SHRI RAM BABU SINGH,INDORE vs. DCIT 1(1), BHOPAL

Per Vijay Pal Rao, JM :

This appeal by the assesse is directed against the order dated 20.6.2023 of Commissioner of Income Tax (Appeals), National Faceless Appeal Centers,(NFAC) Delhi arising from penalty order passed u/s 271(1)(c) of the Act for the A.Y. 2010-11.

ITANo.328/Ind/2023 Ram Babu Singh 2. There is a delay of 10days in filing the present appeal. The assessee has filed an affidavit to explain the cause of delay. We have heard the Ld. AR as well as Ld. DR on condonation of delay and carefully perused the contents of the affidavit filed by the assessee. The assessee has explained the cause of delay in para 2 to 5 of affidavit as under:

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ITANo.328/Ind/2023 Ram Babu Singh 3. Thus the assessee has explained the cause of delay that notices issued by CIT(A) as well as the impugned order were sent to the e-mail id of counsel of the assessee who inadvertently missed these mails and therefore, the assessee was unaware of the notices as well as the impugned order of CIT(A). The Ld. AR has raised no objection if delay of 10 days in filing the appeal is condoned. Accordingly in the facts and circumstances of the case and in the interest of justice we condone the delay of 10 days in filing the present appeal.

1.That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the levy of penalty under section 271(1)(c) of the Act of Rs. 55,00,000/- even when such penalty was levied on the basis of defective show cause notice which was neither legal nor proper 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the levy of penalty under section 271(1)(c) of the Act of Rs. 55,00,000/- without properly appreciating the facts of the case. 3. The appellant reserves the right to add, alter and modify the grounds of appeal as taken by him. 5. The Ld. AR of the assessee submitted that the penalty has been levied by the A.O in respect of the addition made as a result of disallowance of claim of deduction u/s 80IB(10) of the Act. One of the grounds of disallowance of claim of deduction u/s 80IB by the A.O was that the completion certificate was not obtained within the statutory time limit. The disallowance made by the A.O was confirmed by the CIT(A) as well as this Tribunal vide order dated 05.10.2015. He has further submitted that the disallowance of Page 3 of 14

ITANo.328/Ind/2023 Ram Babu Singh claim u/s 80IB was upheld by this Tribunal by following the judgment of Hon’ble Jurisdictional High Court in case of CIT Vs. M/s Global Reality 80 Taxmann.com 147 M.P. However the operation of the said judgment has been stayed by the Hon’ble Supreme Court in SLP(C) 35314 and 35315 of 2015. Thus the Ld. AR has submitted that in such circumstances the claim of deduction u/s 80IB(10) is a highly debatable issue and the penalty u/s 271(1)(c) of the Act cannot be levied when the claim of the assessee is a bonafide claim. He has relied upon the judgment of Hon’ble Supreme Court in case of CIT Vs. Reliance Petro Products Ltd. 230 CTR 320. He has also relied upon the judgment dated 21.03.2019 of Hon’ble Jurisdictional High Court in ITA No.68 & 69 in case of Surabhi Homes and submitted that the Hon’ble High Court was pleased to held that the penalty was not leviable against the disallowance of claim u/s 80IB(10) due to the technical formality of obtaining completion certificate was not satisfied. He has also relied upon the following decisions:

(i) 82 Taxmann.com 65, Indore Tribunal

(ii) Pragati Construction Co. ITA No.5786/Ind/2016 Indore

Tribunal

Thus the Ld. AR has submitted that the penalty levied by the A.O and confirmed by the CIT(A) is not justified and same may be deleted. Page 4 of 14

ITANo.328/Ind/2023 Ram Babu Singh 5.1 Ld. AR has further submitted that so far as the exceeding the built-up area of 112 units as breach of condition u/s 801B(10) for disallowing the claim is concerned, the DVO has made no reference to the measurement or to the house number of which the measurement were taken and were found to be exceeding the limits. The DVO has mentioned that the measurement were taken for sample units then how it can be the specific number of units found to be exceeding the area provided u/s 801B(10). It could have been done only by measuring all the houses for determining built- up area of each and every house. The measurement given in the approved plan shows that built up is below 1500. R

5.2 So far as the explanation introduced in section 80IB for excluding the benefit to the undertaking which executed the house project as a works contractor awarded by any person is concerned Ld. AR has submitted that the assesse is a developer of a project and not the mere work contractors. He has submitted that as per the prevailing practice in the market the prospective buyers are Ha interested to availing housing loan facility from different financial institutions/banks. The financial institutions/bank insite the execution of sale deed before completion of units to safeguard their interest and therefore, only to facilitate the buyers to avail the loan from the financial institutions/banks prior sale was executed in respect of the plots but the construction was done as per agreement houses for total cost of houses including land. In support of his contention he has relied upon the decision of Hon'ble Gujarat High Court in case of CIT vs. Radhe Developers 341 ITR 403 as well as Page 5 of 14

ITANo.328/Ind/2023 Ram Babu Singh decision of this tribunal in case of Paras Housing Pvt. Ltd. 22 ITJ 273 Indore.

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ITANo.328/Ind/2023 Ram Babu Singh 7. We have considered the rival contentions as well as relevant materials placed on record. The A.O has levied penalty u/s 271(1)(c) of the Act in respect of the addition made on account of disallowance of deduction u/s 80IB(10). In the assessment order the A.O has given the finding on three points which were considered as non-compliance of conditions prescribed u/s 80IB(10). The first point on which the A.O have given the finding is that the assessee has not developed the residential project in terms of Section 80IB but the assessee first sold the plots of land to the buyers and thereafter, the construction of houses were undertaken by the assessee on the plots of lands of the individual owners. Thus the A.O has held that the assessee was not a developer but only a contractor to construct houses on the plots of the individual owners. The second objection of the A.O was regarding breach of conditions prescribed u/s 80IB(10)(c) which prescribes the condition that the residential units has a maximum built up area of 1000 square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty five kilometers from the municipal limit of these cities and 1500 square feet at any other place. The conditions applicable for the assessee is maximum built up area of 1500 square feet. The A.O issued a commission u/s 131(1)(d) to the District Valuation Officer who has submitted his report giving details of the built up area of 147 houses constructed by the assessee out of which only 35 houses have built up area of less than 1500 square feet which means that out of 147 total houses 112 houses were having the built up area of

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ITANo.328/Ind/2023 Ram Babu Singh more than 1500 square feet. The third objection of the A.O was non furnishing of the completion certificate within the period prescribed u/s 80IB of the Act. Thus out of these three objections, the objection No. 1 and 2 are the factual findings given by A.O which has been upheld by CIT(A) as well as this Tribunal in the quantum appeals. The Tribunal has dismissed the appeal of the assessee vide order dated 5.10.2015 and reproduced the order of the CIT(A) at page 4 onwards as under :

I have carefully considered the submission of the appellant and facts of the case. The Id. A.O. disallowed the appellant's claim of deduction w/s 80B(10) on the three grounds. First, that the appellant had merely acted as a contractor to the customers to whom plots of land were sold and not as a developer of the housing project; second What the appellant failed to complete the entire housing project before the specified date 31.03.2012; and third the appellant had not constructed all the residential units of the project less than 1500 sq.ft. as only 35 units out of total of 147 residential units were found to be having built up area of less than 1500 sq.ft. It is noticed by the A.O. that the appellant had sold the plots of land to the customers and the sale deeds were registered in their favour and as such the customers became absolute owners of plots. For example, the A.O. noticed that plot of land 52 of the project was sold to Shri G.B. Giri for a consideration of Rs. 6,00,000/- vided registered sale deed dated 03.05.2007. Thereafter, the appellant acted as a contractor for the construction work of the residential units on behalf of the purchaser. The appellant claimed that he had entered into an agreement on 8.11.2006 with Shri G.B. Giri for construction of the residential unit for a total consideration of Rs. 18,00,000/- and, therefore, he has sold the residential units after construction. But as pointed out by the A.O. the said agreement for construction and sale of residential unit was not registered and as per provisions of section 17(1A) of the Registration Act, 1908, w.e.f. 24.09.2001 if any agreement for transfer of Immovable property for consideration is not registered under the Registration Act, it shall have no effect for the purpose of section 53A of the Transfer of Property act, 1882. Thus, the said agreement cannot be given cognisance even for deemed transfer u/s 53A of the Transfer of Property act. It is also admitted fact that the appellant had not got any document registered for the sale of a residential unit. Thus, the appellant had not earned income on account of sale of residential unit as envisaged in section 801B(10) because the Page 8 of 14

ITANo.328/Ind/2023 Ram Babu Singh appellant after selling the plots of land had acted only as a contractor for the customers to construct the residential units for them. Secondly, it is also an admitted fact that the appellant had not got any document registered for the sale of a residential unit. Thus, the appellant had not earned income on account of sale of residential unit as envisaged in section 80IB(10) because the appellant after selling the plots of land had acted only as a contractor for the customers to construct the residential units for them. Secondly, it is also an admitted fact that that because the housing project was approved on 5.3.2007 and the appellant had not completed the construction of the entire project on or before 31.3.2012 as was required by section 80IB(10(a). The appellant failed to furnish completion certificate regarding the entire project issued by the Municipal Corporation Bhopal neither during the assessment proceedings nor during the appellate proceedings to demonstrate that the appellant has not fulfilled the conditions laid down u/s 80IB(10) and thus was not eligible for deduction u/s 80IB(10). In this regard reliance can be placed on the decision of ITAT, Indore Bench, Indore in the case of Sky Builders and Developers vs. ITO 1(1), Bhopal (2011) 14 Taxmann.com 78 wherein on the identical facts, it was held that the assessee was not eligible for deduction u/s 80IB(10). In the said case, the assessee had sold plots to respective customers by registering sale deeds and thereafter constructed residential houses on those plots at an agreed price therefore it was concluded that the assessee had merely acted as a contractor and not as a developer. The assessee had also not obtained completion certificate from the local authority before the specified date. Considering these facts, the Hon'ble ITAT held that the assessee was not eligible for deduction u/s 80IR(10). The head notes of this decision are reproduced as under :- "Section 801B of the Income tax Act, 1961 Deductions industrial Profits and gains from undertakings other than infrastructure development undertakings Assessment year 2006-07- Whether where assessee sold plots to respective customers by registering a sale deed and thereafter assessee constructed building at an agreed price, it had to be concluded that assessee merely acted as building contractor and not as a developer and therefore assessee's claim for deduction under section 80IB(10) could not be allowed. Held, yes - Whether even other usse, in view of fact that no completion certificate had been issued to assessee by local authority in view of sub- clause (s) of Explanation to section 801B(10). assessee's claim for deduction was to be rejected-Held yes" In view of the above, it is evidently clear that the appellant had acted merely as a contractor after selling the plot and not as a developer. Completion certificate was also not issued to the appellant by the local authority for the entire project. Therefore, the appellant was not eligible for claiming deduction / 801B(10) on the profits derived from these projects.

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ITANo.328/Ind/2023 Ram Babu Singh Further, as mentioned by the A.O, on physical inspection of the project by the District Valuation Officer, it was also found that the appellant had not constructed all the residential units having built up area of less than 1500 sq.ft. The appellant had himself admitted that only 147 residential units out of total 159 residential units of the project qualify for deduction u/s 80IB(10). Regarding these 147 residential units, the A.O. issued commission u/s 13(1)(d) to the DVO to measure the built up area of these residential units. The DVO had inspected the project in the presence of the appellant and other concerned housing project staff on 17.1.2013. The DVO vide letter dated 8.2.2013 informed that out of these total 147 houses constructed by the appellant only 35 had built up area of less than 1500 sq. ft. Thus, it is clear that the said housing project had not fulfilled the condition laid down under clause of section 80IB(10). Therefore, considering all the three aspects, it is clear that appellant was not eligible for deduction u/s 80IB(10) on this housing project. 4.5 It may be noted that the above referred decision of the Hon'ble ITAT in the case of Sky Builders & Developers vs. ITO (supra) is binding on the CIT(A). The jurisdictional Hon'ble High Court of Madhya Pradesh in the case of Agrawal Warehousing and Leasing Ltd. vs. CIT (2002) 257 ITR 235 (MP) observed that the orders passed by the Tribunal are binding on all the revenue authorities functioning under the jurisdiction of the Tribunal. The principles of judicial discipline require that orders of the higher appellant authorities should be follows unreservedly by the sub- ordinate authorities. The Hon'ble High Court inter alia observed in the order as under:- "Obviously, the Commissioner of Income tax(Appeals) not only committed impropriety but also erred in law in refusing to follow the order of the Appellate Tribunal. Even where he may have some reservations about the correctness of the decision of the Tribunal he had to follow the order. He could and should have left it to the department to take the matter ij further appeal to the Tribunal and get the mistake, if any, rectified." In this case, the Hon'ble High Court held as under (Head Notes) "Held, that the Commissioner of Income tax (Appeals) not only committed judicial impropriety but also erred in law in refusing to follow the order of the Appellate Tribunal. The members of the Tribunal who decided the appeal upholding the view taken by the Commissioner of Income-tax (Appeals) also did not observe due procedure." 4.6 The Hon'ble ITAT, Bangalore in the case of Jindal Aluminium Ltd. us. ACAIT (2012) 19 ITR ()Trb) (Bang) has also observed as under :-

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ITANo.328/Ind/2023 Ram Babu Singh "The Commissioner (Appeals) being an authority lower in the tier of authorities under the Act to Appellate Tribunal, is bound to follow the decision of the Tribunal." Therefore, in view of the above, it is held that the appellant was not eligible for deduction u/s 80IB(10) and accordingly the disallowance of appellant's claim of deduction y.s 80IB(10) of Rs. 1,47,62,057/- (correct figure Rs. 1,48,62,057/-) made by the A.O. is confirmed." The said order of the CIT(A) has been upheld by this Tribunal vide order dated 5.10.2015. It is pertinent to note that though the Tribunal has dismissed the appeal of the assessee by following the judgment of Hon’ble jurisdictional High Court on the point of obtaining completion certificate within the prescribed period however, the factual finding given by the A.O and CIT(A) in quantum appeals has attained the finality. The CIT(A) in the impugned order has confirmed the levy of penalty and the concluding finding of CIT(A) in para 6.7 is as under:

6.7 It also has to be appreciated that the appellant was well aware that he had failed to complete the entire housing project as claimed by him, before the specified date 31.03.2012. The jurisdictional High Court of Madhya Pradesh in the case of CIT vs. Global Reality, ITA No.40/2012 and others has held that "Considering the prodigious benefit offered in terms of section 80IB(10) to the assesseee (hundred percent of the profits derived in any previous year relevant to any assessment year), and the purpose underlying the same-which is inter-alia burden on the public exchequer due to waiver of commensurate revenue- the stipulation for obtaining completion certificate from the local authority before the cut off date, must be construed as mandatory". "If the assessee has failed to comply with the condition of obtaining completion certificate from the local authority before the cut off date, he must take the consequence therefore and of denial of the benefit of tax deduction offered to him on that account. Similarly, the fact that the appellant had constructed only 35 units out of total of 147 residential units having built up area of less than 1500 sq.ft. was well within the knowledge of the appellant before making any such claim of deduction u/s.801B(10) of the Act, which specifically lays down such a condition in 801B100 for making a claim of deduction. Thus, the appellant was well aware that he does not meet the stipulated criteria as Page 11 of 14

ITANo.328/Ind/2023 Ram Babu Singh laid down in the provisions of section 80IB(10) but still made such a wrong claim of deduction which was denied by the A.O. after examining the facts and the same has also been confirmed by the CIT(A). If the case of the appellant was not picked up for scrutiny assessment, he would have availed the entire claim of deduction of the profits. Therefore, it cannot be considered to be a case of a bona-fide claim of deduction made by the appellant which was denied by the A.O and also the appellant's case was not purely an issue of interpretation of law which can be decided either way or a matter of opinion. Rather it is a case where the appellant was well aware that he is not eligible for the claim of deduction as he does not meet more than one condition to be eligible for such claim of deduction but still claimed the same in the return of income and therefore, after considering the factual matrix of the case, the appellant's case has to be considered on separate footing and accordingly held that the appellant furnished inaccurate particulars to make an incorrect claim of deduction u/s.80IB(10). This inference is also supported by the finding in the case of CIT vs. Heil Kalindi Arsspl, 37 Taxmann. Com 347 (Del.), in which case the assessee was in the business of executing works contract and claimed deduction u/s.801A and after examining the facts of the case and the provisions of the Act, Hon'ble Delhi High Court reversed the order of the ITAT and confirmed the penalty as the bona-fides of the assessee were not proved”. 8. Apart from the issue of obtaining the completion certificate within the stipulated period the claim of deduction u/s 80IB(10) was also disallowed by the A.O on other two factual grounds being most of the residential units having more than 1500 square feet and secondly the assessee has not developed the residential project but only construction the residential houses as a contractor. This factual findings have not been disturbed in the appellate proceedings and therefore, keeping aside the debatable issue of obtaining completion certificate within the stipulated period which is pending before the Hon’ble Supreme Court the assessee is otherwise not eligible to claim the deduction u/s 80IB(10) on the other two objections raised by the A.O. The Ld. AR of the assessee has questioned the correctness of the DVOs report pointing out the

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ITANo.328/Ind/2023 Ram Babu Singh breach of conditions with respect to the build-up area having more than 1500 sq ft. in respect of 112 units and referred to the sanction plan wherein build-up area of units is shown as 1500 sq ft. It is pertinent to note that merely mentioning build-up area of 1500 sq ft. in the sanction plan cannot be a determinative fact of actual area of the area constructed units as there may be deviations in the actual area of construction and area of construction as per plan. Even otherwise if extra area of construction of the units is not in breach of building by laws then it is irrelevant for the municipal or development authorities whether a particular unit is having less than or more than 1500 sq. ft. area because civil authorities are concerned only with respect to the overall constructed area within the prescribed limit of building by laws. Nothing has been brought on record to prove that the second contention of the Ld. AR is that the built up area of units are less than 1500 sq. ft. The assessee is a developer and not a works contractor is based on the hypothetical situation and facts and not on the actual facts of the assessee's case. The assesse has not brought any material on record to show that in all the cases sale deed of plots were executed prior to the construction of house to facilitate the buyers to avail loan from the bank/financial institutions. Even otherwise this issue has already attained finality in the quantum proceedings and nothing has been brought on record to show that the case of the assessee falls in the category of developer and sale deed executed by the assesse in favour of the buyers is only for the purpose of availing loan facility by the prospective buyers. Accordingly the decision relied upon by

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ITANo.328/Ind/2023 Ram Babu Singh the Ld. AR of the assessee will not help the assessee of the case because those decision are only on the point of addition made by the A.O on a debatable issue and the claim of the assessee was found to be bonafide claim. In the case in hand the claim of the assessee was found to be based on incorrect facts of claiming himself as a developer and secondly the built up area of most of the residential houses was found to be exceeding the stipulated limit of 1500 square feet. Accordingly in the facts and circumstances of the case we do not find any error or irregularity in confirming the levy of penalty u/s 271(1)(c) of the Act.

Order pronounced in the open court on 23.07.2024.

Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member

Indore,_ 23 .07.2024 Patel/Sr. PS

Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore

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