TMI Blog2015 (2) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... be held that charging of ₹ 300 per sft payable by M/s. Sri Sai Builders is very low when compared to the cost of construction at ₹ 849.42 per sft. Further in this project as a whole a gross profit of 25% and net profit of 19% was earned and had been declared. These profits were computed after absorbing the entire loss incurred on construction receipts from M/s. Sri Sai Builders. The person running the business has viewed the entire project instead of taking construction contract of a single stand alone transaction and that is why at the end of the project, the assessee firm made the net profit about 19%. In these circumstances, we confirm the order of the CIT(A) - Decided against revenue. Disallowance of deduction u/s. 80IB(10) - CIT(A) allowed the claim - Held that:- No infirmity in the order of the CIT(A) as the provisions of section 80IB(10) inter alia provide that 100% of the profit derived by an undertaking developing and building housing projects approved by a local authority shall be allowed as deduction in computing the total income for tax purpose. A plain reading of this provision requires that the profits are derived from an 'approved housing project& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sai Builders at the low rate of ₹ 300 per sft when the cost of construction was ₹ 849.42 per sft and hence it was not a genuine business arrangement but only a device for minimising the tax liability of the assessee. The AO made the following calculation: Total cost of construction ₹ 8,13,53,031 Cost of construction relating to share of M/s. Sai Builders ₹ 2,27,43,220 Payment to assessee by M/s. Sai Builders @ ₹ 300 per sft ₹ 80,32,500 Loss ₹ 1,47,10,720 4. The AO relied on the judgement of Supreme Court in the case of Lachminarayan Madanlal vs. CIT (86 ITR 439) (SC). The AO held that the expenditure charged to M/s. Sai Builders should be the same as the expenditure charged to any other customer i.e., at arms' length price and treated the difference of ₹ 1,47,10,720 as suppression of receipts. Aggrieved, the assessee preferred an appeal before the CIT(A). 5. Before the CIT(A), the AR submitted that there was no evidence of suppression of receipts over and above what was recorded in the books and that the Assessing Officer's conclusions were based on presumptions. The AR further submitted that the rate of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, that the agreement of the assessee with M/s Sai Builders is not genuine or that there existed some commonality of partners or their family members or some close connection between the two parties or that the assessee had been paid any amount over and above what had been recorded in the books of the assessee. He pointed out that merely because the transaction has resulted in a loss to the assessee cannot be a ground to disallow that loss. Under the circumstances, the addition of the sum of ₹ 1,47,10,720/- to the income of the assessee was directed to be deleted. Aggrieved the Department is in appeal before us. 8. The learned DR relied on the order of the Assessing Officer and submitted that the cost incurred for construction is taken from the P L of the assessee. Hence the economy of cost that was referred in the assessee's reply was given due cognizance while taking the stand. The fact that M/s Sai Builder is owner of half the land on which the whole project was constructed is also considered and accordingly only the cost incurred for construction is taken as suppressed receipts form M/s Sai Builders without including any profit element. Vide letter dated 22/12/2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Department to prove that the agreement of the assessee with M/s. Sri Sai Builders is not genuine. The Department has also not been able to prove that the Joint Development Agreement and Agreement of Construction are between close relatives and we find that both the parties are independent. The rate of ₹ 300 per sft towards construction cost had been agreed upon after due deliberations between the parties in the year 2003-04 at the time of preparing and finalising the building plan at the then prevailing fair market rate for the cost of construction. The loss could have arisen due to escalation in the construction cost subsequently especially between the years 2006 and 2009 and, therefore, in these circumstances it cannot be held that charging of ₹ 300 per sft payable by M/s. Sri Sai Builders is very low when compared to the cost of construction at ₹ 849.42 per sft. Further in this project as a whole a gross profit of 25% and net profit of 19% was earned and had been declared. These profits were computed after absorbing the entire loss incurred on construction receipts from M/s. Sri Sai Builders. The person running the business has viewed the entire project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggrieved, the Revenue is in appeal before us. 16. We find no infirmity in the order of the CIT(A) as the provisions of section 80IB(10) inter alia provide that 100% of the profit derived by an undertaking developing and building housing projects approved by a local authority shall be allowed as deduction in computing the total income for tax purpose. A plain reading of this provision requires that the profits are derived from an 'approved housing project' and such approval should be by a local authority. It does not provide that the approval of the local authority should only be in the name of the undertaking proposing to develop the housing project. As observed by the CIT(A) when the land on which housing project has been approved is sold the approval still continues to apply. Subsequent ratification or regularisation are required only if there are deviations from the approved plan. Hence the claim of deduction u/s. 80IB(10) of the Act cannot be rejected on the ground that sanction from the local authority for the housing project is standing in the name of M/s. Sai Developers. Hence the ground raised by the Revenue on this issue is rejected. 17. In the result, Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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