TaxTMI 
TaxTMI 
2019 (8) TMI 842
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....re identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed-off, by this consolidated order. 2. The assessee has, more or less raised common grounds of appeal for all Assessment Year's. Therefore, for the sake of brevity, grounds of appeal raised by the assessee in ITA No. 5813/Mum/2017 for AY 2012-13 are reproduced as under:- 1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in upholding the views of the Assessing Officer (AO) by confirming the disallowance in respect of the entire expenditure of Rs. 5,64,80,818/-, which stood debited to the Profit & Loss Account including depreciation claimed u/s.32 the Income Tax Act, in respect of the division Horizon Country Wide Logistics as capital expenditure on the grounds that business had not commenced/set up. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to compute the disallowance u/s,14A r.w.r.8D of the Income Tax Act, in respect of shares/investment in mutual funds, which have yielded dividends. 3. On the facts and in the circumstances of the case and in ....
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....e of Rs. 10,69,09,957/-. Mean time, the Hon'ble Bombay High Court, vide order dated 30/09/2013 has approved amalgamation of SKIL infrastructure Ltd., Horizon Country Wide Logistics Ltd and Fastlane Distripark & Logistics Ltd., with assessee company with effect from 01/04/2011. Thereafter, on receipt of the amalgamation order in the month of September, 2013, the assesee has filed a revised consolidated return of income on 20/11/2013, declaring a loss of Rs. 1,41,43,903/-. Thereafter, the case has been selected for scrutiny and notices u/s 143(2) and 142(1) of the I.T.Act, 1961, were issued on various dates. In response to the notice, the Ld. AR of the assesee appeared from time to time and filed various details as called for. The assessment has been completed u/s 143(3) of the I.T.Act, 1961 on 28/03/2014 determining the total income at Rs. 13,57,68,286/- under normal provision of I.T.Act, 1961, by making additions towards disallowance of expenditure of capital nature, in the case of Horizon Country Wide Logistics Ltd., amounting to Rs. 5,64,80,818/- and also disallowances of expenditure incurred in relation to the exempt income u/s 14A of the I.T.Act, 1961. The AO has also recompute....
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.... various places, including Umbergaon and Pipavav in Gujarat, Chennai and National Capital Region to set up CFS/ICD/Multimodal Logistic Park. All these projects were simultaneously undertaken and are still under construction stage up to the end of AY 2012-13. The assessee has capitalized all expenses, including financial cost incurred for development of projects, till commencement operations, however indirect expenditure incurred, during construction period is capitalized, to the extent to which the expenditure is directly related to the construction or is incidentally thereto. The expenditure incurred directly or indirectly related to construction of the project was classified as pre-operative expenditure pending capitalization and this regard necessary disclosure had been made in financial statements. 6. During the course of assessment proceedings, the AO noticed that the assessee company has offered gross receipt of Rs. 2,17,99,214/- from Logistic contract, in respect of Sea freight from Pipavav shipyard Ltd, which is a group entity of the assessee. The AO, further observed that the assessee has debited various business expenditure of Rs. 5,17,53,584/-. The Ld. AO further o....
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.... were within the overall gamut of objects of the company. Therefore, one of transactions of income from operations cannot be doubted, merely for the reasons that the same has been received from a group company. The Ld. AR further referring to objects of the company argued that if, you go through objects of the company, the assesee is into multiple businesses including Inland Container Depot, Container Freight Station (CFS), Free trade warehouse Zone and other activities and also to carry on all are any of the business of transport, cartage and haulage contractors. Although, the activities undertaken by the assessee group for construction of ICD/CFS is not ready for commencement of business, but other business activities, including transportation has been commenced, which is evident from the fact that, it has start earning from revenue from road transport/sea transport for different years and hence, once business operations has been commenced, necessary expenditure incurred in connection with such business, including day to day expenditure incurred for maintaining corporate status of the assessee needs to be allowed as deduction. 8. The Ld. AR, further submitted that various cour....
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.... have brought out clear facts to the effect that the business has not setup, for the year under consideration, consequently expenditure incurred under various heads needs to be treated as pre-operative expenses pending capitalization till such time the business has setup and ready for commencement of business. 10. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The facts with regard to the projects undertaken by the assessee are at construction stage is not disputed by either parties. In fact, the assessee itself had admitted the fact that projects undertaken by the company at various places for developmental Multimodal Logistic Parks, Free trade warehousing zone, Inland Container Depot and Container Freight Stations/warehousing are under construction stage up to the end of AY 2012-13 for various regulatory permissions. It is also not in dispute that the assessee has capitalized all direct expenses and indirect expenses incurred during construction period, including finance cost. Further, all expenditure incurred directly or indirectly related to construction of the project was classified as pre-operative....
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....ess has been setup, even though the said business was not commenced for the relevant period, then necessary revenue expenditure incurred in connection with said business needs to be allowed as deduction. But, the question that needs to be first ascertained is when a business can be said to have been setup and is ready to commence business. Any business is set up and is reday to commece business is depends upon facts of each case and the nature of business undertaken by the assessee. There can be no hard and fast rule by which, it can be determined as to when the business was setup. Whether a particular business has been setup or not is depends upon the facts of each case and nature of its business activity. Various courts and Tribunals have analysed the terms and concept of business setup and commencement of business. The Hon'ble Bombay High Court in the case of Western India Vegetables Product Ltd. vs CIT had held that when the business is established and is ready to commence business, then it can be said that it has been setup, but before it is ready to commence, it is not set up. The court further observed that there may be interregnum between the date of setting up of the busin....
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....or not was essential question of fact and that it would largely depend upon the facts of each case and the nature of business held that in the case of a hotel, due waightage must given to the fact that it cannot commenced its activity overnight. The sum and substances of the ratio laid down by various courts and Tribunals are that the term business setup and commencement of the business is largly depend upon the facts of each case and nature of business carried out by the undertakings. In a case, where the company was incorporated for manufacturing of article or goods, then it can be said that business have been setup and read for commencement of the business only, when the plant and machinery is installed and it is ready for manufacturing goods. Similarly, in a case where a company was formed for engaged in the activity of service industry, then it can be said to have setup and ready for commencement of the business, when it has taken up a premises on rent and appointed a staff and buying the equipment relevant for its business. 12. In this case, on perusal of facts available on record, we find that the assessee's main business activity, as per memorandum and articles of associ....
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....argely depend upon facts of each case and nature of business undertaken by the assessee. Further, in all the cases, it has been categorically held that in case of manufacturing company that business said to have been setup, when the plant is ready for use. In cases, where the company involved in services sector, the business said to have been setup only, when the primary conditions for commencement of business is put in place. Therefore, we are of the considered view that the cases laws relied upon by the assessee are not applicable to the facts of assesse case. The Ld. CIT(A) after considering relevant facts has rightly affirmed findings of the AO and hence, we are inclined to uphold, the findings of Ld. CIT(A) and reject ground taken by the assessee for AY 2010-11,2011-12 and 2012-13. 13. The next issue that came up for our consideration from assessee, as well as revenue appeals for AY 2012-13,2013-14 and 2014-15 is disallowances of expenditure incurred, in relation to exempt income u/s 14A r.w.s.Rule 8D(2)(ii) & (iii) of I.T.Rules, 1962. The AO has determined disallowances of expenditure incurred in relation to exempt income by invoking prescribed procedure provided under ....
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....t and same is pending, therefore disallowances made by the AO should be upheld. 15. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. Although, the Ld.AR for the assessee had taken the argument of strategic instrument for controlling purpose in subsidiary/group companies, the said argument has been considered by the Hon'ble Supreme Court. In the case of Max opp investments Ltd vs CIT(, where the Hon'ble Supreme Court clearly rejected arguments in light of investment in group company for strategic purpose and held that even though, investments made in group/sisters concern for the purpose of controlling interest and strategic purpose, disallowances contemplated u/s 14A is applicable. Therefore, there is no merit in the arguments of the assessee and hence the same is rejected. In so far as, arguments of the assessee that when, own funds are in excess of investments in shares, which yield exempt income question of disallowances of interest expenditure does not arise, we find that although, the Hon'ble Bombay High Court in the case of CIT vs HDFC bank Ltd.(supra) and CIT vs Reliance Utilities and Power Ltd.,....
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.... the Ld.AR for the assesee pleaded for restricting disallowances contemplated u/s 14A r.w.Rule 8D(2) of the I.T.Rules 1962, to the extent of exempt income, therefore keeping in view of facts and circumstances of this case and also by following the ratio laid down by Hon'ble Supreme Court and Hon'ble Bombay High Court and also Hon'ble Delhi High Court in the cases discussed hereinabove, we are of the considered view that the issue needs to be set aside to the file of the AO with a direction to recompute expenses incurred in relation to exempt income u/s 14A r.w.Rule 8D of the I.T.Rules, 1962,in light of our discussion hereinabove, but restrict such disallowances to the extent of exempt income earned by the assessee for the relevant assessment years. Further, in case, if there is no exempt income for the relevant assessment year, then there shall be no disallowances of expenditure in relation to exempt income u/s 14A of the I.T.Act, 1961. 17. Coming back to the additional grounds raised by the assesee during the course of hearing. The AR for the assesee has raised additional grounds of appeal in light of certain judicial precedents, including the decision of ITAT special bench, in....