Category: Tribunal News: Part A-Domestic Taxation

Facts
The Assessing Officer noticed that a company Jain Irrigation Systems Ltd. (JISL) had paid a sum of Rs. 2,79,000 as consultancy fees to Mr. Wohra, a Chartered Accountant. The said Chartered Accountant had also attended various matters of the assessee and his family members. He had filed returns of 5 gentlemen and 4 lady members of the family of the assessee but had not charged any amount for services rendered to the assessee and his family members. Since the assessee was a director of the company JISL, the Assessing Officer regarded a sum of Rs. 10,000 as a perquisite taxable u/s. 2(24)(iv) of the Act and included it in the total income of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held
It is not mandatory or compulsory for any professional to charge for professional services rendered to any director or relative of a director or close family members of directors when he is getting fees for rendering services to a company. He may do it voluntarily and free of cost as well. The Tribunal observed that there is no material on record to show that the company has paid any amount to the consultant on behalf of the assessee.

In the absence of any material on record to show that the company has paid any amount to its consultant specifically for the services rendered by him in connection with the individual tax matters of the assessee and other family members of the assessee, no part of the remuneration paid by the company was held to be assessable as perquisite in the hands of the assessee.

This ground of appeal of the assessee was allowed.

Facts
The assessee company, engaged in the business of development and leasing of commercial complexes and rehabilitation of buildings under Slum Rehabilitation Scheme held a parcel of land as its capital asset and the said land was attached with development rights/FSI. The development rights/FSI attached to a portion of the said land were transferred by the assessee to its subsidiary company. In view of the provisions of section 47(iv) being applicable, to the assessee company, the capital gains arising on the said transfer to its subsidiary company were not included in the total income of the assessee company.

While computing the `book profit’ u/s. 115JB also, the assessee company did not offer the said amount on the ground that since the said amount was not income it did not come within the purview of section 115JB. The assessee had attached a note in the Notes forming part of accounts explaining therein that the profits arising on transfer of capital asset to its subsidiary company is, in its opinion, not coming within the purview of section115JB.

The Assessing Officer (AO) did not agree with the contentions of the assessee and he included the amount of profit on transfer of development rights in the `net profit’ for the purpose of computing `book profit’ u/s. 115JB of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A). The CIT(A) upheld the order of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal where it contended that the profit and loss account should be read along with the Notes forming part of accounts and the net profit should be understood as the net profit show in the profit and loss account as adjusted by the Notes given in the notes to accounts. It was also contended that since the profit arising on transfer of a capital asset by a company to its wholly owned subsidiary company is not treated as income u/s. 2(24) and since it does not enter into computation provision at all under the normal provision of the Act, the same should not be considered for the purpose of computing book profit u/s. 115JB.

Held
The Tribunal observed that in the instant case the assessee has disclosed an item of income in the profit and loss account, but claimed that the same should be excluded by referring to the Notes to accounts. However, the principle, that the profit and loss account should be read along with Notes to accounts should be applied uniformly in all kind of situations and, hence, due adjustment needs to be done for the effect of items disclosed in the Notes to accounts. The Tribunal held that there is merit in the contention of the assessee that the notes given to Notes to accounts should be read along with the profit and loss account. Hence, the net profit shown in the profit and loss account should be adjusted with the items given in Notes to accounts, meaning thereby, the profits arising on sale of capital asset to its wholly owned subsidiary company should be excluded from the net profit and the net profit so arrived at should be considered as `net profit as shown in the profit and loss account’ used in Explanation I to section 115JB. Clause (ii) of Explanation 1 to section 115JB specifically provides that the amount of income to which any of the provisions of section 10(other than the provisions contained in clause (38) thereof) is to be reduced from net profit, if they are credited to the profit and loss account. The logic of these provisions, is that an item of receipt which falls under the definition of `income’ is excluded for the purpose of computing `book profit’, since the said receipts are exempted under section 10 while computing total income. Thus, it is seen that the Legislature seeks to maintain parity between the computation of `total income’ and `book profit’, in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of `income’ at all and, hence, falls outside the purview of the computation provisions of the Income tax Act, cannot also be included in `book profit’ u/s. 115JB.

This ground of appeal filed by the assessee was allowed.

FACTS
The assessee, a proprietorship concern, was carrying on business of production of milk and milk based products, and had claimed deduction u/s. 80-IC in respect of profit & gains derived from the said business.

The Assessing Officer disallowed assessee’s claim holding that the article or thing, viz., milk, mawa, cream against which the assessee had sought deduction u/s. 80-IC were not specified in the Fourteenth Schedule referred to in section 80-IC(2)(b).

On appeal, the Commissioner (Appeals) held that ‘Milk’ was an article mentioned in Fourteenth Schedule of the Act, and that profit derived from milk was eligible for deduction u/s. 80-IC subject to other conditions laid down in section 80 IC of the Act.

On revenue’s appeal:

HELD

CIT-(A) had held that that Milk is an article mentioned in Fourteen Schedule of the Income-tax Act, 1961 and that profit derived from Milk is eligible for deduction u/s. 80IC of the Act by making following observation-

Sl. No.5 of Schedule 14 in respect of North Eastern States reads as under: Milk and milk based product industries manufacturing or producingi.

i. Milk Powder;
ii. Cheese;
iii. Butterghee;
iv. Infant food;
v. Weaning food;
vi. Malted milk food

The point is whether the first word (milk) in the items read independently or in conjunction with the word “based industries”. In order to find the answer, it may be useful to look at some of the other items in Schedule 14. Item 4 is Food & Beverages Industries. This may read as Food Industries and Beverages Industries. Similarly, meat and poultry Product Industries may be read as Meat Product Industries & Poultry Product industries.

The milk and milk based industries were definitely not used in a similar way because had it been so, one of the words “Milk” appearing therein would become superfluous. Therefore, the first “Milk” appearing in item No. 5 must be read separately. Therefore, the milk is an article or thing mentioned in Part A of Schedule XIV.

Also in the case of CIT vs. Tara Agencies [2007] 292 ITR 444, the Honorable Apex Court while explaining the meaning of the word “production” has observed as under:

‘The expression “produced” was given a wider meaning than the word “manufacture” pointing out that the word “produced” will include an activity of manufacturing the materials by applying human endeavour on some existing raw material, but the word ‘produce’ may include securing certain produce from natural elements, for example, by milching the cow the milkman, produce milk though he has not applied any process on any raw material for the purpose of bringing into existence the thing known as milk’

‘The word “production” or “produce” when used in juxtaposition with the word ‘manufacture’ takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods.’

In view of the above decision of the Honorable Apex Court, it is held that “Milk” is an article or thing which can be produced by the assessee and the view taken by the CIT- (A) that “Milk” is an article or thing mentioned in Part-A of Fourteenth Schedule of the Act, and that the profit derived from production of milk is eligible for deduction u/s. 80IC of the Act is upheld.

Facts:
The assessee company was engaged in the business of manufacture and trade of synthetic yarn and freight forwarding. The assessee filed its return of income declaring a Nil income. The assessee submitted that it had borrowed loans from various financial institutions to purchase capital assets prior to 1999. When it ran into losses and upon its net worth being fully eroded, it became sick as per provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). In the meanwhile, the assessee was served a notice u/s. 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) from Stressed Assets Stabilization Fund (SASF) (a financial institution which had taken over the loans advanced by IDBI Bank Ltd) who was authorised to act on behalf of self and all the secured lenders of the assessee. The SASF took over physical possession of the secured movable and immovable assets of the assessee u/s. 13(4) of SARFAESI on 28.9.2007.

The assets of the assessee were sold by SASF sometime in March, 2008 for a sale price of Rs. 10 crore. The principal amount of loans outstanding to the secured lenders amounted to Rs. 97.42 crore, of which Rs. 24.46 crore was due on account of unpaid principal amount of borrowings utilised for working capital. It was stand of the assessee that the amount of Rs. 24.46 crore being the unpaid amount of working capital borrowings can form part of its taxable income and Rs. 72.96 crore (Rs 97.42 crore minus Rs. 24.46 crore) on account of unpaid principal amount of borrowings utilised for creation of depreciable fixed assets cannot form part of taxable income.

The Assessing Officer (AO) added a sum of Rs. 61,73,27,400 to the total income of the assessee as short term capital gain on the ground that the assets of the assessee have been sold for a certain consideration and in return the assessee has received as benefit waiver of entire loan of Rs. 97.42 crore outstanding in its books. Since the WDV of the assets as per books was Rs 11.23 crore the AO charged Rs 61.73 crore as short term capital gains.

Aggrieved the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.

Held:
The AO erred in applying the provisions of section 2(47) of the Act in considering that the secured lendor acquires title to the secured assets of the assessee company on taking over of possession of assets of the assessee by overlooking the fact that what the secured lenders acquired on taking over of the possession of the secured assets were merely a special right to execute or implement the recovery of its dues from dealing with those assets of the assessee company. Had the assessee company tendered the amounts payable to the secured lenders before the date of sale of such assets without any further act, deed or thing being required to be carried out or completed towards title of the assets, the assessee company could have regained or taken possession of the secured assets from the secured lenders.

The ownership rights in the assets did not at any stage stand transferred to the secured lenders by taking over the possession of the secured assets. Thus, the sale consideration received by the secured lender actually belonged to the borrower which by operation of law remained retained by the secured lenders to recover their costs, dues, etc. Further, if the consideration to the assessee is to be considered as the sale amount received by the lending banks, then, the loans waived by such banks (availed by the assessee for the purchase of capital assets such as land, building, plant and machinery, etc) was nothing but a capital receipt not liable for tax since neither the provisions of section 28(iv) nor section 41(1) of the Act are attracted.

This ground of appeal of the assessee was allowed.

Facts:
In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee was getting professional and technical services from SRL Ranbaxy and had paid Rs. 64,55,563 for the same. He held that tax on this sum was deductible u/s.194J of the Act. He also noticed that a sum of Rs. 88,689 was paid by the assessee for getting MRI envelopes, visiting cards, forms, etc printed for exclusive use of the assessee. This amount, according to the AO, was liable for deduction of tax at source u/s 194C of the Act. Since the assessee had not deducted tax at source on these amounts, he disallowed both these amounts u/s. 40(a)(ia).

Aggrieved, the assessee preferred an appeal to the CIT(A) who deleted the addition of Rs. 64,55,563 by holding that assessee was an agent of M/s. SRL Ranbaxy Ltd. and hence was not liable for deduction u/s. 194J. He also deleted the addition of Rs. 88,689 by considering the said transaction to be purchase of goods and not a case of job work liable for TDS u/s. 194C.

Aggrieved, the revenue preferred an appeal to the Tribunal. Before the Tribunal, the assessee filed necessary confirmation from the payee that they have paid the taxes on the amounts received from the assessee and contended that the second proviso to section 40(a)(ia) is clarificatory and therefore operates retrospectively.

Held:
The Tribunal noted the second proviso, inserted by Finance Act, 2012 w.e.f. 1.4.2013, and held that even though the said proviso has been inserted w.e.f. 1.4.2013, the Agra Bench of the Tribunal has in the case of Rajiv Kumar Aggarwal (ITA No. 337/Agra/2013 order dated 29.5.2013) following the jurisdictional High Court in the case of CITR vs. Rajinder Kumar (362 ITR 241)(Del) held that the second proviso is declaratory and curative in nature and has retrospective effect from 1.4.2005.

Following the above mentioned decision of the Agra Bench, the Tribunal directed the AO to verify whether the payee has filed his return of income and paid taxes within the stipulated time. If it has done so, no disallowance u/s. .40(a)(ia) in respect of the above payments be made.

The Tribunal set aside the two cases to the file of the AO for the limited purpose of examination whether the payee has filed its return of income and paid taxes on the same within the stipulated time.

Facts:
The assessee company was mainly engaged in the business of trading in telecom and security equipment and providing transportation service.

During the year under consideration, it had entered into the business of Fleet Management services and providing security products and networking solutions.

The assessee had paid consultancy charges to a consultant, who had provided various kinds of advisory services and had also contributed in identifying prospective customers, for rendering of the aforesaid services.

The Assessing Officer disallowed consultancy charges by treating the same as capital expenditure

On appeal before CIT(A), the assessee contended that the Assessing Officer had completely misunderstood the facts and that it had incurred the said consultancy charges only after setting up of the new business and for developing the existing new business, which was in the service industry.

On scrutinising the books of accounts of the assessee, CIT(A) noted that the income offered from new business services were meagre as compared to the income offered from existing business of trading and transportation service. He thus held that such consulting charges can neither be capitalised nor allowed as revenue expenditure. It was clear cut case of capital expenditure not allowable u/s. 37(1).
On appeal before the Tribunal.

Held:
For deciding the issue whether the expenditure is capital or revenue in nature, the concept of enduring benefit is quite a paramount factor but such test of enduring benefit cannot be held to be conclusive. There may be a case where expenditures have been incurred for obtaining advantage of enduring benefit but nonetheless they may be on revenue account. What has to be seen is the nature of advantage in a commercial sense, that is, whether it is in the capital field or for the running of the business. If the advantage is necessitating the business operations for enabling the assessee to do business for earning some profit without having impact on fixed capital, then such expenditure has to be reckoned on revenue account, even though the advantage may endure in future.

In the present case, there is no augmentation of asset to the assessee but the expenditure has helped the assessee to develop a proper guidance for running the new line of service industries. Thus, in our opinion, the payment for consultancy charges is on account of revenue field only and has to be allowed as revenue expenditure u/s. 37(1) as it is wholly and exclusively for the purpose of business.

The assessee’s brothers subsequently entered into a joint development agreement of the property, in terms of which, the developer directly paid Rs. 87.5 lakh each to the daughters of ‘B’ including assessee therein. On receiving the amount, the daughters of ‘B’ executed a release deed of disputed property in favour of their brothers.

During the relevant assessment year, the assessee did not offer this Rs. 87.5 lakh to tax under the head ‘Capital Gain’. The assessee took a stand that the amount was received as a result of a family arrangement, and therefore there was no transfer of asset to attract the provisions of section 45.

The assessing officer was of the view that the daughters of ‘B’, including the assessee, have sold the property to the developer and therefore, it was a case of transfer within the meaning of section 2(47), giving rise to long term capital gain, and hence he made certain additions to asseessee’s income under the head ‘capital gain’.

The Commissioner (Appeals) confirmed the order of Assessing Officer.

On second appeal.

Held:
The 4 daughters of late ‘B’ filed suit claiming 1/10th share each over the properties left behind by ‘B’. The claim was on the basis that as class-I legal heirs under the Hindu Succession Act, 1956, they are entitled to 1/10th share each over the properties of late ‘B’ who died intestate and in respect of the properties which were his self-acquired properties. The 4 sons claimed that the properties were joint family properties comprising of the 4 sons and late ‘B’. The trial court found the plea to be not acceptable and the plea of the daughters for 1/10th share each over the properties of the deceased was decreed.

The compromise recorded before the High Court recognises/ accepts the decree of the trial court and a decree in terms of the compromise was passed. The plaintiffs (4 daughters) and the 2 other daughters of the deceased gave up their right to mesne profits and took their share of the property in kind and not by way of division by metes and bounds. The compromise decree does not have any ingredients of a family arrangement and hence the money received by the assessee is not pursuant to a family arrangement.

Now, it is to be examined as to whether the money received pursuant to a court decree in lieu of a share in the properties, can be said to result in a transfer attracting the provisions of section 2 (47) (i) or (ii) of the Act, though the other clauses of 2(47) of the Act are admittedly not applicable to the present case.

One of the reasons given by the learned CIT(A) is that u/s. 47(i) of the Act, it is only distribution of capital assets on the total or partial partition of a Hindu undivided family is not regarded as transfer and therefore in the present case which was not a case of partition of an HUF, there is a transfer u/s. 2(47) of the Act.

However, the view expressed by the CIT(A) is not acceptable. The provisions are intended to clarify that when a partition is made, no gains are made by the HUF and therefore levy of tax on capital gain, which can only be on the transferor, does not arise at all. Even in the absence of such a provision the revenue cannot seek to levy tax on capital gain because tax on capital gain can be imposed only on transferor and the HUF on a partition receives nothing. Therefore it cannot be said that provisions of section 47(i) of the Act by implication can justify levy of tax on capital gain wherever there is a partition between co-owners of properties which does not involve a HUF.

Partition is any division of real property or Personal Property between co-owners, resulting in individual ownership of the interests of each. In the present case, on death of Mr. B and his wife, their 10 children, 4 sons and 6 daughters became entitled to 1/10th share each over the property by way of intestate succession. A partition of the share of each of the 1/10th co-owner was effected through Court. Since a physical division by metes and bounds of each of the 1/10th share was not possible, the 4 sons took the property and the 6 daughters took money equivalent of their 1/10th share each over the property.

The sum received by the assessee is thus traceable to the realisation of her rights as legal heir on intestate succession and not to any sale, relinquishment or extinguishment of right to property. This is clear from the terms of the memorandum of compromise dated 11.1.2008 entered into between all the legal heirs of late Mr. B, which ultimately was recognised by the Court and a decree in terms of the compromise recorded and passed.

As per clause-2 of the compromise the property was valued at Rs. 8.75 crore. The sons agreed to take the property and further agreed that they would deposit Rs. 5.25 crore being the value of 6/10th share of the property. As per clause 4 of the memorandum of compromise the 6 daughters agreed that they would receive Rs. 87.50 lakh each towards their 1/10th share each over the property. Under clause-5 of the memorandum of compromise the daughters agreed to execute a release deed after the receipt of Rs. 87.50 lakh each by them. It is thus clear that the release deed which was later executed by the 6 daughters in favour of the 4 sons on 23.7.2008 was only to confer better title over the property and that document did not create, extinguish or modify the rights over the property either of the sons or the daughters.

Ultimately, the sum of Rs. 87.50 lakh was paid only through the Court and not at the time of registration of the deed of release. It is also significant to note that the document of release is between the 6 daughters and the 4 sons and the developer is not a party to the document. The developer is also not a party to the suit for partition. Therefore the conclusions of the revenue authorities that there was a conveyance of the share of the daughters in favour of the developer based on statement of the sons and the developer is contrary to the written and registered document and cannot be sustained.

The issue can be looked at from another angle as well. Suppose the deceased had left behind him deposits in a Bank Account and the bank pays l/10th each of such deposits to the legal heirs, would the receipt be chargeable to tax as income in the hands of the legal heirs. The answer is obviously in the negative. Suppose money is received in lieu of a share over immovable property of the deceased, as in the present case, it cannot be brought to tax, as it is not in the nature of income. In such an event it is not possible to compute the capital gain as there would be no cost of acquisition. The provisions of section 55(2) (b) & section 55(3) of the Act which provides for determining cost of acquisition in different situations cannot also be applied because, those provisions are applicable only for the purpose of section 48 and 49 of the Act. Section 48 and 49 of the Act would apply only when section 45 of the Act applies i.e., there is a transfer of a capital asset giving raise to capital gain. The AO was therefore not right in computing the capital gain in the manner in which he did so.

For the aforesaid reasons, the money received
pursuant to a court decree in lieu
of a share in the properties, cannot be said to result in transfer as it does
not attract the provisions of section 2 (47) (i) or (ii) of the Income-tax Act and the revenue authorities were not justified in
bringing to tax amount in question as capital gain in the hands of the
assessee.

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.

Facts: The assessee had claimed deduction u/s. 80IB(10) in respect of profit from development of three housing projects under the Slum Rehabilitation Scheme (SRS) of the Government of Maharashtra. The details of three projects under SRS projects are as under:—

The Assessing Officer denied the claim of the assessee on the ground that the conditions prescribed under clause (b) of section 80-IB(10) regarding minimum area of 1 acre of the plot had not been satisfied by the assessee. The assessee claimed that all the three plots of land should be considered as one project for the purpose of deduction u/s. 80-IB(10). The Assessing Officer did not accept the contention of the assessee and disallowed the claim of the assessee.

On appeal, apart from merging all the plots, the assessee had also contended that the slum rehabilitation scheme had been notified by the Board vide notification dated 05- 01-2011 and, therefore, the condition of minimum area of 1 acre of land was not applicable in the case of the assessee.

The CIT(A) noted that under the notification dated 5.1.2011 the slum redevelopment scheme of the Government of Maharashtra has been notified subject to the condition that the projects approved before 01-04-2004 do not fall under the scheme notified by the CBDT and since assessee’s project was approved before 01-04-2004, he confirmed disallowance.

Held: For the assessment years 2003-04 to 2005-06, the Tribunal had considered and held that assessee had not fulfilled the conditions laid down u/s. 80-IB(10) because assessee carried out development on three different plots; each of those plots was less than one acre. These plots were not contiguous to each other. Though these plots were located at Dharavi, Mumbai, they were at different places. In other words, there were other slums in between these three slum areas which were rehabilitated by the assessee.

For the assessment year 2006-07, the Tribunal by following the earlier order of this Tribunal has decided this issue.

The issue of merger of three plots for the purpose of area of plot being 1 acre had been decided against the assessee consistently by this Tribunal. Following the earlier years order of this Tribunal, there was no error or illegality in the impugned order of Commissioner (A).

As regards the benefit of proviso to section 80-IB(10), the conditions enumerated in clauses (a) & (b) are relaxed if the housing project is carried out in accordance with the scheme framed by the Central or State Government for reconstruction/redevelopment of slum area declared therein. However, such schemes are required to be notified by the Board in this behalf. It is pertinent to note that in the earlier years when this matter came before the Tribunal this scheme was not notified by the Board and only on 5-1-2011, the Board has notified the scheme.

As per this Notification, the Board has stated that this notification shall be deemed to apply to the projects approved by the local authority under the SRS scheme on or after 1-4-2004 and before 31-3-2008. It was further clarified that the income arising from such projects was eligible for deduction u/s. 80-IB(10) from the assessment year 2005- 06 onwards. The question arises whether while notifying the scheme the Board can attach any condition for the eligibility of the project to avail the benefit of proviso to section 80-IB(10)(a) and (b).

The deduction u/s. 80-IB(10) is available to the housing project which fulfils the conditions stipulated thereunder. One of the conditions is that the project is on the size of plot of land which has a minimum area of 1 acre under clause (b) of section 80-IB(10). An exclusion has been carved out under the proviso to clauses (a) and (b) of section 80-IB(10) whereby the condition stipulated under clauses (a) and (b) shall not apply to the housing project carried out in accordance with the scheme framed by the Central Government or State Government for reconstruction or redevelopment of area declared as slum area under the law. The projects of the assessee are under the slum rehabilitation scheme framed by the State Government which has been notified by the board vide notification dated 5-1-2011. The plain reading of the proviso inserted by the Finance Act, 2004 to clauses (a) and (b) of sub-section (10) of section 80-IB clearly manifests the requirement of notification of the scheme so framed either by the Central Government or by the State Government. Also, it is relevant to see the intent of the Legislature while amending the provisions of section 80-IB(10), to relax the condition for such project under the slum rehabilitation scheme. The memorandum explaining the provisions in the Finance Bill, 2004 states that with a view to increase the redevelopment of slum dwellers, it has proposed to relax the condition of minimum plot size of 1 acre in case of housing project carried out in accordance with the scheme framed by the Central Government or State Government for reconstruction or redevelopment of existing building and notified by the board in this behalf. Thus, the intent of legislature is to exempt the condition of minimum of 1 acre plot size in the case where the housing project is carried out in accordance with the slum reconstruction scheme framed by the Central Government or State Government and such scheme is notified by the Board. Therefore, to avail the benefit of the proviso to clauses (a) and (b) of section 80-IB(10), the following requirements are to be satisfied, viz., (i) the housing project is carried out in accordance with the scheme of reconstruction or redevelopment of slum area (ii) such scheme is framed by the Central Government or State Government (iii) such scheme is notified by the Board in this behalf.

There is no dispute that the projects in question are carried out in accordance with the scheme for redevelopment of the slum area as framed by the State Government of Maharashtra and the same has been notified by the Board vide notification dated 5-1-2011. The second part of this notification contemplates a new condition which is not provided even under clause (a) of section 80- IB(10). The condition inserted in the notification says that the notification shall be deemed to apply to the projects approved by the local authority on or after 1-4-2004 and before 31-3-2008. This condition contemplated under the notification is repugnant to the conditions provided u/s. 80-IB(10). The proviso in question has been inserted to relax the condition provided under clauses (a) & (b) of section 80-IB(10) and not for adding any new condition which is otherwise not required for housing projects for availing the benefit of deduction u/s. 80-IB(10). Even otherwise the condition as stipulated in clause (a) of section 80-IB(10) with respect to sanction of the project is only for the time period of completion of the project and there is no such condition that if a project is approved prior to 1-4-2004, it is not entitled for the benefit u/s. 80-IB(10). Once the scheme is notified all projects carried out in accordance with such scheme are entitled for the benefit of the proviso whereby the conditions prescribed under clauses (a) and (b) are relaxed. Thus the second part of the notification dated 5-1-2011 is inconsistent/contrary to the proviso of clauses (a) and (b) of section 80-IB(10) as well as to the intent of the Legislature inserting the said proviso. The Board cannot insert a new condition in the provisions of a statute which is repugnant to the provisions itself as well as
against the very object and scheme of the said provision of the statute.
Accordingly the assessee was entitled for benefit of the proviso to clauses and (b) of
section 80-IB(10) and, therefore, was eligible for deduction u/s. 80-IB(10) if
the other conditions as prescribed under clauses (c) to (e) are satisfied.