Sections 80-IB(10) & 153A : Assessee is eligible for deduction u/s. 80-IB(10) in relation to undisclosed income offered in a statement u/s. 132(4) in course of search and subsequently declared in return filed in response to notice u/s. 153A(1)(a)
Facts:
The assessee is a partnership firm engaged in construction business. It was subject to a search action u/s. 132(1) on 6th October, 2009. In the course of search, the partner of the assessee-firm in a statement recorded u/s. 132(4), admitted certain undisclosed income in relation to a housing project undertaken by the firm. The additional income declared was on account of on-money received from the customers to whom flats were sold in the said project. The assessee duly reflected such additional income in the returns of income filed in response to notice issued u/s.153A(1)(a) for the captioned assessment years as the profits from its housing project, and since the said housing project was eligible for deduction u/s. 80-IB(10), it claimed deduction u/s. 80-IB(10) in relation to such additional income.
The Assessing Officer did not allow the claim of the assessee for deduction u/s. 80-IB(10). Firstly, according to the Assessing Officer enhancement of claim u/s. 80- IB(10), was not permissible in an assessment u/s. 153A. Secondly, the on-money received by the assessee on sale of flats was not taxable as ‘business income’ and hence assessee was not eligible for deduction u/s. 80-IB(10).
The Commissioner (Appeals) affirmed the action of the Assessing Officer in denying the deduction u/s. 80-IB(10). As per the Commissioner (Appeals), the claim of the assessee was not maintainable because (i) the undisclosed income declared by the assessee could not be assessed under the head ‘business income’ but under the head ‘income from other sources’; and, (ii) the benefits of Chapter VI-A, which include section 80-IB(10), are not applicable to assessments made u/s. 153A to S. 153C.
The learned Departmental Representative submitted that the assessment in cases of search action or requisition are made u/s. 153A or 153C of the Act in order to assess undeclared incomes and such provisions are for the benefit of the Revenue and therefore a claim u/s. 80IB(10) of the Act cannot be considered in such proceedings, especially when such a claim was not made in the return of income originally filed u/s. 139 of the Act.
Held:
It is not in dispute that the assessee has derived income from undertaking a housing project, which is eligible for section 80-IB(10) benefits. In the return of income originally filed u/s. 139(1), assessee had claimed deduction u/s. 80-IB(10) in relation to the profits derived from the said housing project and the same stands allowed even in the impugned assessment which has been made u/s. 153A(1)(b) as a consequence of a search action u/s. 132(1).
It cannot be denied that the additional income in question relates to the housing project undertaken by the assessee. The material seized in the course of search; the deposition made by the assessee’s partner during search u/s. 132(4); and, also the return of income filed in response to notice issued u/s. 153A(1)(a) after the search, clearly show that the source of impugned additional income is the housing project. The aforesaid material on record depicts that the impugned income is nothing but unaccounted money received by the assessee from customers on account of sale of flats of its housing project. Clearly, the source of the additional income is the sale of flats in the housing project. Therefore, once the source of income is established the assessability thereof has to follow. The nature of income, thus on facts, has to be treated as ‘business income’ albeit, the same was not accounted for in the account books. In this manner, the stand of the Assessing Officer or of the Commissioner (Appeals) that the said income is not liable to be taxed as ‘business income’ cannot be accepted.
In terms of clause (i) of the Explanation to section 153A(2), it is evident that all the provisions of the Act shall apply to an assessment made u/s. 153A save as otherwise provided in the said section, or in section 153B or S. 153C.
Section 153A(1)(b) requires the Assessing Officer to assess or reassess the ‘total income’ of the assessment years specified therein. Ostensibly, section 80A(1) prescribes that in computing the ‘total income’ of an assessee, there shall be allowed from his ‘total income’ the deductions specified in Chapter VI-A. The moot point is as to whether the aforestated position prevails in an assessment made u/s. 153A(1)(b) or not?
Having regard to the expression ‘all other provisions of this Act shall apply to the assessment made under this section’ in Explanation (i) of section 153A, it clearly implies that in assessing or reassessing the ‘total income’ for the assessment years specified in section153A(1)(b), the import of section 80A(1) comes into play, and there shall be allowed the deductions specified in Chapter VI-A, of course subject to fulfillment of the respective conditions.
The other argument of the Ld. CIT-DR to the effect that the return of income was not accompanied by the prescribed audit report on the enhanced claim of deduction is too hyper-technical, and superficial. Pertinently, the Assessing Officer has not altogether denied the claim of deduction and in any case, the claim was initially made in the return originally filed, which was duly accompanied by the prescribed audit report.
The learned Departmental Representative supported the disallowance of claim on the basis of the judgment of the Hon’ble Supreme Court in the case of Sun Engineering Works (P.) Ltd. In the case before the Hon’ble Supreme Court, assessee wanted to set-off loss against the escaped income which was taxed in the re-assessment proceedings and the claim of such set-off was not made in the return of income originally filed. According to the Hon’ble Supreme Court, the claim was not entertainable because the said claim not connected with the assessment of escaped income. The judgment of the Hon’ble Supreme Court in the case of Sun Engg. Works (P.) Ltd. (supra) only precludes such new claims by the assessee which are unconnected with the assessment of escaped income. In the present case, the claim of deduction u/s. 80IB(10) of the Act was made in the return of income originally filed and in the return filed in pursuance to the notice u/s. 153A(1)(a) of the Act, the claim u/s. 80IB(10) of the Act is only enhanced and therefore, it is not a fresh claim. Therefore, the assessee’s claim for deduction u/s. 80- IB(10) even with regard to the enhanced income was well within the scope and ambit of an assessment u/s. 153A(1) (b) and the Assessing Officer was obligated to consider the same as per law.
Further, the claim for deduction u/s. 80-IB(10) with regard to the additional income declared for A.Y. 2010-11 stands on an even stronger footing than in the other assessment years because in A.Y. 2010-11 there was no return of income originally filed but only a single return has been filed as per the provisions of section 139, though after the search action.
