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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI RAJESH KUMAR, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
1. The revenue has filed the present appeal against the order dated 08.10.2018 passed by the Commissioner of Income Tax (Appeals) -02, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2014- 15.
The revenue has raised the following grounds: - "1) On the facts and circumstances of the case, and in law, the Hon’ble CIT(A) was erred in allowing the deduction of 80IB(10) on pro rata basis inspite of the assessee failing to fulfill the conditions as laid down in section 80IB(10) on cumulative basis.
ITA No. 248/M/2019 A.Y.2014-15 2. The order of the CIT(A) may be vacated & that of the Assessing Officer may be restored.
3. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
The brief facts of the case are that the assessee filed its return of income on 28.11.2014 declaring total income to the tune of Rs.6,24,29,220/- for the A.Y. 2014-15. The return was processed u/s 143(1) of the I. T. Act, 1961. The case was selected for scrutiny under CASS. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is a firm engaged in the business of construction, development of property, redevelopment of SRA projects and purchase & sale of land. During the year under consideration, the assessee declared the income under heads „Business and Profession‟ and „Other Sources‟. The assessee followed the project completion method of accounting. In the previous year, the assessee has completed construction of SRA project viz. Binakumari CHS situated at Mulund (E), Mumbai. Out of the net profit earned by the assessee, the assessee has claimed deduction u/s 80IB of the I. T. Act, 1961 for an amount of Rs.7,30,08,477/-. The assessee also submitted the copy of acknowledgement of IT returns, tax audit report in Form 3CD, computation of income along with P & L account and balance- sheet along with all the schedules and other details which have been placed on record. From the said project, the assessee claimed deduction u/s 80IB of the Act amounting of Rs.7,30,08,477/- @ 100% of the profits earned in respect of it SRA Project „Binakumari CHS‟ situated at Mulund (E), Mumbai. On verification, it was found that the assessee has constructed the residential flats below 1000 sq.ft and above 1000 sq. fts and also sold some flats to some individuals and their relatives. The total 26 flats were found A.Y.2014-15 constructed more than the limit of 1000 sq.ft. The assessee also sold the flats to some individuals and their relatives which was in violation of the conditions mentioned in the provisions of Section 80IB(1) of the I. T. Act, 1961, therefore, the claim of the deduction u/s 80IB(10) of the Act in sum of Rs.7,30,08,477/- was denied. The total income of the assessee was assessed to the tune of Rs.13,54,37,694/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly allowed the claim of the assessee, therefore, the finding of the CIT(A) is not justifiable, hence, is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-
“7. I have gone through the facts of the case as mentioned by the AO in the assessment order. I have also perused the detailed arguments taken on behalf of the appellant as well as applicable case laws on the issue. The issue in brief, is that whether pro rata deduction is available u/s. 8018(10) or not with respect to the-units-in a project- which-fulfills-all- the conditions-as- mentioned in section 801B(1O) of the I.T. Act. This issue has been considered by various benches of ITAT as well as by Hon'ble High Courts and the Courts have held that the deduction u/s. 8018(10) cannot be denied in its entirety. In other words, the denial of deduction-shall be limited to the profits in respect of such units only which are violating the conditions as laid down in section 80IB(10) of the I.T. Act. Hon'ble Madras High Court in the case of Viswas Promoters Private Limited V/s. ACIT 29 Taxmann.com 19 has held that the assessee is eligible for deduction u/s. 801B(10) on a proportionate basis. The relevant paragraph of the said decision reads as under: A.Y.2014-15 "Assessee is eligible for deduction under section 80-IB(10) on a proportionate basis in respect of those blocks which are of less 1500 square feet area • It is held that the Tribunal is not correct in its view, that by reason of the Units being in excess of 1500 sqft, the entire claim of the assessee respect of the two projects would stand rejected under section 80-1B(10). Thus, going by the definition of 'housing project' under Explanation to section 80HHBA as to the construction of 'any building and the wordings in section 80-IB(10), the question of rejection in entirety of the project on account of any one of the blocks not complying with the conditions, does not arise. Even in the case of each one of the blocks, wherever there are flats which satisfied the conditions particularly of the nature stated under section 80-IB(1O)(c), the assessee would be eligible for grant of relief under section 80-IB(10) on a proportionate basis. Thus it is held that the assessee is entitled to succeed both on the principle of proportionality as well as by reason of the construction on the meaning of the expression 'housing project' as referring to construction of any building and the wordings in section 80-IB(10). In the circumstances, it is held that the mere fact that one of the blocks have units exceeding built-up area of 1500 sq.ft. per se, would not result in nullifying the claim of the assessee for the entire projects. Consequently, in respect of each of the blocks, the assessee is entitled to have the benefit of deduction in respect of residential units satisfying the requirement under section 80-IB(10(c) (Para 14) In the light of the above reasoning, the substantial questions of law is answered in favour of the assessee as to that the assessee is entitled to the claim of deduction in respect of all the blocks forming part of the projects called-Agrini and Vajra, but-to- the extent-of-each of the blocks satisfying the conditions under section 80-IB(10) the assessee would be entitled to the relief on a proportionate basis. Para 15)"
Similar opinion has been held in the under mentioned cases.
G V Corporation Vs ITO 133 ITJ 178 2. CIT vs. Arun Excello Foundation Private Limited 86 DTR 99 3. CIT vs. Elegant Estates 79 Taxmann. com 397 (Madras) 4. ACIT vs. Ekta Sankalp Developers 53 Taxmann.com 75 (Mumbai Tribunal) 9. Following the ratio laid down by the aforesaid Courts, I hold that merely because the appellant had violated the provision of section 801B(10) of the Act in respect of 26 units which exceeded the area of one thousand sq. ft. and also with regard to 6 units sold 10 the same A.Y.2014-15 individuals and their relatives, the deduction u/s. 80-IB(10) cannot be denied in entirety. The appellant would be entitled for deduction u/s. 801B(10) on pro rata basis in respect of units which fulfilled all the conditions. During the course of appellate proceeding the submitted that the pro rata profit on sale of flats/units which fulfils all the conditions as prescribed in section 80'13(10)- is to the extent of Rs.7,30,08,477/- being 54%, of the profit from construction business at Rs.13,52,00,883/-. The Assessing Officer is accordingly directed to allow pro rata deduction with respect to the profits from sale of units fulfilling all the conditions as prescribed under section 80-IB(10) of the Act. However, the AO is directed to verify the calculation part of the pro rata claim while giving effect to this order.”
On appraisal of the above mentioned finding, we noticed that the CIT(A) has allowed the claim of the assessee to the extent of flats/units which fulfills all the conditions as required under provisions of Section 80IB(10) of the I. T. Act, 1961 and only 26 units were found which were not fulfilling the criteria as desired under rules/Act. Moreover at the time of arguments, the Ld. Representative of the assessee has placed reliance upon the decision of the Hon‟ble Mumbai Bench in the case of titled as Om Swami Smaran Developers (P.) Ltd. Vs. ITO, Ward-8(2)(4), Mumbai (2018) 90 taxmann.com 267. The relevant finding has been given in para no. 8 which is hereby reproduced as under.:-
“8. We have heard rival contentions and perused the material available on record. As could be seen from the facts available on record, the assessee has developed a housing project under the slum rehabilitation scheme of the Government. It is also a fact that in the impugned assessment year for the first time, the assessee had offered profit from the said housing project amounting to Rs. 1,48,66,701 and has claimed deduction thereof under section 80IB(10) of the Act. There is no dispute that the assessee has sold three flats to a single individual in the said housing project. The Assessing Officer has disallowed assessee's claim of deduction alleging violation of conditions of clause-(f) of section 80IB(10) of the Act, which provides that more than one residential unit in a housing project cannot be sold to a person / individual. The factual matrix of the case reveals that except violation of conditions of clause-(f) of section 80IB(10) of the Act, in the sense that the assessee has sold A.Y.2014-15 three flats to a single individual, there is no allegation by the Departmental Authorities that any other conditions of section 80IB(10) of the Act in respect of any other flats of the housing project are violated. Thus, the issue before us is whether for violation of the conditions of clause-(f) of section 80IB(10) of the Act in respect of two flats, assessee's claim of deduction in respect of entire housing project can be disallowed. In our view, reading the provisions of section 80IB(10) as a whole and the legislative intent / object behind introducing such provision into the statute would reveal that it is a beneficial provision introduced by the legislature to deal with the housing problem. Thus, such provision has to be construed liberally. Undisputedly, except violation of conditions of clause-(f) of section 80IB(10) of the Act in respect of two flats, all other conditions of section 80IB(10) of the Act are fulfilled in respect of the housing project which is evident from the fact that there is no other allegation made by the Assessing Officer. Therefore, in our view, for violation of conditions of clause-(f) of section 80IB(10) of the Act in respect of two flats, the deduction for the entire housing project or in respect of other flats which otherwise are complying to the conditions of section 80IB(10) cannot be disallowed. The disallowance, if any, has to be restricted to the flats which violate the conditions of section 80IB(10). The Hon'ble Jurisdictional High Court in CIT v. Brahma Associates[2011] 197 Taxman 459/9 taxmann.com 289/333 ITR 289 (Bom.), has held that deduction under section 80IB(10) can be allowed on proportionate basis in respect of flats which fulfilled the conditions of section 80IB(10). The same view was expressed by the Hon'ble Madras High Court in the decisions cited by the learned Authorised Representative. In our view, the ratio laid down in the aforesaid decisions, though, are in the context of clause-(c) of section 80IB(10) of the Act, however, they will apply to the facts of the present case as there is not much difference in the object for which section 80IB(10) was introduced, even after introduction of clause-(e) and (f) to section 80IB(10) by Finance Act, 2009. Therefore, applying the ratio laid down in the decisions cited before us, we hold that the assessee will be entitled to deduction under section 80IB(10) of the Act proportionately in respect of flats which fulfilled all the conditions of section 80IB(10) of the Act. Accordingly, we direct the Assessing Officer to compute deduction under section 80IB(10) of the Act. Ground raised is partly allowed.”
6. Taking into account all the fact and circumstances, we are of the view that the issue has duly been settled in view of the law mentioned above, hence, we are of the view that the CIT(A) has decided the matter of A.Y.2014-15 controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we decide all the issues in favour of the assessee against the revenue.