DCIT, CIRCLE - 12, KOLKATA, KOLKATA vs. M/S. BENGAL AMBUJA HOUSING DEVELOPMENT LTD., KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA [Before Shri Mahavir Singh, JM & Shri Waseem Ahmed, AM]

I.T.A No. 1080 & 1081/Kol/2010 Assessment Years: 2004-05 & 2005-06

Deputy Commissioner of Income-tax, Vs. M/s. Bengal Ambuja Housing Deve- Circle-12, Kolkata. lopment Ltd. (PAN: AABCB0977F) (Appellant) (Respondent)

Date of hearing: 29.10.2015 Date of pronouncement: 24.11.2015

For the Appellant:Shri S. S. Alam, JCIT, Sr. DR For the Respondent: Shri D. S. Damle, FCA

ORDER Per Shri Mahavir Singh, JM: Both these appeals by revenue are arising out of common order of CIT(A)-XXXII, Kolkata in Appeal Nos. 208 & 12/CIT(A)-XXXII/08-09/Cir-12/R&T/Kol dated 12.02.2010. Assessments were framed by ACIT/DCIT, Cir-12, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AYs 2004-05 and 2005-06 vide their separate orders dated 28.12.2006 and 03.12.2007 respectively. 2. The only common issue in these two appeals of revenue is against the order of CIT(A) in deleting the disallowance of deduction u/s. 80IB(10) of the Act in respect to profit derived from housing project (luxury). For this, revenue has raised identically worded grounds and the ground raised in ITA No. 1080/K/2010 for AY 2004-05 reads as under: “1. On the facts and in the circumstances of the case, ld. CIT(A) has erred in directing the AO to allow deduction in respect of income of Luxury group only without setting off losses of Efficiency and Comfort Housing Project.” 3. Briefly stated facts are that the assessee claimed deduction u/s. 80IB of the Act in respect to housing project named Luxury (HIG) at New Town, Rajarhat, Kolkata. According to AO, assessee has claimed deduction u/s. 80IB of the Act in respect to housing project namely, HIG (Luxury) but the assessee has also incurred loss in LIG (Efficiency) and MIG (Comfort) but not claimed in the return of income. According to AO, the approval for this project Utsa-the-Condoville was granted vide single approval letter No. 638/Hidco/Ping/141/(2001) dated 23.10.2002. According to AO, in this letter, while granting approval, it is written that approval is in respect of development proposal of 5 acre of land in Block AG of New Town, Rajarhat, Kolkata by Bengal Ambuja

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Housing Board. He also noted that following drawings for development of 5 acre of land in this block are provisionally approved as under:

According to him, the deduction u/s. 80IB of the Act is allowable to the assessee at the entire project including the loss incurred in LIG (Efficiency) and MIG (Comfort) Projects and he computed the deduction u/s. 80IB of the Act as under:

“Income of Efficiency (LIG): (-) Rs. 57,23,499/- Income of Comfort (MIG) (-) Rs. 52,89,908/- Income of Luxury (HIG) Rs.3,63,02,849/- Income of the eligible housing project: Rs.2,52,89,442/- Deduction u/s. 80IB(10) @ 100% Rs.2,52,89,442/-” 4. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of assessee vide para 6.10 to 6.13 as under:

“6.10. It is also noted that the appellant maintained separate books of account for each housing project and profit or loss of each project was separately identifiable. In fact in the impugned assessment the AOP has not disputed the book results disclosed by Profits & Loss A/cs prepared by the appellant in respect of each housing project. The AO having accepted profit or loss disclosed by individual Profit & Loss A/c prepared for each project; aggregated the profit and loss of all projects for the purpose of computing deduction permissible u/s 80IB(l0). I therefore find that the AO per se did not dispute the fact that appellant maintained separate books for each project and the profit and loss of each project was separately identifiable. 6.11 It also appeared that in the past the appellant had similarly executed "UDOTA-THE CO DOVILLE" housing project which was also set up on land owned by West Bengal Housing Board. This project also consisted of LIG, MIG & HIG complex which were promoted and executed ad independent housing projects and deductions u/s. 80IB(10) was claimed only in respect of profits derived from HIG housing project. In the past assessment; appellant's claim u/s.80IB was also considered only in respect of HIG project. Having regard to the totality of the above facts, conduct of the assessee and documents executed by the parties from time to time I find force in the submissions for the A/R that "Luxury" housing project was separate and independent project, and therefore for the purpose of allowing deduction u/s. 80IB(10) of the Act profit of the said housing project alone should have been considered by the AO. 6.12 In so far as A.Y. 2005-06 the Assessing Officer has given an additional reason for disallowing the deduction u/s. 80IB(10). As per the amendment effected by the Finance (No.2) Act 2004; which came into force from A. Y.2005-06; an eligible housing project could not contain commercial area of more than 2000 sq.ft. According to AO; appellant's housing project contained "Utsa Centre" which had commercial area of 5000 sq.ft and this was more than the specified limit. However on reference to Site Plan and the registered Sale-Deeds it appeared that the "Utsa Centre" was part of Efficiency Comfort housing

3 ITA Nos.1080 & 1081/K/2010 Bengal Ambuja Housing Dev. Ltd. AYs 2004-05 & 2005-06 project; set up on demarcated 2 Acres land and the same did not form part of "Utsa-The Condoville Luxury" housing project in respect of which the deduction was claimed. 6.13 For the reasons discussed hereinabove therefore I hold that the assessee was entitled to claim deduction u/s. 80IB(10) with reference to profits derived by "Utsa the Condoville Luxury" housing project and AO was not justified in aggregating loss of "Utsa the Condoville- Efficiency- Comfort" housing project with such profit. The AO is accordingly directed to re-compute the deduction permissible u/s. 80IB(l0) and allow the deduction accordingly.” Aggrieved, now revenue is in second appeal before Tribunal. 5. We have heard rival submissions and gone through facts and circumstances of the case. We have also gone through the case records as well as the paper book filed by the assessee. The facts are that the West Bengal Housing Board (“the Board” in short) is a autonomous body functioning under the Govt. of West Bengal. The Board granted development rights of housing project to assessee in respect of land admeasuring 5 acres vide agreement dated 26.08.2002. The assessee after taking possession of land, bifurcated the same into two parts – (i) admeasuring 3 acres and (ii) admeasuring 2 acres. The building plans for HIG, MIG and LIG projects were separately approved by West Bengal Housing Infrastructure Development Corporation Ltd. (in short WBHIDCL) i.e. the Regulatory Authority for New Town Rajarhat granted approval vide letter dated 23.10.2002. Admittedly, the plans for HIG, MIG and LIG projects were approved separately. It also approved building plans for resident’s club and commercial complex separately on 04.12.2002. The assessee claimed that these are three separate projects and approval is also granted by a Regulatory Authority separately. From the records, the assessee claimed that the housing projects for MIG i.e. comfort and LIG i.e. efficiency were launched in February, 2002 and draw of lottery of flat was made on 19.02.2002. Luxury housing project was launched much latter in November, 2002 and draw of lottery was made on 29.11.2002. The assessee claimed that these are three different projects entirely different and distinct. Ld. Counsel for the assessee before us stated that the projects of the assessee constructing apartments did not mean that the purpose and objective of all the three projects was same and all the three projects together does not form one single housing project. According to him, all the three projects are separate and distinct. Ld. Counsel for the assessee also argued that separate books of account for each housing project was maintained and complete P&L Account for each project was drawn. Ld. Counsel for the assessee then explained the term ‘undertaking’ or a ‘housing project’, which has not been defined in the Act but undertaking can be said to be one if the

4 ITA Nos.1080 & 1081/K/2010 Bengal Ambuja Housing Dev. Ltd. AYs 2004-05 & 2005-06 business objective, purpose, product and customer base intended to be served by undertaking or project are common or same. But if the business objective, the quality of product, the customer base intended to be served fundamentally the same can be said to be one and the same undertaking. According to him, there are different purpose, objective, product and customer base in the present case for all the three projects. Ld. Counsel for the assessee drew our attention to the primary condition required to be fulfilled for claiming deduction u/s. 80IB(10) of the Act, for the relevant AY 2004-05, which are as follows: “a) The undertaking was engaged in developing and construction of a housing project, b) The Housing project was constructed on land area exceeding 1 Acre, c) Residential unit comprised in the housing project did not exceed 1500 sq. ft., The local authority had sanctioned the project after 1st April, 1998.” d)

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“9. Sub-section (1) of section 80-IB provides that where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11B), there shall be allowed, in computing the total income of the assessee a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. Sub-section (2) states that this section applies to any industrial undertaking which fulfills all the conditions stipulated in this sub-section. Sub-section (4) of section 80-IB states that "the amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter.......". In the instant case, it is not in dispute that the assessee has satisfied all other requisite conditions making the assessee eligible for deduction. On a cursory look at sub-section (4), it is apparently borne out that the amount of deduction is available in respect of the profits and gains derived from an industrial undertaking. If there is no profit from an industrial undertaking obviously there cannot be any question of allowing deduction under this section. Equally if there is a loss in an industrial undertaking in that case again there will not be any point in claiming deduction under this section. As this sub-section provides for granting deduction on the profits and gains derived from "such industrial undertaking", it is clear pointer for granting deduction in respect of profit earned by each of such eligible industrial undertakings separately. If there is a profit derived from such industrial undertaking, the deduction under section 80-IB will follow. The loss from such eligible industrial undertaking will go out of reckoning. There is no warrant for reducing the loss of one eligible undertaking from the profit of the other eligible undertaking. Such an interpretation will lead to violence to the unambiguous language of section, which otherwise talks of granting deduction in respect of the ‘profits and gains derived from such industrial undertaking’. If we were to read the section in a way that has been read by the authorities below, then instead of the phrase extracted in the preceding line, it should have been ‘aggregate of profits and gains derived from such industrial undertakings’. It is, therefore, abundantly clear that there is no reference to the aggregate of profits from all the eligible industrial undertakings. We are, therefore, of the considered opinion that if there is profit derived from a particular industrial undertaking, that will qualify for deduction without reduction of loss suffered by any other eligible industrial undertaking(s). 10. Section 80IB(13) reads as under: “(13) The provisions contained in sub-section (5) and subsections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible business under this section22.” 11. Sub section(5) of section 80IA reads asunder: “(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.” 12. Thus, a reading of the above provisions shows that for determining the amount which qualifies for deduction u/s 80IB(1), one has to compute the income from eligible business as if the eligible business was the only source of income of the assessee. In other words, the income or loss from other business or other activities are to be ignored for the purpose of determining the amount which is eligible for deduction u/s 80IB(1) of the Act. 13. Section 80A(1) provides that in computing total income of the assessee, there shall be allowed from the gross total income the deductions specified in sections 80-C to 80-U. Sub- section (2) further provides that the aggregate amount of deductions under this Chapter shall not in any case exceed the gross total income of the assessee. The gross total income

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has been defined under section 80B (5) to mean ‘the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter.’ It therefore follows that the primary step for considering the grant of deductions under Chapter VI-A is to determine the gross total income, which, in turn, is computed by aggregating the income from all the sources in this year after adjusting the losses of the current year under any head. The brought forward loss or unabsorbed depreciation etc., are also reduced. The resultant figure is determined as gross total income. To put it simply gross total income is the income available at the disposal of the assessee immediately before allowing deductions under Chapter VI-A. If the gross total income is say Rs. 100 and the assessee is entitled to deduction under section 80-IB at Rs. 150, then the amount of deduction under section 80-IB will be restricted to Rs. 100 as per the mandate of section 80A which provides that the deductions shall be allowed from the gross total income and the aggregate amount of all the deductions shall not in any case exceed the gross total income of the assessee. If however the amount of eligible relief under section 80-IB is say Rs. 90, then full amount will be eligible for deduction because the amount of the eligible relief does not exceed the gross total income. Therefore it is mandatory to work out the eligible amount of deduction under various sections of Chapter VI-A individually and then such aggregate amount has to be restricted to the amount of gross total income as computed under section 80B(5), which means the income available after adjusting all the brought forward losses and unabsorbed depreciation etc. 14. Thus, a careful reading of all the above provisions shows that what is relevant for ascertaining the amount which is allowable deduction u/s 80IB are – (i) Amount of profit derived from eligible business; and (ii) The amount of gross total income of the assessee The amount of profit derived from eligible business qualifies for deduction u/s 80IB subject to the amount of gross total income of the assessee. There is absolutely no relevance for this purpose of the amount which is arrived at by aggregating income from all the different business of the assessee which is the amount assessable as business income of the assessee. 15. We are reminded of the celebrated judgment rendered by the Hon’ble Supreme Court in the case of CIT v. Canara Workshop (P.) Ltd. [1986] 161 ITR 3201 in which the assessee was engaged in the manufacture of automobile spares. The products manufactured by it were covered by the list in the Fifth Schedule to the Income-tax Act. During the relevant period, the assessee commenced another activity, that is the manufacture of alloy steels, which was also an industry covered in the Fifth Schedule. The assessee sustained loss in the alloy steel industry but profit in the other industry. It claimed deduction in respect of the profit without reducing the loss from the alloy steel industry. The ITO held that the assessee will be entitled to deduction under section 80E on the profits from the manufacture of automobile parts only after setting off the loss in alloy steel manufacture. The High court decided the point in assessee’s favour. The revenue assailed the judgment of the Hon’ble High Court before the Hon’ble Supreme Court. While affirming the view taken by the Hon’ble High Court, it was held that in computing the profits for the purpose of deduction under section 80E, the loss incurred by the assessee in the manufacture of alloy steels (a priority industry) could not be set off against the profits of the manufacture of automobile ancillaries (another priority industry) and hence the assessee was entitled to deduction at the specified rate on the entire profits of the automobile parts industry included in the total income without deducting there from the loss in the alloy steel manufacture. Facts involved in the instant appeal are mutatis mutandis similar. 16. The Hon’ble Andhra Pradesh High Court in the case of CIT v. Visakha Industries Ltd. [2001] 251 ITR 4711 has also taken the similar view by holding that the deductions contemplated under section 80HH and 80-I are to be allowed with reference to the profits of the particular industrial undertaking and not with reference to the total income of the assessee and therefore loss in another unit cannot be set off against the profits of eligible unit.

7 ITA Nos.1080 & 1081/K/2010 Bengal Ambuja Housing Dev. Ltd. AYs 2004-05 & 2005-06 17. In the instant case, we observe that gross total income of the assessee is Rs. 2,56,37,975/- after adjusting losses suffered by the assessee in the other two ‘projects viz. ‘Shreyas’ and ‘Coimbatore’. There are no brought forward losses or unabsorbed depreciation. The claim of deduction u/s 80IB in respect of the two eligible units viz. ‘Spandhana’ and ‘Samruddhi’ of ` 2,23,22,237/- is obviously less than the gross total income. In our considered opinion, the Assessing Officer as well as the ld. CIT(A) erred in interpreting the relevant provisions when they held that the losses suffered by the assessee from two projects, viz. ‘Shreyas’ and ‘Coimbatore’ be reduced from the profits of the other two units viz. ‘Spandhana’ and ‘Samruddhi’ for granting deduction u/s 80IB. Accordingly, the impugned orders of the lower authorities are set aside. The Assessing Officer is directed to allow deduction u/s 80IB on the profits derived by the assessee from two projects viz. ‘Spandhana’ and ‘Samruddhi’ of ` 2,23,22,237/-. Thus, the grounds of appeal of the assessee are allowed.” We find from the above precedent and facts of the case, that the issue is squarely covered by the decision of Chennai Tribunal in the case of Shriram Properties (P) Ltd., supra. Similar is the issue and facts are exactly identical in ITA No.1081/kol/2010 for the AY 2005-06, hence, taking consistent view, we decide this appeal also taking similar view. Respectfully following the same, we uphold the orders of CIT(A) and this common issue of revenue’s appeals is dismissed. 9. In the result, the appeals of revenue are dismissed. 10. Order is pronounced in the open court on 24.11.2015 Sd/- Sd/- (Waseem Ahmed) (Mahavir Singh) Accountant Member Judicial Member

Dated : 24th November, 2015 Jd. Sr. P.S

Copy of the order forwarded to:

APPELLANT – DCIT, Circle-12, Kolkata. 1. Respondent – M/s. Bengal Ambuja Housing Development Ltd., 86C, 2 Topsia Road (South), Kolkata-700 046. The CIT(A), Kolkata 3. 4. CIT Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.