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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S.PANNU & SHRI AMARJIT SINGH
ORDER PER G.S.PANNU,A.M:
The captioned appeals are cross appeals by the assessee and Revenue pertaining to A.Y.2010-11 and involve common issue, therefore, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
The cross appeals are in relation to an order passed by CIT(A)-II, Thane dated 15/07/2014, pertaining to the Assessment Year 2010-11, which in turn has arisen from the order passed by the Assessing Officer dated 26/03/2013 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
Substantively speaking, in cross-appeals, the only issue raised by the assessee and Revenue relate to the deduction claimed by the assessee u/s.80IB(10) of the Act of Rs.19,83,97,563/- in the return of income. Before we proceed to adjudicate the respective grievances, we deem fit and proper to reproduce hereinafter the respective Grounds of appeal raised before us.
4. The following grounds have been taken by assessee:-
“1.On the facts and in law, the Hon. CIT (A) erred in re-computing the profit of the housing project eligible for deduction u/s 80IB (10) thereby confirming addition to the extent of Rs.1,02,02,930/- on the basis of provisions of sec. 80IB (13) r.w.s. sec. 80IA(10) not appreciating that such disallowance was not justified by law and by facts. 2. Your appellant craves leave to add, alter, amend, delete and/or vary any of the above ground of appeal
/relief claimed at any time before the decision of the appeal.”
5. The Grounds taken by Revenue are as under:-
"Whether the Ld. CIT(A) erred in not appreciating the fact that FSI consumed by the 3 buildings MN-6 , MN-7 and MN-8 itself is only 4067.45 Sq. Mts, or 43,782 Sq. Ft. and the condition of the requirements of land which should be more than 1 Acre as per provisions of section 80IB(10) plot of land is not fulfilled. 02. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) erred in application of CBDT notification No. 205/3/2001/ITA-ll Ft. 4/5/2001 by treating additional housing project constructed by the assessee by -consuming TDR on existing housing project site as infrastructural facility u/s. 80IB(10) ?." 03. The order of the CIT(A) may tee vacated and that of the Assessing Officer be restored. 04. The appellant craves for leave to add, alter, amend and modify any of the above grounds of appeal. “
6. Briefly put, the relevant facts are that the assessee before us is a partnership firm consisting of two partners namely M/s. Kashish Park Realty Pvt. Ltd. and Shri Saurabh Aggarwal. The assessee firm is engaged in the business of construction and was incorporated on 01/12/2003. For the assessment year under consideration, it filed return of income declaring nil income which, interalia, included a claim of deduction u/s.80IB(10) of the Act of Rs.19,83,97,563/-. Notably, the deduction u/s.80IB(10) of the Act was claimed with respect to the profits derived from development and construction of a housing project situated at survey No.2 to 21, 37,38,39 and 40(part) on L.B.S. Road, Thane (W). In the return of income assessee had determined profit on the construction of the project at Rs.19,83,97,563/- and the entire amount was claimed as exempt u/s. 80IB(10) of the Act. In the assessment finalised by the Assessing Officer u/s.143(3) of the Act, he found assessee ineligible for the claim of deduction u/s.80IB(10) of the Act for the reasons assigned therein, which we shall detail a little later. Further, the Assessing Officer also made an alternate finding that if at all assessee is found eligible for the claim of deduction u/s.80IB(10) of the Act, even then the quantum of profits declared by the assessee from the project was unacceptable and for that reason he scaled down the claim of deduction by relying on section 80IA(10) r.w.s. 80IB (13) of the Act. According to the Assessing Officer, the net profit eligible for the deduction as claimed by the assessee was to be reduced by a sum of Rs.6,18,67,801/-. Both the aspects were challenged by the assessee in appeal before the CIT(A). The CIT(A) upheld the claim of the assessee for the deduction u/s.80IB(10) of the Act in principle but he upheld the action of the Assessing Officer in recomputing the profit of the housing project eligible u/s.80IB(10) of the Act partially in as much as according to him the deduction was liable to be scaled down by a sum of Rs.1,02,02,930/- and not Rs.6,18,67,801/- as done by the Assessing Officer.
In this background, Revenue in its appeal has challenged the action of the CIT(A) in holding the assessee eligible for a claim u/s.80IB(10) of the Act in terms of aforestated Grounds of appeal whereas, assessee in its cross appeal has assailed decision of the CIT(A) in part sustaining the scaling down of deduction u/s.80IB(10) of the Act. Since the cross appeals relate to same issue of the claim of deduction u/s.80IB(10) of the Act, the same are being dealt with together.
Now, we may take up for consideration the relevant facts and the basis for the Assessing Officer to deny the claim of deduction u/s.80IB(10) of the Act. Notably, the assessee claimed the deduction in relation to the profits derived from construction of three buildings viz., MN-6, MN-7 and MN-8 which covered the total estimated area of 43,782 sq.ft. situated on LBS Road, Thane (W).
It was noticed that the land on which the housing project is constructed was originally owned by one M/s. FGP Ltd., (Formerly known as Fiberglass Pilkington Ltd.,). It transpires that the said concern owned land admeasuring 58,267.79 sq.mtrs, including the survey numbers on which the impugned project of the assessee was constructed. Out of the said land, M/s. FGP Ltd., sold development rights of certain lands to M/s.Kashish Park Realty Pvt. Ltd., and M/s. Ladam Homes Ltd., Both these concerns constructed their projects on the lands obtained from M/s. FGP Ltd.,. The relevant discussion in the Assessment Order reveals that on a part of land owned by FGP Ltd., Thane Municipal Corporation (hereinafter referred to as the ‘TMC’) had put certain reservations on account of which M/s. FGP Ltd., was entitled to TDR-FSI of 9,591 sq. Mtrs, as a compensation for the land to be acquired by TMC. Subsequently M/s.FGP Ltd., entered into an agreement with the assessee firm on 03/12/2003 for transfer of TDR-FSI of 9,591/- sq. mtrs. for a total consideration of Rs.4,09,43,549/-. Alongwith FSI, M/s.FGP Ltd., also transferred land admeasuring 12,484/- sq.mtrs. to the assessee firm. The consideration aforestated worked out to Rs.386.10 per sq. ft. The assessee firm constructed buildings MN-6, MN-7, MN-8 and Tower A by utilising the aforesaid FSI. In the year under consideration, assessee sold units in buildings MN-6, MN-7 and MN-8 and the profits derived therefrom of Rs. 19,83,97,563/- have been claimed as exempt u/s.80IB(10) of the Act.
The objections of the Assessing Officer to disallow the deduction u/s.80IB(10) of the Act are twofold. Firstly, as per the Assessing Officer, the assessee firm was a sham entity and he doubted the genuineness of the assessee firm. In coming to such a decision, varied reasons have been given by the Assessing Officer. For instance, as per the Assessing Officer, it was M/s. Kashish Park Realty Pvt. Ltd., which had the right to purchase any additional FSI from M/s. FGP Ltd.; and, when in the month of November 2003, it was offered to M/s.Kashish Park Realty Pvt. Ltd., it was only on the request of M/s. Kashish Park Realty Pvt. Ltd., that FSI and TDR rights were transferred by the M/s. FGP Ltd., to the assessee firm. It is also noted that the actual FSI was granted by TMC somewhere in 2006 whereas the payments were partly made on an earlier date even in the period 2003-04. The Assessing Officer also noted that when the new FSI came in, the project of M/s. Kashish Park Realty Pvt. Ltd., was already in progress and if the development of the land under the new FSI was also to be undertaken by it, the same would not be eligible for Section 80IB(10) benefits and therefore, according to the Assessing Officer this prompted the incorporation of the assessee-firm in which M/s. Kashish Park Realty Pvt. Ltd., is also a partner. All these aspects have been made out by the Assessing Officer to doubt the genuineness of the assessee firm and its claim u/s.80IB(10) of the Act. However, when all these aspects were challenged by the assessee in appeal before CIT(A), he has disagreed with the Assessing Officer. Quite clearly in para 4 (a) at page 40 of his order, the CIT(A) concludes “that there is nothing on the record to doubt the genuineness of the appellant firm and accordingly, the arguments of the Ld. A.R. on this account are found acceptable”. Pertinently, when we peruse the Grounds of appeal raised by the Revenue before us, there is no challenge to this finding of the CIT(A) and rather the challenge is based only on the other objections raised by the Assessing Officer, namely, non-adherence of assessee’s project to the requirement of being on a land measuring not less than one acre, etc. Therefore, we do not dwell in further on all such aspects in the assessment order which deal with Assessing Officer’s stand about the ingenuineness of the assessee firm, which now stands repudiated as per the order of the CIT(A); and, which is not challenged by the Revenue before us.
The other reasons advanced by the Assessing Officer were that the FSI used by the assessee for the three buildings in question was 4067.45 sq.mtrs which was less than one acre. As per the Assessing Officer, in terms of Sub- clause-(b) of Section 80IB (10) of the Act, the eligible housing project is to be on the size of plot of land which has minimum area of one acre. Hence, as per the Assessing Officer, the three buildings have been constructed on land area less than one acre and therefore, deduction under section 80 IB (10) was not allowable. Secondly, the Assessing Officer also noted that it was a part of an existing housing project in as much as M/s.Kashish Park Realty Pvt. Ltd., and M/s. Ladam Homes had carried out their own construction on respective parts of land sold to them by M/s.FGP Ltd. Therefore, according to him, being a part of an existing project, it was not eligible for the benefit of Section 80IB(10) of the Act.
On alternate basis, the Assessing Officer was of the view that if on a later date assessee is found entitled to the benefit of Section 80IB(10) of the Act, yet the quantum of deduction was not justified as the profits of the housing project were overstated and he applied the provisions of Section 80IB(13) read with Section 80IB(10) of the Act and scaled down the profit by a sum of Rs.6,18,67,801/-.
Before the CIT(A), the assessee raised various objections with respect to the stand of the Assessing Officer and on the issue of the area of plot being less than one acre, the CIT(A) found that the total area covered under the housing project constructed by the assessee firm was Rs.8,952.45 sq.mtrs. On this aspect the finding of the CIT(A) is as follows:- “The A.O. has raised the issue that the area of the plot on which the appellant firm has constructed a housing project is less than one acre. This observation of the A.O. is devoid of any merits as from the development agreement dated 3.12.2003 itself it is clear that the appellant firm has acquired development rights of FSI to the tune of 9851.81 sq. mtrs. Undisputedly, the buildings of the housing projects developed by the appellant firm have been constructed on the open plot of land and none of the buildings has been constructed on the existing buildings. During the yea under consideration, the appellant firm has constructed buildings MN-6, MN-7 & MN-8 covering total area of 4067.46 sq.mtrs. Further, during the immediately succeeding assessment year, the appellant firm has constructed Towers "A" & "B" on total area of 4885 sqmtrs. on which deduction u/s.80IB(10) has also been claimed. Thus, the total area covered under housing projects constructed by the appellant firm works out to 8952.45 Sq.. mtrs. These facts are also verifiable from the para 9 of the assessment order where A.O. himself has considered total area at 96,364 sq.fts. equivalent to 8842.36 sq.mtrs. From the approved lay out plan dt. 29/3/2006, it is also clear that the FSI utilized is 0.98 only and hence, the plot area is certainly more than the built up area. However, the A.O. has erroneously considered the area of building constructed during the year under consideration only ignoring the area of the buildings constructed in subsequent assessment year. In view of this factual position duly supported from documentary evidences, it is clear that the land area utilized under the housing projects of the appellant firm is more than one acre ( 4,000 sq. mtrs.). Thus, I hold that the findings of A.O. in this regard are not correct.”
Against the aforesaid decision of the CIT(A), Revenue has canvassed in its appeal that the CIT(A) should have appreciated that the deduction u/s.80IB (10) of the Act has been claimed with respect to three buildings MN-6, MN-7 and MN-8 which consumed land area of 4067.45 sq.mtrs or 43,782/- sq.ft which was less than one acre. Secondly, the learned DR also submitted that the CIT(A) erred in granting relief to the assessee by placing reliance on the CBDT Circular No. 205/3/2001/ITA –II (supra) and that assessee could not prove that the instant housing project was an independent project and therefore, the Assessing Officer was justified in denying the claim of deduction.
On the other hand, learned representative for the assessee defended the decision of the CIT(A) on this aspect. Firstly it has been brought out that the entire piece of land was owned by M/s.FGP Ltd., and only a part of it was transferred earlier to M/s. Kashish Park Realty Pvt. Ltd., and M/s. Ladam Homes Ltd., and so far as the land transferred to the assessee is concerned, it measured 12,484 sq.mtrs. alongwith FSI of 9851.82 sq. mtrs. In this context, our attention was drawn to page 31 and 32 of the order of the CIT(A) wherein the bifurcation of land area alongwith FSI developed by different entities have been tabulated.
On this basis, it is sought to be demonstrated that the plot area of the assessee firm was 12,484 sq.mtrs. and the total FSI transferred was 9,581.82 sq.mtrs and therefore, the area of land was more than one acre. According to learned representative, the Assessing Officer erred in considering only the land covered by the three buildings in question and ignoring the area which was covered by Tower A & B which was also constructed by the assessee though in the subsequent period.
With regard to the objection of the learned DR based on the Ground of appeal No.2 of the Revenue, that the project was not an independent project. Learned representative explained that the assessee firm had acquired the FSI from M/s. FGP Ltd., vide agreement dated 03/12/2003 and it was only thereafter, the building plans were sanctioned by the TMC vide commencement certificate dated 10/11/2006, a copy of which has been placed at page 63 of the paper book. It was therefore, pointed out that prior to this date, no development plan of the buildings MN-6, MN-7, MN-8 and Tower-A were available and therefore, it cannot be said that assessee’s project was a part of an existing project. Therefore, according to him, the project of the assessee was independent project eligible for the benefits of Section 80IB(10) of the Act.
18. We have carefully considered the rival submissions. The first objection of the Assessing Officer is based on Sub-Clause (b) of Section 80IB(10) of the Act which prescribes that in order to claim the deduction, the housing project shall, interalia, be on the size of a plot of land which has minimum area of one acre. The case made out by the Assessing Officer is that since the claim of deduction is with respect to the profits derived from construction and development of three buildings namely MN-6, MN-7 and MN-8, the land covered by such buildings alone should be considered to examine its compliance with Sub-Clause (b) of Section 80 IB(10) of the Act. On this aspect, in our considered opinion, the findings of CIT(A) which we have extracted in the earlier part of this order are justified and do not require any interference. As brought out by the CIT(A), the total area of land with the assessee is 12,484 sq.mtrs with an FSI of 9,581.82 sq. mtrs. The CIT(A) further notes that apart from constructing three buildings in this year, in the immediately subsequent assessment year, the assessee firm constructed Towers A & B of total area of 4885 sq. mtrs and thus, the total area covered by the housing project constructed by the assessee firm works out to 8952.45 sq. mtrs, which is more than one acre. We find no reasons to negate the findings of the CIT(A), which are fair and proper. Apart therefrom, we find that the case of the Assessing Officer is that the area of three buildings is 4067.46 sq. mtrs or 43,782 sq.ft which is less than one acre. At the time of hearing, learned representative for the assessee pointed out that even such conclusion of the Assessing Officer is factually untenable, in as much as similar issue has come up before the Pune Bench of the Tribunal in the case of Bunty Builders vs. ITO reported at 127 ITD 286. In the said decision, it has been explained that one acre would mean 4046 sq.mtrs or 43,560 sq.ft. Reliance has also been placed on the decision of Pune Bench of the Tribunal in the case of Baba Promoters and Development vs. ITO 25 Taxmann.com 84 (Pune) wherein also it has been accepted that one acre would mean 4046 mtrs or 43,560 sq.ft. Considered in this light, even if one goes along with the stand of the Assessing Officer and consider only the land covered by the three buildings even then the area in question fulfils the requirement of being not less than one acre. Therefore, on this aspect, we find no merit in the plea of the Revenue and the decision of the CIT(A) is affirmed.
19. The other objection by the learned DR is that the project of the assessee was not an independent project, the same has been dealt with by CIT(A) in para -4(b) On this aspect the CIT(A) notes that the main reason given by the Assessing Officer was that M/s. Kashish Park Realty Pvt. Ltd. which is one of the partners of the assessee firm had initially the right to acquire TDR-FSI from M/s. FGP Ltd., However, M/s. Kashish Park Realty Pvt. Ltd., subsequently decided not to acquire the FSI-TDR and requested M/S. FGP Ltd., to sell the same to the assessee firm. As per the Assessing Officer, if M/s. Kashish Park Realty Pvt. Ltd., would have developed the project by acquiring TDR-FSI, it would not be entitled to the claim of deduction u/s.80IB(10) of the Act. In this context, the CIT(A) has noted that the CBDT communication dated 04/05/2001(supra) permitted the claim of deduction u/s.80IB(10) of the Act even where the additional housing project was constructed by consuming TDR’s on an existing housing project, provided the project is taken up by a separate undertaking having books of accounts maintained in such manner to ensure ascertaining of correct profits. On this basis, the CIT(A) found Assessing Officer’s objection as untenable because as per the CBDT, the deduction was available even on construction of a housing project on TDR-FSI acquired in respect of existing housing project site. In our considered opinion no fault can be found with the conclusion by the CIT(A) on this aspect. The charge made by the Assessing Officer is that there is a collusive arrangement in order to claim the benefit u/s.80IB(10) of the Act; this charge, in our view, is not maintainable because even if M/s. Kashish Park Realty Pvt. Ltd., would have carried out the development, in terms of CBDT communication dated 04/05/2001(supra), such project would also be eligible for the benefits of Section 80IB(10) of the Act. Thus, the order of CIT(A) on this aspect is also affirmed. Considering all these aspects, we confirm the order of CIT(A) and therefore, so far as the grounds raised by the Revenue are concerned the same are dismissed.
20. Now, we may take up the appeal of the assessee wherein it has challenged the addition of Rs.1,02,02,930/- made by invoking Section 80IB(13) read with Section 80IA (10) of the Act. On this aspect, the relevant facts are that the Assessing Officer noted that assessee had acquired the development rights of the land from M/s. FGP Ltd., at a price much lesser than the market price and therefore, there was unreasonable profits generated for the purpose of claiming deduction u/s.80IB(10) of the Act. Secondly, the Assessing Officer noted that projects developed by M/s. Kashish Park Realty Pvt. Ltd., was in the vicinity and assessee firm was using common facility of other projects and estimated value of such common amenities at Rs.70,05,120/- which according to him showed excessive profits earned by the assessee to that extent. Thus, the Assessing Officer determined total addition of Rs. 6,18,67,801/- on this account, by applying the Section 80IA(10) read with Section 80IB(13) of the Act. The CIT(A) deleted the addition of Rs.70,05,120/- and this aspect has become final as the same has not been challenged by the Revenue before us. So, however with regard to the charge of the Assessing Officer that assessee has paid lesser price to M/s. FGP Ltd., for purchase of TDR-FSI, the CIT(A) noted that consideration at Rs.386.10 per sq.ft was fixed in 2001 itself by M/s. Kashish Park Realty Pvt. Ltd., when assessee was not even in existence. The CIT(A) noted that the ready reckoner price at that point of time was Rs.270 per sq.ft, thus he inferred that the market rate was 43% higher than the ready reckoner rate. In the year 2003, when assessee transacted for the purchase of TDR-FSI from M/s. FGP Ltd., the ready reckoner rate was Rs.372 per sq.ft and on the same analogy of enhancing the rate by 43%, CIT(A) held that the negotiated price ought to have been Rs.539.96 per sq.ft. as against which assessee had paid only Rs.386.10 per sq.ft; and, therefore, he held that assessee had made unreasonable profits which was to be restricted in terms of Section 80IA(10) and 80IB(13) of the Act. The CITA) determined an amount of Rs.1,02,02,903/- on this account on proportionate basis considering the area sold during the year and the balance of the addition has been deleted by him.
21. Before us, learned representative for the assessee pointed out that the CIT(A) ought to have allowed complete relief in as much as the provisions u/s.80IA(10) read with Section 80IB(13) of the Act are not applicable at all, since assessee has no close connection with M/s.FGP Ltd., from whom the development rights have been purchased.
22. On this aspect, learned DR has primarily relied on the order of the CIT(A), which we have already narrated in the earlier parts and not repeated for the sake of brevity.
23. We have carefully considered the rival submissions. Section 80IB(13) of the Act prescribes that provisions of Section 80IA(10) of the Act, so far as may be, shall apply to the eligible business referred to in Section 80IB(10) also. Section 80IA(10) which has been invoked by the Assessing Officer in the present case reads as under:- Sec.80IA(10) “Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom: Provided that in case the aforesaid arrangement involves a specified domestic transaction referred to in section 92BA, the amount of profits from such transaction shall be determined having regard to arm's length price as defined in clause (ii) of section 92F.”
24. The perusal of the aforesaid would show that it entitles the Assessing officer to recompute the profits and gains of eligible business under the circumstances prescribed therein. However, it is clear that the prohibition contained therein is invited only due to close connection between the assessee carrying on the eligible business and any other person. Further, it also requires the Assessing Officer to establish that the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business. What we are only trying to emphasise is that the first and foremost requirement in order to invoke Section 80IA(10) is to establish the close connection between the assessee herein and M/s. FGP Ltd., with whom the transaction of acquisition of TDR- FSI has been done. On this aspect, there is not even an allegation by the Assessing Officer, much less reference to any evidence in this regard. Before us, it has been pointed out that M/s. FGP Ltd., and assessee firm are unrelated parties and therefore, there is no question of invoking Section 80IA(10) of the Act qua the transaction of purchase of TDR-FSI by the assessee. Thus, on this pertinent point itself we find that the invoking of Section 80IA(10) read with Section 80IB(13) of the Act is untenable. We hold so. Thus, we hereby set aside the order of the CIT(A) to the above extent and allow the appeal of the assessee.