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TMI Blog2021 (5) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO to decide the controversy afresh in accordance above mentioned guidelines. Disallowance of deduction of expenses debited to the profit loss account which were incurred wholly and exclusively for the business carried on by the appellant during the previous year - HELD THAT:- Since the business has been commenced in the year 2003-04 then no doubt the deduction of expenses debited to the profit loss account which were incurred wholly and exclusively for the business carried on by the appellant is liable to be allowed in accordance with law. In this regard no doubt the AO is under obligation to verify the facts and to allow the claim of the assessee, hence, this issue is restore to the AO to allow the claim in accordance with law. Disallowance u/s 14A r/w rule 8D - HELD THAT:- The factual position which emerges is, in the year under consideration the assessee has not earned any exempt income. That being the case, as per settled principle of law, no disallowance under section 14A r/w rule 8D can be made. See decision of t PCIT v/s Rivian International Pvt. Ltd [ 2017 (12) TMI 811 - BOMBAY HIGH COURT ] - In view of the aforesaid, we delete the disallowance made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to as the CIT(A) ] relevant to the A.Ys. 2008-09 2009-10. ITA. NO.4852/M/2014 2. The assessee has filed the present appeal against the order dated 31.01.2014 passed by the Commissioner of Income Tax (Appeals)-41, Mumbai [hereinafter referred to as the CIT(A) ] relevant to the A.Y. 2008-09. 3. The assessee has raised the following grounds: - 1. The Ld. Commissioner of Income Tax (Appeals)-41, erred in confirming the view of the Ld. Assessing Officer that the business of Appellant had not yet started during the previous year under consideration. 2. The Ld. Commissioner of Income Tax (Appeals)-41, erred in upholding the view of Ld. Assessing Officer in assessing the gross interest income under the head 'income from other sources'. 3. The Id. Commissioner of Income '['ax (Appeals)-41, erred in upholding the view of Ld. Assessing Officer in assessing the income from mutual funds under the head 'Short Term Capital Gains'. 4. The Ld. Commissioner of Income Tax (Appeals)-41 erred in upholding the view of Id. AO by not allowing deduction of the expenses debited to the Profit Loss Account which were incurred wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was also stated that in the setting up and development of SEZ project at Khopta in the state of Maharashtra i.e. Maha Mumbai SEZ. During the year under consideration, the assessee was continued with the status of its project of SEZ as it was in earlier year with the whole project being still at the stage of work in progress (WIP). During the year under consideration, there was in insignificant increase in the WIP as compared to last year, looking to the overall size and magnitude of the SEZ project. However, in Schedule-N, dealing with Notes on accounts for the annual report, the assessee has provided the state of project and certain accounting treatment as under.:- 1. Company is actively engaged in the setting up and development of SEZ project at Khopta in the state of Maharashtra, viz. Maha Mumbai SEZ (MMSEZ). The Ministry of Commerce and Industries, Government of India had accorded in principal approval to the Company to set up Special Economic Zone (SEZ) at Khopta, district Raigad in Maharashtra vide its letter dated 8th August, 2003 valid for a period of 3 years, which was extended till 7th August, 2009 by the Ministry of Commerce and Industries, Government of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d loss protection services, banking and insurance, service and the like administrative infrastructure. 3. To procure and adopt, purchase or in any other manner acquire any interest, right, title right, concession, license for building operating and for any other purposes in any of the above infrastructural facilities, and services and to promote, develop, acquire rights concessions, titles or interest in and operate in any manner whatsoever as free trade zone, free economic zones, export processing zones or any other zones, towns, cities, in accordance with the guidelines of any authority for the time being in force and to sell, lease, on hire, grants, rights, titles, interest concessions, licenses, franchises, casement and otherwise dispose off in any manner whatsoever any such infrastructural facilities and services or any rights, titles, concessions acquired, therein to any person whether in India or abroad. 4. To constitute and be part in constitution of any statutory body, area development authority, city management authority, municipal authority, town planning and administration authority and such other authority/authorities as may, be permissible under the laws for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing incorporated for rendering advisory and consultancy services in the field of automobiles and having a place of business and employed qualified people to render advice and having contacted various clients who entered into agreement with the assessee then it could be held that the assessee had set up its business. However, it was also held that the expenditure on building was capital in nature, therefore, not allowable. In the present case, facts of the case have revealed that the assessee-company was constituted to develop and operate infrastructure facilities in India towards development of Special Economic Zones at Positra, in the State of Gujarat. The assessee had obtained an approval from the Gujarat State and Union Government. The assessee has commenced the process of land acquisition from private parties. The assessee had conducted a survey and started rehabilitation activities to perform the above activities. The assessee had recruited employees, on rental basis office was occupied, engaged few professionals and certain administrative as well as expenditure were incurred. There was sociopolitical development in Gujarat; hence, the assessee has faced some problem but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adesh was only for reconnaissance with reference to exploration of diamonds, it can be concluded that the assessee has commenced its business from the time it started the prospecting activity. It is also seen from the permissions granted by the FIPB that in some cases the assessee was permitted to undertake for prospecting only for other minerals (except coal and iron ore). Therefore, prospecting activity itself is to be considered as assessee's business activity. There is no dispute with reference to the expenditure being spent on prospecting activities in the year under consideration. Accordingly, it is held that the assessee has commenced its business activities. 5.1 Considering the totality of the facts and circumstances of the case and the details of the Project Development Expenditure as annexed to the balance sheet of the assessee, we hereby hold that for the year under consideration the business was set up by the assessee. 8. On appraisal of the above mentioned finding, it is quite clear that the Hon‟ble ITAT has held that the assessee has started the business in the A.Y. 2003-04, hence, no doubt when it has already been held that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red depending on facts and applicable law. The discussion will become only academic in nature in this case without there being any consequential effect as interest income is eligible for set off to business loss whether assessed as income from business or income from other sources. The Assessing Officer is however directed to allow the set off of business loss as per the provisions of the Act. 5.3 We are also of the opinion that the assessee is expected to place on record the purpose of the deposit, utilization of funds and most important fact is also to be brought on record about the nexus of interest earned and interest paid. We, therefore, hereby hold that the matter should go back to the stage of the AO so that the procurement of funds, its utilization and the source of deposit has to be examined afresh by the AO so that the nexus can be established in respect of the interest earned and interest paid. With these directions, the grounds raised by the assessee are partly allowed that too for statistical purpose. 10. On appraisal of the above mentioned finding, we noticed that the assessee was under obligation to place on record the purpose of the deposit, utilization of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce under section 14A r/w rule 8D can be made. In this context, we may refer to the decision of the Hon'ble Jurisdictional High Court in PCIT v/s Rivian International Pvt. Ltd., ITA no.693 of 2015, judgment dated 21st November 2017. In view of the aforesaid, we delete the disallowance made by the Assessing Officer and sustained by learned Commissioner (Appeals). This ground is allowed. REVISED GROUND NO. 5 16. Under this issue the assessee has challenged the disallowance of deduction of expenses debited to the profit loss account which were incurred wholly and exclusively for the business carried on by the appellant during the previous year. Since the business has been commenced in the year 2003-04 then no doubt the deduction of expenses debited to the profit loss account which were incurred wholly and exclusively for the business carried on by the appellant is liable to be allowed in accordance with law. In this regard no doubt the AO is under obligation to verify the facts and to allow the claim of the assessee in accordance with law, hence, this issue is restore to the AO to allow the claim in accordance with law. REVISED GROUND NO. 6 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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