SOME RECENT DIRECT TAXES JUDGEMENTS: A COMPILATION (Part II)

Subash Agarwal, Advocate

(A) Supreme Court

1. I.C.D.S. Ltd. vs. CIT 350 ITR 527 (SC)

Where assessee, engaged in business of hire purchase, leasing etc., having purchased vehicles from manufacturers, leased out those vehicles to customers, it was entitled to claim depreciation in respect of vehicles so leased out

Facts

Assessee was engaged in business of hire purchase, leasing and real estate etc. It purchased vehicles from manufacturers and thereupon leased out those vehicles to customers. Assessee's claim for depreciation on said vehicles was rejected on ground that it had merely financed purchase of these assets and was neither owner nor user of these assets.

Held

(i) It was apparent from records that assessee was exclusive owner of vehicles at all points of time and, in case of default committed by lessee, assessee was empowered to re-possess vehicle.

(ii) Moreover, at conclusion of leased period, lessee was obliged to return vehicle to assessee

(iii) It was also undisputed that assessee was a leasing company and income derived from leasing of vehicles had been assessed as its business income.

(iv) Section 32 imposes a twin requirement of 'ownership' and 'usage for business' for a successful claim of depreciation.

(v) As long as asset is utilized for purpose of business of assessee, requirement of section 32 will stand satisfied, notwithstanding non-usage of asset itself by assessee.

(vi) Assessee satisfied both requirements of section 32, i.e., ownership and usage of vehicles for purpose of business, and, thus, its claim for depreciation was to be allowed.

2. CIT vs. Monnet Industries Ltd. 350 ITR 304 (SC)

Interest paid on borrowed fund for mere extension of existing business, is allowable as deduction under section 36(1)(iii)

Assessee was having a ferroalloys manufacturing plant. It set up a sugar plant at a different place out of its borrowed fund. There was a unity of control and management in respect of ferroalloys plant as well as sugar plant and there was also intermingling of funds and dove-tailing of business. Since there was mere extension of existing business of ferro-alloys plant, interest paid on funds borrowed for purposes of setting up of sugar plant was allowable as deduction under section 36(1)(iii)

(B) High Courts

1. CIT vs. Kamal Wahal 351 ITR 4 (Del.)

In order to get exemption u/s. 54F new residential house need not to be purchased by the assessee in his/her own name or exclusively in his/her name

Held

For the purposes of Section 54F, the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. It is moreover to be noted that the assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. There is also no dispute that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee's wife.

Having regard to the rule of purposive construction and the object which Section 54F seeks to achieve and respectfully agreeing with the judgment of this Court, we answer the substantial question of law framed by us in the affirmative, in favour of the assessee and against the revenue.

2. CIT vs. Amit Jain 351 ITR 74 (Del.)

No Penalty for showing share trading income under the Capital Gains instead of Business

The record reveals that the amount in question, which formed the basis for the assessing officer to levy penalty was in fact truthfully reported in the returns. In view of this circumstance, that the assessing officer chose to treat the income under some other head cannot characterize the particulars or reported in the return as inaccurate particulars or as suppression of facts.

3. Khanna And Annadhanam vs. CIT 351 ITR 110 (Del.)

Compensation to CA Firm for loss of referral work is a non-taxable capital receipt

The assessee, a firm of Chartered Accountants, was one of the "associate members" of Deloitte Haskins & Sells for 13 years pursuant to which it was entitled to practice in that name. Deloitte desired to merge all the associate members into one firm. As this was not acceptable to the assessee, it withdrew from the membership and received consideration of Rs. 1.15 crores from Deloitte. The said amount was credited to the partners' capital accounts & claimed to be a non-taxable capital receipt by the assessee. The AO rejected the claim. The CIT (A) reversed the AO. The Tribunal reversed the CIT (A). On appeal by the assessee to the High Court HELD reversing the Tribunal:

(i) There is a distinction between the compensation received for injury to trading operations arising from breach of contract and compensation received as solatium for loss of office. The compensation received for loss of an asset of enduring value would be regarded as capital. If the receipt represents compensation for the loss of a source of income, it would be capital and it matters little that the assessee continues to be in receipt of income from its other similar operations (Kettlewell Bullen 53 ITR 261 (SC) & Oberoi Hotel 236 ITR 903 (SC) followed);

(ii) On facts, the compensation was for loss of a source of income, namely referred work from Deloitte because it is somewhat difficult to conceive of a professional firm of chartered accountants entering into such arrangements with international firms of CAs, as the assessee in the present case had done, with the same frequency and regularity with which companies carrying on business take agencies, simultaneously running the risk of such agencies being terminated with the strong possibility of fresh agencies being taken. In a firm of chartered accountants there could be separate sources of professional income such as tax work, audit work, certification work, opinion work as also referred work. Under the arrangement with DHS there was a regular inflow of referred work from DHS through the Calcutta firm in respect of clients based in Delhi and nearby areas. There is no evidence that the assessee had entered into similar arrangements with other international firms of chartered accountants. The arrangement with DHS was in vogue for a fairly long period of time -13 years- and had acquired a kind of permanency as a source of income. When that source was unexpectedly terminated, it amounted to the impairment of the profit-making structure or apparatus of the assessee. It is for that loss of the source of income that the compensation was calculated and paid to the assessee. The compensation was thus a substitute for the source and the Tribunal was wrong in treating the receipt as being revenue in nature.

4. CIT vs. C.S. Srivatsan 30 taxmann.com 423 (Mad.)

Where company in which assessees were directors, paid franchise commission to franchiser, owned by HUF of directors, and such franchises met personal expenses of directors, same could not be brought to tax under section 2(24)(iv)

Facts

· The assessees were directors of the company 'CRS' which was engaged in the business of retail-selling of silk sarees and other textiles.

· 'CRS' effected its sale through franchisees which were owned by different HUFs of the assessee. Said franchisees were paid commissions for the sale effected by them.

· The Assessing Officer treated the personal expenses of the assessees and their family members (Franchisee commission paid to different HUF) paid by the company as the income of the Directors, by invoking the provisions of section 2(24)( iv).

· The Tribunal held that the personal expenses met out of the company's money could not be treated as income in the hands of the assessees under section 2(24)(iv ) as the money had not been paid directly to them, but to the franchisees, which their HUF owned.

Held

The Tribunal has taken note of the following aspects and has given the specific findings:-

· CRS paid franchise commission to various firms owned by HUF of Directors.

· This has been done on the basis of agreement entered into which were in force.

· The payment by CRS on the basis of franchise agreement to various persons cannot be treated as payment to Directors who have substantial interest in the company and section 2(24)(iv ) cannot be invoked.

· If the receiver of franchise commission has met the personal expenses of the Director, it is not the responsibility of the company for such act of the receiver of franchise commission.

· The findings rendered by the Tribunal do not warrant any interference, as it is supported by factual matrix and legal reasoning.

5. CIT vs. Abhinav Kumar Mittal 30 taxmann.com 357 (Delhi)

Where reference made by Assessing Officer to DVO for valuation of properties of assessee was not in accordance with law and DVO's valuation was based on incomparable sales, addition made to income of assessee under section 69 on basis of DVO's valuation was wrong

Held

No material was found in the search and seizure operations, which would justify the Assessing Officer's action in referring the matter to the DVO for his opinion on valuation of the said properties. If that be the case, then the valuation arrived at by the DVO would be of no consequence. In any event, the Tribunal has also held that the DVO's valuation was based on incomparable sales, which is not permissible in law.

6. R.N. Gupta Co. Ltd. vs. CIT 30 taxmann.com 424 (Punj. & Har.)

Scrap being by-product of manufacturing activity, there are no expenses which could be excluded from sale of scrap for computing deduction under section 80HHC

Facts

The assessee is engaged in manufacturing of goods for export. In the process of manufacturing, the scrap is generated, which is a bi-product of manufacturing activity. The Assessing Officer has not accepted the explanation of the assessee that no expenses are incurred for generation of scrap, and therefore, expenditure should be taken as nil for not accepted. The Assessing Officer has disallowed the deductions claimed by the assessee under Section 80 HHC of the Income Tax Act, 1961.

Held

The expenditure is incurred by the assessee not for generation of the scrap but for generation of the finished product. There is and cannot be any expenses which are incurred for generation of scrap. Scrap is bi-product of the manufacturing activity. Therefore, there are no expenses which could be excluded from the sale of scrap. Since the question of law stands answered by this Court in favour of assessee.

7. Association of Corpn. & Apex Societies of Handlooms vs. ADIT 30 taxmann.com 22 (Delhi)

Form No. 10 could be furnished by assessee-trust for purposes of section 11(2), i.e., for accumulation of income, during reassessment proceedings

Facts

The Tribunal rejected the assessee's claim for accumulation of income on the ground that Form No. 10 had not been furnished along with the return but was filed during the course of reassessment proceedings

HELD

· One has to keep in mind the fact that while reopening of an assessment cannot be asked for by the assessee on the ground that it had not furnished Form No. 10 during the original assessment proceedings, this does not mean that when the revenue reopens the assessment by invoking section 147, the assessee would be remediless and would be barred from furnishing Form No. 10 during those assessment proceedings.

· Therefore, Form No. 10 could be furnished by the assessee-trust during the reassessment proceedings.

8. Zafa Ahmad & Co. vs. CIT30 taxmann.com 267 (All.)

In course of proceedings under section 68, assessee could not be asked to prove source of source or origin of origin

Facts

The assessee was a partnership firm, in which 'K' and 'Z' were partners, who had deposited amounts in their capital accounts in the firm. During assessment proceedings, assessee was asked to explain the source of the deposits. It was explained that 'K' had received the amount from six persons and 'Z' from five persons by way of gift and all of them had filed their income-tax return and gift-tax returns. The Assessing Officer did not accept the assessee's plea and added the whole amount as unexplained deposit under section 68.

Held

· It is not in dispute that the amounts have been deposited by the two partners in their capital account. The partners are income tax payees. They have explained the source as having received gift from various persons, who have also filed their Income-tax returns and have been assessed accordingly.

· Merely because, the donors are weavers and they own only one loom would not make any difference. They have filed their Income-tax returns and have also filed the return under the Gift-tax Act. They have paid the gift-tax also. Assessment under the Gift-tax Act had also been made, though the assessments made were summary in nature.

· The Tribunal had erred in holding that the amount deposited by the two partners is liable to be added under section 68 on the ground that the gifts received by the respective partners from the various persons could not be explained as the creditworthiness of the donors had not been established.

· The Tribunal had wrongly drawn an adverse inference upon the fact that the donors had filed their Income-tax returns on a single day and, further, the return for the Gift-tax was filed well within the due date.

· Thus, the assessee had explained the nature and source of the deposit and discharged its burden. The order of the Tribunal on this ground cannot be sustained and is liable to be set aside.

9. CIT vs. Hindustan Equipment (P.) Ltd 30 taxmann.com 295 (MP)

Once net profit rate is applied to compute income, there is no scope of disallowance under section 40A(3)

Assessing Officer disallowed 20 per cent of purchase price alleged to be paid in cash. He also rejected books of account of assessee and estimated six per cent extra profit in respect of such purchases. Held, since profit was estimated by applying net profit rate, there was no scope for further disallowance under section 40A(3) in respect of such purchases.

10. CIT vs. Avinash Jain 30 taxmann.com 133 (Delhi)

Where assessee engaged in purchase and sale of shares, maintained two separate portfolios i.e. an investment portfolio and a trading portfolio, income arising from sale of shares out of investment account was to be treated as 'capital gain' and not 'business income' of assessee

Assessee, engaged in sale and purchase of shares, maintained two separate portfolios; an investment portfolio and a trading portfolio. During relevant assessment year, assessee declared certain income arising from sale of shares under head 'capital gains'. A.O. treated income from sale of shares as 'business income. CIT(A) and Tribunal set aside assessment order holding that short-term capital gains and long-term capital gains were out of investment account and were not related to trading account of assessee. Hon'ble High Court upheld the order of the Tribunal.

11. CIT vs. Elgin Mill Co. Ltd 29 taxmann.com 391 (All.)

Where assessee unilaterally wrote back amount of retirement gratuity in assessment year 1976-77 which was allowed as expenditure in assessment year 1972-73, same would not be treated as remission or cessation of liability so as to attract provisions of section 41(1)

FACTS

· The assessee unilaterally wrote back the amount of retirement gratuity (i.e. Rs. 32, 99, 929) in assessment year 1976-77 which was allowed as expenditure in assessment year 1972-73.

· The Assessing Officer made addition of said amount by invoking section 41(1).

· On appeal, the Commissioner (Appeals) held that there was no cessation or remission of the liability and by writing back the amount, no benefit had been derived by the assessee. He, therefore, held that the addition by invoking the provisions of section 41(1) could not be sustained and, therefore, the addition of Rs. 32,99,929 was deleted.

· On further appeal, the Tribunal confirmed order of CIT(A).

HELD

· The provisions of section 41(1) would be applicable only where there has been a remission or cessation of trading liability and if such liability has been allowed as an expenditure in any of the assessment years. It is not in dispute that the amount of Rs. 32,39,929 towards gratuity has been allowed as trading liability during the assessment year 1972-73. The question is whether the said amount can be added back under section 41(1) on the ground that there liability has been by way of remission or cessation as an unilateral act of writing back in the books of account by the assessee. In the present case by an unilateral act of the assessee in writing back the amount of gratuity of Rs. 32,39,929 which was allowed as expenditure in the assessment year 1972-73 would not be treated as remission or cessation of the trading liability so as to attract the provisions of section 41(1). It may be mentioned here that from the Assessment year 1997-98 even unilateral act of writing off a trading liability attracts section 41(1) as Explanation (1) to section 41(1) has been inserted by the Finance (No.2) Act, 1996 with effect from 1-4-1997 which provides that the expression 'loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof' shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a ) of section 41(1) or by the successor in business under clause (b) of section 41(1) by way of writing off such liability in his accounts. Thus, this Explanation has been made effective from 1-4-1997 i.e., it shall be applicable from the Assessment year 1997-98 onwards and cannot be pressed into service for the Assessment year 1972-73.

· In view of the foregoing discussion, the Commissioner (Appeals) and also the Tribunal had rightly held that the sum of Rs. 32,39,929 cannot be taxed during the assessment year in question by invoking the provisions of section 41(1).

12. CIT vs. Sudeep Goenka 29 taxmann.com 402 (All.)

Penny stock: Where assessee proved sale transaction of shares by filing mass documentary evidence and payment of sale price was made through bank channel, sale transaction could not be disbelieved only because assessee could not give identity of purchasers

Facts

· Assessee showed long term capital gains on sale of shares in his reply to notice under section 142(1).

· The Assessing Officer treated the sale price of shares as income of the assessee from undisclosed sources, holding it a bogus transaction, as the shares were sold for more than 30 times of the purchase price.

· On appeal, the Commissioner (Appeals) deleted the addition as the assessee had filed purchase bills of shares, letters of transfer, sale bills, accounts of brokers, purchase and sale chart, copy of quotations of Stock Exchange showing the rate of shares at relevant times and letters from broker confirming sale. On an independent inquiry, ICICI Bank informed that payment of sale price of shares was made through bank draft. Thus, documentary evidence proved that the transactions were actual and not fictitious accommodation entries.

· On appeal, the Tribunal upheld the order of Commissioner (Appeals).

HELD

· The Commissioner (Appeals) after considering entire evidence of record found that purchase and sale transactions were proved. He further, found that payment of the sale price was made to the assessee through bank channel and not in cash as such the transactions are actual transactions and not a fictitious accommodation entries.

· The sale transactions cannot be disbelieved only for the reason that the assessee could not give the identity of the purchasers

(c) Tribunal

1. ACIT vs. Kiran Constructions 30 taxmann.com 235 (Hyd.)

Mere providing of machinery on hire without any manpower cannot be termed as carrying out of any work by plant and machinery owners and, thus, no tax is required to be deducted under section 194C

Held

· For carrying out any work, as per provisions of section 194C, manpower is sine qua non and without manpower it cannot be said that work has been carried out.

· Mere providing of machinery on hire without any manpower cannot be termed as carrying out of any work by plant and machinery owners and, thus, provisions of section 194C cannot be applied and as such no disallowance can be called for under section 40(a)(ia).

2. Rainy Investments (P.) Ltd. vs. ACIT 30 taxmann.com 169 (Mum.)

Section 14A is not applicable in respect of share application money

Facts

· The assessee-company was engaged in the business of investment in shares and securities. As the profit and loss account, filed along with, disclosed dividend income which had been claimed exempt by the assessee per its return, section 14A, read with rule 8D was attracted.

· The Assessing Officer made disallowance accordingly and same was confirmed by the Commissioner (Appeals).

HELD

· There is much force in the assessee's argument that 'share application money', to the extent it is actually so, so that it only represents amount/s paid by way of application for allotment of shares, the same cannot be regarded as an investment in shares, or an asset (or asset class) yielding tax-free income, and neither is it capable of yielding any tax-free income. The same would, therefore, have to be excluded in working out the disallowance under rule 8D.

· Further it is clarified that the exclusion of 'share application money' is not in the least for the reason that it did not yield any tax-free income for the relevant year, but for the reason that it is incapable of any such income.

· Accordingly, the Assessing Officer shall restrict the disallowance under section 14A to the amount so determined subject to verification of share application money.

3. Thomas Muthoot vs. JCIT (TDS) 30 taxmann.com 354 (Coch.)

Since partners and firm are not two separate legal entities and exemption is available in respect of TDS liability on interest paid by firm to its partners, assessee-partner's belief that he had no TDS liability on interest paid by him to firm, is a 'reasonable cause' for non-imposition of penalty

Facts

The assessees were partners in a firm and paid interest on drawings to the firm, without deducting tax at source under section 194A.

The Joint Commissioner imposed penalty under section 271C for failure to deduct tax at source, which was confirmed by the Commissioner (Appeals).

HELD

The penalty under section 271C shall be levied if there is failure on the part of a person to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B.

The assessees have not deducted tax at source under section 194A on the interest on drawings paid by them to the partnership firm in which they are partners. There is no dispute with regard to the fact that the provisions of section 194A has provided exemption from deduction of tax at source only in respect of interest credited or paid by a partnership firm to its partners. The provisions of section 194A do not provide such kind of exemption to the interest paid by a partner to the partnership firm in which he is a partner.

The rigours of provisions of section 271C is softened by the provisions of section 273B, which provide that the penalty under that section shall not be imposable on the person, if he proves that there was reasonable cause for the said failure.

In the instant cases, the fact remains that the assessees, being individuals, had paid interest to the partnership firm, in which they were partners. In view of the legal position that the partners and firm are not two legal entities and further in view of the exemption provided in section 194A in respect of interest credited or paid by a partnership firm to its partners, the assessees were under the belief that they were not liable to deduct tax at source. Hence, the said view entertained by the assessees cannot be altogether be discounted with as untenable, since the issue that the TDS provisions shall not apply to the payment made by a partner to the partnership firm is a debatable one.

Considering the explanation furnished by the assessees, the belief entertained by the assessees that they were not liable to deduct tax at source on the interest paid by them to the partnership firm in which they are partners, can be considered as a 'reasonable cause' in view of the legal position existing between a partner and the partnership firm. The partners and partnership firm are not two different legal entities, though they are two different taxable entities. Further, it is stated that the partnership firm, which received interest from the assessees, duly included the same in its return of income filed before the department and the said partnership firm was not liable to pay any tax, since it declared loss. Hence, as observed in the case of Muthoot Financiers, no loss is caused to the revenue.

The explanation offered by the assessee fits in the category of 'reasonable cause' in terms of section 273B. Therefore, the Assessing Officer is directed to delete the penalty levied under section 271C

This page features select case laws / judgements / rulings released in the month of February 2012 on Income-Tax Act, 1961.

February 2012: Where revenue get authorisation for searching assessee's premises on 9-11-1995, block assessment order passed on 31-12-1996 i.e., after expiry of period of one year as prescribed by section 158BE, was barred by limitation - [2012] 18 LNIN 26 (Karnataka)
February 2012: For claiming deduction under section 80-IB, audit report in Form 10CCB can be filed before assessment is completed, if same has not been filed along with return of income - [2012] 18 LNIN 25 (Madras)
February 2012: Madras: Issue relating to applicability of section 2(22)(e) - Matter remanded to Commissioner for disposal afresh - [2012] 18 LNIN 23
February 2012: In name of rectification, Settlement Commission cannot review its own order - [2012] 18 LNIN 19 (Madras)
February 2012: Merely because identity of creditor is disclosed burden of assessee to explain money in his hands would not stand discharged if AO is satisfied that donor has no creditworthiness - [2012] 18 LNIN 18 (Jharkhand)
February 2012: Transfer Pricing : Transfer pricing provision has not provided for any cut off date up-to which only the information available in public domain has to be taken into consideration by the TPO, while making the transfer pricing adjustments and arriving at arm's length price - [2012] 18 LNIN 32 (Bangalore - Tribunal)
February 2012: Where a housing society & developer entered into a development agreement whereunder old building was demolished and new multi-storeyed building was built, compensation paid to assessee-member in addition to allotment of flat & displacement compensation was a capital receipt - [2012] 18 LNIN 31 (Mumbai - Tribunal)
February 2012: Where under Portfolio Management Scheme, there was frequent trading of huge quantity of shares to maximize profit, profits arising from sale/purchase of shares would be business profit - [2012] 18 LNIN 20 (Delhi - Tribunal)
February 2012: Decision of Third Member of Tribunal is not a final order as contemplated by section 254(1) and, therefore, an application under section 254(2) would not lie against his decision - [2012] 18 LNIN 16 (Mumbai - Tribunal)(TM)
February 2012: Industrial Park Scheme, 2002 was valid and in operation till 31-3-2006 and not thereafter - [2012] 18 LNIN 14 (Delhi)
February 2012: Where AO while processing return under section 143(1)(a), allowed assessee's claim of deduction under section 80-IA, reassessment could for disallowing aforesaid claim on ground that income had not been derived from industrial undertaking was justified - [2012] 18 LNIN 12 (Delhi)
February 2012: Expenditure incurred on public taxis/metered taxis would not come within purview of section 37(3A), read with sub-section (3B) and Explanation thereto - [2012] 18 LNIN 11 (Delhi)
February 2012: Fumigation charges, disinfestations charges and supervisory charges would be eligible for exemption under section 10(29) - [2012] 18 LNIN 10 (Karnataka)
February 2012: Where assessee failed to prove genuineness of transactions relating to share application money received by it, amount so received was rightly added to its taxable income as cash credits - [2012] 18 LNIN 9 (Delhi)
February 2012: Finance charges received in case of lease transactions are not liable to interest tax - [2012] 18 LNIN 6 (Karnataka)
February 2012: In case of lack of co-operation on part of assessee, Assessing Officer can drop block assessment proceedings and pass an order of best judgment assessment under section 144 - [2012] 18 LNIN 5 (Patna)
February 2012: In case of share transactions magnitude, frequency and ratio of sales to purchases on total holdings were relevant factors to decide, whether assessee had not purchased shares as an investment, but with intention to trade in such scrips - [2012] 18 LNIN 3 (Andhra Pradesh)
February 2012: For purpose of computing income under Act, assessee is to adopt mercantile system on basis of which returns are filed under Companies Act, 1956 - [2012] 18 LNIN 1 (Madras)
February 2012: The activities undertaken by the assessee of seismic survey, processing of 3D seismic data and submission of its report in desired media as also providing services of personnel will clearly fall under the definition of 'fee for technical services' covered in first limb of Explanation 2 to section 9(1)(vii) - [2012] 18 LNIN 13 (Delhi - Tribunal)
February 2012: Tax paid by employer on salary income of employee is exempt under section 10(10CC) - [2012] 18 LNIN 4 (Delhi - Tribunal)
February 2012: FBT is payable even if no tax is payable by an employer - [2012] 18 LNIN 2 (Kolkata - Tribunal)
February 2012: In case of complete disclosure of facts relating to expenses incurred to earn exempt income, reopening of assessment after expiry of four years was not justified - [2012] 17 LNIN 270 (Delhi)
February 2012: Revisional order passed on account of incorrect computation of deduction under section 80-IA, matter remanded - [2012] 17 LNIN 269 (Delhi)
February 2012: While computing relief under section 10A, expenditure incurred by assessee has to be excluded from its total turnover also, if same is reduced from export turnover - [2012] 17 LNIN 267 (Karnataka)
February 2012: Where assessee, engaged in export of cigarette as well as leather goods, claimed deduction under section 80HHC and there was loss in either of two business, said loss had to be taken into account for computing deduction under section 80HHC - [2012] 17 LNIN 266 (Madras)
February 2012: Deduction of expenses where assessee-company claimed business promotion expenses in respect of gifts items distributed by it whereas bills relating to gifts were in name of directors of company - [2012] 17 LNIN 265 (Delhi)
February 2012: Where Commissioner (Appeals) as well as Tribunal having accepted assessee's explanation regarding certain purchases, deleted addition made by Assessing Officer under section 69C, no substantial question of law arose from said order of Tribunal - [2012] 17 LNIN 264 (Rajasthan)
February 2012: While computing relief under section 10A, expenditure incurred by assessee has to be excluded from total turnover if same is reduced from export turnover - [2012] 17 LNIN 263 (Karnataka)
February 2012: Where Tribunal relying upon order passed in assessee's own case relating to earlier assessment years, refused to refer matter to High Court, said order of Tribunal was justified and it did not require any interference - [2012] 17 LNIN 262 (Rajasthan)
February 2012: Assessee-society formed with objects to propagate non-violence and tenets of truth as preached by Tirthankar Bhagwants, was entitled to registration under section 12AA - [2012] 17 LNIN 261 (Madras)
February 2012: Tax was to be deducted at source under section 194A where due to losses no interest was paid by assessee to its creditor but credit entry was made as if interest was paid to creditors - [2012] 17 LNIN 260 (Karnataka)
February 2012: Assessee, engaged in manufacture and selling of additives on commission basis not entitled to deduction under section 80-IB in respect of service income and commission - [2012] 17 LNIN 259 (Madras)
February 2012: Where assessee furnished a performance guarantee to get a contract awarded in its favour and to procure said guarantee, it had kept amount in fixed deposit, interest received on said deposit was to be treated as business income against which project expenses could be set off - [2012] 17 LNIN 257 (Delhi)
February 2012: Where generation of scrap had direct link with manufacturing process carried out by assessee, income arising from sale of scrap was also eligible for deduction under section 80-IC - [2012] 17 LNIN 253 (Punjab and Haryana)
February 2012: Profit from purchase and sale of shares and mutual funds held by assessee as investment, would be short term capital gain and not business income - [2012] 17 LNIN 271 (Mumbai - Tribunal)
February 2012: Charitable Institution's application dated 27-12-2010 seeking renewal of approval under section 80G could not be rejected by Director (Exemptions), unless approval was specifically withdrawn - [2012] 17 LNIN 258 (Delhi - Tribunal)
February 2012: Additional depreciation : Process carried out by assessee on raw grounded blades purchased from market and made same ready to use in commercial market amounts to manufacture - [2012] 17 LNIN 256 (Kolkata - Tribunal)
February 2012: Where though assessee was not selling rubber and plastic goods to others but it was using plastic moulds in its factory, assessee was entitled to depreciation @ 40% on plastic moulds - [2012] 17 LNIN 255 (Mumbai - Tribunal)
February 2012: Where assessee's windmills claimed deduction under section 80-IA, profits of windmills to be calculated on basis of price at which Electricity Board supplied electricity to industrial undertaking and not on basis of price at which assessee supplied electricity to Electricity Board - [2012] 17 LNIN 254 (Chennai - Tribunal)
February 2012: While computing relief under section 10A, expenditure incurred by assessee has to be excluded from its total turnover also, if same is reduced from export turnover - [2012] 17 LNIN 250 (Karnataka)
February 2012: Matter remanded where Tribunal allowed deductions under section 80HHC by following decision of Special Bench which has been overruled - [2012] 17 LNIN 249 (Delhi)
February 2012: Where Assessing Officer had allowed claim of exemption of assessee-general insurance company under section 10(15)/(33), reopening of assessment on ground that assessee's profits had to be calculated in accordance with section 44 was not justified - [2012] 17 LNIN 247 (Bombay)
February 2012: Where in terms of objects of trust school was run by assessee-trust, Commissioner could not refuse registration on ground that main purpose of creation of trust was to save and protect property of authors of trust from various enactments such as Urban Land Ceiling Act, Wealth-tax Act, Income-tax Act, etc. - [2012] 17 LNIN 242 (Karnataka)
February 2012: Bar as provided under section 80-IA(3) is to be considered only for first year of claim for deduction under section 80-IA - [2012] 17 LNIN 241 (Delhi)
February 2012: Exemption under section 11 available to Assessee-Board, created under Bihar Agricultural Produce Markets Act, 1960, for regulation of buying and selling of agricultural produce - [2012] 17 LNIN 238 (Patna)
February 2012: While framing block assessment AO is required to issue notice under section 143(2) within stipulated time - [2012] 17 LNIN 248 (Indore - Tribunal)
February 2012: Contributions received by assessee-school from students towards benevolent fund and development fund was its income where assessee had not created any benevolent fund account and there was no condition stipulated in alleged donation made by parents that it would be towards corpus donation - [2012] 17 LNIN 243 (Delhi - Tribunal)
February 2012: Interest in case of public financial institution, etc., is to be added as income only when it is credited or actually received - [2012] 17 LNIN 239 (Ahmedabad - Tribunal)
February 2012: Penalty to be imposed within six months from end of month of Tribunal's order - [2012] 18 LNIN 239 (DELHI)
February 2012: Where an assessee wants to avail deduction under section 80-IB, he has to necessarily furnish return of income before due date specified in section 139(1) - [2012] 18 LNIN 234 (ASR. - ITAT)
February 2012: Deductions under sections 80HH and 80-I have to be granted after first granting deduction under section 35(2) from gross total income - [2012] 18 LNIN 228 (KER.)
February 2012: Failure of assessee to file return for block period showing undisclosed income in response to notice issued under section 158BD, was a sufficient ground to levy penalty under section 158BFA - [2012] 18 LNIN 227 (AHD. - ITAT)
February 2012: Applicability of section 45(4) where assessee-firm by making a book entry allowed its partners to withdraw individual properties contributed by them and, thereafter, firm was converted into joint stock company - [2012] 18 LNIN 226 (KAR.)
February 2012: An assessee is liable for interest under sections 234B and 234C on assessed income - [2012] 18 LNIN 224 (HYD. - ITAT)
February 2012: For purpose section 10(23C), annual receipt is to be considered without excluding contribution towards corpus of trust - [2012] 18 LNIN 223 (JP. - ITAT)
February 2012: For purpose of granting registration under section 12AA, a single non-operative clause of commercial nature could not obliterate whole range of charitable activities undertaken by assessee-society - [2012] 18 LNIN 222 (CHD. - ITAT)
February 2012: Assessee's claim for deduction under section 80-IB without filing audit report along with return of income, could not be allowed - [2012] 18 LNIN 221 (AHD. - ITAT)
February 2012: Where assessee-company was assessed under section 143(3), section 147 (first proviso) cannot be invoked merely by reason of a retrospective amendment to section 115JB - [2012] 18 LNIN 218 (Delhi)
February 2012: Where share application money entry racket is unearthed, burden of proof under section 68 not discharged by merely submitting documentary evidence - [2012] 18 LNIN 217 (Delhi)
February 2012: As and when leased assets are installed at place of lessee, it could be presumed for purpose of depreciation that they had been used by lessee - [2012] 18 LNIN 197 (Madras)
February 2012: Order of assessment passed under section 175 without recording prima facie satisfaction that assessee was likely to transfer property to avoid tax and without issuing notice under section 174(4), is unsustainable - [2012] 18 LNIN 196 (Kerala)
February 2012: No penalty leviable under section 271C for bona fide omission in not deducting tax at source - [2012] 18 LNIN 203 (Cochin - Tribunal)
February 2012: No disallowance of interest under section 36(1)(iii) is warranted in a case where assessee has sufficient interest-free funds in form of capital and reserves against interest-free advances made - [2012] 18 LNIN 195 (Rajkot - Tribunal)
February 2012: *February 2012: Payments received by owner of copyright in software from distributor for sale of software product to end-users is 'royalty' within meaning of section 9(1)(vi) - [2012] 18 LNIN 172 (AAR, New Delhi)
February 2012: Project completion method can be followed where account books are available - [2012] 18 LNIN 184 (Karnataka)
February 2012: For purpose of calculating benefit under section 80HHC, total export turnover and total turnover of assessee from all businesses are required to be taken note of, apart from profit from all businesses - [2012] 18 LNIN 183 (Calcutta)
February 2012: Where interest received and interest paid by assessee had a commonality about their nature and character, revenue could not treat them differently for taxation purpose - [2012] 18 LNIN 182 (Delhi)
February 2012: Assessment order passed without issuing a notice under section 16(2) or notice as contemplated in proviso to section 16(5), is violative of principles of natural justice - [2012] 18 LNIN 181 (Karnataka)
February 2012: Where delay in making refund was attributable to revenue, it was liable to pay interest on belated refund - [2012] 18 LNIN 180 (Rajasthan)
February 2012: Where tax effect in revenue's appeal was less than monetary limits specified by CBDT, matter was to be remanded back with a direction to revenue to show that it involved a substanti al question of law which would arise repeatedly in similar cases - [2012] 18 LNIN 178 (Madhya Pradesh)
February 2012: Where assessee was a co-owner of property occupied by firm in which he was a partner, he could not avail exemption under section 22 - [2012] 18 LNIN 177 (Calcutta)
February 2012: In appellate proceedings, Commissioner has jurisdiction to correct order of Assessing Officer not only with regard to matter raised by assessee in appeal but also with regard to any other matter which has been considered by Assessing Officer and determined in course of assessment - [2012] 18 LNIN 176 (Delhi)
February 2012: Non-payment of tax within prescribed time period on account of fact that money was kept in fixed deposits, amounted to default on part of assessee and, thus, he was not entitled to waiver of interest under section 220(2A) - [2012] 18 LNIN 175 (Kerala)
February 2012: Expenditure incurred by Airport Authority towards removal of illegal encroachments in and around security area of airports and towards rehabilitation of encroachers would be allowed as revenue expenditure - [2012] 18 LNIN 174 (Delhi)(FB)
February 2012: Contribution received by assessee-trust towards corpus fund even if misused could not be treated as income for purpose of levying tax - [2012] 18 LNIN 173 (Karnataka)
February 2012: Payment received by assessee from resellers on sale of shrink wrap software not 'Royalty' liable for taxation in India as per Article 12(3) of Indo-US DTAA - [2012] 18 LNIN 189 (Mumbai - Tribunal)
February 2012: Non-compete consideration paid to persons associated with transferor company taxable under section 28(va) and not as capital gains - [2012] 18 LNIN 188 (Hyderabad - Tribunal) (SB)
February 2012: Even existence of a computer server amounts to existence of a PE in a computer jurisdiction within meaning of India-France DTAA - [2012] 18 LNIN 171 (AAR, New Delhi)
February 2012: Corporate membership fee paid by assessee to acquire membership of a club is a revenue expense - [2012] 18 LNIN 169 (Karnataka)
February 2012: Where assessee, despite various opportunities being given, failed to prove genuineness of transactions relating to receipt of share application money from shareholders, an amount in question was to be added under section 68 - [2012] 18 LNIN 166 (Delhi)
February 2012: Amount received by a Swedish company from an Indian company on account of transfer of right to use know-how for a specified period amounted to 'royalty' and, thus, liable to tax in India - [2012] 18 LNIN 159 (Bombay)
February 2012: Where agreement for construction of hostel building, agreement for lease of hostel building and agreement for provision of facilities in hostel building during lease period were part of one composite arrangement for provision of hostel facilities by assessee to lessee, entire income under three agreements was to be assessed as business income - [2012] 18 LNIN 158 (Cochin - Tribunal)
February 2012: In view of amended provision of section 10B benefit of tax holiday to a 100 per cent export oriented undertaking is extended from 5 years to 10 consecutive years and said period should be counted from date of commencement of production - [2012] 18 LNIN 151 (Karnataka)
February 2012: Levy of penalty under section 271(1)(c) merely on basis of disallowance of expenses under section 40(a)(i) not justified - [2012] 18 LNIN 144 (Delhi)
February 2012: If a company's GTI computed before applying section 73(1) consists mainly of specified income [see Explanation to section 73], it is exempt from section 73(1) - [2012] 18 LNIN 142 (Bombay)
February 2012: Reopening of assessment on basis of audit objection without independent application of mind by Assessing Officer is bad in law - [2012] 18 LNIN 153 (Bangalore - Tribunal)
February 2012: Mere fact that land in question is agricultural land cannot be a ground to claim exemption under section 2(14) if said land is situated within local limits of Municipal Corporation - [2012] 18 LNIN 152 (Hyderabad - Tribunal)
February 2012: For invoking section 194-I, required condition is that asset, for use of which payment is made by assessee, should have some element of control by assessee - [2012] 18 LNIN 150 (Mumbai - Tribunal)
February 2012: Legal fiction created by section 50C is limited to purposes of section 48 alone and does not displace legal fiction created by sections 69, 69A and 69B - [2012] 18 LNIN 149 (Chandigarh - Tribunal)
February 2012: Where comparables considered by assessee were not disputed and, moreover, even if after excluding loss making comparables, ALP adopted by assessee would be within (+) or (-) 5 per cent range as contemplated by proviso to section 92C, no adjustment in ALP was called for - [2012] 18 LNIN 148 (Mumbai - Tribunal)
February 2012: Reopening of assessment as an issue was justified where Tribunal had decided same issue against assessee in earlier years but said decision of Tribunal was not brought to notice of Assessing Officer and it also escaped notice of Assessing Officer - [2012] 18 LNIN 147 (Delhi - Tribunal)
February 2012: As per provisions of section 14A, actual earning of income is not sine qua non for deciding deduction of expenditure laid out or expended wholly or exclusively for purpose of earning such income - [2012] 18 LNIN 146 (Delhi - Tribunal)
February 2012: Liability to pay fringe benefit tax arises as soon as assessee-employer undertakes an obligation in said respect and, in such a case, date of actual discharge of liability is wholly irrelevant - [2012] 18 LNIN 145 (Cochin - Tribunal)
February 2012: Where amount in question was advanced to assessee in pursuance of memorandum of agreement for developing plots of land belonging to assessee into commercial building, such advance could not be treated as deemed dividend - [2012] 18 LNIN 143 (Delhi - Tribunal)
February 2012: *February 2012: Defective notices/summons protected by section 292B if no prejudice/confusion caused to assessee - [2012] 18 LNIN 138 (Delhi)
February 2012: If any quantum of rent/interest not includible in the profits of business under section 28, 90% thereof cannot be deducted as per Explanation (baa) to Section 80HHC - [2012] 18 LNIN 137 (SC)
February 2012: Section 254(2) has been enacted not only to safeguard interest of revenue but also to enable Tribunal to rectify error apparent on face of record - [2012] 18 LNIN 135 (Madras)
February 2012: Without considering explanation furnished by petitioner-society in regard to expenditure incurred, denial of registration under section 10(23C)(iv) on ground that there were abnormal fluctuation in expenditure incurred was not justified - [2012] 18 LNIN 133 (Delhi)
February 2012: Amount received by assessee-shareholder from a company as a result of trading transaction could not be regarded as deemed dividend merely because it had been shown as 'unsecured loan' in assessee's books of account - [2012] 18 LNIN 132 (Delhi)
February 2012: Interest paid by Housing Board to its allottees on amount deposited by them on account of delayed allotment of flats is not interest within meaning of section 2(28A) - [2012] 18 LNIN 129 (Himachal Pradesh)
February 2012: Assessee would be allowed depreciation on factory building owned by it though registration of title of said building in its name was pending - [2012] 18 LNIN 134 (Delhi - Tribunal)
February 2012: Deduction under section 10BA was allowed where assessee was found to have fulfilled conditions of clauses (a), (b), (c) and (d) of section 10BA(2) - [2012] 18 LNIN 130 (Jaipur - Tribunal)
February 2012: Reimbursement of incentive bonus and conveyance allowance to Development Officer of LIC is not taxable - [2012] 18 LNIN 128 (Delhi - Tribunal)
February 2012: Transfer pricing : Levy of penalty under section 271AA not justified by just forming a general opinion that assessee has not maintained documents as required under rule 10D - [2012] 18 LNIN 127 (Chennai - Tribunal)
February 2012: Shortness of Tribunal's order, by itself, does not negate fact of disposal of issue involved rendering order into a mistake to be rectified under section 254(2) - [2012] 18 LNIN 126 (Agra - Tribunal)(TM)
February 2012: A notice issued under section 148 within prescribed period of limitation under section 149, even though served thereafter, gives a valid jurisdiction to Assessing Officer to make reassessment - [2012] 18 LNIN 125 (Agra - Tribunal)(TM)
February 2012: Penalty paid for infraction of traffic rules is not deductible - [2012] 18 LNIN 124 (Visakhapatnam - Tribunal)
February 2012: *February 2012: DEPB taxable at face value in year of receipt and profit on transfer taxable in year of transfer - [2012] 18 LNIN 120 (SC)
February 2012: AO not to disregard assessee's method of accounting based on ICAI's Guidance Notes - [2012] 18 LNIN 119 (Delhi)
February 2012: With retrospective effect from 1-6-1994, Additional Director has authority to issue/sign authorization for search and seizure operation - [2012] 18 LNIN 111 (Allahabad)
February 2012: While disposing of assessee's application for registration under section 12AA, an opportunity was to be granted to it to get amendment in trust deed declared valid by a competent civil court - [2012] 18 LNIN 110 (Kerala)
February 2012: It would be open for revenue to issue notice under section 147/148 even if notice under section 143(2) was never issued or for that matter even if assessment under section 143(3) had taken place - [2012] 18 LNIN 107 (Himachal Pradesh)
February 2012: Services of production and generation of live television signal rendered by a non-resident company, is technical services liable to tax in India as 'fee for technical services' - [2012] 18 LNIN 105 (Delhi - Tribunal)
February 2012: Depreciation is allowable on assets acquired by assessee-Charitable trust by application of income of trust Notional expenditure cannot be treated as application of income within meaning of section 11 - [2012] 18 LNIN 104 (Delhi - Tribunal)
February 2012: Words used in Rule 34(5) of ITAT Rules postulate that time period prescribed under said rule is not final but is flexible depending upon nature and circumstances - [2012] 18 LNIN 103 (Mumbai - Tribunal)
February 2012: Rent received by sub-tenant itself cannot be taken as fair market rent as contemplated in section 23(1)(a) - [2012] 18 LNIN 102 (Mumbai - Tribunal)
February 2012: *February 2012: Keyman insurance policy premium allowable as business expenses - [2012] 18 LNIN 98 (Delhi)
February 2012: There is no prohibition on shifting of business with lock, stock and barrel in order to get benefit of exemption under section 10A - [2012] 18 LNIN 97 (Calcutta)
February 2012: Provisions of section 32 of Sick Industrial Companies (Special Provisions) Act, 1985, have overriding effect over provisions of section 43B of Income-tax Act, 1961 - [2012] 18 LNIN 90 (Madras)
February 2012: Income from license of property would be treated as income from other sources and not as income from house property - [2012] 18 LNIN 87 (Karnataka)
February 2012: Non-followance of ITAT's order by AO results in Contempt of Court - [2012] 18 LNIN 101 (Visakhapatnam - Tribunal)
February 2012: Alternative claim for rebate under section 88E was allowable where under misconception of law, assessee had claimed deduction for STT paid as business expenditure which was later on found to be not allowable under section 40(a)(ib) - [2012] 18 LNIN 96 (Kolkata - Tribunal)
February 2012: Word 'individual' used in clause (b) of proviso to section 56(2)(vi) includes only bride or bridegroom - [2012] 18 LNIN 91 (Chandigarh - Tribunal)
February 2012: Amount received by a non-resident company for making appropriate suggestion for improvement of infrastructural facilities in order to enable Indian company to undertake repair works of submarines, amounted to 'fee for technical services' under section 9(1)(vii) - [2012] 18 LNIN 89 (Visakhapatnam - Tribunal)
February 2012: Assessment order without signature of Assessing Officer is invalid - [2012] 18 LNIN 88 (Mumbai - Tribunal)
February 2012: Where it was apparent from records that assessee had converted its existing industrial undertaking set up in domestic tarrif area into STP unit, deduction under section 10A could not be granted to it - [2012] 18 LNIN 86 (Delhi - Tribunal)
February 2012: Where price paid by assessee for purchase of goods from its associated enterprise was found to be higher than price paid by unrelated parties for purchase of similar goods, AO was justified in making ALP adjustment of differential amount - [2012] 18 LNIN 85 (Delhi - Tribunal)
February 2012: In case of bona fide dispute as to existence of assessee's PE in India, recovery of demand against assessee was to be stayed - [2012] 18 LNIN 84 (Delhi - Tribunal)
February 2012: *February 2012: Deduction under section 37(1) can be allowed in respect of expenditure which is actually incurred or laid out in present and not an expenditure which is a future contingent expenditure which way arise or may not - [2012] 18 LNIN 80 (Karnataka)
February 2012: Legally erroneous opinion of Assessing Officer while making assessment cannot be ground for initiation of reassessment proceedings - [2012] 18 LNIN 79 (Delhi)
February 2012: Grant of exemption under section 10A to STP unit where assessee had claimed income in question as long-term capital gain but Assessing Officer treated same as business income - [2012] 18 LNIN 76 (Karnataka)
February 2012: Validity of reassessment where AO had received information from investigation wing regarding a bogus claim of long-term capital gains - [2012] 18 LNIN 83 (Delhi - Tribunal)
February 2012: Amendment in RBI's Circular No. 91, dated 1-4-2003 by Master Circular No. 9/2009-10, dated 1-7-2009, is only lifting restriction of time period of granting extension and it does not mean that very condition of granting has been done away as prescribed under sub-section (3) to section 10A - [2012] 18 LNIN 82 (Mumbai - Tribunal)
February 2012: Repairing expenditure carried out on a rental building is revenue in nature - [2012] 18 LNIN 74 (Rajkot - Tribunal)
February 2012: Where issue of taxability of interest accrued on share capital contribution of Central Government in hands of assessee was highly debatable and assessee having declared all material facts relevant thereto, penalty under section 271(1)(c) could not be levied for non-disclosure of interest - [2012] 18 LNIN 73 (Ahmedabad - Tribunal)
February 2012: *February 2012: Basic human rights and dignity of an individual cannot be ignored if search & seizure operations continue for days together - [2012] 18 LNIN 70 (Patna)
February 2012: Where Assessing Officer in terms of directions of first appellate authority passed a fresh assessment order on 31-3-1999 and all facts recorded in said order were very much on record ever since original assessment order came into existence on 21-2-1997, Commissioner's order passed under section 263 on 20-2-2001 was barred by limitation - [2012] 18 LNIN 68 (Karnataka)
February 2012: Non-maintenance of separate accounts regarding STP unit and other unit cannot be ground to deny exemption under section 10A when assessee is otherwise entitled to exemption - [2012] 18 LNIN 57 (Karnataka)
February 2012: Transfer Pricing : When functions, assets and risks are same in more than one activity, then these can be clubbed for determining ALP whereas, if FAR analysis indicates diversion in two activities then bench-marking should be done on separate basis - [2012] 18 LNIN 60 (Mumbai - Tribunal)
February 2012: Receipt of higher number of shares because of revaluation cannot be treated as consideration or benefit received other than by way of allotment of shares for attracting proviso (c) to section 47(xiv) - [2012] 18 LNIN 59 (Mumbai - Tribunal)
February 2012: Levy of penalty justified in case of making patently false claim - [2012] 18 LNIN 58 (Delhi - Tribunal)
February 2012: AAR, New Delhi: Payment made by applicant to a British company for availing general business support services (BSS) under a Cost Contribution Agreement (CCA) is fees for technical services - [2012] 18 LNIN 46
February 2012: AAR, New Delhi: Amount received by a foreign company from Indian company for offshore supplies in terms of a contract not liable to tax in India, even if said foreign company has PE in India - [2012] 18 LNIN 45
February 2012: AAR, New Delhi: Offshore supply of equipments is not taxable in India - [2012] 18 LNIN 44
February 2012: When jurisdictional preconditions are missing, assessee can question reopening of assessment in appellate proceedings also - [2012] 18 LNIN 29 (Delhi)
February 2012: On failure of assessee to prove that expenditure incurred on foreign travel of wife of Chairman was for business purpose, its claim for deduction in respect of said expenses was to be rejected - [2012] 18 LNIN 28 (Madras)

Deduction U/s. 80IB allowable on expenses disallowed by AO

Assessee was held entitled for deduction u/s.80IB(10) in case there was enhanced income on account of statutory disallowance u/s.43B, 40(a)(ia) and 36(1)(va), etc. In the instant case nature of receipts on credit side of Profit and Loss Account for eligible housing projects u/s.80IB(10) was the same and disallowance of expenditure on the debit side would only result into enhancement of net profit. Accordingly, the assessee's claim was liable to be allowed in view of the ratio of the decisions cited (supra). As stated above, assessee is not eligible for deduction u/s.80IB(10) pertaining to its Cosmos project. The Assessing Officer has held in assessment order that sum of claim u/s. 80IB(10) was allowable to assessee for its Heliconia project. Thus, if any disallowance u/s.43B, 40(a)(ia) or 36(10(va) etc., relate to Heliconia project that only can be considered for claim u/s. 80IB(10) and corresponding enhanced income.

ITAT PUNE BENCH 'B'

Deputy Commissioner of Income-tax

Magarpatta Township Development & Construction Co.

IT Appeal No. 822 (PN) OF 2011
C.O. No. 4 (PN) OF 2012
[ASSESSMENT YEAR 2007-08]

SEPTEMBER 18, 2012

ORDER

Shailendra Kumar Yadav, Judicial Member – The Revenue's appeal and the cross objections of the assessee are arising from the same order of CIT(A). So they are being disposed of by this common order for the sake of convenience. The appeal of the Revenue has been filed on the following grounds:

1. The order of the learned Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case.

2. The learned Commissioner of Income-tax (Appeals) grossly erred in holding that the income derived by the assessee from the letting out of premises of the 'Cyber City' has to be assessed as business income and not as income under the head "House Property" as had been taken in the assessment.

3. The learned Commissioner of Income-tax (Appeals) grossly erred in holding that the services provided by the assessee to the tenants in Cyber City were in the nature of extensive and specialize services and, therefore, the premises let out by the assessee could not be regarded as bare tenement but the complex one with infrastructure facilities, the income derived there from which is not separable from letting out of the building."

4. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the assessee had let out the premises in exercise of the property rights vested in it, i.e., as any ordinary house owner would turn his property to profitable account, and also the assessee had neither occupied not let out the premises for the purpose of any business carried on by it and, in the circumstances, the profits derived from the premises could only be assessed under the head "Income from House Property" within the provision of Sec. 22 of the Income-tax Act, 1961.

5. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the primary object of the assessee was to let out the properties in order to derive income there from and not to exploit them commercially and merely because certain infrastructure has been provided to facilitate such letting out, such provision can by no means amount to carrying on complex commercial activities so as to invest the letting out with the character of business.

6. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the infrastructure and services provided by the assessee to the tenants were such as any ordinary house owner would provide depending on the nature of the tenement and, therefore, the mere factum of such provision would not alter the nature of the income derived from the property when the dominant intention is to derive income there from.

7. The learned Commissioner of Income-tax (Appeals) grossly erred in attaching undue importance to a clause in the agreement as per which the cost involved in the services is built into the cost per sq.ft. as per the tenancy agreement and without appreciating that the assessee has provided the services in the properties so that the same could be let out to the target groups.

8. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the infrastructure and services provided by the assessee were incidental to the letting out of the properties and also in failing to appreciate that the very fact that substantial income as per the agreement was towards rent on the let out of the super area and not towards provision of services would testify to the above.

9. The learned Commissioner of Income-tax (Appeals) grossly erred in holding that if any disallowances u/s. 43B, 40(a)(ia) and 35(1)(va) relates to the 'Helliconia' project, then the assessee's claim of deduction u/s. 80-IB(10) in respect of this project would have to be considered on the correspondingly enhanced income.

10. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that disallowances u/s. 43B, 40(a)(ia) and 35(1)(va) do not give rise to any income "derived from" the undertaking and, therefore, such income can by no means be considered for computing deduction u/s. 80-IB(10) as per the ratio of the decision of the Hon'ble Apex Court in the case of Sterling Foods Ltd. 237 ITR 579 (SC) and Pandian Chemicals , 262 ITR 278 (SC)

2. The main issue in Revenue's appeal is with regard to treatment of rental receipts for letting out the premises in Cyber City in Magarpatta City Project. The Assessing Officer noticed that assessee had shown receipts of Rs. 36,97,05,084/- under the head other income which was in the nature of rental receipts for letting out premises in the Cyber City in the Magarpatta City Project. These receipts were treated by the assessee as business income and depreciation was claimed for the assets of Cyber City amounting to Rs. 24,87,04,429/-. The proportionate expenses which could be apportioned to the activity of letting out of Cyber City was computed in the order at Rs. 6,11,56,123/-. It was observed by Assessing Officer that actually the assessee was incurring losses if the expenses on account of interest are also considered. The Assessing Officer asked the assessee as to why income on account of the receipt from letting out of the premises in Cyber City should not be treated as income from house property. It was explained on behalf of the assessee before the Assessing Officer that the Magarpatta City Project of the assessee consisted of I.T. Park, commercial complexes, schools and residential complexes, etc., and the Memorandum of Articles of the company was to develop and maintain I.T. Parks, which was therefore a systematic business activity of the assessee. This I.T. Park had been for use to various software/other companies and the I.T. Park of the company was recognized/sanctioned u/s.80IA of the Act. Further, the buildings in the I.T. Park were shown as business assets in the schedule of fixed assets of the company, and were depreciable assets. It was also contended on behalf of assessee that the I.T. Park was well equipped with the required infrastructure, and various facilities and services like provisions of furniture and fixture, Air-conditioner Plant, various machineries, 24-hours' security guards, provision for electricity in the common I.T. Park campus etc. It was also submitted that these points were explained during the assessment proceedings of the earlier years as well wherein such income has been accepted as business income in said earlier years. Further, the local authority, i.e., Pune Municipal Corporation and the Maharashtra State Electricity Development also considered the I.T. Park projects as commercial projects and accordingly the taxes and rates were applied.

3. The Assessing Officer relying on the provisions of section 22 of the Act regarding chargeability under the head income from house property, examined this chargeability in the assessee's case under this head as business income. For this purpose, the Assessing Officer analysed the issue in light of legal preposition on this issue and following main conclusions were drawn by the Assessing Officer:

(i) The rental income from a building whether a commercial or residential was to be assessed under the head income from house property.

(ii) If the main intention was to let out property then it was to be considered as income from house property.

(iii) This was true even it was derived from shops and stalls, and even if it was earned by company formed with the object of developing and setting up of markets.

(iv) If the main intention was to exploit the property by way of own complex commercial activities, in that event alone it should be treated as business income.

(v) When income obtained is not so much because of bare letting of tenements but because of facilities and services rendered in such case, the nature of business income. When the letting was only incidental to the main business of the assessee, then also it was income from business.

(vi) When income was due to exercise of property rights, it should be assessable under the head income from property.

(vii) If income falls under the head income from property, it was to be taxed u/s.22 only, and cannot be taken on section 28 on the ground that the business of the assessee was to exploit property.

(viii) If the property was given on leave and license basis, it is to be treated as income from house property. This character is not changed even if the hiring is inclusive of certain insignificant and incidental services like heating, cleaning, lighting and sanitation.

(ix) If the property was let out for a fixed amount for a fixed period, the likelihood of it being income from house property is more.

4. The Assessing Officer then analysed the provisions of lease agreement entered between the assessee and the software companies. The Assessing Officer observed that while lease rent from the premises was charged at Rs. 14.30 per sq.ft., the amount charged towards maintenance was only Rs. 0.50 per sq.ft. Therefore, it was stated that the rent was predominantly for the space and the prime intention was to let out the property on a monthly rent, and there was no complex commercial activity involved in this letting out. He also observed that it was not a case that the leasing of the property was incidental or subservient to the main business of the assessee. The maintenance charges received were subservient to the exploitation of the properties. The Assessing Officer further observed that the assessee's contention that it was in the business of running and maintenance of I.T. Park, and therefore, it was a business income, was also not tenable, since the properties were exploited in a basic and simple way of letting out on a monthly basis and there was no complex commercial activity involved as envisaged in the Apex Court judgement in the case of Shambhu Investment (P.) Ltd. v. CIT[2003] 263 ITR 143. It was stated that though the properties collectively formed an I.T. Park and was recognized as such, it did not alter the basic nature of activity of letting out of the properties. The Assessing Officer also relied on the decision of the ITAT Pune Bench in the case of Nutan Warehousing Co. (P.) Ltd. v. ITO [2007] 13 SOT 19 (Pune) (URO) to hold that income derived from the letting out of the premises of the I.T. Park known as Cyber City was assessable under the head Income from House Property which was computed as under:

Total rental receipts
(License fees)	Rs.36,97,05,084/-
Less: 30% for repairs	Rs.11,09,11,525/-
Income under the head House Property	Rs.25,87,93,559/-

5. Further, the Assessing Officer disallowed the depreciation claimed on the Cyber City building, furniture and plant and machinery totalling to Rs.24,87,04,429/- of which the break up was given on page 16 of the assessment order. Further the common expenses under the head Administrative Expenses, i.e., employees' cost and marketing cost, totalling to Rs. 39,05,24,415/- was apportioned to the letting out activity in the ratio of license fee to total receipts, which worked out to 15.66%. Out of the total expenses claimed at Rs.39.05 crores mentioned above, the expenses apportioned to letting out, working out to Rs. 6,11,56,123/- was also added back. Thus, the income from business was computed at Rs. 14,76,15,597/- as against income from business shown in return, which was Rs. 20,74,60,129/-. Accordingly, the gross total income became Rs. 25,87,93,559/- + Rs. 14,76,15,595/- = Rs. 40,64,09,154/- as against the gross total income shown under the head business income at Rs.20,74,60,129/- which resulted in net addition of Rs.19,89,49,025/- to the total income.

6. Matter was carried before the first appellate authority wherein various contentions were raised on behalf of the assessee and CIT(A) after considering the various contentions on behalf of the assessee, has decided this issue in favour of the assessee by holding that the assessee's income was to be assessed as business income. Same has been opposed before us on behalf of the Revenue. The Ld. Departmental Representative contended that the CIT(A) erred in holding that income derived by the assessee from the letting out of premises of the 'Cyber City' has to be assessed as business income and not as income under the head "House Property" as had been taken in the assessment. The CIT(A) was not justified in holding that the services provided by the assessee to the tenants in Cyber City were in the nature of extensive and specialize services and, therefore, the premises let out by the assessee could not be regarded as bare tenement but the complex one with infrastructure facilities, the income derived there from which is not separable from letting out of the building. The CIT(A) failed to appreciate that the assessee had let out the premises in exercise of the property rights vested in it, i.e., as any ordinary house owner would turn his property to profitable account, and also the assessee had neither occupied nor let out the premises for the purpose of any business carried on by it. In the circumstances, the profits derived from the premises could only be assessed under the head "Income from House Property" within the provision of Sec. 22 of the Income-tax Act, 1961. The CIT(A) failed to appreciate that the primary object of the assessee was to let out the properties in order to derive income there from and not to exploit them commercially and merely because certain infrastructure has been provided to facilitate such letting out, such provision can by no means amount to carrying on complex commercial activities so as to invest the letting out with the character of business. The CIT(A) failed to appreciate that the infrastructure and services provided by the assessee to the tenants were such as any ordinary house owner would provide depending on the nature of the tenement and, therefore, the mere factum of such provision would not alter the nature of the income derived from the property when the dominant intention is to derive income there from. The CIT(A) grossly erred in attaching undue importance to a clause in the agreement as per which the cost involved in the services is built into the cost per sq.ft. as per the tenancy agreement and without appreciating that the assessee has provided the services in the properties so that the same could be let out to the target groups. The CIT(A) failed to appreciate that the infrastructure and services provided by the assessee were incidental to the letting out of the properties and also in failing to appreciate that the very fact that substantial income as per the agreement was towards rent on the let out of the super area and not towards provision of services would testify the above. The CIT(A) erred in holding that if any disallowances u/s. 43B, 40(a)(ia) and 35(1)(va) relates to the 'Helliconia' project, then the assessee's claim of deduction u/s. 80-IB(10) in respect of this project would have to be considered on the correspondingly enhanced income. The CIT(A) also failed to appreciate that disallowances u/s. 43B, 40(a)(ia) and 35(1)(va) do not give rise to any income derived from the undertaking and, therefore, such income can by no means be considered for computing deduction u/s. 80-IB(10) as per the ratio of the decision of the Hon'ble Apex Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579 and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278. In this background it was submitted that the order of the CIT(A) be vacated and that of the Assessing Officer be restored.

7. On the other hand, the Ld. Authorised Representative submitted that the assessee has not merely given the premises on rent but letting out is coupled with well equipped amenities, facilities and services to I.T. companies. The assessee has claimed depreciation on the cost of the buildings constructed and further claimed proportionate expenditure incurred on maintenance of the premises. Attention was drawn to the Profit and Loss Account in respect of Cyber City Project. The Assessing Officer held that the said rental income in the form of license fees is assessable as income from house property as the main intention of the assessee was to exploit the property by way of letting out on rent. Various reasons given by the Assessing Officer to hold that the rental income is taxable as income from house property are summarised as under:

(i) The A.O. on page 13 of the asst. Order has stated that as per the rent agreement between the assessee and Exl. Services.com (India) Pvt. Ltd., the assessee is receiving Rs.14.50/- per sq.ft. as lease rent and only Rs.0.50/- per sq.ft., as maintenance charges. Hence, according to him, the rent received is predominantly for renting the space and therefore, the income is taxable as income from House Property.

(ii) According to the Assessing Officer the primary object of the assessee was to give the premises on rent and no complex commercial activity was carried out by the assessee.

(iii) The Assessing Officer refers to the decision of Hon'ble Supreme Court in the case of Shambhu Investments Pvt Ltd. (supra) to hold that the rent received was for mere letting out of the premises and hence, the income was taxable as Income from House Property. The Assessing Officer has further relied upon the decision of ITAT Pune in the case of Nutan Warehousing Pvt. Ltd. (supra).

8. The Ld. Authorised Representative submitted that CIT(A) has held that income from leasing I.T. Park should be assessed as business income since the assessee has provided various complex integrated services, facilities and equipments and hence, the assessee had conducted a systematic and complex activity to earn profit. The various reasons given by the CIT(A) for allowing the claim of the assessee are as under.

(i) The assessee has constructed I.T. Park with well equipped and excellent infrastructure along with various specialised integrated amenities and services in the form of car parking area with cabins, independent air-conditioning rooms with multiple compressors, chilled water systems, double skin AHUs to take care of noise, chiller units, air purification systems, 100% power back up with diesel generators, independent transformer to control electricity load, special security systems with dog squads, 24 hours manned CCTV, sineage, club memberships, toilet blocks with sensors as per lessee's specifications, fibre and satellite connectivity, radio microwave tower with office, cell phone boosters and independent cafeteria terrace.

(ii) In the earlier years, the rental income received is taxed as business income and not as income from house property. The copy of the assessment order for A.Y. 2004-05 is given on page 118-124 of the paper book filed by assessee. The CIT(A) has noted that as per principle of consistency, the stand of the assessee should be accepted.

(iii) In para 3.10 of his order, the learned CIT(A) has stated that the observation of the Assessing Officer that rent of Rs.14.50/- per sq.ft. is not for other amenities is not correct. He has reproduced the relevant clause of the agreement with exl. Service.com (India) pvt. Ltd. and wherein it is clearly mentioned that the said amount of Rs.14.50/- per sq.ft. is including the charges for providing the additional amenities. The copy of the said rental agreement with exl. Service.com (India) Pvt. Ltd. is given on pages 86 to 117 of the paper book. On page 105, the various amenities provided by the assessee are mentioned which are as under:

i. Cab Parking

ii. Car parking

iii. Club membership

iv. Air conditioning

v. Power back up

vi. Hooked up electricity load

vii. Signage

viii. Toilet blocks with sensors

ix. Fibre and Satellite connectivity

x. Radio Microwave

xi. Cell Phone Boosters

xii. Independent Cafeteria Terrace

(iv) Accordingly, the CIT(A) appreciated that the rental income of Rs.14.50/- per sq.ft. received by the assessee is for letting out of the premises as well as for providing various additional amenities. Apart from that, the assessee provides services of plumber, electrician, mechanic, watchman, gardener, etc. and the assessee looks after the maintenance of the software park. The assessee has a number of persons on its pay role for the above purpose.

(v) The CIT(A) further notes that the assessee has incurred Rs.445.75 crores on providing various infrastructure facilities in the IT Park. The details of the same are given on page 137 – 138 of the paper book. The point to be appreciated is that the assessee has incurred substantial expenditure on providing additional amenities which clearly indicate that the assessee's intention was to earn income from complex letting out of the premises.

(vi) It is also to be noted that the assessee has incurred substantial expenditure on maintenance of the infrastructural facilities provided.

(vii) The learned CIT(A) thereafter refers to various decisions of the courts to hold that the income received complex commercial activities of letting out premises was taxable as business income and not as income from house property as determined by the learned Assessing Officer.

(viii) The assessee places reliance on the following decisions wherein the courts have held that the rental income received from complex commercial activities is to be taxed as income from business and not as income from House Property:

1. ITAT, Bangalore – Global Tech Park (P) Ltd. v. Asstt. CIT [2009] 28 SOT 45 (Bang.) (URO)

2. ITAT, Bangalore – Golflink Software Park (P.) Ltd. v. Dy. CIT [IT Appeal No. 52/53 (Bang.) of 2010, dated 31-5-2011]

3. ITAT, Mumbai – Harvindarpal Mehta (HUF) v. Dy. CIT [2010] 122 ITD 93 (Mum.)

4. ITAT, Mumbai – Shanaya Enterprises [ITA.No.3647/Mum/2010]

5. Gesco Corporation Ltd. v. Asstt. CIT [2009] 31 SOT 132 (Mum.)

6. ITAT, Mumbai – Krishna Land Developers. [ITA.No.1057/Mum/2010]

In this background it was submitted that assessee has exploited the business assets to conduct a systematic business commercial activity. The main intention of the assessee in leasing out the IT Park was to exploit the property commercially by way of providing various integrated services and hence, the same may be treated as business income. It was submitted that the case laws as listed at Sl.No. (i), (ii) and (vi) are of software parks and on identical facts, the rental income is treated as business income. Therefore, the above issue is covered in favour of the assessee by the above decisions. Regarding the issue of deduction u/s.80IB(10) in respect of disallowances made u/s.40(a)(ia) or 43B, it was submitted that the assessee has claimed deduction u/s.80IB(10) in respect of the housing projects. There were disallowances on account of section 40(a)(ia), 43B and 35(1)(va). The assessee stated that due to such disallowances, the business income increased and hence, the deduction u/s.80IB(10) should be allowed on the enhanced business income. The Assessing Officer has not allowed the claim of the assessee and held that the deduction u/s.80IB(10) is not available in respect of the amounts which are disallowed u/s. 40(a)(ia) or 43B. The CIT(A) accepted the claim of the assessee by relying on the following decisions:

a. CIT v. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175

b. S.B. Builders & Developers v. ITO [2011] 45 SOT 335

c. ITO v. Computer Force [2011] 128 ITD 116 (Ahd.)

In this background, Ld. Authorised Representative submitted that order of the CIT(A) on the issue be upheld.

9. After going through the above submissions and material on record, we find that the assessee is engaged in construction business and has developed a township under the name and style of Magarpatta City Project. The assessee has constructed and let out the I.T. Park called Cyber City. Income received from the letting out of the above said commercial premises was offered to tax by assessee as income from business which is evident from the copy of the computation of the return placed at page 80 of the paper book. The assessee has explained that in Magarpatta City Project, there was a development of Information Technology (IT) Park, which was approved u/s.80IA and was a bonded area under the Software Technology Park of India (STPI) norms. It had huge air-conditioning plants, chillers, etc., and special security guards with dog squad. The assessee has invested huge amounts in installation of many specialised amenities/equipments like transformers for the I.T. Park, special power sub-stations to ensure uninterrupted power supply, providing for 24 hours manned CCTVs, fibre satellite connectivity, radio microwave cell phone boosters, restaurants etc., and the premises had been provided to the I.T. companies with all these facilities and amenities. The total investment made was to the tune of Rs.445.75 crores in the I.T. Park for creating the specific infrastructure required for the I.T. Park. The income from the license agreement with the software companies to whom I.T. Park premises had been let out has been regularly shown as business income in the earlier years. There is nothing on record to suggest that same has been disturbed in any manner. In this regard attention was drawn to decision of the Hon'ble Bombay High Court in the case of Ocean City Trading (India) (P.) Ltd., v. CIT [2011] 196 Taxman 87 (Bom.) (Mag.) speaks on emphasising on the principle of consistency. According to us consistency should be observed unless there is any thing contrary on record.

10. Coming to the license fee earned from letting out of premises in I.T. Park was a continuous/systematic activity which was in the nature of complex commercial activity. Since licensee were engaged in the I.T./Software business, the services were provided by the assessee round the clock, because the licensees were working according to the timings in the USA/Western countries. The assessee has specified as to how the normal renting of premises was different from the giving of premises to I.T. companies for I.T./software work alongwith the numerous services and facilities in these premises. All the premises were provided with huge air-conditioning plants for central air-conditioning, special electrification, uninterrupted power supply, etc. Due to the peculiar nature of work and odd hours of work, there were arrangements for restaurants, gymnasium, banking facilities in the premises, security service with dog squad, etc. Attention was drawn to the lease agreement with one of the software company exl. Services.com (India) Ltd., wherein para 15 of the said agreement reads as under:

"The Lessor shall also provide to the lessee certain additional amenities in the Demised Premises, as detailed in Schedule-II herein. The cost of providing such additional amenities has already been included in the monthly rent and the lessee shall not be required to pay to the lesser any additional amount(s) towards it."

This shows that monthly lease rent/license fee of Rs. 14.30 per sq.ft. included cost of providing such additional services and amenities as has been given in detail in Schedule-II of the license agreement and nothing extra has been charged from the lessee for this. It is evident from Schedule-II of the agreement that the amenities/services provided were also technical one and of a major nature, e.g. provision of independent AC Plant with multiple compressors, chilled water system and double skin AHU's (to take care of noise), air-conditioning chiller configuration with adequate AHU's, which included adequate provision for getting fresh air into the premises via Mechanical system, and two chiller units; a 100% power back up with auto switchers for the entire power given on lease on a 24 hours basis, inclusive of generators etc.; independent transformers of 600 KW per floor to the lessee for sole use of its requirement in the tower, 24 hours manned CCTV in common areas and basement area, fibre and satellite connectivity and a radio microwave tower which would be provided by the STPI, cell phone boosters, and unlimited access to the premises 24 x 7, and in 365 days in a year, with support services like security and parking. Apart from these a substantial parking area were also provided for 50-car parking and 20 two-wheeler parking and 60 cabs parking etc., for the tower building. Such services were indeed of a complex commercial nature and cannot be treated as merely incidental to mere letting out of the premises. In Schedule-II and the earlier mentioned para 15 of the lease agreement that for provision of these specialized services, the cost/rent were included in the per sq.ft. lease rental amount of Rs.14.30. Therefore, the Assessing Officer was not justified in stating that this amount of Rs.14.30 per sq.ft. merely represents letting out of the space. So far as the amount of Rs.0.50 per sq.ft. towards maintenance charges is concerned, it was basically for maintaining and cleaning of the premises, toilets, drainage etc. The agreement also makes it clear that this amount of Rs.0.50 per sq.ft. was for maintenance of water lines, and for drains, garbage disposal, common areas etc., whereas the specialised services and infrastructure as incorporated in Schedule-II is included in the monthly lease rent amount as specified in clause 15 of the agreement as stated above. Thus, it was made clear as to how these specialised services for I.T. companies were of complex nature and therefore, the intention and object of the company was to develop I.T. Park as a systematic commercial activity to earn profit and not just earning of rental income. The Hon'ble Supreme Court in the case of Shambhu Investment (P.) Ltd., (supra) has laid down that if the property whether furnished or unfurnished was let out with an intention to have rental income, it would be assessable as income from house property. On the other hand, if the primary object is to exploit the property by way of complex commercial activities, the income from the same was to be considered as business income. The case of Shambhu Investment (P.) Ltd., (supra) does not go against the assessee. One point which was emphasised in said case is that the assessee has recovered the entire cost of the property let out to the occupier by way of interest free advance received from them. Therefore, it was held that in such a case the assessee was not exploiting the property for commercial business activity and the provisioning of some furnishing was merely incidental to the bare letting out of the property. In case before us, the assessee has not recovered major cost of the building and infrastructure and providing a host of services with recurring operating cost as discussed above.

11. The decision of ITAT Pune Bench in the case of Nutan Warehousing (P.) Ltd. (supra) relied on by the Assessing Officer has been set aside and remanded to the Assessing Officer for reconsideration by the Hon'ble Bombay High Court. The Hon'ble Bombay High Court has set aside the matter to examine the prime object of the assessee whether it was to simply let out the property or to exploit a commercial asset by carrying on a commercial activity of warehousing. The Hon'ble Allahabad High Court in the case of CIT v. Goel Builders [2010] 192 Taxman 28 wherein the assessee was operating the commercial complex named Goel Complex and it was held that from the very beginning the construction of the building itself was for commercial purposes and therefore, the rental income was held to be assessable as business income. The Hon'ble Bombay High Court in the case of CIT v. Mohiddin Hotels (P.) Ltd. [2006] 284 ITR 229, has held that when the subject matter that is let out is not a bare tenement, but the complex one with infrastructure facilities, the income derived therefrom which is not separable from letting out of the building, such income shall not be treated as income from house property. ITAT Mumbai Bench in the case of Gesco Corporation Ltd. (supra) wherein assessee has let out commercial premises as business centre and a large number of specialised services and facilities were provided in these business centres, like air-conditioning, power backup, water filtration plant, security system through CCTV, state of art computer-telephone integration, video conferencing facilities, secretarial services, the Tribunal held as under:

"It was clearly discernible from the agreements that the parties had entered into the arrangement with the assessee with the intention of using the services and amenities. The assessee was giving space with services and facilities which were varied and wide and such activities together would definitely constitute an organized structure for making profits and would necessarily constitute a business. Thus the assessee had created a commercial infrastructure and the services rendered were complex commercial/business activities. A perusal of agreements and the stipulations contained therein would not leave any doubt about the commercial character of the relationship between the parties, as distinguished from that merely of a landlord and his tenant. Occupation of space was inseparable from the provision of services and amenities."

In Gesco Corporation Ltd. (supra), ITAT Mumbai Bench has distinguished the facts from Shambhu Investment (P.) Ltd. (supra). In case of Prestige Estate Projects (P.) Ltd. v. Dy. CIT [2010] 129 TTJ (Bang.) 680, following the decision of Gesco Corporaiton Ltd., and Harvindarpal Mehta (HUF) (supra), has decided the similar issue in favour of assessee. In the said decision, the premises was related to a business centre with multifarious facilities like central air-conditioning services, attendants, sweepers, fax machine, furniture, receptionists, telephone operators, common waiting/guest room with attached toilets, etc. and it was held that the receipts from such activities alongwith these facilities was to be assessed under the head income from business rather than the income from house property or income from other sources, as the object of the assessee was to run the business centre by exploiting the property and not merely letting out the property. The Hon'ble Gujarat High Court in the case of Asstt. CIT v. Saptarshi Services Ltd. [2004] 265 ITR 379 (Guj), which also related to the leasing out a business centre with various services, has decided the issue in favour of the assessee and the SLP filed on behalf of the Revenue was dismissed by the Hon'ble Supreme Court as reported in 264 (ST) 36. In this background, it is clear that assessee has provided various complex integrated services as mentioned in Schedule-II to the lease agreement with the I.T. Company. The services are vast and the amenities provided were in the nature of plant and machinery as contended by the assessee and it has been established by the clauses of the agreements that the cost of providing these services was also included in the lease rent of Rs. 14.30 per sq.ft. The assessee also clarified that cost involved in the services provided to the particular company i.e., exl Services.com was Rs. 2.83 crores which was almost 40% of the land and building cost of that tower. By no stretch of imagination such extensive and specialized services which could only be utilised by the IT/Software/BPOs businesses to be located in the I.T. Park could be treated as forming part of income from house property. It is certainly a constitution of organised structure for carrying out business activities. Section 22 provides only for rental income out of building or land appurtenant thereto, whereas in the case before us, complex and varied services provided and the huge investment therein were in the nature of plant and machinery which could be included within the expression building or land appurtenant thereto. Thus, the assessee has conducted systematic activity to earn profit and accordingly income was to be assessed as income from business. In view of the submissions made on behalf of the assessee, and analysis of various clauses and Schedule-II of the agreement entered with the I.T. company, CIT(A) was justified in holding that in assessee's case the said income was to be assessed as business income. This reasoned factual finding need no interference from our side. We uphold the same.

12. The issue in Ground No.9 to 10 pertains to claim of deduction u/s.80IB(10) in respect of disallowance made u/s. 40(a)(ia)/43B. The assessee company has claimed deduction u/s. 80IB(10) in respect of the housing projects. There were disallowances on account of section 40(a)(ia), 43B and 35(1)(va). The assessee stated that due to such disallowances, the business income increased and hence, the deduction u/s.80IB(10) should be allowed on the enhanced business income. The Assessing Officer has not accepted the claim of the assessee and has held that the deduction u/s. 80IB(10) is not available in respect of the amounts which are disallowed u/s. 40(a)(ia) or 43B.

13. In appeal, the learned CIT(A) has accepted the claim of the case. In para 5.3 to 5.5 of his order, the CIT(A) has allowed the claim of the assessee by observing as under:

"5.3 I have considered the submissions of the appellant and material available on record. The appellant has cited certain decisions in favour of its claim. It is contended by the appellant that the turnover was from the same source in respect of the claim u/s.80IB(10), and therefore, it was entitled for the deduction after including the statutory disallowances, i.e. on the correspondingly enhanced income. In the judgement of the Hon'ble Jurisdictional High Court in the case of CIT v. Gems Jewellery India Ltd. [2010] 233 CTR 248 (Bom.) the claim of deduction u/s.10A was made due to enhanced profit after disallowance u/s.43B. The Hon'ble Bombay High Court observed as under:

"As a matter of fact the question of law which is formulated by the Revenue proceeds on the basis that the assessed income was enhanced due to the disallowance of the employer's as well as the employees' contribution towards PF/ESIC and the only question which is canvassed on behalf of the Revenue is whether on that basis the tribunal was justified in directing the Assessing Officer to grant the exemption uls.10A. On this position, in the present case it cannot be disputed that the net consequence of the disallowance of the employer's and the employees' contribution is that the business profits have to that extent been enhanced. There was an add back by the Assessing Officer to the income. All profits of the unit of the assessee have been derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed, relate to the manufacturing activity. The disallowance of the PF/ESIC payments has been made because of the statutory provisions – s.43B in the case of the employers contribution and s.36(v) r.w.s.2(24)(x) in the case of the employees' contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the revenue that in computing the deduction u/s. 10A the addition made on account of the disallowance of the PF/ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow."

5.4 Therefore, the Hon'ble Bombay High Court has allowed deduction u/s.10A on an enhanced profit due to disallowance u/s.43B on the basis that all the profits of the units of the assessee have been derived from manufacturing activity only, and there were no statutory provisions that income enhanced due to such disallowance could not be considered for the deduction.

5.5 The appellant has also cited the decision of the Ahmedabad bench in the case of ITO v. Computer Force [2011] 136 TTJ 221 (Ahd.), ITA Nos.1636/Ahd/2009, 2441/Ahd/2007, 2442/Ahd/2007 and 1637/Ahd/2009 order dtd.30.7.2010, which also relates to deduction u/s.80IB for unit located in Daman, which was a backward area. The Assessing Officer had disallowed the claim u/s.80IB on the enhanced income due to disallowance u/s.40(a)(ia). However, the CIT(A) and the ITAT allowed the claim, stating that the enhanced income due to this disallowance was eligible income under the head 'Profits and gains of business and profession', on which claim u/s.80lB was allowable. Another decision given by the assessee was that of the Mumbai Bench in the case of S.R. Builders and Developers v. ITO in ITA.No. 1245/Mum/2009, A.Y. 06-07, order dtd. 14.5.2010. This was a case related to deduction u/s.801B(10) itself, and here the issue was regarding non-allowability of deduction u/s.80IB(10) on the enhanced income due to disallowance u/s.40(a)(ia) amounting to Rs.4,50,12,485/-. The Tribunal held that as per the section 80IB(1) the assessee was to be allowed deduction in respect of profits and gains derived from any business mentioned in section 80IB(10), i.e., for an undertaking developing and building housing projects. It was held by the Tribunal as under:

"The section falls under chapter VIA of the Act, under the sub-head "C-Deductions in respect of certain incomes". There is no indication in the section as to what would be considered as profits and gains "derived" from the eligible business. Section 80AB, introduced by the Finance (No.2) Act, 1980 w.e.f. 1.4.1981 however states that where any deduction is required to be made under any section falling under Chapter VI-A under the head "C-Deductions in respect of certain incomes" in respect of any income of the nature referred to in that section, then, "notwithstanding anything contained In that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income". In our humble opinion, this section affords a complete answer to the problem posed before us.

In other words, under section 80AB the income that is derived from the eligible business must be computed in accordance with the provisions of sections 30 to 43D, as provided in section 29. Section 29 provides that the income chargeable to tax under the head "profits and gains of business" shall be computed in accordance with the provisions contained in sections 30 to 43D. Unquestionably, section 40(a)(ia) is a section falling between sections 30 to 43D and therefore effect must be given to the same in computing the profits and gains derived from the eligible business, which in this case is a housing project. It follows that if the assessee has not deducted tax from any payment which it was required to or has failed to deposit the tax within the prescribed time limit, it cannot be claim any deduction in respect of the payment while computing the profits derived from the eligible business. The payment has to be disallowed and added back to the profits, thereby swelling the same. The resultant figure of profits, enhanced by the amount of disallowance, would be eligible for the deduction u/s.80IB(10)."

5.6. In view of the ratio of these decisions, it is abundantly clear that in the appellant's case also deduction u/s.80IB(10) was liable to be allowed in case there were enhanced income on account of such statutory disallowances u/s.43B, 40(a)(ia) & 36(1)(va) etc. as mentioned above; since the nature of receipts on the credit side of Profit and Loss Account for the eligible housing project u/s.80IB(10) was the same, and the disallowance was of the expenditure on the debit side, which would only result into enhancement of the net profit. Technically, i.e. for academic purposes, therefore, the appellant's claim is liable to be allowed. However, in this case, it has already been held that the appellant is not eligible for deduction u/s.80IB(10) pertaining to its Cosmos Project. The Assessing Officer has held in the assessment order that the claim u/s.80IB(10) was allowable to the appellant for its Heliconia project. Thus, if any disallowance u/s.43B, 40(a)(ia) & 35(1)(va) etc. relates to the Heliconia project, that only can be considered for claim u/s.80IB(10) on the correspondingly enhanced income. Subject to this discussion, therefore, this ground of appeal will be treated as partly allowed."

14. After going through the above submissions and material on record, we are not inclined to interfere in the finding of the CIT(A) on the issue. The CIT(A) observed that turnover was from the same source in respect of the claim u/s.80IB(10). Therefore, it was entitled for deduction after including the statutory disallowance i.e., on correspondingly enhanced income. Hon'ble jurisdictional High Court in the case of Gems Jewellery India Ltd., (supra), has allowed the claim of deduction made u/s.10A on enhanced profit. We also find the Mumbai Bench of the Tribunal in the case of S.B. Builders (supra) has decided the appeal in favour of the assessee, wherein issue of deduction u/s.80IB(10) was involved. In the said case the issue was regarding non-allowability of deduction u/s.80IB(10) on enhanced income due to disallowance u/s. 40(a)(ia) amounting to Rs.4,50,12,485/-. The Tribunal held that as per section 80IB(10) the assessee was to be allowed deduction in respect of profits and gains derived from any business mentioned in section 80IB(10), i.e. for undertaking developing and building housing projects. In view of above, assessee was held entitled for deduction u/s.80IB(10) in case there was enhanced income on account of statutory disallowance u/s.43B, 40(a)(ia) and 36(1)(va), etc. In the instant case nature of receipts on credit side of Profit and Loss Account for eligible housing projects u/s.80IB(10) was the same and disallowance of expenditure on the debit side would only result into enhancement of net profit. Accordingly, the assessee's claim was liable to be allowed in view of the ratio of the decisions cited (supra). As stated above, assessee is not eligible for deduction u/s.80IB(10) pertaining to its Cosmos project. The Assessing Officer has held in assessment order that sum of claim u/s. 80IB(10) was allowable to assessee for its Heliconia project. Thus, if any disallowance u/s.43B, 40(a)(ia) or 36(10(va) etc., relate to Heliconia project that only can be considered for claim u/s.80IB(10) and corresponding enhanced income. This reasoned finding of the CIT(A) on the issue needs no interference from our side. We uphold the same.

15. In the result, the appeal of Revenue is dismissed.

16. In the Cross Objections, the assessee has raised the following grounds:

(1) The learned CIT(A) erred in confirming the disallowance of deduction of Rs.13,62,01,380/- u/s.80IB(10) in respect of 'Cosmos Project' constructed by the assessee.

(2) The learned CIT(A) was not justified in holding that -

a. Because flats in Building 'Prime' had built up area exceeding 1500 sq.ft., the entire 'Cosmos Project' did not qualify for deduction u/s.80IB(10) in respect of its profits.

b. Even if, one flat in a project exceeds the built up area limit prescribed under the section 80IB(10), the deduction is to be disallowed in respect of the entire project and it cannot be allowed in respect of the other flats/buildings which satisfy the various conditions in the section.

c. In view of Bombay H.C. decision in the case of Brahma Associates, the proportionate deduction u/s.80IB(10) could not be allowed in respect of the flats which satisfied the conditions u/s.80IB(10).

(3) The learned CIT(A) failed to appreciate that -

a. There were in all 25 buildings in the 'Cosmos Project' out of which except 'Prime' building all other buildings satisfied the conditions of built up area limit of 1500 sq.ft. and therefore, the deduction u/s.80IB(10) should have been allowed in respect of the profits from such buildings.

b. Without prejudice, the project for the purposes of deduction u/s.80IB(10) had to be considered as consisting of other 24 buildings in the 'Cosmos Project' excluding the 'Prime' building and as these 24 buildings satisfied the various conditions u/s.80IB(10), the deduction u/s.80IB(10) had to be allowed in respect of the profits from these 24 buildings.

c. Just because a couple of adjacent flats were combined into one flat by the purchasers later on, the deduction u/s.80IB(10) could not be denied in respect of the project.

d. The assessee had already offered the profits in respect of the building 'Prime' ascertained on 'stand-alone basis' to tax.

e. The building plan of building 'Prime' has independent sanction of Pune Municipal Corporation (P.M.C.).

(4) The respondents prays for deduction u/s.80IB(10) in respect of entire profits computed after making additions/disallowances in respect of the 'Cosmos Project' consisting of 24 buildings excluding 'Prime' building.

17. The issue raised by assessee by way of cross objections is with regard to disallowance of deduction u/s.80IB(10) amounting to Rs. 13,62,01,380/-. The Assessing Officer noted that in respect of assessee's projects Daffodils and Helliconia, which were completed in the earlier years relevant to assessment year under consideration, only residual receipts of Rs.20,000/- and Rs. 16,67,600/- had been shown in the year under consideration. However, the receipt from the project Cosmos which amounted to Rs. 122,78,44,857/- form the major portion of the sale proceeds shown during the year. Additionally for Erica project a loss of Rs. 8,56,900/- was shown. The Assessing Officer has made reference u/s.131(1)(d) to a registered valuer Shri Lele to verify the fulfilment of conditions given u/s.80IB(10) against which the report dated 28.12.2009 was submitted by him. In respect of the Cosmos project, the registered valuer gave a finding that in the Prime building in the project, which is one of the 24 buildings of the project, all the flats have built up area of more than 1500 sq.ft. Further, he reported that 28 other flats of other buildings I, N, R, S, T, U, V, W & Z were also combined and had built up area exceeding 1500 sq.ft. for each of the combined units. In response to the show cause letter issued by the Assessing Officer, the assessee has explained that the building Prime was separate and completion of the residential units in these buildings was also separate. It was therefore, admitted that the built up area of each of the units in the Prime building exceeded 1500 sq.ft. but the assessee had offered the total profit of these building for taxation and did not make claim u/s.80IB(10) on the same. It was contended on behalf of assessee that the entire claim should not be rejected since it was separately approved and completed. The assessee also cited the judgment of the ITAT, Nagpur Bench regarding proportionate deduction u/s.80IB(10), even if a few residential units exceeded the built up area of 1500 sq.ft.

18. In respect of valuer's observation regarding combination of adjacent flats, it was contended by the assessee that these were sold as independent units through separate agreements, the MSEB meters were separate, there were two separate entrances at the time of handing over possession and the municipal taxes assessment was also separate. It was further contended that only flats No.102 and 103 referred by the registered valuer were actually combined, but those also were not combined at the time of sale, but were sold to two separate individuals and the owners might have combined the same later. Therefore, it was stated that claim u/s.80IB(10) should not be disallowed on this basis. The Assessing Officer has dealt this issue, from page 28 onwards of his order, of deduction u/s.80IB(10) related to the Cosmos Project. This project consisted of 24 buildings A to Z (excluding Q, X & Y) and Prime. All these buildings had been sanctioned by a common sanction order vide commencement certificate dated 4.8.2004 issued by PMC, which were revised on various dates. It was pointed out that the assessee has accepted that all the 45 flats in Prime building under the Cosmos project had built up areas exceeding 1500 sq.ft. The Assessing Officer gave details of completion certificate for all the buildings, and all the 85 flats in the 24 buildings, on page 28 and 29 of the assessment order. Therefore, he observed that the building Prime commenced and completed as a part of the entire project named Cosmos consisting of 24 buildings and it was not sanctioned separately by the local authority. Thus it was integral part of the Cosmos project.

19. The Assessing Officer further observed that provisions of section 80IB(10) speaks regarding sanction to a housing project and not to an individual building in the project and what was important was whether there are separate sanctions for Prime building or not. According to the Assessing Officer, in fact, building plan for Prime was an enclosure/Annexure of common sanction issued by Pune Municipal Corporation for entire Cosmos Project consisting of 24 buildings and there was no separate building plan sanctioned for building Prime. Thus, the Assessing Officer concluded that since flats in Prime building were all having built-up area exceeding 1500 sq.ft., Cosmos project has failed to satisfy the mandatory condition u/s.80IB(10) rendering it ineligible for deduction u/s.80IB(10) of the Act. Further, it was stated that as per valuer report, Flats No.101 and 102 in 'I' Building were combined of which combined area exceeded 1500 sq.ft., which again violated condition given u/s.80IB(10). This was the additional point for disqualification of Cosmos project. The Assessing Officer further observed that alternative plea of the assessee to allow proportionate deduction in view of the decision of Nagpur Bench in the case of ITO v. Air Developers [2010] 122 ITD 125 was not tenable in law due to the decisions of Mumbai Bench in the case of Laukik Developers v. Dy. CIT [2007] 105 ITD 657/11 SOT 728 (Mum.) and Special Bench of ITAT, Pune in the case of Brahma Associates v. Jt. CIT [2009] 119 ITD 255/30 SOT 155 (Pune)(SB).

20. The Assessing Officer also made discussion about Daffodils and Erica projects, and arrived at the finding that these were also not eligible for deduction u/s.80IB(10). However, it was noticed that there was no claim in the year for these projects. Further, in respect of Heliconia project, the Assessing Officer has given the finding that the claim of deduction was allowable and it was worked out at Rs. 1,05,566/- in the assessment order, on the sales of Rs.16,97,456/-.

21. Matter was carried before the first appellate authority, wherein various contentions of the assessee were raised and the CIT(A) having considered the submissions raised on behalf of the assessee, disallowed the claim of assessee on main as well as alternative grounds for proportionate deduction. Same has been opposed before us and various contentions were raised on behalf of assessee in this regard and requested to allow the claim. On other hand, Ld. Departmental Representative supported order of Revenue authorities below.

22. After going through rival submissions and material on record, we find that the assessee had claimed deduction u/s.80IB(10) in respect of the Cosmos Project. The Assessing Officer has denied the deduction on the ground that the built up area of the units in building Prime included in the said project exceeded 1500 sq.ft. Thus, the Assessing Officer has disallowed the claim of the assessee. The Assessing Officer has further stated that the two flats in building 'I' were combined and after combining, the built up area of the combined units exceeded 1500 sq.ft. On these two grounds, the learned Assessing Officer has disallowed the claim of the assessee. In this regard Ld. Authorised Representative submitted that the assessee itself has excluded Prime Building and the deduction has been claimed on the remaining 24 buildings. The contention of the assessee has been that the words 'housing project' are not defined in the section and therefore, it cannot be considered as what is sanctioned by the corporation. It has been held in various cases that whatever portion of the project satisfies the conditions of the section should be considered as a housing project for the purposes of section 80IB(10). We find that Hon'ble Bombay High Court in the case of CIT v. Vandana Properties [2012] 206 Taxman 584 has observed as under:

"17. The first question to be considered herein is, whether, in the facts of the present case, construction of 'E' building constitutes building a 'housing project' under section 80IB(10) of the Act.

18. The expression 'housing project' is neither defined under Section 2 of the Act nor under section 80IB(10) of the Act. Even under the Mumbai Municipal Corporation Act, 1988 as also under the Development Control Regulations for Greater Mumbai, 1991, the expression 'housing project' is not defined. Therefore, the expression 'housing project' in section 80IB(10) would have to be construed as commonly understood.

19. As rightly contended by Mr. Inamdar, learned Senior Advocate appearing on behalf of the assessee and Mr. Mistri, learned Senior Advocate and Mr. Joshi, learned Advocate appearing on behalf of the intervenors, the expression 'housing project' in common parlance would mean constructing a building or group of buildings consisting of several residential units. In fact, the Explanation in section 80IB(10) supports the contention of the assessee that the approval granted to a building plan constitutes approval granted to a housing project. Therefore, it is clear that construction of even one building with several residential units of the size not exceeding 1000 square feet ('E' building in the present case) would constitute a 'housing project' under section 80IB(10) of the Act."

22.1 We find that the Pune Bench in the case of Dy. CIT v. Aditya Developers [IT Appeal Nos.791 & 792/PN/2008] has observed as under:

"6.1. Likewise, in the case of Vandana Properties v. ACIT (supra), the Mumbai Bench of the Tribunal has decided the issue in favour of the assessee. In that case, the assessee had plan for 4 independent buildings 'A', 'B', 'C' & 'D' but, so far as 'E' is concerned only planned when the status of 'the surplus land was converted as "within ceiling limit" and the assessee could get additional FSI for launching Wing 'E', wing 'E' was planned and construction was commenced after 1st October 1998 and building/wing 'E' was an independent housing project as contemplated u/s.80IB(10). The Tribunal held that the concept of housing project does not mean that should be the group of buildings and only then same is called a "housing project". It was further held that building/wing 'E' cannot be passed with earlier buildings, i.e., A, B, C & D which work was commenced in the year 1993 whereas plan for wing 'E' was approved for only once in the year 2002. It was held further that the conclusion drawn by the authorities below that the commencement of wing 'E' is a continuation of the existing project is erroneous."

22.2 We also find that the Pune Bench in the case of Rahul Construction Co. v. ITO 51 SOT 192 (Pune) (URO) has observed as under:

"10. In view of above discussion, we come to the conclusion that for verification of eligibility of benefit claimed u/s. 80 IB (10) of the Act by the assessee on buildings A1 to A5 in "Atul Nagar" and buildings B1 to B6 in "Rahul Nisarg Co-Operative Housing Society Ltd.", the assessing authority has to verify as to when the building plans for these buildings were firstly approved by the local authority and taking the said date of approval a starting point, he has to verify as to whether these buildings were completed within the prescribed time limit i.e. 31st March 2008 on the basis of the Completion Certificate in respect of such housing project issued by the PMC. When we examine the facts of the present case under the above background, we find that the authorities below have not disputed the fact furnished in this regard by the assessee that under the project "Atul Nagar" consisting of buildings A1 to A5, the first building plan for A type was approved by the PMC on 29.4.2003 vide Commencement Certificate No. 4269 (page No. 4 of the paper book). However, actual construction of A type building was executed as per the revised plan vide No. C.C. 4101/27/6/2003 (PAGE No. 5 of the paper book). The size of the plot on which the A type building i.e. A1 to A6 have been constructed is 1,39,466 sq.ft. The project A type building i.e. A1 to A5 consists of 360 residential units and the construction has been completed between 10.1.2005 to 31.8.2005 (page Nos. 6 to 9 of paper book). The authorities below have also not disputed this material fact that residential units has a maximum built up area of 1500 sq.ft. Likewise, these material facts that B Group buildings in "Rahul Nisarg Cooperative Housing Society Ltd.," have been constructed on land area of 138203 sq.ft., has not been denied by the authorities below. They have also not denied these material facts that the first building plan was sanctioned on 29.4.2003 vide Commencement Certificate No. 4269 issued by the PMC (Page No. 16 of the Paper Book). The other material facts like actual construction was executed as per the revised plan sanction on 20th March 2004 vide CC No. 2225 (page No. 17), the project consists of 396 flats and construction of these flats have been completed on 14.7.2006 as per the Completion Certificate issued by the PMC (Page Nos. 13 to 18 of paper book) are not in dispute. The authorities below have also not denied that built up area of each of these flats does not exceed 1500 sq.ft. It is also not in dispute that both the projects are entirely a residential project and there is no commercial area therein. Under the above circumstances, we are of the view that the assessee is very much entitled to the claimed deduction u/s. 80 IB (10) of the Act on the buildings A1 to A5 in "Atul Nagar" and buildings B1 to B6 in "Rahul Nisarg Co-operative Housing Society Ltd." The issue is therefore decided in favour of the assessee. We thus while setting aside the orders of the authorities below on the issue, direct the A.O to allow the claimed deduction u/s. 80 IB(10) in question. The related grounds are accordingly allowed.

11. In result, appeal is allowed."

22.3 We find that ITAT Mumbai Bench in the case of Mudhit Madanlal Gupta v. Asstt. CIT [2011] 9 taxmann.com 235 (Mum) has observed as under:

"Deduction under s.80-IB – Income from developing and building housing project – Conditions precedent – Assessee engaged in construction business entered into a joint development agreement for construction of residential flats – Total plot measured approximately 7633.82sq.mtrs. – Deduction was denied by AO on the grounds that (i) assessee had completed only A, B and C wings upto 31st March, 2008 and D wing was not completed (ii) total project area was 1.88 acres and since assessee's share was only 51 per cent of the built-up area, the project area was of less than one acre and (iii) in some of the flats units area exceeded 1000sq.ft. – Not justified – CIT(A) was satisfied that each unit of the residential flat in all the three wings was less than 1000 sq.ft. and some of those flats were later converted by the buyers by joining the same wherever the buyers had purchases more than one unit and since Revenue has not filed any cross-objection against this finding, the same has become final and binding on the Revenue – Independent units are residential units and have to be treated as separate housing projects for the purpose of deduction under s.80-IB(10) as long as they fulfil the other conditions prescribed under the Act – There is no requirement that such undertaking of assessee should be the owner of such land – Assessee is a developer of the whole of the project and, therefore, the share could not be allocated only in terms of 51 per cent of the land area because the whole project is developed and constructed by the assessee and 49 per cent share is going to the land owners in respect of the land cost – Area under the project was about 7000 sq.mtrs. which was meant for development and which is more than one acre and, therefore, deduction cannot be denied on this ground – Assessee was therefore entitled to deduction under s.80-IB(10)."

22.4 We find that ITAT Bangalore Bench in the case of Dy. CIT v. Brigade Enterprises (P) Ltd. [2009] 28 SOT 7 (URO) has observed as under:

"Deduction under s.80-IB – Income from developing and building housing project – Different units of a group project – Where some of the residential units in a bigger housing project, treated independently, are eligible for relief under s.80-IB(10), relief should be given pro rata and should not be denied by treating the bigger project as a single unit, more so, when assessee obtained all sanctions, permissions and certificates for such eligible units separately – Assessee undertook a development project in an area of 22 acres 19 guntas consisting of 5 residential blocks, row houses, oak tree place, a club, a community centre, a school and a park and claimed deduction under s.80-IB(10) in respect of two residential units only which if taken separately, were eligible for the relief – AO treated the entire project as a single unit and denied relief under s.80-IB in entirety – CIT(A) allowed relief under s.80-IB(10) treating the said two units as independent units – Justified – Material on record showed that the various local authorities duly inspected the plot and sanctioned plan for each of the blocks separately – Group housing approval was approval of a master plan as a concept – Further, the use of the words "residential unit" in cl.(c) of s.80-IB(10) means that deduction should be computed unit-wise – Therefore, if a particular unit satisfies the condition of s.80-IB, the assessee is entitled for deduction and it should be denied in respect of those units only which do not satisfy the conditions – Again, the accounting principles would also mandate recognition of profits from each unit separately."

23. As regards the two flats combined in Building I, it is submitted that the flats are combined by the customers. The assessee has received completion certificate independently for the two units and therefore, the Assessing Officer is not justified in calculating the built up area by combining the two units. The assessee submits that if units are combined by the customers, the built up area should be computed independently and the assessee cannot be denied the deduction. For this proposition, the assessee places reliance on the following decisions -

a. Haware Construction (P.) Ltd. v. ITO [2011] 64 DTR 251 (Mum)

b. Emgeen Holdings (P.) Ltd. v. Dy. CIT [2011] 47 SOT 98

c. Dy. CIT v. Arcade Bhoomi Enterprises [IT Appeal.No.366/Mum/10]

23.1 We find that the ITAT Mumbai Bench in the case of Haware Construction (P.) Ltd. (supra), has held as under:

"Deduction under s. 80-IB – Income from developing and building housing project-Built up area exceeding 1,000 sq. ft.-Built-up area of each flat as approved by CIDCO is less than 1,000 sq. ft. as per the approved plan and the assessee has sold each flat under separate agreements and not sold two flats by combining them together as one flat to one party. Further, there is no evidence on record to suggest that the assessee has drawn the plan in such a manner that each residential unit is shown as smaller than 1,000 sq. ft. merely to get the benefit of deduction under s. 80-IB(10)-It is also not the case of the Revenue that each flat in the housing project could not have been used as an independent or as a self-contained residential unit and that there would be a complete habitable residential unit only if two or more flats are joined together. -Therefore, merely because some of the purchasers have purchased more than one flat and combined the same, assessee's claim for deduction under s. 80-IB(10) cannot be disallowed. -Further, the condition that not more than one residential unit in the housing project is allotted to one person not being an individual has been inserted by Finance (No.2) Act, 2009, w.e.f. 1st April, 2010, and hence, it is not applicable to the facts of the case."

23.2 We find that the ITAT Mumbai Bench in the case of Emgeen Holdings (P.) Ltd. (supra), has observed as under:

"7. We find that the deduction u/s.80IB(10) has been declined by the Assessing Officer on the ground that size of the residential unit was in excess of 1,000 sq.ft which, in turn, proceeds on the basis that the flats sold to the family members admittedly by separate agreements, should be treated as one unit. We are unable to approve this approach. We have noted that the size of each flat, as evident from building plan as duly approved by Municipal authorities was less than 1,000 sq.ft. We have also noted that it is not even revenue's case that each of flat on standalone basis was not a residential unit. Even if flats were constructed or planned in such a way that two flats could indeed be merged into one larger unit, as long each flat was an independent residential unit, deduction u/s.80IB(10) could not be declined It is important to bear in mind the fact that what section 80IB(10) refers to is 'residential unit' and, in the absence of anything to the contrary in the Income tax Act, the expression 'residential units' must have the same connotations as assigned to it by local authorities granting approval to the project. The local authority has approved the building plan with residential units of less than 1,000 sq.ft, and granted completion certificate as such. That leaves no ambiguity about the factual position. We have further noted that the prohibition against sale of more than one flat in a housing project to members of a family has been inserted specifically with effect from 1st April 2010, and, in our humble understanding, this amendment in law can only be treated as prospective in effect. What is, therefore, clear is that so far as pre-amendment position is concerned, as long a residential unit has less than specified area, is as per the duly approved plans and is capable of being used for residential purposes on standalone basis, deduction u/s.8018(10) cannot be declined in respect of the same merely because the end user, by buying more than one such unit in the name of family members, has merged these residential units into a larger residential unit of a size which is in excess of specified size. That precisely is the case before us. While on the subject, it is useful to take note of legislative amendment by the virtue of which legislature put certain restrictions on sale of residential units to certain family members of a person who has been sold a residential unit in the housing project. Section 80IB(10) now provides an additional eligibility condition that in a case where a residential unit in the housing project is allotted to any person being an individual no other residential unit in such housing project is allotted to any of the following person, namely (i) the individual or the spouse, or the minor children of such individual (ii) the HUF in which such individual is a karta (iii) any person representing such individual the spouse or minor children of such individual or the HUF in which such individual is a karta. The explanation memorandum explained the legislative amendment as follows: (314 ITR(St) 203)

"Further, the object of the tax benefit for housing projects is to build housing stock for low and middle income households. This has been ensured by limiting the size of the residential unit. However, this is being circumvented by the developer by entering into agreement to sell multiple adjacent units to a single buyers. Accordingly. it is proposed to insert new clauses in the said sub-section to provide that the undertaking which develops and builds the housing project shall not be allowed to allot more than one residential unit in the housing project to the same person, not being an individual and where the person is an individual no other residential unit in such housing project is allotted to any of the following person:-

(I) Spouse or minor children of such individual;

(II) The Hindu undivided family in which such individual is the karta;

(III) Any person representing such individual the spouse or minor children of such individual or the Hindu undivided family in which such individual is the karta.

This amendment will take effect from the 1st April 2010 and shall accordingly apply in relation to assessment year 2010-2011 and subsequent years."

8. It is thus clear that the aforesaid amendment has been brought with prospective effect i.e. from 1st day of April 2010, and there is no indication whatsoever to suggest that these restrictions need to be applied with retrospective effect. The amendment seeks to plug a loophole but restricts the remedy with effect from 1st day of April 2010, i.e. AY 2010-2011. The law is very clear that unless provided in the Statute, the law is always presumed to be prospective in nature. It will therefore, be contrary to the scheme of law to proceed on the basis that wherever adjacent residential units are sold to family members, all these residential units are to be considered as one unit. If law permitted so, there was no need of the insertion of clause (f) to section u/s 80IB(10). It will be unreasonable to proceed on the basis that legislative amendment was infructuous or uncalled for -particularly as the amendment is not even stated to be 'for removal of doubts'. On the contrary, this amendment shows that no such eligibility conditions could be read into pre-amendment legal position.

9. As regards the AO's stand that the assessee himself has offered the deduction u/s.80IB(10) in respect of these units during the course of survey proceedings, it is only elementary that neither statement recorded ujs.133A has an evidentiary value, nor a legal claim can be declined only because assessee, at some stage, decided to give up the same. In view of these discussions, and bearing in mind entirety of the case, are of the considered view that the deduction ujs.80IB(10) ought to have been allowed to the assessee entirely. To this extent, we modify the order of the CIT(A) and allow further relief to the assessee."

23.3 We find that the ITAT Mumbai Bench in the case of Arcade Bhoomi Enterprises (supra), has taken similar view.

24. In view of above discussion, we hold that CIT(A) was not justified in holding that flats in building Prime had built up area exceeding 1500 sq.ft., the entire Cosmos Project did not qualify for deduction u/s.80IB(10) in respect of its profits. There is nothing on record to suggest that assessee has claimed deduction in respect of building Prime wherein built up area of its units is exceeding 1500 sq.ft. In fact there were 25 buildings in Cosmos Project out of which except building Prime, all other buildings satisfy the conditions of built up area limit of 1500 sq.ft. Therefore, deduction u/s.80IB(10) should be allowed in respect of profit from such buildings. This view is fortified by the decisions in Vandana Properties (supra) and Aditya Developers (supra) discussed above. As regards two flats combined together, the allegation is that some units were combined into one, so deduction u/s.80IB(10) should not be allowed. In this regard, assessee's stand has been that assessee conceived the flats as independent units and these were constructed as independent units. There is nothing on record to suggest that assessee himself has joined the adjacent flats. In this situation, assessee should not suffer for its no fault if purchaser join the adjoining flats. This view is fortified by the decision of Mumbai Bench of ITAT in Haware Constructions (P.) Ltd. (supra), Emgeen Holdings (P.) Ltd. (supra) and Arcade Bhoomi Enterprises (supra), etc., as discussed above. In view of above, we hold that assessee is entitled for deduction u/s.80IB(10) in respect of entire profits computed after making additions/disallowances in respect of Cosmos Project consisting of 24 buildings excluding Prime building. The Assessing Officer is directed accordingly.

25. In the result, appeal of Revenue is dismissed and cross objections of the assessee are allowed as indicated above.

No Sec.14A disallowance if assessee is dealer of shares and securities

In the judgment of Hon'ble Karnataka High Court rendered in the case of CCI Ltd. (supra) it was held that if the assessee is a dealer of shares and securities then it cannot be said that such purchases of shares and holding of shares were for the purpose of earning of dividend income and hence, expenditure incurred in acquiring these shares cannot be disallowed u/s. 14A of the Income-tax Act, 1961 (hereinafter referred to as 'the Act). In the present case, this is admitted position of fact that assessee is a dealer in shares and securities and this fact is noted by Assessing Officer also in his assessment order and inspite of this contention raised by Ld. AR of the assessee before us, nothing has been brought on record by Ld. CIT-DR of the Revenue to show otherwise. Since assessee is dealing in shares, we hold by following this judgment of Hon'ble Karnataka High Court that disallowance made by AO u/s. 14A of the Act on account of interest expenditure on proportionate basis cannot be sustained. We therefore do not find any reason to interfere in the order of Ld. CIT(A) on this issue. Accordingly, this ground of Revenue's appeal is rejected.

ITAT AHMEDABAD BENCH "B"

ITA No.1800/Ahd/2008 – Assessment Year :2004-05

Hina Nitin Parikh V/s. ACIT

ITA No.2449/Ahd/2008 – Assessment Year: 2006-07

DCIT V/s. Hina Nitin Parikh

C.O. No.190-193/Ahd/2008
(a/o ITA No.2445-2446/Ahd/2008
and ITA No.2448-2449/Ahd/2008)
Assessment Years: 2002-03 to 2003-04 and 2005-06 to 2006-07

Hina Nitin Parikh V/s. DCIT, Central Circle-2(1)

ITA No.2450-2451/Ahd/2008 – Assessment Years: 2000-01 to 2001 -02

DCIT, Central Circle- 2(1) V/s. Prudent Finance Pvt. Ltd.

C.O. No. 194-199/Ahd/2008
(a/o ITA No.2450 to 2455/Ahd/2008)
Assessment Years: 2000-01 to 2005-06

Prudent Finance Pvt., Ltd. V/s. DCIT, Central Circle-2(1)
ITA No.2549-2550 & 2554/Ahd/2008
Assessment Years: 2000-01 ,2002-03 & 2006-07

DCIT, Central Circle- 2(1) V/s. Nitin B Parikh

C.O. No. 213-218/Ahd/2008
(a/o ITA No. 2549-2554/Ahd/2008)
Assessment Years: 2000-01. 2002-03 to 2006-07

Nitin B Parikh V/s. DCIT, Central Circle-2(1)

Date of Hearing : 10-04-2013

Date of Pronouncement : 17-05-2013

O R D E R
PER BENCH:-
Out of this Bunch of various appeals and Cross Objections (COs), one appeal in the case of Hina N Parikh is filed by the assessee which is directed against the order of Commissioner of Income-tax (Appeals)-III, Ahmedabad dated 31-03-2008 for assessment year (AY) 2004-05. The remaining appeals, one in the case of Hina N Parikh, and three in the case of Nitin B Parikh and two in the case of Prudent Finance Pvt. Ltd., total six appeals are filed by the Revenue and all sixteen COs are filed by these three assessees. All these appeals and COs were heard together and are being disposed of by way of this common order for the sake of convenience.
2. First we take up appeal filed by the assessee i.e., in ITA No. 1800/Ahd/2008 in the case of Hina N Parikh. The grounds raised by assessee are as under:-
"1. On the facts and in the circumstances of the case, the CIT(A) has erred in not giving any finding relating to the validity of the assessment framed u/s. 153A of the I. T. Act. It is submitted that the assessments framed by the Assessing Officer u/s. 153A are bad in law, and hence, liable to be quashed.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not directing the Assessing Officer to allow interest expenditure of Rs.42,82,834/- against the income from business and profession shown in the return of income. The Ld. Assessing Officer may be directed to allow such expenditure.

3. Without prejudice, on the facts and in the circumstances of the case, the CIT(A) erred in not giving any finding in respect of following ground of appeal raised before him:

'4. In the facts and circumstances of the case the assessing officer may be directed to allow interest expenditure of Rs.42,82,834/- against the income from business and profession shown in return of income.'

3. Ground No.1 was not pressed by Ld. AR of the assessee and accordingly rejected as not pressed.

4. Regarding ground No.2 and 3, it was submitted by Ld. AR of the assessee that Ground No.4 raised by assessee before Ld. CIT(A) was not decided by Ld. CIT(A) and hence, the issue should be restored back to the file of Ld. CIT(A) for deciding this ground of assessee. Ld. CIT-DR of the Revenue supported the order of Ld. CIT(A).5. We have heard the rival submissions and perused the materials on record. We find that Ground No.4 raised by assessee before Ld. CIT(A) was, in fact not, decided by him. Hence, this issue is restored back to his file and Ld. CIT(A) is directed to decide this ground raised by assessee before him after providing reasonable opportunity of being heard to both sides. These two grounds of assessee's appeal stand allowed for statistical purposes.

6. In the result, assessee's appeal stands partly allowed for statistical purposes.

7. Now, we have taken up the appeal filed by the Revenue in the case of Hina N Parikh i.e., ITA No.2449/Ahd/2008 for AY 2006-07. Ground raised by Revenue is as under:-"1. The learned CIT(A) has erred in law and on facts in deleting the disallowance of interest expenses U/s. 14A of the Act."
8. Ld. CIT-DR of the Revenue supported the order of Assessing Officer and reliance was placed on the decision of Special Bench rendered in the case of ITO v. Daga Capitals Investment Pvt. Ltd. (2006) 119 TTJ (Mum) (SB). Reliance was also placed on some other decisions of various Division Bench of this Tribunal but we are not discussing the same here because this issue is now covered by the judgment of Hon'ble Karnataka High Court rendered in the case of CCI Ltd. v. JCIT (2012) 20 taxmann.com. 196 (Kar), reliance has been placed by Ld. AR of the assessee. He also placed reliance on the decision rendered by Mumbai Bench in the case of Ganajam Trading Co. (P) Ltd. v. DCIT (2012) 25 taxmann.com 181 (Mum). Reliance was also placed on another Tribunal's decision rendered in the case of DCIT v. M/s. India Advantage Securities Ltd. in ITA No.6711/Mum/2011 dated 14-09-201 2. He also relied on one more Tribunal's decision of Ahmedabad Bench rendered in the case of Ethio Plastics Pvt. Ltd. v. DCIT in ITA No.848/Ahd/2012 dated 10-12-2012. He submitted a copy of all those Tribunal's decisions and Hon'ble High Court's decision cited by him.9. We have heard the rival submissions and perused the materials on record and gone through the orders of authorities below and the judgments cited by both the sides. Since this issue is now to be decided as per the only decision available of Hon'ble High Court i.e., of Karnataka High Court, the Tribunal's decisions cited by both the sides are not being discussed by us. In the judgment of Hon'ble Karnataka High Court rendered in the case of CCI Ltd. (supra) it was held that if the assessee is a dealer of shares and securities then it cannot be said that such purchases of shares and holding of shares were for the purpose of earning of dividend income and hence, expenditure incurred in acquiring these shares cannot be disallowed u/s. 14A of the Income-tax Act, 1961 (hereinafter referred to as 'the Act). In the present case, this is admitted position of fact that assessee is a dealer in shares and securities and this fact is noted by Assessing Officer also in his assessment order and inspite of this contention raised by Ld. AR of the assessee before us, nothing has been brought on record by Ld. CIT-DR of the Revenue to show otherwise. Since assessee is dealing in shares, we hold by following this judgment of Hon'ble Karnataka High Court that disallowance made by AO u/s. 14A of the Act on account of interest expenditure on proportionate basis cannot be sustained. We therefore do not find any reason to interfere in the order of Ld. CIT(A) on this issue. Accordingly, this ground of Revenue's appeal is rejected.

10. In the result, Revenue's appeal is dismissed.

11. Now, we take up various COs filed by the assessee. Ld. AR of the assessee did not press these COs and hence, all the COs are dismissed as not pressed.

12. Now, we take up the various appeals filed by the Revenue in the case of Shri Nitil B Parikh i.e., in ITA No. 2549-2550/Ahd/2008 and 2554/Ahd/2008. In all these appeals, the only ground raised by Revenue is regarding deletion of disallowance of interest expenditure made by Assessing Officer u/s. 1 4A of the Act.

13. At the time of hearing, both sides agreed that facts in the present appeals are similar with the facts in the case of Hina N Parikh because this assessee is also dealing in shares and therefore, this issue can be decided on similar line in the present case also. While deciding this issue, in the case of Hina N Parikh, we have decided this issue in favour of assessee by following the judgment of Hon'ble Karnataka High Court rendered in the case of CCI Ltd. (supra). Accordingly, in the present case also, all these three appeals of Revenue are decided in favour of assessee and these appeals of Revenue are dismissed.

14. Now, we take up the COs filed by assessee in CO No.213- 218/Ahd/2008. Ld. AR of the assessee submitted that these COs are not pressed and accordingly all these COs are dismissed as not pressed.

15. Now, we take up two appeals filed by the Revenue in the case of Prudent Finance Pvt. Ltd. in ITA No.2450-2451/Ahd/2008. The only issue raised by Revenue in these two appeals is regarding deletion of disallowance of interest expenditure u/s. 1 4A of the Act made by Assessing Officer.

16. Both sides agreed regarding that this assessee also i.e., the company also, is dealing in shares and securities. Hence, this issue can also be decided on similar line as in the case of Hina N.Parikh. In the case of Hina N Parikh and Nitin B Parikh, we have decided this issue in favour of assessee by following the judgment of Hon'ble Karnataka High Court rendered in the case of CCI Ltd. (supra) and since in the case of company also, Ld. CIT-DR of the Revenue could not establish that assessee is not dealer in share, we find no reason to interfere into the order of Ld. CIT(A) on this issue. Accordingly, both the appeals of Revenue are dismissed.

17. Now, we take up the COs filed by assessee being CO No. 194- 199/Ahd/2008. At the time of hearing, it was submitted by Ld. AR of assessee that these COs are not pressed and accordingly, all these COs are dismissed as not pressed.

18. In the result, appeals of Revenue as well as COs of assessee are dismissed.

19. In combined result, one appeal of assessee in ITA No. 1800/Ahd/2008 is partly allowed for statistical purposes and the remaining six appeals of Revenue in the case of three assessees are dismissed and all 16 COs of the three assessees are also dismissed.

Order pronounced in Open Court on the date mentioned hereinabove at caption page.

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Chartered Accountant Finance

Sunday, June 16, 2013

[aaykarbhavan] Judgments, and some Recent Judgments,

SOME RECENT DIRECT TAXES JUDGEMENTS: A COMPILATION (Part II)

See Also

Deduction U/s. 80IB allowable on expenses disallowed by AO

No Sec.14A disallowance if assessee is dealer of shares and securities

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