No Provision to Replace Actual Land Cost with Market Value for Section 80-IB(10) Deduction: ITAT Chennai

Baashyam Constructions Pvt. Ltd. Vs ITO (ITAT Chennai)

The Tribunal held that there is no provision under the Income-tax Act permitting substitution of actual cost of land with its market value for the purpose of computing deduction under Section 80-IB (10)

Facts:

• The Appellant/assessee, Baashyam Constructions Pvt. Ltd., is a company engaged in the business of real estate development. For the Assessment Year 2010–11, the assessee filed its return of income on 30.09.2010 declaring NIL income after claiming deduction under Section 80-IB (10) of the Income Tax Act, 1961 amounting to Rs.27,76,97,278/-. The assessee also computed book profits under Section 115JB at Rs.27,79,97,773/-.
• The assessee owned land admeasuring 4.45 acres situated at Kattupakkam Village near Iyyappan Thangal, Chennai, which was held as stock-in-trade. The assessee entered into a Joint Development Agreement (JDA) dated 16.07.2006 with M/s ETA Properties & Investments Ltd. for development of a housing project known as “Jasmine Court.”
• Under the terms of the Joint Development Agreement, the responsibilities between the parties were specifically demarcated. The assessee was entrusted with preparatory activities, reclassification of land, design and architectural work, whereas M/s ETA Properties & Investments Ltd. was responsible for construction of the buildings. It was agreed that the builder would undertake the entire construction at its own cost. In consideration thereof, M/s ETA Properties & Investments Ltd. agreed to allot 73 flats, representing 33.33% share of the total built-up area, to the assessee. Correspondingly, the assessee agreed to assign and convey 66.67% of the total land area, i.e., 2.96 acres out of 4.45 acres, to the builder.
• Upon receipt of the said 73 flats, the assessee sold the same and derived revenue amounting to Rs.31,28,77,343/-. After reducing costs and expenses debited in the Profit & Loss Account in relation to the said housing project, the assessee claimed deduction under Section 80-IB (10) amounting to Rs.27,76,97,278/-.
• The case of the assessee was selected for scrutiny assessment. During the course of assessment proceedings, the Assessing Officer called upon the assessee to justify its claim for deduction under Section 80-IB (10). The Assessing Officer observed that the profits derived by the assessee from the housing project appeared unusually high and formed the opinion that the assessee had merely exchanged land in lieu of 73 flats and was not involved in actual execution of the housing project. On this basis, the Assessing Officer held that the assessee had not fulfilled the conditions prescribed under Section 80-IB (10) and accordingly denied the deduction claimed by the assessee.
• Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). Vide appellate order dated 24.03.2015, the Ld. CIT(A) held, in principle, that the assessee was involved in execution of the housing project and was legally entitled to deduction under Section 80-IB (10) of the Act. However, while quantifying the eligible deduction, the Ld. CIT(A) observed that the cost of land had not been debited by the assessee in its Profit & Loss Account and therefore directed that the cost of construction of the 73 flats or the fair market value of 2.96 acres of land be substituted as cost for the purpose of computing eligible profits.
• Pursuant to the aforesaid appellate order, the Assessing Officer passed order under Sections 250/143(3) on 25.07.2016 and adopted the fair market value of land at Rs.18,36,38,273/-. Consequently, deduction under Section 80-IB (10) was restricted to Rs.9,33,37,681/-.
• Meanwhile, the Revenue preferred an appeal before the Income Tax Appellate Tribunal against the order of the Ld. CIT(A). The Tribunal, vide order dated 12.06.2017 in ITA No.1646/Mds/2015, allowed the Revenue’s appeal and restored the order of the Assessing Officer denying deduction under Section 80-IB (10).
• Aggrieved thereby, the assessee carried the matter in appeal before the Madras High Court. The Hon’ble High Court, reported in 422 ITR 346, allowed the appeal of the assessee and held that the assessee was a developer executing the housing project along with the builder and was therefore entitled to deduction under Section 80-IB (10) of the Act.
• The Hon’ble High Court further rejected the Revenue’s contention regarding alleged double deduction and observed that both parties were claiming deduction only qua their respective proportionate shares in the housing project and therefore no double deduction arose.
• The Hon’ble High Court also took note of the factual position that the assessee had in fact debited Work-in-Progress (WIP) amounting to Rs.2.22 crores in its Profit & Loss Account, which included land cost of Rs.1,97,63,024/- pertaining to the housing project and acquired during Financial Years 2004–05 and 2005–06. The High Court therefore observed that the findings of the lower authorities that no expenses were debited in the Profit & Loss Account were incorrect.
• Thereafter, upon receipt of the judgment of the Hon’ble High Court, the assessee filed a rectification application dated 04.07.2019 under Section 154 of the Income Tax Act before the Ld. CIT(A). In the said application, the assessee contended that the direction issued by the earlier CIT(A) requiring substitution of actual land cost with cost of construction of flats or fair market value of land was factually and legally erroneous because the actual land cost had already been debited in the books of account and reduced while computing profits. The assessee further contended that there existed no provision under the Income Tax Act permitting substitution of historical cost with fair market value for computation of deduction under Section 80-IB(10).
• Since the rectification application was not disposed of, the assessee approached the Hon’ble High Court by filing Writ Petition No.29382 of 2024. The Hon’ble High Court, vide order dated 03.07.2025, directed the Ld. CIT(A) to expeditiously dispose of the rectification application filed by the assessee.
• Pursuant to the directions of the Hon’ble High Court, the Ld. CIT(A), vide impugned order dated 14.11.2025, rejected the rectification application on the ground that the earlier order had merged with the orders of higher judicial forums and therefore the application under Section 154 was not maintainable. The Ld. CIT(A) further held that he could not sit in review over the judgment passed by his predecessor.
• Aggrieved by the rejection of the rectification application, the assessee preferred the present appeal before the Income Tax Appellate Tribunal, Chennai Bench.

Issue:

• Whether, on the facts and in the circumstances of the present case, the directions issued by the Learned CIT(A) in the appellate order dated 24.03.2015 for re-working and quantifying the eligible deduction under Section 80-IB (10) of the Income Tax Act, 1961 constituted a mistake apparent from the record, amenable to rectification under Section 154 of the Act.

Observations:

• The tribunal observed that, the facts as discussed above, the undisputed position is that, the assessee is legally entitled to claim deduction u/s 80-IB (10) of the Act in relation to the profits derived from the housing project named ‘Jasmine Court’. The narrow issue in question before us relates to the correct quantification of the eligible deduction and that, whether the directions given by the Ld. CIT(A) in the first appellate order dated 24.03.2015 for re-working the eligible deduction constituted a mistake rectifiable u/s 154 of the Act or not.
• It is noticed from the financials of the assessee that, it had undertaken only one housing project during the year, i.e. Jasmine Court and had derived revenues of Rs.31,28,77,343/- from sale of the flats. The assessee is noted to have debited aggregate costs and expenses of Rs.3,74,13,713/- in the P&L A/c which is found to include WIP of Rs.2.22 crores. The assessee had accordingly computed eligible deduction of Rs.27,76,97,278/- with reference to the profits derived from this housing project. As noted earlier, there is no quarrel that the assessee is entitled to deduction u/s 80-IB (10), as was also held by the ld. CIT(A) in his appellate order dated 24.03.2015. The ld. CIT(A) however is found to have mistakenly observed that the assessee had not debited the cost of land while working out the surplus derived from this housing project. According to the ld. CIT(A), the details of the cost of land was not available with him and therefore, he had directed the AO to substitute the same with the cost of construction of the 73 flats sold during the year, as the cost of land, for working out the eligible deduction u/s 80-IB(10) of the Act. It is seen from the records that, this particular finding of the ld. CIT(A) was factually erroneous as the WIP of Rs.2.22 crores is found to include the cost of land of Rs.1,97,63,024/-, which was purchased by the assessee in FYs 2004-05 and 2005-06.
• It is also observed that, there is also merit in the submission of the assessee that the terms of the JDA dated 16.07.2006 between the assessee and the builder clearly showed that the cost of construction of the entire housing complex was to be borne by the builder on his own account and that, no portion of such cost was borne by the assessee. Accordingly, we agree with the ld. AR that the ld. CIT(A)’s direction to assume that the cost of construction of 73 flats, was incurred by the assessee and thereby direct the AO to deduct the same from the sale proceeds, was prima facie erroneous and constituted an apparent mistake evident from the records.
• We also find force in the assessee’s contention that, there was no provision or Rule in the Income-tax laws which permitted substitution of cost of land with the market value of land, to arrive at the eligible profits u/s 80-IB (10) of the Act. It is not in dispute that, the assessee held land parcels as stock in trade, which was acquired in FYs 2004-05 and 2005-06 and formed part of the WIP debited to the P&L A/c. Hence, it is seen that, the assessee had indeed considered the cost of land while arriving at the profits of the eligible housing project. The profit from any business is the resultant effect of revenues less the actual costs. There is no provision or rule which permits substitution of actual costs with any notional value. Accordingly, the direction issued by the Ld. CIT(A) to alternatively substitute the market value of land admeasuring 2.96 acres as the cost of land of 4.45 acres developed in this project, was ex facie without logic and a patent error of law and therefore amenable to Section 154 of the Act.
• There is yet another aspect brought to the notice by the ld. AR for the assessee. He pointed out that, if the ld. CIT(A)’s direction was to be taken to its logical conclusion, then the cost of land determined as per his directions, viz. cost of construction of 73 flats / market value of land of 2.96 acres, was required to be recorded in the re-drawn P&L A/c and the gross total income of the assessee was also required to be restated by reducing the sum of Rs.18,36,38,273/-. It is seen that, the assessee was undertaking only this housing project ‘Jasmine Court’ and thus as a natural corollary, the business income reported in the income-tax return would comprise of profits from this housing project and consequentially the value of profits eligible for deduction u/s 80-IB (10) of the Act would be equivalent to this business income. The Ld. AR has rightly pointed out that, the direction issued by the Ld. CIT(A) was equally applicable to the computation of business income / gross total income as well, and that the AO could not have reworked the eligible profits u/s 80-IB(10), in isolation of the actual profits derived from the housing project. We are also unable to fathom a situation where the actual profits as per the financials from the eligible project and the amount eligible for deduction u/s 80-IB (10) could be two completely different numbers. It was shown to us that, once the computation of gross total income is also substituted with the cost of 73 flats, as directed by the Ld. CIT(A), then the same would stand correspondingly reduced by Rs 18,36,38,273/-. Further, after reducing the re-worked deduction u/s 80-IB(10), the resultant assessable income would remain the same, as declared in the return of income. Hence, from this angle as well, the direction given by the Ld. CIT(A) is found to be prima facie an error of fact.
• We observe that the Ld. CIT(A) in the impugned order fell into an error by holding that the prayer made by the assessee was not within the scope of rectification. The powers u/s 154 of the Act permits the Ld. CIT(A) to rectify any mistake, albeit by his predecessor, which is “apparent from the record”. The Ld. CIT(A) is permitted to examine the records and if he discovers that he or his predecessor has made a mistake, he can rectify the error and the error which can be corrected may be an error of fact or of law. For this, we gainfully refer to the following observations made in the judgment of the Hon’ble Supreme Court in the case of Asoka Textiles Ltd. v. ITO [41 ITR 732], wherein it was inter alia observed as under i.e., an evident error which does not require any extraneous matter to show its incorrectness. The error may be one of fact but is not limited to matters of fact and include also errors of law. But the law must be definite and capable of ascertainment. An erroneous view of law on a debatable point or a wrong exposition of the law or a wrong application of the law or a failure to apply the appropriate law cannot be considered a mistake or error apparent on the face of the record.
• The tribunal also observed that, the decision of the Hon’ble Madras High Court in the case of English Electric Company of India Ltd. Vs CIT (132 ITR 251). In the decided case, the assessee had filed revised return of income reflecting higher amount of capital, which was described as excess of depreciation reserve over depreciation allowable. The AO proceeded on the revised workings and completed the assessment. Later on, the AO discovered from the balance sheet that there was difference between the written down value in the income-tax records and the value in accordance with the assessee’s books was not reflected in the balance-sheet as any reserve and therefore exercise the powers of rectification u/s 154 of the Act and made the necessary rectification to the total income. The assessee, in this case, had claimed that, there was no error in the original assessment and therefore the rectification order was invalid. On appeal, the Hon’ble High Court held that, where the error was discoverable from analysis of the books of accounts and balance sheet, which revealed inconsistency, the same had to be rectified. The Hon’ble High Court remarked that, “what is sauce for the goose is also sauce for the gander. The Hon’ble High Court thus upheld the validity of the rectification order.
• In our considered view, the above analogy is applicable to the present case as well. As noted above, the financials of the assessee revealed that the cost of land had been debited and charged to P&L A/c. The Ld. CIT(A) however had proceeded on the mistaken premise that, the cost of land had not been debited and therefore directed the AO to re-work the deduction by substituting cost of land, in absence of details, with the cost of construction of 73 flats or market value of land of 2.96 acres. We find that, this particular finding / direction of the Ld. CIT(A) was clearly inconsistent with the face of P&L A/c and the Balance Sheet clearly, and therefore, is required to be rectified u/s 154 of the Act.
• In the facts and circumstances as discussed (supra), the Ld. CIT(A) is incorrect to hold that the order of his predecessor had merged with the order of the higher judicial forums and therefore, he is helpless and not rectify the impugned direction. In this regard, it is observed that the Tribunal has adjudicated on the sole issue as to whether the assessee, in principle, was eligible for deduction u/s.80-IB (10) of the Act. Even the questions framed before the Hon’ble High Court in the appeal filed against the order of this Tribunal, was on the question of eligibility for claiming deduction u/s 80-IB (10) of the Act. It is seen that, the impugned direction of the Ld. CIT(A) or the quantification of the eligible deduction was never subject matter in appeals and therefore the doctrine of merger doesn’t apply in the facts of the case. Rather, we find that, the Hon’ble High Court while adjudicating the assessee’s appeal (supra) had observed that, the cost of land formed part of the WIP debited to P&L A/c and that the Tribunal had erred in observing that no expenses were charged against the sale proceeds in the P&L A/c.
• Also the tribunal observed that, the legal maxim ‘actus curiae neminem gravabit’ comes to the aid of assessee, is noted to be founded upon justice and good sense and affords a safe and certain guide for the administration of the law. Meaning ‘an act of court shall prejudice no man’ which maxim has been approved by the Hon’ble Supreme Court in several cases [Refer decision of Supreme Court in Jayalakshmi Coelho v. Oswald Joseph AIR 2001 SC 1084].
• For the reasons above, the tribunal observed that, the Ld. CIT(A) was unjustified in rejecting the rectification application filed by the assessee. We are of the view that the direction issued by the Ld. CIT(A) in the appellate order dated 24.03.2015 directing the AO to substitute the cost of land with the cost of construction of 73 flats / market value of 2.96 acres of land, was an error of law as well as error on fact. We are therefore inclined to expunge this direction and rectify the order of the Ld. CIT(A) to that extent. As observed by us above, the cost of land already formed part of the WIP debited in P&L A/c and therefore no further adjustment was warranted to the profits of the assessee. The AO shall accordingly re-compute and allow the deduction u/s 80-IB(10) with reference to the profits as disclosed in the Profit & Loss Account. Needless to say, the AO shall pass a speaking order in this regard. In the result, the appeal of the assessee stands allowed.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal preferred by the assessee is against the order of the Learned Commissioner of Income Tax (Appeals)-19, Chennai (hereinafter referred to as ‘Ld.CIT(A)’) dated 14.11.2025 for the Assessment Year (hereinafter referred to as ‘AY’) 2010-11.

2. Briefly stated, the facts of the case are that, the assessee company is engaged in the business of real estate. The assessee had filed the return of income for the relevant AY 2010-11 on 30.09.2010, declaring NIL income after claiming deduction u/s. 80-IB(10) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) at Rs.27,76,97,278/- and computed book profits u/s.115JB of the Act at Rs.27,79,97,773/-. The case of the assessee was selected for scrutiny. In the course of assessment, the AO had called for details from the assessee to justify the deduction claimed u/s 80-IB(10) of the Act. It is seen that, the assessee was owning land admeasuring 4.45 acres at Kattupakkam village, near Iyyappan Thangal, which was held by way of stock-in-trade. The assessee had promoted a housing project through a Joint-Venture (JV) with M/s. ETA Properties & Investments Ltd (hereinafter referred to as ‘M/s ETA’ or ‘builder’). According to the terms of the Joint Development Agreement (JDA) dated 16.07.2006 between the assessee and M/s. ETA, the tasks and responsibilities inter-se were assigned between them. The assessee was required to undertake the preparatory activities, reclassification of land, design and architectural work and, M/s ETA was required to construct the buildings. It was agreed that, the builder shall undertake the entire construction at its own cost and shall allot 33.33% i.e. seventy-three (73) flats to the assessee out of the total built-up area. The assessee in lieu of the same had agreed to assign and convey 66.67% of the total land area i.e. 2.96 acres out of 4.45 acres, to M/s ETA, and accordingly mutually agreed to the terms and conditions as laid down in the agreement. The assessee, upon receipt of the seventy-three (73) flats, had sold the same and derived revenues of Rs.31,28,77,343/-. After deducting the cost and expenses debited to P&L A/c in relation to this housing project, the assessee had claimed deduction of Rs.27,76,97,278/-u/s 80-IB(10) of the Act. According to the AO, the profits derived from the housing project in proportion to the sales was unusually high. The AO was of the view that, the assessee had simply sold its land in lieu of seventy-three (73) flats and therefore was not involved in execution of housing project. The AO thus held that, the conditions laid down in Section 80-IB(10) had not been met by the assessee and thus denied the deduction so claimed in the return of income.

3. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) vide his order dated 24.03.2015, in principle, held that the assessee was involved in execution of housing project and met the conditions laid down in Section 80-IB of the Act and was thus legally entitled to deduction u/s 80-IB(10) of the Act. However, while quantifying the eligible deduction, the Ld. CIT(A) was of the view that, the cost of land had not been debited by the assessee in P&L A/c and that the same was required to be considered to arrive at the correct profits. In absence of details of cost of land, the Ld. CIT(A) directed that the cost of construction of 73 flats or the market value of the land of 2.96 acres, may be taken in place and stead of the same.

4. Pursuant to the above order of the Ld. CIT(A), the AO passed the order u/s 250/143(3) of the Act on 25.07.2016, wherein he valued the fair market value of land at Rs.18,36,38,273/- and accordingly allowed deduction u/s 80-IB(10) to the extent of Rs.9,33,37,681/-.

5. In the meanwhile, the Revenue being aggrieved by the order of Ld. CIT(A), had preferred an appeal before this Tribunal, which vide order dated 12.06.2017 in ITA No.1646/Mds/2015 allowed the appeal and restored the order of AO denying the deduction u/s 80-IB(10) of the Act.

6. Being aggrieved by the order of this Tribunal, the assessee carried the matter in appeal before the Hon’ble Madras High Court. The Hon’ble High Court vide their order reported in 422 ITR 346, allowed the appeal of the assessee, and held that the assessee was a developer executing the housing project along with the builder and therefore was entitled to deduction u/s 80-IB(10) of the Act. The Hon’ble High Court also rejected the Revenue’s plea that, by allowing deduction u/s 80-IB(10) to both the assessee and the builder, it was amounting to double deduction. It was observed by the Hon’ble High Court that it was not a case of double deduction as both parties were claiming deduction qua their respective proportionate share. While holding so, the Hon’ble High Court also reversed the findings of the lower authorities that, no expenses had been debited in P&L A/c in relation to development of this housing project. The Hon’ble High Court took note of the obiter dicta in the appellate order of Ld. CIT(A) wherein he had taken note of the cost of WIP of Rs.2.22 crores debited in P&L A/c and observed that, the same was inclusive of the cost of land of Rs.1,97,63,024/- developed for this housing project, which was acquired in FYs 2004-05 & 2005-06. The relevant findings of the Hon’ble High Court, which is relevant to the issue impugned in this appeal, is as follows:-

“20. Mrs. R. Hemalatha, learned Senior Standing Counsel reiterated that the Tribunal has recorded that there is no expenditure incurred by the assessee as could be seen from the P & L Account. As pointed out earlier, this aspect was specifically considered by the CIT(A) in the following terms in paragraph 4.2.1 of the order dated 24.03.2015, which is as follows:-

4.2.1. As seen from the facts of the case, the appellant cannot be denied deduction u/s 80IB(10) as it otherwise fulfills all the conditions. However, as seen from the P & L the appellant has not taken the cost of the land into consideration thereby claiming more surplus income for the purpose of 80IB(10) benefit. The appellant has shown only increase in work-in-progress of Rs.2.22 crores along with some minimal expenses in its P & L but this has nothing to do with the cost of the land alone. From the details submitted, the cost of the land was as under –

21. The correctness of the above finding was not considered by the Tribunal and the Tribunal merely stated that no expenses were recorded in the P & L account. Therefore, the contention advanced by the Revenue in this regard is not tenable. That apart, a plain reading of Section 80IB(10) of the Act evidently makes it clear that deduction is available in a case where an undertaking develops and builds a housing project. The Section clearly draws the distinction between ‘developing’ and ‘building’. In the preceding paragraphs, we have noted the factual position as could be culled out from the joint venture agreement, which clearly shows that the assessee is the developer and M/s. ETA is the builder and mutual rights and obligations are inextricably linked with each other and undoubtedly, the project is a housing project thereby, the assessee would be entitled to claim deduction under Section 80IB (10) of the Act.

22. Thus, for the above reasons, we hold that the Tribunal erred in reversing the order passed by the CIT(A).

23. Mrs.R.Hemalatha, learned Senior Standing Counsel submitted that the builder, M/s.ETA has also claimed deduction and it would amount to double deduction. We find that the authorised representative, who appeared on behalf of the assessee specifically stated that there is no case of double deduction and it is only proportionate to their respective shares. We find that the Tribunal has not given any finding as to any double deduction and therefore, such a plea cannot be canvassed before us in this appeal.

24. In the result, the appeal filed by the assessee is allowed; the order passed by the Tribunal, dated 12.06.2017, is set aside; the order passed by the CIT(A) dated 24.03.2015, is restored; and the substantial questions of law are answered in favour of the assessee. No costs. Consequently, connected miscellaneous petitions are closed.

7. Upon receipt of the above order of the Hon’ble High Court, the assessee is noted to have preferred a rectification application dated 04.07.2019 before the Ld. CIT(A) u/s 154 of the Act. The assessee asserted that, it was now an admitted fact that, the cost of land was already debited in P&L A/c and reduced from the computation of profits and therefore the direction issued by the Ld. CIT(A) to substitute the cost of land of 4.45 acres (in absence of details) with the cost of construction of 73 flats or the FMV of 2.96 acres, was erroneous and factually perverse, which required rectification. It was further submitted that, there is no provision in law which permits the Revenue to substitute the historical cost with fair market value and thus this particular direction was claimed to be an error of law and fact which is apparent from record, and is required to be rectified. It was brought to our notice that, since the Ld. CIT(A) did not take up this rectification application, the assessee had preferred a writ petition before the Hon’ble High Court. The Hon’ble High Court by their order in W.P. No.29382 of 2024 dated 03.07.2025 took note of the rectification application filed by the assessee and thus directed the Ld. CIT(A) to expeditiously dispose off the same.

8. Pursuant to the above directions of the Hon’ble High Court, the Ld. CIT(A) vide impugned order dated 14.11.2025 rejected the rectification application. According to the Ld. CIT(A), the order of his predecessor had merged with the orders of the higher judicial forums and therefore the petition filed u/s 154 of the Act was not entertainable. The Ld. CIT(A) observed that, the AO had also given effect to the order of his predecessor and thus he cannot sit and review over the judgment of his predecessor. Aggrieved by the order of Ld. CIT(A), the assessee is now in appeal before us.

9. Assailing the action of the Ld. CIT(A), the Ld. AR for the assessee submitted that, the direction issued by his predecessor requiring the AO to ascertain the cost of construction of 73 flats and reduce the same from the sale proceeds to arrive at the eligible profits, was ex-facie erroneous and perverse which required rectification. He showed us that, the aforesaid direction emanated from the erroneous finding that, the assessee had not debited the cost of land in the P&L A/c. He brought to our notice that, the cost of WIP of Rs.2,22,00,097/- debited in P&L A/c included cost of land of Rs.1,97,63,024/-, and also furnished the copy of purchase deeds in support of the same. He thus submitted that, when the facts available on record clearly showed that the cost of land was Rs.1,97,63,024/-, the direction of the Ld. CIT(A) to adopt the cost of construction of 73 flats as the cost of land was factually perverse, and thus rectifiable u/s 154 of the Act. He submitted that, even the Hon’ble High Court, while allowing the appeal of the assessee, had taken note of this particular mistake of fact assumed by the Tribunal. The Ld. AR further submitted that, there was no dispute by the Revenue that, the entire cost of construction of the building including that of 73 flats was borne by the builder, M/s ETA and therefore the direction of the Ld. CIT(A) assuming the cost of construction of 73 flats to be on account of the assessee, was otherwise also a mistake apparent from record. The Ld. AR showed us that, the financials of the assessee reflected the costs expended towards the project and therefore there was no need to substitute the cost of construction borne by the builder, to determine the profits for the purpose of deduction u/s.80-IB(10) of the Act. The Ld. AR further submitted that, as per the well accepted principles of revenue recognition, the consideration received by the assessee as reduced by the actual cost should be the profit as per books eligible for deduction u/s.80IB(10) of the Act and there can’t be any substitution of any cost other than the historical cost. It was also brought to our notice that, there was no provision under the Act or in Accounting Standards to adopt two different quantum of profits from the same residential project, one for the purpose of determining the gross total income and the other for the purpose of claim of deduction u/s.80-IB(10) of the Act. The Ld. AR thus contended that, the direction issued by the Ld. CIT(A) was completely illogical and thus was rectifiable u/s 154 of the Act. He therefore urged us that, this particular direction of Ld. CIT(A) be rectified and the AO be directed to re-work the eligible profits, as per the financials of the assessee.

10. On the other hand, the Ld. DR appearing for the Revenue supported the order of Ld. CIT(A) and submitted that the scope of rectification was limited. He argued that, the contention of the assessee, if upheld, would amount to review and not rectification of the order.

11. Heard both the parties. From the facts as discussed above, the undisputed position is that, the assessee is legally entitled to claim deduction u/s 80-IB(10) of the Act in relation to the profits derived from the housing project named ‘Jasmine Court’. The narrow issue in question before us relates to the correct quantification of the eligible deduction and that, whether the directions given by the Ld. CIT(A) in the first appellate order dated 24.03.2015 for re-working the eligible deduction constituted a mistake rectifiable u/s 154 of the Act or not.

12. It is noticed from the financials of the assessee that, it had undertaken only one housing project during the year, i.e. Jasmine Court and had derived revenues of Rs.31,28,77,343/- from sale of the flats. The assessee is noted to have debited aggregate costs and expenses of Rs.3,74,13,713/- in the P&L A/c which is found to include WIP of Rs.2.22 crores. The assessee had accordingly computed eligible deduction of Rs.27,76,97,278/- with reference to the profits derived from this housing project. As noted earlier, there is no quarrel that the assessee is entitled to deduction u/s 80-IB(10), as was also held by the ld. CIT(A) in his appellate order dated 24.03.2015. The ld. CIT(A) however is found to have mistakenly observed that the assessee had not debited the cost of land while working out the surplus derived from this housing project. According to the ld. CIT(A), the details of the cost of land was not available with him and therefore, he had directed the AO to substitute the same with the cost of construction of the 73 flats sold during the year, as the cost of land, for working out the eligible deduction u/s 80-IB(10) of the Act. It is seen from the records that, this particular finding of the ld. CIT(A) was factually erroneous as the WIP of Rs.2.22 crores is found to include the cost of land of Rs.1,97,63,024/-, which was purchased by the assessee in FYs 2004-05 and 2005-06. We find that though the ld. CIT(A) had also taken cognizance of the same in the appellate order but had erroneously proceeded on the mistaken assumption that the cost of land had not been debited by the assessee in the P&L A/c. Our view is also supported by the findings of the Hon’ble High Court rendered in the assessee’s own case (supra) wherein their Lordships have taken cognizance of this material fact as well. Hence, we find that the direction issued by the ld. CIT(A) was based on a prima facie erroneous assumption viz., the cost of land had not been considered by the assessee for computing the deduction u/s 80-IB(10) of the Act. According to us therefore, this mistaken assumption of the ld. CIT(A) and the consequent direction to adopt the cost of construction of 73 flats / market value of 2.96 acres of land as the substitute for the cost of land, was an apparent error of fact, which was rectifiable u/s 154 of the Act.

13. There is also merit in the submission of the assessee that the terms of the JDA dated 16.07.2006 between the assessee and the builder clearly showed that the cost of construction of the entire housing complex was to be borne by the builder on his own account and that, no portion of such cost was borne by the assessee. Accordingly, we agree with the ld. AR that the ld. CIT(A)’s direction to assume that the cost of construction of 73 flats, was incurred by the assessee and thereby direct the AO to deduct the same from the sale proceeds, was prima facie erroneous and constituted an apparent mistake evident from the records.

14. We also find force in the assessee’s contention that, there was no provision or Rule in the Income-tax laws which permitted substitution of cost of land with the market value of land, to arrive at the eligible profits u/s 80-IB(10) of the Act. It is not in dispute that, the assessee held land parcels as stock in trade, which was acquired in FYs 2004-05 and 2005-06 and formed part of the WIP debited to the P&L A/c. Hence, it is seen that, the assessee had indeed considered the cost of land while arriving at the profits of the eligible housing project. The profit from any business is the resultant effect of revenues less the actual costs. There is no provision or rule which permits substitution of actual costs with any notional value. Accordingly, the direction issued by the Ld. CIT(A) to alternatively substitute the market value of land admeasuring 2.96 acres as the cost of land of 4.45 acres developed in this project, was ex facie without logic and a patent error of law and therefore amenable to Section 154 of the Act.

15. There is yet another aspect brought to our notice by the ld. AR for the assessee. He pointed out that, if the ld. CIT(A)’s direction was to be taken to its logical conclusion, then the cost of land determined as per his directions, viz. cost of construction of 73 flats / market value of land of 2.96 acres, was required to be recorded in the re-drawn P&L A/c and the gross total income of the assessee was also required to be restated by reducing the sum of Rs.18,36,38,273/-. It is seen that, the assessee was undertaking only this housing project ‘Jasmine Court’ and thus as a natural corollary, the business income reported in the income-tax return would comprise of profits from this housing project and consequentially the value of profits eligible for deduction u/s 80-IB(10) of the Act would be equivalent to this business income. The Ld. AR has rightly pointed out that, the direction issued by the Ld. CIT(A) was equally applicable to the computation of business income / gross total income as well, and that the AO could not have reworked the eligible profits u/s 80-IB(10), in isolation of the actual profits derived from the housing project. We are also unable to fathom a situation where the actual profits as per the financials from the eligible project and the amount eligible for deduction u/s 80-IB(10) could be two completely different numbers. It was shown to us that, once the computation of gross total income is also substituted with the cost of 73 flats, as directed by the Ld. CIT(A), then the same would stand correspondingly reduced by Rs 18,36,38,273/-. Further, after reducing the re-worked deduction u/s 80-IB(10), the resultant assessable income would remain the same, as declared in the return of income. Hence, from this angle as well, the direction given by the Ld. CIT(A) is found to be prima facie an error of fact.

16. We observe that the Ld. CIT(A) in the impugned order fell into an error by holding that the prayer made by the assessee was not within the scope of rectification. The powers u/s 154 of the Act permits the Ld. CIT(A) to rectify any mistake, albeit by his predecessor, which is “apparent from the record”. The Ld. CIT(A) is permitted to examine the records and if he discovers that he or his predecessor has made a mistake, he can rectify the error and the error which can be corrected may be an error of fact or of law. For this, we gainfully refer to the following observations made in the judgment of the Hon’ble Supreme Court in the case of Asoka Textiles Ltd. v. ITO [41 ITR 732], wherein it was inter alia observed as under:

“i.e., an evident error which does not require any extraneous matter to show its incorrectness. The error may be one of fact but is not limited to matters of fact and include also errors of law. But the law must be definite and capable of ascertainment. An erroneous view of law on a debatable point or a wrong exposition of the law or a wrong application of the law or a failure to apply the appropriate law cannot be considered a mistake or error apparent on the face of the record: see Chitaley’s Civil Procedure Code, Volume III, pp. 3549-50, 5th edition.”

17. We also rely on the decision of the Hon’ble Madras High Court in the case of English Electric Company of India Ltd. Vs CIT (132 ITR 251). In the decided case, the assessee had filed revised return of income reflecting higher amount of capital, which was described as excess of depreciation reserve over depreciation allowable. The AO proceeded on the revised workings and completed the assessment. Later on, the AO discovered from the balance sheet that there was difference between the written down value in the income-tax records and the value in accordance with the assessee’s books was not reflected in the balance-sheet as any reserve and therefore exercise the powers of rectification u/s 154 of the Act and made the necessary rectification to the total income. The assessee, in this case, had claimed that, there was no error in the original assessment and therefore the rectification order was invalid. On appeal, the Hon’ble High Court held that, where the error was discoverable from analysis of the books of accounts and balance sheet, which revealed inconsistency, the same had to be rectified. The Hon’ble High Court remarked that, “what is sauce for the goose is also sauce for the gander.” The Hon’ble High Court thus upheld the validity of the rectification order.

18. In our considered view, the above analogy is applicable to the present case as well. As noted above, the financials of the assessee revealed that the cost of land had been debited and charged to P&L A/c. The Ld. CIT(A) however had proceeded on the mistaken premise that, the cost of land had not been debited and therefore directed the AO to re-work the deduction by substituting cost of land, in absence of details, with the cost of construction of 73 flats or market value of land of 2.96 acres. We find that, this particular finding / direction of the Ld. CIT(A) was clearly inconsistent with the face of P&L A/c and the Balance Sheet clearly, and therefore, is required to be rectified u/s 154 of the Act.

19. In the facts and circumstances as discussed (supra), the Ld. CIT(A) is incorrect to hold that the order of his predecessor had merged with the order of the higher judicial forums and therefore, he is helpless and not rectify the impugned direction. In this regard, it is observed that the Tribunal has adjudicated on the sole issue as to whether the assessee, in principle, was eligible for deduction u/s.80IB(10) of the Act. Even the questions framed before the Hon’ble High Court in the appeal filed against the order of this Tribunal, was on the question of eligibility for claiming deduction u/s 80-IB(10) of the Act. It is seen that, the impugned direction of the Ld. CIT(A) or the quantification of the eligible deduction was never subject matter in appeals and therefore the doctrine of merger doesn’t apply in the facts of the case. Rather, we find that, the Hon’ble High Court while adjudicating the assessee’s appeal (supra) had observed that, the cost of land formed part of the WIP debited to P&L A/c and that the Tribunal had erred in observing that no expenses were charged against the sale proceeds in the P&L A/c.

20. Besides, the legal maxim “actus curiae neminem gravabit” comes to the aid of assessee, is noted to be founded upon justice and good sense and affords a safe and certain guide for the administration of the law. Meaning “an act of court shall prejudice no man” which maxim has been approved by the Hon’ble Supreme Court in several cases [Refer decision of Supreme Court in Jayalakshmi Coelho v. Oswald Joseph AIR 2001 SC 1084].

21. For the reasons above, we thus hold that, the Ld. CIT(A) was unjustified in rejecting the rectification application filed by the assessee. We are of the view that the direction issued by the Ld. CIT(A) in the appellate order dated 24.03.2015 directing the AO to substitute the cost of land with the cost of construction of 73 flats / market value of 2.96 acres of land, was an error of law as well as error on fact. We are therefore inclined to expunge this direction and rectify the order of the Ld. CIT(A) to that extent. As observed by us above, the cost of land already formed part of the WIP debited in P&L A/c and therefore no further adjustment was warranted to the profits of the assessee. The AO shall accordingly re-compute and allow the deduction u/s 80-IB(10) with reference to the profits as disclosed in the Profit & Loss Account. Needless to say, the AO shall pass a speaking order in this regard.

22. In the result, the appeal of the assessee stands allowed.

Order pronounced on the 20^th day of May, 2026, in Chennai.