M/S. SAGAR PROJECTS,BARODA vs. THE DY.CIT, CENTRAL CIRCLE-2,, BARODA

आदेश / O R D E R

PER MAHAVIR PRASAD, JUDICIAL MEMBER:

- 2 - the assessment orders passed under s.153C r.w.s.153A r.w.s.143(3) and under s.143(3) r.w.s.147 of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 26/03/2013 and 31/03/2013 (in the case of Sagar Projects) relevant to Assessment Years (AYs) 2008-09, 2009- 10 & 2009-10 respectively.

All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other.

1. The Ld. CIT (A)-12, Ahmedabad has erred in law and in facts in confirming the action of the Ld. A.O. in denying the deduction of Rs.3,74,191/- claimed u/s. 8018(10) on the following grounds: i) The appellant has first time made claim of deduction u/s 801B(10) in the return of income filed in response to notice us/ 153C and no claim of deduction u/s 801B(10) was made in the original return of income filed electronically on 30.09.2008 and the requisite report from the auditor in Form No. 10CCB was also not filed before the due date prescribed u/s 80AC r.w.s. 801B(13) r.w.s. 80LA (7) or even before the time limit allowed for revised return for the year under consideration in response to notice u/s 153C of the l.T. Act.

IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

- 3 - ii) The appellant has not fulfilled the condition prescribed u/s 80IB(10) r.w.s. 80AC till the time available for filing return in response to notice u/s 153C. The Ld. CIT(A)-12, Ahmedabad ought to have allowed the claim of deduction u/s. 801B(10) amounting to Rs.3,74,191/- as claimed. 2. Your appellant craves the liberty to add, alter, amend or delete any or all of the above ground(s) of appeal.

- 4 - provisions of section 153A of the Act. In this case, books of account and documents were found and seized in the possession of M/s.Darshanam Life Space Pvt.Ltd. group. Thereafter, a notice u/s.153C r.w.s.153A(a) was issued. The assessee vide Question No.33 dated 24/08/2012 was asked to submit the details of deduction claimed u/s.80IB of the Act. In response thereto, the assessee has submitted as under:

1. The assessee is a partnership firm and the said firm is came in to existence w.e.f. 06/02/2007. The assessee firm has commenced its project of residential housing project in the year 2007-08 known as “Darshanam Villa – 1 & 2, of 33 & 43 residential housing units respectively, situated at Near Parivar Char Rastta, Waghodia Road, Baroda.

2. The assessee firm has acquired development right in the land bearing R.S.NO.724/1, 724/2 & 725 of village Bapod Dist.Baroda admeasuring 61108 Sq. feet for a consideration of Rs.69/- per Sq.feet as per Sale of agreement dated 30/03/2007executed with Shri Jayntilal Dalsumhbhai Panchal, a landowenr and Shri Rakesh Kantilal Pate/ and others and Javnika Chhotalal Pate/ and others, a confirming parties and accordingly, the assesses firm has made total payment of the said land in the financial year 2007-08 to Shri Jayantilal D. Panchal for purchase of land. Copy of sate of agreement dated 30/03/2007 is enclosed at Annexure -

1. 1.

3. The approval of development and construction of housing project is obtained on 06/11/2007 from Vadodara Municipal Corporation and subsequently, the said plan has been revised on 26/03/2009 and same is enclosed at Annexure - 2.

4. It is further submits that the claim of deduction was rightly made and the terms of agreement fully indicated that the dominion of ownership and subsequent control over the land vested with the assessee firm on execution of the development agreement. The landowner only was entitled to fixed consideration towards sale of land and entire risk and reward associated with the project was with the assessee firm only and contentions in support of the law that the ownership by registration in the name of the assessee claiming deduction u/s. 8QIB(10) is not essential in view of the settled proposition laid down in the case ofRadhe Developers in ITA No. 2482/Ahd/2006.

IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

- 5 - 5. The assessee firm is also aware of the later decision of the jurisdictional Tribunal in for A.Y. 2005-06 in the case of M/s. Shakti Corporation (unreported) wherein the Tribunal reconfirmed the law and proposition laid down in Radhe Developers with a rider that the same cannot be universally applied without looking into the development agreement and other agreements entered by the developers with the landowner. The Hon'ble Tribunal has in para 16 of the order has observed and found as under: "16. The facts involved in the case of the assessee are similar to the facts in the case of Radhe Developers (supra) and accordingly we are of the view that the assessee has acquired the dominant over the land and has developed the housing project by incurring all the expenses and taking all the risks involved therein. We may mention here that, in our opinion, the decision in the case of Radhe Developers (supra) will not apply in a case where the assessee has entered into the agreement for a fixed remuneration merely as a contractor to construct or develop the housing project on behalf of the landowner. The agreement entered into in that case will not entitle the Developer to have the dominant control over the project and all the risks involved therein will vest with the landowner only. The interest of the Developer will be restricted only for the fixed remuneration for which he would be rendering the services. The decision in the case of Radhe Developers (supra) has not dealt with such situation. The proposition of law laid down in the case of Radhe Developers cannot be applied universally without looking into the development agreement entered into by the Developer along with the landowner. In the case of Shakti Corporation since the assessee has filed copy of the development agreement and crux of the agreement is that the assessee has purchased the land and has developed the housing project at its own, therefore, we are of the view that the assessee will be entitled for the deduction u/s. 80IB(10). The decision of the Hon'ble Supreme Court in the case of Faqir Chand Gulati (supra) will not assist the Revenue, as the agreement is not sharing of the constructed area. In other cases the copy of agreement since has not been submitted before us. If submitted, the terms and conditions of the agreement were not specifically argued before and placed before us, we therefore, in the interest of justice and fair play to both the parties set aside the order of the CIT(A) and restore all other appeals to the file of the AO with the direction that the AO shall look into the agreement entered into by each of the assessees with the landowner and decide whether the assessee has in fact purchased the land for a fixed consideration from the landowner and has developed the housing project at its own cost and risks involved in the project. In case the AO finds that practically the land has been bought by the Developer and Developer has all dominant control over the project and has developed the land at his own cost and risks, the AO should allow the deduction to the assessee u/s. 80IB(10). In case the AO finds that the Developer has acted on behalf of the landowner and has got the fixed IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

- 6 - consideration from the landowner for the development of the housing projects, the assessee should not be allowed deduction u/s. 80IB(10) to the assessee."

8. On the basis of above agreement, the landowners has given possession of the land for development and construction of residential housing scheme as per plan layout approved by the local authority and assesses firm has incurred all the IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

- 7 - expenditure for development and construction of the housing project including the following: i) Architect fees. ii) Development charges to be paid to the regulatory authorities for making availability of electricity connection charges paid to GEB, drainage & water connection facilities charges paid to local authority and also obtaining the permission for commencing the development and construction. iii) All expenses for development of infrastructure such as: a) Common entrance gate with compound wall to the housing scheme b) Internal roads c) Streetlights d) Water lines and connections for supply of water from the common source of the water for the entire housing project e) Providing drainage lines for each individual house in the housing project and its discharge through the common Corporation discharge lines / connections. f) Common plot for accommodating the play area for children, sit out for elders, lawn, etc. iv) The expenses for construction of the houses in the housing scheme under the various heads are also incurred by the appellant. v) The advertisement expenses for promoting and sale of the houses in the scheme. The assessee firm has incurred various charges / development charges paid to local authority / VUDA for obtaining to approvals, drainage and water connection, electricity connection charges paid to GEB, architect fees paid for drafting and designing of plan play out, advertisement expense incurred for publicizing the residential housing scheme and development and construction expenses etc; and same have been debited to profit and loss account on year to year basis.

8. Thereafter, on completion of the various houses / tenements in the housing scheme, the completion certificate is also obtained by the assessee firm and in fact, completion is issued in the name of landowners, ( Darshanam Vatika) indicating that the regulatory authority also recognizes the construction and development as per the approved plan by the assessee firm. Copies of the completion certificate dated 17/1/2008, 21/06/2008, 16/12/2008 & 12/02/2009 (total 6 completion certificate) received from Vadodara Municipal Corporation are enclosed at Annexure - 3.

IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

- 8 - 8. In the sale of the houses in the scheme, the assessee firm has entered and executed Construction agreement and executed the conveyance deed for sale of plot along with construction with the purchaser of that house in the scheme. The various terms of construction agreement indicate the following: a) The construction of tenement / bungalow is to be done in the "Darshanam Villa". b) The purchaser has agreed to purchase the residential unit along with construction of residential house as per the design and the specification approved by the local authority. c) The construction is to be done as per the design and the specification details given in the brochure as well as approved plan layout obtained from the local authority. d) The purchaser i.e. the customer would not be entitled to the possession until complete payment is made to the assessee firm. e) Any extra work other than specified in the brochure is to be reimbursed / paid by the purchaser / customer in advance. From the above discussion and also on perusal of the various documents / approvals, Profit & Loss Accounts, etc. it would be evident that the assessee firm has carried out the activity of development and construction of the housing project as an integrated activity which is the requirement of sec. 80IB(10) as the profit which is eligible for deduction is to be derived from development and building housing projects as per the other conditions specified.

IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

- 9 - (c) Random House Dictionary of the English Language, the following definitions can be found: Develop: a. To bring out the capabilities or possibilities of; bring to a more advanced or effective state. b. To cause to grow or expand. Developer: a. The act or process of developing; progress. b. Synonym: Expansion, elaboration, growth, evolution, unfolding, maturing, maturation, d. Webster Dictionary, the following definitions emerge : a. To realize the potential of; b. To aid in the growth of: strengthen, develop the biceps c. To bring into being: make active (develop a business) d. To convert (a tract of land) for specific purpose, as by building extensively (e) Law Lexicon Dictionary, the following definitions could be seen: Development a. To act, process or result of development or growing or causing to grow; the state of being developed, b. Happening.

- 10 - power of attorney of the respective landowners. It is a fact that the assessee is a 'developer' and not a 'contractor’ as held by the lower authorities. The developer is not working on remuneration for the landowners, but developer is working for himself in order to exploit the potential of its business in his own interest and, therefore, opted for all business risks associated with the business of development of real estate including developing and building of housing projects. As per the provisions of section 2(1)(g) of Regulation of Employment and Conditions of Service Act (27 of 1996), the term 'Contractor' means a person who undertakes to produce a given result for any establishment, other than a mere supply of goods or articles of manufacture, by the employment of building workers or who supplies building workers for any work of the establishment; and includes a sub-contractor." It is thus evident that the activity of the assessee can undoubtedly be held as that of development and construction of the housing project and once it is held that the assessee is deriving profit from such activity, it is immaterial in what manner and how the documents are executed.

12. AH the activities listed as aforementioned is undertaken and executed by the assessee strengthening that the development and construction activity of the housing project as approved by the authorities at their own risk. The profit / surplus of the project are also belonged to the assessee firm.

- 11 - expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefits has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract. The incentive has all along been intended to benefit developers who undertake entrepreneurial and investment risk and not contractors who only undertake business risk. 34.3. Accordingly, it has been clarified by inserting an explanation that the provisions of section 801 A shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work i.e. carries out the civil construction work, he will be eligible for tax benefit under section 80-1 A. In contrast to this, a person, who enters into a contract with another person (including Government or an undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for the tax benefit under section 80-IA. From the reading of the above clarification, it is evident that the intention of insertion of the explanation was to restrict the developer as well as the contractor from claiming deduction in respect of the same project and where the developer and contractor is the same person and where the investment is made by the same assesses including the execution of development work, civil construction etc. would be entitled to the deduction. The restriction is to the person who is not developing the same out of his own funds and merely as a contractor. The assessee submits that similar explanation is found to be existing u/s. 80IB reading as under: [Explanation - For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to any undertaking which execute the housing project as works contract awarded by any person (including the Central or State Government).] The above explanation is inserted with respective effect from 1.4.2001 and the same has been elaborately discussed by the jurisdictional High Court in the case of Radhe Develops vide para 37 and 38, wherein the Hon'ble High Court has held that considering the facts, as existing that case, identical to the facts of the assessee's case, held that the assessee is not a works contractor. Thus, it is submitted that even from this angle, the assessee cannot be held to be contractor.

IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

- 12 - Lastly it is also submitted that the intention of the appellant in the sale of residential house on a consolidated consideration is further supported by the fact that even in the P & L Account the consideration disclosed is towards the sale of the residential houses and not sale of plots / lands or construction contract receipt. The copy of P&L Account for the year under consideration is already submitted. Considering the above submissions, it is thus, submitted that the assessee is fulfilled all the conditions as specified u/s 80IB(10) of the I.T. Act, and therefore, the claim of deduction as made by the assessee firm is to be allowed.

5. The Assessing Officer was not agree with the submission or contention of the assessee and made addition of Rs.3,74,191/-.

6. Against the said order, assessee preferred first statutory appeal before the Ld.CIT(A) who confirmed the action of the Assessing Officer.

- 13 - Coordinate Bench set aside the matter back to the file of Ld.CIT(A) with the following observation:

“1. This appeal, filed by the assessee, is directed against Learned CIT(A)’s order dated 31st August 2015, in the matter of assessment under section 143(3) r.w.s 153C of the Income Tax Act 1961, for the assessment year 2010-11. 2. Grievances raised by the appellant are as follows: 1. The Ld. CIT (A)-12, Ahmedabad has erred in law and in facts in confirming the action of the Ld. A.O. in denying the deduction of Rs.5,38,387/- claimed u/s.80IB(10) on the following grounds: i) The appellant has first time made claim of deduction u/s 80IB(10) in the return of income filed in response to notice u/s 153C and no claim of deduction u/s 80IB(10) was made in the original return of income filed electronically on 30.09.2008 and the requisite report from the auditor in Form No.10CCB was also not filed before the due date prescribed u/s. 80AC r.w.s. 80IB(13) r.w.s. 80LA(7) or even before the time limit allowed for revised return for the year under consideration in response to notice u/s.153C of the IT. Act. ii) The appellant has not fulfilled the condition prescribed u/s.80IB(10) r.w.s. 80AC till the time available for filing return in response to notice u/s.153C The Ld. CIT(A)-12, Ahmedabad ought to have allowed the claim of deduction u/s. 80IB(10) amounting to Rs.5,38,387/- as claimed.

2. The Ld. Commissioner of Income Tax (Appeals)-ll, Baroda has erred in law and in facts in denying the deduction u/s.801B(10) amounting to Rs.4,04,326/- in respect of addition of Rs.4,04,326/- made on account of suppression of receipt of contractor. The addition being contrary to the facts and law is prayed to be deleted or in the alternative even if the same is liable to be taxed, it is to be allowed as deduction u/s. 80IB(10), and hence the deduction in respect thereof may kindly be directed to be granted.”

IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

- 14 - 3. When this appeal was taken up for hearing, it was noticed that the Learned CIT(A) has rejected the section 80IB(10) claim of the assessee on the short ground that it was claimed, for the first time, in return filed in response to notice under section 153C, and that there was no adjudication on the merits. Learned representatives fairly agree that in the light of co-ordinate bench’s decision in the case of Sagar Associates vs. DCIT (ITA No.448-552/Ahd/2013), this claim cannot be rejected merely on the ground that the claim has been made for the first time in 153C proceedings, and that it has to be, therefore, adjudicated on merits.

4. In view of the above discussions, and bearing in mind the fact that there is no adjudication on merits by the Learned CIT(A), we deem it fit and proper to remit the matter to the file of the Learned CIT(A) for adjudication on merits. Ordered, accordingly.

9. On the other hand, Ld.DR has fairly conceded that the matter is squarely covered by the order of the Coordinate Bench as stated above and he has nothing to controvert arguments of the Ld.AR.

IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

(a) In IT(ss) A No.04/Ahd/2016 for AY 2009-10, the assessee has raised the following grounds of appeal: All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other.

1. The Ld. CIT (A)-12, Ahmedabad has erred in law and in facts in confirming the action of the Ld. A.O. in denying the deduction of Rs.22,99,781/- claimed u/s. 80IB(10) on the following grounds: i. The appellant has first time made claim of deduction u/s 80IB(10) in the return of income filed in response to notice us/ 153C and no claim of deduction u/s 80IB(10) was made in the original return of income filed electronically on 30.09.2008 and the requisite report from the auditor in Form No. 10CCB was also not filed before the due date prescribed u/s 80AC r.w.s. 80IB(13) r.w.s. 80LA (7) or even before the time limit allowed for revised return for the year under consideration in response to notice u/s 153C of thel.T. Act. ii. The appellant has not fulfilled the condition prescribed u/s 80IB(10) r.w.s. 80AC till the time available for filing return in response to notice u/s 153C. The Ld. CIT(A)-12, Ahmedabad ought to have allowed the claim of deduction u/s. 80IB(10) amounting to Rs.22,99,782/- as claimed.

2. The Ld. Commissioner of Income Tax (Appeals)-12, Baroda has erred in law and in facts in confirming the disallowance of Rs.11,71,000/- made by the Ld. A.O., out of "cost of right release expense", on cancellation of booking of customers. The recipients are duly assessed to tax, and the amount received from appellant has been duly offered for taxation in their returns of income. The disallowance of Rs.11,71,000/- being erroneous in facts and in law is prayed to be allowed.

IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

- 16 - 3. The Ld. Commissioner of Income Tax (Appeals)-12, Baroda has erred in law and in facts in confirming the addition made u/s. 68 of the Act of an amount of Rs.15,68,000/- being the deposit received at the time ofbooking of flats alleging the impugned transaction as bogus. The addition of Rs.15,68,000/- being erroneous in facts and bad in law is prayed to be deleted.

4. Your appellant craves the liberty to add, alter, amend or delete any or all of the above ground(s) of appeal.

(b) In for AY 2009-10, the assessee has raised the following grounds of appeal: All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other.

1. The Ld. CIT (A)-12, Ahmedabad has erred in law and in facts in confirming the action of the Ld. A.O. in denying the deduction of Rs.38,62,286/-claimed u/s. 80IB(10) on the following grounds: i. The appellant has first time made claim of deduction u/s 80IB(10) in the return of income filed in response to notice us/ 148 and no claim of deduction u/s 80IB(10) was made in the original return of income filed on 21.07.2009 and the requisite report from the auditor in Form No. 10CCB was also not filed before the due date prescribed u/s 80AC r.w.s. 80IB(13) r.w.s. 80LA (7) or even before the time limit allowed for revised return for the year under consideration in response to notice u/s 148 of the IT. Act. ii. The appellant has not fulfilled the condition prescribed u/s 80IB(10) r.w.s. 80AC till the time available for filing return in response to notice u/s 148. The Ld. CIT(A)-12, Ahmedabad ought to have allowed the claim 6f deduction u/s. 80IB(10) amounting to Rs.38,62,286/- as claimed.

2. The Ld. Commissioner of Income Tax (Appeals)-12, Baroda has erred in law and in facts in confirming the disallowance of Rs.6,00,000/- made by the Ld. A.O., out of "cost of right release expense", on cancellation of booking of customers. The recipients are duly assessed to tax, and the amount received from appellant has been duly offered for taxation in their returns of income. The disallowance of Rs.6,00,000/- being erroneous in facts and in law is prayed to be allowed.

IT(ss)A Nos.03 & 04/Ahd/2016 Sagar Corporation vs. DCIT (AYs 2008-09 & 2009-10) & Sagar Projects vs. DCIT (AY 2009-10)

3. The Ld.Commissioner of income Tax (Appeals)-12, Baroda has erred in law and in facts in confirming the addition made u/s.68 of the Act of an amount of Rs.1,54,000/- being the deposit received at the time of booking of flats alleging the impugned transaction as bogus. The addition of Rs.1,54,000/- being erroneous in facts and bad in law is prayed to be deleted.

4. Your appellant craves the liberty to add, alter, amend or delete any or all of the above ground(s) of appeal.

13. Since identical facts and circumstances are involved in these two appeals, therefore, taking a consistent view and in parity with the order of the Coordinate Bench, and with similar directions, these two matters are also remitted back to the file of Ld.CIT(A) to decide afresh on merit as per provisions of law. Thus, both the appeal(s) of the assessees are allowed for statistical purposes.