2010 (12) TMI 903 - AT - Income Tax

Deduction u/s. 80IB(10) - A detailed block plan showed that assessee wanted to construct four wings known as wings A, B, C and D and these were supposed to be independent wings - It was submitted that there is no requirement under the section that assessee should be owner of the land - Since assessee had not completed D wing and had also not sold any of the flats in the D wing, and deduction was claimed only in respect of A, B and C wings, same were allowable - assessee had fulfilled all these conditions because the project was approved on 8-1-2004 and completed before 31-3-2008 which means that the project was approved by the local authority before 31-3-2007 it becomes clear that the Ld. CIT A was satisfied that each unit of the residential flat in all the three wings was less than 1000 sq.ft. and since Revenue has not filed any cross objection against this finding, the same has become final and binding on the Revenue - It really makes no difference whether M/s Conwood Agencies had applied for or the assessee had applied to the municipal corporation to make any difference in deciding the assessee s claim for deduction under s. 80-IB(10) of the Act - Held that Revenue was not right in holding that assessee is not entitled to deduction u/s. 80-IB(10) because the housing project was not completed as D wing was never completed before the specified date the first condition is met because the project is commenced after 1-10-1998 and the same has been completed before 31-03-2008 because of the relevant Occupation Certificates for A, B and C wings have been obtained before 31-03-2008 - AO has not given any specific defect in respect of any particular expenditure - In the result, all the appeals are partly allowed

Summary

Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act.
2. Disallowance of reimbursement and personal expenses.
3. Interest disallowance.
4. Levy of interest under Sections 234B and 234C.
5. Initiation of penalty proceedings under Section 271(1)(c).

Issue-wise Analysis:

1. Deduction under Section 80IB(10):
The primary issue in these appeals was the eligibility for deduction under Section 80IB(10) for the assessment years 2005-06, 2006-07, and 2007-08. The assessee, engaged in the business of construction and development, claimed this deduction for profits from the sale of flats. The Revenue denied the deduction on three grounds: (i) some residential units exceeded 1000 sq.ft., (ii) the housing project was incomplete as the D wing was not finished, and (iii) the project area was less than one acre due to the assessee's 51% share. The Tribunal concluded that the assessee met all conditions for deduction under Section 80IB(10), including the completion of wings A, B, and C before the deadline, and that the D wing, meant for personal use, did not affect the eligibility. The Tribunal also held that the land area requirement was met as the project covered more than one acre. Consequently, the deduction was allowed.

2. Disallowance of Reimbursement and Personal Expenses:
The AO disallowed Rs. 28,868, claimed as a liability to Vikas Housing Pvt. Ltd., stating it should have been credited to the expenses account. The Tribunal upheld this disallowance, agreeing that expenses were shown on the higher side. Additionally, 20% of car insurance and car expenses were disallowed as personal expenses due to the absence of a logbook. The Tribunal found the disallowance reasonable and upheld it.

3. Interest Disallowance:
The AO disallowed proportionate interest expenses on the grounds that the assessee had given interest-free advances to related concerns. The Tribunal, referencing the Bombay High Court decision in CIT v. Reliance Utilities Powers Ltd., remitted the matter back to the AO to re-adjudicate in light of the presumption that investments were out of interest-free funds if such funds were sufficient.

4. Levy of Interest under Sections 234B and 234C:
The Tribunal noted that the levy of interest under Sections 234B and 234C is consequential. The AO was directed to levy interest in accordance with the law.

5. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal deemed the issue of initiating penalty proceedings under Section 271(1)(c) as premature and dismissed it as infructuous.

Conclusion:
The Tribunal allowed the appeals partly, granting the deduction under Section 80IB(10) and directing the AO to re-examine the interest disallowance and TDS credit. Other disallowances were upheld, and the penalty proceedings were dismissed as premature. The order was pronounced on December 23, 2010.