TMI Blog2011 (7) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... e case for scrutiny and accordingly issued notice under section 143(2) of the Act to the assessee. In response, the authorized representative of the assessee attended and filed various details as called for. In the original assessment order dated 23.11.2006, passed under section 143(3) of the Act, the AO observed that the assessee is engaged in the business of developing i.e. constructing a home projects known as 'Kumar Pinnacle' at Tadiwala Road, Pune which consists of residential units (flats) and commercial establishments (shops). During the year, the assessee has shown work being in progress. Expenditure of capital nature has been accounted for under the head 'Work-in-Progress . In the next para he observed that During the year under consideration the assessee company has shown net profit on sale of shops to the tune of ₹ 24,72,625/- which is not qualified for deduction under section 80IB(10). The details filed in this regard, has already filed in the assessment year 2003-04 . Subject to the above remark and after discussion, the AO after allowing deduction under section 80IB-(10) of ₹ 2,48,21,145/- computed the income at ₹ 24,78,250/- and after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t entitled for deduction under section 80IB(10) for the breach of condition of commercial construction. The claim of deduction under section 80IB(10) of ₹ 2,48,21,215/-has been wrongly allowed in the assessment order under section 143(3) for the year under consideration. Therefore, I have reason to believe that, there is income which has escaped the assessment and proceeding under section 147 is required to be initiated in this case. Dy. Commissioner of Income Tax, (Circle 1(2), Mumbai Dated - 30.3.2009 In response to the notice issued under section 148 of the Act, the assessee's representative vide letter dated 27.4.2009 stated that the return of income originally filed may be treated as the final return of income for the said assessment year. During the course of re-assessment proceedings, the AO observed that the assessee is builder and developer. During the year, the assessee has declared income from business of developing i.e. constructing the home project known as Kumar Pinnacle located at Tadiwalla Road, Sangmwadi, Pune which consists of residential units(flats) and commercial establishment shops. The project was approved by local authority of Pun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of profits from this project in the year AY 2004-05 and the same was earlier rightly allowed by the AO. 3. Though the commercial area in the project is also allowable for deduction (as it was sanctioned before AY 2005-06), the assessee has paid tax on the same. 4. Profits from residential units of the said project are separately ascertainable and have been reflected separately; 5. The assessee has claimed deduction under section 80IB(10) of the Act in respect of profits from residential portion only. 6. Residential portion in respect of which deduction under section 80IB(10) has been claimed satisfied all the conditions of section 80IB(10) of the Act We would like to bring to kind attention of Your Honor the fact That THOUGH THE SPECIAL BENCH OF THE ITAT IN ITS ORDER REFERRED ABOVE HAS RULED THAT COMERCIAL AREA UP TO 10% OF THE TOTAL AREA OF A HOUSING PROJECT SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB(10) OF THE I.T.ACT, THE 'A' ON ITS OWN HAD ALREADY OFFERED TO TAX INCOME FROM SALE OF COMERCIAL AREA IN THE PROJECT VIZ 'KUMAR PINNACLE' and HAS CLAIMED DEDUCTION IN RESPECT OF PROFITS FROM RESIDENTIAL AREA ONLY. The residential portion in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 148 and second reassessment is perfectly justified. On merits, the learned Commissioner of Income Tax (A) observed that the decision of Laukik Developers (supra) has been dismissed by the Tribunal on a incorrect footing, on a myopic view presented before them of the applicability of Income Tax to only limited big cities having its own problems of facilitation of shopping. He further observed that the law, however, is for India as a whole and not everywhere such restrictive requirements for approval of housing projects exists. He further observed that the deduction under section 80IB(10) was allowable only in respect of pure residential projects, without any commercial element in it and held that in the case of the appellant admittedly the project is residential cum commercial, therefore, the assessee is not entitled to deduction under section 80IB of the Act and accordingly upheld the disallowance made by the AO. 5. Being aggrieved by the order of the learned Commissioner of Income Tax (A), the assessee is in appeal before us taking following grounds of appeal: On the facts and in the circumstances of the case and in law, the learned CIT(A): Reassessment under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pages 36 to 37 of Paper Book for AY 2007-08) AY 2007-08 The area and other details of the project Kumar Pinnacle are as follows: Sr. No. Particulars Area a) Date of commencement of Project 23 May 2001 b) Total Plot area 139,328 sq.ft (3.20 acres) c) Total built up area 132,482 sq.ft d) Built up area of commercial units 7,562 sq.ft. e) Built up area of residential units 124,920 sq.ft f) Percentage of commercial area (C/b)*100 5.70% 7. Challenging the validity of the reassessment proceedings he submits that the reopening was made by the AO based on the reason that the housing project Kumar Pinnacle is sanctioned as 'residential cum-commercial' project and does not satisfies the condition under clause (d) of section 80IB(10) of the Act. (as pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial area. Hence, the AO had formed his opinion that clause (d) to section 80IB(10) of the Act is not applicable to the projects approved and commenced prior to 1.4.2004, and accordingly did not allow deduction under section 80IB(10) of the Act on commercial profits. He further submits that the assessee had submitted all the factual details, regarding the eligibility of the housing project Kumar Pinnacle during the course of the assessment proceedings and it was also verified during the course of survey under section 133A of the Act and there were no additional information which has come to the notice of the AO vitiating the 80IB(10) claim of the assessee which calls for initiation of reassessment proceedings. He further submits that the Learned Commissioner of Income Tax (A) upheld the action of the AO in initiating reassessment proceedings based on the following reasoning: (i) Commercial area in the project exceeds limit specified under section 80IB(10) of the Act and; (ii) The project is sanctioned as 'housing cum residential project' 8. He further submits that the Learned Commissioner of Income Tax (A) has erred in concluding that the action of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mar Pinnacle is based in Pune and hence, the decision of the Special Bench of the Tribunal was squarely applicable to the facts of the present case and ought to have been followed by the Learned Commissioner of Income Tax (A) in view of principle of Judicial Discipline and for this proposition, the reliance was also placed on CIT vs. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom). He further submits that the Learned Commissioner of Income Tax (A) has erred in concluding that disallowance of 80IB(10) on account of inclusion of commercial area exceeding limits specified under clause (d) or the project being sanctioned as 'residential cum commercial area' is the correct law, without appreciating that the issue was squarely covered in favour of the assessee by the decision of the Special Bench of the Tribunal in the case of M/s Brahma Associates (supra). He further submits that the Learned Commissioner of Income Tax (A) has grossly erred in concluding that the AO's action was otherwise possible even under section 154 of the Act and hence, the present case is not on account of change in opinion and for this proposition, the reliance was also placed on the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible for 80IB(10) deduction (Refer para 22 and 23). He further submits that the issue is also covered by the decision of the Special Bench of the Tribunal in M/s Brahma Associates (supra) wherein it has been held that Clause (d) to section 80IB(10) inserted w.e.f AY 2005-06 is prospective in its application (Refer para 86) The Project even if approved a 'Residential cum Commercial' by the Local Authority but if consist of commercial area of less than 10%, the same will be eligible for 80IB(10) deduction. If the commercial area exceeds 10% and the residential portion on a standalone basis satisfies the condition under section 80IB(10), proportionate deduction should be allowed (Refer para 115). He further submits that the Special Bench of the Tribunal has specifically dealt with and dissented the decision of the Mumbai Bench of the Tribunal in Laukik Developers (supra), relied upon by the AO and the learned Commissioner of Income Tax (A). He further submits that the learned Commissioner of Income Tax (A) did not follow the decision of the Special Bench of the Tribunal on the ground that the Special Bench while deciding the issue of inclusion of commercial a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject for construction of residential houses also consisting of commercial shops and approved by local authorities as residential as well as commercial project is not a housing project eligible for relief under section 80IB(10). The reliance was also placed in ACIT in ACIT V/s Viswas Promoters Pvt.Ltd. (2010) 5 ITR 449 (Chennai). He further submits that the order passed by the AO and confirmed by the learned Commissioner of Income Tax (A) be upheld. 12. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch that prior to the completion of the original assessment passed under section 143(3), vide order dated 23.11.2006 a survey under section 133A was carried out on 24.11.2005 for the specific purpose of verification of correctness of claim of deduction under section 80IB(10) of the Act. According to the AO, as per the relevant provisions of the Act for the assessment year 2005-06 the built up area of commercial establishments included in the housing project should not exceed 5% of aggregate built up area of the housing project or 2000 sq. ft. which ever is less. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the second AO cannot assume the jurisdiction to issue notice under section 148 of the Act and for this proposition the reliance was placed on various decisions cited (supra). 14. Per contra, the case of the Revenue is that since reopening has been done within four years from the end of the relevant assessment year, therefore, the assessee does not have shelter of proviso of section 147, therefore the reopening of the assessment is valid and for this proposition the reliance was placed on the two decisions (supra). 15. In Kelvinator of India Ltd. (supra), it has been held (page 562 Head Note): The concept of change of opinion on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of change of opinion must be treated as an in-built test to check the abuse of power. Hence after April 1, 1989, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the Assessing Officer purported to exercise his power to reopen the assessment under section 147, the legislative amendment by the insertion of clause (i) to Explanation (1) to section 115JB had not been brought into force on the statute book. The order of the Assessing Officer with reference to the computation of book profits under section 115JB was at the least a probable view and as a matter of fact the correct view to take in view of the decision of the Supreme Court in CIT v. HCL Comnet Systems and Services Ltd. [2008] 305 ITR 409. It is well-settled that the law laid down by the Supreme Court is declaratory of the position as it always stood. In any event, the view of the Assessing Officer was supported by the interpretation placed even contemporaneously in the judgment of the court in CIT v. Echjay Forgings P. Ltd. [2001] 251 ITR 15 and in the judgments of the Delhi High Court in CIT v. Eicher Ltd. [2006] 287 ITR 170 and CIT v. HCL Comnet Systems and Services Ltd. [2007] 292 ITR 299. In the circumstances, there was no warrant for reopening the assessment in exercise of the power conferred under section 147. 18. In Cartini India Pvt.Ltd. (supra), it has been observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under s. 80-IB(10) will not be declined. In case commercial use of built-up area is more than 10 per cent but the residential segment of the project satisfies requirements of s. 80-IB(10) on standalone basis, i.e. (i) the size of the plot, excluding portion under commercial unit, is more than minimum area of one acre, (ii) residential units built on such area must satisfy condition of cl. (c) of the provision, and (iii) other necessary conditions are fulfilled, and where income from construction of residential dwelling units can be worked out on standalone basis, deduction under s. 80-IB(10) will be available in respect of residential segment of the project. (b) The deduction under s. 80-IB(10) is available in respect of profits of housing project as a whole, and, as such, it is not relevant as to what is the portion of profits which can be said to be attributable to residential units. This is subject to the rider that in case commercial use of built-up area in a project is more than 10 per cent and, for this reason the project cannot be said to be a predominantly housing project, but, in terms of observations made in para 115 above, the assessee is entitled to deduction in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engal Ambuja Housing Development Ltd. V/s Deputy Commissioner of Income Tax (IT Appeal No.1595 (Kol) of 2005, dated 24.3.2006 it has been held as under (page 297 of (2009) 33 SOT): 22. It is apparent from the perusal of s. 80-IB(10) that this section has been enacted with a view to provide incentive for businessmen to undertake construction of residential accommodation for smaller residential units and the deduction is intended to be restricted to the profit derived from the construction of smaller units and not from larger residential units. Though the AO has denied the claim of the assessee observing that larger units were also constructed by the assessee, at the same time, it is also a fact on record that the assessee had claimed deduction only on account of smaller residential units which were fulfilling all the conditions as contained in s. 80-IB(10) and the same has not been disputed by the AO also. We have also noted down the fact that even the provisions as laid down in s. 80-IB(10) does not speak regarding such denial of deduction in case of profit from a housing complex containing both the smaller and large residential units and since the assessee has only claimed ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the built-up area should not exceed 1500 sq. ft. in the context of cities other than Delhi and Mumbai and the profits must be derived in the previous year from the housing project. This restriction is applicable for the entire project. If some of the residential units of the project comprised area exceeding the prescribed limit, the benefit could not be extended to the project. Approval was accorded to the entire project. Blocks of residential units were parts of the project and not the project by itself and such a block of residential units could not be construed to be a separate project. Therefore, the assessee did not comply with the conditions precedent for availing of the benefit of section 80-IB(10). 26. The decisions relied on by the learned D.R. are distinguishable on facts and are not applicable. In the case of Rajesh Jhaveri Stockbrokers P. Limited,(supra), the assessment was completed under section 143(1)(a) whereas in the present case the AO after examining the issue and considering survey report has accepted the claim of the assessee by an order passed under section 143(3) of the Act. Therefore, the decision relied on by the learned D.R. is distinguishable and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case and in law, the learned CIT(A): Deduction u/s 80IB(10) 1. erred in confirming the disallowance of the deduction under section 80IB(10) amounting to ₹ 4,47,60,209/- on the ground that the project had commercial area exceeding 5% and hence did not comply with the condition prescribed under clause (d) of section 80IB(10) of the Act. 2. failed to appreciate that clause (d) as inserted w.e.f. 1.4.2005 is only applicable to projects approved from 1.4.2005 and thereafter and would not be applicable to projects sanctioned prior to said date. 3. further failed to appreciate that the commercial area was constructed and sold prior to 1.4.2005 and hence the condition prescribed under clause (d) to section 80IB(10) could not have been applicable to the facts of the present case. 4. without prejudice to the above, should have restricted the disallowance of deduction u/s 80IB(10) only to the extent of profits of commercial area and not the entire profits of the project 31. At the time of hearing, both parties have agreed that the facts of the above issue are similar to the facts of the case for the assessment year 2004-05, therefore, the plea taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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