2010 (8) TMI 1081 - AT - Income Tax

Assessment u/s 153A - Whether incriminating documents found during the course of search? - Rejection of claim u/s 80IB(10) - HELD THAT - There is not only a statement of having made e-xcessive claims, but it is followed up by su-motto surrender of the claims made earlier u/s. 80IB(10) of the Act. Just because there is no statement or withdrawal of claim for this particular assessment year, it cannot be said that there is no possibility of the assessee not having made the false claim u/s 80IB(10) during this year. Once during the course of search, certain information has come to light, that the assessee has made certain false claims, on a particular issue, in our considered opinion, the AO has jurisdiction to examine the validity of the claim of exemption u/s 80IB(10) in all the assessment years, while processing the returns of income u/s. 153A read with section 143(3). Thus in view of the information that has come to light during the course of search and seizure operations on the claims of exemption made by the assessee u/s 80IB(10) during the period prior to the search, it is held that there is information, which is intangible material, unearthed as a result of search, and this material can be used for the purpose of assessment made u/s 153A read with section 143(3). Hence, on facts, we fully agree with the submission of the ld. Departmental Representative Deduction u/s.80(IB)(10) - whether the project is constructed on a plot of land which is more than one acre.? - HELD THAT - Additional housing project constructed on an existing project, which fulfils the requirement of the size of the plot of land of minimum 1 acre, would be eligible for deduction u/s 80IB(10). This clarification, in our considered opinion supports the literal interpretation pleaded by the learned counsel for the assessee. In view of the factual position that the project in question is purely a residential project without a commercial element and as this project is located on a plot of land of a size of 1.43 acres as following VANDANA PROPERTIES case 2009 (4) TMI 530 - ITAT MUMBAI we allow this ground of the assessee. Eligibility for exemption u/s.80IB(10) of Pocket 10 MIDC - Whether FAA has erroneously considered 10% of the plot area instead of considering 10% of the total constructed area while examining the eligibility for exemption? - HELD THAT - As per the mandate Tribunal in the case of Brahma Associates 2009 (4) TMI 215 - ITAT PUNE as already referred above while dealing ground No.1, what is to be considered is 10% of the built up area and not 10% of the plot area. Thus we set aside this issue to the file of the AO for examining, if the assessee s built up commercial area is less than or more than 10% of the total built up area. If the commercial built up area is less than 10% of the total built up area, the case of the assessee should succeed. If it is not so, the assessee will not be entitled for any exemption u/s.80IB(10). With these observations we set aside the issue to the file of the A.O. for fresh adjudication. In the result, this ground is allowed for statistical purposes Addition made u/s 2(22)(e) - financial transactions between sister concerns - HELD THAT - The Hon ble Delhi High Court in the case of CIT vs. Ambassador Travels P. Ltd. 2008 (4) TMI 428 - DELHI HIGH COURT held that when the assessee entered into normal business transaction as a part of day to day business activity, this cannot be treated as loans or as advances. We accept the arguments of the learned counsel for the assessee that the transactions between these sister concerns are business transactions and are guided by commercial expediency and are mere diversion of funds and are neither a loan or advance as contemplated u/s 2(22)(e). Thus this ground of the assessee is allowed. Appeals are allowed in part.

Summary

Issues Involved:
1. Jurisdiction of AO under section 153A.
2. Eligibility for deduction under section 80IB(10) for specific projects.
3. Treatment of deemed dividend under section 2(22)(e).

Detailed Analysis:

1. Jurisdiction of AO under section 153A:
The primary issue was whether the AO had jurisdiction to issue notice under section 153A and complete assessments under section 143(3) read with section 153A, particularly when no incriminating material was found during the search for the assessment year 2001-02. The Tribunal noted that different benches had varying views on this issue. However, in this case, it was found that during the search, the assessee admitted to making false claims for deduction under section 80IB(10) in response to questions and subsequently withdrew some claims. This constituted intangible material unearthed during the search, granting the AO jurisdiction to examine the claims for all assessment years. Therefore, the additional ground challenging the jurisdiction was dismissed on factual grounds.

2. Eligibility for deduction under section 80IB(10) for specific projects:
The key issue was whether the projects at Pocket 7 MIDC and Ashram Chawl qualified for deduction under section 80IB(10), particularly concerning the requirement that the project be on a plot of land with a minimum area of one acre.

- Pocket 7 MIDC: The Tribunal found that the plot size was 1.43 acres and that the residential projects were separate from the commercial project. The literal interpretation of section 80IB(10)(b) supported the assessee's claim, as the project was on a plot of land exceeding one acre. The decision in Vandana Properties vs. ACIT supported this view. The Tribunal allowed the deduction for the residential projects at Pocket 7 MIDC.

- Pocket 10 MIDC: The CIT(A) had erroneously considered 10% of the plot area instead of 10% of the total constructed area for determining eligibility for deduction. The Tribunal set aside this issue to the AO for fresh adjudication, instructing the AO to consider whether the commercial built-up area was less than 10% of the total built-up area.

- Ashram Chawl: For the assessment years 2002-03 and 2004-05, the Tribunal noted that the plot area was 1.298 acres, and following the same reasoning as for Pocket 7 MIDC, allowed the deduction under section 80IB(10).

3. Treatment of deemed dividend under section 2(22)(e):
For the assessment year 2004-05, the issue was whether certain financial transactions between the assessee and its sister concerns constituted deemed dividends under section 2(22)(e). The Tribunal observed that these transactions were part of mutual, open, and current accounts between sister concerns engaged in joint projects. Citing various case laws, the Tribunal concluded that such transactions were neither loans nor advances but were guided by commercial expediency and business necessity. Therefore, these transactions did not attract the provisions of section 2(22)(e), and the addition made by the AO was deleted.

Conclusion:
The appeals were allowed in part, with the Tribunal ruling in favor of the assessee on the eligibility for deduction under section 80IB(10) for the residential projects and deleting the addition under section 2(22)(e) for deemed dividends. The issue of deduction for Pocket 10 MIDC was remanded to the AO for fresh adjudication.