2014 (9) TMI 196 - AT - Income Tax

Proceedings u/s 263 Deduction u/s 80IB(10) - Jurisdiction of CIT - Doctrine of merger Held that - Following the decision in Sobha Developers Ltd. Versus Commissioner of Income-tax (LTU) 2013 (9) TMI 638 - ITAT BANGALORE - there was no merger of the order of the AO with that of any appellate authority when the CIT invoked and exercised jurisdiction u/s.263 of the Act in passing the impugned order and that two views did not exist on the question whether the Assessee was only a Builder and not a Builder and developer of housing project - what is the role of the sister concern of the assessee in so far as it relates to sale of land is concerned and as to how despite being not owner of the land pursuant to a registered sale deed was in fact entitled to all ownership rights as envisaged u/s.2(47)(v) of the Act. The question as to whether the Assessee was a developer and builder of housing project or merely a builder and was not entitled to deduction u/s.80IB of the Act was not examined by the AO in the order of Assessment - The order of the AO was erroneous to this extent - the exercise of jurisdiction by the CIT u/s.263 of the Act was proper - CIT has concluded that the Assessee is only a Builder and not a Developer and Builder of housing project - such a finding is without any basis and without bringing on record material and contrary to the claim made by the Assessee it cannot be sustained and is hereby vacated - the CIT has concluded that the assessee is a builder without rebutting any of the submissions and contentions put forth by the assessee with regard to the various activities carried out by the assessee in the reply to the show cause notice issued under section 263 of the Act the findings of the CIT is vacated in this regard and the directions issued u/s 263 of the Act modified decided partly in favour of assessee. Shortfall in remittance of TDS Deduction u/s 40(a)(ia) Held that - CIT ought not to have straightaway held that there was a shortfall in remittance of TDS of and disallowance relating to the shortfall needs to be disallowed u/s 40(a)(ia) - the assessee has requested the CIT to inform as to how the shortfall was arrived at - the assessee has filed a reconciliation of TDS payable before the AO which should be examined and verified before any disallowance can be contemplated or made u/s 40(a)(ia) of the Act - the direction of the CIT is modified as to the AO for making a disallowance u/s 40(a)(ia) of the Act to the extent that the AO is directed to examine the assessee s claim of reconciliation of TDS and the plea that the gross tax deducted in Form 3CD report is erroneous - If, however, the AO s finding after verification is to the contrary, then requisite disallowance u/s 40(a)(ia) will have to be made Decided partly in favour of assessee.

Summary

Issues Involved:
1. Deduction under section 80 IB(10) of the Income Tax Act.
2. Shortfall in remittance of TDS and disallowance under section 40(a)(ia).
3. Provision for expenses and its verification.

Issue-wise Detailed Analysis:

1. Deduction under Section 80 IB(10) of the Income Tax Act:
The Commissioner of Income Tax (CIT), Large Taxpayer Unit (LTU), Bangalore, held that the assessee did not satisfy the condition under section 80 IB(10) of developing and building housing projects, as the land belonged to the sister concerns of the assessee. Consequently, the CIT directed the Assessing Officer to deny the deduction claimed under section 80 IB(10) of the Act. The assessee challenged this, citing previous Tribunal decisions in its favor for earlier assessment years, arguing that it was both a developer and builder. The Tribunal partly allowed the appeal, vacating the CIT's findings and directing the Assessing Officer to reconsider the issue in light of the Gujarat High Court's decision in Radhe Developers.

2. Shortfall in Remittance of TDS and Disallowance under Section 40(a)(ia):
The CIT observed a shortfall in TDS remittance of Rs. 10,13,572, leading to a proposed disallowance of Rs. 4,47,29,567 under section 40(a)(ia). The assessee contended that there was no real shortfall, attributing the discrepancy to an erroneous entry in the tax audit report. The Tribunal directed the Assessing Officer to verify the assessee's reconciliation of TDS and determine if the shortfall was indeed erroneous. If no shortfall existed, no disallowance should be made; otherwise, the appropriate disallowance should be applied.

3. Provision for Expenses and Its Verification:
The CIT directed the Assessing Officer to verify the provision for expenses amounting to Rs. 28.50 Crores with evidence and reconsider the matter. The Tribunal noted that this issue was not pressed by the assessee's representative, as it was already set aside for fresh consideration. Consequently, this ground was dismissed as not pressed.

General and Procedural Grounds:
The general grounds raised by the assessee were automatically disposed of with the resolution of specific issues. The Tribunal dismissed the ground related to the provision for expenses as not pressed since the CIT had already directed the Assessing Officer to examine the matter afresh.

Conclusion:
The Tribunal's order resulted in a partial allowance of the assessee's appeal, directing the Assessing Officer to re-examine the issues of deduction under section 80 IB(10) and the shortfall in TDS remittance based on the evidence and legal precedents provided. The appeal was partly allowed, with specific directions for further verification and reconsideration by the Assessing Officer.