S.B. ENTERPRISES,THANE vs. ITO WD 3(3), THANE

आदेश / O R D E R Per Sandeep Gosain, Judicial Member: The present Appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals)-1, Thane dated

2 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises 31.07.14 for AY 2010-11 on the grounds mentioned herein below:- 1.A. The Hon. CIT (A) erred in confirming the disallowance of deduction of Rs.76,34,730/- claimed u/s 801B (10) of the I. T. Act 1961, in is respect of the housing project "Swastik Palms" developed at Kolshet, Thane.

1.B. The Hon. CIT (A) erred in holding that appellant was not eligible for deduction u/s 801B (10) for the reason,

(i) that the housing project of the appellant had commercial establishments exceeding the limit provided by sub section (d) of sec. 801B (10) and

(ii) that the appellant had indulged in purchase and sale of 7 residential units, profit from which according to the id. AO was not eligible for deduction u/s 80IB (10).

3 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises for the year under consideration was electronically filed on 20.09.10 declaring total income at NIL. Later on, the case was selected for scrutiny and after serving statutory notices and seeking reply of the assessee, order of assessment u/s 143(3) of I.T Act was passed thereby making disallowance u/s 80IB (10) of the I.T. Act. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties dismissed the appeal of the assessee. Now before us, the assessee has preferred the present appeal by raising the above grounds.

Ground No. (1.A) & (1.B) 3. Since both the grounds raised by the assessee are inter- connected and inter-related and relates to challenging the order of Ld. CIT(A) in confirming the disallowance of deduction u/s 801B (10) of the I. T. Act 1961, therefore we thought it fit to dispose of the same through the present common order.

4 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises 4. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The operative portion of the order ofLd. CIT(A) contained in para no. 10-20 of its order and the same is reproduced below:-

5 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises However, the explanation of the appellant in this regard is that these shops had been constructed by it on behalf of the vendor as land cost of the development rights received from the vendor M/s. Swastik Realtors. It has been submitted that these shops always belonged to the vendor. Similarly 19 flats out of the residential units constructed by the appellant were to be handed over to the vendor M/s Swastik Realtors as cost of the land in terms of the development agreement. It has been submitted that the profits of the project, which have been claimed as deduction u/s. 80IB(10), did not include any profit from the sale of the said shops or 19 flats as mentioned above. 12. This contention of the appellant has not been found to be correct because the sale consideration shown by the appellant in respect of the project at Rs. 19,26,73,180/- included an amount of Rs. 32,05,000/- on account of sale of shops. Before the AO, it was submitted that the appellant had sold two shops having built up area of 1680 sq. ft. i.e. Shop No. 20A in Building No. A-10 and Shop No. 31/A in Building No. A-09 for a consideration of Rs. 4,30,000/-- each. Therefore, according to the appellant, the area of the commercial premises in the project was less than 5% of the total built up area or 2000 sq. ft., whichever is less, which was the condition applicable to the appellant. However, during the course of present proceedings, it has been submitted that no sale consideration of the shops was included in the sales shown by the appellant from the project and therefore, no profits from the shops were

6 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises included in the profits shown from the project. On perusal of the Development agreement signed between the appellant and vendor, it is seen that on page no. 14 of the agreement under the head 'consideration' it has been mentioned that - "ii) All the shops shall have common toilet and common water supply. The said flats shall be well equipped with the amenities and facilities identical with those which will be provided by the Sub-Developers to other flat purchasers. The Developers shall not be liable to pay any additional consideration for the said amenities and facilities. The Agreements for shops and flats to be sold by the Developers and Agreements for shops and flats to be sold by the Sub- Developers shall be identical and shall be prepared by common Advocate Shri Damodar A. Patil. The Developers shall be entitled to sell / allot the shops and .flats coming to their share to the prospective buyers of the choice of the Developers for the consideration the Developers may deem it and proper. All such agreements shall be executed by the Sub-Developers as Promoter, the JV Developers as Confirming Party and fiat / shops Purchaser. The Sub-Developers shall receive the consideration receivable there under from the Purchasers. After deducting there from the receivables then due as detailed elsewhere in this Agreement, the Sub-Developers shall pay the balance consideration so received to the Developers. The Developers alone shall be liable and

7 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises responsible for payment of income-tax and other liabilities, if any, arising out of sale of the said fiats." 13. Thus all the shops have been sold by the appellant as the Promoter and the vendor has only signed as 'Confirming party' After receiving the sale consideration of all the shops, the appellant passed on the same to the vendor after deducting an amount of Rs. 23,45,000/- on account of Registration charges & MSEB charges for all the shops and Rs. 8,60,000/- on account of sale consideration of two shops which the appellant has included in its turnover. Therefore, the profit earned by the appellant from the sale of 33 shops has been applied towards the cost of the land paid to the vendor. Therefore, it cannot be said that the profit claimed by the appellant u/s. 80.113(10) did not include profit from the sale of 35 shops. Thus, the AO has rightly disallowed deduction Ws. 80I13(10) of the I.T. Act, to the appellant for violating the provisions of section 801E7;(l 0)(d) of the I.T. Act. 14. As far as the appellant's contention regarding allowing proportionate deduction on the basis of reliance in the case of CIT Vs Arun Excello Foundations (P) Ltd. 29 taxman.com 149 (Madras), is concerned, it is seen that this decision was applicable to the pre-amended provision of section 801B(10) when the limit of the commercial area included in the housing project was not prescribed. A specific limit has been prescribed by section 801B(10)(d) of the I.T. Act w.e.f. 01.04.2005. The appellant's project was approved on 16.11.2007 and therefore, pre-amended

8 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises provisions of section 801B(10) were not applicable in the appellant's case. Therefore, no proportionate deduction can be allowed to the appellant in terms of the decision of Hon'ble Madras High Court (supra). 15. Another reason for denying deduction u/s 801B(l0) to the appellant has been mentioned by the AO in para 3(iii) of the assessment order wherein he has observed that the sale consideration of the appellant included an amount of Rs.1,68,72,750/- on account of sale of 7 residential units which the appellant had purchased from the vendor. This meant that the profits of the appellant on which deduction u/s 801B(l0) has been claimed also included profits from the sale of these 7 flats. The deduction u/s 801B( 10) is not available to profits derived from sale of the purchased property. According to the AO, for this reason also deduction u/s 80IB(10) was not available to the appellant. 16. The appellant in its submissions has neither countered these observations Of the AO nor has any ground of appeal been raised in respect of the same. I fully agree with the observations of the AO that the deduction u/s 80IB(10) is available in respect of profit derived from developing and building housing projects and not in respect of profits derived from sale of the purchased property. Therefore, for this reason also the deduction claimed by the appellant u/s 80113(10) cannot be allowed. 17. The second reason for denying deduction u/s. 80IB(10).of the LT. Act, by the AO, was that the appellant

9 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises has allotted more than one residential unit to certain persons and their family members / relatives. The list of all such persons and the appellant's explanation regarding the same is available on page no. 10 & 11 of the assessment order. The explanation of the appellant in this regard is that section (e).& (f) of section 80IB(10) was brought on statute w.e.f. 01.04.2010 and therefore, would be applicable to allotment 'made after 01.04.2009. All the instances pointed out by the AO, except two instances, were•prior to 01.04.2009 and therefore, the provisions of section 80113(10)(f) of the I.T. Act, will not be applicable in its case. 18. This explanation of the appellant has been found to be correct and the AO himself after going through the explanation of the appellant listed only two instances i.e. Flat No. 501 & 504 in Building No. A-9 had been allotted to two related persons i.e Shri Arun N. Purnekar and Shri Sadashiv N. Purnekar on 02.07.2009. With respect to these two instances, the appellant has pointed out that the said purchasers were brothers (aged 48 yrs and 50 yrs as could be seen from the registration deeds) who were adults at the time of purchase and therefore, provisions of sub-section (f) of section 80IB(10) of the I.T. Act, were not applicable in its case. It was further submitted that the said two instances pertained to two flats out of the 19 flats, which belonged to Mis. Swastik Realtors, from whom development rights had been acquired.

10 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises 19. After careful consideration of the appellant's submissions, it is seen that subsection (f) of section 801B(l0) of the I.T. Act, has been brought on record 'from 01.04.2010 i.e. applicable to AY 2010-11 and therefore, was not applicable in all instances pointed out by the AO in the assessment order except for the two above noted instances wherein the agreement had been entered into on 02.07.2009 i.e. after 01.04.2009. However, in these two instances also it is seen that the two purchasers are brothers and not covered within the list of prohibited relatives i.e. minor children or spouse of the individual, HUF in which such individual is the karta of any of such persons representing such individual. Thus provisions of section 801B(10) (f) were not violated and therefore, deduction u/s 801B(1 0) could not have disallowed to the appellant on this ground. 20. However, deduction u/s. 80IB(10) of the I.T. Act has already been held to be not available to the appellant for violation of the provisions of sub-clause (d) of section 80113(10) of the I.T. Act, as above. Therefore, the addition made by the AO amounting to Rs.76,34,732/- on account of disallowance of deduction u/s. 80113(10) of the I.T. Act, is confirmed.

After analyzing the aforementioned order passed by Ld. CIT(A) as well as hearing the parties at length, we are of the considered view that Ld. CIT(A) while dealing with said grounds

11 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises had considered the facts available on record and has rightly concluded that the assessee is not entitled for deduction claimed u/s 80IB(10) of the I.T. Act. It was correctly appreciated by Ld. CIT(A) that the assessee had constructed 35 shops in the project, “Swastik Palms” in various buildings, the area of which was 10550 Sqft which was more than the limit prescribed u/s 80IB(10)(d) of the I.T. Act. All the contentions raised by the assessee were duly considered in the operative portion of the order contained in para no. 10 to 20 of Ld. CIT(A) which are reproduced above. The contention raised by the assessee for allowing proportionate deduction on the basis of reliance in the case of CIT vrs. Arun Excello. 29 taxmann.com 149 Madras, was rightly distinguished by observing that this decision of the Hon’ble High Court was applicable to the pre-amended provisions of section 80IB(10) when the limit of the commercial area included in the housing project was not prescribed. However it was pointed out that specific limit has been prescribed by section 80IB(10)(d) of the I.T. Act w.e.f. 01.04.05. Whereas the assessee project was approved on 16.11.2007 and therefore , pre- amended provisions of section 80IB(10) were not found

12 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises applicable in the case of the assessee. Hence in these circumstances, no proportionate deduction was allowed to the assessee. Even in the assessment order, it was clearly observed that the sale consideration of the assessee including an amount of Rs. 1,68,72,750/- on account of sale of seven residential units which the assessee had purchased from the vendor, which goes to show that the profits of the assessee on which deduction u/s 80IB(10) has been claimed also included profits from the sale of these seven flats and thus the deduction u/s 80IB(10) is not available to profits derived from sale of the purchased property. Accordingly, the revenue authorities correctly concluded that the assessee is not entitled to deduction u/s 80IB(10). Ld. CIT(A) has passed a detailed and elaborate order containing reasons to deny the benefit of 80IB(10) of the Act to the assessee. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, we find no reasons to interfere into or deviate from the findings so recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are

13 I.T.A. No. 6749/Mum/2014 M/s S. B. Enterprises well reasoned. Resultantly, these grounds raised by the assessee stands dismissed. Ground No. 2 11. This ground is general in nature, thus requires no specific adjudication. 12. In the net result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 22nd November, 2017 Sd/- Sd/- (R. C. Sharma) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 22.11.2017 Sr.PS. Dhananjay आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant प्रत्यथी/ The Respondent 2. 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned यवभागीयप्रयतयनयि, आयकरअपीलीयअयिकरण, मुंबई/ DR, ITAT, 5. Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER,

.उि/सहधयकिंजीकधर (Dy./Asstt.Registrar) आयकरअिीिीयअनर्करण, मुंबई/ ITAT, Mumbai