2016 (11) TMI 1120 - AT - Income Tax

Diversion of Revenue at Source - Reducing the business income being the share of profit of one of the members of AOP of the assessee - Held that - Assessee has computed the profit of the AOP firm purely on commercial principles after deducting the cost of land and construction expenses from the amount of sales / revenue and accordingly net profit was shown under the head Income from business upon which deduction u/s 80IB(10) has been claimed. In our considered view, the computation of profit and determination of taxable income is one aspect which is different from apportionment of profit / income between the AOP members. It appears that Assessing Officer had mixed up these two independent actions which led to whole confusion and avoidable litigation. Thus, we find that the Tribunal had correctly appreciated the whole issue in the preceding years and the same has also got affirmation from the Hon ble High Court. Thus, viewed from any angle, the action of the lower authorities in re-computing the income was not justified and, therefore, the same is hereby reversed. Interest on FDR received on account of the funds to be used by the proposed society - Held that - here was no clarity on facts with regard to transferring of impugned Security Deposit amount to the Society by the assessee in entirety. In fact, from the arguments of the Ld. DR it transpires that this is the only objection left to be addressed as per final stand of the Revenue. Thus, in all fairness to both the parties, we find it appropriate to send this issue back to the Assessing Officer for verification of these facts. The assessee shall bring on record all requisite evidences to demonstrate that the impugned amounts received by way of deposits from the customers along with the amount of interest credited by the bank thereon have been transferred to the concerned Society. In case, any amount has been appropriated by the assessee in violation of the agreement or in violation of the regulations of MOFA, then corresponding amount of interest thereon can be brought to tax in the hands of the assessee. Thus, with these directions, this issue is sent back to the file of the Assessing Officer. The Assessing Officer shall give adequate opportunity of hearing to the assessee before deciding this ground afresh. Deduction u/s 80IB(10) - Held that - CIT vs Sarkar Builders & Ors (2015 (5) TMI 555 - SUPREME COURT ) wherein it has been inter alia held that where housing project was sanctioned before the amendment but has been completed after April 1, 2005, when the amended provisions came into operation, the assessee would be entitled to deduction u/s 80IB (10) and conditions mentioned in clause (d) would not apply. It has been stated that assessee s project was approved prior to the said date which has not been disputed by the Revenue. - Decided against revenue

Summary

Issues Involved:
1. Reduction of business income by ?9.37 crores due to revenue sharing agreement.
2. Taxation of interest on Fixed Deposit Receipts (FDR) amounting to ?30,34,472.
3. Deduction under section 80IB(10) for housing projects.

Issue-wise Detailed Analysis:

1. Reduction of Business Income by ?9.37 Crores:
The assessee challenged the reduction of business income by ?9.37 crores, which was the share of profit of one of the members of the AOP, M/s Sanand Properties Pvt Ltd (SPPL). The lower authorities had treated it as a 'Diversion of Revenue at Source' instead of an application of revenue. The Tribunal noted that this issue had been consistently decided in favor of the assessee in previous years, including by the Hon'ble Bombay High Court. The Tribunal found that the assessee's income had been computed as per commercial principles, and there was no diversion of revenue at the source. The Tribunal referred to the agreement between the AOP members and concluded that the distribution of revenue was in accordance with the agreement. The Tribunal quashed the lower authorities' orders, allowing the assessee's appeal on this ground.

2. Taxation of Interest on FDR Amounting to ?30,34,472:
The assessee contested the taxation of interest on FDRs, arguing that the funds were held in a fiduciary capacity for the proposed society and were not the assessee's income. The lower authorities had taxed this interest income, citing the absence of proof that the interest was transferred to the society. The Tribunal analyzed the agreement with the buyers and the provisions of the Maharashtra Ownership Flats Act (MOFA), concluding that the assessee was bound to transfer these funds to the society. The Tribunal held that the interest income did not have the character of income in the assessee's hands and was held in a fiduciary capacity. The Tribunal directed the Assessing Officer to verify that the funds were transferred to the society and, if any amount was appropriated by the assessee, tax the corresponding interest. The Tribunal allowed this ground for statistical purposes.

3. Deduction Under Section 80IB(10) for Housing Projects:
The Revenue challenged the allowance of deduction under section 80IB(10) by the CIT(A). The Tribunal noted that this issue had been decided in favor of the assessee in previous years by the Tribunal and affirmed by the Hon'ble Bombay High Court. The Tribunal found no distinction in facts or law for the impugned year and dismissed the Revenue's appeal, upholding the CIT(A)'s order allowing the deduction under section 80IB(10).

Conclusion:
The Tribunal allowed the assessee's appeals partly by reversing the lower authorities' orders on the reduction of business income and directing verification for the taxation of interest on FDRs. The Tribunal dismissed the Revenue's appeals, upholding the allowance of deduction under section 80IB(10) for the assessee's housing projects.