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Karnataka High Court quashes order directing AO to disallow the Deduction TO both Owner and Land Developer [Read Order]

Karnataka High Court - AO - deduction - Taxscan

The Karnataka High Court quashed the order passed by the Director of Income Tax (Exemption), Bangalore directing the Assessing Officer(AO) to disallow the deduction under Section 80IB(10) of the Income Tax Act.

The assessee, India Heritage Foundation is a Trust engaged in the business of construction and real estate activities. The assessee filed the return of income for the Assessment year 2009-10 and declared total turnover to the tune of Rs.194.24 Crores and a sum of Rs.57.39 Crores was claimed as profit.

The assessee declared the income as ‘NIL’ and claimed deduction in respect of an amount of Rs.57.39 Crores as deduction under Section 80IB(10) of the Act. The deduction was allowed by the Assessing Officer vide order.

The order of the Assessing Officer was found to be erroneous and prejudicial to the interest of the revenue. Therefore, a show-cause notice under Section 263 of the Act was issued by the Director of Income Tax (Exemption), Bangalore to the assessee proposing to disallow deduction of Rs.57.39 Crores under Section 80IB(10) of the Act.

The Director of Income Tax (Exemption) by an order held that no inquiry was conducted by the Assessing Officer with regard to the claim of the assessee for deduction under Section 80IB(10) of the Act.

It was further held that the order passed by the Assessing Officer is prejudicial to the interest of the revenue. The Director of Income Tax (Exemption) quashed the order passed by the Assessing Officer and directed him to disallow the deduction as claimed by the assessee under Section 80IB(10) of the Act and to carry out the assessment afresh in accordance with law after affording an opportunity of hearing to the assessee.

The assessee filed an appeal before the ITAT, wherein it was held that invocation of Section 263 of the Act on the ground of lack of inquiry with regard to claim of deduction made by the assessee under Section 80IB(10) of the Act cannot be upheld.

The division bench of Justice Alok Aradhe and Justice H.T. Narendra Prasad quashed the order passed by the ITAT. The order passed by the Director of Income Tax (Exemption), Bangalore insofar it contains a direction to the Assessing Officer to disallow the deduction under section 80IB(10) of the Act is also quashed.

“We have therefore not expressed any opinion with regard to claim of the assessee for deduction under Section 80IB(10) of the Act and direct the Assessing Officer to deal with the aforesaid claim of the assessee afresh in accordance with law,” the court said.

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