9911796707
TMI Blog2023 (5) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld.AR of the assessee are rejected. Accordingly, this ground is rejected. Character of land - reclassification/ recharacterizing of land from stock-in-trade to capital asset - disallowance of revenue expenses u/s 37(1) - HELD THAT:- It cannot be said that the assessee had changed its business activity or re- characterized the assets from the current asset into capital asset. The assessee has taken steps in getting land converted and the lands in question have classified as urbanized land in 2007 as per letter dated 03/08/2007 issued by the Member Secretary, Malaphuram Town Local Planning Committee. The lands were already converted and classified for imposing development [commercial and residential] and no further conversion was warranted. The AO noted after expiry of 9 years, the company has not done any activity in this regard. It has been observed that after acquiring land, the assessee approached the Electricity Department for removal of high tension electric wires and paid fee - The high tension wire was eventually shifted from assessee land. Thereafter the assessee has tried to acquire adjacent land in order to give needful access to the road. Therefore, it cannot be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee is as under:- "1. General Ground 1. The learned Income Tax Officer, Corporate Ward 4(3). Chennai ['AO'J erred in passing the order under section 143(3) of the Income-tax Act, 1961 ['the Act'] in the manner passed by him and the Commissioner of Income Tax (Appeals)-8, Chennai ['CIT(A)' erred in upholding the said order of the learned AO, to the extent prejudicial to the appellant. The order of the CIT(A) being bad in law is liable to be quashed in its entirety. 2. Grounds relating to limited scrutiny 2.1. The learned CIT(A) and learned AO erred in concluding the assessment on issues and matters which are different from the reasons for limited scrutiny communicated during the assessment proceedings. 3. Grounds relating to reclassification of land from 'stock-in-trade' to 'capital asset' 3.1. The learned CIT(A) has erred in concurring with the learned AO in re-characterizing the land held by the Appellant from 'stock-in-trade' to 'capital asset'. 3.2. The learned CIT(A) erred in concluding so, without appreciating that: (a) the appellant is engaged in the business of development, sale, advisory and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to enhance the income is contrary to facts, bad in law and liable to be quashed. 7. Ground on set-off and carry forward of business loss 7.1 Without prejudice to the above, the learned AO has erred in not appreciating that the appellant is eligible to set-off brought forward losses as claimed in the return of income. 7.2. Assuming without admitting that the interest income of Rs. 17,35,627 is to be classified as income from other sources, the resultant loss under the head profits and gains of business or profession' (on account of deduction of interest income) would constitute business loss and would be eligible for set-off against income from other sources'. 8. Grounds relating to levy of interest under section 234B and section 234D). 8.1. The learned AO erred in levying interest under section 234B and section 234D. On facts and circumstances of the case and law applicable, levy of interest tinder section 234B and section 234D is not leviable. The appellant denies its liability to pay any interest. The grounds mentioned above are independent and without prejudice to the other grounds preferred by the Appellant. The appellant craves leave to add, alter, vary, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to capitalization of expenditure to cost of project amounting to Rs.15,73,839 4.1. The learned CIT(A) and AO have erred in capitalizing the revenue expenditures incurred and claimed amounting to Rs. 15,73,839 to the cost of project, without appreciating (a) that the appellant had set-up and commenced its business in the earlier years and that the expenditure incurred after the date of setting up of the business is allowable expenditure; (b) that the expenditure incurred by the appellant neither relate to acquisition of any asset nor is attributable to any asset and therefore cannot be capitalized to the cost of assets; (c) that the impugned expenditure is revenue in nature; (d) the judicial precedents relied by the appellant in this regard. 4.2. Assuming without admitting that the said expenditure is not allowable under the head profit and gains from business or loss', the same should be allowed as a deduction under the head 'income from other sources'. 5. Grounds relating to enhancement of income 5.1. The learned CIT(A) erred in enhancing the assessed income by a sum of Rs. 4,54,400 by recharacterizing legal and professional expenditure as capital expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the interest income earned since there was no nexus between income admitted and expenditure claimed. According to the AO, the expenditure claimed by the assessee cannot be allowed and the interest income received by the assessee is to be treated as income from other sources and he added the same to the total income of the assessee. 6. From the assessment order, it is culled out that reason for selection of scrutiny was "large difference in the closing stock shown in the balance sheet and profit and loss account of the current year as per the return of income". In this regard, the assessee was asked to reconcile the differences. The assessee submitted reply vide letter dated 15/11/2016, annexed the break-up of W-I-P and also produced the copies of the documents for purchase of lands. The total cost of land was Rs. 184.43 crores and in addition the following other expenses were also included in the W-I-P of Rs. 193.81 crores which has been reproduced by the AO in his assessment order as under:- i. Land improvement expenses: Rs. 6,83,68,480/- ii. Land Development expenses Rs. 71,377/- iii. Sundry expenses Rs. 28/- iv. Professional fees - Design - capitalized Rs. 1,65,03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the observations at para No. 06, 07 & 08 of the his order. 10. Aggrieved from the above order, the assessee filed appeal before the ITAT. 11. The ld.AR reiterated the submissions made before the lower authorities and submitted that the case was selected for scrutiny only for the limited purpose of "large difference in the closing stock shown in the balance sheet and profit and loss account of the current year as per the return of income". The AO has travelled beyond the notifications issued by the CBDT which are placed at Paper Book containing page No. 01 to 30 includings case laws. He submitted that as per the Instruction NO.7/2014 [F.NO.225/229/201 4-ITA.lI], dated 26-9-2014 that the assessment order passed is beyond jurisdiction and it does not survive because case was selected for limited scrutiny and in support of his arguments he relied on the following judgment:- 1. Shri Narendrakumar Rameshbhai Patel Vs. Dy. DCIT in ITA N. 981/Ahd/2019 Dated 20.03.2020. 2. Shri Prabir Das, Karimganj Vs. ITO in ITA No. 395/Gau/2019 dated 26.06.2020. 3. Dev Milk Foods Pvt. Ltd. vs Add. CIT in ITA No. 6767/Del/2019 dated 12.06.2020 12. Further, the ld.AR submitted that the AO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness quarters. 13. The ld.AR also submitted that the assessee has only capitalized the expenses that are of enduring nature and the expenses that were not of enduring nature were capitalized but charged to revenue account for the year. He submitted that the CIT(A) has wrongly exercised his power and hence the income against these expenses were of the administrative nature which help the company to sustain itself and it is not attributable to any particular asset held by the company. He further submitted that the AO has wrongly capitalized the expenses on the ground that the assessee company has not commenced its business operations whereas there is nothing on record to suggest that the assessee has not commenced its operations and on the contrary, the operations were undertaken to procure the lands to make it fit for he project. The professionals engaged in the process proved that the operations of the assessee company are being carried out and many other step have also been taken by the company, the documents were submitted before the authorities below but they overlooked it. The AO is also not justified in stating that business operations have not commenced on the ground that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad business income of Rs. 7,21,174/- would still be eligible for being set-off against income from other sources of Rs. 17,35,627/- and resultant total income for the sake of assessment would still be the same Rs. 10,14,453/-. The ld. AR also relied on number of judgments in support of his arguments which are as under:- 1. Chennai Properties & Investments Ltd. v. CIT [2015] 373 ITR 673 (SC) 2. CIT v. Elnet Technologies Ltd [2020] 271 Taxman 25 (SC) approving the Madras High Court in CIT v. Elnet Technologies Ltd. (2013) 30 taxmann.com 63 (Mad.) 4. Kohli Estates (P.) Ltd v. ITo [2020] 183 lTD 650 (Del Trib.) 5. G.Venkataswami Naidu & Co. v. CIT [1958] 35 ITR 594 (SC) 6. CIT v. Mohakampur Ice & Cold Storage [2006] 281 ITR 354 (Allahabad) 7. Raja J. Rameshwar Rao v. CIT [1961] 42 ITR 179 (SC) 8. CIT v. R. Ramaiah [1984] 146 ITR 39 (Kar) 9. CIT v. Gopal Purohit [2010] 336 ITR 287 (Born.) 10. Sunil Kumar Ganeriwal v. DCIT [2011] 134 lTD 179 (Mum - Trib.) 11. Principle of consistency should be accepted Radhasoami Salsang v. CIT [1992] 193 ITR 321 (SC) 12. CIT v. Dairnia Promoters Developers (P) Ltd [2006] 281 ITR 346 (Del.) 13. CIT v. Gopal Purohit [2010] 336 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er book page No. 279, therefore, both the authorities are justified in treating the interest received on Fixed Deposits as income from other sources. In support of his argument, he relied on the judgment of Hon'ble High Court of Allhabad in the case of Pr.CIT Vs. M/s Sangam Power Generation Company Ltd., in ITA No.87 and 88 of 2016 and he submitted that in this case the Hon'ble High Court has considered various judgments rendered by various Hon'ble Courts. He also relied on the judgment of the coordinate bench of Tribunal in the case of Simplex Naigai Costings Pvt. Ltd. in ITA No.690/Bang/2020 vide order dated 1st June, 2022 in which, it has been held that the interest received on fixed deposits during the process of setting up of plant is an income from other sources, following judgment of the Hon'ble Supreme Court in the case of Tuticorian Alchemic Chemicals and Fertilizers Ltd., 1997 [227 ITR 172] (SC). He further submitted that the assessee purchased the land in the year 2007-08 and thereafter no business activities have been undertaken by the assessee, therefore, lower authorities have rightly changed the characteristic of classification done by the assessee in its books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further on instruction No.20/2015 dated 29/12/2015, as per No.2(ii) the said instruction is applicable only to the cases selected under CASS on the parameters (Supra) of AIR/CIB/26AS. Instruction No.5/2016 dated 14/7/2016 is applicable on the basis of CASS selection under limited scrutiny. As per letter F.No.DGIT(VIG)/HQ/SI/2017-18 dated 30.11.2017 placed at page No.2, the instructions dated 26.09.2014, 29.12.2015 & 14/07/2016 are applicable for the limited scrutiny. On perusal of the copies of notice u/s 143(2) of the Act, as stated earlier, I do not find anywhere that the case was selected under the limited scrutiny. The ld.AR of the assessee stated that the AO has given reason for selection of scrutiny in the assessment order which says as "the CASS reasons for selection of scrutiny where there is large difference in the closing stock shown in the balance sheet and profit and loss account for the current year as per the return of income." The Central Board of Direct Taxes had framed certain reasons for selection of scrutiny assessment under which, the case has been selected and reason for selection for scrutiny is assuming the jurisdiction for scrutiny assessment. In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pearing under the head current asset. 22. The ld.DR submitted that res judicata is not applicable in the Income-tax proceedings, every year is independent and separate assessment year, therefore, the decision for the one assessment year cannot be considered for the subsequent or prior assessment years. This argument of the ld. DR will not apply in this case. I observe from the arguments of both the sides and the documents submitted by the assessee that the assessee has not re-characterized the work-in-progress. It is continuously showing its financial statement as it is and copy of the MOA is placed on record. The assessee has also not changed its main object clause as stated in the MOA. In view of this it cannot be said that the assessee had changed its business activity or re- characterized the assets from the current asset into capital asset. The assessee has taken steps in getting land converted and the lands in question have classified as urbanized land in 2007 as per letter dated 03/08/2007 issued by the Member Secretary, Malaphuram Town Local Planning Committee. The lands were already converted and classified for imposing development [commercial and residential] and no furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The only dispute is whether these are a capital or revenue expenditure. 26. During the course of hearing, the ld.AR submitted that the legal and professional charges has been incurred towards business of the assessee for maintaining the peaceful possession of the land acquired. Since I have uphold ground No.3 in favour of the assessee, therefore, these expenditure also would be treated as revenue expenditure. Accordingly, I allow these grounds raised by the assessee on this issue. 27. Through ground No.7, the ld.AR of the assessee submitted that the assessee is eligible for setting off of the loss arising from the business carried on by the assessee during the year under consideration and the interest received on Fixed Deposits as income from other source. Since in ground No.4 it is held that the interest received from investment of surplus funds is income from other sources, accordingly the business loss to that extent is eligible for set off from other heads of income as per the provisions of the Income Tax act. In view of this, AO is directed to give benefit for setting - off the business loss from the interest income as per law. Accordingly this issue is partly allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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