The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) observed that unaccounted money was eligible for deduction under Section 80IB(10) of the Income Tax Act, 1961.
The assesse company, engaged in the business of builders and property development and adhering to the mercantile system of accounting, filed its income tax return on 30.09.2013. In this filing, the company disclosed an income of Rs. 2,86,000/- after availing a deduction of Rs. 4,03,40,492/- under section 80IB(10) of the Income Tax Act, 1961. The assessee fulfilled its tax liability under section 115JB of the Act. The initial processing of the return under section 143(1) of the Income Tax Act, 1961, occurred on 30.09.2013.
The counsel for the assessee Tata Krishna, argued that the partnership in question was involved in business development rather than functioning as a collaborative development agreement among the involved parties. The contention asserted that the profits accrued by the partnership should be evaluated as the firm’s income, given that the profit distribution aligned with the terms outlined in the partnership deed.
Conversely, the opposing viewpoint was upheld by the counsel for the revenue D.K. Mishra, aligning with the assessments made by the authorities at lower levels. The counsel refuted the arguments presented by the Counsel deeming them unacceptable. Notably, the assessment ultimately categorized the assessee as a firm, not an Association of Persons ( AOP ).
The counsel for the revenue argued that the assessee faced no prejudice, and the appeal raised by the assessee was deemed lacking in merit. Consequently, the appeal on this ground was dismissed.
The Senior Counsel representing the assessee argued that all the flats were sold before 25.05.2009, and the Assessing Officer himself classified the income discovered during the search proceedings as business income. It was emphasized that the assessee was rightfully deemed eligible for a deduction under Section 80I8 (10) of the Income Tax Act, 1961, on the additional income, as the claim had been properly made in the income tax return.
The two member bench of the tribunal comprising Chandra Poojari ( Accountant member ) and Madumitha Roy ( Judicial member ) crucial to noted that Clauses (e) and (f) of Section 80I8(10) of the Income Tax Act, 1961, were introduced by the Finance Act (No.2), 2009, and are applicable to transactions initiated on or after 01.04.2010. This information is discerned from Circular No.5/2010 dated 03.06.2010.
The bench observed that the disallowance, based on the amendments to the Act concerning 80IB(1)(e) & (f), of the Income Tax Act, 1961, was prospective and effective from 01.04.2010. Importantly, since these provisions were not applicable at the time of the allocation of the disputed flats by the assessee, rely on a precedent set by the Karnataka High Court in the case of CIT vs. Mandavi Builders, Mangalore ( supra ). Based on this legal guidance, we confidently support the assessee’s appeal, directing the allowance thereof.
The bench has independently determined that all transactions, with the exception of two flats, were executed by the assessee during the fiscal year 2007-08. Consequently, the provisions in question cannot be retroactively applied to transactions undertaken by the assessee before the introduction of clauses (e) and (f) to Section 80I8 (10) of the Act 1961.
In the result, the appeal filed by the assessee stands allowed.
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