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TMI Blog2010 (1) TMI 967X X X X Extracts X X X X X X X X Extracts X X X X ..... equirement of the order being erroneous . Thus, there should be an incorrect assumption of facts by the AO or there should be an incorrect application of law to bring the order of the AO within the category of its being erroneous . In the present case it is clear that the business of the assessee was set up with the acquisition of land which even according to lease deed was acquired with effect from 22-12-2003. The genuineness of the lease deed cannot be doubted as the same is executed between the assessee and the President of India through Administration Office of the Delhi Development Authority. A question was raised by the assessing officer and reply was given by the assessee to contend that the advertisement and publicity expenses are allowable in view of the decision of Sarabhai Management Corporation Ltd. 1975 (8) TMI 39 - GUJARAT HIGH COURT] and such proposition of law was accepted by the assessing officer. Thus, the view taken by the assessing officer cannot be said to be erroneous which will render the assessment order as erroneous. Squared up credit in the name of M/s. DLF Universal Ltd - When the creditor is known and its existence is established by furnishing permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 ("the Act"). The grounds of appeal read as under: 1. That the learned Commissioner of Income-tax has grossly erred in law and on facts and in the circumstances of the appellants case in invoking the provisions of Section 263 of the Income Tax Act. 1.1 The order passed by the learned Commissioner of Income-tax is bad in law and on the facts and in the circumstances of the appellants case and is prayed to be quashed. 1.2 The learned Commissioner of Income-tax ought to have appreciated that the order passed by the learned assessing officer under Section 143(3) was neither erroneous nor prejudicial to the interests of the revenue. 2. That the learned Commissioner of Income-tax has grossly erred in law and on facts of the appellants case in holding that the advertisement expenses incurred by the appellant are attributable to contract activity and has to be allocated to the contract and not to be allowed as revenue expenditure especially when the same were allowed by the learned assessing officer after due examination of the matter. 3. The appellant craves leave to add, amend, alter, change, vary or substitute any of the aforesaid grounds or raise an additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng such an opportunity of hearing the learned Commissioner of Income-tax has passed the impugned order. 5. In response to show-cause notice it was submitted by the assessee vide letters dated - 6-12 and 19, 2008, that the assessee had successfully bid in auction by the Delhi Development Authority on 15-12-2003, for a commercial plot on leasehold basis which was to be used as shopping mall at Vasant Kunj. For that purpose a perpetual lease was executed on 4-10-2004, however, all other actions of getting the complete rights in the land much earlier. It was submitted that the advertisement and publicity activities relating to shopping mall were made much earlier because real estate business demand such type of advertisements and publicity as a prudential activity in order to attract prospective clients/customers and those activities starts soon after acquisition of land. Reference was made to the various decisions of the hon'ble Supreme Court and the High Court which were relied upon by the assessee during the course of assessment proceedings to contend that in the case of real estate business, when the assessee acquires the immovable property either by purchase or by any other m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is capitalising all the expenses except advertisement and some other expenses. Since the assessee is having only one project in hand during the year under consideration, all the expenses shown in the profit and loss account represents cost, which is attributable to the contract activity and is to be allocated to the contract and not to be allowed as revenue expenditure during the year. Therefore, the learned Commissioner of Income-tax held that the assessing officers order allowing advertisement expenses is erroneous, as the Assessing Officer did not inquire into such aspects. 9. Further noticing from the statement of account M/s. DLF Universal Ltd., the learned Commissioner of Income-tax observed that the assessee had raised fresh loans amounting to Rs. 11,92,13,195 which were squared up during the year and the submission of the assessee in this regard were that the assessee had paid an advance of Rs. 1,62,53,00,050 for purchase of land from the Delhi Development Authority which was reflected under the head "current assets" as on 31-3-2004. On execution of lease deed, the said amount representing the advance for purchase of land was transferred from "current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively obtained the rights under the lease on 22-12-2003 itself despite the fact that perpetual lease deed was executed on 4-10-2004. Thus, it was submitted by the learned authorised representative that the Commissioner of Income-tax was factually wrong in observing that the land was acquired by the assessee in subsequent year. It was submitted by the learned authorised representative that according to copy of letter dated 19-6-2008 filed before the Commissioner of Income-tax the details were submitted that auction was held by the Delhi Development Authority on 15-12-2003 on which date 25 per cent, on total consideration of Rs. 162.53 crores, i.e., a sum of Rs. 40.64 crores was paid on that very date. On 22-12-2003, the assessee got the perpetual leasehold rights on the said land and reference was made to paragraph 4 of the lease deed. On 18-3-2004 the balance amount of 75 per cent, was paid. Thus, it was submitted that entire consideration of land was paid by 18-3-2004, which falls within the financial year related to the relevant assessment year and only the execution of lease deed was done in the assessment year 2005-06. It was submitted that business is set up on completion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (1991) 192 ITR 151 (SC) and referring to that decision it was submitted that in the business of real estate development there are three basic activities. The first business activity is to acquire either by purchases or by any other manner immovable property so that the property can be ultimately given out either on lease or on licence basis. The second category of business activity is to put the immovable property in proper shape so that it can be given on lease or licence basis and the third category is actually to give the said developed property on lease. Referring to these activities it was observed that the business is nothing more than a continued course of activities and all the activities that go to make up the business need not start simultaneously nor commence business. The business would commence when the activity which is first in point of time and which must necessarily precede the other activity is started. Referring to this decision it was submitted that the company is involved in the second category during the year under consideration, i.e., development of property, therefore, it can be said that assessee has commenced its business. It was submitted that once th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the following decisions: CIT v. Ashish Rajpal (2009) 180 Taxman 623 (Del-Trib). CIT v. Contimeters Electricals P. Ltd. 178 Taxman 422 (Del). 15. It was further submitted that there is a difference between the "lack of enquiry" and "inadequate enquiry". It was submitted that this difference has clearly been brought out by the hon'ble Delhi High Court in the recent decision in the case of CIT v. Sun Beam Auto Ltd. (2009) 222 CTR 133 in I.T.A. No. 1399 of 2006 dated 11-9-2009, 2009-TIOL-552d -HC-Del-IT. It was submitted that if there was any enquiry, even inadequate that would not by itself give an occasion to the Commissioner of Income-tax to pass orders under Section 263 of the Act, merely because he has different opinion in the matter. It is only in the case of "lack of enquiry" that such a course of action would be open. It was submitted that while holding so their Lordships of the Delhi High Court have considered the decision of Gee Vee Enterprises v. Asst. CIT (1975) 99 ITR 375 (Del) relied upon by the Commissioner of Income-tax for invoking powers under Section 263. Thus, it was submitted by the learned authorised representative that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax has invoked Section 263 firstly for the reason that the business of the assessee did not commence and, therefore, the expenses claimed by the assessee with regard to advertisement and publicity could not be claimed in the year under consideration. The assessing officer while framing the assessment did not examine this aspect or he has allowed the claim of the assessee in hasty manner, therefore, the assessment order is erroneous as well as prejudicial to the interests of the revenue. In this regard it may be mentioned that the material placed on record by the assessee reveals that the assessing officer during the course of assessment proceedings had enquired about this aspect and such fact is discernible from the copy of letter filed by the assessee dated 1-11-2007 a copy of which is placed at pages 12 to 14 of the paper book. In the start of the letter it has been mentioned that certain queries were raised vide order sheet dated 11-10-2007 and reply regarding advertisement and publicity expenses were given at point No. 5. The details of reply has already been described in the above part of this order and briefly stated it was submitted by the assessee that during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the letter submitted to the Commissioner of Income-tax placed at pages 24 to 26 of the paper book. Copy of lease deed entered into by the assessee with the Delhi Development Authority is placed at pages 15 to 23 of the paper book. This is a perpetual lease entered into between the assessee and the President of India through Administration Officer, the Delhi Development Authority, and is dated 4-10-2004. In the said lease deed it has been clearly stated that the auction was conducted on 15-12-2003 and the assessee is to hold the premises unto the lease in perpetuity from 22-12-2003, yielding and paying therefore, yearly rent payable in advance of Rs. 5 till 21-12-2008 thereafter at 2Vi per cent, of the premium or such other enhancement and so on. Thus, it is clear from the perpetual lease that the assessee is holding this land from 22-12-2003. Therefore, the findings of the learned Commissioner of Income-tax that the business of the assessee was not set up in the year under consideration for the reason that the lease deed was executed in the subsequent year is not factually correct. 19. The hon'ble Gujarat High Court in the case of Sarabhai Management Corporation Ltd. v. CT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analysing Section 3 of the Income Tax Act describing the definition of previous year have arrived at a conclusion that from the date of setting up of a business the expenses incurred on travelling and conveyance, rent, etc., could not be disallowed on the ground that the business was not commenced by the assessee. It was pointed out that there is a distinction between commencement of business and setting up of business and the two dates need not necessarily overlap and Clause (1) of Section 3 refers to the date of setting up of business and as such it is only thereafter the previous year of newly set up business would commence. 22. In the case of CIT v. Club Resorts Pvt. Ltd. (2000) 287 ITR 552 (Mad) the hon'ble Madras High Court in a case where the assessee was carrying on business of promoting time share units at places of tourists interest and marketing such time share units, for development of projects of construction of the said units the assessee required to maintain regular staff members and to incur office expenses which was disallowed under Section 37(1) and it was held that even at the stage of development of projects, such expenses were allowable as business expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neous there should either be an incorrect assumption of facts or an incorrect application of law. Both the conditions which can render the order "erroneous" are absent as neither the assessing officer has drawn incorrect assumption of facts nor the assessing officer has rendered incorrect application of law when he accepted the claim of the assessee that advertisement and publicity expenses were allowable as business expenditure. When an order cannot be said to be erroneous then it cannot be prejudicial to the interests of the revenue as lawful loss of revenue only can cause prejudice to the revenue. 26. Now coming to the second issue which is raised by the Commissioner of Income-tax in his order is with regard to squared up credit in the name of M/s. DLF Universal Ltd. It is observed by the learned Commissioner of Income-tax that during the year under consideration the assessee has raised fresh loans amounting to Rs. 11,92,13,195 which have been squared up during the year. According to the learned Commissioner of Income-tax the assessee neither disclosed that loan raised and squared up to the tune of Rs. 11,92,13,195 nor the assessing officer has examined this issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee it can be seen that up to 31-3- 2004 the unsecured loan obtained by the assessee from its group concern was Rs. 1,62,53,00,000 and rest of the amount obtained by the assessee during the year from 1-4-2004 to December 6, 2004 was a sum of Rs. 11,92,13,195 which was repaid by the assessee from 20-12-2004 to 17-3-2005. The complete copy of account along with confirmation was submitted and the objection of the learned Commissioner of Income-tax is with regard to a sum of Rs. 11,92,13,195. When the creditor is known and its existence is established by furnishing permanent account number and other details with confirmation then unless any material is brought on record to doubt such particulars, the credit has to be accepted and this is what was done by the assessing officer. The learned Commissioner of Income-tax even could not bring any material on record to say that such squared up credit in the name of group concern of the assessee was not genuine. When particulars were furnished to the assessing officer and he has applied his mind then the legal proposition and the decision taken by us with regard to allowability or otherwise of advertisement and publicity expenses will also equal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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