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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.
Issues Involved:
1. Eligibility for deduction under Section 80-IB(10) of the IT Act. 2. Disallowance under Section 40A(2)(b) regarding excessive remuneration. 3. Disallowance of sundry balances written off. 4. Disallowance under Section 40(a)(ia) for non-deposit of TDS. 5. Disallowance of car expenses. 6. Disallowance of delayed employees' contribution to provident fund. 7. Disallowance under Section 14A for administrative expenses attributable to exempt income. Issue-wise Detailed Analysis: 1. Eligibility for Deduction under Section 80-IB(10): The assessee, a private limited company engaged in building and development, claimed a deduction under Section 80-IB(10) for the profits from the "Evershine Project." The AO rejected the claim, concluding that the assessee was not both a developer and builder, but merely provided incidental services. The CIT(A) overturned this decision, recognizing the assessee's role in preparing the land, contributing to project costs, and sharing sale proceeds, thus qualifying for the deduction. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee undertook significant development activities and statutory obligations, making it eligible for the deduction. 2. Disallowance under Section 40A(2)(b) - Excessive Remuneration: The AO disallowed a portion of the remuneration paid to the managing director, considering it excessive compared to other directors. The CIT(A) found the comparison inappropriate, noting the managing director's superior qualifications and contributions. The Tribunal agreed, stating that the AO should have compared the payment with similar services in the market, not with other directors' remuneration, and upheld the CIT(A)'s deletion of the disallowance. 3. Disallowance of Sundry Balances Written Off: The AO disallowed sundry balances written off due to insufficient documentary evidence. The CIT(A) accepted the assessee's explanation that the amounts were advances to contractors, written off due to non-recovery, including a significant amount related to a bankrupt contractor. The Tribunal upheld the CIT(A)'s decision, noting the factual findings were undisputed. 4. Disallowance under Section 40(a)(ia) - Non-Deposit of TDS: The AO disallowed professional fees and brokerage payments due to late TDS deposit. The CIT(A) found the tax was deposited within the due date specified in Section 139(1). The Tribunal confirmed the CIT(A)'s decision for professional fees but upheld the AO's disallowance for brokerage and commission where TDS was deposited late. 5. Disallowance of Car Expenses: The AO disallowed a portion of car expenses, which the CIT(A) reduced. The Tribunal found no reason to interfere with the CIT(A)'s decision and rejected the ground. 6. Disallowance of Delayed Employees' Contribution to Provident Fund: The AO disallowed the contribution for being deposited a day late. The CIT(A) noted the payment was within the grace period allowed by a CPDC circular. The Tribunal upheld the CIT(A)'s deletion of the disallowance. 7. Disallowance under Section 14A - Administrative Expenses for Exempt Income: The AO disallowed a portion of administrative expenses based on the ratio of exempt income to total income. The CIT(A) reduced the disallowance, applying a percentage of the dividend income. The Tribunal found the AO's method more reasonable and restored the original disallowance. Conclusion: The Tribunal dismissed the appeals for the assessment years 2002-03, 2003-04, and 2004-05, confirming the CIT(A)'s decisions. For the assessment year 2005-06, the Tribunal partly allowed the appeal, upholding the AO's disallowance under Section 14A but confirming the CIT(A)'s decisions on other grounds.
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