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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI G.S.PANNU & SHRI PAWAN SINGH
PER G.S. PANNU,AM:
The captioned appeal by the Revenue and cross objection by the assessee are directed against order of CIT(Appeals) -40, Mumbai dated 28/08/2016, which in turn arises out of an order passed by Assessing Officer under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short ‘the Act’) dated 06/12/2012.
In its appeal the solitary grievance of the Revenue is against the action of the CIT(Appeals) in allowing assessee’s claim for deduction under section 80IB(10) of the Act to the extent of gross total income of Rs.71,99,25,721/- and not restricting the same to Rs.68,18,56,583/- i.e. to extent of income under the head ‘business and profession’.
In brief, the relevant facts are that assessee is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of construction and property development. In an assessment finalized under section 143(3) of the Act dated 24/12/2009, the total income was determined at Rs.10,59,17,950/- which, inter-alia, included relief under section 80IB(10) of the Act amounting to Rs.71,99,25,721/-. Consequently, the Assessing Officer reopened the assessment by issuing notice under
3 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015 section 148 of the Act and vide order dated 6/12/2012 reassessed the income at Rs.14,36,67,009/-, inter-alia, restricting the relief under section 80IB(10) of the Act to the extent of Rs.68,18,56,583/-. The action of the Assessing Officer in restricting the claim of deduction under section 80IB(10) is the subject matter of controversy in the Revenue’s appeal.
3.1 The stand of the Assessing Officer is that the claim of deduction under section 80IB(10) is to be restricted to the extent of income under the head ‘business or profession’, whereas as per the assessee the claim of deduction under section 80IB(10) is allowable to the extent of gross total income. Notably, the stand of the assessee has been upheld by the CIT(Appeals) and accordingly, Revenue is in appeal before us.
Factually speaking, assessee is, inter-alia, engaged in the business of development and construction of a housing project, income whereof is eligible for deduction under section 80IB(10) of the Act. There is no dispute between assessee and the Revenue that the quantum of deduction under section 80IB(10) of the Act is Rs.71,99,25,721/-. In its return of income, assessee claimed a deduction of Rs.71,99,25,721/- under section 80IB(10) of the Act as it was within the limit of its gross total income amounting to Rs.82,58,43,666/-. However, in the impugned assessment the Assessing Officer restricted the claim of deduction to Rs.68,18,56,583/-, i.e., to the extent of income under the head income from ‘business and profession’ instead of allowing deduction/s. 80IB(10) of the Act to the extent of the gross total income.
4 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015 5. Before us, the Ld. Departmental Representative contended that the deduction allowable under section 80IB(10) of the Act is with respect to the business income and not against the income assessable under the other heads. It is sought to be pointed out that profit from the housing project was to the extent of Rs.68,18,56,583/-. As per the Ld. DR, section 80IB(10) was relating to the business of development of the housing project and thus deduction was allowable to the extent of business income and not gross total income of an assessee, which may include incomes other than the business income also. The plea of the assessee, which has also been affirmed by the CIT(Appeals), is to the effect that the provisions of section 80IB(10) of the Act do not place any such restriction and the deduction allowable cannot be limited to the income assessable under the head ‘business or profession’.
In the present case, respondent is an assessee engaged in the business of real estate and development of properties. With respect to development and building of a project – ‘Oberoi Woods’, it earned profits. Such project was eligible for the relief prescribed in Sec. 80IB(10) of the Act. There is no dispute between the assessee and the Revenue that the quantum of the claim u/s 80IB(10) of the Act amounts to Rs.71,99,25,721/-. In the impugned assessment finalized u/s 143(3) r.w.s. 147 of the Act, the gross total income (before allowing deduction under Chapter VI-A) was arrived at Rs.82,55,23,592/- which comprised of (i) income from house property – Rs.13,51,076/-, (ii) income from business – Rs.68,18,56,583/-; and, income from other sources – Rs.14,23,15,933/-. The total taxable income has been computed by the Assessing Officer at Rs.14,36,67,009/- after allowing deduction u/s
5 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015 80IB(10) of the Act of Rs.68,18,56,583/-. The dispute between the assessee and the Revenue is in respect of the claim allowed by the Assessing Officer of Rs.68,18,56,583/- instead of Rs.71,99,25,721/- sought by the assessee. The point raised is as to whether the claim u/s 80IB(10) of the Act is to be restricted to gross total income as contended by the assessee or it is to be restricted to the extent of income from business or profession.
Sec. 80IB of the Act prescribes for deduction in respect of profits and gains from certain industrial undertaking in order to compute the total income of an assessee. Sub-section (1) of Sec. 80IB prescribes that where the gross total income of an assessee includes any profits and gains derived from any business referred to in the sub-sections prescribed therein, the assessee shall be allowed in computing total income a deduction from such profits and gains in the manner as may be prescribed. The sub-section relevant for our purpose is sub-section (10) of Sec. 80IB which prescribes for deduction in case of an undertaking developing and building housing projects. We do not dwell much on the aspect of deduction prescribed u/s 80IB(10) inasmuch as there is no dispute between the assessee and the Revenue that the claim of deduction u/s 80IB(10) works out to Rs.71,99,25,721/-. So however, what is relevant to decide the controversy before us is the scheme in which the deductions prescribed in Chapter VI-A of the Act are allowable. For that matter, sub-section (1) of Sec. 80A prescribes that in computing the total income there shall be allowed from the gross total income, deductions specified in Sec. 80C to 80U of the Act subject to the conditions prescribed therein. The claim of the assessee
6 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015 is u/s 80IB(10) which is also liable to be governed by the prescription of Sec. 80A(1) of the Act. Sub-section (2) of Sec. 80A further prescribes that the aggregate amount of deductions under Chapter VI-A shall not, in any case, exceed the gross total income of the assessee. Furthermore, the ‘gross total income’ has also been defined in Chapter VI-A by way of Sec. 80B(5) to mean the total income computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A. The aforesaid clearly implies that in order to deduce the amount of deduction entitled to the assessee u/s 80IB(10) of the Act, the starting point is the determination of the gross total income. Along with it, the eligible amount of deductions under various sections of Chapter VI-A are to be individually computed and such aggregate of deductions is liable to be restricted to the amount of gross total income prescribed in Sec. 80B(5) of the Act. In fact, the point made out by the Revenue that the deduction u/s 80IB(10) of the Act is allowable to the extent of ‘profits of business’ is neither expressly and nor by implication understood from the provisions of Chapter VI-A of the Act. No doubt, the profits derived from the eligible business, which in the present case is the development and building of a housing project, is relevant to compute the amount of deduction, so however, its allowability has to be reckoned in the context of the availability of gross total income of the assessee. Considered in this light, in our view, CIT(Appeals) has made no mistake in coming to conclude that the claim u/s 80IB(10) of the Act is to be allowed to the extent of gross total income as claimed by the assessee and not to be restricted to the extent of income from business or profession.
7 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015 8. We find that the aforesaid conclusion of the CIT(Appeals) is in consonance with the parity of reasoning laid down by the Hon'ble Bombay High Court in the case of M/s. J.B. Boda & Co. P. Ltd. in Income Tax Appeal No. 3224 of 2009 dated 18.10.2010. In the said case, the amount of eligible deduction u/s 80-O of the Act (which is also a part of Chapter VI-A) was determined at Rs.1,29,41,830/- but the Assessing Officer restricted the claim to Rs.69,70,000/- being the income under the head ‘business or profession’. The assessee, on the other hand, sought the deduction to the extent of the gross total income referred to in Sec. 80B(5) of the Act. The Tribunal noted that Sec. 80-O of the Act or Sec. 80A did not provide for any such restriction and allowed the claim of the assessee for deduction u/s 80-O of the Act to the extent of gross total income. The Hon’ble Bombay High Court affirmed the view of the Tribunal by specifically noting the definition of ‘gross total income’ contained in Sec. 80B(5) of the Act. In our considered view, the aforesaid reasoning upheld by the Hon’ble Bombay High Court squarely applies in the present case and the CIT(Appeals) has rightly allowed the claim of the assessee for deduction u/s 80IB(10) of the Act to the extent of availability of gross total income. Thus, on this aspect, the stand of the assessee is upheld and the Revenue fails in its appeal.
In the cross-objection filed by the assessee, a solitary point has been raised which seeks to challenge the validity of the proceedings initiated by the Assessing Officer by issuance of notice u/s 147/148 of the Act.
8 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015 10. In order to appreciate the aforesaid controversy, following facts are relevant. In the assessment originally finalised by the Assessing Officer u/s 143(3) of the Act dated 24.12.2009, the Assessing Officer determined the gross total income at Rs.82,58,43,666/- comprising of (i) income from house property – Rs.13,51,076/-, (ii) income from business – Rs.68,18,56,583/-; and, income from other sources – Rs.14,23,15,933/-. While computing the total income at Rs.10,59,17,945/-, the Assessing Officer allowed deduction u/s 80IB(10) of the Act to the extent of Rs.71,99,25,721/-, as claimed by the assessee. Subsequently, the Assessing Officer recorded reasons and issued notice u/s 148 of the Act dated 6.7.2012 reopening the assessment on the ground that certain income chargeable to tax had escaped assessment inasmuch as the deduction u/s 80IB(10) of the Act was liable to be restricted to Rs.68,18,56,583/- being the income under the head ‘business or profession’. In the ensuing assessment the claim for deduction was scaled down, which we have dealt with on merits in the earlier part of this order.
Apart from assailing the action of the Assessing Officer on merits, the assessee company also canvassed before the CIT(Appeals) that issuing of notice of reassessment u/s 148 of the Act was also bad in law. The CIT(Appeals), while affirming the stand of the assessee on merits, however, upheld the validity of the initiation of proceedings by issuance of notice u/s 148 of the Act. The said decision of the CIT(Appeals) has been challenged by the assessee by way of cross-objection before us.
9 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015 12. Before us, the learned representative for the assessee vehemently pointed out that there was no justification for invoking the provisions of Sec. 148 of the Act inasmuch as there was no fresh material with the Assessing Officer, and the reopening was based on entire material and facts already on record. It was also pointed out that in the original assessment finalised u/s 143(3) of the Act dated 24.12.2009, the Assessing Officer specifically discussed the allowability of deduction u/s 80IB(10) of the Act in para 7 of the assessment order and, therefore, it could not be said that there was any lack of application of mind. In this manner it was sought to be pointed out that the impugned reassessment would tantamount to a mere change of opinion, which is impermissible in law. Further, the learned representative also pointed out that the reasons recorded by the Assessing Officer are on a wrong footing and therefore there is no justification for initiation of proceedings u/s 147/148 of the Act. In the course of arguments, reliance has been placed on the following decisions to assail the initiation of proceedings u/s 147/148 of the Act :-
i) Sharp Designers and Engineers India Pvt. Ltd., ITA No. 525/PN/2013 dated 24.11.2014 (ITAT, Pune) ii) Shri Amitabh Bachchan, 349 ITR 76 (Bom)
On the other hand, the Ld. DR appearing for the Revenue has pointed out that there is no infirmity in the initiation of proceedings by issuance of notice u/s 147/148 of the Act inasmuch as the reasons have been duly recorded and further, at the stage of recording of reasons, the Assessing Officer has only to formulate a prima facie opinion.
10 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015
We have carefully considered the rival submissions. Sec. 147 of the Act empowers the Assessing Officer to assess or reassess an income which had escaped assessment for any assessment year provided he has ‘reasons to believe’, subject to other requirements of the section. In the present case, the point set up by the Assessing Officer is that excessive claim of deduction u/s 80IB(10) has been allowed in the assessment order dated 24.12.2009. No doubt, Explanation 2(c) below Sec. 147 of the Act brings out that even a case where income has been made subject of excessive relief can be construed as escapement of income, but the presence of the expression ‘reason to believe’ in Sec. 147 postulates that the Assessing Officer must formulate a belief that a particular income chargeable to tax has escaped assessment, which shall be well-founded. Therefore, we may examine the reasons recorded by the Assessing Officer to reopen the assessment, which read as under :-
“In this case assessment was completed u/s.143(3) r.w. s. 153C of the I. T. Act 1961, on 24.12.2009, assessing the total income of Rs.10,59,17,950/- after allowing the deduction u/s 801B(10) of Rs.71,99,25,721/-.
The assessee has claimed deduction of Rs. 71,99,25,721/- u/s 80IB(10) of the Income Tax Act 1961 in the return. The assessee had income of Rs. 68,18,56,583/- under the head Business and Profession. Therefore the assessee has claimed and has been allowed deduction in excess of its business income. The amount of the excess deduction is Rs. 3,80,69,138/-. The total income of the assessee has therefore been underassessed by the same amount.
11 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015 The deduction u/s 80IB(10) of the I.T. Act 1961, is allowable only against the business income of the assessee. The said deduction is allowable in the case of undertaking, developing & building housing projects approved before the 31st day of March 2008 by local authority subject to compliance of specific terms and conditions as provided in sub-clauses of the said section intends to provide deduction in respect of income from such building and construction activities.
In view of the aforesaid, it is reason to believe that the income to the extent of excess grant of deduction u/s 80IB(10) of the I.T. Act 1961, has escaped assessment within the meaning of section 147 of the I.T. Act 1961. Such escapement and under assessment of income is squarely attributed to the act on the part, of assessee to claim deduction in excess of income offered under the head business and profession.
In view of the aforesaid facts and circumstances of the case and reason recorded as above, the assessment completed u/s 143(3) r.w.s. 153C of the I.T. Act, 1961 on 24.12.2009 is proposed to be re- opened. Issue notice u/s 148.”
A perusal of the aforesaid reasons reveal that the belief of escapement of income is founded on the ground that deduction u/s 80IB(10) of the Act has been allowed excessively to the extent that it is beyond the amount of income under the head ‘business or profession’. It is a trite law that ‘reason to believe’ referred to in Sec. 147 of the Act is one which is prudent and plausible in law and not based on any misconception either in law or on facts. In the present case, the reasons recorded clearly suggest that Assessing Officer is under a misconception in inferring that there is an excessive grant of deduction u/s 80IB(10) of the Act. Ostensibly, the proposition in the mind of the
12 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015 Assessing Officer is not borne out of the bare phraseology of the relevant provisions, as we have seen in the earlier part of this order, and rather, it is contrary to the legal position approved by the Hon’ble Bombay High Court in the case of J.B. Boda & Co. Pvt. Ltd. (supra). At this point, we may note that the aforesaid view of the Hon’ble Bombay High Court is also in consonance with its decisions in the case of Eskay K’N”IT (India) Ltd. vide ITA No. 184 of 2007 dated 25.3.2010 and in the case of Tridoss Laboratories Ltd., 328 ITR 448 (Bom).
In view of the aforesaid discussion, in our view, the reasons recorded by the Assessing Officer suffer from an infirmity of being misconceived in law and, therefore, initiation of proceeding thereupon is bad in law. Consequently, the assessment finalised by the Assessing Officer u/s 143(3) r.w.s. 147 of the Act dated 6.12.2012 is held to be invalid and bad in law, and is hereby set-aside. Thus, the assessee succeeds in its cross-objection.
Resultantly, appeal of the Revenue is dismissed and cross- objection of filed by the assessee is allowed.
Order pronounced in the open court on 8th June, 2016.
Sd/- Sd/- (PAWAN SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Date : 8th June, 2016 *Vm/SSL*
13 M/s. Oberoi Realty Ltd. ITA No. 6044/Mum/2013 & CO No. 6/Mum/2015
Copy to :
1) The Appellant 2) The Respondent 3) The CIT(A) concerned 4) The CIT concerned 5) The D.R, “C” Bench, Mumbai 6) Guard file By Order
Dy./Asstt. Registrar I.T.A.T, Mumbai