THE COMMISSIONER OF INCOME-TAX vs. M/S VARUN DEVELOPERS

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 08TH DAY OF FEBRUARY 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE NATARAJ RANGASWAMY I.T.A. NO.198 OF 2014 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE

C.R. BUILDING

QUEENS ROAD

BANGALORE. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX

CENTRAL CIRCLE -1 (1)

C.R BUILDING

QUEENS ROAD

BANGALORE. ... APPELLANTS (BY SRI.K.V. ARAVIND ADV.,) AND: M/S VARUN DEVELOPERS # 41, VITTAL MALLYA ROAD BANGALORE. ... RESPONDENT (BY SRI. A SHANKAR SENIOR FOR SRI. V. CHANDRASEKHAR AND M. LAVA ADVS.,) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 05.12.2013 PASSED

2 IN ITA NO.263/BANG/2013 FOR THE ASSESSMENT YEAR 2006-2007, PRAYING TO: (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED: 05.12.2013 BEARING IN ITA NO.263/BANG/2013 FOR THE ASSESMENT YEAR 2006-2007 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(1), BANGALORE. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2006-07. The appeal was admitted by a bench of this Court vide order dated 20.07.2015 on the following substantial questions of law: 1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee is entitled to deduction under section 80IB(10) of the

3 Act on proportionate basis in respect of the flats measuring less than 1500 square feet, without taking into consideration that the benefit under section 80IB(10) is in respect of the entire "housing project" and not in respect of the flats/units specific independently? 2. Without prejudice to first question of law, Whether on the facts and in the circumstances, the Tribunal was correct in holding that the assessee would be entitled to deduction under section 80IB(10) of the Act in respect of 12th and 13th floor flats, when the flats were combined and were measuring more than 1500 square feet? 3. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the assessee was entitled to deduction of the flats at the 12th and 13th floor when the assessee has not claimed benefit in the return of income filed, without revising the original return of income? 4. Whether on the facts and in the circumstances of the case, the Tribunal was

4 right in holding that the income of the assessee from project "Mantri Sarovar" has to be computed for the Assessment year 2006- 07 on the basis of "Project computation method" without appreciating that as per AS7 and AS9, the assessee has to follow percentage completion method as the assessee is a builder and developer? 2. When the matter was taken up today, learned senior counsel for the assessee submitted that first substantial question of law has already been answered in favour of the assessee by judgment of this court in (i) CIT VS. BRIGADE ENTERPRISES LTD', (2020) 120 TAXMANN.COM 346 (KAR.), (ii) CIT VS. SJR BUILDERS IT APPEAL NO.32 OF 2012 DATED 19.03.2012 (KAR.), and (iii) CIT VS. S.N.BUILDERS & DEVELOPERSIN ITA NO.393 OF 2014 DATED 07.01.2021 (KAR.), whereas, it is also submitted that second substantial question of law has been answered in favour of the assessee in (i) UCO BANK VS. CIT 237 ITR 889 (SC) (ii) STATE OF KERALA AND OTHERS

5 VS. KURIAN ABRAHAM PRIVATE LIMITED AND ANOTHER, 303 ITR 284 (SC), (iii) NAVNITLAL ZAVERI VS. K.K.SEN (1965) 56 ITR 198 (SC) and (iv) AZADI BACHAO ANDOLAN, 263 ITR 706 (SC). Similarly, it is pointed out that third substantial question of law is covered by NATIONAL THERMAL POWER CO. LTD. VS. COMMISSIONER OF INCOME TAX, 229 ITR 383 (SC). It is also urged that the fourth substantial question of law does not arise for consideration in the facts of the case. 4. Learned counsel for the revenue was unable to dispute the aforesaid legal proposition that three substantial questions of law have been answered in favour of the assessee. However, with regard to fourth substantial question of law, it is submitted that finding recorded by the tribunal on the issue covered by substantial question of law is contrary to law laid down by this court in CIT VS. M/S PRESTIGE ESTATE PROJECTS PVT. LTD. in ITA No.84/2010 (KAR)

6 dated 05.05.2020. 5. On the other hand, learned Senior counsel for the assessee submitted that the aforesaid issue does not arise for consideration in this appeal and arises only in connected matter that is I.T.A.No.207/2014. 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The first three substantial questions of law are answered in favour of the assessee for the reasons assigned by learned Senior counsel for the assessee in the judgments referred to supra. So far as fourth substantial question of law is concerned, it is pertinent to note that under Section 145(1) of the Act, the income chargeable under the head 'Profits and Gains of Business' shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The general provision is subject to accounting standards that the Central

7 Government may notify. The assessee is a builder and developer and not a construction contractor simplicitor. Accounting Standard- 7, titled construction contracts is applicable only in case of contractors and does not apply to the case of developers and builders which is evident from opinion rendered by expert advisory committee of ICAI. It is pertinent to note that the assessee had offered the income for Assessment Year 2007-08 and no income from the project was offered for the Assessment Year 2007-08 on the basis of project completion method and that either method of accounting finally lead to the same results in terms of profits and therefore, revenue neutral. In view of preceding analysis, the fourth substantial question of law is also answered against the revenue and in favour of the assessee.

8 In the result, the appeal fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss