K. G. DEVELOPERS ,SURAT vs. DCIT CIRCLE 2(3), SURAT NOW DCIT CIRCLE 2(1)(1) SURAT, SURAT

Assessee represented by Shri Dhruvang Diwan, C.A. Department represented by Shri Vinod Kumar, Sr.DR Date of Institution of Appeals 26/06/2023 Date of hearing 29/08/2023 Date of pronouncement 31/08/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These two appeals by the assessee are directed against the separate orders of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) (in short, the ld. CIT(A) both dated 02/05/2023 for the Assessment years (AY) 2014-15 and 2017-18 respectively. In both these appeals, the assessee has raised certain common grounds of appeal

. Facts in both these years are almost similar, except various in disallowance of deduction under Section 80IB of the Income Tax Act, 1961 (in short, the Act), therefore, with the consent of parties, both these appeals were clubbed, heard together & 429/Srt/2023 M/s KG Developers Vs DCIT and are being decided by this consolidated order to avoid the conflicting decision. For appreciation of facts, the appeal being A.Y. 2014-15 is treated as a “lead case”. In this appeal, the assessee has raised following grounds of appeal: “1. The ld. CIT(A) has erred in law and on facts in rejecting the claim of deduction u/s 80IB of the Act to the tune of Rs. 1,24,08,794/- in respect of profits derived from the eligible housing project.

2. It is therefore prayed that above rejecting may please be quashed.

6. The appellant craves leave to add, alter, amend, modify, substitute, delete, change or vary all or any of the ground of grounds of appeal.”

2. Brief facts of the case are that the assessee is a partnership firm, engaged in the business of builder and developers, filed its return of income for A.Y. 2014-15 on 27/11/2014 declaring income of Rs. 1,46,570/-. The assessee in its computation of total income, claimed deduction of Rs. 1.24 crore under Section 80IB of the Act. The case was selected for scrutiny. During the assessment, the Assessing Officer noted that the approval of project was granted by the local authority/Surat Municipal Corporation (SMC) after cut of date prescribed in Section 80IB(10) of the Act. The Assessing Officer issued show cause notice to the assessee by recording various discrepancies. All such discrepancies are recorded in para 4 of assessment order. On the basis of such discrepancies, the Assessing Officer issued show cause notice to the assessee. In the show cause notice, the Assessing Officer in sum and substance mentioned that initial approval was granted by the SMC on 19/07/2006 to Shri Devendra M. Jariwala. The & 429/Srt/2023 M/s KG Developers Vs DCIT project was later on taken over by assessee and the assessee obtained approval on 16/03/2009 which is beyond prescribed date of 31/03/2008 as required for claiming deduction under Section 80IB of the Act. Further initial approval was granted in the name of Devendra M Jariwala for development of Row house in respect of land at TP Survey No. 37, Althan, Block No. 206, Surat. The said land was purchased by the partner of assessee firm on 19/06/2006, thus, the development permission granted on 19/07/2006 was in respect of row house and assessee was not the owner of said land. Further the permission granted on 19/07/2006 has expired on 18/07/2007. The development permission was granted on 16/06/2009 in the name of partner of assessee for development of high rise building in respect of same land. The assessee filed detailed reply as recorded in para 4.5 of assessment order. The assessee in its reply, explained that deduction under Section 80IB(10) of the Act of Rs. 1.24 crore is disputed on the ground that the project was approved by the local authority after 31/03/2008. The assessee stated that initial approval by local authority was granted on 29/07/2006. Thereafter the assessee realised that there is a good market for residential flats than the row houses. The assessee made application for revised plan. The revised plan was sought on the same plot of land for development of residential flats. The revised plan was approved on 16/03/2009. Perusal of revised plan & 429/Srt/2023 M/s KG Developers Vs DCIT clearly shows that the local authority has sanctioned revised plan on the same plot of land. The assessee also explained that the assessee sought fresh approval de novo by making application on 26/11/2008 which was granted on 16/03/2009. If the development permission dated 16.03.2009 is considered as fresh the local authority than on each page of sanction plan, they would not have mentioned on each page as revised residential building plan. The assessee submitted that the original plan was granted on 19/07/2006 which is before 31/03/2008 as required under Section 80IB(10) of the Act so the assessee is eligible for deduction claimed.

3. The reply of assessee was not accepted by the Assessing Officer by taking a view that the approval was granted on 16/03/2009 which is after 31/03/2008 hence the assessee is not eligible for deduction under Section 80IB of the Act. The assessing officer also mentioned the similar observation as recorded in his show cause notice.

4. Aggrieved by the disallowance of deduction under Section 80IB of the Act, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee again filed similar submission explaining the facts in detail that initially approval was revised by the local authority on 16/03/2009 and the assessee is entitled for deduction under Section 80IB of the Act. The submissions of the assessee are recorded in para -4 of order of ld CIT(A).

ITA No.428 & 429/Srt/2023 M/s KG Developers Vs DCIT 5. The ld. CIT(A) after considering the submission of assessee and the contents of assessment order held that on similar set of facts, similar claim of assessee in A.Y. 2010-11, 2011-12 and 2012-13 was rejected/disallowed by the Assessing Officer and appeal of assessee before the Tribunal was dismissed vide consolidated order dated 13/06/2017 passed in and ITA No. 3239 and 3290/Ahd/2015. The ld. CIT(A) held that the fact before him are identical to those earlier years, thus, following the decision of Tribunal, no relief was granted to the assessee. Further aggrieved, the assessee has filed present appeal before the Tribunal.

vide order dated 13/06/2017 passed in and ITA No. 3289 and 3290/Ahd/2015. While dismissing the appeal of assessee, the Coordinate Bench has passed the following order: “11. We have carefully considered the rival submissions and gone through the orders of the authorities below as well as the case-laws cited. The solitary issue for determination is maintainability of claim deduction under s. 80IB(10) of the Act in the facts of the case or otherwise. 11.1 In order to examine the issue, it will be desirable to reproduce the relevant portion of section 80IB(10) for ready reference:- 6 & 429/Srt/2023 M/s KG Developers Vs DCIT Section 80IB(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; (ii) ….. (b) ….. (c) ….. (d) …… (e) ….. (Underline is ours) 1.2. Thus, as per legal framework, deduction available under s.80IB(1) to an undertaking developing and building housing projects should be approved by the local authority before 31/03/2008 and construction should be completed within four years from the end of the financial year in which the housing project is approved by the local authority. The major controversy revolves around the aspect as to whether the assessee in the instant case is deemed to have taken requisite approval prior to the cut-off date of 31/03/2008 or not. While the assessee claims' that the housing project ( f o r c o n s t r u c t i o n of row-houses) was first approved by local 7 & 429/Srt/2023 M/s KG Developers Vs DCIT authority on 19/07/2006 which is much prior to the time limit specified under the provisions of the Act the second approval was taken back in modification of the first approval subsequent to the cut-off date is deemed approval in time owing to 'doctrine of relation back' as well as Explanation- 1(i) of the incentive section. It is the case of the assesse that, notwithstanding the second approval taken subsequent to cut off date, it is merely continuation of the first approval. In terms of Explanation- 1(i) to section 80IB(10), the date on which the housing project is deemed to have been approved is the date on which the building plan of such housing project is 'first approved' by the local authority. It is the contention on behalf of the assessee that since the first approval by the local authority is prior to the cut-off date, the second approval in modification of the first approval should be reckoned in 'Conjunction with first approval and date of first approval is relevant to test the compliance of s. 80IB(10) of the Act. The Revenue, on the other hand, contends that the housing project first approved was in respect of altogether different building plan/housing project i.e. for construction of row-houses. Also, the first approval of the housing project was (towards construction of row-houses) obtained by another developer. The assessee at a later stage took over the land on which the housing project was proposed and the building plan for row houses was replaced by the building plan for high rise building. It is thus the contention of the revenue that the building plan is not merely altered by some minor modifications but has undergone a sea-change. The project proposed to be developed by the present assessee is an altogether new and different project and de hors the earlier project for construction of row- houses. 11.3. We thus notice that the objections of the Revenue for eligibility of deduction under s. 801B(10) are three fold: (i) The building plan for the housing project in question is completely alien to the earlier building plan and therefore cannot be seen in continuation of the previous building plan as claimed by assessee. Thus, the housing project seeking to claim deduction under s. 80IB(10) of the 8 & 429/Srt/2023 M/s KG Developers Vs DCIT Act is required to be tested on anvil of section 80IB( 10) afresh. The fresh application for approval from the local authority for the new housing project for construction of high rise building has been made subsequent to the cut-off date and the approval naturally has flowed subsequent to the cut-off date. Thus, the primary condition for eligibility of claim under 80IB(10) is ostensibly unfulfilled. (ii) The housing project which is subject matter of deduction under s.80IB(10) should be broadly be in conformity with the housing project approved prior to the cut-off date to avail the relaxation under Explanation-1 to section 80IB( 10). It is the case of the Revenue that a structural alteration in the building plan giving rise to an altogether different output does not characterize any continuity as claimed. (iii) The first building plan expired on 18/07/2007 at the end of one year from its approval as the undertaking failed, to follow the construction plan and the validity of development permission expired in the absence of any renewal. The second approval cannot be construed as renewal of earlier plan in the absence of continuity. 11.4. As reiterated on behalf of the assessee, the first approval for the concerned housing project (for construction of row-houses) was obtained by the assessee on 19/07/2006 which is prior to the cut-off date prescribed by the provision of section 80IB(10). After the application for approval from the local authority, the developer of the housing project stood changed from DMJ to the assessee. The assessee herein resubmitted a building plan for approval as styled 'revised plan' for construction of residential flats as high rise building rather than row- houses originally approved. Thus, ostensibly, the revised development plan is altogether different and no intimacy with the earlier plan. The complexion of the housing project has change altogether. Therefore, we do not find any semblance of merit in the plea of the assessee about the continuity of the second approval qua the first approval for construction of the housing project. 11.5. We are alive to the fact that Explanation-1(i) tones down the rigor of law in favour of the assessee where the approval in respect of housing 9 & 429/Srt/2023 M/s KG Developers Vs DCIT project is obtained more than once. Explanation-1(i) provides that in such a case, the date of approval of the building plan will be the date on which the housing project was first approved by the local authority. The doctrine of relation back is thus implicit here. However, in the same vain, we find ourselves in agreement with the plea raised on behalf of the Revenue that the housing project for availing the benefit of Explanation- is must be broadly the same housing project to seek continuity. The instant case is not case involving some alterations in the building plan at a later stage but is rather a case where the first building plan approved within the cut off limit has been totally obliterated and stands replaced by a new building plan. The development permission towards the impugned new building plan was applied and taken subsequent to the cut-off date. In the absence of any continuity or integrity between the initial approval and subsequent approval, as noted above, the date of first approval within cut-off limit cannot be reckoned for the purposes of second approval. The basic condition of obtaining the approval from the local authority for housing project in specified time limit thus remains unfulfilled for the housing project in question. 11.6. The housing project in Explanation-1(i) is qualified and punctuated by implicit condition. The use of word ‘the’ preceding the expression 'Housing project' is suggestive and indicative of the fact that the 'Housing project' should be broadly the same. Approval for a given housing project at the first instance will not grant an indefeasible or vested right under Explanation-1(i) for an altogether new project. There should be some demonstrable and intense relationship between earlier approvals obtained in respect of 'housing project' vis-a-vis subsequent Approval. The law cannot be surpassed to grant relief.

12. We take note of the plea propounded on behalf of the assessee that second development permission is merely 'revised' permission as per approval of the local authority dated 16/03/2009, We are however not impressed by the mere use of the work 'revised' by the local authority. The local authority appears to have simply adopted the word 'revised' from the 10 ITA No.428 & 429/Srt/2023 M/s KG Developers Vs DCIT layout plan submitted by the assessee for residential high rise building. Nothing turns out on the use of the expression 'revised permission' by local authority. As noted, the approval for revised housing project has no rational connection with the first housing project for which the approval was initially taken. 12.1. We also take note of the various decisions cited on behalf of the assessee to seek liberal interpretation of section 80IB(I0) in favour of the assessee. We are not persuaded. This issue for determination is essentially factual which is quite peculiar in this case. A statutory fetter in the form of time limit for approval of Housing project is enjoined which cannot be rescinded. As per the express language of section 80IB(10) of the Act, the prodigious benefit offered therein stands forfeited unless a housing project is approved by the local authority before 31/03/2008. In the instant case, the second approval taken for the housing project concerning high-rise building betrays the aforesaid condition outlined. This being so, the ratio of the decisions cited do not govern the issue even on most liberal and utmost considerations. Thus, the action of revenue is found to be in accord with mandate of law. The CIT(A) was thus right in endorsing the opinion of the AO. Hence, in the totality of facts and circumstances, we do not find any force in the grievance of the assessee.

as raised in appeal in A.Y. 2014-15, except variation of amount of disallowance/addition under Section 80IB of the Act. Considering the fact that we have dismissed the appeal of assessee in ITA No. 428/Srt/2023 for A.Y. 2014-15, therefore, considering the principle of consistency, the appeal of ITA No. 429/Srt/2023 for the A.Y. 2017-18 is also dismissed with similar findings.

11. In the result, both these appeals of the assessee are dismissed. Order pronounced in the open court on 31st August, 2023.