2010 (12) TMI 796 - AT - Income Tax

Tribunal Ruling: Deductions Upheld, Expenses Disallowed, Appeals Dismissed

The Tribunal upheld the deduction under Section 80IB, allowed deduction for expenses related to the sale of shops, disallowed certain expenses like ... Deduction u/s 80IB - it is clear that as per the AO also, the facts in the present two years are similar as compared to the facts in AY 00-01 to 02-03. Ld. CIT(A) has decided the issue in favour of the assessee on the basis of Tribunal decision in assessee's own case for assessment years 2000-01 to 02-03 in ITA No.4628/D/03, 3719/D/04 and 1329/D/05 - fact is very clear that even this Shipra Sun City Project of the assessee company was also approved by the relevant authority i.e. GDA and because of this, the AO himself has allowed deduction to the assessee u/s 80IB with regard to this project also in respect of residential flats built by the assessee in this project - Once it is accepted that the shopping area of the assessee's this project was below 10% of the total project area, 80IB deduction has to allowed the assessee for the whole project and no disallowance can be made with regard to shops - Appeal is partly allowed Issues Involved:1. Deduction under Section 80IB of the Income Tax Act.2. Disallowance of expenses related to the sale of shops in Shipra Sun City Project.3. Disallowance of various expenses including charity, donation, membership fees, and depreciation on cars.4. Disallowance of loss on sale of cottages.5. Disallowance of interest on car loan and depreciation on cars.6. Disallowance under Section 40(a)(ia) for non-deduction of TDS on advertisement expenses.7. Disallowance of 5% of various expenses due to lack of verification.Detailed Analysis:1. Deduction under Section 80IB:The primary issue revolved around whether the construction of the projects commenced before 1.10.1998, which would infringe the provisions of Section 80IB. The Tribunal found that the facts for the assessment years 2004-05 and 2006-07 were similar to those of the previous years (2000-01 to 2002-03), where it was established that the construction started after 1.10.1998. The Tribunal upheld the CIT(A)'s decision, confirming that the projects commenced after the specified date, thus allowing the deduction under Section 80IB.2. Disallowance of Expenses Related to Sale of Shops in Shipra Sun City Project:The assessee's claim for deduction under Section 80IB for the sale of shops was initially disallowed by the AO on the basis that shops were not eligible for this deduction. However, it was established that the shopping area was within the permissible limit of 5% of the total project area as per GDA rules. The Tribunal referred to the Special Bench decision in Brahma Associates vs. JCIT, which allowed the deduction for the entire housing project if it was approved as such. Consequently, the Tribunal deleted the disallowance made by the AO.3. Disallowance of Various Expenses:The AO disallowed expenses related to charity, donation, membership fees, and depreciation on cars. The Tribunal upheld the disallowance for charity, donation, and prior period expenses as these were added by the assessee in its computation. However, the disallowance of membership fees and other expenses was deleted due to lack of specific adverse findings by the AO. The Tribunal also deleted the disallowance of Rs.1.25 lakhs made on an ad-hoc basis due to the absence of specific instances of non-verifiable expenses.4. Disallowance of Loss on Sale of Cottages:The AO disallowed the loss on the sale of two cottages, citing the sale below construction cost without plausible explanation. The Tribunal found that the AO did not bring any adverse material on record to suggest incorrect sale prices or construction costs. The Tribunal deleted the disallowance, noting that the AO failed to make any inquiries from the buyers or provide specific adverse findings.5. Disallowance of Interest on Car Loan and Depreciation on Cars:The AO disallowed interest on a car loan and depreciation on a car registered in the name of the Managing Director. The Tribunal upheld this disallowance, stating that depreciation is allowable only on assets owned by the assessee. Since the car was not owned by the assessee company, the disallowance was justified.6. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Advertisement Expenses:The AO disallowed Rs.1 lakh paid for advertisement expenses under Section 40(a)(ia) for non-deduction of TDS. The Tribunal found that the payment was not covered under any section requiring TDS deduction and deleted the disallowance. The Tribunal also noted that the payment was below the threshold for TDS deduction under Section 194I.7. Disallowance of 5% of Various Expenses:The AO disallowed 5% of various expenses due to lack of verification. The Tribunal deleted this disallowance, noting that the AO did not provide specific instances of unverifiable expenses. The Tribunal reiterated its stance from the previous year, emphasizing that ad-hoc disallowances without specific findings are not justified.Conclusion:The Tribunal dismissed the appeals of the revenue and partly allowed the appeals of the assessee, providing relief on several disallowances made by the AO. The Tribunal's decisions were based on the lack of specific adverse findings by the AO and adherence to established legal principles and precedents.