ITO 12(3)4, MUMBAI vs. VARDHAN BUILDERS, MUMBAI

During hearing, the ld. DR, advanced his arguments which are broadly identical to the ground raised by contending that area of some of the flats is more than 1,000 sq. ft. which came to light pursuant to survey carried out by the Department. Our attention was invited to para 11.6 (page-26) of the impugned order.

2.1. On the other hand, the ld. counsel for the assessee , defended the conclusion arrived at in the impugned order by contending that survey was carried out in the year 2006, when the work was in progress, wherein, everything was found in order. It was pleaded that second survey was carried out on 01/12/2011, when certain discrepancies were pointed out with respect to area of few flats. It was asserted that the assessee completed the project on 28/03/2008 for which completion/occupancy certificate was issued to the assessee by the competent authority by further claiming that the entire building was sold up to 2011, therefore, if any, merger of flats was done by the occupants themselves, the assessee cannot be held liable as the assessee was not having any control over the flats. Reliance was placed upon the decision in Haware Construction Pvt. Ltd. vs ITO 64 DTR 251 (Mum. Trib.), Emgeen Holdings Pvt. ltd. vs DCIT 47 SOT 98 (Mum. Trib.) and in DCIT vs Magarpatta Township Development & Construction Company ITA No.822/Pn/2011. In reply, the ld. DR, placed heavy reliance upon the 3 M/s Vardhan Builders Assessing Officer.

The expression ‘housing project’ is neither defined under Section 2 of the Act nor under section 80IB(10) of the Act. Even under the Mumbai Municipal Corporation Act, 1988 as also under the Development Control Regulations for Greater Mumbai, 1991, the expression ‘housing project’ is not defined. Therefore, the expression ‘housing project’ in section 80IB(10) would have to be construed as commonly understood.

As rightly contended by Mr.Inamdar, learned Senior Advocate appearing on behalf of the assessee and Mr.Mistri, learned Senior Advocate and Mr.Joshi, learned Advocate appearing on behalf of the intervenors, the expression ‘housing project’ in common parlance would mean constructing a building or group of buildings consisting of several residential units. In fact, the Explanation in section 80IB(10) supports the contention of the assessee that the approval granted to a building plan constitutes approval granted to a housing project. Therefore, it is clear that 4 M/s Vardhan Builders 1000 square feet (‘E’ building in the present case) would constitute a ‘housing project’ under section 80IB(10) of the Act.” 22.1. We find that the Pune Bench in the case of DCIT vs. Aditya Developers [ITA.No.791 & 792/PN/2008] has observed as under: “6.1. Likewise, in the case of Vandana Properties vs. ACIT (supra), the Mumbai Bench of the Tribunal has decided the issue in favour of the assessee. In that case, the assessee had plan for 4 independent buildings ‘A’, ‘B’, ‘C’ & ‘D’ but, so far as ‘E’ is concerned only planned when the status of ‘the surplus land was converted as “within ceiling limit” and the assessee could get additional FSI for launching Wing ‘E’, wing ‘E’ was planned and construction was commenced after 1st October 1998 and building/wing ‘E’ was an independent housing project as contemplated u/s.80IB(10). The Tribunal held that the concept of housing project does not mean that should be the group of buildings and only then same is called a “housing project”. It was further held that building/wing ‘E’ cannot be passed with earlier buildings, i.e., A, B, C & D which work was commenced in the year 1993 whereas plan for wing ‘E’ was approved for only once in the year 2002. It was held further that the conclusion drawn by the authorities below that the commencement of wing ‘E’ is a continuation of the existing project is erroneous.” 22.2. We also find that the Pune Bench in the case of Rahul Construction Co. Vs. ITO [ITA.No.1250/PN/09 & 707/PN/2010] has observed as under: “10. In view of above discussion, we come to the conclusion that for verification of eligibility of benefit claimed u/s. 80 IB (10) of the Act by the assessee on buildings A1 to A5 in “Atul Nagar” and buildings B1 to B6 in “Rahul Nisarg Co- Operative Housing Society Ltd.”, the assessing authority has to verify as to when the building plans for these buildings were firstly approved by the local authority and taking the said date 5 M/s Vardhan Builders of approval a starting point, he has to verify as to whether these buildings were completed within the prescribed time limit i.e. 31st March 2008 on the basis of the Completion Certificate in respect of such housing project issued by the PMC. When we examine the facts of the present case under the above background, we find that the authorities below have not disputed the fact furnished in this regard by the assessee that under the project “Atul Nagar” consisting of buildings A1 to A5, the first building plan for A type was approved by the PMC on 29.4.2003 vide Commencement Certificate No. 4269 (page No. 4 of the paper book). However, actual construction of A type building was executed as per the revised plan vide No. C.C. 4101/27/6/2003 (PAGE No. 5 of the paper book). The size of the plot on which the A type building i.e. A1 to A6 have been constructed is 1,39,466 sq.ft. The project A type building i.e. A1 to A5 consists of 360 residential units and the construction has been completed between 10.1.2005 to 31.8.2005 (page Nos. 6 to 9 of paper book). The authorities below have also not disputed this material fact that residential units has a maximum built up area of 1500 sq.ft. Likewise, these material facts that B Group buildings in “Rahul Nisarg Cooperative Housing Society Ltd.,” have been constructed on land area of 138203 sq.ft., has not been denied by the authorities below. They have also not denied these material facts that the first building plan was sanctioned on 29.4.2003 vide Commencement Certificate No. 4269 issued by the PMC (Page No. 16 of the Paper Book). The other material facts like actual construction was executed as per the revised plan sanction on 20th March 2004 vide CC No. 2225 (page No. 17), the project consists of 396 flats and construction of these flats have been completed on 14.7.2006 as per the Completion Certificate issued by the PMC (Page Nos. 13 to 18 of paper book) are not in dispute. The authorities below have also not denied that built up area of each of these flats does not exceed 1500 sq.ft. It is also not in dispute that both the projects are entirely a residential project and there is no commercial area therein. Under the above circumstances, we are of the view 6 M/s Vardhan Builders that the assessee is very much entitled to the claimed deduction u/s. 80 IB (10) of the Act on the buildings A1 to A5 in “Atul Nagar” and buildings B1 to B6 in “Rahul Nisarg Cooperative Housing Society Ltd.” The issue is therefore decided in favour of the assessee. We thus while setting aside the orders of the authorities below on the issue, direct the A.O to allow the claimed deduction u/s. 80 IB(10) in question. The related grounds are accordingly allowed.

In result, appeal is allowed.” 22.3. We find that ITAT Mumbai Bench in the case of Mudhit Madanlal Gupta vs. ACIT [51 DTR 271(Mum)(Trib)] has observed as under: “Deduction under s.80-IB – Income from developing and building housing project – Conditions precedent – Assessee engaged in construction business entered into a joint development agreement for construction of residential flats – Total plot measured approximately 7633.82sq.mtrs. – Deduction was denied by AO on the grounds that (i) assessee had completed only A, B and C wings upto 31st March, 2008 and D wing was not completed (ii) total project area was 1.88 acres and since assessee’s share was only 51 per cent of the built-up area, the project area was of less than one acre and (iii) in some of the flats units area exceeded 1000sq.ft. – Not justified – CIT(A) was satisfied that each unit of the residential flat in all the three wings was less than 1000 sq.ft. and some of those flats were later converted by the buyers by joining the same wherever the buyers had purchases more than one unit and since Revenue has not filed any cross-objection against this finding, the same has become final and binding on the Revenue – Independent units are residential units and have to be treated as separate housing projects for the purpose of deduction under s.80-IB(10) as long as they fulfil the other conditions prescribed under the Act – There is no requirement that such undertaking of assessee should be the owner of such land – Assessee is a developer of the whole of the project and, therefore, the share could not be allocated only in terms of 51 7 M/s Vardhan Builders 49 per cent share is going to the land owners in respect of the land cost – Area under the project was about 7000 sq.mtrs. which was meant for development and which is more than one acre and, therefore, deduction cannot be denied on this ground – Assessee was therefore entitled to deduction under s.80- IB(10).” 22.4. We find that ITAT Bangalore Bench in the case of Dy.CIT vs. Brigade Enterprises (P) Ltd. [119 TTJ 269 (Bang.)] has observed as under: “Deduction under s.80-IB – Income from developing and building housing project – Different units of a group project – Where some of the residential units in a bigger housing project, treated independently, are eligible for relief under s.80-IB(10), relief should be given pro rata and should not be denied by treating the bigger project as a single unit, more so, when assessee obtained all sanctions, permissions and certificates for such eligible units separately – Assessee undertook a development project in an area of 22 acres 19 guntas consisting of 5 residential blocks, row houses, oak tree place, a club, a community centre, a school and a park and claimed deduction under s.80-IB(10) in respect of two residential units only which if taken separately, were eligible for the relief – AO treated the entire project as a single unit and denied relief under s.80-IB in entirety – CIT(A) allowed relief under s.80-IB(10) treating the said two units as independent units – Justified – Material on record showed that the various local authorities duly inspected the plot and sanctioned plan for each of the blocks separately – Group housing approval was approval of a master plan as a concept – Further, the use of the words “residential unit” in cl.(c) of s.80- IB(10) means that deduction should be computed unit- wise – Therefore, if a particular unit satisfies the condition of s.80-IB, the assessee is entitled for deduction and it should be denied in respect of those units only which do not satisfy the 8 M/s Vardhan Builders Again, the accounting principles would also mandate recognition of profits from each unit separately.”

As regards the two flats combined in Building I, it is submitted that the flats are combined by the customers. The assessee has received completion certificate independently for the two units and therefore, the Assessing Officer is not justified in calculating the built up area by combining the two units. The assessee submits that if units are combined by the customers, the built up area should be computed independently and the assessee cannot be denied the deduction. For this proposition, the assessee places reliance on the following decisions – a. Haware Constructions Pvt. Ltd. [64 DTR 251 (Mum)] b. Emgeen Holdings P. Ltd. vs. DCIT [ITA.No.3594 & 3595/Mum/09] c. DCIT vs. Arcade Bhoomi Enterprises [ITA.No.366/Mum/10] 23.1. We find that the ITAT Mumbai Bench in the case of Haware Constructions (P) Ltd. vs. ITO (2011) 64 DTR (Mum)(Trib) 251, has held as under: “Deduction under s. 80-IB - Income from developing and building housing project-Built up area exceeding 1,000 sq. ft.- Built-up area of each flat as approved by CIDCO is less than 1,000 sq. ft. as per the approved plan and the assessee has sold each flat under separate agreements and not sold two flats by combining them together as one flat to one party Further, there is no evidence on record to suggest that the assessee has drawn the plan in such a manner that each residential unit is shown as smaller than 1,000 sq. ft. merely to get the benefit of deduction under s. 80-IB(10)-It is also not the case of the Revenue that each flat in the housing project could not have been used as an independent or as a selfcontained residential unit and that there would be a complete habitable residential unit only if two or more flats are joined together-Therefore, merely because some of the purchasers have purchased more than one flat and combined 9 M/s Vardhan Builders the same, assessee's claim for deduction under s. 80-IB(10) cannot be disallowed-Further, the condition that not more than one residential unit in the housing project is allotted to one person not being an individual has been inserted by Finance (No.2) Act, 2009, w.e.f. 1st April, 2010, and hence, it is not applicable to the facts of the case.” 23.2. We find that the ITAT Mumbai Bench in the case of Emgeen Holdings P. Ltd. vs. DCIT in ITA.No.3594 & 3595/Mum/09, has observed as under: “7. We find that the deduction u/s.80IB(10) has been declined by the Assessing Officer on the ground that size of the residential unit was in excess of 1,000 sq.ft which, in turn, proceeds on the basis that the flats sold to the family members admittedly by separate agreements, should be treated as one unit. We are unable to approve this approach. We have noted that the size of each flat, as evident from building plan as duly approved by Municipal authorities was less than 1,000 sq.ft. We have also noted that it is not even revenue's case that each of flat on standalone basis was not a residential unit. Even if flats were constructed or planned in such a way that two flats could indeed be merged into one larger unit, as long each flat was an independent residential unit, deduction u/s.80IB(10) could not be declined It is important to bear in mind the fact that what section 80IB(10) refers to is 'residential unit' and, in the absence of anything to the contrary in the Income tax Act, the expression 'residential units' must have the same connotations as assigned to it by local authorities granting approval to the project. The local authority has approved the building plan with residential units of less than 1,000 sq.ft, and granted completion certificate as such. That leaves no ambiguity about the factual position. We have further noted that the prohibition against sale of more than one flat in ,a housing project to members of a family has been inserted specifically with effect from 1st April 2010, and, in our humble understanding, this amendment in law can only be treated as prospective in effect. What is, therefore, clear is that so far as pre-amendment position is concerned, as long a residential 10 M/s Vardhan Builders unit has less than specified area, is as per the duly approved plans and is capable of being used for residential purposes on standalone basis, deduction u/s.8018(10) cannot be declined in respect of the same merely because the end user, by buying more than one such unit in the name of family members, has merged these residential units into a larger residential unit of a size which is in excess of specified size. That precisely is the case before us. While on the subject, it is useful to take note of legislative amendment by the virtue of which legislature put certain restrictions on sale of residential units to certain family members of a person who has been sold a residential unit in the housing project. Section 80IB(10) now provides an additional eligibility condition that in a case where a residential unit in the housing project is allotted to any person being an individual no other residential unit in such housing project is allotted to any of the following person, namely (i) the individual or the spouse, or the minor children of such individual (ii) the HUF in which such individual is a karta (iii) any person representing such individual the spouse or minor children of such individual or the HUF in which such individual is a karta. The explanation memorandum explained the legislative amendment as follows: (314 ITR(St) 203) "Further, the object of the tax benefit for housing projects is to build housing stock for low and middle income households. This has been ensured by limiting the size of the residential unit. However, this is being circumvented by the developer by entering into agreement to sell multiple adjacent units to a single buyers. Accordingly. it is proposed to insert new clauses in the said sub-section to provide that the undertaking which develops and builds the housing project shall not be allowed to allot more than one residential unit in the housing project to the same person, not being an individual and where the person is an individual no other residential unit in such housing project is allotted to any of the following person:- (I) Spouse or minor children of such individual; 11 M/s Vardhan Builders (II) The Hindu undivided family in which such individual is the karta; (III) Any person representing such individual the spouse or minor children of such individual or the Hindu undivided family in which such individual is the karta. This amendment will take effect from the 1st April 2010 and shall accordingly apply in relation to assessment year 2010- 2011 and subsequent years."

It is thus clear that the aforesaid amendment has been brought with prospective effect i.e. from 1st day of April 2010, and there is no indication whatsoever to suggest that these restrictions need to be applied with retrospective effect. The amendment seeks to plug a loophole but restricts the remedy with effect from 1st day of April 2010, i.e. AY 2010-2011. The law is very clear that unless provided in the Statute, the law is always presumed to be prospective in nature. It will therefore, be contrary to the scheme of law to proceed on the basis that wherever adjacent residential units are sold to family members, all these residential units are to be considered as one unit. If law permitted so, there was no need of the insertion of clause (f) to section u/s 80IB(10). It will be unreasonable to proceed on the basis that legislative amendment was infructuous or uncalled for -particularly as the amendment is not even stated to be 'for removal of doubts'. On the contrary, this amendment shows that no such eligibility conditions could be read into pre-amendment legal position.

As regards the AO's stand that the assessee himself has offered the deduction u/s.80IB(10) in respect of these units during the course of survey proceedings, it is only elementary that neither statement recorded ujs.133A has an evidentiary value, nor a legal claim can be declined only because assessee, at some stage, decided to give up the same. In view of these discussions, and bearing in mind entirety of the case, are of the considered view that the deduction ujs.80IB(10) ought to have been allowed to the assessee entirely. To this 12 M/s Vardhan Builders CIT(A) and allow further relief to the assessee.” 23.3. We find that the ITAT Mumbai Bench in the case of Arcade Bhoomi Enterprises vs. DCIT in ITA.No.366/Mum/2010, has taken similar view.

In view of above discussion, we hold that CIT(A) was not justified in holding that flats in building Prime had built up area exceeding 1500 sq.ft., the entire Cosmos Project did not qualify for deduction u/s.80IB(10) in respect of its profits. There is nothing on record to suggest that assessee has claimed deduction in respect of building Prime wherein built up area of its units is exceeding 1500 sq.ft. In fact there were 25 buildings in Cosmos Project out of which except building Prime, all other buildings satisfy the conditions of built up area limit of 1500 sq.ft. Therefore, deduction u/s.80IB(10) should be allowed in respect of profit from such buildings. This view is fortified by the decisions in Vandana Properties (supra) and Aditya Developers (supra) discussed above. As regards two flats combined together, the allegation is that some units were combined into one, so deduction u/s.80IB(10) should not be allowed. In this regard, assessee’s stand has been that assessee conceived the flats as independent units and these were constructed as independent units. There is nothing on record to suggest that assessee himself has joined the adjacent flats. In this situation, assessee should not suffer for its no fault if purchaser join the adjoining flats. This view is fortified by the decision of Mumbai Bench of ITAT in Haware Constructions Pvt. Ltd. (supra), Emgeen Holdings P. Ltd. (supra) and Arcade Bhoomi Enterprises (supra), etc., as discussed above. In view of above, we hold that assessee is entitled for deduction u/s.80IB(10) in respect of entire profits computed after making additions/disallowances in respect of Cosmos Project consisting of 24 buildings excluding Prime building. The Assessing Officer is directed accordingly.” 2.3. We have considered the rival submissions and perused the material available on record. If the observation 13 M/s Vardhan Builders made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, and the conclusion drawn in the aforementioned cases including cited from both sides, if kept in juxtaposition and analyzed, the facts, in brief, are that the assessee is engaged in the business of construction and development. The assessee declared nil income in its return filed on 29/09/2009, which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter the Act) accepting the returned income. The assessee follows project completion method. The case of the assessee was selected for scrutiny, therefore, requisite notices were issued and served upon the assessee to which the assessee attended the proceedings and filed necessary details/submissions (as is evident from page 1 of the assessment order). The whole case of the department is demolished by the observation made in the assessment order itself (para-3), wherein, the ld. Assessing Officer himself concluded that the project was completed in the preceding year relevant to assessment year, whereas, the second survey was conducted on 01/12/2011. It is pertinent to note here that the construction started on 15/04/2002 and completed on 28/03/2008, the date when after examining the flats, the competent authority issued completion certificate to the assessee certifying that the project was completed as per the approved plan. The assessee showed the net profit of Rs.9.07 crores out of the total sales.