COMMISSIONER OF INCOME-TAX Vs. MANDAVI BUILDERS

JUDGEMENT

(1.) This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2010-11. The appeal was admitted by a bench of this Court vide order dated 01.03.2017 on the following substantial questions of law:

(2.) Facts leading to filing of this appeal briefly stated are that the assessee is involved in the business of building and developing housing projects. A search under Section 152 of the Act was conducted in the business premises of the assessee on 04.02.2011. During the course of the search, various documents were seized. The assessee filed the return of income declaring gross income of Rs.12,26,80,417/- for Assessment Year 2010-11 and Rs.6,49,29,278/- for Assessment Year 2011-12 and claimed deduction under Section 80IB(10) of the Act, on its entire income. During the course of assessment proceeding under Section 153(c) read with Section 143(3) , on verification of the deduction claimed under Section 80IB(10) the Assessing Officer by an order dated 28.12.2010 inter alia held that the housing project consist of 195 flats and some owners have joined two flats, reducing the number of flats to 186. It was also held that some residential units were having a floor area of more than 1,500 square feet and some of the flats were sold to single or related persons or a single person. The transactions according to the Assessing Officer constituted violation of Section 80IB(10) of the Act. He therefore disallowed the claim in respect of both the assessment years. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by an order dated 20.09.2013 inter alia held that the assessee is entitled to benefit of deduction under Section 80IB(10) of the Act only to the proportionate profit earned from the residential unit which comply with provisions of Section 80IB(10) of the Act in both assessment years. The Commissioner of Income Tax (Appeals), however, disallowed the claim of the assessee for Assessment Year 2010-11 in respect of receipt of on money amounting to Rs.42,03,280/- for sale of flats by placing reliance on Section 80A(5) of the Act and held that the profits were not routed through books of account but constituted undisclosed income. The Commissioner of Income Tax (Appeals) held that no deduction under Section 80IB(10) of the Act was allowable on the income / profit which neither form the part of the assessee's account nor were additional cash amounts earned and credited to cash book or form cash balance of the business. Being aggrieved, the assessee as well as the revenue filed appeals before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal by an order dated 22.02.2015 inter alia held that transactions entered into by the assessee were prior to introduction of clauses (e) and (f) to Section 80IB(10) of the Act and the aforesaid clauses are prospective in nature and can only be applied in respect of transactions entered after 01.04.2010. The Tribunal therefore, upheld the order of the Commissioner of Income Tax (Appeals) with regard to proportionate disallowance to be made in respect of transactions which were made subsequent to introduction of clauses (e) and (f) of Section 80IB(10) of the Act as well as the residential units where there was a violation of condition (c) of Section 80IB(10) of the Act both the Assessment Years. The Tribunal further held that the assessee is eligible for deduction under Section 80IB(10) of the Act on additional income also. In the aforesaid factual background, this appeal has been filed.

(3.) Learned counsel for the revenue submitted that the Tribunal erred in holding that unaccounted money is eligible for deduction under Section 80IB(10) of the Act. It is further submitted that the Tribunal grossly erred in extending the benefit of proportionate allowance on the flats which comply with the conditions laid down under Section 80IB(10)(e) and (f) of the Act. It is further submitted that clauses (e) and (f) can be applied in respect of transactions, which are entered into after 01.04.2010. On the other hand, Learned Senior counsel of the assessee has submitted that entire flats of the assessee were sold prior to 25.05.2009 and the Assessing Officer himself has treated the income found during the search proceedings as business from income. It is also submitted that assessee has rightly bee held entitled for deduction under Section 80IB(10) of the Act on the additional income as the assessee had made the claim in the return of income.