TaxTMI 
TaxTMI 
2020 (10) TMI 561
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.... interest income under the head "income from other sources". 3. The facts relating to the case are stated in brief. The assessee company was incorporated in the year 2007 with the object of carrying on the business of real estate development. The assessee acquired 314 acres of land in Uttarpara, West Bengal from the year 2007 onwards. The acquisition of land was completed by September 2009. In all the 3 years under construction, the assessee did not declare any business income. It has declared other income in assessment years 2012-13 & 2013-14, which consisted of interest income earned by it. The assessee, however, claimed expenses incurred by it as deduction in the profit & loss account. The assessee set off interest income against the expenses and accordingly declared loss from business in all the 3 years. Thus, the assessee treated interest income as part of its business income. 4. The A.O. noticed that the assessee has not declared any business income in all the three years. Accordingly, he took the view that the expenses claimed by the assessee are not allowable as deduction. In assessment years 2013-14 & 2014-15, the A.O. also took the view that the assessee has not set....
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....mount of Rs. 3,53,32,000/- from various customers who had booked the apartments. The list of advances received from customers as on 31-03-2012 is enclosed as Annexure - 2. 1.5. The audited accounts of the Appellant as at 31-03-2012 is enclosed as Annexure - 3. From Schedule 7 to the audited accounts, it can be seen that as on 31-03-2011, the Appellant had collected an amount of Rs. 72,50,000/- from the customers and as on 31-03-2012, it had collected 3,53,32,000/-. This clearly indicates that the Appellant has been booking the apartments. From para 1.5 of the Accounting Policies, it can be seen that the Appellant Company follows %ge completion method and it is only when the project reaches at least 15% of the total estimated cost, the Revenue is recognised. Since during the Financial Year 2011-12, relevant to the Asst year under appeal, the project had not reached 15% of the estimated cost, it did not recognise the Revenue. From the P&L account, it can be seen that the expenses debited are normal running expenses such as employee cost, finance cost, depreciation and other expenses in the nature of professional fees, advertisement, publicity, rent, travel & conveyance etc ....
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.... equipment, until the machinery necessary for the purpose of manufacture was installed. It is only when the machinery was installed that the business could be said to be put into such a shape that it could start functioning as a manufacturing organisation. It was not sufficient that the assessee obtained the land on lease from Gujarat Industrial Development Corporation. . . or placed orders for purchase of raw materials and the source or ordered out the necessary machinery and equipment. These were merely operations for the setting up of the business. The business could be set up only as a culmination of these operations when all that was necessary for the' setting up of the business was done. . . ." [Emphasis supplied] (p. 322) 1.10. In Western India Vegetable Product Ltd.'s case (supra) Bombay High Court noticed clear distinction between a person commencing business and a person setting up a business and held that for the purposes of Indian Income-tax Act the setting up of the business and not the commencement of the business that is to be considered. It is observed that it is only after the business is set up that the previous year of that business commences and....
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....e was no question of assessee having to place a purchase order with Hughes Network Systems, USA for a purpose other than that of its business. The said purchase order was placed on 28-7-1994. The application to DOT for licence and the receipt of the satellite signals were the consequential stages. The signals were to be received after the VSAT equipment was installed in the premises of the customer. In the circumstances, we are the View that the businss of the assessee should be held to have been set up on 28-7- 1994. This is the relevant date for determining the nature of the expenses incurred thereafter. The expenses incurred in the previous year, prior to the commencement of the business but after the setting up its business, which two dates need, not be the same, would be deductible as revenue expenses." 1.15. The Delhi High Court followed principle laid down in Hughes Escorts Communications Ltd., while ruling in favour of the assessee in the case of WHIRLPOOL OF INDIA LTD. 1.16. From the above decisions it can be categorically said that once the business is set up, all the expenses incurred subsequent to the same, including depreciation are allowable even if ....
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....essing Officer disallowed the claim of the appellant only on the ground that the appellant had not offered any income from business. This is against the law as declared by the Supreme Court and various High Courts. 1.25 In view of the above, it is submitted that the disallowance of the expenditure made by the Learned Assessing Officer including the depreciation be deleted." 7. The Ld A.R submitted that the issue arising for consideration of the Tribunal in these three appeals are:- (a) whether the business activity of the assessee is set up or not? (b) whether the expenses incurred after setting up of business is allowable as deduction? (c) Whether the interest income earned by the assessee is forming part of its business activities or not? The Ld A.R submitted that the assessee is carrying on the business of developing housing colony and other real estate activities. Hence the business of the assessee is set up as soon as the land is acquired for the purpose of real estate activities. He submitted that an identical issue was examined by the co-ordinate bench in the case of ACIT vs. M/s Valmark Developers Pvt Ltd (2018)(4) TMI 1565 (Bang) a....
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....s per each sales contract/agreement with buyers are realized at the balance sheet date.... The Ld A.R submitted that the assessee's project has not reached 25% level and hence the assessee has not recognized any income. 9. With regard to interest income earned by the assessee, the Ld A.R contended that the same is required to be set off against the expenses incurred by the assessee. Accordingly he submitted that the AO/CIT(A) are not justified in assessing the interest income separately under the head income from other sources. In support of this contention, the Ld A.R placed his reliance on the decision rendered by Hon'ble Karnataka High Court in the case of in the case of CIT vs. Hewlett Packard Global Soft Ltd (2018)(403 ITR 453)(Kar-FB), wherein it was held that the interest income earned by the assessee from deposits kept with banks for temporary period and the interest earned on staff loans were business income of the assessee. Accordingly, he submitted that the tax authorities are not justified in the instant case in assessing the interest income as income under the head Income from other sources. 10. The Ld D.R, on the contrary, submitted that the assessee has ....
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....ts earning capacity whereas the latter is actual commercialization of the business. Normally, a manufacturing business requires turnaround time of less than six months, whereas a real estate business may require more than one accounting year. 11. We find that the case of Dhoom Ketu (Supra) of Hon'ble Delhi High Court is similar to the relevant case in hand. We are of the view that the commencement of real estate business will start with acquisition of land property, by an assessee whose intention is develop it and do real estate. Assessee had spent considerable sum for developing the piece of land. This would clearly show that it had set up the business...... 13. It is clear from the decision of the Hon'ble Delhi High Court in the case of Dhoom Ketu (supra) that business of real estate developer can be considered as set up when properties are acquired. In the case of the Assessee, the AO has accepted the fact that the Assessee has acquired properties for the purpose of development. Therefore the business of the Assessee ought to have been considered as having been set up. All revenue expenses have therefore to be allowed as deduction in computing income fr....
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....ent case was in a position to apply for the tender, borrowed money for interest albeit from its holding company and deposited the same with NGEF Ltd. on the same day, it shows that the assessee‟s business had been set-up and it was ready to commence business. The learned senior standing counsel for the revenue would, however, state that till the land is acquired, the business is not setup. The difficulty in accepting the argument is that an assessee may not be successful in acquiring land for long period of time though he is ready to commence his business in real estate, and that would result in the expenses incurred by him throughout that period not being computed as a loss under the head "business" on the ground that he is yet to set-up his business. That would be an unacceptable position. The other argument of the learned standing counsel for the revenue that the tax auditors of the assessee have themselves pointed out that the assessee is yet to commence its business is also irrelevant because of the distinction between the commencement of the business and setting-up of the same." 14. In the instant case, there is no dispute with regard to the fact that the as....
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....s". Remaining expenses should be allowed as deduction. If any common expenses have been incurred, then it may be split into project related item and general item on a rational basis. Since this exercise has to be carried out, we restore this issue to the file of AO. The assessee is also directed to furnish a statement bifurcating the entire expenses into project related nature and general nature. After affording adequate opportunity of being heard, the AO may take appropriate decision in accordance with law. 19. The next issue relates to the assessment of interest income as income from other sources. We notice that an identical issue was examined by the co-ordinate bench in the case of Global Entropolis (Vizag) Pvt Ltd (ITA Nos.2927 & 2928/bang/2018 dated 12-07-2019) and it was decided as under:- "5. The Ld A.R submitted that the assessee has made deposits into the bank and advanced loans to other persons out of business funds and hence the interest income constitutes business income of the assessee. He further placed his reliance on the decision rendered by Hon'ble Karnataka High Court in the case of CIT vs. Hewlett Packard Global Soft Ltd (2018)(403 ITR 453)(Kar....