2016 (9) TMI 603 - AT - Income Tax

Exemption U/s 80IB computation - inclusion of items for the purpose of arriving at the profits for working out deduction U/s 80IB(10) - Held that - For the interest on FDR in our view, the income arising out of such FDRs are not derived from the business of the housing development and therefore, the assessee is not enetitled for the benefit U/s 80IB of the Act. See Liberty India Vs CIT 2009 (8) TMI 63 - SUPREME COURT Forfeited amount and interest from customers - The amount was received by the appellant on cancellation booking in accordance with the clause 6.1 of the charges. It was contended that the said amount was accrued to the assessee on account of the failure of the customers to honor their commitment in terms of the agreement. Similarly the interest was received by the assessee on account of delayed payment of installment. In our view, for the purposes of claiming of forfeiture of the amount amd charging of interest has by the assessee from the customer has a direct nexus of first degree with the business of the assessee there it comes with the definition of income drawn therefore the assesse is an eligible under Section 80IB of the Act. In our view, the forfeiture of the amount was an income flowing under the first degree of nexus with the eligible business. The forfeiture of the amount is result of the failure on the part of the customer to cancel the booking, which in our view, is an income directly drawn from the business of the assessee. However, we are remanding the matter to the file of the A.O. for the purposes of verification of the forfeiture amount and calculation of the interest charged from the customers on account of delayed payment. Miscellaneous income - The assessee has shown the income of ₹ 2,99,948/- on account of the room rental charges retained by it from the charges payable to its labourers to the work contract labourers. The assessee has shown the income being incidental to the business of the assessee. In our view, the assessee for the purposes of smooth functioning and early completion of project was duty bound to provide housing facility, electricity and water connection at a place near to the work site of the assessee to its employees and if the assessee do not provided such facilities to its employees then the labours would be living in the remote area and for that purposes, the assessee would be required to pay the additional cost for accommodation and transport charges. Instead thereof, the assessee has provided housing accommodation at the work site and had charged room rental and other incidental charges like electricity and water for the labourers. In our view, the assesse is already claiming expenses for construction of accommodations and providing other incidental services like electricity and water. there is no direct relationship between the business of the assessee and the income derived on account of lodging, electricity and water charges and therefore, the order passed by the ld A.O. as well as the ld CIT(A) are required to be uphold. Appeal decided partly in favour of assessee

Summary

Issues:
Appeal against order of CIT(A) for A.Y. 2010-11 - Deduction U/s 80IB(10) - Treatment of various items in computation of profits.

Analysis:
The assessee, engaged in real estate business, filed a return claiming Nil income after deduction U/s 80IB(10). The AO excluded certain items from profits for deduction calculation. The CIT(A) upheld AO's decision regarding FDR interest, forfeited amount, and miscellaneous income but included interest from customers. Assessee appealed arguing FDR interest was for business needs. Tribunal held FDR interest not derived from housing development, citing Supreme Court judgment. Forfeited amount and interest from customers were considered directly related to business, thus eligible for deduction. Miscellaneous income from room rentals was deemed incidental, not directly linked to business, so not eligible for deduction. Tribunal partly allowed the appeal, remanding the matter for verification of certain amounts. The order was pronounced on 03/08/2016.