TMI Blog2020 (12) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... which is sold by the assessee during the assessment year under consideration. 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 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. As provisions of sub-section 10 of section 80IA should not be used for the purpose of sub-section 10 section 80IB of the Act, unless expressly provided by the statute. The view taken by the Ld.CIT(A) to the effect that section 80IA(10) itself empowers the Assessing Officer to take the amount of profit as may be reasonable deemed to have been derived is not acceptable, as the purpose and object of both the sections are different, as explained above. AO has held that assessee is not eligible to claim deduction u/s 80IB(10) and therefore has disallowed the entire deduction claimed by assessee u/s.80IB(10) at ₹ 39,62,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.Y. 2009-10. Grievances raised by the assessee which are inter-connected and will be taken up together, are as follows. (1).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 ₹ 15,62,791/-. (2).The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in determining the quantum of profits from the project of the appellant at ₹ 24,00,000/- and not accepting the actual profits earned to the tune of ₹ 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 ₹ 39,51,627/- and also to accept the quantum of profits of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mentioned in point no.(i) above. However, the ld. CIT(A) has re-estimated average profit and sustained the addition of ₹ 15,62,791/-, ( out of the addition made by Assessing officer at ₹ 28,76,770/-, as mentioned in point no.(ii) above . Thus, we have observed that the appeal filed by the assessee before this Tribunal contains multiple grounds of appeal including additional grounds of appeals. However, at the time of hearing, we have carefully perused all the grounds raised by the assessee. Most of the grounds raised by the assessee are either academic in nature or 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 ₹ 15,62,791/-. 4. The facts of the issue under consideration, which ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has failed to furnish the From No. 10CCB as per Act and perform the statutory obligation. As per section u/s. 80IB(13) r.w.s. 80IA(7), where the assessee is other than a cooperative society or a company, then in respect of the undertaking it is required to get its accounts audited by a Chartered accountant and to furnish Audit Report in Form No.10CCB with the return of income. Such requirement has not been fulfilled. As per Rule 18BBB of the I.T.Rules, Form of audit report for claiming deduction under section 80-I or 80-IA or 56[80-IB or section 80-IC]. 18BBB.(1) The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section 80IB(10) of the Income Tax Act, 1961. 10. In light of the above provisions of the Act, the normal and ordinary profits of the assessee concern is liable to be determined as per the profitability of preceding years. Since there has been no change in nature of business or the area of business or any other parameters, and on account of the failure of the assessee to explain the case for rise in profitability; the reasonable profitability of the concern is determined at the, average profit (Gross profit) rate of the concerns which prevailed during 2 preceding years. So accordingly, the ordinary profits of the assessee concern 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 claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CD, the same auditor in clause 26 has mentioned the claim of deduction in respect of development and building of housing project u/s.80IB of ₹ 39,51,627/-. The Assessing Officer without considering the new rule 12(2) of I.T.Act, has noted that the requirement of submitting auditor s certificate in form No.10CCB along with the return of income is an absolute. The Assessing Officer, in none of 142(1) issued, has called for report in form 10CCB during the assessment proceeding. The Assessing Officer has not issued any show cause to disallow the claim of 80IB in want of 10CCB report. As the appellant has obtained form No.10CCB within the prescribed date, the requirement of 10CCB within the prescribed date, the requirement of 80IB is fulfilled. Therefore, the appellant is eligible for benefit of section 80IB. Accordingly, this ground of appeal is allowed subject to decision in the next para. 7.However, on (II)nd issue- profit estimation, the Ld.CIT(A) denied the deduction u/s 80IB(10) at ₹ 15,62,791/-, that is, the disallowance to the extent of ₹ 15,62,791/- was sustained. On (II)nd issue, the findings of the ld CIT(A) are as follows: : Decision: 5.3 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth the years for the similar size of plot area, the cost has been computed less than half in current year, thus showing more than ordinary profit. Applicabilty of Section 80IA(10): (10) Where it appears to the Assessing Officer that owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profit which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. Section 80 IA(10) read with Section 80IB(13) clearly empowers the assessing officer in computing the profit and gain of eligible business for the purpose of the deduction under section 80IB as may be reasonably deemed to have been derived in cases where the assessee for any reason arranges the business in such a way that it produces more than ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the current year for the purposes of section 80IB at 38.4% which is average profit of the project. Accordingly, the eligible amount and the purpose of deduction u/s. 801B on the sale of ₹ 62,50,000/- is computed at ₹ 24,00,000/-. The Assessing Officer has disallowed claim of ₹ 39,62,791/- u/s.80IB. Accordingly, the disallowance to the extent of ₹ 15,62,791/- is sustained and the appellant gets relief of ₹ 24,00,000/-. 8.After going through the order of ld CIT(A) on both the issues, as noted above, we have observed that the ld. CIT(A) has held that the assessee is eligible for deduction under section 80IB(10) of the Act, as the assessee has fulfilled all the conditions mentioned in section 80IB(10) of the Act, therefore he deleted addition of ₹ 39,62,791/-, as mentioned in point no.(I) above. However, the ld. CIT(A) has re-estimated average profit and sustained the addition of ₹ 15,62,791/-, ( out of the addition made by Assessing officer at ₹ 28,76,770/-, as mentioned in para 7 of this order. 9. Aggrieved by the order of Ld.CIT(A), the assessee is in appeal before us only for addition sustained by ld CIT(A) to the tune of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that the Assessing Officer, vide para 10 of his order has stated as follows: 10. In light of the above provisions of the Act, the normal and ordinary profits of the assessee concern is liable to be determined as per the profitability of preceding years. Since there has been no change in nature of business or the area of business or any other parameters, and on account of the failure of the assessee to explain the case for rise in profitability; the reasonable profitability of the concern is determined at the, average profit (Gross profit) rate of the concerns which prevailed during 2 preceding years. So accordingly, the ordinary profits of the assessee concern 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% Thus, the Assessing Officer has observed that rate of project in Vipul Park Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the subject matter of section 80IA(10) of the Act, for the purpose of section 80IB(10) of the Act, as object of both the sections are different. The legislature has enacted the provisions of section 80-IA for the purpose of Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. whereas, the provisions of section 80IB(10) are enacted for the purpose of Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings . After going through the provisions of section 80IA(10) and section 80IB(10), one can understand that object and purpose of both the sections are different, hence the provisions of sub-section 10 of section 80IA should not be used for the purpose of sub-section 10 section 80IB of the Act, unless expressly provided by the statute. Therefore, the view taken by the Ld.CIT(A) to the effect that section 80IA(10) itself empowers the Assessing Officer to take the amount of profit as may be reasonable deemed to have been derived is not acceptable, as the purpose and object of both the sections are different, as explained abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rage profit @16.02% and thus rejected the unreasonable profits from 80IB(10) business at ₹ 28,76,770/-. However, the Assessing Officer has not added ₹ 28,76,770/- to the total income of the assessee. On appeal, the Ld.CIT(A) held that assessee is eligible and entitled to claim deduction u/s.80IB(10) of the Act. At the cost of repetition, the relevant observation of Ld.CIT(A) (to the extent relevant for over analysis) is reproduced below:- 4.3 Decision: I have considered the Assessment order and the submissions of the appellant. The Income tax rule has been amended by insertion of sub rule (2) of Rule 12 by Income-tax (4th amendment) Rules, 2007 w.e.f. 14.05.2007. As per this requirement of filing the audit report along with the return of income has been done away. The appellant in the e-return ITR-5, under the caption audit information, has mentioned that Shri Hiren M.Diwan, Membership No.306919 has signed the audit report on 23.09.2009. The appellant has also filed copy of 10CCB signed on 23.09.2009 by Shri Hiren M.Diwan before me. As per the audit report in form No.3CD, the same auditor in clause has mentioned the claim of deduction in respect of developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods (or services) as on that date : Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. [Explanation.- For the purposes of this sub-section market value , in relation to any goods or services, means (i) the price that such goods or services would ordinarily fetch in the open market; or (ii) the arm s length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA] From the bare reading of the proviso to sub-section (8) of section 80IA, as noted above, it seems that it has limited application to the prescription of sub-section 8 of section 80IA of the Act. The Sub-section 8 of section 80IA talks about where any goods or services held for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the assessee s average profit @38.40% and computed the eligible amount of deduction u/s.80IB(10) of the Act, without rejecting books of accounts. The assessee s books of accounts are audited by a Chartered Accountant and no any defect was pointed out by the Assessing Officer. Sales invoices filed by the assessee during the assessment proceedings were not doubted by the Assessing Officer. Learned Counsel submits before the Bench that during the assessment year under consideration, the assessee did not incur any cost, only opening stock was sold. The closing stock of the previous year becomes opening stock of the current assessment year, which is not doubted by the Assessing Officer. Therefore, without proving the opening stock as wrong, which is important item in assessee s case, the Assessing Officer was not justified in estimating the average profit of the assessee. The Ld.Counsel also contends that sales price in A.Y. 2007-08 and A.Y. 2008-09 were same and there is no any finding in the assessment order that assessee has incurred lesser cost as compared to previous year. The contention and arguments advanced by the ld Counsel along with the materials relied upon have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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