2022 (7) TMI 1203 - AT - Income Tax

Deduction u/s. 80IB(10) - whether the assessee is entitled to deduction u/s.80IB(10) with respect to the profits on sale of flats which was earmarked the land owners and which was sold on their behalf at their request by the assessee? - HELD THAT - The assessee has entered into agreements whereby the land owners wanted the assessee to sell the flats that were to be allotted to them as per the terms mentioned therein the consideration is paid towards the land, the super built up area which is the land owner s out of 37% of the undivided right as per the original agreement entered into with the assessee. Thus the argument of the ld AR that the consideration paid by the assessee to the landowners is nothing but due amounts paid for purchase of the land which forms part of the overall cost of the project developed by the assessee has merits. Further as per the provisions of section 80IB(10), the profit derived from such housing project is eligible for deduction which need to be considered in total, subject to other conditions mentioned in the said section. A plain reading of section 80-IB(10) evidently makes it clear that deduction is available in a case where an undertaking develops and builds a housing project on the profits derived from such housing project. In the given case the profit from the sale of flats earmarked for the land owners is also derived by the assessee from the development and building of the housing project. In view of the above discussion we are of the considered view that the assessee is entitled claim deduction u/s.80IB(10) on the profits derived from sale 22 flats earmarked for the land owners. The appeal is allowed in favour of the assessee.

Summary

Issues Involved:
1. Denial of deduction under section 80IB(10) of the Income Tax Act.
2. Validity of reopening assessments under section 147.

Detailed Analysis:

1. Denial of Deduction under Section 80IB(10):

The primary issue revolves around the denial of deduction under section 80IB(10) of the Income Tax Act, which pertains to profits derived from developing and building housing projects. The assessee, a real-estate development company, claimed this deduction for the assessment years 2007-08 and 2008-09. The deduction was initially claimed on profits from flats bought from landowners and sold to third parties.

For the assessment year 2007-08, the assessee filed a return declaring a total income of Rs.44,83,661 after claiming a deduction under section 80IA(10). However, a survey conducted on 29/09/2007 revealed discrepancies in the deduction claim related to the project 'Mahavir Springs'. Consequently, the assessee withdrew the deduction claim of Rs.1,52,02,456 for this project and the assessment was completed with various additions, including the denial of the 80IB(10) deduction.

A subsequent survey on 14.12.2012 led to the reopening of the assessment under section 147. The Assessing Officer (AO) observed that the assessee paid Rs.6,01,50,875 for 28 flats earmarked for landowners and sold 22 flats for Rs.5,63,80,183, resulting in a profit of Rs.91,19,417. The AO denied the deduction under section 80IB(10), treating these transactions as trading activities.

On appeal, the CIT(A) upheld the AO's decision, leading to further appeal by the assessee. The assessee argued that the payments to landowners were part of the overall project cost and that the profits from these transactions should be eligible for deduction under section 80IB(10). The Tribunal agreed with the assessee, emphasizing that the profits derived from the sale of flats earmarked for landowners were part of the overall housing project profits and eligible for deduction.

2. Validity of Reopening Assessments under Section 147:

The assessee challenged the reopening of assessments under section 147, arguing it was beyond the four-year limit and lacked the necessary failure to disclose material facts. The Tribunal noted that the original assessment under section 143(3) had already addressed the discrepancies related to the project 'Mahavir Springs'. The reopening was based on the same issues previously considered, making the reopening invalid.

The Tribunal concluded that the assessee had fully disclosed all necessary facts during the original assessment, and the reopening under section 147 was not justified. Consequently, the Tribunal allowed the appeals for both assessment years, granting the deduction under section 80IB(10) for the profits derived from the sale of flats earmarked for landowners.

Conclusion:

The Tribunal ruled in favor of the assessee, allowing the deduction under section 80IB(10) for both assessment years 2007-08 and 2008-09. The reopening of assessments under section 147 was deemed invalid due to full disclosure of material facts by the assessee during the original assessment. The appeals were allowed, and the assessee was entitled to the claimed deductions.