AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 1586
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.... appeals are summarized as under : i. Allowing 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 deve....
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....Ltd. which was subsequently changed to Kumar Housing Corporation Ltd. The ld. AR 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....
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....e started construction on the said plot. The expenditure incurred by the assessee as pointed out by the CIT(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 ....
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....f Income Tax (Appeals) on this issue. Accordingly, the findings of Commissioner of Income Tax (Appeals) on this 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 Office....
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....d other formalities for purchase of vehicles were complied with on behalf of the assessee. The Directors signed the documents merely on behalf 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 th....
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....lowed in series of decisions admittedly where the funds of the assessee company have been utilized for the purchase of vehicles, even though the vehicles 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 f....
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....o-ordinate Bench of the Tribunal in the case of Rohan Builders and Developers Pvt. Ltd. Vs. ACIT in ITA No. 942/PN/2006 for assessment year 2004-05 decided on 29-08-2008. 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....
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....2002. Thereafter, the assessee filed second application under the Industrial Park Scheme, 2008 under which the assessee was required to complete the Industrial Park up to 31-03-2011. The assessee complied with all the terms 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-....
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....t for tax in different assessment years, the details of which are as under : Asstt. Year Building No. Amount (Rs.) 2006-07 B1 - 2nd Floor 9,91,24,893/- 2007-08 B1 entire building excluding 2nd Floor 120,20,70,010/- 2008-09 B2 139,00,00,000/- 2009-10 B2 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 ....
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....ustrial park did not fulfill the criteria of locating minimum number of 30 industrial units. The Co-ordinate Bench of the Tribunal struck down the first objection raised by the Department in disallowing the claim of deduction u/s. 80IA(4)(iii) by observing as under : "49. Now, the claim of the assessee is that it started the process 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 autho....
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.... earlier paragraphs. Sub-rule (1) of rule 18C of the Rules says that the undertaking ought to begin to develop, develop and operate or maintain and operate an Industrial Park at any time during the period beginning on 01.04.2006 and ending on 31.03.2009. Sub-rule (2) of rule 18C of the Rules says that the undertaking of an Industrial Park shall be notified 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 unjus....
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....ssee had claimed deduction u/s. 80IA(4)(iii) in assessment year 2006-07 which was allowed to the assessee. The assessee could not complete the project within the time frame specified in IPS 2002 i.e. 31-03-2006. The assessee applied for notification of the project under IPS 2008. The project was notified by CBDT on 09-07-2010. After notification of the project 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....
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....ed in section 80-IB(10) of the Act. The CBDT vide Instruction No.4 of 2009 dated 30.06.2009 clarified that the deduction u/s 80-IB(10) of the Act can be claimed on a year to year basis where an assessee was showing profits from partial completion of the project in every year. It has also been clarified by the CBDT that on a later date, if it is found that the condition of the completion 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 upho....
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....ons assigned by the revenue authorities for rejecting the claim of the Assessee for deduction u/s.80-IA(4)(iii) of the Act, it is clear that an Assessee who adopts the percentage completion method of accounting of income from developing industrial park can get deduction of only that part of the profits that are offered to tax in the year in which the notification is received. Had the Assessee 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....
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....sessing Officer has allowed the deduction u/s 80-IA(4)(iii) of the Act. In the instant assessment year, assessee has operationalised 21 industrial units out of the minimum 30 required to be developed. The balance of the 9 units have been completed on 09.05.2007 i.e. the date on which assessee has obtained the completion certificate from the Pune Municipal Corporation. Hypothetically speaking, if 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 deter....
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....our effective grounds. In ground No. 1 the assessee has challenged the reassessment proceedings u/s. 147/148 of the Act. In ground No. 2 the assessee has assailed the disallowance of claim of depreciation in respect of capital assets in respect of Club House including Swimming Pool and Gymnasium leased out to Kumar City Club Pvt. Ltd. In ground No. 3 the assessee has assailed the findings of Commissioner 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 exp....
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.... by the representatives of rival sides. The Commissioner of Income Tax (Appeals) has upheld the findings of Assessing Officer in disallowing the interest u/s. 36(1)(iii) of the Act on the amounts advances to various parties. The Assessing Officer has observed that the amounts were advanced to the sister concerns for non-business purpose and there is no benefit to the assessee from such advances either directly or indirectly. The Commissioner of Income Tax (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 T....