TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 1934
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.... reason to believe that income of the assessee exigible to tax had escaped assessment. After recording reasons in this regard, the AO issued notice u/s 148 of the Act on 21.06.2011 and commenced assessment proceedings. A reference u/s 92CA of the Act was made by the AO to the Transfer Pricing Officer ('TPO') for determining the Arms Length Price ('ALP') of international transactions reported by the assessee. The TPO passed order u/s 92CA of the Act dated 29.01.2013 proposing an adjustment of Rs.23,51,564/- towards interest on Compulsory Convertible Debentures ('CCDs') issued by the assessee to its associated enterprise ('AE'). After receipt of the TPO's order, the AO completed the assessment u/s 143(3) r.w.s. 147 r.w.s. 144C of the Act vide order dated 03.05.2013; whereby the assessee's income was determined at Rs.1,64,65,482/- in view of the following additions/disallowance: (i) Disallowance of pre-operative expenses and Administrative expenses - Rs.1,60,33,712/- (ii) T.P. Adjustment - Rs. 23,51,564/- 2.2 Aggrieved by the order of assessment dated 03.05.2013 for Assessment Year 2009-10, the assessee preferred an appeal before the CIT(A)-IV, Bangalore. The CIT(A) disposed ....
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....even though raised before the Tribunal for the first time, since the additional ground No. 4 (supra) is purely legal in nature and goes to the root of the matter for adjudication of this appeal on the basis of material already on record, we, therefore, in the interest of substantial justice admit this additional ground raised by the assessee for consideration and adjudication. In coming to this view, we draw support from the ratio of the decision of the Hon'ble Apex Court in the case of NTPC Ltd., (229 ITR 383) (SC). 4. Ground No. 1 - Disallowance of Expenses by holding them to be Pre-operative Expenses. 4.1.1 In the course of assessment proceedings, the AO observed that the assessee had earned "other income" of Rs.89,28,267/- comprising of interest, dividend and miscellaneous income and against such income had booked operating and administrative expenses amounting to Rs.1,60,33,712/- and interest and financing charges amounting to Rs.26,63,044/-. It was also observed that no business income was reported by the assessee. Since the assessee had not derived any business income and the expenses incurred did not have any corresponding revenue, the AO held that the business activity ....
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.... have not commenced and therefore, the interest income needs to be charged to tax as pre-operative interest in accordance with the decision of the Hon'ble Apex Court in the case of Tuticorin Alkalies Ltd., (1997) 227 ITR 721 (SC). In that view of the matter, the AO held that the business activities of a real estate company can be considered to have commenced only after revenue is booked i.e., only after the project is completed and the properties are sold. 4.4.3 Per contra, the assessee's contention is that once the company is incorporated and some activity as evidenced by some expenditure being incurred, then the business activities should be taken as having commenced. In this regard, the assessee submitted that it had advanced moneys to two parties for purchase of land at Hyderabad and in Karnataka and therefore it is evidenced that its business activities have commenced. 4.4.4 The AO's view that business revenues are the deciding feature/factor for commencement of business and reliance on the decision in the case of Tuticorin Alkalies Ltd., (supra), has been distinguished by this Tribunal in the case of Swire Holdings (P) Ltd., (supra) wherein at para 4 thereof it has been hel....
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....discussed in the decision of the ITAT - Hyderabad Bench in the case of M/s. Surya Info IT Park Ltd., in ITA No. 863/Hyd/2014; wherein the distinction between setting up of business and commencement of business was discussed and distinguished. The relevant extract thereof at paras 8 to 10 thereof is extracted hereunder: 8. We have considered the arguments of both the sides and perused the material information and facts on the record. The question which arises for consideration is as to when the assessee ITA No. 863 /Hyd/2014 M/s Surya Infra ITT Parks Pvt. Ltd., said to have commenced its business. It has to be observed that there is a distinction between setting up of the business and commercialization of the operation, which generates actual revenue to the business. What is relevant under the Income-tax Act is the set up of the business and not the commencement of the business by referring to the provisions of section 3 of the Act. In this present case, the assessee is in the business of construction and development of technology park. In this line of business, the process commences from the date of negotiation for acquiring land, actual purchase of the land and then actual devel....
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....ess, it speaks only of setting-up of the business. When the assessee in the present case was in a position to apply for the tender, borrowed money for interest albeit from its holding company and deposited the same with NGEF Ltd. on the same day, it shows that the assessee's business had been set-up and it was ready to commence business. The learned senior standing counsel for the revenue would, however, state that till the land is acquired, the business is not set- up. The difficulty in accepting the argument is that an assessee may not be successful in acquiring land for 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 settingup of the same." Considering....
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....p real estate is in a position to perform certain acts towards the acquisition of land, that would clearly show that it is ready to commence business and as a corollary thereto, that it has already been set up. 4.4.7 Therefore, whether an assessee is in a position to commence its business operations OR not is the true test for deciding whether the business has been set up and would obviously depend upon the facts and circumstances of each case. Therefore, the above principles need to be applied to the facts of the case to decide whether the business activities have commenced or not. 4.4.8 In this regard, we find that both the CIT(A) and AO have not examined the facts of the case and not brought out the relevant facts on record. Merely, by reproducing two judicial decisions, the CIT(A) has upheld the action of the AO, without bringing on record the facts of the cited case and whether those facts are similar to the facts of the assessee in the case on hand. It is seen that the assessee has placed before the CIT(A) the decision of this Tribunal in the case of Swire Holdings (P) Ltd., (supra), wherein the facts are quite similar to those of the assessee in the case on hand. However,....
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.... 5.1 The assessee had raised funds from its AE, an entity registered in Cypress, by issuing Compulsorily Convertible Debentures (CCDs) to its AE. There were two series of CCDs; one was issued at 0% interest and the other was at 14%. The interest payable on CCDs aggregated to Rs.23,51,564/-. The TPO rejected the assessee's contentions that the CCDs are debt instruments and held them to be equity in nature. While doing so, the TPO had referred to RBI's policy circular and also FEMA regulations. Since the CCDs were held to be not a debt, the amount of Rs.23,51,564/- was held to be not in the nature of interest, therefore the ALP of the interest on CCDs was held to be NIL and consequently the entire amount of interest was treated as an adjustment. 5.2 On appeal, the CIT(A) upheld the assessee's contention that CCDs are debts; but however held that instead of interest thereon @ 14%, the assessee should have adopted LIBOR rate for payment of interest. While doing so, the CIT(A) has referred to certain judicial pronouncements, again without explaining whether the facts of cited decisions are applicable to the assessee in the case on hand, and held that the "majority view" is hereby fol....
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....hile the Bangalore Bench of ITAT has held that interest rate should be determined as per short term deposits in the home country; the Chennai and Hyderabad Benches of ITAT have held that the average LIBOR rates are to be adopted and is following the 'Majority View'. This approach by the CIT(A) in deciding the issue, without examining the facts of the decisions relied upon and comparing the same to the facts of the case on hand, is erroneous to say the least. The CIT(A) ought to have first examined the currency in which the borrowings have been denominated, by examining the agreement entered into by the assessee and the AE and then decided the issue. 5.4.3 In this regard, on similar facts, the Hyderabad Bench of ITAT in the case of ADAMA India P. Ltd., in its order in ITA No. 497/Hyd/2016 dated 13.01.2017 has held as under: "8. We have considered the issue and examined the rival contentions. There is no dispute with reference to the fact that the CCDs were issued in Indian Rupees. Accordingly, following the principles laid down by the Co-ordinate Benches and the Hon'ble High Court as relied on by the assessee in the submissions, we have to hold that TPO has wrongly treated th....