M/S SWADESH DEVLOPERS AND BUILDERS,BHOPAL vs. ASSISTANT COMMISSIONER OF INCOME TAX (CENTRAL)-2, BHOPAL

Subsequently notice u/s 153A of the Act was served upon the assessee for A.Ys. 2008-09 to 2013-14 and u/s 143(2) of the Act for Swadesh Developers A.Y. 2014-15. In response return of income were filed and the details are mentioned in the following table:

A.Y. Date of filing Returned Date of filing Income Additional of return u/s income (in Rs.) of return by declared in income 139(1) the assessee Return u/s offered by against 153A(in Rs.) the notice u/s assessee(in 153A Rs.) 2008-09 26.09.2008 NIL 30.11.2015 NIL NIL 2009-10 29.09.2009 NIL 30.11.2015 NIL NIL 2010-11 14.10.2010 NIL 30.11.2015 NIL NIL 2011-12 29.09.2011 1,44,81,040/- 30.11.2015 1,44,81,040/- NIL 2012-13 30.09.2012 NIL 30.11.2015 NIL NIL 2013-14 01.10.2013 70,72,070/- 30.11.2015 70,72,070/- NIL 2014-15 30.11.2014 38520/- 30.11.2015 NIL NIL

Swadesh Developers no incriminating material were found during the course of search no addition was thus called for non-abated assessment year i.e. A.Y. 2008-09 to 2012-13 and for A.Y. 2013-14, common legal grounds raised by the assessee is reproduced below:

The appellant Assessee wishes to raise the following grounds in appeal before the Hon'ble ITAT:

1. That the search was carried out under a mistaken belief that the assessee IS an associate of the Signature Group, as alleged in the Impugned Assessment Order. No evidence of such association was found as a result of the search operations nor any documentary or other evidence is placed on record by the Learned Assessing Officer. The grounds essential to warrant the issue of notice vx ] s 153A did not exist in the case of the assessee; the search is therefore vitiated and the Impugned Assessment Order deserves to be quashed on this ground alone. Thus in the facts and circumstances of the case the Commissioner of Income Tax (Appeals) was not justified in holding the search as justified.

2. That the Impugned Assessment Order passed by the Learned Assessing Officer is void ab initio as no incriminating documents, whatsoever, were recovered from the assessee as a result of the search. The Impugned Assessment Order deserves to be quashed on this ground. It was incumbent on the Commissioner of Income Tax (Appeals) to examine the assessment record s to verify the truth in the statement made by the Appellant Assessee. In view of the fact that there was no addition which can be attributed to the so called seized documents the Commissioner of Income Tax (Appeals) is not justified in holding that there were incriminating documents were found in search and which were duly handed over to the Appellant assessee and additions made on that basis.

8. At the outset, Ld. counsel for the assessee requested for not pressing this legal ground for A.Y. 2014-15. For remaining years Ld. counsel for the assessee submitted that no incriminating material has been found during the course of search with regard to the alleged additions. Ld. AO has also not referred to any incriminating 5

Swadesh Developers material before denying deduction u/s 80IB(10) of the Act. Returns of income were regularly filed. Assessment for A.Y. 2009-10 & 2010- 11 were already concluded u/s 143(3) of the Act order dated 20th December 2011 and 28th March 2013. As regards the assessment years 2008-09, 2011-12 & 2012-13 the time limit for selecting the case for scrutiny provided u/s 143(2) of the Act already stood expired before the date of initiating the search which makes the assessment year 2008-09 to 2012-13 as non-abated/completed assessment. For A.Y. 2013-14, the addition was not based on any incriminating material and all documentary evidences in support of the correctness of claim u/s 80IB(10) of the Act stood filed. In this connection Ld. counsel for the assessee drew our attention to the following decisions: a. CIT vs. Kabul Chawla 281 CTR 85 (Delhi) b. PCIT vs. Meeta Gutgutia 395 ITR 296 (Delhi) c. PCIT vs. Soumya Construction 387 ITR 529 (Guj.) d. CIT vs. Deepak Agrawal 251 Taxmann Pg.22 (Bom.) e. PCIT vs. Lata Jain 384 ITR 543 (Del.) f. Sainath Colonizer vs. ACIT (ITANo.289 to 291/Ind/2017 dated 28.02.2019. 9. Further Ld. counsel for the assessee submitted that the Hon’ble Indore Tribunal in the case of Shri Omprakash Gupta vs. ACIT in IT(SS) No.277 to 281 A.Y. 2005-06 to 2012-13 held that in Swadesh Developers absence of any incriminating documents found and seized during the course of search the A.O. is not justified in making the additions in not abated assessment in the order passed u/s 153A. (The copy of the order is attached herewith). Similar view was taken in the case of Anant Steel reported in 28 ITJ 47. Very recently the Hon’ble Indore Tribunal in the case of ACIT(1) vs. Sudeep Maheshwari in vide order dated 13.02.2019 held in para 6 that during the course of the search and seizure no incriminating material or undisclosed income or investments were found. Under the mental pressure the assessee declared 3 crores but retracted from the admission. It is a settled position of law that the addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating contents of the statements. The A.O. failed to correlate the disclosure made in the statement with the incriminating material gathered during the search. Therefore, no addition can be made on this account. In view of the above it is humbly prayed that the disallowance made for the claim u/s 80-IB is bad in law and hence the same may please be allowed.

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10. Per contra Ld. DR vehemently argued supporting the orders of both lower authorities.

11. We have heard the rival submissions, perused the materials available before us and carefully gone through the decisions referred and relied by the Ld. Counsel for the assessee. Through this legal ground assessee has challenged the finding of Ld. CIT(A) confirming the addition and denying the deduction u/s 80IB(10) of the Act on the ground that no incriminating material was found during the course of search and additions were purely made on the basis of information called during the course of assessment proceedings.

12. We note that the search was conducted at the assessee business premises on 29.01.2014. The assessee has been filing regular return income u/s 139(1) of the Act. Before the date of search return of income for A.Y. 2008-09 to 2013-14 already stood filed. Time limit for issuance of notice u/s 143(2) of the Act for selection of the case of the assessee for scrutiny proceedings for A.Ys. 2008-09 to 2012- 13 stood expired as on the date of search.

13. Now for A.Ys. 2008-09 to 2012-13 it is an established fact that no incriminating material was found during the course of search. No Swadesh Developers such reference has been made by the ld. AO in the assessment order. Under these given facts whether the addition/disallowances/denying of claim of deduction u/s 80IB(10) of the Act by the ld. AO was justified or not needs to be examined in the light of settled judicial precedents.

14. Ld. counsel for the assessee has referred to one of the decision of this Tribunal in the case of Omprakash Gupta (supra) wherein also similar type of issue came up for adjudication before this tribunal.

After discussing the settled judicial precedents, thus tribunal hold that the additions for non-abated/completed assessment can be made only on the basis of any incriminating material found during the course of search and the additions so made should have a nexus with such material. The relevant finding of this tribunal in case of Omprakash Gupta(supra) considering settled judicial precedents is reproduced below:

asked the assessee to file returns of income for all the assessment years by issue of notice u/s 153A of the Act on 12.9.2014. In response to that, assessee has filed returns of income for A.Yrs. 2008-09 to 2013-14 on 7.11.2014. The case of the assessee is that the return for A.Y. 2012-13 was filed on 7.11.2012. As per section 143(2) of the Act, the last date on which notice for assessment would have been issued was 30.9.2013. All the other returns are filed on earliest date and the time limit for issue of notice u/s 143(2) of the Act in all those cases has expired. The search was initiated in the business premises of the assessee on 29.1.2014 and therefore the time limit for issue of notice u/s 143(2) of the Act is lapsed. All the assessment years from 2008-09 to 2012-13 are concluded and non abated assessments. The A.O. cannot reopen the assessments u/s 153A of the Act. In so far as the above submission is concerned from the assessment order and even from the Ld. CIT(A)'s order, there is nothing on the record which says that the additions made by the A.O. are based on any incriminating material. Even when the same was pointed out to Ld. D.R., she is not able to establish the fact that additions are based on any incriminating material, therefore we find that the additions made by the A.O. for all the years are not based on any incriminating material found during the course of search. It is only based on subsequent search by issue of notice u/s 153A of the Act calling for the various documents from the assessee additions are made. In so far as the arguments of the Ld. Counsel for the assessee in respect of concluded assessments cannot be reopened, we find that in all the assessment years from 2008-09 to 2012-13, there is no scope for the A.O to issue a notice u/s 143(2) of the Act for the reason that the time limit is already over before the date of search itself i.e. on 29.1.2014. Therefore, in our opinion, all the assessment years from 2008-09 to 2012-13 are concluded assessments and non abated assessments and any addition has to be made in respect of those assessment years, there must be an incriminating material. In the present case, there is no incriminating material and therefore, the additions made by the A.O. cannot survive.

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Swadesh Developers ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such A Ys will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant A Y in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the .assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an ssessment has to be made under this Section only on the basis of seIZed material." v.In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each A Yon the basis of the findings of the search and any other material existing or brought on the record of the AO.

15. The Hon'ble Delhi High Court in the case of PCIT Vs. Meeta Gutgutia 395 ITR 296 (Delhi) has held that it was only if during the course of the search u/s 132 of the Act incriminating material justifying the reopening of the assessment years for 6 previous years was found that invocation of section 153A of the Act qua each of the assessment year would justify.

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17. In the case of PCIT Vs. Lata Jain 384 ITR 543 (Del) (supra), the Hon'ble Delhi High Court has held that the Tribunal was right in holding that there had to be incriminating material recovered during the course of search qua the assessee in each year for the purpose of framing an assessment u/s 153A of the Act. 18. From the above all the decisions, it is very clear that the A.O. to make an addition u/s 153A of the Act and there must be incriminating material available to the A.O. during the course of the search. Unless there is an incriminating material, the concluded/non abated assessments cannot be disturbed again u/s 153A of the Act. 19. In so far as Kerala High Court decision in the case of E.N. Gopakumar (supra) the Hon'ble Kerala High Court has held that even without there being any incriminating material, the A.O. is empowered to make an addition u/s 153A of the Act. The same view has been expressed by the Hon'ble Karnataka High Court in the case of Canara Housing Development Company (supra). 20. In the above circumstances, whether the decision of the Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products (supra) has to be applied or not. The Ld. D.R. has submitted that the decision held in CIT Vs. Vegetable Products (supra) cannot be applied in each and every case in the light of the decision of CCV Dilip Kumar (supra). In the present case, the assessee has filed all the returns before conducting the search and the time limit to issue notice u/s 143(2) of the Act already lapsed and a search is conducted and no incriminating material is found. The A.O. called for books of accounts and other relevant documents and assessment is completed u/s 153A r.w.s. 143(3) of the Act.

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291/Ind/2017 dated 28.2.2019 has considered the similar issue and has held that if there is no incriminating material found during the course of search and the time limit for issue of notice u/s 143(2) of the Act expires, no addition can be made u/s 153A of the Act. For the sake of convenience relevant portion of the order is extracted hereunder:

8. We observe that the assessee has filed regular return of income u/s 139 of the Act for Assessment Year 2008-09 to 2010-11 on 30.9.08, 31.3.2010 and 12.10.2010 after claiming deduction u/s 80IB(10) at Rs.8,92,452/-, Rs.2,66,948/- and Rs.2,44,417/- respectively. The time limit for issuance of notices u/s 143(2) of the Act stood expired in relation to the assessment year 2008-09 to 2010-11 much before the date of conducting the search i.e. 29.1.2014 and therefore these three assessment years falls under the category of unabated/non abated assessments. Now in the given facts Ld. Counsel for the assessee has relied few judgments and Ld. Departmental Representative has relied to few judgments in its favour. However, the Hon'ble Apex Court in the case of CIT V/s Vegetable Products Ltd 88 ITR 192 has held that if two reasonable construction of a taxing provisions are possible, then that construction which favours the assessee must be adopted". In the light of above judgment of Hon'ble Apex Court we have gone through the judgments referred and relied by both the parties and are inclined to follow the view taken by Hon'ble courts on the issue in question before us favouring the assessee.

9. The Hon'ble High Court of Gujarat in the case of PCIT Vs. Desai Construction (supra) confirmed the view taken by the Tribunal upholding the contention of the assessee that as no incriminating material was found during the course of search which could have enabled the Assessing Officer to re-examine its claim for deduction u/s 80IB which was part of the assessment prior to the search and such assessment unabated. Similarly Hon'ble High Court of Bombay in the case of Continental Warehousing Corporation and All Cargo Global Logistics Ltd (Supra) confirmed the view taken by the Special Bench of I.T.A.T. Mumbai Bench decided in favour of assessee dismissing the revenue's appeal holding that there was no incriminating material found during the course of search, the Tribunal was right in holding the power conferred u/s 153A being not expected to be exercised routinely, should be exercised if the search revealed any incriminating material. If that was not found then in relation to the second phase of three years, there was no warrant for making an order within the meaning of this provision".

11. We therefore in the given facts and circumstances of the case and respectfully following the judgments referred and relied by the Ld. Counsel

Swadesh Developers for the assessee are of the considered view that no addition/disallowance was called for Assessment Year 2008-09 to 2010-11 as no incriminating material was found during the course of search at the premises of the assessee as the time limit of issuance of notice u/s 143(2) of the Act stood expired much before the date of conducting search u/s 132 of the Act. Accordingly all the three appeals of the assessee are allowed."

24. In so far as the arguments of the Ld. D.R. in respect of following the ratio of the Hon'ble Supreme Court in the case of Vegetable Products (supra), the Ld. D.R. by relying on the decision in the case of CCV Dilip Kumar (supra) has submitted that the ratio laid down in the case of Vegetable Products (supra) cannot be applied. We find that in the case of CCV Dilip Kumar (supra) has considered the exemption provisions and held that exemption provisions has to be considered strictly and in a case of ambiguity view which favours the revenue must be adopted. Therefore, the above decision relied by the Ld. D.R. has no application to the ratio laid down by the Hon'ble Supreme Court in the case of Vegetable Products (supra). Therefore, argument of the Ld. D.R. is rejected.

Swadesh Developers the addition made for A.Y. 2008-09 to A.Y. 2012-13 are deleted and deduction u/s 80IB(10) of the Act claimed by the assessee is accepted. We, thus, set aside the finding of ld. CIT(A) and allow this common legal ground raised by the assessee for A.Ys. 2008-09 to 20120-13. However for A.Y. 2013-14 assessee fails to succeed on this legal ground as time limit for issuance of notice u/s 143(2) of the Act has not expired as on the date of search. As far as legal ground raised for A.Y. 2014-15 is concerned, the same is dismissed as not pressed.

16. Now we take up grounds raised on merit commonly challenging the finding of Ld. CIT(A) confirming the action of the Ld. AO of treating the assessee as a contractor and denying the benefit of deduction u/s 80IB(10) of the Act allowable to developer, which has been claimed by the assessee during A.Y. 2008-09 to 2014-15.

Ground No.3 of assessees appeals is reproduced below:

That the Commissioner of Income Tax (Appeals) was not justified in holding the disallowance of deduction rightfully claimed and supported by all documentary evidence necessary u/s 80IB(10) of the Income Tax Act, 1961 for the various assessment years.

Swadesh Developers Tehsil Huzur Kolar Road, Bhopal. This housing project is developed on 7.75 acres land. The permission for construction was granted on 11.11.2006 by Gram Panchayat, Damkheda Block Fanda, Bhopal.

Completion of certificate was given by Chief Municipal Officer, Bhopal on 22.03.2012. Deduction u/s 80IB of the Act was claimed for the following amount:

Sr. No. A.Y. Deduction claimed u/s 80IB 1 2008-09 Rs.3,58,65,456/- 2 2009-10 Rs.2,53,19,824/- 3 2010-11 Rs.3,34,67,691/- 4 2011-12 Rs.1,15,75,564/- 5 2012-13 Rs.3,95,46,668/- 6 2013-14 Rs.2,90,94,057/- 7 2014-15 Rs.8,00,000/-

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The Ld. AO at page 13 has disallowed the claim of the assessee on a short ground that the assessee has sold the open plot and handed over the possession . The assessee has received the remaining amount from the customer on account of construction of the bunglow, as such the assessee has not sold the bunglow and simply acted as a contractor. It is submitted that the assessee is a developer and is a registered owner of the land on which the project has come up. The assessee holds the Colonisers license and the project is approved by the appropriate authority. The assessee has developed the group housing project. The assessee has entered into the agreement for the sale of the developed premises. However for the sake of convenience of the buyers to get the loan facilities the assessee agrees to sale the plots keeping the possession with him for the constructions of the houses. ( Pg. 102 of PB) Clause 13 of the said agreement clearly provides that the assessee would do all the acts to get the property registered in the name and in the state as requested by the said party. However, the builder shall continue to have the possession of the property till the completion of the agreement. Under these circumstances the builder is a developer and not a contractor. The Hon’ble Indore Bench in the case of Vardhaman Builders and Developers vs. ITO in vide order dated 09.05.2012 has held in favour of the assessee on the similar facts. This Hon’ble Tribunal in the case of the assessee in ITA 17/IND/2017 for the A.Y 2009- 10 vide order dated 26.09.2018 has allowed the claim of the assessee on the similar facts. In view of the above submission it is humbly prayed that the deduction claimed by the assessee may please be allowed.

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21. Reliance was placed on following decisions including the decisions of the this Tribunal in assessee’s own case for A.Y. 2009- 10 vide ITANo.17/Ind/2017 dated 26.09.2018.

Sr. Particulars Relevant No. para I ON THE ISSUE OF SECTION 80lB (10) EXPLANATION "WORKS CONTRACT" 1 Assistant Commissioner of Income Tax(Central)- Para 6 & 7 Bhopal v MIs Swadesh Developers & Builders, Bhopal OTAT -INDORE) 2 Principal Commissioner of Income Tax v Green Para 2 Associates (2018) 105 Taxman 80 (SC) 3 Principal Commissioner of Income Tax v Green Para 4 Associates [2019]105 Taxmann.com 79 (Guj.) 4 Green Associates v Income Tax Officer, Baroda (IT Para 7 &8 AT AHMEDABAD) 5 Commissioner of Income Tax v. Radhe Developers Para 28 to 45 (2012) 17 Taxman 156(Guj) 6 M/s Nagma Developers v. ITO Baroda (I.T.A.T. Para 4 to 8 Ahmedabad) 7 M/s Narayan Realty Ltd. V. DCIT, Baroda (I.T.A.T., Para 8 to 9 Ahmedabad) 8 M/s Vardhman Builders & Developers v. Income Tax Para 2 Officer 1(1), Bhopal(I.T.A.T., Indore) 9 DCIT, Hyderabad v. SMR Builders (P. Ltd. (2012) 24 Para 31 to 33 Taxman 194 (Hyderabad) II On issue of abated assessment on date of search 10 Omprakash Gupta v. ACIT, Bhopal (I.T.A.T.-Indore) Para 10 to 24 12 Sainath Colonisers v. ACIT, Bhopal (I.T.A.T.-Indore) Para 8 to 11

22. Per contra Ld. DR apart from relying on the finding of both Lower authorities also submitted that the assessee is merely a contractor not a developer as it sold the vacant land and thereafter

Swadesh Developers constructed the houses and thus did not complied to the provision of section 80IB(10) of the Act.

Aassessee entered into the agreement for the sale of developed 21

Swadesh Developers premises. It was also contended that for the sake of convenience the buyers and in order to facilitate them to take housing loan the assessee agreed to sale the plots without giving the possession and after the construction of house used to hand over the possession.

This submission by the Ld. counsel for the assessee has sufficient weightage as this condition is already provided in clause 13 of the agreement entered into between assesse and buyers placed at page 102 of paper book. We also observe that in the allotment cum acceptance letter consideration is towards the complete bunglow and there is no bifurcation of the cost towards land and cost of construction. Thus there remains no dispute to the fact that after the completion of construction possession of the residential house is given to the buyers/colonizers.

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We have heard the rival submission and perused the material on record. We find that in the present case the assesse was denied deduction u/s 80IB(10) by Ld. CIT(A) for the reason that assessee had not sold residential houses in the house project but had sold developed residential plots with construction up to the plinth only and thus the assessee could not be considered as developer of housing project but was a contractor and therefore assessee was not eligible for deduction u/s 80IB(10) of the Act. we find that on similar facts, in the case of Narayan Reality Ltd. (supra) the issue was decided in favor of the assessee by holding as under:

Sr. Decision in the case of Reported in… No. 1. DCIT vs. SMR Builders P.)Ltd. (2012)24 Taxman.com 194(Hyd.) 2 Sky Builders & Developers vs. (2011) 14 Taxman.com ITO 78(Indore) 3 M/s. Vardhman Builders and Income-tax Act, 1961. Developers vs. ITO No.559/Ind/2010 dated 09.05.2012 4 Raghava Estates Vs. Dy.CIT Income-tax Act, 1961. Nos. 248 & 49/Vizag/2009 dated 04.08.2011

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4.2. In addition to above two objections, the Id.CIT (A) has raised one more objection that the assessee has sold the land to the Unit holders separately and has done the construction of units under separate agreement/contract and, therefore, the assessee is not eligible for deduction u/s.80-IB(10) of the Act because as per ld.CIT(A), profit earned by the assessee in respect of sale of land is not eligible for deduction u/s.80-IB(10) of the Act and similarly, the profit earned by the assessee for construction activities is not eligible for deduction u/s.80-IB(10) because the assessee is doing the construction as a contractor for a work and not as a builder or developer and, therefore, the assessee is not eligible for deduction u/s.80-IB(10) of the Act. Against these objections of ld.CIT (A), the assessee is in appeal before us.

5.2 Regarding the 3r objection that the assesse has sold land to the unit holders separately and has done the construction units under a project agreement/contract, it was submitted that it is a joint activity although the agreement and land sale-deed are executed separately, but for this reason alone, it cannot be said that the assessee is not a builder or a developer. He placed reliance on the following Tribunal decisions:-

5.2. He submitted that in the case of Vardhman Builders & Developers (supra) also, the assessee had entered into a separate agreement for sale of land and separate agreement for construction of housing on such land and under these facts, it was held by the Tribunal in that case that merely because of two separate agreements, the claim of the assessee for deduction u/s.80-IB (10) of the Act cannot be declined if other conditions are being satisfied.

5.3. He further submitted that in the case of DCIT vs. SMR Builders (P) Ltd. (supra) also, the facts were that the assessee had sold flats in a semi- finished stage. In that case, the AO had noted that as per the sale-deed, the assessee-company has sold undivided share of land with super- structure of semi- finished built-up area for a certain consideration. The AO held that the semi-finished structure has never been considered as a residential unit. It was also noted by the AO in that case that on the same date when the sale deed was executed, a construction agreement was also entered into with the transferee for further construction of the same flats by the builder company itself. He submitted that the facts in the present case are similar. He also pointed out that in that case, it was held by the Tribunal that the stand of the Revenue with regard to the semifinished condition of the flats is devoid of any merit in as much as what is sought to be constructed and sold by the assessee is a residential units and what is sought to be purchased by the buyer is the ownership of the specified unit and registration of flat in semi-finished condition is only to facilitate the convenience of the parties and agreement for development and completion

Swadesh Developers of balance work in relation to the flats is only an incidental formality and this cannot be viewed as fatal to the claim of the assessee for deduction u/s.80-IB(10) of the Act. It was also held by the Tribunal that the entire work from the stage of the commencement to the stage of making the residential unit habitable have been carried out by the assessee only and, therefore, assessee is eligible for deduction u/s.80-IB(l 0) of the Act. 9.2. Now we take up the third and last objection of Id.CIT (A) that the assesse had sold the land separately and undertook the construction work as per a separate agreement and, therefore the assessee is not a builder or a developer but a land dealer and contractor. In this regard, in our considered opinion, the issue involved is squarely covered in favour of assessee by the decision of ITAT Indore Bench rendered in the case of M/s.Vardhman Builders and Developers vs. ITO (supra). It is noted by the Tribunal in that case that the assessee had entered into an agreement for a sale of land and a separate agreement for construction of the house on the land and, therefore, the facts are similar. Under these facts, it was held by the Tribunal in that case that the claim of the assessee for deduction u/s.80-IB (10) of the Act cannot be declined if other conditions are being satisfied. Similarly, in the case of DCIT vs. SMR Builders (P.) Ltd. (supra) also, the assessee sold the land along with semi-finished structure to the buyers and as per separate agreement, agreed for construction for completion of balance work. Hence, the facts of this case are also similar because in that case also, the land was sold separately along with partial and unfinished construction of flats and, thereafter, construction agreement was entered into to carry out the balance construction work and under these facts, it was held by the Tribunal in that case that such agreement for construction to complete the balance work is only an incidental facilitation to protect interest of the parties and therefore, the assessee is eligible for deduction u/s.80-IB(10) of the Act. Similarly, in the case of Raghava Estates vs. Dy.CIT (supra) on which reliance was placed by the Id.AR of the assessee, the facts are similar. In that case also, the assessee had sold the plots separately and thereafter, constructed the houses and under these facts, the Revenue held that the assessee has to be considered as a mere contractor and, therefore, the assessee is not eligible for deduction u/s.80- IB (10) of the Act. This goes to show that the facts in that case were identical. In that case, it was noted by the Tribunal that the assessee had chosen to register the plot in the name of the buyer on payment of specified amount in order to achieve cost saving and to ensure reliability and thereafter, the assessee had proceeded to construct the house as per building plan obtained in the name of the plot-owners on payment of subsequent installments. It is also noted that the assessee had also developed various public amenities within the project. Thereafter, it was held by the Tribunal that on a totality of a fact, the Tribunal is of the view that the assessee has undertaken developing and building housing projects as per the scheme provided in section 80-IB (10) of the Act.

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9.3. Since the facts in the present case are similar to the facts in above noted three Tribunal decisions, we do not find any defect in the construction in the present case and hence respectfully following these decisions, we decide the issue in favour of the assessee. There is no other objection of the ld. CIT(A) 2095/A/2013 . A.Ys. 2008-09, 2009-10 & 2010- 2011 regarding allowability of deduction to the assessee u/s. 80IB(10) of the Act. Hence, we direct the A.O to grant the deduction to the assessee u/s. 80IB(10) of the Act.

Swadesh Developers considering the facts and settled judicial precedents this tribunal confirmed the finding of Ld. CIT(A) and decided against revenue observing as follows:

6. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The A.O. rejected claim of deduction u/s 80(IB)10 of the Act on the ground that there was discrepancy in the form No.10CCB, wherein as per para-29 of the form, the profit of the assessee from the eligible business was stated at Rs.3,81,46,910/-, whereas the declared net profit as per audited profit & loss account was Rs.2,53,19,825/-. Similarly, in para No.30, the eligible deduction u/s 80IB(10) of the Act is stated at Rs.3,81,46,910/-, whereas the assessee has claimed deduction u/s 80IB(10) of the Act at Rs.2,53,19,825/-. It is further observed by the A.O. that in respect to the question of completion, the assessee submitted that the project of developing and building housing project is still in process and hence completion certificate is not produced. The A.O. observed that one of the conditions prescribed for allowance of deduction u/s 80IB of the Act is that where a housing project has been approved by the local authority on or after first date of April, 2005, the completion should be within 5 years from the end of the financial year in which the housing project is approved by the local authority. The section defines the date of completion as the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by local authority. Further, A.O. observed that as per the assessee’s reply, it is clear that no such certificate has been issued, therefore, the assessee is not eligible for deduction u/s 80IB(10) of the Act. Further, the A.O. observed that assessee had got the plot registered in name of the customers and there after constructed the house their own, that itself makes it clear that the assessee has acted as mere contractor for the customers and not as a developer of the housing project. Thus, the A.O. rejected the claim on these grounds. However, the Ld. CIT(A) allowed the claim by observing as under: “Ground No.2:- Through this ground of appeal the appellant has challenged the disallowance of Rs.2,53,19,8252/- on account of rejection of claim u/s 80IB(10). The A.O. disallowed the claim of the appellant on the ground that the audit report in Form No.10CCB, dated 15.9.2009 mentions the profit from the eligible business at Rs.3,81,46,910/-, whereas the appellant declared the net profit as per audited profit and loss account at Rs.2,53,19,825/-. The A.O. also mentioned that the appellant has not furnished the completion certificate. The A.O. also mentioned that the Swadesh Developers

appellant worked as a mere contractor rather than developer of the housing project.

4.2.1 The appellant submitted that as per audit report in the Form No.10CCB the deductible profit was at Rs.3,81,46,910/- due to typographical error. The appellant has obtained a certificate in this behalf from the Auditor. There can be typographical error in the certificate, but the same cannot be made the basis of disallowance. The appellant has clarified this issue during the course of Assessment proceedings. 4.2.2 The appellant got the building permission on 11.11.2006. The project was required to be completed within a period of 5 years from the end of the Financial year in which the permission was granted. The project was required to be completed by 31.3.2012. The project under consideration has been completed on 22.3.2012 and the appellant obtained the certificate in time on 22.3.2012. 4.2.3 The appellant acted as a developer holding a coloniser’s license in his own name. He obtained all the development, building and other permissions from the concern Departments and Agencies for construction under Group Housing Scheme. The rules provided for minimum open space for the gardens, community services, roads water supply, electricity transformers/sub-stations, provision for the economically weaker section etc. Such provisions are applicable to housing projects and not to individual houses. The approving authority approved the project as a whole and issued the completion certificate. 4.2.4 The appellant is the owner of the project land. There is a comprehensive ‘agreement’ with the buyer of the house, wherein each and every detail is mentioned as to the ownership of land, the details of the common amenities to be provided, the built up area of the house, the type of electrical and sanitory fittings to be provided, the total cost of the house and the construction stage wise payment schedule and the probable time period with in which the possession shall be handed over. The projects are advertised and such in the media and by way of pamphlets and hoarding in the town and exhibitions etc. The copies of the various agreements, sale deeds emphasize the fact that the subject matter of sale is a complete residential unit and not an open plot or an incomplete structure. The said ‘main agreement’ which is the document that governs the sale contains a clause whereby the customer has an option to get the sale deed executed in his favour while the construction is in progress. 4.2.5 the agreements go to prove that the appellant has in fact acted as a developer and not as a contractor. Most of the houses sold are financed by one bank or the other. As an essential condition of finance, the banks need the equitable mortgage of the house before the release of the loan amount. Therefore, for the mutual convenience of the seller and the buyer a sale deed is executed in respect of the plot with the construction thereon, in the state it is at that time: without which the bank would not entertain the loan

Swadesh Developers proposal. Thereafter, the bank releases the instalments and each time it does so, it obtains a certificate from its architect as to the stage of construction. Hence the sale deed executed during the course of construction is only to facilitate the sanctioning of loan as mandatory condition of the Banks. 4.2.6 It may also be obser5ved that the loan amounts are released by the bank to the Developer/builder directly on the basis of the Agreement/ Acceptance letter and submission of sale deed and not to the customer; however, if the case was that of sale and subsequent construction by the appellant for an on behalf of the customer, as contended by the Assessing Officer the loan would have been disbursed to the individual customer and not to the builder. It was never the intention of the Appellant Assessee to sell the developed plot. Doing so would be against the permissions granted by approving Authority. The Assessing Officer ought to have read the ‘main agreement’, the development permission, the building permission, the sale deed and the Possession letter all in chronology of the events and not the sale deed alone in isolation. 4.2.7 Further, it would be important to point out that the appellant has only been engaged into construction of row houses where each house has a common wall with the other house, during the period under assessment. Therefore, there is no question of sale of open plots in between a row of houses. The same is evident from the building permissions on record. The plots A-104, A- 113, B-117 mentioned by the Assessing Officer in para 7 are in fact row houses which are referred to by their plot numbers. Meaning thereby, that even in a dire situation if one wants to buy a plot it cannot be sold as such under the approval obtained from the Department. It would be a violation of the building permission at the same time. Registration of such plots is not permitted by the Sub-registrar of Properties when the permission is granted for the construction of row houses. The Completion Certificate has been granted for the Project as whole and not for individual houses. The same stands testimony to the fact that the appellant has constructed all the houses as a single project and not as a contractor. It may also be seen that the developer/builder has handed over the colony as a whole to the Municipal Corporation and not individual houses at different points of time. 4.2.8 The Assessing Officer has not brought on record even a single instance where the house has been later constructed by the customer himself or by a different contractor or is still lying unconstructed. Each and every house has been built by the appellant alone. This being the case it only means that the appellant is the developer and builder of the project as a whole and not a contractor for individual customer. The possession letters and the sale deeds have been examined by the concerned Sub-Registrar of Properties of Bhopal and the Registries have taken place accordingly, no deficiencies, whatsoever, have been pointed out by them ever since the project has been started. In the light of the above facts on record it is clear

Swadesh Developers that the case cited by the Assessing Officer (Sky Builders & Developers Vs. ITO Bhopal 2011 14 Taxmann.com 78) is not applicable to the issue at hand as the facts and circumstances of the ctwo cases are entirely different. The sky Builders’ case has been decided on the issue of non- granting of completion certificate with in the financial year which is not the case of the appellant. Furthermore, the same bench of ITAT Indore has come out clearly on the identical issue in favour of the assessee in the case of M/s. Vardhman Builders and Developers Vs. ITO in dated 9.5.2012. 4.2.9 The following cases wherein the Honble ITAT’s have opined in favour of the appellant in identical issues referred to them: a) Green Associates Vs. ITO Wd.5(2), Baroda: ITA No.822/AHD/2013. b) Satsang Developers ITA No.1011, 2498 and 1221 of 2012 order dated 12.11.2013. c) DCIT SMR Builders (P) Ltd (2012) 24 Taxmann.com 194 (Hyd) d) ITO Vs. Meghal Developers ITA No.296/Ahd/2013 e) M/s. Nagma Developers, Baroda Vs. ITO Wd 2(5) Baroda ITA No.2385/Ahd/2012 f) Narayan Realty Vs. DCIT in ITA No.2293/Ahd/2012 and 2095/Ahd/2013 vide order dated 2.5.2014 Thus, it is proved beyond doubt that the appellant has acted as a builder and developer and not a contractor of the customer, and the view has been upheld by all the Courts including the ITAT Indore. The appellant has carried only the eligible business during the year under consideration. The Assessing Officer has considered only the consolidated Profit and Loss account. There is some sale relating to the previously completed project and some expenses. However, the appellant has in fact prepared separate profit and loss account for the eligible business. Therefore, the appellant is eligible for deduction u/s 80IB(10) of the I.T. Act. Therefore, the disallowance made by the A.O. amounting to Rs.2,53,19,825/- is Deleted. The appeal on this ground is Allowed.”

7. The above finding of fact by the Ld. CIT(A) is not rebutted by the revenue by furnishing any adverse materials on record. From the finding of the Ld. CIT(A), it is found that the objections of the assessing officer has been met by the assessee as the assessee has produced a certificate from the Chartered Accountant stating the discrepancy as typographical error and also by furnishing completion certificate issued by the local authority. Further, as per the CBDT instruction No.4 of 2009 dated 30.6.2009, the assessee can claim deduction on a year to year basis. We therefore, do not see any infirmity in the order of the Ld. CIT(A) and the ground of the revenue’s appeal is rejected.

8. Part of the ground No.1 is against deleting the addition of Rs.16,74,394/- on account of bogus creditors. Ld. D.R. supported the order of the assessing officer and submitted that Ld. CIT(A) was not justified in deleting the addition. Ld. D.R. submitted that the notices sent to these creditors were Swadesh Developers returned unserved, therefore, the A.O. was justified in making the addition. Ld. Counsel for the assessee supported the order of the Ld. CIT(A) and submitted that the assessing officer failed to appreciate the facts that all these were suppliers and the assessee has been purchasing material from them. The Ld. CIT(A) has deleted this addition by observing as under: “The above creditors are old suppliers in the business of the appellant. All the three parties are filing their Income Tax Returns. The appellant is frequently making purchases from the above parties. The A.O. has not disallowed the expenses claimed by the appellant as a result of transaction with the above parties. The appellant furnished the ledger account, copy of bills and bank statement which proves that the payment has been made through account payee cheque. The A.O. is not justified in treating the above creditors as bogus. Therefore, the addition made by the A.O. amounting to Rs.16,74,394/- is deleted. The appeal on these grounds is allowed.”

9. We do not see any reason to interfere in this finding of the Ld. CIT(A) as the findings are based upon the evidences furnished by the assessee. Moreover, the assessee has filed affidavits of the creditors, their bank account and also the supporting bills. This ground of the revenue’s appeal is dismissed.

Swadesh Developers 10, and in absence of any contrary binding decisions placed before us by the Revenue, are of the considered view that the assessee has rightly claimed deduction u/s 80IB(10) of the Act for A.Y. 2008-09 to 2014-15 and the same needs to be allowed as claimed in the return of income. Thus the finding of Ld. CIT(A) is set aside and grounds raised on merit pertaining to claim of deduction u/s 80IB(10) of the Act for A.Y. 2008-09 to 2014-15 are allowed.

4. That in the facts and circumstances of the case the Commissioner of Income Tax (Appeals) was not justified in upholding the treatment of long term capital gain on sale of land as business income of the assessee and thereby making an addition of Rs.38,13,370/- to the assessed income for the Assessment year 2011-12.

Swadesh Developers

Finding of Ld. CIT(A) is set aside and ground no.4 for A.Y. 2010-11 is allowed.

Swadesh Developers

1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.3,34,67,692/- made by Assessing Officer on account of disallowance of deduction u/s 80IB(10) of the Income Tax Act, 1961.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.25,40,000/- made by Assessing Officer on account of profit from sale of unsold units. 3. The appellant reserves his right to add, amend or alter the grounds of appeal

on or before the date, the appeal is finally heard for disposal.

37. As regards ground no.1 revenue has challenged the finding of Ld. CIT(A) deleting the additions of Rs.3,34,67,692/- made by the ld. AO on account of disallowance of deduction u/s 80IB(10) of the Act, we find that this issue of deduction u/s 80IB(10) of the Act has already been dealt by us in the preceding paras and under the given facts and circumstances and finding of this tribunal in assessee’s own case for A.Y. 2009-10, we have allowed the claim of deduction u/s 80IB(10) of the Act made by the assessee towards profit earned from the housing project namely “Palace Orchard”. Therefore, this ground of the revenue deserves to be dismissed. We accordingly, order so.

Swadesh Developers

Appellant during appellate proceedings submitted that the assessee is in fourth phase of project and the opening stock relates to the unsold units of third project. Further, the sale price of units sold has already been included in the value of sales as credited to the profit and loss account. On perusal of ledger account statement it is seen that appellant has credited sale price for purchase IV of Rs.10,91,70,400/- and for Phase III of Rs.41,75,000/-. Thus, from the facts and documents on record, it is very clear that appellant himself has shown profit on unsold units and has credited to the profit and loss account. Further it is important to note that profit from sale of units is exempted u/s 80IB(10) of the Act. Therefore, the AO was not justified in assuming sale price of Rs.50,00,000/- and profit of Rs.25,40,000/- arising over it. Thus, the addition made by the AO on account of profit from sale of unsold unit of Rs.25,40,000/- is deleted. Therefore, appeal on this ground is allowed.

Swadesh Developers otherwise since the unit is eligible for deduction u/s 80IB(10) of the Act as held by us in the preceding paras, there remains no justification on the part of the Ld.AO to assume the sale price and make addition for unsold units. Thus, we find no merit in the ground no.2 raised by the revenue.

Order pronounced as per Rule 34 of I.T.A.T., Rules 1963 on 10.08.2021.