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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri Subodh Ratnaparkhi Shri Nihar Ranjan Samal
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the revenue against order of Learned Commissioner of Income Tax (Appeals)-1, Thane [hereinafter in short “Ld.CIT(A)”] dated 04.08.2020 for the A.Y.2007-08.
Brief facts of the case are, assessee is an AOP consisting of members namely M/s Dodia Marketing Pvt Ltd and M/s Parmar Enterprises
(A.Y. 2007-08) M/s. Cosmos Enterprises carrying on business activities of builder and developer. The assessee filed its Return of Income for A.Y. 2007-08 declaring total income of ₹.Nil on 26-10-2007. The return was processed u/s 143(1) of Income-tax Act, 1961 (in short “Act”). Subsequently, the case was selected for scrutiny under CASS and notice u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short “Act”) were issued and served on the assessee. In response AR of the assessee attended and submitted relevant information as called for.
At the time of assessment, Assessing Officer observed that assessee has developed a project called 'Cosmos Park' situated opposite Suraj Water Park, Behind Kanchan Pushpa Kavesar, Waghbil, GB Road, Thane (W). The project is consisting complex of 9 buildings viz Vinca 1 & 2 (stilt + 7 floors), Copperleaf 1 & 2 (stilt + 7 floors), Iberis 1 & 2 (stilt + 3 floors), Mayflower 1 (stilt + 3 floors) & Mayflower 2 (stilt + 2 Floors), Whitefield (stilt + 12 floors). Further, Assessing Officer observed that assessee has declared total turnover of ₹.19.40 crores and declared net profit ₹.5,32,95,184/- and the above said entire income has been claimed as deduction u/s.80IB(10) of the Act and report in Form 10CCB has been filed during the course of assessment proceedings.
(A.Y. 2007-08) M/s. Cosmos Enterprises 4. After considering all the submissions of the assessee, Assessing Officer finally concluded that assessee has violated the provisions of section 80IB(10) of the Act in particular Clause (a), (c) of the Act and he distinguished the case law relied by the assessee in the case of Bajaj tempo Ltd [196 ITR 188 (SC)]. He observed that assessee constructed residential units of more than 1000 Sq. ft of buildup areas in contravention to the approved plan by making structural changes, which was also confirmed by Government Approved architect in his report. He observed that the assessee in fact has constructed some residential units having carpet area of more than 1000 sq.ft. and also constructed shop premises of more than 5000 sq.ft of built up area which is not permissible. Accordingly, he proceeded to disallow the exemption claimed by the assessee u/s.80IB(10) of the Act of an amount of ₹.5,32,95,184/-.
Aggrieved assessee preferred an appeal before the CIT(A) and Ld.CIT(A) after considering submissions of the assessee partly allowed appeal of the assessee by following the earlier assessment year order and decision of his predecessor, and held as under: - “The alternate, argument of the appellant is that benefit of deduction u/s 80IB(10) should be allowed in respect of those residential units which undisputedly complied with the conditions of the said section. I find that this issue of proportionate deduction has been decided by my predecessors in the case of appellant only for the earlier (A.Y. 2007-08) M/s. Cosmos Enterprises assessment years. My predecessor, in the appeal order for A.Y 2007- 08 (Appeal no. THN/CIT(A)-11/ITO/wd 1(3)/THN/198/09-10 dated 03.06.2010) has decided this issue in favour of the appellant by holding as under. "10. But despite all these valid arguments and counter arguments, the fact remains that the deduction u/s 80IB(10) to the appellant cannot be denied on the entire project on this ground that certain residential units are more than the permissible limit of 1000 sq. feet. The issue has come up in various similar cases of the housing projects whereby the courts have held the view that in case of such violations, the deduction u/s. 80IB(10) should be allowed on prorata basis.
In the case of ACIT-vs-Sheth Developers (P) Ltd. 33 SOT 277 dt. 25.06.2009, the jurisdictional ITAT, Mumbai while deciding the similar issue, it has held that: "Thus, without doubt, by the assessee's own admission, at lest in a few cases the built-up area exceeded 1000 sq. ft. Now the question was section 80IB(10) could to a project even where some of the units exceeded 1000 sq ft. of built-up area. As aforesaid, the assessee was denied deduction u/s. 80IB(10) only for areas on that it failed the test of limit of 1000 sq. ft. However, the Kolkata, Bangalore and Nagpur benches of the tribunal had clearly held that even where some of the units exceeded the area limit, relief had to be given on a prorate basis. Following these, the assessee was eligible for relief on a prorate basis in respect of the flats which did not have a built- up area exceeding 1000 sq. ft. in respect of Aishwarya project. Thus, the quantum of deduction us. 80IB(10) in respect of the Aishwarya project for the flats which had built up area less than 1000 sq. ft. had to be workout on a prorate basis in line with discussion in the preceding paras."
12. Further in the case of ITO-vs-AIR Developers 123 TTJ (Nag) 959 (2009) the ITAT has held that: In this case following the decision of the Kolkatta Bench of the tribunal in the case of Bengal Ambuja (A.Y. 2007-08) M/s. Cosmos Enterprises Housing Development Ltd-vs-DCIT, the tribunal held that where a few residential units of the housing project exceeded 1500 sq. ft., there would be no justification to disallow the entire deduction u/s. 80IB(10). It was held that it would be fair and reasonable to allow deduction on proportionate basis i.e. on the profit derived from the construction of the residential units which has built up area of less than 1500 sq.ft."
The report of the approved valuer has clearly pointed out that certain residential units are more than the permissible limit of 1000 sq. feet. It would be difficult to verify at this point of time whether the same have been sold by the appellant to the purchaser in the present shape or whether the purchasers have combined the two flats after sales, thereby violating the provisions of section 80IB(10) (c). At the same time, there is no logic for denying the deduction on the entire project due to the reason that certain residential units have been combined by the purchasers after taking the possession, resulting in making its built up area more than 1000 sq. feet.
As mentioned above, the issue is well settled now in view of the various decisions that in such cases of some violations with regard to the prescribed built up area "profits attributable to eligible residential units are entitled for deduction in spite of the fact that other residential units are greater than the 1500 sq. feet built up area" (Bengal Ambuja (Cal) (2007). The use of words "residential unit" means that deduction should be computed unit wise. Therefore, if a particular unit satisfies the conditions of section 80IB(10), the assessee is entitled for deduction. So considered, it is only in respect of those units, which have not fulfilled the stipulated condition, the deduction should be denied" DCIT-vs-Brigade Enterprises (Pvt.) Ltd. 119 TTJ (Bangalore) 269 (2008). "Whereas few residential units of housing project exceeded 1500 sq. feet, there would be no justification to disallow the entire deduction u/s. 80IB(10), it would be fair and reasonable to allow deduction on proportionate basis" (ITO-vs AIR Developers 123 TTJ (Nag) 959 (2009).
(A.Y. 2007-08) M/s. Cosmos Enterprises 15. In view of the judicial pronouncements cited supra and the facts and circumstances of the present case, in my opinion, the appellant is entitled for deduction u/s 80IB(10) on proportionate basis as held in various decisions. Therefore, the AO is directed to calculate the deduction u/s 80IB(10) on prorata basis in respect of the flats which did not have the built up area exceeding 1000 sq. feet in the housing project "Cosmos Hills". In other words, all those residential units which fulfills the condition of section 80IB(10)(c)should be allowed the beneficial deduction as per provisions of that section and the residential units violating the stipulated 1000 sq. feet condition should be denied the deduction." This view is further followed in the appellant's own case by my predecessors also for A.Y. 2008-09 (order dated 30.08.2011) and for A.Y. 2009-10 (order dated 30.11.2012) in the case of M/s.Cosmos Developers. Since, the facts for the year under appeal are also the same, I follow the decision of my predecessors as taken in the appeal orders for A.Y. 2008-09 & 2009 10 and direct the AO to grant proportionate deduction u/s 80IB(10) in respect of all those units which comply with the built-up area provided by subsection(c) of section 80IB(10). Ground partly allowed.”
Aggrieved revenue is in appeal before us, raising following grounds in its appeal: - “1) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the assessee is entitled to deduction u/s.80IB(10) of Rs.4,89,51,425/- on part of the project, on pro-rata basis, comprising of residential units within the prescribed area limit of 1000 sq. ft. 2). On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating that there is no provision for pro-rata allowance of deduction u/s.80IB(10) when there is a clear violation of the provision of clause (c) of 80IB(10) of the Act.”
We observe that this appeal is filed with a delay of 160 days, the delay is due to pandemic of COVID-19, accordingly, the delay is condoned.
(A.Y. 2007-08) M/s. Cosmos Enterprises 8. At the time of hearing, Ld.DR brought to our notice grounds of appeal raised by the Department and relied on the order passed by the Assessing Officer.
9. On the other hand, Ld. AR submitted that these issues are already covered in favour of the assessee in particular he relied on the decision of Hon'ble Bombay High Court in the case of Devashri Nirman LLP v. ACIT, [429 ITR 597 (Bom) (2020)] and decisions of the Coordinate Bench in assessee’s group case in the case of ITO v. Cosmos Developers in & CO No. 196/Mum/2011 dated 11.10.2013 for A.Y.2007-08, ACIT v. Cosmos Developers & others in ITA No. 8632/Mum/2011 & CO No. 257/Mum/2012 dated 28.02.2014 for A.Y.2008-09 and ITO v. Cosmos Developers & others, ITA No.2023/Mum/2013, dated. 29.06.2015 for A.Y. 2009-10. Copies of the orders are placed on record.
Considered the rival submissions and material placed on record, we observe that the issue of proportionate deduction in claiming u/s.80IB(10) of the Act is covered in favour of the assessee in assessee’s group case, the relevant decision of the Coordinate Bench for the A.Y. 2007-08 is reproduced below:- -
(A.Y. 2007-08) M/s. Cosmos Enterprises “2.4.d. Cases relied upon by the AR support the submission that only proportionate disallowance can be made, while granting deduction u/s.80IB(10) of the Act, if certain units exceed the area as stipulated in the section. We find that in the matters of Vandana Properties, Mudhit M.Gupta, Saroj Sales Organization, Brigade Enterprises Pvt. Ltd, Magarpatta Township Development & Construction Co, M/s.Rahul Construction Co., Runwal Multi-housing Pvt. Ltd.(supra) different benches of the Tribunal have held that only proportionate disallowance can be made if an assessee does not fulfills the conditions stipulated in the section. In other words an assessee is entitled to proportionate deduction u/s.80IB of the Act, even if certain conditions, stipulated by the section, are not fulfilled we find that, similar view has been taken by the Hon'ble Madras High Court in the case of Viswas Promotors (P) Ltd.(supra),Hon'ble Court has held as under: Within composite housing project, where there are eligible and ineligible units, the assessee can claim deduction in respect of eligible units in the project and even within the block the assessee is entitled to claim proportionate relief in the units satisfying the extent of the built up area. In the Matter before the Hon'ble Court assessee had constructed flats under four schemes ie. Blocks. It claimed deduction u/s.80IB of the Act in respect of flats measuring less than 1500 Sq.ft. but for the flats measuring more than 1500 Sq.ft.no claim was made. AO rejected the claim of the assessee on the ground that deduction was for the project as a whole and all residential units in the project should satisfy the condition of having built up area of less than 1500 Sq.ft. FAA held that it was entitled to claim deduction in respect of eligible units. He directed the AO to allow proportionate deduction. Tribunal reversed the order of the FAA When the matter reached to the Hon'ble High Court it further held: "Assessee is entitled to claim proportionate relief in the units in respect of all blocks forming part of project called Agrini and Vajra, but to the extent of each of the blocks satisfying the condition u/s. 80IB(10).The assessee would be entitled to the relief on a proportionate basis" Considering the above we are of the opinion that even if claim was to disallowed it should have been restricted to ten flats only. We also (A.Y. 2007-08) M/s. Cosmos Enterprises hold that AO was not justified in denying the entire claim made by the assessee. We find that the FAA had directed the AO to calculate disallowance on basis. In short, in our opinion, AO was not justified in disallowing the entire claim made u/s.80IB of the Act on both counts-delay in obtaining CC and size of flats. FAA has rightly held that assessee was eligible for proportionate deduction.”
11. Respectfully following the above said decision, we are inclined to allow the claim made by the assessee and against the Revenue. Accordingly, grounds raised by the revenue are dismissed.
In the result, appeal filed by the revenue is dismissed.
Order pronounced in the open court on 03rd August, 2022.