2018 (12) TMI 1562 - AT - Income Tax

Tribunal directs income assessment as business income for deduction under section 80IB(10)

M/s. Sumer Corporation Versus DCIT CC-5 (3), Mumbai

M/s. Sumer Corporation Versus DCIT CC-5 (3), Mumbai - TMI Issues Involved:1. Eligibility of the assessee to claim deduction under section 80IB(10) of the Income Tax Act.2. Classification of additional income admitted during search proceedings.3. Rectification of assessment order under section 154 of the Act.4. Double taxation of scrap sales.5. Disallowance of construction costs and bogus purchases.6. Cross-objection by the revenue regarding the validity of the return filed and the claim of deduction under section 80IB(10).Detailed Analysis:1. Eligibility of the Assessee to Claim Deduction Under Section 80IB(10):The assessee, engaged in the development and construction of buildings, claimed a deduction under section 80IB(10) of the Income Tax Act on income derived from the Chandivali Project, an SRA project. The project was completed during the year under consideration, and the income included sale proceeds of TDR. The AO initially allowed the deduction but later revised it, excluding additional income admitted during search proceedings, treating it as 'Income from Other Sources.'2. Classification of Additional Income Admitted During Search Proceedings:During search proceedings, the assessee admitted additional income of Rs. 60.91 crores, which included cash receipts on the sale of TDRs and sale of scrap. The assessee claimed this as business income and sought a deduction under section 80IB(10). The AO, however, treated this as 'Income from Other Sources,' thereby reducing the deduction. The Tribunal noted that the seized documents and statements recorded during the search clearly indicated that the receipts were related to the business activity of the assessee, thus constituting business income eligible for deduction under section 80IB(10).3. Rectification of Assessment Order Under Section 154:The assessee filed a rectification petition under section 154, seeking correction of the assessment order, particularly the classification of additional income and disallowances affecting the deduction under section 80IB(10). The AO rejected the petition, stating that the issues raised did not constitute 'mistakes apparent from the record.' The Tribunal, however, found that the AO had not considered all relevant materials and judicial precedents, constituting a mistake apparent from the record. Consequently, the Tribunal directed the AO to assess the additional income as business income and allow the corresponding deduction.4. Double Taxation of Scrap Sales:The assessee contended that the reduction of Rs. 2.00 crores relating to scrap sales of AY 2009-10 resulted in double taxation. The Tribunal accepted this contention, directing the AO not to assess the amount in the current year, as it had already been taxed in AY 2009-10.5. Disallowance of Construction Costs and Bogus Purchases:The AO disallowed Rs. 9.00 crores claimed as additional WIP costs and Rs. 29.92 lakhs as bogus purchases, reducing the deduction under section 80IB(10). The Tribunal noted that the AO did not consider the binding decision of the jurisdictional High Court, which constitutes a mistake apparent from the record. The Tribunal directed the AO to allow the deduction on these disallowances.6. Cross-Objection by the Revenue:The revenue filed a cross-objection, raising legal contentions about the validity of the return filed by the assessee and the claim of deduction under section 80IB(10). The revenue argued that the return purportedly filed on 30-09-2011 was fraudulent and that the actual return was filed on 29-02-2012, beyond the due date prescribed under section 139(1). The Tribunal noted that the cross-objection was filed after the conclusion of the hearing and was barred by limitation. Moreover, the Tribunal found that the assessing officer cannot challenge his own order by filing an appeal in the form of a cross-objection. The Tribunal dismissed the cross-objection, emphasizing that the revenue should pursue other legal avenues if it believes the deduction was wrongly granted.Conclusion:The Tribunal allowed the appeal filed by the assessee, directing the AO to assess the additional income as business income and allow the corresponding deduction under section 80IB(10). The cross-objection filed by the revenue was dismissed as not maintainable, and the Tribunal emphasized the need for the AO to follow prescribed legal procedures to address any alleged fraud or misrepresentation by the assessee.