Facts
The assessee was in the business of construction. It filed return of income declaring total income at Rs. Nil after claiming deduction u/s. 80IB(10) of the Act. In the course of assessment proceedings, the AO noticed that the profit as per P & L Account was Rs. 51,34,648 and to this, the assessee had added the amount of Rs. 13,35,990 being the amount of expenditure on which TDS was deposited later than the due date and Rs. 81,81,030 being amount of expenditure on which TDS was not deposited as per tax audit report. Thus, on a gross total income of Rs. 1,46,51,668, the assessee claimed deduction u/s. 80IB(10) of Rs. 1,46,51,668.
On being asked as to why deduction u/s. 80IB(10) should not be disallowed on Rs. 95,17,020 the assessee submitted that no disallowance u/s. 40(a)(ia) was called for and even if the amount is disallowed the assessee is eligible for deduction u/s. 80IB(10) on the entire amount of profit derived from the housing project as computed under the Act, which is included in the gross total income of the assessee.
The AO after considering the decision of the Apex Court in Liberty India vs. CIT 317 ITR 218 (SC) held that the assessee has wrongly claimed the deduction u/s. 80IB(10) on the amount of Rs. 95,17,020 which is not a profit of the eligible enterprise, but has to be taxed because of the violation of the provisions of section 40(a)(ia) of the Act. He disallowed the claim of deduction u/s .80IB(10) on the amount of Rs. 95,17,020.
Aggrieved the assessee preferred an appeal to the CIT(A) who allowed the appeal of the assessee.
Aggrieved, the Revenue preferred an appeal to the Tribunal.
Held
The Tribunal noted the ratio of the following decisions –
(i) S B Builders & Developers vs. ITO (ITA No. 1245/ Mum/2009)(AY 2006-07) order dated 14-5-2010;
(ii) ITO vs. Shri Ganesh Developers and Builders (ITA No. 4328/Del/2009)(AY 2006-07) order dated 11-3-2011; and
(iii) ACIT vs. Sri Lakshmi Builders and vice versa in ITA No. 244/Vizag/2008 and in ITA No. 323/Vizag/2010 (AY 2005-06) order dated 22-11-2010.
It noted that in the case of Sri Lakshmi Builders (supra) on the issue of disallowance of deduction u/s. 80IB(10) on the amount disallowed u/s. 40(a)(ia) it has been held by the Tribunal that the disallowance so made can only be treated as income derived from the impugned business activity, when the income after making the said disallowance is subjected to tax as the business profit.
Applying the ratio of the abovementioned decisions to the facts of the assessee’s case, the Tribunal held that since the AO had treated the disallowance u/s. 40(a) (ia) of Rs. 95,17,020 as income from business and it is not the case of the Revenue that the income derived by the assessee is other than the business income from developing and building housing project, the assessee is entitled to deduction u/s. 80IB(10) in respect of total profits including the profits of Rs. 95,17,020 computed as business profits of the housing project for the year under appeal. The Tribunal upheld the order of the CIT(A).
The appeal filed by the Revenue was dismissed.
