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2012 (11) TMI 620 - AT - Income TaxDeduction u/s 80IB(10) Whether area of land as per provision u/s 80IB(10) is to be considered on gross or net basis - AO disallowed deduction on ground that the net area of the plot is less than 1 acre for the housing project was not fulfilled - Substantial portion of the plot is reserved for D.P. Roads, hospital building and open space Held that - The law is well settled on this issue that so far as opening space and the area of the D.P. Road is concerned, the same cannot be excluded from the total area of the plot. Even the language of Clause (b) does not even remotely suggest that only the net area of the plot is to be considered. So far as the reservation of the hospital is concerned, the same is to be treated as a separate project and the area occupied by the said project has to be reduced from the gross area. Therefore after considering this area covered is more than 1 acre. Issue in favour of assessee Taxability of the profit from housing project u/s 80IB(10) - Assessee has completed the housing project in the A.Y. 2006-07 only, but declared the profit in the A.Y. 2007-08 Held that - Since the Completion Certificate has been issued to the assessee in the F.Y. 2006-07 relevant to the A.Y. 2007-08. The assessee is consistently following a particular method of accounting recognizing the profit which has not been rejected in past. We further find that the A.O has not rejected the method of accounting followed by the assessee in the A.Y. 2006-07. We, therefore, hold that there is no justification to bring to tax the part of profit from the housing project declared by the assessee in the A.Y. 2007-08. Accordingly, delete the addition. Issue decides in favour of assessee Disallowance u/s 40(a)(ia) for non-deduction of tax at source - Assessee contended that the payments were not made to contractor but to the various workers/labourers - A.O argued that the payments were made to the contractors, not the labourers/workers Held that - As concluded from the facts that the persons to whom the payments are made are the labour contractors and assessee was bound to deduct the tax at source from the payments made to the labour contractors as provided u/s. 194C. Following the decision in case of Merilyn Shipping and Transport (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) that disallowance can be restricted to the extent the payments outstanding as on the 31st March of the respective FY. Issue need to be decides on the basis of said judgment, remand back to AO. Depreciation in respect of civil work in windmill Whether road constructed for movement of the crane and electrical yard fencing are eligible for rate of depreciation at rate of along with windmill 80% or building 10% separately - Assessee has claimed depreciation at the rate of 80% on the Windmills - Civil work consisting of construction of one Windmill foundation and transformer plinth, electrical yard fencing, road for movement of crane and preparation of crane platform - A.O argued that only 10% depreciation can be allowed on electrical yard fencing road for movement of crane and preparation of crane platform Held that - Following the decision in case of Parry Engineering and Electronics P. Ltd. (2012 (10) TMI 224 - ITAT, AHMEDABAD) that foundation, civil and electrical work are necessary for the installation of the Windmill and is clearly part and parcel of the Windmill project on which depreciation at the rate of 80% is allowable. In our opinion, road constructed for movement of the crane cannot be said to be the part of the windmill but the electrical yard fencing is a part of the windmill. Issue partly allowed in favour of assessee Taxability on substantive basis Held that - We have deleted the addition made by the A.O in the A.Y. 2006-07 in respect of the part of the profit from the Housing project. In the A.Y. 2007-08, the assessee offered the entire profit from the housing project but while completing assessment, the A.O. sustained the addition on the protective basis to the extent of profit brought to tax in the A.Y. 2006-07. As we have deleted the addition made by the A.O in respect of the part of the profit assessed in the A.Y. 2006-07, the same has to be taxed on the substantive basis in A.Y. 2007-08. Issue is favour of revenue
Issues Involved:
1. Eligibility for deduction under Section 80IB(10) of the Income Tax Act. 2. Timing of income recognition for tax purposes. 3. Disallowance under Section 40(a)(ia) for non-deduction of tax at source. 4. Depreciation rate applicable to windmill-related civil work. Issue-wise Detailed Analysis: 1. Eligibility for Deduction under Section 80IB(10): The primary issue was whether the assessee was eligible for a deduction under Section 80IB(10) for the housing project "Devi Orchid." The Assessing Officer (A.O.) denied the deduction on the grounds that the net area of the plot was less than 1 acre after excluding the area reserved for a D.P. road, open space, and a hospital project. The assessee argued that the entire plot area, including the reserved spaces, should be considered. The Tribunal concluded that the gross area of the plot was 4875.25 sq. mts., and even after excluding the area for the hospital project (494 sq. mts.), the remaining area was more than 1 acre. Thus, the Tribunal reversed the decision of the lower authorities and allowed the deduction under Section 80IB(10). 2. Timing of Income Recognition for Tax Purposes: The A.O. brought to tax the profit from the housing project "Devi Orchid" in the A.Y. 2006-07, whereas the assessee had declared this profit in the A.Y. 2007-08. The A.O. based this on the fact that 95% of the sales were completed in the A.Y. 2006-07. The Tribunal found that the completion certificate was issued in the F.Y. 2006-07, relevant to A.Y. 2007-08, and the assessee was following a consistent method of accounting. The Tribunal held that the A.O.'s action was incorrect and deleted the addition, allowing the profit to be taxed in the A.Y. 2007-08. 3. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source: The A.O. disallowed Rs. 65,65,880/- under Section 40(a)(ia) for non-deduction of tax at source on payments made to contractors. The assessee contended that the payments were made to workers, not contractors. The Tribunal found that the payments were indeed made to labor contractors and upheld the requirement for tax deduction at source. However, it directed the A.O. to restrict the disallowance to the amount outstanding as of 31st March of the respective financial year, following the principles laid down in the case of Merilyn Shipping and Transport v/s. ACIT. 4. Depreciation Rate Applicable to Windmill-Related Civil Work: The assessee claimed depreciation at 80% on the total cost of windmills, including civil work. The A.O. allowed 80% depreciation only on the windmill foundation and transformer plinth, granting 10% on other civil works like electrical yard fencing and road for crane movement. The Tribunal held that electrical yard fencing is part of the windmill and should be depreciated at 80%, while the road for crane movement should be depreciated at 10%. Separate Judgments Delivered: - The Tribunal reversed the lower authorities' decision on the eligibility for deduction under Section 80IB(10), allowing the assessee's claim. - The Tribunal deleted the addition made by the A.O. for preponing the profit recognition to A.Y. 2006-07. - The Tribunal directed the A.O. to restrict the disallowance under Section 40(a)(ia) to the outstanding amount as of 31st March. - The Tribunal allowed 80% depreciation on electrical yard fencing but upheld 10% depreciation on the road for crane movement. Overall, the appeals of the assessee were partly allowed, and the revenue's appeal was also partly allowed.
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