THE COMMISSIONER OF INCOME-TAX vs. M/S. MANDAVI BUILDERS

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 22ND DAY OF SEPTEMBER 2020

PRESENT

THE HON’BLE MR. JUSTICE ALOK ARADHE

AND

THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD

I.T.A NO.307/2015 BETWEEN:

... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,)

AND:

M/S. MANDAVI BUILDERS MANDAVI PALACE END POINT ROAD, MANIPAL UDUPI-576104 PAN: AAOFM 0540P. ... RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL A/W SRI. M. LAVA, ADV.) - - -

THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 20.02.2015 PASSED IN ITA NO.1786/BANG/2013 FOR THE ASSESSMENT YEAR 2010-11, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO:

(I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (I) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.1786/BANG/2013 DATED 20-02-2015 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, MANGALORE.

THIS ITA COMING ON FOR FURTHER HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2010-11. The appeal was admitted by a bench of this Court vide order dated 01.03.2017 on the following substantial questions of law: (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that, unaccounted money, found during the search proceedings and explained as on money received, are eligible for deduction under Section 80IB(10) of the Act?

(ii) Whether, on the facts and in the circumstances of the case, that the Tribunal was right in holding that, transactions entered into, with the buyers of flats, are eligible for deduction, even though there is violation of the sub-Sections(e) and (f) of Section 80IB(10), on the ground that these transactions were entered into before the amendments to sub-Section (3) and (f) of Section 80IB(10)?

Section 80IB(10) of the Act, on its entire income. During the course of assessment proceeding under Section 153(c) read with Section 143(3), on verification of the deduction claimed under Section 80IB(10) the Assessing Officer by an order dated 28.12.2010 inter alia held that the housing project consist of 195 flats and some owners have joined two flats, reducing the number of flats to 186. It was also held that some residential units were having a floor area of more than 1,500 square feet and some of the flats were sold to single or related persons or a single person. The transactions according to the Assessing Officer constituted violation of Section 80IB(10) of the Act. He therefore disallowed the claim in respect of both the assessment years. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by an order dated 20.09.2013 inter alia held that the assessee is entitled to benefit of deduction under Section 80IB(10) of the Act only to the

proportionate profit earned from the residential unit which comply with provisions of Section 80IB(10) of the Act in both assessment years. The Commissioner of Income Tax (Appeals), however, disallowed the claim of the assessee for Assessment Year 2010-11 in respect of receipt of on money amounting to Rs.42,03,280/- for sale of flats by placing reliance on Section 80A(5) of the Act and held that the profits were not routed through books of account but constituted undisclosed income. The Commissioner of Income Tax (Appeals) held that no deduction under Section 80IB(10) of the Act was allowable on the income / profit which neither form the part of the assessee’s account nor were additional cash amounts earned and credited to cash book or form cash balance of the business. Being aggrieved, the assessee as well as the revenue filed appeals before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal by an order dated 22.02.2015 inter alia held that transactions entered into

by the assessee were prior to introduction of clauses (e) and (f) to Section 80IB(10) of the Act and the aforesaid clauses are prospective in nature and can only be applied in respect of transactions entered after 01.04.2010. The Tribunal therefore, upheld the order of the Commissioner of Income Tax (Appeals) with regard to proportionate disallowance to be made in respect of transactions which were made subsequent to introduction of clauses (e) and (f) of Section 80IB(10) of the Act as well as the residential units where there was a violation of condition (c) of Section 80IB(10) of the Act both the Assessment Years. The Tribunal further held that the assessee is eligible for deduction under Section 80IB(10) of the Act on additional income also. In the aforesaid factual background, this appeal has been filed.

of the Act. It is further submitted that the Tribunal grossly erred in extending the benefit of proportionate allowance on the flats which comply with the conditions laid down under Section 80IB(10)(e) and (f) of the Act. It is further submitted that clauses (e) and (f) can be applied in respect of transactions, which are entered into after 01.04.2010. On the other hand, Learned Senior counsel of the assessee has submitted that entire flats of the assessee were sold prior to 25.05.2009 and the Assessing Officer himself has treated the income found during the search proceedings as business from income. It is also submitted that assessee has rightly bee held entitled for deduction under Section 80IB(10) of the Act on the additional income as the assessee had made the claim in the return of income.

effect from 01.04.2010, which provides that not more than one residential unit in the housing project is allotted to any person not being an individual and in case, a residential unit in a housing project is allotted to a person being an individual, no other residential unit in such housing complex shall be allotted to the individual, the spouse or the minor children of such individual, the Hindu Undivided Family (HUF) in such individual is Karta or any person representing such individual, spouse or minor children of such individual of HUF in which such individual is Karta. It is also pertinent to note that in clause (e) of Section 80IB(10) of the Act, the Legislature has used the expression ‘allotted’. In other words, in case, a residential unit is allotted prior to 01.04.2010, the conveyance in such a residential unit can be registered subsequently also and in such a case also the assessee will be entitled to the benefit of deduction under Section 80IB(10) of the Act. Clauses (e) and (f) of Section 80IB(10) of the Act are prospective in nature

and apply in respect of transactions entered on or after 01.04.2010, which is evident from Circular No.5/2010 dated 03.06.2010. From perusal of the order passed by the Assessing Officer, it is evident that unaccounted money during the search proceedings has been treated to be business income by the Assessing Officer.

In view of preceding analysis, the substantial questions of law framed by this court are answered against the revenue and in favour of the assessee.

In the result, the appeal fails and is hereby dismissed.

Sd/- JUDGE

Sd/- JUDGE ss