JUPITER CONSTRUCTIONS,VIRAR vs. ACIT CC-3, , THANE

The only common dispute arising in these appeals relates to disallowance of deduction claimed under section 80IB(10) of the Income Tax Act, 1961.

Briefly the facts are, the assessee is a partnership firm engaged in the business of builders and developers. For the impugned assessment years, the assessee had filed its return of income in regular course. Subsequently, on 31-07- 2014, a search and seizure operation under section 132 of the Act, 1961 was carried out in case of Ameya group. Based on information / material found during search and seizure operation, proceedings under section 153C of the Act were initiated against the assessee. In course of search and seizure operation, certain incriminating materials were found indicating that the assessee had received on- money in respect of sale of properties developed by it and in the returns of income filed in pursuance to notice issued under section 153C of the Act, the assessee offered additional income representing on-money received in the relevant assessment years. However, against the additional income so declared, assessee had claimed deduction towards expenses as well as deduction under section 80-IB(10) of the Act. While considering assessee’s claim of deduction, the assessing officer observed, since the assessee had offered additional income in the proceedings initiated under section 153C of the Act, claim of deduction cannot be allowed in view of provisions contained in section 80A(5) of the Act. Further, he observed, since the purpose of search is to unearth undisclosed income, the assessee cannot turn such proceeding to its advantage to claim deduction against the undisclosed income. Accordingly, he disallowed assessee’s claim of deduction. Assessee contested the aforesaid disallowance before learned 3 ITAs 6620, 6621 & 6622/Mum/2019 Commissioner (Appeals). After considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) agreed with the decision of the assessing officer in disallowing deduction claimed under section 80IB(10) of the Act. However, considering the fact that the expenditure claimed by the assessee against the undisclosed income also forms part of the seized documents / materials, learned Commissioner (Appeals), estimated the net profit at 46% on the additional income shown by the assessee on account of on- money. In other words, learned Commissioner (Appeals) allowed expenditure to the extent of 54%.

Learned authorized representative of the assessee submitted, during the year under consideration the assessee has offered profit from a single project developed by it. He submitted, in the return of income filed originally, the assessee had claimed deduction under section 80IB(10) which was allowed by the assessing officer. He submitted, the additional income offered on account of on- money also relates to the very same project. Thus, he submitted, the assessee is eligible to claim deduction under section 80IB(10) of the Act even in respect of additional income offered on account of on-money. In support of such contention, learned authorized representative relied upon the decision of the Tribunal in case of Malpani Estates vs ACIT (2014) 44 taxman.com 242.

The learned departmental representative submitted, on the date of initiation of proceedings under section 153C of the Act, the assessments have not abated. He submitted, undisputedly, in the original returns of income, the assessee had not disclosed the income received from on-money. Only as a result of search, it was noticed that the assessee had undisclosed income by way of on- money and the assessee also offered additional income on account of on-money 4 ITAs 6620, 6621 & 6622/Mum/2019 in the returns of income filed in pursuance to notices issued under section 153C of the Act. He submitted, the provision of section 153A r.w.s. 153C of the Act overrides all other provisions of the Act. He submitted, in course of search assessment proceedings, the assessing officer has power to assess or re-assess any income not disclosed by the assessee. Thus, he submitted, in assessment proceeding under section 153C of the Act, the assessee cannot put forward a fresh claim of deduction as the proceeding under section 153A or 153C of the Act is not for the benefit of the assessee but is for the purpose of assessing undisclosed income found as a result of search. Therefore, the assessee cannot turn the proceedings to its advantage. In support of such contention, learned departmental representative relied upon the judicial precedents referred to by the departmental authorities as well as the decision of the Hon’ble Supreme Court in the case of Sun Engineering Works 198 ITR 297(SC).

We have considered rival submissions in the light of decisions relied upon and perused materials on record. Undisputedly, in course of search and seizure operation conducted in case of some other assessee incriminating material was found and seized indicating that the assessee had received on-money in cash towards sale consideration of the project. The receipt of on-money has also been accepted by the assessee as would be evident from additional income offered by the assessee in the returns of income filed in pursuance to notices issued under 153C of the Act. The issue arising for consideration is, whether against the receipt of such on-money, the assessee can claim deduction under section 80IB(10) of the Act. The departmental authorities have not disputed the fact that the receipt of on-money is in respect of the very same project from which the assessee has not only declared income in the original return of income but has also claimed 5 ITAs 6620, 6621 & 6622/Mum/2019 deduction under section 80IB(10) of the Act. It is also a fact on record that assessee’s claim of deduction under section 80IB(10) in respect of the very same project has been allowed in the original assessment proceedings. Therefore, the deduction claimed under section 80IB(10) of the Act in the returns filed under section 153C of the Act is in continuation to the claim made in the original returns of income. Therefore, in our considered opinion, the prohibitory conditions of section 80A(5) would not be applicable. In any case of the matter, the revenue does not dispute the fact that the assessee is otherwise eligible to claim deduction under section 80IB(10) of the Act in respect of the profit earned from the subject project. The additional income offered by the assessee because of receipt of on-money, undoubtedly, forms part of the profit earned from the subject housing project. Therefore, merely because the additional income is offered in a search related assessment proceeding under section 153C of the Act, assessee’s claim of deduction cannot be disallowed. This view of ours is fortified by the decision of the co-ordinate bench in case of Malpani Estates vs ACIT (supra). The co-ordinate bench, while considering more or less identical issue of claim of deduction under section 80IB(10) in respect of additional income offered because of on-money in an assessment proceeding under section 153A of the Act, has held as under:- “10. In the present case, it is not in dispute that the assessee has derived income from undertaking a housing project. The Crest' at Pimple Saudagar, Pune, which is eligible for section 80IB(10) benefits. In the return of income originally filed u/s 139(1) of the Act, assessee had claimed deduction u/s 80IB(10) of the Act in relation to the profits derived from the said housing project and the same stands allowed even in the impugned assessment which has been made u/s 153A(l)(b) of the Act as a consequence of a search action u/s 132(1) of the Act.

In the course of search, in a statement deposed u/s 132(4) of the Act, assessee declared certain additional income pertaining to the housing project in question. The additional income declared was on account of on-money received 6 ITAs 6620, 6621 & 6622/Mum/2019 from the customers to whom flats were sold in the said project. At the time of hearing, learned counsel referred to the copy of statement recorded u/s 132(4) of the Act of Shri Rajesh Malpani, a partner of the assessee firm and also copies of some of the seized papers, which indicated receipt of on-money, and the same have placed in the Paper Book at pages 35 to 52. A perusal of the seized material shows that a complete detail of that on-money received is enumerated, viz. name of the customers, amount and the respective flat sold in the project. Even in the deposition made u/s 132(4) of the Act. the partner of the assessee firm made a yearwise detail of additional income declared on account of on-money received on sale of flats in the project. Accordingly, the impugned sum has been declared as unaccounted income from the housing project in question. In the return of income filed in response of notice issued u/s 153A(l)(a) of the Act, assessee has declared such additional income as income from housing project, The Crest1 at Pimple Saudagar, Pune. The declaration made in the return of income has not been disputed by the Assessing Officer. The only dispute raised by the Assessing Officer is with regard to nature of such income, which according to the Assessing Officer "does not fall under of the any heads of income as described u/s 14 of the I.T. Act". In coming to such conclusion, he has disagreed with the stand of the assessee that such additional income was a 'business income' of the assessee relating to the housing project The Crest1 at Pimple Saudagar, Pune. However, as per the CIT(A), the income in question is assessable under the head 'income from other sources'. Ostensibly, the CIT(A) has not agreed with the inference of the Assessing Officer that the impugned income does not fall under any heads of income u/s 14 of the Act because according to her such income is liable to be assessed under the head 'income from other sources. Thus, as of now, before us the inference of the Assessing Officer does not survive any longer since the order of the Assessing Officer has merged in the order of the CIT(A) and in any case the Revenue is not in appeal on this aspect. Be that as it may, factually speaking, it cannot be denied that the additional income in question relates to the housing project, The Crest' at Pimple Saudagar. Pune undertaken by the assessee. The material seized in the course of search; the deposition made by the assessee's partner during search u/s 132(4) of the Act; and, also the return of income filed in response to notice issued u/s 153A(1)(a) of the Act after the search, clearly show that the source of impugned additional income is the housing project. The Crest' at Pimple Saudagar, Pune. The aforesaid material on record depicts that the impugned income is nothing but unaccounted money received by the assessee from customers on account of sale of flats of its housing project, The Crest' at Pimple Saudagar, Pune. Clearly, the source of the additional income is the sale of flats in the housing project. 'The Crest'. Therefore, once the source of income is established the assessability thereof has to follow. The nature of income, thus on facts, has to be treated as 'business income1 albeit, the same was not accounted for in the account books. In this manner, we are unable to accept the stand of the 7 ITAs 6620, 6621 & 6622/Mum/2019 Assessing Officer or of the CIT(A) that the said income is not liable to be taxed as 'business income'.

Now, coming to the point as to whether such 'business income1 qualifies to be eligible for deduction u/s 80IB(10) of the Act in the course of an assessment made u/s 153A(1)(b) of the Act. On this aspect, the learned Departmental Representative submitted that the assessment in cases of search action or requisition are made u/s 153A or 153C of the Act in order to assess undeclared incomes and such provisions are for the benefit of the Revenue and therefore a claim u/s 801B(10) of the Act cannot be considered in such proceedings, especially when such a claim was not made in the return of income originally filed under section 139 of the Act. In this regard, the learned Departmental Representative has referred to the judgment of the Hon'ble Supreme Court in the case ofCJTv. Sun Engg. Works (P.) Ltd, f 19921 198 ITR 297/64 Taxman 442 to point out that even in the cases of re-assessment u/s 147/148 of the Act fresh claims cannot be raised by the assessee. Secondly, it is pointed out by the learned Departmental Representative that even if the claim was to be considered then it was not allowable because the requisite condition that the return of income has to be accompanied by the prescribed audit report has not been complied with by the assessee. On the basis of aforesaid reasons, the claim of the assessee has been opposed.

Sections I53A to 153C of the Act contain provisions relating to assessments to be made in cases where search is initiated u/s 132 or a requisition is made u/s 132A of the Act after 31st May. 2003. Clause (b) of sub-section (1) of section 153 A postulates assessment or re-assessment of total income of six assessment years preceding the assessment year relevant to the previous year in which such search is conduced or requisition is made. Shorn of other details, it would suffice for us to notice clause (i) of the Explanation below section 153A(2) of the Act, which reads as under :— "Explanation. — For the removal of doubts, it is hereby declared that, — (/) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section."

In terms of the above referred clause (i) of the Explanation, it is evident that all the provisions of the Act shall apply to an assessment made u/s 153A of the Act save as otherwise provided in the said section, or in section 153B or section 153C of the Act. In the background of the expression "all other provisions of this Act shall apply" contained in Explanation (i) below section 153A of the Act, and in the context of the controversy before us, the moot point to be examined is as to whether or not deductions enumerated in Chapter VIA of the Act are to be considered in making an assessment made u/s 153A(l)(b) of the Act. Section 153A(l)(b) of the Act requires the Assessing Officer to assess or reassess the 'total income1 of the assessment years specified therein. Ostensibly, section 80A(1) of the Act prescribes that in computing the 'total income' of an assessee, there shall 8 ITAs 6620, 6621 & 6622/Mum/2019 be allowed from his 'total income1 the deductions specified in Chapter VIA of the Act. The moot point is as to whether the aforestated position prevails in an assessment made u/s 153A(l)(b) or not? In our considered opinion, having regard to the expression "all other provisions of this Act shall apply to the assessment made under this section" in Explanation (i) of section 153A of the Act, it clearly implies that in assessing or reassessing the 'total income' for the assessment years specified in section 153 A( 1 )(b) of the Act, the import of section 80A(1) of the Act comes into play, and there shall be allowed the deductions specified in Chapter VIA of the Act, of course subject to fulfillment of the respective conditions. Therefore, we are unable to subscribe to the stand of the CIT(A) to the effect that the benefits of Chapter VIA of the Act, which inter-alia include section 80IB(10) of the Act, are not applicable to an assessment made under sections 153A to 153C of the Act. In our considered opinion, the phraseology of section 153A r.w. Explanation (i) as noted above, does not support the premise arrived at by the CIT(A) and accordingly, the same is rejected. Therefore, asscssee's claim for deduction u/s 801B(10) of the Act even with regard to the enhanced income was well within the scope and ambit of an assessment u/s 153A(l)(b) of the Act and the Assessing Officer was obligated to consider the same as per law.

The other argument of the Ld. CIT-DR to the effect that the return of income was not accompanied by the prescribed audit report on the enhanced claim of deduction is too hyper-technical, and superficial. Pertinently, the Assessing Officer has not altogether denied the claim of deduction and in any case, the claim was initially made in the return originally tiled, which was duly accompanied by the prescribed audit report.

The argument set-up by the learned Departmental Representative on the basis of the judgment of the Hon'ble Supreme Court in the case of Sun Engineering Works (P.) Lid (supra), in our view, is also untenable having regard to the facts of the present case. No doubt the Hon'ble Supreme Court has observed that reopening of an assessment u/s 147/148 is for the benefit of the Revenue. In the case before the Hon'ble Supreme Court, assessee wanted to set-off loss against the escaped income which was taxed in the re-assessment proceedings and the claim of such set-off was not made in the return of income originally filed. According to the Hon'ble Supreme Court, the claim was not entertainable because the said claim not connected with the assessment of escaped income. In- fact, the judgment of the Hon'ble Supreme Court in the case of Sun Engg. Works (P.) Ltd. (supra] is not an authority to say that assessee cannot raise a claim pertaining to an issue which is connected to the assessment of escaped income. In-fact. if a claim which is connected to the escaped income is set-up before the Assessing Officer in the course of reassessment proceedings, the same is liable to be considered and the judgment of the Hon'ble Supreme Court in the case of Sun Engg. Works (P.) Ltd. (supra} only precludes such new claims by the assessee which are unconnected with the assessment of escaped income. In the present case, we are dealing with an assessment u/s 153 A of the Act and the scope of 9 ITAs 6620, 6621 & 6622/Mum/2019 such an assessment has already been examined by us in the context of the relevant specific provisions, which do not leave any scope for ambiguity. The judgment of the Hon'ble Supreme Court in the case of Sun Engineering Works Pvl. Ltd. (supra) has been rendered on a different fooling and is strictly not applicable to the present proceedings. So. however, even if one were to import the reasoning raised by the learned Departmental Representative based on the judgment of the Hon'ble Supreme Court, to the present case, yet we do not find that it would debar the assessee from claiming deduction u/s 80IB(10) of the Act on the impugned additional income declared in the return filed in response to notice u/s 153A(l)(a) of the Act. In the present case, the claim of deduction u/s 80IB(10) of the Act was made in the return of income originally filed and in the return Hied in pursuance to the notice u/s 153A(l)(a) of the Act, the claim u/s 80IB(10) of the Act is only enhanced and therefore, it is not a fresh claim. Therefore, in our view, the judgment of the Hon'ble Supreme Court in the case of Sun Engineering Works (P.) Lid. (supra) does not help the Revenue in the present case.

In-fact, the Hon'ble Bombay High Court in the case of Sheth Developers (P) Ltd. (supra) was considering the claim of deduction u/s 80IB(10) of the Act in relation to the undisclosed income declared consequent to the search action. In the case before the Hon'ble High Court, it was factually emerging that undisclosed income was earned by the assessee in the course of carrying on his business activity of a 'builder' and the same was accepted by the Department, but the claim of the deduction u/s 80IB(10) was denied in relation to such income. However, the claim was upheld by the Hon'ble Bombay High Court. In the present case, factually, there is no material lo negate the assertion of the assessee, which are borne out of the material on record, that the additional income in question has been received in the course of carrying on its business activity of developing the housing project, The Crest' at Pimple Saudagar, Pune, which is eligible for section 80IB(10) benefits. Therefore, in terms of the parity of reasoning laid down by the Hon'ble Bombay High Court in the case ofSheth Developers (P) Lid. (supra), the claim of the assessee is justified.

In-fact, once it is factually explicit that the additional income in question is derived from the housing project, The Crest' at Pimple Saudagar, Pune, which is eligible for section 801B(10) benefits, such an income merely goes to enhance the 'business income1 derived from the eligible housing project and shall be entitled for section 80IB(10) benefits, even as per the ratio of the judgment of the Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. (supra], 19. In the result, on the basis of the aforesaid legal position and the material and evidence on record, assessee is eligible for deduction u/s 80IB(10) of the Act in relation to impugned additional income offered in a statement u/s 132(4) of the Act in the course of search and subsequently declared in the return filed in response to notice u/s 153A(l)(a) of the Act. In the result, appeal of the assessee for assessment year 2008-09 is allowed.”

As can be seen, the co-ordinate bench, after taking note of the ratio laid down by the Hon’ble Supreme Court in case of Sun Engineering Works (P) Ltd (supra) has held that since the additional income offered by the assessee goes to enhance the business income derived from the eligible housing project, the assessee would be entitled for deduction under section 80IB(10) of the Act. Thus, in our considered opinion, the view expressed by the co-ordinate bench in the case cited supra clinches the issue in favour of the assessee. Therefore, respectfully, following the aforesaid decision of the co-ordinate bench, we allow assessee’s claim of deduction under section 80IB(10) of the Act. Grounds are allowed.

In the result, appeals are allowed. Order pronounced on 12/11/2021. Sd/- sd/- (S.RIFAUR RAHMAN) (SAKTIJIT DEY) ACCOUNTANT MEMBEWR JUDICIAL MEMBER Mumbai, Dt : 12 /11/2021 Pavanan Copy to : 1. Appellant 2. Respondent 3. The CIT concerned 4. The CIT(A) 5. The DR, ITAT, Mumbai 6. Guard File /True copy/ By Order