2009 (7) TMI 1304 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of proceedings u/s 263 of the IT Act.
2. Allowability of deduction u/s 80-IB(10) of the IT Act.

Summary:

Issue 1: Legitimacy of proceedings u/s 263 of the IT Act

The assessee, a registered partnership firm, filed a return of income showing "nil" for the asst. yr. 2003-04. The AO made an addition of Rs. 7,28,360 on account of interest income included in the deduction u/s 80-IB(10). The CIT issued a notice u/s 263, finding the assessment order erroneous and prejudicial to the interest of Revenue, and set aside the assessment order. The assessee appealed, arguing that the AO's order was neither erroneous nor prejudicial to the Revenue's interests. However, the Tribunal upheld the CIT's order, noting that the AO had not properly examined the books of accounts and documents, thus failing to apply his mind to the issue at hand.

Issue 2: Allowability of deduction u/s 80-IB(10) of the IT Act

The AO disallowed the deduction of Rs. 64,00,681 u/s 80-IB(10) for the asst. yr. 2004-05, arguing that the assessee was merely a contractor for OSHB, which had the project approval. The CIT(A) allowed the deduction, and the Revenue appealed. The Tribunal examined the agreement between the assessee and OSHB, noting that the assessee had a principal-to-principal relationship with OSHB and was not merely a contractor. The Tribunal found that the assessee undertook the development and building activity, was entitled to the sale proceeds, and fulfilled all conditions for the deduction u/s 80-IB(10). The Tribunal upheld the CIT(A)'s decision, referencing similar cases like Radhe Developers and Saroj Sales Organisation, where deductions were allowed under similar circumstances.

Conclusion:

Both the assessee's and the Revenue's appeals were dismissed. The proceedings u/s 263 were upheld as the AO failed to properly examine the issue, and the deduction u/s 80-IB(10) was allowed as the assessee fulfilled all necessary conditions and was not merely a contractor.