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2011 (6) TMI 796 - AT - Income TaxDeduction u/s 80-IB(10) - Must be Developer and Builder both to Claim Deduction - AO, found that Assessee merely provided the other incidental services and transfer of land were only on papers - thus can't be considered as development activity HELD THAT: - Development Activities - The most of the crucial, preliminary and basic developmental activities necessary for the purpose of making the land ready and prepared for construction activity, both legally and factually, were undertaken and put through only by the assessee. It would be unfair to ignore or brush aside these activities by calling them not developmental activities merely because the assessee has claimed deduction in respect of the profits under sec. 80-IB(10) Activities merely Paper transactions - It is also not fair to treat the activities undertaken by the assessee as paper transactions merely to enable it to claim deduction, because many of the activities and responsibilities undertaken by the assessee were statutory in nature such as the clearance under the ULCRA, permissions, approvals and IODs from the BMC etc. These cannot be treated as paper transactions - Decision in favour of Assessee. Escapement of tax by double deduction - We have noticed that the gross sale proceeds are to be divided between the assessee and EBPL in 43:57. Thus the assessee would be getting deduction u/s 80-IB(10) in respect of the profits derived by it from the housing project and EBPL will be similarly claiming deduction in respect of its share of the profits. Both of them combined do not exceed 100 per cent of the profits from the housing project. Thus, there is also no double deduction. Disallowance u/s 40A(2)(b) - Assessee paid its managing director remuneration, on account of salary, ex gratia and medical reimbursement which was higher than other directors - AO found it unreasonable - Disallowed the excess payment HELD THAT:- As CIT(A), rightly pointed out that managing director in question is a chartered accountant had quality experience. Other two directors are not so qualified and also did not take part in the business in the same way in which that managing director took. Also, the AO ought to have compared the payment made managing director with payments made for similar services by other companies. Comparison of the payment with the payments made to the other two directors is not justified because in every organization there may be differential payments depending upon the qualification, experience, etc. of each employee. The AO has not brought on record anything to show that the payment to managing director is excessive or unreasonable. Thus, CIT(A) was right in deleting the disallowance. His decision is confirmed - Decision in favour of Assessee. Disallowance of Sundry Balance written off in P&L A/c - While approving the balances pertained to payments made to contractors - one payment was made to a person who was declared bankrupt HELD THAT:- CIT(A) rightly accepted that the amounts have been paid by the assessee as advances to contractors for execution of various projects. If the work done by them and certified is less than the advances paid to them, there is an outstanding balance in their account which is to be written off as a loss. The assessee wrote off the amounts outstanding against the contractors because there was no scope of getting back the amount. In the case of one person, he had become bankrupt. Therefore, assessee's claim is upheld - Decision in favour of Assessee. Disallowance u/s 40(a)(ia) - The AO, disallowed the professional fees and brokerage and commission as the tax deducted was not deposited by the assessee with the Government before the due dates HELD THAT:- In the present case the assessee has admittedly deducted the tax at source at the time of the payment. Professional fee - According to the details set out in the assessment order, the tax was deducted from the professional fees. The tax was deposited within the due date. Therefore, there is no justification for the disallowance of the professional fees - Decision in Favour of Assessee Brokerage and Commission - The tax deducted in Feb, 2005, was actually deposited after due date. Therefore, the disallowance made by the AO should be upheld. The AO is directed to ascertain the relevant amount and disallow the same. However, with regard to the tax deducted in March, 2005, the same has been deposited within the due date as per sec. 139(1). Therefore, cannot be disallowed. The said disallowance is held to be rightly deleted - Decision partly in favour of Assessee. Disallowance of the Delayed Employees' Contribution to Provident Fund - Assessee paid amount on the next day of due date - HELD THAT:- The payment is within the grace period allowed as per the circular issued by CPDC. It gives a grace period of five days. The assessee has deposited the contribution within the grace period. Accordingly the decision of the CIT(A) to delete the disallowance is upheld. Disallowance u/s 14A - Administrative Expenses attributable to the Exempt Income - AO disallowed 2.49 percent of Administrative expenses - CIT(A), held, a disallowance of 3 per cent of the dividend income can be held to be a proper estimate of administrative expenses attributable to the earning of the dividend income HELD THAT:- On a careful consideration of the facts, we are of the view that the disallowance sustained by the CIT(A) based on a percentage of the dividend income seems less reasonable than the method adopted by the AO. The AO has adopted the same percentage which the dividend income bears to the total income of the assessee as per the P&L a/c. This seems to be a more reasonable approach. We accordingly reverse the decision of the CIT(A) and restore the disallowance made by the AO.
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