2013 (2) TMI 925 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction u/s 80IB(10) for the Kumar Puram Project.
2. Correctness of profit computation eligible for deduction u/s 80IB(10).
3. Allocation of interest expenses for the purpose of deduction u/s 80IB(10).
4. Correct method for allocating interest expenses u/s 36(1)(iii).
5. Disallowance of interest expenses in computation of income.
6. Capitalization of legal and professional charges relating to Pashan Property.

Summary:

1. Eligibility for Deduction u/s 80IB(10):
The primary issue was whether the assessee was eligible for deduction u/s 80IB(10) for the Kumar Puram Project. The CIT(A) disallowed the claim on the grounds that the project had commenced before the stipulated date of 01.10.1998, citing the commencement certificate issued on 24.04.1998 and other related documents. The assessee argued that the Kumar Puram Project was an independent project that commenced on 18.04.1999, supported by statutory notices and revised plans. The Tribunal found that the construction started on 18.04.1999, as evidenced by the intimation to the Pune Municipal Corporation, and thus, the project was eligible for deduction u/s 80IB(10).

2. Correctness of Profit Computation Eligible for Deduction u/s 80IB(10):
The CIT(A) questioned the correctness of the profit computation for deduction u/s 80IB(10), suggesting that certain expenses should be prorated and reduced from the profits. The assessee contended that the amount certified by the auditors was correct. However, this ground was not pressed by the assessee during the hearing and was dismissed.

3. Allocation of Interest Expenses for the Purpose of Deduction u/s 80IB(10):
The CIT(A) allocated Rs. 2,838,432 of the total interest expenses to the Kumar Puram Project, which the assessee disputed, claiming the project was cash surplus. The Tribunal found that the allocation of interest expenses should be based on the actual utilization of funds and not on a proportionate basis.

4. Correct Method for Allocating Interest Expenses u/s 36(1)(iii):
The assessee argued that the interest expense allocable to the Kumar Puram Project should be calculated on a daily product basis, amounting to Rs. 139,394, rather than Rs. 2,838,432 as held by the CIT(A). This ground was also not pressed by the assessee during the hearing and was dismissed.

5. Disallowance of Interest Expenses in Computation of Income:
The CIT(A) disallowed Rs. 1,718,724 and Rs. 567,724 of the interest expenses, stating they should be allocated and capitalized on immovable properties and the Kumar City Club House, respectively. The assessee contended that the full amount of Rs. 9,666,089 was allowable u/s 36(1)(iii). This ground was not pressed by the assessee during the hearing and was dismissed.

6. Capitalization of Legal and Professional Charges Relating to Pashan Property:
The CIT(A) held that Rs. 303,630 of the legal and professional charges should be capitalized as the property had not been acquired in the relevant year. The assessee argued that these expenses were revenue in nature and allowable u/s 37(1). This ground was not pressed by the assessee during the hearing and was dismissed.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the Kumar Puram Project was eligible for deduction u/s 80IB(10) as the development and construction commenced after the stipulated date of 01.10.1998. The other grounds raised by the assessee were dismissed as not pressed.