PR COMMISSIONER OFINCOME TAX vs. M/S SN BUILDERS & DEVELOPERS

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 1ST DAY OF FEBRUARY, 2021 PRESENT THE HON’BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON’BLE MR. JUSTICE V. SRISHANANDA I.T.A. NO.740 OF 2018 BETWEEN: 1. PR. COMMISSIONER OF INCOME-TAX

BENGALURU-4, B.M.T.C. COMPLEX

80 FEET ROAD, KORAMANGALA,

BENGALURU-560 095 2. ASSISTANT COMMISSIONER OF INCOME-TAX

CIRCLE-4(3)(1), BENGALURU,

BMTC COMPLEX,

80 FEET ROAD, KORAMANGALA,

BENGALURU-560 095 .... APPELLANTS (BY SRI SANMATHI E.I., ADVOCATE FOR SRI JEEVAN J. NEERALGI, ADVOCATE) AND: M/S. S N BUILDERS & DEVELOPERS SNN AGORA, RAJ LAKE VIEW NO.3761, 29TH MAIN, BTM 2ND STAGE N.S.PALYA MAIN ROAD BANGALORE-560 076. ... RESPONDENT - - -

2 THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20.04.2018 PASSED IN ITA NO.732/BANG/2017 FOR THE ASSESSMENT YEAR 2012-2013, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND ETC. THIS I.T.A. COMING ON FOR ORDERS, THIS DAY, V. SRISHANANDA. J., DELIVERED THE FOLLOWING: JUDGMENT

The Revenue is in appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short). The subject matter of the appeal pertains to the Assessment Year 2012-14.

"(i) Whether on the facts and circumstances of the case, the Tribunal was justified in directing the Assessing Officer to allow proportionate deduction under Section 801B(10) of the Act to the extent of profits attributable to the units where the

3 built up area is below 1500 Sq. Ft. even when no such apportionment is prescribed under the scheme of Section 801B(10)(C) of the Income- Tax Act?

(ii) Whether, on the facts and circumstances of the case, the Tribunal was justified in law holding that the assessee is entitled to claim deduction under Section 801B(10) of the Act in respect of profits derived from the sale of residential units where in built up area is below 1500 Sq. Ft without appreciating that deduction under Section 801B(10) of the Act is project based rather than unit and there is no concept of proportionate deduction under Section 801B(10)(C) of the Act?"

4 The assessee is a firm engaged in the business of real estate and construction of apartments. For the Assessment Year 2012-14, the assessee filed returns declaring the income of Rs.6,67,79,950/- under the head business and other sources. In the said return, the assessee claimed deduction in a sum of Rs.11,45,89,786/- as deduction under Section 801B(10) of the Income Tax Act. The assessing Officer, on examination of the eligibility criteria as is stipulated under Section 801B(10) of the Income Tax Act concluded that the respondent did not fulfill the condition 'C' laid down in the said provision and disallowed the deduction vide assessment order dated 10.3.2016 (Annexure-B) 6. Being aggrieved by the said assessment order, assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax, by his order dated 24.12.2016, in ITA No.279/ACIT-C- 4(3)(1)/CIT(A)-4/2014-15, allowed the appeal and set aside the assessment order, inter alia, holding that derivation of profit based on percentage completion method by the assessee is correct and assessee is entitled to proportionate

5 deduction under Section 801B(10) of the Act in respect of the flats which conform to the limits prescribed under the relevant provisions of the Act. 7. The Revenue being aggrieved by the order passed by the Commissioner of Income Tax (Appeals) approached the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal by Order dated 20.04.2018 dismissed the appeal of the Revenue by placing reliance on the order of this Court reported in 'CIT Vs. SJR BUILDERS' in ITA No.32/2010 dated 19.03.2012 and confirmed the order passed by the Commissioner and held that the assessee is eligible for deduction under Section 80IB(10) of the Act proportionately. The present appeal is filed by the Revenue against the order of the Tribunal with the substantial questions of law referred to supra. 8. Learned counsel for the revenue argued that the Tribunal grossly erred in dismissing the appeal of the Revenue and confirming the order of the Commissioner whereby the assessee has been granted the benefit of proportionate deduction under Section 80IB(10) of the Act.

6 It is further argued that the assessee is not entitled for proportionate deduction under Section 80IB(10) of the Act as the provision do not envisage such deduction and one of the conditions which is required is a cine qua non for claiming deduction under Section 80IB(10) of the Act is that the total built up area of the residential units in the housing project should not exceed 1500 square feet. 9. In the case on hand, assessee has failed to satisfy the said condition. It is also urged that the Tribunal erred in holding that the project completion method is a recognized method of accounting without properly examining as to whether the assessee is entitled to project completion method in the absence of assessee placing regular books of accounts. It is also pointed out that the Tribunal has placed reliance on the decision rendered in 'M/S. PRESTIGE ESTATE PROJECTS PVT. LTD. Vs. DCIT'.. However, the aforesaid order of the Tribunal was the subject matter of the appeal before this Court in ITA No.84/2010 wherein this Court by order dated 05.05.2020 held that the percentage completion method is applicable to the assessee and

7 therefore, the assessee should have followed the percentage completion method for the Assessment Year 2012-13 also. 10. Per contra, the learned counsel for the assessee submitted that the substantial questions of law raised in the appeal memorandum is answered by this Court in ITA No.393/2014 passed on 7.1.2021 in respect of the very same assessee for the year 2009-10, which has been made available to this court. The learned Senior Counsel further contended that since the issue involved in the present appeal is squarely covered by the judgment of this Court in ITA No.393/2014 and similar orders are required to be passed in the present appeal also. 11. We have carefully perused the order dated 7.1.2021 passed by the co-ordinate bench of this Court in ITA No.393/2014 which pertains to the assessment year 2009-10, wherein this court at paragraphs 6 & 7 has held as under: "6. We have considered the submissions made on both sides and have perused the record. On close scrutiny of the judgment rendered by this

8 Court in BRIGADE ENTERPRISES LTD., supra, it is evident that the first substantial question of law involved in this appeal is no longer res integra. Therefore, the first substantial question of law is answered against the revenue and in favour of the assessee. 7. Now we may deal with the second substantial question of law. The Tribunal relied upon the decision in the case of 'PRESTIGE ESTATES PROJECTS LTD. Vs. DCIT', rendered by it and held that for the Assessment Year 2005- 06 the Accounting Standard 7 was not applicable to the real estate developers.

Therefore, percentage completion method cannot be thrust upon the assessee and the assessee was right following the project completion method of accounting as per Accounting Standard 9. The aforesaid decision has been upheld by this Court in 'CIT Vs. PRESTIGE ESTATES', supra. Besides it, once the first substantial question of law is answered in favour of the assessee, the second substantial question of law is otherwise even rendered academic. The Institute of Chartered Accountants has issued a clarification wherein it has been clarified that revised Accounting Standard 7 is not applicable to the enterprises undertaking construction activities. Therefore, the

9 second substantial question of law is also answered against the revenue and in favour of the assessee." 12. For the reasons recorded in the said judgment, since this appeal is for the assessment year 2012-13, we are of the considered opinion that the decision rendered in ITA No.393/2014 dated 7.1.2021 would be squarely applicable to the present appeal also. In the light of the reasons recorded in the aforesaid decision, the appeal fails and accordingly, it is dismissed. Sd/-

JUDGE Sd/- JUDGE PL*