Case Law Details

Case Name : Income-tax Officer, Ward-9(3), Pune Vs Kalbhor Gawade Builders (ITAT Pune)
Appeal Number : IT Appeal No. 386 (PN.) of 2011
Date of Judgement/Order : 30/10/2012
Related Assessment Year : 2007-08
Courts : All ITAT (4457) ITAT Pune (129)

ITAT PUNE BENCH ‘B’

Income-tax Officer, Ward-9(3), Pune

versus

Kalbhor Gawade Builders

IT Appeal No. 386 (PN.) of 2011
[ASSESSMENT YEAR 2007-08]

Date of Pronouncement- 30.10.2012

ORDER

Shailendra Kumar Yadav, Judicial Member

This appeal has been filed by the Revenue against the order of the CIT(A) on following grounds:

1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was justified in holding the total income determined by the Assessing Officer after disallowance of expenditure as per sec.40(a)(ia) of the I.T. Act as “profit derived from development and construction of housing project” eligible for deduction u/s.80IB(10) of the I.T. Act, when the total income under the head “income from business” is computed as per provisions of Income Tax Act.

2. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was justified in holding that the “profit derived in the case of an undertaking developing and building housing project” eligible for deduction u/s. 80IB(10) includes addition on account of disallowance of expenditure as per provisions of sec. 40(a)(ia) of the I.T. Act.

3. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was justified in holding that the addition made by the Assessing Officer on account of disallowance of expenditure as per sec. 40(a)(ia) of the I.T. Act is ‘eligible profit’ from housing project u/s.80IB(10) of the I.T. Act when the provisions of I.T. law does not provide any deduction on expenditure twicely of the same nature and account in two different assessment years and under different provisions of law i.e., firstly in the A.Y. under appeal u/s.80IB(10) and secondly, in the A.Y. in which a sum has been deducted and paid to Government A/c as laid down in sec. 40(a)(ia) of the I.T. Act.

4. The order of the CIT(A) may be vacated and that of the AO be restored.

2. The assessee is a partnership firm having two partners, engaged in the business of construction and development. For A.Y. 2006-07 the assessee filed return of income on 31.10.2006 declaring Nil income. The Assessing Officer thereafter vide order dated 15.12.2009 assessed assessee’s total income at Rs.35,58,894/-. Aggrieved by the said order, assessee preferred appeal before the First Appellate Authority, wherein the CIT(A) on perusal of the assessment order, statement of facts and detailed written submissions made on behalf of the assessee as well as explanation provided on behalf of the assessee, observed that issue involved for the year under consideration in this appeal are same as in respect of A.Y. 2006-07 and following the same, appeal was allowed. On enquiry from Bench it was pointed out that in A.Y. 2006-07 the CIT(A) has decided the similar issue by observing as under:

“7. I have given careful consideration to the contents of the assessment order and to the submissions of the learned AR of the Appellant and have also carefully perused the relevant provisions of law. The general conditions for claiming deduction under section 80IB are as follows:

(i) the Appellant has a ‘gross total income’ for the year

(ii) such gross total income includes ‘profits and gains from business’

(iii) such profits and gains are ‘derived from’ business

(iv) such business from which the profits and gains are derived is one of the eligible businesses specified under the section

(v) the deduction under section 80IB is allowed in computing the ‘total income’ of the Appellant.

8. In addition, sub-section (10) of section 80IB specifies the following further conditions for claiming exemption under that subsection.

(vi) The assessee must be an undertaking developing and building housing projects approved by a local authority.

(vii) The amount in respect of which deduction is being claimed should be ‘profits’ which are “derived from” such housing project.

(viii) The specific conditions mentioned under section 80IB(10(a) to (d) should be met.

9. In the instant case, from the admitted facts, it is seen that there is no dispute as regards the conditions listed at (i), (ii), (iv), (v), (vi) and (viii). The short point for consideration, therefore, is whether or not the amount disallowed by the AO under section 40(a)(ia) was a part of profits derived from the eligible housing project. It may be mentioned here that the Appellant is not disputing the addition made under section 40(a)(ia). Their contention is only that having made the addition, the AO should have allowed deduction under section 80IB(10) in respect of such amount which has been disallowed under section 40(a)(ia) also. To examine the merit of this claim it is necessary, in my view, to examine the language of the provision under which the addition was made, namely, section 40(a)(ia). The language of the said provision as it stood at the relevant time is reproduced below:

“Amounts not deductible.

40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”, –

(a) In the case of any assessee –

(i) ….

(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200.

Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.

Explanation – For the purposes of this sub-clause, –

(i) “commission or brokerage” shall have the same meaning as in clause (i) of the Explanation to section 194H;

(ii) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;

(iii) “professional services” shall have the same meaning as in clause (a) of the Explanation to section 194J;

(iv) “work” shall have the same meaning as in Explanation III to section 194C;

(v) “rent” shall have the same meaning as in clause (i) to the Explanation to section 194-I;

(vi) “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;

10. Upon a plain reading of the provision, it is clear that upon violation of the conditions specified under clause (ia) the implication under section 40(a) would be that the said amount will not be deducted in computing income chargeable under the head “Profits and Gains of Business or Profession”. In other words, the same will form a part of “Profits and Gains of Business or Profession” of the Appellant, which will be included along with income under all the other heads in the assessee’s gross total income. In the instant case, therefore, once the said amount of Rs.5,24,191/- was disallowed under section 40(a)(ia), the same constituted a part and parcel of the Appellant’s ‘Profits and gains from the business’, which, in turn, would comprise a part of its ‘gross total income’ and would be eligible for deduction in accordance with and to the extent specified by Section 80IB. The Appellant has further submitted that during the relevant previous year the Appellant had no income other than the income from the eligible business. This fact has not been disputed by the AO. That being the case, in my view, there was no other source from which the amount disallowed in computing profits and gains of business was “derived”. Accordingly the Appellant was eligible to claim deduction under section 80IB(10) in respect of this amount too. I do not find any support for the contention of the learned AO that due to disallowance under section 40, business income increases but profit derived from developing and building the project remains the same. In the present case, as already stated, the Appellant had no business income other than the income from the eligible business. Under the circumstances, if it is to be held that the income representing the amount of addition made on account of disallowance under section 40 is not derived from the eligible business then what other activity was the said income derived from? In order to have an income there must be a source. As such, any addition made to the business income went to increase the business profit but such business profit being fully exempt under the provisions of section 80IB(10), the additional amount too was eligible to claim deduction and could not be taxed separately in the Appellant’s hands as an income without any source.

11. Accordingly, this ground of appeal is allowed and the addition made is hereby deleted.”

3. Further, it was pointed out that Revenue has not preferred appeal for the reason that tax effect was less. In this background, the Ld. Authorised Representative submitted that appeal of Revenue be dismissed. On the other hand, Ld. Departmental Representative relied on the order of the Assessing Officer.

4. After going through the rival submissions and material on record, we are not inclined to interfere with the finding of the CIT(A) because on account of violation of conditions prescribed under clause (ia) the implication u/s.40(a) would be that the said amount will not be deducted in computing income chargeable under the head ‘profits and gains of business or profession’. The same will form part of profits and gains of business or profession of the assessee which could be included along with income under all the other heads in the assessee’s gross total income. Once the said amount in question was disallowed u/s. 40(a)(ia), the same constituted a part and parcel of the assessee’s profits and gains from the business, which in turn would comprise a part of its gross total income and would be eligible for deduction in accordance with and to the extent specified by section 80IB. In case there is no other income from which amount could be disallowed in computing profit and gains of business was derived. Accordingly assessee was eligible to claim deduction u/s.80IB in respect of this amount. In this background the CIT(A) held that income representing the amounts of addition made on account of disallowance u/s. 40(a)(ia) is not derived from eligible business then what other activity was the said income derived from. In order to have an income there must be a source. As such any addition made to the business income went to increase the business profit but such business profit being fully exempt under the provisions of section 80IB(10), the additional amount too was eligible to claim deduction and could not be taxed separately held by the CIT(A). This reasoned factual finding need no interference from our side. We uphold the same.

5. As a result, the appeal of the Revenue is dismissed.

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