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2022 (7) TMI 1290 - AT - Income TaxEstimation of income - bogus purchases - CIT-A disallowing only 12.5% of the total bogus purchase in the case of the assessee who was engaged in the business of construction activities - HELD THAT - As CIT(A) correctly held that only the profit embedded in respect of the sale on the purchases in question (bogus) should be brought to tax and not the entire purchases as done by the AO. - he correctly relied on the ratio of CIT Vs. P. Simit Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT wherein held that the entire purchases cannot be added, but only the profit element embedded in such questionable purchases should be added to the income of the assessee. Therefore, the Ld. CIT(A) has restricted the addition to 12.5% of the bogus purchases correctly. Deduction u/s 80IB(10) - whether substantial compliance has been made by the assessee for claiming the exemption/deduction? - admission made in the report by MCGM rejected - HELD THAT - Applying the principle of substantial compliance in the facts of this case it can be seen that the assessee had complied sufficiently the requirement of law as stipulated in section 80IB(10) of the Act and as per the said provision it was bound to complete the building project before 31.03.2012 and it had filed the partial completion certificate in-respect of wing (A B ) on 12.07.2011 and C wing on 24.12.2011 and thus it is noted that the assessee not only filed the architect certificates of completion of the project Blue Meadow, it also had filed the certificate of structure, the lift certificate as well as NOC of the fire brigade and all these certificates were filed before MCGM by Feb, 2012. And moreover it is noticed that on 27.02.2012 itself possession of the flats were given to the allottees who had made the full and final payment which fact is evident from perusal of the letter given to the allottees of housing units for possession of the flats and that one hundred twenty one (121) flats/units got occupied at Blue Meadow Project (which were regularised later) and therefore according to us, the legislative intent/conditions stipulated for giving deduction/incentive for developers like assessee u/s 80IB(1) have been sufficiently/substantially fulfilled. Therefore the deduction u/s 80IB(10) should not be denied merely because MCGM did not accept/issue occupancy certificate on 05.01.2012 or before 31.03.2012. - Decided against revenue.
Issues involved:
1. Disallowance of 12.5% of the total bogus purchase of Rs. 30,02,434/-. 2. Allowance of deduction of Rs. 23,32,39,561/- u/s 80IB(10) of the Income Tax Act, 1961, despite the project not being completed within the stipulated date. 3. Applicability of the decision of the Hon'ble Bombay High Court in CIT v/s. Hindustan Samuh Awas Ltd. to the present case. 4. Additional grounds regarding the rejection of the Occupancy Certificate (OC) by BMC and withholding of crucial information by the assessee. Detailed Analysis: 1. Disallowance of 12.5% of the total bogus purchase of Rs. 30,02,434/-: The brief facts noted by the CIT(A) include that the assessee submitted photocopies of purchase bills and ledger accounts without supporting evidence like lorry receipts or delivery challans. Notices issued u/s 133(6) were returned unserved, leading the AO to conclude that the assessee obtained accommodation entries and failed to prove the genuineness of the purchases. Consequently, the AO added the entire amount of Rs. 30,02,434/- as bogus purchases. However, the CIT(A) observed that the AO accepted the books of accounts and sales turnover, implying that the purchases were made from the grey market at a cheaper rate without genuine bills. Following the Hon'ble Gujarat High Court's decision in CIT Vs. P. Simit Sheth, the CIT(A) held that only the profit embedded in the bogus purchases should be taxed, not the entire amount. Thus, the addition was restricted to 12.5% of Rs. 30,02,434/-, amounting to Rs. 3,82,804/-. This decision was found to be in line with judicial precedents, and the revenue's ground of appeal was dismissed. 2. Allowance of deduction of Rs. 23,32,39,561/- u/s 80IB(10) of the Income Tax Act, 1961: The assessee claimed a deduction for developing the Blue Meadows housing project, asserting compliance with the conditions under section 80IB(10). The project was approved on 29.12.2006, and the last date for completion was 31.03.2012. The assessee submitted part-building completion certificates for Wings A & B on 12.07.2011 and for Wing C on 26.12.2011. Despite obtaining necessary NOCs and applying for the OC on 26.12.2011, the MCGM did not issue the OC, leading the assessee to withdraw the deduction claim by filing a revised return on 27.03.2012. The CIT(A) allowed the deduction, relying on the Hon'ble Bombay High Court's decision in Hindustan Samuh Awas Ltd., which held that the delay in issuing the completion certificate by the local authority should not be attributed to the assessee if the project was completed and the application was made in time. The CIT(A) found that the assessee met all conditions except for the OC issuance, which was delayed by the MCGM. Therefore, the CIT(A) concluded that the assessee was eligible for the deduction, and the revenue's appeal was dismissed. 3. Applicability of the decision of the Hon'ble Bombay High Court in CIT v/s. Hindustan Samuh Awas Ltd.: The CIT(A) applied the principle from Hindustan Samuh Awas Ltd., wherein the Hon'ble Bombay High Court held that the delay in issuing the completion certificate by the local authority should not penalize the assessee if the project was otherwise completed in time. The CIT(A) noted that the project was completed by November 2011, and the application for the OC was made on 26.12.2011. The delay in issuing the OC by the MCGM was beyond the assessee's control, and thus, the deduction u/s 80IB(10) was justified. 4. Additional grounds regarding the rejection of the Occupancy Certificate (OC) by BMC and withholding of crucial information: The revenue argued that the project was not completed as the part OC application was rejected by the BMC, and the assessee withheld crucial information. The CIT(A) considered the remand report and found that the project was completed by November 2011, and the application for the OC was made in time. The CIT(A) relied on the Hon'ble Bombay High Court's decision, which emphasized substantial compliance and the intent of the statute. The CIT(A) held that the assessee should not be denied the deduction due to the delay by the local authority and allowed the claim. Conclusion: The ITAT upheld the CIT(A)'s decision to restrict the addition for bogus purchases to 12.5% and allowed the deduction u/s 80IB(10) based on substantial compliance and the principle laid down by the Hon'ble Bombay High Court in Hindustan Samuh Awas Ltd. The appeals of the revenue were dismissed for both assessment years.
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