2017 (4) TMI 1591 - HC - Income Tax

Reopening of assessment u/s 147 - assumption of jurisdiction under Section 147 - HELD THAT - As in the present case, it is more than apparent that the Assessee never intended to question the assumption of jurisdiction under Section 147 at any stage from the time of assessment or even thereafter. It is only at the stage of admission of the Tax Case (Appeal) that the issue was raised, even then, as an additional issue. When, from December 2008 the Assessee has accepted and was quite content with the jurisdiction assumed under Section 147, we do not think it fit to permit the Assessee to raise the question now, merely for the asking. The provisions of Section 260 A read with the proviso thereto, no doubt empower the Court to consider any question, even one not raised before it, upon the Court recording its satisfaction that the case involves such an issue. The use of the word 'involves' does not in our view extend to all and every legal issue arising in a case, but only those that the assessee demonstrates, has been contested by it at a stage proximate to the raising of the said issue by the department. Acceptance of jurisdiction without demur at every single stage of the proceeding, assessment and appeals, has to be taken to be final and inviolable. In the facts and circumstances as we have noticed above, we reject the prayer of the appellant to contest the issue of re-opening under Section 147 of the Act raised before us by way of revised substantial question of law. Business expenditure - as per revenue Appellant has not set up or commenced the business and accordingly expenditure incurred are not allowable as business expenditure - HELD THAT - The stage wise activities engaged in by the assessee over the relevant previous year indicates that it has traversed beyond the stage of exploratory activity and was, in fact, engaged in activity that was integral to the profit earning apparatus and we hold so. Yet another aspect is that the stand of the assessee for the previous year to the effect that it had already commenced business, was accepted by the department. The fact that such acceptance was only by way of Intimation u/s 143(1) and has not been confirmed under scrutiny, is, in our view, not material for the reasons set out in para 18 of this order. The definition of 'previous year' as extracted earlier is applicable to, and leads to the inference that the assessee had in fact, commenced business in the Financial year 2003-04, Assessment year 2004-05. One cannot countenance a situation where there is a consecutive 'setting-up of business' year after year, which would be the absurd consequence that the stand taken by the department in the present year will lead to. - Decided in favour of assessee.

Summary

Issues Involved:
1. Difference between 'date of set-up of business' and 'date of commencement of business'.
2. Allowability of business expenditure from the date of acquisition of land.
3. Set-off of interest income against business expenditure.
4. Validity of re-assessment under Section 147 of the Income Tax Act.

Detailed Analysis:

Issue 1: Difference between 'date of set-up of business' and 'date of commencement of business'

The Tribunal failed to appreciate the difference between 'date of set-up of business' as per Section 3 of the Income Tax Act and 'date of commencement of business'. The appellant argued that the business was set up when primary activities, such as acquisition of land, took place. The Tribunal's decision to deny the claim based on the 'date of commencement of business' was challenged.

Issue 2: Allowability of business expenditure from the date of acquisition of land

The appellant contended that business expenditure should be allowed as revenue expenditure from the date of acquisition of land. The Tribunal held that the appellant had not commenced business and thus disallowed the expenditure. The High Court examined the activities undertaken by the appellant, such as acquiring land, awarding contracts, and starting construction, concluding that these activities indicated the business was set up and operational. The Court held that the appellant's business had indeed commenced in the financial year 2003-04, thus allowing the business expenditure.

Issue 3: Set-off of interest income against business expenditure

The Tribunal had ruled that the interest income earned could not be set off against business expenditure, as the business had not commenced. The High Court, however, found that the business had commenced in the financial year 2003-04. Consequently, it allowed the set-off of interest income against business expenditure, as the income and expenditure were both part of the business operations.

Issue 4: Validity of re-assessment under Section 147 of the Income Tax Act

The appellant raised the issue of re-assessment under Section 147 at the stage of admission, arguing that the jurisdictional question could be raised at any time. The Court noted that the appellant had not questioned the assumption of jurisdiction at any earlier stage, including during the assessment or initial appeals. The Court held that acceptance of jurisdiction without demur at every stage rendered the question of re-assessment final and inviolable, thus rejecting the appellant's prayer to contest the issue of re-opening under Section 147.

Conclusion:

The High Court concluded that the appellant had commenced business in the financial year 2003-04, allowing the business expenditure and the set-off of interest income against it. The Court rejected the appellant's challenge to the re-assessment under Section 147, as it was raised belatedly and without justification. The appeal was allowed in favor of the appellant, answering the substantial questions of law in their favor and against the revenue.