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Income Tax Appellate Tribunal, KOLKATA BENCH “A”, KOLKATA
Before: SH. P.M.JAGTAP & SH. S.S. VISWANETHRA RAVI
PER P.M.JAGTAP, ACCOUNTANT MEMBER These two appeals filed by the Revenue for AY 2006-07 & 2007-08 involve a common issue and the same therefore have been heard together and are being disposed of by a single consolidated order.
First we shall take up the Revenue’s appeal for AY 2006-07 in ITA No.568/Kol/2013 which is directed against the order of Ld.CIT(A)-20, Kolkata dated 03.12.2012. The solitary issue involved in this appeal relates 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) of the Income tax Act, 1961 (in short “Act”).
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The assessee in the present case is an Association of Persons (in short “AOP”) which is engaged in the business of development and construction of housing project. The return of income for the year under consideration i.e AY 2006-07 was filed by it on 31.10.2006 declaring a total income of Rs.12,000/- after claiming deduction of Rs.2,68,19,865/- u/s 80IB(10) of the Act. The said return was initially processed by the AO u/s 143(1) of the Act on 28.11.2007. The assessment however was subsequently re-opened by him on the ground that the deduction u/s 80IB(10) was wrongly allowed and a notice u/s 148 was issued by him to the assessee on 09.03.2011 after recording the reasons. In reply, a letter dated 06.04.2011 was filed by the assessee stating that the return originally filed by it on 31.10.2006 may be treated as the return filed in response to notice u/s 148. During the course of assessment proceedings, the claim of the assessee for deduction u/s 80IB(10) was examined by the AO and on such examination, he held that the assessee was not entitled for deduction u/s 80IB(10) for the following reasons:-
[i] Built up area in respect of shops and other commercial establishments included in the housing project exceeded 2000 sq. Ft.
The assessee filed copies of plan and details of commercial area in the said project. The assessee claimed that the super built area of the commercial establishment was 2889 sq.ft., however, it claimed that the built-up area of the commercial establishment was 1878 sq.ft.. In support of this fact, the assessee relied upon the calculation sheet of built-up area of the shops from the Architect's certificate of Mr Giridhari Pal Chowdhury.
In order to verify the correctness of the certificate and to examine the said architect the assessee was called upon to produce the said architect. But, the assessee submitted that the architect has since expired and hence, could not be examined. However in order to give the assessee benefit, the
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plan was examined and it was found that in order to arrive at the built up area of the flats the assessee has reduced 28% from the super built area. It was further seen from the Plan that the ground floor has lesser common area as compared to the higher floors and the same was also confirmed from Inspector's enquiry. Thus, logically, to arrive at the built-up area of the ground floor the percentage required to be reduced would be less than 28%.
However, even considering 28% reduction it was seen that the built- up area of the commercial area works out to 2080 sq.ft. (2889 -809) sq.ft.
Further, another surprising feature became apparent from examination of the plan and details filed that one person Mr Anil Lunia has purchased one commercial property, being one number of shop bearing No: BS - 3, having-super built area 791 sq.ft., Le. built-up area of 569 sq. ft. (Applying 28% ratio) vide agreement dated 9th April, 2007 and other 3 (three) so called "servant quarters', adjacent to the said shop, bearing Nos. BS-4, 5, & 6 totalling built-up area of 783 sq ft. were sold vide separate agreement dated: 16th April, 2007.
In order to examine the use of the said servant quarters, the inspector attached to this office, was sent for Verification who reported that all the above shop and servant quarters are one single unit and has been let out to Union Bank of India by Mr. Anil Lunia. Similarly, one shop bearing No. DS - 9 having super built up area 472 square feet (built-up area of 340 sq. By applying 28% ratio) was sold vide-one- agreement dated 18th Feb, 2007 and one servant quarter bearing No: DS - 4 having built-up area of 384 sq. ft. to M/s. Vinline Engineering Pvt. Ltd. sold vide agreement dated 3rd March 2007. In order to examine the use of the said servant quarter, the inspector, attached to this office, was sent for verification who reported that
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the said shop and servant quarter is a single unit which is 8 show room of
Hero Motors.
The assessee did not dispute these findings, rather tried to
circumvent the issue by submitting that the above persons have used the
aforesaid properties for commercial purpose after transfer of the said
property to these persons.
From the following Table, it can be seen that the area of the shops
and other commercial establishments included in the housing project was
2080 sq.ft. plus 783 sq ft. and 384 sq. ft. i.e. 3247 sq.”
[ii] Built up area of some of the residential flats was above 1500 sq. Ft.
In order to verify the area of the fiats, the copies of plan and details
were examined and it was found that in order to arrive at the build up area
of the flats, the assessee reduced 28% from the super built area. However, in
some cases, it was seen that though the super built up area was higher, the
built up area was kept marginally below 1500 sq feet. On examination of the
details of these flats, it was seen that by reducing 28% area the built up area
of these fiats exceeded 1500 sq.ft.. The list of such fiats are as follows:
TABLE-B
Sl.No. Block Flat Buyer Super Builtup Builtup Servant Total Remarks No Built Area as Area Quarters Built up up per applying Built up area Area Assessee 72% area ratio 1 Brindawan BF5B Ajay Kant 2088 1495 1503.36 1503.36 Exceeds Sahay 2. Brindawan BF5D Regina Dias 2088 1495 1503.36 1503.36 Exceeds 3. Brindawan BF5E Swagata Sen 2088 1495 1503.36 1503.36 Exceeds 4. Dwarika DF9A Ahok Kr. 2140 1490 1540.8 1540.80 Exceeds Jaiswal 5. Dwarika DF9B Vinay Sinha 2140 1490 1540.8 1540.80 Exceeds 6. Dwarika DF9C Bimal Kr. 2140 1490 1540.8 1540.80 Exceeds Singhania 7. Dwarika DF9D Lila Dhar 2140 1490 1540.8 1540.80 Exceeds Mundhra 8. Dwarika DF9E Anand Kumar 2140 1490 1540.8 1540.80 Exceeds Loharuka 9. Dwarika DF10B Surendra 2140 1490 1540.8 1540.80 Exceeds kumar Hirawat 10. Dwarika DF10C Amrik Singh 2140 1490 1540.8 1540.80 Exceeds 11. Dwarika DF10D Manoj Kr. 2140 1490 1540.8 1540.80 Exceeds
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Sarda & Ranchor Das Sarda 12. Dwarika DF10E Raj Kr. 2140 1490 1540.8 1540.80 Exceeds Garodia 13. Dwarika DS10A 3069 1490 2209.68 2209.68 Exceeds
It was further seen that flat No.1 of Block-C had a balcony attached to the
said flat. The built up area of the flat was 1421 sq.ft. and the built up area of
the balcony was 442 sq.ft.
The definition of "built up area" as per the Act has been defined as
under -
"Built-up area" means the inner measurements of the residential unit at the
floor level, including the projections and balconies, as increased by the
thickness of the walls but does not include the common areas shared with
other residential units. The term 'balcony' means a horizontal cantilever
projection including a handrail or balustrade, to serve as passage or sit out
place.
Hence the total built up area of this flat works out to 1863 sq.ft.
It was further seen that several flats were sold along with servants quarters
and the built up area of these flats as increased by the built up area of the
servants quarters exceed 1500 sq.ft.. The list of such flats are as follows:
TABLE· C
Sl.No Block Flat Buyer Super Builtup Builtup Servant Total Remarks . No Built up Area as Area Quarters Built up Area per applying Built up area Assess 72% area ee ratio 1. Brindawan BF3D Pankaj 2042 1470 1470.24 54.00 1524.24 Exceeds Murarka 2. Brindawan BF5A Chiv Kr. 2021 1455 1455.12 70.00 1525.12 Exceeds Chanani 3. Brindawan BF5C Purushotta 2088 1495 1503.36 81.00 1584.36 Exceeds m Das Jain 4. Brindawan BF6D Savita 1757 1265 1265.04 416.00 1681.04 Exceeds Agarwal
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Thus, it was evident that several flats in the housing project exceeded the built up area of 1500 sq.ft. and hence, the conditions of Section 80IB(10) were not satisfied.
[iii] The assessee was not the owner of the land and acted as a contractor of the project and not the developer:-
(I) The assessee is an AOP in the name and style of "Shree Krishna Developers" was formally formed on 05.12.2000 between the eight persons. In its return of income filed the assessee has claimed deduction of Rs.2,68,19,865/- u/s 801B of the I. T. Act 1961 claiming to be engaged in the business of development and construction of the housing project at 1/1, Raja Rajendra Lal Mitra Road, Kolkata-700010.
(II) The land at 1/1, Raja Rajendra Lal Mitra Road, Kolkata-10 on which the said housing project was being constructed was owned by Sree Sree Iswar Brojeswar Mahadev Thakur Jew, a Hindu deity Trust. As per the order of the Honorable High Court at Calcutta dated 2nd May, 2005 five lessees, namely Sri Shanti Ranjan Pal, Milan Seth, Sushil Modi, Gautam Paul and Ajay Seth were granted lease of 99 years with the option to renew the lease.
(III) The said five persons nominated another ten persons namely Sri Arun Kumar Goenka, Sri Vivek Saraogi, Sri Manish Yaduka, Sri Raj Kumar Jain, Sri Bijoy Kr Singhania, Sri Sushil Kr Purohit, Sri Noratan Mal Purohit, Sri Sushil Parakh, Sri Dipak Yaduka and Sri Shakti Khaitan by 10 separate Lease Deeds.
(IV) By virtue of the aforesaid deeds dated 30th October'1995, the 10 nominated person obtained interalia right of possession over the land together with the right to construct multistoried buildings and to sub-lease them to the intended purchasers of their choice. In course of time 4 out of the 10 lessees namely Sushil Kr.Purohit, Noratan Mal Purohit, Sushil
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Parekh and Shakti Khaitan nominated 2 lessees namely Basudeo Singhania and Dipak Kanodia in their place and stead.
(V) Therefore, after this transfer the land was under control of 8 Lessees (6 original and 2 after transfer) who formed and AOP in the name of ShreeKrishna Developer with an intention to develop the land and sell the flats constructed thereon.
(VI) It appears that the Calcutta Municipal Corporation sanctioned a building plan on 09.12.1999 in the name of Shanti Ranjan Paul being power of attorney holder of Sree Sree Iswar Brojeswar Mahadev Thakur Jew Trust. It further appears that the construction of the housing project commenced on 17.11.2000 by the said AOP.
It may be mentioned here that the acquisition of land legally as well as physically, is intrinsic to an undertaking, developing and building housing project, is re-enforced by the mechanism of approval by the local authorities. It is submitted that since all the required permission from the local authorities were also in the name of land owner and even the completion certificate is also issued to the land owner alone, the assessee are not eligible for deduction u/s.80IB(10) of the Act. Transfer of land through development agreement is not a transfer of ownership much less a transfer of approval. It gives possession not as a prelude to, or in connection with transfer of the title, but for the limited purposes to carry out development and construction work. Reliance can be placed on the decision of the Supreme Court in the case of V.S.M.R. Jagadischandran (Deed) By LRs.vs. CIT (1997) 141 CTR (SC) 361 : (1997) 2271TR 240 (SC) and decision in the case of Gujarat Industrial Development Corporation and Ors. Vs. CIT (1997) 142 CTR (SC) 181 : (1997) 2271TR 414 (SC).
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(VII) The lease of the land has never been transferred from the name of the eight persons in favor of the AOP. Hence it is evident from the above facts that from 0911211999 to 3010512005 and also as on today the AOP did not have any right title interest in the said land on which the building was being constructed. As such the assessee AOP can at best be considered as a "works contractor" for on behalf of the 8 persons who have the lease rights and hence the AOP is not entitled to deduction u/s 80IB(10) of the IT Act 1961. This view finds support from the explanation in the provisions of u/s 80IB(10) of the IT Act 1961 which has been inserted w.r.e.f 01/04/2001 and reads:
Explanation -For the removal of doubts, it is hereby declared that nothing contained in this sub- section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).
In view of the above, the assessee AOP is not entitled to deduction u/s 801B(10) of the IT Act 1961 on this count.”
For the reasons given above, the AO disallowed the deduction of Rs.2,68,19,865/- claimed by the assessee u/s 80IB(10) in the assessment completed u/s 143(3)/147 of the Act vide an order dated 29.12.2011.
Against the order passed by the AO u/s 143(3)/147, an appeal was preferred by the assessee before Ld.CIT(A) and after considering the submissions made by the assessee as well as material available on record, Ld.CIT(A) deleted the disallowance made by the AO on account of assessee’s claim for deduction u/s 80IB(10) after discussing all the relevant aspects of the matter in para 4.2 of his impugned order as under:-
“I have perused the assessment order and considered the submission of the appellant. The, relevant issues involved in the case are discussed as under: Page | 8
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a) Built-up area (BUA) of flats being above 1500 sq. ft. per unit
(i) Applying a fixed ratio of 72% of SBUA
The AO has calculated BUA of the flats under his own calculation which as it appears is based on reverse method of calculation. I agree with the contention of the appellant that this method of calculation is neither specified in the Act nor is relevant for determination of the BUA, when the BUA of the flats can be calculated straight from the measurements mentioned in the Sanctioned Plan. I have perused the sanctioned plan, architect’s certificate and chartered engineer’s certificate wherein the measurements are categorically mentioned from which BUA can be calculated by such straight method. Under these facts, it is not the case of the AO to consider in any way the super built up area for determining the built-up area as neither the measurements in the sanctioned plan nor the authenticity of the sanctioned plan, architect's certificate, chartered Engineer's certificate and agreements in this respect with the buyers are disputed by the AO. It is also seen that this issue was duly considered and settled in favour of the appellant vide this office order in the appellant's own case in earlier years. It is also relevant to mention that the AO ought to have considered the specific percentage of 71.7% when its consideration has got bearing upon the very crux of the subject matter. It is also seen from the evidences/details filed before me which were also filed before the AO that one flat of 2069 sq. ft. has been considered by him to be of 3069 sq. ft. which vitiated his own calculation. On actual area of 2069 sq. ft. under his own calculation falls outside his list of the flats having more than 1500 sq. Ft. The AO is not justified in ignoring the evidences filed before him and in computing the BUA by reverse method of calculation taking the super built-up area as the basis of his calculations. BUA ought to be calculated by straight method. It is seen that architect's certificate and chartered engineer's certificate have shown the calculation by straight method and by which none of the flat is of an area exceeding 1500 sq. ft. The appellant can not be denied the deduction u/s. 80IB(10) on this ground.
(ii) For Flat no. 1 of Block - C including balcony
The appellant's contention that flat no 1 of block C has got no balcony but an open terrace was verified from the evidences filed before me and the same was found to be correct. Moreover, it is also found that under the similar facts in the appellant's own case in earlier years, the alleged balcony was
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considered by the AO himself as an open terrace. On looking into the case laws decided on the subject matter and cited by the appellant, it is found that open terrace is not includible in the calculation of the built-up area. It is also seen that even if it is considered as balcony the relevant provisions are effective from 01.04.2005 until when the appellant's project was already completed which fact is not disputed by the AO. Hence, disallowing deduction on this ground would go against the principles of natural justice. The AO is not justified on this ground in disallowing the deduction u/s. 80IB(1O) to the appellant.
(iii) Built-up area of flats including the built-up area of servant quarters
The case of the AO is that as the residential units and servant quarters are bought by the same buyers, the area of both the units in each case should be joined together for calculation of built-up area of 1500 sq. Ft. Specified as maximum allowable for construction in order to be eligible for deduction u/s. 80IB(10). From verification of the sanctioned plan and other evidences filed before me, it is found that the servant quarters are independent units and are situated in far distance from the residential units. The AO has also not disputed this fact. The AO also could not. hold that the construction of the project is made in deviation of the sanctioned plan. With these facts it can not be considered justified to join together the BUA of residential units and servant quarters to arrive at the allowable limit of BUA just because both are bought by the same buyers.
The appellant's contention, under the case decisions in this regard, also appear to be due for consideration that in any case of breach of condition of 1500 sq. ft. in some of the flats, it ought to be allowed the deduction u/s. 80IB(10) on a proportionate basis.
(iv) Built up area (BUA) of Shops or commercial portion exceeded 2000 sq. ft. in total.
As has been mentioned above there is no justification in carrying out an exercise of reverse calculation considering the super built-up area ignoring the straight calculation method in absence of any such condition in law to consider method as adopted by the AO. On the issue of servant quarters and rest rooms considered as commercial area, it is seen that the AO could not dispute the construction of the area in deviation of the sanctioned plan. The Page | 10
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appellant has furnished the sanctioned plan and completion certificate issued by the KMC which are also not disputed by the AO in which case it can not be said that the appellant has not constructed the premises as sanctioned by the KMC. The agreements of buying of servant quarters and rest rooms in the alleged cases are also not challenged by the AO which demonstrate that the alleged servant quarters and rest rooms are sold as such to the buyers. The affidavits in this regard by the owners of such premises are also not disputed by the AO. It is also seen that the agreements of composite area of shops and servant quarters etc. are not executed with the appellant but between the owner of the alleged Premises and a third party. Hence it appears to be beyond the control of the appellant so far as the end use of the areas sold as servant quarters converted into commercial use is concerned. The AO in my opinion is required to verify that the area as mentioned in the sanctioned plan is constructed and sold as such or not. This is also supported by the case decisions referred by the appellant in this regard.
(v) The appellant is not the owner but a contractor
The AO's view is that the appellant is not the owner of the land hence the activities of the appellant AOP is nothing but a works contract between the appellant AOP and its members. The AO has also referred to the explanation to section 80IB(10) in this regard. It is observed that the main provisions of the section 80IB(10) does not restrict its applicability to the owner of the land only. Explanation to the said section also does not say that the ownership of the land is necessary, instead it bars its applicability to those undertakings which executes the housing project as a works contract. The appellant refers to the Memorandum explaining the provision of the Finance (No.2) Bill, 2009 through which the said explanation was inserted into the section from which intention of the legislature appears to be clear that the objective of the deduction under the said section is to provide the tax benefit to the actual developer and not to a person taking pure contract risk. The appellant as it appears has taken all risks including the investment risk and has performed all crucial tasks for carrying out the housing project. The AO could not deny the same. The AOP was formed by an MOU for specific purpose of developing the said housing project. The legality or authencity of the said MOU or its terms and conditions could also not been denied by the AO. The AO could not also bring any evidence or material on record to establish his view that the appellant has worked as a works contractor. Instead he appeals to have deemed the
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appellant as a works contractor. In order to deem someone into a particular position there has to be specific criteria for the same in the law and which is not the case here. It is not the case of AO to deem the appellant as a works contractor. On the contrary the activities, the various evidences filed by it and the case laws referred to by the appellant show that appellant taking all risk including investment risks which cannot be said to have taken pure contractual risks and hence ca not be regarded as a works contractor. In view of the facts and circumstances of the case, the AO is directed to allow the claim of the appellant u/s 80IB(10) of the I.T.Act.”
For allowing the claim of the assessee for deduction u/s 80IB(10), Ld.CIT(A) also relied on the appellate order of his predecessor passed in assessee’s own case for AY 2005-06 wherein the similar claim of the assessee for deduction u/s 80IB(10) was allowed in the identical facts and circumstances. Aggrieved by the order of Ld.CIT(A), the Revenue has preferred this appeal before the Tribunal on the following grounds:-
“In the facts and circumstances of the case, the Ld. 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.
In the facts and circumstances of the case, the Ld. 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.
In the facts and circumstances of the case, the Ld. CIT(A) 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% from super built up area.
In the facts and circumstances of the case, the Ld. CIT(A) has erred in not considering the servant quarter and balcony for computation of built-up area of the units.
In the facts and circumstances of the case, the Ld. CIT(A) has erred in ignoring the fact that the assessee was just a work contractor under the meaning of explanation of Sec.80IB(10).”
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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:-
“According to AO, the built up area in case of some of the flats (four flats) was in excess of 1500 sq. ft.. As per clause (c) of section 80IB(10) of the Act, the maximum built up area for any residential unit cannot go beyond 1500 sq. ft. According to the AO, built up area in respect to three flats are in excess of 1500 sq. ft. and one flat of 1752 sq. ft. Which has been broken into two units by the assessee to avoid 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
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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 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.
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Ground no. 2 of the revenue is against the action of the Ld. CIT(A) in ignoring the finding of fact of the AO that built up area of shop and other commercial areas are exceeding 2000 sq. ft. The AO noted that the super built up area of commercial area sold in the relevant assessment year was 2071 sq. ft. as per the details submitted with the returns. The AO confronted the assessee that as per the built up area as claimed by the assessee and the commercial area was only 1886 sq. ft. which comes to 65% of the super built up area which according to the AO was not inconformity with the policy of the assessee and he gave certain figures from page 12 to 13 and concluded as under:
“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 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.
We have heard rival submissions and gone through facts and circumstances of the case. We note that the AO has calculated the built up area of shop at 2170 sq. ft. By adopting the method of reverse calculation. According to the AO, the super built up area of commercial space exceeded the prescribed limit of 2000 sq. ft. and, therefore, according to the AO, the condition laid down in section 80IB(10) of the Act was breached and, therefore, the assessee was ineligible to claim deduction u/s. 80IB of the Act.
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We note that the AO has brushed aside the building plan, architect certificates and buyer’s agreement which were placed on record as evidence to substantiate that the assessee’s built up area of commercial space was less than 2000 sq. ft. However, the AO erred in adopting the method of reverse calculation to calculate the super built up area to disallow the deduction claimed u/s. 80IB of the Act. Moreover, we note that the built up area of total project of assessee is 145500 sq. ft and the built up area of commercial area of 2071 sq. ft. even if as calculated by the AO is only 1.42% of the aggregate of the built up area of the total project. Thus, the total built up area used for dwelling units comes to 98.58%. As per the Special Bench order in Brahma Associates Vs. JCIT (2009) 119 ITD 255 (Pune, SB), the Special Bench answered the question as to whether in any other case where 90% or more of total built up area is used for dwelling units, in accordance with scheme of section 80IB(10) of the Act, benefit of 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.”
As the issues involved for the year under consideration as raised in Ground Nos. 1 to 4 as well as all the material facts relevant thereto are similar to that AY 2004-05 & 2005-06, we respectfully follow the order of the Tribunal for AY 2004- 05 & 2005-06 (supra) and dismiss Ground No.1 & 4 of the Revenue’s appeal for AY 2006-07.
As regards the issue involved in Ground No.5 relating to the disallowance of the assessee’s claim for deduction u/s 80IB(10) by the AO on the round that the assessee was just a works contractor and not a developers, the Ld. DR has filed a
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note dated 17.08.2011 submitted by the AO and relied on para 6 of the said note in support of the Revenue’s case, which reads as under:-
“The briefly stated fact here is that the assessee had developed and built a housing project on a land at 1/1, Raja Rajendra Lal Mitra road, Kolkata-10 of one Sri Shanti Ranjan Pal (CA) which is evident from completion certificate issue by the KMC in the name of Sri Shanti Ranjan Pal (CA). Hence, the ownership of the landed property was in dispute, in so far, the claim of deduction u/s. 80IB(10) by Sri Krishna Developers is concerned, as nothing has been asked by the then AO in regard to transfer in relation to a capital asset as per section 53A of the Transfer of Property Act, 1882. Section 53A of the Transfer of Property Act, 1882 speaks as where any person contracts to transfer for 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
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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 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 :- Page | 18
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“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 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.”
Ld.DR has also relied on the decision of Ahmedabad Bench of the Tribunal in the case of ITO vs Braj Developers in ITA No.30/Ahd/2008 dated 22.10.2010 in support of the Revenue’s case on this issue and contended that all the approvals of the project having been issued in the name of landlord, the role of the assessee was only as a works contractor and not a developer of the project. He contended that the assessee therefore was not entitled for deduction u/s 80IB(10) as rightly held by the AO.
Ld. Counsel for the assessee on the other hand contended that the assessee in the present case is an “Association of Person” whose principal business was development and construction of housing project. He submitted that there were 08 persons who had lease hold rights in the demarketed and separate land parcels by virtue of registered lease deeds executed in their favour in 1995. In December 1999, the sanctioned building plan was obtained by the said 08 lessees by paying sanctioned fees individually. Thereafter all the 08 lease holders decided to jointly undertake development of the housing project by forming themselves into an Association of Persons. By an agreement dated 05.12.2010, the said lease holders formed an AOP and contributed their individual lease hold rights to the AOP as their capital contribution. He contended that the AOP thus became owner of such lease hold rights and the mutually agreed value of lease hold rights belonging to
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each member was credited to the individual members account in the books of accounts of AOP and corresponding amounts were debited to the land cost in the AOP’s books. He contended that the cost of land was integral part of the 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].
We have considered the rival submissions on this issue and also perused the relevant material on record. It is observed that the profit derived from the housing project undertaken during the relevant period including the year under consideration was claimed to be deductable by the assessee u/s 80IB(10) of the Act. The AO however found that the assessee was not the owner of the land on which the project was executed since the approval for the said project was received in the name of the landlord and not in the name of the assessee. He accordingly held that the assessee was not a developer of the project but was only a works contractor not entitled for deduction u/s 80IB(10). For arriving at this conclusion, he relied on Explanation to section 80IB(10) which clarified that nothing contained in section 80IB(10) shall apply to any undertaking which executes housing project Page | 20
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as works contractor awarded by any person. As rightly observed by Ld. CIT(A) in this regard by 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.
In the case of CIT vs Radhe Developers [2012] 341 ITR 403 (Gujarat), the claim of the assessee for deduction u/s 80IB(10) was rejected by the AO as he found that the assessee was not the owner of the land and even the approvals given by the local authorities to develop the project and commence construction were not in the name of the assessee. The AO held that the assessee thus was merely a contractor and not a developer entitled for deduction u/s 80IB(10). On appeal, Ld.CIT(A) upheld the action of the AO observing that no assessee could carry on the business of undertaking development and construction of housing project without Page | 21
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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.
If all the relevant facts of the present case are considered in the light of the decision of Hon’ble Gujarat High Court in the case of Radhe Developers (supra) and Swastik Associates (supra), we find ourselves in agreement with Ld.CIT(A) that the assessee was not a mere contractor but was a developer of the housing project making him entitled for deduction u/s 80IB(10). The impugned order of Ld.CIT(A) allowing the claim of the assessee for deduction u/s 80IB(10) is accordingly upheld dismissing the appeal of the Revenue. 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 Page | 22
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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. 16. In the result, both the appeals of the Revenue are dismissed. Order pronounced in the open court on 31.08.2018.
Sd/- Sd/- (S.S. VISWANETHRA RAVI) (P.M.JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:-31.08.2018 *Amit Kumar* Copy forwarded to: 1. Appellant- ITO, Ward-36(2), Kolkata. 2. Respondent-M/s/ Shree Krishna Developers, 78, Bentinck Street, 5th Floor, Kolkata-700001. 3. CIT-Kolkata 4. CIT(Appeals)-Kolkata Bench 5. DR: ITAT-Kolkata Sr.P.S./H.O.O ITAT, KOLKATA