9911796707
TMI Blog2013 (11) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 148 and reassessment order passed by the Assessing Officer are illegal, bad in law and without jurisdiction. 2. That Ld CIT (A) failed to appreciate that AO has already considered all the material facts and evidences during the original assessment proceedings and reassessment proceedings initiated by the AO is merely on basis of change of opinion, hence reassessment order is liable to be quashed. 3. That the AO has wrongly & illegally held that the business of the assessee has not commenced and the expenses have been wrongly & illegally disallowed & CIT (A) has erred on facts & in law in upholding same. 4. That the AO and CIT (A) has failed to appreciate that the business of appellant was not only setup but had also commenced. The invitations and processing of tenders is a part of business activity of appellant ie infrastructure development activities. 5. That AO and CIT (A) has erred in law and on facts in treating interest income under the head income from other sources and failed to take into account that income earned is inextricably linked to business of the appellant. 6. That Ld CIT (A) has erred in law and on facts in treating interest income which is earned from b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f opinion' is not valid. In this regard, assessee relied on various judicial pronouncements to support its stand. Further, regarding the interest receipts, assessee mentioned that requisite funds of the assessee were received from MSRDC, MIDC and NIT amounting to Rs. 14.85 Cr (rounded off) and part of the funds were parked by the assessee in FDs with the banks due to delay in use of such funds and the said deposits yielded income of Rs. 22,53,254/-. In addition, assessee also earned other interest income from Savings Bank Account of Rs. 3,05,890/-. Such interest income constitutes 'business income'. Assessee also earned direct income in the form of processing fees amounting to Rs. 11.42 lacs. Assessee also provided information regarding expenditure debited to the P & L Account. 5. On the issue of 'change of opinion'- based reopening, AO is silent in his order on the objection of the assesse, except the bland statement that "the assessee's contention that the reopening of proceedings is bad in law is not acceptable, as there is reason to believe that the income has escaped assessment and the proceedings are thus as per the provisions of the IT Act". On this limited issue, before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the "reason to believe". In addition, Ld Counsel mentioned that the very fact that the AO has expressively depended on the information already available on the record for issue of notice u/s 148 of the Act. It is also obvious, that there is no fresh material or tangible material, which has an effect of contributing to the AO for formation of reason to believe. In this regard, Ld Counsel relied on the ratio of the Hon'ble Apex Court's judgment in the case of CIT vs. Kelvinator of India Ltd [2012] 320 ITR 561 (SC) for the proposition that "hence, after 1.4.1989 the AO has power to reopen, provided there is a "tangible material" to come to the conclusion that there is escapement of income from assessment". Referring to the summery assessment cases also, Ld Counsel relied on the recent judgment of the Hon'ble Delhi High in the case of CIT vs. Orient Craft Ltd (ITA No.555-2012) for the proposition that summary assessment cases also there is a requirement of a fresh material with AO to reopen the assessment. Relying on the Delhi High Court judgment in the case of CIT vs. Kelvinator of India Ltd [2012] 256 ITR 1 (Del) = (2003-TII-19-HC-DEL-INTL-LB), Ld Counsel mentioned that mere change o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the preliminary issue raised in ground no. 1 and 2 by the assessee is allowed. 10.1. Since, reopening is to be held bad in law, it may not be necessary to take up the issue urged before us on the merits of the additions / disallowances made by the tax authorities. However, since identical issues are coming up in the subsequent years and both the parties have advanced arguments in detail, we deem it necessary to consider the grounds on merits also, though it may serve academic purpose only. 11. We shall now take up ground 3 and 4 now and they deal with the issue of setup and commencement of the business activity ie development of airport infrastructure activity. Under the circumstances of our finding on the validity of the reassessment, adjudication of this issue is merely academic. However, we proceed to adjudicate this issue considering the fact the AY 2005-06 constitutes the first year of such setup or commencement of the business and the decision on this issue here has effect on the issues raised in the appeal for the subsequent assessment years. 11.1 During the reassessment proceedings, an opportunity was given to the assessee to explain if the business of the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest income from funds received for the MIHAN Project that were temporarily parked in fixed deposits. The assessee has also received interest from savings account and other parties. The income under head 'direct income' is in the nature of processing fee on account of tenders, against which expenses in the form of consultation fee, etc have been incurred. During the year under consideration, the assessee has capitalized expenses relating to MIHAN Project amounting to Rs. 5.24 Cr. 1.5. In view of the fact that the assessee has already capitalized expenses in relation to the MIHAN Project, it is evident that the business of the assessee has not begun. The assessee is in the process of establishing its business activity and the calling of tenders is also only a part of this process and not the actual business activity. The receipt of tender processing fee is not in the nature of actual business of the assessee. Hence, the expenses debited to the P&L Account re also in the nature of preoperative expenses as they are related to the preoperative activities of the assessee. The assessee's contention that it has conducted its normal business activity is not acceptable, as the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viting of tenders etc cannot be claimed to be business activity of the assessee. Therefore, it is clear that the main business of the assessee has not yet started and there is no other business other than MIHAN Project. The claim of the assessee that MIHAN Project itself is a business of the assessee, but in any case, all the expenses relating to MIHAN project can be charged to MIHAN Project only, even if it is the business of the assessee. Therefore, the action of the AO is confirmed and the ground of appeal is rejected." 14. On the issue of treating the interest income as business income of the assessee and also the applicability of netting provisions as per the provisions of section 57(iii) of the Act, CIT (A) is of the opinion that AO has rightly taxed the said receipts under the head 'income from other sources'. Regarding nexus, considering the assessee's failure to demonstrate that the burden of proof, CIT (A) rejected the assessee's claim for netting of expenditure incurred in this regard and held that no deduction is allowable u/s 57 (iii) of the Act. Aggrieved with the above decision of the CIT (A), assessee raised ground nos. 3 to 10 before the Tribunal. 15. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) To adopt such measures of making known the business of the company as they seem expedient and in particular by advertising in the press, by circular, by purchases and exhibition work of art or interest, by publication of books and periodicals and by granting prizes, rewards or donations." 17. In this regard, Ld Counsel relied on the Hon'ble Bombay High Court judgment in the case of CIT vs. Ralliwolf Ltd, 121 ITR 262 for the proposition that "the assessee has already set up business and therefore, the expenditure incurred is allowable as revenue expenditure". Further, Ld Counsel took strength from the Hon'ble Delhi High Court judgment in the case of CIT vs. Whirlpool of India Ltd. [2009] 318 ITR 347 (Del) and the held portion of the said judgment read as under: "Held, dismissing the appeal, that the question as to when the business was set up depends on the facts of each case and the nature of the business and no hard and fast rule could be laid down as to when the business was set up. The order of the Tribunal exhaustively detailed the facts and reasons as to why the business was set up not on February 1, 1996, as contended by the Assessing Officer but on November 1, 1995. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of development of Infrastructure Development Activities. The main object of the company is to design, plan, construct, erect, construct, build remodel, repair, execute, develop, operate, sell lease, rent, improve, administer, manage, control maintain and / or demolish airports, air traffic equipment, traffic terminals, roads, railways, highways, expressways, bridges, tunnels, railroads, urban transport systems, alleys, township schemes, industrial parts, docks, shipyards, canals, wells, ports, reservoirs, embankments, dams, irrigation works, reclamations, improvements, sanitary system, water works, water supply gas or any other structural or architectural work and Special Economic Zones. The Govt. Of Maharashtra vide Resolution No. TPS 2401/1494/Capital Receipt-238/02/UD-9 dated 4.2.2003 appointed the appellant as the special planning authority for development of Multi Modal International Passenger and Cargo Hub International Airport at Nagpur also known as MIHAN Project. In this resolution, Govt. Of Maharashtra has also notified the area in which the development work is to be undertaken and also provides the scope of work to be done by the appellant. During the FY 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e main business of the assessee has not yet started and there is no other business other than MIHAN Project. The claim of the assessee that MIHAN Project itself is a business of the assessee, but in any case, all the expenses relating to MIHAN project can be charged to MIHAN Project only, even if it is the business of the assessee." 21.1. From the above it is evident that his objection is that the main business has not commenced and what is commenced is other than main business. As seen from above, there is no clarity on what the CIT(A) summed up in para 9 of his order. CIT(A) has not countered the assessee's arguments on the activities undertaken by the assessee with regard to the so called main business of the assessee. The CIT(A) has not gone in to the aspect of 'set up' of the business in this year. 22. In this regard, we have examined the settled legal position on the issue of 'set up and commencement' qua the business of development of infrastructure. In our opinion, the Gujarath High Court has laid a good foundation to understand the concepts of 'set up and commencement' of business while dealing with the case of Saurashtra Cement and Chemical Industries Ltd, supra. The he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se may be shall start and the requisite infrastructure development shall commence on the said land acquired by the assessee. Thus, the above discussion by the Gujarath High Court relates to the period subsequent to the time of obtaining the approvals or clearances or preparation of favourable feasibility reports etc. For deciding, if the business of airport infrastructure development or SEZ is set up or not in this year, we need to understand and appreciate the various phases involved in set up of the business of development of infrastructure of international airport at Nagpur. In the specialized business of the assessee ie airport infrastructure development as well as the SEZ development, important stages involves the obtaining of various clearances, approvals of the concerned departments of the Government, procurement of land should for part of the set up. Then after, the assessee must have infrastructure to develop the land to be fit enough to lease out or construct requisite infrastructure on the said land to commence business. In this line of business, we are of the opinion, the first stage must include obtaining of the necessary license/permissions/clearance to do the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development, we are of the opinion, the business of the development of airport infrastructure cannot be declared "set up" in this year under consideration. Acquiring of land with a stroke of pen of the Government of Maharashtra cannot be attributed to the business activity of the assessee. What has happened in this year in substance is mere appointment of SICOM, YASHADA, M/s Scott Wilson Kirkpatric India Pvt Ltd, other consultants for various other purposes, which constitutes stages prior to the "set up" of the business of the assessee. Therefore, in our opinion, the conclusions of the CIT(A) that the main business is not commenced in the year under consideration does nto call for any interference. Accordingly, the grounds 3 and 4 relating to "set up and commencement" are dismissed. 25. Grounds 5 to 9 relates to the third issue ie whether the interest income earned from the banks shall constitute business income or not. Further, the ground 10 is raised without prejudice and the assessee seeks set off against the expenditure allowable u/s 56(iii) of the Act. Regarding the taxability of the interest income, the case of the Assessing Officer is that the interest income in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the funds borrowed and kept in the bank. Therefore, no deduction u/s 57(iii) is allowable, whereas, assessee must have claimed it as part of the project expenses..." 28.1. Notwithstanding the above inadequate adjudication by the CIT(A), we find that the funds kept with the Banks as the FD is undisputedly for temporary period of non-utilisation for business purposes. In that sense of the matter, the said funds are not in use for business purposes. The purpose of parkings such funds in the bank is obviously for safety and security and ready use of the funds as and when there arise business needs of the assessee. It is stated that the fund are meant for purchase of the lands at the later days. Thus, the earning of interest income cannot be dominant or business intention of the assessee. In this regard we have examined the judgments relied upon by Ld counsel. The Judgment in the case of Indian Oil Panipat Power Consortium Ltd, supra deals with the interest receipts earned prior to the commencement of business and it is not known if they are earned prior to 'set up' too. Therefore, the same is distinguishable on facts. The Apex court judgment in the case of Karnal cooperative sugar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness in the AY 2005-06. In the light of the above, we have examined the activities or developments undertaken by the assesse in the AY 2006-07. The list of such activities or developments relevant for the instant AY, as supplied by the assessee's counsel contains the following: (1) "MADC has arranged loans worth Rs. 300 Crores for development of land in MIHAN (2) It had started developing MIHAN project and a large chunk of 1600 hectares has been developed as SEZ. MADC started allotment of land during the year & details of parties to whom land was allotted during the year are as under : (Pg 4 of CIT(A) order): (i) Dr. D.Y. Patil Educational Enterprises Pvt. Ltd. (ii) Shapoorji Palonji & Co. Ltd. (iii) Reatox Builders & Developers Pvt. Ltd. (iv) Satyam Computer Services Ltd. (3) The company has thereafter taken up developmental works related to the infrastructure such as construction of roads, drainages, compound wall. (4) Assessee appointed consultants for the works such as planning, Designing, Supervising, Implementation of Water supply, Development of Road Network and related elements. (5) Assessee appointed contractors for construction of roads, drainages, compound wall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case and in law, the Ld CIT (A) erred in directing the AO to allow the interest expenditure of Rs. 65,14,201/- against the receipt of interest on Bank FDRs of Rs. 1,01,42,802/- being allowable deduction against other sources income u/s 57 of the Act". 39. In the ground no.1, Revenue has question the direction of the CIT (A) who held that the expenditures such as salaries, rent, consultancy charges, web designing etc are allowed to be set off against the income from other sources without appreciating the facts that the expenditure have nothing to do with the 'income from other sources'. CIT (A) is of the opinion that the business has not set up or commenced and it was in the process of setting up the business. Assessee filed a Cross Objection questioning the CIT (A)'s finding that the assessee is in the process of setting up and the business has not commenced vide ground nos. 1, 2 and 3 of the Cross Objection raised by the assessee. In the context of the CO, we have held that the assessee must be declared to have set up its business with certain reservations relating to the procedures and permissions. In this regard, we remanded to the AO's file. Therefore, the final outcome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n holding that the appellant's business has not yet commenced and hence is not eligible for deduction of business expenditure which is otherwise of revenue nature. 2. The appellant says & submits that the Ld CIT (A) further erred in holding that the receipts of Rs. 13,56,67,380/- are taxable under the head "income from other sources", instead of "Business income" on the ground that the appellant's business had not yet commenced. 3. The appellant says and submits that the Ld CIT (A) failed to appreciate that the appellant's business had already started when activities like acquisition of land, appointment of consultants / contractors, allotment of land to prospective clients were undertaken, which were in the nature of business activities in the context of the appellant business. The appellant says and submits that the CIT (A) erred in not appreciating that the appellant's business is of building infrastructure and the same cannot be equated with ordinary trading activities. 4. Without prejudice to the above, the appellant says and submits that there is a difference between commencement and setting up and the appellant's business was set up much prior to the year relevant to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
