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TMI Blog2011 (12) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... ny for 80IB deduction. 3) The CIT(A) has erred in holding percentage of completion method for allocating overhead expenses for claiming 80IB deduction. 4) The CIT(A) has erred in allowing 80IB deduction in respect of profit on sale and development of land. 3.2 Brief facts in relation to the above grounds are as follows:- The assessee is a company. It is engaged in the business of development of real estate and execution of construction contracts. Return of income for the asst. year 2006-07 was filed on 29.11.2006 declaring an income of ₹ 54,18,32,997/- after claiming deduction u/s 80IB(10) of the Act amounting to ₹ 56,80,76,159/-. The assessment was completed on 24/12/2008 fixing the total income at ₹ 70,65,43,646/-. The AO, while completing the assessment, recomputed the deduction u/s 80IB of the Act and restricted the same to ₹ 40,33,65,510/- instead of ₹ 54,18,32,997/- claimed by the assessee. The deduction u/s 80IB of the Act was reduced mainly on account of two reasons, viz. (i) difference in the method of allocation of general overhead expenses and (ii) exclusion of the profit on sale of undivided interest in land in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of turnover is a fair method to arrive at the true profits derived from the 80IB project and is more reasonable than the cost basis as the revenue recognized on the basis of percentage of completion is a good indicator of level of activity. This view is also supported by the ITAT, Delhi Bench in the case of Food Specialities Ltd. v ACIT (54 ITD 352). 4.3 The difference in the method of allocation of the overhead expenses resulted in a reduction of the profits from the project and the consequent deduction claimed u/s 80IB(10) of the Act in respect of the various projects as under:- Sl. No. Name of the Project Expenses allocated by the appellant (Rs.) Expenses allocated by the AO (Rs.) Difference in the allocable expenses (Rs.) 1. Sobha Dahlia 1,89,56,067/- 2,99,58,722/- 1,10,02,655/- 2. Sobha Hibiscus 1,39,95,236/- 1,91,05,669/- 51,10,433/- 3. Sobha Iris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profit on sale of undivided interest In land in respect of certain project 5. While completing the assessment for asst. year 2006-07, deduction u/s 80IB(10) was recomputed by excluding the profit from the sale of undivided interest in land in respect of the following projects:- Sl. No. Name of the Project Profit on sale of land excluded by the AO Company in which the land was originally purchased before transfer to appellant 1. Sobha Dahlia 2,50,34,176/- Sobha Innercity Technopolis 2. Sobha Mayflower 3,16,37,025/- Sobha Innercity Technopolis 3. Sobha Primrose 41,47,715/- Sobha Innercity Technopolis 4. Sobha Rose 2,32,56,408/- Sobha Technocity 5. Sobha Daisy 96,30,639/- Sobha Innercity Technopolis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster concern to purchase the land from it and subsequently the advances already taken from the assessee was, perhaps, advanced for the transfer of the said land, the very fact has not been denied by the Revenue. 19.1. The agreement of sale entered into by the assessee with STPL which was subsisting and that the physical possession of the land by the assessee was not disproved by the AO with any documentary evidence. Another vital point which clinches the issue to strengthen the argument of the assessee was that STPL had offered the proceeds on sale of land as its business income, as agreed upon in the agreement of sale dated 3.1.2005, in its return of income which, according to the assessee, has been accepted by the Department. Furthermore, the AO had assessed the profit from sale of land as income in the hands of assessee and the same has not been excluded. However, when the issue of determining the claim of deduction u/s 80IB came into fore, the AO came forward to deny the claim of the assessee. The AO s stand that deduction u/s 80IB (10) of the Act was availed only for building a housing project and not for the development of land was rather misconceived. As a matter of fact, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing into an agreement for sale of undivided interest in land together with a construction agreement for constructing and delivering the built-up area. Even though, there were two separate agreements to convey the undivided 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had invested 500.70 million in purchase of certain units. The assessee was show-caused to explain why the expenditure in relation to those units whose income was exempt should not be disallowed. 8.2 In response, the assessee, vide letter dated 22.12.2009, stated that the assessee has no direct expenditure nor interest payment on earning such income, since it has come out with IPO during the year amounting to ₹ 32 crores. It was further stated that the expenditure incurred for bringing out the IPO was not claimed as expenditure in the books of accounts. The AO however rejected the contention relying on section 14A(3) and determined the expenditure in relation to the exempted income by invoking Rule 8D of the I T Rules, 1961. The relevant finding of the AO reads as follows:- 6.4 As per rule 8D 1(iii) the income on the first day of the previous year is zero and income at the end of the previous year is ₹ 500.70 million, hence the expenditure in relation to income not includable in total income works out to 1.25175 millions which is 0.5% of the average of value of investment (500.70/2 * 0.5% = ₹ 12,51,750/-). (Addition = ₹ 12,51,750/-) . 8.3 On further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record. The proceedings for assessment year 2002-03 would stand remanded to the Assessing Officer. The Assessing Officer should determine as to whether the assessee had incurred any expenditure (direct or indirect) in relation to dividend income/income from mutual funds which does not form part of the total income as contemplated under section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case . 8.8 In view of the above judgement of the Hon ble Bombay High Court, the matter is remitted back to the file of the AO to determine whether the assessee has incurred any expenditure (direct or indirect) in relation to the exempted income/income not forming part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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