ITR Volume 328 : Part 3 (Issue dated 8-11-2010) INCOME TAX REPORTS (ITR) Volume 328 : Part 3 (Issue dated 8-11-2010) SUBJECT INDEX TO CASES REPORTED IN THIS PART SUPREME COURT Advance tax --Nature of--Does not affect charge of tax or modify liability

INCOME TAX REPORTS (ITR)

Volume 328 : Part 3 (Issue dated 8-11-2010)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

SUPREME COURT

Advance tax --Nature of--Does not affect charge of tax or modify liability to pay tax on assessment order--Income-tax Act, 1961, ss. 4(1), 190(1), 207-- Brij Lal v. CIT . . . 477

Settlement of cases --Settlement Commission--Interest under section 234B--Only up to the date of order under section 245D(1) and not up to date of order of settlement under section 245D(4)--Income-tax Act, 1961, ss. 234B, 245D(1), (4)-- Brij Lal v. CIT . . 477

Settlement Commission--Proceedings concluded--Thereafter interest under section 234B cannot be levied by way of rectification--Relevant date for determining quantum of interest under section 234B--Income-tax Act, 1961, ss. 2(40), (45), 140A, 143, 154, 207, 209, 210, 215, 234A, 234B, 234C, 245A, 245C, 245D, 245E, 245F, 245-I-- Brij Lal v. CIT . . . 477

Words and phrases --"Assessment", meaning of-- Brij Lal v. CIT . . . 477

HIGH COURTS

Accounting --Change of method of accounting from turnover base to capital investment base--Bona fides of assessee to adopt new method cannot be doubted merely because resulting in more benefits to assessee--Income-tax Act, 1961-- CIT v. Jindal Saw Pipes Ltd . (Delhi) . . . 338

Advance tax --Interest payable by assessee--Waiver of interest--Jurisdiction to grant waiver--Effect of circular-cum-notification dated 23-5-1996--Chief Commissioner and Director General of Income-tax (Exemptions) have jurisdiction only in cases covered by category 2(a) to (e) mentioned in circular--Income-tax Act, 1961, ss. 234B, 234C--Circular-cum-Notification dated 23-5-1996-- Director General of Income-tax (Exemptions) v. Jockeys Association of India (Karn) . . . 405

Appeal to Appellate Tribunal --Additional ground can be entertained--Income-tax Act, 1961, s. 250(5)-- CIT v. Jindal Saw Pipes Ltd. (Delhi) . . . 338

Appeal to High Court --Circular fixing monetary limit in case of appeal by Revenue --Whether monetary limit applicable to pending cases--To be decided by a larger Bench--Income-tax Act, 1961, ss. 260A, 268A-- CIT v. Varindra Construction Co. (P&H) . . . 446

Business expenditure --Deduction only on actual payment--Exclusion from disallowance--Law applicable--Amendment of section 43B with effect from 1-4-2004--Amendment retrospective--Payment of contribution to provident fund after due date but before filing of return--Payment deductible--Income-tax Act, 1961, s. 43B-- H. P. Tourism Development Corporation Ltd. v. CIT (HP) . . . 508

Cash credits --Share application money--Assessee proving identity of parties, genuineness of transaction and creditworthiness of share applicants--Tribunal deleting additions after appreciating evidence on record--Finding of fact--No substantial question of law--Income-tax Act, 1961, s. 68-- CIT v. Ujala Dyeing and Printing Mills P. Ltd. (Guj) . . . 437

Charitable purposes --Exemption--Educational institution--Assessee running schools--Entitled to exemption under section 11--Income-tax Act, 1961, s. 11-- CIT v. Manav Mangal Society (P&H) . . . 421

Deduction of tax at source --Interest--Chit fund--Chit agreement would not fall under "money lending"--No "debt incurred"--Bid amount disbursed is not interest payable on money borrowed--Payments disbursed not subject to deduction of tax at source--Income-tax Act, 1961, ss. 2(28A), 194A, 201-- CIT v. Sahib Chits (Delhi) (Pvt.) Ltd. (Delhi) . . . 342

Export --Special deduction--Computation--Meaning of "profits of business"--Law applicable--Effect of insertion of clause (iiid) in section 28 by Finance Act, 2005--Entire sale consideration on transfer of DEPB credit assessable on business profits--Income-tax Act, 1961, ss. 28(iiid), 80HHC-- CIT v. Kalpataru Colours and Chemicals (Bom) . . . 451

Special deduction--Computation--Tribunal allowing deduction under section 80HHC on basis of book profits under section 115JA and not on basis of eligible profits under section 80HHC as per normal computation--Justified--Income-tax Act, 1961, ss. 80HHC, 115JA-- CIT v. Bhari Information Technology Systems P. Ltd. (Mad) . . . 380

Income --Association--Principle of mutuality--Interest on surplus funds invested in fixed deposits with banks--Not income received from members of assessee but from third parties--Investing funds of association in bank fixed deposits a prudent commercial decision--Principle of mutuality does not apply--Matter remanded--Income-tax Act, 1961-- CIT v. Common Effluent Treatment Plant, (Thane-Belapur) Association (Bom) . . . 362

Association--Principle of mutuality--Surplus income over expenditure--Principle of mutuality applies--Not chargeable to tax--Income-tax Act, 1961-- CIT v. Common Effluent Treatment Plant, (Thane-Belapur) Association (Bom) . . . 362

Principle of mutuality--Club--Surplus funds deposited with institutional members--Interest on such deposits--Does not satisfy principle of mutuality--Chargeable to tax--Income-tax Act, 1961, s. 4-- Madras Gymkhana Club v. Deputy CIT (Mad) . . . 348

Time-barred unclaimed matured debentures transferred to general reserve account and utilised for business purposes--Amount assessable as trading receipt--Income-tax Act, 1961-- Hindustan Foods Ltd. v. Deputy CIT (Bom) . . . 392

Income from undisclosed sources --Additions to income on basis of statement given by assessee during survey--Assessee later contending that income was from agriculture--Assessee failing to produce books of account or any other authentic contemporaneous evidence of agricultural income--Some entries in a diary not sufficient and conclusive to hold that statement made earlier false--Addition proper--Income-tax Act, 1961, ss 132(4), 133A-- Bachittar Singh v. CIT (P&H) . . . 400

Amount realised on sale of gold jewellery and diamonds--Claim that gold jewellery and diamonds declared under Voluntary Disclosure of Income Scheme--No specific finding regarding claim--Addition to income not justified--Matter remanded--Finance Act, 1997, s. 68-- Smt. Kailashi Devi G. Agarwal v. ITO (Karn) . . . 425

Unaccounted sales--Unaccounted sales covered by income declared by assessee--No separate addition required--Income-tax Act, 1961-- CIT v. Sambhav Textiles Ltd. (P&H) . . . 444

Industrial undertaking --Deduction under section 80-IB--Sale of export incentive--Not income derived from industrial undertaking--Not entitled to deduction--Income-tax Act, 1961 s. 80-IB-- CIT v. Jaswand Sons (P&H) . . . 442

Special deduction under section 80-IA--Computation of gross total income for purposes of section 80-IA--Deduction granted after setting off losses from all other sources--Proper--Income-tax Act, 1961, s. 80-IA-- CIT v. Tridoss Laboratories Ltd .(Bom) . . . 448

Loss --Set off of loss--Year in which loss occurred--Destruction of stock stored in State warehousing corporation by fire in 1978--Suit filed for reimbursement of loss dismissed in May 1982--Loss allowable in assessment year 1983-84--Income-tax Act, 1961, s. 71-- New Diwan Oil Mills v. CIT (P&H) . . . 432

Precedent --Effect of decision of Supreme Court in CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306-- H. P. Tourism Development Corporation Ltd . v. CIT (HP) . . . 508

Effect of decision of Supreme Court in CIT v. Anjum M. H. Ghaswala [2001] 252 ITR 1-- Director General of Income-tax (Exemptions) v. Jockeys Association of India (Karn) . . . 405

Principle of mutuality --Application of-- CIT v. Common Effluent Treatment Plant, (Thane-Belapur) Association (Bom) . . . 362

Reassessment --Limitation--No assessment made under section 143(3)--Time limit of four years not applicable--Income-tax Act, 1961, ss. 143(3), 147-- Madras Gymkhana Club v. Deputy CIT (Mad) . . . 348

Search and seizure --Undisclosed investment--Addition on basis of statement under section 132(4) by assessee recorded at midnight--Assessee later retracting and giving proper explanation for investment--Statement made at odd hours cannot be considered as voluntary statement--Addition not justified--Income-tax Act, 1961-- Kailashben Manharlal Chokshi v. CIT (Guj) . . . 411

Survey --Discrepancy in stock and cash--Addition on basis of statement made during survey--Assessee later contending that statement incorrect and that discrepancy reconciled as it was a mistake--Statement made under section 133A not conclusive proof--Assessee able to explain discrepancy in stock by production of relevant record--Addition to be deleted--Income-tax Act, 1961, s. 133A-- CIT v. Dhingra Metal Works (Delhi) . . . 384

Unexplained investments --Addition on basis of variation between stocks hypothecated with bank and stock shown in books of account--Tribunal finding addition based on bank statement and verification by Regional Officer that stock actually lying with assessee and assessee failed to give satisfactory explanation--Findings of fact--Income-tax Act, 1961 s. 69-- B. T. Steels Ltd. v. CIT (P&H) . . . 471

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Finance Act, 1997 :

S. 68 --Income from undisclosed sources--Amount realised on sale of gold jewellery and diamonds--Claim that gold jewellery and diamonds declared under Voluntary Disclosure of Income Scheme--No specific finding regarding claim--Addition to income not justified--Matter remanded-- Smt. Kailashi Devi G. Agarwal v. ITO (Karn) . . . 425

Income-tax Act, 1961 :

S. 2(28A) --Deduction of tax at source--Interest--Chit fund--Chit agreement would not fall under "money lending"--No "debt incurred"--Bid amount disbursed is not interest payable on money borrowed--Payments disbursed not subject to deduction of tax at source-- CIT v. Sahib Chits (Delhi) (Pvt.) Ltd. (Delhi) . . . 342

S. 2(40) --Settlement of cases--Settlement Commission--Proceedings concluded--Thereafter interest under section 234B cannot be levied by way of rectification--Relevant date for determining quantum of interest under section 234B-- Brij Lal v. CIT (SC) . . . 477

S. 2(45) --Settlement of cases--Settlement Commission--Proceedings concluded--Thereafter interest under section 234B cannot be levied by way of rectification--Relevant date for determining quantum of interest under section 234B-- Brij Lal v. CIT

(SC) . . . 477

S. 4 --Income--Principle of mutuality--Club--Surplus funds deposited with institutional members--Interest on such deposits--Does not satisfy principle of mutuality--Chargeable to tax-- Madras Gymkhana Club v. Deputy CIT (Mad) . . . 348

S. 4(1) --Advance tax--Nature of--Does not affect charge of tax or modify liability to pay tax on assessment order-- Brij Lal v. CIT (SC) . . . 477

S. 11 --Charitable purposes--Exemption--Educational institution--Assessee running schools--Entitled to exemption under section 11-- CIT v. Manav Mangal Society (P&H) . . . 421

S. 28(iiid) --Export--Special deduction--Computation--Meaning of "profits of business"--Law applicable--Effect of insertion of clause (iiid) in section 28 by Finance Act, 2005--Entire sale consideration on transfer of DEPB credit assessable on business profits-- CIT v. Kalpataru Colours and Chemicals (Bom) . . . 451

S. 43B --Business expenditure--Deduction only on actual payment--Exclusion from disallowance--Law applicable--Amendment of section 43B with effect from 1-4-2004--Amendment retrospective--Payment of contribution to provident fund after due date but before filing of return--Payment deductible-- H. P. Tourism Development Corporation Ltd. v. CIT (HP) . . . 508

S. 68 --Cash credits--Share application money--Assessee proving identity of parties, genuineness of transaction and creditworthiness of share applicants--Tribunal deleting additions after appreciating evidence on record--Finding of fact--No substantial question of law-- CIT v. Ujala Dyeing and Printing Mills P. Ltd. (Guj) . . . 437

S. 69 --Unexplained investments--Addition on basis of variation between stocks hypothecated with bank and stock shown in books of account--Tribunal finding addition based on bank statement and verification by Regional Officer that stock actually lying with assessee and assessee failed to give satisfactory explanation--Findings of fact-- B. T. Steels Ltd. v. CIT (P&H) . . . 471

S. 71 --Loss--Set off of loss--Year in which loss occurred--Destruction of stock stored in State warehousing corporation by fire in 1978--Suit filed for reimbursement of loss dismissed in May 1982--Loss allowable in assessment year 1983-84-- New Diwan Oil Mills v. CIT (P&H) . . . 432

S. 80HHC --Export--Special deduction--Computation--Meaning of "profits of business"--Law applicable--Effect of insertion of clause (iiid) in section 28 by Finance Act, 2005--Entire sale consideration on transfer of DEPB credit assessable on business profits-- CIT v. Kalpataru Colours and Chemicals (Bom) . . . 451

Export--Special deduction--Computation--Tribunal allowing deduction under section 80HHC on basis of book profits under section 115JA and not on basis of eligible profits under section 80HHC as per normal computation--Justified-- CIT v. Bhari Information Technology Systems P. Ltd. (Mad) . . . 380

S. 80-IA --Industrial undertaking--Special deduction under section 80-IA--Computation of gross total income for purposes of section 80-IA--Deduction granted after setting off losses from all other sources--Proper-- CIT v. Tridoss Laboratories Ltd . (Bom) . . . 448

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ITAT DEL: Software licensing payments are royalty and taxable,

Software licensing payments are royalty and taxable, rules Tribunal

Microsoft case verdict goes in favour of Revenue Department.

Software firm hit hard

End-user payments for licensing of software to be treated as 'royalty'

Microsoft says payments made towards licensing of software cannot be treated as royalty

Payments made to Microsoft prior to Jan 1, 1999, also taxable as royalty

K.R.Srivats

New Delhi, Oct. 30

The Delhi Income-Tax Appellate Tribunal (ITAT) has held that payments received by Microsoft Corporation from end users (in India) through distributors for sale of Microsoft software, are taxable as royalty. This would be applicable for all the payments made before January 1, 1999, the ITAT has said.

Until this date, Microsoft Corporation, a US company, had direct arrangements with various Indian distributors for sale of Microsoft software (off- the-shelf/shrink-wrapped), on a principal-to-principal basis.

From January 1, 1999, the business model was changed and Microsoft granted exclusive licence to Gracemac Corporation of the US to manufacture the Microsoft software and distribute it in terms of the licence agreement. Even under the changed business model, the ITAT has now held that payments for software licensing should be treated as royalty for tax purposes.

Disposing a batch of appeals relating to three different entities — Microsoft Corporation, Gracemac Corporation and Microsoft Regional Sales Corporation (MRSC) — relating to different assessment years, the ITAT bench upheld the ruling of CIT (appeals) that consideration received from licensing of computer software would be in the nature of royalty under the Indian Income Tax law and India-US DTAA.

Revenue Dept

This ITAT ruling comes in the Revenue Department's favour. Microsoft has been contending that payments made towards licensing of computer software cannot be treated as royalty, but should be considered as business profits. If considered as business profits, the software major would have had no tax liability here as it does not have a permanent establishment in India.

Meanwhile, in the case of Gracemac Corp, the ITAT has held that payments made in respect of copyright in Microsoft software are taxable as royalty in its hands.

Under Microsoft's changed business model from January 1, 1999, Gracemac had entered into a licence agreement with Microsoft Operations Pte Ltd, a Singapore-based wholly-owned subsidiary of Microsoft Corporation, for non-exclusive licence to reproduce Microsoft software in Singapore. Microsoft Operations sold all its Microsoft software copies to MRSC branch in Singapore. MRSC had delivered Microsoft software copies to Indian distributors, ex-warehouse in Singapore, who in turn sold them to re-sellers/end users in India.

Microsoft Operations paid royalty to Gracemac. The royalty was based on a percentage of net selling price received by MRSC from distributors in various countries, including India.

The Delhi ITAT has also ruled that MRSC cannot be taxed again on the same income, by way of royalty, for exploitation of same rights which had been taxed in the hands of Gracemac Corporation. Any such move would constitute double taxation and therefore the ITAT has deleted the additions in the hands of MRSC for all the three years.

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Delhi HC: Tax evasion suspicion needs to be recorded.

The Delhi high court has ruled that the tax authorities cannot initiate assessment proceedings simply on belief of escapement of tax, or belief that some income has escaped tax, effectively curbing powers of the revenue department to open past cases. Such belief must be based on prudence which a reasonable person is required to apply, said the high court quashing the income escaping assessment proceedings initiated by the Revenue department under section 147 of the Income Tax Act against an assessee. "The formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply," said a bench comprising Chief Justice Deepak Misra and Justice Manmohan in its order. The court added that the reasons why the assessing officer believed some income had escaped tax needed to be recorded as well. According to section 147 of the I-T Act, amended through the Direct Tax Laws (Amendment) Act of 1989 which came into effect from April 1, 1989, cases could be re-opened if the assessing officer has reason to believe that the income has escaped assessment. Prior to Direct Tax Laws (Amendment) Act, 1987, the assessing officer was empowered to make back assessment on fulfilment of two conditions. One, if the assessing officer has reason to believe that by reason of the omission or failure on the part of an assessee income chargeable to tax has escaped assessment for that year. Second, notwithstanding that there has been no omission or failure on the part of the assessee, the income-tax officer has in consequence of information in his possession has reason to believe that income chargeable to tax has escaped assessment for any assessment year. The amended Act dropped these two conditions, widening the power of the assessing officer to open a case if he has reason to believe that income has escaped assessment. The high court on the plea of the assessee Sarthak Securities held the income escapement proceedings under section 147 of the I-T act, 1961 as illegal. The assessee had filed its return for the assessment year 2003-04 declaring an income of Rs 15,360. It was processed and intimation under Section 143(1) was issued on April 6, 2004 accepting the return. The company had allotted shares to four companies on March 31, 2003 for the amount of Rs 2,50,000, Rs 2,50,000, Rs 3,00,000 and Rs 2,50,000, respectively. These companies were active as per the records of the Registrar of Companies (ROC) and were assessed to income-tax. The department on March 25, 2010 issued notice under section 148 of the Act to the assessee saying that it had reason to believe that the income chargeable to tax for the assessment year 2003-04 had escaped assessment and asked the assessee to file its return for the assessment year in question. – www.economictimes.indiatimes.com

ITR (Trib)) HIGHLIGHTS : Dt 18-10-2010 Volume 5 Part 8

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS

ISSUE DATED 18-10-2010

Volume 5 Part 8

 

APPELLATE TRIBUNAL ORDERS

 

Trust setting up and running educational institution, genuineness of activity established, entitled to registration u/s.12A : Shri Krishna Education and Welfare Trust v. CIT (Delhi) p. 750

 

Where no material produced by AO to prove purchase and lease of cylinders not genuine, assessee entitled to depreciation : Asst. CIT v. Banaras Beads Ltd. (Delhi) p. 761

 

Export proceeds received in convertible foreign exchange before completion of assessment to be included in total turnover : Asst. CIT v. Banaras Beads Ltd. (Delhi) p. 761

 

Liability on account of foreign exchange fluctuation allowed on accrual basis with reference to rate of foreign exchange at end of year : HLS Asia Ltd. v. Dy. CIT (Delhi) p. 774

 

Capital assets not constituting trading items of assessee ; deduction not allowable u/s. 80HHC : HLS Asia Ltd. v. Dy. CIT (Delhi) p. 774

 

Loans obtained for working capital against security of lands cannot be deducted while computing net wealth of assessee : Phoenix International Ltd. v. Dy. CWT (Delhi) p. 787

 

Where fixation of annual value of property by Municipal Corporation at higher rate, CIT directing AO to examine issue considering ss.23 and 24, proper : SICAL Logistics Ltd. v. Addl. CIT (Chennai) p. 801

 

Where repayment of loans in cash prior to amendment, penalty not imposable u/s. 271E : ITO v. Sudesh Kumar Sareen (Delhi) p. 829

 

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Penalty: Judgement from Hon'ble Supreme Court

Penalty: Welcome judgment from Hon'ble Supreme Court

Apr 9, 2010 Income Tax

 

 

If the Assessing officer or Commissioner (Appeals) in the course of any proceedings under the Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, then he can direct that such person shall pay by way of penalty u/s. 271(1) (c), a sum not less than 100% but not exceeding 300% of the amount tax sought to be evaded by reason of concealment of his income or furnishing inaccurate particulars of his income. This section is used as a weapon by the assessing officers. In fact in the orders passed u/s. 143(3) of the Income Tax Act, they have been mentioning "Initiate Penalty proceedings u/s. 271(1) (C) of the I T Act" by default on additions/disallowances done without providing any reasons irrespective of whether the assessee really tried to conceal his income or furnished inaccurate particulars of his income or even if additions/disallowances are on account of legally debatable issues.

 

Larger Bench of Supreme Court in the case of Union of India and Ors., vs. M/s. Dharmendra textile processors and Ors. [2008 306 ITR 227] had while reversing the supreme court judgment of Dilip N Shroff Vs. Joint CIT, Special Range, Mumbai [2007 291 ITR 519] held that "It is a well-settled principle in law that the court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent". Also it further held that "The Explanations appended to Section 271(1)(c) of the IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroff's case (supra) has not considered the effect and relevance of Section 276C of the I.T. Act. Object behind enactment of Section 271(1)(c) read with explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276C of the I.T. Act". Hence the supreme court in this judgment had concluded that `'Mens Rea'' or `'Willful concealment'' is not a criteria for determining leviability of penalty. Based on this judgment, department had been taking a view that once additions/disallowances are confirmed, penalty is to be automatically levied.

 

Under Income Tax Act, there are many issues which are debatable and hence assessee takes a legal position based on judicial pronouncements existing at the time of filing returns. An assessee also prefers making a claim in a transparent manner by providing on record all relevant facts, reasoning and judicial pronouncements considered while deciding on the making a claim.

 

The moot question that arises is whether making of an incorrect claim/claim which is not sustainable in law tantamounts to furnishing of inaccurate particulars of income and penalty u/s. 271(1)(c) can be levied for the same.

 

Hon'ble Mumbai ITAT in the case of ACIT vs. VIP Industries Ltd. [2009-(122)-TTJ -0289 –TBOM] had after considering the judgment of Dharmendra Textiles (supra) held as under:

 

» Mere fact that an addition is confirmed cannot per se lead to the confirmation of the penalty because quantum and penalty proceedings are independent of each other;

 

» For the deeming provision of Explanation 1 to s. 271(1)(c) to apply, it must be shown either that (a) the assessee fails to offer an explanation, or (b) he offers an explanation which is found to be false, or (c) he offers an explanation which cannot be substantiated or shown to be bona fide.

 

» The judgment of the Supreme Court in Dharmendra Textiles Processors which holds that penalty u/s.271(1)(c) is a civil liability and that "willful concealment" and "mens rea" are not essential ingredients for imposing penalty cannot be read to mean that in all cases where addition is confirmed, penalty shall mechanically follow. If penalty is imposed under such circumstances also there will remain no course open to an assessee to raise disputed claims and such proposition is beyond recognized canons of law.

 

Similarly, Hon'ble Pune ITAT in the case of Kanbay Software India Pvt. Ltd. vs. DCIT [2009-(122)-TTJ -0721 –TPUN] after considering Dharmendra Textiles Judgment had explained that there can be three distinct and mutually exclusive situations in the case of disallowances/addition to income:

 

Sr. No. Situation Penalty Leviable

 

1. Where the addition is on account of contumacious conduct of the taxpayer and his wrongful intention is established. Penalty was always imposable.

 

2. Where it can neither be established that the addition is on account of contumacious conduct of the taxpayer nor is it established that the taxpayer's conduct and explanation is bona fide. Penalty is leviable on account of judgment of Dharmendra Textiles.

 

3 Where it is established that the taxpayer's conduct and explanation is bona fide. Penalty will not be leviable.

 

However Income Tax department had still been contending that once the addition is confirmed/wrong claim is made by the assessee, penalty has to be levied u/s. 271(1)(C) of the Income Tax Act, 1961.

 

This issue once again come up for consideration before the Hon'ble Supreme Court in the case of Commissioner of Income Tax vs. Reliance Petro Products Pvt. Ltd., (SLP(C) No. 27161 of 2008), wherein after going through the meaning of the words "furnishing of inaccurate particulars" it held as under;

 

» Mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claims made in the return of income cannot amount to furnishing of inaccurate particulars.

 

» Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself, would not attract penalty u/s. 271(1) (c) of the Income Tax Act.

 

» Unless there is a finding that any details supplied by the assessee in its return of income were found to be incorrect or erroneous or false, there is no question of levying penalty u/s. 271(1)(c).

 

» If the contentions of the revenue are accepted, then in case of every return where claim is not accepted by the Assessing Officer for any reason, the assessee will invite penalty u/s. 271(1)(c). That is clearly not the intendment of the Legislature.

 

This judgment clearly indicates that penalty can be levied by the assessing officer only once he proves that assessee has concealed the particulars of income or he has furnished inaccurate particulars of income at the time of filing of return of income or in any submissions thereafter (whether willfully or otherwise).

 

This judgment is surely a welcome judgment and will help the genuine and honest tax payers in a long way to make appropriate claims in the return of income. Also this will put an end to a lot of disputes, where in department has initiated penalty proceedings in case of assessees, purely based on the disallowances/additions made in the return of income.

 

HC Kerala ; S. 14A applies where shares are held as investment and the only benefit derived is dividend

CIT vs. Leena Ramachandran

S. 14A applies where shares are held as investment and the only benefit derived is dividend. S. 36(1)(iii) deduction allowable if shares held as stock-in-trade

The assessee borrowed funds to acquire controlling interest shares in a company with which she claimed to have business dealings. The interest on the borrowings was claimed as a deduction u/s 36(1)(iii). The AO rejected the claim on the ground that the only benefit derived from the investment in shares was dividend and that the interest had to be disallowed u/s 14A. This was confirmed by the CIT (A). The Tribunal held that the deduction of interest was allowable u/s 36(1)(iii) in principle though a portion of the interest paid had to be regarded as attributable to the dividend and was disallowable u/s 14A. On appeal by the Revenue, HELD reversing the order of the Tribunal:

(i) The only benefit derived by the assessee from the investment in shares was the dividend income and no other benefit was derived from the company for the business carried on by it. As dividend is exempt u/s 10(33), the disallowance u/s 14A would apply. The Tribunal was not correct in estimating the s. 14A disallowance to a lesser figure than the interest paid on the borrowing when the whole of the borrowed funds were utilized by the assessee for purchase of shares;

(ii) Deduction of interest u/s 36(1)(iii) on borrowed funds utilized for the acquisition of shares is admissible only if shares are held as stock in trade and the assessee is engaged in trading in shares. So far as acquisition of shares in the form of investment is concerned and where the only benefit derived is dividend income which is not assessable under the Act, disallowance u/s 14A is squarely attracted.

Note: In CIT vs. Hero Cycles 323 ITR 518 (P&H) it was held that held that in the absence of an actual nexus between tax-free income and expenditure, s. 14A disallowance could not be made.

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ITAT (DEL) : sec 80-IA(4F

(2010) 33 (II) ITCL 155 (Del `A'-Trib)

Addl. CIT v. Shipra Estate Ltd.

Counsel: J.C. Pegu, for the Appellant q Anil Sharma, for the Respondent

ORDER

These are the appeals filed by the assessee and revenue against the order of Commissioner (Appeals) for the assessment years 1999-2000 to 2002-03. In the assessment year 2002-03, the assessee is also aggrieved by the order of CIT passed under section 263 of Income Tax Act. In all the years, the basic grievance relates to disallowance of claim of deduction under section 80-IA(4F) read with section 80-IA(5)(vi) and 80-IB(10) of the Income Tax Act. In assessment year 1999-2000, the assessee has also challenged the legality and validity of proceedings initiated under section 147/148 of the Act.

2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is a limited company engaged in building construction activities. During the relevant assessment years under consideration, the assessee-company in joint venture with Ghaziabad Development Authority, had been engaged in the business of development and construction of houses of different categories, The assessee-company has undertaken the commencement of construction on two major complexes namely M/s. Shipra Riviera at Indirapuram and M/s. Shipra Suncity at Indirapuram, Each complex was further sub-divided into small projects consisting of number of flats of various sizes. The Shipra Riviera Complex was sub-divided into six projects while Shipra Suncity Complex was sub divided into five projects. Shipra Riviera Complex is sub-divided into six projects namely:

(a) Bhagirathi Project.

(b) Alaknanda Project.

(c) Brahmaputra Project.

(d) Raveri Project.

(e) Amravati Project.

(f) Damodar Project.

3. Similarly, Shipra Suncity Complex was sub-divided into five projects namely:

(a) Nilgiri Project.

(b) Shivalik Project.

(c) Sadpura Project,

(d) Kanchenjunga Project.

(e) Aravali Project.

4. As the Bhagirathi and Alaknanda project was commenced prior to 1 -10-1998, no claim of any deduction under section 80-IA/80-IB was filed by the assessee. Contention of assessee before the assessing officer was that the development and construction of four projects of Shipra Riviera namely Brahmaputra, Kaveri, Amravati and Damodar in Shipra Riviera Complex was commenced after 1-10-1998. The development and construction of Shipra Suncity Complex was under taken in the year 1999. The assessee had claimed benefit of tax holiday relief as available under section 80-IA(4F)/80-IB(10) of the Income Tax Act. There is no dispute about the tax holiday benefit in respect of Shipra Suncity Complex. However, the benefit as claimed under the aforesaid provision in respect of four projects namely Brahmaputra, Kaveri, Amravati and Damodar from out of Shipra Riviera Complex has been disallowed by the assessing officer, at the time of framing assessment. The assessing officer stated that the development and construction on the above projects from out of the Shipra Riviera Complex had commenced before the prescribed date as contained under the provisions of section 80-IA(4F) and 80-IB(10) of the Act, therefore assessee is not entitled to the benefit prescribed under section 80-IA(4F)/ 80-IB(10). In the assessment year 1999-2000, by the impugned order, Commissioner (Appeals) confirmed the action of assessing officer. In subsequent years, the disallowance of claim under section 80-IA(4F) and 80-IB( 10) was allowed by Commissioner (Appeals) in the assessment years 2000-01, 2001-02 and 2002-03. In the assessment year 2002-03, the Commissioner (Appeals) had taken action under section 263 alleging that in the order passed under section 143(3), the assessing officer has not declined the claim on the plea of four projects being undertaken was out of splitting up and reconstruction of project already in existence. Both assessee and revenue are in appeal before us.

5. During assessment year 2000-01, the assessee has shown the net profit (before provision for taxation) at Rs. 9,00,79,841 as against the sales of flats in all the complexes at Rs. 35,21,59,540. The ratio of net profit with reference to sales works out to 25.57 per cent as against the net profit ratioof 17 per cent shown in the immediately preceding year (i. e., Rs. 1,30,50,027on sales of Rs. 7,67,52,638). The details of total area under Shipra Riviera Indirapuram project, the categories of flats and built-up area of the flats are as under:

Sl. No.
Name of Project
Land Area (Sq.mtrs.) of flats
Total

(1)
(2)
(3)
(4)

(ii)
Bhagirathi project
10977.37
216

(ii)
Alaknanda project
13700.00
324

(iii)
Brahmaputra project
11710.63
248

(iv)
Kaveri project
7664.69
152

(v)
Amravati project
13394.63
248

(vi)
Damodar project
7752.17
72


Total:

1260


(i) Shipra Riviera Bhagirathi Project

Categories
No. of flats
Size of each flat (sq.ft)

(i)
Classic
120
742

(ii)
Deluxe
96
664

Total:
216



(ii) Shipra Riviera Alaknanda Project

Categories
No. of flats
Size of each flat (sq.ft)

(i)
Classic
160
742

(ii)
Deluxe
128
664

(iii)
Classic Gold
36
823

Total:
324



(iii) Shipra Riviera Brahmaputra Project

Categories
No. of flats
Size of each flat (sq.ft)

(i)
Classic
108
742

(ii)
Deluxe
88
664

(iii)
Classic Gold
20
823

(iv)
Executive
32
985


Total:
248



(iv) Shipra Riviera Kaveri Project

Categories
No. of flats
Size of each flat (sq.ft)

(i)
Classic Gold
140
823

(ii)
Executive
12
985


Total:
152



(v) Shipra Riviera Amravati Project

Categories
No. of flats
Size of each flat (sq.ft)

(i)
Classic
100
742

(ii)
Deluxe
80
664

(iii)
Classic Gold
36
823

(iv)
Executive
32
985


Total:
248



(vi) Shipra Riviera Damodar Project

Categories
No. of flats
Size of each flat (sq.ft)

(i)
Classic Gold
36
823

(ii)
Supreme
36
954


Total:
72



6. The details of total area under Shipra Suncity, Indirapuram project, the categories of flats and built-up area of the flats are as under :

Sl. No.
Name of Project
Land Area (Sq.mtrs.)

(i)
Nilgiri Project
114348.42

(ii)
Shivalik Project
1182.09

(iii)
Satpura Project
48118.44

(iv)
Kanchenjunga Project
27754.86

(v)
Aravali Project
10755.84


7. The type of flats and categories of construction undertaken in the above projects of Shipra Suncity are as under:

(i)
Nilgiri Project




(a)
Regent
1392 flats
726.91 sq.ft


(b)
Regal
768 flats
926.64 sq.ft


(c)
Regalia Heights
266 flats


(ii)
Shivalik Project
1 School


(iii)
Satpura Project




(a)
Royal
256 flats



(b)
Royal Tower




(c)
School
168 flats



(d)
Shopping Complex
1


(iv)
Kanchenjunga Project




(a)
Cottage
43



(b)
Town House
1


(v)
Aravali Project




(a)
Flats
280 flats



8. In support of its claim of deduction under section 80-IA/80-IB(10) in respect of profit from four projects namely, Amravati, Brahmaputra, Damodar and Kaveri projects of Shipra Riviera Complex, it has been submitted that company entered into an agreement with Ghaziabad Development Authority on 12-12-1996 for the construction of various size of flats in different stage-wise projects. The total projects are known as Shipra Riviera, Indirapuram. The company filed detailed drawing with Ghaziabad Development Authority in respect of various projects which was approved by GDA vide order No. 1/TNA/GH/97-98, dated 28-2-1998.The construction of two projects i.e., Bhagirathi and Alaknanda was started in financial year 1997-98 and for rest of the four projects, the construction was started in October, 1998. In support of the contentions that the construction of four projects i.e., Brahmaputra, Kaveri, Alaknandaand Damodar was started after the specified date i.e., 30-9-1998, the assessee submitted as under :

(i) The foundation stone of these projects was laid down by the then Secretary of GDA on 4-10-1998. The copy of letter informing GDA as well as photograph of foundation stone ceremony are placed on record.

(ii) The built-up area of each flat on which deduction has been claimed is much below 1000 sq.ft.

9. In the light of these evidences, the assessee has submitted that since the company has fulfilled all the requirements of section 80-IA/80-IB(10) i.e., the required land area under each project being more than one acre, sizes of flats were having built-up area not exceeding 1000 sq. ft. and commencement of construction was after the specified date i.e. 1-10-1998, the deduction for entire profit from these four projects are required to be allowed. The assessee has claimed that the company is eligible for claim of deduction in respect of 720 flats constructed in the four projects namely Brahmaputra, Kaveri, Amravati and Damodar since the construction work on these projects was started after 1-10-1998. As regards start of construction on each project, the assessee has submitted the details regarding first date of work order/contract/agreement entered into with the sub-contractors as under :

Name of the project
Date of work order

Bhagirathi
26-12-1996

Alaknanda
26-12-1996

Brahmaputra
5-10-1998

Kaveri
10-10-1998

Amravati
6-10-1998

Damodar
15-10-1998


10. The assessing officer observed that the copy of license deed kept on record reveals that the license deed for joint venture was entered into between GDA and Shipra Estate (P.) Ltd. on 12-12-1996 and the land admeasuring 65237 sq.mtrs. was allotted to the assessee to be utilized for multistoried group housing for the total consideration of Rs. 18.60 crores to be paid as license fees to GDA. The joint venture committee was constituted under the Chairmanship of Vice Chairman, GDA. The license deed provided for operation of joint bank account in the name of G D A and assessee in Vijaya Bank, Ghaziabad to be operated jointly and the money from this bank account was required to be transferred to the account of GDA and assessee in the ratio of 70:30 to their respective bank account.

The assessee has also claimed deduction in respect of profit earned on the sale of flats (Regent/Regal) in Nilgiri project of Shipra Suncity, Indirapuram. The company has divided the entire Shipra Suncity project into five projects with the approval of GDA. In respect of Shipra Suncity project, the assessee submitted that the books of account are separately maintained for each housing projects and no development or construction work was started for Shipra Suncity projects prior to 1-10-1998. The land measuring about 50 acres was given by Ghaziabad Development Authority vide lease deed dated 7-4-1998 and the map was sanction by the GDA vide order dated 9-7-1998. The company awarded the contract for construction of flats on the land of Shipra Suncity to M/s. Vij Constructions, New Delhi on 5-10-1998, 12-10-1998 and 20-10-1998. The Foundation Ceremony of Shipra Suncity was held on 24-10-1998 and after that the construction was started. In support of the above contentions the assessee has submitted before the lower authorities the necessary evidences like lease deed, approval of plan by GDA and copies of construction contracts. As per the license deed dated 7-4-1998 entered into between the Ghaziabad Development Authority and Shipra Estate (P.) Ltd., about 50 acres of land in Indirapuram Scheme of GDA was allotted to the assessee in the auction sale held on 31-3-1998 for the highest bid amount of Rs. 38.70 crores. As per the license deed a joint venture committee was to be constituted under the Chairmanship of Vice Chairman, GDA and the license deed provided for a joint bank account in the name of GDA and Shipra Estate (P.) Ltd., Ghaziabad to be operated jointly. The bank shall transfer money from this joint account on first of every month in the ratio of 60 per cent to the account of Ghaziabad Development Authority and 40 per cent to the account of co-venturer i.e., assessee. In pursuance of this license deed the assessee made payment of Rs. 1.935 crores to GDA on 31-3-1998 and assessee was required to pay 20 per cent of the bid amount by the end of September 1998. As per the copy of plan of construction filed by the assessee, the construction plan of various projects was approved by GDA on 9-7-1998 for all the projects in Shipra Suncity, Indirapuram. The construction contract was awarded to M/s. Vij Construction on 5-10-1998 onwards at the rate of Rs. 385 per sq.ft. The assessee vide submissions dated 27-3-2003 has further submitted that the contractor M/s. Vij Constructions started the development and construction work on 24-10-1998. The payment of Rs. 10 lakhs was made by cheques to M/s. Vij Construction on 28-10-1998 whereas the first bill was raised by the said contractor on 30-4-1999 and the project was inaugurated by Ms. L.M. Vas, the then Vice Chairman of GDA. For the purpose of booking of flats at Shipra Suncity, the booking register was maintained at the site of which first two pages are filed on record.

11. The assessee has also relied upon various judicial rulings in support of allowability of its claim of deduction stating that; it is settled principle that a provision for deduction, exemption or relief should be constructed liberally and in favour of the assessee (CIT v. South Arcot District Cooperative Marketing Society Ltd. (1989) 176 ITR 117 (SC) and it should be so constructed as to effectuate the object of the Legislature and not to defeat it (CIT v. Mahindra & Mahindra Ltd. (1983) 144 ITR 225 (SC)). The purpose of bringing section 80-IA(4F) was to encourage house building activity which is clear from the speech of the Union Finance Minister. The Legislature thus, clearly intended that tax holiday may be granted in such cases. Any view that denies this claim would go against the very spirit of the enactment of section 80-IA(4F). In the case of CIT v. J.K. Hosiery Factory (1986) 25 Taxman 80A (SC) it was held that in case of doubt, the assessee is entitled to an interpretation which is favourable to him. The Hon'ble Supreme Court in the case of CIT v. Hindustan Bulk Carriers (2003) 126 Taxman 321 held that a construction which reduces the statue to a futility has to be avoided. A statue or any enacting provision therein must be so construed as to make it effective and operative on the principle expressed in the maxim utres magis valeat quam pereat, i.e., a liberal construction should be put upon written instruments so as to uphold them, if possible, and carry into effect the intention of the parties. The court must ascertain the intention of the Legislature by directing its attention not merely to the clauses to be construed but to the entire statute.

12. As per the system of accounting followed by the assessee, the expenses pertaining to a particular project are debited in that project only and the expenses of common nature are taken to head office expenses out of which the expenses pertaining to individual projects are appropriated at the year end and considered for determining the profit on individual projects. The work in progress as on 31-3-1998 in respect of head office includes payment of Rs. 15.50 crores to GDA as cost of land in terms of license deed which has been paid for the entire land under all the projects as per the prescribed time schedule. The assessing officer also observed that the assessee has claimed architect fees of Rs. 10,10,100 in assessment year 1998-99 which has been paid to Jaiswal & Associates in connection with construction plan prepared for all the six projects of Shipra Riviera, Indirapuram Complex as well as the insight plan prepared for different categories of flats in all the projects. Similarly, in the assessment year 1999-2000, the assessee has claimed architect fees of Rs. 8,25,000 which has been paid to Jaiswal & Associates in connection with construction plan prepared for all the projects of Shipra Suncity, Indirapuram Complex as well as the insight plan prepared for different categories of flats in all the projects. No architect fees has been claimed thereafter in assessment year 2000-01. The assessing officer also observed that although the assessee has contended that only two projects namely Alaknanda and Bhagirathi in Shipra Riviera Complex were started prior to 1-10-1998 and the construction of remaining four projects i.e., Amravati, Damodar, Brahmaputra and Caveri was started after 30-9-1998 but the location of all the projects vis-a-vis each other as per the plan prepared by the architect and approved by GDA reveals that the land earmarked for Brahmaputra and Amravati projects falls between Alaknanda and Bhagirathi projects. Substantial expenditure has been claimed for earth filling and land levelling. The assessing officer stated that the construction of only two projects namely Alaknanda and Bhagirathi, which are interspersed by Brahmaputra and Amravati could not have been commenced unless the earth filling and levelling of entire land pertaining to all the projects is carried out.

13. The assessing officer also observed that in Schedule 10 of the balance sheet, the assessee has shown the advance of Rs. 93.68 crores as on 31 -3-2000 received from the customers against the booking of flats. Necessary details in this regard are filed on record. In order to verify the contentions of the assessee that the construction of only two projects namely Bhagirathi and Alaknanda in Shipra Riviera, Indirapuram was started prior to 30-9-1998, the details of booking deposits received up to 31-3-1998, as filed on the record for assessment year 1998-99, were verified. It is observed from these details that the assessee had received advances from customers against the booking of flats to the extent of Rs. 31.54 crores as on 31 -3-1998. The obvious inference drawn from these facts is that the customer/ purchasers of flats had also booked their flats in other projects of Shipra Riviera complex other that Alaknanda and Bhagirathi projects. The assessing officer also stated that in all the four proj ects in respect of which the assessee has claimed deduction under section 80-IB(10) on the strength that construction of these projects was commenced after 30-9-1998, the flats were booked even prior to 31-3-1998. The above facts of booking coupled with purchase of land, approval of construction plan and development of land before 31-3-1998 clearly lead to the conclusion that the assessee has commenced the development and construction prior to 31-3-1998, not to say of prior to 1-10-1998.

14. In reply to assessing officer's query vide submissions dated 27-3-2003, the assessee has submitted that on the day of start of first project; the company received bookings and offers which were streamlined according to the requirement of prospective buyers. A prospective buyer has several factors in mind like size of flats, location of flat, facing of flat, vastu of flat., particular floor and several other factors, Such applications were selected for individual discussion with prospective buyers and if a buyer finds himself not adjustable in a particular environment, his application together with the deposit is kept pending for allotment in a subsequent project of his choice. It is for this reason that even if a project is not started, there may be few applications for booking pending in advance for such project based on goodwill of company. The assessee from the above submission conveyed that the prospective buyer may book a flat purely on the strength of name, reputation and goodwill of the company and that to with an option for future adjustment according to the suitability of particular flats for him. In other words, it was conveyed that even if booking of flats has been made, the same does not amount to commencement of construction. The assessing officer did not accept the assessee's contention by observing that a buyer of flat has to bear and consider number of factors in his mind like size of the flat and individual rooms, height, floor, direction of flat, vastu, stairs/lift, common facilities as well as surroundings and other features in the locality before booking of flat. The assessing officer stated that the contentions of the assessee that the foundation laying ceremony was held after the specified that is of no relevance and not a determining factor for commencement of construction since foundation laying ceremony can be held after the construction of entire project/building. Similarly, as per assessing officer, the fact that the construction contracts were entered into by the assessee with the sub contractors in the form of written agreement after the specified date is also not much relevant as there is no bar in law for oral contracts which may be put in writing at a latter date to suit the convenience.

15. In view of the above observation, the assessing officer concluded that the assessee commenced the development and construction of the four projects namely Amravati, Brahmaputra, Damodar and Kaveri prior to 30-9-1998 therefore not eligible for deduction under section 80-IA(4F)/ 80-IB(10) of the Act in respect of profit earned on these projects.

16. By the impugned orders, the Commissioner (Appeals) allowed the assessee's claim in all the assessment years except assessment year 1999-2000. Following was the observation of Commissioner (Appeals) in its order for the assessment year 2000-01:

"I have carefully considered the submissions made by the appellant and documents filed on record. I have also perused the case records of the appellant for the year under consideration, and also for the assessment year 1998-99 and assessment year 1999-2000. The appellant is a private limited company engaged in the construction business. The company entered into a license agreement dated 12-12-1996 with the Ghaziabad Development Authority for a joint venture between the Authority and the company namely M/s. Shipra Estate Private Limited, for promoting and developing housing sector. The land is allotted by the GDA for the construction of flats under group housing system. The work is supervised by a joint venture committee constituted for the purposes under the Vice Chairman, GDA, Ghaziabad. All the construction work is required to be undertaken strictly as per design and layout plants to be approved by the GDA, Ghaziabad. A joint account is operated by the Ghaziabad Development Authority and Shipra Estate Private Limited to control the finances. All the sale proceeds received from the flat buyers is deposited directly into the account operated under the joint signatures of the authority and the company namely Shipra Estate Private Ltd. The Ghaziabad Development Authority allotted 65200 Sq. Metre of land for Shipra Riviera Complex, that was agreed to be divided in to six different projects as proposed by the company vide their letter dated 20-4-1997 in the following manner:

Name of the Project
Land area in sq. mtr.
Date of work order

Bhagirathi
10978.378.
26-12-1996

Alaknanda
13700
26-12-1996

Brahmaputra
11720.638
5-10-1998

Kaveri
7664.69
10-10-1998

Amravati
13394.63
6-10-1998

Damodar
7752.17
15-10-1998


The detailed drawing for various projects was approved by the Ghaziabad Development Authority vide their order number 01/INA/G11/97-98, dated 20-2-1998. The assessee under took construction of houses in the multi storied group housing scheme in the following categories.

Particulars
Built-up area

Classic
742 sq. ft.

Deluxe
664 sq. ft.

Executive
985 sq. ft.

Supreme
954 sq. ft.


Apart from Shipra Riviera Complex, the company also under took the construction of another project under the name of Shipra Suncity Complex, under the joint venture system. The Shipra Suncity Complex is also divided into five different projects namely,

Nilgiri Project

Shivalik Project

Satpura Project

Kanchenjunga Project

Aravali Project

The appellant had claimed exemption of income derived from Shipra Suncity Nilgiri Project only, started during the year, under the provisions of section 80-IA(4F). For this project the land measuring about 50 acres was given by GDA vide lease deed dated 7-4-1998. The construction plan for Shipra Suncity Complex was sanctioned by the GDA vide their order dated 9-7-1998. The assessing officer has accepted the contention of the appellant in this project on the strength that the company awarded contracts for the construction of flats on 5-10-1998, 12-10-1998 and 20-10-1998 respectively and that the foundation ceremony of the project was held on 24-10-1998, and thus the claim of the appellant in respect of Shipra Suncity Nilgiri Project has been accepted by the assessing officer and there is no dispute on this issue.

Under the Shipra Rivieria Complex the first two projects by the name of Shipra Rivieria Bhagirati and Shipra Rivieria Alaknanda were started on 26-10-1996 and in respect of these two projects, the appellant did not claim any benefit of exemption of income, and as such there is no dispute about these two projects. In the return filed for the account period ending 31-3-2000 relevant to assessment year 2000-01 the appellant claimed benefit of exemption in respect of income derived from the four projects under Shipra Riviera Complex namely Brahmaputra, Kavery, Amravati and Damodar. This exemption is claimed by the appellant in view of the specific provision contained under section 80-IA(4F) of the Income Tax Act and the same has been denied by the assessing officer. It is this dispute brought before me in respect of four projects under Shipra Riviera Complex.

The provisions contained under section 80-IA(4F) subsequently amended to section 80-IB(10) have been already discussed in details in the proceeding paragraphs, and I do not find any use in repeating the same over here again, I have examined carefully the provisions contained under the act and the evidence on record.

After going through the case record of the appellant and the order passed by the assessing officer it is seen that the claim of the appellant has been rejected mainly on two grounds only and that being (1) the earth filling on the land earmarked for these four projects was under taken prior to the specific date 30-9-1998 and (2) the advance booking was made for the flats under these projects before the specific date of 30-9-1998. I have also examined the details of earth filling expenses filed during the assessment proceedings for the earlier years. It is also seen that the assessing officer while passing order for the assessment year 1998-99 has very clearly noted that work on the remaining four projects, have been started in the next financial year. I have considered the evidence filed before one and case law on the subject. After taking the consideration the facts and the evidence on records, and the provision contained under section 80-IA(4F) subsequently amended to section 80-IAB(10) of the Act, it is evident that the assessing officer was not justified to deny the benefit available to the assessee under section 80-IA(4F) of the Act.

The language used in the act is very clear and unambiguous. The statute has granted exemption to the assessee in respect of income earned from building construction to promote housing sector, when under taken after specified date, in this case 30-9-1998. The activities performed, if any, incidental to achieve the main object by the appellant to under take housing construction would not snatch away from him the benefit, otherwise provided under the law. The statute should be read in its original and simple form that may be normally understandable in the common sense, and every day use. Admittedly, where the definition of a word is not provided, it should be construed in its popular sense. The meaning and the intention of the statute must be gathered without distorting its basic fabric. Respectfully following the views expressed by the Hon'ble Supreme Court of India, a statute or any enacting provision therein must be so construed as to make it effective and operative. A liberal construction should be put upon written instrument so to up hold them and carry into effect the intention of the statute. The Legislature had clear intention to allow benefit of the provision to the appellant engaged in the development and construction of housing project. There is no ambiguity in the language used by the Legislature. Any technical interpretation that carries the statute away from its original meaning should be avoided. The earth filling activities, if at all performed, at the time of starting the first two projects, and the booking amount received and retained in few cases certainly would not change the situation as available under the law. The appellant has filed evidence on record to prove that the contracts for the construction of the four projects under Shipra Riviera was awarded after 30-9-1998 and that the foundation laying ceremony was also performed after 30-9-1998. It is reiterated at the cost of repetition that the assessing officer himself in the assessment order for the preceding year, i.e., 1998-99 has stated in the bold letters that the 4 projects in question commenced in the next financial year.

The assessing officer has not given any reason to depart from the accounted version, and deviate from its own parameters, specially when the same set of contentions in the projects under Shipra Suncity Complex have been accepted to allow the benefit available to the appellant. The appellant has proved with evidence on record the fact that these four projects namely Brahmaputra, Alaknanda, Kaveri, Damodar A and B were started and commissioned only after 1-10-1998, the land area of each project is more than one acre, and that the constructed area of each flat is less than 1,000 sq.ft. as prescribed in section 80-IA(4F). The appellant is thus entitled to the deduction of income for exemption as provided under section 80-IA(4F) of the Act."

17. We have considered the rival contentions and have gone through the orders of the authorities below and the relevant provision of law. Section80-IA inserted by Finance (No. 2) Act, 1991, sub-section (4F) during the relevant assessment year reads as under:

"80-IA(4F) This section applies to an undertaking, engaged in developing and building housing projects approved by a local authority subject to the condition that the size of the plot of land has a minimum area of one acre, and the residential unit has a built-up area not exceeding one thousand square feet:

Provided that the undertaking commences development and construction of the housing proj ect on or after the 1-10-1998 and completes the same before the 31-3-2001."

18. Subsequently, section 80-IA was substituted by section 80-IA and section 80-IB by Finance Act, 1999 with effect from 1-4-2000. Sub-section(10) of section 80-IB at the relevant time reads as under :

"80-IB(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31-3-2008 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project,—

(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1-10-1998 and completes such construction,—

(i) in a case where a housing project has been approved by the local authority before the 1-4-2004, on or before the 31-3-2008;

(ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1-4-2004, within four years from the end of the financial year in which the housing project is approved by the local authority.

Explanation.—For the purposes of this clause,—

(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;

(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;

(b) the project is on the size of a plot of land which has a minimum area of one acre:

Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;

(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place; and

(d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet, whichever is less."

19. It Is crystal clear from the above provisions that for claiming exemption in respect of profit derived from housing project, following three conditions are required to be satisfied :

(i) Commences development and construction of housing project after 1-10-1998 and complete construction before 1-4-2004.

(ii) Required land area under each project is more than one acre.

(iii) Built-up area of house is not more than 1,000 sq.ft.

20. The assessee has claimed fulfilment of all the conditions. The assessing officer was not satisfied with the condition of commencement of development and construction of four proj ects of Shipra Riviera Complex after 1-10-1998. He, therefore, declined the exemption claimed.

21. The assessee-company had claimed benefit of section 80-IA subsequently amended to section 80-IB in respect of the four projects from out of the Shipra Riviera Complex, and in respect of one project from out of the Shipra Suncity Complex. The income derived from out of the housing projects was claimed to be exempt from tax, subject to the fulfilment of the terms and conditions as laid out under the provisions of section 80-IA/ 80-IB of the Act. The assessing officer has allowed benefit of exemption of income to the Shipra Suncity Complex in respect of the one project that was started and completed during the financial year ending 31-3-2001. The dispute is with regard to the four projects of Shipra Riviera Complex. The exemption in respect of four projects under Shipra Riviera Complex has been denied by the assessing officer.

22. It is clear from the order of the assessing officer that he has basically declined deduction under section 80-IA/80-IB on the following plea :

(i) The assessee has purchased the land on which proposed construction was to be done prior to 1-10-1999.

(ii) The development authority had sanctioned the plan of construction prior to 1-10-1999.

(iii) The assessee has advertised for booking of flats in the newspaper prior to the insertion of section 80-IA i.e. 1-10-1998.

(iv) The assessee has undertaken earth filling activity of the land so purchased for undertaking the construction of the project prior to 1-10-1998.

23. From the order of the assessing officer, we found that the assessing officer himself has observed that for the commencement of development and construction, a person might own land which may be ancestral or even purchased prior to 1-10-1998, and the assessee may think of constructing housing project for availing deduction under section 80-IA in view of the newly inserted provisions for development and construction after the specified date. Thus, as per assessing officer, the date of purchase of land alone cannot be and should not be considered as a criteria for deciding the actual time of commencement of development and construction of housing project. Similarly, the assessing officer himself has observed at page 10 in para 7.4 that approval of plan by the lower authorities may either get automatically cancelled for the expiry of the time-limit when no construction is carried out, or may be cancelled by the assessee himself at his own and replaced by a new plan depending upon the changed circumstances. These observations of the assessing officer clearly indicate that in all reasonable probabilities the purchase of land and approval of construction plan may not necessarily lead to the inference that the development and construction of a project has commenced. Now there remains two more reasons with the assessing officer for declining exemption under section 80-IA which are booking of advertisement for sale of flat under various projects and earth filling activities on the land acquired for undertaking the construction and development thereon prior to 1-10-1998. In this respect, we found from the record that foundation laying ceremony and bhoomi pujan was performed by the assessee only after the specified date i.e. 1-10-1998 and that construction contracts with the contractors were entered into by the assessee in the form of written agreement only after the specified date i.e. 1-10-1998. In this respect, the observation of the assessing officer was that foundation laying ceremony can be held after the construction of the entire project and that there can always be oral contracts which may be put in writing at a later date to suit the convenience of the assessee. In this regard, from the material available on record, we found that the assessee had undertaken bhoomi pujan when the project was initiated and even before digging the foundation. No contrary material was brought on record by the assessing officer to suggest that the construction activities were undertaken prior to perform bhoomi pujan and/or the construction material was available at the site when project was initiated before bhoomi pujan was performed. In respect of the observation of the assessing officer to the effect that construction contracts with the subcontractors in writing can always be framed for convenience is wrong and incorrect, as nothing was brought on record by the assessing officer to substantiate his assertion that these agreements were entered into after the specified date. The assessee is a big company and had undertaken a huge project wherein construction is undertaken with the help of the various sub-contractors and without written contracts, the work cannot start at all. As it was a project for constructing thousands of houses, the same cannot be presumed to be initiated without valid and written contracts. Nothing was brought on record by the assessing officer to substantiate his assertion to this effect. As per our considered view, in case of such a huge contracts, contractors are short-listed after inviting tenders. Actual construction contract is awarded to them and thereafter only construction work starts. Once the construction is undertaken by the contractors, the bills are raised by him and the required tax at source out of every payment made to the contractor for each specific project, is deducted at sources. Thus, the presumption of the assessing officer to the effect that construction contract/agreement has no relevance to the implementation of the project undertaken by the assessee is factually incorrect and not supported by any material on record. From the record, we also found that during the course of assessment proceedings itself, complete details of all agreements entered into with various contractors, details of payments made to them for various projects and the tax deducted at source thereon, has already been filed. The language used in the section is "development and construction of housing project". The development is an integral part of the construction. Both cannot be segregated. There is always development for a purpose. Had it been development of independent park only, it could be done at any point of time. Even if it is development of a farm house or a garden, it can also be done at any point of time but if it is development of a housing project, it cannot be said that such development can be undertaken prior to undertaking of the construction of the housing project itself. The language so used by the Legislature is, the commencement of the development and construction of the housing project and that means to include the construction of the housing project and after the construction is complete, the waste material is removed then follows development of surroundings such as roads and parks. In the instant case, it was a big housing project where sufficient houses which ranged in thousands were proposed to be constructed. It was a project where several different categories of houses were proposed to be built up and for undertaking construction of such a huge housing project, lot of different material is required to be stored around the project like sand, bricks, rodi, iron and steel, huts for labourers etc. For all these purposes, the land was required to be levelled or cleaned, but it cannot be taken as commencement of development insofar as development itself has no meaning unless it is in reference to construction of project. In section 80-IA, the Legislature has used the language in a very simple form "commences development and construction of the housing project" and the Legislature has not used the language "commences development of land and construction of housing project". This shows that assessing officer has deviated himself from the language used in the section. The Hon'ble Delhi High Court in the case of M.P. Poddar (HUF) v. Appropriate Authority (1999) 107 Taxman 251 observed that meaning and intention of a taxing statute must be gathered from the plain and unambiguous expression used therein rather than to find out what is just or expedient. After discussing in length and recording a categorical finding with respect to each of the project undertaken by the assessee for which claim was made and also the projects for which no claim under section 80-IA was made by the assessee, the Commissioner (Appeals) held that all the conditions contained under section 80-IA(4F) subsequently amended to section 80-IB(10) of the Act were complied with, the assessee was eligible for claim of benefit. It was further observed that language used in the Act is very clear and unambiguous wherein exemption has been granted to the assessee in respect of income earned on building construction to promote housing sector when undertaken after the specified date i.e. 30-9-1998. After taking into account all the evidences placed on record the Commissioner (Appeals) held that the activities performed, if any incidental to achieve the main object by the assessee-company to undertake housing construction would not snatch away from him the benefit, otherwise provided under the law. Thus mere act of levelling the earth will not amount to construction of housing project within the meaning of section 80-IA(4F). Therefore assessee's act of mere levelling the earth prior to 30-9-1998 will not snatch the deduction permissible on account of construction of housing project which was undisputedly carried out only after 30-9-1998. The Commissioner (Appeals) also observed that the technical interpretation taken by the assessing officer carried a statute away from the original meaning and intention of the Legislature and found that earth filling activities if at all performed, at the time of starting of first two projects and booking the amount received in few cases would not change the situation as available under the law, insofar as main construction activities as mentioned under section 80-IA(4F) and 80-IB(10) were undertaken only after 30-9-1998. As per Commissioner (Appeals), the evidence filed on record proved that contracts for construction of the four projects under Shipra Riviera was started after 30-9-1998, wherein even the foundation laying ceremony was also performed after 30-9-1998. A categorical observation was made by the Commissioner (Appeals) with respect to the findings recorded by the assessing officer in his assessment order for assessment year 1998-99 wherein assessing officer himself has stated in bold letters that four projects in question commenced in the next financial year. Merely getting booking money in advance in respect of project which commenced development and construction of housing project after 1-10-1998 will not disentitle the assessee from the benefit of deduction under section 80-IA(4F)/80-IB(10), insofar as crucial condition is commencement of development and construction of housing project and not the receipt of booking amount in advance. It the commencement of development and construction is prior to 1-10-1998, no deduction will be allowed under section 80-IA(4F)/80-IB(10) notwithstanding the receipt of advance booking money prior or subsequent to 1-10-1998.

24. As per evidence placed on record the date of work order in respect of four projects of Shipra Riviera Complex are as under:

(i)
Brahmputra
5-10-1998

(ii)
Kaveri
10-10-1998

(iii)
Amravati
6-10-1998

(iv)
Damodar
15-10-1998


25. Since the work order itself in case of all the four projects were subsequent to 1-10-1998, there is no reason to assume that commencement of development and construction of housing project was started prior to 1-10-1998 for the purpose of declining the claim of deduction under section 80-IA(4F)/80-IB(10) of Income Tax Act. As per evidence placed on record, contract for construction of all the four projects of Shipra Riviera was awarded only after 30-9-1998.

26. The issue with regard to commencement of development and construction of housing project with reference to section 80-IB(10) has been elaborately dealt with by the ITAT Pune Bench in the case of Nirmiti Construction v. Dy. CIT (2006) 7 (II) ITCL 256 (Pune-Trib) : (2005) 4 SOT 383 (Pun-Trib) wherein it was held that activities like approval of plan, marketing for booking the residential units, availing of finance, receipts of advance booking money would not be construed to mean commencement of development and construction of housing project. It was also held that merely on the plea that assessee has incurred expenditure on cleaning of land and towards puja prior to 1-10-1998 will not take away assessee's right to claim deduction under section 80-IB(10)which he is entitled in respect of housing project to be commenced after 1-10-1998. It was specifically observed that these expenses do not indicate that development and construction of housing project had been commenced before 1-10-1998. Expenses were incurred on cleaning of land so that correct measurement of the land could be done. The issue with regard to expenditure on levelling of land, approval of plan, marketing of booking the residential units, receipt of advance booking money etc. has arisen in the instant case and by taking shelter of some of these activities having taken place prior to 1-10-1998, the assessing officer has denied claim of deduction under section 80-IB. Respectfully following the decision of the Coordinate Bench, we do not find any merit in the action of the assessing officer.

27. Allegation of CIT in his order under section 263 for the assessment year 2002-03 to the effect that construction project undertaken by the assessee was out of reconstruction and splitting the project which is already in existence, is without any material on record. Whatever construction was available at the site pertained to Bhagirathi and Alaknanda project of Shipra Riviera Complex for which assessee did not claim any exemption under section 80-IA(4F)/80-IB(10). A bare reading of provisions of section 263 makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) by virtue of the order being erroneous, prejudice has been caused to the interests of the revenue, If one of them is absent - if the order of the Income Tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1). There can be no doubt to the well-settled legal proposition that the provision cannot be invoked to correct each and every type of mistake or error committed by the assessing officer. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase `prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income Tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase `prejudicial to the interest of the revenue' has to be read in connection with an erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order of assessing officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Income Tax Officer is unsustainable in law. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income Tax Officer acting in accordance with law passes some order, the same cannot be branded as erroneous by the Commissioner simply because he is of some other view or in the opinion of the Commissioner the order passed by the assessing officer is weak. This section does not visualize a case of substitution of judgment of the Commissioner for that of the Income Tax Officer, who passed the order, unless the decision is held to be erroneous causing prejudice to the interest of revenue. The power of suo motu revision under sub-section (1) of section 263 is in the nature of supervisory jurisdiction and the same can be exercised only if both the circumstances specified therein exist. Furthermore an order passed by the assessing officer cannot be set aside for making roving inquiry without pointing out any error in his order. An order can be revised only when such order is demonstrated to be erroneous, the powers of revision is not meant to be exercised for purpose of directing officer to hold another investigation when the order of the assessing officer is not found to be erroneous.

Where assessment order has been passed by the assessing officer after taking into account assessee's submissions and documents furnished by him and no material whatsoever has been brought on record by the Commissioner which showed that there was any discrepancy or falsity in evidences furnished by the assessee, the order of assessing officer cannot be set aside for making deep inquiry only on the presumption and assumption that something new may come out. For making a valid order under section 263 it is essential that the Commissioner has to record an express finding to the effect that order passed by the assessing officer is erroneous which has caused loss to the revenue. Furthermore where acting in accordance with law the assessing officer frames certain assessment order, same cannot be branded as erroneous simply because according to the Commissioner, the order should be written more elaborately. The assessing officer in his order under section 143(3) dated 4-8-2004 observed that assessee has produced entire books of account including cash book, ledger, stock register, sale and purchase book, bills and vouchers of expenses etc. which were examined. On the basis of material available on record, we do not find any merit in the allegations made in the order under section 263 that assessee has wrongly claimed exemption under section 80-IA(4F)/80-IB(10) on the plea of splitting up and reconstruction of project already in existence. Various evidences placed on record clearly reveals that whatever construction was there prior to 30-9-1998 pertained to Bhagirathi and Alaknanda projects of Shipra Riviera Complex for which assessee has not put any claim either under section 80-IA(4F) or under section 80-IB( 10) of Income Tax Act. The CIT in his order under section 263 wrongly understood that Brahmaputra, Kaveri, Amravati and Damodar projects were out of splitting up and reconstruction of old projects already in existence, which actually pertained to Bhagirathi and Alaknanda projects of assessee. It is undisputed fact that assessee has not put any claim of deduction in respect of these two projects, therefore there is no merit in this allegation of CIT. That the CIT was likewise not correct in holding the assessment order to be erroneous and prejudicial to the interest of the revenue so far as it related to the claim of expenses debited in the P&L A/c as cost of construction. The adverse observations made and findings recorded are wholly incorrect and without any basis. The CIT has failed to appreciate that the assessee maintained full and complete details in respect of expenses incurred on each project separately. Further, the cost of construction in respect of each project had been debited in accordance with the settled law. The CIT without pointing out any defect in the books of account or in the method of accounting regularly followed by the assessee and accepted by the department, was not correct, in drawing a wrong inference. Accordingly, we set aside the order passed under section 263 and allow assessee's appeal for the same. Assessee's appeal for assessment year 1999-2000 is allowed with respect to exemption of income under section 80-IA(4F). After going through the accounting version of the assessee duly supported by audit report, the Commissioner (Appeals) held that construction and development activity as stipulated under the provisions of the Act had been undertaken after 30-9-1998, accordingly Brahmaputra, Alaknanda, Kaveri, Damodar A & B projects were started and commenced only after 1-10-1998, the land area of each project was more than 1 acre, and that the construction area of each flat was less than 1,000 sq.ft. as prescribed in section 80-IA(4F). The detailed finding so recorded by the Commissioner (Appeals) is as per material available on record, no interference is required therein.

28. In the result, all the appeals of the revenue are dismissed whereas appeals of assessee are allowed in part in terms indicated hereinabove.