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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
These three appeals, two by the assessee in ITA Nos. 1234 & 1235/PUN/2014 for the assessment years 2009-10 and 2010-11, respectively and one cross appeal by the Revenue in ITA No. 1329/PUN/2014 for the assessment year 2009-10 are directed against the order of Commissioner of Income Tax (Appeals), Central, Pune dated 28-03-2014, common for the assessment years 2009-10 and 2010-11.
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Since, the issues involved in all the three appeals are similar and are arising from same set of facts, these appeals are taken up together for adjudication and are disposed of vide this common order.
Shri Nilesh Khandelwal appearing on behalf of the assessee submitted that the assessee is engaged in the business of construction and sale of residential flats. The assessee developed a housing project under the name “Archana Hill Town” situated at S. No. 13/4P and 8P Kondhwa Khurd, Pune on land admeasuring 9014 sq. mtrs. In the return of income for assessment year 2009-10, the assessee claimed deduction of Rs.6,06,29,370/- u/s. 80IB(10) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) in respect of aforesaid housing project consisting of three Buildings A, B and C. Similarly, in the return of income for assessment year 2010-11, the assessee claimed deduction of Rs.53,62,222/- u/s. 80IB(10) of the Act. Initial building plan for the housing project was sanctioned by the Pune Municipal Corporation (PMC) on 17-05-2004 and the commencement certificate in respect of said project was received by assessee on 15-05-2004. The ld. AR pointed that first plan approved by PMC consisted of 91 residential units in two buildings i.e. Wing A and Wing B. The proposed FSI for construction as per first plan was 4908.989 sq. mtrs. Later on, the first plan was scraped and the revised building plan was approved on 09-01-2006 with three buildings having smaller flats comprising of 114 tenements. The proposed FSI in the revised building plan was 8062.157 sq. mtrs. The ld. AR submitted that the assessee got occupation certificate from Pune Municipal Corporation in respect of Building A comprising of 32 residential units on 06-11-2007, the completion certificate in respect of Building B comprising of 43 residential units was received on 31-03-2008 and completion certificate in respect of
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Building C comprising of 39 flats was received in two parts. First completion certificate for building C for 16 flats was received on 30-03-2009 and for the remaining 23 flats the completion certificate was received on 01-02-2010. The ld. AR referred to completion certificates at pages 7 to 13 of the paper book. The Assessing Officer denied the benefit of deduction u/s. 80IB(10) to the assessee on the ground that since the initial approval of the housing project was received by the assessee on 15-05-2004, the due date for completion of the housing project is 31-03-2009. The assessee has failed to complete the housing project before the due date therefore the assessee is not eligible to claim deduction u/s. 80IB(10) of the Act.
3.1 The ld. AR contended that a survey action u/s. 133A of the Act was carried out by the Department on the business premises of the assessee on 18-11-2009. During survey, statement of Shri Anil Daya Lalji Oswal, partner of assessee was recorded. In reply to Q. No. 5 he categorically stated that commencement certificate was issued by the Local Authority on 27-05-2004. Later on it was amended by way of altering the first plan on 09-01-2006. The first plan was scraped and the building plan for the first time was approved on 09-01-2006. During survey there is no finding that the building was constructed as per plan approved on 15-05-2004. During survey physical verification of Flat No. A 1102 was carried out. There is no finding during survey that the project was not complete. Flat No. A 1102 was measured, the construction of the said flat is as per plan approved on 09-01-2006.
3.2 The ld. AR submitted that documents on record clearly indicate that the first building plan that was scrapped had two building only i.e. Wing A
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and Wing B. Subsequent building plan approved on 09-01-2006 consisted of three buildings i.e. Wings A, B and C. Therefore, the due date for completion of project has to be seen from the subsequent plan. If fresh building plan approved on 09-01-2006 is taken into consideration, as per provisions of section 80IB(10) the assessee should have complete the project by 31-03-2011. The housing project of the assessee was complete in every respect well before the said date. If due date of completion has to be seen from the initial building plan, it should only be in respect of Wing A and Wing B of the project. As per initial building plan the due date of completion is 31-03-2009. The assessee received completion certificate with respect to 32 units in Wing A on 06-11-2007 and 43 units in Wing B on 31-03-2008. Even completion certificate in respect of 16 units of Wing C was also received prior to 31-03-2009. The Commissioner of Income Tax (Appeals) after considering this fact granted pro-rata deduction to the assessee on 91 units out of 114 units.
3.3 As pointed earlier, Wing C of the project was included in the building plan sanctioned on 09-01-2006. Therefore, the due date for completion of the said wing has to be seen from the date on which it was first approved i.e. 09-01-2006. Accordingly, the due date for completion of Wing C is 31-03-2011. The assessee has received completion certificate in respect of remaining 23 units in wing C on 01-02-2010 i.e. well before due date. Hence, the assessee is eligible to claim deduction u/s. 80IB(10) on entire project. The ld. AR submitted that the Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. Vandana Properties reported as 19 taxmann.com 316 has held that there is no impediment in having separate housing project along with existing project. The building C that was approved subsequently is a separate project, for which due date of
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completion is 31-03-2011 and building C was compete before the due date the assessee is eligible for deduction u/s. 80IB(10) on the said building as well.
3.4 The ld. AR submitted that the assessee in appeal for assessment year 2009-10 in ground No. 4 has assailed addition of Rs.65,550/- made u/s. 40A(3) of the Act. The ld. AR pointed that the expenditure was for the advertisement of housing project in Newspaper Sakal. The assessee has genuinely incurred the expenses for its business; therefore, it deserves to be allowed. The ld. AR contended that in case disallowance u/s. 40A(3) is confirmed, the effect of such disallowance would be increase in profit from the business of development of housing project. In any case the income from housing project is eligible for deduction u/s. 80IB(10) of the Act. The disallowance made will be tax neutral. The increase in profit will be eligible for deduction u/s.80IB(10) of the Act. The ld. AR pointed that CBDT in Circular No. 37/2016 dated 2nd November, 2016 has accepted that disallowance made u/s. 40A(3) related to business activity against which the deduction under Chapter VI-A has been claimed resulting in enhancement of profits of the eligible business, the deduction under Chapter VI-A would be admissible on such enhanced profits.
On the other hand Shri Rajeev Kumar representing the Department vehemently supported the findings of Assessing Officer in rejecting entire deduction claimed u/s. 80IB(10) of the Act. The ld. DR submitted that as per Explanation (i) to section 80IB(10)(a), it is the first approval by the local authority that has to be considered for determining the date of completion of housing project. In the present case, since, the first approval was received on 15-05-2004 the project should have been completed on or
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before 31-03-2009. The ld. DR further referred to the statement of Shri Sunil Digambar Vartak, Architect of the housing project recorded on 29- 09-2011 u/s. 131. The ld. DR pointed that the Architect of the project in reply to Q. No. 8 admitted that completion certificate cannot be received without NOC from Fire Department. In the present case, the NOC from Fire Department was received on 18-09-2009 i.e. after due date of completion. Therefore, it cannot be said that the project was complete in all respect before 31-03-2009.
4.1 The ld. DR further submitted that the Department in appeal has assailed the findings of Commissioner of Income Tax (Appeals) in granting pro-rata deduction u/s. 80IB(10) to the assessee in respect of 91 flats comprising of 32 units in Wing A, 43 units in Wing B and 16 units in Wing C. The ld. DR pointed that even after the date of completion as claimed by assessee, the assessee incurred expenditure of Rs.48 crores. If the project was complete in every respect there could not have been such a huge expenditure after completion of project. The ld. DR prayed for reversing the findings of Commissioner of Income Tax (Appeals) and restoring the order of Assessing Officer.
Controverting the submissions advanced by DR, the ld. AR submitted that a perusal of details of expenditure would reveal that it is only miniscule part of entire expenditure on the housing project. This expenditure was incurred towards installation of sanitary fittings, electrical fittings, some fixtures etc. just before the handing over of the flats to the buyers. Once, the authorities concerned have issued completion certificate there should be no element of doubt that the project was not complete in any respect.
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In respect of NOC from Fire Department, the ld. AR submitted that the assessee received provisional fire NOC for Building A, B & C on 23-10- 2007. The final Fire NOC for Building A was received on 05-11-2007 and for Building B was received on 14-02-2008. The final Fire NOC for Building C was received on 18-09-2009. The ld. AR pointed that the Chief Fire Officer, Pune issued NOC for different buildings on different dates; however, the assessee had applied for issuance of Final Fire NOC for all Buildings i.e. A, B and C on 02-12-2008. The ld. AR placed on record copy of final Fire NOCs issued by Chief Fire Officer, Pune in respect of the three buildings.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. We have also considered various decisions and documents on which the ld. AR has place reliance. The assessee in both the appeals have assailed the findings of Commissioner of Income Tax (Appeals) in restricting the benefit of section 80IB(10) to 91 residential units out of 114 total units.
The Revenue in it’s cross appeal for assessment year 2009-10 has assailed the findings of Commissioner of Income Tax (Appeals) in granting pro-rata deduction u/s. 80IB(10) to the assessee in respect of completed residential units.
It is an undisputed fact that initial commencement certificate was granted to the assessee by the PMC on 15-05-2004 in respect of two buildings i.e. Wing A and Wing B comprising of 91 residential units. In the first building plan Wing C was not in existence. Subsequently, the assessee revised the entire building plan by reducing the size of flats and adding
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new building. The assessee got approved revised building plan with three buildings i.e. A, B and C consisting of 114 units for which commencement certificate was issued on 09-01-2006. As per provisions of section 80IB(10)(a)(ii), where the housing project has been approved by the local authority on or after 1st April, 2004 but before 31-03-2005, the same should be completed within a period of 4 years from the end of the financial year in which the housing project is approved. Since, the initial building plan in respect of building A and B was approved on 15-05-2004 the assessee to be eligible for claiming deduction u/s. 80IB(10) on said buildings was required to complete housing project on or before 31-03- 2009. It is an admitted position that in respect of building A comprising of 32 residential units the completion certificate was received by the assessee on 06-11-2007 and in respect of building B comprising of 43 residential units the completion certificate was received on 31-03-2008. Thus, it is unambiguously clear that both the buildings were complete well before 31- 03-2009 and the assessee is eligible to claim deduction u/s. 80IB(10) in respect of both the buildings.
Now, the issue is what would be due date of completion of building C. As has been pointed earlier Building C was included in the building plan approved at later stage for which commencement certificate was granted by Pune Municipal Corporation on 09-01-2006. Thus, for computing period of completion u/s. 80IB(10) the date of commencement certificate of Building C has to be taken into consideration. As per sub- clause (iii) of section 80IB(10)(a) where the housing project has been approved by the local authority on or after first day of April, 2005, to be eligible for claiming deduction it should be completed within 5 years from the end of the financial year in which the housing project is approved.
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Thus, in the case of Building C the due date of completion is 31-03-2011. The completion certificate in respect of building C comprising of 39 flats was received by the assessee in two phases. The first completion certificate in respect of 16 residential units was received on 30-03-2009 and the completion certificate in respect of remaining 23 residential units was received by assessee on 01-02-2010. Therefore, the Building C was complete well before the due date of completion as has been mandated by section 80IB(10)(a) of the Act. Hence, the assessee is eligible for claiming deduction in respect of Building C as well.
We observe that both the authorities below have erred in taking the date of commencement certificate in respect of Building C as 15-05-2004 and have held that due date of completion of entire project is 31-03-2009. However, the Assessing Officer, as well as, the Commissioner of Income Tax (Appeals) have failed to appreciate the fact that as on 15-05-2004 when initial commencement certificate was granted to the assessee, there was no reference of Building C. Building C was incorporated in the plan by the assessee at a later stage for which commencement certificate was issued on 09-01-2006. Thus, the due date of completion of Building C is 31-03-2011, whereas the assessee received final completion certificate on 01-02-2010 i.e. much before the due date. If Building C is considered as separate housing project, even then the assessee is eligible for claiming deduction u/s. 80IB(10) of the Act in line with the ratio laid down Hon'ble Bombay High Court in the case of CIT Vs. Vandana Properties (supra).
Further, the ld. DR pointed that assessee has incurred huge expenditure of more than Rs. 48 Crores after the receipt of completion certificate to contend that the housing project was not complete. We do not
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find any merit in this objection raised by the ld. DR. The assessee has explained that the expenditure was incurred on sanitary fittings, electrical fittings, fixtures etc. fixed just before handing over of the flats. Even otherwise, once completion certificate has been issued by the Local Authority, the residential units are deemed to be complete in every respect and are ready for possession. Mere fixing of sanitary and electrical fittings, wood work etc. carried out before handing over of possession to the buyers would not jeopardize assessee’s claim of deduction u/s.80IB (10) of the Act. Thus, we are of considered view that assessee is eligible for claiming deduction u/s.80IB(10) in respect of entire housing project including Building A, B and C.
The Revenue in its cross appeal has raised objection against the findings of Commissioner of Income Tax (Appeals) in granting pro-rata deduction u/s.80IB(10) in respect of residential units for which completion certificate has been received. Granting of pro-rata deduction in respect of completed residential units u/s. 80IB(10) is no more res-integra. The Hon'ble Calcutta High Court in the case of CIT Vs. Bengal Ambuja Housing Development Ltd. in ITA No. 458 of 2006 decided on 05-01-2007 has held that pro-rata deduction u/s. 80IB(10) can be granted in respect of completed residential units. Similar view has been taken by Special Bench of the Tribunal in the case of Sanghvi and Doshi Enterprise Vs. ITO reported as 18 ITR (Trib) 608. Various Benches of Tribunal have been consistently upholding granting of pro-rata deduction in respect of completed residential units. Accordingly, grounds raised by the Revenue in appeal are dismissed.
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In appeal for assessment year 2009-10, assessee in ground No. 4 has assailed the findings of Commissioner of Income Tax (Appeals) in disallowing Rs. 65,550/- u/s. 40A(3) of the Act. The contention of the assessee is that assessee had made payment for advertisement of housing project in Sakal Newspaper. We observe that this addition made by the Assessing Officer is tax neutral. Even if disallowance of Rs.65,550/- is made u/s. 40A(3), it would result in increasing business profit of the assessee from housing project which otherwise is eligible for deduction u/s. 80IB (10) of the Act. The CBDT Circular No. 37/2016 (supra) has clarified that disallowance made u/s.40A(3) related to the business activity against which Chapter VI-A deduction has been claimed, resulting in enhancement of the profits of the eligible business, the deduction would be admissible on the profits so enhanced by the disallowance. The relevant extract of the Circular is reproduced herein below:
“3. In view of the above, the Board has accepted the settled position that the disallowance made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed , result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance.”
Thus, without going to the merits of disallowance u/s.40A(3) of the Act, we allow the expenditure of Rs.65,550/- made by assessee for publishing of advertisement in Sakal Newspaper. Thus, in view of our above findings, both the appeals of assessee are allowed and appeal of the Revenue for assessment year 2009-10 is dismissed.
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In the result, appeals of the assessee are allowed and appeal of Revenue is dismissed.
Order pronounced on Thursday, the 25th day of January, 2018.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 25th January, 2018 RK/SB आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-Central, Pune 3. आयकर आयुक्त / The CIT-Central, Pune 4. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// // सत्यावऩत प्रयत // True Copy //
आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune.