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Income Tax Appellate Tribunal, DELHI BENCH ‘H’, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
These two appeals filed by the Department are directed against the respective Orders of the Ld. CIT(A)-XIX, New Delhi pertaining to assessment years 2007-08 and 2009-10. Since the issues involved in the these appeals are common and identical, hence, they are being consolidated and disposed of by this common order for the sake of brevity, by dealing with (AY 2007-08).
The grounds raised
in (AY 2007-08) read as under:- “1. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the disallowance of Rs. 11,07,67,172/- being 90% of land cost and EDC, made by the AO matching principle basis, ignoring the fact that the assessee, following the percentage of completion method, had declared receipts of Rs. 1.72 crores being 10% of the total project value on the basis of certification that 10% work was completed during the financial year relevant to the assessment year under reference.
2. On the facts and in the circumstances of the case, following the principle of matching cost with revenues, CIT(A) should have utmost allowed the EDC charges at Rs. 1,45,04,750/- being 10% of the total EDC charges of Rs. 14,50,47,500/- payable to Govt. of Haryana and not the EDC charges of Rs. 4,00,48,000/- claimed pertaining to the year under reference.
4. On the facts and in the circumstance of the case, Ld. CIT(A) has erred in allowing deduction of Rs. 1,46,57,405/- u/s. 80IB of Income Tax Act, 1961 holding that the assessee is eligible for proportionate deduction u/s. 80IB(10) in respect of the 71% of the profits which represent the profits from eligible residential units ignoring the fact that the eligibility condition for deduction u/s. 10IB(10) is that the built up area of each unit should not exceed the prescribed limit and the same is applicable to the entire project.
5. On the facts and in the circumstance of the case, Ld. CIT(A) has grossly erred in not sustaining the disallowance of deduction u/s. 80IB(10) in respect of interest income of Rs. 8,87,967/- ignoring the fact that interest income was not derived from business.” 3. The grounds raised in (AY 2009-10) read as under:-
1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in allowing the assessee deduction under section 80IB(10) of the I.T. Act, 1961 on proportionate basis.
2. The appellant craves for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of appeal.
The brief facts of the case are that the AO made the addition of Rs. 1170,67,172/- being the cost of land measuring 13.168 Acres of Rs. 90026636/- and ED charges of Rs. 40048000/- which was debited entirely. According to the AO 10% of the said amounts are to be allowed as expenditure, since 10% of the project is completed. The AO made the observations in the assessment order at Pages 7-8, Para 8.3 to 8.5. On Appeal filed by the Ld. CIT(A) deleted the addition in dispute by giving his finding in para no. 9 to 10.5 at Page 5 to 6 in the impugned order. Aggrieved with the same the Revenue has filed the present Appeal before the Tribunal.
At the time of hearing, Ld. DR relied upon the order of the AO and stated that the AO has noticed that Rs. 9,00,26,636/- being the cost of land of 13.168 acres and ED charges of Rs. 4,00,48,000/- were debited entirely and according to him 10% of the said amount are to be allowed as expenditure since 10% of the project is completed. Therefore, the order of the AO is as per law and Ld. CIT(A) has wrongly deleted the addition in dispute by observing that the AO has not found any irregularity in the Accounting System followed by the Assessee and there is no escapement of income or postponement of the income. He requested that AO Order may be upheld and the impugned order on the issue may be cancelled.
On the contrary, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and stated that Ld. CIT(A) has passed the well reasoned order on the basis of the Accounting System followed by the assessee which is a recognized Method of Accounting and Accounting Standards. He further stated that the title, size of plot is 13.168 acres. As per the building plan 14 storied building are to be built within a period of 4 years over the area of 981850 sqft. That comes to 1.626 acres. All the buildings after completion is going to cover only 12.38% of the total land, remaining 87.62% (11.542 acres) is going to be converted into the given area which no structure is going to be created. Since, foundation had been demarcated for all the buildings in the financial year 2006-07, it implied that the company had started work on the workable / sanctioned area in the said year itself. The Company immediately after purchasing the land started working on the entire sanctioned area in the year 2006- 07 itself and outside the entire value of land to revenue in every same year because more than 87% of the total area had been earmarked for landscaping and would not be used for construction purposes. Ld. Counsel for the assessee stated that the total land comes to Rs. 90026636/- has been charged. The revenue on the basis of the total estimated project cost that the development of land and construction are of land which is not be erected (87.62%) passed on which the certified Civil Engineer has shown as approximate completion of the project at 10%. In the case the total land cost is not considered the level of approximate completion would be less than as actually booked to revenue (sales). In view of the aforesaid circumstances, the land cost charged to revenue has got direct co-relation with sales shown in this regard. A certificate from the Certified Civil Engineer was also attached with the Paper Book. As regards the External Development charges of its due date for payment during the year under consideration which is to be paid over a period of 4 years Rs. 40048000/- which has become due and has been paid towards EDC during the year under consideration is charged to Revenue accordingly. He has also filed the proof of the same. As regards the license fee of Rs. 2,07,57,728/- paid during the year under consideration for the life of project of 4 years. He stated that 1/4th of the total amount paid is Rs. 5189682/- has been charged to revenue during the year under consideration. He also draw our attention towards the advertising and publicity; charges of the sample flat and site development. He stated that these expenses are direct bearing on the project in dispute during the year under consideration and he has also filed the documentary evidence supporting all the contentions raised by the assessee before the AO, Ld. CIT(A) as well as before us and lastly stated that the impugned order passed by the Ld. CIT(A) may be upheld by dismissing the Appeal filed by the Revenue.
We have hard both the parties and perused the records. On the issue involved in ground no. 1 to 2 regarding disallowance of Rs. 11,70,67,177/-, we are of the considered view that Ld. CIT(A) has passed a well reasoned order on the basis of the documentary evidence produced by the assessee and on the basis of the Written Submissions filed by the assessee. We are of the view that it is very much relevant to reproduce the finding of the AO as well as Ld. CIT(A) in dispute which is mentioned in the assessment order vide para no. 8.3 to 8.5 at page nos. 7 & 8 and mentioned vide para no. 9 to 10.5 at pages 5 & 6 of the impugned order passed by the Ld. CIT(A). These findings of the AO as well as Ld. CIT(A) are reproduced hereunder:- AO’S FINDING “8.3 Therefore, in accordance to the applicable accounting practices, the assessee has itself credited income of Rs. 17.28 crores in the P&L A/c. In this year,
and in this regard the assessee in its reply dated 1.12.2009 has stated that: “Work certified / sales is booked 210% of the total value of the project (i.e. 10% of Rs. 172 Crores). Here, 10% represents percentage of completion of the project during the year 2006-07. This eligible project was certified by a qualified civil engineer on the basis of the extent of the advancement of the project as on 31st March, 2007.” In view of above, since the work certified by engineer is 10% of the total value of the project, hence, the cost of land and EDC charged to the P&L A/c should also to be restricted to 10% only instead of charging full cost to P&L A/c. Moreover the cost of land used for landscaping / green area is also be the part of sale price of the flats. Hence, recovered from the customers and needs to be accounted for. 8.4 The other contention of the assessee that “in case the total land cost is not considered the level of approximate completion would be less than as actually booked to revenue (sales)” is not acceptable as the assessee has already incurred the cost of land and EDC charges therefore the amount paid is required to be included only for calculation of percentage of completion as per POCM (Percentage of Completion Method) but is not allowed to charge 100% of land cost & EDC in this year, i.e. in one year only. 8.5 Therefore, the contention of the assessee in view o fthe above stated reasons is rejected. And an addition of Rs. 11,70,67,172 [90% of Rs. 13,00,74,636 (Sum of cost of land Rs. 90026636 and EDC charges of Rs.
40048000/-) is made to the income of the assessee. Further as I am satisfied that the assessee has furnished inaccurate particulars with regard to the above claim. Therefore, penalty proceedings under section 271(1)© of the Income Tax Act are initiated separately.” Ld. CIT(A)’s finding “9. I have gone through the assessment order and the detailed written submissions filed by the AR in this regard.
10.1 The main contention of the AR is that Rs. 17.2 crores (loaded with profit) which was recognized as income (since 10% of project was completed as certified by the engineer) included the cost of the land, EDC and the other expenses incurred under the other heads. The assessee followed the project completion method for recognizing the revenue. The AR further stated that the principle of matching of expenditure and revenue was followed while recognizing the income. 10.2 It is seen that during the year the expenditure of Rs. 15,42,82,890.60/- (which included land cost of Rs. 9,00,26,636/- and EDC charges of Rs. 4,00,48,000/-) was written off to the P & L Account. 10.3 If the contention of the AO is accepted only 10% of land cost i.e. Rs. 90,02,663/- and 10% of EDC i.e. Rs. 40,04,800/- are to be charged to the P & L Account. 10.4 The remaining 90% of the Land cost and ED charges being Rs.11,70,67,172/- should go as work in progress. It is further seen there is no possibility of revenue arising from the area ear marked as green area since no construction is possible. All these facts were considered while working out the cost of the project by the assessee. 10.5 After going through the facts brought on record there is no irregularity in the accounting system followed by the assessee and there is no escapement of income or postponement of income. If the contention of the AO is accepted the revenue to be recognized is lesser than Rs. 17.2 crores as recognized by the assessee. In view of the above discussion, the method followed by the assessee is in accordance with the recognized method of accounting and accounting standards. Accordingly, additions of Rs. 8,10,23,972/- (being 90% of land cost) & Rs. 3,60,43,200/- (being 90% of EDC) are hereby deleted.”
From the above we find that there is no irregularity in the accounting system followed by the assessee and there is no escapement of income or postponement of income. If the contention of the AO is accepted the revenue to be recognized is lesser than Rs. 17.2 crores as recognized by the assessee. Therefore, in view of the above, the method followed by the assessee is in accordance with the recognized method of accounting and accounting standards. Hence, the addition in dispute was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, therefore, the same is upheld and accordingly, the ground no. 1 and 2 raised by the Revenue stand dismissed.
As regards ground no. 3 Ld. Counsel of the assessee stated that similar issue involved in ground no. 3 has already been adjudicated and decided by the ITAT Special Bench, Pune reported in 119 ITD 255 in the case of Brahma Associates vs. JCIT. Ld. Counsel of the assessee to support the impugned order involved in ground no. 3 is also relied upon the various case laws mentioned in the CIT(A)’s order in para no. 18.2 at page. 9. 9.1 Ld. DR relied upon the order passed by the AO.
After hearing both the parties on the issue involved in ground no. 2 regarding allowing the deduction of Rs. 1,46,57,405/- u/s. 80IB of the I.T. Act, 1961 by the Ld. CIT(A) by holding that the assessee is eligible for proportionate deduction u/s. 80IB(10) in respect of the properties which represent the profits from eligible residential unit. By respectfully following the order of the Special Bench, ITAT, Pune (Supra) we are of the considered view that it is very much relevant to reproduce the relevant portion of the impugned order adjudicating the issue in dispute vide Para nos. 20 to 23 and pages 10 to 11 which are reproduced hereunder:- “20. The only contention of the AO is that there is no case for proportionate deduction on the reasoning that the provisions do not confer such method of proportionate calculation and deduction. There is no dispute with regard to 81% of flats satisfying the requirement of built up area 1000 sq ft or less for which deduction u/s 80IB(10) is applicable in this case.
The Hon'ble ITAT (Pune) (Special Bench) in the case of Brahma Associates vs. JCIT, 122 TTJ 433 recognized the principle of proportionate deduction in respect of profit derived from eligible residential units satisfying the prescribed conditions on standalone basis.
The observations of Hon'ble ITAT, Pune (Special Bench) in this regard are as under: "130. To sum up, the conclusions arrived at by this Special Bench are as follows: (a) The deduction under s. 80IB( W), as applicable prior to 1st April, 2005, subject to and in the light of the observation made in the preceding paras, is admissible in case of a 'housing project' comprising residential housing units and commercial establishments. In case these projects are approved as housing projects by the local authority, such an approval as housing project is sufficient for the purposes of eligibility. In any other case, where 90 percent or more of the total built-up area is used for dwelling units, in accordance with the scheme of S. 80IB( I0), the benefit of deduction under S. 80IB(10) will not be declined. In case commercial use of built-up area is more than 10 per cent but the residential segment of the project satisfies requirements of S. 80B (IO)on standalone basis. i.e (i) the size of the plot, excluding portion under commercial unit, is more than minimum area of one acre, (ii) residential units built on such area must satisfy condition of cl. (c) of the provision, and (iii) other necessary conditions are fulfilled, and where income from construction of residential dwelling units can be worked out on standalone basis, deduction under S. 80IB( 10) will be available in respect of residential segment of the project. (b) The deduction under S. 80IB(10)is available in respect of profits of housing project as a whole, and, as such; it is not relevant as to what is the portion of profit which can be said to be attributable to residential units. This is subject to the rider that in case commercial use of built-up area in a project is more than 10 per cent and; for this reason the project cannot be said to be a predominantly housing project, but, in terms of observations made in para 115 above, the assessee is entitled to deduction in respect of residential unit segment of the overall project on fulfillment of necessary conditions, the entitlement of incentive deduction will be confined to only to the profits to the residential segment of the overall project."
After applying the ratio laid down in the cases referred above, the assessee is eligible for proportionate deduction u / s 80IB( 10) in respect of the 81% of the profits which represent the profits from eligible residential units.” 10.1 After going through the findings of the impugned order on the issue involved in ground no. 3 regarding the deduction of Rs. 1,46,57,405/- u/s. 80IB of the Act, we are of the view that the Ld. CIT(A) has rightly allowed the deduction u/s. 80IB of the Act to the assessee by respectfully following the order of the ITAT Special Bench, Pune reported in 119 ITD 255 in the case of Brahma Associates vs. JCIT. (Supra) and various other cases mentioned in the impugned order. Respectfully following the Special Bench decision in the case of Brahma Associates vs. JCIT. (Supra), we do not find any infirmity in the order of the Ld. CIT(A), hence, we uphold the same and dismiss the ground no. 3 raised by the Revenue.
As regards ground no. 4 relating to disallowance of deduction u/s. 80IB(10) in respect of interest income of Rs. 8,87,967/- is concerned, Ld. DR has not argued the issued involved in ground no. 4 because it does arise from the impugned order, therefore, the same is dismissed as such.
As regards (AY 2009-10) relating to issue of allowing the assessee deduction u/s. 80IB(10) of the I.T. Act, on proportionate basis is concerned, since we have already decided the similar issue while dealing with (AY 2007-08) vide para no. 10 to 10.1 as aforesaid, in favour of the Assessee and against the Revenue and upheld the decision of the Ld. CIT(A) of allowing the deduction u/s. 80IB(10). Following the consistent view therein, we uphold the Ld. CIT(A) order and decide the issue against the Revenue and in favour of the Assessee and dismiss the Appeal of the Revenue. 13. In the result, both the Revenue’s Appeals are dismissed.
Order pronounced in the Open Court on 18/02/2016.