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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI CHANDRA POOJARI
Per Chandra Poojari, Accountant Member These appeals by the revenue are directed against the separate orders, both dated 29.01.2018 for the assessment years 2010-11 & 2011-12.
2. The revenue has raised the common grounds, except change in the figures, The grounds of appeal for AY 2010-11 are as follows:-
“ 1. Whether on the facts and, in law of the case, the Ld.CIT(A) has erred by deleting the disallowance made u/s 80IB of Rs. 19,61,41,662/-. 2. Whether the CIT(A) has erred in law and in fact in holding that the extracted working of profitability submitted by assessee with respect to each of eligible 801B unit would suffice the requirement of maintenance of separate books of account with regard to each eligible unit? 3. Whether the CIT(A) has erred in law and in fact in holding that the certified copies of extract of books of account arising from the books of account regularly maintained by the assessee without maintaining separate books of account for each eligible project would tantamount to maintaining separate books of account with regard to each eligible unit? 4. Whether the CIT(A) has erred in law and in fact in holding that the separate Form 10CCB submitted with regard to each of eligible 80 IB units is valid when the fact remains that such Form 10CCB had been submitted only in the name of assessee company (M/s Purvankara Projects Ltd) and not in the name of each eligible 80IB unit and without having separate books of accounts for each of the eligible units? 5. Whether the CIT(A) has erred in law and in fact in not holding that on account of failure on behalf of the assessee to maintain separate books of account for each undertaking, the assessee was not eligible to claim deduction for each project separately as per the ratio laid down by the Apex Court in its decision in the case of Arisudana Spinning Mills Ltd (2012) 26 Taxmann.com 39(SC)?”
The facts of the case are that it noticed by the AO that the assessee initially claimed the deduction u/s 80-IB(10) amounting to Rs.80,75,11,311 in the original return of income filed u/s 139(1) on 29.09.2010 on the net amount of profits derived by it from all the eligible 80-IB housing projects after setting off losses (Rs.19,61,41,662) from some eligible housing projects against the profit (100,20,05,974) from other eligible housing projects. Thereafter, return of income was revised on 15.10.2010 by the assessee wherein enhanced deduction u/s 80-1B amounting to Rs. 100,20,05,974 was claimed in respect of only profits derived by the eligible 80-IB housing projects without setting off the losses incurred by other eligible 80-IB housing projects. During the original assessment proceedings, on being asked for the justification behind filing revised return of income and as to why the enhanced claim of deduction was made in the revised return of income, the AR of the assessee in response submitted that each of the projects should be taken as separate undertakings and therefore cannot set off the loss of one unit with the profit of other unit. While completing the original assessment proceedings in this case, the AO had held that the assessee has been carrying on homogenous business activity consisting of various housing projects as part of the same undertaking. He further observed that the assessee has not maintained separate accounts for various projects and the assessee has not been able to show that there is no interlacing or interdependence between various units so that each of the units can be categorized as separate undertaking. Accordingly he took the view that income of the assessee for the purpose of deduction u/s 80IB(10) of the Act should be arrived at by clubbing profits and losses of all the projects. Accordingly, he computed the income and allowed deduction u/s 80IB(10) of the Act which resulted into disallowance of Rs.19,61,41,662 out of the total deduction claimed by the assessee.
The AO observed that the ITAT, Mumbai vide its order in dated 27.10.2016 has held that the AO had treated all the projects as belonging to one undertaking on the reasoning that no separate accounts were maintained and further the assessee was not able to show that there was no interlacing or interdependence between various units. The Tribunal directed the Assessing Officer to find out factual aspects by examining the books of accounts, materials, information and explanations of the assessee and decide the issue in accordance with the decisions rendered in the case of Viswas Promoters (214 Taxmann 525) (Mad) and CIT vs Vandana Properties (2013) 353 ITR 36 (Bom).
The AO noticed that the assessee has submitted the following documents among others:-
(i) Details containing project commencement date and (ii) completion date for all the projects u/s 801B of IT Act. (ii) Project wise detailed profit and loss account for all the projects u/s 801B of the IT Act (iii) Project wise detailed profit and loss account of IT Act for all the years starting from AY 2010-11 to 2017-18 6. The AO observed that the assessee has just submitted the computation of profitability of individual projects u/s 80IB regarding the maintenance of separate accounts of the eligible projects. However, it has not submitted the audited/verified copies of the profit and loss accounts/sheets of the individual projects u/s 80 IB. The assessee filed the combined single Audit Report and B/S, P&L account for all the projects of the company in the name of M/s Purvankara Projects Limited. However, to claim the benefit of deduction u/s 80IB(10), it has to file Form 10CCB for each eligible unit, which has to be supported by audited individual maintained accounts of the projects. In this case, the assessee has filed and produced individual Forms 10CCB for each eligible units including the loss making ones, however the claim of benefit (either profit or loss) is not supported by any credible and audited individual maintenance of accounts. Thus the computation sheets of profitability of each project is not reliable. Accordingly, the AO in his original assessment order had clearly stated that there is no separate maintenance of accounts of the individual projects. Having not submitted anything extra or cogent material in support of his claim, the AO relied on the decision of the Tribunal wherein it directed to refer the cases of Viswas Promoters (214 Taxmann 525) (Mad) and CIT vs Vandana Properties (2013) 353 ITR 36 (Bom) to arrive at the decision whether the assessee has maintained separate accounts or whether activities are inter related or not. He was of the view that considering even the above decisions, the contention of assessee is not allowable as the facts are not totally relatable.
On appeal, however, the CIT(Appeals) observed that all the projects of the assessee have separate set of book of accounts and individual project-wise P&L account has been prepared by the assessee and P&L account from each project is separately identifiable in support of the assessee’s contention. The assessee company has filed details, project- wise chart from various “sub-heads” under revenue, cost on revenue, gross total income not only for 80-IB project, but also for non-80-IB project also. The project-wise details were duly satisfied by CA, S.R. Joshi & Associates.
8. The CIT(A) further observed that the tax audit reports in the prescribed format filed by the assessee company during the course of assessment proceedings also reflects that the assessee has maintained separate books of accounts for each housing project. But for that it would not have been possible for the statutory auditors to audit the accounts of various projects and arrive at a separate profit or loss figure for each and every project. Thus, the audit reports tendered by the assessee in Form 10CCB clearly show that all the housing projects undertaken by the assessee were stand-alone projects. Though the assessee company has discharged its onus by filing the relevant details, the AO has not supported his contention by evidence that there was interlacing and/or interdependence amongst the various projects. Further, it has been stated by the assessee company during the appellate proceedings that the AO has verified the project-wise profitability and confirmed separate profit centres, and hence no such disallowance has been made for the relevant A.Y. 2013-14. This clearly shows that the appellant company has maintained separate books of accounts for each housing project. The CIT(A) relied on the Hon'ble Andhra Pradesh High Court in the case of CIT vs. Visakha Industries Ltd. (2001) 171 CTR (AP) 300 : (2001) 251 ITR 471 (AP) wherein a similar view was taken by holding that the deductions contemplated under ss. 80HH and 80-I are to be allowed with reference to the profits of the particular industrial undertaking and not with reference to the total income of the assessee and therefore the loss in another unit cannot be set off against the profits of eligible unit. The CIT(Appeals) placed reliance on CIT v. Sona Koyo Steering Systems Ltd. (2010) 321 ITR 463 (Del), CIT v. Dewan Kraft System (P) Ltd. (2008) 297 ITR 305 (Del) and CIT v. Canara Workshop (P) Ltd. [1986] 161 ITR 320 (SC) as well as other case laws. Thus, he observed that the assessee is maintaining project-wise P&L account as also books of account and has in fact submitted project-wise Form 10CCB and according to him, the AO was not justified in observing project-wise accounts were not available. It is also observed by the CIT(Appeals) that it is not necessary that the project-wise P&L account should be audited, especially when entire accounts have been audited by the Auditor. Besides Form 10CCB clearly indicates project/undertaking wise turnover and profits. Therefore, he allowed the claim of assessee u/s. 80IB(10) of the Act. Against this, the revenue is in appeal before us.
The ld. DR relied on the order of the AO and submitted that the findings of the CIT(Appeals) is contrary to the AO’s findings wherein he has categorically mentioned that though assessee filed Form 10CCB for each eligible unit including loss making units, it was not verifiable in view of failure of assessee to audit the individual maintenance of accounts and it is not reliable. As against this, the CIT(Appeals) observed that the assessee is maintaining project-wise P&L account as also books of account and has in fact submitted project-wise Form 10CCB which is contrary to the findings of the AO.
The ld. AR submitted that the Supreme Court in CIT v. Reliance Energy Ltd [2021] 127 taxmann.com 69 held that losses of other units should not be set off against profits of eligible units while computing the deduction as per section 80-IA(5). In CIT v Canara Workshops P Ltd 11986] 161 ITR 320 (SC), it was held that (i) the merit earned by such industry should be lost or diminished because of a loss suffered by some other industry: (ii) It makes no difference that the other industry is also a priority industry; (iii) The co-existence of two industries in common ownership was not intended by the Parliament to result in the misfortune of one being visited on the other. (iv) The legislative intention was to give to the meritorious its full reward. Thus, losses of other housing project units should not be set off with the profits of housing project units in computing the deduction under section 80-IB(10). In view of the above, the decision of the learned CIT(A) allowing deduction under section 80-IB(10) in respect of profits of each eligible unit without set off of losses of other units is as per law and the same should be upheld.
The assessee has also filed a ‘Note on Accounting in Oracle ERP based accounting software and basis of allocated expenses’ which is as follows:-
“We were maintaining our accounts in Oracle ERP based accounting software which has a separate code for each head of expenses and projects.
The Income and the direct expenses for the projects are accounted separately in respect of each of the projects. 3. Specific marketing expenses identifiable to each project is also captured for the respective project. 4. The indirect and the common expenses like general marketing and administrative expenses are apportioned to all projects. 5. Allocation of indirect general expenses are done based on actual scientific principles. 6. Every year we prepare project wise separate profit and loss account.
7. We have been capturing all the costs for each of these projects separately in our books of accounts and maintain project wise costing and profit and loss account.
Materials are procured for these projects specifically and directly supplied by the suppliers to the project site. 9. The allocation of indirect expenses done either on actual basis or on cost of revenue ratio basis and some of the expenses were directly attributable to the projects are directly captured to the respective projects. 10. Further project wise Audit Reports are obtained to claim deduction u/s 80 IB (10) and project wise Form No.10CCB are filed. 11. Allocation of expenses to the projects are concerned, the same is illustrated below : Expenses Basis of Allocation / Apportionment Direct Expenses on Cement, Directly allocated to the respective Steel, Other Material cost, Project Cost Centres Consumables
Finance Cost Interest paid on project specific loan is directly allocated to respective projects. Interest expenses not identifiable are allocated on the basis of amount Advertising and sales promotion, Specific project related expenditure Brokerage and referral charges & are booked directly to the Sales incentives and commission respective project. Interest expenses general in nature are allocated on in Cost of Revenue Ratio Travel & Conveyance Allocated on the basis of Cost of Revenue to the respective projects Salary and Staff Costs Total Salary Cost is allocated to Projects based on the payroll cost respect projects. However, salary in respect of direct employees is captured for the respective project. Depreciation Specific Assets deployed at project site are directly allocated to the respective project
Rates & Taxes, Legal &, On actual basis. The expenses Professional, Security not identifiable are allocated on Charges cost of revenue ratio
” 12. The ld. AR in support of his contentions has relied on the following decisions:-
1 DCIT v Purvankara Projects Ltd —ITAT Mumbai — AY 2010-11 & AY 2011-12 2 Viswas Promoters P Ltd v ACIT [2013] 29 taxmann.com 19 (Madras) 3 CIT V Vandana Properties [2013] 353 ITR 36 (Born) 4 Leo Meridian Infrastructure Projects & Hotels Ltd V DCIT [2013] 36 taxmann.com 589 (Hyderabad — Trib) 5 ACIT v Oil India Ltd [2019] 108 taxmann.com 588 (Gauhati Trib) 6 Guajarat Guardian Ltd v DCIT & Vice Versa— ITAT New Delhi — 16.8.2018 7 CIT V IBM Global Services India P Ltd [2021] 124 taxmann.com 253 (Karnataka) 8 Virtusa Consulting Services (P) Ltd v DCIT [2021] 128 taxmann.com 22 (Madras) 9 CBDT Circular No. 1 of 2013 dated 17.1.2013 10 Text of section 80IBA which requires separate books of account in respect of the housing project filed at pages 122-124 of PB. 11 CIT v Tara Agencies 120071 292 ITR 444 (SC) 12 Arisudana Spinning Mills Ltd v CIT 120121 26 taxmann.com 39 (SC) 13 Hughes Communications India Ltd v DCIT — ITAT Delhi — 14.9.2021 14 DCIT v NIIT Ltd — ITAT Delhi — 8.5.2015
We have heard both the parties and perused the material on record. In the present case, the assessee is carrying on various activities. Out of this, certain undertakings are eligible for 80IB deduction. In such cases, where an assessee is rendering various activities even if centralised accounts are maintained, so long as interlacing, interconnectivity or interdependence of various units was not there, various activities have to be treated as separate and distinct, as held by the Hon’ble Apex Court in Water Fall Estates Ltd. v. CIT, 219 ITR 563. in L.M. Chhabda & Sons v. CIT, 65 ITR 638, the Hon’ble Apex Court has also held that where an assessee carried on business ventures at different places, there was no general principle that they should all be considered as part of single business. Thus, if an assessee had different units resulting in positive gross total income, in view of decisions Hon'ble jurisdictional High Court in the case of CIT v. Macmillan India Ltd. (295 ITR 67), CIT v. Rathore Brothers (254 ITR 656), CIT vs. Suresh B. Mehta (291 ITR 462) and CIT v. M. Gani And Co. (301 ITR 381), each of the unit had to be separately considered for working out deduction under Section 80-IA or 80-IB or 80HHC of the Act, once separate accounts were being maintained and there was no interlacing and interdependence. In the present case, the assessee had positive gross total income. Therefore, each undertaking had to be considered separately for working out deduction under Section 80-IB of the Act. Form 10CCB filed by the assessee should be verifiable at the end of AO. The AO in the present case has given a categorical finding that the computation sheets of profitability of each project is not reliable, on the other hand it is not verifiable. It is the duty of the assessee to produce the data to claim deduction u/s. 80IB, the correctness of which could be verified by the assessing authority. Contrary to this, the CIT(Appeals) has given a finding that assessee has filed Form 10CCB for each project. According to the tenor of the CIT(Appeals) order, the data furnished by the assessee in Form 10CCB for each project need not be verified. This finding of the CIT(Appeals) is improper. In our opinion, whatever data furnished by the assessee is required to be verified by the AO and it cannot be considered as sacrosanct. Hence, the assessee has to produce the required data so as to verify the correctness of Form 10CCB for each project. In the absence of such relevant data, it is not possible to grant deduction u/s. 80IB of the Act. Hence, in the interest of justice, we remit the entire issue of deduction u/s. 80IB back to the file of the AO with a direction to the assessee to furnish verifiable data so as to verify the correctness of Form 10CCB filed by the assessee for each project by the AO. With these observations, we remit the issue in dispute back to the file of AO for fresh decision for both the assessment years.
In the result, the appeals of the revenue are allowed for statistical purposes.
Pronounced in the open court on this 8th day of November, 2021.