TMI Blog2012 (11) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered 5% to be too low in this line of business AO found that certain expenditure were not completely verifiable and not all details were available in respect of expenditure, therefore, adopted rate of 8% for estimating profit as against 5% adopted by the assessee Held that:- Appellant has adopted the rate of profit at 5% without any basis - In respect of turnover of up to ₹ 40 lakhs net profit is presumed to be @ 8% u/s 44AD - profit to be estimated at 8% - appeal of the assessee is dismissed Business expenditure u/s 37(1) - construction of a temple in the housing project Held that:- Construction of temple is for welfare of the employees to instill spirituality to lead peaceful life, therefore, the expenditure incurred towards construction of temple is a part of the housing project, which is allowable as capital expenditure In favor of revenue Disallowance towards cost of lift alleged that bill was raised on dated 23/03/2005 not related to the assessment year under consideration Held that:- Assessee failed to substantiate its claim by producing the bills raised by the supplier in AY 2004-05 and other evidence to prove that the expenditure is relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, that at the first instance, the assessee entered into an agreement of sale; subsequently, the assessee entered into an agreement for development work of flat specifying the work to be executed and the amount to be paid by the purchaser of the flat; and then through a third document, sale of the property is carried out, and in that third document, it is mentioned that the assessee sold the property, as per the agreement entered into with specific area of site along with superstructure (semi-finished flat). The assessing officer concluded that if all the documents are put together and analysed, the following points would emerge : 1. The assessee is selling away flats at semi-finished stage leaving much work to be done afterwards. Therefore, it cannot be said that the flat sold by assessee is a residential unit because without constructing further, it would not be in a condition to live in. 2. Though the assessee claimed the entire amount i.e. amount received as per sale deed and the amount received as per development agreement as total consideration, it is clear that the sale consideration is only the amount received as per sale deed. The expenditure on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t company was approved before 01.04.2004. The condition is in progress, for the assessment year under consideration. (d) The local authority granting the approval is Quthbullapur Municipality (Jeedimetla Village, R.R. District. Pin Code No. 500 055) and HUDA. (e) The approval was obtained only once i.e. on 18.10.1999, for the project. (f) Since construction work is in progress, the completion certificate will be issued only upon the completion of entire phase-II. At present, some units are completed as residential units, some others are in semi-finished and some are yet to be constructed. (g) The project area is 1.92 acres in respect of phase-II and hence it (area) is in excess of 1 acre as laid down by the provisions of section 80IB of the Act. (h) All the residential units in phase-II being situated in Hyderabad, are below 1500 sq. ft., thus satisfying the condition that they are well within the maximum built up area in Hyderabad, i.e., 1500 sq. ft as per the provisions of section 80IB of the Act. (i) The built up area for commercial purpose is well with in the limits i.e. not exceeding 5% of the aggregate built up area of ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to deliberate its view that if the language is plain, the fact that the consequence of giving effect to it may lead to some absured result is not a factum to be taken into account in interpreting a provision. It is for the legislature, to step in and to remove the absurdity. On the other hand, if two reasonable constructions are possible that construction which favours the assessee must be adopted. 5. (a) The appellant therefore further submits that the reasonable construction that would favour the appellant must be adopted particularly in the light of absence of such condition while granting the benefit of deduction u/s. 80IB of the Act, in the appellant's case. (b) The assessing officer cannot infer something that was not spelt out in the provisions and/or statute so as to deny the claim of the appellant. 6. (a)The appellant company therefore submits that the conditions laid down by the provisions of section 80IB of the Act was satisfied. The benefit u/s. 80IB of the Act, cannot be denied by the Assessing officer for the mere reason that a residential unit is not completed, or is in the semi finished state or yet to be constructed stage. The undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mi-finished unit. 5.4 In view of the same, I concur with the views of the Assessing Officer that appellant is not eligible for deduction u/s. 80IB and accordingly confirm the order to this extent. 6. Aggrieved, assessee is in appeal before us. 7. The learned counsel for the assessee, reiterating the contentions urged before the lower authorities, submitted that the assessee is very much entitled for the relief under S.80IB of the Act. He placed reliance on the Circular Instruction No. 4 of 2009 dated 30.6.2009, which is as follows:- Under sub-section (1) of section 80-IB an undertaking developing and building housing projects is allowed a deduction of 100% of its profits derived from such projects if it commenced the project on or after 01/10/1998 and completes the construction within four years from the financial year in which the housing project is approved by the local authority. 2. Clarifications have been sought by various CCsIT on the issue whether the deduction u/s 80-IB(1) would be available on a year to year basis where an assessee is showing profit on partial completion or if it would be available only in the year of completion of the proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction is available to the housing projects approved by a local authority before the 31st day of March, 2001 and which are completed before the 31st day of March, 2003. 47.2 With a view to allow new housing projects to avail the benefit of tax holiday under this provision, the time limit for obtaining approval from the local authority has been extended to 31st March, 2005. Further, to rationalize the provision, the time limit for completion of the project has been omitted. 47.3 The amendments have been brought into effect retrospectively from 1st April, 2002 and have been made applicable to the assessment year 2002-03 and subsequent years . 9. The learned counsel for the assessee relied on the decision f the Hyderabad Bench of the Tribunal in the case of Nagarjuna Homes v. ITO [2011] 46 SOT 287/[2010] 7 taxmann.com 130 (Hyd). In cross appeals for assessment year 2005-06), wherein, vide order dated 30.10.2010 it has been held that the CBDT vide circular No.30.6.2009 clarified that the deduction could be claimed on year to year basis, where assessee is showing the net profit from the partial completion of the project in every year. In case it is found that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within four years, the deduction granted to the assessee in earlier years shall be withdrawn. The case of Nagarjuna Homes of the coordinate Bench of this Tribunal dated 30.9.2010, which interpreted as above and followed the above circular of the CBDT, squarely applies to the facts of the present case. 14. The stand of the Revenue with regard to semi-finished condition of the flat is devoid of merit, in as much as what is sought to be constructed and sold by the assessee is a residential unit and what is sought to be purchased by the individual buyer is the ownership of a residential unit, and registration of flats in semi-finished condition is only to facilitate the convenience of the parties and agreement for development and completion of the balance works in relation to the flats registered, is only an incidental formality to protect the interests of the parties to the transaction, which need not be viewed as fatal to the claim of the assessee for relief under S.80IB of the Act. Ultimately, the entire work from the stage of commencement of the project to the stage of making the residential unit habitable has been carried out by the assessee only, and the Revenue has no dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that while interpreting the statutory provisions 'if two reasonable constructions are possible that construction which favours the assessee must be adopted'. 17. When the developer is offering profits under percentage completion method, the estimated profits that the developer will have on completion of the project is spread over the earlier years and offered every year a percentage of that profit based on percentage of project completed that years. Obviously except in the last year, the assessee will be offering income even though the project (and in the individual flats) would not have been completed. As clarified in the Circular such profits offered are also entitled relief u/s 80IB. The AO is at liberty to determine the correct profit under the percentage completion method and also withdraw the relief granted, if, at a later period of time on completion of the project, if the assessee has not complied with any of the requirements of section 80IB(10) of the Act. 18. In view of the above discussion, we restore the claim of deduction of the assessee for relief under S.80IB of the Act, to the file of the AO with a direction to decide the issue following the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the profit to be estimated at 8% and, therefore, we do not find any reason to interfere with the order of the CIT(A), therefore, the same is hereby upheld and this ground of appeal of the assessee is dismissed. 21. In AY 2004-05, the Ground No. 2 raised by the assessee is as follows: The learned CIT(A) having clearly held that the total profit will be properly computed only after the project is completed erred in holding that some profit accrues in the intervening period and further erred in confirming the estimate of the profit @ 8% which is wholly unsustainable. 22. The business income of the assessee has been estimated at 8% equal to ₹ 41,14,392/- by the AO, and the same was confirmed by the CIT(A). We have already held in AY 2003-04 that 8% estimation of profit at 8% is standard rate adopted in all the cases in this line of business, therefore, we confirm the order of the CIT(A) on this issue. 23. Ground No. 3 in AY 2004-05 is directed against the action of the CIT(A) in confirming the disallowance made by the AO of an amount of ₹ 3,92,900/- expended towards construction of a temple in the housing project. 24. The AO noted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration. The CIT(A) observed that payments in advance could be made at various points of time but as long as it is not supported by bills raised by the supplier or the supplies made, the advance cannot be considered as expenditure. He, therefore, held that since bill had been raised during the FY 2004-05, the expenditure is debitable to the books of account only in FY 2004-05 relating to AY 2005-06 and in view of the same, the CIT(A) confirmed the disallowance made by the AO. 28. After hearing the parties and perusing the record as well as the orders of the authorities below, we find that the assessee failed to substantiate its claim by producing the bills raised by the supplier in AY 2004-05 and other evidence to prove that the expenditure is relating to AY 2004-05. Therefore, in the interest of justice, we set aside the issue to the file of the AO to give one more opportunity to the assessee to prove its claim by of material evidence that the claim is pertaining to the year under consideration. The AO shall decide the issue after examining the details/evidence, which will be filed by the assessee before him, and in accordance with law after providing reasonable oppo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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