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2016 (6) TMI 482 - ITAT KOLKATA

2016 (6) TMI 482 - ITAT KOLKATA - TMI - Entitlement for claiming deduction u/s 80IB(10) - commercial area of the project exceeded 2000 sq.ft as laid down in section 80IB(10)(d) - Held that:- We find that the issue under appeal is covered by the decision of the Hon’ble Supreme Court in the case of CIT vs Sarkar Builders[2015 (5) TMI 555 - SUPREME COURT ] wherein held the housing project contemplated under sub-section (10) of Section 80IB includes commercial establishments or shops also. Now, by w .....

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ate, though such stipulated date is after 01.04.2005. Thus High Court was correct in allowing the exemption to assessee in present case since this amendment is prospective and has come into effect from 01.04.2005, this condition would not apply to those housing projects which had been sanctioned and started earlier even if they finished after 01.04.2005 as that of assessee. Also see Veena Developers [2015 (5) TMI 193 - SUPREME COURT ] - Decided in favour of assessee. - ITA Nos. 1343 & 1344/Kol/2 .....

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-12 dated 20.6.2012 for Asst Year 2005-06 against the orders of assessment framed u/s 147 / 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). As the issues involved are identical in nature in both the asst years, the same are taken up together and disposed off by this common order for the sake of convenience. 2. The only issue to be decided in the appeals of the revenue is as to whether the assessee is entitled for claiming deduction u/s 80IB(10) of the Act in the facts a .....

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The assessee company owned a plot of land at 105, Ultadanga Main Road, Kolkata - 700067, measuring in aggregate 4.03 acres area, The assessee set up and executed two housing projects on the said land. The assessee obtained approvals for the said housing projects from the Kolkata Municipal Corporation. The plans were sanctioned by the Corporation on 17-07-2000. The first housing project, comprising of 3 buildings, was completed in FY 2003-04 relevant to AY 2004-05. The said housing project consis .....

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nd Floor of Block-A which constituted 8.82% of the total project area of 1,59,664 square feet. In the AY 2004-05, the assessee claimed the deduction in respect of profits derived by the said housing project comprising of 3 buildings. The construction of the said housing project was completed in FY 2003-04 and the completion certificates were obtained in the relevant previous year. The assessee recognized revenue in its books in respect of the said housing project comprising of the said buildings .....

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plot having minimum area on Acre c. The residential unit had maximum built up area of 1500 sq. ft. The assessee stated that it had fulfilled all the three conditions as prescribed in section 80IB(10) as applicable for AY 2004-05. The assessee brought the attention of the Learned AO the amendment brought in by the Finance (No.2) Act 2004 in section 80IB(l0) which was effective from AY 2005-06. As per the amended provisions of the Act, the housing project could not include commercial-area exceedin .....

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lowed the deduction u/s 80IB(10) by observing as follows: The submission of the A/R is considered but found not tenable. The primary contention of the assessee that the amendment in section 80IB( 10) has been bought about by the Finance (No.2) Act 2004 and is therefore not applicable to the relevant FY 2004-05. The assessee has further stated that only the profits derived from residential flats was claimed as deduction whereas profit of the commercial area was not deducted u/s 80IB(I0) of the Ac .....

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the aforesaid amendment. Further, there is no provision in section 80IB( 10) to allow pro-rata deduction. Thus the deduction claimed by the assessee amounting to ₹ 3,51,86,897/- is disallowed and added back to the computation. 4. On first appeal, the Learned CIT(A) found that the undisputed facts of the case are that the assessee company had obtained the approval of the housing project from Kolkata Municipal Corporation on 17-07-2000. The said project consisted of 5 multistoried buildings .....

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ea of three blocks was 1,59,664 sq. ft., comprising of commercial area of 14088 sq. ft. situated on Ground, First and Second Floor of Block A and the balance being residential area. Block A was completed on 27-02-2003 and Block B & C was completed on 29-09-2003. 4.1 The Assessing Officer has not disputed the above facts which is also evident from reasons for issue of notice u/s 148, which is reproduced below: "The assessment of M/s RD Estate & Resources Ltd for the AY 2004-05 was co .....

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ave reason to believe that income chargeable to tax has escaped assessment. Notice u/s 148 of Income Tax Act, 1961 is issued" 4.2. The Learned CITA observed that from the above, it is clear that the only reason for disallowance of deduction u/s 80IB(l0) was because of changes bought into section 80IB(l0) w.e.f 01-04-2005 which required that 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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(No.2) Act 2004 enacting clause (d) in section 80(IB)(10) was not retrospective in operation and would be applicable only from AY 2005-06. He also found that the above decision was also upheld by Hon'ble Mumbai High Court. The Hon'ble High Court in its decision reported in 197 Taxman 459 in the case of CIT-II vs Brahma Associates affirmed the view of the Tribunal and held that the amendment brought by the Finance (No.2) Act 2004 imposing restriction on commercial area within the housing .....

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595/Kol/2005, AY 2002- 03], Bench C Order dated 24-03- 2006 [(2007 39 BCAJ 546], wherein it was held that even if the units constructed are both smaller and larger units with reference to the stipulated area of 1000 square feet built up area, the deduction U/S 80IB(10) ought to have been allowed. The above decision has been approved by Hon'ble Calcutta High Court. Hence the Learned CITA observed that the jurisdictional Tribunal and High Court has held that even if an assessee is not fulfilli .....

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arned CITA observed that the assessee had obtained the approval of the housing project from Kolkata Municipal Corportion on 17.7.2000. The said project consisted of 5 multistoried buildings namely Block A, Block B, Block C, Block D and Block E. The entire project was completed in two phases and the first stage consisted of Block A, Block B and Block C which was completed in Asst Year 2004-05 , whereas the second phase consisted of Block D and Block E was completed in Asst year 2005-06. In Asst Y .....

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deduction u/s. 80lB( 10) in the instant year. Aggrieved, the revenue is in appeal before us by raising the following ground:- 1. That on the facts and circumstances of the case and in law, the ld.CIT(A) erred in law as well as in fact by deleting the disallowance made by the A.O u/s. 80IB(10) of the Act. 5. When the case was called up for hearing, it was found that the Learned CIT/ DR had sought adjournment for 15 cases out of 27 cases listed for hearing. The Learned AR stated that the issue un .....

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missal of the appeals of the revenue. He further argued that the cross objection of the assessee is with regard to assumption of jurisdiction within the meaning of section 147 of the Act. He further submitted that since the issue is settled in favour of the assessee on merits, the cross objections of assessee are not pressed. 6. We have heard the Learned AR and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the .....

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cal authority. Thus, this section is applicable in respect of housing projects and not commercial projects. At the same time, even in the housing projects, there would be some area for commercial purposes as certain shops and commercial establishments are needed even in housing projects. That has been judicially recognised while interpreting the provision that existed before 1-4-2005 and there was no limit fixed in section 80-IB(10) regarding the built-up area to be used for commercial purpose i .....

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ousing project or 2000 sq. feet, whichever is less. • Certain other disputes which had arisen between the revenue and the assessees/developers of the housing projects concerning interpretation of sub-section (10) of section 80-IB primarily related to the meaning that is to be assigned to 'housing projects' prior to 1-4-2005 because of the reason that there was no clause (d) earlier and there is no express provision in this sub-section dealing with the consequence of having a commerc .....

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s sanctioned from the local authorities in accordance with the provisions of such local acts. There are local laws relating to the development and building of 'housing projects' by the developers/builders which also need a sanction from the local authorities as per the law prevailing in that particular area where the housing project is developed. Such local laws, while sanctioning the housing projects, also permit use of certain area in the housing projects in a specified manner for shop .....

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der the Act, the intention of Parliament was that whatever is approved by the local authority under the extent rules as a housing project would be treated as 'housing project' for the purpose of this section, inasmuch as sub-section (10) itself mandates that housing project is to be approved by a local authority as such an approval is a necessary condition for claiming the deduction under this provision. When the local authority has approved a housing project, whether 'residential .....

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ishments were permitted by the local authority in a housing project, it was still treated as housing project and further that while granting 100 per cent deductions, the area covered by shops and commercial establishments was also includible. This position has changed with the insertion of clause (d) to sub-section (10). As per the amendment carried out and made effective from 1-4-2005, even if the local authority had sanctioned larger area for shops and commercial establishment, the benefit of .....

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ects sanctioned prior to 1-4-2005 and the construction of the said housing project also started before 1-4-2005. All other conditions mentioned namely the date by which approval was to be given and the dates by which the projects were to be completed as on the date when the project was sanctioned, are also met by the assessees. • Prior to 1-4-2005, the developers/assessees who had got their projects sanctioned from the local authorities as 'housing projects', even with commercial us .....

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e to be completed as those dates have been specified from time to time by successive Finance Acts in the same provision under section 80-1B. In instant cases, completion dates were after 1-4-2005. Once they arrange their affairs in this manner, the revenue cannot deny the benefit of this section applying the principle of retroactivity even when the provision has no retrospectivity. With the aforesaid planning as per the law prevailing prior to 1-4-2005, these assessees acted and acquired vested .....

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s the Court itself carved out exceptions thereto by making it clear that such exception can be either express or implied by necessary implication. Even the principle which is mentioned is qualified with the words 'ordinarily available'. [para 14] • On examining the scheme of sub-section (10) of section 80-IB, its historical turn around by amendments from time to time and keeping in view of the real purpose behind such a provision, in the peculiar scenario as projected in this provis .....

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r after 1-10-1998 and was completed before 31-3-2003; (ii) the housing project was on a size of a plot of land which had a minimum area of one acre; and (iii) each individual residential unit had a maximum built-up area of 1000 sq.ft., where such housing project was situated within the cities of Delhi or Mumbai or within 25 kms. from the municipal limits of these cities, and a maximum built-up area of 1500 sq.ft. at any other place. Therefore, for the first time, a stipulation was added with ref .....

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ged from 31-3-2001 to 31-3-2003. Everything else remained untouched. Thereafter, by Finance Act, 2003, further amendments were made to section 80-IB(10). [Para 15] • Now the only changes that were brought about were that with effect from 1-4-2002: (i) the housing project had to be approved before 31-3-2005; and (ii) there was no time limit prescribed for completion of the said project. Though these changes were brought about by the Finance Act, 2003, the Legislature thought it fit that thes .....

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k earlier when all these projects were sanctioned. Another important amendment was made by this Act to sub-section (14) of section 80- IB with effect from 1-4-2005 and clause (a) was inserted in section 80-IB(14) defining the words 'built-up area' to mean the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls, but did not include the common areas shared with other residential units. [Paras 17& .....

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an assessee cannot be called upon to comply with the said condition when it was not in contemplation either of the assessee or even the Legislature, when the housing project was accorded approval by the local authorities. [Para 19] • From this provisions of section 80-IB(10), it is clear that the housing project contemplated under sub-section (10) of section 80-IB includes commercial establishments or shops also. Now, by way of an amendment in the form of clause (d), an attempt is made to .....

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hese aspects are dealt with by various High Courts elaborately and convincingly in their judgments. This very aspect is answered in the judgment dated 25-7-2014 of the Bombay High Court in IT Appeal Nos. 201 and 308 of2012, wherein, it has been held that section 80-IB(10) is prospective in nature and can have no application to a housing project that is approved before 31-3-2005. As the deduction sought to be claimed under section 80-IB(10) is inseparably linked with the date of approval of the h .....

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e is required to comply with such a condition only if it is on the statute-book on the date of the approval of the housing project and it has nothing to do with the year in which the profits are brought to tax by the assessee. [Para 21] • Thus, in view of the aforesaid discussion it is to be concluded that the judgments of the High Courts, which are impugned in these appeals have taken correct view that the assessees were entitled to the benefit of section 80-IB(10). [Para 23]. We also find .....

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s were not 'housing project' inasmuch as some commercial activity was also undertaken in those projects. This contention of the revenue was not accepted by the Tribunal as well as the High Court. The High Court held that, (a) Upto 31-3-2005 (subject to fulfilling other conditions), deduction under section 80-IB(10) is allowable to housing projects approved by the local authority having residential units with commercial user to the extent permitted under Development Control (DC) Rules/ Re .....

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hat upto 31-3-2005 deduction under section 80-IB(10) would be allowable to the projects approved by the local authority having residential building with commercial user up to 10 per cent of the total built-up area of the plot. (d) Since deduction under section 80-IB(10) is on the profits derived from the housing projects approved by the local authority as a whole, the Tribunal was not justified in restricting section 80- IB(10) deduction only to a part of the project. However, in the present cas .....

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