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TMI Blog2015 (6) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition so made. By the impugned order the CIT(A) not only quashed the reassessment but also deleted the additions made by the AO disallowing claim u/s.80IB. The precise observation of the CIT(A) was as under :- "2.3.1 I have carefully considered the contention of the appellant and also carefully gone through the documents available on record. I find that section 147 provides that if the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 163, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The basic postulate which underlines section 147 is the formation of the belief by the AO that any income chargeable to tax has escaped assessment for any assessment year. The AO must have reason to believe that such is the case before he proceeds to issue a notice under s. 147. The reasons which are recorded by the AO for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arma & Co. vs. ITO (1972) 86 ITR 741 (All); * Grahams Trading Co. (India) Ltd. vs. ITO (1976) 105 ITR 1 (Cal). 2.3.3 The Jurisdictional High Court in the case of N.D. Bhatt, IAC & Anr.vs. LB.M. World Trade Corporation (1995) 216 ITR 811 (Bom) has held thus:- "It is also well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under s. 148 by virtue of the provisions of s. 148(2) at the relevant time. Only the reasons so recorded can be looked at for sustaining or setting aside a notice issued under s. 148. In the case of Equitable Investment Co. (P) Ltd. vs. ITO & Ors. (1988) 73 CTR (Cal) 236 : (1988) 174 ITR 714 (Cal), a Division Bench of the Calcutta High Court has held that where a notice issued under s. 148 of the IT Act, 1961, after obtaining the sanction of the CIT is challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which the sanction of the CIT has been obtained. The IT Department cannot rely on any other material apart from the report. 2.3.4 The same principle was reiterated in the decision of Hindustan Lever Ltd. vs. R.B. Wadkar (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recondition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after' 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in s. 147. However, on receipt of re-presentations from the companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the AO. 2.3.6 It is a settled law that AO acquires jurisdiction to reopen assessment under s. 147(a) r/w s. 148 only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons which he must record, to believe that by reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 ITR 544 (Del), the Hon'ble Delhi High Court has held that reasons quoted for reopening assessment, were practically the same, as the reasons for the notice under s. 154, for rectification of the alleged mistakes in the revised assessment order-Rectification notice had been dropped by the same AO. He cannot again start reassessment proceedings on the basis of the same reasons. Where the condition precedent for issuance of a notice is absent, the notice might be challenged by filing a writ petition under Art. 226 of the Constitution of India. Reassessment notice issued by AO lacked jurisdiction. 2.3.9 In a recent decision in the case if Rose Serviced Apartments (P) Ltd vs. DCIT (2011) 56 DTR (Del) 353, the Hon'ble Delhi High Court while placing reliance in the cases of Jindal Photo Films Ltd. vs. DCIT (1998) 234 ITR 170 (Del), CIT vs. Kelvinator of India Ltd. (2010) 228 CTR (SC) 488 and ACIT vs. Rajesh Jhaveri Stock 2003-04, assessee filed an audit report in Form 10CCB in which relevant particulars of the license to work that was granted to the unit of assessee was disclosed. The license to work dated 14-8-2000, copy of which was filed before AO, contained a disclosure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in Form 10CCB which showed that plans had been approved in 1988. The AO has noted, while seeking approval of the CIT, that during the course of revenue audit proceedings, an audit objection has been raised on the ground that the assessee was not eligible to a deduction under section 80-IB from assessment year 2002-03. The AO notes that the audit objection was not accepted but that as a precautionary measure the assessment was reopened under section 147. There is merit in the submission urged on the part of the assessee that the AO had no reason to believe that income had escaped assessment. Basically, the validity of the exercise of the powers to reopen an assessment has to be decided with reference to the reasons recorded while reopening the assessment. The reasons recorded while reopening the assessment do not justify the exercise of the power in the facts of this case. 2.3.12 It thus is apparent that the AO did not have before him any additional material at all to form a belief that income had escaped assessment. The appellant had admittedly placed on record before AO for assessment year 2006-07 the entire details and the approved plan of its project by the BMC and the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was having four buildings project on the said plot of land and out of the same only two buildings namely Indian Ocean and Atlanta Sagar were completed. Initially, the appellant intended to claim deduction u/s.80IB in respect of Atlantic Sagar building. However, during survey operation it was noticed that Atlantic Sagar commenced prior to 1998 and area of some flats was more than 1000 sq.ft. Due to this survey, the appellant withdrew its claim u/ s.80IB in respect of Atlantic Sagar. The appellant had considered both the above buildings as a part of same project. Since, the appellant violated the built up area norm and development & construction commenced prior to September 1998, the deduction u/s. 80IB is not admissible for the entire project. The appellant further submitted that the CA in Form No.10CCB had certified that size of the plot on which the said project was being developed was 40803 sq.mtrs. Thus, the appellant's subsequent contention that area marked for building Indian Ocean at 4981.96 sq.mtrs. is after thought and is contrary to the certificate given in Form No.10CCB. Since, one of the buildings in the project as pointed above violated the conditions, ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocedure in Mumbai for any construction activity to commence (which procedure is well documented) a builder has to undertake the following steps for execution of a construction project, viz; * A builder has to first submit application and design plans at the Building Proposal Office of BMC as prescribed by Section 373 of the BMC Act and pay scrutiny fee (Municipal). * The file is then forwarded to the concerned officer in the Building Proposal Department. Then the file is forwarded to the Survey Office, which make its remarks on the application file and check the remarks from the Development Plan office (obtained during the design stage of the project). If the Survey Office is satisfied with its review, it will send the application file back to the Building Proposal Department. * A sub-engineer from the Building Proposal Office will conduct a site inspection within 3 to 4 days of receiving the file from the survey office. The date and time of the site inspection are arranged by the company's architect. The building company must be on-site when the inspection takes place. * After the site inspection, the application file returns to the Building Proposal Office to receive an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousing projects with commercial user are not entitled to Section 80IB(10) deduction is rejected, no restriction could be imposed. If the project is approved as a "housing project" deduction u/s BO-IB(10) is allowable irrespective of the commercial area. 3.2.2. The appellant further submitted that each building is a separate project by itself. The deduction under section 80(IB) is for a housing project. On a piece of land a builder can have multiple projects some of which may be eligible for 80 (IB) deductions and some may not be. The deduction is qua the housing project and not the assessee. Each building will have a separate plan approval and commencement and completion date. If the deduction is to be allowed considering all the buildings as one project the section would be not be workable. Each building has a separate, distinct and independent identity on its own. It is a Project which is capable of standing on its own legs. The appellant further placed reliance on the decision of Saroj Sales Organisation and the ITAT, Mumbai 'F' Bench in the case of Vandana Properties Appeal No. ITA NO.1253/Mum/2007. The appellant further submitted that it has not claimed deduction for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea to the area of the Indian Ocean Building. Since the comparison itself is wrong the observations in this para have no bearing on the claim u/s 80IB. The appellant further submitted that the Act only states that "the project is on the size of a plot of land which has a minimum area of one acre". It does not talk about utilization of the same. A builder may develop only 50% and keep 50% vacant. Even in such case deduction cannot be denied. As per BMC rules certain area has to be kept for RG., garden etc. The plot size has to include the same. The company has a large plot of land on which a number of buildings will be constructed. As per CBDT clarification to the Maharashtra Chamber of Housing Industry each building is a separate project. The assesee has given possession, people have come to stay in the building, water connection, telephone and electricity connection has been provided and society formed .The fact of occupation and completion has been verified by the survey team. The very fact that the BMC has given the Occupation Certificate is proof of completion of the project. The section itself states that the O.C. is proof of completion. 3.2.4 The appellant further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant is a Pvt. Ltd. Company and is in the business of construction. The appellant residential building project is situated at Gilbert Hill, Andheri which the appellant acquired in the year 1993. The entire area of the land admeasures about 40803.10 sq.mtrs. which is approx. 10 acres of land. The appellant company declared profits for two residential projects during the A.Y. 2006-07 viz. Atlantic Sagar and Indian Ocean Buildings and also sale of FSI in respect of Pacific Tower, a residential project, situated on the same land. The appellant claimed deduction/ s. 80IB in respect of Indian Ocean project and not in respect of Atlantic Sagar as according to it, it fulfill all conditions laid down in Section 80IB. No deduction was claimed in respect of Atlantic Sagar project as claimed by the Ld.AO. 3.3.2 Before, I proceed to decide the issue it is important to extract the relevant provision of the section 80IB(10) as it stood at the relevant period of time. The provisions of the section states as under:- "80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. (10) The amount of profits in case of an und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment will take effect from 1st April, 2000, and will, accordingly, apply in relation to the asst. yr. 2000-01 and subsequent years." 3.3.4 In order to be eligible undertaking, developing and building housing projects and for claiming deduction under s. 80-IB(10), Finance Act, 2000 w.e.f. 1st April, 2000 has laid down various conditions and the provisions of s. 80-IB amended by various Finance Acts as amended w.e.f. 1st April, 2000 by the Finance Act, 2000 and by the Finance Act, 2003 and as substituted by the Finance (No. 2) Act, 2004, the housing projects must be approved on or before 31st March, 2007 by the local authority. These provisions envisage further that for the eligibility of deduction under s.80-IB(10) of profits from such housing projects, the following conditions are to be complied with: (a) Such housing projects must be approved from the local authority. (b) such undertaking has commenced or commences development and construction of housing projects on or after 1st Oct.,1998 and completed such construction. (i) for asst. yrs. 2000-01 to 2001-02 on or before 31st March, 2002. (ii) for asst. yrs. 2002-03 to 2004-05 without any date. (iii) for and from asst. yr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the Finance (No. 2) Act, 2004 w.e.f. 1st April, 2005, sub-s. (10) as amended by the Finance Act, 2000 w.e.f. 1st April, 2001 and Finance Act, 2003 w.e.f. 1st April, 2002 reads as under: "(10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of March, 2005 by a local authority, shall be hundred per cent of the profits derived in any previous year relevant to any assessment year from such housing project if, - (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998; (b) the project is on the size of a plot of land which has a minimum area of one acre; and (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place." 3.3.7 The changes brought out by the substitution by the Finance (No. 2) Act, 2004 w.e.f. 1st April, 2005 have been explained in Notes on Clauses of the Finance (No.2) Act, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sand square feet, whichever is less. It is further proposed to insert an Explanation in cl. (a) of the proposed sub-so (10) so as to provide that the date of approval shall be the date on which the building plan of the said project is first approved by the local authority in case where the approval in respect of the same is obtained more than once and also to provide that the date of completion of construction shall be the date on which the completion certificate is issued by the local authority." Further, also the same provisions were explained in the memorandum explaining the provisions in the Finance (No. 2) Act, 2004 which reads as under: Extension of the time-limit for obtaining approval of housing projects for the purpose of tax holiday under s. 80-IB, and allowing deduction for redevelopment or reconstruction of existing buildings Under the existing provisions contained in sub-so (10) of S. 80-IB, a deduction equal to one hundred per cent of the profits of an undertaking developing and building housing projects is allowed if the housing project is approved by a local authority before 31st March, 2005. The deduction is subject to the conditions that the undertaking should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be approved by a local authority before March 31st 2007. * The size of the plot of land is a minimum of one acre. * The undertaking commences development and construction of the housing project after September 30, 1998 and it should complete construction within 4 years from the end of financial year in which the housing project is first approved or before April 1st 2008, whichever is later. * The built-up area of the shops and other commercial establishments included in the housing project shall not exceed 5 per cent of the aggregate built- up area of the housing project or 2,000 sq. ft whichever is less. * Return of income should be submitted on or before due date of submission of return of income. * The Built-up area of each residential unit should be subject to the following maximum limit- Place where residential unit is situated Maximum built up area of each residential unit - within the cities of Delhi and Mumbai 1,000 sq. ft -within 25 kms from the local limits of Delhi and Mumbai 1,000 sq. ft At any other place 1,500 sq. ft 3.3.9 It is also a matter of fact the appellant's premises were surveyed by the Revenue on 22.09.2005, according to the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. 31.03. 2008 which is evident by the occupation certificate issued by the Executor Engineer Building, vide his letter indicating therein that the project was completed on 26.03.2008 under the supervision of Shri Nitin Shah, Licence Surveyor, Licence No.s/424/LS. It also clearly indicate that the Building No.3 consisting of wing A & B comprising of stilt plus 1st to 15th upper floor on plot bearing CTS No.254, 276 and 277 of Village Andheri, situated at Gilbert Hill, Andheri (W), Mumbai was completed on 26.03.2008. Further, the site plan approved by the BMC clearly indicate that the site plan of Bldg. No.3, i.e. the Indian Ocean approved on 08.04.2005 is 6555.83 sq. mtrs. i.e. nearly 70566.95 sq.fts. It is also a matter of fact that as per BMC rules FSI of 1.33 is available depending on the plot size. The plot size is therefore 4929.19 sq.mtrs. by doing the reverse calculation which is equivalent to 1.22 acres. Therefore, the plot area of the project is more than 1 acre. (iii) None of the residential units as per the plan approved by the BMC, it is found that the area of each flat is less than 1000 sq.ft, This fact is also verified by the Revenue during the survey operation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermissible built up area of the building No.3 at 6553.83 sq. mtrs. The remaining observation of the Ld.AO is based on the built up area which is erroneous as evident from the facts on record. Therefore, the entire reasons for not granting deduction u/s. 80lB are based on conjecture and surmises, completely divorced from the facts on record. The inadvertent fact of the case are that the project is approved by the local authority, the project commenced production on 10.03.2002 i.e. after 1st of October, 1998, and the project was completed on 26-3-2008. The area of the project is more than an acre i.e. 4981.96 sq.mtrs. and the appellant has obtained the completion certificate from the local authorities. In view of the foregoing, the irresistible conclusion is that the appellant is entitled for deduction u/s.80IB. Therefore, the disallowances made by the Ld. AO are not sustainable both on facts and in law and is accordingly deleted." 4. Against the above order of CIT(A) the revenue is in appeal before us challenging the action of CIT(A) not only for validity of reopening but also against the deletion of disallowance u/s.80IB(10). 5. We have considered rival contentions and carefully ..... X X X X Extracts X X X X X X X X Extracts X X X X
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