Housing project deduction, absence of exempt income, and search additions: ITAT Delhi principles on proportionate relief and incriminating material.
Section 80IB(10) deduction was analysed on a proportionate basis for a housing project approved on land exceeding one acre, with the first approval date treated as governing where multiple approvals existed and the amended commercial-area threshold applied retrospectively to eligible approved projects. The discussion also noted that 14A disallowance does not survive where no exempt income is earned, ad hoc disallowances for vehicle expenses and depreciation cannot rest on presumed personal use without supporting material, and additions for bogus purchases or notional rent in an unabated search year require incriminating material for that year. On the facts described, the assessee succeeded on each substantive issue.
Issues: (i) Whether deduction under section 80IB(10) was allowable on a proportionate basis for the housing project, (ii) whether disallowance under section 14A could survive in the absence of exempt income, (iii) whether the ad hoc disallowance of vehicle repairs, maintenance and motor car depreciation was sustainable, (iv) whether the addition on account of alleged bogus purchases could be made in an unabated assessment without incriminating material found in search, and (v) whether notional rent could be added on unsold stock in the absence of incriminating material.
Issue (i): Whether deduction under section 80IB(10) was allowable on a proportionate basis for the housing project.
Analysis: The housing project was approved and commenced on land exceeding one acre, and the statute did not require acquisition of the entire land in one tranche. The first approval date governed the project where there were multiple approvals. The commercial area objection was not accepted, as the so-called commercial space was treated as convenience shopping and the amended commercial-area threshold was held to operate retrospectively for eligible approved projects. The presence of some residential units exceeding the prescribed built-up area did not defeat the claim in respect of the qualifying portion of the project.
Conclusion: Deduction under section 80IB(10) was held allowable on a proportionate basis in favour of the assessee.
Issue (ii): Whether disallowance under section 14A could survive in the absence of exempt income.
Analysis: It was found that no exempt income had been earned during the year. In such circumstances, section 14A could not be invoked.
Conclusion: The disallowance under section 14A was deleted in favour of the assessee.
Issue (iii): Whether the ad hoc disallowance of vehicle repairs, maintenance and motor car depreciation was sustainable.
Analysis: The disallowance was made on the assumption of personal use by directors, but the expenditure belonged to the company and personal expenditure of a company was not a basis for such disallowance in the absence of supporting material.
Conclusion: The ad hoc disallowance was deleted in favour of the assessee.
Issue (iv): Whether the addition on account of alleged bogus purchases could be made in an unabated assessment without incriminating material found in search.
Analysis: The year was unabated on the date of search, so additions could be sustained only on the basis of incriminating material relating to that year. The finding was that no such material was found for the year under consideration, and the revenue did not rebut that factual conclusion.
Conclusion: The addition for bogus purchases was deleted and the issue was decided in favour of the assessee.
Issue (v): Whether notional rent could be added on unsold stock in the absence of incriminating material.
Analysis: The addition was also founded only on a search assessment without any incriminating material for the relevant year. The factual finding deleting the addition was not disturbed.
Conclusion: The notional rent addition was deleted in favour of the assessee.
Final Conclusion: The assessee succeeded on the substantive issues relating to deduction, disallowances and additions, while the revenue's appeal failed in full; the composite result was a partial allowance of the assessee's appeal and dismissal of the revenue's appeal.