2017 (2) TMI 1187 - AT - Income Tax

Deduction u/s 80IB(10) - Held that - The reasons assigned by the Assessing Officer and noticed in this order have not been approved by the Hon ble High Court s in the case of Radhe Developers (2011 (12) TMI 248 - GUJARAT HIGH COURT) for denying the benefit on ground that the assesse did not develop the project as developer rather worked as a contractor. It can be inferred from the material available on record and discussed by the Ld. first Appellant authority, that assessee has developed the project as developer. - Decided against revenue

Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act.
2. Whether the assessee qualifies as both developer and builder.
3. The impact of the development agreement on the assessee's status.
4. Applicability of the amendment to Section 80IB by the Finance Act 2009.
5. Charging of interest under Section 234B.
6. Initiation of penalty under Section 271(1)(c).

Issue-Wise Detailed Analysis:

1. Deduction under Section 80IB(10) of the Income Tax Act:
The core issue revolves around the revenue's challenge against the CIT(A)'s decision to grant the assessee deduction under Section 80IB(10). The assessee firms, M/s. Mahalaxmi Corporation and M/s. Dhanlaxmi Corporation, claimed deductions for housing projects, which the Assessing Officer (AO) denied. The AO's primary reasons were that the assessee was not the owner of the land, did not receive project approval from the local authority, and functioned merely as a contractor.

2. Whether the Assessee Qualifies as Both Developer and Builder:
The AO asserted that the assessee did not qualify as both developer and builder, as required by Section 80IB(10). The AO argued that the assessee entered the project through a development agreement with the landowner and executed construction as per this agreement, thus acting as a contractor rather than a developer.

3. The Impact of the Development Agreement on the Assessee's Status:
The CIT(A) re-evaluated the facts and allowed the deduction, relying on the Gujarat High Court's decisions in the cases of M/s. Radhe Developers and M/s. Shakti Corporation. These judgments clarified that ownership of land is not a necessary condition for claiming deduction under Section 80IB(10). The development agreement and the agreement to sell conferred sufficient rights and responsibilities to the assessee, making them developers for tax purposes.

4. Applicability of the Amendment to Section 80IB by the Finance Act 2009:
The AO referenced the amendment to Section 80IB by the Finance Act 2009, which states that a works contractor executing a project awarded by any person is not eligible for the deduction. However, the CIT(A) and the Gujarat High Court judgments established that the assessee undertook the project at their own risk and cost, fulfilling the conditions of Section 80IB(10).

5. Charging of Interest under Section 234B:
The issue of charging interest under Section 234B was deemed consequential. Since the primary ground of deduction under Section 80IB(10) was resolved in favor of the assessee, the interest charge was adjusted accordingly.

6. Initiation of Penalty under Section 271(1)(c):
The initiation of penalty under Section 271(1)(c) was considered premature and was dismissed. The CIT(A) and the Tribunal found no grounds for penalty as the assessee's claim for deduction was justified.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to grant the deduction under Section 80IB(10). The Tribunal found no merit in the revenue's appeals, confirming that the assessee developed the project as a developer, not merely as a contractor. The appeals were dismissed, and the order was pronounced on 20th February 2017 at Ahmedabad.

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