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TMI Blog2023 (9) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... nd any reason why this sum of Rs. 5,00,00/- should again be added in the total income, accordingly the addition made by the AO is deleted.D.R. could not submit any contra evidence on the above findings of the Ld CIT [A]. Thus the ground no. 2 raised by the Revenue is devoid of merits and hereby dismissed. Addition u/s. 22 - ALV of finished stock - CIT(A) after considering the submissions of the assessee determined the ALV at 5% of the book value of the flats and determined the income - HELD THAT:- Merely because income in respect of said units has not been recognized during the year on account of NON-Execution of Sale Deed, it cannot be held that units are vacant and owned by the assessee for the purpose of taxing notional income u/s. 22 - The assessee is in business of real estate flats in question are the part of the stock in trade . Therefore the ALV computed by the lower authorities at 8% and 4% are against the provisions of section 22 and the addition made on this account is illegal As in order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [10] of the Act on the Takshshila Coloneal project. Commercial construction is more that the prescribed limit of 3% of the aggregate built-up area of the housing project - As relying on cases Suyog Shivalaya [ 2018 (7) TMI 1458 - SC ORDER] and Arun Excello Foundations (P.) Ltd. [ 2012 (10) TMI 1216 - MADRAS HIGH COURT] the assessee is eligible for deduction u/s. 80IB [10] of the Act on the commercial construction which was approved by the Local Authority within the frame work of Development Control Rules and Regulations. Thus this ground raised by the assessee is hereby allowed and the disallowance made by the AO is hereby deleted. Assessee sold units to more than one person of a family which is not allowed as per section 80(IB) - As relying on Om Swami Smaran Developers (P.) Ltd. [ 2018 (1) TMI 1646 - ITAT MUMBAI] the assessee cannot be denied the deduction u/s. 80IB [10] of the Act on the entirety and the assessee is eligible for balance units which has been constructed as per conditions laid down in section 80IB[10][c] of the Act. Thereby this issue is set aside to the file of the AO with a direction to grant the deduction after giving opportunity to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 3,95,504/-on account of difference in prior period expenses. 2. The Learned CIT(A) has erred in law and on facts to confirm the addition of Rs. 17,52,252/- on account of negative cash balance treated as unexplained cash credit u/s 68 of the Act. 3. The Learned CIT(A) has erred in law and on facts to confirm the addition of Rs. 33,24,796/- u/s 22 of the act towards computed ALV @ 5% on closing stock of finished flats though the assessee has allotted the flats/bungalows/units to purchaser and amount of consideration is received as advance which is shown in the balance sheet as Advance from customer in view of the 'agreement of sale'. 4. The Learned CIT(A) has erred in law and on facts to confirm the addition of Rs. 12,33,712/- u/s 40(a)(ia) of the Act. 5. The Learned CIT(A) has erred in law and on facts to confirm the addition of Rs. 6,07,48,187/- u/s 801B of the Act [a] where out of the Eleven blocks, Eight blocks were completed within five years as per completion certificate issued by the competent authority and for remaining three blocks [block E, F and G), not claimed any deductions u/s 80IB of the act. Therefore, no reason to disallow to claim deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is a dealer and developer of lands, real estates, Hotel Business Operations including Restaurant and Banquet facilities. For the Assessment Year 2013-14, the assessee filed its Return of Income on 28-09- 2013 declaring income of Rs. 50,00,379/-. The return was taken up for scrutiny assessment, after detailed enquiry, the Assessing Officer made the following disallowances/additions: (a) Disallowance of Prior Period Expenses of Rs. 25,64,380/- (b) Addition on account of Negative Cash Balance of Rs. 17,52,252/- (c) Over statement of loss of Rs. 5,00,000/- (d) Addition u/s. 22-ALV of finished stock of Rs. 53,19,672/-. (e) Disallowance u/s. 40(a)(ia) of Rs. 36,49,865/-. (f) Difference in cost of construction of Rs. 1,13,62,412/- (g) Deduction u/s. 80IB(10) of Rs. 2,15,18,887/-. (i) Addition on account of revaluation of land u/s. 115JB of Rs. 5,56,29,995/-. 5. Aggrieved against the same, the assessee filed an appeal before Ld. CIT(A). The Ld. CIT(A) dealt with each disallowance/addition observing as follows: 6. Disallowance of prior period expenses: A sum of Rs. 25,64,398/- was disallowed and added to the total income of the assessee company on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with section 145, of the Income-tax Act, 1961 - Business expenditure - Allowability of (Prior period expenses) - Assessment year 1999-2000 Whether prior period expenses - quantified and paid during current year would be allowed as business expenditure in relevant assessment year even though assessee was following mercantile system of accounting - Held, yes [Para 3] [In favour of assessee] ii. [1995] 80 Taxman 61 (Gujarat) Saurashtra Cement Chemical Industries Ltd. v. Commissioner of Income-tax Section 37(1), read with section 145, of the Income-tax Act, 1961- Business expenditure - Year in which deductible - Whether, where any liability though relating to earlier years, depends upon making a demand and its acceptance by assessee and has been actually claimed and paid in later previous years, such a liability can be disallowed as deduction merely on basis that accounts were maintained on mercantile system and that it related to a transaction of previous year - Held, no iii. [2010] 194 TAXMAN 158 (DELHI) Commissioner of Income-tax v. Jagatjit Industries Ltd. Section 37(1), read with section 145, of the Income-tax Act, 1961- Business expenditure Year in which deductible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that though during the year the assessee sold five shops of the hotel building for a consideration of Rs. 40,03,000/- but the sale consideration of only Rs. 35,03,000/- was adopted while working out the profits on such sales. Accordingly a sum of Rs. 5,00,000/- was proposed to be added by the AO. Before the AO assessee pleaded that out of the sum of Rs. 40,03,000/- sales worth Rs. 5,00,000/- was recognized in the earlier year's income, hence, the profits are worked out by taking the sale of the current year amounting to Rs. 35,03,000/- correctly and enclosed the computation of income of A.Y. 2008-09 in support of its claim. However AO was not convinced and he added the sum of Rs. 5,00,000/- to the total income. 8.1. The Ld. CIT(A) after considering the material records and held that he do not find any reason why this sum of Rs. 5,00,00/- should again be added in the total income, accordingly the addition amounting to Rs. 5,00,000/- made by the AO is deleted. 8.2. The Ld. D.R. could not submit any contra evidence on the above findings of the Ld CIT [A]. Thus the ground no. 2 raised by the Revenue is devoid of merits and hereby dismissed. 9. Addition u/s. 22 ALV of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72,000/- 3.89% On careful consideration I find that AO in the assessment order has computed the ALV @ 8% per annum without any basis whatsoever. Appellant has contended that the reasonable rent is not more than 4% and also furnished copies of actual agreements as above. Keeping in view the entirety of the facts including the agreements as above the rental in the areas in which the buildings are located are estimated to be around 5% of the value of the property. Accordingly, the ALV is computed @ 5% of the book value of the flats which comes to Rs. 47,49,708/-. After allowing deduction @ 30% u/s. 23 of the Act amounting to Rs. 14,24,912/- the income under the head house property comes to Rs. 33,24,796/-. Thus, appellant gets a relief of Rs. 19,94,876/-. Ground of appeal No. 4 is partly allowed. 10. Aggrieved against the same, both the Assessee and the Revenue are in appeal before us. The Ld. Counsel for the assessee submitted that the unsold property of various project to the extent Rs. 9,49,94,152/- have been constructed and completed in all respect and the assessee has obtained BU permission from the Competent Authority. The amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered, would be brought to tax in hands of assessee Held, no. iii. [2007] 164 TAXMAN 342 (GUJ.) Commissioner of Income-tax -Vs- Neha Builders (P.) Ltd. . 7. From the order passed by the learned CIT(A), it would clearly appear that the case of the assessee was that the company was incorporated with the main object of purchase, take on lease, or acquire by sale, or let out the buildings constructed by the assessee. Development of land or property would also be one of the businesses for which the company was incorporated. 8. True it is, that income derived from the property would always be termed as income from the property, but if the property is used as stock-in-trade , then the said property would become or partake the character of the stock, and any income derived from the stock, would be income from the business, and not income from the property. If the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the business and the business stocks, which may include movable and immovable, would be taken to be stock-in-trade , and any income derived from such stocks cannot be termed as income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the lower authorities at 8% and 4% are against the provisions of section 22 and the addition made on this account is illegal. There is no rental income as such because no flat is been given on rent, also flat are stock in trade and mere holding of stock cannot be assessed as income from house property. 10.5. We now look to the relevant provisions and amendment in the Act. The following sub-section (5) has been inserted after subsection (4) of section 23 by the Finance Act, 2017, w.e.f. 01.04.2018: (5) Where the property consisting any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to nil. Thus, in order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any house property as his sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from revenue account. However, as the applicable TDS has not effected by the assessee, thus following the provisions of section 40(a)(ia) of the Act, the WIP has to be reduced. Thus Ld CIT[A] directed the AO to reduce the WIP by Rs. 12,33,712/- and partly allowed the appeal. 12. Aggrieved against the same, both the Assessee and the Revenue are in appeal before us raising Ground no.4 in their respective appeals. We do not find any infirmity in the order passed by the Ld CIT[A] that the sum of Rs. 24,16,153/- paid to HUDCO is clearly out of the purview of TDS and directed the AO to reduce the WIP by Rs. 12,33,712/-. Therefore the Ground No.4 raised by the Assessee and Revenue are hereby dismissed. 13. Disallowance of deduction u/s. 80IB(10) of Rs. 6,07,48,187: The assessee claimed deduction u/s. 80IB of the Act amounting to Rs. 6,07,48,187/- being the income of residential/commercial projects constructed by it. In the SAR the auditors pointed out that the assessee has not fulfilled the conditions stipulated in section 80IB of the Act and hence, is not eligible for deduction so claimed. Briefly, the assessee claimed deduction u/s. 80IB on the income of following three housing pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... projects more than one unit has been sold to members of same family. The Appellant has taken the plea that it may be allowed proportionate deduction on the profits of this project. In other words appellant has accepted the findings of AO but has contended that proportionate deduction be allowed from the income on such units/ buildings. However, plain reading of section 80IB(10) makes it abundantly clear that if any one of the conditions specified therein are not fulfilled, deduction u/s. 80IB(10) of the Act cannot be allowed. Hence, Ld CIT[A] did not find any merit in the arguments of the assessee and denial of deduction u/s. 80IB(10) amounting to Rs. 6,07,48,187/- by AO is upheld. 14. Aggrieved against the same, the Assessee is in appeal before us raising Ground no. 5.a. Project has not been completed within the time limit of 5 years prescribed in section 80(IB) 5.b.Commercial construction is more that the prescribed limit of 3% of the aggregate built-up area of the housing project 5.c. Sold units to more than one person of a family which is not allowed as per section 80(IB) of the Act 14.1. Regarding Takshshila Coloneal project was not completed within the time li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the housing project should have been completed within five years from the end of the financial year in which the housing project is approved by the Local Authority. The assessee obtained housing project for Blok Nos. C to Q from the Local Authority on 01-03- 2007, therefore the entire housing projects should have been completed on or before 31-03-2012. But no construction was started in Block Nos. E, F G by the assessee. Therefore the A.O. issued a show cause notice, why the entire deduction claimed u/s. 80IB(10) should not be disallowed. 8.1. The assessee replied that the Block Nos. E, F G of the housing project was not started by the assessee, but however other 8 Blocks namely, C, D, L, M, N, O, P Q were completed within five years period. Further for every Block, the assessee obtained separate planning permission from AMC. Thus the assessee claimed deduction u/s. 80IB(10) only to the 8 blocks. However the above explanation of the assessee was rejected by the Assessing Officer and thereby denied the claim of deduction u/s. 80IB(10) of the Act of Rs. 31,64,266/- and added as the total income of the assessee. 9. Aggrieved against the same, the assessee filed an ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby wrongly held that the assessee has not completed the housing projects. 11.1. The Hon ble High Court of Madras in the case of Viswas Promoters (P.) Ltd. (cited supra) held that each residential block is a housing project in itself for the purpose of claiming deduction u/s. 80IB(10) of the Act and thereby given the claim of deduction to the assessee observing as follows: 11. It is an admitted fact that each one of blocks had separate sanction from the competent authority. Even though the larger area comprised in the name and style of Agrini and Vajra is stated to be the master plan of the project, it is not denied by the Revenue that each block in each of the projects has its own specification; hence, had gone for planning approval by the competent planning authority. In the background of this, the question that arises for consideration is as to whether the assessee would lose its claim for deduction in respect of those blocks which satisfied the conditions under Section 80IB(10) of the Act by reason of some of the stocks not satisfying the condition under Section 80IB(10) of the Act. 12. It is not denied by the Revenue that there is no definition of the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the conditions stipulated in the clause therein. Thus, within a composite housing project, where there are eligible and ineligible units, the assessee can claim deduction in respect of eligible units in the project and even within the block, the assessee is entitled to claim proportionate relief in the units satisfying the extent of the built-up area. 11.2. Similarly Co-ordinate Bench of Hyderabad Tribunal in the case of Vertex Homes (P.) Ltd. (cited supra) held that the assessee, a builder, had not completed construction of all blocks of housing project, within stipulated period, would not deprive assessee from availing of deduction u/s. 80IB(10) in respect of each of completed block on stand alone basis as follows: .8.1 Thus, the principle which emerges from the aforesaid judicial precedents is, even a single building consisting of a number of residential units can be considered to be a housing project by itself, hence, will be eligible for deduction u/s 80IB(10), if it otherwise fulfills the conditions of section 80IB(10). Applying the aforesaid principles to the facts of the present case, it is very much evident that blocks A, B F in respect of which assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than infrastructure development undertakings (Housing project) - Assessment year 2006-07 - Assessee, engaged in construction business, claimed deduction under section 80- 1B(10) - Assessing Officer denied same on ground that project comprise of building having commercial shops and, thus, same could not be treated as housing project eligible for deduction under section 80-1B - High Court in impugned order held that local authorities can approve a project as housing project along with commercial user to extent permitted under DC Rules/Regulations framed by respective local authorities and, once approved, it has to be treated as housing project and, thus, same is to be granted deduction under section 80-1B(10)- Whether, on facts, SLP against said decision was to be dismissed-Held, yes [Para 2] [In favour of assessee) 5. [2013] 29 taxmann.com 149 (Madras) Commissioner of Incometax, Chennai v. Arun Excello Foundations (P.) Ltd. Section 80-IB, read with section 80HHBA, of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings - other than infrastructure development undertakings Housing projects - Assessment years 2003-04 and 2004-05 - Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er disallowed deduction on ground that assessee had violated provisions of section 80- 18(10)(c) by amalgamating two row houses, covered area of which was more than 1500 sq. ft. which is condition stipulated in section 80-1B(10) (c) Whether merely because assessee had violated provisions of section 80-18(10) (c) in respect of two units, deduction under section 80- 1B(10) could not be denied in entirety and assessee was entitled to said deduction in respect of balance units which had been constructed as per conditions laid down in section 80-1B(10)(c)-Held, yes [Para 11] [In favour of assessee] 14.4. Respectfully following the above decisions of the co-ordinate Benches of the Tribunal, the assessee cannot be denied the deduction u/s. 80IB [10] of the Act on the entirety and the assessee is eligible for balance units which has been constructed as per conditions laid down in section 80IB[10][c] of the Act. Thereby this issue is setaside to the file of the Assessing Officer with a direction to grant the deduction after giving opportunity to the assessee. Thus Ground Nos.5 a, b, c raised by the assessee are hereby allowed. 15. Difference in cost of construction of Rs. 1,13,62,41 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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