2013 (6) TMI 690 - AT - Income Tax

Tribunal Grants Deductions for Projects, Adjusts Amounts, and Directs Recalculation

The Tribunal condoned the delay in filing the appeal for the assessment year 2006-07, granted deduction under Section 80-IB(10) for the 'Lakshdweep' ... Entitlement to deduction under Section 80-IB(10) - Held that:- Prior to 01.04.2005, the expression ‘built-up area’ has to be understood in the context of the relevant Development Control Rules of the local authority. The insertion of the definition of the ‘builtup area’ in Section 80-IB(14)(a) by the Finance (No.2) Act, 2004 w.e.f. 01.04.2005 was held to be prospective in nature and not applicable for the evaluating the claim of deduction under Section 80-IB(10) of the Act in relation to projects approved by the local authority prior to 01.04.2005. Following the aforesaid precedent, as in the present case the ‘Samarth Nagari’ project of the assessee has been approved by the local authority prior to 01.04.2005, the ‘built-up area’ of the units is required to be calculated as per the relevant Development Control Rules of the local authority and on that basis the area covered by canopy and balcony are not includible. In view of the aforesaid position, the objection of the Assessing Officer, in our view is untenable. Accordingly, the order of the CIT(A) for assessment order 2005-06 is set-aside and the Assessing Officer is directed to re-compute the assessee’s claim for deduction under Section 80-IB(10) on the aforesaid lines. Disallowance made under Section 40(a)(ia) - Held that:- The only source of profits declared by the assessee during the year is from undertaking development of its housing project ‘Lakshdweep’. Therefore, even if the expenditure of ₹ 5,22,600/- is found to be not allowable on account of Section 40(a)(ia) of the Act as assessee has not complied with the requirements of deducting/depositing the TDS, it cannot be denied that such disallowance ultimately increases the profits of the assessee derived from its housing project ‘Lakshdweep’. According to the parity of reasoning laid down by the Hon’ble Gujarat High Court in the case of Keval Construction (2013 (7) TMI 291 - GUJARAT HIGH COURT) the aforesaid profit reflected by the disallowance under Section 40(a)(ia) of the Act, qualified for deduction under Section 80-IB(10) of the Act in the present case. Thus, on this aspect, assessee has to succeed. - Decided in favour of assessee. Issues Involved:1. Condonation of delay in filing the appeal.2. Deduction under Section 80-IB(10) of the Income Tax Act for the 'Lakshdweep' project.3. Deduction under Section 80-IB(10) of the Income Tax Act for the 'Samarth Nagari' project.4. Deduction under Section 80-IB(10) of the Income Tax Act for the amount disallowed under Section 40(a)(ia) of the Act.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The appeal for the assessment year 2006-07 was delayed by 114 days. The assessee's counsel argued that the delay was unintended and due to the shifting of the accounts office, which led to the misplacement of important files. The delay was explained through an affidavit by a partner of the assessee firm. The Departmental Representative opposed the condonation, citing negligence. The Tribunal, referencing the Supreme Court's judgment in the case of Collector of Land Acquisition vs. Mst. Katiji & Others, emphasized that substantial justice should be preferred over technical considerations. The Tribunal found the delay to be a bona-fide mistake without any mala-fide intention and condoned the delay in the interest of justice.2. Deduction under Section 80-IB(10) of the Income Tax Act for the 'Lakshdweep' Project:The assessee claimed a deduction under Section 80-IB(10) for the 'Lakshdweep' project, which was denied by the Assessing Officer (AO) because two units exceeded the prescribed built-up area. The AO treated the two units as one amalgamated unit, thereby exceeding the 1500 sq.ft. limit. The Tribunal, referencing the Pune Bench's decision in D.S. Kulkarni Developers Ltd. and the Madras High Court's judgment in Viswas Promoters (P) Ltd., held that the deduction should be proportionate. The denial of deduction should be limited to the profits from the non-compliant units (Bunglow G1 & G2), and the deduction should be allowed for the remaining compliant units. The AO was directed to re-compute the deduction accordingly.3. Deduction under Section 80-IB(10) of the Income Tax Act for the 'Samarth Nagari' Project:The AO denied the deduction for the 'Samarth Nagari' project, citing that the built-up area of some units exceeded the limit after including terrace and canopy areas. The assessee argued that the definition of 'built-up area' including projections and balconies, inserted by the Finance (No.2) Act, 2004 w.e.f. 01.04.2005, should not apply to projects approved before this date. The Tribunal agreed, referencing the Pune Bench's decision in D.S. Kulkarni Developers Ltd. and other precedents, and held that the built-up area should be calculated as per the relevant Development Control Rules of the local authority applicable before 01.04.2005. The AO's objection was found untenable, and the deduction was allowed.4. Deduction under Section 80-IB(10) of the Income Tax Act for the Amount Disallowed under Section 40(a)(ia) of the Act:For the assessment year 2006-07, the AO excluded a profit element of Rs. 5,22,600/- from the deduction under Section 80-IB(10), which represented disallowance under Section 40(a)(ia) due to non-payment/deduction of TDS. The Tribunal, referencing the Gujarat High Court's judgment in ITO vs. Keval Construction, held that such disallowance increases the ultimate profits from the business and qualifies for deduction under Section 80-IB(10). The assessee's claim was upheld.Conclusion:The Tribunal allowed the appeals for both assessment years 2005-06 and 2006-07, directing the AO to re-compute the deductions as per the Tribunal's findings. The order was pronounced in the open Court on 25th June 2013.