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TMI Blog2013 (6) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee under Section 80-IB(10) of the Act after re-working the element of indirect expenses, interest and depreciation in respect to two projects namely, Nyati Meadows Nyati Garden . 2. In brief, the facts are that the appellant is a company incorporated under the provisions of the Companies Act, 1956 and is inter-alia engaged in the business of building, construction and real estate development and dealing in lands. For the assessment year 2006-07 it filed a return of income declaring total income at Rs. 9,16,86,210/-, wherein deduction under Section 80-IB(10) of the Act was claimed in relation to two projects namely, Nyati Meadows Rs. 4,90,53,069/- and Nyati Garden Rs. 43,98,779/- out of the several projects being undertaken by the assessee in and around Pune. The Assessing Officer completed the assessment under Section 143(3) of the Act determining the total income at Rs. 9,20,86,210/- after making an addition of Rs. 4,00,000/- on account of unverifiable personal element included in expenses. Ostensibly, assessee s claim for deduction under Section 80-IB(10) of the Act as made in the return of income and accompanied by the prescribed audit report in Form No. 10CCB, at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been formed by splitting up or re-construction of a business already in existence. According to the Commissioner, the project Nyati Meadows undertaken at Survey Nos. 10/1 and 9/2, Wadgaon Sheri, Pune was earlier started by a partnership firm namely, M/s Oasis Developers constituted by three partners in 1998 and assessee company was admitted as a partner at a later stage that in January 2000. The said firm was subsequently dissolved in October, 2000 and all the assets and liabilities of the firm were taken over by the assessee company. The assessee company further acquired the adjoining plots of land and amalgamated the same and the amalgamated plot was subdivided into three plots namely, A, B C. On this basis, the charge made by the Commissioner is that the industrial undertaking . i.e. Nyati Meadows project was started by the splitting up/reconstruction of a business already in existence namely, M/s Oasis Developers, which is violative of clause (i) of Sub-section (2) of Section 80-IB of the Act. As per the Commissioner, the aforesaid violation disentitles the assessee from the deduction under Section 80-IB(10) of the Act in relation to the Nyati Meadows , project. 6. The stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and building housing project subject to fulfillment of the conditions prescribed in Section 80-IB(10) of the Act. In-fact, it is seen that the decision of the Parth Construction (supra) was subsequently followed by another Mumbai Bench of the Tribunal in the case of Shreejee Ratna Corp. vs. ITO (ITA No. 3106/Mum./2007 dated 10.02.2009). In view of the aforesaid, it is, therefore, not possible to uphold the view taken by the Commissioner that an assessee claiming deduction under Sub-section (10) of Section 80-IB is also governed by Sub-section (2) of Section 80-IB of the Act. Even, otherwise, in our considered opinion, for claiming deduction under Section 80-IB(10) in relation to development of a housing project an assessee is not required to fulfill the conditions prescribed in Sub-section (2) of Section 80-IB of the Act. We say so for the reason that in the very scheme of Section 80-IB, the aforesaid proposition is evident. Section 80-IB has several sub-sections which specifically require the assessee claiming deduction thereunder that it should not be formed by re-construction or splitting up of existing business and in our considered opinion, if Sub-section (2) and the conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuted a registered power of attorney in favour of the assessee. The assessee made substantial payments as consideration to the said owners and undertook the entire obligations of developing and constructing the housing project. The assessee acquired further adjoining plots and amalgamated the same and there was further sub-division into smaller plots. The applications for layout sanction and building plan sanction was also done by the assessee through its Architect, Shri Shirish Dasnurkar. It has also been pointed out that the assessee obtained the first Commencement Certificates from the Pune Municipal Corporation (PMC) in December, 2000 which was much after the dissolution of the firm and it was the assessee who employed Architects, and invested its capital for undertaking construction and development of the project. Factually, according to the learned counsel, assessee virtually undertook a project which was not in existence at the time of the erstwhile firm. 10. The learned CIT(DR) has not controverted factual matrix so brought out by the assessee, copies of the relevant material have also been placed on record. In the Paper Book filed, assessee has furnished the registered agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not in the name of the assessee. The Hon ble High Court did not approve the objection of the Revenue and held that the assessee was eligible for benefit under Section 80-IB(10) of the Act even where the title of the lands had not passed on to the assessee or the development permissions were obtained in the name of original land owners and not of the assessee. Similarly, the Mumbai Bench of the Tribunal in the case of Essem Capital Markets Limited (supra) noted that even where the title of the property was not in the name of the assessee and the commencement certificate was also in name of original owner, having regard to the business realities, the assessee cannot be deprived of deduction under Section 80-IB(10) of the Act inasmuch as it was the assessee who had actually developed and constructed the housing project. 15. In the present case, the learned counsel has taken us through the Paper Book wherein is placed the Commencement Certificate and also the Completion Certificate issued by the local authority mainly at pages 85 to 93 of the Paper Book. A perusal of the aforesaid shows that the approvals/completion certificates are in the name of Managing Director of the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,25,230/- has been allocated has resulted in excess claim of deduction under Section 80-IB(10) of the Act. During the year under consideration, assessee incurred total indirect administrative expenses to the tune of Rs. 2,30,25,230/- and Rs. 23,20,253/- each was allocated to the two projects namely, Nyati Meadows Nyati Garden to calculate their respective profits eligible for benefit of Section 80-IB(10) of the Act. The assessee contended that there was total 14 projects on hand, out of which the administrative expenses have been allocated on 10 projects at 10% to each project instead of 14 projects. The assessee explained that the four projects were such, which were either completed before the commencement of the year or the same were not actively pursued during the year, and therefore, they were not considered for allocation of the indirect administrative expenses. Therefore, 10% of the expenses on each of the 10 projects was allocated to compute the profitability of respective projects The Commissioner in his order has directed the Assessing Officer to allocate the indirect expenses in the ratio of the sales of the projects and thereby re-compute the deduction under Section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer placed at pages 71 to 78 of the Paper Book, that there were 14 projects in hand out of which 10 projects were actively pursued during the year and only 2 projects were eligible for 80-IB(10) benefit. The assessee allocated the indirect administrative expenses equally i.e. 10% on the 10 actively pursued projects whether or not any sales were effected by the projects. The Commissioner has sought to differ with the aforesaid allocation and instead according to him the indirect expenses should be allocated on the basis of sales effected by the respective projects. The learned counsel, at the time of hearing referred to page 305 of the Paper Book wherein is placed balance-sheet for preceding year 31.03.2001 where in relation to a project in which no sale was effected, the assessee allocated a portion of indirect expenditure, based on the same methodology. The aforesaid aspect has been sought to be pointed out to justify that assessee has carried out the above said allocation uniformly and not an adhoc basis. Without going into the merits of the rival basis of allocation canvassed, in our view, what the Commissioner has attempted is only substituting his own judgemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make out its case. Considering the aforesaid, we find no error on the part of the Commissioner in examining the same in the impugned proceedings. 22. With regard to the interest expenditure, the Commissioner has directed the Assessing Officer to allocate the interest expenditure on the basis of the loans directly utilized for the respective projects and for interest on other loans raised for general purposes, the Commissioner directed that the interest thereof be allocated amongst the various projects on the basis of sales. 23. In our considered opinion, after considering the rival stands, the directions of the Commissioner require modification. No doubt the Commissioner is correct in directing the Assessing Officer to examine the eligible profits for 80-IB(10) projects by considering the relatable interest expenditure. The assessee has incurred interest expenditure to the tune of Rs. 1,04,73,519/- and no expenditure was allocated to the 80-IB(10) projects. The case of the assessee is that it had also received interest income to the tune of Rs. 1,25,30,316/- and therefore no expenditure remained to be allocated to the respective projects. The assessee also pointed out before the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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