2017 (1) TMI 442 - AT - Income Tax

Tribunal upholds tax deduction for slum rehab project, allows rent expenses to close relatives

ITO – 21 (1) (1) – Mumbai Versus Ms. Asha K Ringshia

The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decisions to allow the deduction under Section 80IB(10) for a builder and developer's ... Eligibility to deduction u/s 80IB - Held that:- As decided in assessee's own case for the assessment year 2009-2010 the time limit of approval on/or after 1st April 2004, will not be applicable in the case of the proviso to section 80-IB( 10). Moreover, in the instant case, the approval which was given on 4th August 2003, was loaded with lot of terms and conditions to be fulfilled before the commencement. It was only after such terms and conditions were fulfilled, the assessee was given the commencement certificate issued after 1st April 2004, i.e., on 17th October 2004 to start the project. In such a case or situation, it cannot be held that the assessee's project is not liable for deduction under section 80- IB, once all other conditions are fulfilled. In this case, one can say that the date of commencement i.e., 17th October 2004, can be taken as the date of approval as it was from this date the approval given by the SRA becomes operative. Thus, the contentions of the learned Departmental Representative cannot be sustained. Revenue has challenged that the date of approval of SRA scheme project is 3rd July 2003, and is not covered by the Notification no.2 of 2011, which was issued to clarify the earlier notification dated 3rd August 2010. Such a ground taken by the Department is wholly misconceived as there is no such scheme dated 3rd July 2003. The said date of 3rd July 2003, is when the assessee has applied before the SRA for its approval of the project. The scheme in which the approval has been granted is DCR no.33 (10), which has been notified by the CBDT. Thus, there is no merit in ground taken by the Revenue - Decided in favour of assessee Issues Involved:1. Deletion of disallowance of deduction under Section 80IB(10) of the IT Act.2. Deletion of disallowance of rent expenses.Issue-wise Detailed Analysis:1. Deletion of Disallowance of Deduction under Section 80IB(10):The Revenue filed appeals against the CIT(A)'s order for the assessment years 2005-2006 and 2006-2007, challenging the deletion of disallowance of the deduction claimed under Section 80IB(10). The assessee, a builder and developer, had its deduction claim under Section 80IB(10) denied by the AO through a reassessment under Section 147. The CIT(A) allowed the claim by following the Tribunal's order in the assessee's own case for the assessment years 2007-2008 and 2008-2009.The Tribunal reviewed the order dated 07/12/2015 for the assessment year 2009-2010, which confirmed the CIT(A)'s decision to allow the deduction. The Tribunal noted that the assessee's project was a slum rehabilitation project approved by the SRA, Government of Maharashtra. The AO had initially disallowed the claim because the project land area was less than one acre, a condition for deduction under Section 80IB(10). However, the Finance Act, 2004, effective from 1st April 2005, removed this condition for projects in slum areas under government schemes.The Tribunal observed that the CBDT had issued a notification on 3rd August 2010, later clarified on 5th January 2011, stating that the deduction would apply to projects approved on or after 1st April 2004 and before 31st March 2008. The CIT(A) directed the AO to allow the deduction, noting the project met all other conditions under Section 80IB(10) and the scheme was notified by the CBDT.The Tribunal rejected the Revenue's argument that the CIT(A) should have called for a remand report since the notification was a government document and did not require further investigation. The Tribunal also dismissed the contention that the approval date of 4th August 2003 disqualified the project, noting the final commencement certificate was issued on 17th October 2004, making the project eligible for the deduction.The Tribunal emphasized that the proviso to Section 80IB(10) relaxed the minimum area condition for slum projects under government schemes. The intention was to facilitate redevelopment in slum areas, and the time limit imposed by the CBDT notification should not override the legislative intent. Hence, the Tribunal upheld the CIT(A)'s decision to allow the deduction.2. Deletion of Disallowance of Rent Expenses:The Revenue also challenged the deletion of disallowance of rent expenses amounting to Rs. 4,20,000, arguing that the assessee paid rent to close relatives without substantiating the premises' use for business purposes or the genuineness of the transaction. The Tribunal noted that the assessee provided details of rent payments to Shri. Amit Ringshia and Shri. Aditya Ringshia for the Andheri office and to Shri. K.G. Ringshia (HUF) for the Vile-Parle office, supported by relevant documents.The Tribunal observed that the CIT(A) and an earlier Tribunal bench had accepted the assessee's plea that even if the expenses were disallowed, the assessee would still be eligible for deduction under Section 80IB(10) on the enhanced income from the eligible project. This was based on the Supreme Court's decision in Liberty India Ltd., which held that devices to reduce or inflate profits of eligible business must be rejected while calculating the deduction.The Tribunal found no contrary evidence or facts presented by the Revenue to dispute the CIT(A)'s conclusion. Therefore, the Tribunal affirmed the CIT(A)'s decision to delete the disallowance of rent expenses.Conclusion:The Tribunal dismissed both appeals by the Revenue, affirming the CIT(A)'s decisions to allow the deduction under Section 80IB(10) and to delete the disallowance of rent expenses. The Tribunal's order was pronounced in the open court on 04/11/2016.