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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
ITA no.6144/Mum./2011 (Assessment Year : 2007–08)
Asstt. Commissioner of Income Tax Central Circle–2, Thane Pawar Indl. ……………. Appellant Estate, Edulji Road, Charai Thane 400 061 v/s M/s. Sai Home Makers 301/313, 3rd Floor, Perispolis CHS ……………. Respondent Plot no.74, Sector–12, Vashi Navi Mumbai – PAN – ABAFS3227J
ITA no.5730/Mum./2011 (Assessment Year : 2008–09)
M/s. Sai Home Makers 301/313, 3rd Floor, Perispolis CHS ……………. Appellant Plot no.74, Sector–12, Vashi Navi Mumbai – PAN – ABAFS3227J v/s Dy. Commissioner of Income Tax Central Circle–1, Thane Pawar Indl. ……………. Respondent Estate, Edulji Road, Charai Thane 400 061
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ITA no.5607/Mum./2011 (Assessment Year : 2008–09) Asstt. Commissioner of Income Tax Central Circle–2, Thane Pawar Indl. ……………. Appellant Estate, Edulji Road, Charai, Thane v/s M/s. Sai Home Makers 301/313, 3rd Floor, Perispolis CHS ……………. Respondent Plot no.74, Sector–12, Vashi Navi Mumbai – PAN – ABAFS3227J ITA no.5729/Mum./2011 (Assessment Year : 2009–10) M/s. Sai Home Makers 301/313, 3rd Floor, Perispolis CHS ……………. Appellant Plot no.74, Sector–12, Vashi Navi Mumbai – PAN – ABAFS3227J v/s Dy. Commissioner of Income Tax Central Circle–1, Thane Pawar Indl. ……………. Respondent Estate, Edulji Road, Charai, Thane ITA no.5608/Mum./2011 (Assessment Year : 2009–10) Asstt. Commissioner of Income Tax Central Circle–2, Thane Pawar Indl. ……………. Appellant Estate, Edulji Road, Charai, Thane v/s M/s. Sai Home Makers 301/313, 3rd Floor, Perispolis CHS ……………. Respondent Plot no.74, Sector–12, Vashi Navi Mumbai – PAN – ABAFS3227J Revenue by : Shri Manjunathan Swamy Assessee by : Shri Subodh Ratnaparkhi Date of Hearing – 23.02.2016 Date of Order –
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O R D E R PER BENCH
Aforesaid appeals by the assessee and the Department are against separate orders of the learned Commissioner (Appeals)–1, Thane. Appeal for assessment year 2007–08 being ITA no.6144/Mum./ 2011, is by the Department, whereas, there are cross appeals for the assessment years 2008–09 and 2009–10. As all these appeals involve common issues, they were heard together and are being disposed off by way of this consolidated order for the sake of convenience.
ITA no.5607/Mum./2011 ITA no.5608/Mum./2011 – Revenue‟s Appeal
The only common issue raised in the aforesaid appeals of the Department relates to allowance of assessee‟s claim of deduction u/s 80IB(10) of the Income Tax Act, 1961 (for short "the Act").
Briefly the facts relevant to the issue in dispute are, assessee a partnership firm is engaged in the business of construction of housing projects. Pursuant to a search and seizure operation conducted on 16th October 2008, in case of assessee and others in the group, the Assessing Officer initiated proceedings under section 153A of the Act. In response to the said notice, assessee filed its return of income on 2nd September 2009, declaring nil income after claiming deduction
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under section 80IB(10). During the assessment proceedings, the Assessing Officer noticing that assessee has claimed deduction of ` 24,24,96,799 under section 80IB(10), called upon the assessee to furnish various details to verify the genuineness of the deduction claimed. On verification of the material available on record, he found that the built–up area of residential units in “C” Wing is more than 1,000 sq.ft., which is in violation of condition stipulated under section 80IB(10). He also found that the project has commercial area comprising of 18 shops and 18 offices. Though, the assessee had claimed that development rights of the commercial area were transferred to another concern viz., Hariom Construction, but, the Assessing Officer did not find the same acceptable. Relying upon various sized material as well as information obtained from SIDCO, the approving authority, the Assessing Officer observed, it is assessee‟s architect who has requested to grant occupancy certificate for the commercial portion. On the basis of the information available, the Assessing Officer directed the assessee to show cause why claim of deduction under section 80IB(10) should not be rejected for non– fulfillment of conditions prescribed under section 80IB(10). In response to the query raised by the Assessing Officer, assessee in its reply dated 14th December 2010, stated that none of the flats in the “C” Wing of the housing project is having built–up area of more than
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1,000 sq.ft. To justify such claim, assessee also furnished certain documentary evidence to prove that all 72 flats in “C” Wing were having built–up area of less than 1,000 sq.ft. As far as the allegation of the Assessing Officer that the housing project has commercial area of more than the prescribed limit of 2,000 sq.ft. and also the allegation that it is the assessee who has developed the commercial portion in the Benami of Hariom Construction, it was submitted by the assessee that the development rights of the commercial portion was transferred to Hariom Construction through written agreement and the transaction is at arm‟s length. It was submitted, the transfer of development right of commercial area was duly reflected in the return of income filed for assessment year 2005–06 and the income was offered and taxes were paid. The assessee submitted, development right was transferred to Hariom Construction vide agreement dated 5th March 2005 and registration was completed on 28th September 2008. Therefore, the assessee was no way connected with the development of the commercial portion. It was further explained, though, assessee was intending to develop the entire plot as residential complex but SICDO did not permit conversion of commercial area to residential area as inclusion of minimum commercial area for convenience shopping was mandatory. Thus, it was submitted, the commercial portion having been developed by Hariom Construction independently and the profit
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earned on the said building having offered to tax by Hariom Construction, it cannot be said that assessee has developed the commercial portion. The Assessing Officer, after considering the submissions of the assessee, however, did not find merit in the same. Referring to various seized material and statement of some of the flat owners wherein they allegedly stated that though the assessee claimed to have sold two flats but actually they are one flat, the Assessing Officer concluded that as flats in “C” Wing of the project was having built up area of more than 1,000 sq.ft. and the commercial area developed by the assessee also exceeds the prescribed limit of 2,000 sq.ft., the Assessing Officer rejected assessee‟s claim of deduction under section 80IB(10). Being aggrieved, the assessee preferred appeal before the learned Commissioner (Appeals).
Before the first appellate authority, the assessee relying upon a number of documentary evidences submitted, all the conditions of section 80IB(10) having been fulfilled, the assessee is eligible for deduction under section 80IB(10). On the basis of submissions made and documentary evidences submitted by the assessee, the learned Commissioner (Appeals) (for ascertaining the fact whether the built–up area of Flat in “C” Wing of the project is in excess of 1,000 sq.ft.) referred the matter to the Departmental Valuation Officer (DVO). The
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DVO in his report dated 18th April 2011, stated that all the Flat in “C” Wing, except Flat no.C–101 and C–102 in the first floor are having built–up area of less than 1,000 sq.ft. On perusing the report of DVO, learned Commissioner (Appeals) held, as all other Flat in “C” Wing of the housing project except Flat no.C–101 and C–102 are having built– up area of less than 1,000 sq.ft., assessee‟s claim of deduction under section 80IB(10) cannot be disallowed entirely but has to be proportionately disallowed by restricting such disallowance to Flat no.C–101 and C–102. As far as allegation of the Assessing Officer in respect of construction of commercial portion, learned Commissioner (Appeals) found that the conclusion of the Assessing Officer that assessee has built the commercial portion and it is part of housing project was on the basis that residential and commercial portion have common entrance and both have a single society. He noted, the Assessing Officer has alleged that assessee has sub–divided the plot against the SIDCO rules. Further, the Assessing Officer also alleged that for claiming deduction under section 80IB(10), the assessee has adopted a colourable device by hiving off the commercial portion to Hariom Construction. The learned Commissioner (Appeals) after considering the submissions of the assessee and perusing the material on record, found that sale of development right of commercial space admeasuring 649.59 sq.mtrs. was through an agreement entered into
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between the parties in the year 2005 and the stamp duty with penalty was paid in September 2008, prior to search and seizure operation. He also found that profit arising from such transaction was shown in the revised return filed for assessment year 2005–06 on 10th September 2008, prior to the date of search. He also found that DVO has given a clear finding that residential building Tarwani Heritage and commercial building Hari Plaza are independent having separate entrance. He further found that though there were common commencement and completion certificate for both residential and commercial portion and the same architect has overseen construction of commercial complex and further even though society is same, however, the occupants of commercial unit are not entitled to common amenities like parking, club house, etc., which are available exclusively to occupants of residential units. The first appellate authority also noted that as per the judicial pronouncements of the Hon'ble Jurisdictional High Court in case of CIT v/s Bramha Associates, [2011] 333 ITR 289 (Bom.) as well as the decision of the Tribunal wherein it was decided that deduction under section 80IB(10) cannot be denied when there are two distinct and separate projects within a larger project and such project fulfilled the conditions of section 80IB. Thus, on the basis of material brought on record, learned Commissioner (Appeals) held that assessee having divested itself of development rights of commercial space vide
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agreement dated 5th March 2005 and having developed only the residential project, the commercial portion cannot be considered to be part of residential project constructed / developed by the assessee. As far as the allegation of the Assessing Officer that commercial area of the project exceeds the prescribed limit of 2,000 sq.ft., hence, not eligible to claim deduction under section 80IB(10) in view of clause (d) of section 80IB(10), learned Commissioner (Appeals) relying upon the decision of the Tribunal, Mumbai Bench, in Hiranandani Akruti (JV) held that as assessee‟s project was approved on 1st February 2005, clause (d) of section 80IB(10) will not apply as it was brought to statute from 1st April 2005. Thus, the learned Commissioner (Appeals) held that the assessee is eligible to claim deduction under section 80IB(10) in respect of residential project developed by it. However, he was of the view that as out of 167 Flats constructed in 165 flats are having built–up area of less than 1,000 sq.ft. except Flat no.C–101 and C–102, the assessee‟s claim of deduction is to be confined to 165 flats and not Flat no.C–101 and C–102. Accordingly, the learned Commissioner (Appeals) directed the Assessing Officer to allow proportionate deduction under section 80IB(10) in respect of 165 flats as against 167 flats claimed by the assessee. Being aggrieved of the aforesaid decision of the first appellate authority, Department is in appeal.
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Learned Departmental Representative, more or less, relying upon the reasoning of the Assessing Officer submitted, learned Commissioner (Appeals) was not justified in directing Assessing Officer to allow assessee‟s claim of deduction under section 80IB(10) in respect of 165 flats. He submitted, as the assessee has not fulfilled the conditions of section 80IB(10), no deduction under the said provision can be allowed.
Learned Authorised Representative on the other hand submitted, assessee‟s housing project was approved by SIDCO on 1st February 2005. He submitted, the allegation of the Department that assessee has constructed the commercial portion of the project is without substance. Briefly narrating the facts it was submitted vide agreement dated 28th October 2004, assessee acquired lease hold rights in respect of plot no.24, Sector–7, Khar Ghar, Navi Mumbai, from SIDCO. The total area of plot was 6452.880 sq.mtrs. It was submitted, as per one of the conditions imposed by SIDCO, minimum 10% to 25% of FSI was to be compulsorily constructed for commercial use. Accordingly, assessee vide agreement dated 5th March 2005, granted development rights in respect of commercial building having area of 646 sq.mtrs. to Hariom Construction for a consideration of ` 1.13 crore. It was submitted, the assessee not only offered such amount for taxation in
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the return of income filed for the assessment year 2005–06, but also discharged the tax liability. Learned Authorised Representative submitted, grant of such development right in respect of commercial building to another entity is not against law and would not debar the assessee from claiming deduction under section 80IB(10). For such proposition, he relied upon the decision of the Tribunal, Mumbai, in case of Kamdhenu Builders and Developers v/s ACIT, ITA no.6622/Mum./2012 dated 14th August 2013, and DCIT v/s Nil Siddhi Enterprises, ITA no.1761 & 1763/Mum./2010, dated 30th March 2012. He submitted, as the development agreement was a valid agreement entered into between the parties prior to the date of search and also registered it cannot be considered to be a colourable device or afterthought for claiming deduction under section 80IB(10). Learned Authorised Representative submitted, even the Department has assessed the income declared from commercial portion at the hands of Hariom Construction in assessment year 2009–10 thereby giving credence to the fact that Hariom Construction is not a Benami of the assessee but has independent existence. Without prejudice to the aforesaid contention, learned Authorised Representative submitted, assuming that the commercial portion was developed by the assessee is part of the housing project even then assessee would be eligible for deduction under section 80IB(10) in respect of both residential and
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commercial building as the project of the assessee was approved on 1st February 2005, which is prior to introduction of clause (d) of section 80IB(10) w.e.f. 1st April 2005. Therefore, the restriction imposed under the said clause would not apply to assessee‟s project even though the project might have been completed after 1st April 2005. For such proposition, he relied upon the decision of Hon'ble Supreme Court in CIT v/s Sarkar Builders, [2015] 375 ITR 392 (SC). As far as the residential building is concerned, learned Authorised Representative submitted, assessee having fulfilled the conditions of section 80IB(10), is eligible to claim deduction under section 80IB(10), for all the flats constructed in the residential portion including Flats no.C–101 and C–102.
We have considered the submissions of the parties and perused the material available on record. We have also carefully applied our mind to the decision relied upon by the learned Authorised Representative. Undisputedly, assessee‟s housing project was approved by SIDCO on 1st February 2005. It is also not disputed that the area of the plot on which the housing project was approved was admeasuring 6452.880 sq.mtrs., out of which 646 sq.mtrs. was earmarked for commercial purposes. It is not disputed that assessee has constructed residential project having three wings in the name and
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style of Tarwani Heritage, consisting of 167 flats. As is evident, the dispute arises between the assessee and Department in respect of “C” Wing of housing project. It is the allegation of the Assessing Officer that residential units in “C” Wing are having built–up area in excess of 1,000 sq.ft. thereby violating the conditions of clause (c) of section 80IB(10). It is the stand of the Department that once any of the condition of section 80IB(10) is not fulfilled, assessee‟s claim for deduction under section 80IB(10) has to be disallowed entirely and no proportionate disallowance can be made. The second ground / reason for disallowance of deduction under section 80IB(10) is, the sale of development rights of commercial portion of the project to Hariom Construction is only a façade and actually it is the assessee who has constructed the commercial portion and the said commercial portion is part of the housing project as it is having a common entrance, common society and built under the supervision of the same architect. It is further alleged by the Assessing Officer, the commercial area having exceeded 2,000 sq.ft. as prescribed under clause (d) of section 80IB(10), assessee is not eligible to claim deduction under section 80IB(10).
We find, while inferring that the flats in the “C” Wing of residential building have exceeded the built–up area of 1,000 sq.ft. the
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Assessing Officer has relied upon a certificate of a private agency. However, as could be seen to ascertain correctness of assessee‟s claim and find out the exact built–up area of residential units, a reference was made to the DVO who in his report dated 21st April 2011, has stated that except Flat no.C–101 and C–102 in “C” Wing all other flats are having built–up area of less than 1,000 sq.ft. Therefore, in the face of such evidence on record being a report by the DVO who is part of the Department, Assessing Officer‟s claim that many of the flats in “C” Wing are having built–up area of more than 1,000 sq.ft. cannot be accepted. Thus, in view of the DVO„s report, it can be safely concluded that out of 167 flats constructed by the assessee, except Flat no.C– 101 and C–102 all other flats are fulfilling, the conditions of section 80IB(10). Keeping in view the aforesaid factual position, we need to examine whether claim of deduction under section 80IB(10) can be allowed on proportionate basis in respect of flats which are complying to all the conditions of section 80IB(10). Of–course, we may hasten to add, the assessee has also disputed learned Commissioner (Appeals)‟s decision in disallowing assessee‟s claim of deduction under section 80IB(10) in respect of Flat no.C–101 and C–102, which will be decided independently while considering assessee‟s appeals. Reverting back to the issue in hand, the learned Commissioner (Appeals) relying upon certain judicial pronouncements has held that even if some of the
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condition of section 80IB(10) is not fulfilled in respect of two of the flat, still assessee would be eligible for deduction under section 80IB(10) on pro–rata basis in respect of other flats which fulfills the conditions of section 80IB(10). For arriving at a just and proper conclusion on the aforesaid issue, it is necessary and expedient to refer to some of the decisions placed before us. In case of CIT v/s Vandana Properties, [2013] 353 ITR 36 (Bom.), the Hon'ble Jurisdictional High Court held that housing project comprises of several independent buildings consisting of several residential units. Therefore, even if one of the building in a housing project comprising of several residential units satisfies the conditions of section 80IB(10) assessee would be eligible for deduction. Similar view has also been expressed by the Tribunal in the following decisions:–
ii) Saroj Sales Organisation v/s ITO, 115 TTJ [2008] 485 (Mum.); iii) Kamdhenu Builders & Developers v/s ACIT, ITA no.6622/Mum./2012, dated 14.8.2013; iv) DCIT v/s M/s. Neel Sidhi Enterprises, ITA no.1761 to 1763/Mum./2010, dated 30.3.2012; and v) Mudhit M. Gupta v/s ACIT, [2011] 51 DTR 217 (Mum.).
Thus, the principle of law which emerges from the judicial pronouncements referred to above is, if most of the units in a housing project fulfill the condition of section 80IB(10), then proportionate
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deduction in respect of those unit can be allowed while disallowing deduction under section 80IB(10) in respect of units which do not comply to the condition of section 80IB(10). In the present case, there is absolutely no doubt that out of 167 flats, 165 flats have fulfilled all the conditions of section 80IB(10). Only two of the flats viz. Flat no.C– 101 and C–102 have not complied to the conditions of clause (c) of section 80IB(10) as according to DVO the built–up area is more than 1,000 sq.ft. Therefore, only because two of the flats have not complied to the conditions of section 80IB(10), A.O‟s conclusion that assessee‟s claim of deduction under the said provision in respect of 165 flats would not be allowable defies logic and against the intent and purpose of section 80IB(10). Therefore, the decision of the learned Commissioner (Appeals) to allow assessee‟s claim of deduction in respect of 165 flats in our view is unassailable.
As far as the allegation of the Assessing Officer that assessee has adopted a colourable device by entering into an agreement with Hariom Construction for transferring the development rights of the commercial building, we are constrained to observe, inference drawn by the Assessing Officer is more on presumption and surmises than on evidence. Undisputedly, the assessee has entered into an agreement with Hariom Construction in the year 2005, which was registered in
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the year 2008 prior to the date of search. It is also not disputed that in terms of the said agreement, transfer of development right has taken place for a valuable consideration. It is also not disputed by the Department that the assessee has offered the income derived from such transaction to tax in the return of income filed for the assessment year 2005–06, though belatedly in the year 2008, but prior to the date of search. Moreover, DVO after physical verification has reported that the residential complex and commercial complex are having separate entrance and certain amenities in the residential complex are not allowed to be used by the owners of commercial complex. Further, Hariom Construction has offered the income from commercial complex in the return of income filed for the assessment year 2009–10 which has also been accepted by the Department. In the face of such positive evidence brought on record by the assessee to prove the genuineness of the transaction, the Assessing Officer has not brought any cogent evidence to establish the fact that the commercial portion of the building was actually constructed by the assessee and is part of the housing project. Learned Departmental Representative has not brought any material on record to controvert the findings of the learned Commissioner (Appeals) in this regard. That being the case, there is no reason to differ with the finding of the learned Commissioner (Appeals) on the issue. The issue can also be looked at
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from another angle. Even assuming that the assessee has built the commercial portion, let us examine whether that will deprive the assessee from claiming deduction under section 80IB(10). It is the allegation of the Assessing Officer that as the commercial area exceeds the prescribed limit of 2,000 sq.ft. as per clause (d) of section 80IB(10), the assessee would not be eligible to claim deduction. However, at the cost of repetition, it needs to be reiterated, assessee‟s housing project was approved by the competent authority on 1st February 2005 i.e., prior to 1st April 2005 when clause (d) to section 80IB(10) was introduced to the statute restricting the commercial area to a maximum of 2,000 sq.ft. The issue is whether such amended provision brought under clause (d) of section 80IB(10) can apply to a housing project approved by the competent authority prior to 1st April 2005. The answer would be in the negative. The Hon'ble Supreme Court in Sarkar Builders (supra), while considering identical issue as to whether in case of a project approved prior to insertion of clause (d) to section 80IB(10), disallowance can be made of deduction claimed under section 80IB(10) on the allegation that commercial area exceeds the limit prescribed therein, framed the following question:–
―Whether section 80IB(10)(d) of the Income Tax Act, 1961, applies to a housing project approved before 31st March 2005, but completed on/or after 1st April 2005.‖
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The Hon'ble Supreme Court after taking into consideration the provisions of section 80IB(10) as stood earlier and post amendment effective from 1st April 2005, in the light of various judgment of different High Courts including the judgment of Hon'ble Jurisdictional High Court in Bramha Associates (supra), held as under:–
―10) We have given our due consideration to the respective submissions. 11) As pointed out above, the judgment pronounced by the Bombay High Court in Brahma Associates case has already been upheld by this Court on the interpretation given to the expression 'housing project' occurring in sub-section (10) of Section 80IB of the Act. Interestingly, in the batch of appeals decided by the High Court in that very judgment, the issue with which we are concerned was also taken up. The Revenue had argued that clause (d) inserted with effect from 01.04.2005 should be applied retrospectively, which argument was repelled by the High Court. Therefore, for better understanding, we would like to begin our discussion with the meaning given to 'housing project' along with the issue of retrospectivity of clause (d), as raised by the Revenue, which was dealt with by the High Court and repelled. That portion of the discussion contained in the High Court judgment, which has some bearing on the issue at hand, runs as under: ―21. Thus, on the date on which the legislature introduced 100% deduction under the Income Tax Act, 1961 on the profits derived from housing projects approved by a local authority, it was known that the local authorities could approve the projects as houding projects with commercial user to the extent permitted under the DC Rules framed by the respective local authority. In other words, it was known that the local authorities could approve a housing project without or with commercial user to the extent permitted under the Development Control Rules. If the legislature intended to restrict the benefit of deduction only to the projects approved exclusively for residential purposes, then it would
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have stated so. However, the legislature has provided that Section 80IB(10) deduction is available to all the housing projects approved by a local authority. Since the local authorities could approve a project to be a housing project with or without the commercial user, it is evident that the legislature intended to allow Section 80IB(10) deduction to all the housing projects approved by a local authority without or with commercial user to the extent permitted under the DC Rules. 22. It is not in dispute that where a project is approved as a housing project without or with commercial user to the extent permitted under the Rules/Regulations, then, deduction under Section 80IB(10) would be allowable. In other words, if a project could be approved as a housing project having residential units with permissible commercial user, then it is not open to the income tax authorities to contend that the expression 'housing project' in Section 80IB(10) is applicable to projects having only residential units. 23. Once it is held that the local authorities could approve a project to be housing project without or with the commercial user to the extent permitted under the DC Rules, then the project approved with the permissible commercial user would be eligible for Section 80IB(10) deduction irrespective of the fact that the project is approved as 'housing project' or approved as 'residential plus commercial'. 24. In other words, where a project fulfills the criteria for being approved as a housing project, then deduction cannot be denied under Section 80IB(10) merely because the project is approved as 'residential plus commercial'. 24. The fact that the deduction under Section 80IB(10) prior to 1.4.2005 was allowable on the profits derived from the housing projects constructed during the specified period, on a specified size of the plot with residential units of the specified size, it cannot be inferred that the deduction under Section 80IB(10) was allowable to housing projects having residential units only, because, restriction on the size of the residential unit is with a view to make available large number of affordable houses to the common man and not with a
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view to deny commercial user in residential buildings. In other words, the restriction under Section 80IB(10) regarding the size of the residential unit would in no way curtail the powers of the local authority to approve a project with commercial user to the extent permitted under the DC Rules/Regulations. Therefore, the argument of the Revenue that the restriction on the size of the residential unit in Section 80IB(10) as it stood prior to 1.4.2005 is suggestive of the fact that the deduction is restricted to housing projects approved for residential units only cannot be accepted. 25. The above conclusion is further fortified by Clause (d) to Section 80IB(10) inserted with effect from 1.4.2005. Clause (d) to Section 80IB(10) inserted w.e.f. 1.4.2005 provides that even though shops and commercial establishments are included in the housing project, deduction under Section 80IB(10) with effect from 1.4.2005 would be available where such commercial user does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet whichever is lower. By Finance Act, 2010, clause (d) is amended to the effect that the commercial user should not exceed three percent of the aggregate built-up area of the housing project or five thousand square feet whichever is higher. The expression 'included' in clause (d) makes it amply clear that commercial user is an integral part of housing project. Thus, by inserting clause (d) to Section 80IB(10) the legislature has made it clear that though the housing projects approved by the local authorities with commercial user to the extent permissible under the DC Rules/Regulation were entitled to Section 80IB(10) deduction, with effect from 1.4.2005 such deduction would be subject to the restriction set out in clause (d) of Section 80IB(10). Therefore, the argument of the revenue that with effect from 1.4.2005 the legislature for the first time allowed Section 80IB(10) deduction to housing projects having commercial user cannot be accepted. xx xx xx
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Lastly, the argument of the revenue that Section 80IB(10) as amended by inserting clause (d) with effect from 1.4.2005 should be applied retrospectively is also without any merit, because, firstly, clause (d) specifically inserted with effect from 1.4.2005, and therefore, that clause cannot be applied for the period prior to 1.4.2005. Secondly, clause (d) seeks to deny Section 80IB(10) deduction to projects having commercial user beyond the limit prescribed under clause (d), even though such commercial user is approved by the local authority. Therefore, the restriction imposed under the Act for the first time with effect from 1.4.2005 cannot be applied retrospectively. Thirdly, it is not open to the revenue to contend on the one hand that Section 80IB(10) as stood prior to 1.4.2005 did not permit commercial user in housing projects and on the other hand contend that the restriction on commercial user introduced with effect from 1.4.2005 should be applied retrospectively. The argument of the revenue is mutually contradictory and hence liable to be rejected. Thus, in our opinion, the Tribunal was justified in holding that clause (d) inserted to Section 80IB(10) with effect from 1.4.2005 is prospective and not retrospective and hence cannot be applied to the period prior to 1.4.2005.‖ 12) The issues dealt with from paras 21 to 25 by the High Court already stands approved by this Court. In para 29, the High Court has held that clause (d) has prospective operation, viz., with effect from 01.04.2005, and this legal position is not disputed by the Revenue before us. What follows from the above is that prior to 01.04.2005, these developers/assessees who had got their projects sanctioned from the local authorities as 'housing projects', even with commercial user, though limited to the extent permitted under the DC Rules, were convinced that they would be getting the benefit of 100% deduction of their income from such projects under Section 80IB of the Act. Their projects were sanctioned much before 01.04.2005. As per the permissible commercial user on which the project was sanctioned, they started the projects and the date of commencing such projects is also before 01.04.2005. All these assessees were made known of the provision by which these projects are to be completed as those dates have been specified from time to time by successive Finance Acts in the same provision Section 80IB. In these cases, completion dates were after 01.04.2005. Once they
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arrange their affairs in this manner, the Revenue cannot deny the benefit of this section applying the principle of retroactivity even when the provision has no retrospectivity. Take for example, a case where under the extant DC Rules, for shops and commercial activity construction permitted was, say, 10% and the project was also sanctioned allowing a particular assessee to construct 10% of the area for commercial purposes. The said developer started with its project much prior to 01.04.2005 with the aforesaid permissible use and the construction was at a very advanced stage as on 01.04.2005. Can it be argued by that Revenue that he is to demolish the extra coverage meant for commercial purpose and bring the same within the limits prescribed by the new provision if he wanted to avail the benefit of deduction under Section 80IB(10) of the Act, only because of the reason that the project was not complete as on 01.04.2005? As in such a case he filed his return for an assessment year after 01.04.2005 and for the purpose of assessment of the said return, law prevailing as on that date would be applicable? Answer has to be in the negative on the principle that with the aforesaid planning as per the law prevailing prior to 01.04.2005, these assessees acted and acquired vested right thereby which cannot be taken away. It is ludicrous on the part of the Revenue authorities to expect the assessees to do something which is almost impossible.‖
Thus, as could be seen from the ratio laid down by the Hon'ble Supreme Court, the restriction imposed under clause (d) of section 80IB(10), would not apply to a housing project approved by the local authority prior to insertion of clause (d) of section 80IB(10) w.e.f. 1st April 2005. The same view has also been expressed by the Hon'ble Jurisdictional High Court in CIT v/s Happy Home Enterprises, [2014] 372 ITR 001 (Bom.). Reverting back to the facts of the present case, there is no dispute that assessee‟s housing project was approved by the local authority SIDCO on 1st February 2005. The Department has
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not disputed this fact. That being the case, the restriction imposed under clause (d) of section 80IB(10), will not apply to the assessee‟s housing project. In the aforesaid view of the matter, we do not find any infirmity in the order of the learned Commissioner (Appeals) in allowing assessee‟s claim of deduction under section 80IB(10).
In the result, Department‟s appeals are dismissed.
ITA no.5729/Mum./2011 ITA no.5730/Mum./2011 – Assessee‟s Appeals
The only dispute in the aforesaid appeals of the assessee is in relation to disallowance of assessee‟s claim of deduction under section 80IB(10), in respect of two flats being Flat no.C–101 and C–102.
As stated in the earlier part of this order, the Assessing Officer disallowed assessee‟s claim of deduction under section 80IB(10) on the housing projects on the allegation that individual residential units constructed in the housing project exceeded prescribed built–up area of 1,000 sq.ft. as provided under clause (c) of section 80IB(10). However, in course of proceedings before the learned Commissioner (Appeals), a reference was made to the DVO to make physical verification to find out the correctness of the allegation of the Assessing Officer. As could be seen, the DVO submitted his report
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stating that out of total 167 flats in the housing project only two flats in the “C” Wing being Flat no.C–101 and C–102, exceed the prescribed built–up area of 1,000 sq.ft. Taking into account, the report of the DVO, the learned Commissioner (Appeals) disallowed deduction under section 80IB(10) in respect of these two flats. Being aggrieved, assessee is in appeal before us.
Learned Authorised Representative referring to the DVO‟s report, a copy of which is at Page–101 of the paper book, submitted that actual built–up area of the flat is less than 1,000 sq.ft. However, only after including the open terrace and balcony, the built–up area has exceeded the prescribed limit of 1,000 sq.ft. as provided under clause (c) of section 80IB(10). Learned Authorised Representative submitted, when the project was approved by local authority on 1st February 2005, as per existing provisions of section 80IB, balcony and terrace were not part of the built–up area. However, subsequently, the act was amended and the definition of built–up area was brought into the statute under sub–section (14) of section 80IB by Finance Act, 2004, w.e.f. 1st April 2005, as per which the built–up area would include projections and balconies as increased by the thickness of wall but does not include common areas shared with other residential units. Learned Authorised Representative submitted, as the amendment
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brought under section 80IB(14) from 1st April 2005, including the balcony and open terrace in the built–up area is prospective, it will not apply to a housing project approved by the local authority prior to that date. In support, he relied upon the decision of the Hon'ble Supreme Court in case of CIT v/s Sarkar Builders (supra) and decision of Hon'ble Jurisdictional High Court in Happy Home Enterprises (supra). He submitted, no disallowance could be made in respect of deduction claimed under section 80IB(10) in respect of Flat no.C–101 and C– 102.
We have considered the submissions of the parties and perused the materials on record. At the cost of repetation, it may be stated, there is no dispute to the fact that assessee‟s housing project was approved by the local authority SIDCO on 1st February 2005. The learned Commissioner (Appeals) has disallowed deduction claimed under section 80IB(10) in respect of Flat no.C–101 and C–102, relying upon the valuation report of the DVO stating that the built–up area of these two flats exceeded the prescribed limit of 1,000 sq.ft. applicable to the housing project in the municipal limit of Mumbai. However, reference being had to the valuation report of the DVO, a copy of which is at Page–101 of the paper book, it is noticed that the built–up area computed by the DVO exceeding 1,000 sq.ft. of the two flats is
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after including the balcony and terrace. It is evident from the valuation report of the DVO that excluding the balcony and terrace the built–up area of the two flats is less than 1,000 sq.ft. On a careful reading of the provisions contained under section 80IB, it is evident that by virtue of an amendment made by Finance Act, 2004, definition of ―built–up area‖ was inserted to section 80IB(10)(14)(a), wherein it was provided that ―built–up‖ area would include the projections and balconies. However, the said amendment came into a statute w.e.f. 1st April 2005. Therefore, it is abundantly clear when assessee‟s housing project was approved on 1st February 2005, there was no such provision in the statute or for that matter in section 80IB under which the built–up area would comprise of balconies, terraces and projections. Thus, the issue which arises for consideration is whether the amendment brought into the provisions from 1st April 2005, including projections and balconies in the built–up area would apply to a project approved prior to 1st April 2005 but completed thereafter. In our view, the issue is no more res integra in view of the judgment of the Hon'ble Supreme Court in Sarkar Builders (supra), wherein the Hon'ble Supreme Court held that the amendment brought to section 80IB(10) by Finance Act, 2004, w.e.f. 1st April 2005, would not apply to a housing project approved prior to that date even if it was
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completed after 1st April 2005. The relevant observation of the Hon'ble Supreme Court is extracted hereunder for convenience:–
―17. Thereafter, significant amendment, with which we are directly concerned, was carried out by Finance (No.2) Act, 2004 with effect from 1.4.2005. This amendment has already been noted above. The Legislature made substantial changes in sub-section (10). Several new conditions were incorporated for the first time, including the condition mentioned in clause (d). This condition/restriction was not on the statute book earlier when all these projects were sanctioned. Another important amendment was made by this Act to sub-section (14) of Section 80IB with effect from 1.4.2005 and for the first time under clause (a) thereof the words 'built-up area' were defined. Section 80IB(14)(a) reads as under: '(14) For the purposes of this section— (a) "built-up area" means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units;' 18. Prior to insertion of Section 80IB(14)(a), in many of the rules and regulations of the local authority approving the housing project "built-up area" did not include projections and balconies. Probably, taking advantage of this fact, builders provided large balconies and projections making the residential units far bigger than as stipulated in Section 80IB(10), and yet claimed the deduction under the said provision. To plug this lacuna, clause (a) was inserted in Section 80IB(14) defining the words "built-up area" to mean the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls, but did not include the common areas shared with other residential units. 19. Can it be said that in order to avail the benefit in the assessment years after 1.4.2005, balconies should be removed though these were permitted earlier? Holding so would lead to absurd results as one cannot expect an assessee to comply with a condition that was not a part of the statute when the housing project was approved. We, thus, find that the only way to resolve the issue would be to hold that clause
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(d) is to be treated as inextricably linked with the approval and construction of the housing project and an assessee cannot be called upon to comply with the said condition when it was not in contemplation either of the assessee or even the Legislature, when the housing project was accorded approval by the local authorities.‖
Thus, applying the principle laid down by the Hon'ble Supreme Court it has to be held that for the purpose of determining the eligibility of a housing project for availing deduction under section 80IB(10), the condition imposed under section 80IB(14)(a) would be applicable only in respect of a housing project approved after 1st April 2005. As the housing project of the assessee was approved prior to 1st April 2005, the provisions of section 80IB(14)(a) would not be applicable. Thus, as per the existing provisions of section 80IB, there was no condition that built–up area will include projections / balcony. Admittedly, as per the report of the DVO, Flat no.C–101 and C–102 are having built–up area of less than 1,000 sq.ft., excluding balcony / projections / terrace. That being the case, in our considered opinion, benefit of deduction under section 80IB(10), cannot be denied in respect of Flat no.C–101 and C–102. Accordingly, we allow assessee‟s claim of deduction under section 80IB(10), in respect of these two flats also. Grounds raised are, therefore, allowed.
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As we have allowed assessee‟s claim of deduction u/s 80IB(10), on the reasons stated above, we do not feel necessary to go into the issue as to whether the housing project being located beyond 25 kms. from the limit of the municipality, the prescribed limit of built–up area of each residential area would be extended to 1,500 sq.ft.
In the result, assessee‟s appeals are allowed.
ITA no.6144/Mum./2011 – Revenue‟s Appeal
On a perusal of record, it is noticed that while completing assessment vide order dated 30th December 2010 under section 143(3) r/w section 153A of the Act, the Assessing Officer made addition of ` 11.80 lakh on account of receipt of on–money on sale of shops. However, in an appeal preferred by the assessee, learned Commissioner (Appeals) deleted the addition of ` 11.80 lakh made by the Assessing Officer. Being aggrieved, Department is in appeal before us.
Learned Representatives appearing fot the parties agreed that the tax effect pertaining to the amount disputed by the Department is less than the monetory limit of ` 10 lakh fixed by the CBDT in Circular no.21 of 2015 dated 10th December 2015, in relation to appeal before the Income Tax Appellate Tribunal. Taking into consideration the
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aforesaid submissions of the learned Counsels and also finding that the CBDT circular under reference applies retrospectively, even to pending appeals, we dismiss the appeal of the Department as not maintainable.
In the result, Revenue‟s appeal is dismissed.
To sum up, Revenue‟s appeals are dismissed and assessee‟s appeals are allowed. Order pronounced in the open Court on 31.03.2016
Sd/- Sd/- SAKTIJIT DEY RAMIT KOCHAR ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 31.03.2016 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
(Dy./Asstt. Registrar) ITAT, Mumbai