ASST CIT CIR 2, THANE vs. ASHISH CONSTRUCTION CO., THANE

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 26th March 2014 of the learned first appellate authority, Mumbai, with respect to disallowance made u/s.

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80IB(10) of the Income Tax Act, 1961 (hereinafter the Act) treating the project I and II as separate project, ignoring the approval for commencement and completion as one project on a common plot of land. 2. At the outset, during hearing, Shri Sanjay Sharma, learned counsel for the assessee claimed that the impugned issue is covered in favour of the assessee by the decision from Hon'ble Bombay High Court in the case of CIT vs. Vandana Properties (353 ITR 36). This factual matrix was claimed to be correct by learned DR Shri V Vidyadhar. 3. We have considered the rival submissions and perused the material available on record. The facts in brief are that the assessee firm undertook a construction of housing project. The assessee claimed deduction u/s. 80IB(10) on the income arising from housing project II and no deduction was claimed on project I, consisting of building 03 viz. Topaz Building. On verification of the plan, it was found that there was a road for the said plot with building Nos. 1, 2, 3 and 5 (Project II) on one side and building Nos. 10, 11 and 12 (Project I) on the other side of the road. The learned Assessing Officer was of the view that the plan was approved for commencement as one project and there was no area wise demarcation separating project I & II. By further observing that building nos. were not divided in phases as building nos. 6, 7 & 8 form Project I while building Nos. 1, 2, 3, 5, 13 & 14 form Project II. Thus, the deduction was disallowed. The claim of the assessee is that the stipulated conditions u/s. 80IB(10) were fulfilled by the assessee.

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3.1 On appeal before the learned CIT(A) wherein reliance was placed upon various decisions and finally it was decided in favour of the assessee. The Revenue is aggrieved and is in appeal before this Tribunal. 4. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the issue is squarely covered in favour of the assessee by the decision from Hon'ble Bombay High Court in the case of Vandana Properties (supra). The relevant portion from the order is reproduced hereunder:

“These two appeals are admitted on the following common substantial question of law and taken up for hearing by consent of both the parties. "Whether, on the facts and circumstances of the case and in law, the Income-tax Appellate Tribunal was justified in holding that the asses see-firm was eligible for claiming deduction under section 80-IB(10) of the Act wherein the assessee failed to fulfil the primary conditions laid down under section 80-IB(10) of the Act such as commencement of construction, area of plot and size of the flats constructed by the asses see ?" 2. The assessment years involved herein are the assessment years 2004-05 and 2005-06. 3. Since several appeals are filed in this court raising similar questions, we have heard counsel for various parties as intervenors. 4. The respondent-assessee is a registered partnership firm engaged in the business of construction and development of housing projects. 5. For the sake of convenience, we set out the facts in Income Tax Appeal No. 3633 of 2009. The relevant facts in

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that appeal are that on a plot of land, admeasuring 2.36 acres situated at Kandivali (West), Mumbai, the assessee had constructed buildings A, B, C and D over a period of years. Intimation of disapproval in respect of those buildings were granted during the year 1993 to 1996. By following the work-in-progress method of accounting, the assessee offered to tax the income earned by constructing the buildings A, B, C and D from time to time. Deduction under section 80-IB(10) of the Act on the income earned from the buildings A, B, C and D buildings was not claimed as the approval for construction of those buildings were granted prior to October 1, 1998. Pursuant to an order passed by the State Government in the year 2001 permitting conversion of the status of the land, the assessee became entitled to construct an additional building "E" on the aforesaid plot of land. Accordingly, building plan for construction of building "E" with several residential units on the said plot of land was submitted by the assessee. 6. By an intimation of disapproval dated October 11, 2002, the building plan for the "E" building consisting of various residential units was approved by the Municipal Corporation subject to various conditions set out therein. Thereafter, commencement certificate for construction of the "E" building was issued on March 10, 2003. 7. In the returns of income filed for the assessment years 2004-05 and 2005-06, the assessee estimated its profits from the "E" building by following the work-in-progress method of accounting and claimed deduction under section 80-IB(10) at Rs. 71,42,590 and Rs. 71,73,660 respectively. 8. On October 11, 2005, survey action under section 133A of the Income- tax Act, 1961 ("the Act" for short) on the business premises of the assessee as also at the project site was conducted to ascertain the allowability of deduction under section 80-IB(10) of the Act. During the course of survey and thereafter statement of the site supervisor and architect were recorded. 9. In the assessment order passed for the assessment year 2004-05, on December 28, 2005, the Assessing Officer disallowed the claim for deduction under section 80-IB(10) for the following reasons :

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(a) The approval for the "E" building was granted on October 11, 2002, as an extension of the approvals granted for the A, B, C and D build ings commencing from June 9, 1993, and, therefore, the "E" building being continuation of the A, B, C and D buildings, the project must be held to have commenced prior to October 1, 1998, and, hence, not eligible for section 80-IB(10) deduction. (b) The A, B, C, D and E buildings are constructed on a plot admeasu ring 2.36 acres and if 2.36 acres of land is proportionately divided between five buildings, the land pertaining to the "E" building would be less than one acre and, hence, deduction under section 80-IB(10) cannot be allowed. (c) During the survey, it was noticed that Flat Nos. 138 and 153 on the ground floor of the "E" building were found to be merged into one flat and since the area of the merged flat exceeds 1000 square feet, the deduction under section 80-IB(10) cannot be granted.

For the identical reasons, the deduction under section 80- IB(10) was disallowed for the assessment year 2005-06. 10. The appeals filed by the assessee against the disallowance of the claim under section 80-IB(10) were dismissed by the Commissioner of Income- tax (Appeals). 11. On further appeals filed by the assessee, the Tribunal by its orders dated April 29, 2009, and May 27, 2009, held that the assessee is entitled to the deduction under section 80-IB(10). Challenging the aforesaid order, the present appeals are filed by the Revenue. 12. Mr. Suresh Kumar, learned counsel for the Revenue, argued before us that the amount of deduction under section 80-IB(10) of the Act is available to an undertaking where the development and construction of the housing project has commenced on or after October 1, 1998, and is completed within the time stipulated therein. In the present case, approval for construction of the "E" building was granted on October 11, 2002, as and by way of extension of the approval granted to the earlier housing project consisting of the A, B, C and D buildings. Since approval to the housing project consisting of the A, B, C, D and E buildings was first granted in the year 1993, it must be held in view of the Explanation to section 80-IB(10)(a) of the Act that the housing project has commenced

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development and construction when the first approval was granted in the year 1993 and to such a housing project which has commenced prior to October 1, 1998, the deduction under section 80-IB(10) could not be granted. 13. Counsel for the Revenue further submitted that for claiming deduction under section 80-IB(10), the housing project must be on the size of a vacant plot of land which has a minimum area of one acre. The submission is that, unless the housing project has commenced development/construction on or after October 1, 1998, on a vacant plot of land of the size having a minimum area of one acre, the benefit of deduction under section 80-IB(10) would not be available. In the present case, the assessee has construed the "E" building on the size of a plot of land admeasuring 2.36 acres on which four buildings, viz. A, B, C and D were already constructed and even if the land is proportionately divided between the five buildings, viz., A, B, C, D and E, the area of the land pertaining to the "E" building would be less than one acre which would be in contravention of the conditions set out in section 80-IB(10) and, therefore, the Tribunal could not have extended the benefit of section 80-IB(10) to the assessee. 14. Lastly, counsel for the Revenue submitted that in the present case, the assessee has merged two flats on the ground floor of the "E" building into one flat as a result whereof the size of the residential unit in the housing project exceeded 1000 square feet which is in contravention of section 80-IB(10)(c) of the Act and, hence, the benefit of that section could not be granted to the assessee. Accordingly, it is submitted that the appeals filed by the Revenue be allowed by answering the question raised in the appeal in favour of the Revenue and against the assessee. Counsel for the assessee as also the counsel for the intervenors have made elaborate arguments supporting the order passed by the Tribunal and the same are considered in the subsequent paras of this judgment. 15. Before considering the rival submissions, we may reproduce section 80-IB(10), as it stood prior to its substitution by the Finance (No. 2) Act, 2004, with effect from April 1, 2005, hereinbelow : "(10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of March, 2005, by a local authority, shall be hundred per cent. of the profits derived in any previous

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year relevant to any assessment year from such housing project if,—

(a) such undertaking has commenced or commences develop ment and construction of the housing project on or after the 1st day of October, 1998 ;

(b) the project is on the size of a plot of land which has a mini mum area of one acre ; and

(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place." 16. Section 80-IB(10) substituted with effect from April 1, 2005, to the extent relevant herein, reads thus : "(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007, by a local authority shall be hundred per cent. of the profits derived in the previous year relevant to any assessment year from such housing project if,—

(a) such undertaking has commenced or commences develop ment and construction of the housing project on or after the 1st day of October, 1998, and completes such construction,—

(i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008 ;

(ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority. Explanation.—For the purposes of this clause,—

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(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to

have been approved on the date on which the building plan of such housing project is first approved by the local authority ;

(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority ;

(b) the project is on the size of a plot of land which has a mini mum area of one acre ; . . ." 17. The first question to be considered herein is, whether, in the facts of the present case, construction of the "E" building constitutes building a "housing project" under section 80-IB(10) of the Act. 18. The expression "housing project" is neither defined under section 2 of the Act nor under section 80-IB(10) of the Act. Even under the Mumbai Municipal Corporation Act, 1988, as also under the Development Control Regulations for Greater Mumbai, 1991, the expression "housing project" is not defined. Therefore, the expression "housing project" in section 80-IB(10) would have to be construed as commonly understood. 19. As rightly contended by Mr. Inamdar, learned senior advocate appearing on behalf of the assessee and Mr. Mistri, learned senior advocate and Mr.Joshi, learned advocate appearing on behalf of the intervenors, the expression "housing project" in common parlance would mean constructing a building or group of buildings consisting of several residential units. In fact, the Explanation in section 80-IB(10) supports the contention of the assessee that the approval granted to a building plan constitutes approval granted to a housing project. Therefore, it is clear that construction of even one building with several residential units of the size not exceeding 1000 square feet ("E" building in the present case) would constitute a "housing project" under section 80-IB(10) of the Act.

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project consisting of the "E" building as extension of the earlier housing project, it is not open to the Income-tax authorities to contend that approval to the housing project granted by the Municipal Corporation on October 11, 2002, constitutes extension of the housing project which was approved in the year 1993. 22. Reliance placed by the Revenue on the Explanation to section 80-IB(10)(a) which was introduced with effect from April 1, 2005, is also misplaced. What the said Explanation contemplates is that where the approval in respect of a housing project is granted more than once, then, that housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority. For example, in respect of a housing project, the assessee may seek amendment of the building plan at several stages of the construction and the same may be approved. In such a case, the Explanation provides that for the purposes of section 80-IB(10) the housing project shall be deemed to have been approved on the date on which the first approval was granted by the local authority. Thus, the Explanation to section 80-IB(10)(a) refers to the approval granted to the same housing project more than once and the said Explanation would not apply where the approval is granted to different housing projects. In the present case, as noted earlier, construction of the "E" building constitutes an independent housing project and, therefore, the date on which the earlier housing project had commenced construction could not be applied to the housing project consisting of the "E" building merely because the conditions set out while granting approval to the earlier housing project have also been made applicable to the housing project in question. 23. The next argument of the Revenue is that to avail of the deduction under section 80-IB(10), the housing project must be on the size of a vacant plot of land which has minimum area of one acre. In the present case, there are five buildings (A, B, C, D and E) on a plot admeasuring 2.36 acres, hence, the proportionate area for each building would be less than one acre and, therefore, the benefit of section 80-IB(10) could not be granted in respect of the housing project consisting the "E" building. 24. As rightly contended by the counsel for the assessee and the intervenors, section 80-IB(10)(b) specifies the size of the plot of land but not the size of the housing project. The size of the plot of land, as per section 80-IB(10), must

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have minimum area of one acre. The section does not lay down that the plot having minimum area of one acre must be a vacant plot. 25. The question, therefore, to be considered is, whether the Revenue is justified in reading the expression "plot of land" in section 80-IB(10)(b) as "vacant plot of land" ? 26. The object of section 80-IB(10) in granting deduction equal to one hundred per cent. of the profits of an undertaking arising from developing and constructing a housing project is with a view to boost the stock of houses for lower and middle income groups subject to fulfilling the specified conditions. The fact that the maximum size of the residential unit in a housing project situated within the city of Mumbai and Delhi is restricted to 1000 square feet clearly shows that the intention of the Legislature is to make available a large number of medium size residential units for the benefit of the common man. However, in the absence of defining the expression "housing project" and in the absence of specifying the size or the number of housing projects required to be constructed on a plot of land having minimum area of one acre, even one housing project containing multiple residential units of a size not exceeding 1000 square feet constructed on a plot of land having minimum area of one acre would be eligible for section 80-IB(10) deduction. If the construction of section 80-IB(10) put forth by the Revenue is accepted, it would mean that if on a vacant plot of land, one housing project fulfilling all conditions is undertaken, then deduction would be available to that housing project and if thereafter several other housing projects are undertaken on the very same plot of land, the deduction would not be available to those housing projects as the plot ceases to be a vacant plot after the construction of the first housing project. Such a construction if accepted would defeat the object with which section 80-IB(10) was enacted. 27. Moreover, plain reading of section 80-IB(10) does not even remotely suggest that the plot of land having minimum area of one acre must be vacant. The said section allows deduction to a housing project (subject to fulfilling all other conditions) constructed on a plot of land having minimum area of one acre and it is immaterial as to whether any other housing projects are existing on the said plot of land or not. In these circumstances, construing the provisions of section 80-IB(10) by adding words to the statute is wholly unwarranted and such a construction

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which defeats the object with which the section was enacted must be rejected. 28. Apart from the above, the Central Board of Direct Taxes (CBDT) by its letter dated May 4, 2001, addressed to the Maharashtra Chamber of Housing Industry has stated thus : "The undersigned is directed to refer to your letter No. MCHI : RSA : m : 388/19799/3, dated January 1, 2001, and to state that the additional housing project on existing housing project site can qualify as infrastructure facility under sections 10(23G) and 80-IB(10) pro vided it is taken up by a separate undertaking, having separate books of account, so as to ensure that correct profits can be ascertained for the purpose of section 80-IB and also to identify receipts and repay ments of long-term finances under the provisions of section 10(23G), separately financing arrangements and also, if it separately fulfils all other statutory conditions listed in sections 10(23G) and 80(B(10). With regard to your query regarding the definition of housing project, it is clarified that any project which has been approved by a local authority as a housing project should be considered adequate for the purpose of sections 10(23G) and 80-IB (10)." 29. From the aforesaid letter of the Central Board of Direct Taxes, it is clear that for the purposes of section 80-IB(10) it is not the mandate of the section that the housing project must be on a vacant plot of land having minimum area of one acre and that where a new housing project is constructed on a plot of land having minimum area of one acre but with existing housing projects would qualify for section 80-IB(10) deduction. Even otherwise, the argument of the Revenue does not stand to reason because, in the city of Mumbai where there is acute space crunch, it is difficult to find a vacant plot having minimum area of one acre and even if few such plots are existing it cannot be said that section 80-IB(10) deduction was intended to give benefit only to the undertakings who construct housing projects on those few plots. Therefore, it is clear that on a plot of land having minimum area of one acre, there can be any number of housing projects and so long as those housing projects are approved by the local authority and fulfil the conditions set out under section 80-IB(10), the deduction thereunder cannot be denied to all those housing projects. Section 80-IB(10) while specifying the size of the plot of land, does not specify the size or the number of housing projects that are required to be undertaken on a

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plot having minimum area of one acre. As a result, significance of the size of the plot of land is lost and, therefore, the assessee subject to fulfilling the other conditions becomes entitled to section 80-IB(10) deduction on construction of a housing project on a plot having area of one acre, irrespective of the fact that there exist other housing projects or not. In these circumstances, the decision of the Tribunal in rejecting the contention of the Revenue regarding the size of the plot cannot be faulted. 30. The last argument of the Revenue in declining to grant deduction under section 80-IB(10) is that two flats on the ground floor of the building "E" were merged into one flat, as a result whereof the maximum size of the residential unit exceeded 1000 square feet which is in violation of the condition set out in section 80-IB(10) and, therefore, the assessee is not entitled to the deduction. The Tribunal on appreciation of the facts and the evidence on record arrived at the conclusion that there was no merger of flats and in fact both the flats in question were neither sold nor any application was made before the local authority seeking merger of two flats on the ground floor of the "E" building. Thus, no fault can be found with the decision of the Tribunal in rejecting the argument of the Revenue relating to the merger of the flats. 31. In the result, the common question of law framed in these two appeals are answered in favour of the assessee and against the Revenue.” We find that an elaborate discussion has been made by the Hon'ble Jurisdictional High Court with respect to deduction u/s. 80IB(10) of the assessee. The assessee has duly fulfilled the conditions laid down in section 80IB(10). The learned First Appellate Authority has already considered the decision in Income Tax Officer vs. Kasturi Constructions (2012) 24 taxman.com 331 (Mum), Rahul Construction Company (2012) 21 taxman.com 435 (Pune) and the total permissible built up area, as per the approved plan, was 12034.29 sq. mts. Even the commencement certificate was obtained vide letter dated 19th June 1998 for seven

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buildings from 1 to 7, consisting of 11970.19 sq. mts. built up area. As a result of second notification the assessee got another approval dated 15.01.2002 consisting of building nos. 1 to 6, 10-14 with ground floor plus four upper floors. This floor pattern was not applicable to building no.10 which was already existing. Thus, respectfully following the ratio laid down in various decisions, mentioned hereinabove, we find no infirmity in the conclusion drawn by the learned CIT(A). Finally, the appeal of the Revenue is dismissed. This Order was pronounced in the open court in the presence of learned representatives from both sides at the conclusion of the hearing on 7th February, 2018.

Sd/- Sd/- (Joginder Singh) (G. Manjunatha) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 07 /02/2018 SA आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai