2012 (12) TMI 60 - AT - Income Tax

Revenue's Appeal Dismissed, Assessee Complies with Section 80IB for Deduction

The Dy Commr of Income Tax, Cir -1, Mumbai Versus Sai Radha Developers

The Dy Commr of Income Tax, Cir -1, Mumbai Versus Sai Radha Developers - TMI Issues Involved:1. Late filing of the audit report in form 10CCB.2. Size of the land being less than one acre.3. Ownership of the land and whether the assessee is a contractor.4. Disallowance of interest of Rs. 75,750/-.Detailed Analysis:1. Late Filing of the Audit Report in Form 10CCB:The Assessing Officer (AO) rejected the assessee's claim for deduction under section 80IB due to the late filing of the audit report in form 10CCB, which was not submitted with the original return but with the revised return in response to notice u/s 148. The AO also noted that the report was defective as clause 23 was left blank. The CIT(A) held that the AO was not justified in rejecting the claim based on the timing or defect in the audit report, citing several decisions including CIT Vs. Contimeters Electrical (P.) Ltd., and CIT Vs. Berger Paints (India) Ltd., which held that the requirement to file the audit report along with the return is directory and not mandatory. The Tribunal upheld the CIT(A)'s decision, stating that the assessee complied with the conditions prescribed u/s 80IB(7) by filing the audit report during the assessment proceedings.2. Size of the Land Being Less Than One Acre:The AO found that the project was on a plot of land less than one acre at the time of the initial approval on 29.1.2003, thus not meeting the requirements of section 80IB(10)(b). The CIT(A) allowed the claim without a specific finding on the size of the plot. The Tribunal noted that the project was completed on a plot of more than one acre and that subsequent revisions to the plan added the necessary land area. The Tribunal concluded that the assessee fulfilled the condition of having a plot of land of at least one acre by the time of project completion, thus complying with section 80IB(10)(b).3. Ownership of the Land and Whether the Assessee is a Contractor:The AO argued that the assessee was not the owner of the land but acted as a contractor since it sold undivided interests in the land and entered into separate construction agreements. The CIT(A) held that ownership of the land is not a requirement for deduction under section 80IB, citing the case of Radhe Developers. The CIT(A) also found that the transfer of undivided shares was a method of sale rather than a work contract. The Tribunal agreed, noting that the assessee developed the project in its own name and that the transfer of undivided shares was a strategy to save stamp duty and facilitate bank financing. Thus, the assessee was not merely a contractor but a developer eligible for deduction under section 80IB.4. Disallowance of Interest of Rs. 75,750/-:The AO disallowed interest on the grounds that the assessee diverted interest-bearing funds to an interest-free loan to a sister concern. The CIT(A) deleted the disallowance, finding that the assessee had sufficient credit balance and received substantial interest-free advances from customers, thus no direct nexus between interest-bearing funds and the advance to the sister concern. The Tribunal upheld the CIT(A)'s decision, finding no error or illegality in the factual findings.Conclusion:The appeal filed by the revenue was dismissed. The Tribunal upheld the CIT(A)'s decisions on all grounds, confirming that the assessee complied with the requirements for deduction under section 80IB and that the disallowance of interest was not justified.