TaxTMI 
TaxTMI 
2026 (5) TMI 1340
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.... the course of assessment, the AO had called for details from the assessee to justify the deduction claimed u/s 80-IB(10) of the Act. It is seen that, the assessee was owning land admeasuring 4.45 acres at Kattupakkam village, near Iyyappan Thangal, which was held by way of stock-in-trade. The assessee had promoted a housing project through a Joint-Venture (JV) with M/s. ETA Properties & Investments Ltd (hereinafter referred to as 'M/s ETA' or 'builder'). According to the terms of the Joint Development Agreement (JDA) dated 16.07.2006 between the assessee and M/s. ETA, the tasks and responsibilities inter-se were assigned between them. The assessee was required to undertake the preparatory activities, reclassification of land, design and architectural work and, M/s ETA was required to construct the buildings. It was agreed that, the builder shall undertake the entire construction at its own cost and shall allot 33.33% i.e. seventy-three (73) flats to the assessee out of the total built-up area. The assessee in lieu of the same had agreed to assign and convey 66.67% of the total land area i.e. 2.96 acres out of 4.45 acres, to M/s ETA, and accordingly mutually agreed to the terms and....
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....eloper executing the housing project along with the builder and therefore was entitled to deduction u/s 80-IB(10) of the Act. The Hon'ble High Court also rejected the Revenue's plea that, by allowing deduction u/s 80-IB(10) to both the assessee and the builder, it was amounting to double deduction. It was observed by the Hon'ble High Court that it was not a case of double deduction as both parties were claiming deduction qua their respective proportionate share. While holding so, the Hon'ble High Court also reversed the findings of the lower authorities that, no expenses had been debited in P&L A/c in relation to development of this housing project. The Hon'ble High Court took note of the obiter dicta in the appellate order of Ld. CIT(A) wherein he had taken note of the cost of WIP of Rs. 2.22 crores debited in P&L A/c and observed that, the same was inclusive of the cost of land of Rs. 1,97,63,024/- developed for this housing project, which was acquired in FYs 2004-05 & 2005-06. The relevant findings of the Hon'ble High Court, which is relevant to the issue impugned in this appeal, is as follows:- "20. Mrs.R.Hemalatha, learned Senior Standing Counsel reiterated that the T....
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....ind that the Tribunal has not given any finding as to any double deduction and therefore, such a plea cannot be canvassed before us in this appeal. 24.In the result, the appeal filed by the assessee is allowed; the order passed by the Tribunal, dated 12.06.2017, is set aside; the order passed by the CIT(A) dated 24.03.2015, is restored; and the substantial questions of law are answered in favour of the assessee. No costs. Consequently, connected miscellaneous petitions are closed. 7. Upon receipt of the above order of the Hon'ble High Court, the assessee is noted to have preferred a rectification application dated 04.07.2019 before the Ld. CIT(A) u/s 154 of the Act. The assessee asserted that, it was now an admitted fact that, the cost of land was already debited in P&L A/c and reduced from the computation of profits and therefore the direction issued by the Ld. CIT(A) to substitute the cost of land of 4.45 acres (in absence of details) with the cost of construction of 73 flats or the FMV of 2.96 acres, was erroneous and factually perverse, which required rectification. It was further submitted that, there is no provision in law which permits the Revenue to substitute t....
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....f construction of the building including that of 73 flats was borne by the builder, M/s ETA and therefore the direction of the Ld. CIT(A) assuming the cost of construction of 73 flats to be on account of the assessee, was otherwise also a mistake apparent from record. The Ld. AR showed us that, the financials of the assessee reflected the costs expended towards the project and therefore there was no need to substitute the cost of construction borne by the builder, to determine the profits for the purpose of deduction u/s. 80-IB(10) of the Act. The Ld. AR further submitted that, as per the well accepted principles of revenue recognition, the consideration received by the assessee as reduced by the actual cost should be the profit as per books eligible for deduction u/s. 80IB(10) of the Act and there can't be any substitution of any cost other than the historical cost. It was also brought to our notice that, there was no provision under the Act or in Accounting Standards to adopt two different quantum of profits from the same residential project, one for the purpose of determining the gross total income and the other for the purpose of claim of deduction u/s. 80-IB(10) of the Act. Th....
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....ly erroneous as the WIP of Rs. 2.22 crores is found to include the cost of land of Rs. 1,97,63,024/-, which was purchased by the assessee in FYs 2004-05 and 2005-06. We find that though the ld. CIT(A) had also taken cognizance of the same in the appellate order but had erroneously proceeded on the mistaken assumption that the cost of land had not been debited by the assessee in the P&L A/c. Our view is also supported by the findings of the Hon'ble High Court rendered in the assessee's own case (supra) wherein their Lordships have taken cognizance of this material fact as well. Hence, we find that the direction issued by the ld. CIT(A) was based on a prima facie erroneous assumption viz., the cost of land had not been considered by the assessee for computing the deduction u/s 80-IB(10) of the Act. According to us therefore, this mistaken assumption of the ld. CIT(A) and the consequent direction to adopt the cost of construction of 73 flats / market value of 2.96 acres of land as the substitute for the cost of land, was an apparent error of fact, which was rectifiable u/s 154 of the Act. 13. There is also merit in the submission of the assessee that the terms of the JDA dated 16.0....
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....nt to this business income. The Ld. AR has rightly pointed out that, the direction issued by the Ld. CIT(A) was equally applicable to the computation of business income / gross total income as well, and that the AO could not have reworked the eligible profits u/s 80-IB(10), in isolation of the actual profits derived from the housing project. We are also unable to fathom a situation where the actual profits as per the financials from the eligible project and the amount eligible for deduction u/s 80-IB(10) could be two completely different numbers. It was shown to us that, once the computation of gross total income is also substituted with the cost of 73 flats, as directed by the Ld. CIT(A), then the same would stand correspondingly reduced by Rs 18,36,38,273/-. Further, after reducing the re-worked deduction u/s 80-IB(10), the resultant assessable income would remain the same, as declared in the return of income. Hence, from this angle as well, the direction given by the Ld. CIT(A) is found to be prima facie an error of fact. 16. We observe that the Ld. CIT(A) in the impugned order fell into an error by holding that the prayer made by the assessee was not within the scope of rect....
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....d the validity of the rectification order. 18. In our considered view, the above analogy is applicable to the present case as well. As noted above, the financials of the assessee revealed that the cost of land had been debited and charged to P&L A/c. The Ld. CIT(A) however had proceeded on the mistaken premise that, the cost of land had not been debited and therefore directed the AO to rework the deduction by substituting cost of land, in absence of details, with the cost of construction of 73 flats or market value of land of 2.96 acres. We find that, this particular finding / direction of the Ld. CIT(A) was clearly inconsistent with the face of P&L A/c and the Balance Sheet clearly, and therefore, is required to be rectified u/s 154 of the Act. 19. In the facts and circumstances as discussed (supra), the Ld. CIT(A) is incorrect to hold that the order of his predecessor had merged with the order of the higher judicial forums and therefore, he is helpless and not rectify the impugned direction. In this regard, it is observed that the Tribunal has adjudicated on the sole issue as to whether the assessee, in principle, was eligible for deduction u/s. 80IB(10) of the Act. Even th....