Assessee granted deduction under sec 80-IA(4)(iii) for units deemed ready. Claim based on survey dismissed.

The Tribunal allowed the assessee's appeal in part. The deduction under section 80-IA(4)(iii) of the Income-tax Act for the assessment year 2006-07 was granted, as the units were deemed ready even if not operational by the specified date. However, the claim for a deduction of Rs. 25 lakhs based on sworn statements during a survey was dismissed, as it lacked substantiation with details of Work-in-Progress.

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Issues Involved:
1. Denial of deduction under section 80-IA(4)(iii) of the Income-tax Act.
2. Disallowance of Rs. 25 lakhs based on sworn statements during the course of a survey under section 133A of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80-IA(4)(iii):

The assessee, a private limited company engaged in real estate and construction, claimed a deduction of Rs. 25,68,56,265 under section 80-IA of the Income-tax Act for the assessment year 2006-07. The deduction was based on rental income from Tata Consultancy Services (TCS) and the sale of software units in an industrial park. The Assessing Officer (AO) denied the deduction, stating that the assessee had not fulfilled the conditions specified in the Industrial Park Scheme, as only one unit (TCS) was set up and operational by 31-3-2006. The CIT(A) upheld this decision.

The assessee argued that it had created facilities for more than four industrial units, evidenced by lease agreements and sales deeds before the end of the financial year 2005-06. The assessee claimed that the term "located" implied readiness for operation, not necessarily actual operation. The assessee cited various judgments to support the interpretation that the mere readiness of units sufficed for the deduction under section 80-IA.

The Department argued that the benefit under section 80-IA would only be available after the issuance of the CBDT notification on 21-8-2006, and not before. They contended that the units must be operational and not just ready for use.

The Tribunal held that the date of notification was irrelevant as the Central Government had approved the commencement of the industrial park from September 2005. The Tribunal interpreted the term "located" to mean that the units were ready and fixed in position, even if not operational. The Tribunal found that the assessee had completed the construction and infrastructure, making the units ready by February 2006. Therefore, the assessee was entitled to the deduction under section 80-IA for the assessment year 2006-07.

2. Disallowance of Rs. 25 Lakhs Based on Sworn Statements:

During a survey on 16-2-2006, the director of the assessee company offered an additional income of Rs. 25 lakhs for the assessment year 2005-06 to avoid litigation. The assessee later claimed this amount as a deduction in the assessment year 2006-07, stating that it was added to the closing Work-in-Progress (WIP) for the previous year and should be taken as opening WIP for the current year.

The Tribunal found no mention of work-in-progress in the survey statements and noted that the additional income was an agreed addition for the assessment year 2005-06. The Tribunal held that the assessee could not claim this amount as a deduction in the assessment year 2006-07, as it was not substantiated with details of WIP. Thus, this ground of the assessee was dismissed.

Conclusion:

The appeal of the assessee was partly allowed. The Tribunal granted the deduction under section 80-IA(4)(iii) for the assessment year 2006-07 but dismissed the claim for the Rs. 25 lakhs deduction based on the survey statements.

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