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The DCIT, Circle- 2, Jaipur Versus Shri Prem Kumar Sanghi & Vice-Versa

2015 (12) TMI 564 - ITAT JAIPUR

Deduction u/s 80IB - CIT(A) allowed the claim - DR relied on the orders of AO and contends that ld. CIT(A) has failed to appreciate that assessee cannot be regarded as a developer of the impugned housing projects in terms of sec. 80IB (10) - Held that:- If the development plans and other approvals are in the name of assessee, its claim for deduction u/s 80(IB) cannot be denied on the basis that some other agency was involved in construction. This is quite understandable as for all practical purp .....

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lly following these judgments which are on similar facts, we are inclined to hold that assessee is eligible for claim u/s 80 (IB)(10). - Decided in favour of assessee - ITA No. 783/JP/2014 & ITA No. 448/JP/2013 - Dated:- 4-12-2015 - SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YADAV, AM For the Respondent : Shri M.S. Meena, CIT - DR For the Petitioner : Shri G.G. Mundra, CA ORDER PER R.P. TOLANI, JM:- These are three appeals filed by department for aforementioned years against the respective ord .....

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n of the housing project. ii. Whether on the facts and in the circumstances of the case and in law the deduction u/s 80IB is allowable only to an undertaking involved in the business of developing and building housing projects and not to an individual who entered into a development agreement as the owner of the land. iii. Whether on the facts and in the circumstances of the case and in law the Ld. CIT (A) has erred in allowing deduction u/s 80IB to the assessee when the completion certificate of .....

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he said provision is entitled hundred percent deduction of profits derived therefrom in respect of profit amounting to ₹ 5,22,92,252/- in the previous year relevant to this assessment year and Ld. CIT (A) - I, Jaipur is correct in law in allowing the said deduction to assessee. 4.1 Brief facts are the assessee filed respective returns of income declaring taxable income after claiming deduction u/s 80IB (10) of I. T. Act, 1961 qua the business income derived from a housing project as a deve .....

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ect of the impugned housing project and obtained prescribed audit reports in form 10CCB u/s 80IB (10) certifying that conditions stipulated by the I T Act qua relevant provisions of sec. 80 IB are satisfied. The relevant details for eligibility to claim u/s 80IB (10) were filed in the return and further in assessment proceedings as asked for by the ld. AO. The details about assesses claim under sec. 80 IB are Shri Chunni Lal Sanghi, assessee s father demised on 13-1-75, who owned some land acqui .....

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n granted lease deeds for 99 years for setting up a small scale industry for automobile Body building, repairing, and manufacturing ancillaries. which were registered in 1983-84. Thereafter on 12-8-2004 the land was partitioned by a partition deed executed between assessee and his brother. By these antecedents assessee became owner of a plot of land admeasuring to 1,37,973.25 Sq. ft.. Assessee intended to develop the plot for a housing project, therefore, applied to JDA competent authority for c .....

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t and construction of a housing project on this plot of land. As per agreement assessee obtained the necessary permissions and other necessary approvals for proper development and construction of said Housing project from JDA. Necessary letter of approval dated 30-8-05 was issued in the name of assessee. As per this joint development agreement M/s UDB (Reality) undertook to bear the cost of construction of project and construct the flats under assessee s supervision in accordance with JDA approv .....

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offered and paid capital gain tax in the AY 2006-07 on the fair market value of said capital asset, which is accepted by the department. Consequent to development and construction of the said housing project assessee sold the flats in respective years and offered the business income thereon in respective years by proper computing the same after deducting fair market value of land. This computation is not disputed by ld. AO. Being eligible as a developer of housing project, assessee claimed dedu .....

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of construction all work to be done by UDB (Reality), the assessee has no control or supervision on the project reference made to clause 5(v), 8(b), 10, 17 & 18 of Development agreement and M/s UDB (Reality) is bearing project related risks as well as complying the rules and so assessee is neither a builder or developer. The difference of land lord vs. developer was given and Ld. A.O. held that the deduction u/s 80IB is allowable to undertaking developing and building housing projects and th .....

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m of deduction u/s 80IB (10) and denied the same in all these years. 4.2 Aggrieved assessee preferred 1st appeals before ld. CIT (A) who after considering the facts, circumstances, judicial precedents and submissions filed by the assessee allowed the claim u/s 80IB (10). Detailed order in for AY 2009- 10 which has been followed in subsequent years; relevant extract of ld. CIT(A) order for AY 2009-10 is as under: - 4.3 I have carefully perused the order of the AO and the submissions of the AR. Th .....

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was a partition between the brothers vide a registered partition deed whereby land measuring 137973.25 sq. ft. came to the share of the appellant. 4. On 02/06/2005 the use of land measuring 15225.58 sq. yards was gotten converted from industrial to residential use vide an order of the JDA. 5. On 30/06/2005 the assessee converted the land from fixed assets to stock-in-trade. He paid capital gains tax u/s 45 (2) at FMV on the full value of consideration on that date. 6. On 30/06/2005 the assessee .....

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e the 31st day of March, 2008 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project. It is pertinent to note that the exemption has been given to an undertaking and not to an individual assessee. In this case, such an undertaking came into existence with the signing of the Development Agreement between the appellant and M/s UDB (Reality). As per this agreement the appellant was to contribute his land a .....

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u/s 80IB (10). However, the undertaking would not have come into existence if the appellant had not contributed the land. So if the undertaking is entitled for exemption u/s 80IB it logically ensues that the appellant is entitled to the exemption u/s 80IB (10) on the profits earned by him from this undertaking. Secondly, it has been clearly stated that the appellant did not have the financial and infrastructural wherewithal for construction of the residential complex, and that is why he had to r .....

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be an erroneous interpretation of the facts because cost of the land was his contribution to the cost of the project which has been properly accounted for at the initiation of the project wherein the appellant paid capital gains tax on conversion of this asset into stock-in-trade. It was precisely because he did not have the necessary financial and human resources that the agreement was signed and the undertaking came into existence. Thirdly, clauses 4 & 5 of the Development Agreement furth .....

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oid. Thus, the builder was accountable to the appellant for completing the project within time for which he deposited the security money. This clearly establishes that the primary onus for developing the project was with the appellant. Furthermore, there was a clear cut demarcation of the share between the two parties of the undertaking in the agreed ratio of 46% to the appellant and 54% to M/s UDB (Reality). After the construction, the appellant was free to negotiate and sell independently the .....

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uction of the residential complex and to prevent unnecessary interference by the appellant considering that he did not have the knowledge in these professional matters, should not be interpreted to mean that he was not a developer. In fact he has maintained the right to supervise and give suggestions as long as these do not interfere with the day today working of the project. The AO has discussed extensively the development agreement with respect to certain clauses to show that the assessee was .....

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or the block period for A.Ys. 2006-07 to 2008-09 were adjudicated upon by CIT (A), Jaipur vide a single order dated 05/03/2012 wherein after examining all the facts he has allowed the claim of section 80IB (10) on its portion of profits from this undertaking in these assessment years. Considering that the appellant has claimed the exemption u/s 80IB (10) in the next A.Y. that is 2009-10 when the first sale has been made by him it cannot be held that the project was not complete just because of t .....

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f Stamp and Registration Govt. of Rajasthan it is seen that a Govt. Department recognized the fact that a flat was transferred and not an open space, which tantamounts to recognition of the fact that the construction of flat was completed and that is why it was registered as such. The appellant cannot be therefore penalized because the concerned Govt. Dept. had delayed in giving the completion certificate officially even though another Govt. Dept. had recognized and registered the transfer of a .....

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itled to the cost of land owned and not to any profit earned by the developer by execution of the said scheme. Further, it was the appellant who was required to obtain all the permissions from the competent authority. The land lord was not responsible for money received by the developer from the members of the scheme. It was the responsibility of the developer to execute the sale deed after construction. As per the Development Agreement the land lord was only entitled to the cost of land. He was .....

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at the development means the realization of potentialities of land or territory by building or mining. The Hon ble ITAT in the said case give a finding as follows: - In the present case in hand, the landowner has not made any conscious attempt to develop the property except ensuring their rights as landowner so that the sale value of the land could be realized to them as per the terms of Agreement to Sale and the Development Agreement . The landowner, no doubt, have not thrown themselves into de .....

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activities required for developing the land from getting the use of land converted from industrial to residential etc. and even subsequent to signing of the Development Agreement continued to correspond with the respective authorities as a co signatory of the undertaking for requisite permissions etc. Thus he did not extinguish his right to develop the land in fact he retained with him the power to cancel the agreement if the developer did not adhere to the time schedule of construction of the .....

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ng project that is entitled to deduction irrespective of the fact, whether that it is the owner or not or whether it is the contractor thereof. Thus in the case of the appellant it is observed that as a cosignatory of the Development Agreement which resulted in creation of an eligible undertaking, his share of contribution, risk and the profit of the undertaking was determined at 46%. Therefore, he is clearly entitled to the claim of deduction u/s 80IB (10) to the extent of 46% of the total prof .....

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s before us. 4.4 The Ld. DR relied on the orders of AO and contends that ld. CIT(A) has failed to appreciate that assessee cannot be regarded as a developer of the impugned housing projects in terms of sec. 80IB (10). He has not incurred any expenditure on the development of project and contributed no activity for development. That business profits are result of a scheme of sharing flats, for the development activities which were in fact carried out only by UDB (reality) and not by assessee. Ld. .....

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for conversion of industrial plot into residential plot. ii. Necessary plans of development and construction of housing project were obtained by assessee and stand issued in his name. Thus the relevant record reflects that in the eyes of rules, regulations and law assessee is the developer and builder of impugned housing project. iii. For various commercial reasons it was not viable and feasible for assessee to develop the project on his own and required outsourcing of manpower and marketing sk .....

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ng an experienced organization undertook to provide the services of financial nature i.e bearing the cost of construction and marketing services as a part of their input in the project. For the services rendered it was to be reimbursed by 56% share of constructed flats. This was a viable commercial arrangement under a methodology which was very much prevalent in construction industry. No dispute or doubt has been raised by ld. AO about the genuineness of agreement or rendering of services by UDB .....

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ied (clause - 17 of agreement). The assessee retained control and supervision over the housing project as stipulated in clause(s) (v), 8(a), 8(b), 9, 10 of this development agreement and AO has failed to bring on record any evidence to indicate that he did not supervised the development project. A plain reading of agreement reveals that assessee did not transfer all rights of development and construction in favor of UDB (Reality). This was otherwise also not possible as the change of ownership o .....

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by clauses of agreement is evident from the fact that all the approvals, permissions and power to executed sale deeds of flats remained with assesse till the project was completely developed. vii. As per agreement which stands accepted by the ld. AO, assessee was entitled to the share of profits in the form of 46% of flats after successful contribution of his part of obligations which flowed from the said development agreement. The agreement was executed with M/s UDB (Reality) with explicit sti .....

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velopment of project. A harmonious reading of agreement will demonstrate that assessee gave away his rights of control and supervision and merely sold his land to M/s UDB (Reality). It is further manifested by the fact that the most important power of executing sale deeds in favor of purchasers of flats after successful completion of construction of housing project remained with assessee only. Had it been a simple case of sale of merely land or assessee had not been an integral part of developme .....

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nsable part of the development and construction of the impugned housing project as envisaged by sec. 80IB (10) of I. T. Act, 61 and CIT(A) rightly upheld the entitlement of deduction in favor of assessee after examining the relevant provision. x. The development agreement was between totally unrelated entities, the cost involved was in multiple crores, approvals stood in the name of assessee along with power to execute sale deed. With all these explicit stipulations there is no room for assuming .....

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u/s 80IB (10) of the I. T. Act, 61 on the profit derived from developing and building housing project:- i. When the land is not registered in assessee s name ii. Whether the ownership of land is a precondition to claim deduction u/s 80IB (10) of the Act . iii. Land holder was entitled to the cost of land i.e. consideration was determined on per sq. mt. basis. The land holder was not entitled to any profit earned by developer in development of housing project. Whereas in assessee s case there is .....

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elopment and construction and to deal with the land in favor of main developer. The Radhey Developers case (supra) ITAT judgement at para 29 last 5 lines held: The requirement for claiming deduction is that such an undertaking must develop and build housing project, be it on their own land or on the land of others and for which a tripartite agreement has been entered into for development and building housing project; or be the assessee a contractor for developing and building housing project or .....

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that if owner of land, develops and builds the housing project part of such process is eligible for deduction u/s 80IB (10), even if development & building i.e. construction work of housing project is carried on through any other developer. The Gujarat High Court also, while confirming the Radhey Developers judgment of ITAT (Ahmedabad Bench) held that the essence of sub s.(10) of S.80-IB requires involvement of an undertaking in developing and building housing projects approved by the local .....

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to assessee. Thereafter assessee entered into agreement with M/s Parswanath Developers Ltd. for developing a Housing Project. Necessary permission and approval were obtained by the assessee for developing the Housing Project. The assessee filed application before Ghaziabad Development Authority (GDA) for conversion of use of land i.e. from Hotel Building to Residential Building that was also done on behalf of the assessee. Thereafter various details as required by the GDA were filed on behalf of .....

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e lender. As per agreement entered by assessee with M/s Parswanath Developers Ltd. (PDL), in various clauses it has been provided that assessee will participate in the Housing Project and will do the necessary work assigned to the assessee. Thereafter on completion of the Project, the profit ratio was shared in the ratio of 1/3rd and 2/3rd as agreed upon by the assessee and M/s PDL. No doubt, assessee has not done any marketing activity as this was the duty of M/s PDL, who has done the marketing .....

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at they are not entitled for deduction under section 80IB. In the present case the land in question is in the name of assessee. Therefore, the ratio of this decision is not applicable on the facts of present case. 22.2 It is also a matter of fact that assessee has not claimed deduction under section 80IB(10) on entire profit of the project but has claimed deduction only on its share of profits. Provisions of section 80IB (10) are very clear by which it has been provided that on developing a hous .....

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competent authorities and obtaining patta from JDA for its residential use; ii) Coordination, compliance and meeting the lengthy queries about sanction of plan for development and construction of housing project on the impugned land from local authority which is undisputedly carried over by assessee over a period of time. These activities are fundamental and crucial for development of housing project. There is no dispute on these glaring facts. iii) Making the impugned land usable for the purpo .....

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ng in his share in the name of prospective purchasers. Thus the assessee undertook the aforesaid activities for development and construction of housing project which was quite big and for business expediency entered into a joint development agreement with M/s UDB by a duly executed development agreement. This type of commercial arrangement neither detracts his status being a developer nor militates against its claim for deduction under Section 80IB(10). Assessee having contributed the land, unde .....

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thus being a developer for all practical purposes is entitled to the impugned claim of deduction u/s 80IB(10). Further reliance is placed on Hon ble Karnataka High Court in case of CIT Vs. Shravanee Construction (2012) 22 Taxman.com 250 which is on the same facts as that of assessee. Hon ble High Court held that: …. the contention of the revenue that the assessee did not undertake any developmental or building activity and therefore, he cannot individually claim the benefit has no substa .....

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cently the ITAT, Bangalore Bench in case of Abdul Khader Vs. ACIT (2012) 137 ITD 188 (copy placed on record) held as under: During the course of scrutiny assessment, the Assessing Officer noticed that the assessee had entered into a joint development agreement with a company for developing the housing project on land owned by the assessee. From such facts, the Assessing Officer formed an opinion that deduction under section 80-IB(10) could not be allowed to the assessee since he was only a land .....

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elopment. The assessee got his agricultural land converted for non-agricultural purposes, i.e. for residential purposes and jointly undertook the development and construction of the schedule property by getting permission and plan sanctioned. [Para 10]. It is clear that the assessee contributed his property in lieu of capital contribution for joint development and construction and the second party, i.e. Reddy Structures (P) Ltd., was required to make investment for joint development and construc .....

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tating that the assessee only contributed the land and had not carried out any construction activities. The provision contained in section 80-IB(10) is perused. [Para 12]. On a joint reading of sub-section (10) of section 80-IB and Explanation thereto it is clear that deduction is allowable to an undertaking developing and building housing project approved, it is nowhere mentioned that for claiming this deduction, construction has to be carried out by the undertaker, moreover, the explanation cl .....

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not the case of the department that the project was not approved or developed and built by the assessee. The only reason for denying the deduction under section 80-IB(10) to the assessee was that the assessee had not carried out any construction activity, it is held that said reason is not sufficient to deny deduction under section 80-IB(10). In the instant case, the assessee made the contribution of his capital in the shape of land and incurred the initial expenses for development and building .....

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v. Shravanee Constructions [2012] 22 taxmann.com 250(Kar.), set aside the impugned order passed by the Commissioner (Appeals) and direct the Assessing Officer to allow the deduction under section 80-IB(10) to the assessee. [Para 15]. Recently the ITAT Hyderabad Bench also in case of Kura Homes P. Ltd. Vs. I.T.O. (2012) 139 ITD 460 (Placed on record) on similar facts held as follows:- 27. Further, in the present case the assessee s project is approved by local authority prior to 1.4.2004 and the .....

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see is following the percentage completion method is it necessary to obtain such completion certificate for each year of assessee s claim or it is sufficient that certificate is obtained on the completion of the housing project as a whole. Stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption u/s 80-IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and .....

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ld be construed liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate. Clause (a) of section 80-IB(10) specifies that the development and construction of the project has to start before 1.4.2004 and the project has to be completed within four years from the end of the financial year in which approval for project was received from .....

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be equivalent to forcing an assessee to follow a particular method of accounting, which would never have been the intention of legislation. Intention would only have been that for the project as a whole, there should be certification from the relevant authority proving the commencement and completion, and not that a completion certificate should be there in every year of the project span. The certifications are for ensuring that the project span does not exceed the prescribed period and nothing .....

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ght by various Chief CITs on the issue whether the deduction under section 80-IB(10) would be available on a year-to-year basis where an assessee is showing project on partial completion or if it would be available only in the year of completion of the project under section 80-IB(10). 3. The above issue has been considered by the Board and it is clarified as under: (a) The deduction can be claimed on a year-to-year basis where the assessee is showing profit from partial completion of the project .....

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2nd May, 2008 . Thus on the facts of the case and position of law in view of said judgments the assessee is entitled to claimed deduction u/s 80IB(10) and it is prayed that same may be allowed to the assessee. 4.7 In connection with finding of Ld. A.O. that assessee has not submitted evidence for completion of project within specified period of four years from the end of financial year in which project was approved by the local authority , it is submitted that housing project of assessee was app .....

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(also refer ITAT Bangalore Bench Judgement in case of RNS Infrastructure P. Ltd. (2012) 24 Taxman.com (copy placed on record). In any case none of these dates falls in this assessment year 2009-10. 4.8 The assessee declared the profits of housing project on percentage completion method i.e. the profits on sale of flats declared in the year in which the same were transferred by way of sale within the meaning of Section 2(47) of I. T. Act, 61 and on not on project completion method and thus for th .....

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the A.O. is to satisfy whether project completed in time or not which of course can be from completion certificate issued by local authority and when completion certificate is yet to be issued by local authority the A.O. cannot arrive such satisfaction without any material on record. The Ld. A.O. is thus unjustified in not applying these CBDT instruction for AY 2009-10. The assessee completed the housing project within the prescribed time and applied for completion certificate to JDA on 28-12-2 .....

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n certificate (occupancy certificate). In case of D.K. Construction Vs. ACIT (2010 ) 17 TTJ 1 (Indore) (copy on record) it is held that date of issue of Completion Certificate is not crucial but date of completion of project is relevant, therefore, delay in obtaining the certificate will not affect adversely the assessee because the assessee can only apply within prescribed time and the powers of issuance of certificate lies with the authorities. If there is any delay on the part of authorities .....

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pulated date, it could not vitiate claim u/s 80IB(10). In view of the above facts of the case and position of law the Ld. A.O. erred in law and on facts in denying the assessee s claim of deduction u/s 80IB(10) in all these years. Ld. CIT(A) has appreciated all the relevant facts, legal provisions and applicable judicial precedents while allowing the deduction u/s 80IB(10) in all these years, there being no infirmities in his orders the deserve to be upheld. 4.9 We have heard the rival contentio .....

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ct on the impugned land from local authority which is undisputedly carried over by assessee over a period of time. These activities are fundamental and crucial for development of housing project. There is no dispute on these glaring facts. iii. Making the impugned land usable for the purpose the permission of development of housing construction by providing proper road and easy approach to the site which is precondition for sanction of plan. This work has been done by the assessee. iv. Assessee .....

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joint venture with M/s UDB (Reality) cannot be looked at with suspicion. It is settled law that the revenue authorities should not step into the shoes of a businessman and decide on their own perception what, when and how a businessman should conduct his business. Be that as it may, the joint development agreement has not been doubted by ld. AO. The impression carried by ld. AO is to the effect that assessee has merely transferred his land and the income derived from sale of flats is not eligib .....

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development permissions. All the approvals, permissions and completion certificates are in the name of assessee. All this copious evidence available on record and filed in paper book along with detailed written submissions supports the contentions and claim of the assessee. In our considered view the following judicial precedents which are on similar facts as that of assessee support the eligibility of his claim u/s 80 IB(10) in all these years:- Jaipur ITAT in the case of M/s Indo Continental H .....

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he necessary work assigned to it. After completion of the Project, the profit ratio was shared in the ratio of 1/3rd and 2/3rd in this case it is 46% and 56%.. No doubt, assessee did not do any marketing activity as it was assigned to M/s PDL, and thereafter flats were sold in the market and profits were shared in terms of agreed ratio. ITAT held that all these facts and circumstances amply proved that assessee indulged in developing of the Housing Project and was eligible for claim u/s 80 (IB). .....

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has no substance. That is not the requirement of law and keeping in mind, the object with which this provision is introduced when all persons who have made investments in this housing project and have complied with all the conditions prescribed under the aforesaid provision, both of them are entitled to hundred percent benefit of tax deduction as provided under the said provision . Similar view has been taken by other judicial authorities as under: i. Abdul Khader Vs. ACIT (2012) 137 ITD 188(Ba .....

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