The Commissioner of Income tax - III, vs. M/s. Namala Estates,

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 5TH DAY OF APRIL 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE M.G.S. KAMAL I.T.A. NO.383 OF 2010 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX

LTU, JSS TOWERS

BSK III STAGE, BANGALORE. 2. THE ADDITIONAL COMMISSIONER OF INCOME-TAX

LTU, JSS TOWERS

BSK III STAGE, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. SHOBHA DEVELOPERS LTD., #43 , 2ND FLOOR DICKENSON ROAD BANGALORE - 560 058. ... RESPONDENT (BY SRI. A. SHANKAR SR. ADV. FOR SRI. M. LAVA, ADV.) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 31.05.2010 PASSED IN ITA NO.965/BANG/2009, FOR THE ASSESSMENT YEAR 2005- 06, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN.

2 (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.965/BANG/2009 DATED 31.05.2010 AND CONFIRM THE ORDER PASSED BY THE APPELLATE COMMISSIONER BY CONFIRMING THE ORDER PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, LTU, BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2005-06. The appeal was admitted by a bench of this Court on the following substantial questions of law: "(i) Whether the Tribunal is correct in holding that the allocation of common expenses in the ratio of turnover of a project should not be adopted but percentage of completion method should be adopted when computing the total turnover of the assessee for the purpose of computation of deduction u/s. 80IB of the Act?

3 (ii) Whether the Tribunal is correct in holding that the assessee would be entitled to claim deduction u/s.80IB(10) of the Act, despite the project "Zircon" having commercial shop establishment of more than 2000 sq. ft. and this project being part of the larger project "Ultima", where number of flats measuring more than 1500 sq. ft. had been constructed contrary to section 80IB(10) of the Act? (iii) Whether the Tribunal was correct in holding that the profits derived by the assessee on the sale of land/undivided share to the purchasers of flats is to be included in the profits for computing deduction u/s.80IB(10) of the Act when the land was owned by the sister concern transferring undivided share in favour of the purchasers of flats?". 2. Facts leading to filing of this appeal briefly stated are that assessee is a company incorporated

4 under the Companies Act, 1956 and is engaged in the business of construction of real estate projects and in executing construction contracts. The assessee for the Assessment Year 2005-06 filed the return of income on 31.10.2005 and declared a total income of Rs.33,33,36,600/-. The case of the assessee was selected for scrutiny and notice under Section 143(2) of the Act was issued on 01.06.2006 to the assessee. The Assessing Officer by an order dated 31.12.2007 passed under Section 143(3) of the Act completed the assessee and disallowed a portion of deduction claimed under Section 80IB of the Act to the extent of Rs.8,54,05,964/-. The Assessing Officer determined the total income of the assessee at Rs.41,87,42,566/-. 3. The assessee thereupon preferred an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 31.07.2009 upheld the order passed by the Assessing Officer and the appeal preferred by the assessee was dismissed. The assessee thereupon filed

5 an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The tribunal by an order dated 31.05.2010 allowed the claim of the assessee with regard to disallowance of a portion of deduction claimed under Section 80IB of the Act. Accordingly, the appeal preferred by the assessee was partly allowed. In the aforesaid factual background, this appeal has been filed by the revenue. 4. Learned counsel for the revenue while inviting our attention to orders passed by the Assessing Officer, Commissioner of Income Tax (Appeals) and the tribunal submitted that the tribunal ought to have appreciated that different methods of computing profits and overhead expenses. It is further submitted that once percentage completion method was adopted, the same has to be applied for computing the overhead expenses and such expenses should be in proportion to the percentage of turnover. It is also submitted that the tribunal ought to have appreciated that assessee was

6 not the owner of the land and burden was on the assessee to prove the factum of transfer of land. It is contended that unregistered agreement for sale cannot be held to be transfer in law within the meaning of either Section 2(47) of the Act or under Section 54 of the Transfer of Property Act, 1882. 5. On the other hand, learned Senior counsel for the assessee submitted that assessee has considered the cost as the basis for allocation of common overheads amongst various units of the assessee. It is further submitted that basis for allocation of expenses depends on the nature of business and may vary from case to case basis and what might be the basis for one nature of business may not be ideal for another nature of business. It is also submitted that in the construction of real estate business, the period of activity for construction of project may vary from 1 to 3 years and 5 years depending upon the size of project and grant of approval by various authorities. It is argued that issue

7 whether expenditure allocated on the basis of cost or turnover is a question of fact and not the question of law and no perversity has been averred by the revenue with regard to the aforesaid finding even in the memo of appeal. It is also contended that in view of Section 2(47)(v) of the Act, the assessee is the owner of the land in question and if the Assessing Officer was of the opinion that the land did not belong to the assessee the profits could not have been included in the income itself in the first place. It is also argued that the Assessing Officer has conveniently excluded the profit on the sale of land for the purpose of deduction under Section 80IB of the Act, whereas, the same is included in the total income of the assessee. In support of aforesaid submissions, reliance has been placed on decisions in 'CIT VS. BRIGADE ENTERPRISES LTD.', 120 TAXMANN.COM 346 (KAR), 'CIT VS. VANDANA PROPERTIES', 19 TAXMANN.COM 316 (BOMBAY), 'JIVRAJ TEA LTD. VS. ACIT', (2017) 80

8 TAXMANN.COM 108 (GUJ.), 'PCIT VS. GREEN ASSOCIATES', (2019) 105 TAXMANN.COM 80 (SC), 'CIT VS. RADHE DEVELOPERS', (2012) 17 TAXMANN.COM 16 (GUJ.), 'CIT VS. SAHAJANAND ASSOCIATES', (2014) 44 TAXMANN.COM 458, 'CIT VS.SHRAVANEE CONSTRUCTIONS', (2012) 22 TAXMANN.COM 259 (KAR.), 'CIT VS. ANRIYA PROJECT MANAGEMENT SERVICES (P) LTD, 353 ITR 12 (KAR), 'CIT VS. SARKAR BUILDERS', (2015) 375 ITR 392 (SC) and 'CIT VS. S.T.MICRO ELECTRONICS PVT. LTD. IN ITA NO.928/2010 DATED 25.05.2011. 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The tribunal has recorded the finding on first substantial question of law in para 20.6 and para 20.7, which reads as under: 20.6 On a careful consideration of the

9 observations of the Hon'ble Tribunal cited supra, we find, there was no definite ratio laid down by the Hon'ble Tribunal that the common overhead expenses have to be allocated on the basis of turnover as contested by the revenue. With due regards, we are of the firm view that the case law relied on by the Revenue to drive home its point is rather distinguishable and not directly applicable to the facts of the case on hand. 20.7 In an overall consideration of the facts and circumstances of the issue, the Revenue has not brought out any concrete documentary evidence to justify its stand in excluding the difference in allocable expenses. We are, therefore, of the considered view that the exclusion of the difference in allocable expenses from the deduction as claimed by the assessee was misconceived and thus, exclusion of difference in allowable expenses is unjustified. It is ordered accordingly. Thus, it is evident that the substantial question of law does not arise for our consideration which is evident from the findings recorded by the tribunal.

10 7. So far as second substantial question of law is concerned, the aforesaid substantial question of law has been answered by this court in 'COMMISSIONER OF INCOME TAX, BANGALORE, VS. BRIGADE ENTERPRISES LTD.', (2020) 120 TAXMANN.COM 346 (KARNATAKA). For the reasons assigned in the aforesaid decision, the second substantial question of law is answered against the revenue and in favour of the assessee. 8. Now we may advert to the third substantial question of law. Section 2(47)(v) of the Act reads as under: "any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882." Thus, from perusal of Section 2(47)(v) of the Act, it is evident that if the possession of any immovable

11 property is handed over in part performance of the contract referred to in Section 53A of the Transfer of Property Act, 1882 the same would be a transfer within the meaning of Section 2(47) of the Act. 9. In the instant case, the assessee has taken possession of the land in pursuance of an agreement executed between it and its sister concern and has paid consideration to its sister concern for purchase of the land. The assessee thereafter has constructed residential apartments on it and therefore, the land shall be deemed to have been transferred within the meaning of Section 2(47)(v) of the Act and is entitled to claim deduction under Section 80IB of the Act. In this connection, reference may be made to decision of the Supreme Court in 'PCIT VS. GREEN ASSOCIATES SUPRA. The substantial question of law No.3 is answered against the revenue and in favour of the assessee.

12 In the result, we do not find any merit in the appeal, the same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss