ITO 32(3)(5), MUMBAI vs. VANDANA PROPERTIES, MUMBAI

आदेश / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER: The present set of appeals for A.Ys. 2011-12 & 2012-13 filed by the revenue are directed against the respective orders passed by the CIT(A)-44, Mumbai, each dated 29.01.2016, which in itself arises from respective orders passed by the A.O under Sec.143(3) of

P a g e | 2 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties the Income tax Act, 1961 (for short „Act‟), dated 27.03.2014. We shall first take up the appeal of the revenue for A.Y 2011-12. The revenue assailing the order passed by the CIT(A) had raised before us the following grounds of appeal:- “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of deduction u/s. 801B(10) of the l.T.Act,1961 of Rs. 2,11,98,951/- despite the fact that the assessee do not fulfil the conditions prescribed in this section. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering the fact that the Commencement Certificate for the construction activities on the plot was granted on 09.06.1993 i.e. prior to 01.10.1998 which was subsequently extended over the years till 22.04.1998 and certificate issued for wing E is only an endorsement to the earlier commencement certificate. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering that the size of land on which wing 'F' is constructed is less than 1 acre, thus violating the condition required for availing deduction u/s. 80lB(10) of the I.T. Act. 4. The appellant prays that the order of the Ld. CIT (A) on the above grounds be set aside and that of the AO be restored.

P a g e | 3 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties of Rs.2,11,98,951/-. The brief facts as regards the claim of deduction u/s 80IB(10) raised by the assessee in its return of income lies in a narrow compass. The assessee owned a plot of 2.36 acres at Devnagar, Near Bhatia High School, Off. Sai Baba Road, Kandivali (W), Mumbai, on which 5 wings A, B, C, D & E were constructed over the years. Commencement Certificate for the construction activities on the plot was granted to the assessee on 09.06.1993 for the plinth level which was subsequently extended over the years for entire work of A, B, C & D wing till 22.04.1998. The Commencement Certificate was further extended for wing “E” (for which deduction under Sec. 80IB(10) was claimed) for the entire work as per the approved plan dated 11.10.2002, which was amended on 20.05.2003. That on account of sale of flats of Wings A to D, the assessee had not claimed any deduction under Sec. 80IB(10), but for the wing “E” the assessee had claimed deduction under Sec. 80IB(10) for the A.Ys 2004-05, 2005-06 and other subsequent assessment years. The assessee had raised the claim of deduction under Sec. 80IB(10) on the basis of percentage of work completed. The construction of building “E” was completed as per the completion certificate dated 12.03.2008 issued by the local authority. The full occupation certificate in respect of Building “E” was issued by the local authority as per its letter dated 31.01.2008. The assessee during the year under consideration had sold flats in Building “E” and had claimed deduction in respect of the income derived there from under Sec. 80IB(10). 4. The A.O during the course of the assessment proceedings, holding a conviction that the conditions contemplated under the said statutory provision were not found to be satisfied by the assessee, therefore, called upon the assessee to explain as to why the deduction claimed by it under Sec. 80IB(10) of Rs.2,11,98,951/- may not be

P a g e | 4 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties disallowed. The A.O was of the view that the assessee had failed to satisfy the conditions contemplated under Sec. 80IB(10), on three grounds, viz. (i) that as the Building “E” was only a part of the project which had commenced in the year 1993 as per the Commencement Certificate dated 09.06.1993, therefore, the approval of the Building “E” was just an endorsement of the original Commencement Certificate dated 09.06.1993; (ii) the size of the Plot on which the Building “E” was constructed was less than 1 acre; and (iii) the provisions of Sec. 80IB(10) was clearly restricted to only one project on minimum area of 1 acre. The submissions of the assessee in support of its claim for deduction under Sec. 80IB(1) did not find favour with the A.O. The A.O on the basis of his aforesaid conviction concluded that as the Commencement Certificate for the plot of land on which the assessee had constructed A, B, C, D & E wings was granted in 1993 and block “E” was only an endorsement on the Commencement Certificate, therefore, it could safely be concluded that the assessee had commenced the construction before 01.10.1998. It was further observed by the A.O that as the size of the plot of land on which A, B, C, D & E wings were constructed was 2.36 acres, therefore, the area apportioned in respect of Block “E” was found to be less than 1 acre. The submission of the assessee that its claim of deduction under Sec. 80IB(10) for A.Y 2004-05 and A.Y 2005-06 was accepted by the Hon’ble High Court of Bombay vide its order passed in the case of CIT-25, Vs. M/s Vandana Properties (2012) 353 ITR 36, (Bom), also did not find favour with the A.O, for the reason that the said decision of the Hon‟ble High Court was not accepted by the department and a Special Leave Petition (for short „SLP‟) against the same was filed before the Hon‟ble Supreme Court. The A.O on the basis of his aforesaid observations disallowed the claim of deduction

P a g e | 5 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties raised by the assessee under Sec. 80IB(10) and assessed its income at Rs. 2,13,69,260/-. 6. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) observed that the assessee had for the first time claimed deduction under Sec. 80IB(10) in A.Y 2004-05, which though was disallowed by the A.O on several grounds, but thereafter, the same was allowed on appeal by the Tribunal. The entitlement of the assessee towards claim of deduction under Sec. 80IB(10) was assailed by the revenue before the Hon‟ble High Court of Bombay on various grounds, viz. (i) commencement of construction; (ii) area of plot; and (iii) size of the flats. The CIT(A) observed that the Hon‟ble High Court of Bombay in its order dated 28.05.2012 had dismissed the appeal of the department and decided the issue in favour of the assessee. It was further observed by the CIT(A) that the Special Leave Petition (for short „SLP‟) filed by the department before the Hon‟ble Supreme Court was also dismissed and the order of the Hon‟ble High Court of Bombay was upheld. The CIT(A) being of the view that as the matter as regards the entitlement of the assessee towards claim of deduction under Sec. 80IB(10) had finally been decided in the favour of the assessee, therefore, there was no justification for disallowing the same during the year under consideration. The CIT(A) allowed the claim of deduction of Rs. 2,11,98,951/- raised by the assessee under Sec. 80IB(10), by observing, as under: “3.3 I have carefully gone through the assessment order as well as the written submission of the AR. I have also perused the details filed by the AR From the facts of the case it is clear that the issue of deduction under section 80(IB)(10) was raised for the first time for the assessment year 2004 - 05. In that assessment the claim of deduction by the assessee was disallowed on several grounds. On further appeals the issue of deduction went up to the Bombay High Court where the grounds related with commencement of construction, area of plot and size of the flats were raised by the Department. The Hon'ble Bombay High Court in its order dated

P a g e | 6 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties 28/05/2012 dismissed the appeal of the Department and decided the issue in favour of the appellant. Thereafter the Department filed SLP before the Hon'ble Supreme Court of India. The Hon'ble Supreme Court disposed a bunch of appeals filed by the Department against the judgement of various decisions of the Bombay High Court, The Hon’ble Supreme Court of India in its order d ated 3 0 th Apr il2 015 co nf i r med the decis ion g iven by the Bombay. High Court in many cases against which the department had filed SLP. The case of the appellant was also accordingly disposed. From the assessment order it is absolutely clear that even though the higher judicial forum like the Bombay High Court and the ITAT Mumbai had ruled in favour. of the appellant on the issue of deduction under section 80(IB)(10) the assessing officer had followed the precedence of disallowing deduction only because the department had filed an SLP before the Hon'ble Supreme Court In the concluding paragraph of the assessment order the assessing officer had made the following observation. “With due respect to the decision of the Hon'ble ITAT and Hon'ble High Court, Mumbai, as the matter has not reached finality, I am left with no alternative but to disallow the claim of deduction under section 80(IB)(10) f ollowing the stand taken by the Department in the earlier years. Considering the f acts and the f ind ings given in the preceding par as the claim of deduction under section 8O(IB)(10) to the tune of Rs. 2,11,98,951/- derived from sale of flats of the project is denied and added back to the total income of the assessee.” 3.4 From the above it is clear that as far as the assessment of assessment year 2011-12 is concerned the only reason why deduction was not allowed was because the decision of the ITAT and High Court Bombay allowing the deduction to the appellant had not reached finality. However now that the order of the Hon'ble Supreme Court of India has been received wherein order of the Hon'ble Bombay High Court has been confirmed there is n justification for disallowing claim of deduction under section 80(IB)(10) in the case of the appellant. The grounds of appeal are accordingly allowed and the addition of Rs.2,11,98,951/- is deleted.” 7. The Learned Authorized Representative (for short „A.R‟) for the assessee at the very outset submitted that the issue pertaining to the entitlement of the assessee towards claim of deduction under Sec. 80IB(10) had been decided by the Hon’ble High Court of Bombay in the assesse‟s own case for A.Ys 2004-05 and 2005-06, reported as Commissioner of Income Tax Vs. Vandana Properties (2013) 353 ITR 36 (Bom). It was submitted by the Ld. A.R that the Hon‟ble High Court had held that as the

P a g e | 7 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties construction of “E” Building constituted an independent housing project, 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 had also been made applicable to the housing project under consideration. It was further submitted by the Ld. A.R that the Hon‟ble High Court had observed that Sec. 80IB(10)(b) specifies the size of the plot of land and not the size of the housing project, therefore, what was required was that the size of the plot of land as per Sec. 80IB(10) must have a minimum area of one acre, and nowhere contemplated that the plot having minimum area of one acre must be a vacant plot. The Ld. A.R submitted that the High Court after deliberating on the various aspects on which the entitlement of the assessee towards claim of deduction under Sec. 80IB(10) was assailed by the department before it, had concluded that the assessee was entitled to the deduction claimed by it under Sec. 80IB(10) in respect of the Building “E”. It was further submitted by the Ld. A.R. that the SLP filed by the revenue against the judgment of the Hon‟ble High Court of Bombay had also been dismissed by the Hon‟ble Supreme Court. Per Contra, the Learned Departmental Representative (for short „D.R‟) admitted that the issue involved in the present case was squarely covered in the favour of the assessee by the judgment of the Hon‟ble High Court of Bombay in its own case for A.Ys 2004-05 & 2005-06.

P a g e | 8 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties 2004-05 & 2005-06 had held that the assessee was entitled towards claim of deduction under Sec. 80IB(10) in respect of Building “E”, after deliberating on the various aspects on which the claim of the assessee was assailed by the revenue before it, as under:

“18. The expression 'housing project' is neither defined under Section2 of the Act nor under Section 80IB (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 80IB (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 Advocateand 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 80IB (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 80IB (10) of the Act. 20. The question, then, to be considered is, whether construction of'E' building is an independent housing project or extension of the housing project already existing on the plot in question. It is the contention of the Revenue that since the approval for construction of 'E' building was granted by the local authority subject to the conditions set out in the first approval granted on 12th May 1993 for construction of A and B building, construction of 'E' building must be considered to be the extension of the earlier housing project for which approval was granted prior to 1st October 1998 and, therefore, the benefit of Section 80IB (10) cannot be granted. There is no merit in the above argument, because, when the plans for A, B, C and D buildings were approved during the period from 1993 to 1996, construction of 'E' building was not even contemplated on the plot in question. It is only in the year 2001 when the status of the land was converted from surplus vacant land into within the ceiling limit land by the State Government, an additional building could be constructed on the plot in question and accordingly building plan for construction of 'E' building was submitted and the same was approved by the local authority on 11th October 2002. 21. The fact that the local authority, namely the MunicipalCorporation approved the building plan for 'E' building on the condition that all the objections raised in the Intimation of Disapproval dated 12th May 1993 relating to the earlier housing project on the same plot of land shall be applicable and should be complied with, cannot be a ground to hold that 'E' building is extension of the earlier housing project because the earlier housing

P a g e | 9 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties project was completed prior to 1st October 1998 and the housing project for construction of 'E' building was approved for the first time on 11 thOctober 2002. Nowhere in the Intimation for Disapproval granted for construction of 'E' building on 11th October 2002, it is stated that building 'E' constitutes extension of the earlier housing project which is already completed. The fact that the objections raised while approving the earlier housing project on the same plot of land were made applicable to the housing project in question, it cannot be inferred that the housing project in question constitutes extension of the earlier housing project. Therefore, in the facts of the present case, where, neither the assessee had sought approval of the building plan for construction of 'E' building as extension of the earlier housing project, nor the Municipal Corporation has granted approval for the housing project consisting of '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 11th October 2002 constitutes extension of the housing project which was approved in the year 1993. 22. Reliance placed by the Revenue on the Explanation to Section80IB (10)(a) which was introduced with effect from 1st April 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 80IB (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 80IB (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 '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 '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 the deduction under Section 80IB (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 ad-measuring 2.36 acres, hence, the proportionate area for each building would be less than one acre and, therefore, the benefit of Section 80IB (10) could not be granted in respect of the housing project consisting 'E' building. 24. As rightly contended by the counsel for the assessee and the intervenors, Section 80IB (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 80IB (10) must 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.

P a g e | 10 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties 25. The question, therefore, to be considered is, whether the Revenue is justified in reading the expression 'plot of land' in Section 80IB (10)(b) as 'vacant plot of land' ? 26. The object of Section 80IB (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 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 80IB (10) deduction. If the construction of Section 80IB (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 80IB (10) was enacted. 27. Moreover, plain reading of Section 80IB (10) does not evenremotely 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 80IB (10) by adding words to the statute is wholly unwarranted and such a construction 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 4th May 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 1st January 2001 and to state that the additional housing project on existing housing project site can qualify as infrastructure facility under Section 10(23G) and 80IB (10) provided it is taken up by a separate undertaking, having separate books of accounts, so as to ensure that correct profits can be ascertained for the purpose of Section 80IB and also to identify receipts and repayments of long term finances under the provisions of Section 10(23G), separately financing arrangements and also, if it separately fulfills all other statutory conditions listed in Sections 10(23G) and 80(B(10). With regard to your query regarding the definition of Housing

P a g e | 11 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties 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 Section 10(23G) and 80IB (10)" 29. From the aforesaid letter of CBDT, it is clear that for the purposesof Section 80IB (10) it is not the mandate of the Section that the housingproject must be on a vacant plot of land having minimum area of one acreand that where a new housing project is constructed on a plot of land havingminimum area of one acre but with existing housing projects would qualify for Section 80IB (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 80IB (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 fulfill the conditions set out under Section 80IB (10), the deduction thereunder cannot be denied to all those housing projects. Section 80IB (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 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 other conditions becomes entitled to Section 80IB (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 grantdeduction under Section 80IB (10) is that two flats on the ground floor of building 'E' were merged in to 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 80IB (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 '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.” We further find that as observed by the CIT(A), the SLP filed by the revenue against the aforesaid order of the Hon‟ble High Court had also been dismissed by the Hon‟ble Supreme Court. We are of the considered view that pursuant to the aforesaid orders of the Hon‟ble Courts, the entitlement of the assessee towards claimed deduction under Sec. 80IB(10) is no more res integra. We thus in the backdrop

P a g e | 12 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties of the aforesaid observations find ourselves to be in agreement with the view taken by the CIT(A) and uphold his order.

ITA No. 1397/Mum/2016 A.Y. 2012-13

P a g e | 13 ITA Nos. 1396 & 1397/Mum/2016 ITO Vs. M/s Vandana Properties 12. The A.O while framing the assessment observed that the assessee had claimed deduction under Sec. 80IB(10) of Rs.3,97,31,315/-. The A.O being of the view that the assessee was not entitled towards claim of deduction u/s 80IB(10) in respect of Wing “E”, therefore, declined the claim of deduction of Rs. 3,97,31,315/- raised by the assessee and added back the said amount to the returned income of the assessee. Aggrieved, the assessee carried the matter in appeal before the CIT(A), who following the order passed in the assesse‟s own case involving similar facts for A.Y 2011-12, concluded that as the issue had been decided in favour of the assessee by the Hon‟ble High Court of Bombay and thereafter upheld by the Hon‟ble Supreme Court, therefore, there was no justification for disallowance of the claim of deduction raised by the assessee under Sec. 80IB(10) of the Act.

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Order pronounced in the open court 31.01.2018

Sd/- Sd/- (Rajendra) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER भुंफई Mumbai; ददनांक 31.01.2018 Ps. Rohit Kumar आदेश की प्रनिलऱपि अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. 3. आमकय आमुक्त(अऩीर) / The CIT(A)- 4. आमकय आमुक्त / CIT 5. ववबागीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai गार्ड पाईर / Guard file. 6. सत्मावऩत प्रतत //True Copy// आदेशधिुसधर/ BY ORDER, उि/सहधयक िंजीकधर (Dy./Asstt. Registrar) आयकर अिीऱीय अधर्करण, भुंफई / ITAT, Mumbai

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