TMI Blog2012 (11) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... project in the A.Y. 2006-07 only, but declared the profit in the A.Y. 2007-08 – Held that:- Since the Completion Certificate has been issued to the assessee in the F.Y. 2006-07 relevant to the A.Y. 2007-08. The assessee is consistently following a particular method of accounting recognizing the profit which has not been rejected in past. We further find that the A.O has not rejected the method of accounting followed by the assessee in the A.Y. 2006-07. We, therefore, hold that there is no justification to bring to tax the part of profit from the housing project declared by the assessee in the A.Y. 2007-08. Accordingly, delete the addition. Issue decides in favour of assessee Disallowance u/s 40(a)(ia) for non-deduction of tax at source - Assessee contended that the payments were not made to contractor but to the various workers/labourers - A.O argued that the payments were made to the contractors, not the labourers/workers – Held that:- As concluded from the facts that the persons to whom the payments are made are the labour contractors and assessee was bound to deduct the tax at source from the payments made to the labour contractors as provided u/s. 194C. Following the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78 and revenue has filed cross appeal in the A.Y. 2007-08. The issues in both the A.Ys. are inter-linked and hence, these three appeals are disposed off by this common order for the sake of convenience. 2. We first take assessee s appeal for the A.Y. 2006-07 being ITA No. 1390/PN/2010 and the first ground reads as under : 1. On facts circumstances prevailing in the case as per provisions of law, it be held that the authorities below have erred in taxing the income of the eligible project Devi Orchid covered under provisions of Sec. 80IB (10) in the year under consideration and denying the claim of deduction u/s. 80IB(10) of the Act pertaining to such income. It be held that the income is eligible for deduction u/s. 80IB(10) of the Act. It further be held that the income is not assessable in the AY: 2006-07. Just and proper relief be granted to the appellant on this score. 3. The facts reveal from the record are as under. The assessee is a builder and developer. The A.O has observed that the assessee was constructing and developing various projects like Sacred Heart Tower -1, Sacred Heart Tower-2, Hill View Residency, Devi Link-2, Devi Orchid Empress Court and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Regulation. 5. So far as the area remained for hospital to the extent of 976.33 Sq.mts. is concerned, which was for the maternity hospital for the PMC. The assessee contended that as per the draft plan, only some portion of FSI available for construction was reserved by PMC for maternity hospital and not the land. The assessee also distinguished the terms FSI and the land and submitted that the assessee has been compensated by use of the additional FSI. The assessee also contended that the area of the open space and the D.P. road cannot be excluded and the total area when available with the assessee is more than 1 acre. The A.O. was not convinced with the explanation of the assessee. In his opinion, the housing project and the hospital project; those were two distinct separate projects and maternity hospital was not the part of the housing project. As observed by the A.O, it is seen that the approval for the construction of the residential units is given with the stipulation that he should construct the hospital and hand over the same to PMC free of cost for the purpose of use as Maternity Hospital. The A.O, therefore, rejected the claim of the assessee u/s. 80 IB (10) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the net area of the plot should be considered. He vehemently argued that so far as the maternity hospital is concerned, it is as per the condition put by the sanctioning authority for constructing the building and handing over the same to the PMC. He submits that assuming for the sake of argument, even if the area of construction below the maternity hospital to the extent of 494 Sq. mts. is excluded from the total area of the plot i.e. 4875 Sq. Mts., then also the plot is more than 1 acre. He pleaded for allowing the deduction u/s. 80 IB (10) to the assessee. Per contra, the Ld. D.R. supported the orders of the authorities below and submitted that the area of the plot is to be considered which is available for the construction with the assessee. He submits that the area reserved for the hospital cannot be part of the plot of the land on which the housing project has been undertaken and the same has to be excluded. 8. In our opinion, the facts relevant to the issue are in narrow compass. We find that there is no dispute that the gross area of the plot is 84875 Sq.Mts. As per the D.C. Rules, the assessee was required to give area for the D.P. road, as well as for open space as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sales recorded by the assessee. Admittedly, the Completion Certificate has been issued to the assessee in the F.Y. 2006-07 relevant to the A.Y. 2007-08. Moreover, the A.O has not at all considered what method of accounting the assessee was following, whether it is project completion or percentage completion. We find that even as per the Instructions issued by the CBDT being Instruction No. 4/2009 dated 30.6.2009, the option is given to the assessee to claim the deduction if he is following the project completion method. The said instruction is mis-interpreted by the Ld CIT(A). The said instruction suggest two situations - (1) the option is with the assessee to claim deduction as per the completion of the project if he desires or after completion of the project and (2) in case the project is not completed within the time limit specified, then the deduction can be withdrawn. We fail to understand the logic of the A.O for bringing to tax the profits declared by the assessee from A.Y. 2007-08 to A.Y. 2006-07. In our opinion, such action of the A.O cannot be sustained. As per the copy of the Completion Certificate on record dated 28.2.2007, (page No. 32 of the compilation) the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Rs. 65,65,880/- by evoking the provision of Sec. 40(a)(ia) of the Act. The A.O. allowed the expenses to the extent of Rs. 4,57,105/-. The assessee challenged the disallowance before the Ld CIT(A) but without success. Now the assessee is in appeal before us. 12. We have heard the rival submissions of the parties and perused the record. Though the Ld Counsel submits that payments were made to the workers, then the question comes why the payments are made to a particular person. It appears that the persons to whom the payments are made are the labour contractors and assessee was bound to deduct the tax at source from the payments made to the labour contractors as provided u/s. 194C of the Act. Alternatively, the Ld. Counsel submits that disallowance can be restricted to the extent the payments outstanding as on the 31st March of the respective Financial Year. The Ld. Counsel has also relied on the decision of the Hon ble Special Bench of ITAT, Visakhapatanam in the case of Merilyn Shipping and Transport Vs. ACIT, , Visakhapatanam, being ITA No. 477/Vizag/2008 dated 29 March 2012. We find force in the argument of the Ld. Counsel on alternate plea. We, accordingly, restore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly part and parcel of the Windmill project on which depreciation at the rate of 80% is allowable. In the present case, the A.O has disallowed on electrical yard fencing and road for movement of the crane, but allowed the depreciation on Windmill foundation and transformer plinth. In our opinion, road constructed for movement of the crane cannot be said to be the part of the windmill but the electrical yard fencing is a part of the windmill. We accordingly direct the A.O to allow the depreciation at the rate of 80% on the electrical yard fencing. Accordingly, Ground No. 3 is partly allowed. 16. Now take up the assessee s appeal for A.Y. 2007-08, being ITA NO. 1391/pn/2010. 17. Ground No. 1 reads as under : 1. On facts circumstances prevailing in the case as per provisions of law, it be held that the authorities below have erred in denying the claim of deduction u/s. 80IB(10) of the Act on income of the eligible project determined at Rs.2,34,76,838/-. It be held that the income is eligible for deduction u/s. 80IB(10) of the Act. Just and proper relief be granted to the appellant on this score. 18. We have heard the parties. In this year, on protective basis, the A.O b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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