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TMI Blog2015 (11) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment of housing project at Panchkula and had not started income recognition because the project was at very initial stage. The AO further observed that the assessee had shown income of Rs. 1,50,898/- which was mainly because of liability return back and there was no income on account of business activity. However, in the expenditure side the assessee had booked expenditure of Rs. 3,73,40,511/-. According to the AO the assessee should have capitalized all those expenses because the business operation of the assessee has not started. He, therefore, added back the expenditure in excess of income amounting to Rs. 3,71,92,193/- to the income of the assessee. 4. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: "11. The Assessment Order passed by the Assessing Officer is based on wrong interpretation of law, All expenses are allowable after business have been set up. Allowability of expenses cannot be denied merely because no revenue has been earned during the year. Assessing Officer has also mentioned in the Assessment Order that Assessee was incorporated on 09.04.2007 and is engaged in Real Estate Business. In the Assessment Order it has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the land owning company for release of 27 acres of land from the land acquisition proceedings in line with the conditions given in State Government's Memo No. 6/30- 2007/2TCP dated October 26, 2007 regarding government policy for release of land from acquisition proceedings. The management is confident that the Company shall receive approval for release of land from acquisition notification from the State Government shortly and is in the process of undertaking the project layout and other development activities for execution of the project. The management believes that upon launch of the project, the balance project costs shall be funded out of advances from customers and from funding in the form of compulsorily convertible debentures for which the Company already has commitment from its existing debenture holders to the extent of Rs. 146,250,000 as at the balance sheet date. Accordingly, these financial statements have been prepared on a going concern basis. 8. As per the information available with the Company, no transactions have been entered with suppliers as defined under The Micro, Small and Medium Enterprises Development Act, 2006. Therefore, no disclosur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business, you will kindly appreciate that all expenses have been incurred wholly and exclusively for the purpose of business and are allowable as revenue expenditure." 5. The reliance was placed on the following case laws: CIT Vs Modi Olivetti Ltd. 84 TTJ 1038 (Del) CIT Vs Berger Paints (India) Ltd. 254 ITR 503 DCIT Vs Core Healthcare Ltd. 308 ITR 263 CIT Vs Salora International Ltd. 308 ITR 199 CIT Vs Aluminium Industries Ltd. 234/214 ITR 541 (Ker) Empire Jute Co. Ltd. Vs CIT 124 ITR 1 (SC) CIT Vs Citi Financial Consumer Finance Ltd. 2011 335 ITR 29 (Del) 6. It was further submitted that there is a distinction between setting up of the business and the commencement of the business and as per Income Tax Act, 1961 what is relevant is the setting up of business and not commencement of the business. It was contended that the expenditure incurred after the business is set up may be allowed u/s 30 to 37 of the Act even if it is incurred before the business had actually commenced. It was further contended that a similar issue has been decided by the ITAT Delhi Bench 'C', New Delhi in favour of one of group companies M/s Regency Park Property Management Services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge expenses, project management expenses etc. All these expenses prove that business activities of the appellant has already started during the year and expenses incurred on the project have been capitalized, except the routine expenses on running the company which have been claimed as business expenditure. The project has started during the year and work is in progress, therefore, no revenue could be recognized during the year by appellant company. However, facts prove that appellant was in the business and same continued in the subsequent year. If there are no Sales in a particular year that does not mean that appellant was not doing its business activities. In the construction business revenues are recognized after the project raised to some stage. In the current year the project was started and it did not reach to the stage where revenue could be recognized. Therefore, the observation of the Assessing Officer that business operation of the company has not commenced is not correct. The appellant has paid salary expenses of Rs. 35,73,399/- and has also incurred expense on advertisement and publicity of Rs. 2,84,87,958/-. The advertisement & publicity expenses have been incurred f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007 and it acquired development rights on 172.46 acres of land for the purpose of Real Estates Development at Village Bhagwanpur, Tehsil Kalka, District Panchkula. The assessee acquired the approval from the State Government for setting up of residential township on 136.89 acres, the approval was published in Official Gazette on 26.09.2007 and the expenses in question were incurred by the assessee for its business purposes. However, the project which was started in this year did not reach to the stage where revenue could be recognized but it cannot be said that the expenses incurred by the assessee were not for the business purposes. On a similar issue the Hon'ble Jurisdictional High Court affirmed the decision of the ITAT Delhi, in deleting the similar type of addition which was made by the AO in similar circumstances in the case of CIT Vs Dhoomketu Builders and development Pvt. Ltd. (supra). The Hon'ble Jurisdictional High Court in the said case has held as under: "There is a difference between the setting up and commencement of business. When a business is established and is ready to commence business then it can be said of that business that it is set up. But before it is re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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