2019 (6) TMI 1446 - AT - Income Tax

Tribunal allows compensation claim, excludes profits for section 2(22)(e) calculation, upholds deduction under section 80IB(10).

Smt. Chhaya Valmik Nikhade Versus The Assistant Commissioner of Income Tax, Central Circle-2, Nashik AND Vice-Versa

The Tribunal partly allowed the assessee's appeal by directing the AO to allow the compensation claim of Rs. 20,00,000 and excluding current year profits ... Addition being compensation paid to Shri Balu Nivruti Kadali - sale of land with a road which was already constructed along East-West direction of the property was agreed to be maintained as it was- assessee entered into an agreement with Shri Balu Nivruti Kadali and sought permission to alter the road for approval of layout and paid compensation for it - HELD THAT:- The assessee has mentioned in the said notarized document that no rights in the said road were transferred on the earlier occasion to any person in any form or any consideration was received for such transfer. The said document also mentioned the trail of transaction between the parties, i.e. Shri Balu Nivruti Kadali to Shri Martand Gomaji Shardul and then to the assessee. In the said facts and circumstances where the transaction has been completed through the written documents and a perusal of the notarized agreement also reflect that the photo identity of Shri Balu Nivruti Kadali was there and the agreement was duly notarized and hence, the same merits to be accepted. Merely because the said person could not be produced would not disentitle the assessee form the aforesaid claim of expenditure especially in the circumstances where the assessee was no more and the case was being represented by his wife (as legal heir). Accordingly, we direct the Assessing Officer to allow the claim of the assessee. Computation of accumulated profits for the purpose of section 2(22)(e) - HELD THAT:- We find that the said issue raised by the assessee is squarely covered by the judgment of Hon’ble Gujarat High Court in CIT Vs. M.B. Stockholding (P) Ltd. [2015 (5) TMI 232 - GUJARAT HIGH COURT] C onsidering the provisions of Section 2(22)(e) of the Act, more particularly, Explanation 2 to Section 2(22)(e) of the Act, it cannot be said that the learned Tribunal has committed any error in directing the Assessing Officer not to include the current profit to be part of accumulated profit while determining the amount of deemed dividend under Section 2(22)(e) of the Act. While determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. - Decided in favour of assessee Pro-rata deduction u/s.80IB(10) - HELD THAT- We find the issue stands covered by a series of decisions including the decision of Pune Bench of the Tribunal in DCIT Vs. M/s. Om Associates [2018 (6) TMI 1581 - ITAT PUNE] for the assessment year 2011-12. Accordingly, we uphold the order of CIT(A) in allowing proportionate deduction u/s.80IB(10) of the Act. - Decided against revenue Issues Involved:1. Addition of Rs. 20,00,000/- as compensation paid.2. Computation of accumulated profits for the purpose of section 2(22)(e).3. Pro-rata deduction under section 80IB(10).Detailed Analysis:1. Addition of Rs. 20,00,000/- as Compensation Paid:The assessee, engaged in building and developing housing projects, had debited Rs. 20,00,000/- as compensation paid to Shri Balu Nivruti Kadali for acquiring the right to alter an approach road. The Assessing Officer (AO) disallowed this expenditure, citing the payment was made in cash and the person could not be traced or produced for verification. The CIT(A) upheld this addition, reasoning that the person had sold the land earlier and had no rights over it, making the payment illogical.Upon appeal, the assessee argued that the payment was for the right to alter the road, which was not transferred in the previous transactions. The Tribunal noted that the transaction was supported by a notarized agreement with photo identity and signature of the notary. Given the circumstances and the inability of the legal heir (wife of the deceased assessee) to produce the person, the Tribunal directed the AO to allow the claim of the assessee.2. Computation of Accumulated Profits for the Purpose of Section 2(22)(e):The assessee raised an additional ground, arguing that current year profits should be excluded when computing accumulated profits for section 2(22)(e). The AO and CIT(A) had not accepted this plea. The Tribunal referred to the Gujarat High Court's judgment in CIT Vs. M.B. Stockholding (P) Ltd., which held that current profits should not be included in accumulated profits for computing deemed dividend under section 2(22)(e). The Tribunal, finding that the accumulated profits at the start of the year were NIL, held that no addition under section 2(22)(e) was warranted and allowed the assessee's appeal on this ground.3. Pro-rata Deduction under Section 80IB(10):The Revenue appealed against the CIT(A)'s decision to allow pro-rata deduction under section 80IB(10) for a housing project where 5 out of 126 units were incomplete by the due date. The AO had denied the entire deduction because the project was not fully completed. The CIT(A), however, allowed pro-rata deduction for the 121 completed units.The Tribunal upheld the CIT(A)'s decision, referencing the Pune Bench's decision in DCIT Vs. M/s. Om Associates, which supported pro-rata deduction under similar circumstances. Thus, the Tribunal dismissed the Revenue's appeal on this issue.Conclusion:The Tribunal partly allowed the assessee's appeal, directing the AO to allow the compensation claim and excluding current year profits for section 2(22)(e) computation. The Revenue's appeal was dismissed, upholding the pro-rata deduction under section 80IB(10). The judgment was pronounced on June 7, 2019.