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Income Tax Appellate Tribunal, BENCH “D”, KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
ORDER
Per Shri N.V.Vasudevan, JM
This is an appeal by the assessee directed against the order dated 23.03.2012 of CIT-XII, Kolkata relating to A.Y.2007-08.
2. The Assessee is an AOP. The AOP was formed for carrying out construction work. For A.Y.2007-08 the return of income was filed showing total income of Rs.1,30,440/-. In the return of income assessee had claimed deduction on profits derived from the activities of construction of housing project u/s 80IB(10) of the Act in a sum of Rs.1,62,09,343/-. AO called upon the assessee to furnish the following details with regard to claim of deduction u/s 80IB(10) of the Act :
“a) Copy of the floor wise Sanctioned Plan made by the CMC (dated 09.02.1999) a) Details and Certificate regarding date of completion of the project obtained from CMC. c) Details regarding the name and address of the Flat Purchaser, with area of flat, and consideration received from them. d) Details of changes made in promoter and Developer since inception of Project Construction.”
M/s. Shree Krishna Developers A.Yr.2007-08 3. On 29.09.2009 the Assessee filed details of flat sold with name of the purchaser. Flat No., Built-up area of the flats, consideration received from the flat purchaser. According to the AO, the Assessee expressed its inability to produce the following details:- “a) Copy of floorwise sanctioned plan by CMC. b) Details of changes made in promoter and developers since inception of the project. c) Any details of reconstruction of existing business.”
4. According to the AO, the Assessee did not produce the necessary details as was called for by him. The AO therefore issued another show cause letter dated 30.11.2009, in which the AO pointed out as follows:- “1. During the course of hearing you had been requested. vide note sheet dated f01.09.2009, 29.09.2009 and 27.10.2009 to produce the following details:- a) Copy of floor wise & flat wise plan sanctioned by Calcutta Municipal Corporation (CMC). b) Details of changes made in promoters & Developers since very inception of the housing project. c. Details of reconstruction of existing Business, if any. The above details have not been produced by you till date. Further your A.R. vide note sheet dated 29.09.2009 had stated that these above details cannot be produced:
On verification of the available records, it appeared that the plan for construction of the Housing Project at 1/1, R.R.L.Mitra Road, Kolkata 700085 was sanctioned by the Kolkata Municipal Corporation 09.12.1999 i. e. (F. Y 1999-2000) and validity of such plan was up to 08.12.2004 as per copy of the plan for Fire Fighting enclosed with the return for the Assmt.Year. 2004-05. As per 1. T Act, the plan sanctioned during the F.Y. 1999-2000, requires that the construction of the project should be completed within four years from the end of the Financial Year it which the plan. has been sanctioned i.e. on or before 31.03.2004 and completion order of the construction to be obtained from the plan sanctioning authority for the purpose of claiming deduction u/s 80IB(10). As per 1. T. Act, the date of completion certificate issued by the plan sanctioning authority is to be treated as the date of completion of project. The. date of completion of the project is 30.03.2005 as per copy completion certificate issued by the Kolkata Municipal Corporation, vide their letter No.B.62/III/04-05 dated 30.03.2005, which indicates that the project was completed beyond 4(four) financial years, debarring you from claim u/s 80IB(10).
Further, from the details of flats sold, enclosed with the Tax Audit report, .during the F.Y. 2006-07 i.e. Assessment year, : 2007-08, as submitted by you,
M/s. Shree Krishna Developers A.Yr.2007-08 reveals that the total area of some of the flats were more than '1500 S. ft. and shown the same as "Super B area. During the course of hearing, you were requested to submit the copy of detailed floor wise plan sanctioned, in order to verify the area of flats constructed in each floor, but for reasons best known to you, you have failed to submit the same for verification and hence failed to substantiate that the area of flats sold were ‘not violating' the prescribed 'area limit' to avail deduction u/s. 80IB(10). As such you are requested to explain, with all the evidences, explaining as to why the deductions u/s 80IB(10) claimed by you should not' be disallowed.
a) On verification of the assessment records, it appears that during the accounting year under consideration, you were engaged in developing & construction of building on a land of 146 Cottahs 9 Chittaks situated at I/I - Raja Rajendra Lal Mitra Road, Kolkata-700085 ( under the jurisdiction of Calcutta Municipal Corporation) on the basis of a sanctioned plan of CMC dated 09.12.1999. From the records of earlier years, it further appears that the plot of land was originally owned by one "Shree Shree Iswar Brojeswar Mahadev Thakur Jew Trust as “Debottar Estate" and in May, 1995 by virtue of an order of the Hon’ble High Court, Kolkata the said property was leased out to 5 (five) persons who on their part nominated 10 (ten) persons as their nominees. On 30.10.1995, ten registered deed of lease were executed between the Trust and the ten nominees with the right to develop and construct multi storied building on the same plot of land. Thus an A.O.P. was formed by the above lease deeds for developing and construction of the building on the above premises.
b) Being unable to develop the said lease hold property, 4 (four) leases out of the 10 (ten) leases above. amongst the nominated persons entered into 4 (four) Joint Venture Agreements with other nominees Oil 28.06.1996 to develop the said premises for construction of multistoried building. By virtue of the said Joint Venture Agreements 4 (four) sale agreements were executed on 29.-6.1996 between the out going leases as "Vendor" and the intending purchasers. Afterwards, the remaining existing leases for better result executed a MOU between eight leases to construct the building and as per clauses of the MOU, the leases handed over the said plot of land in favor of “Shree Krishna Developers “ (the assessee) for the purpose of construction of the building. Incidentally, it may be mentioned here that original 5 (five) nominee leases are also members of the A.O.P. “Shree Krishna Developers” and thus “there was a restructuring of the A.O.P.” already in existence. Lastly, on 17.07.2002, the status of the A.O.P. “Shree Krishna Developers” was restructured again and only original 5 (five) nominees were remained to enjoy the rights and entitlements of the said land. c) Hence in .your case,. the first condition required to be satisfied. for availing deduction u/s 80-IB(10), as above was not satisfied, since the present A. 0. P. with 5
M/s. Shree Krishna Developers A.Yr.2007-08 (five) members is the re-constituted AOP, debarring you the claim of deduction u/s 80-IB(10) amounting to Rs.1,62,09,343/-, which has wrongly been claimed by you. d)From the records of earlier years. it is also seen that the original members of the A.O.P. have contributed their portions of lands for construction of the housing projects and the value of such lands on the date of their joining the A.O.P. have been considered as their 'capital introduction' and thereby forming "stock - in - trade of the A.O.P. But you have credited interest in their accounts on the 'value of such land they have given for construction of the housing project' which is also against the accounting principle although such lands were stock in trade of the A.O.P. As such you are requested to explain why the interest paid on such members capital in the form of land should not be disallowed.
Considering the above facts and in the circumstances stated above, you are requested to show cause all to why your claim of 'deduction u/s 80IB(10) to the tune of Rs.1,62,09,343/- and 'interest paid on members capital in the form of land' should not be disallowed for non satisfying the conditions laid down in the Act for allowing such deduction.”
The AO did not allow the claim of the assessee for deduction u/s 80IB(10) of the Act for the reason that housing project was completed on 30.03.2005 and that the built up area of some of the flats was more than 1500 sq.ft. The AO also held that the time limit for completion of the housing project for the purpose of deduction u/s 80IB(10) of the Act was four years from the first plan sanction order. Since the completion certificate issued by the Kolkata Municipal Corporation was dated 30.03.2005 AO held that the project was completed beyond four financial years from the end of the financial year in which original plan was sanctioned on 09.12.1999 relevant to financial year 1999-2000. For all the above reasons the AO denied the benefit of deduction u/s 80IB(10) of the Act to the assessee.
It is not in dispute before us that the assessee filed an appeal against the order of assessment by the AO and the CIT(A) vide his order dated 10.05.2010 held that the assessee fulfilled all the conditions for grant of deduction u/s 80IB (10) of the Act and therefore deduction claimed by the assessee had to be allowed.
M/s. Shree Krishna Developers A.Yr.2007-08 7. The C.I.T. in exercise of his powers u/s 263 of the Act was of the view that order of the AO dated 18.12.2009 was erroneous and prejudicial to the interest of the revenue. The C.I.T. accordingly issued show cause notice dated 30.1.2012, u/s 263 of the Act. According to the C.I.T. the following issues ought to have been considered by the AO before completion of the assessment u/s 143(3) of the Act. (i) The assessee AOP has under gone RECONSTRUCTION within the meaning of sec. 80IB(2) and hence ineligible for deduction u/s 80IB(10). (ii) The assessee AOP ‘s business of development and construction had come existence well before 01-10-1998 and hence ineligible for deduction u/s 80IB(10).
(iii) The assessee AOP has committed infringement of provisions of sec. 80IB(10)(c) of the I.T.Act, 1961 and hence ineligible for deduction u/s 80IB(10). (iv) The assessee AOP has committed infringement of provisions of sec.80IB(10)(d) of the I.T.Act, 1961 and hence ineligible for deduction u/s 80IB(10).
According to the CIT, in the instant case, it was clear that after the assessee had filed his return, a notice under section 143(2) was issued to him for the purpose of carrying out a scrutiny in respect of the return of income filed by him. In the course of scrutiny no enquiry or investigation was made by the Assessing Officer on the above mentioned issues. According to the CIT failure to conduct necessary inquiry and investigation makes an order erroneous as the Assessing Officer is required to act as an Investigator. Such an order is also prejudicial to the interest of the Revenue.
8. After hearing the submissions of the assessee the C.I.T. ultimately passed the impugned order in which he held as follows :- “5.1 There is no dispute that the A.O has not considered the above issue while verifying the claim of deduction under section 80IB of the Act. The Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Income-tax Act. If he commits an error while discharging the aforesaid roles and consequently passes an erroneous order causing prejudice either to the assessee or to the State Exchequer or to both, the order so passed by him is liable to be corrected. As mentioned earlier, the assessee can have the prejudice caused to him corrected by filing appeal as also M/s. Shree Krishna Developers A.Yr.2007-08 by filing a revision application under section 264. But the State Exchequer has no right of appeal against the orders of the Assessing Officer. Section 263 has therefore been enacted to empower the Commissioner to correct an erroneous order passed by the Assessing Officer which he considers to be prejudicial to the interest of the revenue. The provisions of section 263 would loose significance if they were to be interpreted in a manner that prevented the Commissioner from revising the erroneous order passed by the Assessing Officer, which was prejudicial to the interest of the revenue. In fact, such a course would be counter productive as it would have the effect of promoting arbitrariness in the decisions of the Assessing Officers and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of the revenue, are allowed to stand, the consequences would be disastrous in that the honest tax payers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, I am of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of section 263.
5.2 Considering above, the assessment order passed by the A.C. is set aside with a direction to the AO to verify that the above issue and pass a fresh order as per provision of the Act Before passing the fresh assessment order, the AO shall grant the assessee a reasonable opportunity of being heard .”
Aggrieved by the order of the C.I.T. the assessee has preferred the present appeal before the Tribunal.
At the time of hearing the learned counsel for the assessee brought to our notice that the issues that were sought to be raised by the CIT in exercise of his powers u/s.263 of the Act, were already considered and decided by CIT(A) in the regular appeal filed by the assessee against the order of AO dated 18.12.2009 passed u/s 143(3) of the Act. It was his submission that in view of clause (c) to Explanation – 1 to section 263(1) of the Act, the C.I.T. does not have jurisdiction to consider the matter which has already been considered and decided in an appeal by CIT(A). It was further submitted by him that though factually the issues considered in the proceedings u/s 263 of the Act were already considered by the AO while completing the assessment u/s 143(3) of the Act and by the CIT(A) in the appeal against the order of AO, the plea of merger of the order of AO with that of the order of CIT(A) and M/s. Shree Krishna Developers A.Yr.2007-08 consequently the power of C.I.T. u/s 263 of the Act cannot extend to matters already considered and decided , was not specifically raised as a ground before CIT in the proceedings u/s 263 of the Act. It was the submission that this being a legal ground there cannot be any bar for the assessee to raise such a plea before the Tribunal. The learned DR however placed reliance on the order of C.I.T.
We have given a careful consideration to the rival submissions. It is clear from the order of AO dated 18.12.2009 u/s 143(3) of the Act and the show cause notice issued u/s 263 of the Act dated 30.01.2012 that the three out of the four issues set out in the show cause notice u/s 263 of the Act were considered by the AO while framing the assessment. It is not in dispute that the CIT(A) has given a decision on the aforesaid three issues in favour of the assessee in the appeal filed against the order of assessment. The order of the CIT(A) is dated 10.5.2010. Thus in so far as points 1 to 3 in the show cause notice of the CIT u/s 263 of the Act dated 30.1.2012 are concerned, the order of the AO had merged with the order of CIT(A) and therefore the C.I.T. had no jurisdiction to go into those issues in view of clause (c) to Explanation-1 to section 263(1) of the Act.
As far as point no.4 raised by C.I.T. in the show cause notice dated 30.1.2012 u/s 263 of the Act is concerned, the same relates to the existence of build up area of more than 2000 sq.ft in the project completed by the assessee. On this issue we find that the assessee in reply to the show cause notice u/s 263 of the Act had specifically pointed out before CIT as follows :- “d)Built-up area of Shops more than 2000 sq ft. In this regard we would like to put forward as under :
1. 1. That your assessee has built and constructed the project as per the approved sanction plan by the local authorities i.e. The Calcutta Municipal Corporation and duly obtained the completion certificate from them on 30.03.2005. A photocopy of the approved sanctioned plan of the project is already in your record for the Assessment Years 2004-05, 2005-06, 2007-08 and 2009-10.
2. That total built-up area of all the shops in the said project as approved by the local authorities is below 2000 sq ft and the same can be verified from the sanctioned plan also.”
M/s. Shree Krishna Developers A.Yr.2007-08 13. The C.I.T. has not found this plea of the assessee to be false. Apart from the above we find that the existence of covered area in the housing project will not be applicable for housing projects, whose building plans had been sanctioned prior to the amendment to section 80IB(10)(d) of the Act. It has been so held by the Hon’ble Bombay High Court in the Brahma Associates 333 ITR 289 (Bom). The Hon’ble Bombay high Court held that on the date when the legislature introduced 100 per cent deduction under s. 80-IB(10), it was known that the local authorities could approve the projects as housing projects with commercial user to the extent permitted under the DC Rules framed by the respective local authorities. If the legislature intended to restrict the benefit of deduction only to the projects approved exclusively for residential purposes, it would have stated so. Legislature has provided deduction under s. 80-IB(1) to all housing projects approved by a local authority. Thus, it was evident that the legislature intended to allow deduction to all housing projects approved by a local authority with or without commercial user to the extent permitted under the DC Rules. Once the local authorities can approve a project to be a housing project with or without commercial user, then the project approved is eligible for deduction under s. 80-IB(10) irrespective of the fact that the project is approved as ‘housing project’ or as ‘residential plus commercial’. Fact that prior to 1st April, 2005, deduction under s. 80-IB(10) was allowable on the profits derived from the housing projects comprised of plots with residential units of specified size does not mean that the deduction was allowable to housing projects having residential units only. This restriction regarding the size of residential unit was specified with a view to make available large number of affordable houses to common man and not with a view to deny commercial user in residential buildings. Aforesaid conclusion is further fortified by cl. (d) of s. 80-IB(10) inserted w.e.f. 1st April, 2005 which provides that deduction under s. 80-IB(10) would be allowable where the 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 less. In the absence of any restriction under the Act, it was not open to the Tribunal to hold that the projects approved by the local authorities having residential buildings with commercial user upto 10 per cent of the plot area are alone entitled to deduction under s. 80-IB(10). Restriction regarding
M/s. Shree Krishna Developers A.Yr.2007-08 commercial user has been imposed for the first time by inserting cl. (d) in s. 80-IB(10) w.e.f. 1st April, 2005. The Hon’ble Court held that the argument of the Revenue that s. 80-IB(10) as amended by inserting cl. (d) should be applied retrospectively has no merit as cl. (d) has been specifically inserted w.e.f. 1st April, 2005 and, therefore, it cannot be applied for the period prior to 1st April, 2005. In the present case, the plan for construction of the Housing Project at 1/1, R.R.L.Mitra Road, Kolkata 700085 was sanctioned by the Kolkata Municipal Corporation 09.12.1999, i.e., prior to 1-4-2005. In view of the aforesaid decision on the point, we do not find that any useful purpose will be served by examining this issue again by the AO, as admittedly the plan sanction in the case of the Assessee was prior to the statutory amendment.
In the given facts and circumstances we are of the view that jurisdiction u/s 263 of the Act has not been properly exercised by C.I.T. as the condition precedent for exercise of such power viz., that the order of the AO was erroneous and prejudicial to the interest of revenue for failure on the part of the AO to make proper enquiries before completion of assessment. The jurisdiction u/s.263 of the Act could not have also been exercised for the reason that the AO did not enquire or examine as to whether commercial area in the project exceeded to statutory limits laid down in Sec.80IB(10)(d) of the Act. We, therefore, quash the order u/s 263 of the Act and allow the appeal of the assessee.
In the result the appeal of the assessee is allowed.
Order pronounced in the court on 15.01.2016.