ACIT 17(1), MUMBAI vs. FORTALEZA DEVELOPERS, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “F”, MUMBAI

BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. No. 7116 & 7117/Mum/2014 (Assessment Years: 2010-11 & 2011-12) M/s Fortaleza Developers vs ITO, 15(1)(3) 601, Commerce House Mumbai 140, Nagindas Master Road Fort, Mumbai 400 023 PAN : AAAJF0056B (Appellant) (Respondent)

I.T.A. No. 7453 & 7454/Mum/2014 (Assessment Years: 2010-11 & 2011-12) ACIT, 17(1), Mumbai vs M/s Fortaleza Developers 601, Commerce House 140, Nagindas Master Road Fort, Mumbai 400 023 (Appellant) (Respondent)

Assessee by Shri Vijay Mehta Revenue by Shri S Pandian

Date of hearing : 19-07-2016 Date of pronouncement : 21 -09-2016 O R D E R Per ASHWANI TANEJA, AM: These cross appeals pertain to the same assessee for different assessment years involving identical issues. Therefore, these appeals were heard together and are disposed of by this common order.

“Being aggrieved by the order of the Commissioner of Income Tax (Appeals)-26, this appeal petition is submitted on the following grounds:- (1) On the facts and circumstances of the case and in law, the learned ClT(A) erred in confirming, ignoring the order of the Hon'ble ITAT in AY 2007-08 in appellant's own case , the reduction of business income by Rs.9,37,37,531/- being the share of profit of one of the members of the appellant AOP viz M/s Sanand Properties Pvt Ltd (SPPL) erroneously, holding that it is a case of diversion of sales or revenue and not a case of application of revenue or sales. The reduction of Rs.9,37,37,531/-needs to be cancelled and returned business Income and consequential claim u/s 80IB (10) on that amount needs to be accepted. 2) On the facts and circumstances of the case and in law, the Learned CIT(A) erred in confirming the addition of Rs.30,34,472/- being the interest on FDR made out of funds meant exclusively for the proposed society holding that no mutual organization is in existence during the previous year. Addition confirmed without appreciating the fact that the appellant never be said to have derived profits from contributions made by the members to the fund which could only be spent for their benefit or returned to the members is bad in law and the same needs to be deleted.”

M/s.Fortaleza Developers 3 A.Ys. 2010-11 and AY 2011-12

rest as this issue has been decided in favour of the assessee by the Tribunal consistently for the previous years, and that in one of the earlier years, the matter also reached before the Hon’ble Bombay High Court wherein Hon’ble High Court also affirmed the order of the Tribunal and thus, the issue stands covered as on date in favour of the assessee. In response to the queries raised by the bench, the ld. counsel also brought on record various details and evidences to show that income of the AOP has been computed strictly as per commercial principles and thus, there was no diversion of revenue at the source. Per contra, the ld. DR relied upon the orders of the lower authorities. 6. We have gone through the orders passed by the lower authorities as well as the order of the Tribunal and Hon’ble High Court passed in earlier years. The background of the issue and brief facts in this case are that the assessee is an AOP (Association of Persons) and engaged in the business of real estate developer. It has two members namely M/s Ravi Raj Kothari and Company (RKC) and M/s Sanand Properties Pvt. Ltd (SPPL). An agreement was entered between the two members on 29.04.2003 as per which an AOP was constituted for the construction of the residential and commercial buildings on SPPL owned development rights on a land measuring 37,976.90 sq. mts. The arrangement between the members of AOP to share revenue/profits is as under:

“ SHARE OF REVENUE AND INCOME, All Agreements for sale of residential units in the housing project undertaken by the AOP shall be entered into only between the authorised signatories of the AOP and the respective purchasers of the housing units. The members of the AOP hereby agree that neither of them will during the validity of this Agreement execute any independent or separate Agreement on their own with any prospective Purchaser. All payments receivable from the Purchasers towards the above shall be received only in the name of the AOP, i.e. FORTALEZA DEVELOPERS out of the aforesaid amounts received from

the Purchasers of the housing units (representing the gross sale proceeds of the Units inclusive of the value of land) SPPL shall be entitled to, as its share of revenue/income, an amount comprising of 35% of such Receipts. It is hereby agreed and understood between the parties hereto, that SPPL may actually withdraw such share of revenue/income to which it is entitled as per the understanding between the parties, from time to time. Out of the balance (65% of the aforesaid Receipts representing the gross sale proceeds), all required and relevant expenditure for the purposes of the business of the AOP shall be met with and whatever net balance remains thereafter, shall be determined as the share of revenue/income of RKC. RKC will be at liberty to actually withdraw its share of revenue/income as worked out hereinabove, from time to time. The above arrangement of sharing of revenue and income is restricted to the present housing project developed by AOP on land admeasuring 31026.90 sq. mtrs (approx. 7.76 acres) on Plot No, 72, Yerawada TPS and bearing S. No, 210 (Part) situated at village Yerawada, Taluka Haveli, Dist. Pune. However for any other project to be developed by this AOP in future the sharing of revenue and income shall be decided mutually by the parties hereto from time to time."

the other member of the AOP, viz. M/s Raviraj Kothari & Co. It was further found by the AO in the accounts of the assessee that share in sale proceeds of SPPL was not debited and the same was shown as part of net profit upon which deduction was claimed u/s 80IB(10). During the course of assessment proceedings, AO issued show cause notice to the assessee stating that profit as per profit and loss account was at Rs. 10,17,23,315/- and 35% of the same comes to Rs.3,56,03,160. The sales were at Rs.16,85,48,129/- and 35% of that comes to Rs.5,89,91,145/-. As Rs,5,89,91,145 was allocated to M/s. Sanand Properties Pvt. Ltd which was 35% of the sales proceeds, amounts received by M/s Sanand Properties was not share of profits but a share of revenue/sale proceeds of the project. AO thus asked the assessee to show cause why claim of deduction u/s 80IB(10) should not be restricted to Rs.4,27,32,169/- instead of Rs.10,41,81,525/-. The Assessing Officer was not satisfied with the reply of the assessee and relying upon his orders for earlier years, i.e. A.Ys 2007-08, 2008-09 and 2009-10, he recomputed the business income of the assessee and granted the benefit of deduction u/s 80IB(10) accordingly. 8. Being aggrieved, assessee filed appeal before Ld. CIT(A) and agitated the action of the Assessing Officer in re-computing the business income. It was submitted, inter-alia, that similar issue had arisen in earlier years. Further, the order u/s 263 passed by the CIT(A) in A.Y. 2007-08 has been subsequently set aside by ITAT and thus, the claim of the assessee has been impliedly accepted by the ITAT. Ld. CIT(A) did not follow the order of ITAT for A.Y. 2007-08 on the ground that it was a case of order u/s 263 and thus, assessee cannot have benefit of the same in these proceedings and thus, action of the Assessing Officer was confirmed. 9. Aggrieved, assessee filed appeal before the Tribunal.

5.5 We have carefully considered the version of Ld. CIT in the light of available on our record. We have carefully gone through the clause 7 of the agreement and the distribution of revenue by the assessee in its accounts distribution of the revenue in the account of the assessee in accordance with the intent and purpose of clause-7 of the agreement. According to clause-7 of the agreement SPPL is entitled to 35% share of the gross sale proceeds of the inclusive of the value of the land. According to distribution in the accounts of the assessee SPPL has received Rs.15.11 crore which is 35% of gross sale proceeds of the unit amounting to Rs.43.17 crores. A sum of Rs.112.62 crore is credited in the account of SPPL on account of land etc. and Rs.3.49 crore is credited in the account of SPPL. Out of balance 65%, after including the MSEB incidental charges and reducing the developmental charges a sum of Rs. 10.76 crores has been considered as profit share of RRKC. Therefore, the distribution of profit made by the assessee between its members is in accordance with clause 7 of the agreement. The interpretation of clause- 7 sought to be adopted by Ld. CIT will be against the very intent and purpose for which the AOP has been formed and if such interpretation is adopted it will tantamount to denial of existence of AOP which is not even the case of Ld. CIT. It has already been pointed out that AOP is a separate and distinct assessable entity and is also entitled to claim the deductions permitted under the Income-tax Act provided it fulfills the conditions laid

down in the section governing that deduction. The assessee AOP in the present case has been assessed as AOP and found to have fulfilled the condition laid down in section 80-IB ( 10) and has been held to be eligible for such deduction. The quantum of deduction under section 80-IB ( 10) will depend on the income earned from eligible project. The quantum of deduction will not depend upon the mode of distribution of shares amongst the members of AOP as income of AOP is taxable at maximum marginal rate. Therefore, manner in which the AOP distribute its project has no bearing over eligible quantum of deduction under section u/s. 80-lB (10) as the eligible quantum will be gross receipts from the project reduced by expenses incurred on the project. It is not even the case of Ld. CIT that assessee AOP is not entitled the benefit of deduction under section 80-lB (10). The only objection of the Ld.CIT is that distribution of revenue in the account of the assessee is inappropriate and by this manner assessee has been benefited by larger in place of smaller deduction available to it. In our opinion such observations of Ld. CIT are incorrect, firstly, on the ground that even distribution of revenue in the books of account of the assessee cannot be said to be contrary to the purpose and intent described in clause-7 of the agreement. Secondly, the allowability or otherwise of deduction under section 80-IB( 10) is dependent upon the manner in which the profit has been distributed among members of AOP but it depend upon the fulfillment of the conditions laid down in that section and also the deduction is available to an undertaking and the individual constituent of an undertaking, 5.6 We have also not found any force in the submission Ld. D.R that 35% share allocable to SPPL was in the nature of overriding title. Clause-7 of the agreement which has been sought interpreted by Ld. CIT DR in this manner does not indicate that 35% of the gross revenue to be shared by SPPL was in the overriding title, therefore, this argument of Ld. CIT DR has to be rejected and it is to be held that 35% share received by SPPL was not in the nature of overriding title to the revenue but it is only share of profit of SPPL. 5.7 In view of above discussion, it is held that the impugned assessment order her erroneous nor prejudicial to the interest of revenue on account of lion of profit between members as per accounts of the assessee as ion of profit in the accounts of the assessee is in accordance with clause- e agreement and manner of allocation of profit in the account cannot be quantum of deduction available to AOP under section 80-IB (10).” 11.2. It is further noted that the order of the Tribunal was taken to Hon’ble

Bombay High Court by the Revenue. Hon’ble High Court dismissed the appeal of the Revenue vide its order dt 09-04-2015 reported at 374 ITR 510 (Bom) with detailed observations and findings which are reproduced hereunder: “We heard Mr. Malhotra, the learned counsel for the appellant and Mr. Mistri, the learned senior counsel, appearing for the respondent at a considerable length. Mr. Malhotra submitted that the interpretation placed the Assessing Officer and computing the total income of Rs. 14,63,04,860 was correct. He further submitted that the disallowance of deduction claimed under section 80IB (10) was justifiable and considered that the respondent shall not be entitled to claim the benefits of the said section 80IB (10) on account of the manner in which clause (7) of the association of persons agreement has been worded. According to him, the manner in which the association of persons agreement was worded by the assessee, entitled the assessee to claim the benefit of section 80IB (10). Mr. Mistri, on the other hand, faulted the reasoning of the Assessing Officer and supported the order of the Tribunal. He submitted that the assessee had complied with all the conditions of section 80IB (10) and, therefore, entitled to claim deduction. Moreover, he submitted that the interpretation of clause 7 of the association of persons agreement by the Assessing Officer was incorrect interpretation of the said clause (7)entitled SPPL constituent of the assessee to appropriate 35 per cent sale proceeds as provided under the said clause before deduction of cost of the project. According to Mr. Mistri, after SPPL appropriates its share of 35 per cent proceeds, the balance 65 per cent would be used by the assessee to pay overall cost including cost of development and all the expenses for the project. Only thereafter the residual amount could be appropriated by RRK. Having considered the various submissions, we are clear that the contract between the two parties was self-explanatory and the interpretation placed by the assessee on clause (7) and claiming deduction under section 80-IB(10) is in order. The interpretation of one of the Assessing Officer could not have substituted the parties’ interpretation of the relevant clause (7) of the Association of Persons’ agreement with his own reasoning and that too, to the detriment of

the assessee. The facts, in the present case also, reveal that the conclusions arrived at by the Tribunal, vide order dated October 12, 2012, are neither perverse nor giving rise to any error of law apparent on the face of the record. The issue cannot he reopened in the manner sought to be done in the present case and section 263 of the Act could not be resorted to for the purpose. The order of the Assessing Officer had obviously merged with the first appellate authority, accordingly, we find that the subject appeal does not raise any substantial question of law. The appeal is, dismissed. There will be no orders as to costs.” 11.3. It is further noted that in A.Ys. 2008-09 & 2009-10, this issue came up before the Tribunal wherein identical ground was raised by the assessee which is reproduced as under for the sake of ready reference: “On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the reduction of business income by Rs.14,64,64,961/- being the share of profit of on the members of the appellant AOP erroneously holding that the agreement entered into between the members of the AOP is for sharing of the Revenue and not for sharing of the net profit. Reduction of business income being bad in law, the same needs to be cancelled and returned business income and consequential claim u/s. 80IB(10) on that amount needs to be accepted.” The Tribunal had considered the facts of the case and order of the Tribunal for A.Y. 2007-08 and relying upon the same, it was found that the facts were identical in these years and, therefore, this issue was decided in favour of the assessee and orders of the lower authorities were reversed. 11.4 We have gone through the orders passed by the Tribunal and find that the orders passed in earlier years squarely covers the issue. Ld. DR made vehement arguments with respect to this issue and contended that in this case, the revenue earned by the assessee was diverted at the source whereby 35% of the share was diverted to one of its members, viz. SPPL and, therefore, the said

diverted amount should not be considered as part of the business income of the assessee. Therefore, to find out the complete truth, we asked the Ld. Counsel to submit before us complete working of the computation of income and profit of the assessee. In response to the same, it has been submitted by the Ld. Counsel that income and profit of the assessee is computed purely on commercial principles and after computing the profit in this manner, the apportionment is done of the income between the two members. It was vehemently submitted that computation of profit and distribution of profit are two separate actions which are independent of each other and should not be mixed for the purpose of arriving at the taxable income and tax payable thereon. The Assessing Officer had become confused and that is why this whole litigation had taken place. With a view to find precise facts and truth in this regard, we analysed, with the assistance of both the parties, the computation of income and P&L account and work sheet of all the assessment years i.e. 2007-08, 2008-09, 2009-10, 2010-11 & 2011-12. It is noted by us that the cost of land has been made part of the work-in-progress and is accordingly apportioned on year to year basis depending upon the amount of difference between the opening balance of WIP and closing balance of WIP. The expenditure pertaining to cost of construction are provided for in the period to which they relate. For the sake of simplicity, one consolidated chart has been submitted by the Ld. Counsel which clarifies this issue threadbare. The working submitted in this chart is reproduced hereunder for the sake of ready reference:

Sr. Particulars A.Y. 07-08 A.Y. 08-09 A.Y. 09-10 A.Y.10-11 A.Y. 11-12 No. 1. Gross Receipts 44.66 42.50 17.06 27.47 24.44 2. Less : WIP (inclusive of land 30.41 19.38 6.89 10.34 8.,71 and construction cost)

proportionate to sales 3. Income of AOP 14.25 22.12 10.17 17.13 15.73 4. Share of M/s Sanad 3.49 14.18 5.89 9.42 8.45 Properties Pvt Ltd 5. Share of Ravi Raj Kothari and 10.76 7.94 4.28 7.71 7.28 Co. 6. Total 14.25 22.12 10.17 17.13 156.73 A perusal of these details and documents clearly reveals that assessee has computed the profit of the AOP firm purely on commercial principles after deducting the cost of land and construction expenses from the amount of sales / revenue and accordingly net profit was shown under the head “Income from business” upon which deduction u/s 80IB(10) has been claimed. In our considered view, the computation of profit and determination of taxable income is one aspect which is different from apportionment of profit / income between the AOP members. It appears that Assessing Officer had mixed up these two independent actions which led to whole confusion and avoidable litigation. Thus, we find that the Tribunal had correctly appreciated the whole issue in the preceding years and the same has also got affirmation from the Hon’ble High Court. Thus, viewed from any angle, the action of the lower authorities in re-computing the income was not justified and, therefore, the same is hereby reversed. Ground 1 is allowed.

Assessing Officer issued show cause notice to the assessee for bringing the same to tax. The assessee submitted vide its submission dt 21-02-2012 to the Assessing Officer that the aforesaid interest income was not taxable in its hands. The assessee submitted that assessee was bound by the agreement entered with the purchasers to form a Society and to transfer the entire funds including the impugned interest income for the maintenance of the housing project developed by it and, therefore, the aforesaid interest income was not income of the assessee at all, and therefore, the same was not taxable in its hands. The relevant part of assessee’s submission is reproduced below: “We submit that the assessee is contractually obliged to follow the agreed terms. It is submitted that the amount kept deposited by the flat purchaser was only for their use for mutual use of the members of the common organization only. The assessee is an agent of the members for collection and keep the corpus as per the specific directions as mentioned above. The facts are that all flat purchasers will become members of the common object of maintenance and upkeep of the common fund for financing the cost of common object of maintenance and upkeep of the common amenities/ buildings for mutual interest and have no dealings or relations with any outside body. The concept and principal of mutuality has been elaborately examined by the Apex Court and followed in several decisions of High Courts and Tribunals. There are three conditions for applicability of the principle of mutuality, which are as follows:- Where a number of reasons combine together contribute to a a) common fund for the financing of some venture or object; They have no dealings or relation with any outside body; and b) Surplus generates a not spent for any other purpose c) accepting for the welfare of the principles. On this basis, courts clearly held that even if there was an income earned by the society in the form of interest by keeping the funds generated from the members in the bank. It is submitted that the amount collected the flat purchaser as corpus has been kept in Fixed Deposits and had not been diverted for any other purpose. In view of principle of mutuality the interest accrued is

not a taxable income. The assessee has prepared separate balance sheet and receipt payment account got audited and submitted to the members. As explained above the assessee declared interest income of Rs.59, 972/- and claimed TDS on this amount only. The interest amount Rs.29, 74,500/- pertaining to flat purchasers has been kept separate and included in the separate balance sheet and receipt payment account prepared, got audited and submitted to the members." 14. However, the Assessing Officer did not accept the submissions of the assessee and assessed the aforesaid interest income as income of the assessee mainly on the ground that assessee has not produced the proof that the said interest income has been remitted to the society as the society was not still formed. 15. Being aggrieved, the assessee filed appeal before the Ld. CIT(A) where exhaustive submissions were made. The assessee also submitted various evidences to clarify the doubts raised by the Assessing Officer and to show that entire funds which were received by the assessee were transferred to the Society including whatever amount of interest was received from the bank and no amount was used by the assessee for its own use or benefit. Ld. CIT(A) did not accept arguments about application of the principle of mutuality in view of the facts of the case and relying upon the judgment of the apex court in the case of Bangalore Club vs CIT dt 14-6-2013, and the aforesaid amount of interest was held to be rightly taxed in the hands of the assessee. 16. Before us, the ld. Counsel of the assessee vehemently made detailed arguments and placed before us, sample copy of agreement entered with the buyers to show that these funds were received by the assessee in a fiduciary capacity from the buyers which were to be transferred to the Society along with amount of interest received thereon. Our attention was also drawn upon

relevant provisions of Maharashtra Ownership Flats (Regulations and the Permission of Construction, Sale, Management & Transfer) Act, 1963 (hereinafter called, MOFA) and it was argued that the assessee was bound by these regulations and accordingly assessee was bound to keep these funds in fiduciary capacity to be handed over to the Society for maintenance of the building constructed by the assessee. During the course of hearing, Ld. Counsel submitted that though in the A.Ys 2012-13 & 2013-14 similar interest income was offered to tax by the assessee inadvertently, but he gave an undertaking at the bar on behalf of the assessee that in case this addition is deleted in the impugned year, then the assessee shall not seek any rectification in assessment years 2012-13 and 2013-14 in pursuance to order of the Tribunal. 17. Per contra, the Ld. DR relied upon the orders of the lower authorities and further submitted that these facts are still not available on records that whether the assessee has transferred this amount in totality to the Society or some portion has been appropriated by the assessee. 18. We have gone through the facts of the case and orders passed by the lower authorities. The admitted facts are that assessee, an AOP, had collected deposits as per the provisions of the agreement executed witch the buyers of the Flats towards corpus for maintenance and related jobs till the formation of the Society. As per the agreement, the amount was to be transferred to the Society for maintenance of the flats. In the meantime, till the amount was transferred, the deposits were kept in FDR by the assessee (AOP) with the bank and interest was credited by the bank upon these FDR. Thus, the moot question that arises here is whether, the interest so credited by the bank on this FDR shall form part of the income of the assessee or not?

“5. Promoter to maintain separate account of sums taken as advance or deposit and to be trustee thereof and disburse them for the purposes for which they are given-The promoter shall maintain a separate account in any bank of sums taken by him, from persons intending to take or who have taken, flats, as advance or deposit, including any sums so taken towards the share capital for the formation of a. co-operative society or a company, or towards the outgoings (including ground rent if any, municipal or other local taxes, taxes on income, water charges, electricity charges, revenue assessment, interest on any mortgage or other encumbrances if any); and he shall hold the said moneys for the purposes for which they were given and shall disburse the moneys for those purposes and shall on demand in writing by a Competent Authority, make full and true disclosure of all transactions in respect of that account.” 20. It is further noted that section 13(1) & (2) of MOFA deal with offences of promoter and consequences on conviction, provide as under:

“13. Offences by Promoters and consequences on conviction- (1) Any promoter who, without reasonable excuse, fails to comply with or contravenes, the provisions of sections 3, 4, 5 (save as provided in sub-section (2) of this section), 10 or 11 shall, on conviction be, punished with imprisonment for a term which may extend to three years or with fine, or with both.

(2) Any promoter who commits criminal breach of trust of any amount advanced or deposited with him for the purposes mentioned in section 5 shall, on conviction, be punished with imprisonment for a term which may extend to five years, or with fine, or with both.” 21. Thus, from the perusal of various clauses of the agreement entered with the buyers and strict provisions of MOFA, as reproduced above, we can conclude that assessee was bound to keep the amount of security deposit received from its customers (buyers of Flats) in a separate account to be spent for the designated purposes and to transfer the balance amount to the Society for this purpose. The assessee had no discretion or permission or any type of liberty or flexibility to use it for its own purposes or for any other purpose not stipulated in the agreement. Under these circumstances, it can safely be concluded that this amount was retained in a fiduciary capacity. There was no distinction between the amount of principal and amount of interest credited by the bank, as far as the assessee is concerned. Thus, for the assessee it was simply an amount received in advance which was to be transferred to the Society or to be spent for the designated purposes. It has no character or element of income as far as assessee is concerned. It was simply held in the form of an obligation / liability. The assessee was a trustee or custodian simpliciter of the said amount. The real income theory as is followed under income tax law does not permit assessment of an amount as income unless it has got elements or characteristics of income in the hands of its recipient. Under these circumstances, we find that principally speaking the impugned amount of interest cannot be treated as income in the hands of the assessee. 22. Ld. CIT(A) has held it to be taxable on the ground that principles of mutuality does not apply here. We agree with the Ld. CIT(A) that principles of mutuality does not apply where the amount of interest income is received from a third source, i.e. a bank here. It has been so clarified now by Hon’ble

Supreme Court also in the case of Bangalore Club vs CIT (supra). There is no dispute or doubt on that. But the said issue (of application of principle of mutuality) needs to be examined in the hands of the society where this income shall be finally appropriated / exhausted. The assessee being merely a conduit for transferring the impugned amount from the buyers to the Society or it can be described at best as a custodian/trustee of this amount, it cannot be held to be an assessee liable to be taxed for this amount which is held in fiduciary capacity. The issue of taxability of this amount can of course be examined in the hands of the Society. The Revenue is free to do so, as permitted under the law keeping in view the aforesaid judgment of the Hon’ble Supreme Court or any other law / judgment as may be applicable and also keeping in view applicability of the principles of mutuality. 23. The other apprehension raised by the Ld. DR was that in A.Ys. 2012-13 & 2013-14 the assessee has itself paid tax on the amount of interest on these deposits and therefore, position in these years should not be disturbed irrespective of the fact that whatever decision is taken by the Tribunal in the impugned year. In reply, the Ld. Counsel submitted that though the tax was paid in A.Ys. 2012-13 & 2013-14 by mistake and inadvertently, still the assessee hereby undertakes not to seek any kind of refund/ rectification in these two years. In this regard, the assessee also submitted an undertaking by way of its letter dt 20-07-2016, the relevant part of which is reproduced hereunder: “1 Kindly refer to the captioned matter that was heard before Your Honours on 20.07.2016 2. The assessee AOP had been collecting deposits as per the provisions of agreement executed with the buyers of the flat towards corpus for maintenance, etc. till the formation of the society. The said amount which was held in fiduciary

capacity by assessee AOP was kept in Fixed Deposit and interest was received therefrom. 3. The same was not offered to tax in A.Y. 2010-11 and 2011- 12 since the same belonged to the buyers of the flat and was held in fiduciary capacity by assessee. 4. However, in A.Y. 2012-13 and 2013-14, interest on ED was received and by oversight was offered to tax by assessee. We hereby undertake and confirm that we shall not retract from the above position by way of moving any rectification application by filing additional ground of appeal before appellate authority or by any other means whatsoever. Further, the tax paid on interest received on ED for A.Y. 2012- 13 and 2013-14 will also not be claimed back as refund or otherwise.”

The AO is directed to ensure that the assessee adheres to aforesaid undertaking for the sake of finality. Thus, apprehension of the Revenue in this regard duly addressed. 24. The other objection of Ld. CIT(A) which has been reiterated by the Ld. DR also before us was that there was no clarity on facts with regard to transferring of impugned Security Deposit amount to the Society by the assessee in entirety. In fact, from the arguments of the Ld. DR it transpires that this is the only objection left to be addressed as per final stand of the Revenue. Thus, in all fairness to both the parties, we find it appropriate to send this issue back to the Assessing Officer for verification of these facts. The assessee shall bring on record all requisite evidences to demonstrate that the impugned amounts received by way of deposits from the customers along with the amount of interest credited by the bank thereon have been transferred to the concerned Society. In case, any amount has been appropriated by the assessee in violation of the agreement or in violation of the regulations of MOFA, then

corresponding amount of interest thereon can be brought to tax in the hands of the assessee. Thus, with these directions, this issue is sent back to the file of the Assessing Officer. The Assessing Officer shall give adequate opportunity of hearing to the assessee before deciding this ground afresh. It is also directed that the assessee shall abide by its undertaking dt 20-07-2016 which has been reproduced above. The Assessing Officer shall also verify relevant facts in this regard. As a result, this ground of appeal is treated as allowed, for statistical purposes. 25. In the result, appeal of the assessee is partly allowed. 26. Now we shall take up revenue’s appeal in ITA No. 7453/Mum/2014 for A.Y. 2010-11. The revenue has filed appeal on following grounds: “1.On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the deduction u/s. 801B(10). 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the claim of the assessee of deduction u/s.80IB(10) of Rs. 17,08,31,084/- without appreciating the fact that CIT(A) in the impugned order itself correctly interpreted clause 7 of the AOP agreement dated 29/04/2003 by detailed analysis by upholding the action of the AO of excluding the share of SPPL from the revenue of the assessee while computing business income of the assessee while dealing with ground no. 3 of the assessee.

the Ld. CIT(A) in the impugned year has allowed the relief to the assessee which has been contested by the Revenue before us. 27. During the course of hearing, it was brought to our notice by the ld. Counsel of the assessee that the Revenue had carried this matter before the Hon’ble High Court and Hon’ble High Court has affirmed the order of the Tribunal and dismissed the appeal of the Revenue and thus this issue now stands settled in favour of the assessee by the order of the Hon’ble jurisdictional High Court. 28. Per contra, ld. DR relied upon the orders of the lower authorities and did not make any distinction on facts or law. 29. We have gone through the orders of the lower authorities. It is noted that the benefit of deduction u/s 80IB was denied by the Assessing Officer on the ground that certain Flats were having constructed area of more than 1500 sq.ft. and thus, violated the conditions of section 80IB (10). The Tribunal decided this issue in favour of the assessee in A.Y. 2007-08 confirming the order of the Ld. CIT(A) and held as under: “4.3. This factual aspect has been disputed before us. Therefore, when each of the facts have been constructed as per the plan duly approved by the local authorities and also completed as per the completion certificate, wherein the built up area of each flats has been shown less than 2500 sq.ft., then receiving the consideration by the assessee for more than 2500 sq.ft. showing as saleable area of the flats / residential units as per the sanctioned plant and completion certificate. 4.4. In view of the above discussion as well as in the facts and circumstances of the case we do not find any error or illegality in the order of the CIT(A), qua this issue.” …………. 6.2 Therefore, as per the pre-amended provisions of sec 80IB(10), once the project has been approved by the local authorities, then in

the absence of any such condition of commercial area in the provisions of sec.80IB(10), deduction cannot be denied on this point. Hence, we do not find any reason to interfere with the impugned order of the CIT(A), qua this issue.” ……………. “7. We have heard the ld Ld. Departmental Representative as well as the ld Ld. Authorized Representative of the assessee and considered the relevant material on record. In view of our finding that the assessee is entitled for deduction u/s 80IB (10), the issue of addition has become infructuous as it become revenue neutral. Accordingly, we uphold the order of the CIT(A) on this issue also. 8. In the result, the appeal filed by the revenue is dismissed.”

from Revenue of the assessee while computing the business income of the assessee. It was stated by both the parties that this ground is consequential to ground 1 of assessee’s appeal and if ground 1 of assessee’s appeal is allowed, then ground 2 of Revenue’s appeal wiil become infructuous. 32. We have already allowed ground 1 of assessee’s appeal wherein it was held that for computing the business income of the assessee, the share of SPPL was not required to be excluded. Thus, the present ground raised by the Revenue becomes infructuous and is dismissed, as such. 33. Now we shall take up assessee’s appeal in ITA No. 7117/Mum/2014 for A.Y.2011-12. 34. It is noted that both the grounds raised in this appeal are identical to grounds raised in appeal for A.Y. 2010-11 and no distinction has been made in facts or law by either party before us and, therefore, we direct the AO to follow our order for A.Y. 2010-11. As a result, ground 1 is allowed and ground 2 is sent back to the file of the AO with identical directions. 35. Now we shall take up Revenue’s appeal in ITA No.7454/Mum/2014 for A.Y. 2011-12. 36. It is noted that both the grounds raised by the Revenue are identical to grounds raised in appeal for A.Y. 2010-11. No distinction has been made in facts or law by either party before us and, therefore, we direct the AO to follow our order for A.Y. 2010-11. Therefore, following our order for A.Y. 2010-11, we dismiss both the grounds raised by the Revenue.

Sd/- Sd/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt: 21st September, 2016

Pk/-

Copy to : 1. The appellant 2. The respondent 3. The CIT(A) 4. The CIT 5. The Ld. Departmental Representative for the Revenue, F-Bench (True copy) By order ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES