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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN, VICE PRESEIDENT & SHRI PADMAVATHY S
Per Padmavathy S., Accountant Member These appeals are against the separate orders, both dated 29.3.2019 of the CIT(Appeals)-5, Bengaluru for the assessment years 2007-08 & 2008-09. They were heard together and disposed of by this common order for the sake of brevity and convenience.
The common issue arising out of the various grounds raised
by the assessee for the assessment year 2007-08 and 2008-09 pertain to denial of deduction u/s.80IB which the assessee has claimed on the profits of the flats bought from the land owners and sold to third parties. We will first take up assessment year 2007
08. (ITA Nos.1302/Bang/2019) for adjudication. For this assessment year, the assessee had raised a ground pertaining to non-issue of notice u/s.143(2) which the ld AR during the course of hearing withdrew as the ld DR shared a copy of the notice served. This ground therefore is dismissed.
Brief facts are that the assessee is a limited company carrying on the business of real-estate development, especially building and developing of residential apartments. For the AY 2007-08, the assessee filed return of income on 26.10.2007 declaring a total income of Rs.44,83,661 after claiming deduction u/s.80IA(10). U/s. 80IB(10) of the Act, an undertaking engaged in the business of developing and building housing projects is eligible for a deduction. The section reads as follows:-
“[(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,— (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,—
(i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008; (ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority. Explanation.—For the purposes of this clause,— (i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority; (ii) 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 the local authority; (b) the project is on the size of a plot of land which has a minimum area of one acre: Provided that nothing contained in clause ( a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf; (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place; and (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet, whichever is less.]”
A survey was conducted in the premises of the assessee on 29/09/2007 for the purpose of ascertaining the correctness of claim of deduction u/s.80IB and for verification of unsecured loan. During the survey the AO found certain discrepancies in the claim of deduction u/s.80IB with regard to project ‘Mahavir Springs’ and certain other discrepancies with regard to cash etc. The assessee files a declaration on 16th December 2007 withdrawing the claim of 80IB(10) pertaining to project ‘Mahavir Springs’ to the tune of Rs.1,52,02,456 for the assessment 2007-08. The assessee also offered certain other income in the declaration pertaining to loan to directors and civil construction business, etc. The assessee’s case was selected for scrutiny and notice was issued on 09/09/2008 and the assessment was completed u/s.143(3) by order dated 30/10/2009, making various additions to the tune of Rs. 1,63,02,272 including the addition towards 80IB(10). This assessment order became final as the assessee did not file any appeal against it.
Another survey was conducted in the premises of the assessee on 14.12.2012 and the case was re-opened u/s.147 for both the assessment years. In response to notice u/s.148 dated 11/02/2014, the assessee filed a letter to treat the original return as a return filed in response to notice u/s.148. In the course of assessment proceedings u/s. 148, the AO observed that the assessee has paid a consideration of Rs.6,01,50,875 towards 28 flats earmarked for the land owners, out of which 22 flats were sold for an amount of Rs.5,63,80,183 resulting in a profit of Rs.91,19,417. The AO was of the view that the assessee is not eligible for deduction u/s. 80IB(10) of the Act on the aforesaid transactions as it is in the nature of trading. Accordingly, the AO concluded the assessment u/s. 143(3) r.w.s. 147 of the Act whereby an addition of Rs.91,19,417 was made.
On appeal before the CIT(Appeals), the assessee challenged the reopening of assessment u/s. 147 as well as denial of deduction u/s. 80IB(10) of the Act on merits which were not considered by the CIT(A) and upheld the order of the AO
The ld. AR first argued on the legal issue of validity of reopening of assessment. He submitted that the reopening of assessment is done beyond a period of four years and according to the proviso to section 147 of the Act, where an assessment is completed u/s. 143(3) of the Act, reopening can be done only when there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. He brought to our attention that the addition made in the proceedings u/s. 147 denying the deduction u/s. 80IB(10) of the Act is a moot issue since this disallowance towards the project ‘Mahavir Springs’ was already made in the proceedings u/s. 143(3) of the Act and that the assessee had disclosed fully and truly all material facts necessary for his assessment. He therefore submitted that the reopening of assessment is bad in law.
On merits, the ld AR submitted that :-
(a) The assessee has developed a housing project, which is eligible to deduction u/s. 80IB(10) of the Act and in respect of the said housing project, the assessee had secured the land for purposes of development under the joint development agreements.
(b) In terms of the joint development agreement, it was required to deliver certain flats to the landowners and some of the landowners approached the assessee and re- negotiated the terms for money instead of the apartments.
(c) The assessee thereupon agreed to pay money instead of giving apartments to the landowners, which is nothing but due amounts paid for purchase of the land which forms part of the overall cost of the project developed by the assessee.
(d) The payments made to landowners are towards purchase of landowners share of built-up area in the eligible project developed by the assessee and according to the provisions of section 80(IB)(10) of the Act, the assessee is entitled to the deduction u/s. 80IB(10) on the profits derived from ‘such housing projects’, where the provision is not restricted to the share of developers alone
(e) Thus, there can be no question of any piecemeal consideration of the so-called profits on the sale of these flats and the same forms part of the profits from the business of development of the housing project, which is eligible for deduction u/s. 80IB(10) of the Act.
(f) The aforesaid transaction cannot be regarded as a separate transaction entered into by the assessee to deny the eligible claim of deduction u/s. 80IB(10) of the Act.
The ld. DR on the other hand submitted that the disallowance made by the AO in the 143(3) proceedings during the course of regular assessment was not relating only to the project ‘Mahavir Springs’ and that the AO made the disallowance of deduction u/s. 80IB(10) based on material found in the course of survey conducted in 14/12/2012 pertaining to the amount to the amount paid by the assessee to the land owners. Hence the ld DR submitted that the reopening of assessment is valid. On merits he submitted that the assessee has claimed the deduction u/s. 80IB on the second sale of the flats where the flats are purchased from landowners and sold to the ultimate buyers which is not in accordance with law and hence the AO has rightly denied the deduction u/s. 80IB(10) of the Act.
We have heard the rival submissions and perused the material on record. During the course of the hearing the facts and documents relating to project ‘Mahavir springs’ were presented. Accordingly we notice that the assessee has entered into a joint development agreement [JDA] dated 27.9.2014 [pg. 53 of PB] with the landowners for development of residential flats on the land situated at Sy.No.4/2, Sarakkikere, Uttarahalli Hobli, Bangalore South Taluk. As per the agreement, the landowners were to receive 37% and the developer (assessee) 63% of the built-up area and undivided share in the land. For the AY 2007-08, the assessee claimed a sum of Rs.1,52,02,456 towards the said project ‘Mahavir Springs’ [pg. 2B & 48 of PB] in terms of the JDA.
11. During the course of original assessment proceedings u/s. 143(3) of the Act, the AO had considered the findings of the survey with regard to the project ‘Mahavir Springs’. He observed that the built-up area in respect of 5 flats exceeded the statutory limit of 1500 sq.ft. u/s. 80IB(10) of the Act. When confronted with this discrepancy, the assessee withdrew the deduction claimed u/s. 80IB(10) pertaining to ‘Mahavir Springs’ and the AO concluded the assessment by making certain other additions. The assessee did not prefer any appeal against this assessment order and thus the assessment became final. Subsequently there was another survey on 14/12/2012 and the assessment was reopened where the AO has made the impugned addition towards the consideration paid by the assessee towards 28 flats earmarked for the land owners treating the same as a trading activity. The AO in assessment order u/s. 143(3) r.w.s. 147 failed to mention to which project the deduction u/s. 80IB(10) is denied. The ld AR’s contention was that it pertains to project ‘Mahavir Springs’ and that the 80IB(10) deduction claimed is already withdrawn (page 2, 2A & 2B of PB). The ld DR argued that the impugned addition is not on account of the project ‘Mahavir Springs’ as the number of flats mentioned by the AO in his order u/s. 143(3) r.w.s. 147 is much more than the number of flats in the project ‘Mahavir Springs’. This is contrary to the facts recorded by the AO in the original assessment order wherein at para 7.1 it is clearly mentioned that the project ‘Mahavir Springs’ consists of about 200 flats. The CIT(Appeals) has also failed to bring on record as to the project under which the assessee has derived profits from the sale of earmarked flats to the landowners to deny the deduction u/s. 80IB(10) of the Act.
In view of the above, we adjudicate the issue only on whether the assessee is entitled to deduction u/s.80IB(10) with respect to the profits on sale of flats which was earmarked the land owners and which was sold on their behalf at their request by the assessee?
The assessee has entered into agreements whereby the land owners wanted the assessee to sell the flats that were to be allotted to them as per the terms mentioned therein the consideration is paid towards the land, the super built up area which is the land owner’s out of 37% of the undivided right as per the original agreement entered into with the assessee. Thus the argument of the ld AR that the consideration paid by the assessee to the landowners is nothing but due amounts paid for purchase of the land which forms part of the overall cost of the project developed by the assessee has merits. Further as per the provisions of section 80IB(10), the profit derived from ‘such housing project’ is eligible for deduction which need to be considered in total, subject to other conditions mentioned in the said section. The ld AR brought to our attention the decision of the Karnataka High Court in the case of CIT Vs Shravanee Constructions (ITA No.421/422 of 2009) where the Hon’ble Court has held that:-
9. In that view of the matter, the contention of the revenue that the assessee did not undertake any developmental or building activity and therefore, he cannot individually claim the benefit has no substance. That is not the requirement of law. Keeping in mind, the object with which this provision is introduced when all persons who have made investments in this housing project which is for the benefit of middle and lower class people and, when they have complied with all the conditions prescribed under the aforesaid provision, both of them are entitled to hundred percent benefit of tax deduction as provided under the said provision. In that view of the matter, we do not see any merit in these appeals. The substantial question of law is answered in favour of the assessee and against the revenue. Accordingly, the appeals are dismissed.
A plain reading of section 80-IB(10) evidently makes it clear that deduction is available in a case where an undertaking develops and builds a housing project on the profits derived from such housing project. In the given case the profit from the sale of flats earmarked for the land owners is also derived by the assessee from the development and building of the housing project. In view of the above discussion we are of the considered view that the assessee is entitled claim deduction u/s.80IB(10) on the profits derived from sale 22 flats earmarked for the land owners. The appeal is allowed in favour of the assessee.
The facts are identical in the appeal for the AY 2008-09 where the AO has made a similar disallowance on the profits derived to the tune of Rs.2,51,56,005 towards sale of 21 flats earmarked for the land owners. In view of our decision for AY 2007-08 as given para 11 above, we allow the appeal in favour of the assessee holding that the assessee is entitled for claiming deduction u/s.80IB(10) on the profits derived from sale of 21 flats earmarked for the land owners.
In the result, both the appeals of the assessee are allowed.
Pronounced in the open court on this 17th day of June, 2022.