THE ITO, WARD-9(1),, AHMEDABAD vs. M/S. SHRI HARI ASSOCIATES, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER& Ms. MADHUMITA ROY, JUDICIAL MEMBER Income Tax Appeal No.1874/Ahd/2011 (Assessment Year : 2008-09) And Income Tax (Search &Seizer)Appeal Nos. 128, 129 &130/Ahd/2014 (Assessment Years : 2005-06, 2006-07 & 2007-08)

Income Tax Officer, Vs. M/s. Shri Hari Associates, Ward – 9(1), F/1, Trimurti Complex, Ahmedabad. Thakkar Bapa Nagar Road, Bapunagar, Ahmedabad. [PAN No.AASFS 6951 Q] (Appellant) .. (Respondent)

Appellant by : Shri Jagdish, CIT-D.R. Respondentby: Shri P. M. Mehta, A.R. Date of Hearing : 07.02.2019 Date of Pronouncement : 26.04.2019 O R D E R PER Ms. MADHUMITA ROY - JM: The appeal being ITA No.1874/Ahd/2011 for A.Y. 2008-09 preferred by the Revenue is directed against the order dated 09.05.2011 passed by the Commissioner of Income Tax (Appeals) – I, Ahmedabad arising out of the order dated 16.12.2010 passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) by the DCIT, Central Circle – 1(3), Ahmedabad. The other three appeals for A.Y. 2005-06, 2006-07 & 2007-08 are against the orders all dated 26.12.2013 passed by the Commissioner of Income Tax (Appeals)-I, Ahmedabad arising out of the order dated

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 2 - 31.12.2008 u/s 143(3) r.w.s. 153A(1)(b) of the Act passed by the DCIT, Central Circle – 1(3), Ahmedabad.

Since all the appeals relate to the same assessee, these are heard analogously and are being disposed of by a common order.

IT(SS)A No.128/Ahd/2014 for A.Y. 2005-06 is taken as the lead case:

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 3 - On the said land, a Single Housing Project along with a Commercial Complex has been planned and approved by the concerned Municipal Authorities. The entire project has been artificially divided into four parts and claimed to be constructed by following firms including the appellant: (i) M/s. Giriraj Corporation (ii) M/s. Shree Nand Corporation (iii) M/s. Shree Hari Associates (iv) M/s. Vasudev Developers

The assessee developed the housing project on that plot of land in the name of Jeevandhara Co-op. Society. The appellant before us thereafter entered into an agreement to purchase the society for a consideration of Rs.1,05,00,000/- on 31.03.2001. Further that, a development agreement was also entered by and between the appellant and the society for development of the said housing project. The proposed layout plan and the BU permission from AUDA was obtained in the name of the society. During the year under consideration the assessee started the construction work with the approval of the AMC. The appellant had shown the work-in-progress in the Profit and Loss account. Direct and indirect tax expenses was also shown in the Profit and Loss Account of respective years. The Learned AO rejected the claim of the assessee for deduction u/s 80IB(10) on the ground that it is not the appellant but the society namely Jeevandhara Co-op Society was the owner of the piece and parcel of land. Further that, the building plan was also approved by the AMC on 25.06.2005 in the name of such society for construction of 124 units for residential purpose.

According to the Learned AO the construction work was done in terms of the development agreement and thus the appellant is a mere contractor for the purpose of construction of project.

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 4 - The case of the appellant is this that since it has paid money for purchase of land and taken over possession for development and construction of project, it becomes the real owner of the project in view of the Section 53A of the Transfer of Property Act. But it was the contention of the Learned AO that all the expenses were made on behalf of Co- op society who has ultimate liability towards such expenses. In terms of the agreement till the completion of the housing project the work-in-progress was to be computed on the basis of work contract which according to the Learned AO, clearly evidences the status of the appellant as a work contractor and not a developer of project. Neither the appellant firm has ever shown any income of the sale of flats but only shown work done which has been subsequently transferred to the Co-operative society.

Considering the entire aspect of the matter the Learned AO rejected the claim of the assessee upon determining the total income at Rs.41,20,113/- and added the same to the total income of the assessee.

The Learned CIT(A) by a consolidated order dated 17.06.2009 partly allowed three appeals for A.Y. 2005-06, 2006-07 & 2007-08. The main ground of such appeal relating to the disallowance u/s 80IB(10) was allowed with a further direction upon the Learned AO to allow deductions for each assessment year u/s 80IB(10) as claimed by the appellant.

Being aggrieved by and/or dissatisfied with the order dated 17.06.2009 passed by the Learned CIT(A) revenue preferred appeals before the Hon’ble ITAT mainly on the ground of disallowance. By and under a common order dated 13.04.2012 the Hon’ble ITAT decided the same with certain observations regarding the basic requirements laid down by the Jurisdictional High Court for being eligible to claim deduction u/s 80IB(10). The relevant portion whereof is as follows:

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 5 - “(1) The assessee-developer should be authorized to have the possession of the land for development of the housing project; (2) The assessee-developer should also be authorized to receive the contributions and deposits and also raise demands from the members for the dues and execute such demands through legal procedures; (3) The assessee-developer has undertaken the entire risk of development, construction and sale of the housing units to be located on the land pertaining to the original land owner; (4) The terms and conditions of the Development Agreement must show that the assessee-developer had total and complete control over the land in question. The assessee-developer should have full authority and responsibility to develop the housing project by not only putting construction but also carrying out various other activities including enrolling members, accepting membership, carrying out modification, engage professional agency etc. and most significantly the risk element should be entirely taken over by the assessee-developer.” Ultimately the Hon’ble Tribunal was pleased to restore the matter to the file of the Learned CIT(A) for fresh adjudication of the matter. While doing so, the Hon’ble Tribunal has further been pleased to deal with the finding of the Learned CIT(A) on the basis of the requirements as laid down by the Hon’ble Jurisdictional High Court for the purpose of section 80IB(10) in the matter of Radhe Developers; the specific observation of the Hon’ble Tribunal is as follows: “(1) The learned CIT(A) decided the issue by observing that as per the Agreement the risk for development including cost is to be borne by the assessee but he has not given any basis for such finding. (2) The Assessing Officer observed that in the books of account the assessee did not show any income from sale of residential units but has merely shown work done and this finding of the Assessing Officer has not been dislodged by the learned CIT(A). Therefore, it cannot be said that the assessee had total and complete control over the project.

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 6 - (3) Another objection of the Assessing Officer is that 19.52% of the total area of the project is commercial which has more than the prescribed limit u/s. 80-IB(10). This issue has not been properly considered and examined by the learned CIT(A) in the light of the statutory provisions. (4) The question of ratio of commercial area was considered by the ITAT, Special Bench, Pune in the case of Brahma Associates v. JCIT (119 ITD 255) and this decision has been considered by the Hon'ble Bombay High Court in Appeal No. 1194/10 dated 20th February, 2011 (now reported at 333 ITR289).Therefore, this should be dealt with in consonance with the above Bombay High Court decision.”

The Hon’ble Tribunal with the following observation restored the matter to the file of the Learned CIT(A): “……….. Hence, this issue should be decided after considering the judgment of Hon’ble Bombay High Court rendered in the case of Brahma Associates (supra) and also after finding out whether there is dominant control of assessee or not and whether separate approval is granted by AMC for the portion of the housing project undertaken by this assessee. In view of the above discussion, we feel that the entire matter should go back to the file of Ld CIT(A) for a fresh decision and hence, we set aside the order of Ld CIT(A) and restore the mater back to the file of Ld CIT(A) for a fresh decision. He should pass necessary order as per law in the light of above discussion after providing adequate opportunity of being heard to both the sides.”

Pursuant the such order passed by the Hon’ble Tribunal on 13.04.2012, the Learned CIT(A) dealt with the appeal on merit afresh following the guidelines framed by it and granted relief in favour of the assessee by deleting addition. Hence, the instant appeal before us.

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 7 - of project. The development as per layout plan was done by the appellant at his own cost and risk. The appellant herein is the developer-cum-builder of the housing project and claimed deduction u/s 80IB as also contended by the Learned representative of the assessee. The annual account ending on 31.03.2007, the audited report for form No.10CCB for claiming deduction u/s 80IB(10), approval of housing project approved by AMC, the BU permission granted by the AMC, the copy of the agreement of sale entered into by and between the society and the assessee for purchase of land was also duly submitted before the authorities below. He, further relied upon the judgment passed by the Co-ordinate Bench in the case of Radhe Developers-vs-ITO in support of his contentions that the assessee has fulfilled all the conditions for claiming deduction on profit of the housing project and thus entitled to deduction u/s 80IB(10) of the Act. It was further contended that when the development agreement was entered into by and between the appellant and the society, the approval for development was not there and it was therefore decided that necessary approval required for such development would be obtained by the appellant firm only. Since it was not a practice of the Ahmedabad Municipal Corporation to issue permission in the name of the developer it was granted in the name of the society taking into consideration the record of rights. It was further submitted by the Learned AO that initially the permission was granted by the AMC jointly on 05.08.2004 and also on 31.08.2004. The Learned AR further argued that the deduction u/s 80IB(10) cannot be denied only on the ground that the approval obtained from the AMC was not in the name of the developers but the society, taking into consideration that the appellant firm has taken the responsibility from the day one for obtaining such approval and made necessary payment thereto. Needless to mention that the receipt of payment made by the assessee is also on record before us. The fact of payment of consideration of Rs.1,05,00,000/- for the cost of land and other cost incurred by the society actually made by the assessee was also highlighted by the Learned AR. The Learned AR further submitted before us that the Co-ordinate Bench in the case of

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 8 - ITO-vs-Vasudev Developers in ITA No. 1868/Ahd/2011 for A.Y. 2008-09 while decided the similar issue in favour of the assessee. It was further mentioned that the appellant therein namely M/s. Vasudev Developers was one of the co-developer of the scheme in which the appellant herein is involved. Copy of the said judgment has also been handed over to us.

The Learned DR at the very onset of the matter relied upon the order passed by the Learned AO. According to him, the appellant is not a developer neither he is the owner of the project since the construction work was done in terms of the development/construction agreement. Since the appellant is doing a labour work for construction of other entity, the appellant is not entitled to deduction. The assessee since failed to fulfill the conditions prescribed under section 80IB(10) deduction has been rightly denied to him by the Learned AO as argued by the Learned DR.

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 9 - 7. Copy of purchase deed of land by Jeevandhara Co-operative Housing Society from MH Mills & Industries - agreement is for 15,378 Sq. Mtrs. 8. Copy of 7/12 for final Plot No 30 wherein land purchased by Society is separately shown. 9. Copy of Title Certificate issued b/ Advocate 10. Copy of Development Permission granted by AMC for commercial project developed by Radhe Corporation on 13th July , 2004 11. Copy of Development Permission granted by AMC for residential project on 25th June, 2004. 12. Copy of audited annual accounts along with 80IB Report for A.Y. 2008- 09” The Learned CIT(A) ultimately disposed of the appeal by granting deduction u/s 80IB(10) upon being satisfied on the conditions as fulfilled by the assessee in view of the judgments passed by the Jurisdictional High court in the case of Radhe Developers (supra). The Learned CIT(A) observed as follows: “5. I have gone through the assessment order and submissions of the A.R. of the appellant carefully. I have also discussed the issues involved with the AO during the course of hearing. From the documentary evidences filed, it is seen that the development permission for commercial project was given by the Ahmedabad Municipal Corporation vide development permission dated 13.07.2004. This permission was given to Radhe Housing and Commercial Cooperative Society which is a different entity and not the appellant. Thus it is clear that the commercial construction has not beendone by the appellant. Shri B.M. Soyantar (AO) after examining the development permissionsgranted to the appellant as well as to Radhe Housing and Commercial Cooperative Society acceptedthis fact vide order sheet entry dated 26.12.2013. It is also seen that the commercial built up area of 40,997 sq. mts. was developed by M/s Radhe Corporation. Permission for this construction was separately granted by Ahmedabad Municipal Corporation. M/s Radhe Corporation has not claimed any deduction u/s 80IB(10), since it was a commercial project and was not eligible for deduction u/s 80IB(10), in respect of this project in its return filed with the DCIT, Central Circle -1 (3)Ahmedabad. Thus the issue of the area of commercial construction as pointed out by the ITAT discussed in para 1.7 of this order was correctly decided. Since the appellant has not made any commercial construction hence deduction u/s 80IB cannot be denied on this count. 5.1 As far as bearing the risk and reward from the project and dominant control over the project is concerned, the AO expressed his reservations to contend that the

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 10 - dominant control was with the cooperative society and he relied on the assessment order in support of his contention. It is seen from the banakhat between the appellant and the cooperative society that the consideration for the land was fixed at Rs. 1,05,00,000/- which was to be paid by the appellant. It is also seen that the appellant had paid the cooperative society a sum of Rs.63,60,000/- prior Jo the banakhat being executed; It is also seen that after payment of the aforesaid sum, as per the agreement, all the rights power and authority over the land admeasuring 15378 sq. mts. was handed over by Jivandhara Cooperative Housing Society to the appellant. Thus as far as the physical possession and control over the land is concerned, it is clear that the physical possession and control vested with the appellant. 5.2 As far as the risk and reward from the project is concerned, it is seen that the AO has not appreciated the accounts properly. The appellant has been showing the income from the project on the basis of percentage completion method. In this system though the amount received from customers is shown as advance and the construction carried out is shown as work in progress, however, profits are booked every year depending on the quantum of work done in relation to the total work required to be done. From the audited accounts filed, it is seen that during the period when the project was yet incomplete i.e. A.Y. 2005-06 and A.Y. 2006-07 and A.Y. 2007-08 profit has been calculated in consonance with percentage completion method and the returns of income have been filed on that basis for the assessment years 2005-06, 2006-07 and 2007-08. For the A.Y. 2008-09 return of income has been filed on the basis of the audited accounts after taking into account all the receipts and all the expenses and deducting the profits already offered to tax. In this Profit and Loss Account the project income of Rs.14,94,48,546/- hasbeen duly credited. All other expenses are debited to the Profit and Loss Account and the net profit stands at Rs.4,80,58,725/-. Thus, the factual position is absolutely clear and the entire income from sale of residential unit has been duly accounted in the year in which the project is completed. Thus the accounts of the appellant reflect the total receipts from sale of residential flats as well as the costs incurred in construction of the project as mentioned above. 5.3 As far as the dominant control over the project is concerned , it is seen that as per clause 14,15 and 16 of the agreement the appellant had all the rights to enter into agreement with the persons wishing to be a member of the society for buying plots, flats etc. The rate of the property was also to be decided by the appellant. As far as the expenses on the project are concerned, in clause 12 of the agreement it has clearly been specified that all the expenses of the project have to be incurred by the appellant and if by chance some expenses are incurred by the society then the appellant would have to reimburse such expenses to the society. This makes it clear that all the expenses on the project have to met by the appellant.

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 11 -

5.4 In view of the above, it is clear that all the conditions laid down by the Gujarat High Court in the case of Radhe Developers have been met in this case. The Points raised by the IT AT have also been examined and it is clear that all the conditions for eligibility of deduction u/s 80IB(10) of the Act are satisfied. 5.5 Thus the AO was not justified in holding that the appellant was not entitled to deduction u/s 80IB(10) of the Act.”

Firstly it reveals from the order impugned that the Learned CIT(A) took note of this particular fact that by and under the Banakhat executed between the appellate and co- op. society the consideration for the land fixed at Rs.1,05,00,000/- was to be paid by the appellant. In fact, the appellant paid a sum of Rs.63,60,000/- to the said co-op. society prior to the banakhat executed upon which the power and authority over that particular land in question admeasuring 15378 sq. mts. was handed over by the said Jivandhara Co- operative Society to the assessee. It was further observed that physical possession and control over the land was also vested with the appellant and thereby the risk and reward from the project and dominate control over the project remained with the assessee. Needless to mention that such point decided by the Learned CIT(A) was pursuant to the guidelines framed by the Hon’ble Tribunal as mentioned hereinabove.

It was further directed by the Hon’ble Tribunal that in the earlier occasions the Learned CIT(A) has not dislodged the finding of the Learned AO to this effect that in the books of account the assessee did not show any income from sale of residential units but merely shown work done. In the order impugned, the Learned CIT(A) while addressing this particular aspect of the matter observed that during the period when the project was yet incomplete i.e. A.Y. 2005-06, 2006-07 & 2007-08 the profit was calculated in consonance with percentage completion method and the returns of income for the A.Y. 2005-06, 2006-07 & 2007-08 was filed accordingly. In fact, for A.Y. 2008-09 return of income was filed on the basis of audited accounts taking into consideration of all the

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 12 - receipts and all the expenses and deducting the profits already offered to tax. In this profit and loss account the project income was shown Rs.14,94,48,546/- which was duly credited. Other expenses were debited, finally the net profit stood at Rs.4,80,58,725/-. The entire income from sale of residential unit was, therefore, duly accounted in the year in which the project is completed which shows the accounts of the appellant reflected the total receipts from sale of residential flats as well the cost incurred in construction of the project as observed by the Learned CIT(A).

Thirdly, it was further observed by the Hon’ble Tribunal that 19.52% of the total area of the project is commercial which is more than the prescribed limit u/s 80IB(10) of the Act and therefore the Learned CIT(A) was directed to highlight this particular aspect of the matter. In the operative portion of the order impugned the Learned CIT(A) observed that the development permission for commercial project was given by the Ahmedabad Municipal Corporation on 13.07.2004 to Radhe Developers and Commercial Co-operative Society which is not the appellant but a different entity and therefore it is evident on record that the commercial construction was not done by the appellant. Such fact is also appearing in the order sheet entry dated 26.12.2013 where it is stated that the commercial built up area of 40,997 sq. mts. was developed by M/s. Radhe Corporation, permission whereof, was granted by AMC. It is relevant to mention that the said Radhe Corporation did not claim deduction u/s 80IB(10) on the premise that it was a commercial project and the said Radhe Corporation was not eligible for deduction u/s 80IB(10) of the Act in respect of this project in its return filed with the DCIT, Central Circle-1(3), Ahmedabad. Hence, the issue has been correctly decided by the Learned CIT(A) holding that deduction u/s 80IB cannot be denied to the appellant since does not made any commercial construction.

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 13 - Finally the ratio of commercial area considered by ITAT Special Bench, Pune in the case of Brahma Associates-vs-JCIT reported in 119 ITD 255 which was subsequently considered by the Hon’ble Bombay High Court in Appeal No.1194/10 on 20.02.2011 was duly taken care of the Learned CIT(A) in the order challenge.

Thus, it appears from the order passed by the first appellate authority that the mandate and/or direction and/or guidelines as framed by the Hon’ble Tribunal by its order dated 13.04.2012 has been duly taken care of on all counts while disposing of the appeal in favour of the appellant with a reasoned order. This Court, therefore, in the light of the above discussion does not find any infirmity in the order impugned passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Consequently, the appeals failed and accordingly dismissed. The other appeals filed by the revenue in IT(SS)A No.129/Ahd/2014 for A.Y. 2006-07, IT(SS)A No.130/Ahd/2014 for A.Y. 2007-08 and ITA No.1874/Ahd/2011 for A.Y. 2008-09 are of the similar set of facts and same issues are involved therein; in the absence of any change circumstances the view taken in IT(SS)A No.128/Ahd/2014 for A.Y. 2005-06 shall apply mutatis mutandis.

Sd/- Sd/- ( WASEEM AHMED) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 26/04/2019 PritiYadav, Sr.PS

ITA No.1874/Ahd/2011 & IT(SS)A No.128, 129, 130/Ahd/2014 M/s. Shri Hari Associates Asst. Years 2008-09, 2005-06, 2006-07 & 2007-08 - 14 - आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent. 2. 3. संबं�धत आयकर आयु�त / Concerned CIT आयकर आयु�त(अपील) / The CIT(A)- I, Ahmedabad. 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, 5. Ahmedabad गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 13.03.2019 + 10.04.2019 (Dictation Pages 20) 2. Date on which the typed draft is placed before the Dictating Member 11.04.2019 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S …12.04.2019 5. Date on which the fair order is placed before the Dictating Member for pronouncement… 6. Date on which the fair order comes back to the Sr.P.S./P.S……….. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………