ITO, WARD-36(2), KOLKATA, KOLKATA vs. M/S. SHREE KRISHNA DEVELOPERS, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “D”, KOLKATA BEFORE SH. S.S.GODARA, JUDICIAL MEMBER AND DR.A.L.SAINI, ACCOUNTANT MEMBER ITA No.1956/KOL/2014 [Assessment Year: 2008-09] vs ITO, M/s. Shree Krishna Ward-36(2), Aayakar Bhawan Developers, 78, Bentinck Poorva, 110, Shanitpally, 8th Street, 5th Floor, Kolkata- Floor,R.No.811,E.M.Byepass, 700001. Kolkata-700020. (Appellant) (Respondent) Appellant by Sh. K.Mondal, Sr.DR Respondent by Sh. A.Dudhwewala, Ld.AR Date of Hearing 24.09.2018 Date of Pronouncement 26.10.2018 ORDER PER S.S.GODARA, JUDICIAL MEMBER This Revenue’s appeal for AY 2008-09 arises against the order dated 07.07.2014 passed by Learned CIT(A)-XX, Kolkata in Appeal No.82/CIT(A)- XX/Range-36/2013-14/Kol involving proceedings u/s 143(3)/147 of the Income tax Act, 1961 (in short “Act”). Heard both the parties. Case filed perused. 2. The Revenue raised following substantive grounds in the instant appeal:- 1. “In the facts and circumstances of the case and in law, the CIT(A) has erred in not accepting the material facts brought on record by the AO that the built-up area of some of the residential units were exceeding 1500 sq.ft. 2. In the facts and circumstances of the case and in law, the CIT(A) has erred in not accepting the facts brought on record by the AO that the built-up area of commercial units were exceeding 2000 sq.ft. 3. In the facts and circumstances of the case and in law, the CIT(A) has erred in ignoring the fact that the built-up area was arrived by the AO in accordance with the assessee’s computation only by reducing 28% form super built up area.

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] 4. In the facts and circumstances of the case and in law, the CIT(A) has erred in not considering the servant quarter and balcony for computation of built-up area of the units. 5. In the facts and circumstances of the case and in law, the CIT(A) has erred in ignoring the fact that the assessee was just a work contractor under the meaning of explanation of section 80IB(10).” 4. Learned DR vehemently contained during the course of hearing that Learned CIT(A) has erred in law as well as on facts in treating the assessee to be eligible for claiming the impugned deduction u/s 80IB(10) amounting to Rs.1,52,91,705/-. Case file suggests that the very issue had arisen in preceding two AYs i.e. 2006-07 & 2007-08 involving ITA No.568/Kol/2013 & 1548/Kol/2010, respectively. A co- ordinate bench’s order dated 31.08.2018 has declined Revenue’s substantive very grievance vide following detailed discussion:- 7. “We have heard the arguments of both the sides and perused the relevant material available on record. As regards Ground Nos. 1 to 4 of the Revenue’s appeal, Ld. Representatives of both the sides have agreed that the issues raised therein are squarely covered in favour of the assessee by the decision of this Tribunal rendered in assessee’s own case for AY 2005-06 vide its own order dated 08.09.2017 passed in ITA No.348 & 349/Kol/2012. A copy of the said order is placed on record before us and perusal of the same shows that the similar issues involved in Ground Nos. 1 & 4 of the present appeal for AY 2006-07 have been decided by the Tribunal in favour of the assessee vide para No.7 to 9 of its order which read as under:-

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] infringement of the provision of sec. 80IB(10)(c) of the Act. The AO has determined the built up area of three flats by applying an average percentage of total built up area on the basis of total super built up area of the three flats to that of the whole project and calculated the built up area of the said three flats at 1540.8 sq. ft. each. The AO was of the opinion that flat No. BF, 7E and 8E situated vertically having been sold to one buyer in the relevant AY was one flat of built up area of 1752 sq. ft. which has been broken into two units to avoid being hit by sec. 80IB(10)(c) of the Act. The AO also found in Block C of the building plan that 1500 mm wide open terrace was not included in the built up area of the residential unit having such open terrace. Before the Ld. CIT(A), the assessee drew the attention of the Ld. CIT(A) that the method adopted by the AO for calculating the built up area is faulty and that there is no uniformity in the super built up charged to the buyer. It has also been brought to the knowledge of the Ld. CIT(A) that the evidence furnished by the assessee like building plan, architect certificate and the agreement with the buyer has been brushed aside by the AO and the AO has wrongly included the area of open terrace in respect of concerned flats to come to the conclusion that built up area is more than 1500 sq. ft. After taking note of the contention of the Ld. AR which is reproduced by the Ld. CIT(A) from pages 13 to 19, the Ld. CIT(A) concluded that the AO has not given any credence to the evidence furnished by the assessee like building plan, architect certificate, agreement with the buyer in order to prove the claim that the built up area was less than 1500 sq. ft. The Ld. CIT(A) rightly held that the AO erred in discarding the building plan submitted by the assessee which specifies the measurement of each unit is on record, and the calculation of built up area which was adopted by the AO by method of reverse calculation was totally unwarranted in the facts of the case. When the exact figures can be derived from the record submitted by the assessee, the AO resorting to estimation was an exercise not called for without finding any fault in the building plan and certificate of the architect which were submitted before the AO. The conclusion of the AO that the issue of 1500 mm wide open terrace cannot be sustained because the Coordinate Bench of this Tribunal of Ahmedabad Bench in the case of Amaltas Associates Vs. ITO (2011) 11 Taxman.com 420 (Ahd.) has held that while calculating the built up area of a residential unit, the area of Page | 3

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] open terrace shall not be included. We note that the AO erred in stating that flat No. BF, 7E and 8E are situated vertically whereas there are two residential units side by side on the same floor and the buyer was Shri Vivek Golcha. The Ld. CIT(A) has gone through the agreement with the buyer and has made a finding that the two residential units as per the sanctioned building plan and the architect certificate which certifies the built up area of the said unit as 858 and 894 sq. ft. which is much below the specified limit of 1500 sq. ft. The Ld. CIT(A) rightly relied on the Coordinate Bench decision of Bombay in the case of Emgeen Holdings (P) Ltd. Vs. DCIT (2011) 12 Taxmann.com 468 (Mum) wherein it has been held that even if flats were constructed or planned in such a way that two flats would be merged into one larger unit, as long each flat was an independent residential unit, deduction u/s. 80IB(10) of the Act could not be declined. The Ld. CIT(A) rightly took note of the fact that clause (f) of sec. 80IB(10) of the Act which restricts more than one unit to the same person or his relative is applicable w.e.f. 01.04.2010 and has no retrospective effect. We fully concur with the reasons adduced by the Ld. CIT(A) to reverse the finding of the AO which is factually and as per the law is correct and we do not find any infirmity in the order of the ld. CIT(A), therefore, we dismiss the ground of appeal of the revenue.

“The submission made by the assessee AOP in this connection was perused in light of the facts of the case and found that the assessee AOP has managed here also to show the BUA of the aforesaid flats in the way it requires to get deduction under section 80IB. From perusal of the building plan of Block-A (Ground floor) it may be seen that four Page | 4

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] rooms measuring each 2875mm x 1000 mm, 1750 mm x 5700, 7950 mm x 4075 mm and 1750 mm x 5700 mm have been shown as servant rooms, area measuring 3960mm x 3800 mm as rest room in the building plan only to maintain stipulated ratio of shop area/commercial area to avail deduction under section 80IB. But it appears very impractical for a commercial man to leave above stated area as servant rooms and rest room. As such the assessee has committed infringement of provisions of section 80IB(10)(d) of the I. T. Act, and liable to be treated as “ineligible” for deduction u/s. 80IB(10).”

Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to hold that the built up area of the commercial area was less than 2000 sq. ft. and well within the conditions laid down in section 80IB of the Act.

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] deduction u/s. 80IB(10) of the Act would not be declined was answered in the affirmative in favor of assessee. So, we note that even if the AO’s calculation is correct, still the build up area of the dwelling units comes to as high as 98.58% which is far above the 90% which is the yardstick prescribed by the Special Bench in Brahma Associates, (supra). These facts and the judicial precedents laid down by the Special Bench in the case of Brahma Associates, supra has been taken note of by the Ld. CIT(A) to overturn the finding of the AO which we confirm. Since we do not find any infirmity in the order of the Ld. CIT(A), therefore, we decline to interfere in the order passed by the ld. CIT(A). Therefore, this ground of appeal of revenue is dismissed.”

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] consideration of any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer, can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract/taken possession of the property or any part thereof, or the transferee being already in possession, continues in possession in part performance of the contract and has done some act in further of the contract and the transferee has performed or is willing to perform his part of the contract.

The deduction u/s 80IB(10) is admissible only to such assessees as are deriving profits from an undertaking a building and housing projects approved by the local authority and for such approval, the assessee must legally own the land which is an inalienable constituent of any housing project. The person doing only the work of developing and constructing the building structure on the authority of the approval granted to the land owner can not be said to be in the business of an undertaking, developing and building housing projects, but also on account of not having been granted the approval to execute the project in his own right, because that involves obligations that can be discharged only by the persons to whom approval is granted. In the instant case, the sanctioned plan for the housing project and completion certificate from the local authority had not been issued in the name of the assessee.

Moreover, it is to be stated that only the land owner in whose name the land stands and who is the owner of the project will get deduction u/s.8018(10) of the Act, and not the developer who is the contractor.In this case, the land is not owned by the assessee and the assessee merely acted as a developer. It is a fact that land is never registered' in the name of the developer, i.e. assessee and even the completion certificate is not given in the name of the assessee. In the fact and circumstances of the case, it may be stated that the acquisition of land legally as well as physically is intrinsic to an undertaking, developing and building housing project, is reinforced by the mechanism of approval by the local authority.

Since all the required permission from local authorities were not in the name of the assessee and even the completion certificate was also issued to one Shri Shanti Ranian Pal(CA), the assessee is not Page | 7

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] eligible for deduction u/s.8018(10) of the Act. In the instant case, the assessee totally failed to file the details i.e, copy of agreement with original land owner and evidence for acquiring such 'piece of land on which such projects were completed, The following facts are also lacking in this case:-

(i). The assessee was required to pay a consideration for the land.

(ii). The assessee was required to clarify the details of obtaining all the necessary permission from the competent authority and to pay necessary development Charges and other charges to the local authorities.

(iii). The assessee was required to advertise the development of the projects and to enrol members/customers in the housing project, to receive money from them, to issue receipts to them and for that purpose to enter into .the agreement for sale and for that purpose, the land owner agrees to appear before the sub-registrar and get the registration done in favour of the members.

(iv) The assessee was required to collect the amount from members and to complete the undertaking given to them and the entire responsibility of the managing the customer/members is of the developer and the land owner shall co-operate when required.

(v) The assessee was required to pay all the taxes, charges, levies in relation to the land shall be the responsibility of the developer.

Last but not least, it is further to be brought to your kind notice that this aspect in terms of Board's D.O. No. 58/Misc./2008/CIT(IT&CT) dated 2nd January, 2009 by Member (Revenue), C8DT, New Delhi, 8018 which is reproduced as below has not been properly analyzed in the instant :-

“CCIT, Ahmedabad-II has reported some interesting cases in which approval u/s.80IB(10) by the local authority had been given to the land owner but deduction has been claimed by the developer who was never granted any approval by the local authority. Reportedly, very large number of such cases have claimed deductions u/s.80IB(10). I am sure there would be many similar cases in your region which needed to be

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] looked into and investigated. If facts are properly marshalled, legal implications examined and assessment orders are well drafted, the gain to the Revenue could run into hundreds of crores. I would request you to find if there are cases involving similar issues in your region and then review the actions taken by the AO's while completing the scrutiny assessments.”

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] cost of the housing project and all project risks associated with project execution were borne by the AOP and not by anyone else. He submitted that the entire proceeds from sale of flats and other constructed spaces in the housing project were realized only by the AOP and considered as Revenue of the AOP in its books. He pointed out that even the entire income derived from development of the housing project was assessed only in the hands of the AOP for AY 2004-05 and onwards and none else. He contended that all the risks & rewards associated with the development of the housing project thus were borne & enjoyed by the assessee alone and merely because the assessee was not the legal owner of the land but the same was contributed by the members as their capital contribution cannot ipso facto lead to conclusion that the assessee was mere contractor not eligible for deduction u/s 80IB(10). In support of this contention, he inter alia relied on the decision of Hon’ble Gujarat High Court in the case of CIT vs Swastik Associates [2015] 231 taxman 0893 [Gujarat].

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] relying on the Memorandum explaining the provisions of Finance (No.2) Bill, 2009 through which the said Explanation was inserted into section that the objective of the said Explanation was to provide the tax benefit to the actual developer and not to person undertaking only works contract. As explained on behalf of the assessee before the authorities below as well as before us, eight persons holding lease hold rights in the land had decided to jointly undertake development of the housing project by forming themselves into an Association of Persons i.e. assessee in the present case. They contributed their individual lease hold rights to the AOP as their capital at mutually agreed value and the corresponding amounts were debited to the land cost in the books of the assessee AOP. Such cost of land was an integral part of the cost of the housing project and the entire risk associated with project was borne by the assessee alone and not by anyone else. Even the entire proceeds of the project from sale of flats and other constructed area spaces were realized only by the assessee and considered as its Revenue in the books of accounts. In their assessments completed for the relevant years including the year under consideration, the entire income derived from the development of the project was assessed in the hands of the assessee. It is thus clear that all the risks and rewards associated with the development of the housing project was borne and enjoyed by the assessee alone.

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] development and construction of housing project without owning the land. On further appeal, the Tribunal allowed the claim of the assessee for deduction u/s 80IB(10) holding that for claiming the said deduction, it was not necessary that the assessee must be the owner of the land. The Tribunal held that the assessee had acquired dominion over the land which he had developed by constructing housing project incurring expenses and also taking risks. Hon’ble Gujarat High Court upheld the order of the Tribunal holding that the assessee had a complete control over the land acquired and more significantly the risk element was entirely that of the assessee. Their Lordships observed that when the assessee had taken the full risk of executing the housing project and thereby making profit or loss as the case may be and invested its own funds in the execution of the project, there was no working as works contractor and Explanation to section 80IB(10) was not applicable. To the similar effect is the decision of Hon’ble Gujarat High Court in another case of CIT vs Swastik Associates (supra) wherein the claim of the assessee for deduction u/s 80IB(10) was allowed even though the assessee was not the owner of the land and approval was not issued to the assessee by the local authority keeping in view the entire risk of development of project undertaken by the assessee by making the investment and employing the resources required for the development of the project.

ITA No.1956/KOL/2014 [Assessment Year: 2008-09] 15. As regards the appeal of the Revenue for AY 2007-08 in ITA No.1548/Kol/2010 which is directed against the order of Ld.CIT(A)-20, Kolkata dated 10.05.2010, it is observed that the solitary issue involved therein relating to the deletion by Ld.CIT(A) of the disallowance made by the AO on account of assessee’s claim for deduction u/s 80IB(10) is similar to the one involved in AY 2006-07 which has already been decided by us in the foregoing portion of this order. Since all the material facts relevant to this issue as involved in AY 2007-08 as well as the arguments of Ld. Representative of both the sides are similar, we follow our decision rendered in AY 2006-07 and uphold the impugned order of Ld.CIT(A) allowing the claim of the assessee for deduction u/s 80IB(10) for AY 2007-08.” We adopt above detailed reasoning mutatis mutandi to affirm the CIT(A)’s finding deleting section 80IB(10) deduction disallowance. The Revenue is equally fair in not pointing out any exception in law or as facts in all assessment years. 6. In the result, this Revenue’s appeal is dismissed. Order pronounced in the open court on 26.10.2018.

Sd/- Sd/- (A.L.SAINI) (S.S.GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 26.10.2018 *Amit Kumar* Copy forwarded to: 1. Appellant- ITO, Ward-36(2), Aayakar Bhawan Poorva, 110, Shanitpally, 8th Floor, R.No.811, E.M.Byepass, Kolkata-700020. 2. Respondent- M/s. Shree Krishna Developers, 78, Bentinck Street, 5th Floor, Kolkata-700001. 1. CIT-Kolkata 2. CIT(Appeals)-Kolkata 3. DR: ITAT-Kolkata Benches Sr.P.S./H.O.O ITAT, KOLKATA