ASST CIT CIR 21(3), MUMBAI vs. SUNCITY HOUSING, MUMBAI

आदेश / O R D E R

PER RAMIT KOCHAR, Accountant Member

1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing relief out of deduction u/s, 801B(10) ignoring that the assessee has violated the condition that the housing units shall not exceed 1000 sq.ft area by construction of flats of more than the area prescribed.

2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in allowing relief out of deduction u/s 801B(10) ignoring that the area of the flats should not be more than 1000 sq.ft. and if any of the eligibility condition is not fulfilled, deduction u/s 801B(10) is not available since the deduction is eligible on the project and not on individual residential unit.

3. On the facts and in the circumstances of the case and in law, the CIT(A) has failed to appreciate that there is no mention in the Income Tax Act that the assessee may be allowed deduction on proportionate basis.

4. The appellant prays that the order of Ld.CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored."

ITA 5183/Mum/2014 3

“Q No. 10: Now, I am showing you a list of flats in NEPTUNE. As per this list, the total no. of flats are 150. However, as per your statement the total flats in NEPTUNE is 100. Please explain the difference?

Ans. Your attention is drawn to the 3BHK flats having area of 1260 sq.ft. in respect of these 3BHK flats, Suncity Housing has entered into 2 agreements for different areas viz. 890 sq.ft. and 370 sq.ft. As such, the total no. of actual flats are only 100 but due to 2 agreements for each 3 BHK flats, the total no. of flats is at 150.

Q.No.11. What is the carpet area and built up area for these 3BHK flats at NEPTUNE?

Ans. Carpet area is 84.31 sq.mtr. (59.55. sq.mtr + 24.76 sq.mtr.). Built up/saleable area is after loading 39%. on Carpet area being ITA 5183/Mum/2014 4

During the course of survey u/s 133A of the Act on 27th October, 2010, statement of Shri Prashant Sharma , partner of the assessee firm was also recorded u/s 131 of the Act and he admitted to withdraw the claim of deduction u/s 80IB(10) in respect of 47 flats on the basis of the fact that these 47 flats have area of more than 1000 square feet , according to Shri Prashant Sharma works out to Rs. 8.26 crores. The relevant part of the statement of Shri Prashant Shamra admitted withdrawing of deduction u/s 80IB(10) of the Act , recorded u/s. 131 of the Act on 27th October, 2010 during the course of survey are as under:-

“Q. No. 7: Your attention is drawn to Q. No. 7, 10 & 11 of the statement of Shri Manish S. Karnawat, Sales manager of M/s. Suncity Housing wherein it has been stated that there are 50 flats of 3 BHK in Neptune having built up area of 1260 sq.ft. each. You are required to explain, how deduction u/s.80IB is allowable in respect of Neptune project.

Ans: 1 agree with the statement of Shri Manish S. Karnawat who is the Sales Manager of M/s Suncity Housing. However, I want to clarify that the areas in the 3 BHK & 2 BHK are super built up area, which includes common areas of staircase and common passages outside the flat. Considering all these things, the built up area in 3 BHK is on border line of the satisfying condition of Section 80IB(l0). But on the presumption that these 3BHK flats are having built up area is less 1000 sq.ft. we have claimed deduction on the entire profit of Neptune project During the course of survey, when this matter was pointed out that the measurement of the 3BHK flats is more than 1000 sq.ft., hence we are considering to withdraw our claim of deduction u/s. 80IB(10) on proportionate basis of the flats having built up area of more than 1000 sq.ft. and less than 1000 sq.ft. We are doing so relying on judgments of Tribunal wherein proportionate deduction u/s 80IB(10) was allowed in respect of eligible flats. In this connection, I am giving herewith the details of flats having built area of more than 1000 sq.ft.

ITA 5183/Mum/2014 5

47 flats having area of 1260 sq.ft. = 47 X 1260 sq.ft. = 59220 sq.ft. (55. 49%)

50 flats having area of 950 sq.ft. = 50 X 950 sq.ft. = 47500 sq.ft.(44.51%) 106720 sq.fts.

In this proportion of flats having area more than 1000 sq.fts. and area having less than 1000 sq.fts. I am withdrawing the deduction claimed u/s. 801B(10) which was claimed for AYs 2009-10 & 2010-11 for the project Neptune.

The total income shown in project Neptune in A.Y.2009-10 is Rs.11,54,52,219/- and income for A.Y. 2010-11 is Rs. 3,35,12,657/- totaling of Rs.14,89,64,876/- which was claimed as deduction u/s 80IB (10). Now I apprehend that 55.49% of the total built up area of the project is not eligible for deduction u/s. 80lB(l0). Hence, in this proportionate, I hereby state that the claimed deduction u/s.80lB(10) will be withdrawn which comes to Rs.8,26,60,609/- and necessary taxes will be paid and revise return will be filed. This figure is subject to furnishing of correct details regarding the receipts of amount with respect to the 3BHK flats in the A.Ys.2009-10 & 2010-11. The withdrawal of deduction u/s. 80IB as stated above is made with a view to purchase peace and avoid litigation. Therefore, 1 request the authorities to take lenient view on the imposition of penalty and other consequences.

3.3 In the statement, Shri Prashant Sharma has further reconfirmed the withdrawal of deduction u/s.80IB (10) as under:-

Q. No. 10: Do you want to say anything else.

Ans: Yes; I once again confirm about the withdrawal of deduction u/s 80IB(10) to the extent of Rs. 8,26,60,609/- for A.Ys.2009-10 & 2010-11 subject to filing of correct details. Necessary taxes will be paid and return of income for above two years will be revised.”

A survey action u/s 133A of the Act was again carried out on 20th January, 2012 in the business premises of the assessee firm whereby statement of Shri Prashant Sharma, partner of the assessee firm was recorded in addition to the statement of Shri Ramakrishnan Iyer, purchaser of flat No. 204 & 205 in ITA 5183/Mum/2014 6 Neptune Tower and other purchaser’s statement were also recorded in the course of survey action whereby the buyer Shri Ramakrishnan Iyer in his statement stated that he had purchased two flats i.e. flat No. 204 & 205 by two separate agreements but that he had been handed over one unit of area 1260 sq.ft. by the builder having a single entrance and he had not made any structural changes in the flat. The same statement was given by the other purchasers of the flat also i.e. Shri Pravin Shankarlal Jaiswal, Sh. Rajesh Kapoor and Shri Avinash Shetty. In the statement recorded on 20th Januray, 2012, Shri Prashant Sharma, partner of the assessee firm stated that the assessee firm was claiming proportionate deduction u/s 80IB(10) of the Act in respect of the flats having built up area less than 1000 sq. ft. in Neptune project based on legal opinion. The said statement of Shri Prashant Sharma are as under:-

“Q. No. 11: As per Income Tax Act there is no such provision of proportionate deduction u/s. 80IB(10), then under which provision of the Act you are claiming the same? .

Ans. Even though there may not be any provision in the I.T. Act for proportionate deduction u/s. 80IB (10) as explained by you, however as per the legal opinion & some decisions in favour of proportionate deduction from Jurisdictional Appellate Tribunal & High Court , in anticipation of getting benefit of the subject Judgment we are claiming proportionate deduction under Section 80IB(10) of the I.T.Act.”

Shri Prashant Sharma also stated that the assessee firm has withdrawn deduction u/s 80IB(10) of the Act Rs. 2,07,77,847/- for the assessment year 2010-11 in respect of the Neptune project. However, the AO observed that the assessee has not filed a revised return till date for the assessment year 2010-11 to withdraw the claim of deduction u/s 80IB (10) of the Act in respect of flats having area of more than 1000 sq. ft. area in Neptune project. Shri Prashant Sharma stated that even in the assessment year 2009-10 , the ITA 5183/Mum/2014 7 assessee firm did not file a revised return to withdraw the claim of deduction u/s 80IB(10) of the Act in respect of flats having area of more than 1000 sq. ft. in project Neptune. The statement of Shri Prashant Sharma was recorded during the course of assessment proceedings for assessment year 2009-10 wherein he stated that based on the decision of ITAT, they have got legal opinion that the Neptune project is entitled for 100% deduction u/s 80IB(10) and, hence, the assessee was retracting from the statement recorded in the course of survey carried on 27th October, 2010 and not filing a revised return to withdraw the claim of deduction u/s 80IB (10) of the Act with respect to the flats having are more than area of 1000 sq. ft. . In view of this in the assessment year 2009-10, the entire claim of deduction u/s 80IB (10) of the Act was disallowed in respect of Neptune project on the ground that Neptune project did not fulfill the requirement of section 80IB (10) that is built up area of some of the flats were not less than 1000 sq. ft. and also the size of plot of land after excluding the area of the 47 flats exceeding 1000 sq. ft. would be less than 1 acre. The learned CIT(A) for the assessment year 2009-10 while adjudicating first appeal held that the assessee firm was entitled to proportionate deduction u/s 80IB (10) of the Act in respect of flats whose area did not exceed 1000 sq. ft. . It was also held by the learned CIT(A) that for computing the area of the plot of land for the project it is the total area of the project of 8.98 acres for all the buildings in the layout which has to be considered and not the area of land on notional basis for the Neptune building only. However, the above decision of the learned CIT (A) for the assessment year 2009-10 was not accepted by the Revenue and accordingly appeal was filed before the Tribunal against the order of the learned CIT(A).

8. The AO after considering the facts observed that the objective of the tax benefit for housing project is to build housing stock for low and middle income residential houses. However, this is circumvented by the developers by entering into agreement to sell multiple adjacent units to a single buyer, ITA 5183/Mum/2014 8 therefore new clauses (e) & (f) has been inserted by the Finance Act, 2009 in section 80IB (10) of the Act w.e.f. the assessment year 2010-11 whereby the housing project will not be allowed to allot more than one residential unit in the housing project to the same person, not being an individual, and in the case of individual, no other residential unit in such housing project is allotted to any of the following persons:-

(i) The individual or spouse or minor children of such individual; (ii) The Hindu undivided family in which such individual is the karta;

(iii) Any person representing such individual, the spouse or minor children of such individual or the Hindu undivided family in which such individual is the karta.

It was observed the AO that in the project Neptune building more than one unit has been sold to same individual during the previous year relevant to the assessment year 2010-11 for which the details are as under;- Sr. No. Name of the party Flat No. Built up Agreement area (in sq. value (in ft.) Rs.) 1 Asha Rani Saran B/701 769 35,60,000/- Asha Rani Saran B/706 319 14,80,000/- 2 Tresa Paul B/901 769 53,68,250/- Tresa Paul B/906 319 22,31,750/- 3 Shalini Lakshman Rao B/1001 769 53,68,250/- Shalini Lakshman Rao B/1006 319 22,31,750/- 4 Prakash Ramdas Ashar B/2501 769 61,06,400/- Prakash Ramdas Ashar B/2506 319 25,38,600/- 5 Akash N. Rajpal B/2503 821 60,20,000/- Akash N. Rajpal B/2504 769 53,36,000/- ITA 5183/Mum/2014 9 The AO held that the Neptune building does not fulfill the conditions laid down in section 80IB(10) of the Act , namely. a. The residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Mumbai. b. Where a residential unit is allotted to an individual , no other unit in the housing project should be allotted to the individual or the spouse of the individual or the minor children of such individual.

It is an undisputed fact that 47 flats in the Neptune building are having built up area of more than 1000 sq. ft. and more than one unit has been allotted to the same person during the previous year relevant to the assessment year 2010-11, hence, the assessee firm is not entitled for deduction u/s 80IB (10) of the Act and the assessee firm’s claim of deduction of Rs. 3,35,12,657/- in respect of profits of Neptune building was disallowed by the A.O. and deduction u/s 80IB (10) of the Act was allowed only in respect of ‘Jupitor’ and ‘Pluto’ building relying on the decision of ITAT, Chennai decision in the case of ACIT v. Viswas Promoters Private Limited (2010) 5 ITR(Trib.) 449(Chennai) , vide assessment orders dated 26-03-2013 passed by the AO u/s 143(3) of the Act .

10. Before the learned CIT(A), the assessee firm submitted that the assessee firm has constructed project ‘Neptune’ and there were total 150 flats which are comprised of 144 saleable flats and 6 refuge flats as per the following approved plan:

ITA 5183/Mum/2014 10

Number of flats Area 50 950 sq. ft. 47 890 sq. ft. 47 370 sq. ft. 144 The assessee firm submitted that out of the above, 50 flats having area less than 1000 sq. ft. has been allowed deduction u/s 80IB(10) of the Act by the learned CIT(A) vide his appellate orders dated 23rd May, 2012 for assessment year 2009-10 . The assessee firm submitted that during the year under consideration, the assessee firm has sold 14 flats of various areas amounting to Rs. 5,86,55,000/- , and that out of which 10 flats amounting to Rs. 4,02,41,000/- were sold to persons specified in clause (e) & (f) of section 80IB(10) of the Act and hence the assessee firm was not entitled to the deduction in respect of those flats. The assessee firm further submitted that in respect of four flats sold to various individuals, the requirement of section 80IB(10) were fulfilled and therefore the assesse firm was entitled to deduction u/s 80IB(10) in respect of these four flats. In support, the assessee firm relied upon the following decisions to contend that if the approved project consists of eligible and non-eligible flats, deduction u/s. 80IB of the Act has to be restricted to the flats having area less than 1000 square feet:-

“a) ITO v. Air Developers, (25 DTR 287 (Nag.) ) b) DCIT v. Brigade Enterprises Pvt. Ltd., (14 DTR 371(Bang.)) c) ACIT v. Sheth Developers P. Ltd., (33 SOT 277 (Mum.)) d) Bengal Ambuja Housing Development Ltd. v DCIT Kol/ 2005 e) Arpanna Development Corp. v. ITO f) SJR Builders v. ACIT,(3 ITR 569 (Mum.)

ITA 5183/Mum/2014 11 g) G.V. Corpn. V. ITO, 43 DTR 329 (Mum.) h) CI'T v. Brahma Associates, judgment dated 22.2.2011 (Born.). i) Ekta Housing Pvt, Ltd. v. DCIT'(ITA no. 3649/Mum./2009) j) Aakar Associates v. ITO (ITA No 2903/Ahd/2008). k) ACIT v. GHP Enterprises (ITA No 6746/Mum/2007) l) Arun Excello Foundation Pvt. Ltd. v. ACIT (2007) 108 TTJ 71 (Chennai)

Thus, the assessee firm submitted that deductions u/s 80IB(10) of the Act be allowed in respect of the 4 flats sold where the area was less than 1000 square feet.

The learned CIT(A) observed that the issue involved in this appeal is similar to the issue involved in appeal for the assessment year 2009-10 in assessee firm’s own case which was decided by his predecessor learned CIT(A). The relevant findings of the predecessor learned CIT(A) in an appeal for assessment year 2009-10 is reproduced below:-

“I have considered the argument of ld. AR and perused the asstt. order. On facts as mentioned in asstt. Order and that narrated by ld. AR, it needs to be first examined: a) Whether the 47 flats with saleable area of 370 sq. ft. were independently capable of being used as a residential unit without amalgamation to the other flats ? b) Whether the amalgamation was done by contractors at the instance of customers without involvement or consent of developer? c) Whether the built up area of the 47 flats of 1260 sq ft saleable area is less them 1000 sq ft.

It is noted from the copy of the approved plan that in the Wing B the so called 1 bedroom flat of 370 sq.ft (l BHK) has only one ITA 5183/Mum/2014 12 living room and 1 Kitchen but no bedroom and hence it cannot be termed in commercial parlance as a 1 BHK flat. It was only after amalgamation that 3 BHK flat of 1260 sq ft was made as an independent residential unit. The flats of 370 sq.ft is only on paper design but practically never existed physically. Though a contract for sale can be registered for any immovable property or any type of built up area, if it is approved by local authority but for claiming deduction under the provisions of 80IB(10), it has to be necessarily a residential unit only. Similarly a separate electricity connection can be taken for any place including a shop, garage, temporary hutments but that does not by itself mean that any place where such connection is there, has to be treated as independent residential unit. Therefore the contention of appellant that 47 flats with 370 sq. ft. area were independent residential units is not tenable, even if on paper the appellant has sold it by way of separate agreements or had two separate meters. The contention that no application for merger of flats have been made with BMC and hence on records they remain two separate flats, cannot be seen de hors the reality which would defeats the intent and purpose of the Act. The deduction u/s 80IB(10) is to promote affordable housing and it is with this intention only the size of flat has been restricted. But taking approval of smaller flats only on paper but in practice making a large flats more than 1000 sq ft, is against the very purpose of the Act and hence to treat the flats as small units of 370 sq ft and 890 sq ft as two different units when physically as well as by design it has been found that they never existed independently as separate units on all floors, will defeat the intent of the statute. Hence a liberal approach needs to be avoided on facts and circumstances of the case as held by Supreme Court and high courts in several decisions. Moreover assessee's inaction to take remedial steps for application of merger of flats to BMC cannot be rewarded when the assessee has violated by amalgamating the flats and constructing the flats in violation of the approved plan approved by BMC. The complicity of appellant is discernible from the fact that in its own pamphlet printed for giving information for the prospective customers, the appellant had itself shown the two flats of 890 and 370 sqft as single unit of 1260 sqft on all floors. The contention that the said flats have been amalgamated by the contractor at the instance customers is also belied by the very fact that as per the BMC rules, the possession of flats cannot be given to customers till occupation certificate is obtained from BMC and till such time it is the responsibility of the developer to ensure that the approved building is constructed and maintained ITA 5183/Mum/2014 13 in the manner as per approved plans. Moreover the contractor who constructed on behalf of the appellant cannot step into shoes of developer and he has no right to entertain the request of customers without taking approval or consent of the developer. Since all the 47 flats of 370 and 47 flats of 890 have been converted into 47 flats of 1260 sq ft. on all the floors further shows that it was not in natural course that some customers joined the flats rather it was a premeditated design to amalgamate the flats and sell them as 3BHK flats. Had it been an arrangement between customer and contractor, then there was no need for the developer to have pre-printed such brochures/pamphlets showing flats of 1260 sq ft. It is not a case of some causal alteration done without permission of BMC; rather it is with a predesigned intention to make larger flats. Hence it cannot be said that the flats in question were actually two independent residential units and the contention that the developer had no role in amalgamation of flats is not correct.

The another argument of Ld AR that the built up area of those 47 amalgamated of saleable area of 1260 sq ft, is less than 1000 sq ft has been considered. The copy of agreements enclosed by Ld AR suggest that the total carpet area of the amalgamated flat is 907 sq ft and ld. AR has been enhanced the same further by 10% to arrive at built up area of 997 sq ft. However, the Ld AR has computed the built up area by enhancing the carpet area, @ 10% on adhoc basis only to arrive at the built up area of flats at 997 sq ft. The ratio of carpet to built up area varies from 10-15% depending upon the design of the building. Hence the calculation of built up area by increasing carpet area on adhoc basis by 10% is not the conclusive basis to hold that the built up area is less than 1000 sq. ft. that too when even as per appellant’s calculation, the margin is of only 3 sq. ft. Hence unless there is a scientific working of built up area on technical parameters, such adhoc working of built up area cannot be accepted as gospel truth. Hence the argument that the built up area of the flats even after amalgamation remained below 1000 sq ft cannot be accepted. Thus it is clear that out of the total 150 flats of Neptune building, 47 flats of 1260 sq ft. of area are more than 1000 sq ft. in built up area and hence the appellant is not eligible for deduction in respect of profits in respect of such 47 flats in Neptune Building.

3.4. Now the next question which needs to be examined is that:

ITA 5183/Mum/2014 14 a) if it is taken that the 47 flats each with area of 1260 sq ft are not of eligible size, then, can there be a proportionate deduction in respect of the remaining flats which are neither amalgamated nor exceed the limit of 1000 sq ft and. b) Whether· after excluding the area of 47 amalgamated flats, the other conditions of 80IB(10) are fulfilled particularly the size of plot of land of the project being not less than 1 acre?

Perusal of the plethora of decisions of ITAT relied upon by the Ld. AR as above, it is noted that the ITATs have held in those decisions that proportionate deduction has to be allowed in respect of eligible flats after excluding the profits of non eligible flats provided that the assessee fulfills the other conditions such as the area of plot of land being more than 1 acre. The ITAT Kolkata decision in case of Bengal Ambuja Housing Development Ltd has also been approved by Kolkata High court on 5/1/2007. Similarly departments appeal against the ITAT Mumbai decision in case of GHP Enterprises· in (ITA No 6746/Mum/2007) wherein proportionate deduction was allowed by ITAT has been dismissed by Bombay High court in appeal No 6952,6957,6958,6959 of 2010. The only, conditions to be seen while allowing proportionate deduction is that after excluding the non eligible units, whether the project still fulfils the other conditions namely the size of plot of land being not less than 1 acre. From the approved plans it is noted that the plot of land for which the layout for all building i.e. Mars, Venus, Sundle, Jupiter, Neptune & Pluto are constructed is of 36,365 sq mts on which appellant has constructed various buildings namely Mercury, Sundle, Venus, Neptune & Pluto on the said plot from time to time. It has been contended by the Ld AR that all the buildings are part of one common layout on a single plot of land which is of 36,365 sq mts with no specific area of land' allocated to each building individually and all the land under common amenities such as internal roads, open area, club house, amenities area etc. are common to all the buildings. There is no-boundary wall segregating one building from other. The total plot of land of project is 9.8 acres which demarcation as CTS No 40/1 & 40/3 as per the municipal records. The plot of land for Neptune building is not separately demarcated in the Municipal records ITA 5183/Mum/2014 15 nor is there any physical demarcation of land for Neptune building by the appellant from other buildings of the project, which are also constructed on the same plot of land. It is further contended that the development rights was obtained by appellant for total plot of 8.98 acres by single agreement and the said plot has also not been subdivided in sub-plots for various buildings of the project. The deduction in respect of other buildings such as Venus, Jupiter and Pluto constructed by appellant on the same plot of land has been allowed to the appellant in earlier years and this year. It is contended that under this situation, it would not be proper to look into the area of land on notional basis for Neptune building on standalone basis; rather it is the total area of land which has to be considered for ascertaining the eligible limit of area plot of land for the project. In support of the argument, the Ld AR has produced the copy of the ITAT Mumbai decision in case of Akruti City in to 4872/Mum/2009 wherein the ITAT has held that for purpose of ascertaining the size of the plot of land it is the total area of plot in a layout which needs to be considered and not the area of plot on notional basis. I have gone though the above decision relied by the Ld AR. The ratio of the decision squarely applied to the appellant. In fact, the appellant case is on better footings than the case of Akruti City (supra) because in the latter case, on the same plot of land there were two different projects but only one project was eligible residential project and the other project was ineligible 100% commercial project and if the area on notional basis for commercial area was excluded, the remaining plot of land for residential project fell short of 1 acre but still for the purpose of ascertaining the size of plot of land of residential project, the ITAT held that it is the total area of plot which needs to be considered and not the area of land under residential project. Whereas in case of appellant there is no such non-eligible project except that some flats in Neptune building are more than 1000 sq ft. The deduction in respect of other buildings such as Venus; Jupiter and' Pluto constructed by appellant on the same plot of land has been allowed by AO to the appellant in earlier years and this year. Hence for computing the area of the plot of land of the project, it is the total plot area of project of 8.98 acres for all buildings in the layout, which has to be considered and not the area of land on notional basis for the Neptune building only in view of the decision of ITAT Mumbai in Akruti city Ltd (supra). Notwithstanding this, even if the area under 47 flats in Neptune building exceeding the limit of 1000 sq ft which comes to 59,220 sq ft (as mentioned in asstt order also) is excluded, then also ITA 5183/Mum/2014 16 against the total constructed area on the entire plot of land of 8.98 acres for all buildings of the project of 4,32,820 sq ft, only' 59,220 sq ft fails into non eligible use which is only 13.68%. Thus, even if 13.68% of the area of plot of land of 36,365 sq mts (8.98 acres] is excluded (though not required in view of ITAT decision in case of Akruti city), still the remaining area of plot of land of project is at 31,390 sq mts (86.4% of 36365) which is equivalent to 7.75 acres. Accordingly even if the area under construction of ineligible flats is excluded, then also the plot of Land of the project under eligible use remains at 7.75 acres against the actual plot of land size of 8.98 acres.

3.5. In view of the findings in Para 3.3 and 3.4 above, the appellant is thus entitled for the proportionate deduction of profits in respect of flats whose size does not exceed 1000 sq ft as all other conditions are fulfilled. From the asstt order it is noted that the AO has found 44.51 % of constructed area of Neptune building to be covered by flats below 1000 sq ft. Accordingly the appellant' shall be entitled for proportionate deduction u/s 80IB(10) in respect of 44.51% of profits earned by appellant during the year from sale of flats of Neptune Building. It is noted that for AY 2009-10 the total profit earned from sale of flats in Neptune building is Rs 11,54,52,219 out of which only Rs 5,13,87,782 (being 44.51% of Rs 11,54,52,219) is eligible for deduction u/ s 80IB(10). The Ld AR vide his alternate arguments has also requested to at least allow the proportionate deduction @ 44.51% of total profits of Neptune building. Accordingly, the disallowance made by A.O. u/s 80IB(10) in respect of profits of Neptune Building is restricted to Rs. 6,40,64,437/- only (11,54,52,219 – 5,13,87,782).”

The learned CIT(A) accordingly held that the facts in the year under consideration are similar, directed the A.O. to allow proportionate deduction u/s 80IB (10) of the Act in respect of four flats sold to various persons , other than the persons specified in clauses (e) & (f) of section 80IB(10) and where area of each flat sold is less than 1000 sq. ft. , vide appellate orders of the learned CIT(A) dated 12-05-2014.

ITA 5183/Mum/2014 17

“7. We have considered the rival contentions of the ld. representatives of the parties. Except the advertisement/pamphlet in question, the Revenue has not produced any evidence on the file that the flats in question have been adjoined by the assessee to make it a unit. On the other hand, the assessee has produced the documents, which forms part of the official records, namely approved plan by the BMC, the commencement certificate dated 27.06.05, the occupancy certificate dated 30.03.09 etc. to show that the flats were constructed as per the approved plan and further that the occupancy certificate was given by the local authority after verification of the fact that the project was constructed as per the approved plan. Further, the separate sale deeds were ITA 5183/Mum/2014 18 executed for each of the flats and separate electricity connections were obtained for each of the flats. The assessee has not sold the said flats as a single unit but as separate units to the purchasers. It is not the case of the Revenue that the assessee had violated any of the provisions of section 80IB(10) of the Act at the time or before the sale of flats in question. Even if we assume that end users might have joined the two flats on a floor so as to make it one unit, then no fault can be attributed on the part of the assessee in this respect. To be more clear, we reproduce the provisions of section 80IB(10) of the Act as herein under:

“Section 80-IB(10) (10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2008 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,— (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,— (i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008; (ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, [but not later than the 31st day of March, 2005]within four years from the end of the financial year in which the housing project is approved by the local authority. [(iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority] Explanation.—For the purposes of this clause,— (i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority; ITA 5183/Mum/2014 19

(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority; (b) the project is on the size of a plot of land which has a minimum area of one acre: Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf; (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place; [***] (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed [three] per cent of the aggregate built-up area of the housing project or [five thousand square feet, whichever is higher];] (e) not more than one residential unit in the housing project is allotted to any person not being an individual; and (f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:— (i) the individual or the spouse or the minor children of such individual, (ii) the Hindu undivided family in which such individual is the karta, (iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta. [Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).]”

8. A perusal of the above reproduced provisions of section 80IB(10) reveals that the requirement of law is that the project must be approved by the local authority. So far as, the point of dispute before us is concerned, as per the clause ‘c’ above, the residential unit should have a maximum built up area of 1000 sq. ft. for the project which is situated within the city of Mumbai. It is not the case of the Revenue that the project was ITA 5183/Mum/2014 20

not approved by the local authority i.e. BMC. It is also not the case of the Revenue that the flats were not constructed as per the approved plan or that the two separate flats had built up area of more than 1000 sq. ft. The case of the Revenue is that the flats were later on joined to make it a one unit. After the completion of the project, the BMC had given the occupancy certificate to the assessee which shows that the flats were constructed by the assessee as per the approved plan and thereafter sold as separate units. Even separate electric connections were obtained by the users/purchasers for the said 94 flats. There was no provision at that time in the act that more than one flat could not have been purchased by an individual or that the individual after purchasing the flat could not join the two flats, so far so the provisions of section 80IB(10) are concerned. Under such circumstances, it cannot be said that any violation was committed by the assessee of the provisions of section 80IB(10) as were in operation during the relevant period. We may note that to plug such a loophole, clause (e) has been inserted in the section 80IB(10) by Finance Act of 2009 w.e.f. 01.04.09. The effect of the said clause is prospective i.e. from 01.04.10. If the said clause was to be applied retrospectively, the legislature would have pointed it so in clear terms, but has not been done so. The reason may be that because of the insertion of the said clause (e), the rights once accrued to the concerned builders/developers under the ITA 5183/Mum/2014 21 old provisions, could not have been taken away by applying the said clause (e) retrospectively. Hence, though the loophole has been plugged by the insertion of clause (e) w.e.f. 01.04.10, but the fact remains that before the insertion of clause (e), the law in operation at that time will be applicable and if the assessee is entitled to deduction under section 80IB(10) as per the prevalent law during the assessment year in question, the same cannot be denied to the assessee by applying the provisions which have prospective effect. When faced with almost similar facts and circumstances, the co-ordinate bench of the Tribunal, in the case of “Emgeen Holdings Pvt. Ltd.” & 3595/M/2009 decided on 29.07.11, has observed as under: “7. We find that the deduction u/s.801B(10) has been declined by the Assessing Officer on the ground that size of the residential unit was in excess of 1,000 sq.ft which, in turn, proceeds on the basis that the flats sold to the family members admittedly by separate agreements, should be treated as one unit. We are unable to approve this approach. We have noted that the size of each flat, as evident from building plan as duly approved by Muncipal authorities was less than 1,000 sq.ft. We have also noted that it is not even revenue's case that each of flat on standalone basis was not a residential unit. Even if flats were constructed or planned in such a way that two flats could indeed be merged into one larger unit, as long each flat was an independent residential unit, deduction u/s.801B(10) could not be declined. It is important to bear in mind the fact that what section 80IB(10) refers to is 'residential unit' and, in the absence of anything to the contrary in the Income tax Act, the expression 'residential units' must have the same connotations as assigned to it by local authorities granting approval to the project. The local authority has approved the building plan with residential units of less than 1,000 sq.ft, and granted completion certificate as such. That leaves no ambiguity about the factual position. We have further noted that the prohibition against sale of more than one flat in a housing project to members of a family has been inserted specifically with effect from 1st April, 2010, and, in our humble understanding, this amendment in law can only be treated as prospective in effect. What is, therefore, clear is that so far as pre- amendment position is concerned, as long a residential unit has less than specified area, is as per the duly approved plans and is capable of being used for residential purposes on standalone basis, deduction u/s.80IB10) cannot be ITA 5183/Mum/2014 22 declined in respect of the same merely because the end user, by buying more than one such unit in the name of family members, has merged these residential units into a larger residential unit of a size which is in excess of specified size. That precisely is the case before us. While on the subject, it is useful to take note of legislative amendment by the virtue of which legislature put certain restrictions on sale of residential units to certain family members of a person who has been sold a residential unit in the housing project. Section 80IB(10) now provides an additional eligibility condition that in a case where a residential unit in the housing project is allotted to any person being an individual, no other residential unit in such housing project is allotted to any of the following person, namely (i) the individual or the spouse, or the minor children of such individual, (ii) the HUF in which such individual is a karta' (iii) any person representing such individual, the spouse or minor children of such individual, or the HUF in which such individual is a karta. The explanation memorandum explained the legislative amendment as follows: (314 ITR(St) 203) "Further, the object of the tax benefit for housing projects is to build housing stock for low and middle income households. This has been ensured by limiting the size of the residential unit. However, this is being circumvented by the developer by entering into agreement to sell multiple adjacent units to a single buyers. Accordingly, it is proposed to insert new clauses in the said sub-section to provide that the undertaking which develops and builds the housing project shall not be allowed to allot more than one residential unit in the housing project to the same person, not being an individual, and where the person is an individual, no other residential unit in such housing project is allotted to any of the following person:- (I) Spouse or minor children of such individual; (II) The Hindu undivided family in which such individual is the karta; (III) Any person representing such individual, the spouse or minor children of such individual or the Hindu undivided family in which such individual is the karta. This amendment will take effect from the 1st April, 2010 and shall accordingly apply in relation to assessment year 2010-2011 and subsequent years."

ITA 5183/Mum/2014 23

9. As regards the AO's stand that the assessee himself has offered the deduction u/s.80IB(10) in respect of these units during the course of survey proceedings, it is only elementary that neither statement recorded u/s.133A has an evidentiary value, nor a legal claim can be declined only because ass essee, at some stage, decided to give up the same. In view of these discussions, and bearing in mind entirety of the case, are of the considered view that the deduction u/s.801B(10) ought to have been allowed to the assessee entirely. To this extent, we modify the order of the CIT(A) and allow further relief to the assessee.

10. As we have held the admissibility of deduction u/s.801B(10) in respect of entire project, revenue's grievance against partial relief granted to the assessee is infructuous and academic, we, accordingly, dismiss the same. Grievances against reopening of assessment, in the absence of specific arguments in support of the same, are treated as abandoned and, as such, dismissed.”

8.1. The facts of the present case are squarely covered with the above decision of the Tribunal. 8.2. So far so, the second contention of the assessee that even otherwise the built up area calculated by the stamp duty authorities comes to less than 1000 sq. ft. even when the flats are assumed to be joined, we find that the Revenue has not produced any evidence to prove that what were the actual dimensions of the flats in question, no measurement etc. has been produced on the file. The Revenue has simply relied upon the broacher/pamphlet of the assessee. The assessee has been fair enough to submit to the Revenue Authority that the same was an advertisement gimmick of the assessee to attract the customers. As observed above, even if the assessee had adopted this gimmick to attract the customers and further to give them the idea to adjoin the flats in question, while remaining within the four corners of the provisions of section 80IB(10), can not be said to have committed any violations of the prevalent provisions during the period. Finding a loophole in the provisions and suggesting the prospective buyers that they ITA 5183/Mum/2014 24 can join the flats together in itself cannot be said to be a violation of the provisions of section 80IB(10) on the part of the assessee. In common parlance every businessman, assessee etc. tries to get maximum benefit and to avoid the tax but without violating the provisions of the statutes. Moreover, the provisions of section 80IB(10) are for beneficial purpose, intended to promote the construction of residential houses and hence require liberal interpretation. While interpretating the said provisions, the same cannot be extended to arrive at the conclusions which otherwise are not decipherable from the plain reading of the section so as to restrict the scope and deny the benefits, which otherwise, are available to the assessee. We are in agreement with the view of the co-ordinate bench of the Tribunal in the case of “Emgeen Holdings Pvt. Ltd.” (supra) that so far as the pre- amended position is concerned, as long a residential unit has less than specified area, is as per the duly approved plans and is capable of being used for residential purposes on standalone basis, deduction u/s.80IB(10) cannot be declined in respect of the same merely because the end user, by buying more than one such unit in the name of family members, has merged these residential units into a larger residential unit of a size which is in excess of specified size.

relating to the allowability of deduction under section 80IB(10) by the ld. CIT(A) on proportionate basis in respect of the flats which were found having area less than 1000 sq. ft. by the Revenue Authorities.

1.2 Since we have already allowed the admissibility of deduction under section 80IB(10) in respect of all the flats in question, hence in view of our finding given above , the appeal of the Revenue has to become infructuous and the same is accordingly dismissed

1.3 In the result, the appeal of the assessee is hereby allowed and that of the Revenue is hereby dismissed.”

It has also been observed that the assessee firm has sold 10 flats whereby there is a non-compliance of provisions of clause (e) & (f) of Section 80IB (10) of the Act , which newly introduces clauses (e) & (f) of Section 80IB (10) of the Act are duly applicable for the assessment year 2010-11 under consideration in this appeal, whereby deduction u/s 80IB(10) of the Act has been been disallowed by the learned CIT(A) with respect to ten flats sold infringing the above clauses. The assessee firm, however, with respect to four flats is entitled for proportionate deduction u/s 80IB(10) of the Act in respect of four flats sold to various persons , other than the persons specified in clauses (e) and (f) of Section 80IB(10) and where area of each flat sold is less than 1000 square feet, in accordance with the terms indicated by the Tribunal in its orders in and ITA no. 4877/Mum/2012 dated 17.09.2014 as issue is squarely covered with the ratio of law laid down by the Tribunal in afore-stated decision(s) which we respectfully follow with respect to four flats as per terms indicated above , while deductions u/s 80IB(10) of the Act is disallowed with respect to ten flats as there is non-compliance of ITA 5183/Mum/2014 26 provisions of Section 80(IB) of the Act clauses (e) and (f) as applicable to the instant assessment year 2010-11.

Order pronounced in the open court on 30th May , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 30-05-2016 को क� गई ।