TMI Blog2013 (11) TMI 775X X X X Extracts X X X X X X X X Extracts X X X X ..... ided” in the appeal. On perusal of order of Ld. CIT(A) can it be said by any stretch of imagination that he has considered and decided the issue regarding admissibility of the deduction under section 80 IB(10) on the ground of completion of the project which was to be considered as complete only on furnishing completion certificate to be issued by the local authority under Explanation (ii). Therefore, it can be said that the issue regarding completion of project was never considered and decided by the Ld. CIT(A). It can also not be said that if an assessee has not fulfilled the condition as laid down in Explanation (ii) than also he can be held to be entitled for deduction u/s. 80 IB(10). Therefore, looking into the plain provisions of language of clause (c) of section 263, it is held that Ld. CIT(A) has never considered and decided the issue regarding compliance of condition by the assessee regarding furnishing of completion certificate to be issued by the the local authority as per provisions of Explanation (ii). Therefore, doctrine of merger as pleaded by the assessee is not applicable to the facts of this case. It is difficult to accept the proposition that when deduction cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of Revenue. 4. The Ld CIT erred in passing the impugned order under section 263 of the Act, inspite of the fact that the assessment order for the AY 2007-08, stood merged in the appellate order passed by the CIT(A) for the AY 2007-08. 5. The ld CIT erred in ignoring all the relevant facts and legal precedents cited by the appellant in support of its claim that in the facts and circumstances prevailing in the case of the appellant, no action under section 263, was called for. 6. All the aforesaid Grounds of Appeal are without prejudice to one another. 2. The assessee is a builder and developer and assessment was framed vide order dated 17/12/2009 passed under section 143(3) of the Act. The assessee filed return of income at nil after claiming deduction under section 80 IB(10) of the Act amounting to Rs.13,50,93,090/-. The AO has denied the deduction and assessed the income of the assessee at Rs.13,50,93,090/-. The sole ground on which the deduction is denied by the AO was that the project was approved prior to 1/10/1998 and according to one of the conditions laid down in section 80 IB(10), deduction can be allowed only in a case where project has started after 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O has been directed to grant deduction to the assessee. 4. Subsequent to the order passed by CIT(A) in respect of A.Y 2007-08, Ld. CIT has issued show cause notice under section 263 of the Act to the assessee vide letter dated 27/2/2012. Copy of such show cause notice is placed at page -3 of the paper book. In the show cause notice it has been mentioned that certain discrepancies have been noticed on going through assessment record and assessment order. Reference is made to the letter dated 3/2/2007 issued by Dy.Chief Engineer, Building Proposals (City) of Municipal Corporation of Greater Mumbai (Corporation) in which it was informed that Corporation has no objection in occupying the building for entire wing D,E F. It is also mentioned in the letter that it is a part occupation permission. Thus Ld. CIT has observed that the said letter cannot be said to be completion certificate. She referred that one of the conditions for claiming deduction under section 80 IB (10) for the projects which have been commenced before 1/4/2004 is that the construction should be completed on or before 31/3/2008. The date of completion of project is defined as the date on which completion certifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject and no enquiry or verification whatsoever was made in respect of completion of the project before 31/3/2008. 6. Ld. CIT also conducted enquiry from MCGM office which vide letter dated 19/3/2012 informed that part occupation certificate was issued to assessee for Wing A to G and completion certificate was neither applied by the assessee nor it was issued. The reasons for non issue of completion certificate as mentioned by Ld. CIT are as follows: (i) Adequate strong water drain is not provided in the let out areas. (ii) NOC from SWD is not submitted. (iii) NOC from railway authority is not submitted (iv) Even as on date of passing this order i.e. 27.03.2012, the building completion certificate is neither applied for by the assessee nor is issued. This shows that the assessee has bitterly failed to comply with the provisions of explanation (ii) of section 80 IB(10)(a). When the letter of BMC was show caused to the assessee during the proceedings u/s.263, the counsel of the assessee could not submit anything except repeating the old version and submitting that part occupation certificate is issued to it. 7. Referring to several decisions, Ld. CIT has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entitled for deduction under section 80 IB(10) as the project had commenced after 1/10/1998. On these facts the assessee is challenging the validity of impugned order on the basis of following grounds/arguments. i) The condition regarding completion of project does not apply to the projects which have been approved by the local authorities before 1/4/2004. It is the case of the assessee that the condition of completion of project is brought on the statute only by the Finance (No.2) Act 2004 w.e.f. 1/4/2005. Prior to that there was no such condition, therefore, the eligibility of deduction must be linked to the date of approval / commencement of the project. To support such contention reliance has been placed on the decision of Hon ble Gujarat High Court in the case of Manan Corporation vs. ACIT, 78 DTR 205 (Guj), wherein it has been held insertion of clause (d) in section 80 IB(10) brought by Finance (No.2) Act 2004 is not retrospective but only prospective, therefore, it will not be applicable in respect of housing projects which had been approved by the local authorities before 1/4/2005. ii) Without prejudice, it was submitted that construction of all the seven wing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 263 of the Act by the Ld. CIT was wrong. vii) Lastly, it was submitted that assessment order passed by AO had merged with the order passed by Ld. CIT(A), therefore, Ld. CIT was wrong in invoking the provisions of section 263. Reference in this regard was made to the following decisions: 1. Shobha Developers Ltd. vs. CIT, (2012) 191 TR (TR1)764 (Bang) 2. CIT vs. Shri Arbuda Mill Ltd. 231 ITR 50 (SC) Passing reference has also been made in the summary of arguments regarding number of other judgments of various High Courts which, according to Ld AR also support the proposition. After perusing the paper book of case laws we found that these decisions are as follows: 1. CIT vs. Farida Prime Tannery , 259 ITR 342(Mad) 2. CIT vs. Mehsana Distric Co-operative Milk Producers Union Ltd., 263 ITR 645.(Guj) 3. CIT vs. Nirma Chemicals Works P. Ltd., 309 ITR 67 (Guj) 9. On the other hand, it was submitted by Ld. DR that Explanation (ii) to section 80 IB(10) required the assessee to submit completion certificate which was never submitted by the assessee. He submitted that Ld. CIT has already observed that completion certificate was not even applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pass fresh assessment order after a detailed verification of submissions given by the assessee in the return and the statements filed etc. 9. Concluding his arguments it was pleaded by Ld. DR that power under section 263 has rightly been exercised by Ld. CIT and his order should be upheld. 10. In the rejoinder, it was submitted by Ld. AR that vide reply dated 14/9/2009 the assessee had submitted that on completion of G Wing part occupation certificate was issued by the MCGM and the building was fully completed and MCGM authority had given full occupation for the G Wing. Reference was also made to pages 136 to 151 of the paper book on which copies of possession letters given to the occupants are submitted to show that buildings in respect of D,E F Wings were completed before 31/3/2008 and occupants were offered the possession thereof. Reference was also made to order passed by Ld. CIT(A) in respect of A.Y 2009-10, which is dated 14/12/2012, where accepting all these evidences it was held by Ld. CIT(A) that project of the assessee was completed before 31/3/2008. In this manner both the parties had concluded their arguments. 11. We have carefully considered the rival sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is running into almost 14 pages and then AO vide para-3.6 has also observed that the submission of the assessee are duly considered but the claim of the assessee under section 80 IB(10) cannot be accepted. 12. Then the AO has given the reasons and has made reference to provisions of section 80 IB (10) prior to amendment by Finance Act 2004 and then the amendment brought by Finance (No.2) Act 2004 w.e.f. 1/4/2005. While mentioning such amendment which is w.e.f. 1/4/2005 the AO has also mentioned about both the explanations. After reproducing the amendment and referring to the substituted provisions w.e.f. 1/4/2005 the AO has observed that the legislature has laid down some parameters to be specified for allowing deduction under section 10 IB(10). According to AO, the main parameters are recognition of the date of commencement of the housing project and the completion of construction of the housing project and then AO has referred to the explanation(i) which is clarifies that the commencement of the housing project to be in a case where approval is obtained more than once, such housing project is first approved by the local authority. AO observed that in the case of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement of development of project started when Bombay Gas Company agreed to comply with the IOD conditions after issue of IOD on 1/8/1992 and incurred huge expenditure on the project to the tune of Rs.4,68,14,023/- before transferring the project to the assessee firm. Out of such expenditure an amount of Rs.1,80,46,496/- was incurred by Bombay Gas Company who carried out site preparation works like leveling of the ground, construction of boundary wall, employed sufficient number of persons to execute the project as evidenced by substantial sum paid on account of salary by Bombay Gas Company Ltd. before 1/4/1998. In view of all these facts AO has come to the conclusion that these facts established beyond doubt that Bombay Gas Company had commenced development of the approved project well before 1/4/1998. 13. The AO has also referred to the submission of the assessee that construction activity was started after 1/10/1998 and also referred to the decision relied upon by the assessee on this aspect. However, AO has come to the conclusion that the arguments and decision etc. relied upon by the assessee revolves around the issue that date of approval of project cannot be stated to be th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of M/s. Bombay Gas Company which is the original owner of the project just to show that what was continued by the assessee was an earlier project approved in the name of M/s. Bombay Gas Company. Thus any reference to the completion certificate in the assessment order cannot be linked to the fulfillment of condition laid down in Explanation (ii). Therefore, it is clear that during the course of assessment proceedings the whole focus of the A.O was regarding the commencement of project and on the reference to the assessment proceedings and assessment order for assessment year 2006-07. Thus there is no force in the contention of the Ld.AR that while framing the assessment the AO has applied his mind on the fulfillment condition laid down in Explanation(ii), which speaks of date of completion of the construction of the housing project. 16. Though AO has spelt out explanation(ii) while quoting the provisions of section 80 IB(10) but he has not examined the fulfillment of the condition laid down in that explanation. Explanation was part of the statute on the day when AO framed assessment and it was applicable for the assessment year under consideration. The amended provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he housing project, shall be the date on which the completion certificate is issued by such authority. It has also been provided that the built-up area of the shops and other commercial establishments included in the housing project should not exceed five per cent of the aggregate built-up area of the housing project or 2000 sq. ft., whichever is less. The expression built-up area has also been defined for this purpose. This section does not specifically provide area limit for the garden, the development plan roads, internal means of access, etc. in the housing project. Therefore, the same should conform to the project plan approved by the local authority in accordance with the regulations in force. Also the area limit of the plot has to be construed with reference to the area of the site on which the housing project is constructed and not with reference to the demarcation of land done by the land development authority. Further, with a view to encourage the redevelopment of slum dwellings, the condition of minimum plot size of one acre and also the time limit for completion of the construction has been relaxed in the case of a housing project, carried out in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word " erroneous " in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 19. If the facts of the instant case are seen in the light of that decision, it can be inferred that despite there being a circular which clearly specifies that completion clause is applicable for and from A.Y 2005-06, the AO has failed to take into cognizance such condition. No material has also been brought on record by the assessee to show that any submission was made to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f statutory condition for allowability of deduction under section 80 IB (10) which was the obligation of the assessee to furnish completion certificate issued by the local authority. Thus according to the provisions of section 263, Ld. CIT was right in invoking provisions of section 263 on the ground that assessment order passed by the AO was erroneous as well as prejudicial to the interest of revenue. 21. It may also be mentioned that it was also the contention of the assessee that since AO had disallowed deduction under section 80 IB(10) in its entirety, therefore, there is no question of the order being prejudicial to the interest of revenue. In our considered opinion such contention of the assessee has no force as entitlement of deduction under section 80 IB(10) is not solely dependent on commencement of the project but also on completion of the project about which the assessment order and assessment proceedings are silent. It has already been pointed out that according to A.O it may not have been necessary to go into other conditions regarding eligibility of the assessee for deduction under section 80 IB(10) as the claim of the assessee was required to be out-rightly rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial establishments included in the housing project should not exceed 3% (w.e.f. 1/4/2005) of the aggregate built up area of housing project or 5000 sq.ft, whichever is higher,(2000 sq.ft) whichever is less from 1/1/2010. The commercial area built up by the assessee in that case was found to be excessive in violation of clause (d). Therefore, deduction was denied by the Department. Issue regarding completion of project within the time was never before Hon ble Court. It was found that commercial area built up by the assessee was within the norms of Municipal law and ceiling of commercial area imposed by the clause (d) was only brought w.e.f. 1.4.2005. It was held that the amendment being substantial should be linked to the date of approval and commencement of the project and not to the assessment year. 24. The reason for arriving at such conclusion has been mentioned by Hon ble High Court in para 21 of the judgment and it has been observed that neither the assessee nor Local Authority responsible to approve construction project are expected to contemplate future amendment in the statute and approve or carry out construction maintaining the ratio of residential housing and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat when the assessment for assessment year 1960-61 is to be made and section 24(2) is invoked, it is section 24(2) as in force in that assessment year which to be applied. That is the provision amended by Finance (No.2) Act 1957. There was no question of the assessee possessing any vested right under the law as it stood before amendment. In that case in A.Y 1959-60 the set off of unabsorbed business loss in relation to A.Y 1949-50 and A.Y.1950-51 was granted and remaining unabsorbed loss was carried forward. In A.Y 1960-61 the year which was under consideration, the assessee claimed that unabsorbed loss should be carried forward and set off against business income of A.Y 1960-61. Such claim of the assessee was rejected by the AO on the ground that unabsorbed loss related to A.Y 1950-51 cannot be carried forward more than eight years. The claim of the assessee was not accepted at the level of AAC and Tribunal and question of law was referred to Hon ble High Court that whether or not assessee is entitled for set off of unabsorbed loss of A.Y 1950-51 against business income of A.Y 1960-61. Reference was made to provisions of section 24(2)(iii) of Income Tax Act,1922 as it stood befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal principle of the tax law that the law to be applied is that in force in assessment year unless otherwise provided expressly or by necessary implication [CIT vs. Isthmian Steamship Lines (1951) 20 ITR 572 (SC) : TC27R.640 and Karimtharuvi Tea Estate Ltd. vs. State of Kerala (1966) 60 ITR 262 (SC): TC38R.479J. On that principle, it is abundantly clear that when an assessment for the asst. yr. 1960-61 is to be made and s. 24(2) is invoked, it is s. 24(2) as in force in that assessment year which has to be applied. That is the provision as amended by the Finance (No. 2) Act, 1957. There is no question of the assessee possessing any vested right under the law as it stood before the amendment. The assessment for one assessment year cannot, in the absence of a contrary provision, be affected by law in force in another assessment year. A right claimed by an assessee under the law in force in a particular assessment year is ordinarily available only in relation to a proceeding pertaining to that year. Therefore, inasmuch as the provisions of s. 24(2), as amended in 1957, govern the assessment for the asst. yr. 1960-61, the High Court is right in affirming that the unabsorbed loss of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case completion certificate has not been issued even till date. In the case of DCIT vs. Brigade Enterprises (P) Ltd.,(supra) the issue was only that whether two projects were one or they were different and on the facts of the case it was held that two projects were different. Therefore, the decision is not applicable to the facts of the case. In the case of Satish Vora Associates(supra), it was found that Pune Municipal Corporation(PMC) does not issue occupancy certificate generally in time and keeping in view such position a legislative provision was introduced, according to which 21 days time was given to PMC and it was held that after expiry of 21 days from the date of submission of all documents the project should be deemed to be complete. However, in the present case the facts are entirely different as it has been observed by Ld. CIT that on an enquiry from MCGM in compliance to notice under section 133(6) it has been informed that only part occupation certificate is issued to the assessee for Wing No. A to G and it was observed by CIT that completion certificate has neither been applied by the assessee nor it is issued. Even before us these observation of CIT h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is raised on the ground that the issuance of show cause notice by Ld. CIT is factually incorrect as in the written submission furnished to AO vide letter dated 14/11/2009 the criteria regarding fulfillment of the aforementioned condition was fully brought out. We have carefully gone through the show cause notice and the reply referred to by the Ld. A.R. Nowhere in the reply it has been submitted that assessee has complied with the condition laid down in Explanation (ii) to section 80 IB(10). It was only stated that on completion of G-Wing as it was the last wing the MCGM authority has mentioned the word part occupation for entire lay out as at that time temple and club house were under completion. However, G-Wing having stilt + podium +22 storied building was fully completed and MDGM authority has given full occupation certificate for this wing. G-Wing has nothing to do with the year under consideration as the deduction claimed in the impugned year is regarding D,E F Wings. Therefore, the reply of the assessee submitted to AO vide letter dated 14/11/2009 does not convey that assessee had made submission to the AO regarding fulfillment of the condition laid down in Explanation ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions conferring the appellate or revisional jurisdiction. The doctrine of merger is not a doctrine of rigid and universal application. Whether there is fusion or merger of the order of the inferior Tribunal into an order by a superior Tribunal shall have to be determined by finding out the subject-matter of appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute; (iii) ordinarily, a judgment pronounced in appellate or revisional jurisdiction after issuing a notice of hearing to both the parties would replace the judgment of the lower Court thus constituting the appellate or revisional judgment as the only final judgment; (iv) the doctrine of merger does not apply where an appeal is dismissed (i) for default, (ii) as having abated by reason of the omission of the appellant to implead the legal representatives of a deceased respondent; (iii) as barred by limitation; (v) an appeal dismissed in limine on the ground of the bar of limitation may still be an order in appeal for the purpose of determining whether .a right of further appeal would be available or not but that does not amount to saying that the order appeale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the condition regarding commencement of the project after 1/10/1998. According to A.O, the assessee did not fulfill the primary condition of commencement of project after 1-10-1998; therefore, he did not go into the question regarding completion of the project which could be considered to be complete only on furnishing of the completion certificate by the local authority. Nowhere in the submissions made before AO or in the order it has been submitted or considered that issue of part commencement certificate by the local authority should be taken as compliance with the condition laid down in Explanation (ii). It has already been observed that the disallowance of deduction is not made by the AO on the ground of non-completion of the project which was also a condition precedent for allowability of the deduction. Now we have to go through the appellate order passed by CIT(A) to examine whether or not CIT(A) while holding that deduction under section 80 IB(10) is allowable has considered or decided that whether or not the project was completed by the assesee before 31/03/2008. Copy of such order is placed at pages 53 to 55 of the paper book. Since it is a short order the flow of the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agination that he has considered and decided the issue regarding admissibility of the deduction under section 80 IB(10) on the ground of completion of the project which was to be considered as complete only on furnishing completion certificate to be issued by the local authority under Explanation (ii). Therefore, it can be said that the issue regarding completion of project was never considered and decided by the Ld. CIT(A). It can also not be said that if an assessee has not fulfilled the condition as laid down in Explanation (ii) than also he can be held to be entitled for deduction u/s. 80 IB(10). Therefore, looking into the plain provisions of language of clause (c) of section 263, it is held that Ld. CIT(A) has never considered and decided the issue regarding compliance of condition by the assessee regarding furnishing of completion certificate to be issued by the the local authority as per provisions of Explanation (ii). Therefore, doctrine of merger as pleaded by the assessee is not applicable to the facts of this case. Now we have to examine the case laws relied upon by Ld. A.R in this respect. (i) In the case of Shobha Developers Ltd. vs. CIT (supra) the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO and it was allowed in part. When the matter was carried before CIT(A), the CIT(A) was duty bound to examine whether the claim made by the assessee was in accordance with provisions of sub-section (2) of section 80I of the Act. The requirement of fulfillment of conditions stipulated by sub-section (2) of section 80I of the Act was therefore, very much subject matter of appeal in relation to income from warehousing which was disallowed by the AO. Therefore, in that case the claim was already partly allowed by the AO and department was contesting the eligibility of grant of such claim. Their Lordship have also found that AO has issued the questionnaire to the assessee and reply was given. It is in those circumstances it was held that section 263 could not be invoked. However, the facts of the present case are entirely different. The AO had disallowed the deduction in entirety only on the ground that assessee s project did not commence after 1/10/1998. While holding that project of the assessee had commenced after 1/10/1998 the main question would be that whether or not assessee has fulfilled other conditions laid down in the said provision laid down in the said provision which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) who confirmed the order of ITO. It was held that CIT had jurisdiction to pass order under section 263 vis- -vis weighted deduction allowed by ITO as according to High Court CIT is empowered to exercise revisional authority in respect of matters which have escaped the attention of Appellate Authority. (c) In the case of Bundy Tubing India Ltd. vs. CIT, 253 ITR 286(Mad), section 263 was invoked on the issue of development rebate which was claimed on machinery installed for manufacturing process prior to 30/06/1975. The fact of installation of such machinery before 30/06/1975 was not found to be established in the assessment proceedings. Therefore, CIT invoked section 263. An appeal was filed by the assessee claiming that development rebate should also have been allowed on advertisement expenses which was decided by Ld. CIT(A). Thus it was pleaded by the assessee that assessment order had merged with the order of CIT(A). Such contention was rejected on the ground that issue of development rebate was not before CIT(A). It was observed by Hon ble High Court that the Tribunal was right in holding that there was no merger as to whether amount that had been allowed was a prope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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