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2015 (6) TMI 808 - ITAT MUMBAI

2015 (6) TMI 808 - ITAT MUMBAI - TMI - Reopening of assessment - disallowance of assessee's claim of deduction u/s.80IB(10) - Held that:- AO appears to have relied exclusively on an audit objection. There was, hence, a total absence of "tangible material", to justify the conclusion that income had escaped assessment. All the conditions were fulfilled by the appellant for the claim of the deduction under section 80IB(10) and the Ld. AO verified the same during the original assessment which was co .....

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the AO that plot size of the Indian Ocean project was below 1 acre is incorrect. The CIT(A) has also recorded a categorical finding to the effect that none of the residential unit was more than 1000 sq.ft. This fact was also verified by the revenue authorities during the survey operation carried out at assessee's project site even before original assessment u/s.143(3) wherein assessee's claim u/s.80IB(10) was allowed. We found that AO has worked out the area on the basis of a hillock whose area .....

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:- 15-5-2015 - Joginder Singh, JM And R C Sharma, AM,JJ. For the Appellant : Shri Premanand J For the Respondent : Shri Chetan A Karia ORDER Per R C Sharma(A. M. ) This is an appeal filed by revenue against the order of CIT(A)-16, Mumbai dated 29-2-2012, for the assessment year 2006-2007, in the matter of order passed under Section 143(3) r.w.s147 of the I.T. Act. 2. Rival contentions have been heard and record perused. Facts in brief in this case are that assessment u/s.143(3) was completed on .....

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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 ma .....

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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. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is t .....

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s which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures against an arbitrary exercise of powers under section 148. 2.3.2 In Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191 (SC), the Supreme Court has expatiated the expression "reason to believe" as postulating belief and the existence of reasons for that belief. The Court proceeded to say thus: "The belief must be held in good faith it cannot be merely a pretence. It contemplates .....

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der-assessed. Therefore, there must be material for the formation of the belief that income has escaped assessment. The importance of the availability of materials for formulation of belief has been stressed in several decisions, the important amongst them being given below: • Y. Rajan vs. ITO (1970) 77 ITR 839 (AP); • N. Sundareswaram vs. CIT (1972) 84 ITR 173 (Ker); • Sitar am Jindal vs. ITO (1972) 84 ITR 162 (Cal); • Union Carbide (India) Ltd. vs. ITO (1973) 87 ITR 529 (Ca .....

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he 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 t .....

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substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AG to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the AG. The reasons recorded should be self-exp .....

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sons which are lacking in material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.". 2.3.5 In CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561(SC), the Hon'ble Supreme Court had held that prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions and fulfillment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. .....

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nge of opinion", which cannot be per se reason to reopen. The conceptual difference between power to review and power to reassess should also to be kept in mind. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain precondition 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 con .....

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quot; 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 ha .....

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usly disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. However, in the instant case I find that Ld. AO has not come to any conclusion that the information provided by the appellant in the original assessment were not correct. In the case of Transworld International Inc. vs. .....

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as available with the assessee itself as undisclosed income and thus, the impugned addition was justified, finding of the Tribunal is a finding of fact, and there is no ground for interference; no substantial question of law arises. 2.3.8 In Godrej Agrovet Ltd. vs. Dy. CIT & Anr. (2010) 230 CTR (Bom) 65 (2010) 323 ITR 97 (Bom), the Bombay High Court has held that Tribunal having found that no new information/ material had come to the notice of the AO after completion of the original assessme .....

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lhi 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 Const .....

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e 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 the fact that the plans had been approved by the Sarpanch by his letter dated 12-9-1988. The basis on which the assessment for assessment years 2003-04 and 2004-05 had been sought to be reopened was that it was during the course of assessment proceedings for subsequent years that the revenue had obtained a copy of the license which sh .....

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to have been issued pursuant to an audit report and the assessing officer had no reason to believe that income had escaped assessment. The Hon'ble Bombay High Court while dealing with the issue observed that during the course of assessment proceedings for assessment year 2003-04, the assessee filed an audit report in Form 10CCB in which relevant particulars of the license to work that was granted to the unit of the assessee was disclosed. The license to work dated 14-8-2000, copy of which w .....

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s, on the basis of which the assessment is sought to be reopened, is belied by the record which shows that the revenue was in possession of the material produced by the assessee during the course of the assessment proceedings for assessment year 2003-04 which showed that the plans had been approved in the year 1988. Therefore, the basis on which the assessment under section 143(3) has been sought to be reopened is factually incorrect. The AO granted the assessee a deduction under section 80-IB a .....

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ened 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 ha .....

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nclusion that income had escaped assessment for the relevant assessment year. There was no material before the AO, that would lead to a formation of belief that the income had escaped assessment. In the present case, as well the AO appears to have relied exclusively on an audit objection. There was, hence, a total absence of "tangible material", to justify the conclusion that income had escaped assessment. All the conditions were fulfilled by the appellant for the claim of the deductio .....

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appreciate that The appellant's claim u/s 80IB(10) is as per the provisions of law and that the same has been correctly claimed and allowed in the original assessment. 3. Under the above facts and circumstances, the JT. CIT ought not to have denied the claim of the appellant u/s 80IB (10). 3.1 Brief Facts of the Case & AO's Conclusions 3.1.1 During the reassessment proceedings, the Ld. AO observed that as certified in Form No.10CCB by the Accountant, the appellant company was develop .....

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uction u/ s.80IB(10) of ₹ 5,29,49,927/-. The appellant submitted that the during the course of original assessment proceedings u/s.143(3) vide letter dated 18/3/2008 it was informed 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 tha .....

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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, deduction u/s. 80IB(10) is not correct. 3.1.2. Without prejudice to the above, the Ld.AO further observed that as .....

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If this unfeasible area is excluded the actual area for development will fall below 1 acre and as per the said Section the area of the plot should be minimum of 1 acre. The Ld.AO observed that area for development comes around 38% of the plot. The appellant further submitted that it has itself vide letter dated 18/3/2008 has stated that on the aforesaid common plot, certain basic work such as access road, drainage line, permanent water line. boundary wall, removing of slums, shifting of Mosque, .....

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#39;- Wing = 4 Flats 485.44 + 675.78 + 484.44 + 657.78 = 2320.44 sq.ft. Total = 4982.68 sq.ft. Add: Say 30% for common facilities Such as Lift, Passage, Staircase, etc. Total = 1494.80 sq.ft. Area occupied by the Building = 6477.48 sq.ft. = 600 sq.mtrs 3.1.3. The Ld.AO thus concluded that the actual area utilized for construction works out to 600.68 sq.mtrs. i.e. 12% of the plot earmarked for development of the building Indian Ocean. Accordingly, the Ld. AO· rejected the claim of the appe .....

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ilder 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 satisf .....

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to receive an intimation of disapproval (authorization) i.e. I.O.D ... The intimation of disapproval is issued with a list of lino-objection certificates (NOCs) which the applicant must obtain separately from various departments and government authorities. Final clearance to build will only be given once the company obtains all NOCs. On submission of all required NOCs mentioned in the IOD and on compliance of the IOD conditions, the applicant may submit request for the commencement certificate ( .....

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ate given by the BMC would be sufficient proof that the housing project is completed. Even in Dy. CIT vs. Ansal Properties & Industries Ltd. (2008) 22 SOT 45 (Del.) it was considered sufficient • The Bombay High Court in Brahma Associates v JCIT has held that Section 80-IB(10) (pre amendment w.e.f. AY 2005-06) does not define the expression 'housing project' but refers to housing projects which are approved by the local authorities. Under the local laws, the authorities are empo .....

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with commercial user approved as a "housing project" are eligible for deduction; While the Special Bench was right in holding that a project with residential and commercial user to the extent permitted under DC Rules would be a "housing project" and eligible for deduction, it was not justified in confining the deduction only to projects having commercial area upto 10% of the BUA because once the basic argument of the revenue that the housing projects with commercial user are .....

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t 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 .....

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e with the tribunal judgments and the clarification of the CBDT F. No. 205/3/2001/ITA II where it has clarified that any project which has been approved by a local authority as a housing project should be considered adequate for the purposes of section 80(IB)(10). The appellant further submitted that the CA,'s certificate mentions the entire plot area which was purchased by the assesee company, hence there is no discrepancy. 3.2.3. The appellant further submitted". that Rule 18BBB requi .....

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eparing separate balance sheets for each project as the resources are common. The company has given separate report for Indian Ocean a separate project. It has only one undertaking i.e. Cordcon Builders which does the construction for which the accounts are prepared and balance sheet for which has been submitted The entire land area is 40,803.10 sq. mtr. (About 10 acre) of which 1873.27 sq mts was hillock land. The comparison made in by the A.O. with 4981.96 sq mts is incorrect and wrong as it h .....

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ny's stand. The facts have been misinterpreted and it has been sought to link the entire hillock area 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 5 .....

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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 that the understanding and area calculation appears to be erroneous. The relevance of area occupied by the building has not been understood and the basis of calculation is totally wrong. Th .....

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feet the plot size has to be minimum 9026.65 sq mts i.e. more than one acre which is approved by the BMC. The appellant further submitted that as per plan the actual permissible area for Indian Ocean is 6555.83 sq mtrs i.e. 70566.95 square feet hence the calculation of the building being of only 6477.48 sq feet is baseless. Architect certificate and plan were given in support of the above. The section nowhere talks about area occupied by the building. The section is very clear the plot size has .....

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tion is 12% of plot earmarked for development of Indian Ocean building. In an area like Andheri in Mumbai in normal course, no developer would leave around 88 % area of the plot vacant- is irrelevant and the calculation is wrong. The important fact is that construction is decided by the development rules framed by the BMC and the builder has no freedom in the area to be constructed. He has to follow the rules framed by BMC. In certain cases in Mumbai City itself the BMC has given 4 FSI, in some .....

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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 b .....

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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, and completes the same before the 31st day of March, 2001; (b) the project is on the size of a plot of land which has minimum area of one acre and (c) the residential unit has a maximum built-up area of one thousand square feet wher .....

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al limits of Delhi and municipal limits of Delhi and Mumbai the built-up area of the residential units does not exceed one thousand five hundred square feet." 3.3.3 Further, the Memo contained in Finance Bill, 1999 has explained the provisions brought by the legislature w.e.f. 1st April, 2000 and the same reads as under: "TAX INCENTIVE FOR PROMOTION OF HOUSING Liberalization of tax holiday to approved housing projects - Under s. 80-IA of the IT Act, profits of approved housing projects .....

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i and Mumbai, the built up area of dwelling units may be up to a maximum limit of 1500 sq.ft. instead of 1000 sq.ft. at present to make them entitled for benefit. The built up area for areas falling in Delhi and Mumbai and within25 kms. Of the municipal limits of both, however, shall remain the same. The proposed amendment 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, .....

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r 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 a .....

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Finance (No. 2) Act, 2004 w.e.f. 1st April, 2005 for the purposes of this clause reads as under: "(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority; (ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in r .....

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overnment 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" Clauses (c) and (d) as brought out by the Finance (No. 2) Act, 2004 w.e.f. 1st April, 2005 reads as under: (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 wit .....

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) 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 o .....

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stitution 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, 2004 which reads as under: "Under the existing provisions contained in sub-so (10), hundred per cent deduction of the profits of an undertaking developing and building housing projects is allowed if the housing project is approved by a local authority before the 31st March, 2005 subject to the conditions specified in c/s. (a) to (c) of the said sub-section. Th .....

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ese cities and one thousand and five hundred square feet at any other place. Sub-cl. (d) seeks to substitute sub-se. (10) of the said section so as to provide, inter alia, a hundred per cent deduction of the profits derived by an undertaking developing and building housing projects approved by a local authority before 31st March, 2007 instead of 31st March, 2005 under the existing provisions, subject to the conditions that (a) such undertaking has commenced or commences development and construct .....

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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 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; 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- .....

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icate 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 ce .....

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e feet where such residential unit is situated in Delhi or Mumbai and one thousand and five hundred square feet at other places. It is proposed to substitute the existing sub-section so as to rationalize the provisions and provide additional incentives. With a view to allow more housing projects to avail of the tax holiday under this provision, it is proposed to extend the time-limit for obtaining approval from the local authority to 31st March, 2007. However, it is also proposed to provide a ti .....

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establishments including in the housing project shall not exceed five per cent of the aggregate built-up area of the housing project or 2,000 sq. ft., whichever is less. With a view to encourage the redevelopment of slum dwellings, it is proposed to relax the condition of minimum plot size of one acre in the case of 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 and notifi .....

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reading of the provisions, the following conditions must be satisfied to claim the deduction u/s 80IB(10) of the Act namely; • The project should 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 .....

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tial 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 appellant Income-tax Officers during survey have physically verified the details of the project and after investigation and seeking the appellant‟ .....

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enior Audit Officer LAP-I, Mumbai and thereafter accordingly, the Ld.AO issued the notices u/s. 148 r.w.s. 147 and framed the re-assessment. I find that the main objection of the Ld.AO that the appellant's one project viz. Atlantic ocean started commenced prior to 1998, therefore, all other projects irrespective their date of commencement will not be eligible for deduction u/s. 80IB. As is evident from the plain reading of the provisions of Section 80lB that the deduction is qua the project .....

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ndian Ocean Building project is concerned the following facts are evident from the facts placed on record. (i) The project has commenced after 1st day of October, 1998 which is evident from the letter of Municipal Corporation of Greater Mumbai, dated 06.10.2001 giving letter of IOD u/s. 346 of the Bombay Municipal Corporation Act, as, amended up to date which clearly specify that the permission was accorded to the appellant with reference to his notice letter No.337 dated 24.09.2001 for proposed .....

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icence 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 th .....

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Architect certificate specifies the same. (iv) Even the project so approved by the BMC does not have any shop or commercial establishment as is evident by the approved site project as well as by the Architect certificate. The copy of the approved plan of the BMC is placed on record by the appellant. (v) The perusal of the approved plan by the BMC indicates that there are 118 flats and flat wise areas statement as approved by the BMC is also placed on record by the appellant. 3.3.10 In view of th .....

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llock and nearly comes to 4.59%. Further, the Ld.AO has not taken into account the fact that the hillock area was leveled by the appellant and only a small portion of 716 sq.mtrs remained which is yet to be leveled for the purposes of construction. Therefore, the computation done by the Ld.AO in arriving at the plot area is based on wrong figures adopted by him purely based on Form No.10CCB which is for the purpose of the entire development on the land area and gives details of the profits earne .....

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d the number of flats are 118 and not 4 flats in each wing. Therefore, even the working out the built up of the flat is erroneous. This is evident by the complete working of the built up area approved by the BMC. Therefore, there is no merit in the Ld. AO's computation, the entire project has been approved by the BMC and they have also indicated the permissible 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 i .....

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as 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 .....

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the appeal, categorical finding has been recorded by the CIT(A) to the effect that during the course of original assessment proceedings u/s.143(3) entire details and approved plan of its project by BMC and other evidence which unequivocally supports the assessee's contention that the project got completed on 26-3-2008 and commenced well after October, 1998, were filed and considered. Thus, there was total absence of tangible material to justify the conclusion that income has escaped assessme .....

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