ASSISTANT COMMISSIONER OF INCOME-TAX, BANGALORE vs. M/S.EAGLETON PROPERTY HOLDINGS CIRCLE, BANGALORE

The notice of hearing was served on the assessee but none appeared on behalf of the assessee. Hence, we proceed to decide the appeal after hearing the submissions of the learned DR.

The assessee, a partnership firm and is engaged in the business of constructing residential buildings at Eagleton, Bidadi, Bangalore Rural District. The firm had undertaken construction of two housing projects viz., County-I and County-II in the past and continuing these projects in this year also. Separate P&L a/c for County-I and County-II, and the consolidated balance sheet were filed before the AO. On construction revenue of Rs.14,24,83,653/-, net profit of Rs.4,31,16,275/- was shown in respect of County-I project. In County-II project, net profit of Rs.2,33,50,483/- was shown on construction revenue of Rs.5,91,01,790/-. These profits were shown separately in the computation of income under the head “Business Income”. After computing the gross total income, a deduction of Rs.4,31,16,275/- has been claimed u/s 80IB(10) in respect of income from the County-I housing project as an eligible project u/s 80IB(10).

One of the condition for claiming deduction under section 80IB(10) is that the Built up area of the units in a project should not exceed 1500 sq.ft.

The AO with a view to ascertain whether County-I project has complied with conditions of section 80IB(10), made a reference was made by this office to District Valuation Officer (DVO) requesting him to inspect the property, take measurements of the residential units constructed in this project and furnish a report. The D.V.O, after inspecting the approval of the local authorities, taking measurements of few sample residential units submitted a report in which he gave measurements of builtup area of seven residential units. Out of these seven units, the built up area of five residential units exceeded 1500 sq.ft. The D.V.O had also stated in his report that the built-up area is quantified after considering inner measurements of the residential units at the floor level, including projections, balconies and thickness of walls. According to the AO, the built-up area furnished by the D.V.O was in accordance with definition of built-up area given in sub section 14 of section 80IB. The AO therefore took the view that the assessee has not satisfied the condition that the built up area of the units should not exceed 1500 sq.ft. for claiming deduction under section 80IB(10)14(a) of the Act.

The assessee contended before the AO that the DVO has not depicted the method of calculation of the buit-up area of the measured residential units in his report and it appears the DVO has included some open areas which is not contemplated u/s. 80IB(10)14(a). It was further stated that the correct area is only 1483 sq.ft. as approved by the Government. The AO did not accept the stand of the assessee because physical inspection had been carried out by the DVO and that no reliance can be placed on the sanctioned plant as there could

Besides the non-compliance of condition of built up area in respect of some residential units, the AO also noticed that as per the plan sanction obtained from Secretary, Manchanayakana Halli, Ramanagar Taluk on 11.4.2005,the site area of each plot is mentioned along with number of those plots and the proposed built-up area was shown as 48,243/- sq.ft. Besides these details, the plot area was mentioned as 10.385 acres. This plot area is the total plot area inclusive of County-I & County-II, etc. However, the plot area of County-I has not been separately mentioned. The AO also noticed that the project consists of individual residential houses spread over different portions of a big land with certain intervening areas demarcated as lands for future development and some area of the land shown as area meant of landscaping. In other words, according to AO, all these residential units were not situated in contiguous area and were individual duplex houses. The AO also noticed that as per the sale deeds produced, the land originally belongs to a company called M/s Chamundeshwari Build-Tech Pvt. Ltd. which had formed a layout called "Eagleton Golf Village" and sold sites to different individuals. These sites have been individually registered by M/s Chamundeshwari Build-Tech Pvt. Ltd. to the individual owners. These individual owners of the sited have obtained plan sanctions separately from the Secretary, Manchanayakana Halli, Ramanagar Taluk. The completion certificates have also been obtained separately for each residential unit and not for the project as a whole. According to the AO, the assessee has entered into construction agreements with each one of the land owners for building duplex houses as per the

According to the AO, in the case of a developer, he owns a land or enters into JDA and sells the residential units by registering undivided sale of land and building/flat. Section 80IB(10) clearly says that the deduction is available to the undertaking "developing and building housing projects". In other words, unless the undertaking carries out both developing as well as building activities, it is not entitled to the deduction. According to the AO, the assessee is not the owner of the and it has neither sold the land or building and since the assessee had received only construction receipts which are in the nature of contract receipts, the profit earned is not on account of selling the units in the housing project. The AO therefore held that the assessee's business cannot be treated as business of developing and building housing Projects as envisaged in section 80IB(10) and the profit shown has not arisen from such housing project. For this reason also, the AO held that assessee is not eligible for deduction u/s 80IB(10). Accordingly, the claim of deduction under section 80IB (10) amounting to Rs. 4,31,16,275/- is disallowed.

Aggrieved by the order of the AO, the assessee filed appeal before the CIT(A). The CIT(A) considered the issue whether the assessee should be considered as a developer or only a mere contractor and therefore not entitled to deduction under section 80IB(1) of the Act. The CIT(A), in paragraphs 11.1 and 11.2 of his order, held that the assessee waw a developer and had taken the risk and rewards in developing and constructing the housing project.

The next issue that the CIT(A) took up for consideration was as to whether the deduction under section 80IB(10) can be allowed on proportionate basis in respect of residential units having a built up area of 1500 sq.ft. or less. On this aspect, the CIT(A) held that the assessee would be entitled to deduction under section 80IB(10) of the Act on a proportionate basis in respect of housing units which are 1500 sq.ft. or less in built up area. Incidentally, the CIT(A) also held that in respect of an independent residential units, assessee would be entitled to claim deduction under section 80IB(10) of the Act. The final conclusions of the CIT(A) were as follows:

Aggrieved by the aforesaid order of the CIT(A), the Revenue has preferred the present appeal.

We have heard the submissions of learned DR and reiterated the stand of the Revenue as reflected in the grounds of appeal filed before the Tribunal. We have considered the submissions of the learned DR and the grounds of appeal raised by the Revenue. On the aspect of the assessee being entitled to deduction on a proportionate basis in respect of units having built up area of 1500 sq.ft. or less, we find that the conclusions of the CIT(A) do not require any interference as the principle of proportionate deduction has been accepted by the Hon’ble Karnataka High Court. In CIT Vs. Brigade Enterprises Ltd. I.T.A. NO.373 OF 2014 Judgment dated 22.10.2020, the Hon’ble Karnataka High Court dealt with the following question of law:

Even in respect of ground No.3, it is clear from the perusal of the submissions of the assessee before CIT(A) that the DVO has not considered the units in County – I project and therefore the report of the DVO cannot be said to be final in the matter. In these circumstances, we do not find any merit in the ground No.3 raised by the Revenue. In any event, the physical measurement has to be taken by the AO and the AO is at liberty to take physical measurement in an appropriate manner and therefore there cannot be any grievance to the Revenue. For the reasons given above, we find no merit in the appeal by the Revenue. Consequently, the appeal by the Revenue is dismissed.

In the result, the appeal of the Revenue is dismissed.