DCIT, CIR-4(2), KOLKATA, KOLKATA vs. M/S RDB REALTY & INFRASTRUCTURE LTD., KOLKATA

This Revenue’s appeal for A.Y.2011-12 arises against the CIT(A)-2, Kolkata’s order dated 14.01.2016 passed in Appeal No.1818/CIT(A)-2/2014-15 reversing the Assessing Officer’s action inter-alia disallowing/adding amounts of Rs.11,33,631/-, Rs.3,83,86,103/- and Rs.70,355/- corresponding to section 14A r.w. rule 8D, section 80IB deduction claim & on account of late payment of employees contribution to PF; respectively in assessment order dated 28.03.2014, involving proceedings u/s 143 (3) of the Income Tax Act, 1961 (Act). Heard both the parties. Case file perused.

“4.2. I have duly considered the submission of the assessee in the light of details/documents filed and the case laws referred to. Both AO and AR delineated the facts of the case in their respective order and submission as quoted hereinabove and therefore, not discussed again to relieve this order from repetition. In nutshell, the AO disallowed assessee's claim of deduction u/s. 80 IB of the Act for alleged violation of provisions of c1auses(c), (e) and (f) of section 80IB(10) of the Act. It is therefore, pertinent to reproduce the text of these sections as follows :

The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2008 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,- (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place; (e) not more than one residential unit in the housing project is allotted to any person not being an individual; and (f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely: (i) the individual or the spouse or the minor children of such individual, M/s RDB Realty & Infrastructure Ltd. Pvt. Ltd. A.Y.2011-12 3

(ii) the Hindu undivided family in which such individual is the karta, (iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta. " [sub-section (e) and (f) has been inserted by Finance Act, 2009, with effect from 01/04/2010.]

4.3. From the factual matrix of the case it appears that all the seventeen flats allotted to six parties, where the AO referred about alleged violations of one or more provisions of clauses (c), (e) and (f) of section 80IB(10), were in the calendar years 2007 and 2008, i.e. before insertion of sub-section ( e) and (f) by the Finance Act with effect from 01/04/2010, and there is no dispute on this issue. There is also no dispute that size of each flat was less than 1,500 sq. ft. However, on the basis of the decision of Hon'ble Mumbai Tribunal in the case of Everest Home Construction (India) Pvt. Ltd., the AO held that the section 80IB(10)(e) and 80IB(10)(f) have retrospective effect and therefore, the assessee had clearly violated conditions of those two clauses. On the other hand, Ld. AR has brought to my notice that the subject in the case of Everest Home Construction (India) Pvt. Ltd was in respect of clause (d) of section 80IB(10), whereas, in the case of Emgeen Holding Pvt. Ltd. vs. DCIT (2011) 12 Taxman 468 (Mum), the Hon'ble Mumbai Tribunal.-has held that that the provisions contained in clause (e) and (f) of section 80IB(10) are prospective in nature and not retrospective. The operative part of the judgment is extracted below:

"We find that the deduction under section 80-IB(10) has been declined by the Assessing Officer on the ground that size of the residential unit was in excess of 1,000 sq. Ft. which, in turn, proceeds on the basis that the flats sold to the family members admittedly by separate agreements, should be treated as one unit. We are unable to approve this approach. We have noted that the size of each flat, as evident from building plan as duly approved by Municipal authorities, was less than 1,000 sq. ft. We have also noticed that it is not even revenues case that each of flat on standalone basis was not a residential unit. Even if flats were constructed or planned in such a way that two flats could indeed be merged into one larger unit, as long each flat was an independent residential unit, deduction under section 80IB(1) could not be declined. It is important to bear in mind the fact that what section 80-IB(1)) refers to residential unit and in the absence of anything to the. contrary in the Income-tax Act, the expression 'residential units' must have the same connotations as assigned to it by local authorities granting approval to the project. The local authority had approved the building plan with residential units of less than 1,000 sq.ft. and granted completion certificate as such. That leaves no ambiguity about the factual position. We have further noted that the prohibition against sale of more than one M/s RDB Realty & Infrastructure Ltd. Pvt. Ltd. A.Y.2011-12 4 flat in a housing project to members of a family has been inserted specifically with effect from 1-4-2010 and, in our humble understanding, this amendment in law can only be treated as prospective in effect. What is, therefore, clear is that so far as pre- amendment position is concerned, as long as residential unit has less than specified area, is as per the duly approved plans and is capable of being used for residential purposes on stand-alone basis, deduction under section 80-1B(J0) cannot be declined in respect of the same merely because the end user, by buying more than one such unit in the name of family members, has merged these residential units into a larger residential unit of a size which is in excess of specified size. That precisely is the case before us. While on the subject, it is useful to take note of legislative amendment by virtue of which the legislature put certain restrictions on sale of residential units to certain family members of a person who has been sold a residential unit in the housing project. Section 8D.-1B(J 0) now provides an additional eligibility condition that in a case where a residential unit in the housing project is allotted to any person being an individual, no other residential unit in such housing project is allotted to any of the following person, namely (f) the individual or the spouse, or the minor children of such individual, (if) the HUF in which such individual, is a karta' (iii) any person representing such individual the spouse or minor children of such individual, or the HUF in which such individual is a karta. [Para 7]

It is thus clear that the amendment has been brought with prospective effect from 1-4-2010, and there is no indication whatsoever to suggest that these restrictions need to be applied with retrospective effect. The amendment seeks to plug a loophole but restricts the remedy with effect from 1-4-2010, i.e., assessment year 2010-11. The law is very clear that unless provided in the statute, the law is always presumed to be prospective in nature. It will, therefore, be contrary of the scheme of law to proceed on the basis that wherever adjacent residential units are sold to family members, all these residential units are to be considered as one unit. If law permitted so, there was no need of the insertion of clause (f) to section under section 80-IB (10) It will be unreasonable to proceed on the basis that legislative amendment was infructuous or uncalled for - particularly as the amendment is not even stated to be for removal of doubt. On the contrary, this amendment shows that no such eligibility conditions could be read into pre-amendment legal position. [Para 8 ]

In view of these discussions, ----- the deduction under section 80-1B(10) ought to have been allowed to the assessee entirely, [Para 9J"

M/s RDB Realty & Infrastructure Ltd. Pvt. Ltd. A.Y.2011-12 5

4.4. It clearly emerges from the decision of the Hon'ble Mumbai Tribunal in the case of Emgeen Holdings Pvt, Ltd. (supra) that -

(i) Clauses (e) and (t) of section 80-IB(10) inserted in Finance Act, 2009, have only prospective effect from 01/04/2010 and not retrospective. The law is always presumed to be prospective in nature unless provided in the statute, Therefore, the adjacent residential units, each less than 1,500 sq. ft. in size, and allotted I sold before 0110412010, to the same companies or to the family members, cannot be considered as one-unit..-In-this case,- flats in question were allotted in the calendar years 2007 and 2008 and therefore, there was no violation of any provision of section 80IB(10) of the Act.

(ii) There was also no violation of clause (c) of section 80-IB(10) as size of each flat being an independent residential unit was less than 1,500 sq. ft., as evident from building plan as duly approved by the Municipal authority as well as granted completion certificate by the Municipal authority and also evident from registered sale deed. '

4.5. As regards AO’s contention that the director and the AR of the assessee company had admitted about certain violations of qualifying conditions during the assessment proceedings, the AO has not elaborated the same. Nevertheless, it is only elementary that a legal claim cannot be declined only because the director or AR stated something. In the light of above discussions, and bearing in mind entirety of the case, the AO is directed to allow. assessee's claim of deduction u/s. 80-IB(10) of the Act of Rs.3,83,86,013/- for its 'Regent Ganga' project, Uttarpara, Hooghly, West Bengal.”

Order pronounced in the Court on 20.07.2018.