Brief of the Case
ITAT Ahmedabad held in the case Madhav Corporation vs. ACIT that the assessee has earned additional income which amount is disclosed consequence upon the search, hence it partakes the character of business income. Such amount has direct and proximate connection with the normal business/development activities, hence as eligible for deduction u/s. 80IB (10). Once on the basis of declaration of the assessee, the income of the assessee was accepted and has been assessed, the department has only disputed the factum that the project undertaken by the assessee firm is not eligible for housing project u/s. 80IB. The head of income has to be determined from the nature of business which assessee was being carried at the time of search. Therefore, additional income disclosed by the assessee being part and parcel of business income only i.e. already disclosed by the assessee firm during the course of search has been business income and the assessee is eligible for deduction u/s. 80IB(10).
Facts of the Case
The assessee firm carries on the business of development and construction of residential houses. During the year under consideration, the assessee has undertaken the construction work of a housing project known as ‘’Madhav Park’’. On 21/07/2011 a search operation was conducted at the business premises of the assessee firm and partners residence premises. During the course of search proceedings certain incriminating materials were found and seized by the department. The assessee firm was issued notice under section 153A (1)(a) to file block return of income. The assessee firm has filed return for the block period showing total income at Rs.NIL after claiming deduction u/s 80IB(10) of Rs.5,65,48,683/- for A.Y. 2008-09 incorporating the income generated out of the regular books of account as well as income appearing in the incriminating materials.
The assessee firm’s claim of deduction u/s 80IB (10) was rejected by the Assessing Officer considering the assessee firm as a ‘’contractor’’ and not as a ‘’developer’’ as the land was not owned by the assessee firm. Also additional claim of deduction u/s 80IB (10) on the basis of seized records was also rejected.
Contention of the Assessee
The ld counsel of the assessee submitted that it is inbuilt provision of the Act that if an income is exempt either u/s. 2 (14), (10) or otherwise, due effect of the same has to be given while framing the assessment. Likewise, deductions u/s. VIA shall have to be allowed while computing total income such as 80C, 80 IB (10) etc. even in respect of assessment under Chapter-XIVB i.e. 158BC/BD and also under Chapter XIV i.e. u/s. 153A/153C as it is specifically provided under Explanation to Section
153A, that all other provisions of this Act shall apply to the assessment made under this Section, therefore, allowable in both the above Chapters.
Held by CIT (A)
Additional claim of deduction u/s 80 IB (10), out of search income
CIT (A) denied the deduction. It was held that the additional income is not shown in the regular books of accounts can’t be considered for the purpose of deduction u/s.80 IB (10).
Held by ITAT
Disallowance of deduction u/s 80 IB (10)
ITAT held that for availing deduction u/s 80 IB(10) any assessee has to fulfill the conditions stipulated from clause (a) to clause (d) of section 80IB(10). As per clause (a) of section 80IB(10) the housing project should be completed within four years from the end of the financial year in which the housing project is approved by the local authority on or after 1.4.2004. Time limits of approval and completion have not been disputed by the Assessing Officer. There is no dispute over the area of construction as stipulated in clause (c). Further there is no violation of clause (d) as far as construction of 74 tenements is concern these are on a separate area 14.843.27 sq.mts. BU permission was granted on 22.09.2008 which has been properly appreciated by lower authorities. There is no violation of this clause since as no commercial construction was carried out by the assessee firm and also no deduction u/s 80IB (10) has been claimed by the other party i.e. Panchamrut Developers.
The Assessing Officer’s only objection is that land being integral part of the project should have been owned by the appellant. According to the Assessing Officer the land was owned by the society, the approvals of local authority are not in the name of the appellant and that the appellant worked merely as a contractor of the land owners. This issue is covered in favour of assessee by the decision in the case of Radhe Developers wherein it has been held that domain of assessee has to be look in the light of dominant role in the building project carried out be assessee as entrepreneur.
Under facts and circumstances, assessee has worked as developer so, it is entitled for deduction as claimed under the provision of 80 IB(10). The assessee fulfills all the conditions laid down in section 80IB (10). Assessing Officer is directed accordingly.
Additional claim of deduction u/s 80 IB (10), out of search income
ITAT held that in the case of Shri Bhagwanbhai R. Prajapati in IT (SS) Appeal No. 377/Ahd/2014, Hon’ble ITAT Ahmedabad held that beneficial provisions play in their own sphere and they are meant for benefit of the tax payers. In the case before us the issue is with regards to the benefit of exemption under section 54B with regard to the on money. Being a beneficial provisions in their own spheres so drawing the same analogy, we are of the view that assessee is entitled for getting benefit of exemption u/s. 54B with regard to the ‘On money’. This view is fortified by decision of Hon’ble Bombay High Court in the case of CIT vs. Sheth Developers (P) LTD. in ITA No. 3724 of 2010, wherein it was held that assessee was entitled to the benefit of Sec. 80IB and accordingly directed the A.O. to recompute the tax payable for the block period 1.4.1995 to 21.2.2002 u/s. 185BB after giving benefit of Sec. 80IB.
In case before us, assessee has earned additional income which amount is disclosed consequence upon the search, hence it partakes the character of business income and the assessee has admitted that the said amount was a part of income earned from the project undertaken namely by it. Therefore, the amount has direct and proximate connection with the normal business/development activities, hence as eligible for deduction u/s. 80IB (10). Once on the basis of declaration of the assessee, the income of the assessee was accepted and has been assessed in the hands of the assessee, the department has only disputed the factum that the project undertaken by the assessee firm is not eligible for housing project u/s. 80IB. Thus, viewing correct interpretation of the provision of the Act in the tune of the aforesaid judgments, the undisclosed income i.e. “on money” being part of business income only. The same forms part of book profit and it has no other sources of income and whatever income arising to the assessee firm is business income. The head of income has to be determined from the nature of business which assessee was being carryied at the time of search. Therefore, additional income disclosed by the assessee being part and parcel of business income only i.e. already disclosed by the assessee firm during the course of search has been business income and the assessee is eligible for deduction u/s. 80IB(10).
We find that assessee has demonstrated with supportive documentary evidence that it is eligible for the claim of deduction u/s. 80IB(10) of the Act and the same is allowable not only on the profit disclosed in the pre-search returns of income filed u/s. 139(1) but also on the entire profit including the one disclosed additionally subsequent to the search proceeding u/s. 132 and disclosed in the return of income filed u/s. 153A of the Act. Even otherwise based on the rule of consistency if the eligible project undertaken remains the same and the conditions are satisfied and if deduction is allowable in the first assessment year (which is A.Y. 2006-07 in the assessee’s case) then the same has to be allowed in the subsequent assessment years. We find that coordinate “D” bench of Tribunal in ITA no. 496/Ahd/2011 A.Y. 2007- 08 in the case of Golden Developers Vs. ITO (OSD), Range-9, Ahmedabad dated 13/11/2014, it was held that in case the appellant is entitled for claim of deduction u/s. 80 IB (10) in A.Y.2006-07 then the appellant is also eligible for the said deduction in A.Ys.2007-08 & 2008-09. Following same reasoning, we hold that the assessee on this additional income of Rs.85,66,228/- for A.Y. 2008-09 is entitled for claiming deduction u/s. 80IB(10).
Further the finding of CIT (A) is without properly addressing the objections of the assessee. It is not in dispute that the ‘On Money’ is relatable to business income only, and there is no finding of the Revenue Authorities that it is otherwise, once it has been disclosed pursuant to search in the hands of the assessee. The department is unable to dislodged the same by any cogent reasoning. In such situation, Revenue Authorities were not justified to ignore the same as far as assessee’s claim of deduction u/s.80 IB (10). It is a settled legal position that document has to read as whole has to appreciate which whole making assessment on the basis of seized document. Revenue authorities are not allowed to make pick and choose approach while interpreting the notings of seized document. In view of above, the CIT (A) has grossly erred in viewing the ‘on money’ component, as unrecorded in the regular books of accounts which was in fact offered as income during the course of recording of statement u/s. 132(4) during the course of search proceedings carried out. The return of income filed in pursuance of notice u/s. 153A is the return of income u/s. 139 only. The said books of accounts are duly audited and supported by the requisite audit report u/s. 80IB in form No. 10CCB. It is an undisputed fact that the business activity of the firm is that of developing the housing projects under the name and style “Madhav Park (Nikol)” and there was no other business activity of assessee as certified by the auditor in the above said report in form No. 10CCB.
In the light of above factual and legal discussion, we are of the view that assessee is entitled for claim of deduction in respect of additional income detected consequent to search is entitled to claim of deduction u/s 80IB(10) which is part of sale proceeds of flats of the project. This view is fortified by decision of Hon’ble Gujarat High Court in case of CIT Vs. Suman Paper Boards Ltd.  221 CTR 781 (Guj). Similar view has been taken by Hon’ble Bombay High Court in case of C.I.T Vs. Sheth Developers (P) Ltd.  25 Taxmann.Com 123 (Bom). The assessee firm has already submitted special audited report u/s. 80IB (Form No. 10 CCB) wherein, it is clearly stated that the assessee firm has no other business activities (i.e. other then developing a building housing projects as defined 80 IB(10)). Accordingly, assessee is eligible to claim deduction u/s.80 IB (10)
Accordingly appeal of the assessee partly allowed.