2016 (3) TMI 320 - AT - Income Tax

Denial of the claims for relief under S.80IB(10) - built up area of each residential unit exceeded 1, 500 sq. ft. - Held that - Built-up area includes portico and balcony also and in this case it exceeds 1500 sq. ft. per residential unit. Accordingly the assessee is dis entitled for the benefit u/s. 80IB of the Act - Decided against assessee Disallowance in terms of S.14A - claim of the assessees that there is no income earned by the assessee which did not form part of the total income returned and no investment has been made from out of the borrowed funds that borrowals have been made by the assessee for specific purposes such as working capital requirements CIT(A) deleted the disallowance - Held that - CIT(A) taken note of the borrowals made by the assessee and founds pecific projects etc. and utilised for those specific purposes. In the absence of any material brought on record to controvert the findings of the CIT(A) on factual aspects as rightly held by the CIT(A) interest relatable to such loans cannot be attributed to the investments yielding interest-free income. The observation of the CIT(A) that unless nexus between the borrowals made by an assessee and the investments yielding exempt income made by the assessee is established no disallowance under S.14A read with Rule 8D can be made is in consonance with the settled position of law laid down inter-alia in CIT V/s. SBI DHFL Ltd. (2015 (11) TMI 399 - BOMBAY HIGH COURT ) and CIT V/s. Hero Cycles Ltd. (2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT) relied upon by the learned counsel for the assessees in the written submissions field before us and other case-law discussed by the CIT(A) in the impugned orders besides consistent with the view taken by the coordinate benches of the Tribunal in similar matters. In this view of the matter we find no infirmity in the impugned orders of the CIT(A) on this issue. - Decided against revenue

Summary

Issues Involved:
1. Denial of claims for relief under Section 80IB(10) of the Income Tax Act, 1961.
2. Deletion of disallowances under Section 14A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Denial of Claims for Relief under Section 80IB(10):

The primary grievance of the assessees in ITA Nos. 1565, 1566, and 1567/Hyd/2013 pertains to the denial of claims for relief under Section 80IB(10) of the Income Tax Act, 1961. The disallowance was based on the ground that the built-up area of each residential unit exceeded 1,500 sq. ft. The facts reveal that the assessee company, engaged in real estate development, filed its return of income for the assessment year 2009-10, claiming a deduction under Section 80IB(10). The projects in question were Emerald Park (Annojiguda), Emerald Park Annexe (Annojiguda), and Palm Springs Phase II (Kompally).

The Assessing Officer observed that the built-up area of each residential unit, including portico and open terrace, exceeded the stipulated 1,500 sq. ft. limit, thus disqualifying the projects from Section 80IB(10) benefits. This conclusion was drawn after considering the definition of "built-up area" provided in the Act and relevant case laws. The CIT(A) upheld the disallowance, following similar decisions by the Tribunal in earlier years.

The Tribunal, upon review, noted that the issue of built-up area computation was previously decided against the assessee in similar matters, including in the assessees' own cases for the assessment year 2008-09. The Tribunal reiterated that the built-up area includes the portico and balcony, and if these areas are included, the built-up area exceeds 1,500 sq. ft., disqualifying the projects from Section 80IB(10) benefits. Consequently, the Tribunal upheld the CIT(A)'s orders and dismissed the assessees' appeals.

2. Deletion of Disallowances under Section 14A:

In the appeals of the Revenue, the common issue was the deletion of disallowances under Section 14A of the Income Tax Act, 1961, made by the Assessing Officer. The Assessing Officer noted that the assessee's investments in partnership firms and associate companies had increased, and the interest expenditure incurred on loans should be disallowed under Section 14A.

The CIT(A), upon appeal, observed that the investments were made from the assessee's own funds and not from borrowed funds. The CIT(A) also noted that the assessee did not have any income that did not form part of the total income, nor claimed any such income. Consequently, the CIT(A) held that no disallowance under Section 14A read with Rule 8D could be made and directed the deletion of the disallowance.

The Tribunal, after reviewing the material on record, upheld the CIT(A)'s findings. The Tribunal noted that the borrowals were made for specific business purposes and not for making investments yielding exempt income. The Tribunal emphasized that in the absence of any nexus between the borrowals and the investments, no disallowance under Section 14A could be made. The Tribunal's decision was consistent with the settled position of law and previous decisions by coordinate benches of the Tribunal. Consequently, the Tribunal dismissed the Revenue's appeals.

Conclusion:

In summary, the Tribunal dismissed the appeals of both the assessees and the Revenue. The Tribunal upheld the denial of claims for relief under Section 80IB(10) due to the built-up area exceeding the stipulated limit and confirmed the deletion of disallowances under Section 14A, finding no nexus between borrowals and investments yielding exempt income.