2019 (1) TMI 530 - AT - Income Tax

Assessment u/s 153A - Deduction u/s 80IB (10) denied - order passed on the non-existing entity - firm on which the order was passed was M/s Nahar Enterprises which stands closed with effect from 20.11.2011 and the business was taken over by M/s Nahar Builders Limited and therefore the assessment order passed on non-existing entity - Held that - Search action was a strict action taken against the privacy of any person and therefore the aforesaid powers bestowed upon the authorities were to be exercised with utmost precaution and only after conducting detailed enquiries & investigation. Therefore, non-mentioning of correct name of the entities could not be termed as mere clerical or procedural mistake particularly when the assessee had already intimated the fact of dissolution of the firm to the department much before the date of the search. Therefore, the issue of Panchnama in the name of dissolved firm could not be said to be valid. When the search u/s 132 was conducted and to be valid, the warrant and notice should be issued in the name of the successor only whereas these, in the present case, had been issued in the name of Nahar Enterprises, a non-existent entity which could not be said to be mere clerical mistake. Similar facts exist in the given year. No contrary judgment has been placed on record by the revenue. Therefore, material facts and circumstance being the same, respectfully following the view of the coordinate bench of the Tribunal, we hold that the assessment proceedings were bad in law and therefore, could not be sustained in the eyes of law. We order so. The issue on merits has also been decided in assessee s favor by holding that service area, window area, window projections and cupboard projections were not to be included while computing the builtup area. - Decided in favour of assessee.

Issues Involved:
1. Validity of assessment order passed on a dissolved entity.
2. Validity of the appointment of the Departmental Valuation Officer (DVO).
3. Denial of deduction under Section 80IB(10) of the Income Tax Act.
4. Inclusion of various areas (flower bed, service area, window projections, cupboard projections) in the built-up area computation.

Detailed Analysis:

1. Validity of Assessment Order Passed on a Dissolved Entity:
The assessee contended that the assessment order under Section 143(3) read with Section 153A was invalid as it was passed in the name of a dissolved entity, Nahar Enterprises, which had been converted into Nahar Builders Limited. The Tribunal noted that the search warrant and subsequent Panchnamas were issued in the name of the dissolved entity, despite the department being informed of the dissolution. Citing precedents such as the Delhi High Court's decision in Spice Infotainment Ltd. v. CIT and Karnataka High Court's decision in CIT v. Intel Technology India (P.) Ltd., the Tribunal held that assessments made on a non-existent entity are void ab initio. Consequently, the assessment orders were quashed as they were legally invalid.

2. Validity of the Appointment of the DVO:
The assessee argued that the DVO's appointment was invalid as he was not part of the search party. However, the Tribunal found that the DVO, being a technical expert from the Central Public Works Department, was appropriately engaged for the technical task of measuring the flats. The Tribunal concluded that the DVO's involvement was legitimate and dismissed the assessee's objection on this ground.

3. Denial of Deduction Under Section 80IB(10):
The AO denied the assessee's deduction under Section 80IB(10) on the grounds that the built-up area of many residential units exceeded the prescribed limit of 1000 sq. ft. The assessee argued that the deduction should be allowed as the measurements by the DVO were inaccurate and the original assessment had already verified the built-up area. The Tribunal found merit in the assessee's argument, noting that the flower bed area and common wall area should not be included in the built-up area calculation. The Tribunal referenced its earlier decision in ITO v. Poddar Ashish Developers and Commonwealth Developers v. ACIT, which excluded areas below floor level and open to the sky from the built-up area.

4. Inclusion of Various Areas in the Built-Up Area Computation:
The AO included service area, window projections, cupboard projections, and flower bed areas in the built-up area, leading to the denial of the deduction. The Tribunal, however, held that these areas should not be included:
- Flower Bed Area: The Tribunal ruled that flower beds, being open to the sky and below floor level, do not form part of the constructed area of a flat.
- Service Area: The Tribunal found that service ducts, mainly used for maintenance purposes, should not be included in the built-up area.
- Window Projections and Cupboard Projections: The Tribunal agreed with the CIT(A) that these projections are ornamental features and should not be included in the built-up area.

Conclusion:
The Tribunal quashed the assessment orders for being passed on a non-existent entity and held that the service area, window projections, cupboard projections, and flower bed areas should not be included in the built-up area for the purpose of Section 80IB(10) deduction. The appeals of the revenue were dismissed, and the assessee's appeals were partly allowed.

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