IN INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER I.T.A. No.575/M/2008 (Assessment Year:2004-2005) Jivesh Developers & Propert ies P DCIT, Circle 24 & 26, Ltd., Mumbai. Vs. Samir Complex, First Floor, St. Andrews Road, Bandra (W), Mumbai 400050. PAN : AAACJ9768M (Appellant) .. (Respondent) Appellant by : Shri J.D. Mistry; Mr. Yogesh Thar & Mr. Nishant Thakkar Respondent by : Shri Sujit Bangar, Sr. AR Date of Hearing : 02.08 .2016 Date of Pronouncement : 23.09.2016 ORDER PER D. KARUNAKARA RAO, AM: This appeal filed by assessee on 24.1.2008 is against order of CIT (A)-IV, Mumbai dated 19.11.2007 for assessment year 2004-2005. In this appeal, assessee raised following grounds which read as under:- 1. Denial of deduction u/s 80IB(10) in respect of profits derived by giving flats on leave and license basis. 1.1. CIT (A) erred in confirming action of AO in denying deduction of Rs. 25,45,576/- under section 80IB (10) of Act being profit element contained in license fees in respect of flats given on leave and license basis allegedly on ground that profits derived by giving flats on leave and license basis do not qualify for deduction u/s 80IB(10) of Act and that is only profits derived by selling flats which qualify for deduction u/s 80IB(10) of Act. 2. only issue raised in this appeal relates to proper head of income for taxing rental income earned from flats and held as stock-in-trade by assessee who is developer and builder. It is claim of assessee that same constitutes profits derived from housing project for purpose of claim of deduction u/s 80IB(10) of Act. It is case of Revenue that such income does not constitute eligible profit for purpose of deduction u/s 80IB(10) of Act as same is derived from housing project. 2 3. Before us, Shri J.D. Mistry, Ld Counsel for assessee brought our attention to relevant provisions of Act and also order of Tribunal in case of M/s. AHCL-PEL vs. ITO in ITA No. 2168/M/2009 (2005-06) and others, dated 29.10.2014 and submitted that such income constitutes eligible income for purpose of deduction u/s 80IB(10) of Act. In this regard, he brought our attention to paras 3 to 7 of said Tribunal s order. 4. After hearing both parties and on perusal of cited decision of Tribunal in case of M/s. AHCL-PEL (supra), wherein one of us (AM) is party to said order, we find, facts as well as conclusions drawn by Tribunal will help assessee. Considering importance of said paras for sake of completeness of this order, same are extracted as under:- 3. At outset, Shri Mayur Kisnadwala, Ld Counsel for assessee mentioned that assessee is builder and engaged in business of development of housing project which is allowable for deduction u/s 80IB of Act. There is no dispute about project and allowability of deduction of profits relatable to sale proceeds of flats of said housing project. only dispute relates to allowability of deduction u/s 80IB of Act in respect of rental income earned by assessee in respect of certain unsold flats held as stock-in-trade. It is case of assessee that some of flats which are left unsold were let out under leave and license system and said income being directed connected to flats, which is integral part of housing project is also allowable for deduction u/s 80IB of Act. He relied on various decisions in support of same. 4. On other hand, Revenue Officers are of opinion that such receipts are not allowable profits and denied claim of deduction. 5. Before us, ld Counsel for assessee submitted that there is no dispute on facts and dispute is only with regard to definition of eligible profits whether it includes rental income earned by assessee from unsold part of housing project. Bringing our attention to various decision placed before us, Ld Counsel for assessee mentioned that scrap sales are held to be eligible profits. He also mentioned that interest payments received by assessee from debtors, relating to sale proceeds, were also found eligible for claim of deduction u/s 80IB of Act. In support of his argument, Ld Counsel for assessee relied on decision of ITAT, Hyderabad in case of ACIT vs. Biotech Medicals (P) Ltd [2009] 119 ITD 143 (Hyd). Further, Ld Counsel also relied on decision of ITAT Mumbai Bench in case of Tata Infomedia Ltd vs. ACIT [2009] 116 ITD 426 (Mum), which is delivered in context of deduction u/s 80Q of Act, wherein it was held that advertisement income constitutes eligible profits. In this case, income is earned on sale of yellow pages. Drawing parallal to above instances, Ld Counsel for assessee submitted that rental receipts earned out unsold flats of housing project should be held eligible for deduction. Further, Ld Counsel for assessee brought our attention to judgment of Hon ble Supreme Court in case of Liberty India vs. CIT [2009] 317 ITR 218 (SC) for proposition that income with first degree nexus should be considered as eligible income for purpose of claim of deduction uj/s 80IB of Act. 6. On other hand, Ld DR relied on orders of Revenue Authorities. 3 7. We have heard both parties and perused orders of Revenue Authorities as well as cited decisions of Tribunal and higher judiciary. On hearing both parties, we find, said propositions mentioned above are helpful for deciding issue on hand. Considering fact that unsold flats, being stock-in-trade of housing project, being immediate source of impugned rental income, we find direct nexus of said income to housing project on hand. Therefore, said income is derived from housing project, making income eligible for deduction u/s 80IB(10) of Act. Therefore, conclusions drawn by CIT (A) are not sustainable in law. Accordingly, we reverse order of CIT (A) on this issue and allow ground no.1 in all three appeals. 5. Considering above, we are of opinion, grounds raised by assessee should be allowed in favour of assessee and against Revenue. We order accordingly. 6. In result, appeal of assessee is allowed. Order pronounced in open court on 23rd September, 2016. Sd/- Sd/- (MAHAVIR SINGH) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; 23.9.2016 . OKK , Sr. PS /Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- 4. CIT 5. ,DR, ITAT, Mumbai 6. Guard file. True Copy BY ORDER, (Dy./Asstt. Registrar) , ITAT, Mumbai Jivesh Developers & Properties P Ltd. v. DCIT, Circle 24 & 26, Mumbai