2020 (5) TMI 142 - AT - Income Tax

Deduction u/s 80IB(10) in respect of interest received and other income - recognition of immediate source of the income - as per AO the said income was not derived by the assessee from the business of development of housing project and the same, therefore, was not eligible for deduction u/s 80IB(10) - HELD THAT - Income by way of transfer fees received by the assessee for Apartment Booking and interest received for delay in payment against Flat had a direct or first degree connection with the business of the assessee of developing a housing project and the same, therefore, was eligible for deduction under section 80IB(10). The immediate source of the said income was the business of the assessee of developing a housing project and therefore, the said income was eligible for deduction under section 80IB(10). Regarding the balance amount of other income the assessee has not been able to furnish any details of the same to show that the said amount was eligible for deduction under section 80IB(10). I accordingly allow partly Ground No. 1 of the assessee s appeal. Alternative claim that the disallowance of deduction under section 80IB(10) in respect of interest income should be restricted to net interest and not gross interest as done by the authorities below - This alternative claim of the assessee is duly supported by the decision of ACG Associated Capsules Pvt. Limted vs.- CIT 2012 (2) TMI 101 - SUPREME COURT wherein it was held in the context of assesee s claim for deduction under section 80HHC that 90% of not the gross interest but only the net interest which had been included in the profits of business of the assessee, as computed under the head profits and gains of business or profession should be deducted for determining the profits of the business eligible for deduction - direct AO to verify the amount of net interest keeping in view the direct nexus theory and allow appropriate relief to the assessee on this issue. Disallowance u/s 43B on account of ESI payable - assessee failed to produce any evidence to show that the same was deposited before furnishing its return of income for the year under consideration - HELD THAT - Even at the time of hearing before the Tribunal, no such evidence has been brought on record on behalf of the assesee to show that the ESI payable was paid before the due date of filing of the return of income for the year under consideration - no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) confirming the disallowance made by AO - Decided against assessee.

Summary

Issues involved:
1. Disallowance under section 80IB(10) related to interest and other income.
2. Disallowance of deduction under section 80IB(10) in respect of interest income.
3. Disallowance under section 43B on account of ESI payable.
4. Disallowance of interest on TDS and penalty on professional tax.

Issue 1: Disallowance under section 80IB(10) related to interest and other income:
The appeal addressed the disallowance made by the Assessing Officer and upheld by the CIT(A) concerning the assessee's claim for deduction under section 80IB(10) of the Income Tax Act, 1961. The assessee, a company engaged in the business of Builders and Property Developers, had claimed exemption under section 80IB(10) for the profit earned from a housing project. The Assessing Officer disallowed the claim for interest income and other income, stating they were not directly derived from the business of developing a housing project. The ITAT noted that income eligible for deduction under section 80IB(10) should have a direct connection with the business of developing a housing project. While interest income from bank deposits was deemed ineligible, certain other income related to apartment bookings and delay in payment against flats was allowed for deduction. The ITAT partially allowed Ground No. 1 of the appeal based on the direct connection criterion.

Issue 2: Disallowance of deduction under section 80IB(10) in respect of interest income:
The second issue revolved around the assessee's alternative claim that the disallowance of deduction under section 80IB(10) for interest income should be based on net interest rather than gross interest. The ITAT supported this claim by referring to a Supreme Court decision that emphasized deducting only the net interest included in the business profits for determining the eligible deduction. The ITAT directed the Assessing Officer to verify the net interest amount and grant appropriate relief to the assessee. Ground No. 2 of the appeal was treated as allowed in this context.

Issue 3: Disallowance under section 43B on account of ESI payable:
Regarding the disallowance of ESI payable under section 43B, the ITAT observed that the Assessing Officer disallowed the amount as the assessee failed to prove payment before filing the income tax return. Despite no evidence presented during the Tribunal hearing, the ITAT upheld the disallowance, stating the lack of proof of timely payment. Ground No. 3 of the appeal was dismissed in favor of the authorities' decision.

Issue 4: Disallowance of interest on TDS and penalty on professional tax:
During the Tribunal hearing, the assessee did not pursue Ground No. 4, which involved the disallowance of interest on TDS and penalty on professional tax. Consequently, the ITAT dismissed this issue as not pressed, aligning with the decision made by the Assessing Officer and confirmed by the CIT(A).

In conclusion, the ITAT partially allowed the assessee's appeal, addressing various issues related to disallowances under sections 80IB(10) and 43B, as well as interest on TDS and penalty on professional tax. The judgment provided detailed reasoning for each issue, interpreting the relevant legal provisions and precedents to reach a decision.