DCIT 3, THANE vs. PURANIK BUILDERS P.LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order dt.13.02.2013 of CIT(A)-I,Mumbai, the Assessing Officer(A.O.)and the assessee have filed the present appeal/Cross Objection (C.O.).During the course of hearing before us, the AR of the assessee stated that assessee was not interested in pressing the grounds raised in the CO,considering the smallness of tax effect.Therefore,C.O. filed by the assessee,stands dismissed as not pressed.

2.Assessee-company,engaged in the business of developing and building housing projects, filed its return of income 22.09.2009, declaring total income at Rs.22,06,440/-.The assessment order u/s.143(3) of the Act, was passed on 26.12.2011, determining the total income of the assessee at Rs.3.71 crores. 4612/Mum/2013 3.The first effective Ground of appeal raised by AO is regarding allowing assessee’s claim for deduction u/s. 80IB(10) of the Act. During the assessment proceedings,the AO found that the assessee had claimed deduction u/s. 80IB amounting to Rs.3.48 crores for Kavyadhara Project(KP),Rs.11,729/-for Puranik City Project(PCP),Rs.20,673/- for Prathpusha (PP) and Rs.26,745/- for Swapnadhara Project(SDP). The AO called for various details in that regard 1 4612/Mum/2013Puranik Builders+CO205/14 and recorded the statement of the architect on 2.12.2011 to ascertain the facts regarding sanction of development permission, commencement certificate etc. , pertaining to various housing projects undertaken by the assessee. He also made enquiry with Thane Municipal Corporation (TMC).He observed that the development permission for the project Kavyadhara was received vide letter dt. 16.1.2003, that the commencement certificate was issued vide letter dt.9.3.2004, that the plan was subsequently amended vide sanction letter dt.4.1.2007. He found that the occupancy certificates (OC) in respect of various buildings as per the final plan were received as under : Building No. No. of Buildings No. of Floors Date of occupation certificate A-1 1 Part ground +14 10.12.2008 A-2 1 Part ground +14 31,05.2005 B-1 1 Stilt +7 15.11.2006 B-2 1 Stilt + 14 15.11.2006 B-3 1 Stilt +14 15.11.2006 B-4 1 Stilt +7 31.3.2008 C-1 1 Stilt +7 15.11.2006 C-2 1 Stilt +7 31.03.2008 C-3 1 Stilt +7 10.12.2008 C-4 1 Stilt +7 10.12.2008 Club House 1 Ground +1 10.12.2008 He held that the sanction for development permission of KP was first received on 16.1.2003,that the project was required to be completed on or before 31.3.2008, as per the provisions of section 80IB(10)(a)(i).After deliberating upon the procedure for obtaining OC,the AO observed that as per the building plans and OC of building A-1 , C-3, C-4 and Club house were not completed by 31.3.2008, that OCs in respect of three buildings were received on 10.12. 2008,that the OC in respect of building A-2 was received on 31.5.2008, that the conditions laid down in Section 80IB(10) were not fulfilled.Vide his order sheet entries dt.8.11.2011,30.11.2011 and 8.11.2011,the AO asked the assessee to explain as to why deduction claimed by it u/s.80IB(10)of the Act should not be disallowed in respect of KP.In its submission dt.22.12.2011 the assessee submitted that there was delay in OC of a few weeks, that the project was completed on time as per the requirements of the section, that the delay had been from the side of TMC which was beyond the control of the assessee. He directed the assessee to submit the letter through which OC was applied for.The assessee submitted that it was not in a position to trace the documents as it was shifting the office.The AO made enquiries with TMC who informed him that OC in respect of building No.A-1, C-3, C-4 and Club-house were issued on 31.5.2008.Considering the above facts,the AO held that the assessee had neither applied to the TMC for the issue of OC on or before 31.3.2008 nor had it completed the housing project before the specified time limit, that there was no delay 4612/Mum/2013Puranik Builders+CO205/14 on part of the TMC,that the assessee itself had applied for the OC after the due datei.e.31.3.2008.Finally,he held that assessee was not entitled for deduc -tion in respect of KP amounting to Rs.3.48 crores.

4.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Before him, elaborate submissions were made by the assessee and it was contended that each building consisted of a separate smaller project for which it had received separate OC.s,that for claiming deduction u/s. 80IB(10) the crucial factor was completion of project within the time prescribed under the section, that the section did not prescribe any specific document for that purposes. After considering the submission of the assessee and assessment order,the FAA held that in respect of KP the first development approval was granted on 16.01. 2003,that the date of completion for all buildings of this project was 31.03.2008, that there was no dispute regarding completion of the other buildings of the project namely A-2, B-1, B-2, B-3, B-4, C- 1 and C-2 within the specified time of 31.3.2008, that the dispute was regarding the building numbers A-1, C-3, C-4 and Club-house as well as building A-2,that the OC.s were received after 31.3.2008 (for building A-2 on 31.5.2008 and for remaining buildings on 10.12.2008).The FAA referred to the case of Hiranandani Aakriti (ITA No.5416/M/09, AY 06-07) dated 30.3.2010) and held that the original approval of the Housing project was granted on 16.1.2003, that all subsequent amended plans were approved in continuation to the original approved plan, that the requirement to have the project completed within 4 years, i.e. before 31.3.2008 was not applicable,that the amendment brought in section 80IB-(10) was applicable to the projects where the permission was granted after 1.4.2005. He further,held that pre-amended provisions of section 80IB(10) had not fixed any time limit for completion of housing projects,that the requirement of completing the projects within a period of 4 years came into effect from 1.4.2005. He referred to the cases of Brahma Associates (333ITR289),Sai Krupa Developers, Mumbai(ITA/3661/Mum/2011,dt.4.3.2012)and held that KP would be govern -ed by un-amended provisions of section 80IB, that the said housing project was approved on 16.1.2003 i.e. prior to 1.4.2005, that the project was eligible in respect of the profits derived for the year under consideration.The FAA also referred to the judgment of Tarnetar Corpn (ITA 1241/M/2011 dt.12.9.12 ) of Hon’ble Gujarat High Court. Finally, he directed the AO to allow deduction to the assessee.

4612/Mum/2013Puranik Builders+CO205/14 5.During the course of hearing before us, the Departmental Representative (DR) supported the order of the AO stated that the OC was obtained after 31.3.2008, that the assessee failed to comply with all the condition of the amended provisions.The Authorised Representative (AR) supported the order of the FAA and relied upon the cases referred by the FAA.

6.We have heard the rival submissions and perused the material before us. We find that the basic issue to be decide in the case under consideration is as to whether the amended provisions would be applicable for the projects that were approved before 1.4.2005.The AO had held that OC was received by the assessee after the due date i.e. 31.3.2008 in case of KP and therefore, the assessee was not entitled to claim deduction u/s. 80IB(10). The FAA held that amended provisions were not applicable to KP. We find that the Hon’ble M.P. High Court in the case of (379 ITR 107) Global Reality has dealt the issue extensively.Facts of the case were that the AO had disallowed the claim of the assessee under section 80-IB(10) on the finding that in spite of repeated opportunity given to the assessee during the course of assessment proceedings, the completion certificate was not produced before 31.03.2008. Further, a letter was issued by the municipal corporation dated 18.12.2008, pursuant to the enquiry made in that behalf stating that completion certificate had not been issued to the assessee till that date and that the application of the assessee was still being processed. On these facts the Assessing Officer proceeded to complete the assessment proceedings and disallowed the deduction claimed by the assessee for the assessment years 2005-06 to 2007-08. The completion certificate issued by the local authority was of subsequent date and not issued within the stipulated date. The Tribunal allowed the claim. Allowing the appeal filed by the Department,the Hon’ble Court held as under: “According to the unamended clause (a) of section 80-IB(10) of the Income-tax Act, 1961, as was in force prior to April 1, 2005, the assessee was entitled to deduction of profits in the case of housing projects approved before March 31, 2005, by the local authority. The only condition in clause (a), at the relevant time, was that the development and construction of the housing project had commenced or commences on or after October 1, 1998. This stipulation has been modified by amendment to clause (a). According to the amended clause (a), the housing project approved before March 31, 2007 by a local authority would receive the benefit of deduction provided the development and construction of the housing project has commenced or commences on or after October 1, 1998, and is completed within a specified time. Housing projects approved by the local authority before April 1, 2004 must be completed before March 31, 2008 and the housing project approved on or after April 1, 2004 but before March 31, 2007, should be completed within four years from the end of the 4 4612/Mum/2013Puranik Builders+CO205/14 financial year in which the housing project was approved by the local authority. The amendment further postulates that the “date of completion of construction” of the housing project shall be reckoned on the basis of “the date on which” the completion certificate in respect of such housing project “is issued” by the local authority. Clause (a) as amended, stricto sensu, cannot be considered as a new condition and that too incapable of compliance inasmuch as clause (a) deals with the time frame within which the housing project was expected to be completed, to get the benefit of the prescribed deduction. The amended section 80-IB(10)(a) extends the benefit even to housing projects approved by the local authority before March 31, 2007, instead of March 31, 2005, as was provided in the unamended provision. Therefore, the necessity was felt to make a distinction between the two classes of housing projects for specifying the time frame for completion. The one approved by the local authority before April 1, 2004 and the other class of housing project approved by the local authority on or after April 1, 2004 till March 31, 2007. In either case, the time frame for completion of the project has been prescribed as four years. In that, the project approved before April 1, 2004 has been given time to complete before March 31, 2008 and in the latter category within four years from the end of the financial year in which the housing project was approved by the local authority. The municipal laws of different States in respect of procedure for issuance of completion certificate are not uniform. To wit, in some States, the dispensation provided is to issue partial or full occupation certificate ; and, thereafter, completion certificate after removal of all the deficiencies pointed out by the local authority is issued. In some States, the municipal law may provide for issuing partial or full completion certificate. The requirement of completion certificate issued by the local authority, as envisaged in section 80-IB(10)(a) , which is a Central enactment dealing with the special subject of taxation, however, is, of only one certificate—which is full completion certificate issued by the local authority before the cut-off date. That is to lend credence to the factum of completion of the entire housing project in all respects according to the approval granted by the local authority. The Legislature was conscious of this position, for which, express provision has been made as to the meaning of the date of completion of the housing project linked to the “date on which” completion certificate “is issued” by the “local authority”, as predicated in Explanation (ii) thereunder. The Supreme Court decisions in the case of VEENA DEVELOPERS and SARKAR BUILDERS will have to be understood only in the context of a new condition stipulated regarding the built-up area of the project by way of amendment, which the assessee could not have complied with at all, and even though the construction of the housing project was otherwise in full compliance with all conditions set out in the approval given by the municipal authority as per the relevant rules in that behalf.”

4612/Mum/2013Puranik Builders+CO205/14 “……..it was not a case of imposing a new condition, much less, with retrospective effect unlike introduction of new condition in the shape of clause (d), which obviously could be applied only prospectively. Clause (a) stands on a completely different pedestal. It cannot be treated as a new condition linked to the approval and construction or having retrospective effect as such. For, it gives at least four years’ time to both classes of housing projects : housing projects approved prior to April 1, 2004 and after April 1, 2004. The four year period obviously has prospective effect, albeit limiting the period for completion of the project, to avail of the benefit. Four years’ time for completion of the project, by no standards, could be said to be unreasonable, harsh, absurd or incapable of compliance. It was also not a case of withdrawal of vested right of the developer, as such. No developer can claim a vested right to complete the housing project in an indefinite period. The right arising from section 80-IB , is coupled with the obligation or duty to complete the project in the specified time frame. If the developer does not complete the housing project within the specified time, will not receive that benefit. There is no compulsion on him to complete the project in four years. Even the approvals to the construction of housing project granted by the local authority specify the date within which the construction must be completed, as per the time frame specified in the permission. If the project is not completed within the stipulated time, the developer is free to get that period renewed or extended from the local authority as per the applicable Rules and Regulations. The provision for claiming tax deduction from profits, can certainly prescribe reasonable conditions and more so a time frame for completion of the project, in the larger public interest. No comparison can be drawn between the new condition prescribed in terms of clause (d) and that of clause (a). The condition in clause (a), neither operates retrospectively nor can be said to be absurd, unjust or expecting the assessee to comply with something which is impossible to achieve. (ii) That considering the prodigious benefit offered in terms of section 80-IB to the assessee (hundred per cent. of the profits derived in any previous year relevant to any assessment year) and the purpose underlying it — which is, inter alia, a 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. The fact that compliance with that condition is dependent on the manner in which the proposal is processed by the local authority, the provision cannot be construed as a directory requirement. It is a substantive provision mandating issuance or grant of completion certificate by the local authority before the cut-off date or specified time, as a pre-condition to get the benefit of tax deduction. Else, it will then be open to the assessee to rely on other circumstances or evidence to plead that the housing project is complete—requiring enquiry into those matters by the tax authorities— sans a completion certificate issued by the local authority in that behalf. A priori, the argument of substantial compliance is sufficient, would 6 4612/Mum/2013Puranik Builders+CO205/14 lead to uncertainty about the date of completion of the project which is the hallmark for availing of the benefit of tax deduction. Only with this intent the Legislature in its wisdom has predicated that, “the completion of construction” of the housing project is taken to be “the date on which” the completion certificate “is issued” by the local authority. To interpret it to include an ex post facto certificate or such certificate issued by the local authority after the cut- off date, would not only result in rewriting of the express provision and run contrary to the unambiguous position pronounced in the section but also doing violence to the legislative intent. For, Explanation (ii) will then have to be read as “date of completion of construction of the housing project shall be taken to be the date as certified by the local authority in that behalf”, irrespective of the date of issuance of such certificate by the local authority. Indeed, in a given case if the assessee is able to substantiate that the completion certificate “was in fact issued” by the local authority before the cut-off date but could not be produced by him within time due to reasons beyond his control, the argument of substantial compliance with the provision can be tested. Any other interpretation would result not only in uncertainty (in finalisation of assessment proceedings due to non-issuance or delayed issuance of such certificate by the local authority and prone to manipulations at the end of the local authority), but also have to yield to the subjective satisfaction of the assessing authority and of investing wide discretion in that authority, which, eventually, may only end up in getting embroiled in litigation. 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 thereof of denial of the benefit of tax deduction offered to him on that count. (iii) That issuance of completion certificate, after the cut-off date by the local authority but, mentioning the date of completion of project before the cut-off date, does not fulfil the condition specified in clause (a) of section 80-IB(10) read with Explanation (ii) thereunder. Similarly, the requirement of securing the completion certificate issued by the local authority before the cut-off date is not directory, in view of the express provision in section 80-IB(10)(a) read with Explanation (ii) thereunder. The completion certificate granted by the local authority must bear the date of having been issued before the cut-off date. (iv) That the provision in the form of section 80-IB(10)(a) , applies uniformly to all assessees whether following the work-in-progress accounting method or otherwise. The benefit of deduction under this provision can be availed of by the assessee following the work-in-progress accounting method, provided he has complied with the stipulation of having produced the completion certificate issued by the local authority before the cut-off date, as may be applicable in his case. In other words, if the housing project was approved by the local authority before April 1, 2004, he must submit the completion certificate issued by the authority having been issued before March 31, 2008. Whereas, in the case of a 7