Developer gets Section 80IB(10) deduction for FSI sale from slum redevelopment project despite completion date issues

ITAT Mumbai upheld CIT(A)'s order allowing deduction u/s 80IB(10) for sale of FSI from slum development project at Mayanagar, Worli. Tribunal held that projects under government schemes are exempt from completion date restrictions per statutory proviso. AO's objection regarding prior year rejection was deemed illogical as circumstances differed. On s.14A disallowance, Tribunal deleted interest disallowance following Supreme Court precedent in Reliance Industries, directing remand for exempt income verification. DRR exclusion from book profit u/s 115JB was allowed following coordinate bench decisions. Deduction u/s 80IA(4) for industrial park was upheld, with Tribunal noting similar claims were previously allowed by Bombay HC.

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Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act.
2. Disallowance of expenditure under Section 14A of the Income Tax Act.
3. Computation of book profits under Section 115JB of the Income Tax Act.
4. Deduction under Section 80IA(4) of the Income Tax Act.

Detailed Analysis:

1. Deduction under Section 80IB(10) of the Income Tax Act:
The core issue revolves around the tenability of the claim for deduction under Section 80IB(10) of the Income Tax Act. The assessee claimed a deduction for the sale consideration of Floor Space Index (FSI) generated from its slum development project. The Assessing Officer (AO) rejected the claim on multiple grounds, including the fact that the project was approved before the specified dates in the notifications and that the consideration was received in kind. The CIT(A) allowed the deduction, noting that the project was covered by the Government of Maharashtra's scheme and supported by CBDT notifications. The Tribunal upheld the CIT(A)'s decision, emphasizing that the project was eligible for deduction under Section 80IB(10) as it was approved under the state government's scheme and the conditions prescribed in the notifications were met.

2. Disallowance of Expenditure under Section 14A of the Income Tax Act:
The AO disallowed expenditure incurred in relation to exempt income under Section 14A, invoking Rule 8D. The CIT(A) partially upheld the disallowance. The Tribunal noted that the assessee had sufficient own funds to cover the investments, and hence, no disallowance of interest expenditure under Rule 8D(2)(ii) was warranted. The Tribunal also directed that the disallowance under Rule 8D(2)(iii) should not exceed the exempt income earned during the year and remanded the issue to the AO for verification. Additionally, the Tribunal held that no adjustments could be made to the book profits under Section 115JB for disallowance under Section 14A, following the Special Bench decision in ACIT vs. Vireet Investments Pvt. Ltd.

3. Computation of Book Profits under Section 115JB of the Income Tax Act:
The AO included the Debenture Redemption Reserve (DRR) in the book profits, treating it as a reserve under Explanation 1(b) to Section 115JB. The CIT(A) and the Tribunal disagreed, noting that DRR is an ascertained liability and not a reserve. The Tribunal relied on the jurisdictional High Court's decision in CIT vs. Raymond Ltd., which held that DRR is deductible while computing book profits under Section 115JB. The Tribunal also noted that the AO's reliance on the Delhi High Court's decision in SREI Infrastructure Finance Ltd. was misplaced, as the facts were distinguishable.

4. Deduction under Section 80IA(4) of the Income Tax Act:
The AO denied the deduction under Section 80IA(4) for the industrial park, arguing that the approval was under the Industrial Park Scheme, 2008, which was not applicable. The CIT(A) and the Tribunal found that the industrial park was approved under the Industrial Park Scheme, 2002, and the CBDT had notified it accordingly. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's industrial parks were covered by the 2002 Scheme and the conditions for deduction under Section 80IA(4) were met.

Conclusion:
The Tribunal dismissed the appeals filed by the revenue for both assessment years and allowed the cross objections filed by the assessee for statistical purposes, thereby upholding the CIT(A)'s decisions on all counts. The Tribunal's detailed analysis and reliance on judicial precedents ensured that the assessee's claims were correctly adjudicated in accordance with the law.

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