Disallowance on account of cash payment exceeding Rs. 20,000 would be eligible for sec. 80-IB relief

Where assessee paid cash for certain expenses in excess of limit prescribed under Section 40A(3) and, consequently, it was added back to income of assessee, it would be treated as income from undertaking and, thus, would be eligible for deduction under section 80-IB.

Facts

a)    Assessee, eligible for deduction under section 80-IB, made payment in cash for certain expenses in violation of section 40A(3). Consequently, the Assessing Officer (AO) disallowed said payments.

b)    Assessee filed an unsuccessful appeal before the CIT(A). The contention of the assessee was that, though the expenses were disallowed under Sec. 40A(3) and would be added back to gross total income, deduction under section 80-IB was allowable on same.

c)    Aggrieved by the order of the CIT(A), assessee filed the instant appeal before the tribunal.

Subsidy relatable to manufacturing cost would be eligible for Sec. 80-IB relief

Facts

a)  Assessee, eligible for claiming deduction under Section 80-IB, received subsidy, inter-alia, transport subsidy, interest subsidy and power subsidy from the Government.

b)  Assessee claimed deduction under section 80-IB in respect of subsidy so received from the Government by contending that subsidies were directly relatable to cost of manufacture and/or sale of products.

c)  Assessing Officer (AO) disallowed the deduction so claimed by assessee by holding that deduction under section 80-IB is admissible only in respect of profits derived from eligible business. There is a world of difference between the expression “profits derived from” any business, and “profit attributable” to any business.

d)  The contention of the AO was that subsidies that were allowed to assessee had no close and direct nexus with the business of the assessee but had a close and direct nexus with grants from the Government.

Sec. 80-IB relief available even if buyer can convert flats into duplexes in excess of built-up limit after acquisition

Where supplying design to merge flats into a duplex in excess of limit of built-up area constituted only a marketing strategy to boost sale of flats and assessee constructed flats in accordance with plan approved by authorities it was entitled to deduction under section 80-IB.

Facts:

a) The assessee had formed an AOP for developing a property with two wings and each wing was to have 96 flats. All the flats were approved to be with the built up area of less than 1000 sq. ft. as prescribed in clause (c) of Explanation to section 80-IB(10).

b) There was a survey action under section 133A and the officers noted that flats were constructed in such a way that the said flats could be conveniently combined with the lower 1-BHK flats vertically in order to generate spacious duplex flats.

c) The built up area of each of the said duplex flat exceeded the stipulated area. Accordingly, the revenue officers opined that the assessee intended to sell 1 BHK flats as duplex flats. Thus, the AO held that the assessee was not eligible for Section 80-IB relief as it had violated the condition relating to the maximum stipulated area of the flat. Further, the CIT(A) upheld the opinion of AO.

On appeal, the Tribunal held in favour of assessee as under:

1) Impounding of the brochure with details of method of merger of 1-BHK flats into a duplex, could not be used against the assessee as it only provided the design of merger. The fact was that the assessee got the approval for constructing impugned flats from the authorities and completed the construction as per the approved plans. In the instant case, from the approval stage till the stage of issuance of the completion certificate, there was no violation by the developer.

2) There was no evidence to suggest that it was the developer who had planned and generated duplex flats out of the 1-BHK flats and, then sold as such to the buyers.

3) The AO undertook the exercise of verification under section 133(6) and all the flat buyers responded to the said queries. Not even a single flat owner stated that the developer (‘assessee’) constructed those duplex flats.

4) The discrepancy of mere providing a hole for intended staircase for flat buyers and supplying of the design to merge flats into a duplex flat constituted a marketing strategy to boost the sale of the 1-BHK.

5) Thus, such a marketing strategy would not come in the way of granting deduction under Section 80-IB. Therefore, the assessee was entitled to deduction in respect of the profits attributable to all the 1-BHK flats of the projects. – Poddar & Ashish Developers v. ITO [2014] 51 taxmann.com 505 (Mumbai - Trib.)