ITAT ‘F’ Bench, Mumbai
Before M. A. Bakshi (VP) and
R. K. Panda (AM)
ITA No. 3646/Mum./2007 & 2730/Mum./2007
A.Y. : 2003-04. Decided on : 28-7-2009
Counsel for revenue/assessee : J. V. D. Lanstich/
R. R. Vora and Manoj Anchalia
S. 80IB(10) — Amenities provided by the assessee at the
time of construction itself, though by way of a separate agreement, are to be
treated as part of the housing project undertaken by the assessee — Deduction
u/s.80IB(10) is allowable in respect of receipts for amenities — When there is
direct nexus between the funds borrowed and funds advanced to sister concerns
interest received on amounts advanced can be netted off against interest paid.
Per R. K. Panda :
Facts :
The assessee was engaged in the business of constructing
residential buildings. During the assessment year under consideration the
assessee had claimed deduction of Rs.3,15,40,268 u/s.80IB(10). The Assessing
Officer (AO) noted that the assessee had considered receipts for amenities as
part of total sales and had claimed deduction u/s.80IB on the profit element
contained in receipts for amenities. He observed that the amenities included
superior quality flooring, false ceiling, fans and tubes, superior quality
fittings in toilets, box grills and pipe gas from Mahanagar Gas Limited. The
AO did not consider profit derived from providing amenities as part of total
sales and accordingly denied benefit of deduction on an amount of Rs.22,12,360
being the profit on amenities receipts of Rs.55,34,797.
The CIT(A) held that provision of amenities should be
treated as part of the housing project undertaken by the assessee and since
these amenities are provided by the assessee at the time of construction
itself, though by way of a separate agreement, the profit element in receipts
for amenities qualifies for deduction u/s.80IB(10). He allowed the appeal of
the assessee.
The CIT(A), in the course of appeal proceedings before him,
noted that the assessee had advanced monies to its sister concerns and had
received interest of Rs.16,27,802 which interest was netted off against
interest paid. After giving an opportunity to the assessee, he held that
interest receipts should be excluded for the purpose of calculating deduction
u/s.80IB(10) of the Act. He directed AO to recompute the deduction
u/s.80IB(10) by excluding interest receipts.
Aggrieved, the Revenue and the assessee preferred appeals
to the Tribunal.
Held :
The Tribunal noted that the extra amenities are provided
only to purchasers of the flats at the time of purchase of flat itself and no
such activity has been undertaken for any other person; the agreement for sale
of flat and for provision of extra amenities were both entered on the same
date; work for extra amenities was carried out through the same contractor at
the time of construction of the flat itself. It found merit in the submission
that extra amenities given to the buyer cannot be provided in isolation as the
same are inextricably connected with the housing project and the decision of
providing such extra amenities to the buyer was a commercial decision and
within the conditions of S. 80IB(10) of the Act. Accordingly, this ground was
decided in favor of the assessee.
As regards the exclusion of interest receipts for computing
deduction u/s.80IB(10) the Tribunal after considering the submissions made on
behalf of the assessee (viz. that the funds were borrowed from banks
and private parties for the purpose of its housing project; the borrowings
from the banks were for a specified period and prepayment would have resulted
into levy of penalty interest and therefore funds were advanced to sister
concerns on a temporary basis so as to recoup part of the interest costs)
directed the AO to give an opportunity to the assessee to prove the nexus that
borrowed funds were used for giving advances on which interest has been earned
and if the assessee can prove such nexus then netting may be allowed.
