2010 (10) TMI 684 - AT - Income Tax

Deduction under section 80-IA(4) (iii) - The Industrial Park Scheme, 2002 - effective date of notification - Held that -The notification from the CBDT being a formality, after the approval by Ministry of Commerce and Industry under the scheme. The task of the CBDT prescribed under the Rule and not under the Act, even the issue of notification also without formal application by the assessee, but as a mere a follow up action by the Ministry of Commerce recognizing it as satisfying the conditions under the Software Technology Park Scheme, being so, the approval under section 80-IA cannot be said effective from the date of notification by the CBDT. Number of units - The other reason for denial of benefit under section 80-IA is that the required number of units is not located in industrial park - Held that - as per original approval letter the assessee is required to establish 30 units and later this was changed to 4 units as per revised approval letter dated 10-4-2007. Due to this, there is a change in the total investment. The explanation given by assessee for change in the actual investment as compared to the proposed investment is bona fide one. - As soon the assessee kept ready the units in the industrial park, the assessee s obligation under the scheme completes. The assessee in this case has entered into lease agreement/sale agreement with the parties for leasing or sale of industrial units. The assessee entered these agreements with the parties only after the industrial unit came into existence or kept ready. The parties concerned who have taken the industrial units on lease or sale, if they fail to commence the units, the department cannot find fault with the assessee. Addition on the basis of sworn statement of the directors during survey - Held that - there is no mention of work-in-progress in the questions or in the statement. There is no details of work-in-progress furnished by the assessee. This is an agreed addition for the assessment year 2005-06 on which the assessee filed a revised return offering additional income. Now the assessee cannot go back from its statement and claim the offer is towards work-in-progress and consequently cannot claim set off in this assessment year 2006-07 as opening in work-in-progress. - appeal of the assessee allowed partly.

Summary

Issues Involved:
1. Denial of deduction under section 80-IA(4)(iii) of the Income-tax Act.
2. Disallowance of Rs. 25 lakhs based on sworn statements during the course of a survey under section 133A of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80-IA(4)(iii):

The assessee, a private limited company engaged in real estate and construction, claimed a deduction of Rs. 25,68,56,265 under section 80-IA of the Income-tax Act for the assessment year 2006-07. The deduction was based on rental income from Tata Consultancy Services (TCS) and the sale of software units in an industrial park. The Assessing Officer (AO) denied the deduction, stating that the assessee had not fulfilled the conditions specified in the Industrial Park Scheme, as only one unit (TCS) was set up and operational by 31-3-2006. The CIT(A) upheld this decision.

The assessee argued that it had created facilities for more than four industrial units, evidenced by lease agreements and sales deeds before the end of the financial year 2005-06. The assessee claimed that the term "located" implied readiness for operation, not necessarily actual operation. The assessee cited various judgments to support the interpretation that the mere readiness of units sufficed for the deduction under section 80-IA.

The Department argued that the benefit under section 80-IA would only be available after the issuance of the CBDT notification on 21-8-2006, and not before. They contended that the units must be operational and not just ready for use.

The Tribunal held that the date of notification was irrelevant as the Central Government had approved the commencement of the industrial park from September 2005. The Tribunal interpreted the term "located" to mean that the units were ready and fixed in position, even if not operational. The Tribunal found that the assessee had completed the construction and infrastructure, making the units ready by February 2006. Therefore, the assessee was entitled to the deduction under section 80-IA for the assessment year 2006-07.

2. Disallowance of Rs. 25 Lakhs Based on Sworn Statements:

During a survey on 16-2-2006, the director of the assessee company offered an additional income of Rs. 25 lakhs for the assessment year 2005-06 to avoid litigation. The assessee later claimed this amount as a deduction in the assessment year 2006-07, stating that it was added to the closing Work-in-Progress (WIP) for the previous year and should be taken as opening WIP for the current year.

The Tribunal found no mention of work-in-progress in the survey statements and noted that the additional income was an agreed addition for the assessment year 2005-06. The Tribunal held that the assessee could not claim this amount as a deduction in the assessment year 2006-07, as it was not substantiated with details of WIP. Thus, this ground of the assessee was dismissed.

Conclusion:

The appeal of the assessee was partly allowed. The Tribunal granted the deduction under section 80-IA(4)(iii) for the assessment year 2006-07 but dismissed the claim for the Rs. 25 lakhs deduction based on the survey statements.