Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘C’ BENCH, BENGALURU
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee directed against the order of the CIT(A)-7, Bengaluru, dated 10/02/2016 for the assessment year 2011-12.
The assessee raised the following grounds of appeal:
ITA No.389/Bang/2016 Page 2 of 19
The assessee also raised additional grounds of appeal as under:
ITA No.389/Bang/2016 Page 3 of 19
Briefly facts of the case are as under: The assessee is an individual and is engaged in the business of land developing, building and civil contracts in the name and style of ‘S.A.Builders’. Return of income for the assessment year 2011-12 was filed on 30/09/2011 declaring total income of Rs.6,93,890/-. After processing said return of income under the provisions of section 143(1) Income-tax Act, 1961 ['the Act' for short], the case was selected for scrutiny by issuing notice u/s 143(2) of the Act and the assessment was completed u/s 143(3) vide order dated 27/03/2014 at total income of Rs.10,36,88,014/-. The disparity between returned income and the assessed income is on account of disallowing the claim of deduction of a sum of
ITA No.389/Bang/2016 Page 4 of 19 Rs.10,29,94,124/- under sub-section (10) of section 80-IB of the Act.
Brief facts leading to this addition are as under: The assessee undertaken construction of a housing project called ‘Epitome Project’ in the land bearing survey No.51/ 54/2 of Bilekahally, Bengaluru South Taluk, Bengaluru. The assessee has started construction of the project on 30/03/2007 and the assessee has been claiming deduction under the provisions of sub-section (10) of section 80-IB of the Act since assessment year 2008-09. During the course of assessment proceedings, the Assessing Officer (AO) made a reference to the District Valuation Officer (DVO) vide his letter dated 25/10/2010 requesting the DVO to measure size of flats built in order to find out whether the built-up area of each flat of the project exceeds 1500 sq.ft. The DVO submitted a report dated 17/02/2014 wherein he mentioned Wing 2 meaning Block B of the Project, there are 3 duplexes apartments viz, B-901, 1001, B-902 and 1002 and B-903 1003. It was further stated that as per sanctioned plan, only 4 units of B-1 of the project 4 units in 1092 of the block. But on inspection, it is found that units in 9th and 10th blocks are clubbed and made into duplex apartment. DVO specifically mentioned that measurements taken are excluding common areas, lobby, corridors, staircase, club house etc. Based on this report of DVO, AO called upon the assessee to show cause why benefit u/s 80- IB(10) should not be denied to the assessee as it has infringed
ITA No.389/Bang/2016 Page 5 of 19 the conditions which are required to be fulfilled to entitle it to claim deduction u/s 80-IB of the Act. In response to show case notice, assessee contended inter alia that the DVO took physical inspection after lapse of nearly 3 years from the date of issue of occupancy certificate dated 31/03/2011. It was further submitted that subsequent alterations made by the buyers of the flat does not disentitle the assessee to claim deduction. Confirmation letters to this effect were also filed from the buyers. The said submission of the assessee came to be rejected by the AO by holding that the assessee not only infringed the condition prescribed under the provisions of clause (f) of sub-section (10) of section 80-IB by selling the flats to the related parties, the AO further observed that the flats were sold after 01/04/2010. The AO also observed that the assessee has deviated from the sanctioned plan and while issuing the occupancy certificate, the Bangalore Development Authority had levied penalty for deviations. Based on this fact/information, AO held that the assessee also violated the conditions stipulated under clause (c) to section 80-IB(10) of the Act. Despite violin the conditions stipulated for availing benefits u/s 80-IB(10) of the Act, the assessee claimed deduction u/s 80-IB(10) of the Act. The relevant observation of the AO is as under:
ITA No.389/Bang/2016 Page 6 of 19
Being aggrieved by the above disallowances, assessee preferred an appeal before the CIT(A) who, vide impugned order, dismissed the appeal by observing as under:
ITA No.389/Bang/2016 Page 7 of 19
ITA No.389/Bang/2016 Page 8 of 19
Being aggrieved, assessee is in appeal before us in the present appeal. Learned counsel for the assessee argued that the housing project was duly approved by the Bangalore
ITA No.389/Bang/2016 Page 9 of 19 Development Authority [BDA] and very fact that occupancy certificate issued by the BDA on 31/03/2011 goes to prove that the project was completed as per sanctioned plan. It was submitted that the assessee had entered into an agreement in the form of Memorandum of Sale Agreement in respect of each flats separately details of such agreements are mentioned below:
Alterations to the sanctioned plan were carried out by the purchaser of the flats subsequently and therefore, he submitted that the project was completed as per sanctioned plan. As regards failure of clause (f) of sub-section (10) of section 80-IB, learned authorized representative of the assessee submitted that agreements of sale or memorandum have been entered into prior to insertion of clause (f) of sub-section (10) to section 80-IB. Therefore, he submitted that the provisions of clause (f) of sub- section (10) of section 80-IB, have no application to the facts of the case. He relied on the decision of the Hon’ble Karnataka High Court decision in CIT vs. Gopalan Enterprises; CIT vs. Classic Developers; CIT vs. G.R.Developers, CIT vs. Anriya Project Management Services, Hon’ble Madras High Court decision in CIT vs. Sanghvi & Doshi Enterprises and the decision of the Hon’ble
ITA No.389/Bang/2016 Page 10 of 19 Supreme Court in the case of Krishnaswamy S PD & another vs. UOI (281 ITR 305). It is further submitted that since the issue in appeal is covered in favour of the assessee by the co-ordinate bench in the case of Emgeen Holdings Pvt. Ltd. vs. DCIT (Bom); DCIT vs. M/s.Varun Developers (Pune) and Patel Jashwantlal A & Patel Punamchand N vs. ITO (Ahd.) If for any reason this Tribunal differs with the decision of the above co-ordinate bench, the matter may be referred to Special Bench. Thus, it was contended that the lower authorities were not justified in denying 80-IB(10) deduction.
On the other hand, learned DR opposed the submissions. He submitted that the provisions of clauses (c) and (f) of sub- section (10) of section 80-IB are not complied with in the present case. He submitted that the law to be applied is the law in force in the assessment year unless otherwise expressly provided by necessary implication. For this principle, he pointed out that for assessment year 2011-12, provisions of clause (f) of sub-section (10) of section 80-IB were very applicable and there is a clear violation of the said clause. Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in the case of Reliance & Jute Ind. Ltd. vs. CIT(120 ITR 921)(SC). Learned DR further submitted that confirmation letter filed by the buyers of the flats are stereotyped and cannot be believed in the absence of bringing on record any corroborative evidence such as proof of payment by owners to the contractor, story of the assessee that the flats
ITA No.389/Bang/2016 Page 11 of 19 were subsequently converted into duplex house by the buyers should not be believed as such as the assessee had failed to produce permission from local authorities as well as Association to convert into duplex flats. As regards violation of the provisions of clause (f) of sub- section (10) of section 80-IB, learned DR filed the following chart giving details of registration of flats:
Drawing our attention to the above chart, learned DR submitted that two flats were allotted to the same individual or family members on 3 occasions and therefore, attract the provisions of clause (f) of sub-section (10) of section 80-IB of the Act. Learned DR further submitted that there is no substance in the submission of the assessee that the memorandum of agreement was entered into before insertion of clause (f) of sub-section (10) of section 80-IB as no evidence was filed to show that any consideration was paid on the date of agreement and the possession was
ITA No.389/Bang/2016 Page 12 of 19 handed over nor the memorandum of sale agreements were registered. Thus, he prayed for sustenance of the addition. 9. We heard rival submissions and perused material on record. The issue that comes up for consideration in the present appeal is whether the assessee is entitled to deduction u/s 80-IB(10) of the Ac t. For better appreciation of the law on the issue, the relevant provisions of sub-section (10) of section 80-IB are extracted below: “80-IB(10) 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,— (a) such undertaking has commenced or commences development 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 but not later than the 31st day of March, 2005, within four years from the end of the financial year in which the housing project is approved by the local authority; (iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five 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,— (i) in a case where the approval in respect of the housing project is obtained more than once,
ITA No.389/Bang/2016 Page 13 of 19 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 minimum area of one acre: Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf; (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 kilom-etres from the municipal limits of these cities and one thousand and five hundred square feet at any other place; (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate built-up area of the housing project or five thousand square feet, whichever is higher; (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, (ii) the Hindu undivided family in which such
ITA No.389/Bang/2016 Page 14 of 19 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. 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).”
9.1 From the bare perusal of the above provisions of the Act, it is clear that the provisions of sub-section (10)of section 80-IB of the Act provide for 100% deduction of profits derived by an undertaking from developing and building housing project. The deduction is available subject to fulfillment of the following conditions:
i. The project is approved by a local authority before 31/3/2008 ii. The project is constructed on a plot of land having minimum area of one acre. iii. The built-up area of each residential unit should not exceed 1,000 sq.ft. in the cities of Delhi and Mumbai (including areas falling within 25 kms. of municipal limits of these cities) and 1,500 sq.ft. in other places. iv. The built-up area of the shops and other commercial establishments included in the housing project should not exceed 5 per cent of the total built-up area of the housing project or 2,000 sq.ft. whichever is less. v. The project has to be completed within 4 years from the end of the financial year in which the project is approved by the local authority.
ITA No.389/Bang/2016 Page 15 of 19 It has been further clarified that benefits of this sub-section are not available to an undertaking which executes housing project as works contract awarded by any other person. It is further stipulated that by inserting clause (f) to sub-section (10) of section 80-IB that undertaking which develops housing project should not allot more than one unit to an individual. Where the person is an individual, no other residential unit in such house project should be allotted to any of the following persons: i. Individual or spouse or minor children of such individual. ii. HUF in which such individual is the kartha, iii. Any other person representing such individual, spouse or minor children of such individual or the HUF in which such individual is kartha.
Clause (f) to sub-section (10) of section 80-IB was inserted by the Finance (No.2) Act of 2009 w.e.f. 01/04/2010.
9.2 According to the AO, the assessee is not entitled to the benefit of deduction u/s 80-IB(10), as – i) the assessee had deviated from sanctioned plan by constructing three duplex flats exceeding the area of 1500 sq.ft. in 9th floor by combining flats in 9th and 10th floors thereby violating the provisions of clause (c) of section 80-IB(10).
ii) The provisions of clause (f) have been violated as the assessee had sold more than one flat to two/three persons in the name of their spouse or family members thereof.
ITA No.389/Bang/2016 Page 16 of 19 iii) The explanation offered by the appellant that the appellant has not deviated from the sanctioned plan and it is only the buyers who converted the individual units into duplex flats, cannot be accepted for the simple reason that such conversion cannot take place without sanction from the local body/authority as well as the flat owners association. The assessee had not brought any evidence on record to show that the buyers of flats have applied for conversion of individual units into duplex flats and no conclusive evidence was brought on record except making a bald statement that the assessee is not responsible for such conversion of the flats. The onus lies on the assessee to prove the same, as he is know of facts. iv) The assessee has also not chosen to controvert the finding of the AO that the assessee had paid fine for violation of the sanctioned plan at the time of obtaining occupancy certificate on 31/3/2011.
These facts clinch the issue against the assessee to hold that the assessee violated the provisions of clause (c) of section 80-IB(10) of the Act.
9.3 As regards violation of clause (f) of sub-section (10) of section 80-IB, the submission of the appellant, that the agreements for sale were entered before insertion of clause (f) and therefore, have no substance, for the simple reason that in respect of M.Vani M Rao, the date of agreement is 15th April 2013 which is clearly after insertion of clause (f). Clause (f) was inserted into the Act by the Finance (No.2) Act, 2009 w.e.f
ITA No.389/Bang/2016 Page 17 of 19 1/4/2010. Since the Finance (No.2) Act, 2009 became law w.e.f. 19/08/2009, restrictions regarding allotment of residential units shall not apply in respect of allotments made before 20/08/2009 Whereas in this case, allotments were made subsequent to insertion of clause (f) in the Act. Furthermore, the submission of the assessee that in other cases, memorandum of sale agreements were entered into on 29/06/2007, have no substance for simple reason that sale agreements were not registered and no consideration was stated to have been paid on the date of agreement and there is nothing to show that possession of the flats was handed over to the purchasers nor any right in favour of the buyer was created by virtue of entering into such sale agreement.
9.4 Reliance placed by the learned counsel for assessee on the decisions of co-ordinate benches of Tribunal in the case of Emgeen Holdings Pvt. Ltd. (supra); M/s.Varun Developers (supra) and Patel Jashwantlal A & Patel Punamchand N (supra) are not applicable to the facts of the case as, in those cases it was undisputed fact that allotment in respect of same family members was made before insertion of clause (f) to sub-section (10) of section10-IB of the Act whereas, in the present case assessee had failed to prove beyond doubt that allotment of flats were made prior to insertion of clause (f) to sub-section (10) of section 80- IB. Learned counsel for the assessee also placed reliance on the decision of the jurisdictional High Court in the case of Gopalan
ITA No.389/Bang/2016 Page 18 of 19 Enterprises and Hon’ble Madras High Court decision in M/s.Sanghvi & Doshi Enterprises. The ratio of those decision is not applicable to the facts of the facts of the present case as the issue before the Hon’ble High Courts in the above mentioned cases is with regard to interpretation of the term ‘built-up area’. For the purpose of calculating 1500 sq.ft. area, whether balcony area is to be taken into consideration or not? The judicial precedents relied upon by the learned counsel for the assessee, have no bearing on the issues before us. The submission of the learned counsel for the assessee, that the case be referred to special Bench in case different view is taken, has no legs to stand. We also find that reliance placed by the learned counsel for assessee on the decisions of the Hon’ble Supreme Court in the case of CIT vs. Veena Developers and CIT vs. Sarkar Builders has no relevance to the issue before us. It may be mentioned that the object behind the tax benefit for housing project is to build housing to low middle income groups. This has been ensured by limiting size of residential units to 1000 sq.ft. or 1500 sq.ft. as the case may be. However, rule is circumvented by some developers by entering into agreements to sell multiple adjacent units to single buyers. To curb this practice clause (f) has been inserted to sub-section (10) of section 80-IB. Thus restriction imposed on allotment of flats is only intended to safeguard the objects of the beneficial provision. Any ingenious method adopted to circumvent this provision cannot be permitted.
ITA No.389/Bang/2016 Page 19 of 19 Therefore, we hold that the assessee is not entitled to deduction u/s 80-IB as he has clearly violated the provisions of clause(f) to sub-section (10) of section 80-IB of the Act. The several judicial precedents relied upon by the assessee are not referred to as those decisions are not applicable to the facts of the present case.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 04th April, 2017 Sd/- sd/- (GEORGE GEORGE K) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Bengaluru D a t e d : 04/04/2017 srinivasulu, sps Copy to : 1 Appellant 2 Respondent 3 CIT(A) 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order Assistant Registrar Income-tax Appellate Tribunal Bangalore