2014 (11) TMI 689 - AT - Income Tax

Tribunal grants deduction under 80IB(10) and upholds deletion of peak negative balance addition.

Shri Naresh T. Wadhwani, Shri Naresh Thakurdas Wadhwani Versus Dy. Commissioner of Income Tax

The Tribunal allowed the assessee's appeals, granting the deduction under section 80IB(10) for both the built-up area issue and the undisclosed receipts. ... Disallowance of claim of deduction u/s 80IB(10) – Built-up area exceeding 1500 sq. ft. – inclusion of the open terrace into the working of the built-up area - Allowability of Pro-rata deduction u/s 080IB(10) – Whether the area of projected terrace is liable to be included within the meaning of expression 'built-up area' contained in clause (c) of section 80IB(10) – Held that:- The assessee is a builder who has undertaken development and construction of a housing project, named, 'Sai Nisarg Park – Mayureshwar' and the project has been approved by the concerned local authority i.e. PCMC on 29.07.2005 and it complies with the requirement of clause (a) to section 80IB(10) of the Act - built-up area means the inner measurement of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units - the terraces are projections attached to the respective residential units and also that there is no room under the area of the terrace and such terraces are exclusively used by the respective unit owners - as per the Revenue the projected terrace falls within the meaning of words 'projections' and 'balconies' contained in section 80IB(14)(a) of the Act and the same is not a common area shared with other residential units and in this manner, in terms of section 80IB(14)(a) of the Act, such an area is liable to be included in the expression 'built-up area'. Applicability of the definition of built-up area – Effect of amendment w.e.f. 01.04.2005 – Held that:- Such definition was to be retrospectively applied yet the area of open terrace would not fall within the meaning of the expression 'built-up area' - section 80-IB (14) defining 'Built-up area' will have relevance on and from 01.04.2005 - going by the substantive part of Section 80-IB (10), what is required for grant of deduction is a Housing Project approved by the Local Authority - once the Local Authority have excluded open terrace from the working of Built-up area, it is not open to the Revenue to review the approval given by the competent authority to hold that terrace would also be included in the built-up area - the definition also does not speak in different language from what is given in the measurement provision of Bureau of Indian Standard in the context of the definition of Balcony in the Indian Standard - the assessee is entitled to deduction in respect of flats in the 7th floor, which do not exceed the required extent as per Section 80-IB (10)(c) that open terrace area, cannot form part of the built-up area - assessee fulfills the condition prescribed in clause (c) of section 80IB(10) of the Act with regard to the six units in question – the order of the CIT(A) is set aside and the AO is directed to consider the six units fulfill the condition prescribed in clause (c) of section 80IB(10) of the Act, and the assessee is entitled to the benefit of section 80IB(10) of the Act – Decided in favour of assessee. Claim of deduction u/s 80IB(10) - Income declared in the course of search conducted u/s 132(1) - Whether additional income declared in the course of search is eligible for the benefits of section 80IB(10) of the Act, especially when the relevant project is otherwise eligible for the benefits of section 80IB(10) of the Act - Held that:- In M/s. Malpani Estates Versus Asstt. Commissioner of Income Tax [2014 (2) TMI 944 - ITAT PUNE] it has been held that 'all other provisions of this Act shall apply to the assessment made under this section' in Explanation (i) of section 153A of the Act, it clearly implies that in assessing or reassessing the 'total income' for the assessment years specified in section 153A(1)(b) of the Act, the import of section 80A(1) of the Act comes into play, and there shall be allowed the deductions specified in Chapter VIA of the Act, of course subject to fulfillment of the respective conditions - the phraseology of section 153A r.w. Explanation (i) does not support the premise arrived at by the CIT(A) – thus, the assessee's claim for deduction u/s 80IB(10) of the Act even with regard to the enhanced income was well within the scope and ambit of an assessment u/s 153A(1)(b) of the Act and the Assessing Officer was obligated to consider the same as per law. There is no material to negate the assertion of the assessee, which are borne out of the material on record, that the additional income in question has been received in the course of carrying on its business activity of developing the housing project, 'The Crest' at Pimple Saudagar, Pune, which is eligible for section 80IB(10) benefits - assessee is eligible for deduction u/s 80IB(10) of the Act even in relation to impugned additional income offered in a statement deposed u/s 132(4) of the Act during the course of search and subsequently declared in the return of income filed in response to notice u/s 153A(1)(a) of the Act - assessee's claim for deduction u/s 80IB(10) of the Act in relation to the additional income is liable to be upheld. Deletion of peak negative balance in the cash book prepared on the basis of seized diaries – Held that:- The CIT(A) made no mistake in deleting the addition because the quantum of undisclosed income offered by the assessee in the course of search as additional income is more than the impugned addition sought to be made by the Assessing Officer on account of peak negative balance in the cash book - if the addition was to be sustained in addition to the undisclosed income already declared, it would amount to double addition - the order of the CIT(A) is upheld – Decided against revenue. Issues Involved:1. Deduction under section 80IB(10) regarding built-up area exceeding 1500 sq.ft.2. Deduction under section 80IB(10) for undisclosed receipts.3. Addition for peak negative balance in the cash book.Issue-wise Detailed Analysis:1. Deduction under section 80IB(10) regarding built-up area exceeding 1500 sq.ft.:The primary issue was whether the area of projected terrace (open to sky) should be included within the meaning of 'built-up area' under section 80IB(10)(c) of the Income-tax Act, 1961. The assessee's housing project, Sai Nisarg Park - Mayureshwar, was found to have six units where the built-up area exceeded the prescribed limit of 1500 sq.ft. when the terrace area was included. The Assessing Officer and CIT(A) included the terrace area in the built-up area, thereby denying the deduction. The Tribunal, however, referred to the definition of 'built-up area' in section 80IB(14)(a) and various judicial precedents, including the Hon'ble Madras High Court's judgment in M/s Ceebros Hotels Private Limited, which excluded open terrace from the built-up area. Consequently, the Tribunal held that the area of the projected terrace should not be included in the built-up area, allowing the assessee's claim for deduction under section 80IB(10).2. Deduction under section 80IB(10) for undisclosed receipts:The second issue was whether the additional income of Rs. 60,00,000 declared during the search, which was derived from the sale of flats in the housing project, was eligible for deduction under section 80IB(10). The assessee argued that this income was from the housing project, which was eligible for the said deduction. The Tribunal referred to its earlier decision in M/s Malpani Estates and the Hon'ble Bombay High Court's judgment in CIT vs. Sheth Developers (P) Ltd., which held that additional income derived from an eligible housing project is entitled to deduction under section 80IB(10). The Tribunal concluded that the additional income of Rs. 60,00,000 was eligible for the deduction as it was derived from the housing project.3. Addition for peak negative balance in the cash book:The third issue was the addition of Rs. 7,95,200 on account of peak negative balance in the cash book prepared from seized diaries. The CIT(A) deleted the addition, reasoning that the negative cash balance was already covered by the undisclosed income declared by the assessee, and sustaining the addition would result in double taxation. The Tribunal upheld the CIT(A)'s decision, agreeing that the addition would amount to double counting of the same income.Conclusion:The Tribunal allowed the assessee's appeals, granting the deduction under section 80IB(10) for both the built-up area issue and the undisclosed receipts. The Tribunal also upheld the deletion of the addition for the peak negative balance in the cash book. The Revenue's appeals were dismissed.