduced as under: Minutes of the meetings on investment held on 12.10.99. Present: - Shri C.B.K. Rao - Director (P&P) Shri Satish Kumar - Director (RSE) Smt. Saroj Rajware - FA&CAO" An amount of Rs. 44 crores are maturing in the following manner:- 1. Rs. 22 crores including interest of approximately Rs. 2 crores with Canara Bank on 14.10.99. 2. Rs. 22 crores including interest of approximately Rs. 2 crores with Oriental Bank of Commerce on 13.10.99. Accordingly quotations were invited from the 15 banks on our panel. 9 Banks have responded in writing whereas SBI have telephonically conveyed their rates for a period of one year for deposits in excess of Rs. 10 crores at 10% p.a. The best rates have been quoted by Oriental Bank of Commerce at 11.1 p.a. On an earlier occasion on 7.9.99, the Committee had decided to place Rs. 60 crores with SBI and Rs. 30 cro....
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....DSC ventures Ltd (supra), the assessee furnished performance guarantee in favour of the NHAI to get the contract awarded in its favour and to procure the said bank guarantee, the assessee kept the amount in the fixed deposit in the bank. The Hon'ble Delhi High Court in the said case observed that investment in fixed deposit had an inexplicable nexus with the securing the contract and therefore it could not be taxed under the head "Income from other sources". 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 purpose in said case, the ratio of the above decision cannot be applied over the facts of the instant case. In other cases relied upon by the Ld. Counsel of the assessee, the decision in the case of Indian oil Panipat Power Consortium Limited (supra), has been followed, which we have already distinguished. 22.11 In view of the above discussion, respectfully following the ratio in the case of Tuticorin Alkali Chemical and Fertilizers Ltd(supra), we reject the contentions made while arguing the grounds as well as additional grounds related t....
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.... allowed by tire Assessing Officer in view of the decision of the Hon'ble S.C in the case of M/s Tuticorin Alkali Chemicals A. Fertilizers Ltd. Vs. CIT 227 ITR Page 172 Interest, earned on deposits made by any assessee prior to commencement of its business is chargeable to tax. The authorized representative of the appellant company lias submitted that Commissioner of Income-tax, Delhi-IV, Now Delhi has allowed the expenses in the order under section 263 as under: Asstt. Year Interest Income Deduction of expenses allow3d 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/- The submissions of the appellant company filed on were forwarded to the Assessing Officer for her comments. The reply of the Assessing Officer was received vide letter dated 10.2.2004 wherein it is specifically mentioned that since the assessee has not furnished any details of expenses the claim of the assessee remained unverifiable whether the expenses were incurred wholly and exclusively for earning the interest income. Therefore, no expenses were allowed in this year. It ....
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....tt. 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/-( Rs. 5,55,19k,567/- - Rs. 34,49,413/-) is not relatable to interest Income and is, therefore, being disallowed. I have gone through the findings of the Assessing Officer and the submissions made by the appellant company. I he argument taken by the appellant company has substantial force because the Hon'ble Commissioner of Income-tax. Delhi-IV, New Delhi has allowed the expenses relatable to interest in the assessment years 1998-99 and 1999-2000 in the order passed under section 203 of the Income-tax Act, 1961. The relevant para is reproduced as under:- "that a fraction of those expenses incurred was relatable to earning interest income. In order under section 263 of the Income tax Act. 1961 for the assessment year 98-99 it has been held that "expenses of Rs. 31,35,830/- were relatable to interest income. It is observed that the interest income has increased from Rs. 15,44,65,452 in the assessment year 1998-99 to Rs. 36,58,38,183/- in assessment year 1999-2000, since not much extra expenses were re....
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.... 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 the expenses claimed in the asstt. year 98-99 of Rs. 31,35,830/- In spite of this fact that interest income had been increased from Rs. 15.44 to 36.59 crores in (- .comparison to asstt. year 98-99. The Hon'ble CIT, Delhi-IV, New Delhi has categorically given the finding that since no much extra expenses were required to earn additional interest income for asstt. year 99-00, it will be fair that if we increase the relatable expenses held to be inclined to earn interest income for the asstt. year 98-99 by 10% only. I do not intend to the differ with the findings of the CIT, Delhi-IV, New Delhi and accordingly I hereby direct the Assessing Officer to allow the relatable expenses amounting to Rs. 37,94,354 (Rs. 34,49,413/- + 10% Rs. 3,44,941) i.e 10% more than of expenses allowed in the asstt. year 1999-00 for earning the interest income. The balance amount is disallowed." 24. Similarly in assessment year 2001-02 and 2002-03, the assessee claimed expenses of Rs. 7,76,600/- and ....
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.... 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. CIT(A), in view of the fact that there is no appeal of the Revenue before us in which the quantum of expenses allowed under the head "Income from other sources" has been contested by the Revenue. In view of the above discussion, the relevant ground number 5(a) and 5(b) of ITA No. 1874/del/2004 for assessment year 2000-01, ground No. 5 and 6 of ITA No. 4553/del/2003 for assessment year 2001-02 and grounds No. 5 and 6 of ITA No. 5095/del/2004 for assessment year 2002-03 are accordingly dismissed. 25.2 The next issue raised in the grounds for AY 1996-97 to 1999-2000 is regarding not allowing claim of deduction of 1/10th of preliminary expenses under section 35D of the Act. Referring to the issue of deductibility of preliminary expenses written off under section 35D of the Act in the AY 1996-97, the learned counsel of the assessee contended that the assessee had earned an income of Rs. 2,39,452/- which was set off against preliminary expenditure written off Rs. 8,07,227/- so as to d....
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.... 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 business expenditure, as has also been held the judgment of Jurisdictional High Court in the case of CIT vs. Dhoomketu Builders & Development Pvt. Ltd. 216 Taxmann 76. As we have already held that business of the assessee was not set up during the period from assessment year 1996-97 to assessment year 2002-03, the assessee is not eligible for claiming any business expenditure as previous year has not began. In the additional ground (b), the assessee has requested that in case the expenditure incurred in the profit and loss account including professional and consultancy expenses, if not allowed in the respective year of incurring, then might be allowed to be capitalized and added to the cost of the project. We find that in assessment year 1998-99, the Ld. CIT(A) held that consultancy charges paid are eligible for amortization under section 35D of the Act. We are of the view that if those consultancy and professional expenses falls under the provisions of section 35D of the A....
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....n 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 the issue on dispute. In the case of Oswal Agro Mills Ltd (supra), issue in dispute was in respect of depreciation on passive use of the assets. The Assessing Officer denied depreciation in respect of the Bhopal unit of assessee on assets forming part of a block of assets on the ground that the unit was closed throughout the years. The Hon'ble Delhi High Court held that depreciation had to be allowed an entire block of the assets irrespective of the individual asset was in use or not. In the instant case before us , issue involves different, and therefore issue of the said decision cannot be applied out the facts of the instant case. In the case of National Thermal power Corporation (supra) issue involved whether as an asset though ready to use but not put to use , can depreciation be allowed on such asset. The Hon'ble High Court held that the expression "used for the purposes of the business" in section 32 of the Act has been judicially interpret....
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.... 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 in law in exercising jurisdiction under section 263 of the Income-tax Act,1996 and holding that out of expenses of Rs. 67,75,851 allowed by the Assessing Officer expenses of Rs. 20,90,552 were disallowable being not relatable to interest income. The assessment order dated 30.11.2000 of the Addl. CIT Spl. Range-24, 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. 67,75,851 were allowable as deduction against interest; income of Rs. 15,26,70,209 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....
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.... 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 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 Incometax Act, 1961.The assessment order dated 30.11.2000 passed by the Assessing Officer having been the subject matter of appeal before the CIT(Appeals)-XIII, 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 CTT, 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 ....
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.... 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 interests of revenue, the order passed by the CIT, Delhi-IV, New Delhi deserves to be cancelled being not in accordance with the provisions of law. 5. The Assessing Officer having allowed deduction of expenses amounting to Rs. 5,55,19,567/- against interest income of Rs. 36,58.38.1837-. in the facts and circumstances of the case the CIT, Delhi-IV has erred in law and on facts in invoking jurisdiction u/s 263 of the Income-tax Act,1961 to hold that out of expenses of Rs. 5,55,19,567,/- allowed by the Assessing Officer, the expenses amounting to 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 interest of revenue, the order passed by the CIT, Delhi-IV under section 263 of the Income-tax Act, 1961 being illegal des....
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....f 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 firstly without jurisdiction and, even otherwise, the conclusion of the learned CIT to restrict the expenditure allowable and, duly allowed by AO is wholly arbitrary and, untenable. The learned CIT has restricted the expenditure allowed by AO of Rs. 67,75,851/- in A.Y. 1998-99 to Rs. 46,85,299/- and, disallowed Rs. 20,90,552/-; whereas in A.Y. 1999-2000, she has restricted the expenditure allowed of Rs. 5,55,19,567/- to Rs. 34,49,412/- and, disallowed Rs. 5,20,70,154/-. The basis of disallowance for A.Y. 1998-99 is as under: A. Total Expenditure Allowed by AO Rs. 67,75,851/- B. Out of the aforesaid, expenditure pertaining Income from sale of tenders Rs. 15,49,470/- C. Balance (A-B) Rs. 52,26,381/- D. Out of the aforesaid only 60% is allowable Rs. 31,35....
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....eduction 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 appreciate that there could be no valid justification to hold that the amount of Rs. 20,90,552/- and, Rs. 5,20,70,154/- claimed as deduction were not allowable. It was submitted that there is no basis to adopt the percentages of 40% and, 10%. The estimate is purely arbitrary. Reliance was placed on the judgement of SC in the case of Maharaja B.P. Singh Deo v State of Orissa 76 ITR 690. 37 It was submitted that the learned CIT failed to appreciate that such expenditure allowed was otherwise an allowable expenditure u/s 57 of the Act. It was submitted that, that the assumption that the expenditure claimed by the assessee is an expenditure, which has not incurred wholly and exclusively for the purpose of earning income is also based on no material and evidenc....
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....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 provisions of section 57 of the Act. According to him in view of the lack of Inquiry, the order passed by the Assessing Officer in both the assessment years, i.e., assessment years 1998-99 and 1999- 2000 are erroneous. He further submitted that in view of the revenue loss on account of the action of the Assessing Officer, the orders are also prejudicial to the interest of the Revenue. In view of the contentions, he submitted that orders passed by the Assessing Officer being erroneous insofar as prejudicial to the interest of the Revenue, the Ld. CIT was justified in invoking provisions of section 263 of the Act. On the contention of the Ld. Senior Counsel of the assessee that the order under....
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....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 amount of authorised share capital, raised huge sum on account of premium, exercise of revisionary powers by Commissioner opining that this could be a case of money laundering was justified 6. Swarup Vegetable Products Vs CIT H9911 54 Taxman 175 (Allahabad)/[1991] 187 ITR 412 (Allahabad)/[1990] 90 CTR 113 (Allahabad) (copy enclosed) Assessee received certain amount by way of refund of excise duty and claimed that he had placed this amount in suspense account as a large part of this amount was claimed by one G and a suit and also a writ petition filed by G in this regard were pending before Courts and, thus, this....
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....nditure 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 Promotion A/c 171,3000 Car Maintenance 30,907 Conveyance Expenses 33,552 Electricity Expenses 61,816 Entertainment Expenses 7,754 Ground Rent 1,575,000 Honorarium 147,300 Insurance A/c 26,066 Membership A/c 14,673 Miscellaneous expenses 111,679 Office Maintenance Expenses 41,787 Postage and telegraph 14,115 Printing and Stationary 149,737 P....
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....mitted 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, business promotion electricity and ground rent and out of which segregation of the above said lines is required to be made." 38.4 Similarly, in assessment year 1999-2000, also the Assessing Officer passed the assessment order in identical manner, making additions to the income filed by the assessee in revised return of income. In the assessment year 1999-2000 the Assessing Officer allowed deduction of Rs. 6,57,16,432/- against ....
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....nced. 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 Assessing Officer has not raised a single query on the issue of the allowability of quantum of expenditure against earning of interest income. Similar facts have been observed in AY 1999-2000. Though in the assessment order, the Assessing Officer had mentioned that in respect of the remaining expenses, except depreciation, same were allowed as expenses against income from other sources under section 57 of the Act. I....
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.... 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 concerned authorities. We find that in the instant case before us the Ld. CIT has identified the advertisement expenses as not related to the earning of interest income and in respect of the balance expenses also, he identified the employees engaged in looking after the project work of the assessee and made estimate of the expenses allowable against interest income on rational basis. Thus the ratio of the said deci....