Facts of the Case:
The assessee in the present case is a Company, which is engaged in the business of Builders and Property Developers. The return of income for the year under consideration was filed by it on 17.09.2011 declaring total income at ‘NIL’. During the year under consideration, the assessee company had developed a housing project namely “Salarpuria Symphony” in Bangalore, Karnataka and the entire profit of the said project was claimed to be exempt under section 80IB (10) of the Act.
Disallowance by AO And CIT(A)
It was noticed by the Assessing Officer that interest income of Rs.11,10,810/- received on Bank deposits, etc. as well as other income of Rs.6,36,476/- earned during the year under consideration was claimed to be eligible for deduction under section 80IB(10). The AO disallowed the claim of the assessee for deduction under section 80IB(10) in respect of interest income of Rs.11,10,810 and other income amounting to Rs.6,86,476/-. On appeal, the ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer.
Appeal Before ITAT:
As per the provisions of section 80IB(10), the income derived from the business of developing housing project is eligible for deduction and as held in the various judicial pronouncements, the expression “derived from” in section 80IB (10) envisages a direct or first degree connection of the income eligible for deduction with the corresponding business of the assessee of developing a housing project.
The immediate source of the income should be the business of the assessee of developing a housing project in order to make it eligible for deduction under section 80IB (10).
The interest of Rs.11,10,810/- earned by the assessee during the year under consideration on Bank deposits etc. cannot be held to be eligible for deduction under section 80IB(10) as the immediate source of the said interest income was not the business of the assessee of developing housing project and it was the investment made by the assessee in Bank deposits.
The income by way of transfer fees received by the assessee for Apartment Booking amounting to Rs.4,10,892/- and interest received for delay in payment against Flat amounting to Rs.1,61,674/- had a direct or first degree connection with the business of the assessee of developing a housing project and the same, therefore, was eligible for deduction under section 80IB(10). The immediate source of the said income, in my opinion, was the business of the assessee of developing a housing project and therefore, the said income was eligible for deduction under section 80IB (10)
There has been no sufficient explanation for deduction of the balance income of Rs.63,910.00, hence the same is disallowed.
Section 80IB (10)
As per section 80IB(10) of the Act, deduction in respect of profits derived from developing and building housing projects was admissible, subject to, inter alia, the conditions that no more than one flat should be allotted to an individual, including the spouse or minor child of the individual, and the completion.
1. Regarding Ground No.1, it is re-established here that the source of income should have direct nexus with the deduction. The Interest on Fdr is an income from investment and not an income from Business, hence deduction not allowed as above.
2. The income from cancellation charges, transfer fee received, interest on delay in payment against Flat establishes direct nexus with the principal activity of the assessee, hence is allowed for deduction.
3. Direct nexus rule to be strictly interpreted for verification of net interest and not gross interest.
4. Esi payable actually paid before filing of The ITR could have been allowed but the documentary evidence was not produced, otherwise, some decision could have been taken.
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