2019 (12) TMI 1670 - AT - Income Tax

Deduction u/s 80IB - sale consideration of the FSI generated from its slum development project at Mayanagar, Worli - difference between actual sale value less the value at which the TDR is disclosed in the books of account - assessee had transferred FSI to the associated concerns for Rs. 13,672/- as against ready reckoner rate of Rs. 11,520/- - CIT(A) allowed deduction - Objection of the Assessing Officer that since deduction u/s. 80IB(10) in A.Y. 2003-04 was rejected and as it was not assailed in appeal, the assessee could not repeat the same in the year under consideration - HELD THAT - As noted that in A.Y. 2003-04 the claim was rejected on the ground that the whole of the project was not completed. Most importantly, the assessment order for that year was passed on 30.12.2008 whereas the CBDT issued the notification, exempting notified projects from the condition of completion of the project, on 05.01.2011. Therefore, the assessee has not contested the said order. As against the above, during the relevant previous year, the entire project was completed and the FSI granted by the Government in lieu of the cost factor was in fact sold. It is, therefore, the reference made by the AO to the proceedings of A.Y. 2003-04 was illogical and uncalled for as the claim made in the year under appeal was not dependent upon that of the earlier year; and the CIT (A) was perfectly justified in refuting such argument canvassed by the AO. Since the Mayanagar project was approved on 26.11.1998, the benefit of the Notification No. 67/2010 dated 03.08.2010 and the corrigendum issued vide Notification No. 02/2011 Income Tax dated 05.01.2011 was not available - As it is noted that the inference drawn by the Assessing Officer is contrary to the statutory provisions set out under section 80IB(10) of the Act. If, one go through the provisions of S.80-IB(10) and notifications issued by the CBDT, it is found AO clearly erred in disregarding the proviso which mandates that the limitations prescribed in causes (a) and (b) were inapplicable to housing projects completed as per the scheme of Central or State Government. Indisputably, the Mayanagar project was sanctioned under the scheme of the Government of Maharashtra under DCR 33(10) for rehabilitation of the slum dwellers, and it was covered by the Notifications. Therefore, in view of the unambiguous language of the proviso, the project completed by the assessee was excluded from the restrictions imposed by clauses (a) and (b) of sub-s. (10) of S. 80-IB - Hence, we are of the considered view that rejection of assessee's claim for deduction u/s, 80-IB(1O) was unjustified, and it was rightly so held by the CIT(A) in his order. We, further noted that a similar interpretation as drawn by the Assessing Officer with respect to the notification dated 05.01.2011, that it was to extend the permissible period in respect of projects approved after 01.04.2004, was considered and adjudicated by the co-ordinate Bench of this Tribunal in the case of Ramesh Gunshi Dedhia 2014 (9) TMI 653 - ITAT MUMBAI which was relied upon before the CIT (A). In the said case, it was held that as a consequence of the proviso, the conditions prescribed in clauses (a) and (b) are relaxed if the housing project was carried out in accordance with the scheme of the Central or State Government. Since, the CIT(A) has extracted in extenso the findings recorded by the Tribunal. Since the consideration for construction of the rehabilitation building was received in kind and not in cash/cheque, the benefit of S. 80-IB(10) of the Act would not available to the assessee - As noted that this inference drawn by the Assessing Officer is also untenable as held in various decisions, cited before and considered by the CIT (A) in his order holding to the contrary. In the premises, we are of the considered view that the CIT (A) was justified in rejecting the argument of the Assessing Officer that since the consideration was received in kind and not in cash/cheque, the assessee was not entitled to the deduction in paragraph 4.19 of his order The order of the CIT (A), therefore, does not call for any interference on this count too. Most importantly, in A.Y. 2015-16 also, a similar claim for deduction u/s. 80-IB(10) of the Act was preferred in respect of the FSI granted and sold in identical fact-situation. We find that after taking note of the entire scheme, statutory provisions and notifications cited hereinabove, the Assessing Officer himself had granted the deduction sought for vide his order dated 28.12.2017 passed u/s. 143(3) of the Act. We further noted that in arriving at his decision to delete the disputed disallowance during the year under consideration, the CIT (A) has also taken note of the aforesaid order dated 28.12.2017 passed u/s. 143(3) of the Act for A.Y. 2015-16 in paragraph 4.21 of his order. For all the above reasons, we are of the view that the denial of deduction claimed u/s. 80-IB(10) of the Act was unwarranted and unjustified. The reasoned order of the CIT (A) deleting the disallowance is in order and it does not call for any interference. Objection raised by the AO that the FSI granted was sold to a group entity at an inflated rate - As we find that the statute does not prohibit such sale to group concern. Further, the ready reckoner rate is not sacrosanct, and there might be innumerable reasons for demanding higher price. In any case, the transaction under consideration is supported by a valuation report submitted to A.O. in which the rate of FSI was supported with the help of three comparable instances. Further, the inference drawn by the Assessing Officer is based upon his own theory, and neither supported by any independent verification nor after discrediting the valuation submitted by the assessee for valid reasons. We, therefore, are of the considered view that the CIT(A) was justified in refuting the aforesaid stand taken by the AO. Thus we are of the considered view that the limitations prescribed in clause (a) and (b) of proviso to section 80IB(10) of the Act, in respect of date of commencement and completion of the project has no application to projects undertaken under the scheme of Central or State Govt. Thus, in view of the fact that the project on which the benefit of deduction was claimed u/s 80IB(10) of the Act, was approved under DC regulation 33(10) of Govt. of Maharashtra, and also notified by the CBDT u/s 80IB(10) of the Act, we are of the considered view that the assessee is entitled for deduction towards sale of FSI/TDR. The CIT(A) after considering relevant facts, has rightly allowed the benefit and deleted addition made by the AO. Hence, we are inclined to uphold the order of the ld. CIT(A) and dismissed appeal filed by the revenue. Disallowance u/s 14A r.w.r. 8D - AO has disallowed expenditure incurred in relation to exempt income u/s 14A of the Act, by invoking Rule 8D(2)(ii) and (iii) of I.T. Rules, 1962 - HELD THAT - We find merit in the arguments of assessee for the reasons that the Hon ble Supreme Court, in the case of CIT vs Reliance Industries Limited 2019 (1) TMI 757 - SUPREME COURT had considered an identical issue and held that no interest disallowances can be made u/s 14A of the Act, if own funds are sufficient to coverup the value of the investments. Also in the case of CIT vs Reliance Utility and Power Limited 2009 (1) TMI 4 - BOMBAY HIGH COURT held that when, mixed funds including own funds are more than the value of the investments, then a general presumption goes in favor of the assessee that investments made in shares is out of own funds, consequently no disallowance could be made towards interest expenditure. A similar ratio has been laid down in the case of CIT vs HDFC Bank Limited ( 2014 (8) TMI 119 - BOMBAY HIGH COURT supra). Therefore, we are of the considered view that the Ld. AO was erred in disallowed interest expenditure u/s 14A, r.w. Rule 8D(2)(ii) of the I.T. Rules, 1962 and hence, we direct the AO to delete disallowance of interest expenditure u/s 14A of the I.T. Act, 1961. Disallowance of expenditure under Rule 8D (2)(iii) - As facts with regard to exempt income earned for the year is not coming out from the orders of the lower authorities. Even, the assessee has not furnished any details with regard to exempt income earned for the year under consideration and hence, we are of the considered view that the issue needs to go back to the file of the AO. We, therefore, set aside the issue to the file of Ld.AO for the limited purpose of ascertaining the fact with regard to the exempt income earned for the year under consideration and restrict disallowance of expenditure u/s 14A to the extent of exempt income; if at all any exempt income is earned for the year under consideration. Insofar as, the arguments of the Ld. DR that if disallowances u/s.14A is restricted to the extent of exempt income, then the assessed income may go below the return income, which is not permissible under the law. We find that in the case of M/s Sundaram Multipap 2018 (4) TMI 1204 - ITAT MUMBAI had considered an identical issue and by following another decision of co-ordinate bench in the case of TATA Industries Limited ( 2016 (7) TMI 1011 - ITAT MUMBAI upra) held the issue in favor of the assessee and accordingly, we reject the contention of the Ld. DR. Disallowance made u/s 14A, while calculating the book profit u/s 115JB - We find that this issue has been squarely covered in favor of the assessee by the decision of Mrinalini Trading Company Ltd. 2017 (7) TMI 1365 - ITAT MUMBAI where the Tribunal by following the order of Vireet Investments Pvt. Ltd( 2017 (6) TMI 1124 - ITAT DELHI ) held that computation of book profit in terms of clause (f) of Explanation (1) to Section 115JB (2) is to be made without resorting to computation as contemplated u/s 14A r.w. Rule 8D. We direct the Ld. AO to delete adjustments made towards book profit computed u/s 115JB, in respect of disallowance of expenditure 14A. Exclusion of DRR denture Redemption Reserve from book profit computed u/s 115JB - HELD THAT - DRR was created by the assessee in the present case as per the mandate given under S. 117C of the Companies Act. It is also an ascertained liability and not a mere provision as has been held in the binding judgments of the Hon'ble Bombay High Court discussed hereinabove. It may also be stated that the aforesaid judgment, rendered by the non-jurisdictional High Court, was considered but still the issue was decided in favour of the assessee by the coordinate Benches of this Tribunal in Rachana Finance Investment P. Ltd. and Repute Properties P. Ltd. 2017 (5) TMI 1819 - ITAT MUMBAI . Similarly, in a subsequent order in the case of Housing Development and Infrastructure Ltd. 2019 (1) TMI 2039 - ITAT MUMBAI also, the coordinate Bench of this Tribunal, even after considering the aforesaid judgment of the Hon'ble Delhi High Court had decided the issue in favour of the assessee. In the premises, the ratio laid down in the aforesaid judgment of the Hon'ble Delhi High Court would not be applicable to the case of the assessee. In this view of the matter and consistent with view taken by the coordinate bench, we direct the AO to delete additions made towards provisions for DRR to book profit computed u/s 115JB of the I.T. Act, 1961. Deduction u/s 80IA(4) - AO has rejected deduction claimed towards notified industrial park u/s 80IA(4), on the ground that the benefit of the Industrial Park scheme, 2008 was not available to the assessee, since it was received the requisite approval 05/06/2006 - HELD THAT - In view of the unambiguous language of clause 4.1 and clause 5.6 of the Industrial Park Scheme, 2008 it is not understood as to how the Assessing Officer had inferred that the industrial parks of the assessee, for which approvals were granted under 2002 Scheme were covered by the 2008 Scheme. Therefore, we are of the considered view that the rejection of the claim of the assesses which was in accordance with the statutory provisions and supported by requisite approvals and notifications was rightly reversed by the CIT (A). Further, a similar claim was made in A,Y, 2005-06 for a sum of Rs. 10,59,66,901/-. During the course of scrutiny, the Assessing Officer observed that in respect of the same properties the assessee had offered rental income as 'income from house property' in A.Ys 2001-02 to 2004-05 in the returns filed u/s. 139(1) of the Act. Hence, the treatment of such income from Industrial Parks as 'business income was not accepted by the Assessing Officer and, the claim of deduction u/s. 80-lA(4)(iii) of the Act was rejected. On same lines, the claim made u/s. 80-IA(4)(iii) for A,Y. 2006-07 was also declined. Since the orders of the Assessing Officer for both the years were reversed by the CIT (A), the revenue carried the matter unsuccessfully in further appeals to Tribunal. Tribunal order in M/s. Ackruti City Ltd., (Formerly known as Akruti Nirman Ltd.) DCIT Central Cir. 36, Mumbai 2011 (6) TMI 1038 - ITAT MUMBAI carried in proceedings u/s. 260A of the Act by the revenue but in vain. The Hon ble High Court vide their judgment dated in Commissioner of Income-tax, Central-III, Mumbai Versus Ackruti City Ltd. 2013 (4) TMI 488 - BOMBAY HIGH COURT had dismissed such appeals. Considering the totality of the facts and circumstances of the case, more particularly in absence of any non-compliance of statutory requirements by the assessee, the rejection of its claim for deduction u/s. 80-IA(4)(iii) of the Act was uncalled for. The CIT (A) was, therefore, perfectly justified in correcting the error committed by the Assessing Officer by passing an exhaustive; elaborate and reasoned order. Hence, we are inclined to uphold order of the ld. CIT(A) and reject grounds raised by the revenue.

Summary

Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act.
2. Disallowance of expenditure under Section 14A of the Income Tax Act.
3. Computation of book profits under Section 115JB of the Income Tax Act.
4. Deduction under Section 80IA(4) of the Income Tax Act.

Detailed Analysis:

1. Deduction under Section 80IB(10) of the Income Tax Act:
The core issue revolves around the tenability of the claim for deduction under Section 80IB(10) of the Income Tax Act. The assessee claimed a deduction for the sale consideration of Floor Space Index (FSI) generated from its slum development project. The Assessing Officer (AO) rejected the claim on multiple grounds, including the fact that the project was approved before the specified dates in the notifications and that the consideration was received in kind. The CIT(A) allowed the deduction, noting that the project was covered by the Government of Maharashtra's scheme and supported by CBDT notifications. The Tribunal upheld the CIT(A)'s decision, emphasizing that the project was eligible for deduction under Section 80IB(10) as it was approved under the state government's scheme and the conditions prescribed in the notifications were met.

2. Disallowance of Expenditure under Section 14A of the Income Tax Act:
The AO disallowed expenditure incurred in relation to exempt income under Section 14A, invoking Rule 8D. The CIT(A) partially upheld the disallowance. The Tribunal noted that the assessee had sufficient own funds to cover the investments, and hence, no disallowance of interest expenditure under Rule 8D(2)(ii) was warranted. The Tribunal also directed that the disallowance under Rule 8D(2)(iii) should not exceed the exempt income earned during the year and remanded the issue to the AO for verification. Additionally, the Tribunal held that no adjustments could be made to the book profits under Section 115JB for disallowance under Section 14A, following the Special Bench decision in ACIT vs. Vireet Investments Pvt. Ltd.

3. Computation of Book Profits under Section 115JB of the Income Tax Act:
The AO included the Debenture Redemption Reserve (DRR) in the book profits, treating it as a reserve under Explanation 1(b) to Section 115JB. The CIT(A) and the Tribunal disagreed, noting that DRR is an ascertained liability and not a reserve. The Tribunal relied on the jurisdictional High Court's decision in CIT vs. Raymond Ltd., which held that DRR is deductible while computing book profits under Section 115JB. The Tribunal also noted that the AO's reliance on the Delhi High Court's decision in SREI Infrastructure Finance Ltd. was misplaced, as the facts were distinguishable.

4. Deduction under Section 80IA(4) of the Income Tax Act:
The AO denied the deduction under Section 80IA(4) for the industrial park, arguing that the approval was under the Industrial Park Scheme, 2008, which was not applicable. The CIT(A) and the Tribunal found that the industrial park was approved under the Industrial Park Scheme, 2002, and the CBDT had notified it accordingly. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's industrial parks were covered by the 2002 Scheme and the conditions for deduction under Section 80IA(4) were met.

Conclusion:
The Tribunal dismissed the appeals filed by the revenue for both assessment years and allowed the cross objections filed by the assessee for statistical purposes, thereby upholding the CIT(A)'s decisions on all counts. The Tribunal's detailed analysis and reliance on judicial precedents ensured that the assessee's claims were correctly adjudicated in accordance with the law.