S. 80-IB(10): If developer does not (without just cause) develop to full extent of FSI, a part of the sale proceeds has to treated as being for sale of FSI and denied s. 80-IB(10) deduction

For any commercial activity of construction, be it residential or commercial complex maximum utilization of FSI is of great importance to the developer. Ordinarily, therefore, it would be imprudent for a developer to underutilize available FSI. Sale price of constructed properties is decided on the built up area. It can thus be seen that given the rate of constructed area remaining same, non-utilization of available FSI would reduce the profit margin of the developer. When a developer therefore utilizes only say 25% of FSI and sells the unit leaving 75% FSI still available for construction, he obviously works out the sale price bearing in mind this special feature. Thus, therefore, when a developer constructs residential unit occupying a fourth or half of usable FSI and sells it, his profits from the activity of development and construction of residential units and from sale of unused FSI are distinct and separate and rightly segregated by the AO

The effect of s. 80-IA(9) is that s. 80-IA deduction has to be reduced for s. 80HHC deduction in all cases and not only when the combined deduction exceeds the profits

Sub-section (9) of s. 80IA is aimed at restricting the successive claims of deduction of the same profit or gain under different provisions contained in sub-chapter C of Chapter VI of the Act. This provision, therefore, necessarily impacts other deduction provisions including s. 80HHC of the Act. Nothing contained in s. 80HHC suggests that the deduction provided therein was immune from any outside influence or that the provision was impregnable by any other statute or enactment. Accepting any such theory would lead to incongruous results. Even the assessee concedes that sub-section (9) of s. 80IA would operate as to limiting the combined deductions to a maximum of the profits and gains from an eligible business of the undertaking or enterprise. If s. 80HHC contained a protective shell making it immune from any outside influence, even this effect of sub-section (9) of s. 80IA could not be applied. This would completely render the provisions of sub-section (9) of s. 80IA redundant and meaningless.

S. 226: AO warned of contempt action for seeking to overreach ITAT’s stay order

The income tax authorities were represented by the CIT-DR, before the Tribunal. The order on the stay application was also pronounced in open Court on that date. In these circumstances, the submission of the revenue that the concerned AO was not intimated cannot be accepted. If such an argument was made before this Court, where orders are pronounced in Court in the presence of counsel, it would certainly not be accepted, and in fact would be seriously viewed. In the facts of this case, it clearly amounts to overreach of the interim order of the Tribunal; in a similar situation, this Court itself would possibly be initiating contempt proceedings. In these circumstances, the Court is of the opinion that the respondent should lift the attachment and ensure that the amounts recovered are deposited back in the petitioner’s account within a week from today. A copy of the present order shall be marked to the Central Board of Direct Taxes separately and communicated.

Write-off of irrecoverable advances is not a “transfer” and the loss cannot be claimed as a capital loss u/s 45

Having regard to the definitions of terms “capital asset” and “transfer” in sections 2(14) and 2(47), in order to be eligible for carry forward of capital loss, the capital asset should be of the nature defined in s. 2(14) and should be transferred in the manner defined in s. 2(47). Equally, it should be subjected to tax as per s. 45(1) of the Income-tax Act. The advances given to the said two parties and written off are not the capital assets nor there is any transfer. Therefore, they were not allowed to be carried forward to subsequent years. It is a capital loss and should be ignored (Ahmed G.H. Ariff 76 ITR 471 (SC) & Minor Bababhai 128 ITR 1 (Guj) distinguished)

S. 194-H TDS does not apply to all sales promotional expenditure. It applies only if relationship between payer & payee is that of principal & agent

The assessee had undertaken sales promotional scheme viz. Product discount scheme and Product campaign under which it offered an incentive on case to case basis to its stockists / dealers / agents. An amount of Rs.70 lakhs was claimed as a deduction towards expenditure incurred under the said sales promotional scheme. The relationship between the assessee and the distributor / stockists was that of principal to principal and in fact the distributors were the customers of the assessee to whom the sales were effected either directly or through the consignment agent. As the distributor / stockists were the persons to whom the product was sold, no services were offered by the assessee and what was offered by the distributor was a discount under the product distribution scheme or product campaign scheme to buy the assessee’s product. The distributors / stockists were not acting on behalf of the assessee and that most of the credit was by way of goods on meeting of sales target, and hence, it could not be said to be a commission payment within the meaning of Explanation (i) to Section 194H of the Income-tax Act, 1961. The contention of the Revenue in regard to the application of Explanation (i) below Section 194H being applicable to all categories of sales expenditure cannot be accepted. Such reading of Explanation (i) below Section 194H would amount to reading the said provision in abstract. The application of the provision is required to be considered to the relevant facts of every case

Strictures passed regarding poor quality of orders of the ITAT. Government urged to ensure that only competent persons are appointed Members of the ITAT

We also notice that the members of the Tribunal have developed an unhealthy habit of quoting totally unrelated judgments which are not applicable at all to the facts of the case, to pass orders not otherwise sustainable on facts or in law. We strongly deprecate such a tendency on the part of the members of the Tribunal, which is quite naturally a professional Tribunal comprised of expert members, one member from the Revenue side and another member from the accounting side, with considerable experience in their respective fields and to whom we can attribute expertise. We feel sorry that the confidence posed by the Legislature is not being justified by passing orders that are outcome from the Tribunal now-a-days