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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-2, Nashik dated 29-03-2014 for the assessment year 2010-11. The assessee has filed cross objections (CO) against the aforesaid order of Commissioner of Income Tax (Appeals).
The brief facts of the case as emanating from records are : The assessee is a builder and developer. The assessee filed its return of income for the impugned assessment year on 15-10-2010 declaring total income of Rs.1,25,52,870/- after claiming deduction u/s. 80IB(10) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) on the housing project “Green Meadows”. The case of the assessee was selected for scrutiny under CASS. Accordingly, statutory notice u/s. 143(2) of the Act was issued to the assessee on 24-08-2011. The Assessing Officer in scrutiny assessment proceedings made following additions in the income returned by the assessee : i. Sales Rs.1,10,00,000/-. [Reduction in sales] ii. Receipts not related to 80IB Rs.25,62,908/-. [Receipts not eligible for deduction u/s. 80IB(10)] iii. Deduction u/s. 80IB(10) Rs.1,25,56,840/-. iv. Liquidated Damages Rs.1,32,19,200/-.
Aggrieved by the assessment order dated 14-03-2013 passed u/s. 143(3), the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) deleted all the additions made by the Assessing Officer and allowed the appeal of assessee
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in toto. Against the findings of Commissioner of Income Tax (Appeals), the Revenue is in appeal before the Tribunal.
Shri Amol Kamat representing the Department in respect of grounds raised by the Revenue submitted as under :
Sales Rs.1,10,00,000/-.
3.1 The assessee sold commercial shops to M/s. National Reality Limited in period relevant to assessment year 2009-10. The assessee allegedly received Rs.1,10,00,000/- for carrying out some modification work. The modification contract did not materialize, hence the assessee refunded Rs.1,10,00,000/- to M/s. National Reality Limited and reduced the said amount from the sales pertaining to the period relevant to assessment year 2010-11. Since, the amount refunded is in respect of sales for assessment year 2009-10, the reduction of sales in assessment year 2010-11 is not allowable. If the assessee has committed mistake in recording the sale for assessment year 2009-10 then it can be corrected in that assessment year only. If it is allowed in the current assessment year it will reflect incorrect picture of sales and lead to incorrect computation of taxable profits for current assessment year.
Receipts unrelated to Section 80IB(10) deduction Rs.25,62,908/-
3.2 The assessee has received Rs.25,62,908/- in respect of parking charges, society charges, legal charges, electricity charges, extra amenities charges etc. These receipts are not directly related to the profits of housing project. There is no direct nexus between the amount received by the assessee under above mentioned heads with the profit of housing project eligible for deduction u/s. 80IB(10). The aforesaid receipts may be attributable to the housing project but are not derived from the house
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project. Hence, these receipts cannot be considered as part of income eligible for claiming deduction u/s. 80IB(10) of the Act.
Deduction u/s. 80IB(10) Rs.1,25,56,840/-
3.3 During the course of scrutiny assessment proceedings the Assessing Officer found that in the housing project “Green Meadows” two residential units are having area in excess of 1500 sq. ft. The assessee has violated the provisions of section 80IB(10) for claiming deduction u/s. 80IB(10), hence, the assessee is not eligible for deduction under the aforesaid section in respect of income from housing project „Green Meadows‟.
Liquidated Damages Rs.1,32,19,200/-
3.4 During the assessment proceedings the Assessing Officer observed that the assessee has not followed accounting principles for claiming the expenditure of Rs.1,32,19,200/-. The expenditure does not pertain to the assessment year under appeal and hence, cannot be allowed as deduction. The Commissioner of Income Tax (Appeals) has allowed liquidated damages paid to M/s. National Reality Ltd. on the ground that the amount got crystallized on 10-01-2010 on settlement of claims and counter claims. Hence, the expenditure is allowable in assessment year 2010-11. However, the expenditure on liquidated damages does not pertain to the assessment year 2010-11 and hence, cannot be allowed as deduction in the assessment year under appeal.
On the other hand Shri Pramod Shingte appearing on behalf of the assessee vehemently defended the order of Commissioner of Income Tax (Appeals) and prayed for dismissing the appeal by the Revenue. The ld. AR submitted that the assessee entered into an agreement with M/s. National Reality Ltd. for sale of commercial premises admeasuring 43200 sq. ft. for
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a consideration of Rs.9,41,00,000/-. The assessee further agreed to carry out certain modifications in the commercial area sold to M/s. National Reality Ltd. for which an amount of Rs.1,10,00,000/- was paid by the said company to the assessee. Subsequently, the modification to be carried out by the assessee were dropped, consequently the amount of Rs.1,10,00,000/- received on account of modifications was refunded by the assessee. The accounting treatment for recording the aforesaid transaction could have been either by reducing the sales or debiting the amount to P & L account. The assessee preferred the former and reduced the amount from the sales. It is not disputed by the Revenue that the amount has not been refunded by the assessee to M/s. National Reality Ltd. in the impugned assessment year. The ld. AR referred to book entries at pages 105, 106 and 130 of the paper book. The Commissioner of Income Tax (Appeals) appreciated the facts on record and deleted the addition.
4.1 In respect of addition of Rs.25,62,908/- on account of receipts not relatable to deduction u/s. 80IB(10), the ld. AR submitted that the Assessing Officer has erred in holding that the receipts on account of parking charges, society charges, legal charges, electricity charges, extra amenities charges etc. are not derived from the housing project „Green Meadows‟. The aforesaid receipts have direct nexus with the development of housing project and thus, the income generated from such receipts is eligible for deduction u/s. 80IB of the Act.
4.2 In respect of disallowance of entire profits eligible for deduction u/s. 80IB(10) the ld. AR submitted that Flat Nos. C-401 and C-404, C-402 and C-403 were combined as a result the combined area of the flats exceeded 1500 sq. ft. The Assessing Officer instead of disallowing proportionate deduction u/s. 80IB(10) disallowed the entire amount. The Hon‟ble
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Calcutta High Court in the case of Bengal Ambuja Hsg. Dev. Ltd. Vs. DCIT in Income Tax Appeal No. 458 of 2006 decided on 05-01-2007 has held that in case of such violation, the assessee is eligible for claiming proportionate deduction. Similar view has been taken by the Hon‟ble Madras High Court in the case of Vishwas Promoters Pvt. Ltd. Vs. ACIT reported as 255 CTR 149 and the Pune Bench of Tribunal in the case of DCIT Vs. Magarpatta Township Development & Construction Co. reported as 141 ITD 682.
4.3 In respect of liquidated damages the ld. AR submitted that the assessee entered into agreement dated 03-08-2007 with M/s. National Reality Limited for sale of land along with constructed building comprising of basement, ground floor and second floor having aggregate constructed area of 43200 sq. ft. to be used as a Commercial Mall. As per the agreement, the assessee was to hand over the possession of constructed building on or before 31-03-2008 failing which the assessee was required to pay a sum of Rs.14,68,800/- per month as liquidated damages. The assessee handed over the building to M/s. National Reality Limited on 03-10-2008. The assessee disputed the payment as delay occurred for the reasons beyond the control of assessee. On 10-01-2010 a settlement took place between both the sides, according to which the assessee was required to pay liquidated damages amounting to Rs.1,32,19,200/- within a period of 18 months. Since, liquidated damages payable to M/s. National Reality Ltd. got crystallized in the year under appeal i.e. on 10-01-2010, therefore, the said expenditure is correctly claimed in assessment year 2010-11.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. In first ground of
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appeal the Revenue has assailed deleting the addition of Rs.1,10,00,000/- on account of „reduction of sales‟. A perusal of purchase accounts of the assessee reveal that the assessee has received payment of Rs.10,51,00,000/- from M/s. National Reality Ltd. on account of sale of commercial mall premises. The aforesaid payment includes sale consideration Rs.9,41,00,000/- and advances for modifications Rs.1,10,00,000/-. Later on modifications were cancelled and the amount paid by the M/s. National Reality Ltd. towards modifications was refunded. The same is reflected in the books of the assessee at pages 105 and 106 of the paper book. The assessee at the time of refund of amount instead of debiting the amount to P & L account reduce the same from the sales consideration. This fact has not been disputed by the Revenue. Only contention raised by the Department is that the refund of amount was in respect of sales made in assessment year 2009-10. We find that as per books of assessee, reverse entry has been passed by the assessee on 31- 03-2010 i.e. in the period relevant to the assessment year 2010-11. It is an undisputed fact that the amount of Rs.1,10,00,000/- has been offered to tax in assessment year 2009-10. Now that the assessee has refunded the said amount, the assessee is entitled to claim the same on account of reduction of sale. We do not find any infirmity in the order of Commissioner of Income Tax (Appeals) in deleting the addition. Accordingly, ground No. 1 raised in the appeal is dismissed.
In second ground of appeal the Revenue has assailed deleting addition of Rs.25,62,908/- on account of receipts allegedly not eligible for deduction u/s. 80IB of the Act. The assessee has developed a housing project „Green Meadows‟ and claimed deduction u/s. 80IB on the said project. During the course of assessment proceedings the Assessing Officer observed that certain receipts viz. amount received on account of
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area difference, electricity charges, extra amenities, extra work, legal charges, society charges and parking charges have no direct nexus with the profits of housing project. The Commissioner of Income Tax (Appeals) reversed the findings of Assessing Officer by observing as under : “7.4 I have examined the issue and find the say to the AO that the said receipts did not have any direct nexus with the project Green Meadows to be inappropriate. The concerned receipts have been generated in the course of development of the housing project “Green Meadows” and are in-extricably connected thereto. These receipts cannot be seen in isolation. The deduction u/s. 80IB(10) is available to a person developing and building housing projects. Similarly, the deduction speaks of profits derived …………from such housing projects. As the word used in the section is “housing projects”, any receipt generated in the course of developing and building housing project would qualify for such deduction. It is not the case that the deduction is available in respect of sale consideration of constructed units only. The concerned receipts have arisen in the process of development of eligible housing project and therefore, the income derived there from would be entitled for deduction u/s. 80IB(10). The decisions relied by the appellant also support the claim. Accordingly, I hold that the AO was not justified in denying the deduction u/s. 80IB(10) in respect of profits derived from the concerned receipts to the tune of Rs.25,62,908/-. Ground no. 2C is accordingly allowed.”
We do not find any infirmity in the order of Commissioner of Income Tax (Appeals) in allowing deduction u/s. 80IB(10) on the aforesaid receipts. The receipts are in-extricably linked to development of the housing project. Accordingly, ground No. 2 raised in the appeal by Revenue is dismissed.
In ground No. 3 of the appeal, the Revenue has assailed allowing of deduction u/s. 80IB(10) despite the fact two residential units were having built up area exceeding 1500 sq. ft. The Flat Nos. C-401 and C-404 were combined to make one residential unit having approximate area of 2540 sq. ft. Similarly, Flat Nos. C-402 and C-403 were combined into one residential unit having approximate area of 2540 sq. ft. The Commissioner of Income Tax (Appeals) has disallowed proportionate deduction u/s. 80IB(10) on the said flats. Allowability of pro-rata deduction u/s. 80IB(10) on eligible residential units is no more res integra. We do not find any infirmity in the action of Commissioner of Income Tax (Appeals) in allowing
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proportionate deduction in line with the decision of Hon‟ble Calcutta High Court in the case of Bengal Ambuja Hsg. Dev. Ltd. Vs. DCIT (supra). Accordingly, ground No. 3 raised in the appeal by the Revenue is dismissed.
In ground No. 4 of the appeal the Revenue has assailed the action of Commissioner of Income Tax (Appeals) in allowing liquidated damages amounting to Rs.1,32,19,200/-. The assessee was required to handover the possession of land along with built up commercial building as per agreement dated 03-08-2007 to M/s. National Reality Ltd. on or before 31- 03-2008. There was delay of approximately 9 months in handing over the possession. As per terms and conditions of the agreement the assessee was under obligation to compensate M/s. National Reality Ltd. for delay in handing over the possession. The assessee disputed the payment of damages. The final settlement between the parties took place on 10-01-2010 i.e. in the period relevant to the assessment year 2010-11. Since, the amount got crystallized in the period relevant to the assessment year under appeal, the assessee rightly claimed the same as expenditure in assessment year 2010-11. In the backdrop of these facts the Commissioner of Income Tax (Appeals) allowed assessee‟s claim of liquidated damages. The facts have not been disputed by the Revenue. There is no reason to interfere with the well reasoned findings of the Commissioner of Income Tax (Appeals). Accordingly, ground No. 4 raised in the appeal by Revenue is dismissed.
The ground Nos. 5 to 7 raised in the appeal by the Revenue are general in nature, hence, require no adjudication.
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In the result, the appeal by the Revenue is dismissed.
Co No. 19/PUN/2016
The ld. AR of assessee stated at the Bar the he is not pressing grounds raised in the Cross Objections raised by the assessee. Accordingly, the same is dismissed as not pressed.
To sum up, the appeal by the Revenue and Cross Objections raised by the assessee are dismissed.
Order pronounced on Wednesday, the 31st day of October, 2018.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 31st October, 2018 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-2, Nashik 3. आयकर आयुक्त / The CIT-2, Nashik 4. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune