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TMI Blog2019 (10) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... TT (174) ORAL JUDGMENT ( PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. This tax appeal under Section 260A of the Income Tax Act, 1961 [for short ' The Act, 1961' ] is at the instance of an assessee and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad, 'B' Bench, Ahmedabad in ITA No.3050/AHD/ 2015, dated 25/09/2018 for the A.Y. 2011-12. 2. This tax appeal came to be admitted by this Court vide order dated 15/07/2019 on the following three substantial questions of law: - 1.00. This Tax Appeal at the instance of the assessee is admitted on the following substantial questions of law:- ( 1). Whether, in the facts and circumstances of the case, has the Income Tax Appellate Tribunal erred in law and on facts in not confirming the deletion by CIT(A) of disallowance of deduction u/s. 80IB(10) of the Act of ₹ 1,58,94,590/-? ( 2). Whether, in the facts and circumstances of the case, has the Income Tax Appellate Tribunal erred in law and on facts in remitting the matter back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and on facts in not holding that the appellant had rightly claimed deduction under Section80IB( 10) on ₹ 1,58,94,590/being the charges collected from the customers towards the AEC, AUDA and other legal charges. 6. In such circumstances referred to above, the learned senior counsel prays that there being merit in his appeal, the same be allowed and the substantial questions of law may be answered in favour of the appellant assessee. 7. On the other hand, this appeal has been vehemently opposed by Ms. Mauna Bhatt, the learned standing counsel appearing for the Revenue. Ms. Bhatt submitted that no error not to speak of any error of law could be said to have been committed by the appellate tribunal in passing the impugned order. Ms. Bhatt submitted that the reason for remitting the matter to the Assessing Officer as assigned by the appellate tribunal is for the purpose of verification of all the necessary details with regard to the payments made to the AUDA, AEC, etc., is concerned. In such circumstances referred to above, Ms. Bhatt submitted that none of the three questions referred to above could be termed as substantial questions of law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the expenses made for the cases is absent in the assessee case. 11. The CIT [Appeals] while allowing the appeal preferred by the appellant assessee to the extent of deduction under Section80IB( 10) of the Act is concerned, observed as under: - 10 . DECISION I have considered the observations of the A.O. with respect to disallowance of deduction u/s.80IB(10) of the I.T. Act with respect to the charges collected from the customers for Ahmedabad Electricity Company (AEC), Ahmedabad Urban Development Authority (AUDA) and legal charges. The total of such sum paid by the appellant to these three authorities was ₹ 1,58,94,590/. The AO primarily is of the view that no deduction is available on these sums as it is not linked to the project activity or such sum is not derived from the main activity i.e. the construction of housing complex namely Asmakam undertaken by the appellant. The AO is of the view that the assessee has charged a fixed sum for some specific blocks of the housing complex namely ₹ 162,500/for BlockJ, ₹ 1,12,500/on BlockK, L, M, N, O, P etc. The AO observes that the assessee has not been able ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision by Hon'ble Kolkatta Tribunal in the case of ACIT Vs. North City Developer (ITA No.1307/Kolkata/2010 dated 14/7/2011] wherein the Hon'ble Tribunal has held that in construction of housing project the assessee was under obligation as per the agreement entered with various customers to provide common facilities including electricity supply and meters, transformers, electric substations including provision for generator. It was held by the Hon'ble Tribunal that such facility undisputedly providing electricity supplied to the housing complex is part and parcel of the entire activity of developing and building a housing project. Without such electricity facilities the project developing cannot be said to be complete. It was also observed by the Hon'ble Tribunal that extra amount so charged while providing essential common facilities is part and parcel of the housing project and the amount received in respect there to is eligible for deduction u/s.80IB(10). The relevant portion of the judgment is reproduced below: 24. We have carefully considered the orders of the authorities below and submissions of learned representative of the parties. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the said receipt of ₹ 3,66,763/has a direct nexus with the activity of undertaking developing and building housing project and is eligible to be included while computing deduction u/s. 80IB( 10) of the Act. In view of above facts, we hold that there is no reason to interfere with the order of ld. C.I.T.(A). Ground No.3 of the appeal taken by the department is also rejected. 10.5 I have also considered the reliance on the judgment namely ACIT vs Vaman Estate in ITA No.7570/Mum/2011 wherein the Hon'ble Tribunal has followed the decision by a coordinated bench in the case of M/s. Eathare and Associates in ITA No.1211/M/2008 wherein it was pointed out that developmental charges, legal charge, water, electricity meter charges etc. are eligible for deduction u/s.80IB(10) of the I.T. Act. The relevant finding of this order is given below:- 13. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the ld. Counsel for the assessee that in the case of M/s Pathare Associates (supra) the Tribunal has upheld the order of the ld. CIT(A) in allowing the deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e therefore, contended that same should form part of eligible deduction under section 80IB(10) of the Act. We have no hesitation in upholding the view of the CIT (Appeals) as well as Tribunal. Assessee following mercantile system of accounting may have debited claim in the bill amount raised by the suppliers or contractors. However, as is likely to happen in any business of similar nature, the supply of material may be found wanting at a later stage. They may either be defective or sometimes minor unintentional short supply. This could be the reason why assessee instead of making full payment, deducts a portion of the supplier's bill. There may be other reasons such as late supply of the material etc. why such eventuality, may arise. Essentially in all such cases, what would happen is that assessee would actually expend less amount than what the bill amount would be indicating. In essence, therefore, such margin would go to reduce the assessee's cost of acquisition of the supply. Such amount therefore, cannot be dissociated or divested from assessee's business. Such receipt therefore, cannot be stated to be not arising out of the assessee's business of development o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of law deserves to be answered in favour of the appellant assessee and against the revenue in view of the decision of this Court in the case of CIT Vs. Pratham Developers reported in [2013] 355 ITR 507 (Gujarat) . We may quote the relevant observations made by the coordinate bench. 7. It would thus emerge that during the course of business in developing housing project, assessee had made payments to the suppliers towards various purchases made. On such payments, the assessee would occasionally deduct some amounts and pay the bill. Difference between the bill amount and payment actually made would be the amount generated during the course of business. Assessee therefore, contended that same should form part of eligible deduction under section 80IB(10) of the Act. We have no hesitation in upholding the view of the CIT (Appeals) as well as Tribunal. Assessee following mercantile system of accounting may have debited claim in the bill amount raised by the suppliers or contractors. However, as is likely to happen in any business of similar nature, the supply of material may be found wanting at a later stage. They may either be defective or sometimes minor un ..... 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