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TMI Blog2015 (2) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... , would reduce the total income in respect of profits of the assessee derived from projects which are not eligible for deduction u/s. 80IB(10) - Held that:- We are of the view that the order of CIT(Appeals) does not call for any interference. As rightly observed by him, in para 4.10 of the order of assessment, the AO has given no basis for allocating COH at 4% as against 3.27% adopted by the assessee. The AO’s conclusion is that allocation of COH at 3.27% is very low compared to the turnover of assessee. He has also given no basis for adopting 4%. As rightly observed by the CIT(Appeals), the AO has proceeded on surmises that assessee was increasing the profits of 80IB(10) units and decreasing the profits of non-80IB units to gain tax advantage. There is no basis whatsoever for this assumption of the AO. There is no dispute also that allocation of COH based on turnover will result in distortion of profits of 80IB(10) units and non-80IB(10) units. - Decided in favour of assessee. Computation of book profits u/s. 115JB - whether amount of expenditure relatable to any income to which section 10 applies, should be added to the profit as per the P&L account? - Held that:- In the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals), LTU, Bangalore relating to assessment year 2008-09. 2. Ground No.1 is general in nature and calls for no adjudication. 3. Ground No.2 raised by the revenue reads as follows:- 2. The ld. CIT(A) ought not to have deleted the reduction of ₹ 5,06,11,025/- from 80IB as done by the AO. 4. The assessee is a property developer carrying on several housing projects in the city of Bangalore and other metros in India. The addition challenged in ground No.2 by the revenue is a sum of ₹ 5,06,11,025. This comprises of two sums viz., a sum of ₹ 1,55,18,769 and another sum of ₹ 3,50,92,256. 5. Addition of the sum of ₹ 1,55,18,769 was made by the AO for the following reasons:- The assessee declared income from housing project Sobha Daffodil . The land on which this project was carried out by the assessee belonged to another sister company of the assessee, M/s. Sobha Inner City Techno Qualis Pvt. Ltd. [ STP for short]. STP purchased the land from the owners and has an arrangement with the assessee for development to be carried out over the land by the assessee. STP as owner of the land wholly conveys share of undivided interest in the land over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided interest in land and the built-up area, but, in practice, there would be a single and composite transaction, i.e., sale of apartment. The consideration for sale of an apartment would be fixed based on the extent of built-up area and the sale price. Once the deal was struck, the builder or the owner, as the case may be, make a bifurcation of sale proceeds towards the sale of undivided interest in land and that of the sale of the built up area. This bifurcation could be resorted to mainly for the registration of the undivided interest in land in favour of the buyer which cannot be categorized that there were two different transactions between the builder and the buyer of the apartment. In fact, there would be a composite transaction for sale of an apartment as sale of apartment culminates the ownership of the undivided interest in land to be transferred to the buyer. The developer classifies the profit as on sale of land purely for the purpose of accounting entries passed in his/its books of account, however, the fact remains that the profit derived by the developer was from the development of the housing project only and nothing else. 19.4. In an overall consideration of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods sold. However, we have switched over to the method of allocating the overhead based on turnover. We have furnished the details of unallocated overhead along with the details furnished earlier year and in case your honour adopts the method followed during the earlier years, (ie adopting the notional percentage) rejecting the actual common overhead expenses incurred, it tantamount to distribution of the same expense twice to the projects which is irrational. Hence we request you to adopt the same percentage ratio as per the unallocated COH expenses to the turnover which has been already adopted by us. In this regard Hon ble ITAT has considered the same issue in detail and has set aside the order of your predecessor for the AY 2005-06 giving out the detailed reasons for setting aside the assessment order on this same issue. Hence we request your Honour not to disturb the system of allocation of Corporate overheads to the various projects as already worked out by us. 11. The AO, however, did not agree with the aforesaid submissions made by the assessee. He found that the following were the total COH, total sales and sales in respect income from projects which are eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been concluded to any certainty using facts and evidences from the accounts of the appellant. I find that the higher estimation, without identifying specific instances of improper allocation of expenses to the projects and to the common overhead basket, is arbitrary and, hence, unsustainable. The addition is directed to be deleted. This ground, therefore, succeeds. 15. Aggrieved by the order of CIT(Appeals), revenue has raised ground No.2 before the Tribunal. 16. We have heard the submissions of the ld. DR, who reiterated the stand of the AO as reflected in the order of assessment. The ld. AR relied on the order of CIT(Appeals). 17. We have considered the rival submissions. We are of the view that the order of CIT(Appeals) does not call for any interference. As rightly observed by him, in para 4.10 of the order of assessment, the AO has given no basis for allocating COH at 4% as against 3.27% adopted by the assessee. The AO s conclusion is that allocation of COH at 3.27% is very low compared to the turnover of assessee. He has also given no basis for adopting 4%. As rightly observed by the CIT(Appeals), the AO has proceeded on surmises that assessee was increasing the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed was only indirect interest expenses and other expenses which were disallowed invoking provisions of Rule 8D(2) (ii) and (iii) of the Rules. 19. While working out the book profits, the assessee submitted before the AO that it had earned a sum of ₹ 6,63,79,683 being share of profits from a partnership firm in which the Assessee was a partner. This amount had been credited to the P L account. The assessee submitted that in view of Explanation (1)(ii) to section 115JB(2) of the Act, the aforesaid sum should be reduced from the book profits. Assessee made this claim before the AO in the form of letter dated 20.12.2010. 20. The AO refused to entertain the claim of assessee for the following reasons:- In this regard the assessee s reply (was) as follows: Apart from the issue relating to the claim of interest, we also would like to draw your Honour s kind attention to the fact that there has been an error in the computation of income u/s. 115JB of the Act in the revised return of income. It is submitted that while computing the income u/s. 115JB of the Act, we have not deducted a sum of ₹ 6,63,79,683/- being the share of a profits from a partnership fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the latter since the computation of book profit for purposes of Sec. 115JB for determining the minimum alternative tax is done as per the book profit evident from the financial statements drawn under the Companies Act. Sec.14A and the disallowance envisaged under it by applying Rule 8D are adjustments specific to the Income Tax Act. Even where the book profit as per the Companies Act has been allowed to be adjusted by the IT Act, it has been done through very specific provisions in terms of the explanations to Sec. 115JB. When the language of the explanation is specific and unequivocal and mentions specific exempted incomes in explanation 1(f), there is no situation for reading in any other interpretation even if they are analogous to the specified sections. While Sec.14A deals with disallowance of expenditure related to exempt income, it cannot be equated in letter and spirit with exempted income u/s.10 and expenditure related to it which is provided in explanation 1(f) of Sec.115JB. Hence, the AO s extension of these provisions to the amount disallowed u/s. 14A is not within the scheme of the legal provisions and the same is therefore, directed to be deleted. 12. Before me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per P L account. In this regard, our attention was drawn to the expression expenditure relatable used in sub-clause (f) of Explanation (1) to section 115JB of the Act. The ld. counsel for the assessee contrasted the above expression with the expression used in 14A of the Act which says expenditure incurred by the assessee in relation to . He also pointed out that in the present case, there was no direct expenses in earning the exempt income and this fact is accepted by the AO in the order of assessment. He therefore prayed that the order of CIT(Appeals) should be sustained. 26. With regard to reduction of a sum of ₹ 6,63,79,683 which was share of profits received by the assessee as partner from a partnership firm which was exempt u/s. 10(2A) of the Act, the ld. counsel for the assessee submitted that the facts with regard to claim u/s. 115JB are already available on record and notwithstanding the assessee s failure to make a claim in the return of income, it was incumbent on the part of the AO to compute the book profits in accordance with the mandate laid down in section 115JB of the Act. 27. The ld. DR in his rejoinder submitted that u/s. 115JB(4) of the Act, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs. [emphasis supplied] 10.7 The Hon ble Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the appellate authorities. 10.8 A Division Bench of the Hon ble Delhi High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956)97b, which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. Explanation [1].-For the purposes of this section, book profit means the net profit as shown in the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956). Expln.1 below Sec.115JB(2) also provides for certain additions and deductions from the said profit where such sums have either been added or reduced while arriving at the profit as per profit and loss account for the relevant previous year prepared in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956). 31. In the present case we are concerned with one item which needs to be added to the total income laid down in the first part of Expln.1 clause (f) viz., the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply. Another item which needs to be excluded to the total income laid down in the second part of Expln.1 clause (ii) viz., the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account. 32. On the issue of reducing/excluding the share of profits from the profit as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 115JB of the Act. We do not think that there is any prohibition to adopt the disallowance made by the AO u/s.14A of the Act read with Rule 8D of the rules, while computing total income under the normal provisions of the Act. The argument of the learned counsel for the Assessee that section 14A of the Act is very specific and is applicable only for the purpose of computing total income under Chapter IV of the Act and that section 115JB appears in Chapter XIIB of the Act dealing with specific provisions relating to certain companies and therefore the provisions of Sec.14A read with Rule 8D of the Rules cannot be applied while making addition to net profit as per profit and loss account u/s.115JB Expln.1 clause (f) of the Act, because the expression expenditure relatable is used in sub-clause (f) of Explanation (1) to section 115JB of the Act whereas expression with the expression used in 14A of the Act is expenditure incurred by the assessee in relation to and therefore only direct expenditure attributable to earning of income which does not form part of the total income under the Act can be added under clause(f) of Expln.1 below Sec.115JB(2) of the Act, cannot be accepted. In ..... 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