TMI Blog2013 (3) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... hat some of the expenses were exclusively incurred on the projects for which there was a claim of deduction under Section 80-IB(10) of the Act. Therefore, a finding that the projects on which claim of deduction under Section 80-IB(10) of the Act was preferred had higher margin of profit, would not be sufficient enough reason to reject such a claim. Deduction u/s 80IB(10) - works contractor versus developer - held that:- No doubt, Finance (No.2) Act of 2009 with retrospective from 1.4.2001 had added an explanation to Section 80-IB(10) whereby it has been declared that deduction under Section 80-IB(10) could not be given to an undertaking which executes a housing project as works contractor. But, as already held by us, here the assessee could not be considered as a mere works contractor, it having been concerned with acquisition of land, promotion of the project, construction and selling of the flats. Undue reliance was placed by the A.O. on the agreements entered by the assessee with prospective buyers in this regard. - Deduction allowed - Decided in favor of assessee. - I.T.A. Nos. 1326 & 1327/Mds/2011 - - - Dated:- 13-1-2012 - SHRI ABRAHAM P. GEORGE AND SHRI GEORGE MATHAN, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch construction not being in accordance with approved plan, the question of issuing of Completion Certificate did not arise. A.O., based on this, came to a conclusion that the local authority which, according to him, was CMDA, had not given a Completion Certificate to the assessee before the stipulated date of 31.3.2008. Since assessee could not furnish Completion Certificate from CMDA, deduction under Section 80- IB(10) was denied. 6. In its appeal before ld. CIT(Appeals), argument of the assessee was that the project stood completed in every manner and even property tax was collected by Corporation of Chennai thereof. As per the assessee, Corporation of Chennai had given approval to the changed plan after construction of the multi-storeyed building on 17.5.2004. Therefore, as per the assessee, the change in plan for construction stilt + 11 floors was taken cognizance of by Corporation of Chennai after approval was received from the Government for such change and on completion of the building, Corporation of Chennai had issued a certificate on 6.7.2009 certifying that the building stood completed in February, 2008. Therefore, as per the assessee, it had satisfied all the conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Government for building stilt + 11 floors again the original plan of stilt + 4 floors. Assessee had also produced before ld. CIT(Appeals) certificate from Corporation of Chennai stating that the building was completed during February, 2008. There is no grievance raised by the Revenue that ld. CIT(Appeals) had accepted such records without putting it before the A.O. Only grievance is that ld. CIT(Appeals) had considered such certificate which was issued by Corporation of Chennai, whereas, such certificate should have been issued by CMDA. Thus, the question boils down to the validity of the certificate issued by Corporation of Chennai with regard to the completion of the project. Revenue has also not questioned the finding of ld. CIT(Appeals) that a new plan permission was issued by Corporation of Chennai based on approval from Government for stilt + 11 floors. Thus, what remains to be answered is whether the Corporation of Chennai can be considered a local authority. Explanation (ii) to subclause (iii) of clause (a) of Section 80-IB(10) reads as under:- (ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of such income. A.O. noted that assessee incurred routine expenditure for establishment and administration purposes. He was, therefore, of the opinion that a portion of the managerial staff remuneration and director s remuneration could be attributed to such investments. As per the A.O., assessee could not show correct utilization of funds, which resulted in an interest charge of Rs. 8,78,46,108/-. Therefore, according to him, a portion of interest had to be considered as expended in relation to borrowed funds utilized for such investments. A.O. considering Rule 8D of Income-tax Rules, 1962 and relying on decision of Special Bench of this Tribunal in the case of ITO v. Daga Capital Management Pvt. Ltd. 312 ITR (AT) 1 (Mumbai) came to an opinion that a sum of Rs. 70,38,725/- had to be disallowed under Section 14A of the Act. Such disallowance was worked out applying Rule 8D. 14. In its appeal before ld. CIT(Appeals), argument of the assessee was that Rule 8D could not be construed retrospectively and decision of Special Bench in the case of Daga Capital Management Pvt. Ltd. (supra) stood reversed by Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. v. DCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch money. Further, as noted by ld. CIT(Appeals), Rule 8D could not be applied for the impugned assessment year by virtue of the decision of Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra). Hence, the calculation adopted by the A.O. by applying Rule 8D for making the disallowance was correctly struck down by ld. CIT(Appeals). The question that remains is whether any disallowance could be made for the impugned assessment year. Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra) has clearly held that though Rule 8D was not applicable for any assessment year prior to assessment year 2008-09, Assessing Officer was duty bound to compute disallowance under Section 14A having regard to facts and circumstances of the case. The A.O. himself noted in the assessment order that funds of the assessee-company included share capital, shareholder earnings and borrowed funds. The investments made by the assessee could very well have been out of such funds. There was no direct nexus established between the borrowed funds and investments made by the in the impugned assessment year. In the case of Reliance Utilities and Power Ltd. (supra), Hon'ble Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on which such deduction was not claimed. Further, in respect of the project called Arihant Escapade, A.O. examined three agreements with purchasers of the flats thereon. As per the A.O., assessee along with three other persons were the owners of the land on which the two blocks named as Block E- Eternia and Block B- Brook of Arihant Escapade, was constructed and this was clear from such agreements. Again, as per the A.O., assessee had along with such other land owners entered into agreements with prospective purchasers of flats, for sale of undivided share of land held by them. Thereafter, tripartite agreements were entered into by the assessee, the other co-owners of the land and purchasers of the undivided share of land, and pursuant to such agreements, assessee was to construct residential buildings therein. Thus, he came to a conclusion that assessee had two different agreements entered with the prospective buyers of the flats. First was for sale of the undivided ownership in the land to the buyers of the proposed flats and the second was for execution of construction of the flats in such land. Relying on the Explanation to Section 80-IB(10) introduced by Finance Act, 2009, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n I.T.A. No. 1069/Mds/2008, assessee submitted that it was not a sine qua non for a developer to become dejure owner of the land for claiming deduction under Section 80-IB(10) of the Act. 27. Ld. CIT(Appeals) was appreciative of this contention. According to him, it was a usual practice for a developer to obtain land through a Power of Attorney after paying consideration to the land owners. There was an absolute Power of Attorney executed by the earlier owner in favour of assessee in respect of Arihant Escapade project at Thoraipakkam. Assessee had done all the activities connected to the housing project including obtaining approval, lay out, submission of plan. Just because the approval was issued in the name of one of the directors, it cannot be denied deduction under Section 80-IB(10) of the Act. Relying on the decision dated 10.12.2010 of a co-ordinate Bench of this Tribunal in the case of DCIT v. C. Subba Reddy (HUF) in I.T.A. No. 1907/Mds/2008, ld. CIT(Appeals) held that assessee having developed the project Arihant Escapade, it could not be denied deduction under Section 80-IB(10) of the Act. In so far as Arihant Vaikunt project was concerned, ld. CIT(Appeals) noted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. Nevertheless, the A.O. had not found any defects in the books of the assessee nor rejected books of accounts, whereby the profits for each of the project was arrived at. It was all along stated by the assessee that profits for each project could be separately computed from the books of accounts. So, in our opinion, the A.O. ought not have come to a general conclusion that the profit rate for all project should have been the same or similar unless and until some lacunae was found in the books produced. No doubt, disproportionate profit can arouse suspicion in the mind of Assessing Officer. But, this ought have been reinforced by pointing out the defect if any apportioning the expenses. There is no case for the Revenue that any of the expenses was not properly allocated to the projects nor that some of the expenses were exclusively incurred on the projects for which there was a claim of deduction under Section 80-IB(10) of the Act. Therefore, a finding that the projects on which claim of deduction under Section 80-IB(10) of the Act was preferred had higher margin of profit, would not be sufficient enough reason to reject such a claim. 32. Now coming to the third asp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Act is an inclusive definition. It does not include merely a works contract as normally understood. It has a wide definition which includes any agreement for carrying out building or construction activity for cash, deferred payment or other valuable consideration. The definition as given in that Act does not make any distinction based on as to who carries on the construction activity. Thus under that Act, even the owner of the land can be treated as carrying on a works contract if he enters into an agreement to construct for cash, deferred payment or other valuable consideration. Therefore, the ratio of that decision cannot at all be applied to the facts of the given case which is under Incometax Act. Rather this decision supports the case of the assessee in which the decisions of the Hon'ble Supreme Court in the cases of CIT v. Podar Cement Ltd. reported in (1992) 5 SCC 482 and Mysore Minerals Ltd. v. CIT reported in (1999) 7 SCC 106, have been discussed and in which it has been held that in the context of Incometax Act it has to be held that even though there is no formal conveyance, the concerned party could be considered to be the beneficial owner. We have also seen the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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