9911796707
TMI Blog2010 (11) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) and 80 IB(10)(d) of the Income Tax Act, 1961." 2. The assessee is a partnership firm. It carries on business as Builder & Developer of properties. During the previous year under consideration, one project, "Prathmesh Park" at Andheri (West), was completed under the Scheme of Slum Rehabilitation. The income attributable to such project was ₹ 2,80,67,805/-. A deduction of the same was claimed under the provisions of sec.80IB(10) of the Act. The original return of income, declaring NIL income was filed on 31.10.2005. This return was accompanied by the Tax Audit report, etc, as per the provisions of the law. 3. A survey u/s.133A of the Act was carried out on 08.02.2006 and the focus of the survey was to verify the claim made for deduction u/s.80IB(10) of the Act. Accordingly, during the course of the survey, the Authorized Office recorded the statement of one of the partners. The partner of the Assessee was examined and the focus was mainly on the issue as to whether the conditions which are required to be fulfilled, for claiming deduction u/s.80IB(10) of the Act were fulfilled by the Assessee or not. The partner of the Assessee in his statement accepted that, none of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht of demolition of existing structures and such other rights as are vested in the Municipal Corporation. Thereafter, SRA entrust the work of development of such area to any other agency as per the provisions of the Act. Thereafter, such agency shall have to carry out the rehabilitation work as per the norms, plan and procedure laid down by SRA under their direct control & supervision. In the present case, the assessee was the approved agency for rehabilitation wok on the above Prathmesh Park Scheme. 6. It is necessary to narrate the history of the benefit of deduction, allowed under the Income Tax Act, 1961 (the Act), on profits derived by an undertaking developing and building housing projects, while computing total income. Such benefit was first introduced by the Finance Act, 1998 w.e.f. 1-4-99 in the form of Sub-Section (4F) to Sec.80IA of the Act. Those provisions read as follows: 'This section applies to an undertaking engaged in developing and building housing projects approved by a local authority subject to the condition that the size of a plot of land has a minimum area of one acre and the residential unit has a maximum built-up area not exceeding one thousand square f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that built up area of shops or other commercial establishments included in the housing project should not exceed 5% of the aggregate built up area of the housing project or 2000 sq.ft., whichever is less. The provisions as they read applicable from AY 05-06 is as follows: "(10) The amount of deduction in the case of an undertaking developing and building housing projects approved 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 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 such construction (i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008; (ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority. Explanation.For the purposes of this clause, (i) in a case where the approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the CIT(A) and the rival contentions of the parties before us. 11. Non-fulfillment of the provisions of Sec.80IB(10)(a) of the Act According to the Assessing Officer, as per the provisions of sec.80IB(10)(a) of the Act, two conditions have to be fulfilled i.e. i. the project should have commenced on or after 01.10.1998; and ii. project construction should have been completed and profit derived therefrom, for claiming deduction withing the time as prescribed in sub-clause (ii) of clause (a) of Sec.80IB(10) of the Act i.e. 31.03.2005. The Assessing Officer noticed that in the Balance Sheet of the Assessee as on 31.3.1998, work-in-progress was shown at ₹ 1,83,880/- and therefore he was of the view that the project had commenced prior to 1.10.1998 and therefore the Assessee was not entitled to benefits of Sec.80IB(10) of the Act. He further found that the letter of intent of SRA was issued on 17.01.1997 and therefore the construction of the project would have commenced on or before 1.10.1998. The AO was also of the view that the Assessee had not completed the project on or before 31.03.2005. He found that the assessee has not even applied for completion certificate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SRA, conclusively proves that the assessee could commence development & construction only after 02.12.1998. Accordingly, it was submitted that, there was no force either on facts or in law in the finding of the learned Assessing Officer regarding commencement of development & construction of project prior to 01.10.1998. 8. Regarding the observations of the Assessing Officer that the project was not completed till the date of claim of deduction, as the completion certificate was not even applied even on the date of survey i.e.09.02.2006. The assessee submitted that the project of Prathmesh Park is part of the Rehabilitation project approved by SRA. As per the rules of the said authority, first of all, the assessee has to construct the Rehabilitation buildings as per the requirements/plans of the SRA, and thereafter, it has to apply for occupation certificate of rehabilitation buildings. The assessee prior to the date of survey had already applied for such occupation certificate for rehabilitation buildings. As per the rule of SRA, only on issuance of occupation certificate of rehabilitation buildings, the assessee can apply for completion certificate of saleable buildings. Since S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the letter of intent dated 17.1.1997 was issued with regard to the authorization to allot the work to the assessee by the SRA. Therefore, such letter of intent can not be considered as an evidence for the commencement of the work. He held that the AO failed to consider the application made by the assessee as on 2/11/1998 for issuance of certificate of commencement of the work and the consequent certificate issued by SRA on 2/12/1998, granting the assessee the permission to carry out development and building construction on the said plot of land. The CIT(A) therefore, held that the development and construction work was started only after 2/12/1998. He also held that the AO has not brought any material or evidence on record to establish that expenses incurred by the assessee are directly related to the development and construction of the project. The CIT(A) also held that since the Assessee was seeking to work for SRA and therefore conveyance of the land belonging to a third part upon which the hutments have been created, was absolutely necessary for the assessee. He therefore held that the conveyance charges paid pursuant to the letter of intent and shown as work in progress of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly held that the construction and commencement of the project was only after 1/10/1998. 14. As far as the condition regarding completion of project before the stipulated time, it is not in dispute that the Assessee did not complete the project on or before 31.3.2005. The facts as per Assessee's own admission in the written submissions filed before the Revenue authorities was that the assessee's project was granted approval for development & construction by the SRA vide their letter dated 02.12.1998. The work of development and construction of both rehabilitation building/shops as well as free-sale buildings commenced w.e.f. 02.12.1998. The 3 rehabilitation buildings and 17 shops were constructed by the assessee in between 02.12.1998 and August, 2004. The 3 rehabilitation buildings as well as the 17 shops were physically being transferred to the eligible slum dwellers/shop keepers, free of cost, on 18.09.2004. Simultaneously, as per the progress of construction of rehabilitation buildings/shops, the SRA gave permission to construct, the free-sale buildings also. Accordingly, the free-sale buildings also were completed and sold away during the previous year relevant to the Assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, guidelines, procedure etc are laid down for the same. 17. We are of the view that the claim made by the assessee in this year is based on amended section 80IB(10). It is no doubt true that the Assessee was carrying out a Slum Rehabilitation Scheme. The proviso below clause (b) to Sec.80-IB (10) was inserted by The finance (No.2) Act, 2004 w.e.f 1-4-2005. As per the proviso the conditions mentioned in Sec.80-IB (10) (a) & (b) need not be fulfilled in the case of Slum Rehabilitation Scheme carried out in accordance with a scheme framed by the Central Government 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. In the absence of a notification by the Board, it is not possible to ignore the condition laid down in Sec.80-IB(10) (a) or (b). Since, the condition that the project should have been completed on or before 31.3.2005 is admittedly not complied with by the Assessee, We hold that the A.O. has rightly denied the deduction under section 80IB(10) on the ground that the project was not completed within the stipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that the above factual aspect was duly brought to the notice of the Authorized Officer, by the partner of the assessee firm. The Assessee had obtained conveyance for the entire piece of land admeasuring 5796.40 sq.meters through a single conveyance deed. The Assessee pointed out that the real picture was, the entire 5796.40 sq. meters of land was occupied by slum dwellers having their hutments. Thus, the land in utilization or related to the entire project, shall be considered as admeasuring 5796.40 sq. meters and not 3788.75 meters adopted by the AO. Even the SRA has also taken into consideration, the total land of 5796.40 sq. meters for the project, as a whole and have approved the plans, accordingly. It was submitted that the AO failed to appreciate the correct facts of the case of the assessee. Therefore, the condition laid down regarding the measurement of the land u/s. 80IB (10(b) was fully satisfied by the assessee. 21. Without prejudice to the above the argument regarding application of the provision below section 80 IB (10)(b) was again reiterated. 22. The CIT(A) agreed with the contentions put forth by the Assessee. He held that the facts as brought on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questions & answers recorded in the statement dated 9/2/2006 of Shri Jitendra S. Brahmbhatt, working partner of the assessee firm. The same are referred to in para 2.3 of the assessment order. 25. Before CIT(A), the assessee submitted that it had not combined two flats and the combined measurement of such two flats was not exceeding 1000 sq. ft. The Assessee drew attention of the CIT(A) to the statement recorded at the time of Survey in which a reference was made to Flat No.B-605 & 606. The Assessee pointed out that in the statement of the managing partner it has been clearly stated that, "I agree with the statement, except the built up area of each flat is 412 sq. fts" (q.No.13), "Even after alterations the build-up area of both the flats put together is less than 1000 sq. ft" (Q.No.14). The Assessee thus submitted that the measurement of the flats quoted during the course of survey and relied upon by the AO was never accepted on factual basis, as exceeding 1000 sq. fts. The Assessee pointed out that it had submitted the copies of the agreement executed between it and the buyer of the flats before AO and that the measurements of flats as per the agreement were as under:- Flat N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he findings of the CIT(A) on this issue have to be upheld. The learned AO based his conclusions on the issue only on the statement of one of the flat buyer viz., Mrs.Sharvati Chauhan. The partner of the Assessee when he was examined at the time of survey and when the statement of Mrs.Shravati Chauhan was confronted to him, has clearly stated that even assuming two adjoining flats were combined, the total area of such combined flats did not exceed 1000 Sq.ft. Besides the above, the various agreement between the parties were produced before AO and the AO has not brought out any material on record to show that built up area of any flat in the project was more than 1000 Sq.ft. In these circumstances, we uphold the findings of the CIT(A) and hold that the Assessee has fulfilled the condition laid down in Sec.80IB (10)(c) of the Act. 28. Non-fulfillment of the provisions of Sec.80IB(10)(d) of the Act: According to the AO, as per the provisions of Sec. 80 IB(10)(d), the built-up area of shops / commercial establishments included in project shall not exceed 5% of the total built-up area or 2000 sq.fts. whichever is lower. 29. In support of his findings, the AO relied upon various questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Slum shop-keeper considering their right, title & entitlement in the old slum area. Besides, it was also mandatory & obligatory for the assessee to construct and handover 3 buildings & 17 shops to the SRA/original slum dwellers, as approved by SRA, free of cost. In the original slum area, 17 shops were in existence, and therefore, in the rehabilitated area, shops were mandatorily to be constructed. The norms of the SRA provides for area construction for each shop at 225 sq.ft. i.e. 3825 sq.fts. But as against, considering the factual/actual measurements of each shop, the SRA provided to construct 17 shops on 3547 sq.ft. Thus, construction of the shops on 3547 sq.ft. was mandatory for the assessee. Neither the assessee nor the SRA has any discretion left with them to make any compromise in construction of 17 shops in the Rehabilitation component to the handed-over free of cost. 33. The Assessee by way of an alternate argument, submitted that only by virtue of construction of 3 buildings and 17 shops, as rehabilitation buildings, the assessee was allotted 3788.75 sq.meters of land, free of cost, upon which, 3 saleable buildings under the name & banner of Prathmesh Park, Phase-I, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , on 18.09.2004. Simultaneously, as per the progress of construction of rehabilitation buildings/shops, the SRA was giving permission to construct, the free-sale buildings also. Accordingly, the free-sale buildings also were completed and sold away during the previous year relevant to the Assessment Year 2005-06. 35. The Assessee submitted that the relevant provisions of sec.80IB(10)(d) which lays down the restriction of construction of commercial premises either to the extent of 5% of the project land or 2000 sq.fts., whichever is lower, was enacted into the statue book by the Finance Act, 2004 w.e.f. 01.04.2005 i.e. Assessment Year 2005-06. This Finance Act, 2004 was placed before the Hon'ble Parliament on 08.07.2004 as 13th Lok Sabha came into existence during this period, after General Elections. The said Finance Act, received the assent of Hon'ble President of India on 10.09.2004. Thus, this amendment in the Act was introduced by the Government prospectively i.e., it was applicable to such Projects which comes into operation on approval, after the date of the approval of the Finance Bill. As against this, the assessee's project, came into existence as back as 02.12.1998 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch, 2005 and when approval was obtained there was no stipulation as to the shopping complex area(commercial space) permissible in the project. The amendment were subsequently made while extending the deduction of income from housing project approved upto 31st March, 2007 and therefore on this ground deduction u/s.80-IB(10) cannot be denied to the Assessee. 37. The CIT(A) accepted the contentions on behalf of the Assessee and he held that the Assessee did not violate the conditions laid down in Sec.80-IB(10)(d) of the Act. 38. Before us, the learned D.R. submitted that the legislature in its wisdom had thought it fit to introduce a condition for allowing deduction u/s.80-IB(10) w.e.f. 1-4-2005 and therefore the law including clause (d) of Sec. 80-IB(10) has to be applied by the AO while making assessment from A.Y.05-06 till the law remains the same. It was his argument that the Amended provisions refer to all projects approved before 31.3.2007 and does not differentiate between Housing Project approved before 2004 or 2003 or one approved by SRA. He drew our attention to clause(a) of Sec.80-IB(10) and submitted that the legislature has consciously made a distinction between proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) is directly on the issue. Judicial discipline demands that we should follow decision of a co-ordinate bench on identical facts. 41. We have already seen that that the provisions of Sec.80-IB(10) as it stood at different point of time contemplates different conditions to be fulfilled by an Assessee to claim deduction under that section. Invariably by the time an Assessee commences his project and by the time the project is completed and profit offere to tax, the conditions to be fulfilled materially change. If the conditions regarding restriction on existence of built up area of commercial space, which condition did not exist when the Assessee commenced the project, is imposed on the Asseseee, then the Assessee would be put to great hardship. Let us assume an Assessee applies and obtains approval of a local authority for building a housing project in the previous year relevant to AY 02-03. As per the law as it stood in the previous year relevant to AY 02-03 upto 04-05, there was no time limit within which the construction has to be completed or any restriction regarding commercial area that can be built in a housing project. Let us assume that the Assessee complies with all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re than minimum area of one acre, (ii) residential units built on such area must satisfy condition of clause (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 section 80 IB (10) will be available in respect of residential segment of the project. (b) The deduction under section 80IB(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% and, for this reason the project can not be said to be a predominantly housing project, but, in terms of observations made in paragraph 115 above, the assessee is entitled to deduction in respect of residential unit segment of the overall project on fulfillment of necessary conditions, the entitlement of incentive deduction will be confined to only to the profits to the residential segment of the overall project. (c) The limit on commercial use of built up area as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being loose papers which were impounded in the course of survey at the on 9-2-2006. These were marked as A/1 pages 1, 7 and 10. The loose sheets evidenced receipt of money by the Assessee from buyers of the flats. According to the AO, these amounts were not recorded in the books of accounts and therefore the AO made an addition of ₹ 59,20,000/- which is the sum total of ₹ 1,20,000, ₹ 51,00,000 and ₹ 7,00,000 found recorded in page No.7, 10 and 1 respectively. The AO fortified his conclusion that these were unaccounted receipts on the basis of surrender of income of ₹ 20 lacs in the statement of the partner of the Assessee recorded at the time of survey. The addition was made u/s.69-A of the Act. 45. Before CIT(A), the Assessee submitted that Page No.1 is a receipt of ₹ 3,50,000/- issued to one Shri T.M.Chaudhary for Flat No.B-606. On the bottom side of the receipt an amount of ₹ 3,50,000/- in respect of Flat No.C-602 has been shown to have been received from one Shri K.F.K. Bhili. The assessee admitted to have received money of ₹ 3,50,000/- towards Flat No. C-602 from Shri Bhili as booking amount in between 22/01/2004 & 10/2/2004. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee merely on the fact that, it was found from us. 47. The Assessee explained Page No.10 which contained the jottings of ₹ 51,00,000/-. On this page agreement value of the saleable areas in respect of 6 flats have been jotted down proposed to be allotted to certain persons for a total consideration of ₹ 51,00,000/-. The Assessee explained that at the relevant point of time, the assesseee had negotiated and agreed the sale value receivable on sale of 6 flats at ₹ 51,00,000/-. Thereafter, the transaction of sale to the persons whose names have been mentioned against the relevant flat Nos. could not be completed, as they failed to make payment of agreed amount by the agreed date. Thus, on this page, the sale value receivable from prospective customers at relevant point of time was jotted down. Since the sale could not be made to them due to non-payment from their side of the total consideration, such flats were sold to other customers and the actual sale price recovered from new customers was much more higher than ₹ 51,00,000/- shown in the paper. In this connection, the Assessee pointed out that Shri T.M. Chaudhary & Shri K.F.K. Bhili whose names a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O that assessee was found in possession of ₹ 59,20,000/- which were not recorded in the books. Not a single unaccounted rupee was found during the course of survey. The Hon'ble Calcutta High Court in the case of Chandulal & Company. Vs. CIT (136 ITR 889) has held that, both the above referred conditions shall be fulfilled for invoking the provisions of Sec. 69 A of the Act. Accordingly, the liability u/s. 69A will arise only if the assessee is found to be the owner of the money. Besides all the papers found during the course of survey were duly & satisfactorily with cogent, concrete and substantiating material were explained. Even during the course of the statement also, no where the partner of the assessee firm has accepted such papers or transactions recorded therein as out of books of accounts. It was submitted that, the Ld. A.O erred in making the impugned addition. 49. The CIT(A) at the outset noticed that the conclusion of the Assessing Officer were mainly based on the admission of the assessee's partner made during the course of survey. He was of the view that the disclosure made was based on the impounded documents found from the possession of the assessee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents placed by the assessee on record for new owners for the same flats showing higher consideration, he was inclined to accept the contentions of the assessee that, the agreed sale consideration with its six old customers for sale of six flats at ₹ 51 lakhs, as recorded on page no.10, did not materialized and subsequently, all these six flats were sold to its new customers at a higher value, as recorded in its books of account based on the specific sale deeds entered into with each such party. He held that there is no evidence brought on record to prove that the assessee had received cash or money from these persons. Accordingly, on account of these facts of the case and in the absence of any material brought on record in support of the addition of unexplained money, the entire addition of ₹ 51,00,000/- was found to be unjustified and therefore, deleted. 52. As regards the page no.7 containing details of ₹ 1,20,000/-, which the Assessee disowned, the CIT(A) held that since, the document was found from the possession of the assessee it was his responsibility to offer proper and plausible explanation about the same. Since, no plausible explanation was offered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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