2009 (4) TMI 530 - AT - Income Tax

Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings

Summary

Issues Involved:
1. Disallowance of deduction under section 80-IB(10) of the Income-tax Act.
2. Disallowance of addition of Rs. 1,58,900 in respect of deposits forfeited.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80-IB(10):

Facts:
The assessee, engaged in the construction and development of housing projects, claimed a deduction under section 80-IB(10) amounting to Rs. 71,73,660 for Building Wing-E. The project was on a plot of 2.36 acres in Kandivali (West), Mumbai, with five wings (A, B, C, D, and E). The commencement certificate (CC) for the construction was initially granted on 9-6-1993 and extended over the years. The plan for Wing-E was approved on 25-5-2003. The assessee recognized revenue using the percentage of work completed method and declared profits for the assessment years 2004-05 and 2005-06. A survey under section 133A led to the inspection of Wing-E, and statements from the site supervisor and architect were recorded. The Assessing Officer (AO) denied the deduction, citing three main reasons: the construction commenced before 1-10-1998, the plot size for Wing-E was less than one acre, and two flats were merged into one exceeding 1,000 sq. ft.

Assessee's Arguments:
The assessee contended that Wing-E was a separate project approved on 11-10-2002, with construction commencing on 10-3-2003. They argued that the total plot size was 2.36 acres, fulfilling the requirement of section 80-IB(10)(b), and the flats were under construction during the survey, with no evidence of the merged flat exceeding 1,000 sq. ft.

Tribunal's Findings:
- Separate Housing Project: The Tribunal concluded that Wing-E was an independent housing project initiated after 1-10-1998. It was not part of the earlier project (Wings A-D) commenced in 1993.
- Plot Size: The Tribunal found the total plot size to be 2.36 acres, fulfilling the requirement of section 80-IB(10)(b). There was no specific demarcation of the area for Wing-E alone.
- Flat Size: The Tribunal noted that the flats were under construction during the survey, and there was no evidence of the merged flat exceeding 1,000 sq. ft. The statements of the site supervisor and architect did not conclusively prove the violation.

The Tribunal held that the assessee was entitled to the deduction under section 80-IB(10), reversing the CIT(A)'s order and directing the AO to grant the deduction.

2. Disallowance of Addition of Rs. 1,58,900 in Respect of Deposits Forfeited:

Facts:
The AO disallowed the assessee's claim of Rs. 1,58,900 written off as deposits given to the Municipal Corporation of Greater Bombay, treating it as a capital loss. The CIT(A) upheld this disallowance.

Assessee's Arguments:
The assessee argued that the deposits were for water and sewage connections, and their forfeiture should be treated as a revenue loss.

Tribunal's Findings:
The Tribunal noted that the assessee failed to provide evidence or material to substantiate the claim, such as relevant correspondence or receipts of the deposits. Hence, the Tribunal upheld the CIT(A)'s decision, confirming the disallowance as a capital loss.

Conclusion:
The Tribunal allowed the assessee's appeal partly, granting the deduction under section 80-IB(10) for Wing-E but upholding the disallowance of the addition of Rs. 1,58,900.