V.B. PATIL,KOLHAPUR vs. INCOME-TAX OFFICER, WARD - 2(2), KOLHAPUR

आदेश / ORDER

PER R.S. SYAL, VP :

This appeal by the assessee arises out of the order passed by the CIT (Appeals)-2, Kolhapur on 24.04.2017 in relation to the assessment year 2009-10.

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disallowance of deduction u/s. 80IB (10) of the Income Tax Act, 1961

(hereinafter called as ‘the Act’) amounting to Rs.39,02,966/-.

engaged in the business as a builder and developer, apart from earning

rental income. At the material time, he had two ongoing housing

projects, viz., Ayodhya Park & Ayodhya Towers. Income from all other

sources including income from the project `Vasant Plaza’ was recorded

by the assessee under the `Head Office Account’. Deduction u/s.

80IB(10) of the Act was claimed with respect to `Ayodhya Park’ project

income of Rs.39,02,967/-. The Assessing Officer noted that the

commercial area of the eligible project was 8.46% of total built-up area.

On confronting, the assessee stated that clause (d) to Section 80IB (10)

was inserted by the Finance Act, 2004 and as the project was approved

prior to that date, this clause would not apply to the project. The AO

also found some infirmity with respect to the completion date as

certified by the architect. He invoked the provisions of section 80AB

r.w.s. 80B(5) of the Act and held the assessee to be not eligible for

deduction on the ground that there was a loss in respect of non-eligible

unit at Rs.24,10,697/- and the overall `Business income’ was a loss of

Rs.96,000/-. That is how, he computed gross total income of the

assessee at Rs.42,66,678/-. After allowing deduction u/ss.80C and

80G of the Act, the Assessing Officer computed total income of assessee

at Rs.41,62,930/-. The assessee assailed the action of the Assessing

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Officer in not allowing deduction u/s. 80IB(10) of the Act before the ld.

CIT(Appeals), who dismissed the Assessing Officer’s action in not

considering the element of commercial premises in the eligible project

in making the assessee ineligible for deduction u/s.80IB(10) of the Act.

He also rejected the Assessing Officer’s point of view on the question of

completion of the project. He held that, in principle, the assessee was

eligible for deduction u/s. 80IB(10) of the Act. However, he concurred

with the Assessing Officer’s view point on the applicability of section

80AB of the Act. Since the income under head `Profits and gains of

business or profession’ was a loss of Rs.96,000/-, the ld. CIT(A) held

that provisions of section 80AB were attracted and hence, there was no

warrant for granting deduction u/s.80IB of the Act. The assessee is

aggrieved by the decision of the ld. CIT(A) in not allowing its claim of

deduction u/s.80IB(10) of the Act.

available on record. No cross-appeal filed by Revenue has been brought

to my notice. In that view of the matter, the decision of ld. CIT(A) in

rejecting the view point of the AO on certain issues and entitling the

assessee, in principle, to deduction u/s.80IB(10) gets automatically

affirmed.

income under the head `Profits and gains of business or profession’, it is

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firstly important to note the computation of negative income done by

authorities, which is as under:-

Sr. Particulars Amounts (Rs.) No. 1 Profit from eligible unit i.e. 39,02,966 Ayodha Park Project 2 Loss of non-eligible unit i.e. (24,10,697) Head Office 3 Profit from non-eligible unit 5,21,196 i.e Ayodhya Towers 20,13,465

Less : Interest on loan 21,09,465

Total business income/(loss) (96,000)

assessment order, that there is a profit from the eligible project and loss

in the non-eligible project. Apart from that, there is interest on loan of

Rs.21.09 lac, which has been allowed as deduction under this head in

the computation of `Business income’ determining a loss of Rs.96,000/-.

Before switching over to the main controversy, it is pertinent to mention

that the assessee initially claimed that interest of Rs.21,09,465/- was

deductible under the head `Income from house property’. However, the

ld. AR fairly accepted that such interest should be allowed as deduction

under the head of `Business income’ as has been done by the

authorities below. I will deal with deduction of interest in later part of

the order.

allowed by the authorities u/s 80IB(10) of the Act because of `loss’

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under the `Business income’. In order to appreciate the view point of

the authorities below, it is pertinent to note the mandate of Section

80AB, invoked by the AO, which is as under:

“80AB. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading “C-Deductions in respect of certain incomes” in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.”

of the Act which defines “gross total income” to mean `the total income

computed in accordance with the provisions of this Act, before making

any deduction under this Chapter’. On a conjoint reading of Sections

80AB and 80B(5) of the Act, it becomes overt that the amount of

deduction under Chapter VIA-C shall be allowed with reference to the

`income of that nature’ , that is, the eligible income, only to the extent

of its inclusion in the gross total income of the assessee. In other words,

if the amount of gross total income is Rs.200/- and the amount of

eligible income u/s.80IB(10) is Rs.100/-, full amount of Rs.100/- will be

considered for the purpose of granting deduction. Per contra, if the

eligible income is say Rs.100/-, but the gross total income of the

assessee is Rs.80/-, the deduction shall be restricted to the extent of the

gross total income of Rs. 80/-. It is not borne out from the language of

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section 80AB that `Business income’ should be considered rather than

`income of that nature’ or the eligible income. In my considered opinion,

it is the income of the eligible projects alone which should be considered

on standalone basis, rather than the income under the head `Profits and

gains of business or profession’, for the purposes of granting deduction,

albeit with the overall ceiling of the gross total income.

assessee filed return declaring total income of Rs.2,59,960/-. This

amount came after claiming deduction, inter alia, under section 80IB(10)

of the Act. Gross total income of the assessee as per the computation

done by the Assessing Officer is Rs.42,66,678/-. The assessee has

claimed deduction u/s. 80IB(10) for a sum of Rs.39,02,966/- in respect

of the eligible project alone. Since the amount of eligible income, as

claimed by the assessee, is less than the amount of gross total income,

the provisions of section 80AB do not apply adversely to such a

situation. The Assessing Officer as well as the ld. CIT (Appeals) have

confined themselves to the `Business income’, which is a loss of

Rs.96,000/-, so as to make the assessee ineligible for deduction

u/s.80IB(10) of the Act. It has been noted above that the assessee was

engaged in multiple projects at the material time, but the only project

eligible for deduction u/s.80IB(10) is “Ayodhya Park”, income from

which was shown at Rs.39,02,966/-. Admittedly, the assessee also

incurred loss in non-eligible projects and the net result, after reducing

the amount of interest on loan, is a total business loss of Rs.96,000/-.

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The course of action adopted by the authorities below in considering

loss from non-eligible projects also for calculating the amount of

deduction u/s 80IB(10) in respect of profit from eligible project, is not in

accordance with law. I, therefore, overturn the impugned order on this

score in considering loss from non-eligible projects as well and

eventually total business loss of Rs.96,000/- for making the assessee as

ineligible for deduction u/s.80IB(10) of the Act in respect of the eligible

project.

has been noted above that the ld. AR admitted, and rightly so, that such

interest should be considered under the head `Profits and gains of

business or profession’. Once such an interest is to be considered in the

computation of `Business income’, the next question is that how much

of it pertains to the eligible project. It is the net income from `Ayodhya

Park’ project, after deduction of the whole or part of such interest, as is

relatable to it, that will qualify for deduction u/s 80IB(10) of the Act. On

being questioned on this issue, the ld. AR requested that this aspect

may be sent back to the Assessing Officer for a fresh determination in

the light of all the factual details. No objection was taken by the ld. DR

to this proposal. In view of these facts, I set-aside the impugned order

and remit this aspect to the file of Assessing Officer for examining the

amount of interest on loan relating to `Ayodhaya Park’ project out of

total interest of Rs.21,09,465/-. The amount so determined, if any, is

directed to be reduced from the income of the eligible project as

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computed by the assessee at Rs.39,02,966/- and the remaining amount will be considered as eligible for deduction u/s.80IB(10) of the Act. I order accordingly.

Sd/- R.S. SYAL उपा�य� /VICE-PRESIDENT

पुणे / Pune; �दनांक / Dated : 17th December, 2018. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :

अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-2, Kolhapur. 4. The Pr. CIT-2, Kolhapur. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.

9 ITA No. 1624/PUN/2017 A.Y.2009-2010

Date 1 Draft dictated on 13.12.2018 Sr. PS/PS 2 Draft placed before author 17.12.2018 Sr. PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order

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