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TMI Blog2018 (8) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... diture. Decided in favor of assessee. - I.T.A. No. 395/Kol/2018 - - - Dated:- 18-7-2018 - Shri P.M. Jagtap, AM Shri A. T. Varkey, JM For the Appellant- Shri S. K. Tulsiyan, Advocate For the Respondent- Shri P. K. Srihari, CIT ORDER Per Shri A. T. Varkey, JM This is an appeal preferred by the Assessee company against the order of the Commissioner of Income Tax (Appeals)-3, Kolkata dated 31.01.2018for Assessment Year 2012-13. 2. Ground No.1, 9 10 raised in the appeal are general in nature and, therefore, it is not called for any adjudication. By raising Ground No.2 to 8 of the appeal, the appellant company has primarily objected to the action of the Assessing Officer in disallowing the expenses of ₹ 6,31,12,350/- charged to the Profit Loss A/c and assessing the income of ₹ 7,02,72,979/- derived from Fixed Deposits (FDs) and mutual funds under the head of other sources . 3. Briefly stated facts of the case are that the assessee company was incorporated on 09.06.2004 for the purpose of carrying a hotel business by establishing a five start hotel at Rajarhat, Kolkata. In connection with the said project, the appellant company had pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the head of other sources . Aggrieved by the order of Assessing Officer, the appellant preferred an appeal to the ld. CIT(A) who was pleased to dismiss the same. 5. Aggrieved the appellant company is before us. 6. We have heard rival submissions and gone through the facts and circumstances of the case and various documents placed on record. We note that the assessee company was set- up with the purpose and objectives of setting up and operating a five star hotel at Rajarhat, Kolkata. After obtaining the Certificate of Commencement, the assessee company had taken several steps in connection with the setting up of a five star hotel. The Ld. AR appearing on behalf of the assessee company took us through several steps taken by the assessee to show that the business of the assessee company had commenced and that the revenue expenses incurred (apart from those incurred in connection with the project) was allowable as deduction from the profits of the business. The relevant acts and deeds performed by the assessee in connection with the setting up of five star hotel is as follows: i) In regard to the above, land situated at New Town was purchased by Shristi Infrastructure D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 20000/- exclusive of rates and taxes. vi) The appellant company vide letter dated 24.05.2007 issued to West Bengal Housing Infrastructure Development Corporation Ltd seeking permission for the supply of construction water for constructing Five Star hotel at Rajarhat. vii) In response to the same, West Bengal Housing Infrastructure Development Corporation Ltd. vide letter dated 11.06.2007 granted permission to the appellant company to sink 2 nos. Deep tubewells for the purpose of construction of 5 star hotel Project subject to clearance from SWID, Govt. of West Bengal. The said letter is enclosed at pages 145 of the paper book. viii) On 26.06.2007, the appellant company issued a letter to the West Bengal Housing Infrastructure Development Corporation Ltd. [WBHIDCO] for seeking permission for the piling work for the proposed 5 Star Hotel Complex at the said plot. ix) In response to the same, WBHIDCO vide letter dated 19.07.2007 granted permission to the appellant company for the piling work for the proposed 5 Star Hotel complex at the said premises subject to the following conditions: (The said letter is enclosed at pages 146-147 of the paper book) No const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the SIDCL and M/s Mfar Constructions Pvt. Ltd whereby the later would do design, supervise, construct and will do other works such as water proofing and anti termite treatment with guarantee and performance tests etc. The said sub contract agreement is enclosed at pages 179-197 of the paper book. xvi) The appellant company vide letter dated 05.02.2010 issued a letter to the West Bengal Pollution control Board seeking permission and consent and to establish (NOC) from Environmental point of view for constructing a Five Star Hotel at Rajarhat at the premises mentioned above. xvii) West Bengal Pollution Control Board vide letter dated 25.03.2010 granted consent to Establish (NOC) from environment point of view to the appellant company for constructing a five star hotel subject to the conditions mentioned in the said letter. Copy of the letter is enclosed at pages 198-201 of the pape rbook. xviii) The appellant company vide Form 4 Permit for Sinking of New Well u/s 7(3)(b), 7(5)(a) of the West Bengal Ground water Resources, dated 20.04.2011 was granted permission for sinking a new well for extracting ground water subject to the conditions mentioned in the said form. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of proceeding u/s. 143(3) of the Act for the AY 2009-10. Referring to the observation made by the AO, the Ld. AR submitted that not only the department accepted the fact that the assessee company had commenced its business but also allowed the business loss as returned in the said AY 2009-10. Relying on the principle of judicial consistency and the decision of the Hon ble Supreme Court in the case of CIT vs. Radhasoami Satsang [193 ITR 321 (SC)], the Ld. AR submitted that the Department cannot take a contra view stand and disturb the settled facts unless there is a change in law or facts. The Ld. AR further submitted that even the proviso to sec. 3 of the Act it requires setting up of business and not commencement of business and, therefore, the premise viz., non commencement of business on which the AO had disallowed the expenses was untenable in law as well as on facts. 9. In the course of appellate proceedings the Ld. AR also took an alternate plea that if the AO s premise that the company s business was not set up and for that reason expenses incurred were not be allowed as revenue expenditure, is upheld; then on the same principle the income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities and therefore the assessee cannot be permitted to raise such alternate plea for the first time before this Tribunal. 11. After considering the submissions of the parties, we find sufficient force merit in the alternate plea of the appellant in which it claimed that if the AO s contention is to be upheld then on the same principle the income of ₹ 7,02,72,979/- which the assessee derived during such a pre-commencement phase should not also be regarded as revenue in nature but must be allowed to be netted off against the expenses incurred during pre- commencement stage and only the net expenditure, if any, should be considered to be pre- operative in nature requiring capitalization. In support of such alternative plea, the Ld. AR for the assessee drew our attention to the judgment of the Hon ble Supreme Court in the case of CIT Vs. Mahalakshmi Textile Mills Ltd. 66 ITR 710. Having considered the ratio laid down in this judgment, the alternate claim raised by the assessee is maintainable. In the judgment relied on by the Ld. AR, the Hon ble Supreme Court considered the scope, ambit and power of the Tribunal to consider and decide upon the issues which were not raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had undertaken concerted efforts to set up a five star hotel in Kolkata. The assessee had carried out numerous acts and deeds in an organized manner to ensure that a five star hotel of the highest standard was constructed and set up. Each and every activity including the efforts taken for raising financial resources were aimed on setting up of the hotel and, therefore, none of the activities of the assessee could be considered or viewed in isolation. The requisite funds were raised by the assessee by way of equity capital and loans from various sources with the object of meeting the cost of hotel project. These funds were not raised merely for the purpose of earning interest or other incidental income. However, having regard to the fact that setting up of new star hotel as a green field project was long term involvement and the gestation period upto the start of commercial production was fairly long, it was not possible for the assessee to utilize the entire finance raised in one go. Under these circumstances, therefore, in order to reduce the effective cost of setting up the hotel project, the assessee had deployed this temporary surplus fund in fixed deposits which yielded inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) was applicable. The relevant finding of the Hon ble High Court is as follows: 10. It is important to note that the Tribunal without holding that the finding of fact of the Commissioner of Income-tax (Appeals), that the interest earned was inextricably linked with the setting up of the power plant reversed the decision of the Commissioner of Income-tax (Appeals) by making a bald observation that the deposit of share capital has no or very remote connection with setting up of plant and machinery . The Tribunal further observed that it was an independent income earned in a similar fashion as was the case in Tuticorin Alkali Chemicals [1997] 227 ITR 172 (SC). 11. In our opinion, the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals [J997} 227 ITR 172 and that of Bokaro Steel Ltd. [J999] 236 ITR 315 . The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals [1997] 227 ITR 172 is that if funds have been borrowed for setting up of a plant and if the funds are surplus and then by virtue of that circumstance they are invested in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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