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

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 for the computation of section 2(22)(e). The Revenue's appeal was dismissed, upholding the pro-rata deduction under section 80IB(10). The judgment was pronounced on June 7, 2019.

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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.

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