2015 (9) TMI 108 - AT - Income Tax

Depreciation claim under section 80IB(10) rejected - Held that - In order to answer the question as to whether the condition precedent for deduction under section 80IB has been satisfied inasmuch as whether or not the assessee is engaged in developing and building housing projects , all that is material is whether assessee is taking the entrepreneurship risk in execution of such project. When profits or losses, as a result of execution of project as such, belong predominantly to the assessee, the assessee is obviously taking the entrepreneurship risk qua the project and is, accordingly, eligible for deduction under section 80IB(10) in respect of the same. It is not even the case of the Assessing Officer that the assessee did not assume the entrepreneurship risks of the housing project. The format of arrangements for transfer of built up unit, and business model of the assessee for that purpose, is not decisive factor for determining eligibility of deduction under section 80 IB (10), but that is all that the authorities below have found fault with. The objections of the authorities below are thus devoid of legally sustainable merits. In view of the above discussions, and bearing in mind entirety of the case, we are of the considered view that the stand of the authorities below, in declining deduction under section 80IB (10) and on the facts of this case, is incorrect. We vacate the same and direct the Assessing Officer to delete the disallowance. - Decided in favour of assessee. Disallowance u/s 40(a)(ia) - Held that - It is not in dispute, in the light of a series of judgments of Hon ble jurisdictional High Court, that the amendment brought to Section 40(a)(ia), which provides that as long as the taxes deducted at source have been deposited before the due date of filing return under section 139(1), disallowance under section 40(a)(ia) cannot be invoked for delay in depositing the tax deducted at source, is only clarificatory in nature and it will also apply to the assessment years prior to the assessment years 2010-11 as well. There is no dispute that on the facts of this case, the taxes were deposited in May 2006, as is the categorical finding in paragraph no. 17 of the order passed the CIT(A), which was well before the due date of filing income tax return under section 139(1). Thus we uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned disallowance - Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of the claim for depreciation under Section 80IB(10) of the Income Tax Act, 1961.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 for delayed deposit of tax deducted at source (TDS).

Issue-wise Detailed Analysis:

1. Rejection of the Claim for Depreciation under Section 80IB(10):

The appellant, a partnership firm engaged in developing residential housing projects, challenged the correctness of the order dated 10th December 2009 by CIT(A), which upheld the Assessing Officer's decision to reject a deduction claim of Rs. 49,34,922 under Section 80IB(10). The Assessing Officer's rejection was based on the fact that the appellant did not own the land on which the housing project was developed and merely acted as an agent or contractor for the landowners. The CIT(A) concurred, emphasizing that the appellant had not made any investment towards the purchase of the land and was not the owner of the project or land.

However, the Tribunal referenced the case of CIT Vs Radhe Developers [(2012) 341 ITR 403 (Guj)], where it was held that ownership of land is not a prerequisite for claiming a deduction under Section 80IB(10). The key factor is whether the assessee assumes the entrepreneurship risk in the execution of the housing project. The Tribunal concluded that as long as the assessee is responsible for the project's profits or losses, they are eligible for the deduction, regardless of land ownership. The Tribunal found that the authorities below had incorrectly restricted the eligibility for the deduction based on the business model adopted by the assessee and directed the Assessing Officer to delete the disallowance.

2. Disallowance under Section 40(a)(ia) for Delayed Deposit of TDS:

The second issue involved the disallowance of Rs. 32,89,325 under Section 40(a)(ia) due to the late deposit of TDS. The appellant argued that the TDS was deposited in May 2006, which was before the due date for filing the income tax return under Section 139(1). The Tribunal noted that several judgments from the jurisdictional High Court, including CIT Vs Omprakash R Chaudhury & Others, had established that the amendment to Section 40(a)(ia) allowing for TDS deposited before the due date of filing returns to be considered timely was retrospective and applicable from 1st April 2005.

Given that the TDS was deposited before the due date for filing the return, the Tribunal upheld the appellant's grievance and directed the Assessing Officer to delete the disallowance.

Conclusion:

The Tribunal allowed the appeal, granting relief to the appellant on both issues. The rejection of the claim for depreciation under Section 80IB(10) was overturned, and the disallowance under Section 40(a)(ia) was deleted. The decision emphasized the importance of the entrepreneurship risk in determining eligibility for deductions under Section 80IB(10) and clarified the retrospective application of amendments to Section 40(a)(ia).