2016 (6) TMI 454 - AT - Income Tax

Validity of the proportionate deduction to the assessee s a builder and developer housing project to meet the stipulated criteria of the maximum built-up area of 1000 sq. ft. per section 80-IB(10)(c) - Held that - Proportionate deduction on the profits of a housing project which otherwise satisfies the condition of section 80-IB(10) i.e. as referable to residential units having the maximum built-up area as prescribed per clause (c) thereof would qualify for deduction on a proportionate basis i.e. to the exclusion of the other residential units. Addition u/s. 69C - Held that - whether the addition is of unexplained expenditure deemed as income u/s. 69C or would appropriately be disallowable as an expenditure u/s. 37(1)? - Held that - We are at loss to understand as to how and on what basis the assessee having claimed the expenditure through its books of account so that the source is explained with reference thereto the Revenue regards it as unexplained expenditure and consequently deems it as income u/s. 69-C. We accordingly agree with the ld. CIT(A) that even if regarded as bogus purchase the same would stand to be disallowed u/s. 37(1) leading to an increase in the assessable profits of the eligible unit. We may here also clarify that had it not been so the addition of income u/s. 69C i.e. on account of expenditure not explained as to its source the same would not be liable to be regarded as the profit of the eligible unit. We have already held that the addition as made has been rightly regarded by the ld. CIT(A) as a disallowance u/s. 37(1). We therefore accepting the assessee s plea that the entire amount added be regarded as a disallowance approve of the allowance of the assessee s claim for deduction u/s.80-IB(10)(a) with reference to the increased amount and directed for the computation of deduction u/s.80-IB(10) at the amount so determined.

Summary

Issues involved:
1. Validity of proportionate deduction for a housing project under section 80-IB(10)(c).
2. Addition under section 69C for bogus purchases.

Issue 1 - Validity of proportionate deduction for a housing project under section 80-IB(10)(c):
The appeal by the Revenue challenged the Commissioner of Income Tax (Appeals)'s order partly allowing the Assessee's appeal regarding assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2010-11. The main issue revolved around the validity of the proportionate deduction for the Assessee's housing project, 'Prathmesh Heritage', at Mira Road (E), Thane, falling within 25 km of Mumbai. The Revenue argued for a literal interpretation of the statute, emphasizing the need for the entire project to meet the criteria for deduction under section 80-IB(10). The Assessee, however, relied on tribunal decisions supporting a proportionate deduction based on the built-up area criteria for each residential unit. The Tribunal referred to various judgments, including the decisions in Viswas Promoters (P.) Ltd. and Brahma Associates, emphasizing that the deduction applies to the entire project approved by the local authority. The Tribunal concluded that the condition regarding the built-up area specified in clause (c) of section 80-IB(10) applies to each residential unit, not the project as a whole. Therefore, the Assessee was entitled to a proportionate deduction for residential units meeting the criteria, as upheld by the Tribunal.

Issue 2 - Addition under section 69C for bogus purchases:
The Revenue also raised an issue regarding the addition under section 69C for alleged bogus purchases. The Tribunal noted that the Commissioner of Income Tax (Appeals) had disallowed 15% of the purchases, limiting the addition to income. The Tribunal considered whether the addition constituted unexplained expenditure under section 69C or was disallowable as an expenditure under section 37(1). It was crucial to determine if the disallowance would impact the assessable profits of the eligible unit for claiming deductions under section 80-IB(10). The Tribunal agreed with the Commissioner of Income Tax (Appeals) that even if the purchases were considered bogus, they should be disallowed under section 37(1) rather than treated as unexplained income under section 69C. The Tribunal further discussed the Assessee's alternate contention regarding deduction under section 80-IB(10) on the increased profit due to the disallowed purchases. Despite the Assessee not appealing on this issue, the Tribunal allowed the deduction under section 80-IB(10) based on the disallowed amount, considering it a consequential plea. The Tribunal dismissed the Revenue's appeal based on the above considerations.

In conclusion, the Tribunal upheld the proportionate deduction for the housing project under section 80-IB(10)(c) and allowed the deduction under section 80-IB(10) for the increased profit due to disallowed purchases. The Tribunal's decision favored the Assessee on both issues, leading to the dismissal of the Revenue's appeal.