2013 (6) TMI 936 - AT - Income Tax

Summary

Issues Involved:

1. Eligibility for deduction under Section 80-IB(10) of the Income Tax Act.
2. Allocation of indirect administrative expenses for computing deduction under Section 80-IB(10).
3. Allocation of interest expenditure and depreciation on general and common assets for Section 80-IB(10) projects.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80-IB(10):

The primary issue was whether the assessee was eligible for deduction under Section 80-IB(10) for the 'Nyati Meadows' project. The Commissioner held that the project was formed by splitting up or reconstruction of a business already in existence, violating Section 80-IB(2)(i). The project was initially started by M/s Oasis Developers, a partnership firm, and later taken over by the assessee company. The assessee argued that Section 80-IB(2) does not control Section 80-IB(10), which is specific to housing projects. The Tribunal agreed with the assessee, citing precedents that Section 80-IB(10) operates independently of Section 80-IB(2). The Tribunal also found that factually, the project was not a result of splitting up or reconstruction, as the assessee independently acquired and developed the project after the dissolution of the firm. Thus, the Tribunal set aside the Commissioner's view, affirming the assessee's eligibility for deduction.

2. Allocation of Indirect Administrative Expenses:

The Commissioner challenged the allocation of indirect administrative expenses, asserting that it resulted in an excess claim of deduction. The assessee allocated expenses equally across 10 actively pursued projects, while the Commissioner suggested allocation based on sales. The Tribunal noted that the allocation method was consistently applied by the assessee and was accepted by the Assessing Officer. The Tribunal emphasized that Section 263 does not allow the Commissioner to substitute his judgment for that of the Assessing Officer without establishing an error in law. The Tribunal found no error in the Assessing Officer's acceptance of the allocation method and held that the Commissioner's directive to reallocate expenses based on sales was unwarranted. Therefore, the Tribunal did not uphold the Commissioner's invocation of Section 263 on this issue.

3. Allocation of Interest Expenditure and Depreciation:

The Commissioner directed reallocation of interest expenditure and depreciation to accurately compute profits eligible for Section 80-IB(10) deduction. The assessee argued that no specific loans were used for the 80-IB(10) projects and that interest income offset interest expenditure. The Tribunal agreed with the principle that interest expenditure should be allocated based on actual utilization of loans. It directed the Assessing Officer to verify the utilization of loans and determine if any interest expenditure should be allocated to the 80-IB(10) projects. Regarding depreciation on general assets, the Tribunal upheld the Commissioner's order that such depreciation should be allocated to compute eligible profits for the 80-IB(10) projects.

Conclusion:

The Tribunal modified the Commissioner's order, allowing the assessee's appeal in part. It upheld the assessee's eligibility for deduction under Section 80-IB(10) and rejected the Commissioner's stance on reallocating indirect administrative expenses. However, it directed a reassessment of interest expenditure allocation and upheld the allocation of depreciation on general assets. The appeal was partly allowed, with the Tribunal providing detailed directions for further examination by the Assessing Officer.