PESHWA CONSTRUCTION,MUMBAI vs. CIT 15, MUMBAI

This is an appeal filed by the assessee challenging the order of Commissioner of Income Tax-15, dated 21.3.2014 passed under section 263 of the Income Tax Act, 1961 (hereinafter called the Act) in violation of principle of natural justice.

I have called for and examined the assessment records of the assessee. The order sheet with only 3 entries on one page has also been looked into. The assessee has claimed the deduction u/s 80IB(10) is as under : 3. One of the requirements or Sec 80IB(10) is as under :

It is seen that in this case, the local authority has issued a commencement certificate for the project in Pune at Neco “Hillscape” survey No.62/2 and 62/4, Kondhwa Khurd, Behind Sheetal Petrol Pump, Mumbai-400048 on 24.12.2000 and 5.7.2006. Thus it is case 4 ITA N o. 3 63 1 / Mum / 20 1 4 covered by explanation (ii) of the section 80IB quoted above. This aspect has not been examined at all by the AO during the assessment proceedings for this AY and needless to say that legal implication is against the assessee’s case. It may also be mentioned here that not only this aspect remained to be examined by AO. It was not even disclosed by the assessee during the assessment proceedings for earlier assessment years. Thus, the assessee had not disclosed a material fact required for claim of exemption u/s 80IB(10) of the IT Act, 1961 for AYs 7.8. and 08-09. The failure of the AO to examine a crucial requirement makes the assessment order erroneous in so far as it is prejudicial to revenue as the claim of deduction u/s 80IB (10) amounting to Rs.3,97,68,224/- has been erroneously allowed.

It is further seen that the assessee did not furnish form no. 10CCB in the prescribed proforma, duly certified and signed by the CA. This is one of the basic conditions for claiming deduction u/s 80IB (10). In fact, the only document in this regard available in the assessment record is an unsigned photocopy of a letter issued by the CA. 7.1 It is further to be pointed out that in the text of his report in form 10CCB at Col.26, the auditor has mentioned NIL with regard to details of deduction admissible under chapter VIA. Thus, the AO has failed to even examine the audit report annexed with the return of income.

The Commissioner noted that final completion certificate from Pune Municipal Corporation has not been issued so far to the assessee which was admitted by the ld.AR of the assessee because of the reason that the road proposed on the project land was not widened as Pune Municipal Corporation had not taken the possession of the land for the said purpose. The assessee submitted before the Commissioner that flats at 7th floor were occupied by the residents since 2008. The ld. AR argued that since the delay in issuing the of final completion certificate qua 7th floor by Pune Municipal Corporation was attributed to the reasons not in the control of the assessee as the Municipal Corporation did not undertake the road widening. The Commissioner further noted that the assessee himself 7 ITA N o. 3 63 1 / Mum / 20 1 4 admitted vide submission dated 30.1.2011 that the completion certificate was not issued for the project and only “BHOGVATA PATRA“ was issued by Pune Municipal Corporation on 31.3.2008 only for 72 flats. According to the CIT ,the AO had simply noted that certain details were filed including the copies of commencement certificate , completion certificate and sale agreement but there was no proof either in the order sheet or in the assessment record that the AO had examined all these documents. As per CIT there was non-application of mind on the part of the assessing officer. Thereafter, the ld.CIT after relying on various decisions as recorded in para 12 to 27 of the appeal order came to the conclusion that the order passed by the AO was erroneous and prejudicial to the interest of the revenue and therefore the same was required to be set aside and accordingly set aside with a direction to pass fresh assessment order.

In para 7 of the notice , the Commissioner observed that assessee did not furnish form no. 10CCB in the prescribed proforma, duly certified and signed by the CA which was one of the basic conditions for claiming deduction u/s 80IB(10). The commissioner of income tax had also observed and noted that column No.26 in form 10CCB was mentioned as NIL with regard to details of deduction admissible under chapter VIA. The ld counsel for the assessee submitted that the column was marked as NIL because it was meant for deduction u/s 80IB(a)(4)(2) of the Act whereas the claim of the assessee was duly mentioned in column 27 which reflected the amount of deduction claimed u/s 80IB(10). The ld. Counsel finally submitted that the Assessment Order was framed in accordance with Act after duly examining the issue of allowability of deduction u/s 80IB(10) and thus the invocation of revisionary jurisdiction by the Commissioner u/s 263 of the Act was totally wrong and contrary to the provisions of Income Tax Act and so was the order of the Commissioner setting aside the Assessment Order and directing the AO to make fresh assessment. In defence, the ld. AR relied on the following decisions: A) CIT V/s Hindustan Samuh Awas Ltd (2015) 377 ITR 150 (Bom); B) CIT V/s Tarnetar Corporation (2014) 362 ITR 174 (Guj); C) ITO V/s Saket Corporation (2015) 62 taxmann.com 38 (Guj) D) Siddhivinayak Kohinoor Venture V/s ACIT (2015) 67 SOT 284 (Pune- Trib) URO 11 ITA N o. 3 63 1 / Mum / 20 1 4

We have carefully considered the rival contentions and perused the relevant material placed before us including the orders of authorities below and case laws relied upon by both the parties. We find that the assessee had constructed a housing project of 84 flats comprising in three buildings having ground Plus 7 floors. The commencement certificate was issued by Pune Municipal Corproation for 84 flats and construction was undertaken and completed accordingly. After completion of construction, 12 ITA N o. 3 63 1 / Mum / 20 1 4 the assessee obtained various “No Objection Certificates” from various departments like Fire Department dated 21.1.2008, Water supply department dated 31.1.2008, authority for tree growth dated 12.3.2008, Accompanied letter dated 13.3.2008, Health care dated 24.3.2008, Letter for lift permission dated 26.3.2006 and final certificate from Fire Department dated 29.3.2008. All these NOC’s were obtained prior to 31.3.2008 and submitted to Pune Municipal Corporation for issuing final completion certificate qua 84 flats. Thereafter Pune Municipal Corporation issued “Bhogvatapatra” dated 31.3.2008 which was a completion certificate in respect of 72 flats only up to 6th floors. According to the CIT only part completion of the project was granted thereby withholding the completion qua 12 flats on the 7th floor of all the three buildings on the ground that road widening on the side of the project was yet to take place which was to be done by the Municipality. We find merit in the submissions of the ld.AR that the delay in issue of completion certificate qua development of flats was on the part of the Pune Municipal Corporation who failed to take possession of the land for widening the road and consequently withheld the NOC for 12 flats on the 7th floor. A perusal of the show cause notice issued under section 263 of the Act reveals various reasons and grounds on the basis of which the Commissioner exercised jurisdiction u/s 263 for setting aside the order of Assessment passed by the AO. According to the Commissioner the 13 ITA N o. 3 63 1 / Mum / 20 1 4 assessee had not placed/furnished the necessary material for verification before the AO qua the claim deduction u/s 80IB(10) for assessment year 2007-08 and 2008-09 and the AO accordingly failed to examine the crucial preconditions for allowance of deduction u/s 80IB(10) of the Act resulting into assessment order being erroneous and prejudicial to the interest of revenue as the claim u/s 80IB(10) of the Act amounting to Rs.3,97,68,224/- was wrongly allowed without examining the necessary documents and satisfying the various preconditions. The CIT also noted that the Pune Municipal Corporation issued “BHOGVATAPATRA” only in respect of 72 flats whereas the project was envisaged for 84 flats and therefore assessee failed to fulfill the necessary conditions for claiming deduction u/s 80IB(10) of the Act and resultant assessment order passed by the AO was erroneous and prejudicial to the interest of revenue as no inquiry was conducted by the AO. Another reason given by the Commissioner for directing the AO to reframe the assessment was that the assessee did not furnish form 10CCB duly certified and signed by the Chartered Accountant which was the basic conditions u/s 80IB (10) of the Act thereby contradicting his own findings stated in para 7.1 of the show cause notice that in the audit report in form No. 10CCB at Col.26, the auditor had mentioned NIL as regard the details of deduction admissible under chapter VIA. According to the Commissioner the AO had even failed to examine the audit report annexed with the return of income. We find 14 ITA N o. 3 63 1 / Mum / 20 1 4 that the findings as recorded by the Commissioner were contradictory and conflicting and there was no of application of mind to the facts on records and he proceeded to set aside the assessment for the reasons which were conflicting and based upon wrong appreciation of facts on record. On one hand the commissioner has observed that audit report in Form 10CCB was not filed whereas contradicting his own observation he further noted that AO failed to examine the audit report filed along with the return of income. According to the AR of the assessee the column no.26 of the audit report of form No.10CCB the column was marked as NIL as the assessee had not claimed any deduction u/s 80IB(3,4,5 and 7) whereas column No.29 and 30 were duly filled in and Rs.4,12,60,224/- was mentioned as claim of deduction u/s 80IB(10) of the Act which appears to be correct. We also find that there was a certificate appended by the Auditor at the end of the said form in respect of the claim under section 80IB(10) of the Act . In view of the facts and circumstances, hereinabove, we are of the considered view that the assessment framed by the AO was correct and was wrongly set aside by the Commissioner by exercising revisionary jurisdiction/powers u/s 263 of the Act. Besides the case of the assessee is also supported and squarely covered by the decision in the case of Hindustan Samuh Awas Ltd(supra) in which the Hon’ble Bombay High Court has held that even if the project is part completed and was granted completion certificate for the work 15 ITA N o. 3 63 1 / Mum / 20 1 4 completed, the assessee is entitled for claiming benefit u/s 80IB(10) of the Act. The relevant portion of the judgment of the Jurisdictional High Court in the case of Hindustan Samuh Awas Ltd (supra) is reproduced below: “10. We have no difficulty to accept this contention. We also hold that the explanation is quite clear and does not introduce any uncertainty. In other words, date of completion of a project has to be the date of issuance of Completion Certificate by the Municipal authority.

The question we raise here is whether the explanation introduced an element of harshness to such an extent that it rendered the main provision nugatory? In our view, the explanation is introduced recently to put an end to a controversy, which might arise before the Assessing Officer about the date of completion. The intention of the legislature in providing explanation to fix the date of completion of a project is quite helpful when this provision is utilized in practice. In our view the explanation has introduced an unnecessarily strictness in the provision which is in the nature of exemption and not in the nature of charging. Sub-section (10) mentions that a housing project should be complete before 31.03.2008 so as to get the exemption. Completion of housing project is a physical act. It can be demonstrated on the spot and also through a certificate issued by an architect who is appointed for supervising the construction work. He is a professional who would declare that the project is complete. Unfortunately, Sub-section (10) and the explanation do not give any importance to the issuance of such Completion Certificate by the concerned architect. It gives importance only to the certificate of Municipal authority. It is common knowledge that an application for Completion Certificate submitted to the Municipal Authorities is accompanied by a Completion Certificate issued by the concerned architect. No doubt, the Municipal authorities then cause inspection of the site and verify the claim. Thereafter, they issue Completion Certificate. But, if a project is really complete before 31.03.2008 and an application is moved quite in time, for seeking Completion Certificate from the Municipal authorities, and if they do not take steps urgently and delay the issuance of Completion Certificate from their side, can it be said that such certificate would alone decide the date of completion of the project? The answer is in negative.

In the facts of this case, admittedly, the Architect of the project had given a certificate prior to 31.03.2008. The respondent submitted application to the Municipal authority along with such certificate well in time on 25.03.2008. It seems that the Municipal authorities directed the respondent to deposit certain amount for issuance of Completion Certificate on 27.03.2008 and the amount was accordingly deposited on 31.03.2008. Thereafter, the certificate was issued in October, 2008. This delay cannot be attributed to the respondent assessee.

In view of this, we are inclined to hold that the project, for which exemption is sought, was completed prior to 31.03.2008 and therefore, we are inclined to record our answer in affirmative to the substantial question of law referred to above. Both the appeals are accordingly dismissed.”