THE ITO, WARD-1(3)(9),, SURAT vs. VASTUSHILP CORPORATION, SURAT

This appeal filed by the Revenue is directed against the order of Learned Commissioner of Income Tax (Appeals)-II, Surat dated 28.03.2016 for the A.Y. 2003-04. The Revenue raised the following grounds of appeal:

Brief facts of the case are that the assessee is a partnership firm. During the relevant assessment year the assessee was engaged in the business of development of residential housing project. The assessee filed its return of income from 01.03.2006 declaring Nil income. In the computation of income, the assessee claimed deduction under section 80IB(10) of Rs.2.42 crore. Initially the return of income was accepted in the assessment order passed under section 143(3) and allowed deduction under section 80IB(10). Subsequently, the ld.CIT-1, Surat revised the assessment order under section 263 of the Act, vide order dated 26.03.2008 directing the Assessing Officer (AO) to pass the fresh assessment order after examining the fact and the claim of deduction under section 80IB(10) of the Act.

The AO further noted that during the proceedings under section 263 of the Act, the learned CIT held that AO ought to have made the enquiry with regard to three points, i.e. namely, i) under which circumstances the name of assessee appeared as “conforming party” in the transaction involving in the land for the housing complex and all the actual purchasers and to whom title land of 3 ITO, Ward-1(3)(9), Surat Vs. M/s.Vastushilp Corporation A.Y.2003-04 the documents passed, ii) what is the role of assessee in setting up the Co-operative Society, and iii) what was the correct factual position, if Rutvan Co-operative Housing Society engaged in the business of construction or not. It was further noted by the AO that during the notice under section 263 of the Act, the assessee is in its written submission before the ld. CIT contended that assessee paid a sum of Rs.14.38 lakhs as a consideration for purchase of land and further paid the stamp duty and registration fees and Rs.2.24 lakhs. Thus, the assessee paid total consideration of Rs.16.63 lakhs. The Co-operative Society was formed by the efforts of the assessee. About the contents, sale deeds, the assessee filed before the ld. CIT, the declaration of land owner who allegedly sold the land, wherein it is mentioned that land under consideration was sold by the seller to the Society and the assessee is a confirming party. However, sale deed was executed in favour of society at the instance of assessee as confirming party. This was done without availing any extra monetary consideration. The assessee on the basis of aforesaid facts claimed before the ld.CIT for entitlement of deduction under section 80IB(10) of the Act. The assessee further claimed that fees for approval of plan, development expenses, material costs, labour charges and administrative cost was borne by the assessee. The assessee also appointed various contractors for executing the project. The ld. CIT after consideration the contention of assessee held that all those aforesaid facts were not brought on record by the AO in the original assessment and as such the AO had not 4 ITO, Ward-1(3)(9), Surat Vs. M/s.Vastushilp Corporation A.Y.2003-04 examined such facts which were essential for allowing deduction under section 80IB(10) of the Act.

The assessee filed its written submission dated 05.11.2008, as recorded by the ld.AO in para 3 of the assessment order. The assessee in its reply stated that they are engaged in the business of development of building and housing project. The construction activities of housing project was started after 01.10.1998 and completed the project before the 31.03.2003. For carrying out development of housing project, necessary sanction was obtained by the assessee from Surat Municipal Corporation(SMC) vide sanctioned order dated 17.08.1999 and thereafter development was commenced. Entire project was completed before 31.03.2003. Necessary building occupation certificate (BUC) issued by the local authorities. It was submitted with Audit Report under Form No.10CCB was frnished. The housing project is developed on a plot having an area of more than one acre, i.e. 4050 Sq meter. The assessee developed a project on a plot admeasuring 5,770 sq. meter. Residential unit as the maximum built up area a 1500 sq. feet. The assessee also explained the fact about the formation of housing society and acquisition of land under which the project. The assessee also relied on various case laws.

The contention of assessee was not accepted by the AO. The AO took his view that assessee has not purchased the land in his name and only Satakat i.e. agreement with seller to purchase the land was entered. The land was finally purchased by Co-operative Society. The owner of the land of is Society who carried out all 5 ITO, Ward-1(3)(9), Surat Vs. M/s.Vastushilp Corporation A.Y.2003-04 developmental activities. The assessee has not furnished a copy of agreement with Co-operative Society regarding its role and activities for developing the project. The AO also held that the assessee appears to be a confirming party in the transaction involved in the land of housing project and that assessee is not the real owner.

On the aforesaid observation, the AO held that assessee failed to substantiate the necessary criteria for claiming deduction under section 80IB(10) of the Act. The assessee simply engaged in the construction business and executed job on behalf of Co-operative Society. Thus, the assessee failed to fulfill the condition for eligibility for deduction under section 80IB(10) of the Act.

On appeal before the ld.CIT(A), the action of AO was reverse. The Ld. CIT(A) while granting relief to the assessee held that the assessee is a developer, the building plan was approved at the instance of the assessee, the area of development of housing project is more than one (01) acre, the project was completed before 31.03.2003. The commercial area is less than 3%. The assessee was having dominant control over the project and ncurred all expenses for construction, engaged architect, book seller flats, collected revenue, got clearance certificate from authorities concerned , all risk and rewards with the assessee. The ld. CIT(A) also held that decision of Hon'ble Gujarat High Court in CIT Vs Radhe Developers in 341 ITR 403 is squarely applicable on the case of the assessee. Thus, aggrieved by the 6 ITO, Ward-1(3)(9), Surat Vs. M/s.Vastushilp Corporation A.Y.2003-04 order of ld.CIT(A), the Revenue has filed present appeal before this Tribunal.

We have heard submission of ld. Departmental Representative (DR) for the Revenue and Authorised Representative (AR) of the assessee and perused the material available on record.

The ld. DR for the Revenue supported the order of the ld.AO. The ld. DR for revenue further submitted that in para 4 of the assessment order the AO clearly held that assessee has not purchased the land in its name and having only the Satakhat [agreement with the sellers]. The land was finally purchased by the Co-operative Society. The Co-operative Society is the owner of the land on which the activities was carried out by the assessee. The assessee has not furnished any agreement with the Co- operative Society regarding its role and the activities undertaken for development of project. The assessee is merely a confirming party in the transaction of land. The reliance in case of Radhe Developers (supra) by the AR for the assessee is misplaced. The ld. DR submits that the said case has not attained the finality. The assessee also fails to demonstrate as to how much extent the assessee has obtained right and responsibility in the project allegedly undertaken. The assessee does not fulfill the requisite condition of section 80IB(10). The Ld. DR for the revenue prayed for reversing the action of Ld. CIT(A) and to restore the order passed by A.O.

The ld.AR for the assessee further explained that land underneath the project was agreed to the purchase by the partner of the assessee’s firms vide agreement / satakat dated 24.07.1997. Subsequently, on formation of Co-operative Society on the efforts of the assessee, the land was conveyed at the instance of assessee, from land owner, vide sale deed in favour of the Co-operative Society. The entire expenses including of registration charges was paid by the assessee. In the sale deed, the fact that land was agreed to be sold to the confirming party (assessee), on the instance of assessee, the sale deed was agreed to be executed in favour of the Co-operative Society. Thus, to make a clear cut title for the land in favour of society, the assessee signed as a confirming party being a party to the sale deed. The copy of sale deed of land on which the project is completed is placed on record. To comply with the provision of Gujarat Ownership Act 1973, the assessee firm conveyed land from owner to the society. The entire sale consideration was paid by the assessee. The entire risk was of 8 ITO, Ward-1(3)(9), Surat Vs. M/s.Vastushilp Corporation A.Y.2003-04 assessee. The ld.AR for the assessee further reiterated that assessee paid the cost of land, entire expenses of registration, stamp duty were borne by assessee. The necessary fees for approval of sanction plan was paid by the assessee, entire expenses of development project wise such as material cost, labour charges, admin charges has been incurred by the assessee. Assessee firm appointed various contractors for carrying out physical construction and incidental work on the site. All other allied services were undertaken by the assessee. Thus, assessee was having full control over the project.

The ld.AR submits that jurisdictional High Court in case of CIT Vs. Radhe Developers (supra) held that assessee builder, developed housing project, even though neither land nor development right permission was in the name of the builder was eligible for claim under section 80IB(10) of the Act. The ld.AR for the assessee further submits that in CIT Vs Sahajanand Associates (2014) 44 taxmann.com 458 (Gujarat), the Hon'ble High Court held that section 80IB deduction is admissible to the assessee developer though development permission obtained by the land owner. It was also held that benefit of 80IB is available even though title of land had not passed to the assessee and the development permission were obtained in the name of original land owners.

We have considered the rival submission of both the parties and perused the order of Lower Authorities. We have also deliberated on various case laws relied by the both the parties. The AO while passing the assessment order disallowed the deduction under 9 ITO, Ward-1(3)(9), Surat Vs. M/s.Vastushilp Corporation A.Y.2003-04 section 80IB(10) of the Act by taking view that assessee has not purchased the land in its name and that land was purchased in the name of housing society. There was no agreement between assessee and housing society. The assessee was only a confirming party and that assesse failed to show as to how and why it the assesse had fulfilled requirements of provision under section 10 and 11 of Gujarat Ownership Act 1973. The assessee has not shown as to whether housing society engaged the assessee for the purpose of construction or assessee sold flat and then society was setup by the buyers of the flats.

Before ld.CIT(A), the assessee furnished the detailed submission as recorded in para 5 of the impugned order. We have noted that assessee has specifically stated that the land of which project was undertaken his more than one acre, flats developed by assessee is less than 1500 sq.feet. Plan was approved for residential housing project after 01.08.1998 and was completed before 31.03.2003 and all other submission as made before us was also made. The ld.CIT(A) after considering the contention of the assessee concluded that the assessee has fulfilled all the conditions as laid down under the provision of section 80IB. The assessee firm paid the cost of land purchased from the seller. Expenses for the registration of land, stamp duty were borne by the assessee. All project cost were also borne by the assessee, all the buyers have confirmed about the sales of flats by the firm. Profit on the completion of project was retained by the assessee firm on the basis of aforesaid observation the ld.CIT(A) held that assessee is a 10 ITO, Ward-1(3)(9), Surat Vs. M/s.Vastushilp Corporation A.Y.2003-04 developer who applied for approval of plan, constructed the project on more than one acre of land, construction was completed before 31.03.2003, commercial area was less than 3%. The assessee was having dominant control over the project. On the aforesaid observation, the ld.CIT(A) held that decision of Radhe Developers and other (supra) is squarely applicable on the case.

We have noted that in Radhe Developers (supra) the Hon'ble High Court held that neither the provision of section 80IB nor any other provisions contained in other relevant statues were brought to demonstrate that ownership of land would be condition precedent for developing housing project. It was also held by Hon'ble High Court that it was perhaps not in the case of Revenue that under other law governing construction in Urban and Semi-urban area there was any restriction. Further the Hon'ble jurisdictional High Court in CIT vs Sahajanand Associates (supra) while relying on earlier decision of High Court in Radhe Developers (supra) held that assessee is entitled for deduction under section 80IB(10) in respect of developing the housing project even though neither land nor development permission was in the name of builder. The Hon'ble jurisdictional High Court in CIT Vs Sahajanand Associates (supra) held that even though title of land had not passed on the assessee and development permission obtained in the name of original land owner, the deduction under section 80IB is admissible to the assessee.