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TMI Blog2020 (12) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... . 24,00,000/- and not accepting the actual profits earned to the tune of Rs. 39,51,627/- as being the profit earned by the appellant from its project eligible for deduction u/s 80IB of the Act. (3).It is, therefore, prayed that the ld. A.O. be directed to allow the claim of the appellant for deduction u/s. 80IB of the Act to the tune of Rs. 39,51,627/- and also to accept the quantum of profits of Rs. 39,51,627/- as being earned by the appellant from its project eligible for deduction u/s.80IB of the Act. (4).The Appellant prays for granting such other relief as may be deemed just and proper by your Honours considering the factual and legal aspects of the case of the appellant. (5).The Appellant craves leave to add, amend, alter, delete, substitute or modify any or all of the Grounds of Grounds of Appeal." 2.Additional grounds of appeal raised by the assessee are as follows: "1.The appellant submits that on the facts and circumstances of the case and as per law, there was no justification for disturbing the income earned from project for the purpose of grant of relief u/s.80IB(10) of the Act. 2.The appellant submits that sub-section (5), and (7) to (12) of section 80IA as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentious in nature, as explained above. However, to meet the end of justice, we confine ourselves to the core of the controversy and solitary grievance of the assessee. With this background, we have identified the solitary grievance of the assessee and thus we summarize and concise the ground raised by the assessee as follows: "The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the rejection of the claim of the appellant for the deduction u/s 80IB of the Act to the tune of Rs. 15,62,791/-." 4. The facts of the issue under consideration, which can be stated quite shortly, are as follows: The assessee principally derives income from building and construction of housing project. In the instant assessment year, the assessee has claimed deduction under section 80IB(10) of the I.T.Act, 1961. The assessee has furnished relevant details such as books of accounts, audit report, Form No.10CCB and other information, as required, before the assessing officer. The assessing officer had gone through the submissions, return of income, books of accounts and other documents furnished by the assessee, and held that assessee has not fulfilled the condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he report of the audit of the accounts of an assessee, which is required to be furnished under sub-section (7) of section 80-IA or sub-section (7) of section 80-I, except in the cases of multiplex theatres as defined in sub-section (7A) of section 80-IB or convention centres as defined in sub-section (7B) of section 80-IB 57 [or hospitals in rural areas as defined in sub-section (11B) of section 80-IB], shall be in Form No. 10CCB. (2) A separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction under section 80-I or 80-IA or 80-IB 57[or 80-IC] and shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. ......... (4) In any other case, the from shall be accompanied by a copy of the agreement, approval or permission, as the case may be, to carry on the activity signed or issued by the Central Government or the State Government or the local authority for carrying on the eligible business.]...." Hence, it is clear that the assessee has failed to get it books audited as per Form No.10CCB. Any future filing of such Form would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that may be allowable is worked out as under: A.Y. Rate of Profit in Vipul Park Bunglow Project Average 'Ordinary ' Profit A.Y. 2007-08 23.39% 16.02% A.Y. 2008-09 8.64% A.Y. 2009-10 62.30% 62.30% 11.There has been adequate indications and evidence that the assessee concern has transferred bunglows from the claimed eligible business at inflated prices with a view to increasing the profits of the business in the year of transfer and has designed to derive high deduction u/s. 80IB(10). The intention of the Legislature as per section 80IA(9), has been to disallow any such move, for it requires determination of profits of the eligible business on the basis of the transfer being made at market value only which result in 'ordinary' and 'normal' profits of the concern. 12.Hence, in light of the facts that the profit eligible for deduction u/section 80IB(10) is liable to be determined at 16.02% as per the average profitability of preceding two years and the excess profit as shown in the 80IB(10) project [62.30% - 16.02% = 46.28%] stands disallowed being excessive and unreasonable and the reasonable profit of 16.02% as shown for preceding years may be adopted as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para. 7.However, on (II)nd issue- profit estimation, the Ld.CIT(A) denied the deduction u/s 80IB(10) at Rs. 15,62,791/-, that is, the disallowance to the extent of Rs. 15,62,791/- was sustained. On (II)nd issue, the findings of the ld CIT(A) are as follows: : "Decision: 5.3 I have considered the assessment order and the submissions of the appellant The appellant during the year has shown of profit of 62.30 % from the Bungalo Project which is eligible for 80IB deduction. The profit in the preceding two years were 8.64% and 23.39 % respectively. The appellant had two more projects in the name New Bungalow project and Land Project. The expenditure in New Bungalow project during the year, shown as work in progress is Rs. 86,40,026/. There is no expenditure in construction shown in the eligible project. The appellant has computed cost of plot so as under: The cost of Area sold out at Vipul Park-Bungalow Project Current Year (Rs.) Previous Year (Rs.) (a) Total cost upto 31st March,2009 70,97,552 1,49,07,456 (b) Estimated cost to complete the Project to be incurred after 31.03.2009 - - (c) Total cost of the Project [(a) + (b)] 70,97,552 1,49, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gards arguments of appellant that the Assessing Officer cannot estimate the profit without rejecting the books of accounts the argument is not tenable as section 80 IA(10) itself empowers the Assessing Officer to take the amount of profits as may be reasonable deemed to have been derived. The Assessing Officer needs to reject the book of account for estimating the profit to be included in total income not in the case of computing the profit and gain of eligible business for the purpose of deduction under section 80IB, which has been expressly provided in the statute. The case laws relies, therefore, are also not relevant for the purpose of estimation u/s 80IA(10)/80IB(10). Estimation of Profit: The Assessing Officer for the purpose of computing eligible profit u/s.80IA has taken the average profit of A.Ys. 2007-08 & 2008-09 at (23.39% + 8.64%) divided by 2 which comes to 16.02%. The bungalow project which was started in A.Y.2007-08 was completed by the end of 31st March,2008. The appellant has shown profit of 23.39% in A.Y.2007-08, 8.64% in A.Y.2008-09, 62.30% in A.Y.2009-10 and 59.41% in A.Y.2010-11. Therefore, the average profit of entire project as per the appellant comes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld.CIT(A) and other materials brought on record. Before us, ld.Counsel for the assessee has just reiterated the submissions made before the ld.CIT(A).On the other hand, the Learned Departmental Representative (DR) for the Revenue has reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity. The main question before us is that whether ld Assessing officer and ld CIT(A) are right in estimating the average profit for the purpose of partly denial of deduction under section 80IB(10) of the Act? The Assessing officer was of the view that assessee has shown excess profit to claim more deduction under section 80IB(10) of the Act, therefore, he proceeded to estimate average profit of the assessee without rejecting books of accounts of the assessee. Learned Counsel submits before us that only the unit/quantity contained in the opening stock has been sold during the assessment year under consideration, therefore there was no need to estimate the profit, as the veracity of the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject @46.28% (in terms of percentage) and worked out the unreasonable profit in terms of quantum at Rs. 28,76,770/-. The Assessing Officer has done this over and above the entire disallowance of deduction u/s.80IB(10) at Rs. 39,69,791/-. The disallowance of unreasonable profit at Rs. 28,76,770/- has not been added to the total income of the assessee, as it was computed by Assessing Officer, without prejudice to entire disallowance of deduction u/s.80IB(10) at Rs. 39,62,791/-. To estimate the average profit, the opening stock plays an important role in assessee`s case, as the profit earned by the assessee is because of selling the opening stock, as explained above. We note that Assessing officer worked out the unreasonable profit in terms of quantum at Rs. 28,76,770/-, without pointing out any defect in the opening stock, which was sold during the year, hence estimation of average profit by the Assessing Officer without having noticed any defect in the opening stock, is not justifiable. 11.On appeal, Ld.CIT(A) upheld the action of the Assessing Officer, ( so far estimation of average profit is concerned), observing as follows:- "5.3...... As regards arguments of appellant that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's Association v. Devkala Consultancy Service AIR 2004 SC 2615). Similar view has been expressed in the Orissa Rural Housing Development Corpn. Ltd, 343 ITR 316(Orissa). Hence, average estimated profit computed by the Assessing Officer is bad in law. 12.It may also be noted that Ld.CIT(A) has further re-estimate the average profit of the assessee @ of 38.4%, as against the average profit @16.02% estimated by Assessing Officer. The Assessing Officer took two years profit i.e. 2007-08 and 2008-09 (profit @23.39% and @8.64% respectively) to find out the average profit @16.02% [(23.39% + 8.64%)/2]. However, Ld.CIT(A) took four years profits, i.e. A.Y. 2007-08 @23.39%, A.Y. 2008-09 @ 8.64% F.Y. 209-10 @62.30% and A.Y. 2010-11 @ 59.41% to find out the average profit, which comes at 38.40%. This way, the average profit computed by the assessing officer was rejected by ld CIT(A) and then ld CIT(A) has re-estimated the average profit of the assessee. Thus, for the sake of argument, it can be said that the Department itself is not certain in estimating the average profit of the assessee, as the average profit computed by the assessing officer has been overruled by ld CIT(A). Normally, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Accordingly, this ground of appeal is allowed subject to decision in the next para." Thus, it is abundantly clear from the order of Ld.CIT(A) that assessee filed copy of form No.10CCB. The assessee also filed audit report in form no.3CD and claimed deduction u/s.80IB of Rs. 39,51,627/- in respect of development and building of project, therefore, Ld.CIT(A) held that since assessee had fulfilled the requirement of section 80IB of the Act, hence, the assessee is entitled for deduction u/s.80IB of the Act and therefore Ld.CIT(A) deleted the disallowance of deduction u/s.80IB of the Act at Rs. 39,62,791/-. However, at the same time, we note that Ld.CIT(A) made self-contradictory statement and restricted the deduction under section 80IB of the Act at Rs. 24,00,000/- (38.40% at Rs. 62,50,000/-) by re-computing estimated average profit @38.40%, as against average profit computed by the Assessing Officer @16.02%. Now the question before us is that whether Ld.CIT(A) can re-estimate average profit @ 38.40%? 14.We note that the Assessing Officer has attempted to use the proviso of subsection 8 of section 80IA of the Act, which reads as follows: "(8) Where any goods [or services) held f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects the Assessing Officer to compute such profits and gains on such reasonable basis as the Assessing Officer may think fit. Therefore, sub-section 8 section 80IA talks about determination of market value of such goods and services which do not apply to the assessee's case under consideration. Thus, we note that the Assessing Officer has incorrectly invoked the power mentioned in section 80IA(8) to restrict the relief of the assessee under section 80IB(10) of the Act. There is no provision under section 80IB(10) that empowers the Assessing Officer to ascertain market value of goods or services on transfer of eligible business. Therefore, to use the powers given in section 80IA(8) to restrict the relief given to assessee by section 80IB(10) is not acceptable, as the object and purpose of both sections, viz section 80IA(8) and section 80IB(10) is different. Therefore, the Assessing Officer has wrongly exercised his power given under section 80IA(8) for restricting the benefit given to assessee under section 80IB(10) of the Act, hence, we do not agree with the action of the Assessing Officer in estimating the average profit of the assessee. 15.Conclusion: We note that neither the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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