The Chennai Bench of Income Tax Appellate Tribunal ( ITAT ) has held that the firm shall be eligible to deduct profit from the sale of flats which are declared as stock-in-trade to partners under Section 80IB (10) of the Income Tax Act 1961.
The assessee, Lakshmi Brick is a partnership firm engaged in the business of land development and construction of residential buildings. The appellant firm filed its return of income for the assessment year 2014-15 after claiming a deduction u/s 80IB of the Income-tax Act, 1961 towards profit derived from housing projects.
The AO noted that the assessee had transferred 26 flats and another 20 flats by way of unregistered MOU dated 20.11.2008 and 08.10.2009 to its partners. The second lot of 20 flats transferred during the impugned assessment year was not supported by any evidence.
Further, in absence of corroborative evidence, an asset in the form of stock in trade was reflected in the financials of the firm up to the assessment year 2013-14.
The commissioner of Income Tax Appeal (CIT(A)) allowed deduction u/s. 80IB (10) of the Act, in respect of profit derived from housing projects.
Section 80IB (10) of the Income Tax Act deals with deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March 2008 by a local authority will be a hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project uncertain conditions.
AR V Sreenivasan, on behalf of the revenue submitted that the second transfer of 20 flats was not supported by any evidence. He further submitted that CIT(A) erred in holding that since the partners of the firm had offered income from the sale proceeds of these flats in their individual hands, addition in the hands of the firm was not warranted.
R. Sivaraman, on behalf of the assessee submitted that the assessee had transferred 20 flats to its partners at book value without any profit. He further submitted that the assessee had explained the reasons for not considering the transfer of flats to its partners as sales, and said the transfer had been explained with necessary evidence. And further similar issues had been allowed during the assessment years 2007-08 to 2009-10.
The Division Bench of V. Durga Rao, (Judicial Member) And G. Manjunatha, (Accountant Member) dismissed the appeal and observed that,
“even if you compute profit from the transfer of 20 flats to partners in the hands of the firm, but because the assessee is enjoying the benefit of deduction u/s. 80IB (10) of the Act for 100% profit derived from housing projects, the assessee could very well claim the deduction u/s. 80IB (10) of the Act towards profit, if any, derived from the transfer of 20 flats to its partners by way of MOU dated 08.10.2009.”
“Since, the assessee is enjoying the benefit of deduction u/s. 80IB (10) of the Act, we are of the considered view that, whatever profit computed by the AO in the hands of the firm, consequent to the transfer of 20 flats to partners by way of MOU dated 08.10.2009, is also eligible for deduction u/s. 80IB(10) of the Act.”
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