VASANJI U. CHHEDA,NAVI MUMBAI vs. ITO 15(3)(4), MUMBAI

PER JASON P. BOAZ, A.M:

This appeal by the assessee is directed against the order of the CIT(Appeals) -26 Mumbai dated 30/01/2013 for assessment year 2007- 08.

2 ITA No. 1633/MUM/2013 (Assessment Year : 2007-08) 2.1 The assessee, Prop: Sonal Developers, engaged in business as builder and developer, filed his return of income for assessment year 2007-08 on 22/10/2007 declaring total income of Rs.2,81,953/- after claiming deduction of Rs.2,52,97,456/- under section 80IB(10) of the Income Tax Act, 1961( in short ‘the Act’). The return was processed under section 143(3) of the Act and the case was taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 14/12/2009, wherein the income of the assessee was determined at Rs.2,64,05,160/- in view of the following additions/disallowances:-

(i) Disallowance of deduction u/s.80IB(10) - Rs.2,52,97,456/-

(ii) Disallowance of compensation - Rs. 8,85,750/-

2.2 Aggrieved by the order of assessment for assessment year 2007- 08 dated 14/12/2009, the assessee preferred an appeal before the CIT(Appeals) -26, Mumbai. The CIT(Appeals) disposed off the assessee’s appeal vide order dated 30/11/2010 allowing the assessee partial relief. In this order the CIT(Appeals) allowed the assessee’s claim for deduction under section 80IB(10) of the Act to the extent of Rs.2,55,90,033/-. In the order passed under section 143(3) r.w.s. 250 of the Act by the Assessing Officer on 5/01/2011 to give effect to the aforesaid order of the CIT(Appeals), the Assessing Officer allowed the assessee deduction under section 10B(10) of the Act to the extent of Rs.2,52,97,456/-.

2.3 Aggrieved by the order dated 5/1/2011 passed by the Assessing Officer in respect of giving effect to the aforesaid order of the

3 ITA No. 1633/MUM/2013 (Assessment Year : 2007-08) CIT(Appeals), the assessee preferred an appeal before the CIT(Appeals)- 26, Mumbai challenging the Assessing Officer’s action in restricting the grant of deduction under section 80IB(10) of the Act to Rs.2,52,97,456/- as against Rs.2,64,65,160/-, which was determined as the asssessee’s business income in the aforesaid order dated 5/1/2011. The CIT(Appeals) disposed off the assessee’s appeal vide the impugned order dated 30/1/2013 allowing the assessee partial relief by directing the Assessing Officer to allow the assessee deduction under section 80(IB)(10) of the Act to the extent of Rs.2,55,90,033/- as determined by the earlier order of the CIT(Appeals) dated 30/11/2011 and not to the extent of the assessee’s claim that it be allowed to the extent of business income which was determined at Rs.2,64,65,160/- by the Assessing Officer’s order dated 5/01/2011.

3.1 Aggrieved by the order of the CIT(Appeals)-26, Mumbai dated 30/01/2013 for assessment year 2007-08, the assessee has preferred this appeal raising the following grounds:-

“1. BECAUSE, the ld. CIT(A) has erred in law and on facts in restricting the claim of 100% tax exemption to Rs.2,55,90,033/- instead of Rs.264,65,160/- being income determined by the Assessing Officer in original assessment order. 2. BECAUSE, the ld. CIT(A) has failed to: i. properly observe the finding and direction issued by the Ld. CIT(A) in his appeal order for AY 2007-08; ii. to deal with the submissions filed by the appellant; iii. follow the judgment passed by the jurisdictional ITAT on the same issue which is a binding precedence on the lower authorities.”

4 ITA No. 1633/MUM/2013 (Assessment Year : 2007-08) 3.2 Before us, the Ld. Representative for the assessee was heard in support of the grounds raised. It was contended that the CIT(Appeals) had erred in restricting the assessee’s claim for deduction under section 80 IB(10) of the Act to Rs.2,55,90,033/- instead of the enhanced business income of Rs.2,64,65,160/- as determined by the Assessing Officer in the order of assessment. It was alleged that the assessee’s submissions in this regard, in respect of the issue of enhanced deduction under section 80 IB(10) of the Act and case laws filed, were brushed aside and not addressed in the impugned order and this is amply clear when the same is perused. In support of the assessee’s claim for being allowed enhanced deduction under section 80 IB(10) of the Act to the extent of the enhanced assessed income determined by the order of assessment, the assessee placed reliance on the following judicial pronouncements:-

(i) Meha Medicure in ITA No.3420/Mum/2011 dated 2/3/2012. (ii) S.B. Builders & Developers (2011) 50 DTR (Mumbai) (Tribunal) 299. (iii)Jitsan Enterprises in ITA No.1652/Ahd/2009 dated 13/04/2010 (iv) Rajkumar Exports (P) Ltd.(2009) 30(II) ITCL 474 (Chen- Tribunal)

3.3 The Ld. Departmental Representative supported the impugned order of the CIT(Appeals).

3.4.1 We have heard the rival contentions and perused the material on record including the judicial pronouncements cited and placed reliance. From the details on record it is not disputed that the assessee is entitled to be allowed deduction under section 80 IB(10) in respect of its

5 ITA No. 1633/MUM/2013 (Assessment Year : 2007-08) business income derived from its building, construction and development activities from the earlier assessment year 2006-07 itself. We find from a perusal of the decision of the Co-ordinate Bench in the case of M/s. Meha Medicure in ITA No.3420/Mum/2011 dated 02/03/2012 that the assessee would be entitled to enhanced deduction under section 80 IB(10) of the Act to the extent the assessed business income of the assessee is enhanced by virtue of disallowances that go to enhance its profits and would be eligible for full deduction under section 80 IB(10) of the Act, which provides for deduction from the profits and gains from the eligible business. In the aforesaid order, the Co-ordinate Bench of this Tribunal has rendered the following finding in this regard at para 5 & 6 thereof, which are extracted hereunder:-

“5. We have carefully considered the rival submissions and gone through the orders of the authorities below and the judgments relied upon by the learned AR. It is undisputed fact that the appellant is an undertaking and is engaged in the manufacturing of article specified in Fourteenth schedule and in a specified category of states for which it is eligible for deduction u/s.80IC. Such an exemption has been allowed in the earlier years by the Assessing Officer himself i.e. for the Assessment Year 2005-06 and 2006-07. Sub- section 3 of section 80IC categorically provides that the deduction would be available for 100% of such profits and gains for 10 assessment years if the profits and gains have been derived from such business activities. In this case, the disallowance have been made on account of non deduction of TDS on the items which are directly attributable/related to the business of the appellant, which is apparent from the heads of expenses under which these disallowances have been made. Income derived from such eligible business must be computed in accordance with the provisions of section 30 to 43D as has been provided under section 29. Section 40 is a non-obstante clause which places embargo on the allowability of expenses / expenditure from section 30 to 38. Therefore, any disallowance u/s.40(a)(ia) will go to enhance the profit of the assessee from the eligible business. This preposition of law is now squarely covered by the decision of the ITAT, Mumbai ‘E’ Bench in the case of S.B. Builders & Developers v. ITO (supra) wherein it was observed and held as under : “Held : Under section 80AB the income that is derived from the eligible business must be computed in accordance with the provisions

6 ITA No. 1633/MUM/2013 (Assessment Year : 2007-08) of sections 30 to 43D, as provided in section 29. Section 29 provides that the income chargeable to tax under the head “profits and gains of business” “shall be computed in accordance with the provisions contained in sections 30 to 43D”. Unquestionably, section 40(a)(ia) is a section falling between sections 30 to 43D and therefore effect must be given to the same in computing the profits and gains derived from the eligible business, which in this case is a housing project. It follows that if the assessee has not deducted tax from any payment which it was required to or has failed to deposit the tax within the prescribed time-limit, it cannot claim any deduction in respect of the payment while computing the profits derived from the eligible business. The payment has to be disallowed and added back to the profits, thereby swelling the same. The resultant figure of profits, enhanced by the amount of disallowance, would be eligible for the deduction u/s.80-IB(10). The profits and gains of the eligible business, for the purpose of the sections falling under the heading “C- Deductions in respect of certain incomes”, have to be computed in accordance with the computation provisions of ss. 30 to 43D as mandated by s.29. Therefore, it hardly matters whether while computing the profits in accordance with the above sections, an amount is allowed as a deduction or is disallowed and added back to the profits since “computation” would include both allowing a deduction and disallowing or restricting a deduction in accordance with the statutory provisions. Section 40(a)(ia) authorises the disallowance of the deduction if the tax has not been deducted and paid in time. It is part of the provisions for computation of the profits. Sec.80AB advisedly uses the expression “… the amount of income of that nature as computed in accordance with the provisions of this Act….”. The section would have been differently worded if the contention of the Revenue is to be accepted. One would be ignoring the mandate of s.80AB r/w s. 29 it one accepts the stand of the Revenue. There is no authority given by these sections to ignore the effect of s.40(a)(ia). Those sections do not say that the assessee will be allowed all the deductions from the profits, but when it comes to disallowing certain claims to expenditure somehow, those provisions will have to be ignored. While giving effect to the computation provisions contained in ss. 30 to 43D one should not be bogged down by the theory that the disallowed expenditure cannot be considered as profits “derived” from the housing project or as “operational profits”.

5.1 Similarly in the case of M/s. Jitsan Enterprises v. ITO (supra), the ITAT after relying on various judgments has held that the assessee would be entitled to deduction u/s.80IB on the amount disallowed u/s.40(a)(ia) while working out the eligible profits of the industrial undertaking. Likewise the

7 ITA No. 1633/MUM/2013 (Assessment Year : 2007-08) other two decisions relied upon by the learned AR also support the case of the appellant. 6. In view of the aforesaid preposition of law and ratio laid down by the various courts, we hold that disallowance of `Rs.7,38,038/- made u/s.40(a)(ia) by the Assessing Officer will go to enhance the profit which would again be eligible for full deduction u/s.80IC as it provides for 100% deduction from the profits and gains from the eligible business.”

3.4.2 Following the aforesaid decision of the Tribunal in the case of Meha Medicure in ITA No.3420/Mum/2011 dated 02/03/2012, we hold and direct that the assessee would be entitled to deduction under section 80 IB(10) of the Act to the extent of the assessee’s assessed business income of Rs.2,64,65,160/-, determined in the order of assessment dated 14/12/2009 for assessment year 2007-08 and which has been enhanced thereto by virtue of the disallowance of compensation of Rs.8,85,750/-, which would go to enhance the profits of the assessee’s eligible business. It is ordered accordingly. Consequently, the assessee’s grounds raised at S.Nos. 1 & 3 are allowed.

Order pronounced in the open court on 29/02/2016

Sd/- Sd/- (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 29/02/2016 Vm, Sr. PS

8 ITA No. 1633/MUM/2013 (Assessment Year : 2007-08)

Copy of the Order forwarded to : 1. The Appellant , 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai Guard file. 6.

BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai