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2021 (7) TMI 554 - AT - Income TaxDisallowance u/s 80IB(10) - whether the assessee is a builder and not a developer and builder ? - HELD THAT - The nature of activities carried out have to be examined. The customers of the assessee have purchased the property looking at the brand SOBHA which belongs to the assessee. It is the assessee which has formulated the scheme of development in which the sister concern SITPL has no role except for conveying title in respect of theland to the customers of the assessee. So also, the provision of the properties as security for the loans raised by the assessee actually goes to show that the assessee is actively engaged in raising finance for the project and the sister concern has no role to play other than conveying title. Nothing turns much on these aspects of the matter pointed out by the learned DR in the submissions filed before us. We are of the view that the assessee has established that it was carrying out the activities that are done for developing the housing project and various factors pointed out by the Assessing Officer are neither determinative of the issue nor they are relevant to judge the character and status of the assessee with regard to the housing projects executed. - Decided against revenue Disallowance u/s 14A - as stated that in the returns filed pursuant to notice issued u/s 153A of the I.T.Act, the assessee by mistake and sheer inadvertent, erroneously adopted the disallowance u/s 14A of the I.T.Act made in the original assessment - HELD THAT - The disallowance u/s 14A of the I.T.Act in the original assessment order are subject matter of appeal in regular assessment. Depending upon the final outcome in the regular assessment as regards the disallowance u/s 14A of the I.T.Act, the same shall be adopted in the assessment orders u/s 153A of the I.T.Act. Therefore, with the above directions, ground as disposed of Disallowance u/s 14A r.w.r. 8D(2)(ii) - as decided in the case of CIT Anr. v. Microlabs 2016 (4) TMI 219 - KARNATAKA HIGH COURT had held that when investments are made out of common pool of funds and non-interest bearing funds are much more than the investment in tax free securities, no disallowance of interest expenditure u/s 14A of the I.T.Act can be made - HELD THAT - In the instant case, this specific plea was not raised before the A.O. Therefore, in the light of the judgment of the Hon ble jurisdictional High Court in the case of CIT Anr. v. Microlabs (supra), we restore the case to the A.O. The A.O. shall re-compute the disallowance u/s 14A of the I.T.Act read with Rule 8D(2)(ii) of the I.T.Rules following the dictum laid down by the Hon ble jurisdictional High Court in the case of CIT Anr. v. Microlabs. Deduction u/s 80G - HELD THAT - Section 80G(1) of the I.T.Act states that the quantum of deduction shall be equal to aggregate of 100% in some cases and 50% in other cases. Hence, there is a restriction on the quantum of deduction which cannot exceed 10% of the gross total income. The learned A.O. has allowed 50% out of the qualifying amount instead of restricting the qualifying amount to 10% of the gross total income. Since the same is opposed the plain language of section 80G(1) of the I.T.Act, the A.O. is directed to allow the deduction u/s 80G(1) of the I.T.Actby restricting the aggregate of the sums to 10% of the gross total income. Computation of book profit u/s 115JB - Disallowance u/s 14A - HELD THAT - We notice that the Special Bench of ITAT in the case of Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI has expressed the view that the amount disallowed u/s 14A of the I.T.Act cannot be adopted for the purpose of computation of book profit u/s 115JB of the I.T.Act and the disallowance to be made under clause (f) to Explanation 1 has to be computed independently without having regard to the provisions of section 14A of the Act. In view of the above, we are unable to sustain the addition made by the A.O. Since the addition required to be made under clause (f) to Explanation 1 is required to be computed independently, we restore this issue to the file of the A.O. for examining it afresh. Denying a part claim of deduction u/s 80IB(10) - assessee has violated the conditions mandated u/s 80IB(10)(f) - A.O. held that the assessee cannot sell any flat in the housing project to non-individuals - HELD THAT - There is no restriction for the assessee to sell a flat to a company. Therefore, the A.O. and the CIT(A) has misconstrued section 80IB(10)(f) of the I.T.Act and taken a view that the assessee cannot sell any flat in the housing project to non-individuals, which is erroneous understanding of statutory provisions. Accordingly, we set aside the orders of the A.O. and the CIT(A) on this count. The A.O. is directed to recompute deduction u/s 80IB(10)(f) of the I.T.Act keeping in view the above direction.
Issues Involved:
1. Whether the CIT(A) was justified in deleting the disallowance of deduction under Section 80IB(10) of the Income Tax Act, 1961. 2. Whether the assessment made under Section 153A should adopt the total income as per the original assessment order. 3. Whether the disallowance under Section 14A of the Income Tax Act was justified. 4. Whether the CIT(A) was justified in restricting the deduction claimed under Section 80G of the Income Tax Act. 5. Whether additions to book profits under Section 115JB were justified. 6. Whether the CIT(A) was justified in denying deduction under Section 80IB(10)(f) for certain projects. Detailed Analysis: Issue 1: Deduction under Section 80IB(10) The primary issue in the Revenue's appeals was whether the CIT(A) was justified in deleting the disallowance of deduction under Section 80IB(10) of the Income Tax Act. The Assessing Officer (A.O.) had denied part of the deduction claim on the grounds that the assessee was only a builder/contractor and not a developer, primarily because the land was owned by the sister concern, permissions for development were in the name of the sister concern, and the sister concern was shown as the owner in various documents. The CIT(A) held that the assessee was the actual developer as it undertook the entire risk and reward for the development activities, and therefore, was entitled to the deduction. The Tribunal upheld the CIT(A)'s decision, emphasizing that ownership of land is not a precondition for claiming deduction under Section 80IB(10) and that the nature of activities carried out, the risk assumed, and the rewards accrued were key factors in determining the eligibility for deduction. Issue 2: Assessment under Section 153A The assessee's appeals involved the issue of whether the assessment made under Section 153A should adopt the total income as per the original assessment order. The CIT(A) directed the A.O. to modify the assessment order by adopting the income finally assessed in the original assessment proceedings after appeal effect is given. The Tribunal found no grievance in the CIT(A)'s order and dismissed the ground raised by the assessee. Issue 3: Disallowance under Section 14A The assessee contended that the disallowance under Section 14A was excessive and not justified. The Tribunal noted that the Hon'ble jurisdictional High Court in the case of CIT & Anr. v. Microlabs had held that when investments are made out of a common pool of funds and non-interest-bearing funds are much more than the investment in tax-free securities, no disallowance of interest expenditure under Section 14A can be made. The Tribunal restored the case to the A.O. to re-compute the disallowance following the dictum laid down by the High Court. Issue 4: Deduction under Section 80G The A.O. had restricted the deduction under Section 80G on the grounds that the assessee did not produce receipts for certain donations. The CIT(A) upheld this view. The Tribunal, however, directed the A.O. to allow the deduction by restricting the aggregate of the sums to 10% of the gross total income, as per the provisions of Section 80G(4). Issue 5: Additions to Book Profits under Section 115JB The A.O. had made additions to the book profits under Section 115JB, including disallowance under Section 14A and wealth tax. The Tribunal, referring to the Special Bench order in the case of Vireet Investments Pvt. Ltd., held that the amount disallowed under Section 14A cannot be adopted for the purpose of computation of book profit under Section 115JB and restored the issue to the A.O. for fresh examination. Issue 6: Deduction under Section 80IB(10)(f) The A.O. had denied deduction under Section 80IB(10)(f) for certain projects on the grounds that the assessee had violated the conditions by selling flats to non-individuals. The Tribunal found that the A.O. and CIT(A) had misconstrued the provisions of Section 80IB(10)(f), which does not restrict selling flats to non-individuals. The Tribunal directed the A.O. to recompute the deduction. Conclusion: The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals, directing re-computation and fresh examination on certain issues. The key takeaway is the Tribunal's emphasis on the nature of activities, risks, and rewards in determining eligibility for deductions and the correct interpretation of statutory provisions.
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