2012 (12) TMI 631 - AT - Income Tax

Denial of deduction u/s 80IB Held that - Claim of deduction u/s.80IB would be available only on the basis of obtaining the completion certificate from the local authorities in view of the fact when the housing project is approved by the local authorities on or after 1.4.2004 was to be completed within four years irrespective of the claim of deduction either on the basis of project completion method or on the basis of percentage completion method - as assessee has agreed to the proposition above AO is directed to allow the deduction as and when the certificate from the local authority for the project completion has been obtained by assessee - appeal allowed for statistical purposes. Application of AS-7 vs. AS-9 - Held that - The projects, which completed as and when approval is sought has to be rendered income claiming deduction u/s.80IB which computation cannot be faulted. This indicates that the work-in-progress held as an asset by the assessee has already reduced the income for that year on account of project remaining incomplete. AO sought to tax @6.84% on Rs.3.82 Crores does not bear any correctness to the fact that the income as arisen to the impugned Assessment Year on incomplete projects when the majority of the projects were sold for more than the very turnover for the impugned Assessment Year. CIT(A) also confined himself to adoption of AS-7 as noted by AO without actually addressing the issue in the practical aspects of the business conducted, advance received, income on percentage on the advance to be considered and loss but not the least that the work-in-progress is a closing stock when the expenses have been allowed cannot be reduced on a percentage basis to find profit therein - Finding no merit in the bringing to tax the percentage of work-in-progress,thus direct deletion of the addition.

Summary

Issues:
1. Denial of deduction claimed u/s.80IB
2. Adoption of AS-7 by the Assessing Officer

Issue 1: Denial of deduction claimed u/s.80IB

The appellant contested the denial of deduction u/s.80IB amounting to Rs.45,92,548 by the Assessing Officer. The appellant, engaged in real estate business, followed a consistent revenue recognition method as per AS-9 and Guidance Note for Recognition of revenue by Real Estate Developers. The Assessing Officer disallowed the claimed deduction and added the estimated income from work-in-progress to the total income. The CIT(A) upheld the disallowance based on the completion certificate issuance date for the housing project. The appellant argued that the completion certificate delay should not deny the deduction and requested allowance upon certificate receipt. The CIT-DR suggested restoring the issue to the Assessing Officer for deduction allowance upon project completion approval within four years. The Tribunal directed the Assessing Officer to allow the deduction upon obtaining the completion certificate from local authorities, aligning with Section 80IB provisions.

Issue 2: Adoption of AS-7 by the Assessing Officer

The second issue revolved around the Assessing Officer adopting AS-7 for estimating income from incomplete projects, leading to an addition of Rs.26,75,338. The appellant contended that AS-7 was inapplicable to their case, and the estimation method was arbitrary and unjustified. They argued that the Assessing Officer changing the accounting method should allow adjustments in subsequent years. The Tribunal found the estimation method erroneous and directed deletion of the Rs.26,75,338 addition. The Tribunal emphasized that the income already taxed on project completion should not be re-taxed based on work-in-progress percentage. The Tribunal concluded that the Assessing Officer's approach was incorrect, and the CIT(A) erred in confirming the addition, leading to the deletion of the Rs.26,75,338 addition.

In conclusion, the Tribunal partly allowed the appeal, directing the Assessing Officer to allow the deduction u/s.80IB upon obtaining the completion certificate. Additionally, the Tribunal ordered the deletion of the Rs.26,75,338 addition based on AS-7 estimation, emphasizing the incorrectness of re-taxing income already accounted for in previous years.