2015 (1) TMI 864 - AT - Income Tax

Disallowance u/s 40A(2)(b) - business centre charges and administrative charges - Held that - In the absence of any specific finding given by the Assessing Officer by the CIT(A) regarding the fair market value/fair market price of the services the payment made by the assessee to the sister concern on account of using the business centre facility cannot be held as excessive or unreasonable. Further it is not the case of the Assessing Officer that by making the payment to the sister concern the assessee is avoiding the tax liability as the sister concern is not assessed to tax. Accordingly we delete the disallowance confirmed by CIT(A) on this account for both the years. - Decided in favour of assessee. Disallowance of deduction u/s 80-IB in respect of other income received by the assessee from the buyers of the flat - Held that - Following the rule of consistency all income received in relation to the activity which are having direct nexus with the project as Extra work, Interest from flat buyers for late payment, Car parking Grill charges and Video door security charges are eligible for deduction u/s 80-IB except share money society formation charges electricity meter charges water meter charges legal charges and maintenance charges for 12 months which are all post completion of project activity and cannot be treated as part of the construction project. Accordingly the income in respect of above said work are not eligible for deduction u/s 80-IB. Since the other income received for A.Y. 2006-07 is only regarding society formation and share money therefore the same is not eligible. - Decided in favour of assesse. Proportionate allocation of indirect expenses - Held that - indirect expenses should be apportioned in proportion to the cost incurred on various projects during the year as represented by the work in progress in the different projects. The figures supplied by the assessee before us however need verification. We therefore restore the issue to the file of the Assessing Officer for the limited purpose of verifying the figures of work in progress in the various projects undertaken by the assessee. - Decided in favour of assessee for staistical purposes.

Summary

Issues Involved:
1. Disallowance of business center charges and administrative charges.
2. Reduction of deduction under Section 80-IB for 'Orchid' and 'Luv Kush' projects.
3. Proportionate allocation of indirect expenses for deduction under Section 80-IB.

Detailed Analysis:

1. Disallowance of Business Center Charges and Administrative Charges:
The assessee had made payments to its sister concern, M/s Kukreja Services Pvt. Ltd., for business center and administrative charges. The Assessing Officer (AO) disallowed the entire amount of Rs. 21.50 lakh, citing a steep increase in such expenses compared to previous years. On appeal, the CIT(A) confirmed the disallowance of Rs. 19.70 lakh out of Rs. 21.50 lakh, allowing only Rs. 1.80 lakh. The assessee argued that the payments were justified based on the facilities provided and were consistent with past practices within the group. Previous Tribunal decisions in similar cases were cited to support the claim. The Tribunal found that the AO and CIT(A) did not provide specific findings or conduct inquiries to prove the payments were excessive or unreasonable. Consequently, the Tribunal deleted the disallowance for both years, emphasizing that the payments were not aimed at tax evasion.

2. Reduction of Deduction Under Section 80-IB:
The AO reduced the deduction under Section 80-IB for income received from buyers of flats, arguing that such income did not have a direct nexus with the construction activity. The CIT(A) upheld this reduction. The assessee contended that various charges, such as development charges, electric meter charges, and car parking charges, were directly related to the construction activity and should be eligible for deduction. The Tribunal agreed with the assessee, stating that charges directly connected with the construction project should be eligible for deduction under Section 80-IB. However, charges like share money, society formation charges, and maintenance charges, which are post-completion activities, were not considered eligible for deduction.

3. Proportionate Allocation of Indirect Expenses:
The AO disallowed certain indirect expenses for the purpose of deduction under Section 80-IB, allocating them based on the income earned from various projects. The CIT(A) directed the AO to allocate these expenses based on the cost incurred on the projects during the year, following a previous Tribunal decision in the case of Ganga Developers. The Tribunal upheld the CIT(A)'s approach, directing the AO to verify the figures of work in progress and apply the same basis for allocation as in the previous decision.

Conclusion:
The Tribunal allowed the assessee's appeals, deleting the disallowance of business center and administrative charges and allowing deductions under Section 80-IB for charges directly related to construction activities. The Tribunal also upheld the CIT(A)'s method for proportionate allocation of indirect expenses. The revenue's appeals were dismissed.