Case Law Details
ITAT BANGALORE BENCH ‘C’
Assistant Commissioner of Income-tax
Versus
Sterling Developers (P.)Ltd.
IT Appeal NO. 487 (BANG.) OF 2012
[ASSESSMENT YEAR 2008-09]
JANUARY 31, 2013
ORDER
Jason P. Boaz, Accountant Member
This appeal by revenue is directed against the order of the Commissioner of Income Tax (Appeals)-III, Bangalore dated 5.1.2012 for Assessment Year 2008-09.
2. The facts of the case, in brief, are as under :
2.1 The assessee, a company carrying on business as builders and developers of real estate, filed its return of income for Assessment Year 2008-09 on 30.9.2008 declaring loss of Rs. 52,00,137. Subsequently, the assessee filed a revised statement of income revising its income to Rs. 2,35,33,877 in order to add back an amount of Rs. 2,84,28,446 claimed under section 40(a)(ia) of the Income Tax Act, 1961 (herein after referred to as ‘the Act’) since its claim to this extent was allowed in Assessment Year 2007-08. The case was taken up for scrutiny. In the course of assessment proceedings the Assessing Officer found that the assessee had claimed loss of Rs. 12,91,01,772 from a project called ‘Sterling Brookside’ which project qualified for deduction. 80IB(10) of the Act and that the assessee had claimed deduction thereunder for Assessment Years 2006-07 & 2007-08. The Assessing Officer invoked the provisions of section 80IA(5) r.w.s. 80IB(10) of the Act and held that the loss incurred by the assessee in respect of the ‘Sterling Brookside’ project cannot be set off against other business income of the assessee and relied on the ratio of the decision of the Hon’ble Apex Court in the case of Liberty India v. CIT [2009] 317 ITR 218. Accordingly, the Assessing Officer concluded the assessment disallowing the loss of the 80IB ‘Sterling Brookside’ project amounting to Rs. 12,91,01,772 and thereby determining the income at Rs. 15,26,35,640 in his order under section 143(3) of the Act dt.13.12.2010.
2.2 Aggrieved by the order of assessment for Assessment Year 2008-09 dt.13.10.2010, the assessee went in appeal before the learned CIT (Appeals) raising inter alia several grounds with regard to the disallowance of loss. The learned CIT (Appeals) vide his order dt.5.1.2012 allowed the assessee’s appeal holding therein that the assessee was entitled to set off the loss from the project ‘Sterling Brookside’ against other business income by virtue of the provisions of section 70(1) of the Act. In coming to this finding, the learned CIT (Appeals) considered the definition of Gross Total Income under section 80B(5) of the Act as well as the provisions of section 80A(1) of the Act. The learned CIT (Appeals) placing reliance on the decision of the Hon’ble Apex Court in the case of Synco Industries Ltd. v. Assessing Officer [2008] 299 ITR 444, held that the provisions of section 80IA(5) of the Act would not superimpose the notional condition on the operation of section 70 of the Act which is a different process. The learned CIT (Appeals) in his order has distinguished the decision of the Hon’ble Apex Court in the case of Liberty India (Supra) on the ground that the issue considered in that case was totally different. The learned CIT (Appeals), therefore, directed the Assessing Officer to allow the set off of loss from ‘Sterling Brookside’ project in terms of section 70(1) of the Act.
3. Aggrieved by the order of the learned CIT (Appeals) dt.5.1.2012 for Assessment Year 2008-09, the revenue is in appeal before us. In this appeal, revenue has raised the following grounds :
“1. The order of the learned CIT (Appeals) is opposed to law and facts of the case.
2. The CIT (Appeals) erred in holding that loss of an 80IB(10) project of Rs. 12,91,01,772 has to be allowed for set off against taxable incomes, without appreciating that non-obstante clause in sub-section (5) of 80IAas equally applicable to this section, makes it obligatory to treat this project as a single source of income for claiming deduction and while treating so, there is no scope for application of provisions of section 70(1) as it may lead to an absurd situation of claiming deduction of a sum more than profits earned by the eligible project.
3. The CIT (Appeals) erred in not appreciating that the assessee had, in the past assessment years, shown profits on the same project and claimed deduction under section 80IB(10) by declaring revenue on percentage completion method and if the present loss shown in this year is considered, the project as a whole did not earn any profit. Hence the set off of the loss shown in this year against taxable incomes has caused double benefit to the assessee.
4. The CIT (Appeals) has relied on the order of the Hon’ble Supreme Court in the case of Synco Industries Ltd. v. A.O. and Anr. [2008] 299 ITR 444 (SC) but in that order the issue was setting off of losses from industrial undertaking eligible for deduction under section 80I(6) whereas in the present case, the deduction under section 80IB is specific to the project and therefore, the overall profits/losses have to be considered.
5. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.
6. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above.”
4. The grounds raised at S.Nos.1, 5 and 6 being general in nature, no adjudication is called for thereon.
5.1 The grounds raised at S. Nos. 2 to 4 (supra) contend that the learned CIT (Appeals) erred in allowing set off of the loss of Rs. 12,91,01,772 under section 80IB(10) project without considering the provisions of section 80IA(5). The learned Departmental Representative assailing the order of the learned CIT (Appeals) submitted that there was no scope for application of the provisions of section 70(1) of the Act. He submitted that the assessee had claimed deduction under section 80IB(10) of the Act in the past Assessment Years and if the present loss is considered, the project as a whole did not earn any profits. The set off of this loss as directed by the learned CIT (Appeals) would give double benefit to the assessee. He also submitted that the provisions of section 80IA(5) require that the income from the eligible business is to be treated as a single source of income. He further submitted that the decision of the Hon’ble Apex Court in the case of Synco Industries Ltd (supra) cannot be applied to the present case. The learned Departmental Representative vehemently pleaded that the finding in the order by the learned CIT (Appeals) on this issue be reversed and that of the Assessing Officer be restored.
5.2 Per contra, the learned counsel for the assessee supported the orders of the learned CIT (Appeals). The learned counsel for the assessee submitted that the provisions of section 80IA(5) of the Act would not impinge on the set off of the losses to arrive at the gross total income. He further submitted that section 80IA(5) of the Act, would not be applicable to the deduction claimed under section 80IB(10) of the Act, as there is no concept of initial assessment year under section 80IB(10) of the Act. The learned counsel for the assessee also submitted that the provisions of section 80IB(13) of the Act, which makes applicable the provisions of section 80IA(5) to section 80IB also, is clear in the sense that the provisions would apply only ‘so far as may be’. The provisions of section 80IB(5), cannot apply to the deduction claimed under section 80IB(10) of the Act, in the absence of initial assessment year. In these circumstances, the learned counsel for the assessee pleaded that the order of the learned CIT (Appeals) be upheld.
5.3.1 We have heard both parties and have carefully perused and considered the material on record. At the outset it must be mentioned here that the Hon’ble Apex Court in the case of Synco Industries Ltd (supra) was concerned with tot withstanding anything contained in any other provisions of Section 80-I(6) of the Act, as it existed at that relevant point of time and the same is extracted hereunder for clarity :
“Section 80-I(6) – Notwithstanding anything contained in any other provisions of this Act, the profits and gains of an industrial undertaking on a ship or the business of a hotel (or the business of repairs to ocean going vessels or other powered craft) to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or business of the hotel (or the business of repairs to ocean going vessels or other powered craft) were the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be made.”
Let us also peruse and consider the provisions of section 80-IA(5) of the Act which is relied on by the Assessing Officer which is also extracted hereunder :
“Section 80-IA(5) – Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.”
5.3.2 From a perusal and comparison of both these provisions, namely sections 80-I(6) and 80-IA(5) of the Act, it is seen that the provisions of section 80-IA(5) of the Act, it is seen that the provisions of section 80-IA(5) of the Act are couched in similar language to the erstwhile provisions of section 80I(6) of the Act. In other words, the restriction contemplated under section 80I(6) of the Act, is the same as the restriction contemplated under section 80-IA(5) of the Act. It is in this context that the Hon’ble Apex Court in the case of Synco Industries Ltd (supra) held after an elaborate analysis of the provisions at paras 12 and 13 of its order which are extracted and reproduced hereunder :
“12. The contention that under section 80-I(6) the profits derived from one industrial undertaking cannot be set off against loss suffered from another and the profit is required to be computed as if profit making industrial undertaking was the only source of income, has no merits. Section 80-I(1) lays down that where the gross total income of the assessee includes any profits derived from the priority undertaking/unit/division, then in computing the total income of the assessee, a deduction from such profits of an amount equal to 20 per cent has to be made. Section 80-I(1) lays down the broad parameters indicating circumstances under which an assessee would be entitled to claim deduction. On the other hand section 80-I(6) deals with determination of the quantum of deduction – section 80-I(6) lays down the manner in which the quantum of deduction has to be worked out. After such computation of the quantum of deduction, one has to go back to section 80-I(1) which categorically states that where the gross total income includes any profits and gains derived from an industrial undertaking to which section 80-I applies then there shall be a deduction from such profits and gains of an amount equal to 20 per cent. The words “includes any profits” used by the legislature in section 80-I(1) are very important which indicate that the gross total income of an assessee shall include profits from a priority undertaking. While computing the quantum of deduction under section 80-I(6) the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income in order to arrive at the deduction under Chapter VI-A. However, this court finds that the non obstante clause appearing in section 80-I(6) of the Act, is applicable only to the quantum of deduction, whereas, the gross total income under section 80B(5) which is also referred to in section 80-I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. If the interpretation as suggested by the appellant is accepted it would almost render the provisions of section 80A(2) of the Act nugatory and therefore the interpretation canvassed on behalf of the appellant cannot be accepted. It is true that under section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income. However, section 80A(2) and section 80B(5) are declaratory in nature. They apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and therefore the non obstante clause in section 80-I(6) cannot restrict the operation of sections 80A(2) and 80B(5) which operate in different spheres. As observed earlier section 80-I(6) deals with actual computation of deduction whereas section 80-I(1) deals with the treatment to be given to such deductions in order to arrive at the total income of the assessee and therefore while interpreting section 80-I(1), which also refers to gross total income one has to read the expression ‘gross total income’ as defined in section 80B(5). Therefore, this court is of the opinion that the High Court was justified in holding that the loss from the oil division was required to be adjusted before determining the gross total income and as the gross total income was ‘Nil’ the assessee was not entitled to claim deduction under Chapter VI-A which includes section 80-I also.
13. The proposition of law, emerging from the above discussion is that the gross total income of the assessee has first got to be determined after adjusting losses, etc., and if the gross total income of the assessee is ‘Nil’ the assessee would not be entitled to deductions under Chapter VI-A of the Act.”
5.3.3 The above decision of the Hon’ble Apex Court squarely supports the case of the assessee that the provisions of section 80 IA(5) of the Act would not restrict the operation of the provisions of section 70(1) of the Act with respect to the set off of the loss. The operation of the provision of section 80 IA(5) of the Act is restricted to the computation of the quantum of deduction for which it has to be considered that the eligible business is the only source of income. That restriction, however, cannot be applied to render the concept of gross total income in terms of section 80B(5) to be determined before the set off of the losses under section 70(1) of the Act. We are, therefore, of the view that the learned CIT (Appeals) has rightly applied the decision of the Hon’ble Apex Court in the case of Synco Industries Ltd (supra) and that there is no merit in the plea of revenue that the said judgment is not applicable to the facts of the present case of the assessee.
5.3.4 That apart, the learned counsel for the assessee has rightly contended that the provisions of section 80IA(5) of the Act applies in computing the profits of an eligible business for the purposes of working out the quantum of deduction for the initial assessment year and for every subsequent year thereafter. The incentive deductions both under section 80 IA and 80 IB of the Act have the concept of initial assessment year in respect of almost all eligible business. However, with respect to the eligible business to which the provisions of section 80IB(10) of the Act apply, there is no concept of “initial assessment year.” The deduction is granted to undertakings engaged in the business of developing and building housing projects on certain conditions being fulfilled. The provisions of section 80IB(13) of the Act, that makes the provisions of section 80IA(5) applicable to section 80 IB also, applies only ‘so far as may be’. Thus, by virtue of the fact that there is no concept of initial assessment year under section 80IB(10) of the Act, we are also of the view that the provisions of section 80IA(5) of the Act would not be applicable to the deduction claimed under section 80IB(10) of the Act. From this angle of the matter also, we find no merit in the view taken by revenue.
6. In these circumstances, as discussed above from paras 5.3.1 to 5.3.4 of this order, we do not find any reason to interfere with the order of the learned CIT (Appeals) in this case and therefore confirm his order.
7. In the result revenue’s appeal is dismissed.
