TMI Blog2014 (12) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... f project are assessable to tax in AY 2009-10 based on Project C Method – Held that:- AOs who made the assessments for the AY 2005-06 to 2008-09, were under the bona fide belief that the profits of the project needs to be recognized based on the percentage completion (WIP) method in place of ‘project completion method adopted by the assessee - impounding of the brochure with details of method of merger of 1-BHK flats into a duplex, cannot be used against the assessee as it only provides the design of merger - the owners of duplex have merged the flats after taking possession of their flats using the design provisions supplied by the assessee in the brochure. Relevance of the Intention of the assessee – Held that:- The assessee got the approval for constructing 1-BHK flats from the Authorities and completed the constructed as per the approved plans - what is required to be seen should include, what are the plans, designs of the project and built up areas particulars of the residential units at the approval stage, construction stage and finally at sales point - from the approval stage till the stage of issuance of the completion certificate, there is no violation by the developer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1-BHK flats of the project too – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. - ITA No. 2443/Mum/2012, ITA No. 3704/Mum/2012 - - - Dated:- 30-9-2014 - SHRI D.KARUNAKARA RAO AND SHRI AMIT SHUKLA, JJ. For The Appellant : Shri J.D.Mistry M.R.Rao For The Respondent : Shri A.C. Tejpal ORDER PER D. KARUNAKARA RAO, AM: These are the cross appeals by both the revenue and assessee against the order of the CIT(A)-26, Mumbai dated 07/03/2012. 2. Briefly stated relevant facts of the case are that the assessee is an AOP of three members namely M/s Bedrock limited M/s Ashish Estate and Properties Pvt. Ltd and M/s Esvee Poddar Family Trust under an agreement dated 19/06/2004. The AOP is formed for developing a property at Goregaon West under the name Garden Estate . The assessee constructed A-wing and B-wing in the said Garden Estate and each wing is to have 96 flats. Due to some reasons, B-Wing contains finally 95 flats only. Both the wings have flats varying from 1-BHK to 3-BHK flats. All the flats are approved to be with the built up area of less than 1000 Sq. Ft. as prescribed in clause (c) to Explanation to section 80IB(10) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regarding providing of a squarish hole between two flats and with a single kitchen, it is submitted that the same is done for and at the request of the flat buyers, if hey wish to merge tow 1-BHK flats. Thus, it is the assessee s assertion that all the 24 1-BHK flats was constructed with the built up area of less than 1000 Sq.ft. and however, for marketing purposes the so called hole was provided with plan to connect them by staircase with a single kitchen in the lower floor. It is an admitted fact the so called duplex flats were generated by joining at the request of the buyers after they occupied the flats during the post-sale period. Further, the fact is that the assessee obtained approval for construction of 24 1-BHK flats each with the area below 1000 sq ft and sold accordingly. Providing a square shaped hole and single kitchen is part of the marketing technique. The hole provided in the ceiling/roof is of an area of 1.5 mt.sq. and each 1-BHK flat has the approved built up area of 631 sq.ft. Only. Considering the above discrepancies and the intention for generating duplex flat , the Assessing Officer interpreted the same against the assessee and opined that the assessee vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey are said to be joined but they have replied that either the provisions to join were made by the Developer at their request or that they joined the same after taking possessions of the flats. 5. Therefore, assessee is not found eligible for claim of deduction under such section. While denying the claim of deduction on the entire profits of the project without prejudice, the AO held that the profit attributable to the balance of 18 1BHK flats cannot be allowed as deduction u/s 80IB(10) of the Act on proportionate basis. The para 17 contains the conclusions and the same reproduced as under:- 17. I have considered the submissions made as above. But it is difficult to accept the submissions. The arguments of the assessee cannot take away the facts found at the time of survey. During the course of survey it was clearly visible that the intention of the assessee was to construct and sell Duplex. The colour printed brochure is evidence of this fact that it had no other intention other than selling them as one unit and certainly in whatever manner the plans were approved, sold individually to the parties but the intention of the assessee to sell them as duplex flats cannot be ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the issue relating to built up area of 3BHK flats of the project, requirements of including dry balcony meaning of built up area etc. Some 3BHK flats were referred to the DVO for measurement purpose and the copy of the said report of DVO was made to the assessee for comments. Finally, the AO found that the said flats are in the specified area of 1000 sq. ft. considering the deviation from the additions specified in the provisions of section 80IB(10), the entire profits of the project is considered for the A.Y.2009-10 and denied the deduction claimed u/s 80IB(10) of the Act. The assessment is completed at the total income of ₹ 46,71,12,960/- against the nil income returned by the assessee. Aggrieved by above conclusion of the AO, the assessee is in appeal before the CIT(A). 8. Before the CIT(A): During the first appellate proceedings before the FAA, the assessee made written submission which are extracted in para 4 of the impugned order. In that, the assessee provided a rebuttal to each of three main issues raised by the AO i.e a. joining of two flats no.1303 and 1304 in the B-wing, b. the violation in respect of areas of 3BHK flats and c. violation in respect of 1BHK fla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s duplex flats combining two one BHK flats into one. The appellant submitted that certain provisions were left such as a hole between the two flats so to enable joining them through staircase and provision of one kitchen between the two flats but at the request of the purchasers and that even the brochure found at the time of survey was to show how they could be connected, when the purchasers were interested to purchase and join them. As at that date, there was no prohibition for one individual or family to buy and for the Developer to sell more than one unit to them. The amendment prohibiting such sale as a condition came effective from August, 2010. In appeal for the previous assessment years, the learned CIT(A) accept4ed the submissions of the appellant and held that if the purchaser or at their request the appellant shall have joined two flats into one, the appellant could not be faulted u/s 80IB(10) of the Act to deny deduction under the said provision. During the course of assessment for the subject assessment year, the AO issued notices u/s 133(6) to all the owners of one BHK flats calling for the details as to whether two one BHK flats owned by them or their family were joi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the jurisdictional Hon ble Bombay High Court in the case of Brahma Associates (supra). However, CIT(A) held that the claim of deduction cannot be extended to the profits of the project attributable to the duplex flats converted from the 1-BHK flats because of violation of the conditions specified in the said provisions. CIT(A) is opinion that prima-facie, it appears that total area of such flats has exceeded the limits with the connivance of the assessee. Relevant paragraph in this regard reads as under:- As far as the first issue is concerned, I am not convinced with the contention of the appellant that the joining of 1BHK flats has been done by the purchasers of these flats independently. Rather from the recovery of duplex brochures, found at the time of survey at the premises of appellant, it becomes clear that as per the marketing strategy the appellant has planned in advance to construct one BHK flats in such a manner that after purchasing the two independent looking flats, the purchasers can join two flats to make a duplex house. It is, because of this reason, majority of the flats, in one BHK project have been converted into duplex flats having built up area of more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the project was approved by the local authorities and the assessee has approval to construct 1-BHK flats, 24 in number. Registration of each of such flats was done as 1-BHK flat and not as duplex flats as alleged by the revenue. The ownership each of the flats is individualized. On the finding of the survey team about the providing provision for square shaped hole in the ceiling/floor and providing a single kitchen platform is a matter of making a provision for facilitating creation of duplex flat, if the flat owners/buyers so desire after the sale. Making such a provisions is aimed at the marketing of the 1-BHK flats to attract more buyers from the same family. Assessee provided requisite design to help the buyers in merging the two 1-BHK flats into a duplex flat with single kitchen. As per Ld Counsel, the assessee has not constructed any staircase before the flats were registered/sold to the flat buyers of the one BHK flats. It is on record that all other flat buyers have filed their replies notices sent u/s 133(6) of the Act. While some buyers gave a categorical statements mentioning that they have not combined two flats and others have mentioned that they got the flats me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal is relevant 15. Drawing parallel in the instant case, ld counsel mentioned that the impounded brochure merely provides for manner/design of converting the flats in duplex and it never advertised for the sake of flats exceeding the area of 1000 sq. ft. for each 1BHK flats. Further, he brought our attention to the facts gathered during the post survey action and mentioned that most of the flats are never joined by not even the flat buyers. T 16. On the other hand ld. DR for the revenue relied on the order of the CIT(A) on this issue and mentioned that assessee has clear intention of making sales of the 1BHK flats as duplex flats right from the beginning of the construction of the project. In such circumstances the condition specified in clause (c) of the Explanation to section 80IB(10) of the Act are deemed violated rightly by the AO. On the contents of the proceedings u/s 133(6) of the Act, Ld. DR rely on the order of the AO. 17. We have heard both the parties. The facts necessary of adjudication of the issues under consideration include that the assessee started a project named Garden Estate with A and B Wings with 96 and 95 flats respectively. The project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is any violation by the assessee of the conditions specified in clause (c) to Explanation to section 80IB(10) of the Act relating to the maximum built up area of each residential unit ie 1-BHK flat. To decide the issue under consideration, we need to delve on the following aspects and they are: A. Relevance of the discrepancies noticed during the survey action on 11/03/2008, when the profits of project are assessable to tax in AY 2009-10 based on Project C Method: 19. Taking into consideration the timing of the discrepancies noted during the survey action in March 2008, AOs who made the assessments for the AY 2005-06 t0 2008-09, were under the bona fide belief that the profits of the project needs to be recognized based on the percentage completion (WIP) method in place of project completion method adopted by the assessee. The discrepancies noted by the survey team were used against the assessee ignoring the fact that what needs to be seen are if the project is completed as per the plan approved by the local authorities or not. If the same is considered, what is relevant to be seen by the AO is if the assessee as a developer has completed the construction of 24 1-BH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have been made good during the period from date of survey ie 11/03/2008, to the date of completion of the housing project ie March 2009. There is no evidence to suggest that it is the developer who planned and generated duplex flats out of the 1-BHK flats and then sold as such to the buyers. In fact there is evidence to indicate that it is the flat buyers who merged the flats into duplex flats during the post sales period. Meaning thereby, the merger of flats if any taken place after the sale of the said said 1-BHK flats by the flat buyers and, may be using the design made available by the developer, the assessee cannot be penalized and denied the claim of deduction. As such, the relevant legal provisions do not authorize the AO to deny deduction based on the intention. What is required to be seen is if the 1-BHK flats are planned, designed, approved for construction, constructed and finally obtained the completion certificate or not. If the answer is affirmative, the claims cannot be denied based on the intention of the assessee. C. Ignoring the confirmation filed by the flat buyers: 21. AO undertook the exercise of verification u/s 133(6) of the Act and all the flat bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) of the Explanation to section 80IB(10) of the Act specifies a condition for the assessee to claiming deduction in respect of the undertaking developing and building housing projects. The condition so specified as part of the Explanation is for the purpose of clause (a) to section 80IB(10) of the Act and the said clause provides that the undertaking has commenced or commences the development and construction of the housing project on or after the 1st day of October 1998 and completes such construction on specified dates depending on the date of approval by local authorities. Condition specified in clause (c) to Explanation provides for 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 .. . These provisions do no provide any discretion to the AO to decide anything based on the intention of the assessee. The conditions have to be met adequately before claiming the deduction. These provisions are subject matter of adjudication in various cases and some of them brought to our notice are detailed as follows. These provisions are interpreted by various Tribunals. It is a settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilt-up area and that there would be a complete, habitable residential unit only if two or more flats are joined with each other, which would ultimately exceed 1,000 sq.ft. of built-up area. In such a situation, merely because 9 out of 140 purchasers desired to join the flats purchased by them into one single unit, which exceeded 1,000 sq.ft. of built-up area, cannot disentitle the assessee to the deduction. In other words, taking the example of the flats purchased by the Sonawanes', there is no allegation that the flat No. 704 measuring 244 sq.ft. purchased by Meera Sonawane, flat No. 705 measuring 578 sq.ft. purchased by Supriya Sonawane and flat No. 706 measuring 780 sq.ft. purchased by Ethin Sonawane were not independent residential units by themselves and could become independent residential units only when they were joined or combined together. If each residential unit does not exceed the built-up area of 1,000 sq.ft., the fact that they were joined together by the purchasers for better living or for more space or for any other reason does not disentitle the assessee to the claim for deduction under section 80-IB. Drawing parallel in the instant case, we find that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment, without prejudice, the AO held that the assessee is not entitled to deduction on proportionate basis on 11358 Sq. ft. area accounting to 7.25% of the project . He also held that the assessee should be entitled to 92.75% of the deduction claimed by it u/s 80 IB(10) of the Act. The profits qua flats complying with the measurement conditions and otherwise can be worked out on stand-alone basis. The CIT(A) confirmed this alternate contention of the AO and thus, partly confirmed the addition and held that the assessee is entiled to deduction on prorate basis. We have discussed the relevant facts in the other paragraphs of the order. Before us, while ld DR relied on the order of the AO and Ld Counsel kept reliance on various binding jurisdictional High courts as well as the co-ordinate bench decisions, which are as follows,- i. Sanghvi Doshi Enterprise Vs ITO (60 DTR Chennai 306); ii. SJR Builders Vs ACIT (3 ITR 569 - Bang Bench of ITAT.; iii. Bengal Ambuja Housing Development's case in ITA No. 1595/Kol/2005 dated 24th March, 206 ( Kolkata ITAT) approved by Kol. High Court; iv. Brahma Associates Vs. Jt. CIT (22 DTR 1 / 30 SOT 155) Pune; v. Dy CIT Vs. Ekta Housing Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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