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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S. PANNU & SHRI RAVISH SOOD
The captioned appeal by the Revenue is directed against the order of the CIT(A)-26, Mumbai dated 18.9.2014, pertaining to the Assessment Year 2010-11, which in turn has arisen from the order passed by the Assessing Officer dated 25.3.2013 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, although Revenue has raised multiple Grounds of appeal, but the solitary grievance is that the CIT(A) erred in allowing the claim of assessee for deduction u/s 80-IB(10) of the Act.
3. In brief, the relevant facts are that the respondent-assessee is a Partnership firm, which is engaged in development of slum rehabilitation scheme. In the course of such activity, it has undertaken development and construction of a housing project named ‘Vinayak Blessings’ and with respect to the profits derived from such project, it claimed deduction u/s 80-IB(10) of the Act for a sum of Rs. 1,61,00,007/-. The Assessing Officer has denied the claim of assessee for deduction on the ground that the built up area of the shops and other commercial establishments in the project violated the limit prescribed in clause (d) of Sec. 80-IB(10) of the Act. The Assessing Officer also noticed that the deduction u/s 80-IB(10) of the Act was also disallowed in the preceding Assessment Year of 2010-11 for violation of the limit prescribed for commercial area.
4. The above disallowance was carried by the assessee in appeal before the CIT(A) contesting the denial of deduction on various grounds. One of the pertinent points raised by the assessee was that the limit prescribed in Sec. 80-IB(10) of the Act would be breached only in case the area of the basement was to be considered, whereas as per the assessee, the area of the basement was excludible in order to compute the ‘built up area’ for the purposes of Sec. 80-IB(10)(d) of the Act. Assessee placed reliance on the Development Control Regulations for Greater Mumbai, 1991 (in short ‘DCR’) in this regard. According to the assessee, once the portion of basement is reduced, the resultant built up area of the commercial establishments would fall within the limit prescribed in Sec. 80-IB(10)(d) of the Act. The CIT(A) has accepted the aforesaid plea of the assessee and held that after excluding the area of basement, the built up area of the remaining commercial area is within the limit prescribed u/s 80-IB(10)(d) of the Act. The following discussion in the order of CIT(A) is relevant in this regard :-
“3.18 Facts of the case and submissions made have been examined carefully. There is no dispute on facts. The only dispute is whether the basement area can be considered as commercial area to determine whether commercial built up area of the project exceeds 5000 sq. ft.
3.19 The definition of built up area as in Sec.80IB(10) specifically refers to built up area of residential units. Therefore, it cannot be said to define built up area of a commercial unit also since it specifically refers to ‘residential units’ and therefore can be said to exclude commercial unit as argued. In such a situation the built up area as defined in DCR.91 may be adopted. It has also been so held in case M/s. Global Reality 134 ITD 407 (Indore) though in connection with the built up area of a residential unit but can be extended to commercial unit in view of specific definition of built up area in the Act and no such definition of commercial built up area in the Act.
3.20 As per DCR, the built up area of a basement is not to be considered as part of FSI if it confirms to the restrictive uses under Regulation 38(9). Applying this definition of built up area for the commercial units, basement area cannot be considered as part of built up area if conditions mentioned in Regulation 38(9) are fulfilled.
3.21 As per documents submitted, the basement has been sanctioned for use as strong room and stationery room for bank and it has also been put to same use. As per Sale Agreement produced, basement has been sold with ‘restrictive uses’ conditions. Also as per
Judgement of Punjab & Haryana High Court in the case of District Board of Hoshiarpur vs F. Hira Singh Jagat Singh and Ors. AIR 1968 PH 289 cited by Ld. A.R, basement area cannot be held as commercial area.
3.22 Considering the above, it is hereby held that the basement constructed as per DC Regulation 38(9) cannot be held as part of commercial built up area of the project. If this is excluded from the commercial built up area of the project, the remaining commercial area is less than 5000 sq. ft. Therefore, the assessee is eligible for deduction u/s 80IB(10). This ground is allowed.”
Against such a decision of the CIT(A), Revenue is in appeal before us.
Before us, the ld. DR has vehemently contended that the basement area was constructed for the purpose of use as a commercial establishment and the Assessing Officer has brought out the same by observing that it was leased out to a bank, and it was being used by the bank as a strong room/storage area, which was an integral part of banking activity. It was, therefore, contended that the Assessing Officer was quite justified in concluding that the built up area for the purpose of Sec. 80-IB(10)(d) of the Act was to be computed after taking into consideration the area of basement constructed in the project.
On the other hand, the learned representative for the assessee has defended the order of CIT(A) by placing reliance thereon and also referred to the Paper Book wherein is placed the relevant material, which has formed the basis for CIT(A) to conclude that after excluding the area of basement, the residual built up area for commercial use was within the limit prescribed u/s 80-IB(10)(d) of the Act. Apart therefrom, the learned representative also relied upon the judgment of the Hon'ble Punjab & Haryana High Court in the case of District Board of Hoshiarpur vs F. Hira Singh Jagat Singh and Ors. AIR 1968 PH 289 to contend that use of the basement as a strong room by the bank does not amount to commercial use and, therefore, on this count also, it could not be said that the area of basement is to be understood as a part of commercial area in the project. The learned representative also pointed out that even as per the DCR, the permitted usage of the area of basement, inter-alia, included use for store rooms, bank lockers or safe deposit vaults. It was, therefore, pointed out that the area of basement was being used for the purposes, which were permissible in terms of the DCR and, therefore, according to the assessee, CIT(A) made no mistake in applying the definition of ‘built up area’ in DCR and excluding the area of basement for considering the limit prescribed in Sec. 80- IB(10)(d) of the Act.
We have carefully considered the rival submissions. Sec. 80- IB(10)(d) of the Act permits deduction for the profits derived from housing projects which are approved by a local authority subject, of course, to the conditions prescribed therein. Shorn of other details, the condition which is relevant for our purpose is contained in clause (d) of Sec. 80-IB(10) of the Act. Clause (d) of Sec. 80-IB(10) of the Act prescribes that the deduction is allowed if the built up area of the shops and other commercial establishments included in the housing project does not exceed 3% of the aggregate built up area of the housing project or 5000 sq. ft., whichever is higher. In the instant case, the discussion in the assessment order reveals that as per the sanctioned plan of the project, the built up area of the commercial establishments is to the extent of 482.99 sq. mtrs. The Assessing Officer has noted that the commercial area comprised in the project is 571.21 sq. mtrs. Be that as it may, going by either of the two, the Assessing Officer noted that the built up area of the commercial establishments included in the instant project was in excess of the limit prescribed in Sec. 80-IB(10)(d) of the Act. Notably, violation of the condition prescribed in clause (d) of Sec. 80-IB(10) of the Act is the sole basis for denial of deduction by the Assessing Officer and, therefore, we confine our discussion to the same.
Before proceeding further, it may also be noted that during the course of hearing, the learned representative for the respondent- assessee had pointed out that in the preceding Assessment Year of 2009-10, the claim of assessee for deduction was denied by the Assessing Officer and which has since been allowed by the Tribunal vide order dated 29.7.2016 in a copy of which is placed on record.
As the aforesaid discussion reveals, the crux of the controversy revolves around the meaning of expression “built-up area of the shops and other commercial establishments” used in Sec. 80-IB(10)(d) of the Act. Quite clearly, the Act does not prescribe a definition of “built up area of the shops and other commercial establishments”. Though Sec. 80-IB(14) of the Act prescribes the meaning of “built-up area” but incidentally it is with reference to residential units. Ostensibly, the controversy before us is to understand the meaning of “built-up area” with reference to commercial establishments and not residential area; therefore, Sec. 80-IB(14) of the Act is of no help. In this background, it would be appropriate to fall back on the local laws, i.e., DCR to understand the meaning of “built-up area” for commercial establishments since the provisions of Sec. 80-IB(10)(d) of the Act itself prescribe that the deduction is available to only such housing projects, which are approved by the local authority.
In this context, we have perused the provisions of the DCR wherein Sec. 2(13) of the Regulations defines the expression “built-up area”. As per the DCR, “built-up area means the area covered by a building on all floors ............................. but excepting the areas excluded specifically under these Regulations.” Sec. 35(1) of the DCR provides the manner of computation of floor space index/built-up and Sec. 35(2) of the DCR prescribes the exclusions from such calculation of the built up/floor space index. Clause (e) of Sec. 35(2) of the DCR seeks to exclude the area of basement as provided in Sec. 38(9) of the DCR from the purview of built-up area. Notably, the CIT(A) in the impugned order has reproduced Regulation 38(9) of the DCR which deals with the permitted uses for the basement which, inter-alia, includes the use as store room, bank lockers or safe deposit vaults. On the said basis, CIT(A) has concluded that the area of basement in the instant project was being used in the manner prescribed in Regulation 38(9) of the DCR and, therefore, the same is liable to be excluded for the purpose of calculating the built-up area of commercial establishments contained in the instant project. Notably, the building plans of the assessee which have been duly approved by the local authority includes the area of basement and, therefore, it is correct to proceed on the premise that the basement is as per the approved plans of the local authority. In para 3.10 of the order, CIT(A) has specifically noted that in terms of the approved plans, the basement has been approved as a bank strong room and bank stationery room. It is also abundantly clear that the area of basement leased out by the assessee to the bank is being to be used for the permitted purposes, an aspect which is not disputed by the Assessing Officer. Therefore, considered in the said light, the finding of CIT(A) that after exclusion of the area of basement, the commercial built up area in the project does not exceed the limit prescribed u/s 80- IB(10)(d) of the Act is well-founded both on facts and in law. In the absence of any material or evidence led by the Revenue to the contrary, we hereby deem it fit and proper to affirm the findings of the CIT(A) on this aspect. As a consequence, the conclusion of CIT(A) to allow the claim of assessee for deduction u/s 80-IB(10) of the Act is hereby affirmed. In the result, Revenue has to fail in its appeal.
Resultantly, the appeal of Revenue is dismissed.
Order pronounced in the open court on 12th April, 2017.