2015 (4) TMI 907 - AT - Income Tax

Denial of deduction u/s 80IB(10) - Unapproved project - Completion certificate not obtained - Dis-allowance of expenses on material consumed & Labour expenses - Unexplained and unreconciled differences - Held that - The Revenue is raising the issue regarding two objections that the project was not approved project and secondly that the project was not completed because no completion certificate has been issued. Regarding the first objection of the Revenue that the project was not approved, we find that as per the approval letter of U.P. Avas Avam Vikas Parishad dated 21/06/2003 available on page No. 51 & 52 of the paper book, the project was approved on this date and such approval was valid for five years up to 20/06/2008. In this regard, it was one of the main objections of the Assessing Officer that U.P. Avas Avam Vikas Parishad is not a local authority. In this regard, in Para 9.6 of his order, CIT(A) has referred to a judgment of Hon'ble Apex Court in the case of R. C. Jain reported in 1981 (2) TMI 200 - SUPREME COURT OF INDIA in which it was held by Hon'ble Apex Court that local authority includes Delhi Development Authority. Regarding the second aspect i.e. regarding completion of the project, we find that although the completion certificate has not been issued but the assessee has already made application for issue of completion certificate on 23/07/2007, copy of which is available on record.Here are various judgments of various High Courts in which, it was held that even if completion certificate is not issued but it is otherwise established that the project was completed, deduction u/s 80IB (10) is allowable. Dis-allowance of expenses - We find that a clear finding has been given by CIT(A) that the Assessing Officer while making this disallowance has not brought any specific material on record and in absence of any specific finding on this addition, the addition cannot be sustained. He has also given a finding that as the entire earnings of the assessee from the project is deductible u/s 80IB(10), there is no question of claiming higher expenses and any addition, even if made, shall increase the deduction available u/s 801B(10). We find that a clear finding is given by CIT(A) that those flats for which premium was paid by the assessee were sold for higher amounts. Since by making this payment of premium of ₹ 10 lac, the assessee has actually made extra income because of sale of those flats on higher price, we do not find any justification for making disallowance and therefore, we decline to interfere in the order of CIT(A) on this issue also. Unexplained and unreconciled differences - We find that a clear finding is given by Cit(A) that the Assessing Officer has taken the debit balance as credit balance. He has also given a finding that these amounts are not relatable to current year but are brought forward balances from previous years and the same has been accepted in the previous year u/s 143(3). These findings of CIT(A) could not be controverted by Learned D.R. of the Revenue and hence, we decline to interfere in the order of CIT(A) on this issue. - Decided against the revenue.

Summary

Issues Involved:
1. Deduction under Section 80IB(10)
2. Proof of project completion
3. Acceptance of UP Avas Avam Vikas Parishad as a local authority
4. Disallowance of expenses on material consumed
5. Unverifiable nature of labor expenses
6. Disallowance of underwriting charges
7. Unexplained and unreconciled difference in account balance

Detailed Analysis:

1. Deduction under Section 80IB(10):
The Revenue contended that the CIT(A) erred in allowing the deduction under Section 80IB(10) without verifying the fulfillment of conditions laid down in sub-clauses (a), (b), (c), and (d) of the section. The CIT(A) allowed the deduction based on the project's approval by the local authority without examining the conditions. The Tribunal upheld the CIT(A)'s decision, noting that the project was approved by the U.P. Avas Avam Vikas Parishad on 21/06/2003, and the approval was valid for five years. The Tribunal found no infirmity in the CIT(A)'s order on this aspect.

2. Proof of Project Completion:
The Revenue argued that the project was not completed within the stipulated time as no completion certificate was issued by the local authority. The assessee provided evidence of application for the completion certificate and other materials like sale deeds and electricity connections to establish project completion. The Tribunal noted the CIT(A)'s findings that sale deeds and electricity connections indicated completed flats. The Tribunal found no infirmity in the CIT(A)'s conclusion that the project was completed within the prescribed period, even without the completion certificate.

3. Acceptance of UP Avas Avam Vikas Parishad as a Local Authority:
The Revenue challenged the acceptance of UP Avas Avam Vikas Parishad as a local authority. The CIT(A) referred to the Supreme Court judgment in Union of India and Others vs. R. C. Jain, which included the Delhi Development Authority as a local authority. The Tribunal agreed with the CIT(A)'s interpretation and found no error in treating UP Avas Avam Vikas Parishad as a local authority for Section 80IB(10).

4. Disallowance of Expenses on Material Consumed:
The Revenue contested the deletion of Rs. 2,00,000 disallowance for material expenses, arguing that the vouchers were self-made and unverifiable. The CIT(A) found no specific material on record by the Assessing Officer to support the disallowance. The Tribunal upheld the CIT(A)'s decision, noting that the entire earnings from the project were deductible under Section 80IB(10), making the issue academic.

5. Unverifiable Nature of Labor Expenses:
The Revenue disputed the deletion of Rs. 1,08,380 disallowance for labor expenses due to unverifiable vouchers. The CIT(A) found no specific findings by the Assessing Officer to support the disallowance. The Tribunal upheld the CIT(A)'s decision, reiterating that the entire earnings from the project were deductible under Section 80IB(10), rendering the issue academic.

6. Disallowance of Underwriting Charges:
The Revenue argued against the deletion of Rs. 10,00,000 disallowance for underwriting charges, claiming it was not connected to the housing project. The CIT(A) found that the flats for which premium was paid were sold at higher prices, and the amounts were disclosed in the income tax returns of the parties. The Tribunal upheld the CIT(A)'s decision, finding no justification for the disallowance.

7. Unexplained and Unreconciled Difference in Account Balance:
The Revenue challenged the deletion of Rs. 3,73,000 addition for unexplained differences in the account of Ms. Manju Agarwal. The CIT(A) found that the Assessing Officer had mistaken debit balances for credit balances and that the amounts were brought forward from previous years and accepted under Section 143(3). The Tribunal upheld the CIT(A)'s decision, finding no error in the deletion of the addition.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The order was pronounced in the open court.