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2020 (12) TMI 218 - AT - Income TaxDeduction u/s 80IB - Power to AO to restrict the benefit given to assessee under section 80IB(10) - estimating the average profit for the purpose of partly denial of deduction under section 80IB(10) - AO was of the view that assessee has shown excess profit to claim more deduction under section 80IB(10) therefore, he proceeded to estimate average profit of the assessee without rejecting books of accounts of the assessee - CIT(A) reestimated the assessee s average profit @38.40% and computed the eligible amount of deduction u/s.80IB(10) - HELD THAT - AO has not challenged the correctness of the opening stock of the assessee. The closing stock of the previous year of the assessee becomes opening stock in the current year i.e. (assessment year under consideration), which is sold by the assessee during the assessment year under consideration - AO did not find any defect in the opening stock of the assessee. In order to ascertain the veracity of profit declared by the assessee, the assessing officer should have examined the correctness of the opening stock, which is sold by the assessee during the assessment year under consideration. To estimate the average profit, the opening stock plays an important role in assessee s case, as the profit earned by the assessee is because of selling the opening stock, as explained above. We note that Assessing officer worked out the unreasonable profit without pointing out any defect in the opening stock, which was sold during the year, hence estimation of average profit by the Assessing Officer without having noticed any defect in the opening stock, is not justifiable. As provisions of sub-section 10 of section 80IA should not be used for the purpose of sub-section 10 section 80IB of the Act, unless expressly provided by the statute. The view taken by the Ld.CIT(A) to the effect that section 80IA(10) itself empowers the Assessing Officer to take the amount of profit as may be reasonable deemed to have been derived is not acceptable, as the purpose and object of both the sections are different, as explained above. AO has held that assessee is not eligible to claim deduction u/s 80IB(10) and therefore has disallowed the entire deduction claimed by assessee u/s.80IB(10) at ₹ 39,62,791/-. Besides, over and above, without prejudice, the Assessing Officer estimated average profit @16.02% and thus rejected the unreasonable profits from 80IB(10) business at ₹ 28,76,770/-. Assessing Officer has not added ₹ 28,76,770/- to the total income of the assessee. On appeal, the Ld.CIT(A) held that assessee is eligible and entitled to claim deduction u/s.80IB(10) of the Act. -CIT(A) made self-contradictory statement and restricted the deduction under section 80IB of the Act at ₹ 24,00,000/- (38.40% at ₹ 62,50,000/-) by re-computing estimated average profit @38.40%, as against average profit computed by the Assessing Officer @16.02%. Whether Ld.CIT(A) can re-estimate average profit @ 38.40%? - Neither the Assessing Officer nor Ld.CIT(A) has disputed any of the qualifying conditions specified under section 80IB(10) of the Act. The powers given to assessing officer under sub-section 8 of section 80IA or 80IA(10) should not be used to restrict the benefit given to assessee under section 80IB(10) of the Act, as schemes of these sections are different. We also note that the Assessing Officer has estimated the assessee s average profit @16.02%. On appeal, Ld.CIT(A) reestimated the assessee s average profit @38.40% and computed the eligible amount of deduction u/s.80IB(10) of the Act, without rejecting books of accounts. Thus this is a case where the Assessing Officer and ld CIT(A) has estimated average profit without any base. Taking a holistic view in the matter on considering both sides, we are of the view that assessee is entitled to take deduction u/s.80IB(10) of the Act. The estimation of average profit by assessing officer and re-estimation of average profit by ld CIT(A) are not in accordance with law, as narrated above, hence we delete the addition - Decided in favour of assessee.
Issues Involved:
1. Rejection of the claim for deduction under section 80IB(10) of the Income Tax Act, 1961. 2. Determination of the quantum of profits from the project eligible for deduction under section 80IB(10) of the Act. 3. Additional grounds regarding the justification for disturbing income and the applicability of certain subsections of section 80IA to the case. Issue-wise Detailed Analysis: 1. Rejection of the Claim for Deduction under Section 80IB(10): The assessee challenged the correctness of the order confirming the rejection of the claim for deduction under section 80IB(10) amounting to ?15,62,791/-. The Assessing Officer (AO) disallowed the deduction claimed by the assessee under section 80IB(10) to the tune of ?39,62,791/- on the grounds that the assessee failed to get the books of accounts audited as per Form No.10CCB and did not fulfill the conditions mentioned under section 80IB(10) of the Act. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee is eligible for deduction under section 80IB(10) and deleted the addition of ?39,62,791/-. The CIT(A) observed that the requirement of submitting the auditor’s certificate in Form No.10CCB along with the return of income had been done away with by the amendment in Rule 12(2) of the Income Tax Rules, 2007, effective from 14.05.2007. The assessee had obtained Form No.10CCB within the prescribed date, fulfilling the requirement of section 80IB. 2. Determination of Quantum of Profits from the Project Eligible for Deduction: The AO rejected the books of accounts of the assessee and estimated the average profit, disallowing the excess profits shown in the business covered under section 80IB(10) to the tune of ?28,76,770/-. The AO determined the normal average profit rate at 16.02% based on the profitability of the preceding two years. The CIT(A) re-estimated the average profit at 38.4%, sustaining the addition of ?15,62,791/- out of the addition made by the AO. The CIT(A) noted that the higher profit shown by the assessee in the current year was due to the method of computation of the cost of bungalows sold. The CIT(A) justified the estimation of profit under section 80IA(10) read with section 80IB(13), empowering the AO to compute the profits as may be reasonably deemed to have been derived in cases where the business is arranged to produce more than ordinary profit. 3. Additional Grounds Regarding Justification for Disturbing Income and Applicability of Certain Subsections of Section 80IA: The assessee raised additional grounds, arguing that there was no justification for disturbing the income earned from the project for the purpose of grant of relief under section 80IB(10). The assessee contended that subsections (5), and (7) to (12) of section 80IA, as mentioned in subsection (13) of section 80IB, were not applicable to the facts of the case. The assessee also argued that the higher rate of net profit per se could not result in denial or reduction in relief under section 80IB(10), and that the deduction under section 80IB(10) should not be reduced without rejecting the books of accounts. Tribunal's Conclusion: The Tribunal held that the AO and CIT(A) were not justified in estimating the average profit without rejecting the books of accounts. The Tribunal noted that the AO did not find any defect in the opening stock, which was sold during the assessment year under consideration. The Tribunal emphasized that the concept of “reasonable profit” provided in section 80IA(10) should not be used for the purpose of section 80IB(10) as the objects of both sections are different. The Tribunal concluded that the estimation of average profit by the AO and re-estimation by the CIT(A) were not in accordance with law and deleted the addition of ?15,62,791/-. Final Order: The appeal of the assessee was allowed, and the addition of ?15,62,791/- was deleted.
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