DCIT Vs HMS Real Estate Pvt. Ltd. (ITAT Delhi)
It is held that when an assessee whose business is to develop real estates, is in a position to perform certain acts towards the acquisition of land, that would clearly show that it is ready to commence business and, as a corollary, that it has already been set up. It is well settled principle that all the expenses incurred after the business had been set up are allowable as business deduction under section 37 of the Act. Further, it is not necessary that any income has to be earned to claim deduction of expense u/s 37.
FULL TEXT OF THE ITAT JUDGMENT
This appeal is filed by the Revenue against the order dated 19/2/2018 passed by CIT(A)-4, New Delhi for Assessment Year 2012-13.
2. The grounds of appeal are as under:-
“1. Whether the Ld.CIT(A) has erred on facts and in law in deleting the disallowance of revenue expenses u/s 37(1) of the Act claimed in return of income of Rs. 1,00,17,751/- ignoring the fact that there was no (Revenue from) business inexistence carried out during the relevant Assessment Year.”
3. The assessee furnished return of income on 1/11/2012 declaring loss of Rs.69,06,799/-. During the assessment proceedings, it was observed by the Assessing Officer that assessee company was incorporated on 12/6/2008 as a wholly owned subsidiary of HBT Real Estate Holdings Ltd., Mauritius for the purpose of development and construction of real estate projects in India. It has been stated that the assessee had entered into a Memorandum of Understanding with Shyam Communications System for the purpose of building a project, Skyview Corporate Park (SCP) located on NH-8, New Delhi. It has been also noted that appellant is developing master-planned corporate community called Skyview Corporate Park (SCP) in Sector 74A, NH-8, Gurgaon, Phase I of the development which contains two identical commercial building of nine floors. In its entirety, the 21 acre Skyview Corporate Park will comprise of 4 additional towers with a total commercial area of over 1.9 million square feet. The Assessing Officer further noted that though the assessee has not earned any revenue except interest of Rs. 31,10,952/-, however total project expenses have been capitalized to capital WIP except of Rs. 1,00,17,751/- to the extent of loss under the head ‘business or profession’ which was also related to project and he, therefore, proposed to show cause as to why not these expenses of Rs. 1,00,17,751/- be also capitalized to capital WIP. The assessee filed reply, the Assessing Officer observed that during the relevant Assessment Year, the only income that was earned by the assessee is interest income at Rs.31,10,952/- and no revenue from business was offered to tax. The Assessing Officer held that the only business of the assessee is building of one park, and, therefore, all the expenses direct or in direct should be accounted for as capital work in progress. Therefore, the Assessing Officer disallowed Rs. 1,17,00,751/- as revenue expenses u/s 37(1) of the Act.
5. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee. The Revenue is before us.
6. The Ld. DR submitted that the Assessing Officer has rightly disallowed the expenses incurred by the assessee in respect of Developing and Building Sky View Corporate Park in Gurgaon, as these expenses directly related to the project and was not capitalized. The Assessing Officer rightly held that the only business of the assessee is building the said park and, therefore, all direct and in direct expenses are accounted as for capital work in progress. Therefore, the Assessing Officer rightly disallowed the said expenses as Revenue expenses u/s 37(1) of the Act. The Ld. DR further submitted that the CIT(A) ignored these factors which was observed by the Assessing Officer and the case laws referred by the CIT(A) are not directly related to the case of the assessee. The Ld. DR relied upon the decision of the Hon’ble Bombay High Court in case of ALD Automotive Pvt. Ltd. Vs. DCIT (2018) 254 Taxmann 233 & also referred case of Video Plaza Vs. ITO that of Hon’ble Calcutta High Court being 385 ITR 404.
7. The Ld. AR submitted that the assessee company was incorporated on 12.06.2008 and is a wholly owned subsidiary of HBT Real Estate Holdings Ltd., Mauritius. The aforesaid company had been incorporated for the purpose of development and construction of Real Estate Projects in India. The authorized capital of the assessee company is Rs. 2.65,00,000. It had furnished the returns of income for the AYs 2009-10, 2010-11 and 2011-12. From the perusal of the details tabulated, the Ld. AR pointed out that it had incurred certain expenditure and claimed the same as business loss (for AY 2011-12) and carried forward the same to be set off, which business loss was accepted.
HMS REAL ESTATE PRIVAE LIMITED
