Messages

Sir, sometimes it comes like heaven's fall where the cake and buiscuit both can be enjoyed simultaneously.

Sir, that is correct. That is why i initially asked whether it is possible to convincingly explain the source. The thing is that it would be practically very difficult situation as a businessman.

sir kindly recall the Gujarat HC judgment in case of Fakir Mohhamad Haji Hasan (247 ITR 290). We had a discussion on the same few months back. In that judgment, the HC has observed that the moment the source of income is explained by the assessee, the income will not be a deemed income but it will fall under a particular head of income as prescribed in section 14. Therefore, if you can demonstrate that the on money was received from the said housing project, the A.O. is precluded from taxing the same as deemed income. Another judgment which may be helpful is supreme court judgment in case of T.A.quereshi (287 ITR ) wherein the assessee was allowed deduction of confiscated stock of illegal item. The SC observed that law is different from morality and cases are to be decided on the basis of legal principles and not on moral or subjective considerations. This principle equally apply in case of income with proper elaboration. Hence, if the A.O. accept that the on money was received from the eligible housing project, then he has to assesse the same as income from that housing project and there is no legal scope for him to deny the deduction as 100% of profits derived from eligible housing project is entitiled for deduction u/s 80IB as per plain language of the section. 

I am also having one such assessment on hand and i will revert back with few more decisions. In the meantime, i request that the possible grounds for rejection of deduction which are in mind may please be mentioned.

as per my view - yes deduction is available. The illegality of consideration under civil law can not operate as a bar under income tax law for claiming deduction. There are judgments for that proposition. However, you have to prove that the source of the receipt is on money from the sale of units of eligible housing project. A mere contntion in this regard or disclosre in financial statements as such may not be enough. If you can not prove, the AO may treat it is income from undisclosed sources in which case the income can not be said to have been earned from the eligible housing project and consequently not entitled for deduction. The onus will be on assessee to prove that the incmoe is earned from the eligible housing project.

There does not appear any direct judgment, It appears that your query is that your project was 995% complete witin from years from the date of approval. Recently, the date of completion has been extended by way of amendment. You may chech whethere it is applicable in your case.

Completion within prescribed time limit is a mandatory condition for section 80IB. However, in respect of other mandatory condition i.e. less than 1500 Sq. feet of built up area, some tribunals have allowed proportionate deduction. On the same analogy, you can claim proportionate deduction.

On the same reasoning. mumbai ITAT held in case of Manali investment that brogh forward long term capital loss can be set off against short term capital loss arising from transfer of depreciable capital asset held for more than 36 months.

it is a shocking news.

Yes sir, Here also, I agree with you. As far as the first situation is concerned, it is clear that CIT(A) will have to anull the reassessment as the A.O. has accepted the objections of the assessee. However, what will be the fit course of action for second situation? (1) CIT(A) should himself decide the validity of reassessment considering the objections of the assessee and reply of the A.O.or (2) the reassessment should be anulled on the ground of non furnishing of reasons despite request. As i stated earlier, the decisions are both way. My point is that even if CIT(A) direct the A.O. to give reasons and decide objections of the assessee, the procedures laid down in GKN driveshaft can not be given full efferct in proper perspective. CIT(A) can not set aside the assessment with a direction to conduct the same afresh. Hence, due to this limitation, CIT(A) can not set the things in proper order which remained at assessment stage. Since the A.O. did not give reasons, there was no scope to file objections and get the order of the A.O. on the same and then approach the High Court against that order through writ. The asessee will have to file appeal before CIT(A) and in that case, it is unlikely that writ remeday would be available. Thus, the assessee will be deprived of writ remedy. This is compleltely against the GKN driveshaft.

In the other type of cases, the ITAT or HC have set aside the cases to do the same afresh. Hence, the reassessment is reset at point zero and the proper procedure in law can be followed thereafter. However, in none of the cases the issue was dealt from the angle of procedures before CIT(A) and deprivation of writ remedy. The issue is significant from the angle of tax effect also.

I agree with you sir. The chances that the A.O. will drop the reasessment proceedings in pursuance of objections are very rare. However, the cases where the audit objections were not accepted by the department may be challanged on the ground of absence of satisfaction. The relevant cases may be Gujarat HC in case of Adani Exports (240 ITR 224) and Bombay HC in case of IL&FS (298 ITR 32). It is settled principle of law that any board circular or instruction can not operate contrary to the provisions of law.

i further wish to discuss the situation where CIT(A) remands the case to the A.O. for furnishing the reasons and decide the objections. This situation appears to be confusing in view of following issues:

(1) Can the A.O. agree with the objections of the asessee? can he drop the reassessment when subject matter is pending before CIT(A)?
(2) If the A.O. disposes off objections by rejecting the same, can the assessee challange that order before HC in writ when the validity of reassesment is pending before CIT(A)? If not, the action of non furnihsing the reasons despite request will have effect of bye passing the procedures prescribed in GKN driveshaft and the assessee will be deprived off writ remedy. If such thing is allowed, the A.O. will be prompted not to give reasons.

As we know after GKN Driveshaft (259 ITR 19), furnishing of reasons to the Assessee has become mandatory. What if the A.O. completes the reassesment without giving the reasons to the assessee despite his request ? I find two way decisions in this regard. (1) the reassessment to be anulled. Hyderabad ITAT in case of S. Prasad Raju (96 TTJ 832) and Jharkhand HC in case of Kavee Enterprises Lrd. (301 ITR 156) have taken this view. (2) CIT(A) may remand and ITAT may set aside the cases to the file of the A.O.to do afresh My personal view is that the reassessment should be anulled. The spirit of GKN driveshaft is that validy of reassesment should be decided prior to completion of reassessment. If A.O. completes reassessment first without deciding validity of the same, later on it is not likely that in remand or set aside assessment, he would be able to decide validiy with a nutral mindset. I request learned friends and seniors to kindly share views on this topic.

Sir, kindly see the Madras HC judgment in acse of Taj Borewell reported at 291 ITR 232. it is on the same subject and may be useful.

Pawanji, i have also gone through the Gujarat HC judgment in case of Radhe Developers (329 ITR 1). There the HC has found that Fakir Mohammad judgment was not applicable to the case before them. In fact, in earlier judgment in case of Krishna Textiles (310 ITR 227), the Gujarat HC observed that Fakir Mohammad wil apply only to section 69 (and not section 69A or 69B or section 69C) and obsevation of the court in the context of other sections were just obiter. Now in Radhe Developers, the HC says that  the Act does not envisage taxing any income not envisaged under section 14. However, while saying so, the judgment of Fakir Mohammad is distinguished but not overruled. Hence, i feel that all the three judgment are rendered more in the factual matrix of the cases. The department is always taking the stand of deemed income and i found in some cases before tribunal, they have won. To me, the theory of deemed income still appears to be confusing in the absence of any clear pronouncement.

Thank you Pawanji. It is a good one. In one of the cases recently assigned to me, the income offered as income from shares by the assessee is likely to be treated as income from undisclosed sources u/s 68. There is a business loss as well as unabsorbed depreciation of current year. I intend to claim set off in case section 68 is invoked and sales of shares is treated as income from undisclosed sources. In orissa corporation (159 ITR 78), the supreme court observed that cash credit u/s 68 may either be assessed as business income or income from other sources. in either case, i do not have any problem. However, if they treat it as deemed income i.e. head less income following Fakir Mohammad Haji Hasan judgment of Gujarat HC, then i think there lies some problem.in set off. The reason being section 68 & 69 are not classified under any  of the five heads of income and section 70 as well as section 71 speaks of set off of intrahead and interhead losses.
Sir, i got the feed back that in Ahmedabad, some CIT(A)s denied such set off following the above mentioned reasonings few years back. Even benefit of section 32(2) was denied on this reasoning. However, i did not find any decision clarifying this. The Madras HC judgment cited by me and the Ahmedabad ITAT decison cited by your goodself allow such set off but the reasning mentioned above is not discussed. I will be really grateful if you can provide some light on this aspect. Regards

can the addition made u/s 68/69 be set off against business loss/unabsrobed depreciation? As per my knowledge there is one judgment of Madras High Court in case of Chensing Ventures (291 ITR 258) in which addition u/s 69 was allowed to be set off against business loss. However, some CIT(A)s have taken view that such set off is not permissible as addition u/s 68/69 are headless income as they do not fall under any particular head. This view was derived from the Gujarat High court judgment in case of Fakir Mohammad Haji Hasan (247 ITR 209). This view was furthered on the reasoning that section 71 prescribes headwise set off and hence headless income can not be set off. I request learned friends and senior members to kindly share views on this topic alongwith judgments/decisions, if any. Regards

sir,

the trnsaction is outside the terretorial waters without facing any custom procedures. But in case of Residents, global income is taxable. The other conditions of section 206C are satisfied. Will TCS  be applicable? Kindly give your views.