THE COMMISSIONER OF INCOME TAX vs. M/S C N BUILDERS AND DEVELOPERS

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ITXA/44/2015HC Bombay02 February 2018Author: HON'BLE SHRI JUSTICE S.C. DHARMADHIKARI, HON'BLE SHRI JUSTICE PRAKASH D. NAIK8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court disagreed with the Revenue on both counts. Regarding the applicability of Section 40(a)(ia), the Court found no justification for the Revenue to seek assistance from an order concerning Section 80IC (Lipid Technologies case), as the present appeals revolved around the interpretation of Section 80IB(10). The Court rejected the Revenue's contentions based on the Lipid Technologies order. On the main issues concerning Section 80IB(10), the Court noted that similar questions had been dealt with repeatedly by the Court. Following its own previous judgment dated September 25, 2017, in a batch of connected appeals (ITA Nos. 441, 444, 452, 479, 489, and 500 of 2015), which had dismissed the Revenue's appeals on identical grounds, the Court dismissed the present appeals. The Court found that the Revenue's attempts to distinguish those judgments were not accepted. Therefore, the appeals were dismissed, upholding the ITAT's decision.

What were the facts?

The Revenue (Commissioner of Income Tax, Valsad) appealed against orders of the Income Tax Appellate Tribunal (ITAT) Mumbai, concerning M/s. C.N. Builders & Developers for assessment years 2007-2008, 2005-2006, and 2006-2007. The assessee, a partnership firm, claimed deduction under Section 80IB(10) for constructing buildings B, C, and D of 'Gurudev Complex-Phase III'. The Assessing Officer denied this deduction, citing reasons such as the construction not adhering to the approved plan, commercial area exceeding 2000 sq. ft., project not being completed by March 31, 2008, land not being in the assessee's name, and the plot size potentially exceeding one acre without proper subdivision. The CIT(A) allowed the deduction, a decision upheld by the ITAT, which relied on previous orders and the Madras High Court's decision in Viswas Promoters Pvt. Ltd. The Revenue's appeals to the High Court challenged these ITAT orders.

What were the issues?

1. Whether, on law and facts, the ITAT was justified in concurring with the CIT(A) that all conditions for claiming deduction under Section 80IB(10) of the Income Tax Act were met, despite the CIT(A) accepting the plot size exceeded one acre without proper subdivision? (Revenue's contention: The CIT(A) erred by not appreciating that construction may not be per the approved plan but still comply with DCR, and that these are separate requirements. The Revenue argued that the entire arrangement was a subterfuge to gain undue benefit under Section 80IB). 2. Whether, on law and facts, the ITAT was justified in holding the assessee firm eligible for deduction under Section 80IB(10) amounting to Rs. 81,54,803 (for AY 2007-08) and Rs. 42,57,600 (for AY 2005-06), considering the arrangement as a subterfuge? (Revenue's contention: Similar to issue 1, the arrangement was a subterfuge). 3. Whether, on facts and in law, the ITAT was justified in holding that Section 40(a)(ia) was not applicable as the firm's income was deductible under Section 80IB(10) and was in the nature of reimbursement, without appreciating that the firm was not eligible for 80IB(10) deduction and the payment was covered by Section 194C? (Revenue's contention: If the firm is not eligible for 80IB(10) deduction, then the payment falls under Section 194C, making Section 40(a)(ia) applicable. Reliance was placed on an order in CIT-II, Pune vs. Lipid Technologies).

Which sections of the Income-tax Act were involved?

Section 80IB,Section 40(a)(ia),Section 194C

AI-generated summary — verify with the full judgment below

Vikrant    1/8                                  ITXA­1779­2014+2.odt IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1779 OF 2014 The Commissioner of Income Tax, Valsad... Appellant Vs. M/s. C. N. Builders & Developers ... Respondent WITH INCOME TAX APPEAL NO. 7 OF 2015 The Commissioner of Income Tax, Valsad... Appellant Vs. M/s. C. N. Builders & Developers ... Respondent WITH INCOME TAX APPEAL NO. 44 OF 2015 The Commissioner of Income Tax, Valsad... Appellant Vs. M/s. C. N. Builders & Developers ... Respondent ...... Mr. Tejveer Singh for the Appellant in all Appeals. None present for the Respondent. ...... CORAM :  S. C. DHARMADHIKARI & PRAKASH D. NAIK, JJ. ORDER RESERVED ON : NOVEMBER 17, 2017. ORDER PRONOUNCED ON : FEBRUARY 2, 2018. JUDGMENT:­ (PER S. C. DHARMADHIKARI, J.)

1.

In view of the earlier order and the submissions before the Hon'ble Chief Justice, the Appeals have been placed before us. CNR No : HCBM020199282014 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:47:59

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2.

In   Income   Tax   Appeal   No.1779   of   2014,   the   Revenue challenges the order of the Income Tax Appellate Tribunal ('ITAT' for   short),   Mumbai,   dated   31st  January,   2014   in   Income   Tax Appeal No.3131/Ahd/2010. The assessment year is 2007­2008. The following two questions are proposed as substantial questions of law: “(i)

of the case, the Ld. ITAT was justified in concurring with the CIT(A) that all the conditions for claiming deduction u/s. 80IB (10) of the Act have been met without   appreciating   the   fact   that   the   CIT(A)   has accepted that the size of the plot on which the project has   been   constructed   to   be   of   more   than   one   acre without there being a proper sub­division? (ii)

of the case, the Hon'ble ITAT was justified in holding that   the  assessee   firm  is   eligible   for  deduction  u/s. 80IB(10) of the I.T. Act amounting to Rs.81,54,803/­ without   appreciating   the   fact   that   the   entire arrangement is clearly a subterfuge to derive undue benefit under section 80IB of the I.T. Act?”

3.

In Income Tax Appeal No. 7 of 2015, the ITAT order of the same date for the assessment year 2005­2006 has been challenged and three questions are proposed as substantial questions of law. These three questions read as under: “1)

of the case, the Ld. ITAT was justified in concurring with the CIT(A) that all the conditions for claiming deduction u/s. 80IB (10) of the Act have been met Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:47:59

Vikrant    3/8                                  ITXA­1779­2014+2.odt without   appreciating   the   fact   that   the   CIT(A)   has accepted that the size of the plot on which the project has   been   constructed   to   be   of   more   than   one   acre without there being a proper sub­division? 2)

of the case, the Hon'ble ITAT was justified in holding that the assessee firm is eligible for deduction u/s.80IB (10)   of   the   I.T.Act   amounting   to   Rs.42,57,600/­ without   appreciating   the   fact   that   the   entire arrangement is clearly a subterfuge to derive undue benefit under section 80IB of the I.T. Act? 3) Whether on facts and circumstances of the case and in Law, the Hon'ble ITAT was justified in holding that the provisions of section 40(a)(ia) is not applicable in the case of the assessee firm as the income of the firm would be deductible u/s.80IB(10) of the Act and that the same is in the nature of reimbursement of expenses without   appreciating   the   fact   that   the   firm   is   not eligible   for   deduction   u/s.80IB(10)   and   that   the payment is covered by provisions of section 194C of the Act?”

4.

In Income Tax Appeal No. 44 of 2015 for the assessment year   2006­2007,   same   questions   are   proposed   as   substantial questions of law arising out of the ITAT order of the same date, but for the assessment year 2006­2007. 5. We would take the facts from the memo of Income Tax Appeal No. 1779 of 2014. The respondent builder is a partnership firm   engaged   in   the   business   of   building   construction   and development. It undertook construction of buildings B, C and D of a project called “Gurudev Complex­Phase III” which has approval for nine buildings and claimed the benefit of Section 80­IB of the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:47:59

Vikrant    4/8                                  ITXA­1779­2014+2.odt Income   Tax  Act.   The   Assessing  Officer  however  held  that   the assessee was not eligible for that deduction as the construction is not as per the approved plan, the approved plan has commercial area more than 2000 sq. ft. and the project was not completed by 31st March, 2008, in the sense, the final completion certificate was not received. The land was not in the name of the assessee and the approval was also not in the assessee's name. The area will be less than one acre if only the construction of buildings B, C and D is  considered.  It is in these  circumstances  that  deduction was denied. The disallowance was made and a sum of Rs.81,54,800/­ was added to the total income of the assessee. An order was passed by the Assessing Officer, copy of which is annexure “A”, and aggrieved   by   that,   an   Appeal   was   preferred   before   the Commissioner of Income Tax (Appeals), Valsad. On 21st July, 2010, the said Commissioner allowed this deduction against which the Revenue preferred an Appeal to the Tribunal, but the Tribunal dismissed the Revenue's Appeal holding that the Commissioner took into consideration the records. He relied upon a consolidated order dated 29th May, 2009 passed by his predecessor and found that on facts, the same view deserves to be taken. He, therefore, followed   his   predecessor's   view   on   facts.   Then,   before   the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:47:59

Vikrant    5/8                                  ITXA­1779­2014+2.odt for deduction is admissible. That decision applies with full force. The Tribunal then held that the Assessing Officer's reasons for disallowance cannot be sustained and in holding that it did not agree with the Revenue that the decision in the case of Saroj Sales Organization  was   wrongly   followed   and   applied   by   the Commissioner. The Tribunal followed and applied the decision of the Hon'ble Madras High Court in the case of Viswas Promoters dismissed the Revenue's Appeals.

8.

Ordinarily, we would have expected the Revenue to concede the point as the detailed judgment of this Court in the batch of the Appeals referred above squarely applies to the facts of this case. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:47:59

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9.

However, Mr. Tejveer Singh, learned Advocate appearing for the Revenue in support of these Appeals would submit that the Commissioner   of   Income   Tax   (Appeals)   has   assumed   that   if construction is as per the Development Control Rules (DCR), but not as per the approved plan, then it is not a violation of Section 80­IB (10) and the assessee is entitled to deduction. Thus, the construction may not be in accordance with the approved plan, but so long as it does not contravene the DCR, the benefit cannot be denied. However, the Commissioner failed to appreciate that DCR   and   approved   construction   plan   are   two   separate requirements to be fulfilled and just because construction is in accordance with the DCR does not mean that the construction is as per the approved plan.

10.

Mr. Tejveer Singh submits that as far as the provisions of Section 40(a)(ia) are concerned, they are not applicable to the case of the respondent assessee as the income of the firm would be deductible under Section 80­IB (10) of the Act and that the same is in the nature of reimbursement of expenses. If the firm is not eligible for deduction under Section 80­IB (10) of the Act, then that payment is covered by the provisions of Section 194C of the Act. In that regard, he places reliance upon an order dated 12th July, 2017 passed in Income Tax Appeal No.1688 of 2014 (The Commissioner of Income Tax­II, Pune vs. M/s. Lipid Technologies, Pune) in which such a question has been admitted. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:47:59

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11.

On both counts, we are not in agreement with Mr. Tejveer Singh. Income Tax Appeal No. 1688 of 2014 raises a question of law which is treated by this Court as substantial, but pertaining to a deduction under Section 80­IC of the Income Tax Act. There, the Tribunal had held that the disallowance was not justified. The Revenue complained that the Tribunal was not justified and failed to   appreciate   that   this   disallowance   under   Section   40(a)(ia) cannot be regarded as increase in profit of the assessee's business on which deduction under Section 80­IC would be allowable. In the   opinion   of   the   Revenue,   that   amount   has   already   been expended. We do not see how such a question arises in these Appeals.   We   have   already   held   above   that   the   substantial questions of law in these Appeals revolve around interpretation of Section 80­IB(10) of the Income Tax Act. We see no justification, therefore,   for   the   Revenue   seeking   assistance   of   an   order   of admission in a distinct case (M/s. Lipid Technologies) (supra). Therefore,   Mr.   Tejveer   Singh's   contentions  with   regard   to  this order being applicable to the facts of the present case deserve to be rejected. The contentions are therefore rejected.

12.

As far as the questions proposed by the Revenue in all these Appeals   are   concerned,   on   a   perusal   of   the   orders   under challenge, we are of the firm view that all of them have by now been dealt with and repeatedly by this Court. The judgments in the cases prior to our judgment take care of all these issues. Before us, in those matters, an attempt was made by the Revenue Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:47:59

Vikrant    8/8                                  ITXA­1779­2014+2.odt to distinguish those judgments, but we have not accepted these arguments. Hence, following our judgment in Income Tax Appeal No.   441   of   2015  and   other   connected   Appeals   dated   25th September, 2017, we dismiss each of these Appeals. They are dismissed without any order as to costs. (PRAKASH D. NAIK, J.)                      (S. C. DHARMADHIKARI, J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:47:59 Powered by TCPDF (www.tcpdf.org)

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