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  • 09
  • 2013

Amount disallowed u/s. 40(a)(ia) not eligible for deduction u/s. 80IB

IN THE ITAT AHMEDABAD BENCH ‘C’

Deputy Commissioner of Income-tax

Versus

Rameshbhai C. Prajapati

IT APPEAL NO. 226 (AHD.) OF 2010

[ASSESSMENT YEAR 2006-07]

SEPTEMBER 21, 2012

ORDER

A. Mohan Alankamony, Accountant Member

This appeal is preferred by the revenue aggrieved by the order of the learned CIT(A) in appeal No.CAB/II-423/08-09 dated 06-10-2009 passed u/s 250 read with section 143(3) of the IT Act for assessment year 2006-07.

2. The revenue has raised eight elaborate grounds in its appeal. However, the crux of the issues is concisely expressed herein below:-

(1)  The learned CIT (A) erred in allowing deduction u/s 80- IB (10) of the Act.

(2)  The learned CIT(A) erred in allowing deduction u/s 80-IB (10) of the Act on the addition made u/s 40 (a)(ia) of the Act, without appreciating the fact that the addition was not on account of disallowance of any expenditure but on account of infringement of law.

3. The assessee is an individual deriving income as partner in firm and also from other sources filed his return of income on 30-12-2006 declaring total income of Rs.8,86,240/-. Subsequently, the case was selected for scrutiny assessment and the assessment u/s 143(3) was completed on 26-12-2008 wherein the learned AO did not grant the assessee deduction u/s 80-IB(10) of the Act amounting to Rs.50,86,734/- and also invoking the provisions of section 40 (a)(ia) of the Act made addition of Rs.1,20,895/- against which the assessee went on appeal. Learned CIT(A) allowed the appeal of the assessee and now the Revenue is in appeal before us.

4. Ground No.1: Deduction u/s 80-IB (10) of the Act for Rs.50,86,734/-:- The learned AO determined the area of four shops of 78 sq. meters each aggregating to 312 sq. meters and calculated the total area to be 8.50% used for commercial purpose which exceeds the prescribed limit of 5% for the purpose of claiming deduction u/s 80-IB (10) of the Act. For this reason the learned AO rejected the benefit u/s 80-IB (10) of the Act to the assessee. On appeal before the learned CIT(A), after verifying the details the learned CIT(A) made a contrary finding that the area of all the four shops aggregates to 78 sq. meters, which works out to 2% of the built-up area and therefore granted deduction u/s 80-IB(10) of the Act.

5. The learned DR supported the order of the learned AO and on the other hand, the learned AR submitted that the learned CIT(A) has examined the issue in detail, therefore, his findings may be confirmed.

6. We have heard the rival submissions and perused the materials produced before us. From the facts of the case it is evident that the learned CIT(A) has examined the matter and has given detailed finding that all the four shops located on the ground floor has area of (i) 6.50 × 3.085 sq. meters, (ii) 6.50 × 2.915 sq. meters, (iii) 6.50 × 2.915 sq. meters and (iv) 6.50 × 3.085 sq. meters aggregating to 78 sq. meters which is approximately 2% of the built-up area. Further the Revenue has not produced any materials before us to substantiate its claim. In these circumstances we are inclined not to interfere with the order of the learned CIT(A). Accordingly this ground of the Revenue is dismissed.

7. Ground No.2: Allowing deduction u/s 80-IB (10) of the Act on the addition made u/s 40(a)(ia) of the Act, without appreciating the fact that the addition was not on account of disallowance of any expenditure but on account of infringement of law:- It was observed by the learned AO that the assessee had deducted tax at source but deposited the same into government account after the due date for payment thereby attracting provisions of section 40(a)(ia) of the Act. Accordingly the learned AO made an addition of Rs.1,20,895/-. However, the learned CIT(A) deleted the addition and held as follows:

“3.3 From the above submissions it is clear that the appellant agreed to the fact that he has not paid TDS within the prescribed time limit and therefore comes under the provisions of section 40(a)(ia). However, there is merit in the submissions that the addition on account of disallowance of expenditure would result in increased business income of the appellant which would be eligible for deduction under section 80-IB(10). Hence while holding that he Assessing Officer’s disallowance u/s. 40(a)(ia) is justified the appellant’s claim of admissibility of deduction u/s. 80-IB(10) on this addition is also justified. Therefore while confirming the order of the Assessing Officer with regard to disallowance of Rs. 1,28,895 he is directed to consider the amount while computing the assessee’s claim of deduction u/s 80-IB(10).”

8. The learned DR supported the findings of the learned AO and on the other hand the learned AR relied upon the order of the learned CIT(A).

9. We have heard the rival submissions and carefully perused the materials on record. It is settled principle that the deeming fiction created under any provisions of the Act cannot be imported into a beneficial provisions of the Act. In this case, the addition made on account of disallowance of expenditure is due to the deeming fiction created by the penal section 40(a)(ia) of the Act. Thus, the effect of the same cannot be imported into a beneficial provision vis-a-vis section 80-IB(10) of the Act. While computing deduction u/s 80-IB (10) of the Act, the plain meaning of the language of the Act has to be given effect. The legal fiction created by virtue of section 40(a)(ia) cannot be extended to determine the profit of the business for the purpose of computing deduction u/s 80-IB(10) of the Act. Section 80-IB(10) of the Act has to be applied only for the definite and limited purpose for which it is created. In the case of Executors & Trustees of Sir Cawasji Jehangir v. CIT [1959] 35 ITR 537 (Bom), it has been explained that unless it is clearly and expressly provided, it is not permissible to impose a supposition on a supposition of law. It is not permissible to sub-join or track a fiction upon fiction. In the light of the above, it is apparent that as far as arriving at the deduction u/s 80 IB of the Act is concern one has to strictly follow the provisions of that section and compute the deduction accordingly without infusing any other provision of the Act which creates a legal fiction.

10. Keeping the above proposition in mind the net taxable income requires to be worked out in the following manner.

(a)  While working out the “Total Income” as defined u/s 2(45) of the Act provisions of section 40 (a)(ia) of the Act has to be given effect. Subsequently, after adjustment of set off and carry forward of losses “Gross Total income” is worked out. Thereafter, deduction u/s 80C to 80U of the Act is worked out which includes section 80-IB(10) of the Act. Section 80-IB(10) of the Act stipulates as follows:

“80-IB(10)- The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, [2008] by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if

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(b)  For computing the profits derived in the business of the undertaking developing and building housing projects for claiming deduction u/s 80-IB (10) of the Act any deeming fiction provided under the Act such as section 40(a)(ia) should not be infused, instead the normal provisions of the Act has to be adopted. Profit thus worked out has to be deducted from the “Gross Total” income of the assessee for granting benefit u/s 80-IB (10) of the Act.

11. For the above stated reasons we hereby allow this issue in favour of the revenue and against the assessee.

12. However, from the facts of the case, it is not clear whether the assessee has deposited the tax deducted at source to the government treasury within the due date of filing of the return. If, he has done so, the penal provision of section 40(a)(ia) of the Act cannot be invoked. Therefore in the interest of justice we remit this issue also back to the file of the learned AO for such verification and to pass appropriate order as per law and merits. Accordingly, this issue is allowed for statistical purpose.

13. In the result, the appeal of the revenue is partly allowed for statistical purpose.


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