Section 32AC- An Aid to Prosper the Manufacturing Sector
Riddhi Vasistha
Section 32AC - There are several policies which affect the culture of investment in manufacturing sector. The union finance minister has proposed to extend the scope of section 32 AC. The inviting feature is the additional Incentive for acquisition and installation of new plant & machinery by manufacturing company as investment allowance of 15% on capital investment of over Rs 100 crore or 25 crore (Finance act 2014) as case may be.ELIGIBLE ASSESSEE:
- Deduction is available only to COMPANY (Indian as well as Foreign) and
- Company must be engaged in MANUFACTURE or PRODUCTION of any article or thing.
Section says:
Sec 32AC deduction is available to manufacturing companies for investment made in plant and machinery and is now extended for investment made up to previous year March 31, 2017. Further, the investment limit of Rs. 100 crores relaxed to Rs. 25 crores to encourage medium sized investments too. The assessee who is eligible to claim deduction under the existing combined threshold limit of exceeding Rs.100 crore for investment made in FY 2013-14 and 2014-15 shall continue to be eligible to claim deduction under the existing provisions contained in sub-section (1) of section 32AC even if its investment in the year 2014-15 is the proposed new threshold limit of investment below Rs 100 crore but exceeding Rs. 25 crore during the previous year.
The Finance Act 2013 further amended by finance bill 2014, provides one time investment allowance of 15% on the actual cost of the asset.
Section 32AC as summarized below –
AMOUNT OF DEDUCTION:
- For the Assessment year 2014-2015: 15% of the actual cost of new plant and machinery acquired and installed during previous year 2013-2014, if actual cost exceeds Rs 100 crores.
- For the Assessment year 2015-2016: 15% of the actual cost of new plant and machinery acquired and installed during previous year 2013-2014 and 2014-2015, if actual cost exceeds Rs 100 crores, as reduced by deduction already allowed in Assessment year 2014-2015 under this section (if any).
Illustration: 1
Admissible investment allowance under section 32 AC for A.Y 2014-15 and A.Y 2015-16 in each of the following cases:-
| Company | Investment in Plant & Machinery (inCrores) | |
| 2014-2015 | 2015-2016 | |
| A Ltd. | 95 | 45 |
| B Ltd. | 110 | 20 |
| C Ltd. | 100 | 50 |
Answer:
| Company | Investment Allowance(in Crores) | |
| 2014-2015 | 2015-2016 | |
| A Ltd. | NIL | 21((95+45)*15%0) |
| B Ltd. | 16.5(110*15%) | 03((110+20)*15%16.5) |
| C Ltd. | NIL | 22.5(150*15%-0) |
Newly inserted Sub-section by finance bill 2014, as reproduced below:-
(1A) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets acquired and installed during any previous year exceeds twenty-five crore rupees, then, there shall be allowed a deduction of a sum equal to fifteen percent of the actual cost of such new assets for the assessment year relevant to that previous year.
Provided that no deduction under this sub-section shall be allowed for the assessment year commencing on the 1st day of April, 2015 to the assessee, which is eligible to claim deduction under sub-section (1) for the said assessment year.
(1B) No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018."
Analysis of amendment:
Amount of Deduction:
- For the Assessment year 2015-2018: 15% of the actual cost of new plant and machinery acquired and installed during previous year 2014-2017, if actual cost exceeds Rs 25 crores.
Illustration: 2
Admissible investment allowance under section 32 AC for A.Y. 2015-16 and A.Y. 2016-17 & A.Y. 2017-2018 in each of the following cases:-
| Company | Investment in Plant & Machinery(in Crores) | ||
| 2015-2016 | 2016-2017 | 2017-2018 | |
| A Ltd. | 18 | 30 | 25 |
| B Ltd. | 26 | 20 | 35 |
| C Ltd. | 28 | 55 | 15 |
Answer:
| Company | Investment Allowance(in Crores) | ||
| 2015-2016 | 2016-2017 | 2017-2018 | |
| A Ltd. | NIL | 4.5(30*15%) | NIL |
| B Ltd. | 3.9(26*15%) | NIL | 5.25 |
| C Ltd. | 4.2(28*15%) | 8.25(55*15%) | NIL |
Illustration: 3
Admissible investment allowance under section 32 AC for A.Y. 2014-15, A.Y. 2015-16 and A.Y. 2016-17 & A.Y. 2017-2018 in each of the following cases:-
| Company | Investment in Plant & Machinery(in Crores) | |||
| 2014-2015 | 2015-2016 | 2016-2017 | 2017-2018 | |
| A Ltd. | 60 | 41 | 30 | 25 |
| B Ltd. | 70 | 30^ | 20 | 35 |
| C Ltd. | 110 | 18 | 55 | 15 |
Answer:
| Company | Investment Allowance(in Crores) | |||
| 2014-2015 | 2015-2016 | 2016-2017 | 2017-2018 | |
| A Ltd. | NIL | 15.15(101*15) | 4.5(30*15%) | NIL |
| B Ltd. | NIL | 4.5(30*15%) | NIL | 5.25(35*15%) |
| C Ltd. | 16.5(110*15%) | 2.7((128*15%)-16.5) | 8.25(55*15%) | NIL |
^Before Amendment the 15%deduction was not allowed to B ltd in Assessment year 2015-16, since the amount of investment in plant & machinery does not exceed Rs. 100 crore. Further vide finance act 2014, 15% deduction is extended for assesse Company investing more than Rs. 25 crore with effect from assessment year 2015-2018.
Therefore the B ltd. will now, get deduction of 15% on Rs.30 crore by virtue of section 32 AC (1A).
LOCK IN PERIOD
- There shall be lock in period of 5 years from the date of installation.
- If new plant & machinery on which investment allowance deduction has been availed, has been sold or transferred within 5 years from the date of installation, then deduction allowed under section 32AC shall be deemed to be the income under the head PGBP of the year in which plant & machinery is sold. This will be in addition to gains arising from transfer of plant & machinery. This shall however not apply of plant & machinery is transferred in a scheme of amalgamation or demerger.
- In case of amalgamation or demerger, the amalgamated/ resulting company should not sell/ transfer the plant & machinery for a period of 5 years from the date it was installed by amalgamating/ demerged company. If it is sold/ transferred by amalgamated/ resulting company in the above said lock in period of 5 years, the deduction allowed to amalgamating/ demerged company shall be deemed to be the income under the head PGBP of amalgamated/ resulting company of the previous year in which plant & machinery is sold/ transferred. This will be in addition to gains arising from transfer of plant & machinery.
Illustration :4
If X ltd. Acquire & installs an asset on 25thjune2013 worth of Rs 110 crores and avail a deduction worth of Rs.16.5 crores(110*15%) and consequently sold the asset on 28thseptember 2015.
Answer:
X ltd. needs to offer Rs.16.5 crores of deduction as income under the head profits &gains from business & profession by crediting it in to profit & loss A/c. This will be in addition to gains arising from transfer of plant & machinery. This shall however not apply of plant & machinery is transferred in a scheme of amalgamation or demerger.
Extracts Beneficial to the assessee:
- Thisdeduction is In Addition to the depreciation and additional depreciation.
- Deduction under section 32AC shall not to be reduced from WDV of Block of asset.
- To claim deduction under section 32AC, there is no condition that plant & machinery should be actually put to use.
- This deduction is not available to Power generating units.
- This deduction will not be restricted to 50% if plant & machinery purchased and installed is used for less than 180 days during the previous year.
For the purposes of this section, "new asset" means any new plant or machinery, but Other than:-
- any plant or machinery which before its installation by the assessee was used either within or outside India by any other person;
- any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;
- any office appliances including computers or computer software;
- any vehicle; or
- any plant or machinery, the whole of the actual cost of which is allowed as deduction(whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any previous year.'.
- Ship or aircraft
Effect on Leasing company: The section provides impetus to leasing business to generate more leasing business in the plant & machinery segment as additional investment allowance shall have implications on the economics of leasing as well. The lessor can claim 15% deduction if he satisfies the condition mentioned above. However, in leases of less than five years, this benefit will not be available.
There are several case laws where the leasing companies were allowed additional depreciation u/s 32(1) (iia) of the I-T Act.
In case of Shaan Finance, the Supreme Court held that notwithstanding the fact that the assessee is a leasing company and the plant and machinery leased out by it are not used by the assessee in any industry the assessee is entitled to investment allowance of 32AC.
Conclusion:
This Section has given in abundance to the company engaged in the business of manufacture or production of any article or thing.
- Acquirer is free to take allowance of 15% at the time of acquisition and can claim depreciation for the entire life of the asset.
- The said amount is also not deductible from WDV of the assets
- It's a kind of double benefit which will surely help the business of manufacturing & production sector to recover from recession.
INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION
Auditing of accounts --Special audit--Scope of section 142(2A)--Assessee should be given reasonable opportunity of being heard--No requirement of personal hearing--Assessing Officer finding accounts complex--Commissioner giving personal hearing to assessee--Direction for special audit--Valid--Income-tax Act, 1961, s. 142(2A)-- Neesa Leisure Ltd. v. Deputy CIT (Guj) . . . 93
Best judgment assessment --Revision--Commissioner--Assessees uneducated persons not properly represented before Assessing Officer--Commissioner dismissing revision petitions from assessments and refusing to recall his order--High Court affirming--Supreme Court--No interference with assessment but no interest or penalty to be charged--Income-tax Act, 1961, ss. 144, 264-- Tripal Singh v. CIT . . . 511
Wealth-tax --Valuation of asset--Discretion of Assessing Officer to discard valuation determined in accordance with rule 3 and invoke rule 8--Huge difference between value declared by assessee based on valuation for municipal taxes and market value--Assessee itself entering into agreement to sell property for much higher price than declared--Impracticable to apply rule 3--Reference to Valuation Officer and assessment at his valuation proper--Wealth-tax Act, 1957, ss. 7, 16A, Sch. III, rr. 3 to 7, 8(a), 20-- Amrit Banaspati Co. Ltd. v. CWT . . . 515
Business --Capital gains--Business income or short-term capital gains--Tests--Gains from purchase and sale of shares--Short-term capital gains--Income-tax Act, 1961, ss. 28, 45-- CIT v. Devasan Investment P. Ltd. (Delhi) . . . 452
Business expenditure --Accrual of liability--Assessee, joint venture enterprise, receiving advance for equity from Government--Government insisting on return of its contribution of share application for non-allotment of shares--Assessee refunding amount after twelve years to Government--Accrual, crystallisation and finalisation relatable to year in which returned--Entire amount allowable--Professional fee for consultancy services--Allowable--Income-tax Act, 1961, s. 37-- CIT v. Urban Mass Transit Ltd. (Delhi) . . . 442
----Capital or revenue expenditure--Lease for eighty years from State Industrial Development Corporation with option of renewal of lease--Assignment of rights under lease agreement--Lump-sum payment for assignment--Capital expenditure--Income-tax Act, 1961, s. 37-- CIT v. Rane Brake Linings Ltd. (Mad) . . . 401
----Deduction only on actual payment--Liability for years prior to introduction of section 43B--Excise duty--Assessee disputing claim made on basis of valuation--Payment made after adjudication in assessment year 1984-85 and not during relevant year--Deductible--Income-tax Act, 1961, s. 43B-- ITC Ltd. v. CIT (Cal) . . . 532
----Education and training expenses--Expenditure incurred on higher education of son of director--Son of director employee of assessee-company--Commitment letter to work for a further five years after finishing MBA--Assessee’s business investments and securities--Nothing to suggest transaction not honest--Expenditure incurred for pursuit for higher studies allowable--Income-tax Act, 1961, s. 37(1)-- Kostub Investment Ltd. v. CIT (Delhi) . . . 436
----Expenditure on higher education abroad--Firm of advocates--Daughter of assessee joining firm and immediately sent for education abroad--No scheme for higher education abroad for employees and associates of firm--Daughter permitted not only to continue and stay abroad but to join any firm after completing higher education--Expenditure on education not in interests of profession of firm but for furthering career prospects of daughter--Not allowable--Income-tax Act, 1961, s. 37-- Divyakant C. Mehta v. ITO (Bom) . . . 423
----Expenditure on remuneration and training of working director--Expenses incurred out of personal considerations and not commercial considerations--Not allowable--Income-tax Act, 1961, s. 37-- Shreenath Motors P. Ltd. v. CIT (Bom) . . . 536
Deduction of tax at source --Failure to deduct--No period of limitation prescribed for passing order under section 201 treating assessee as in default--Revenue not bound by any reasonable period of limitation for taking action under section 201--Time limit prescribed in section 149 for taking action under section 147 has no application for taking action under section 201--Income-tax Act, 1961, s. 201(1), (1A)-- Bhura Exports Ltd. v. ITO (Cal) . . . 548
----Order deeming person assessee in default--Limitation for passing order--No time limit specified in Act--Order must be passed within reasonable time--Passing of order has to be within one year from end of financial year in which proceedings under section 201(1) initiated--Same time limit for passing of order under section 201(1A)--Income-tax Act, 1961, s. 201(1), (1A)-- DIT (International Taxation) v. Mahindra and Mahindra Ltd. (Bom) . . . 560
Exemption --Ruler--Annual value of any one palace in occupation of ruler--Scope of section 10(19A)--Section 10(19A) similar to section 5(1)(iii) of Wealth-tax Act--Meaning of “in the occupationâ€--Part of palace given on rent--Ruler not entitled to exemption in respect of annual value of such part--Income-tax Act, 1961, s. 10(19A)--Wealth-tax Act, 1957, s 5(1)(iii)-- CIT v. Maharao Bhim Singh of Kota [FB] (Raj) . . . 485
Income-tax proceedings --Principles of res judicata and estoppel not applicable-- CIT v. Maharao Bhim Singh of Kota [FB] (Raj) . . . 485
Industrial undertaking --Special deduction--Assessee buying monitor, key board, mouse and assembling them--Activity carrying out by assessee is manufacturing activity--Entitled to special deduction--Income-tax Act, 1961, s. 80-IB-- CIT v. Sai Infosystem India P. Ltd. (Guj) . . . 433
----Special deduction--Manufacture or production of article or thing--Assembling computers and servers out of various components by carrying on quality control through testing equipment--New and distinct product other than components of which made--Entitled to deduction--Income-tax Act, 1961, s. 80-IB-- CIT v. Sunilbhai S. Kakad (Guj) . . . 427
----Special deduction--Return--Delay in filing return--Whether assessee disqualified for deduction for delay in filing return and audit report--CBDT notification extending date for filing returns and audit report--Whether notification applicable to assessee goes root of matter--Tribunal directed to decide afresh--Income-tax Act, 1961, ss. 80-IB, 139-- Bal Kishan Dhawan (HUF) v. Deputy CIT (P&H) . . . 581
Interpretation of taxing statutes --Provision conferring exemption--Strict interpretation-- CIT v. Maharao Bhim Singh of Kota [FB] (Raj) . . . 485
Loss --Short-term capital loss--Non-convertible debentures with detachable warrants--Sale of part of debentures at a loss of application money--Application money for debentures payable for acquisition of each detachable warrant--Loss not short-term capital loss--Sale proceeds of detachable warrants constitutes business income--Income-tax Act, 1961-- Ganapati Enterprises v. CIT (Cal) . . . 480
Penalty --Cash loans exceeding specified limit--Loans from agriculturists in remote areas--Transactions genuine--Cancellation of penalty under section 271D--Justified--Income-tax Act, 1961, ss. 269SS, 271D, 273B-- CIT v. MAA Khodiyar Construction (Guj) . . . 474
Reassessment --Notice after four years--Conditions precedent--Failure to furnish material facts necessary for assessment--Material facts disclosed in return--Notice not valid--Income-tax Act, 1961, ss. 147, 148-- Gujarat Carbon and Industries Ltd. v. Asst. CIT (Guj) . . . 464
----Notice--Reasons to believe based on investigation report--No indication in notice that report was not on record at time of completion of original assessment--Position clarified in additional affidavit and not in counter-affidavit--Evidence to show report available and used at time of original assessment--Notice and further proceedings not valid--Income-tax Act, 1961, ss. 147, 148-- Rasalika Trading and Investment Co. P. Ltd. v. Deputy CIT (Delhi) . . . 447
Search and seizure --Assessment of third person--Condition precedent--Recording of satisfaction by Assessing Officer having jurisdiction over person in respect of whom search conducted that money or assets discovered during search belong to third person--Recording of satisfaction necessary even if Assessing Officer of both persons is the same--Income-tax Act, 1961, s. 153C-- CIT v. Gopi Apartment (All) . . . 411
Unexplained investment --Accounts not rejected--Reference to Valuation Officer and addition based on his report--Not valid--Income-tax Act, 1961, s. 69B-- CIT v. Vijaykumar D. Gupta (Guj) . . . 470
S. 10(19A) --Exemption--Ruler--Annual value of any one palace in occupation of ruler--Scope of section 10(19A)--Section 10(19A) similar to section 5(1)(iii) of Wealth-tax Act--Meaning of “in the occupationâ€--Part of palace given on rent--Ruler not entitled to exemption in respect of annual value of such part-- CIT v. Maharao Bhim Singh of Kota [FB] (Raj) . . . 485
S. 28 --Business--Capital gains--Business income or short-term capital gains--Tests--Gains from purchase and sale of shares--Short-term capital gains-- CIT v. Devasan Investment P. Ltd. (Delhi) . . . 452
S. 37 --Business expenditure--Accrual of liability--Assessee, joint venture enterprise, receiving advance for equity from Government--Government insisting on return of its contribution of share application for non-allotment of shares--Assessee refunding amount after twelve years to Government--Accrual, crystallisation and finalisation relatable to year in which returned--Entire amount allowable--Professional fee for consultancy services--Allowable-- CIT v. Urban Mass Transit Ltd. (Delhi) . . . 442
----Business expenditure--Capital or revenue expenditure--Lease for eighty years from State Industrial Development Corporation with option of renewal of lease--Assignment of rights under lease agreement--Lump-sum payment for assignment--Capital expenditure-- CIT v. Rane Brake Linings Ltd. (Mad) . . . 401
----Business expenditure--Expenditure on higher education abroad--Firm of advocates--Daughter of assessee joining firm and immediately sent for education abroad--No scheme for higher education abroad for employees and associates of firm--Daughter permitted not only to continue and stay abroad but to join any firm after completing higher education--Expenditure on education not in interests of profession of firm but for furthering career prospects of daughter--Not allowable-- Divyakant C. Mehta v. ITO (Bom) . . . 423
----Business expenditure--Expenditure on remuneration and training of working director--Expenses incurred out of personal considerations and not commercial considerations--Not allowable-- Shreenath Motors P. Ltd. v. CIT (Bom) . . . 536
S. 37(1) --Business expenditure--Education and training expenses--Expenditure incurred on higher education of son of director--Son of director employee of assessee-company--Commitment letter to work for a further five years after finishing MBA--Assessee’s business investments and securities--Nothing to suggest transaction not honest--Expenditure incurred for pursuit for higher studies allowable-- Kostub Investment Ltd. v. CIT (Delhi) . . . 436
S. 43B --Business expenditure--Deduction only on actual payment--Liability for years prior to introduction of section 43B--Excise duty--Assessee disputing claim made on basis of valuation--Payment made after adjudication in assessment year 1984-85 and not during relevant year--Deductible-- ITC Ltd. v. CIT (Cal) . . . 532
S. 45 --Business--Capital gains--Business income or short-term capital gains--Tests--Gains from purchase and sale of shares--Short-term capital gains-- CIT v. Devasan Investment P. Ltd. (Delhi) . . . 452
S. 69B --Unexplained investment--Accounts not rejected--Reference to Valuation Officer and addition based on his report--Not valid-- CIT v. Vijaykumar D. Gupta (Guj) . . . 470
S. 80-IB --Industrial undertaking--Special deduction--Assessee buying monitor, key board, mouse and assembling them--Activity carrying out by assessee is manufacturing activity--Entitled to special deduction-- CIT v. Sai Infosystem India P. Ltd. (Guj) . . . 433
----Industrial undertaking--Special deduction--Manufacture or production of article or thing--Assembling computers and servers out of various components by carrying on quality control through testing equipment--New and distinct product other than components of which made--Entitled to deduction-- CIT v. Sunilbhai S. Kakad (Guj) . . . 427
----Industrial undertaking--Special deduction--Return--Delay in filing return--Whether assessee disqualified for deduction for delay in filing return and audit report--CBDT notification extending date for filing returns and audit report--Whether notification applicable to assessee goes root of matter--Tribunal directed to decide afresh-- Bal Kishan Dhawan (HUF) v. Deputy CIT (P&H) . . . 581
S. 139 --Industrial undertaking--Special deduction--Return--Delay in filing return--Whether assessee disqualified for deduction for delay in filing return and audit report--CBDT notification extending date for filing returns and audit report--Whether notification applicable to assessee goes root of matter--Tribunal directed to decide afresh-- Bal Kishan Dhawan (HUF) v. Deputy CIT (P&H) . . . 581
S. 144 --Best judgment assessment--Revision--Commissioner--Assessees uneducated persons not properly represented before Assessing Officer--Commissioner dismissing revision petitions from assessments and refusing to recall his order--High Court affirming--Supreme Court--No interference with assessment but no interest or penalty to be charged-- Tripal Singh v. CIT (SC). . . 511
S. 147 --Reassessment--Notice after four years--Conditions precedent--Failure to furnish material facts necessary for assessment--Material facts disclosed in return--Notice not valid-- Gujarat Carbon and Industries Ltd. v. Asst. CIT (Guj) . . . 464
----Reassessment--Notice--Reasons to believe based on investigation report--No indication in notice that report was not on record at time of completion of original assessment--Position clarified in additional affidavit and not in counter-affidavit--Evidence to show report available and used at time of original assessment--Notice and further proceedings not valid-- Rasalika Trading and Investment Co. P. Ltd. v. Deputy CIT (Delhi) . . . 447
S. 148 --Reassessment--Notice after four years--Conditions precedent--Failure to furnish material facts necessary for assessment--Material facts disclosed in return--Notice not valid-- Gujarat Carbon and Industries Ltd. v. Asst. CIT (Guj) . . . 464
----Reassessment--Notice--Reasons to believe based on investigation report--No indication in notice that report was not on record at time of completion of original assessment--Position clarified in additional affidavit and not in counter-affidavit--Evidence to show report available and used at time of original assessment--Notice and further proceedings not valid-- Rasalika Trading and Investment Co. P. Ltd. v. Deputy CIT (Delhi) . . . 447
S. 153C --Search and seizure--Assessment of third person--Condition precedent--Recording of satisfaction by Assessing Officer having jurisdiction over person in respect of whom search conducted that money or assets discovered during search belong to third person--Recording of satisfaction necessary even if Assessing Officer of both persons is the same-- CIT v. Gopi Apartment (All) . . . 411
S. 201(1), (1A) --Deduction of tax at source--Failure to deduct--No period of limitation prescribed for passing order under section 201 treating assessee as in default--Revenue not bound by any reasonable period of limitation for taking action under section 201--Time limit prescribed in section 149 for taking action under section 147 has no application for taking action under section 201-- Bhura Exports Ltd. v. ITO (Cal) . . . 548
----Deduction of tax at source--Order deeming person assessee in default--Limitation for passing order--No time limit specified in Act--Order must be passed within reasonable time--Passing of order has to be within one year from end of financial year in which proceedings under section 201(1) initiated--Same time limit for passing of order under section 201(1A)-- DIT (International Taxation) v. Mahindra and Mahindra Ltd. (Bom) . . . 560
S. 264 --Best judgment assessment--Revision--Commissioner--Assessees uneducated persons not properly represented before Assessing Officer--Commissioner dismissing revision petitions from assessments and refusing to recall his order--High Court affirming--Supreme Court--No interference with assessment but no interest or penalty to be charged-- Tripal Singh v. CIT (SC). . . 511
S. 269SS --Penalty--Cash loans exceeding specified limit--Loans from agriculturists in remote areas--Transactions genuine--Cancellation of penalty under section 271D--Justified-- CIT v. MAA Khodiyar Construction (Guj) . . . 474
S. 271D --Penalty--Cash loans exceeding specified limit--Loans from agriculturists in remote areas--Transactions genuine--Cancellation of penalty under section 271D--Justified-- CIT v. MAA Khodiyar Construction (Guj) . . . 474
S. 273B --Penalty--Cash loans exceeding specified limit--Loans from agriculturists in remote areas--Transactions genuine--Cancellation of penalty under section 271D--Justified-- CIT v. MAA Khodiyar Construction (Guj) . . . 474
S. 5(1)(iii) --Exemption--Ruler--Annual value of any one palace in occupation of ruler--Scope of section 10(19A)--Section 10(19A) similar to section 5(1)(iii) of Wealth-tax Act--Meaning of “in the occupationâ€--Part of palace given on rent--Ruler not entitled to exemption in respect of annual value of such part-- CIT v. Maharao Bhim Singh of Kota [FB] (Raj) . . . 485
S. 7 --Wealth-tax--Valuation of asset--Discretion of Assessing Officer to discard valuation determined in accordance with rule 3 and invoke rule 8--Huge difference between value declared by assessee based on valuation for municipal taxes and market value--Assessee itself entering into agreement to sell property for much higher price than declared--Impracticable to apply rule 3--Reference to Valuation Officer and assessment at his valuation proper-- Amrit Banaspati Co. Ltd. v. CWT (SC). . . 515
S. 16A --Wealth-tax--Valuation of asset--Discretion of Assessing Officer to discard valuation determined in accordance with rule 3 and invoke rule 8--Huge difference between value declared by assessee based on valuation for municipal taxes and market value--Assessee itself entering into agreement to sell property for much higher price than declared--Impracticable to apply rule 3--Reference to Valuation Officer and assessment at his valuation proper-- Amrit Banaspati Co. Ltd. v. CWT (SC). . . 515
Sch. III, rr. 3 to 7, 8(a), 20 --Wealth-tax--Valuation of asset--Discretion of Assessing Officer to discard valuation determined in accordance with rule 3 and invoke rule 8--Huge difference between value declared by assessee based on valuation for municipal taxes and market value--Assessee itself entering into agreement to sell property for much higher price than declared--Impracticable to apply rule 3--Reference to Valuation Officer and assessment at his valuation proper-- Amrit Banaspati Co. Ltd. v. CWT (SC). . . 515
AHMEDABAD, JULY 31, 2014: THE issue before the Bench is - Whether profit relatable to the sale of unutilized FSI is also eligible for Sec 80IB(10) benefits. NO is the HC's answer.
Facts of the caseThe assessee, a builder and developer of real estate, filed e-return declaring income after claiming deduction under section 80IB(10). The total income was declared as Rs. NIL. During the assessment proceedings, it was found that the assessee firm had carried out construction activity on a land without fully utilizing the permissible floor space index (FSI). It was found that the assessee had total plot area of 10539.69 sq. mtrs. for development, after reduction on account of common plot and roads etc. It was further found that the assessee was eligible to construct super build up area of 16863.5 sq. mtrs. @ 1.6 FSI. It was found that the assessee had constructed the housing project by deploying construction of 3665.39 sq.mtrs. of FSI. It was found that thus, the FSI of 5864.62 sq. mtrs. came to be utilized for the construction of the same, out of permissible FSI of 16863.5 sq. mtrs. It was found by the AO that the profit ensuring from the entire project for the year as per the profit and loss account, included additional profit attributable to sale of unutilized FSI had also been booked by the assessee firm. Therefore, the AO observed and held that since the eligible profit for claim of deduction u/s 80IB(10) can only relate to those from the project of development and construction, the profit attributable to the sale of untilized FSI not relating to development and construction undertaken shall not become eligible for the said claim. Consequently, the AO disallowed Rs. 32,81,410/- claimed under sec. 80IB(10) of the Act being profit under untilized sale of FSI of project in housing units. The AO also disallowed Rs. 22,44,480/- claimed under sec. 40(a)(ia) of the Act.
In appeal, CIT(A) deleted the disallowance made by the AO. In further appeal, Tribunal confirmed the order passed by the CIT(A).
Revenue submitted that as such the question involved in the present Tax Appeal was now not res integra in view of the recent decision of the Division Bench of this Court dated 5 & 11/03/2014 passed in Tax Appeal No. 549/2008 and other allied Tax Appeals, in which it was held that the profit relatable to the sale of unutilized FSI would not be eligible for deduction under section 80IB(10) of the Act.
Assessee requested to remand the matter to the A.O. to consider the exact unutilized FSI and exact calculation with respect to the unutilized FSI.
Having heard the parties, the Court held that,
++ the question, which is posed for consideration of this Court is, whether on the facts and in the circumstances of the case and in law, the ITAT was right in law in allowing deduction u/s80IB(10) r.w.s. 80IB(1) to the assessee on profit derived from sale of unutilized FSI without appreciating that the said profit is not eligible for deduction u/s. 80IB(10)r.w.s. 80IB(1) as it has not been derived by the assessee from the business activity of development and construction of a housing project. The aforesaid substantial question of law is now not res integra in view of the recent decision of this court rendered in Tax Appeal No. 549 of 2008 and other allied Tax Appeals. In the aforesaid decision, the Division Bench of this Court has specifically observed and held that the profit relatable to the sale of unutilized FSI would not be eligible for deduction under sec. 80IB(10) of the Act;
++ in view of the aforesaid decision of coordinate Bench of this Court in Tax Appeal No. 549 of 2008 with other allied Tax Appeals, the substantial question of law raised in the present appeal is to be answered in favour of the revenue and against the assessee;
++ so far as request made by Mr. Soparkar on behalf of assessee relying upon the decision of the Division Bench this court in the case of Shreenath Infrastructure and to remand the matter to the AO to calculate the exact unutilized FSI is concerned, in the facts and circumstances of the case, the aforesaid cannot be accepted. At the out-set, it is required to be noted that in the assessment order on the basis of the material on record, the AO has given full particulars and details with respect to the total permissible FSI available for construction; the FSI utilized and the FSI unutilized by the assessee;
++ finding recorded by the AO is on appreciation of evidence and the same has never been disputed by the assessee. Under the circumstances, when the aforesaid factual aspect with respect to the total permissible FSI available for construction; the FSI utilized by the assessee and the FSI unutilized by the assessee is available on record, there is no question to remand the matter to the AO for the aforesaid question
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