2012 (12) TMI 60 - AT - Income Tax

Late filing of the audit report in form 10CCB alleged that the assessee should have filed the audit report in the prescribed form no.1OCCB along with the return of income as required under section 80IA(7) read with section 80IB(13) of the IT Held that - Assessing officer was not right in rejecting the appellant s claim for deduction under section 80-18(10) on the ground that the audit report was not submitted in time or was defective - requirement of filing the audit report along with the return is directory and not mandatory In favor of assessee Deduction u/s.80IB(1O) alleged that the assessee did not own one acre of land at the time of commencement of project and also at the time of approval of the project Held that - Area of plot of land at the time of approval of the first plan has a limited when it was revised after adding the deficit area in the area of plot and finally the project was completed on the plot of land having more than one acre as required under clause (b) of sec. 80IB(10) - when the project was completed on the plot of land having more than one acre then the condition as prescribed u/s 80IB(10)(b) is fulfilled because the plan was sanctioned and occupancy certificate was issued by the local authorities to the project on more than one acre of land - approval of the project has per clause (a) of sec. 80IB is relevant for completion of the project within the prescribed time period - assessee has complied with the requirement of having the project on the area of plot of land minimum of one acre - in favour of assessee Deduction u/s.80IB(1O) - ownership of land alleged that the assessee is not the full-fledged owner in respect of an area of one acre which is the minimum requirement for eligibility for deduction uls.80IB(1O) as the assessee has sold undivided interest over the land held by entering into agreements with individuals for transfer of undivided share of interest in land and into contracts for construction of residential units Held that - Assessee has developed the project in its own name; therefore transfer of undivided share in the land to the identified buyers of the constructed residential units is only a modus-operandi by the assessee to transfer the project in two parts viz constructed units and interest in the land separately. This method appears to be adopted by the assessee to save the stamp duty as different rate is applicable if the residential unit along with the undivided interest is sold together in comparison of the rate applicable on separate sale of land and building. Further this arrangement was to facilitate the finance from banks In favor of assessee Disallowance of interest alleged that assessee firm had advanced a peak interest free loan to the sister concern - Assessing Officer held that there was diversion of interest bearing funds for non business Held that - Assessee was having sufficient credit balance in the bank account as well as advances received from the customers when the advance was given to the sister concern - in the absence of direct nexus between the interest bearing funds and advance given to the sister concern the disallowance is not justified in favor of assessee

Issues Involved:
1. Late filing of the audit report in form 10CCB.
2. Size of the land being less than one acre.
3. Ownership of the land and whether the assessee is a contractor.
4. Disallowance of interest of Rs. 75,750/-.

Detailed Analysis:

1. Late Filing of the Audit Report in Form 10CCB:
The Assessing Officer (AO) rejected the assessee's claim for deduction under section 80IB due to the late filing of the audit report in form 10CCB, which was not submitted with the original return but with the revised return in response to notice u/s 148. The AO also noted that the report was defective as clause 23 was left blank. The CIT(A) held that the AO was not justified in rejecting the claim based on the timing or defect in the audit report, citing several decisions including CIT Vs. Contimeters Electrical (P.) Ltd., and CIT Vs. Berger Paints (India) Ltd., which held that the requirement to file the audit report along with the return is directory and not mandatory. The Tribunal upheld the CIT(A)'s decision, stating that the assessee complied with the conditions prescribed u/s 80IB(7) by filing the audit report during the assessment proceedings.

2. Size of the Land Being Less Than One Acre:
The AO found that the project was on a plot of land less than one acre at the time of the initial approval on 29.1.2003, thus not meeting the requirements of section 80IB(10)(b). The CIT(A) allowed the claim without a specific finding on the size of the plot. The Tribunal noted that the project was completed on a plot of more than one acre and that subsequent revisions to the plan added the necessary land area. The Tribunal concluded that the assessee fulfilled the condition of having a plot of land of at least one acre by the time of project completion, thus complying with section 80IB(10)(b).

3. Ownership of the Land and Whether the Assessee is a Contractor:
The AO argued that the assessee was not the owner of the land but acted as a contractor since it sold undivided interests in the land and entered into separate construction agreements. The CIT(A) held that ownership of the land is not a requirement for deduction under section 80IB, citing the case of Radhe Developers. The CIT(A) also found that the transfer of undivided shares was a method of sale rather than a work contract. The Tribunal agreed, noting that the assessee developed the project in its own name and that the transfer of undivided shares was a strategy to save stamp duty and facilitate bank financing. Thus, the assessee was not merely a contractor but a developer eligible for deduction under section 80IB.

4. Disallowance of Interest of Rs. 75,750/-:
The AO disallowed interest on the grounds that the assessee diverted interest-bearing funds to an interest-free loan to a sister concern. The CIT(A) deleted the disallowance, finding that the assessee had sufficient credit balance and received substantial interest-free advances from customers, thus no direct nexus between interest-bearing funds and the advance to the sister concern. The Tribunal upheld the CIT(A)'s decision, finding no error or illegality in the factual findings.

Conclusion:
The appeal filed by the revenue was dismissed. The Tribunal upheld the CIT(A)'s decisions on all grounds, confirming that the assessee complied with the requirements for deduction under section 80IB and that the disallowance of interest was not justified.

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