S/s. 28, 37, 80IB (10) – Even in an assessment u/s 143(3) r.w.s. 147 addition to income on account of bogus purchases will qualify for deduction u/s. 80IB (10).
Facts:
The assessment of total income of the assessee, a partnership firm, engaged in the business of property development was completed vide order dated 26-12-2006 passed u/s. 143(3) of the Act.
The Assessing Officer based on information received from AO of a sister concern of the assessee reopened the assessment u/s. 147 of the Act.
The assessee raised objections regarding validity of the service of notice u/s. 148 of the Act and non-furnishing of reasons recorded. The assessee was furnished with the reasons recorded by the AO on 24-12-2010.
The assessee did not participate in the proceedings for assessment and the assessment was completed u/s. 144 of the Act. In the assessment order, the AO having discussed about fictitious purchases found in the case of assessee’s sister concern concluded that an addition of Rs. 1,66,41,525 was required to be made on account of fictitious purchases. He also stated that since there was no reply from the assessee, the fictitious purchases are treated as debited to revenue/income for which section 80IB is not applicable. He, accordingly, added Rs. 1,66,41,525 to the total income of the assessee.
Aggrieved, the assessee preferred an appeal to CIT(A) where without prejudice to its contention that the expenditure is incurred for the purpose of business and therefore is allowable prayed that in view of the decision of Tribunal in the case of S. B. Builders & Developers vs. ITO (45 SOT 335)(Mum) the deduction u/s. 80IB(10) be allowed on enhanced profits. The CIT(A) upheld the addition but allowed the alternative claim of the assessee.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held:
The AO came to the conclusion that the fictitious claim of purchases to the extent of Rs. 1,61,41,525 was considered as not relatable to the receipts which are eligible for deduction u/s. 80IB(10) of the Act because the assessee did not give any reply or participate in the assessment proceedings. In our view, such conclusion by the AO was without any basis. The AO ought to have identified it with reference to the evidence available on record as to whether fictitious purchases are relatable to the receipts which are eligible for deduction u/s. 80IB(10) of the Act.
Be that as it may, in the proceedings before the CIT(A), the assessee has categorically made a claim that the fictitious expenses are relatable to the receipts which are eligible for deduction u/s. 80IB(10) of the Act. The CIT(A), in our view, has only directed to verify the claim of the assessee and if it is found correct to allow deduction u/s. 80IB(10) of the Act in respect of enhanced income. In our view, the claim made by the assessee was that the expenses disallowed were inextricably linked with the profits on which the claim for deduction u/s. 80IB(10) was made. As rightly pointed out by the ld. Counsel for the assessee, the Hon’ble Supreme Court in its decision in the case of CIT vs. Sun Engineering Works Pvt. Ltd. (198 ITR 297) (SC) has visualised a situation where the assessee cannot be permitted to challenge reassessment proceedings at an appellate or revisional proceeding and seek relief in respect of items earlier rejected or claimed relief in respect of items not claimed in the original assessment proceedings. The Hon’ble Court has, however, given a rider that if such claims are relatable to escaped income, the same can be agitated. In our view, the claim for fictitious purchases if it is relatable to profits/receipts which are eligible for deduction u/s. 80IB(10) of the Act, the disallowance of such expenses will go to enhance the income/ profits eligible for deduction u/s. 80IB(10) of the Act on which the assessee will be entitled to claim deduction u/s. 80IB(10) of the Act. It cannot be said that the disallowed expenditure cannot be considered as profits derived from the housing project or as operational profit.
The Tribunal confirmed the directions given by CIT(A).
The appeal filed by the revenue was dismissed.
