M/S. SAMARTHA DEVELOPMENT CORPORATION, MUBAI V. THE DY CIT CEN CIR-7, MUMBAI

ITA 1243/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1630 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 20-10-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 19-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR U ANGANEYULU
• Assessee Lawyers: K SHIVARAM
• Section: 80IB; 80G; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH: MUMBAI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI V D RAO, JUDICIAL MEMBER ITA NO 1243/MUM/2008 (ASSESSMENT YEAR: 2005-06) SAMARTHA DEVELOPMENT CORPORATION , 11-A, SUYASH, GOKHALE ROAD (N), DADAR, MUMBAI -400 028 PAN: AABFS 5775 D VS DCIT-CENTRAL CIRCLE -7 , MUMBAI APPELLANT RESPONDENT APPELLANT BY: SHRI K SHIVARAM RESPONDENT BY: DR U ANGANEYULU ORDER PER PRAMOD KUMAR 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF ORDER DATED 21 ST OCTOBER 2009 BY THE CIT (A), FOR THE ASSESSMENT YE AR 2005-06, ON THE FOLLOWING GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LEARNED CIT (A): I 1. ERRED IN CONFIRMING AND HOLDING THAT RECEIPTS AM OUNTING TO RS 24,54,925/- ARE NOT ELIGIBLE FOR DEDUCTION U/S 80IB . 2. ERRED IN NOT APPRECIATING THAT: (A) THE AMOUNT UNDER REFERENCE IS SPECIFICALLY RECE IVED AND INCLUDED AS PART OF THE SALE VALUE OF FLAT AS PER SALE AGREEMEN TS TO COVER CERTAIN SPECIFIC EXPENSES. (B) FOR SAKE OF CONVENIENCE THE AMOUNT IS INITIALLY CREDITED TO MISCELLANEOUS RECEIPT ACCOUNT AND IS TRANSFERRED TO FLAT SALE ACCOUNT AT THE END OF THE YEAR, THAT IN THE ANNUAL ACCOUNTS AN D STATEMENTS FILED THE SAME IS SHOWN AS PART OF SALE PROCEEDS OF FLATS. 3. ERRED IN NOT ACCEPTING THAT THE SAID RECEIPT REPRES ENTS INCOME DERIVED FROM SALE OF FLATS AND IS ELIGIBLE FOR DEDUCTION U/ S 80IB(10) OF INCOME TAX ACT, 1961. ITA 1243/M/2008 SAMARTHA DEVELOPMENT CORPORATION 2 II 4. ERRED IN NOT ALLOWING THE CLAIM OF DEDUCTION U/S 80G OF RS 5,87,000/- AGAINST THE GROSS TOTAL INCOME OF THE APPELLANT AS REDUCED BY DEDUCTION U/S 80IB IN TERMS OF SECTION 80G(4) OF INCOME TAX A CT, 1961, AND CONFIRMING THE SAID CLAIM OF DEDUCTION AGAINST THE INCOME ELIGIBLE FOR 100% DEDUCTION U/S 80IB. 5. ERRED IN HOLDING THAT THERE IS NO PRECEDEN CE TO THE ALLOWANCE OF THIS DEDUCTION SPECIFICALLY MENTIONED IN THE RESPECTIVE SECTION LIKE IN THE CASE OF SECTION 80HH(9), IGNORING THE SPECIFIC PRO VISIONS OF SECTION 80G(4) ACCORDING TO WHICH DEDUCTION SHOULD HAVE BEE N ALLOWED FROM GROSS TOTAL INCOME AS REDUCED BY DEDUCTION U/S 80IB AND THAT THE AMOUNT OF DONATION IS MUCH LESS THAN 10% OF SUCH GR OSS TOTAL INCOME. 2. AS FAR AS FIRST SET OF GRIEVANCES IS CONCERNED THE MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUILDING CONSTRUCTION. ON 8 TH OCTOBER 2005, ASSESSEE FILED THE INCOME TAX RETURN DISCLOSI NG A TOTAL INCOME OF RS 1,40,76,730/- AND, BY WAY OF THIS RETURN, THE ASSES SEE ALSO CLAIMED A DEDUCTION OF RS 32,91,24,165/- U/S 80IB IN RESPECT OF ELIGIBLE HOUS ING PROJECT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS TREATED MISCELLANEOUS RECEIPTS OF RS 49,09,850/- AS INCOME FROM BUSINESS ELIGIBLE FOR DEDUCTION U/S 80IB(10). THE ASSESSING OFFICER REQU IRED THE ASSESSEE TO SHOW CAUSE AS TO WHY INCOME ON ACCOUNT OF MISCELLANEOUS RECEIP TS NOT BE EXCLUDED FROM COMPUTATION OF PROFITS ELIGIBLE FOR DEDUCTION U/S 8 0IB, SINCE THE SAID DEDUCTION IS CONFINED TO PROFITS DERIVED FROM BUILDING RESIDENTI AL PROJECTS. THE ASSESSING OFFICER FURTHER OBSERVED THAT SINCE IT IS NOT POSSIBLE TO P RECISELY ALLOCATE EXPENSES INCURRED AGAINST MISCELLANEOUS RECEIPTS, IT IS APPROPRIATE T O TREAT 50% OF RECEIPT AS EXPENDITURE ESTIMATED TO HAVE BEEN INCURRED TO EARN THOSE MISCELLANEOUS RECEIPTS. IN RESPONSE TO THIS SHOW CAUSE NOTICE, IT WAS EXPLA INED BY THE ASSESSEE THAT THESE RECEIPTS, ARE NOT ON ACCOUNT OF ANY EXTRA WORK CARR IED BY THE ASSESSEE, BUT, UNDER CLAUSE 8 OF STANDARD SALE DEED WITH THE FLAT BUYER, THIS RECEIPT, COMPUTED AT A UNIFORM RATE OF RS 18,500/- PER FLAT, IS MAINLY ON ACCOUNT OF NON-REFUNDABLE DEPOSIT FOR ELECTRICITY AND WATER METERS, AND TOWARDS SECUR ITY DEPOSIT PAYABLE TO MUNICIPAL CORPORATION FOR PERMANENT WATER CONNECTION TO BUILD ING (RS 7,000) TOWARDS LEGAL CHARGES (RS 10,000/-), AND TOWARDS SOCIETY FORMATIO N AND REGISTRATION CHARGES (RS 1,500/-. IT WAS CONTENDED THAT THESE RECEIPTS WERE INTEGRAL PART OF THE SALE CONSIDERATION OF FLATS, AND HAVE BEEN RIGHTLY TREAT ED AS INCOME FROM ELIGIBLE BUSINESS ITA 1243/M/2008 SAMARTHA DEVELOPMENT CORPORATION 3 PROFITS FROM HOUSING PROJECT. THE SUBMISSIONS OF T HE ASSESSEE DID NOT IMPRESS THE ASSESSING OFFICER. RELYING UPON THE STAND TAKEN BY THE ASSESSING OFFICER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E. 2004-05 , AND OBSERVING THAT (I) THE PURPOSE OF DEDUCTION U/S 80IB WAS TO PROMOTE HOUSIN G AND THE ASSESSEE HAS, IN NO WAY, FULFILLED THIS PURPOSE BY PROVIDING EXTRA SERV ICES OR AMENITIES AND CHARGING FOR THE SAME AS MISCELLANEOUS RECEIPTS, AND (II) THE S UPREME COURT HAS HELD, IN THE CASE OF PANDIAN CHEMICALS THAT DEDUCTION U/S 80IA IS NOT AVAILABLE ON MISCELLANEOUS RECEIPTS LIKE RENT, INTEREST ETC AS THE SAME ARE NO T COVERED UNDER THE PURPOSE OF PROMOTING INDUSTRIES IN BACKWARD AREAS, THE ASSESSI NG OFFICER REJECTED THE CLAIM OF THE ASSESSEE. AGGRIEVED, ASSESSEE CARRIED THE MATT ER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT MUCH SUCCESS. WHILE THE CIT (A) UPHELD THE ACTION OF THE ASSESSING OFFICER IN PRINCIPLE, HE ALLOWED REDUCTION OF 50% I N THE DISALLOWANCE ON ACCOUNT OF EXPENDITURE ESTIMATED TO HAVE BEEN INCURRED BY THE ASSESSEE. WHILE DOING SO, LEARNED CIT (A) OBSERVED AS FOLLOWS:- I HAVE CONSIDERED THIS ISSUE AND THE SUBMISSIONS O F THE APPELLANT. I HAVE ALSO GONE THROUGH THE PROFIT AND LOSS ACCOUNT AND BALANC E-SHEET AND COPY OF THE ASSESSMENT ORDER FOR THE EARLIER YEAR FILED BY THE ASSESSEES REPRESENTATIVE SHRI PANKAJ KUMAR TANDON, CA. THE ASSESSEE DOES NO T DISPUTE THE EXCLUSION OF THIS RS 49,09,850/- FOR THE PURPOSE OF DEDUCTION U/S 80IB, WHAT IT WANTS IS THAT WHEN THE INCOME IS EXCLUDED TO THE EXTENT OF R S 49,09,850/-, THE CORRESPONDING EXPENDITURE WHICH WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT WHILE WORKING THE PROFITS OF THE 80IB PROJECT HAVE ALSO TO BE EXCLUDED. SINCE THE ASSESSING OFFICER HAS QUANTIFIED THIS EXPENDITU RE AT 50% OF THAT RECEIPTS AND THE BALANCE 50% HE HAS TREATED AS THE TAXABLE N ON-80IB INCOME THE SAID 50% EXPENDITURE OF RS 24,54,925/- SHOULD BE REDUCED FROM THE EXPENDITURE OF 80IB PROJECTS. I AM IN AGREEMENT WITH THE SAID SUB MISSIONS AND ARGUMENTS OF THE ASSESSEE. ONCE THE ASSESSING OFFICER HAS ALREA DY DETERMINED THE EXPENDITURE RELATABLE TO THIS AS 50%; ONCE IT IS DE BITED IN P&L A/C RELATED TO THE DEDUCTION U/S 80IB PROJECT THEN THE EXPENDITURE RELATING TO THAT SHOULD ALSO BE EXCLUDED FROM THE 80IB PROJECT AND CONSEQUE NTLY THE PROFIT OF THE 80IB PROJECTS WOULD GO UPTO THE EXTENT OF THE SAID 50% E XPENDITURE OF RS 24,54,925/-. THEREFORE, I DIRECT THE ASSESSING OFF ICER TO REDUCE THE EXPENDITURE FROM THE 80IB PROJECTS ACCORDINGLY AND ALLOW THE DEDUCTION ON THE INCREASED PROFITS OF 80IB PROJECT TO THE EXTENT OF FURTHER AMOUNT OF RS 24,54,925/-. THE APPELLANT SUCCEEDS ON THIS GROUND OF APPEAL. 3. THE ASSESSEE IS NOT SATISFIED EVEN BY THE STAND SO TAKEN BY THE CIT (A) AND IS IN FURTHER APPEAL BEFORE US. ITA 1243/M/2008 SAMARTHA DEVELOPMENT CORPORATION 4 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. 5. A PLAIN READING OF THE OPERATIVE PORTION OF THE CIT (A)S ORDER WOULD SHOW THAT THE CIT (A) HAS PROCEEDED ON THE BASIS THAT THE ASS ESSEE DOES NOT DISPUTE DISALLOWANCE OF DEDUCTION U/S 80IB IN RESPECT OF MI SCELLANEOUS RECEIPTS OF RS 49,09,850/- AND THE LIMITED GRIEVANCE OF THE ASSESS EE WAS THAT INSTEAD OF DISALLOWANCE OF FROM RECEIPTS OF RS 49,09,850/-, DI SALLOWANCE SHOULD BE RESTRICTED TO THE INCOME EMBEDDED IN THESE RECEIPTS. IT WAS IN T HIS BACKGROUND THAT THE CIT (A) RESTRICTED THE DISALLOWANCE TO 50% OF RECEIPTS AS E STIMATED INCOME ELEMENT IN THE RELATED MISCELLANEOUS RECEIPTS. THIS APPROACH OF T HE CIT (A) IS CLEARLY ERRONEOUS AS EVIDENT FROM THE STATEMENT OF FACTS AND GROUNDS OF APPEAL FILED BEFORE HIM. THE CASE OF THE ASSESSEE HAS BEEN THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED IN TAXING 50% OF MISCELLANEOUS RECEIPTS AMOUNTING TO RS 24,54,925/- IN THE HANDS OF THE APPELLANT (GROUND OF APPEAL NO.1 BEFORE CIT A) AND THAT THE LEARNED AO HAS ERRED IN TAXING THIS AMOUN T IN THE HANDS OF THE APPELLANT AS IT WAS PART OF CONSIDERATION TOWARDS SALE OF FLAT A ND DIRECT RESULT OF AGREEMENT EXECUTED WITH FLAT OWNER (SECOND PARAGRAPH LAST L INE, OF THE STATEMENT OF FACTS BEFORE THE CIT A). WE ARE THUS UNABLE TO APPROVE THE APPROACH ADOPTED BY THE CIT (A). SINCE THERE IS NO ADJUDICATION BY THE CIT (A) ON THIS ISSUE, IT WILL ONLY BE APPROPRIATE TO REMIT THE MATTER TO THE FILE OF THE CIT (A) FOR FRESH ADJUDICATION ON MERITS AFTER GIVING DUE AND FAIR OPPORTUNITY OF HEA RING TO THE ASSESSEE AND BY DEALING WITH ASSESSEES CONTENTIONS BY WAY OF A SPEAKING OR DER AND IN ACCORDANCE WITH THE LAW. WE ORDER SO. 6. WE MAY ALSO ADD THAT DURING THE COURSE OF HEARIN G WERE ADVANCED ON MERITS ARGUMENTS WERE ADVANCED ON MERITS BUT AT THAT STAGE THIS PATENT ERROR IN THE ORDER OF THE CIT (A0 WAS NOT POINTED OUT TO US. HAVING T AKEN NOTE OF THE FACT THAT THE CIT (A) HAS NOT ADJUDICATED ON THE REAL GRIEVANCE OF TH E ASSESSEE AT ALL, IN OUR CONSIDERED VIEW, IT WOULD NOT BE APPROPRIATE FOR US TO DEAL WI TH THE MERITS AT THIS STAGE. LET THE MATTER FIRST BE EXAMINED BY THE CIT (A) IN THE RIGH T PERSPECTIVE AND WE MUST REFRAIN FROM MAKING ANY OBSERVATIONS ON MERITS OF THE CASE AT THIS STAGE. ITA 1243/M/2008 SAMARTHA DEVELOPMENT CORPORATION 5 7. AS GROUND NO 1 IS THUS ALLOWED FOR STATISTICAL P URPOSES. 8. AS FAR AS SECOND SET OF GRIEVANCES IS CONCERNED , THE SHORT ISSUE BEFORE US IS WHETHER THE CIT (A) WAS JUSTIFIED IN REJECTING ASSE SSEES GRIEVANCE AGAINST GRANT OF DEDUCTION U/S 80G FROM INCOME ELIGIBLE FOR U/S 80IB AND NOT THE GROSS TOTAL INCOME. 9. ONCE AGAIN THE CIT (A) HAS FALLEN IN ERROR IN AP PRECIATING THE CONTROVERSY REQUIRING HIS ADJUDICATION. IN COMPUTATION OF TOTA L INCOME, THE ASSESSING OFFICER ALLOWED DEDUCTION U/S 80G FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB(10) WHEREAS THE ASSESSEE CLAIMED AND RIGHTLY SO, THAT D EDUCTION U/S 80G IS TO BE GIVEN FROM GROSS TOTAL INCOME. HOWEVER, WHEN THE MATTER TRAVELLED IN APPEAL, THE CIT (A) HELD THAT THE DEDUCTION U/S 80G HAS TO BE FIRST GI VEN FROM THE GROSS TOTAL INCOME AND FROM THAT ONLY DEDUCTION U/S 80IB(10) IS TO BE GIVEN. THIS OBSERVATION IS WHOLLY IRRELEVANT IN THE CONTEXT OF GRIEVANCE OF TH E ASSESSEE. HOWEVER, AS LEARNED REPRESENTATIVES FAIRLY AGREE ON THE CORRECT LEGAL P OSITION, WE SEE NO NEED TO REMIT THIS ISSUE TO THE FILE OF THE CIT (A) FOR FRESH ADJ UDICATION. WE DIRECT THE ASSESSING OFFICER TO RECOMPUTED THE DEDUCTION IN ACCORDANCE W ITH THE CORRECT LEGAL POSITION IE BY GRANTING DEDUCTION U/S 80G FROM GROSS TOTAL INCO ME AND NOT FROM INCOME UNDER THE HEAD PROFITS AND GAIN FROM BUSINESS AND PROFESS ION. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 10. GROUND NO.2 IS THUS ALLOWED. 11. IN THE RESULT, APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 28TH OCT OBER 2009. SD/- (V D RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATE: 28TH OCTOBER 2009 ITA 1243/M/2008 SAMARTHA DEVELOPMENT CORPORATION 6 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-CENTRAL-II, MUMBAI. 4) THE CIT -CENTRAL-I, MUMBAI. 5) THE D.R. E BENCH, ITAT, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI ITA 1243/M/2008 SAMARTHA DEVELOPMENT CORPORATION 7 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 27.10.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 28.10.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER