TaxTMI 
TaxTMI 
2016 (8) TMI 1586
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....ing of deduction u/s. 80IB(10) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"); ii. Disallowance u/s. 14A r.w. Rule 8D (issue raised only in A.Y. 2007-08); iii. Depreciation on motor cars registered in the name of Directors; and iv. Allowing of deduction u/s. 80IA(4)(iii) of the Act. Deduction u/s. 80IB(10) of the Act : 3. The assessee is a builder and developer. The assessee developed a housing project 'Kumar Puram' and claimed deduction u/s. 80IB(10) of the Act amounting to Rs. 51,37,746/- on the said project. The Assessing Officer disallowed the claim of deduction u/s. 80IB(10) to the assessee on the ground that the project was sanctioned on 24-04-1998 and the construction on the said project had started immediately thereafter. For claiming deduction u/s. 80IB(10) the project should have commenced on or after 01-10-1998. The Assessing Officer further held that the commercial area in the project is more than 5% of the total area of project which is in violation of Pune Municipal Corporation (PMC) norms. Another reason for disallowing the deduction was that the assessee had developed housing project 'Kumar Puram' and commercial project 'Business Court' ....
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.... placed on record a copy of the order of Tribunal in ITA No. 336/PN/2006 (supra). 3.3 We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We observe that the Assessing Officer in the assessment year 2001-02 had raised similar objections in disallowing the claim of deduction u/s. 80IB(10) on the housing project 'Kumar Puram' developed by the assessee. In appeal filed by the assessee before the Tribunal, the Tribunal decided the issue in favour of the assessee. The Commissioner of Income Tax (Appeals) in the impugned order has followed the order of Tribunal in ITA No. 336/PN/2006 (supra) and accepted the claim of the assessee in assessment years under appeal. The relevant extract of the order of Tribunal in assessee's own case in assessment year 2001-02 is reproduced here-in-under : "9. In case before us, whether sub-plot No.6 is a part of plot No.411 at Mukund Nagar, Pune, though the building plan in respect of said plot as a whole was obtained on 24.04.1998. However, assessee did not start any construction on the said plot in the year relevant to the F.Y. 1998-99. Construction was started only on 18.04.19....
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....(A) is small items like purchase of iron and steel, security charges, labour charges and labour contractor charges which were incurred for upkeep, fencing charges, security expenses etc., and it cannot be said to be incurred for the development and construction of the project. For actual development, expenditure incurred on a big way as has been done in F.Y. 1999-2000. Even the booking of the flats started in F.Y. 1999-2000. The fact has been intimated by the assessee to the Pune Municipal Corporation on 05.05.1999 wherein it was submitted that as per Rule 7.2 of DC Rules of PMC, assessee has to intimate the Corporation about the starting of the project. Hence, the estimation of starting of the development of the project was given by the assessee in April, 1999 which shows that construction has not commenced before 01.10.1999. Even though plan was approved prior to 01.10.1999, the development and construction of housing project started after 01.10.1999 and construction in fact has commenced only after April, 1999. It has been the consistent stand of the assessee that building 'Business Court' started by Shri Supnekar even in the agreement for purchase of land, it was mentioned that....
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....his issue are affirmed and the ground raised by the Department against allowing claim of deduction u/s. 80IB(10) of the Act to the assessee is dismissed. Disallowance u/s. 14A r.w. Rule 8D : 4. During the period relevant to assessment year 2007-08 the assessee has received exempt income in the shape of share in profit from partnership firm Rs. 8,05,01,863/- and dividend income Rs. 4,40,540/-. The Assessing Officer made disallowance of Rs. 2,28,76,123/- by invoking the provisions of section 14A r.w. Rule 8D. In first appeal, the Commissioner of Income Tax (Appeals) restricted the addition to 10% of the exempt income earned by the assessee by applying the analogy of deduction u/s. 80HHC of the Act. 4.1 The ld. DR vehemently supported the order of Assessing Officer in making disallowance u/s. 14A. The ld. DR contended that the assessee has earned exempt income, however, no disallowance was made by the assessee for earning income exempt from tax. 4.2 On the other hand the ld. AR contended that the provisions of Rule 8D have been wrongly invoked by the Assessing Officer. The Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd Vs Dy. CIT reported as 328 ITR 81 (Bo....
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....half of the assessee. Since, the vehicles were assigned to the assessee company the ultimate ownership lies with the assessee company. The vehicles were purchased in the name of Directors for the sake of convenience. The funds for purchase of vehicles were provided by the assessee company and are dully reflected in the schedule of fixed assets in the balance sheet of the assessee. 5.2 Both sides heard. The Department has assailed the findings of Commissioner of Income Tax (Appeals) in accepting the claim of the assessee in granting depreciation on the motor vehicles registered in the individual name of the Directors of assessee company. We observe that the Assessing Officer had declined the claim of depreciation on motor vehicles on the ground that the twin conditions for claiming depreciation u/s. 32 i.e. the asset should be owned by the assessee and the asset should be used for business purpose are not satisfied. The Commissioner of Income Tax (Appeals) accepted the claim of assessee on the ground that the motor vehicles were purchased in the name of individual only for the sake of convenience. The funds for purchase of motor vehicles were provided by the assessee company and th....
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....cles are not registered in the name of the assessee company, does not establish the case of the Revenue especially where the domain/control of the said assets was with the company itself and the vehicles were being utilized for the purpose of carrying on business of the assessee company. We hold that the assessee is entitled to the claim of depreciation on such vehicles which were owned by it and was being used for its business though it was registered in the name of the Directors. In this regard, we find support from the ratio laid down by the Pune Bench of the Tribunal in ACIT vs. Talera Motors Pvt. Ltd. in ITA No.1208/PN/2009 relating to assessment year 2006-07 - order dated 11.05.2011, wherein reliance was placed on the ratio laid down by another decision of the Pune Bench of the Tribunal in Rohan Builders and Developers Pvt. Ltd. vs. ACIT in ITA No.942/PN/2006 relating to assessment year 2004-05, order dated 29.08.2008 and it was held as under :- "4. After hearing both the parties and perusing the material on record, we find that the issue raised in this appeal is squarely covered by the decision of Pune Bench of the Tribunal in the case of Rohan Builders and Developers Pvt....
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....08-2008. We do not find any infirmity in the order of Commissioner of Income Tax (Appeals) in accepting the claim of the assessee. Thus, in view of the facts of the case and the decision of Co-ordinate Bench, the ground of appeal raised by the Department against allowing of depreciation on motor vehicles registered in the name of Directors of the assessee company is dismissed. Deduction u/s. 80IA(4)(iii) : 6. The assessee had developed Industrial Park named Cerebrum at Pune and had claimed deduction u/s. 80IA(4)(iii) of the Act. The Assessing Officer rejected the claim of assessee u/s. 80IA(4)(iii) for the following reasons : i. The scheme is not notified by the Central Government in accordance with sub rule 4 of Rule 18C of the Income Tax Rule 1962. ii. The Industrial Park did not commence on 01.01.2006 as per the Approval. iii. The proposed area of the Industrial Park 29,827 sq. mtrs. as per the Approval has not been constructed completely. The assessee constructed only 23,976.47 sq. mtrs. iv. The assessee has not allocated 'area earmarked for industrial use i.e. 91% as per the approval. The assessee allocated 12,303.77 sq. mtrs. i.e. 41% till 31.03.2007. v. Prop....
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....rms and conditions of the Scheme and hence eligible to claim deduction u/s. 80IA(4)(iii) of the Act. The ld. AR submitted that Poonawalla Group and Milestone Group are investors and have purchased buildings from the assessee in the industrial park developed by the assessee. The said groups have not occupied the buildings for their own use but have leased/rented out the area to IT and ITES Companies who would be actually utilizing the space. The objection of the Ld. DR is unwarranted as by 31-03-2011 there were 33 units in the project as against the minimum requirement of 30 units. None of the units had occupied area more than 25% of the total area as was envisaged under the scheme. The ld. AR further contended that the case of the assessee is squarely covered by the decision of Pune Bench of the Tribunal in the case of M/s. Kolte Patil Developers Ltd. Vs. Dy. Commissioner of Income Tax in ITA Nos. 1411 to 1415/PN/2013 for assessment years 2003-04, 2005-06, and 2007-08 to 2009-10 decided on 20-02-2015. 6.4 We have heard the submissions of rival sides at length and have carefully perused the detailed finings of Commissioner of Income Tax (Appeals) on the issue. Before proceeding fur....
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....9,28,68,636/- B3 89,67,82,844/- 2010-11 B3 60,56,86,161/- Total 428,65,32,544/- For the assessment year 2006-07, the assessee claimed deduction u/s. 80IA(4)(iii) at Rs. 3,47,04,325/- under the IPS 2002 and the same was allowed by the Assessing Officer. The assessee sold one floor of the building B1 to Mastek Ltd. during the financial year 2005-06 and the remaining floors of building B1 were sold to Poonawala group during the financial year 2006-07. The entire building B2 was sold by the assessee to M/s. Milestone Devcon P. Ltd. during the financial year 2008-09. The assessee sold building B3 to one of its sister concerns, M/s. Cerebrum IT Park Pvt. Ltd. during the financial year 2008-09. It is pertinent to note here that none of the aforesaid companies/groups retained the buildings for their own use. The buildings were given on lease/rent to various IT and ITES companies. There were 33 units as on 31-03-2011 in the industrial park. The assessee furnished agreement for sale/lease of the units located in the industrial park along with the confirmation letters before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) gave categoric fin....
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....ss of development of the Industrial Park somewhere in October, 2004 and the construction was spread over a number of years. As and when the individual units were being completed, assessee sold it to the clients. The assessee was offering and recognizing income on such sales in the respective years, and the income under consideration this year is from the sale of units. During the year under consideration, Assessing Officer has noted that only 21 units were located in the Industrial Park. In other words, only 21 units were operational and not the complete 30 units, i.e. the total number of units which were to be developed in the Industrial Park. The Assessing Officer has referred to clause 2(f) of the Scheme to say that the 'date of commencement' of Industrial Park is the date on which the completion certificate was obtained from the local authority certifying thereby that all the required development activities of the project has been completed. As per the Assessing Officer, in this case, the certificate from the local authority has been obtained on 09.05.2007 and therefore in terms of the Scheme, the date of commencement of the Industrial Park is to be understood as 09.05.2007 whi....
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....ed by the Central Government under the IPS, 2008. Sub-rule (3) of rule 18C of the Rules says that the undertaking shall continue to fulfill the conditions envisaged the IPS, 2008. Notably, there is no dispute that the undertaking of the assessee i.e. Industrial Park - Giga Space is duly notified by the Central Government under the IPS, 2008 and it continues to fulfill the conditions envisaged in the IPS, 2008 inasmuch as there is no withdrawal of approval by the Central Government, as provided for in clause 6 of the Scheme. Therefore, to say on the strength of clause 2(f) of the Scheme that the assessee has not complied with the requirements of the Scheme for staking claim u/s 80-IA(4)(iii) of the Act in the face of the fact that the undertaking i.e. the an Industrial Park continues to be notified by the Central Government, is unjustified and uncalled for. 52. The Revenue has emphasized that the development envisaged in the approval ought to have been completed by the assessee before 31.03.2007 itself i.e. within the previous year relevant to the assessment year under consideration, before it could claim the benefits of section 80- IA(4)(iii) of the Act. There is no dispute that....
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....under IPS 2008, the eligibility of deduction has to be seen with respect to the new scheme. Thus, in view of the facts of the case and the observations of the Co-ordinate Bench of the Tribunal we find no merit in the contentions of the ld. DR that the assessee is not eligible to claim deduction u/s. 80IA(4)(iii) in assessment years under appeal. 6.7 The second objection of the Revenue is that minimum 30 units were not established as per the scheme. The Tribunal while dealing with the issue relating to fulfilling the condition of locating 30 units to be eligible to claim deduction has held as under : "55. We find enough merit in the interpretation put-forth by the assessee. Ostensibly, the conditions in the Scheme have been inserted with an objective that once an undertaking is considered for notification u/s 80-IA(4)(iii) of the Act, there is a mechanism available to check as to whether the conditions prescribed in the Scheme have been complied with. In other words, in the context of the present controversy vis-à-vis clause 5(2) of the Scheme the objective is to ensure that the assessee does not claim deduction without putting the park to use for minimum 30 industrial un....
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....ompletion of project within the stipulated time is not fulfilled by the assessee then the Assessing Officer can withdraw the deduction allowed to the assessee in earlier years. In our considered opinion, a similar analogy has to be applied in the present case to understand the import and meaning of condition (2) of clause 5 of the Scheme. In our considered opinion, the lower authorities are not justified in disallowing the deduction claimed by the assessee u/s 80-IA(4)(iii) of the Act merely because the minimum number of thirty units are not located in the Industrial Park before 31.03.2007 when otherwise it is factually true that the minimum number of units have been located in Industrial Park in compliance with period stipulated and approved in the Scheme. Therefore, on this aspect, we find no reason to uphold the objection of the Revenue. 57. In-fact, the controversy before us in relation to the claim of deduction u/s 80-IA(4)(iii) of the Act pertaining to the instant assessment year is similar to what was considered by the Mumbai Bench of the Tribunal in the case of Ferani Hotels Pvt. Ltd. vs. DCIT, vide ITA Nos.1828 & 1829/Mum/2009 dated 24.02.2012 pertaining to assessment y....
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....see in the present case followed project completion of method of accounting of income from developing industrial park, the Assessee would have got the benefit of deduction of the entire profits from the development of industrial park. It will result in a situation where the method of accounting followed by the Assessee (such as the one in the present case) will deny the benefit available under the law. The method of accounting is such that the Assessee can never get the benefit even in a later year. It is no doubt true that the satisfaction of the conditions for grant of deduction as on the last date of the previous year is necessary. If due to subsequent events that take place after the last date of the previous year, conditions for grant of deduction are satisfied, then the Assessing Officer can take cognizance of the same. The CBDT in Instruction No.4/2009 dt. 30.06.2009 clarified the position with regard to allowing deduction u/s.80-18(10) of the Act. U/s.80-IB(10) of the Act, deduction of 100% profits derived from developing and building housing projects is allowed. One of the conditions to be satisfied for claiming such deduction was that the housing project should have comme....
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.... the assessee had not recognized the profits on the 21 units sold during the year under consideration but would have waited recognition of income after the completion of the complete 30 units, then such profits would have been offered by the assessee to tax in the subsequent assessment year, wherein in any case the Assessing Officer has held the assessee entitled for the deduction u/s 80-IA(4)(iii) of the Act. However, assessee has declared income from the sale of units on a progressive basis i.e. in the year in which the particular industrial units have been sold. This has lead to a conflict between the assessee and the Revenue with regard to the assessee's claim for deduction u/s 80-IA(4)(iii) of the Act. The moot question is - can the method of accounting followed by the assessee be determinative of assessee's claim for deduction u/s 80-IA(4)(iii) of the Act especially in a situation where assessee is otherwise said to have complied with the requirements of section 80-IA(4)(iii) of the Act read along with the provisions of the IPS, 2008 under which the Industrial Park of the assessee has been notified. In-fact, if the stand of the Revenue is to be accepted, what would happen is ....
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....oner of Income Tax (Appeals) in disallowing the interest expenditure pertaining to interest fee advance given to various parties on the ground that the assessee has diverted borrowed funds by making interest free advance and not allowable u/s. 36(1)(iii) of the Act. In ground No. 4 the assessee has assailed the disallowance made u/s. 14A of the Act. The ld. AR of the assessee stated at the Bar that except ground No. 3, he is not pressing the other grounds. Thus, in view of the statement made by the ld. AR of the assessee ground Nos. 1, 2 and 4 raised in the grounds of appeal by the assessee are dismissed as not pressed. 9. In ground No. 3 the assessee has assailed the findings of Commissioner of Income Tax (Appeals) in disallowing the claim of assessee with respect to interest expenditure pertaining to interest free advances given to various parties. The assessee has given advances to the tune of Rs. 160,68,08,441/- to the following parties. Sl. No. Name of the party Amount (Rs.) Reason 1 Kumar Urban Development Ltd. 72,81,57,841 Business 2 Pune Mumbai Realty Pvt. Ltd. 65,55,18,600 Share application money 3 River View Properties Pvt. Ltd. 21,31,32,000 Share applic....
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....Appeals) has distinguished the decision of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Reliance Power Utility Ltd. (supra), on facts. From the perusal of impugned order we observe that the assessee has advanced money towards share application money to Pune Mumbai Realty Pvt. Ltd. and River View Properties Pvt. Ltd. long time back. Although, the assessee has asserted that funds have been advanced to the sister concern for holding the stake but for quite long period the amount is shown as 'share application money pending allotment'. Thus, the contention of the assessee that the funds have been advanced for the purpose of strategic investment seems to be farce. In so far as advances to Mr. Rajesh Tiwari is concerned no explanations whatsoever has been furnished by the assessee and no business expediency has been shown. The ld. AR of the assessee has contended that the assessee is having own interest free funds sufficient to cover the investments as per the balance sheet as on 31-03-2008. However, it is not evident from the records as to whether the assessee was having sufficient own interest free funds for making investment at the time of giving advanc....