2023 (7) TMI 328 - AT - Income Tax

Disallowance of business expenses - assessee business has not commenced - HELD THAT - From the copy of the note on administrative cost as well as the invoices raised by Hindustan Construction Company Ltd, filed by the assessee, we find that in the year under consideration, the assessee incurred project-related administrative costs on personnel. Therefore, in the present case, there exists sufficient evidence to show that the business of the assessee had commenced in the year under consideration. Further in subsequent years the assessee has been found to have entered into various agreements of urban development and many projects were in pipeline, also supports that the business of the assessee which started in the year under consideration continued in subsequent years. Since the business of the assessee had commenced during the year, therefore, the expenditures claimed by it on the revenue account are allowable. As a result, grounds raised by the assessee are allowed.

Summary

Issues:
1. Determination of total income by Assessing Officer
2. Confirmation of no commencement of business activity by CIT(A)
3. Acceptance of certain activities as business activities

Issue 1: Determination of total income by Assessing Officer

The assessee challenged the order passed by the learned Commissioner of Income Tax (Appeals) regarding the determination of total income. The assessee had declared a loss of Rs. 56.97 crore, but the Assessing Officer determined the total income at Rs. 32,230. The Assessing Officer disallowed the business expenditure claimed by the assessee, stating that the business had not commenced. The Tribunal remanded the matter to the Assessing Officer for examination. The Assessing Officer observed that the assessee consistently showed NIL income from business till the assessment year 2014-15, leading to the conclusion that no business activity was carried out. The Assessing Officer referred to previous assessment orders where expenses were disallowed due to the business not commencing.

Issue 2: Confirmation of no commencement of business activity by CIT(A)

The learned CIT(A) upheld the findings of the Assessing Officer regarding the non-commencement of business in the year under consideration. The CIT(A) noted that the Tribunal did not confirm the commencement of business operations in the financial year 2005-06. It was highlighted that the commencement certificate and permission for construction were applied by the holding company, not the assessee company. The CIT(A) also mentioned that the development right agreement was with another entity, not directly involving the assessee. Consequently, the CIT(A) affirmed the Assessing Officer's findings that there was no business commencement during the relevant year.

Issue 3: Acceptance of certain activities as business activities

The coordinate bench of the Tribunal, in a previous case of the assessee, observed that the business was in existence based on agreements and analyses conducted. The Tribunal directed the Assessing Officer to re-examine the issue and allow expenses related to business activities. The Tribunal's decision for the assessment year 2007-08 was not challenged further by the Revenue. In another order for the assessment year 2011-12, the Tribunal held that the assessee's business had commenced, allowing claimed expenditures. The Tribunal found evidence of business commencement in the first year of operation, supported by agreements and administrative costs incurred. The Tribunal concluded that the business activities had commenced during the year, allowing the expenditures claimed on the revenue account. As a result, the grounds raised by the assessee were allowed, and the appeal was granted in favor of the assessee.

This detailed analysis of the legal judgment highlights the key issues involved, the arguments presented, and the final decision rendered by the Tribunal, providing a comprehensive understanding of the case.