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TMI Blog2020 (6) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... erit in the order of the authorities below in this regard and the same are reversed. Accordingly, we hold that the assessee having not only set up its business but had also commenced its business during the previous year itself. Hence, ground no.1 of the assessee is allowed. Allowance of interest expenses - HELD THAT:- Once the business had been set up and also commenced in instant year itself, then the interest expenses claimed by the assessee and any other expenditure claimed by the assessee is to be allowed as business expenditure. The assessee had also parked certain funds temporarily in the bank FDRs, on which it had earned interest which is to include also as business income in the hands of the assessee. Accordingly, ground no 2 and 3 raised by the assessee also stand decided in the favour of the assessee and same is dismissed. Taxability of interest income - HELD THAT:- As held as business income; even otherwise the said interest income needs to be set up of against interest expenditure as funds have been borrowed by the assessee and only surplus borrowed funds have been invested in bank FDRs. Accordingly, the ground no. 5 raised by the assessee is allowed. - ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost of such property and further therefore allowed only the balance expenditure of ₹ 2,72,951 /- to be capitalized to work in progress. 5. That the Commissioner of Income Tax (Appeals) - XIII, New Delhi has grossly erred on facts and in the circumstances of the case and in law in denying set off of interest income of ₹ 15,24,862/- from banks against interest expenditure of ₹ 4,71,55,160/- 3. The first issue raised vide ground of appeal no.1 by the assessee is against the claim of the assessee that the business of the assessee was set up during the year under consideration. 4. Briefly, in the facts of the case, the assessee company was incorporated on 25.08.2005, was engaged in the business of real estate. The assessee filed e-return declaring total loss of ₹ 4,13,60,684/- on 30.11.2006. The case of the assessee was taken up for scrutiny. The Assessing Officer noted that during the year under consideration, the assessee had accepted unsecured loans aggregating to ₹ 318.80 crores from various corporate bodies. The list of the parties along with amount of interest paid to them is tabulated at pages 1 and 2 of the assessment order. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure incurred by the assessee for the purpose of setting up its business could not be allowed as deduction nor could it be adjusted against any other income under any other head . 6. The AO also held that interest income earned by the assessee was income from other sources against which business expenses should not be claimed; hence a sum of ₹ 94,25,071/- was assessed as income from other sources in the hands of the assessee. The interest paid on borrowed capital and other expenses were held to be preoperative business expenses, as the assessee had not started its business during the year under consideration, hence the expenses were not allowed in the year under consideration. 7. The CIT(A) with regard to the setting up of the business held as under:- 4.1. I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer and the facts on record. From the paper book filed by the assessee, the financial statements and the findings in the assessment order it is apparent that during the previous year the appellant has borrowed monies for purchase of land at Sonepat District for the real estate township project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees in the company, nor the appellant has any office or place of business, as seen from the schedule of assets. The case laws relied upon by the appellant are for other nature of business and that as per judicial decisions on the subject, it is a question of fact as to when a business is set up which has to be determined separately for each line of business. Accordingly Ground No. 1 of the appellant is dismissed. 8. Coming to the second issue of holding the expenses preoperative in nature, the CIT(A) held that since no project had commenced during the year, interest expenses were to be capitalized and were not allowable in the year. It was further held that the set off of interest income which against the interest expenditure can be allowed partly. The CIT(A) directed that interest income of ₹ 79,00,208/- (which has accrued on account of advances to associate consortium entities for purchase of land) be set off against interest expenditure of ₹ 4,71,55,160/- (incurred on account of borrowals for purchase of land) and the balance amount of ₹ 3,92,54,952/- only shall be capitalised. At the cost of repetition it is again reiterated that the capitali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land was acquired, substantial activities having been taken place, it could not be said that there was no commencement of business. 11. The Ld. DR for the Revenue pointed out that the question was whether the business was set up or had commenced. He pointed out that the case of the assessee was that when set up was done, the business was commenced. The Ld. DR for the Revenue strongly relied upon the order of CIT(A). 12. We have heard the rival contentions and perused the record. The first issue which arises in the present appeal is against the claim of the assessee as to setting up of business during the year under consideration itself. The assessee company was incorporated on 25.08.2005 and the nature of the business was to be engaged in the business of real estate. During the instant assessment year, the assessee had acquired land for development of township at sector-33, 34, 35 at Sonepat. For this, the assessee raised loans from the banks and also entered into joint development agreement. The minimum area requirement for residential colony was 100 acres and the assessee along with its associates together acquired 161.3811 acres in order to fulfil the minimum area norms fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial assistance for land acquisition Board resolution 01/03/06 8 Entering into Development Agreement Board Resolution dt.01.03.06 03/04/06 14/04/06 20/04/06 08/05/06 18/05/06 05/06/06 28/08/06 20/1007 9 Application for license 23/07/08 10 Receipt of letter of intent 20/07/09 13. A perusal of the said list of events alongwith relevant documents placed in paper book establishes that the first land was purchased at Sonepat vide deed dated 12.01.2006 and the said land had been reflected as stock in trade in the balance sheet as on 31.03.2006. Further, the Board Resolution dated 01.03.2006 was passed for execution of development agreement and for obtaining financial assistance for land acquisition. The copy of the letter is placed at pages 80 and 81 of the paper book. The assessee entered into development agreement in the initial month of the succeeding year and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich must necessarily precede all other activities. is started. 16. The Hon ble Delhi High Court in case of Dhoomketu Builders Development (P.) Ltd. vs ACIT 368 ITR 680 (Del.) was considering the case of a person engaged in realty business, who had participated in an auction to acquire a piece of land. It was noted that in order to bid for the land, loan was obtained from its holding company and the same was deposited as earnest money to bid for the land. However, there was no success in auction, but the interest paid on borrowed loans and interest received on earnest money was net off and the loss was claimed to be carried forward. The Tribunal held in such facts there was setting off of business and the same was held to be finding of facts by the Hon ble High Court. 17. The Hon ble Delhi High Court in CIT vs Arcane Developers (P) Ltd. 368 ITR 627 (Del.) while deciding the issue of allowability of interest expenditure on borrowed loan held that when the business of assessee had commenced/was set up, on obtaining loan for making investment, it was held that date of setting up of business and date of commencement of business may be two separate dates. However, the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said to have set up and commenced its business. Further, the assessee having also invested substantial amount in the purchase of another property in the year itself, thus, set up of its business as per its Memorandum of Understanding was done, since it was engaged in the business of real estate. It is held that there is no merit in the order of the authorities below in this regard and the same are reversed. Accordingly, we hold that the assessee having not only set up its business but had also commenced its business during the previous year itself. Hence, ground no.1 of the assessee is allowed. 20. Now coming to the second issue raised by the assessee, it is consequent to the first issue raised in the present appeal. Once the business had been set up and also commenced in instant year itself, then the interest expenses claimed by the assessee and any other expenditure claimed by the assessee is to be allowed as business expenditure. The assessee had also parked certain funds temporarily in the bank FDRs, on which it had earned interest which is to include also as business income in the hands of the assessee. Accordingly, ground no 2 and 3 raised by the assessee also stand d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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