2020 (9) TMI 193 - AT - Income Tax

Deduction u/s 80lB(10) - Profit attributable to Car parking space and preferential location charges - Revenue contended that, assessee does not qualify for exemption beyond 1500 sq. ft. if car parking space and PLC are included and thereby violating sec. 80IB(10) - HELD THAT - Taking note of the decision of the Hon ble Bombay High Court s decision in the case of Purvankara Projects Ltd 2011 (7) TMI 1352 - BOMBAY HIGH COURT and M/s.Vaman Estate 2012 (10) TMI 1208 - ITAT MUMBAI we find that the car parking space sold to the owners of the residential unit of the housing projects are eligible for claiming of deduction u/s. 80IB(10) of the Act and it has been rightly claimed by the assessee because the profits derived from sale of car parking space as well as preferential location charges (PLC) Height Escalation Charges (HEC) are part and parcel of the housing projects. Since these are integral part of the housing project, the profit derived from sale of car parking space as well as on PLC HEC is eligible for deduction u/s. 80IB (10) of the Act since deduction u/s 80 IB is available in respect of eligible housing project. Therefore profits derived by assessee from eligible housing project including the profit from sale of car-parking/PLC HEC as discussed has been rightly allowed by the Ld CIT(A). Therefore, we do not deem it necessary to interfere in the impugned order of the ld. CIT(A) and accordingly, ground No.1 2 raised by the revenue are dismissed. Addition for compensation paid u/s. 37(i) and 40(a)(ia) - CIT- A deleted the addition - HELD THAT - Payment has been made through banking channel, which fact has not been disputed by the revenue. The assessee has given justification for compensation of payment to the said persons. The AO has alleged that the assessee failed to deduct TDS on such payment. And the AO disallowed the expenditure u/s. 37(1) read with section 40(a)(ia) of the Act. However, we note that there is no specific provision specified in Chapter XVII(B) of the Act by virtue of which assessee is obliged to deduct tax at source. We note that if these two persons were not evicted the assessee could not have completed the housing project and these two would not have vacated unless they were paid compensation as agreed between them. Therefore the compensation paid to these two persons was on account of commercial expediency, so it is an allowable deduction. CIT(A) has rightly deleted the same. Therefore, we do not want to interfere with the impugned order of the Ld. CIT(A) on this issue and so we uphold the same. This ground of revenue is dismissed.

Summary

Issues Involved:
1. Deduction under Section 80IB(10) for car parking space and preferential location charges (PLC).
2. Addition for compensation paid under Section 37(1) and 40(a)(ia).

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB(10) for Car Parking Space and PLC:

The primary issue was whether the deduction under Section 80IB(10) of the Income-tax Act, 1961, could be claimed for profits derived from the sale of car parking spaces and preferential location charges (PLC).

The Assessing Officer (AO) disallowed the deduction for car parking spaces and PLC, arguing that these do not qualify as part of the residential unit and could breach the 1500 sq. ft. limit stipulated by Section 80IB(10). The AO noted that the assessee had claimed deductions on the sale proceeds received from car parking spaces, PLC, and height escalation charges (HEC). The AO concluded that these charges, amounting to ?7,02,58,296, do not qualify for deduction under Section 80IB(10).

The CIT(A) allowed the deduction, referencing decisions from the Mumbai ITAT in the cases of Vaman Estate and Gundecha Builders, which held that profits from car parking spaces are integral to the housing project and thus eligible for deduction under Section 80IB(10). The CIT(A) also noted that PLC and HEC are part of the project revenue, as they are premiums charged for better location or higher floors, making the profits derived from these charges eligible for deduction.

On appeal, the Tribunal upheld the CIT(A)'s decision, agreeing that car parking spaces, PLC, and HEC are integral to the housing project and thus eligible for deduction under Section 80IB(10). The Tribunal cited the Bombay High Court's decision in Purvankara Projects Ltd, which supported the inclusion of car parking spaces as part of the housing project for deduction purposes.

2. Addition for Compensation Paid under Section 37(1) and 40(a)(ia):

The second issue concerned the disallowance of ?28,00,000 paid as compensation to occupants for vacating space, which the AO disallowed under Sections 37(1) and 40(a)(ia) due to the absence of TDS deduction.

The CIT(A) deleted the addition, noting that the compensation was paid through banking channels and was necessary for the commercial expediency of completing the housing project. The CIT(A) held that no TDS was required on such compensation payments.

The Tribunal upheld the CIT(A)'s decision, agreeing that the compensation was necessary for the commercial expediency of completing the housing project and that there was no specific provision in Chapter XVII(B) of the Act requiring TDS deduction on such payments. The Tribunal concluded that the compensation was an allowable deduction under Section 37(1).

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on both issues. The Tribunal ruled that the profits derived from car parking spaces, PLC, and HEC are eligible for deduction under Section 80IB(10) and that the compensation paid for vacating space is an allowable deduction under Section 37(1) without requiring TDS deduction.