TMI Blog2010 (12) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... ee’s claim for deduction under s. 80-IB(10) of the Act - Held that: Revenue was not right in holding that assessee is not entitled to deduction u/s. 80-IB(10) because the housing project was not completed as D wing was never completed before the specified date the first condition is met because the project is commenced after 1-10-1998 and the same has been completed before 31-03-2008 because of the relevant Occupation Certificates for A, B and C wings have been obtained before 31-03-2008 - AO has not given any specific defect in respect of any particular expenditure - In the result, all the appeals are partly allowed - I.T.A.NOS. 3220, 3444& 3445/MUM/2010 - - - Dated:- 23-12-2010 - N.V. VASUDEVAN, JUDICIAL MEMBER AND T.R. SOOD, ACCOUNTANT MEMBER ORDER Per T.R. Sood, AM. In all these appeals the issue regarding deduction u/s. 80IB(10) is common in all the three years. Therefore, first of all, we shall take up this issue. With the consent of the parties for this purpose the assessment order and First Appellate Authority s order for A.Y 2007-08 was considered because, according to both the parties, all the facts in respect of deduction u/s. 80IB(10) are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e work of these blocks was completed during the A.Y 2005-06. Later on, work on wing A was also commenced and ultimately occupation certificates were received as under: Particulars of occupation certificate Area Certificate available at Paper Book page No (i) Occupation Certificate CC No. EEBPC/118/FN/A of 31/5/05 B wing (Full) 48A (ii) Occupation Certificate CC No.EB/118/FN/A of 20/1/06 C wing (Part) 49-50 (iii) Occupation Certificate CC No.EB/118/FN/A of 11/9/07 C wing (Balance) 51 (iv) Occupation Certificate CC No.EB/118/FN/A of 03/3/08 A Wing (Full) 52-53 The areas which were completed during A.Yrs. 2005-06, 2006-07 and 2007-08 and which came to the share of the assessee were sold during these years and deduction u/s. 80IB(10) was claimed during all these years on the profits on sale of flats. According to the assessee, assessee had complied with and fulfilled all the conditions laid down in sec. 80IB(10) of the I.T.Act. 3. A survey was conducted on 01-03-2006. In this survey statements of few of the flat owners were recorded in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the project is completed or the flats are handed over, the builder should ensure that the condition specified in 80IB(10) are continued to be complied with by the new owners. The law cannot make the builder permanently responsible for the project. The section 80IB(10) provides tax relief to the developer. As long as the developer has satisfied the conditions of section 80IB(10), he should be entitled to the relief. It would be wrong and bad in law to deny the benefit to the developer for reasons and act of a third person. It is once again submitted that the assessee has satisfied all the conditions specified u/s. 80IB and therefore rightly entitled to the deduction. Further, the assessee should not be penalized for the act done by the owner of the flat without the knowledge and approval of the assessee. Without prejudice to the above, we would further like to submit that even if the disallowance is to be made on this ground, disallowance should be on proportionate basis. Further, you will appreciate the fact that even after combining the flat No. 301 (349 sq.ft.) and 302 (456 sq.ft.) of Mr. D. Prasad the area of flat still would not does exceed 1000 sq.ft. Hence, there is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Saroj Sales Organisation v. ITO 115 TTJ 485. 5. The AO after considering these submissions held that assessee had completed only A, B and C wings upto 31st March, 2008 and D wing was not completed and, accordingly, no completion certification was obtained for D wing from Municipal Authorities and, therefore, the housing project was not completed. It was further observed that total project area was 1.88 acres and since assessee s share was only 51% of the built up area. Therefore, the project area was only of less than one acre. Lastly, the AO relying on the observations made in the assessment years 2005-06 and 2006-07 that in some of the flats units area exceeded 1000 sq.ft., deduction u/s. 80IB(10) was denied. 6. The Ld. CIT[A] after considering the submissions opined that as far as objection regarding size of each unit being more than 1000 sq.ft. is concerned, the assessee has successfully explained. In fact, it was observed by the CIT[A] vide para 3.4.4 as under: 3.4.4 The third ground on which deduction under section 80IB has not been given is that, certain flats have been merged and their area exceed 1000 sq.ft. This has surfaced during survey conducted u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go to the land owner as per clause 13 of the agreement. In pursuance of this Development Agreement assessee made plans and sought approval of the Bombay Municipal Corporation and ultimately the plans were approved by an IOD vide letter dated 8-1-2004, copy of which is placed at pages 3, 1 to 38 of the paper book. He then referred to page 39 of the paper book, which is a copy of plans and explained that assessee had planned to construct four wings consisting of A, B, C and D wings. Wing D was meant for personal use of the assessee and the owners of the land as office complex and, in fact, an old complex was already existing there. 8. The assessee initially decided to develop A, B and C wings consisting of residential units between 500 sq.ft. to 800 sq.ft. In view of the IOD dated 8-1-2004 commencement certificate was issued to the assessee on 11-2-2004 through which permission to construct upto plinth level was only given and the copy of the same is placed at page 47 of the paper book. Later on, there was some amendment in the plans and, accordingly, these amended plans were approved by the BMC vide letter dated 11-3-2004, copy enclosed at page 40 of the paper book and a further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pages 48A to 53 of the paper book. The area constructed in A.Yrs. 2006-07 and 2007-08 was accordingly sold and proportionate cost was debited from work-in-progress account and deduction u/s. 80IB(10) was claimed. The deduction has been mainly denied by the AO and confirmed by the ld. CIT[A] on two points viz. (i) that the housing project would consist of A, B, C and D wings and since assessee has not constructed and completed the D wing, therefore, deduction was not allowable; and (ii) the assessee was entitled only to 51% share of the built up area on the total project in 1.88 acres of land, therefore, assessee s share was less than 1 acre and as such assessee is not entitled to the deduction. 10. He carried us through the provisions of section 80IB(10) and submitted that basically deduction in housing project is to be allowed if the following conditions are fulfilled: 1. The development and construction of housing project commences on or after 1-10-98 and is completed before March 31,2008; 2. The project is approved by the local authority before 31-3-2007; 3. Land area for the project should not be less 1 acre; 4. Built up area of flat should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the recitation clauses in the Development Agreement, particularly clause (h) at page 5 where this fact has been clearly mentioned. In any case the plan was approved for all the wings together but as far as the commencement certificate is concerned, the same was never given by the authorities for D wing which is clear from the various commencement certificates given by the Municipal Corporation copy of which is placed at pages 47 48 of the paper book. He explained that no construction can taken place unless commencement certificate is received. The Municipal Corporation tries to control the construction activities in various parts of the City considering various factors like, noise levels, disposal of debris and other disturbances created during construction and, therefore, the construction activity is controlled through the medium of commencement certificate. In the case before us construction was not possible at all in respect of the D wing in the absence of commencement certificate. He also pointed out that though it is not disputed that assessee has determined the profits separately for A, B and C wings but as a matter of record, he clarified that assessee has maintained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g area of land being lass than one acre which has been confirmed by the Ld. CIT[A], he submitted that land area on which this project was undertaken was 1.88 acres i.e. about 7633.88 sq.mts. In fact, the Development Agreement would show this position in the recitation clauses. Out of this total area, a small portion admeasuring 637.48 sq.mt. was designated separately because the same was reserved for land falling under school reservation category. Another potion of the land i.e. 200 sq.mt. on which an office block was constructed, was basically meant for construction of commercial space as D wing and ultimately the net area of the project was about 7000 sq.mt. as mentioned in clause (h) of the recitation clauses of the Development Agreement which is more than one acre. The only objection of the department is that since as per the Development Agreement assessee was entitled to only 51% share of the built up area, the plot of land coming to the assessee s share would be reduced to 0.96 acre and hence the condition prescribed u/s. 80IB(10) would not be fulfilled. He argued that a careful reading of section 80IB(10) would reveal that there is no condition prescribed that for claiming d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Board whereby deduction is available even for additional building on the same area, then the project was definitely on an area of more than one acre and would qualify for deduction u/s. 80IB(10). Reliance was also placed on the decision of the Ahmedabad Bench of the Tribunal in the case of ITO v. Shakti Corporation 32 SOT 438. 15. On the other hand, ld. DR Ms. Reena J. Tripathi, referred to page 39 of the paper book which is a copy of the plan of various wings and submitted that a mere look at this plan would show that all the wings were basically connected and it was a case of only one building. Then she referred to the provisions of section 80IB(10) and pointed out that a reading of this provision would show that the intention of the legislation was to given deduction for constructing houses for economically backward classes and the deduction was meant for the whole project and if one portion of the building is not constructed, then it cannot be said that the housing project has been completed and thus it would not fulfil the conditions laid down in section 80IB(10). In the case before us, admittedly, D wing was not completed. In fact, construction itself has not commence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject is issued by the local authority; (b) the project is on the size of a plot of land which has a minimum area of one acre: Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf; (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place [and] (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet, whichever is less.] A perusal of assessment order shows that deduction has been denied by the AO on the basis of following three issues: 1. That the size ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f land from the said owners. A building plan for construction of eleven wings was made and got sanctioned from the Municipal authorities. The principal developers i.e. M/s Kenwood Agency Pvt. Ltd., constructed two wings viz., A and B of this building and granted the sub-development rights for the remaining nine wings of the building to the assessee firm i.e. M/s Saroj Sales Organisation v. ITO [supra]. As per this agreement, assessee firm was to construct six wings of the aforesaid building which were named as Nisarg . Later on another agreement was entered into by which assessee was entitled to construct three more wings of the building which was to be named as Breezy Corner . The assessee claimed deduction u/s. 80-IB(10) in respect of Nisarg complex. The claim was rejected by the revenue authorities on the basis that only one building having eleven wings was approved by the Municipal authorities and, therefore, construction of six wings of the same building of the assessee could not be treated as a separate independent housing project. Moreover, if three wings consisting of Breezy Corner were included, some of the flats in Breezy Corner were more than 1000 sq.ft. and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... housing projects will get defeated. Breezy Corner project which was meant for higher strata of the society. The assessee has segregated the same and in no way mixed in these projects either in the design or in the structural manipulation or in the provision of amenities and the assessee has not claimed any relief in respect of project which admittedly does not admit the test laid down under s. 80-IB (10) of the Act. In our view, combining these two projects into one will lead to a result which manifestly will be unjust and absurd and defeat the very provisions of deduction sections. Unless there is a clear intention of the legislature the Revenue cannot be permitted to do so. After all the assessee have obtained different commencement certificates and started on different periods of time. They are separate by time, space and statutory approvals and even in designs, maintenance of separate books of account. The Revenue, in our view, is not right in treating both the projects as one and integrated without the facts warranting for such conclusion. In identical situation in the case of Bengal Ambuja Housing Development Ltd. (supra), the assessee was having a housing project which co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, there was no stipulation as to the shopping complex area is permissible in the project. As already stated earlier that the amendments were subsequently made while extending the deduction of income from housing project approved upto 31st March, 2007, the denial of deduction, in our view, is clearly not in accordance with law. 14. One of the objections of the AO in his assessment order is failure of the assessee to obtain a completion certificate in respect of 6 wings in the block Nisarg from which it has returned the income in the asst. yr. 2005-06. The assessee has filed completion certificate issued by the local authority in respect of 3 wings viz. C, D and E before submission of its return and for the rest of the wings viz. F, Fl and G, it had applied for such certificate on 17th Aug., 2004, but the same was not received till date of filing of the return. It was reported in the course of hearing by the learned counsel for the assessee that the occupation certificate in respect of the remaining wings i.e. F, Fl and G has also been issued by the municipal authorities on 20th Dec. 2006. Copies of such certificates issued by the local authorities have been placed in the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom larger residential units. Though the AO has denied the claim of the assessee observing that larger units were also constructed by the assessee, at the same time, it is also a fact on record that the assessee had claimed deduction only on account of smaller residential units which were fulfilling all the conditions as contained in section 80-IB(10) and the same has not been disputed by the AO also. We have also noted down the fact that even the provision as laid down in section. 80-IB(10) does not speak regarding such denial of deduction in case of profit from a housing complex containing both the smaller and large residential units and since the assessee has only claimed deduction on account of smaller qualifying units by fulfilling all the conditions as laid down under section 80-IB(10), the denial of claim by the assessee is on account of rather restricted and narrow interpretation of provisions of clause (c) of section 80-IB(1) while coming to such conclusion, we also find support from the order of the Hon ble Supreme Court in the case of Bajaj Tempo Ltd. (supra), wherein it was held that provisions should be interpreted liberally and since in the present case also, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction of any building, road, bridge or other structure in any part of India. The concept of housing project in s. 80HHBA is much more wider, but so far as s. 80-IB (10) is concerned, as there is no definition of expression housing project , then definition given in s. 80HHBA will be internal aid to decide whether housing project means the project of the group of the buildings or whether it can be the project of a single building also. As per the definition of housing project in s. 80HHBA, housing project includes construction of any building . If the legislature was desiring to define nature of the housing project for the purpose of s. 80-IB(10), then either the specific definition would have been incorporated in the Act or it would have been explained by way of Explanation to s. 80-IB. 11. In our opinion, the concept of housing project does not mean that there should be the group of the buildings and only then same is called as housing project . In the present case, it is seen that initially, as per the documents on record i.e. copy of CC the assessee had planned for four independent buildings, but, so far as Wing E is concerned, that was only planned when the status of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible for deduction under s. 80-IB(10) in such a case, size of the plot, excluding portion under commercial unit, must be more than minimum area of one acre and residential units built on such area must satisfies condition of cl. (c) of the provision. Above income of undertaking from project referred to above should be granted exemption under the statutory provision, as such income satisfy the purpose of the enactment. In any case, denial of deduction in such cases will be purely based on hyper-technical ground, because instead of seeking approval as residential-cum-commercial project for the entire project, the assessee could have as well taken separate approval for residential segment which, even on standalone basis, would have satisfied all the requisite conditions. Approval as residential project was not a condition precedent for grant of deduction under s. 80-IB, and in city like Pune, there was no provision in the local regulation to approve project as a housing project . There would be no legal justification to deny exemption to residential segment of such a housing project, which satisfies conditions of s. 80-IB (10) on standalone basis, merely because their project has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which an office block was already there was included in the development project. The D wing was supposed to be constructed on this portion of the land and was stated to be only having two floors and was meant for personal use. While dealing with the developers it is provided in clause (i) which is available at page-8 of the paper book] as under: (i) He has surveyed the said lands and is aware that the said Land have been converted from 1-2 zone to R zone as per BMMC order dated 4th August, 2003. The Developer confirms that the said Development Lands admeasures approximately 7000 sq.mts. and particulars regarding D.P.Road, Set-Back BES T. Substation, SAS Amenity, Creation etc. are as per details furnished in Annexure I hereto. The total FSI available on the said lands for Development, after deducting 250.68 sq.mts. FSI utilised for constructed area of the Office Block is 7930.69 sq.mts. The Office Block will not be demolished but balance FSI of the Office Block land area will be utilised in the remaining portion of Development Land. From the above, it becomes clear that only 250.68 sq. mts. Of FSI which was already utilized for construction of office block and which wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s wing is stated to be used for business purposes and, therefore, same cannot be treated as residential unit. Since the area involved in this wing was only 3%, therefore, it is immaterial whether this is considered for the purpose of housing project or not. In any case, as held in the above noted cases which have been discussed in detail, whatever portion is eligible for deduction, has to be allowed deduction u/s. 80-IB(10). We also find that even Occupation Certificates were issued separately by the Municipal authorities [copy filed at pages 48A to 53 of the paper book]. The details of the same are as under: Particulars of occupation certificate Area Certificate available at Paper Book page No. (i) Occupation Certificate CC No. EEBPC/118/FN/A of 31/05/05 B wing (Full) 48A (ii) Occupation Certificate CC No.EB/118/FN/A of 20/01/06 C wing (Part) 49-50 (iii) Occupation Certificate CC No.EB/118/FN/A of 11/09/07 C wing (Balance) 51 (iv) Occupation Certificate CC No.EB/118/FN/A of 03/03/08 A Wing (Full) 52-53 This only shows that each win ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for himself in order to exploit the potential of its business of developing the project. Same view was taken in the case of ITO v. Shakti Corporation 32 SOT 438. 28. Further, the deduction is meant for the housing project and not for the share of the developer. Had the assessee purchased this land, then assessee would have definitely incurred some cost in terms of land and assessee would have become the owner of the 100% built-up area and would have got deduction on such 100% built-up area subject to deduction of such cost of land. Therefore, in reality it does not make a difference whether assessee has purchased the land or simply shared the built-up area with the land owners. This situation becomes further clear from the decision of the Mumbai Bench of the Tribunal in the case of Vandana Properties v. ACIT [supra], wherein the deduction u/s. 80-IB(10) was denied on account of various objections and one of the objection was that the land area pertaining to wing E on which deduction was claimed was less than one acre. We have already discussed the facts of this case in the above noted paras but to summarise the same again in this case the assessee was constructing five wings kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings do not qualify for deduction under s. 80-IB(10) of the Act and admittedly, the same is also not claimed. We, therefore, do not agree with the view taken by the AO as well as the learned CIT(A) that the assessee has violated the another condition in respect of the size of the plot. In the above case, Tribunal also referred to the letter dated 4th May, 2001 (F.No. 205/3/01/I.T.Act 11), wherein it is clearly explained by the Board that if some additional housing project is constructed on the existing housing project, then even the same is eligible for deduction u/s. 80-IB(10) as long as separate books are maintained so that the profit for this additional area can be ascertained separately. In the case before us, assessee has already mentioned separate work-in-progress in respect of Wadala project and this aspect has not been disputed by the Revenue. The second aspect of that letter is that even if the additional project is mounted on the existing project, even then the deduction is available. We have already observed that in the present case assessee is a developer of the whole of the project and, therefore, the share could not be allocated only in terms of 51% of the land ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable to Vikas Housing Private Limited. 3. On the facts and circumstances of the case and in law, the learned AO erred in disallowing Rs. 6,742/- being 20% of car insurance and car expenses incurred by the assessee. 4. On the facts and circumstances of the case and in law, the learned AO erred in disallowing Rs. 41,044/- being proportionate interest expenses incurred by the assessee. 5. On the facts and circumstances of the case and in law, the learned AO erred in disallowing Rs. 58,006/- being 10% of Miscellaneous expenses, Entertainment expenses, Conveyance and Travelling expenses incurred by the assessee. 6. On the facts and circumstances of the case and in law, the learned AO erred in levying interest u/s. 234B of the Act. 32. Ground No. 1: This issue we have adjudicated right at the outset of our order vide paragraph Nos. 2 to 29 and in the light of above discussion we hold that assessee is entitled to deduction u/s. 80-IB(10) and, therefore, we set aside the order of the Ld. CIT(A) and direct the AO to allow deduction u/s. 80-IB(10). 33. Ground No. 2: After hearing both the parties, we find that during assessment proceedings it was noticed by the AO that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expenses of Rs. 1,17,516/-. It was found during the assessment proceedings that assessee had advanced various loans to various concerns which are related to the assessee. Since the assessee had given interest free advances, therefore, proportionate interest was disallowed which was worked out as under: Total funds employed = 40111777 Total loan/advance given = 14009475 Interest disallowed =117516 (14009475 / 40111777) = Rs. 41044 The addition was confirmed by the Ld. CIT(A). 42. Before us, Ld. counsel of the assessee submitted that this addition has been made without establishing any nexus between the borrowed funds and interest free advances and, therefore, addition made is on an ad hoc basis. 43. On the other hand, Ld. DR relied on the orders of the AO and the Ld. CIT(A). 44. After considering the rival submissions, we find that recently the Hon ble Bombay High Court in the case of CIT v. Reliance Utilities Powers Ltd. 313 ITR 340, has held as under: Held, dismissing the appeal, that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest free funds generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing grounds: Aggrieved by the order of the Assessing Officer (AO) as confirmed by Commissioner of Income tax (Appeals) [CIT(A)], your appellant prefers an appeal against the same on following grounds, which it is prayed may be considered without prejudice to one another. (1) On the facts and circumstances of the case and in law, the learned AO erred in disallowing deduction u/s. 80-IB amounting to Rs. 1,78,70,807. (2) On the facts and circumstances of the case and in law, the learned AO erred in disallowing Rs. 51,397/- being 20% of car insurance and car expenses incurred by the assessee. (3) On the facts and circumstances of the case and in law, the learned AO erred in disallowing Rs. 75,549/- being proportionate interest expenses incurred by the assessee. (4) On the facts and circumstances of the case and in law, the learned AO erred in levying interest u/s. 234B of the Act. (5) On the facts and circumstances of the case and in law, the learned AO erred in initiating penalty proceedings u/s. 271[1][c] of the Act. 51. Ground No. 1: This issue we have adjudicate right at the outset of our order vide paragraph Nos. 2 to 29 and in the light of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been made. Considering the all over facts, we are of the view, that if an addition of Rs. 20,000/- is made that would meet the ends of justice, therefore, we set aside the order of the Ld. CIT(A) and direct the AO to make disallowance of only Rs. 20,000/- out of cash expenses. 60. Ground No. 4: The levy of interest u/s. 234B is of consequential nature and, therefore, we set aside the order of the Ld. CIT(A) and direct the AO to levy interest in accordance with law. 61. Ground No. 5: After hearing both the parties, we feel that the issue regarding initiation of penalty proceedings u/s. 271[1][c] is premature and, therefore, dismissed as infructuous. 62. I.T.A.No. 3444/Mum/2010 - A.Y 2007-08: In this appeal, the assessee has raised the following grounds: Aggrieved by the order of the Assessing Officer (AO) as confirmed by Commissioner of Income tax (Appeals) [CIT(A)], your appellant prefers an appeal against the same on following grounds, which it is prayed may be considered without prejudice to one another. 1. On the facts and circumstances of the case and in law, the learned AO erred in disallowing deduction u/s. 80IB amounting to Rs. 2,50,48,491/-. 2. O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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