ACIT, NEW DELHI vs. M/S SHIPRA ESTATE LTD., & JAI KRISHNA ESTATE DEVELOPERS PVT. LTD.,, DELHI

PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA 1950/12 has been preferred by the Department against

the order dated 20.01.2012 passed by the ld. CIT(Appeals)-XXVII, New

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

Delhi for A.Y. 2008-09. CO 20/2015 has been preferred by the

assessee against the Departmental Appeal. ITA 5614/12 has been

preferred by the Department against the order dated 27.08.2012

passed by the ld. CIT(Appeals)-XXVII, New Delhi for AY 2009-10. ITA

5849/12 is the cross appeal by the assessee for AY 2009-10. As the

three appeals and the CO were heard together, they are being

disposed of by this common order.

ITA 1950/2012 & CO 20/2015

29.09.2008. In the assessment order passed u/s 143(3) of the Income

Tax Act, 1961 (hereinafter called ‘the Act’), the AO determined the

income of the assessee at Rs. 36,88,00,000/- after making an addition

of Rs. 25,91,00,000/- by rejecting the project completion method of

accounting followed by the assessee. The assessee is a partnership

firm having two partners namely M/s Shipra Estate Ltd. (50% share)

and M/s Jai Kishan Estate Developers (P) Ltd. (50% share). The

assessee firm entered into joint venture with Ghaziabad Development

Authority (GDA) for the construction and development of housing

projects on two plots of land bearing plot no. 14 and plot no. 15

situated in Indirapuram at Ghaziabad. The firm had commenced

development of ‘Vista’ project in the year 2005 and ‘Shristi’ project in

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

the year 2007 on the two plots respectively as mentioned above.

During the year, the assessee had carried on the work on both the

projects. The method of accounting being followed by the assessee

was Project Completion Method and the revenue was recognized at the

time of registration of the residential unit in the name of the

customer. Till the completion of the project, amounts received from

the customers against the booking of the flats were shown as

advances and were reflected as liabilities in the Balance Sheet. The

expenses incurred were shown under work-in-progress. The AO

noticed that as on 31.03.2008, the assessee had received a total

amount of Rs. 228.25 crores from the customers in respect of the

Vista project. The total estimated cost of the project was Rs. 209.81

crores. As per the allotment letters, the total sales price of the Vista

flats was calculated by the AO at Rs. 250.24 crores. The assessee had

already received an amount of Rs. 228.25 crores (91.21% of the total

sale price of the flats). The AO opined that receipt of 91.21% showed

that the flats were in advanced stage of completion and that the Vista

project had been substantially completed. It was the AO’s observation

that the income had not only accrued but had in effect been received

by the assessee. The AO further opined that the method of

accounting being followed by the assessee was so arranged with a

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

view to distort the profits. The AO also observed that in a letter to the

bank, the assessee had stated the completion date of Vista Project as

2007 itself. Thus, based on all these observations, the AO rejected the

method of accounting i.e. Project Completion Method followed by the

assessee.

assessee’s appeal by holding that Project Completion Method was a

recognized method of accounting prescribed by the Institute of

Chartered Accountants of India (ICAI) and had been regularly followed

by the assessee. The ld. CIT (A) observed that since the assessee was

a real estate developer and not a construction contractor, Project

Completion Method was the right method for determining the profits

of the assessee. The addition of Rs. 25,91,00,000/- made by the AO

was deleted.

this deletion. In the CO, the assessee has challenged the rejection of

assessee’s claim for allowance of deduction u/s 80IB (10) of the Act by

the ld. CIT (A).

of accounting after a very thoughtful deliberation. He submitted

that careful consideration of the accounts of the assessee show

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

that the assessee has followed neither the cash system nor the

accrual system of accounting and that the profits that have been

offered for taxation is a distorted figure for avoiding the

assessee's tax liability. It is seen that the assessee has received

Rs.373.17 crores as advances from its customers. It is worth

emphasizing that income has not only accrued but has also been

received by the assessee .There is nothing to show that there is

any uncertainty with regards to the ultimate receipts of the

revenues since these payments have already been received by the

assessee. A careful perusal of the chart of advances received from

the customers shows that in most of the cases in which

allotment has been made the payments have already been

received. It is seen that in the Vista project the total Sales price

of all the flats, as per the allotment letters issued to customers is

Rs 250.24 crores. As against this Rs 228.25 crores have already

been received as on 31.03.2008. Thus it is seen that 91.21% of

the selling price has already been received by the assessee. It was

also submitted that barring a few cases, 100% payments have

been received for each flat. These facts go on to show that the

Vista project has been substantially completed. It would be

appreciated that as per the conditions laid down in the allotment

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

letter the consideration from the customers is to be received in

instalments. The customers are required to pay certain amount

at the time of application and the balance in seven equal

instalments at the interval of 3 months. As is the normal practice

in the case of real estate builders, instalments are linked to

stages of construction and completion of the flats. More than

91% of the total sales consideration could not have been received

unless all the flats were in an advanced stage of completion.

Moreover the assessee had submitted to the bank a letter for

sanction of finance where it had estimated that the Vista Project

would be completed in 2007 itself. The Ld DR drew our attention

to the Balance Sheet and submitted that that the assessee has

shown huge amounts as work-in-progress. The consolidated

estimated cost of Vista plus Srishti was Rs 536.08 crores. The

inventory shown in the balance sheet together with the expenses

that have been shown in the Profit & Loss a/c work out to more

than Rs 220 crores, which is a substantial proportion of the

estimated cost. It must be kept in mind that this is the

consolidated cost of both the projects and the Proportion of cost

incurred with respect to Vista is much higher. Thus it emerges

that a very high proportion of estimated cost of Vista has already

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

been incurred by the assessee. Therefore even from the cost

incurred point of view there is no doubt that a major portion of

the project has been completed.

AO, the correct method of accounting is Percentage Completion

Method and, therefore, impugned order should be set aside.

Developer and not a contractor or an investor. It was submitted that

real estate development, or property development, is a multifaceted

business process, encompassing activities that range from the

renovation and re-lease of existing buildings to the purchase of raw

land and the sale of developed land or parcels to others. Real estate

developers are the people and companies who coordinate all of these

activities, converting ideas from paper to real property. Real estate

development is different from construction, although many developers

also manage the construction process. The Ld. AR submitted that

Developers buy land, finance real estate deals, build or have builders

build projects, create, imagine, control and orchestrate the process of

development from the beginning to end. Developers usually take the

greatest risk in the creation or renovation of real estate—and receive

the greatest rewards. Typically, developers purchase a tract of land,

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

determine the marketing of the property, develop the building program

and design, obtain the necessary public approval and financing, build

the structures, and rent out, manage, and ultimately sell it.

Sometimes property developers will only undertake part of the

process. For example, some developers source a property; get the

plans and permits approved before on selling the property with the

plans and permits to a builder at a premium price. Alternatively, a

developer that is also a builder may purchase a property with the

plans and permits in place so that they do not have the risk of failing

to obtain planning approval and can start construction on the

development immediately. Developers work with many different

counterparts along each step of this process, including architects, city

planners, engineers, surveyors, inspectors, contractors, leasing agents

and more. The Ld. AR submitted that the modus operandi of the

assessee was as under:

Joint Venture with Ghaziabad Development Authority (i)

(GDA). GDA contributes land and continues to be its owner.

Assessee undertakes approval, construction, development, (ii)

completion, marketing and sale of project.

Assessee appoints contractor for construction purposes. (iii)

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

The assessee as per the terms and conditions of Flat (iv)

Buyer’s agreement recognizes the transaction only when the flat

is delivered to the customer and is registered in the customer’s

name by Ghaziabad Development Authority.

Till the flat is registered, the buyer cannot sell the same and (v)

exit.

The assessee accounts for income / sale only when it (vi)

registers the flats in the name of the customers and till then the

amount received is treated as advance and shown as a liability in

the Balance Sheet and the expenditure incurred is treated as

work in progress.

Revised Accounting Standard 7 – ‘Construction Contract’ is

applicable to only contractors and not to builders and real estate

developers. AS-9 Revenue Recognition is applicable to Real

Estate Developers. AS 9 recognizes both proportionate

completion method and the completed service contract method

for revenue recognition. A real estate developer can choose the

project completion method for revenue recognition. He pointed

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

out that there is no dispute on the correctness and accuracy of

the accounts maintained by the assessee and that the aforesaid

method has been consistently applied and followed by the

assessee. The ld. Assessing Officer has changed the method for

the first time in Assessment Year 2008-09. He submitted that

any change in the method will result in the income from

Assessment Year 2006-07 to Assessment Year 2012-13 to be

recomputed which would be contrary to the judgment of the

Hon'ble Supreme Court in the case of Excel Industries Ltd. 358

ITR 295 wherein it has been held that an exercise which only

results in change in income in various years but is overall tax

neutral need not be pursued. Here also, the method suggested

by the Assessing Officer will only result into profit for each year

being different but the overall profitability will be the same. He

relied on the judgment of the Hon'ble Supreme Court in M/s

Bilahari Investment (2008) 299 ITR 1 for the preposition that

every assessee is entitled to arrange its affairs and follow the

method of accounting, which the Department has earlier

accepted. It is only in those cases where the Department records

a finding that the method adopted by the assessee results in

distortion of profits, the Department can insist on substitution of

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

the existing method.

deduction u/s 80-IB (10) of the Act, the ld. AR submitted that this

ground was taken before the ld. CIT (A) as Ground no. 4. However,

the ld. CIT(A) rejected the ground in para 22 of the impugned order by

observing that since the method of accounting being regularly followed

by the assessee has been accepted, this ground is rejected as having

become in fructuous. It was submitted that this ground was not an

alternate ground but on additional claim to which the assessee was

entitled.

on record. The following facts remain uncontroverted:

developing two Projects namely Vista and Sristhi in joint venture with

Ghaziabad Development Authority. The Vista project was started in

the year 2005 and had made considerable progress by the end the

Financial Year. The assessee was following Project Completion Method

of accounting and the revenue was recognized at the time of

registration of the residential unit in the name of the customer. Till

the time of registration of the residential units the amounts received

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

from the customers were being treated as advances and were reflected

in the Balance Sheet as Liabilities. The cost associated with the

development and construction of the residential units was being

shown under the head ‘work-in-progress’. Registration in the name of

the customers was done by the Ghaziabad Development Authority

who continued to be owner of the Project and the assessee was

granted only development rights. The primary reason why the A.O.

rejected the Project Completion Method and has applied the

Percentage Completion Method is that the assessee had received

substantial portion of the total sale consideration of the residential

units in the Vita Project i.e. 91.21%. This amount was being shown by

in the balance sheet under the head liabilities and was not reflected in

the Profit & Loss account. The fact that 91% of the total sale price had

been received led to the inference that the Vista Project was

substantially complete as on 31.3.2008. AO, therefore, treated the

advances of Rs.228.25 Crores as sale consideration in respect of the

various residential units in Vista Project. The A.O. then worked out

the proportionate cost of development and construction of the Project

by multiplying the total cost of the Project with 91.21%. The difference

of the two was treated as profits of the assessee.

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

followed by the assessee is a recognized method of accounting

prescribed by the Institute of Chartered Accountant of India.

Before its revision in 2002, AS-7 was applicable in the case of

both the Construction Contractors and Real Estates Builders

and Developers. AS-7 prescribed both the Percentage

Completion Method and the Project Completion Method and it

was the choice of the assessee to follow either one of the

methods. The ICAI has clarified that the revised AS-7 is

applicable only in the case of Construction Contractors and in

the case of Real Estates Builders and Developers AS-9 is

applicable which prescribes Project Completion Method of

accounting. It is established legal position that an assessee can

follow any recognised method of accounting and the condition is

that the same method has to be followed consistently. In case of

a building project, the Institute of Chartered Accountants of

India which is an authority on prescribing accounting

standards had prescribed accounting standard AS-7 in 1983 for

accounting of income in respect of real estate projects and in

terms of AS-7 which was applicable to both contractor and real

estate developer, a person is free to follow either of project

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

completion method or percentage completion method depending

upon the nature of project. The assessee, in this case, has

followed project completion method which is one of the

prescribed methods by the Institute of Chartered Accountants

of India. Even in terms of the revised accounting standard

which was applicable for most part of the work done by the

assessee the income had been correctly declared as per project

completion method in the year of completion. The assessee has

followed project completion method which was one of the

prescribed methods and the same method has been accepted by

the department in the earlier years. Department, therefore,

cannot reject the method and apply percentage completion

method in a subsequent year.

position as above it is held that the Project Completion Method

followed by the appellant is a recognized method of accounting

prescribed by the ICAI which has been regularly followed by the

assessee. The assessee being a real estate developer and not a

construction contractor, Project Completion Method is the right

method for determining the profits. The Project Completion

Method being followed should not have been disturbed by the

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

Assessing Officer as it was being regularly followed by the

assessee in earlier years also and there is no cogent reason to

change the method. We, accordingly, uphold the findings of the

Ld. CIT(A) on this issue.

agreement with the submission of the ld. AR that the assessee’s claim

u/s 80-IB (10) of the Act was not an alternate claim to the assessee’s

method of accounting having been rejected. It was an additional

claim which somehow has been misconstrued by the ld. CIT (A) and

we deem it fit to restore this limited issue of claim u/s 80-IB (10) of

the Act to the file of the ld. CIT (A) to examine it afresh in light of the

existing legal requirements and fulfillment thereof by the assessee

after providing due opportunity to the assessee for presenting its case.

25.03.2010. In the assessment order passed u/s 143(3) of the Act,

the income was determined at Rs. 60,91,00,000/- after making an

addition of Rs. 36.77 crores. Out of this addition, disallowance u/s

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

80IB(10) was to the extent of Rs. 29.68 crores and the balance

amount of Rs. 7.09 crores was added on account of application of

Percentage of Completion Method by the AO in place of Project

Completion Method followed by the assessee. As in the preceding

assessment year, the assessee was engaged in the business of Real

Estate Development and the assessee firm had entered into a Joint

Venture with Ghaziabad Development Authority (GDA) for

development of housing projects on two parcels of land bearing Plot

No. 14 and 15 situated in Indirapuram at Ghaziabad and had entered

into a Memorandum of Understanding (MOU) with GDA on

08.01.2001. As per the MOU, GDA was to continue to be owner of the

property and the assessee firm, after undertaking the construction,

development and completion of the projects was to market the same.

The conveyance deed with the buyers of the flats was to be executed

by the GDA. During the year under consideration, the assessee had

shown sales of Rs. 154.94 crores in respect of flats sold in the ‘Vista’

Project and the profit was shown at 53.82 crores. The assessee had

been regularly following the Project Completion Method and the

accrual system of accounting. The revenue was recognized by the

assessee at the time of registration of the property by GDA in the

buyer’s name. Till the time of registration of the residential units, the

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

amounts received from the customers were being treated as advances

and were reflected in the Balance Sheet as liabilities. The cost

associated with the development and construction of the residential

units was being shown as work-in-progress. The AO, proceeding on

the same reasoning as in the preceding AY i.e. AY 2008-09, was of the

opinion that the assessee should have followed the percentage of

Completion Method for showing its correct taxable profits during the

year under consideration. As per the AO, the estimated Sale Value of

the Vista Project was Rs. 351.58 crores against which the assessee

had already received an amount of Rs. 295.43 crores which was about

84% of the total estimated sales. Therefore, as per the AO, the income

had not only accrued but had also been received by the assessee.

Thereafter, the AO proceeded to apply Percentage of Completion

Method and made on addition of Rs. 36.77 crores on this count. The

ld. CIT (A) deleted this addition is entirety following his earlier year’s

order in AY 2008-09.

the assessee on sales finalized during the year under consideration,

an amount of Rs. 29.68 crores was claimed as deduction u/s 80IB(10)

of the Act in respect of the ‘Vista’ Project. The Vista Project was

divided into five sub projects as under:

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

i. Vista A&B Blocks having 2 Towers and 320 flats.

ii. Vista D&E Blocks having 2 Towers and 320 flats.

iii. Vista B1, B2 & B3 Blocks having 3 Towers and 120 flats also

called C Block.

iv. Vista B4, B5, B6 & B7 Blocks having 4 Towers and 144 flats

also called F Block.

v. Vista Commercial Block having 80 shops.

two bed room flats in Block A,B, D and E in respect of 346 flats sold

during the year (out of 640 total flats sold). The project was approved

on 02.06.2005 and the completion certificate was dated 14.01.2010.

The total plot area of the project was 5.33 hectares or 13 acres

approximately. The AO disallowed deduction u/s 80IB(10) on the

ground that the area of the residential units on which the deduction

was claimed was more than 1000 sq. fee each as the area mentioned

in the sale deed was 99.96 sq. mts. Or 1067.74 sq. feet and hence the

conditions of section 80IB (10) (c) were not fulfilled. The other

objection of the AO to the claim was that the shop and commercial

establishment included in the Vista Housing Project exceeded the

limit prescribed in clause (d) of section 80IB(10) i.e. 5% of the

aggregate built up area of the housing project or 2000 sq. feet

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

whichever is less. As per the AO, the total built up area of the

commercial establishment was 4896.2 sq. mts. or 52702 sq. feet. The

third point of the AO’s objection was that the Audit Report in Form

10CCB as per Rule 18BBB of the Income Tax Rules, 1962 had not

been filed separately by the assessee in respect of Vista A&B and Vista

D&E and also that the Profit/Loss Accounts and Balance Sheets of

these two Towers had not been audited separately and hence it was

difficult to rely on the claim of deduction u/s 80IB. The entire claim

of deductions amounting to Rs. 29.68 crores was denied by the AO.

the matter of determining the area of each flat to the DVO. The DVO

submitted his report specifying the area of the flats as under:

S. Floor Type of Flat No. of Flats Area of Total area (in Sq. No. Ft.) in A,B,C & Built up Balcony D Blocks (open to Area of Flat Sky) in sq. i/c Walls & ft.) covered Balcony (in sq.ft.) Comer 1029.28 231.28 1260.56 1st 1. 16 1st 2. 16 988.79 118.05 1106.84 Middle (Porch Side) 3. Middle 32 988.79 255.96 1244.75 1st 4. Comer 144 1029.28 Nil 1029.28 2nd to 10th 5. Middle 432 988.79 Nil 988.79 2nd to 10th

20.1 Thus, the DVO held that only 432 flats i.e. the middle flats on

2nd & 10th floor of Blocks A,B,D&E were having built up area of less

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

than 1000 sq. feet and hence qualifying for deduction u/s 80IB(10) of

the Act. The remaining flats were held to have built up area of more

1000 sq. feet and not eligible for deduction.

Appellate Authority and objected to certain observations of the DVO

with regard to the working of the built up area of the various flats. It

was submitted that with respect to 16 porch size Middle Flats and 32

Middle Flats on 1st Floor, the DVO had included the area of a balcony

which was open to the sky in the built-up area which should not have

been included in calculation of the built up area in terms of definition

of the built up area provided in the Act. The assessee’s plea before the

ld. CIT (A) was that this inclusion had resulted in the built up area of

these flats crossing 1000 sq. feet. The assessee also objected to the

working of the DVO in respect of the built up area of 144 corner flats

on floor nos. 2 and 10 on all the four blocks. The assessee also

submitted before the ld. CIT(A) that admittedly as some of the flats in

respect of which deduction u/s 80IB(10) had been claimed had built

up area exceeding 1000 sq. feet the deduction should be allowed in

respect of flats having built up area of less than 1000 sq. feet on a

proportionate basis.

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

establishment was concerned, the assessee submitted before the First

Appellate Authority that commercial establishment was a separate

sub-project within the overall Vista Project. Although the AO had

treated it as an integral part of the Vista Project, Vista Project had five

separate and independent sub-projects viz. Vista A&B, Vista D&E and

Vista C. Vista D comprised of only residential units in form of

separate towers and commercial establishment was having separate

entry and exit which had also been independently certified specifically

by the DVO in his report. It was the assessee’s submissions before

the ld. CIT(A) that the commercial establishment was not included in

the housing project and, therefore, clause (d) of section 80IB(10) was

not violated. It was further emphasized that no profits from the sale

of commercial space was claimed as deduction u/s 80IB and only the

profits resulting from the sale of residential units was claimed as

deduction. It was also submitted before the ld. CIT(A) that if the AO’s

view of the commercial establishment being included in the Vista

Housing Project were to be held as correct, then the profits from the

sale of commercial space would become an allowable deduction u/s

80IB(10) in AY 2010-11 as the provisions of the Act had been

amended w.e.f. 1.4.2010 according to which a project approved after

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

1.4.2005 could be completed in five years from the end of the

Financial Year in which the approval was obtained (Assessee’s Project

approved on 2.6.2005 and completed by 31.3.2011). The assessee

also relied on the decision of ITAT, Delhi in its own case in ITA Nos.

2613, 2614, 2739 & 2741 in which it was held that when the total

shopping area was below 5% of the total area and the project was

approved and in conformity with GDA approval, then deduction u/s

80IB had to be allowed for the whole project. Regarding the AO’s

observation on the Audit Report, the assessee submitted before the ld.

CIT (A) that separate books of account had been maintained for each

of the sub-projects but the auditors had provided their opinion on the

consolidated accounts. Since the Report in Form 10CCB confirmed to

the guidelines issued by the ICAI, the same should not have been

ignored.

decided the issues as under:

i. The assessee’s contention that deduction u/s 80IB (10) in

respect of flats having built-up area of less than 1000 sq. feet

should be allowed on a proportionate basis was accepted. 232

flats were held eligible for deduction out of 346 flats sold as per

the DVO’s report and the extent of allowable deduction was

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

worked out at 19.28 crores. The issue was restored to the file of

AO for verifying the calculation and allowing the claim in respect

of 232 flats.

ii. The assessee’s contention that the flats having balcony open to

sky and included in the built up area of the flats by the DVO

should also qualify for deduction was however rejected.

iii. The assessee’s contention that the Vista Project comprised of five

separate sub-projects with the shopping area having its own

separate entry and exit was also accepted and it was held that

the built up area of the shopping commercial establishment is to

be taken into account only when such commercial establishment

is included in the housing project in terms of section 80IB (10(d).

iv. The ld. CIT(A) also accepted assessee’s contention that no defects

were pointed out by the AO with respect to the accounts and,

therefore, the deduction u/s 80IB(10) could not be disallowed on

the ground that the auditors had given their opinion on the

consolidated accounts of the assessee.

before us.

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

grounds of appeal are as under:

"On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in deleting the addition of Rs 7.09 crores made by made by the A.O, under percentage completion method, when the assessed has already received 84% of the selling price of the flat and shown as advance from the customer

2 “On the facts and in the circumstances of the case, the Ld, CIT(A) has erred in allowing deduction u/s 80IB (10) amounting to Rs.10.40 crores on proportionate basis as against Rs.29 68 crores claimed by the assessee when the assesses did not fulfill all the conditions specified in the said section'

"On the facts and in the circumstances of the case, the Ld. 3 CIT (A) has erred in not considering the fact that No separate approval was taken from Ghaziabad Development authority (GDA in short) for the project named Vista (Blocks A & B; D&E) on which deduction u/s 80 IB (10) claimed and the map approved by GDA was for the entire project named Vista at Plot No. 14, Indirapuram, Ghaziabad (UP)." "On the facts and in the circumstances of the case, the Ld 4 CIT (A) order deserves to be cancelled and the assessment order needs to be confirmed.”

as under:

That the project of the appellant company fulfills all the 1. requirements of section 80IB (10) of the Act and as such, appellant company is entitled to the benefit of exemption under section 80IB (10) of the Act as claimed. The assessing officer went wrong on facts and in law in disallowing the claim of deduction of Rs. 29.68 crore under section 80IB (10) of the Act and consequently the Commissioner of Income Tax,

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

(Appeal)-XXVII, New Delhi in principle allowed the deduction under section 80IB (10) of the Act but erred on facts and in law to restrict the deduction to Rs. 19.28 crores calculated for 232 flat out of the total deduction of Rs. 29.68 crores claimed on 346 flats. The observation made and bases adopted are unjustified and bad in law. The deduction under section 80IB (10) to have been allowed at Rs. 29.68 crore as claimed. The order passed by the Hon’ble CIT (Appeal), may kindly be modified accordingly.

That the DVO on reference from the AO submitted report to the AO wherein the area of 114 flat has been held to be more than 1000 sq.ft by including the area of the balcony which is open to sky. The CIT(Appeal)-XXVII, New Delhi thus erred on facts and in law in adopting the report of the DVO and restricting the deduction under section 80IB(10) of the Act and in doing so he ignored the facts and circumstances of the case and thus the deduction restricted is illegal and unjustified and bad in law.

submitted that the ground is the same as in earlier year i.e. AY 2008-

09 which has already been argued before us. We concur with the

submissions of the ld. AR and in view of our findings in ITA

1950/Del/2012 on this issue; we dismiss ground no. 1 of the

Department’s appeal.

nos. 1 & 2 of the assessee’s appeal are being taken up together as

they all relate to the claim of deduction u/s 80IB(10) of the Act. As

per the Department, the claim u/s 80IB(10) was not allowable as no

separate approval for the four projects viz. Vista A, B, D & E was

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

taken and only a consolidated approval for the entire Vista Project was

taken from the GDA containing seven projects (Vista A to F and one

Commercial). It was the observation of the AO that the whole Vista

Project on plot no. 14 was approved by the GDA as one project. The

ld. DR submitted that as the housing project and the commercial

project were approved on the same map, the commercial project would

have to be included in the housing project. The ld. AR submitted that

projects A&B and D&E were two housing projects where the flats were

less than 1000 sq. ft. each. Each of these two housing projects did

not have any commercial establishment and comprised of only

residential units. It was submitted that separate books of account,

profit/loss account were prepared for the commercial project as well

as for each of the residential projects. It was the plea of the ld. AR

that commercial project has been treated as a separate independent

activity on which no deduction u/s 80IB (10) was ever claimed by the

assessee. The ld. AR also referred to the Report of the DVO, wherein

the DVO himself has admitted that the entrances and exits of the

Vista Shopping Complex and Vista Residential Project were separate

and not interconnected. It was submitted that the entire project

comprised of six residential projects and one commercial project and

no deduction had ever been claimed in respect of projects C, F and the

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

Commercial Project and, therefore, there was no valid reason for

denial of deduction for Projects A & B and D & E which contained

each unit measuring less than 1000 sq. ft. The ld. AR reiterated that

the commercial project was completely different, separate and distinct

from each of the six residential projects and that there was no

commercial office space or area in any of the housing projects in A &

B and D & E.

to sky and that of incorrect measurements by the DVO were

concerned, the ld. AR submitted a chart depicting the built-up area of

the various flats as per the DVO report. The same is being

reproduced herein under for a ready reference:

S.No. Floor Remarks Type of flat No. of flats in Built up area Area of Total area (in of flat i/c Balcony sq. ft.) walls & (Open to A.B.D.E covered Sky) (in balcony (in sq.ft.) sq. ft.) projects

1st Corner 231.28 1260.56 1029.28 Details as per 1. 16 Annexure 'A'

2 1st 16 988.79 118.05 1106.84 Middle(Por Details as per ch side) Annexure ‘B’

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

the total 640 flats in projects A, B, D & E qualified for deduction u/s

80IB (10) as having built-up area of less than 1000 sq. ft. each and

the ld. CIT (A) relying on the DVO report allowed the claim of Rs.

19.28 crores out of the total claim of 29.68 crores made by the

assessee u/s 80IB (10) of the Act. However, deduction with respect to

208 flats at S.Nos. 1 to 4 in the chart above was not allowed as the

flats at S.No. 2 & 3 above, although had a built up area of less than

1000 sq. ft. as per the DVO, but the area exceeded 1000 sq. ft. when

the area open to the sky was added. The ld. AR submitted that a

balcony structure which has an equivalent structure on the top is to

be included in the built-up area but the structure which is open to the

sky does not qualify as built up area. He relied on a series of

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

judgments of the Tribunal and Hon'ble High Courts in support of his

contention.

the chart depicted incorrect measurements by the DVO. The Ld. AR

submitted that the deduction was denied by the Ld. CIT (A) on the

basis of measurements made by the DVO. It was submitted that the

area in respect of these 160 flats was in fact only 988.79 sq ft each

but the DVO had calculated the same at 1029.28 sq ft which was

grossly incorrect. The Ld. AR submitted that the definition of the

built-up area included inner measurements of the residential unit at

the floor level including the projections and balconies as increased by

the thickness of the wall but does not include the common areas

shared with other residential units. The Ld. AR submitted that in the

construction industry, the outer walls are 9 inches walls whereas the

internal walls are 4.50 inches. The area of the walls and the common

walls has been arbitrarily applied by the DVO thus increasing the area

by approximately 35 sq ft each. It was also submitted that the Ld. CIT

(A) did not give sufficient opportunity to the assessee to rebut the

findings of the DVO. In light of these anomalies, it was submitted, the

full claim of deduction is to be allowed to the assessee.

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

and submitted that no interference was called for at this stage and that

the deduction claim was prima facie incorrect in view of the detailed

findings of the Assessing Officer and that even the relief allowed by the

Ld. CIT(A) deserves to be reversed.

relevant material placed on record. As far as ground no. 2 of the

Department’s appeal is concerned, it is seen that the issue of pro rata

deduction is covered in favour of the assessee by the following cases:-

i) ITO vs Air Developers (2009) 122 ITD 125 (Nagpur)

ii) SJR Builders vs ACIT 3 ITR (Trib) 569 (Bangalore)

iii) Sreevatsa Real Estate (P) Ltd. 9 ITR (Trib) 808

(Chennai)

In ITO vs Air Developers (supra), the Nagpur Bench held that:-

“In view of the decision of the Kolkata Bench of the Tribunal in the case of (Bengal Ambuja Housing Development Ltd. v. Dy. CIT [IT Appeal No. 1595 (Kol.) of 2005, dated 24-3-2006], which was squarely applicable to the instant case, it was to be held that if the assessee had developed a housing project wherein the majority of the residential units had a built-up area of less than 1500 sq. ft., i.e., the limit prescribed by section SO-IB(IO) and only a few residential units were exceeding the built-up area of 1500 sq. ft., there would

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

be no justification to disallow the entire deduction under section 80-lB(10). It would be fair and reasonable to allow the deduction on a proportionate basis, i.e., on the profit derived from the construction of the residential unit which had a built-up area of less than 1500 sq. ft., i.e., the limit prescribed under section 80- IB(IO). In view of the above, the Assessing Officer was to be directed that if it was found that the built-up area of some of the residential units was exceeding 1500 sq.ft., he would allow the proportionate deduction under section 80- IB(10). Accordingly, the appeal of the revenue was to be dismissed and cross-objection of the assessee was deemed to be partly allowed. [Para 6.7]”

Similarly, in SJR Builders (supra), the Bangalore Bench of the

ITAT held that:-

“However, in the light of the decision of the Special Bench in the case of Brahma Associates v. Joint CIT [2009] 315 ITR (AT) 268 (Pune), merely because some flats are larger than 1500 sq.ft, the assessee will not lose the benefit in its entirety. Only with reference to the fats which have than the prescribed area, the assessee will lose the benefit.” The Chennai Bench of the ITAT, in the case of Sreevatsa Real

Estates (P) Ltd. (supra), held that :-

“The assessee was a company engaged in property development and claimed deduction under section 80-IB( 10). The Assessing Officer denied the claim citing various reasons, one of them being - Project was not exclusively for units with built-up area less than 1500 sq. ft. Commissioner (Appeals) confirmed the order of the Assessing Officer. In second appeal, ITAT Chennai held - Further as regards revenue's contention that since some of the housing units exceeded 1500 sq. feet., no claim under section 80-111(10) could be allowed, it was to be held that the assessee was eligible for

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

claiming deduction under section 80-IB(10), pro rata for the housing units having area of less than 1500 sq. ft. for both the year. [Para 15]”

Keeping in view the Report of the DVO as well as the ratio of

judgments as discussed above, we concur with the finding of the

Ld. CIT(A) that the assessee was eligible to get proportionate

deduction u/s 80IB(10) of the Act in respect of flats sold during

the year on fulfilling the prescribed conditions. Hence ground no.

2 of the Department’s appeal is dismissed and the findings of the

Ld. CIT (A) are upheld.

each housing project is concerned (corresponding to ground no 3

of the Department’s appeal), we are of the considered opinion

that section 80IB (10) prescribes approval of a housing project. A

Housing Project may comprise of both eligible as well as ineligible

units. The deduction will be available and limited to the claim on

eligible units irrespective of the fact that the entire project

comprising of eligible and ineligible units has been approved by

the authority by way of a single approval/composite approval.

Section 80IB(10) refers to the approval of a housing project but

does not prescribe a pre-condition that the deduction will be

available in respect of only that unit or part of the project which

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

has been separately approved by the local authority. Hence, it is

our considered view that a separate approval for each eligible

unit or project is not the intention of the Act. The Hon'ble

Madras High Court in the case of Viswas Promoters (P) Ltd. vs

ACIT 255 CTR 149 has held that the mere fact that one of the

blocks have units exceeding built-up area of 1500 sq ft per se,

would not result in nullifying the claim of the assessee for the

entire project. Consequently, it was held, that assessee was

entitled to the benefit of deduction u/s 80IB (10(c) of the Act in

respect of each of the blocks. The Pune Bench of the ITAT has

held in the case of Siddhivinayak Kohinoor Venture vs ACIT

(2014) 159 TTJ 390 that construction of even one building with

several residential projects of the prescribed size would constitute

a housing project for the purpose of section 80IB(10) of the Act.

The Pune Bench further held that each block in a particular

project has to be taken as an independent building and hence is

to be considered a housing project for the purpose of claiming

deduction u/s 80IB(10). Para 32 of the order is relevant in the

present appeal also and is being reproduced herein under for a

ready reference:-

“32. The argument of the Revenue, based on the statement of Chief Engineer, PCMC, in our view, does not

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

help the case of the Revenue as the following discussion would show. The case set up by the Revenue is that two projects have been sanctioned by a common approval and thus the PCMC has viewed the two projects as a single composite project. It is contended by the Revenue that the expression 'housing project', though not defined in s. 80-113(10) of the Act, should be taken to be the project per se, as approved by a 'local authority' for the purposes of s. 80-IB( 10) of the Act. No doubt, for a 'housing project' to be eligible for deduction under s. 80-IB (10) of the Act, it is required to be approved by a 'local authority', so however, the phraseology of s. 80-IB (10) of the Act does not reflect a legislative intent that the project should be 'as approved' by a 'local authority'. The requirement of s. 80-IB (10) of the Act to the effect that project should be approved by a 'local authority' is fulfilled no sooner when the 'housing project' considered by an assessee is approved by a 'local authority'. Moreover, the expression 'housing project' is not defined in the Development Control Rules for PCMC i.e. the 'local authority' in the case before us and thus, the said enactment cannot be resorted to for the purpose of understanding the meaning of expression 'housing project' contained in s. 80-IB(10) of the Act. Therefore, so long as the claim of deduction is in relation to a 'housing project', which has been approved by the 'local authority', it would satisfy the requirement of s. 80- IB(10) of the Act. Pertinently, if the proposition of the Revenue is to be upheld, the same would be quite contrary to the manner in which the expression 'housing project' contained in s. 80-IB (10) of the Act has been understood by the Hon'ble Bombay High Court in the case of Vandana Properties (supra) and also by the Hon'ble Madras High Court in Viswas Promoters (P.) Ltd. (supra) and Arun Excello Foundations (P.) Ltd. (supra). It may also be pertinent to observe that the Hon'ble Bombay High Court in Vandana Properties (supra) not only noted that the expression 'housing project' is not defined under s. 80-IB(10) of the Act but also noted that the same was not defined even under the relevant local regulations before it, viz. the Mumbai Municipal Corporation Act, 1988 and the Development Control Regulations for Greater Mumbai, 1991. Thus, the Hon'ble High Court proceeded to observe that the expression 'housing project' in s. 80-IB(10) would have to be construed as commonly understood. Even in the case before us, there is no dispute that the expression 'housing project' is not defined in the Development Control Rules for PCMC and therefore, the concept of'housing project’ as sought to be understood by the AO

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

based on the explanation of Chief Engineer. PCMC is not relevant for the purposes of s, 80IB (I0) of the Act. Thus, the argument of the Revenue to the effect that since SWRH and ’S'1 projects have been approved by PCMC under a common approval, the two projects should be combined and considered as a single project for the purpose of s. under s. 80-IB( 10) of the Act in our opinion is misplaced.” 35. Therefore, in view of the facts of the case as well as the

judicial precedents discussed above, we dismiss ground no. 3 of

the Department’s appeal. Ground nos. 4 & 5 of the Department’s

appeal being general in nature are not being adjudicated upon

and are dismissed. In the result, the appeal of the department is

dismissed.

concerned, the first issue requiring adjudication is whether the

projections open to sky are to be included or excluded in the

calculation of the built-up area of a particulars residential unit.

We find that this issue is covered in favour of the assessee by the

decision of the ITAT Pune Bench in the case of Naresh T.

Wadhwani vs DCIT (52 taxmann.com 360 Pune-Trib) wherein, in

para 27, the Bench has held as follows:-

“ 27. Considered in the above background, we conclude by holding that the Assessing Officer and thereafter the CIT(A) has erred in including the area of projected terrace (open to sky) for the purposes of computing 'built- up area' while examining the condition prescribed in

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

clause (e) of section 80IB( 10) of the Act. Once the area of projected terrace (open to sky) is excluded then there is no dispute that the residual built-up area of six units in question falls within the prescribed limit of 1500 sq.ft. As a result, we hold that assessee fulfills the condition prescribed in clause (c) of section 80IB (10) of the Act with regard to the six units in question. Therefore, we set-aside the order of the CIT(A) and direct the Assessing Officer to consider that the six units in question fulfill the condition prescribed in clause (e) of section 80I B(10) of the Act and the assessee is entitled to the benefit of section 80IB(10) of the Act.”

out any judgment/judicial precedent to the contrary. We

accordingly hold that the balconies open to the sky are to be

excluded from the calculation of the built-up area of a particular

residential unit. We, therefore, direct that the assessee be

allowed the claim of deduction u/s 80IB (10) in respect of flats (at

S.Nos. 2 & 3 as in the chart reproduced in on Para 28 of this

order) which have been excluded from the benefit of deduction by

including the balconies open to sky for the purpose of calculating

the built-up area of the individual units.

claim of the assessee challenging the measurements of the DVO

in respect of flats at Sl. no. 1 & 4 of the chart (Para 28 of this

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09

order). It is the assessee’s contention that the correct

measurement is 988.79 sq ft whereas the DVO has calculated the

build up area at 1029.28 sq. ft. It is also the assessee’s plea that

it had not been afforded a proper opportunity to explain the

discrepancy before the Ld. CIT (A). Hence in the interest of

justice, we deem it proper to restore this limited issue of

discrepancy in measurement, as claimed by the assessee, to the

file of the Assessing Officer for fresh examination and

adjudication thereon after giving due opportunity to the assessee

to present its case. In the result, the appeal of the assessee is

partly allowed.

dismissed, the C.O. of the assessee is allowed and the appeal of

the assessee is partly allowed.

Order pronounced in the Open Court on 30th May, 2016.

Sd/- Sd/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL MEMBER

Dated: the 30th May, 2016 ‘GS’

I.T.A. Nos. 5614, 1950, 5849/D/2012, CO 20/D/15 Assessment Years: 2009-10, 2008-09