Case Law Details

Case Name : The Deputy Commissioner of Income Tax Vs M/s Macro Marvel Projects Ltd. (ITAT Chennai)
Appeal Number : IT Appeal No. 1685 (MDS.) Of 2010 & 116 (MDS.) Of 2011
Date of Judgement/Order : 27/11/2012
Related Assessment Year : 2005- 06
Courts : All ITAT (4213) ITAT Chennai (210)

IN THE ITAT CHENNAI BENCH ‘C’

Deputy Commissioner of Income-tax, Co.-Circle IV(1)

Versus

Macro Marvel Projects Ltd.

IT APPEAL NOS. 1685 (MDS.) OF 2010 & 116 (MDS.) OF 2011

C.O. No. 117 (MDS.) of 2011

[ASSESSMENT YEAR 2005-06]

NOVEMBER 27, 2012

ORDER

Abraham P. George, Accountant Member

Of the above, I.T.A. No. 1685/Mds/2010 and C.O. No. 117/Mds/2011 are appeal and cross-objection of the Revenue and assessee respectively, directed against an order dated 1.7.2010 of Commissioner of Income Tax (Appeals)-V, Chennai. Revenue in its appeal is aggrieved with the direction given by ld. CIT (Appeals) allowing pro rata deduction under Section 80-IB(10) of Income-tax Act, 1961 (in short ‘the Act’) for the housing projects of the assessee. As against this, assessee in its cross-objection is aggrieved regarding dis allowance of payments made to contractors for non-deduction of tax at source, which was confirmed by the CIT (Appeals).

2. Left over appeal of Revenue in I.T.A. No. 116/Mds/2011 is against a Section 154 rectification attempted by CIT (Appeals).

3. Revenue’s appeal in I.T.A. No. 1685/Mds/2010 and cross-objection of the assessee are taken up first for disposal. Revenue assails the direction of CIT (Appeals) to allow deduction under Section 80-IB(10) on the following reasons:-

(a) Some of the flats constructed by the assessee exceeded 1500 sq. ft. and in view of the decision of this Tribunal in the case of Asstt. CIT v. Viswas Promoters (P.) Ltd. [2010] 126 ITD 263 (Chennai), such pro rata deduction could not be allowed.

(b) Assessee made a claim of deduction under Section 80-IB(10) only through a revised computation and by virtue of decision of Hon’ble Apex Court in the case of Goetz (India) Ltd. v. CIT [2006] 284 ITR 323, such a claim ought not have been considered.

(c) Direction of the CIT (Appeals) to compute deduction under Section 80-IB(10) considering each project separately, was not in accordance with the law laid down by Hon’ble Apex Court in the case of IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521.

4. Facts apropos are that assessee, engaged in the business of property development, had filed its return for impugned assessment year declaring an income of Rs. 76,95,292/-. During the course of assessment proceedings, it seems assessee had filed a revised computation by which there was a revision of a claim for deduction originally made under Section 80-IB(10) of the Act. Such claim was on the housing projects called River View County, Marvel Parampariyam, Lake View Flat and Marvel Lake View County. Against net profit of Rs. 1,63,63,004/- from the housing projects, assessee had claimed deduction of Rs. 85,56,886/- under Section 80-IB(10) of the Act, for those dwelling units which were having built-up area less than 1500 sq. ft. on a proportionate basis.

5. Claim of the assessee before A.O. was that each of the building project had to be considered as separate undertaking for the purpose of working out deduction under Section 80-IB(10) of the Act. Reliance was placed on the decision of co-ordinate Bench of this Tribunal in the case of Arun Excello Foundation (P.) Ltd. v. Asstt. CIT [2008] 108 TTJ 71. Assessing Officer was not impressed on such claim. In the first place, he was of the opinion that revision of a claim for deduction could not be accepted since it was not made through a revised return. For this, reliance was placed on the decision of Hon’ble Apex Court in the case of Goetz (India) Ltd. (supra). In the second place, the A.O. was of the opinion that pro rata claim for dwelling units having built-up area less than 1500 sq. ft. could not be allowed. As per the A.O., once some of the dwelling units had built-up areas exceeding 1500 sq. ft., there was no question of giving any allowance under Section 80-IB of the Act. Assessing Officer did mention the claim of the assessee that each project had to be considered separately for the purpose of computation of deduction under Section 80-IB(10) of the Act, but it seems such claim having been made only in the revised computation, was not considered by him. The net result was that claim of Rs. 85,56,886/- under Section 80-IB(10) was disallowed.

6. In its appeal before CIT (Appeals), assessee, relying on the decision of co-ordinate Bench of this Tribunal in the case of Asstt. CIT v. Jain Housing & Constructions Ltd. [I.T. Appeal No. 1369/Mds./2009, dated 5-2-2010] and that of Kolkata Bench of this Tribunal in the case of Bengal Ambuja Housing Development Ltd. v. Dy. CIT [I.T. Appeal Nos. 1595 and 1735/Kol/2005], argued that pro rata allowance under Section 80-IB had to be granted for those dwelling units which had built-up area less than 1500 sq. ft. With regard to the revised claim under Section 80-IB(10) of the Act, submission of the assessee was that such revision made considering each project separately, was justified. As per the assessee, it had already claimed a deduction in the return of income, but, had only revised the quantum during the course of assessment proceedings. Further, as per the assessee, each of the project could be considered as independent and profits of each project had to be independently considered for working out the deduction under Section 80-IB(10) of the Act. In support of this claim, assessee relied on the decisions of Hon’ble Delhi High Court in the case of CIT v. Sono Koyo Steering Systems Ltd. [2010] 321 ITR 463 and CIT v. Dewan Kraft Systems (P.) Ltd. [2008] 297 ITR 305   and that of Hon’ble Apex Court in the case of Synco Industries Ltd. v. Assessing Officer Income-tax [2008] 299 ITR 444.

7. CIT (Appeals) accepted the above contentions of the assessee. According to him, assessee was entitled to claim deduction on those dwelling units which had built-up area less than 1500 sq. ft. on pro rata basis in view of the decision of Kolkata Bench of this Tribunal in the case of Bengal Ambuja Housing Development Ltd. (supra) which was later upheld by the Hon’ble Calcutta High Court. Further, as per CIT (Appeals), assessee had only effected a revision of its claim in the original return and had not preferred a fresh claim. Therefore, according to him, the revised claim could be considered. On merits also, he was in favour of assessee, for, according to him, each project had to be considered independent for working out deduction under Section 80-IB(10) of the Act.

8. Now before us, learned D.R., strongly assailing the order of CIT (Appeals), submitted that without filing a revised return, assessee could not have made any revision to its original claim under Section 80-IB(10) of the Act. Further, according to him, Section 80-IB of the Act did not allow a work out considering each project independently. All projects were to be considered together and the question of allowance under Section 80-IB(10) would arise only thereafter. According to him, assessee could not select those projects which had profits for working out deduction under Section 80-IB(10) of the Act while ignoring those which were running on a loss. Reliance was placed on the decisions of Hon’ble Apex Court in the case of IPCA Laboratories Ltd. (supra) and Synco Industries Ltd. (supra) and that of Hon’ble Karnataka High Court in the case of CIT v. RPG Telecom Ltd. [2007] 292 ITR 355. Further, according to him, this Tribunal in the case of Viswas Promoters (P.) Ltd. (supra) had clearly held that if built-up area of any of the dwelling units exceeded 1500 sq.ft., deduction under Section 80-IB(10) could not be allowed.

9. Per contra, learned A.R. submitted that Third Member Bench of this Tribunal in the case of Sanghvi & Doshi Enterprise v. ITO [2011] 131 ITD 151 had clearly held that an assessee-developer was entitled for deduction under Section 80-IB(10) of the Act in respect of flats having built-up area not exceeding 1500 sq. ft. According to him, in this Third Member decision, all earlier decisions including that of co-ordinate Bench of this Tribunal in the case of Viswas Promoters (P.) Ltd. (supra) and that of Kolkata Bench of this Tribunal in the case of Bengal Ambuja Housing Development Ltd. (supra), were considered. Insofar as revision of the claim was concerned, learned A.R. submitted that Hon’ble Delhi High Court in the case of CIT v. Jai Parabolic Springs Ltd. [2008] 306 ITR 42 had clearly held that even if a claim of deduction was not originally made in the return, the Tribunal had power to allow such claim in appellate proceedings. According to him, here on the other hand, assessee had, without doubt, made a claim for deduction under Section 80-IB(10) in the original return, but had thereafter only effected a revision of the quantum during the course of assessment proceedings. Insofar as the computation aspect was concerned, learned A.R. submitted that decision of Hon’ble Apex Court in the case of Synco Industries Ltd. (supra) was in favour of assessee. According to him, Section 80-AB of the Act only fixed the limit for the deductions that could be made on the gross total income. However, for the purpose of computing deduction under any of the clause under Part C of Chapter VI-A of the Act, each of the industrial undertaking had to be considered independently. According to him, loss sustained in one of the units need not be considered in such computation. For canvassing this view, reliance was placed on the decisions of Hon’ble Delhi High Court in the case of Dewan Kraft Systems (P.) Ltd. (supra) and Sono Koyo Steering Systems Ltd. (supra), that of Hon’ble Andhra Pradesh High Court in the case of CIT v. Visakha Industries Ltd. [2001] 251 ITR 471, that of Hon’ble Apex Court in the case of English Electric Co. Ltd. v. CIT [2001] 249 ITR 793 and again that of Hon’ble Apex Court in the case of CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320.

10. We have perused the orders and heard the rival submissions. Three questions have been raised in this appeal. First question is whether a deduction original claimed in the return of income filed could be revised in the course of assessment proceedings? Second question is whether deduction under Section 80-IB(10) could be given to an assessee even where some of the dwelling units in a project exceeded built-up area 1500 sq.ft.? Third question is whether each of the project could be considered independently for the purpose of working out deduction under Section 80-IB(10) of the Act, or in other words, whether such deduction could be calculated ignoring the losses in some of the projects subject to the limitations placed by Section 80-AB of the Act?

11. Insofar as the first question is concerned, we are of the view that CIT (Appeals) was justified in considering the revised computation as a valid one for the purpose of claiming deduction under Section 80-IB(10) of the Act. There is a clear finding by the CIT (Appeals) that assessee had made a claim under Section 80-IB(10) in the original return itself. This position has not been disputed. Revised computation was filed by the assessee whereby it re-worked the quantum of the claim considering each of the project separately or in other words, by omitting out those projects which resulted in a loss. This, in our opinion, cannot be construed as a fresh claim. Decision of Hon’ble Apex Court in the case of Goetze (India) Ltd. (supra) will not help the case of the Revenue. In the said case, assessee concerned had claimed a deduction for first time through a letter filed before the Assessing Officer in the course of assessment proceedings. On the other hand, here, admittedly, assessee had made a claim under Section 80-IB(10) in the return of income. Through the revised computation, it had only enhanced the quantum of the claim. There was no fresh claim as such. Therefore, in our opinion, such a revised computation could not have been ignored by the Assessing Officer. There is no infirmity in the order of the CIT (Appeals) in this regard.

12. Vis-à-vis the issue whether assessee could claim deduction under Section 80-IB(10) even where some of the dwelling unis had built-up area exceeding 1500 sq.ft., it stands clearly answered by the Third Member decision of this Tribunal in the case of Sanghvi & Doshi Enterprise (supra). Decision of co-ordinate Bench of this Tribunal in the case of Viswas Promoters (P.) Ltd. (supra) was considered in this Third Member decision. It was held at para 48 of this decision as under:-

“48. I am only concerned of the binding effect of the judgment of the Hon’ble Calcutta High Court in the case of CIT v. Bengal Ambuja Housing Development Ltd. (supra). In the light of the discussion made above, I am of the considered opinion that I should be led by the judgment of the Hon’ble Calcutta High Court, which is a constitutional and a Court of law. As there is no direct decision of the jurisdictional High Court still available on the subject, I find it my duty to follow the judgment of the Hon’ble Calcutta High Court. I do not think as a good judicial behavior to dwell upon the technicalities of jurisdiction and ignore the judgment of a competent constitutional Court. So long as there is no decision by my jurisdictional High Court, I am immediately bound by the judgment of any other High Court available to me, directly on the subject. Therefore, I hold that the controversy placed before me as a Third Member is covered by the judgment of the Hon’ble Calcutta High Court rendered in the case of CIT v. Bengal Ambuja Housing Development Ltd. in IT Appeal No. 458 of 2006, dt. 5th Jan., 2007 (supra). In the light of the findings arrived at above, I agree with the view taken by the Hon’ble Vice President, where he has held that the assessees are entitled for deduction under s. 80-IB(10) in respect of flats having built-up area not exceeding 1,500 sq.ft. and not entitled for deduction in respect of those flats having their built-up area exceeding 1,500 sq.ft.”

Accordingly, we are of the opinion that assessee is entitled for claiming deduction under Section 80-IB(10) in respect of those flats having built-up area not exceeding 1500 sq.ft.

13. Now coming to third aspect which is whether assessee was entitled to work out deduction under Section 80-IB(10) of the Act considering each of the project separately. No doubt, learned A.R. has placed reliance on the decision of Hon’ble Apex Court in the case of Synco Industries Ltd. (supra) and that of Delhi High Court in the case of Dewan Kraft Systems (P.) Ltd. (supra) and Sono Koyo Steering Systems Ltd. (supra). According to learned A.R., the same view has also been taken by Hon’ble Apex Court in the cases of Canara Workshops (P.) Ltd. (supra) and English Electric Co. Ltd. (supra) and also by Hon’ble Andhra Pradesh High Court in the case of Visakha Industries Ltd. (supra). In our opinion, the position of law in this regard is succinctly summarized by Hon’ble jurisdictional High Court in the case of Chamundi Textiles (Silk Mills) Ltd. v. CIT [2012] 341 ITR 488. Though there the claim was for a deduction under Section 80HHC of the Act, in our opinion, the dictum of law laid down by the Hon’ble jurisdictional High Court in the said case is equally applicable even where a claim is made under Section 80-IB of the Act. It was held by their Lordship that in view of the decision of Hon’ble Apex Court in the case of IPCA Laboratory Ltd. (supra), an assessee who had positive profit only would be entitled for deduction in respect of those income coming under Part C of Chapter VI-A. For arriving at such profits, income of all the units had to be calculated and if one of the units was running at a loss, gross total income had to be arrived considering such loss also. If the ultimate result was a loss, any claim of deduction in respect of such income was to be rejected. Deductions coming under Part C of Chapter VI-A of the Act, are controlled by Section 80-AB of the Act. Gross total income remains gross total income computed as per provisions of the Act. This was reiterated by Hon’ble Apex Court in the case of Synco Industries Ltd. (supra). It was held by Hon’ble Apex Court that gross total income had to be arrived at by making deductions as per appropriate computation provisions, including income under Sections 60 to 64, adjusting intra-head and inter-head losses and setting off brought forward losses and unabsorbed depreciation. Only if resulting gross total income is positive, an assessee is entitled for a deduction. However, if an assessee is having more than one unit, where one unit is claiming deduction and other is not, and if the gross total income is positive despite loss in one of the units, then decision of Hon’ble Apex Court in the case of IPCA Laboratory Ltd. (supra) will not have any applicability. Where an assessee carries on various activities, even though centralized account is maintained, so long as there is no interlacing, interconnection, or interdependence of various units, various such activities have to be treated as separate and distinct as held by Hon’ble Apex Court in the case of Waterfall Estates Ltd. v. CIT [1996] 219 ITR 563. Thus, if an assessee had different units resulting in positive gross total income, each of the units has to be considered separately for working out deduction coming under Part C falling in Chapter VI-A of the Act, provided assessee had maintained separate accounts and there was no interlacing and interdependence.

14. The position of law, as summarized by Hon’ble jurisdictional High Court takes us to the question whether the assessee here was having different industrial undertakings or units which were not to be considered parts of the same homogeneous activity of construction. In each of the decisions relied on by the assessee, adjustment of loss of one unit with profit of other unit, while computing the deduction available under Part C of Chapter VI-A, was held to be not warranted for a reason that the units were independent of each other. In the case of Dewan Kraft Systems Pvt. Ltd. (supra) before Hon’ble Delhi High Court, one of the units was in Himachal Pradesh while other units were in Delhi and NOIDA. In the case of Synco Industries Ltd. (supra), one was a Steering Unit and the other was Axle Unit. In the case of Canara Workshops (P.) Ltd. (supra), one of the units was manufacturing automobile parts, whereas, the other was alloy steel. In the case of Visakha Industries Ltd. (supra) decided by Hon’ble Andhra Pradesh High Court, set off attempted was between the asbestos division and spinning division. Thus, in all the cases relied on by the assessee, the units were having different activities. Here, on the other hand, assessee admittedly was having only one homogeneous business activity that was construction and selling of flats. No doubt, it was having five projects, but the question is whether each of the projects were forming part and parcel of one unit or part of one industrial undertaking. There is no claim for the assessee that each of these projects were separate and there was no interlacing, interconnection or interdependence. Assessee was only doing housing project development which is a homogeneous business and vis-à-vis the five projects, there was no demarcation of identity, in such a manner that each of the project could be considered as independent units. Section 80-IB(10) of the Act clearly specifies that deduction under that sub-section is to be given to an undertaking developing and building housing projects. There is nothing in this sub-section which would require each of the housing projects to be considered by itself as independent undertaking while working out the deduction. No doubt, if an assessee is able to show that each of its projects were independent with no interlacing, interconnection or interdependence, then it might be able to canvass a claim for deduction under Section 80-IB(10) of the Act. Here, there is nothing on record to show that each of the projects were independent, with no interlacing, interconnection or interdependence of various units. The business was a homogeneous one. Therefore, in our opinion, all these projects together had to be considered as a single unit for the purpose of working out deduction under Section 80-IB(10) of the Act and the methodology adopted by the assessee in the revised computation filed by it, cannot accepted. In the result this question is answered in favour of the Revenue.

15. Thus we dismiss Ground Nos.2 and 3 raised by the Revenue and allow its Ground No.4. Assessing Officer is accordingly directed to re-work the deduction available to the assessee under Section 80-IB(10) considering all the projects as a single unit.

16. In the result, appeal of the Revenue is partly allowed.

17. Coming to the cross-objection of the assessee, facts apropos are that Assessing Officer found that assessee had not deducted tax at source on contract amounts paid to one M/s Macro Marvel Infrastructure Corporation Ltd. He invoked Section 40(a)(ia) of the Act for disallowing the claim coming to Rs. 1,96,89,532/-.

18. In its appeal before CIT (Appeals), argument of the assessee was that the claim was made for a direct expenditure viz. construction of flats and therefore, did not come under the purview of Sections 30 to 38 of the Act. According to assessee, Section 40 began with a non obstante clause and hence had relevance only with regard to claim made under Sections 30 to 38 of the Act. As per the assessee, the claim preferred by it had to be considered only under Section 28 of the Act based on principle of commercial accounting.

19. However, CIT (Appeals) was not impressed. According to him, what was paid by the assessee clearly fell within the ambit of Section 194C of the Act. According to him, this was nothing but payments to a contractor which warranted deduction of tax at source. Assessee having not deducted such tax, dis allowance under Section 40(a)(ia) was upheld by the CIT (Appeals).

20. Now before us, learned A.R., strongly assailing the order of CIT (Appeals), submitted that claim of the assessee was not under Sections 30 to 38 of the Act but, under Section 28 of the Act. According to him, assessee’s business was construction of flats. It had given contract for such construction. Contract payments were nothing but direct cost. Allowance for direct cost was to be given based on commercial principles of accounting. It was not an allowance to be considered as under Sections 30 to 38 of the Act. Since Section 40 applied only to Sections 30 to 38 of the Act, a dis allowance under Section 40(a)(ia) could not be made on a claim under Section 28 of the Act. Reliance was placed on the decision of Hyderabad Bench of this Tribunal in the case of Teja Constructions v. Asstt. CIT [2010] 39 SOT 13 (Hyd.) (URO).

21. Per contra, learned D.R., strongly supporting the order of CIT (Appeals), submitted that assessee had not made deduction of tax at source required under Section 194C of the Act and invited rigours of Section 40(a)(ia) of the Act. Therefore, dis-allowance under Section 40(a)(ia) was rightly made.

22. We have perused the orders and heard the rival submissions. There is no dispute that assessee effected the payments to one M/s Macro Marvel Infrastructure Corporation Ltd. Though it is stated that the amounts were contract payments, the nature of expenditure involved is not clear from the assessment order, nor from the order of CIT (Appeals). No doubt, Hyderabad Bench of this Tribunal in the case of Teja Constructions (supra) has made an observation at para 13 of its order that provisions of Section 40(a)(ia) were applicable only to items covered under Sections 30 to 38 and not for expenditure in the nature of direct cost covered by Section 28 of the Act. However, in the said case, books of accounts of the assessee were rejected and profits were estimated. Dis allowance under Section 40(a)(ia) was mainly held to be not warranted for the reason that estimation of income took into account all irregularities committed by the assessee, and a further dis allowance under Section 40(a)(ia) would amount to punishing the assessee twice for the same offence. Thus, observation of Hyderabad Bench of this Tribunal was in a case where books of accounts were rejected and estimation of income was made based on best of judgment. On such a factual situation, it was observed by the Bench that Section 40(a)(ia) covered only those items falling within Sections 30 to 38 of the Act. Here, on the other hand, books were not rejected by the Assessing Officer at all. Hence, in our opinion, the said decision will not help the assessee’s case. However, whether the amounts were fully paid or payable at the end of the relevant previous year, is not clear from the record. Special Bench of this Tribunal in the case of Merilyn Shipping & Transport v. Addl. CIT [2012] 136 ITD 23  has held that Section 40(a)(ia) would be applicable only to amounts standing payable at the end of the relevant previous year. We are, therefore, of the opinion that the matter requires a fresh look by the Assessing Officer. We set aside the orders of authorities below and remit the issue of dis allowance under Section 40(a)(ia) to the file of the A.O. for consideration afresh in accordance with law.

23. Cross-objection of the assessee is allowed for statistical purposes.

24. This leaves us with appeal in I.T.A. No. 116/Mds/2011 of the Revenue, directed against an order dated 8.10.2010 of Commissioner of Income Tax (Appeals)-V, Chennai.

25. Facts apropos are that assessee had submitted a petition before CIT (Appeals) to amend his order directing the Assessing Officer to allow deduction claimed under Section 80-IB(10) of the Act. As per the assessee, Assessing Officer while giving effect to the order of CIT (Appeals), had not considered the revised computation of deduction filed by it during the course of the assessment proceedings. CIT (Appeals) was appreciative of this contention. According to him, assessee had submitted the workings before the Assessing Officer and the Assessing Officer was required to consider such revised working while computing deduction under Section 80-IB(10) of the Act. CIT (Appeals) effected a rectification of his earlier order dated 1.7.2010 and directed the Assessing Officer to compute deduction based on the revised figures given by the assessee.

26. Now before us, learned D.R., strongly assailing the 154 order, submitted that Assessing Officer was not given an opportunity before effecting the rectification. According to him, this was not an issue which was amenable to a rectificatory proceeding under Section 154 of the Act.

27. Per contra, learned A.R. strongly supported the order of CIT (Appeals).

28. We have perused the orders and heard the rival submissions. We have already held in the appeal of the Revenue in I.T.A. No. 1685/Mds/2010 that claim for deduction under Section 80-IB(10) of the Act preferred by the assessee has to be worked out considering all the projects together as a single unit and not as separate units. Admittedly the revised computation was preferred by the assessee, for re-working the deduction under Section 80-IB(10) of the Act, considering each of the project as independent. Since this methodology has not been accepted by us, in our opinion, no purpose would be served by the directions given by the CIT (Appeals). In any case, when Assessing Officer is computing deduction under Section 80-IB(10) of the Act, pursuant to the direction given by us in Revenue’s appeal in I.T.A. No. 1685/Mds/2010, he is to give an opportunity to the assessee. Thus, in view of our order in I.T.A. No. 1685/Mds/2010, we are of the opinion that the substrata for the revision attempted by the CIT (Appeals) has disappeared.

29. In the result, we allow the appeal filed by the Revenue.

30. To summarize the result, appeal of the Revenue in I.T.A. No. 1685/Mds/2010 is partly allowed, cross-objection of the assessee in C.O. No. 117/Mds/2011 is allowed for statistical purposes and appeal of the Revenue in I.T.A. No. 116/Mds/2011 stands allowed.

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