M/s. Shipra Estate Ltd. & Jai Krishan Estate Developers Pvt. Ltd., New Delhi V. ACIT, New Delhi

CO 20/DEL/2015

• Counselvise Citation: [2016] 119 COUNSELVISE.COM (IT) 3205 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 24-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PANKAJ VIDHARTHI
• Keywords: Value adopted by valuation officer; Business income
• Section: 80IB; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 5614/DEL/2012 AY: 20 09-10 ITA NO. 1950/DEL/2012 AY: 20 08-09 ACIT, VS SHIPRA ESTATE LTD. & JAI KRISHAN ESTA TE CIRCLE 36(1), DEVELOPERS PVT. LTD., D-32, NEW DELHI. MAIN VIKAS MARG, NEW DELHI. (PAN: ABGFS9748C) ITA NO. 5849/DEL/2012 AY: 20 09-10 SHIPRA ESTATE LTD. & JAI KRISHAN ESTATE VS A CIT, CIRCLE 36(1), PVT. LTD., NEW DELHI. C.O. NO. 20/DEL/2015 (IN ITA NO. 1950/DEL/2012) AY: 20 08-09 SHIPRA ESTATE LTD. & JAI KRISHAN ESTATE VS ACI T, CIRCLE 58(1) PVT. LTD., NEW DELHI. (APPELLANT) (R ESPONDENT) DEPARTMENT BY : SHRI PANKAJ VIDHARTHI, CIT DR ASSESSEE BY : SHRI AJAY WADHWA, ADV. DATE OF HEARING: 02.03.2016 DATE OF PRONOUNCEMENT: 30.05.2016 ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA 1950/12 HAS BEEN PREFERRED BY THE DEPARTMENT A GAINST THE ORDER DATED 20.01.2012 PASSED BY THE LD. CIT(AP PEALS)-XXVII, NEW I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 2 DELHI FOR A.Y. 2008-09. CO 20/2015 HAS BEEN PREFER RED BY THE ASSESSEE AGAINST THE DEPARTMENTAL APPEAL. ITA 5614 /12 HAS BEEN PREFERRED BY THE DEPARTMENT AGAINST THE ORDER DATED 27.08.2012 PASSED BY THE LD. CIT(APPEALS)-XXVII, NEW DELHI FOR AY 2009-10. ITA 5849/12 IS THE CROSS APPEAL BY THE ASSESSEE FOR AY 2009-10. AS THE THREE APPEALS AND THE CO WERE HEARD TOGETHER, THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA 1950/2012 & CO 20/2015 2. RETURN DECLARING AN INCOME OF RS. 11,00,06,440/- WAS FILED ON 29.09.2008. IN THE ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT), THE A O DETERMINED THE INCOME OF THE ASSESSEE AT RS. 36,88,00,000/- AFTER MAKING AN ADDITION OF RS. 25,91,00,000/- BY REJECTING THE PROJECT COMP LETION METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE ASSESSEE IS A PARTNERSHIP FIRM HAVING TWO PARTNERS NAMELY M/S SHIPRA ESTATE L TD. (50% SHARE) AND M/S JAI KISHAN ESTATE DEVELOPERS (P) LTD. (50% SHARE). THE ASSESSEE FIRM ENTERED INTO JOINT VENTURE WITH GHAZI ABAD DEVELOPMENT AUTHORITY (GDA) FOR THE CONSTRUCTION AND DEVELOPMEN T OF HOUSING PROJECTS ON TWO PLOTS OF LAND BEARING PLOT NO. 14 A ND PLOT NO. 15 SITUATED IN INDIRAPURAM AT GHAZIABAD. THE FIRM HAD COMMENCED DEVELOPMENT OF VISTA PROJECT IN THE YEAR 2005 AND SHRISTI PROJECT IN I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 3 THE YEAR 2007 ON THE TWO PLOTS RESPECTIVELY AS MENT IONED ABOVE. DURING THE YEAR, THE ASSESSEE HAD CARRIED ON THE WO RK ON BOTH THE PROJECTS. THE METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE WAS PROJECT COMPLETION METHOD AND THE REVENUE WAS R ECOGNIZED AT THE TIME OF REGISTRATION OF THE RESIDENTIAL UNIT IN THE NAME OF THE CUSTOMER. TILL THE COMPLETION OF THE PROJECT, AMOU NTS RECEIVED FROM THE CUSTOMERS AGAINST THE BOOKING OF THE FLATS WERE SHOWN AS ADVANCES AND WERE REFLECTED AS LIABILITIES IN THE B ALANCE SHEET. THE EXPENSES INCURRED WERE SHOWN UNDER WORK-IN-PROGRESS . THE AO NOTICED THAT AS ON 31.03.2008, THE ASSESSEE HAD REC EIVED A TOTAL AMOUNT OF RS. 228.25 CRORES FROM THE CUSTOMERS IN R ESPECT OF THE VISTA PROJECT. THE TOTAL ESTIMATED COST OF THE PRO JECT WAS RS. 209.81 CRORES. AS PER THE ALLOTMENT LETTERS, THE TOTAL SA LES PRICE OF THE VISTA FLATS WAS CALCULATED BY THE AO AT RS. 250.24 CRORES . THE ASSESSEE HAD ALREADY RECEIVED AN AMOUNT OF RS. 228.25 CRORES (91 .21% OF THE TOTAL SALE PRICE OF THE FLATS). THE AO OPINED THAT RECEI PT OF 91.21% SHOWED THAT THE FLATS WERE IN ADVANCED STAGE OF COMPLETION AND THAT THE VISTA PROJECT HAD BEEN SUBSTANTIALLY COMPLETED. IT WAS T HE AOS OBSERVATION THAT THE INCOME HAD NOT ONLY ACCRUED BUT HAD IN EFF ECT BEEN RECEIVED BY THE ASSESSEE. THE AO FURTHER OPINED THAT THE ME THOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE WAS SO AR RANGED WITH A I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 4 VIEW TO DISTORT THE PROFITS. THE AO ALSO OBSERVED THAT IN A LETTER TO THE BANK, THE ASSESSEE HAD STATED THE COMPLETION DATE O F VISTA PROJECT AS 2007 ITSELF. THUS, BASED ON ALL THESE OBSERVATIONS , THE AO REJECTED THE METHOD OF ACCOUNTING I.E. PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE. 3. ON APPEAL, THE LD. FIRST APPELLATE AUTHORITY ALL OWED THE ASSESSEES APPEAL BY HOLDING THAT PROJECT COMPLETIO N METHOD WAS A RECOGNIZED METHOD OF ACCOUNTING PRESCRIBED BY THE I NSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) AND HAD BEEN REGULARLY FOLLOWED BY THE ASSESSEE. THE LD. CIT (A) OBSERVED THAT SIN CE THE ASSESSEE WAS A REAL ESTATE DEVELOPER AND NOT A CONSTRUCTION CONT RACTOR, PROJECT COMPLETION METHOD WAS THE RIGHT METHOD FOR DETERMIN ING THE PROFITS OF THE ASSESSEE. THE ADDITION OF RS. 25,91,00,000/ - MADE BY THE AO WAS DELETED. 4. NOW THE DEPARTMENT IS IN APPEAL BEFORE US AND HA S CHALLENGED THIS DELETION. IN THE CO, THE ASSESSEE HAS CHALLEN GED THE REJECTION OF ASSESSEES CLAIM FOR ALLOWANCE OF DEDUCTION U/S 80I B (10) OF THE ACT BY THE LD. CIT (A). 5. THE LD. DR SUBMITTED THAT THE AO HAD REJECTED TH E METHOD OF ACCOUNTING AFTER A VERY THOUGHTFUL DELIBERATION. HE SUBMITTED THAT CAREFUL CONSIDERATION OF THE ACCOUNTS OF THE A SSESSEE SHOW I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 5 THAT THE ASSESSEE HAS FOLLOWED NEITHER THE CASH SYS TEM NOR THE ACCRUAL SYSTEM OF ACCOUNTING AND THAT THE PROFITS T HAT HAVE BEEN OFFERED FOR TAXATION IS A DISTORTED FIGURE FOR AVOI DING THE ASSESSEE'S TAX LIABILITY. IT IS SEEN THAT THE ASSES SEE HAS RECEIVED RS.373.17 CRORES AS ADVANCES FROM ITS CUSTOMERS. IT IS WORTH EMPHASIZING THAT INCOME HAS NOT ONLY ACCRUED BUT HA S ALSO BEEN RECEIVED BY THE ASSESSEE .THERE IS NOTHING TO SHOW THAT THERE IS ANY UNCERTAINTY WITH REGARDS TO THE ULTIMATE RECEIP TS OF THE REVENUES SINCE THESE PAYMENTS HAVE ALREADY BEEN REC EIVED BY THE ASSESSEE. A CAREFUL PERUSAL OF THE CHART OF ADVANCE S RECEIVED FROM THE CUSTOMERS SHOWS THAT IN MOST OF THE CASES IN WH ICH ALLOTMENT HAS BEEN MADE THE PAYMENTS HAVE ALREADY B EEN RECEIVED. IT IS SEEN THAT IN THE VISTA PROJECT THE TOTAL SALES PRICE OF ALL THE FLATS, AS PER THE ALLOTMENT LETTERS ISSU ED TO CUSTOMERS IS RS 250.24 CRORES. AS AGAINST THIS RS 228.25 CRORES HAVE ALREADY BEEN RECEIVED AS ON 31.03.2008. THUS IT IS SEEN THA T 91.21% OF THE SELLING PRICE HAS ALREADY BEEN RECEIVED BY THE ASSESSEE. IT WAS ALSO SUBMITTED THAT BARRING A FEW CASES, 100% PAYME NTS HAVE BEEN RECEIVED FOR EACH FLAT. THESE FACTS GO ON TO S HOW THAT THE VISTA PROJECT HAS BEEN SUBSTANTIALLY COMPLETED. IT WOULD BE APPRECIATED THAT AS PER THE CONDITIONS LAID DOWN IN THE ALLOTMENT I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 6 LETTER THE CONSIDERATION FROM THE CUSTOMERS IS TO B E RECEIVED IN INSTALMENTS. THE CUSTOMERS ARE REQUIRED TO PAY CERT AIN AMOUNT AT THE TIME OF APPLICATION AND THE BALANCE IN SEVEN EQUAL INSTALMENTS AT THE INTERVAL OF 3 MONTHS. AS IS THE NORMAL PRACTICE IN THE CASE OF REAL ESTATE BUILDERS, INSTALMENTS AR E LINKED TO STAGES OF CONSTRUCTION AND COMPLETION OF THE FLATS. MORE THAN 91% OF THE TOTAL SALES CONSIDERATION COULD NOT HAVE BEEN RECEIVED UNLESS ALL THE FLATS WERE IN AN ADVANCED STAGE OF C OMPLETION. MOREOVER THE ASSESSEE HAD SUBMITTED TO THE BANK A L ETTER FOR SANCTION OF FINANCE WHERE IT HAD ESTIMATED THAT THE VISTA PROJECT WOULD BE COMPLETED IN 2007 ITSELF. THE LD DR DREW O UR ATTENTION TO THE BALANCE SHEET AND SUBMITTED THAT THAT THE AS SESSEE HAS SHOWN HUGE AMOUNTS AS WORK-IN-PROGRESS. THE CONSOLI DATED ESTIMATED COST OF VISTA PLUS SRISHTI WAS RS 536.08 CRORES. THE INVENTORY SHOWN IN THE BALANCE SHEET TOGETHER WITH THE EXPENSES THAT HAVE BEEN SHOWN IN THE PROFIT & LOSS A/C WORK OUT TO MORE THAN RS 220 CRORES, WHICH IS A SUBSTANTIAL PROPORTI ON OF THE ESTIMATED COST. IT MUST BE KEPT IN MIND THAT THIS I S THE CONSOLIDATED COST OF BOTH THE PROJECTS AND THE PROP ORTION OF COST INCURRED WITH RESPECT TO VISTA IS MUCH HIGHER. THUS IT EMERGES THAT A VERY HIGH PROPORTION OF ESTIMATED COST OF VI STA HAS ALREADY I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 7 BEEN INCURRED BY THE ASSESSEE. THEREFORE EVEN FROM THE COST INCURRED POINT OF VIEW THERE IS NO DOUBT THAT A MAJ OR PORTION OF THE PROJECT HAS BEEN COMPLETED. 6. THE LD. DR SUBMITTED THAT IN LIGHT OF THE OBSERV ATIONS OF THE AO, THE CORRECT METHOD OF ACCOUNTING IS PERCENTAGE COMPLETION METHOD AND, THEREFORE, IMPUGNED ORDER SHOULD BE SET ASIDE. 7. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A REAL ESTATE DEVELOPER AND NOT A CONTRACTOR OR AN INVESTOR. IT W AS SUBMITTED THAT REAL ESTATE DEVELOPMENT, OR PROPERTY DEVELOPMENT, I S A MULTIFACETED BUSINESS PROCESS, ENCOMPASSING ACTIVITIES THAT RANG E FROM THE RENOVATION AND RE-LEASE OF EXISTING BUILDINGS TO TH E PURCHASE OF RAW LAND AND THE SALE OF DEVELOPED LAND OR PARCELS TO O THERS. REAL ESTATE DEVELOPERS ARE THE PEOPLE AND COMPANIES WHO COORDIN ATE ALL OF THESE ACTIVITIES, CONVERTING IDEAS FROM PAPER TO REAL PRO PERTY. REAL ESTATE DEVELOPMENT IS DIFFERENT FROM CONSTRUCTION, ALTHOUG H MANY DEVELOPERS ALSO MANAGE THE CONSTRUCTION PROCESS. THE LD. AR SU BMITTED THAT DEVELOPERS BUY LAND, FINANCE REAL ESTATE DEALS, BUI LD OR HAVE BUILDERS BUILD PROJECTS, CREATE, IMAGINE, CONTROL AND ORCHES TRATE THE PROCESS OF DEVELOPMENT FROM THE BEGINNING TO END. DEVELOPERS U SUALLY TAKE THE GREATEST RISK IN THE CREATION OR RENOVATION OF REAL ESTATEAND RECEIVE THE GREATEST REWARDS. TYPICALLY, DEVELOPERS PURCHAS E A TRACT OF LAND, I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 8 DETERMINE THE MARKETING OF THE PROPERTY, DEVELOP TH E BUILDING PROGRAM AND DESIGN, OBTAIN THE NECESSARY PUBLIC APPROVAL AN D FINANCING, BUILD THE STRUCTURES, AND RENT OUT, MANAGE, AND ULTIMATEL Y SELL IT. SOMETIMES PROPERTY DEVELOPERS WILL ONLY UNDERTAKE P ART OF THE PROCESS. FOR EXAMPLE, SOME DEVELOPERS SOURCE A PROP ERTY; GET THE PLANS AND PERMITS APPROVED BEFORE ON SELLING THE PR OPERTY WITH THE PLANS AND PERMITS TO A BUILDER AT A PREMIUM PRICE. ALTERNATIVELY, A DEVELOPER THAT IS ALSO A BUILDER MAY PURCHASE A PRO PERTY WITH THE PLANS AND PERMITS IN PLACE SO THAT THEY DO NOT HAVE THE RISK OF FAILING TO OBTAIN PLANNING APPROVAL AND CAN START CONSTRUCT ION ON THE DEVELOPMENT IMMEDIATELY. DEVELOPERS WORK WITH MANY DIFFERENT COUNTERPARTS ALONG EACH STEP OF THIS PROCESS, INCLU DING ARCHITECTS, CITY PLANNERS, ENGINEERS, SURVEYORS, INSPECTORS, CONTRAC TORS, LEASING AGENTS AND MORE. THE LD. AR SUBMITTED THAT THE MODUS OPERA NDI OF THE ASSESSEE WAS AS UNDER: (I) JOINT VENTURE WITH GHAZIABAD DEVELOPMENT AUTHORITY (GDA). GDA CONTRIBUTES LAND AND CONTINUES TO BE ITS OWNER. (II) ASSESSEE UNDERTAKES APPROVAL, CONSTRUCTION, DEVELO PMENT, COMPLETION, MARKETING AND SALE OF PROJECT. (III) ASSESSEE APPOINTS CONTRACTOR FOR CONSTRUCTION PURP OSES. I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 9 (IV) THE ASSESSEE AS PER THE TERMS AND CONDITIONS OF FL AT BUYERS AGREEMENT RECOGNIZES THE TRANSACTION ONLY W HEN THE FLAT IS DELIVERED TO THE CUSTOMER AND IS REGISTERED IN T HE CUSTOMERS NAME BY GHAZIABAD DEVELOPMENT AUTHORITY. (V) TILL THE FLAT IS REGISTERED, THE BUYER CANNOT SELL THE SAME AND EXIT. (VI) THE ASSESSEE ACCOUNTS FOR INCOME / SALE ONLY WHEN IT REGISTERS THE FLATS IN THE NAME OF THE CUSTOMERS AN D TILL THEN THE AMOUNT RECEIVED IS TREATED AS ADVANCE AND SHOWN AS A LIABILITY IN THE BALANCE SHEET AND THE EXPENDITURE INCURRED IS T REATED AS WORK IN PROGRESS. 8. THE LD. AR FURTHER SUBMITTED THAT THE ICAI HA S CLARIFIED THAT REVISED ACCOUNTING STANDARD 7 CONSTRUCTION CONTR ACT IS APPLICABLE TO ONLY CONTRACTORS AND NOT TO BUILDERS AND REAL ESTATE DEVELOPERS. AS-9 REVENUE RECOGNITION IS APPLICABLE TO REAL ESTATE DEVELOPERS. AS 9 RECOGNIZES BOTH PROPORTIONA TE COMPLETION METHOD AND THE COMPLETED SERVICE CONTRAC T METHOD FOR REVENUE RECOGNITION. A REAL ESTATE DEVELOPER CA N CHOOSE THE PROJECT COMPLETION METHOD FOR REVENUE RECOGNITION. HE POINTED I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 10 OUT THAT THERE IS NO DISPUTE ON THE CORRECTNESS AND ACCURACY OF THE ACCOUNTS MAINTAINED BY THE ASSESSEE AND THAT TH E AFORESAID METHOD HAS BEEN CONSISTENTLY APPLIED AND FOLLOWED B Y THE ASSESSEE. THE LD. ASSESSING OFFICER HAS CHANGED TH E METHOD FOR THE FIRST TIME IN ASSESSMENT YEAR 2008-09. HE SUBMI TTED THAT ANY CHANGE IN THE METHOD WILL RESULT IN THE INCOME FROM ASSESSMENT YEAR 2006-07 TO ASSESSMENT YEAR 2012-13 TO BE RECOMPUTED WHICH WOULD BE CONTRARY TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRI ES LTD. 358 ITR 295 WHEREIN IT HAS BEEN HELD THAT AN EXERCISE W HICH ONLY RESULTS IN CHANGE IN INCOME IN VARIOUS YEARS BUT IS OVERALL TAX NEUTRAL NEED NOT BE PURSUED. HERE ALSO, THE METHOD SUGGESTED BY THE ASSESSING OFFICER WILL ONLY RESULT INTO PROF IT FOR EACH YEAR BEING DIFFERENT BUT THE OVERALL PROFITABILITY WILL BE THE SAME. HE RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN M/S BILAHARI INVESTMENT (2008) 299 ITR 1 FOR THE PREPOS ITION THAT EVERY ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS A ND FOLLOW THE METHOD OF ACCOUNTING, WHICH THE DEPARTMENT HAS EARL IER ACCEPTED. IT IS ONLY IN THOSE CASES WHERE THE DEPAR TMENT RECORDS A FINDING THAT THE METHOD ADOPTED BY THE ASSESSEE R ESULTS IN DISTORTION OF PROFITS, THE DEPARTMENT CAN INSIST ON SUBSTITUTION OF I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 11 THE EXISTING METHOD. 9. ON THE GROUND RAISED IN THE CO BY THE ASSESSEE O N THE ISSUE OF DEDUCTION U/S 80-IB (10) OF THE ACT, THE LD. AR SUB MITTED THAT THIS GROUND WAS TAKEN BEFORE THE LD. CIT (A) AS GROUND N O. 4. HOWEVER, THE LD. CIT(A) REJECTED THE GROUND IN PARA 22 OF TH E IMPUGNED ORDER BY OBSERVING THAT SINCE THE METHOD OF ACCOUNTING BEING REGULARLY FOLLOWED BY THE ASSESSEE HAS BEEN ACCEPTED, THIS GROUND IS R EJECTED AS HAVING BECOME IN FRUCTUOUS . IT WAS SUBMITTED THAT THIS GROUND WAS NOT AN ALTERNATE GROUND BUT ON ADDITIONAL CLAIM TO WHICH T HE ASSESSEE WAS ENTITLED. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE FOLLOWING FACTS REMAIN UNCONTROVERTE D: 11. DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE WAS DEVELOPING TWO PROJECTS NAMELY VISTA AND SRISTHI IN JOINT VENTURE WITH GHAZIABAD DEVELOPMENT AUTHORITY. THE VISTA PROJECT WAS STARTED IN THE YEAR 2005 AND HAD MADE CONSIDERABLE PROGRESS BY THE END THE FINANCIAL YEAR. THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD OF ACCOUNTING AND THE REVENUE WAS RECOGNIZED AT THE TIME OF REGISTRATION OF THE RESIDENTIAL UNIT IN THE NAME OF THE CUSTOMER. TILL THE TIME OF REGISTRATION OF THE RESIDENTIAL UNITS T HE AMOUNTS RECEIVED I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 12 FROM THE CUSTOMERS WERE BEING TREATED AS ADVANCES A ND WERE REFLECTED IN THE BALANCE SHEET AS LIABILITIES. THE COST ASSOC IATED WITH THE DEVELOPMENT AND CONSTRUCTION OF THE RESIDENTIAL UNI TS WAS BEING SHOWN UNDER THE HEAD WORK-IN-PROGRESS. REGISTRATI ON IN THE NAME OF THE CUSTOMERS WAS DONE BY THE GHAZIABAD DEVELOPMENT AUTHORITY WHO CONTINUED TO BE OWNER OF THE PROJECT AND THE AS SESSEE WAS GRANTED ONLY DEVELOPMENT RIGHTS. THE PRIMARY REASON WHY THE A.O. REJECTED THE PROJECT COMPLETION METHOD AND HAS APPL IED THE PERCENTAGE COMPLETION METHOD IS THAT THE ASSESSEE H AD RECEIVED SUBSTANTIAL PORTION OF THE TOTAL SALE CONSIDERATION OF THE RESIDENTIAL UNITS IN THE VITA PROJECT I.E. 91.21%. THIS AMOUNT WAS BEING SHOWN BY IN THE BALANCE SHEET UNDER THE HEAD LIABILITIES AND WAS NOT REFLECTED IN THE PROFIT & LOSS ACCOUNT. THE FACT THAT 91% OF THE TOTAL SALE PRICE HAD BEEN RECEIVED LED TO THE INFERENCE THAT THE VISTA P ROJECT WAS SUBSTANTIALLY COMPLETE AS ON 31.3.2008. AO, THEREFO RE, TREATED THE ADVANCES OF RS.228.25 CRORES AS SALE CONSIDERATION IN RESPECT OF THE VARIOUS RESIDENTIAL UNITS IN VISTA PROJECT. THE A.O . THEN WORKED OUT THE PROPORTIONATE COST OF DEVELOPMENT AND CONSTRUCT ION OF THE PROJECT BY MULTIPLYING THE TOTAL COST OF THE PROJECT WITH 9 1.21%. THE DIFFERENCE OF THE TWO WAS TREATED AS PROFITS OF THE ASSESSEE. I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 13 12. IN THIS REGARD IT IS SEEN THAT PROJECT COMPLET ION METHOD FOLLOWED BY THE ASSESSEE IS A RECOGNIZED METHOD OF ACCOUNTING PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA. BEFORE ITS REVISION IN 2002, AS-7 WAS APPLICABLE IN THE CASE OF BOTH THE CONSTRUCTION CONTRACTORS AND REAL ESTATES BUILDERS AND DEVELOPERS. AS-7 PRESCRIBED BOTH THE PERCENTAGE COMPLETION METHOD AND THE PROJECT COMPLETION METHOD AND IT WAS THE CHOICE OF THE ASSESSEE TO FOLLOW EITHER ONE OF THE METHODS. THE ICAI HAS CLARIFIED THAT THE REVISED AS -7 IS APPLICABLE ONLY IN THE CASE OF CONSTRUCTION CONTRAC TORS AND IN THE CASE OF REAL ESTATES BUILDERS AND DEVELOPERS AS -9 IS APPLICABLE WHICH PRESCRIBES PROJECT COMPLETION METH OD OF ACCOUNTING. IT IS ESTABLISHED LEGAL POSITION THAT AN ASSESSEE C AN FOLLOW ANY RECOGNISED METHOD OF ACCOUNTING AND THE CONDITION IS THAT THE SAME METHOD HAS TO BE FOLLOWED CONSISTENTL Y. IN CASE OF A BUILDING PROJECT, THE INSTITUTE OF CHARTERED ACCO UNTANTS OF INDIA WHICH IS AN AUTHORITY ON PRESCRIBING ACCOUNTI NG STANDARDS HAD PRESCRIBED ACCOUNTING STANDARD AS-7 I N 1983 FOR ACCOUNTING OF INCOME IN RESPECT OF REAL ESTATE PROJ ECTS AND IN TERMS OF AS-7 WHICH WAS APPLICABLE TO BOTH CONTRACT OR AND REAL ESTATE DEVELOPER, A PERSON IS FREE TO FOLLOW EITHER OF PROJECT I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 14 COMPLETION METHOD OR PERCENTAGE COMPLETION METHOD D EPENDING UPON THE NATURE OF PROJECT. THE ASSESSEE, IN THIS C ASE, HAS FOLLOWED PROJECT COMPLETION METHOD WHICH IS ONE OF THE PRESCRIBED METHODS BY THE INSTITUTE OF CHARTERED AC COUNTANTS OF INDIA. EVEN IN TERMS OF THE REVISED ACCOUNTING S TANDARD WHICH WAS APPLICABLE FOR MOST PART OF THE WORK DONE BY THE ASSESSEE THE INCOME HAD BEEN CORRECTLY DECLARED AS PER PROJECT COMPLETION METHOD IN THE YEAR OF COMPLETION. THE AS SESSEE HAS FOLLOWED PROJECT COMPLETION METHOD WHICH WAS ONE OF THE PRESCRIBED METHODS AND THE SAME METHOD HAS BEEN ACC EPTED BY THE DEPARTMENT IN THE EARLIER YEARS. DEPARTMENT, TH EREFORE, CANNOT REJECT THE METHOD AND APPLY PERCENTAGE COMPL ETION METHOD IN A SUBSEQUENT YEAR. 13. IN VIEW OF DISCUSSION OF THE FACTS OF THE CASE AND THE LEGAL POSITION AS ABOVE IT IS HELD THAT THE PROJECT COMPL ETION METHOD FOLLOWED BY THE APPELLANT IS A RECOGNIZED METHOD OF ACCOUNTING PRESCRIBED BY THE ICAI WHICH HAS BEEN REGULARLY FOL LOWED BY THE ASSESSEE. THE ASSESSEE BEING A REAL ESTATE DEVELOPE R AND NOT A CONSTRUCTION CONTRACTOR, PROJECT COMPLETION METHOD IS THE RIGHT METHOD FOR DETERMINING THE PROFITS. THE PROJECT COM PLETION METHOD BEING FOLLOWED SHOULD NOT HAVE BEEN DISTURBE D BY THE I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 15 ASSESSING OFFICER AS IT WAS BEING REGULARLY FOLLOWE D BY THE ASSESSEE IN EARLIER YEARS ALSO AND THERE IS NO COGE NT REASON TO CHANGE THE METHOD. WE, ACCORDINGLY, UPHOLD THE FIN DINGS OF THE LD. CIT(A) ON THIS ISSUE. 14. HENCE, GROUND NO. 1 OF DEPARTMENTS APPEAL IS R EJECTED. ACCORDINGLY, THE APPEAL OF THE DEPARTMENT IS REJECT ED. 15. AS FAR AS THE CO OF THE ASSESSEE IS CONCERNED, WE ARE IN AGREEMENT WITH THE SUBMISSION OF THE LD. AR THAT TH E ASSESSEES CLAIM U/S 80-IB (10) OF THE ACT WAS NOT AN ALTERNATE CLAI M TO THE ASSESSEES METHOD OF ACCOUNTING HAVING BEEN REJECTED. IT WAS AN ADDITIONAL CLAIM WHICH SOMEHOW HAS BEEN MISCONSTRUED BY THE LD . CIT (A) AND WE DEEM IT FIT TO RESTORE THIS LIMITED ISSUE OF CLA IM U/S 80-IB (10) OF THE ACT TO THE FILE OF THE LD. CIT (A) TO EXAMINE I T AFRESH IN LIGHT OF THE EXISTING LEGAL REQUIREMENTS AND FULFILLMENT THEREOF BY THE ASSESSEE AFTER PROVIDING DUE OPPORTUNITY TO THE ASSESSEE FOR PRESENTING ITS CASE. 16. IN THE RESULT, THE CO OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ITA 5614/2012 & ITA 5849/2012 17. RETURN SHOWING INCOME OF RS. 24,14,37,960/- WAS FILED ON 25.03.2010. IN THE ASSESSMENT ORDER PASSED U/S 143 (3) OF THE ACT, THE INCOME WAS DETERMINED AT RS. 60,91,00,000/- AFT ER MAKING AN ADDITION OF RS. 36.77 CRORES. OUT OF THIS ADDITION , DISALLOWANCE U/S I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 16 80IB(10) WAS TO THE EXTENT OF RS. 29.68 CRORES AND THE BALANCE AMOUNT OF RS. 7.09 CRORES WAS ADDED ON ACCOUNT OF A PPLICATION OF PERCENTAGE OF COMPLETION METHOD BY THE AO IN PLACE OF PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE. AS IN THE PRECEDING ASSESSMENT YEAR, THE ASSESSEE WAS ENGAGED IN THE BU SINESS OF REAL ESTATE DEVELOPMENT AND THE ASSESSEE FIRM HAD ENTERE D INTO A JOINT VENTURE WITH GHAZIABAD DEVELOPMENT AUTHORITY (GDA) FOR DEVELOPMENT OF HOUSING PROJECTS ON TWO PARCELS OF L AND BEARING PLOT NO. 14 AND 15 SITUATED IN INDIRAPURAM AT GHAZIABAD AND HAD ENTERED INTO A MEMORANDUM OF UNDERSTANDING (MOU) WITH GDA O N 08.01.2001. AS PER THE MOU, GDA WAS TO CONTINUE TO BE OWNER OF THE PROPERTY AND THE ASSESSEE FIRM, AFTER UNDERTAKING T HE CONSTRUCTION, DEVELOPMENT AND COMPLETION OF THE PROJECTS WAS TO M ARKET THE SAME. THE CONVEYANCE DEED WITH THE BUYERS OF THE FLATS WA S TO BE EXECUTED BY THE GDA. DURING THE YEAR UNDER CONSIDERATION, T HE ASSESSEE HAD SHOWN SALES OF RS. 154.94 CRORES IN RESPECT OF FLAT S SOLD IN THE VISTA PROJECT AND THE PROFIT WAS SHOWN AT 53.82 CRORES. THE ASSESSEE HAD BEEN REGULARLY FOLLOWING THE PROJECT COMPLETION MET HOD AND THE ACCRUAL SYSTEM OF ACCOUNTING. THE REVENUE WAS RECO GNIZED BY THE ASSESSEE AT THE TIME OF REGISTRATION OF THE PROPERT Y BY GDA IN THE BUYERS NAME. TILL THE TIME OF REGISTRATION OF THE RESIDENTIAL UNITS, THE I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 17 AMOUNTS RECEIVED FROM THE CUSTOMERS WERE BEING TREA TED AS ADVANCES AND WERE REFLECTED IN THE BALANCE SHEET AS LIABILIT IES. THE COST ASSOCIATED WITH THE DEVELOPMENT AND CONSTRUCTION OF THE RESIDENTIAL UNITS WAS BEING SHOWN AS WORK-IN-PROGRESS. THE AO, PROCEEDING ON THE SAME REASONING AS IN THE PRECEDING AY I.E. AY 2 008-09, WAS OF THE OPINION THAT THE ASSESSEE SHOULD HAVE FOLLOWED THE PERCENTAGE OF COMPLETION METHOD FOR SHOWING ITS CORRECT TAXABLE P ROFITS DURING THE YEAR UNDER CONSIDERATION. AS PER THE AO, THE ESTIM ATED SALE VALUE OF THE VISTA PROJECT WAS RS. 351.58 CRORES AGAINST WHI CH THE ASSESSEE HAD ALREADY RECEIVED AN AMOUNT OF RS. 295.43 CRORES WHICH WAS ABOUT 84% OF THE TOTAL ESTIMATED SALES. THEREFORE, AS PE R THE AO, THE INCOME HAD NOT ONLY ACCRUED BUT HAD ALSO BEEN RECEIVED BY THE ASSESSEE. THEREAFTER, THE AO PROCEEDED TO APPLY PERCENTAGE OF COMPLETION METHOD AND MADE ON ADDITION OF RS. 36.77 CRORES ON THIS COUNT. THE LD. CIT (A) DELETED THIS ADDITION IS ENTIRETY FOLLO WING HIS EARLIER YEARS ORDER IN AY 2008-09. 18. APART FROM THIS, OUT OF THE PROFITS OF RS. 53.8 2 CRORES SHOWN BY THE ASSESSEE ON SALES FINALIZED DURING THE YEAR UND ER CONSIDERATION, AN AMOUNT OF RS. 29.68 CRORES WAS CLAIMED AS DEDUCT ION U/S 80IB(10) OF THE ACT IN RESPECT OF THE VISTA PROJECT. THE VISTA PROJECT WAS DIVIDED INTO FIVE SUB PROJECTS AS UNDER: I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 18 I. VISTA A&B BLOCKS HAVING 2 TOWERS AND 320 FLATS. II. VISTA D&E BLOCKS HAVING 2 TOWERS AND 320 FLATS. III. VISTA B1, B2 & B3 BLOCKS HAVING 3 TOWERS AND 120 FL ATS ALSO CALLED C BLOCK. IV. VISTA B4, B5, B6 & B7 BLOCKS HAVING 4 TOWERS AND 14 4 FLATS ALSO CALLED F BLOCK. V. VISTA COMMERCIAL BLOCK HAVING 80 SHOPS. 19. THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IB (10 ) IN RESPECT OF TWO BED ROOM FLATS IN BLOCK A,B, D AND E IN RESPECT OF 346 FLATS SOLD DURING THE YEAR (OUT OF 640 TOTAL FLATS SOLD). THE PROJECT WAS APPROVED ON 02.06.2005 AND THE COMPLETION CERTIFICATE WAS DA TED 14.01.2010. THE TOTAL PLOT AREA OF THE PROJECT WAS 5.33 HECTARE S OR 13 ACRES APPROXIMATELY. THE AO DISALLOWED DEDUCTION U/S 80I B(10) ON THE GROUND THAT THE AREA OF THE RESIDENTIAL UNITS ON WH ICH THE DEDUCTION WAS CLAIMED WAS MORE THAN 1000 SQ. FEE EACH AS THE AREA MENTIONED IN THE SALE DEED WAS 99.96 SQ. MTS. OR 1067.74 SQ. FEET AND HENCE THE CONDITIONS OF SECTION 80IB (10) (C) WERE NOT FULFIL LED. THE OTHER OBJECTION OF THE AO TO THE CLAIM WAS THAT THE SHOP AND COMMERCIAL ESTABLISHMENT INCLUDED IN THE VISTA HOUSING PROJECT EXCEEDED THE LIMIT PRESCRIBED IN CLAUSE (D) OF SECTION 80IB(10) I.E. 5% OF THE AGGREGATE BUILT UP AREA OF THE HOUSING PROJECT OR 2 000 SQ. FEET I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 19 WHICHEVER IS LESS. AS PER THE AO, THE TOTAL BUILT UP AREA OF THE COMMERCIAL ESTABLISHMENT WAS 4896.2 SQ. MTS. OR 527 02 SQ. FEET. THE THIRD POINT OF THE AOS OBJECTION WAS THAT THE AUDI T REPORT IN FORM 10CCB AS PER RULE 18BBB OF THE INCOME TAX RULES, 19 62 HAD NOT BEEN FILED SEPARATELY BY THE ASSESSEE IN RESPECT OF VISTA A&B AND VISTA D&E AND ALSO THAT THE PROFIT/LOSS ACCOUNTS AND BALA NCE SHEETS OF THESE TWO TOWERS HAD NOT BEEN AUDITED SEPARATELY AN D HENCE IT WAS DIFFICULT TO RELY ON THE CLAIM OF DEDUCTION U/S 80I B. THE ENTIRE CLAIM OF DEDUCTIONS AMOUNTING TO RS. 29.68 CRORES WAS DEN IED BY THE AO. 20. SUBSEQUENT TO THE DISALLOWANCE OF DEDUCTION, TH E AO REFERRED THE MATTER OF DETERMINING THE AREA OF EACH FLAT TO THE DVO. THE DVO SUBMITTED HIS REPORT SPECIFYING THE AREA OF THE FLA TS AS UNDER: 20.1 THUS, THE DVO HELD THAT ONLY 432 FLATS I.E. TH E MIDDLE FLATS ON 2 ND & 10 TH FLOOR OF BLOCKS A,B,D&E WERE HAVING BUILT UP AREA OF LESS S. NO. FLOOR TYPE OF FLAT NO. OF FLATS IN A,B,C & D BLOCKS BUILT UP AREA OF FLAT I/C WALLS & COVERED BALCONY (IN SQ.FT.) AREA OF BALCONY (OPEN TO SKY) IN SQ. FT.) TOTAL AREA (IN SQ. FT.) 1. 1 ST COMER 16 1029.28 231.28 1260.56 2. 1 ST MIDDLE (PORCH SIDE) 16 988.79 118.05 1106.84 3. 1 ST MIDDLE 32 988.79 255.96 1244.75 4. 2 ND TO 10 TH COMER 144 1029.28 NIL 1029.28 5. 2 ND TO 10 TH MIDDLE 432 988.79 NIL 988.79 I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 20 THAN 1000 SQ. FEET AND HENCE QUALIFYING FOR DEDUCTI ON U/S 80IB(10) OF THE ACT. THE REMAINING FLATS WERE HELD TO HAVE BUI LT UP AREA OF MORE 1000 SQ. FEET AND NOT ELIGIBLE FOR DEDUCTION. 21. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY AND OBJECTED TO CERTAIN OBSERVA TIONS OF THE DVO WITH REGARD TO THE WORKING OF THE BUILT UP AREA OF THE VARIOUS FLATS. IT WAS SUBMITTED THAT WITH RESPECT TO 16 PORCH SIZE MI DDLE FLATS AND 32 MIDDLE FLATS ON 1 ST FLOOR, THE DVO HAD INCLUDED THE AREA OF A BALCONY WHICH WAS OPEN TO THE SKY IN THE BUILT-UP AREA WHIC H SHOULD NOT HAVE BEEN INCLUDED IN CALCULATION OF THE BUILT UP AREA I N TERMS OF DEFINITION OF THE BUILT UP AREA PROVIDED IN THE ACT. THE ASSE SSEES PLEA BEFORE THE LD. CIT (A) WAS THAT THIS INCLUSION HAD RESULTED IN THE BUILT UP AREA OF THESE FLATS CROSSING 1000 SQ. FEET. THE ASSESSEE A LSO OBJECTED TO THE WORKING OF THE DVO IN RESPECT OF THE BUILT UP AREA OF 144 CORNER FLATS ON FLOOR NOS. 2 AND 10 ON ALL THE FOUR BLOCKS. THE ASSESSEE ALSO SUBMITTED BEFORE THE LD. CIT(A) THAT ADMITTEDLY AS SOME OF THE FLATS IN RESPECT OF WHICH DEDUCTION U/S 80IB(10) HAD BEEN CL AIMED HAD BUILT UP AREA EXCEEDING 1000 SQ. FEET THE DEDUCTION SHOUL D BE ALLOWED IN RESPECT OF FLATS HAVING BUILT UP AREA OF LESS THAN 1000 SQ. FEET ON A PROPORTIONATE BASIS. I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 21 22. AS FAR AS THE ISSUE OF THE AREA OF SHOPS/COMMER CIAL ESTABLISHMENT WAS CONCERNED, THE ASSESSEE SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY THAT COMMERCIAL ESTABLISHMENT W AS A SEPARATE SUB-PROJECT WITHIN THE OVERALL VISTA PROJECT. ALTH OUGH THE AO HAD TREATED IT AS AN INTEGRAL PART OF THE VISTA PROJECT , VISTA PROJECT HAD FIVE SEPARATE AND INDEPENDENT SUB-PROJECTS VIZ. VISTA A& B, VISTA D&E AND VISTA C. VISTA D COMPRISED OF ONLY RESIDENTIAL UNI TS IN FORM OF SEPARATE TOWERS AND COMMERCIAL ESTABLISHMENT WAS HA VING SEPARATE ENTRY AND EXIT WHICH HAD ALSO BEEN INDEPENDENTLY CE RTIFIED SPECIFICALLY BY THE DVO IN HIS REPORT. IT WAS THE ASSESSEES SU BMISSIONS BEFORE THE LD. CIT(A) THAT THE COMMERCIAL ESTABLISHMENT WA S NOT INCLUDED IN THE HOUSING PROJECT AND, THEREFORE, CLAUSE (D) OF S ECTION 80IB(10) WAS NOT VIOLATED. IT WAS FURTHER EMPHASIZED THAT NO PR OFITS FROM THE SALE OF COMMERCIAL SPACE WAS CLAIMED AS DEDUCTION U/S 80 IB AND ONLY THE PROFITS RESULTING FROM THE SALE OF RESIDENTIAL UNIT S WAS CLAIMED AS DEDUCTION. IT WAS ALSO SUBMITTED BEFORE THE LD. CI T(A) THAT IF THE AOS VIEW OF THE COMMERCIAL ESTABLISHMENT BEING INCLUDED IN THE VISTA HOUSING PROJECT WERE TO BE HELD AS CORRECT, THEN TH E PROFITS FROM THE SALE OF COMMERCIAL SPACE WOULD BECOME AN ALLOWABLE DEDUCTION U/S 80IB(10) IN AY 2010-11 AS THE PROVISIONS OF THE ACT HAD BEEN AMENDED W.E.F. 1.4.2010 ACCORDING TO WHICH A PROJEC T APPROVED AFTER I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 22 1.4.2005 COULD BE COMPLETED IN FIVE YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE APPROVAL WAS OBTAINED ( ASSESSEES PROJECT APPROVED ON 2.6.2005 AND COMPLETED BY 31.3.2011). THE ASSESSEE ALSO RELIED ON THE DECISION OF ITAT, DELHI IN ITS O WN CASE IN ITA NOS. 2613, 2614, 2739 & 2741 IN WHICH IT WAS HELD THAT W HEN THE TOTAL SHOPPING AREA WAS BELOW 5% OF THE TOTAL AREA AND TH E PROJECT WAS APPROVED AND IN CONFORMITY WITH GDA APPROVAL, THEN DEDUCTION U/S 80IB HAD TO BE ALLOWED FOR THE WHOLE PROJECT. REGA RDING THE AOS OBSERVATION ON THE AUDIT REPORT, THE ASSESSEE SUBMI TTED BEFORE THE LD. CIT (A) THAT SEPARATE BOOKS OF ACCOUNT HAD BEEN MAI NTAINED FOR EACH OF THE SUB-PROJECTS BUT THE AUDITORS HAD PROVIDED T HEIR OPINION ON THE CONSOLIDATED ACCOUNTS. SINCE THE REPORT IN FORM 10 CCB CONFIRMED TO THE GUIDELINES ISSUED BY THE ICAI, THE SAME SHOULD NOT HAVE BEEN IGNORED. 23. THE LD. CIT (A) AFTER CONSIDERING THE ASSESSEE S SUBMISSIONS DECIDED THE ISSUES AS UNDER: I. THE ASSESSEES CONTENTION THAT DEDUCTION U/S 80IB ( 10) IN RESPECT OF FLATS HAVING BUILT-UP AREA OF LESS THAN 1000 SQ. FEET SHOULD BE ALLOWED ON A PROPORTIONATE BASIS WAS ACCE PTED. 232 FLATS WERE HELD ELIGIBLE FOR DEDUCTION OUT OF 346 F LATS SOLD AS PER THE DVOS REPORT AND THE EXTENT OF ALLOWABLE DEDUCT ION WAS I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 23 WORKED OUT AT 19.28 CRORES. THE ISSUE WAS RESTORED TO THE FILE OF AO FOR VERIFYING THE CALCULATION AND ALLOWING THE C LAIM IN RESPECT OF 232 FLATS. II. THE ASSESSEES CONTENTION THAT THE FLATS HAVING BAL CONY OPEN TO SKY AND INCLUDED IN THE BUILT UP AREA OF THE FLATS BY THE DVO SHOULD ALSO QUALIFY FOR DEDUCTION WAS HOWEVER REJEC TED. III. THE ASSESSEES CONTENTION THAT THE VISTA PROJECT CO MPRISED OF FIVE SEPARATE SUB-PROJECTS WITH THE SHOPPING AREA HAVING ITS OWN SEPARATE ENTRY AND EXIT WAS ALSO ACCEPTED AND IT WA S HELD THAT THE BUILT UP AREA OF THE SHOPPING COMMERCIAL ESTABL ISHMENT IS TO BE TAKEN INTO ACCOUNT ONLY WHEN SUCH COMMERCIAL EST ABLISHMENT IS INCLUDED IN THE HOUSING PROJECT IN TERMS OF SECT ION 80IB (10(D). IV. THE LD. CIT(A) ALSO ACCEPTED ASSESSEES CONTENTION THAT NO DEFECTS WERE POINTED OUT BY THE AO WITH RESPECT TO THE ACCO UNTS AND, THEREFORE, THE DEDUCTION U/S 80IB(10) COULD NOT BE DISALLOWED ON THE GROUND THAT THE AUDITORS HAD GIVEN THEIR OPINIO N ON THE CONSOLIDATED ACCOUNTS OF THE ASSESSEE. 24. NOW BOTH THE ASSESSEE, AS WELL AS THE DEPARTMEN T, IS IN APPEAL BEFORE US. I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 24 25. ITA NO. 5614 HAS BEEN FILED BY THE DEPARTMENT A ND THE GROUNDS OF APPEAL ARE AS UNDER: 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAD ERRED IN DELETING THE ADDITION OF RS 7.09 CRORE S MADE BY MADE BY THE A.O, UNDER PERCENTAGE COMPLETION METHOD, WHE N THE ASSESSED HAS ALREADY RECEIVED 84% OF THE SELLING PR ICE OF THE FLAT AND SHOWN AS ADVANCE FROM THE CUSTOMER 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD, CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/S 80IB (10) AMOUN TING TO RS.10.40 CRORES ON PROPORTIONATE BASIS AS AGAINST R S.29 68 CRORES CLAIMED BY THE ASSESSEE WHEN THE ASSESSES DID NOT F ULFILL ALL THE CONDITIONS SPECIFIED IN THE SAID SECTION' 3 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT (A) HAS ERRED IN NOT CONSIDERING THE FACT THAT NO SEPARATE APPROVAL WAS TAKEN FROM GHAZIABAD DEVELOPMENT AUTHO RITY (GDA IN SHORT) FOR THE PROJECT NAMED VISTA (BLOCKS A & B ; D&E) ON WHICH DEDUCTION U/S 80 IB (10) CLAIMED AND THE MAP APPROV ED BY GDA WAS FOR THE ENTIRE PROJECT NAMED VISTA AT PLOT NO. 14, INDIRAPURAM, GHAZIABAD (UP).' 4 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD CIT (A) ORDER DESERVES TO BE CANCELLED AND THE ASSE SSMENT ORDER NEEDS TO BE CONFIRMED. 26. ITA 5849 IS THE ASSESSEES APPEAL AND THE GROUNDS O F APPEAL ARE AS UNDER: 1. THAT THE PROJECT OF THE APPELLANT COMPANY FULFILLS ALL THE REQUIREMENTS OF SECTION 80IB (10) OF THE ACT AND AS SUCH, APPELLANT COMPANY IS ENTITLED TO THE BENEFIT OF EXE MPTION UNDER SECTION 80IB (10) OF THE ACT AS CLAIMED. THE ASSESSING OFFICER WENT WRONG ON FACTS AND IN LAW IN DISALLOWI NG THE CLAIM OF DEDUCTION OF RS. 29.68 CRORE UNDER SECTION 80IB (10) OF THE ACT AND CONSEQUENTLY THE COMMISSIONER OF INC OME TAX, I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 25 (APPEAL)-XXVII, NEW DELHI IN PRINCIPLE ALLOWED THE DEDUCTION UNDER SECTION 80IB (10) OF THE ACT BUT ERRED ON FAC TS AND IN LAW TO RESTRICT THE DEDUCTION TO RS. 19.28 CRORES C ALCULATED FOR 232 FLAT OUT OF THE TOTAL DEDUCTION OF RS. 29.68 CR ORES CLAIMED ON 346 FLATS. THE OBSERVATION MADE AND BASES ADOPT ED ARE UNJUSTIFIED AND BAD IN LAW. THE DEDUCTION UNDER SEC TION 80IB (10) TO HAVE BEEN ALLOWED AT RS. 29.68 CRORE AS CLA IMED. THE ORDER PASSED BY THE HONBLE CIT (APPEAL), MAY KINDL Y BE MODIFIED ACCORDINGLY. THAT THE DVO ON REFERENCE FROM THE AO SUBMITTED REP ORT TO THE AO WHEREIN THE AREA OF 114 FLAT HAS BEEN HELD TO BE MORE THAN 1000 SQ.FT BY INCLUDING THE AREA OF THE BALCONY WHI CH IS OPEN TO SKY. THE CIT(APPEAL)-XXVII, NEW DELHI THUS ERRED ON FACTS AND IN LAW IN ADOPTING THE REPORT OF THE DVO AND RESTRI CTING THE DEDUCTION UNDER SECTION 80IB(10) OF THE ACT AND IN DOING SO HE IGNORED THE FACTS AND CIRCUMSTANCES OF THE CASE AND THUS THE DEDUCTION RESTRICTED IS ILLEGAL AND UNJUSTIFIED AND BAD IN LAW. 27. ON GROUND NO. 1 OF THE DEPARTMENTS APPEAL, THE LD. AR SUBMITTED THAT THE GROUND IS THE SAME AS IN EARLIER YEAR I.E. AY 2008- 09 WHICH HAS ALREADY BEEN ARGUED BEFORE US. WE CON CUR WITH THE SUBMISSIONS OF THE LD. AR AND IN VIEW OF OUR FINDIN GS IN ITA 1950/DEL/2012 ON THIS ISSUE; WE DISMISS GROUND NO. 1 OF THE DEPARTMENTS APPEAL. 28. GROUND NOS. 2 & 3 OF THE DEPARTMENTS APPEAL AN D GROUND NOS. 1 & 2 OF THE ASSESSEES APPEAL ARE BEING TAKEN UP TOGETHER AS THEY ALL RELATE TO THE CLAIM OF DEDUCTION U/S 80IB( 10) OF THE ACT. AS PER THE DEPARTMENT, THE CLAIM U/S 80IB(10) WAS NOT ALLOWABLE AS NO SEPARATE APPROVAL FOR THE FOUR PROJECTS VIZ. VISTA A, B, D & E WAS I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 26 TAKEN AND ONLY A CONSOLIDATED APPROVAL FOR THE ENTI RE VISTA PROJECT WAS TAKEN FROM THE GDA CONTAINING SEVEN PROJECTS (VISTA A TO F AND ONE COMMERCIAL). IT WAS THE OBSERVATION OF THE AO THAT THE WHOLE VISTA PROJECT ON PLOT NO. 14 WAS APPROVED BY THE GDA AS O NE PROJECT. THE LD. DR SUBMITTED THAT AS THE HOUSING PROJECT AND TH E COMMERCIAL PROJECT WERE APPROVED ON THE SAME MAP, THE COMMERCI AL PROJECT WOULD HAVE TO BE INCLUDED IN THE HOUSING PROJECT. THE LD . AR SUBMITTED THAT PROJECTS A&B AND D&E WERE TWO HOUSING PROJECTS WHER E THE FLATS WERE LESS THAN 1000 SQ. FT. EACH. EACH OF THESE TWO HOU SING PROJECTS DID NOT HAVE ANY COMMERCIAL ESTABLISHMENT AND COMPRISED OF ONLY RESIDENTIAL UNITS. IT WAS SUBMITTED THAT SEPARATE BOOKS OF ACCOUNT, PROFIT/LOSS ACCOUNT WERE PREPARED FOR THE COMMERCIA L PROJECT AS WELL AS FOR EACH OF THE RESIDENTIAL PROJECTS. IT WAS TH E PLEA OF THE LD. AR THAT COMMERCIAL PROJECT HAS BEEN TREATED AS A SEPAR ATE INDEPENDENT ACTIVITY ON WHICH NO DEDUCTION U/S 80IB (10) WAS EV ER CLAIMED BY THE ASSESSEE. THE LD. AR ALSO REFERRED TO THE REPORT O F THE DVO, WHEREIN THE DVO HIMSELF HAS ADMITTED THAT THE ENTRANCES AND EXITS OF THE VISTA SHOPPING COMPLEX AND VISTA RESIDENTIAL PROJEC T WERE SEPARATE AND NOT INTERCONNECTED. IT WAS SUBMITTED THAT THE ENTIRE PROJECT COMPRISED OF SIX RESIDENTIAL PROJECTS AND ONE COMME RCIAL PROJECT AND NO DEDUCTION HAD EVER BEEN CLAIMED IN RESPECT OF PR OJECTS C, F AND THE I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 27 COMMERCIAL PROJECT AND, THEREFORE, THERE WAS NO VAL ID REASON FOR DENIAL OF DEDUCTION FOR PROJECTS A & B AND D & E WH ICH CONTAINED EACH UNIT MEASURING LESS THAN 1000 SQ. FT. THE LD. AR REITERATED THAT THE COMMERCIAL PROJECT WAS COMPLETELY DIFFERENT, SE PARATE AND DISTINCT FROM EACH OF THE SIX RESIDENTIAL PROJECTS AND THAT THERE WAS NO COMMERCIAL OFFICE SPACE OR AREA IN ANY OF THE HOUSI NG PROJECTS IN A & B AND D & E. 29. AS FAR AS THE ISSUES OF EXCLUSION OF PROJEC TIONS THAT WERE OPEN TO SKY AND THAT OF INCORRECT MEASUREMENTS BY THE DV O WERE CONCERNED, THE LD. AR SUBMITTED A CHART DEPICTING T HE BUILT-UP AREA OF THE VARIOUS FLATS AS PER THE DVO REPORT. THE SAME IS BEING REPRODUCED HEREIN UNDER FOR A READY REFERENCE: S.NO. FLOOR TYPE OF FLAT NO. OF FLATS IN A.B.D.E PROJECTS BUI LT UP AREA OF FLAT I/C WALLS & COVERED BALCONY (IN SQ. FT.) AREA OF BALCONY (OPEN TO SKY) (IN SQ.FT.) TOTAL AREA (IN SQ. FT.) REMARKS 1. 1ST CORNER 16 1029.28 231.28 1260.56 DETAILS AS PER ANNEXURE 'A' 2 1ST MIDDLE(POR CH SIDE) 16 988.79 118.05 1106.84 DETAILS AS PER ANNEXURE B I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 28 3. 1ST MIDDLE 32 988.79 255.96 1244.75 DETAILS AS PER ANNEXURE 'C' 4. 2 ND TO 10TH CORNER 144 1029.28 NIL 1029.28 DETAILS AS PER ANNEXURE 'D' 5. 2 ND TO 10 TH . MIDDLE 432 988.79 NIL 988.79 DETAILS AS PER ANNEXURE 'E' 30. THE LD. AR SUBMITTED THAT AS PER THE DVO, ONLY 432 FLATS OUT OF THE TOTAL 640 FLATS IN PROJECTS A, B, D & E QUALIFI ED FOR DEDUCTION U/S 80IB (10) AS HAVING BUILT-UP AREA OF LESS THAN 1000 SQ. FT. EACH AND THE LD. CIT (A) RELYING ON THE DVO REPORT ALLOWED T HE CLAIM OF RS. 19.28 CRORES OUT OF THE TOTAL CLAIM OF 29.68 CRORES MADE BY THE ASSESSEE U/S 80IB (10) OF THE ACT. HOWEVER, DEDUCT ION WITH RESPECT TO 208 FLATS AT S.NOS. 1 TO 4 IN THE CHART ABOVE WAS N OT ALLOWED AS THE FLATS AT S.NO. 2 & 3 ABOVE, ALTHOUGH HAD A BUILT UP AREA OF LESS THAN 1000 SQ. FT. AS PER THE DVO, BUT THE AREA EXCEEDED 1000 SQ. FT. WHEN THE AREA OPEN TO THE SKY WAS ADDED. THE LD. AR SUB MITTED THAT A BALCONY STRUCTURE WHICH HAS AN EQUIVALENT STRUCTURE ON THE TOP IS TO BE INCLUDED IN THE BUILT-UP AREA BUT THE STRUCTURE WHICH IS OPEN TO THE SKY DOES NOT QUALIFY AS BUILT UP AREA. HE RELIED O N A SERIES OF I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 29 JUDGMENTS OF THE TRIBUNAL AND HON'BLE HIGH COURTS I N SUPPORT OF HIS CONTENTION. 31. THE LD. AR FURTHER SUBMITTED THAT THE FLATS A ND S.NO. 1 AND 4 IN THE CHART DEPICTED INCORRECT MEASUREMENTS BY THE DV O. THE LD. AR SUBMITTED THAT THE DEDUCTION WAS DENIED BY THE LD. CIT (A) ON THE BASIS OF MEASUREMENTS MADE BY THE DVO. IT WAS SUBM ITTED THAT THE AREA IN RESPECT OF THESE 160 FLATS WAS IN FACT ONLY 988.79 SQ FT EACH BUT THE DVO HAD CALCULATED THE SAME AT 1029.28 SQ F T WHICH WAS GROSSLY INCORRECT. THE LD. AR SUBMITTED THAT THE D EFINITION OF THE BUILT-UP AREA INCLUDED INNER MEASUREMENTS OF THE RE SIDENTIAL UNIT AT THE FLOOR LEVEL INCLUDING THE PROJECTIONS AND BALCO NIES AS INCREASED BY THE THICKNESS OF THE WALL BUT DOES NOT INCLUDE THE COMMON AREAS SHARED WITH OTHER RESIDENTIAL UNITS. THE LD. AR SU BMITTED THAT IN THE CONSTRUCTION INDUSTRY, THE OUTER WALLS ARE 9 INCHES WALLS WHEREAS THE INTERNAL WALLS ARE 4.50 INCHES. THE AREA OF THE WA LLS AND THE COMMON WALLS HAS BEEN ARBITRARILY APPLIED BY THE DVO THUS INCREASING THE AREA BY APPROXIMATELY 35 SQ FT EACH. IT WAS ALSO SUBMIT TED THAT THE LD. CIT (A) DID NOT GIVE SUFFICIENT OPPORTUNITY TO THE ASSE SSEE TO REBUT THE FINDINGS OF THE DVO. IN LIGHT OF THESE ANOMALIES, IT WAS SUBMITTED, THE FULL CLAIM OF DEDUCTION IS TO BE ALLOWED TO THE ASS ESSEE. I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 30 32. THE LD. DR RELIED ON THE DVOS REPORT AND THE IMPUGNED ORDER AND SUBMITTED THAT NO INTERFERENCE WAS CALLED FOR A T THIS STAGE AND THAT THE DEDUCTION CLAIM WAS PRIMA FACIE INCORRECT IN VI EW OF THE DETAILED FINDINGS OF THE ASSESSING OFFICER AND THAT EVEN THE RELIEF ALLOWED BY THE LD. CIT(A) DESERVES TO BE REVERSED. 33. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFU LLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. AS FAR AS GROUN D NO. 2 OF THE DEPARTMENTS APPEAL IS CONCERNED, IT IS SEEN THAT T HE ISSUE OF PRO RATA DEDUCTION IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE FOLLOWING CASES:- I) ITO VS AIR DEVELOPERS (2009) 122 ITD 125 (NAGPUR) II) SJR BUILDERS VS ACIT 3 ITR (TRIB) 569 (BANGALORE) III) SREEVATSA REAL ESTATE (P) LTD. 9 ITR (TRIB) 808 (CHENNAI) IN ITO VS AIR DEVELOPERS (SUPRA), THE NAGPUR BENCH HELD THAT:- IN VIEW OF THE DECISION OF THE KOLKATA BENCH OF TH E TRIBUNAL IN THE CASE OF (BENGAL AMBUJA HOUSING DEVELOPMENT LTD. V. DY. CIT [IT APPEAL NO. 1595 (KO L.) OF 2005, DATED 24-3-2006], WHICH WAS SQUARELY APPLICABLE TO THE INSTANT CASE, IT WAS TO BE HELD T HAT IF THE ASSESSEE HAD DEVELOPED A HOUSING PROJECT WHEREI N THE MAJORITY OF THE RESIDENTIAL UNITS HAD A BUILT-U P AREA OF LESS THAN 1500 SQ. FT., I.E., THE LIMIT PRESCRIB ED BY SECTION SO-IB(IO) AND ONLY A FEW RESIDENTIAL UNITS WERE EXCEEDING THE BUILT-UP AREA OF 1500 SQ. FT., THERE WOULD I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 31 BE NO JUSTIFICATION TO DISALLOW THE ENTIRE DEDUCTIO N UNDER SECTION 80-LB(10). IT WOULD BE FAIR AND REASO NABLE TO ALLOW THE DEDUCTION ON A PROPORTIONATE BASIS, I. E., ON THE PROFIT DERIVED FROM THE CONSTRUCTION OF THE RESIDENTIAL UNIT WHICH HAD A BUILT-UP AREA OF LESS THAN 1500 SQ. FT., I.E., THE LIMIT PRESCRIBED UNDER SECT ION 80- IB(IO). IN VIEW OF THE ABOVE, THE ASSESSING OFFICER WAS TO BE DIRECTED THAT IF IT WAS FOUND THAT THE BUILT- UP AREA OF SOME OF THE RESIDENTIAL UNITS WAS EXCEEDING 1500 SQ.FT., HE WOULD ALLOW THE PROPORTIONATE DEDUCTION UNDER SECTION 80- IB(10). ACCORDINGLY, THE APPEAL OF THE REVENUE WAS TO BE DISMISSED AND CROSS-OBJECTION OF THE ASSESSEE WAS DEEMED TO BE PARTLY ALLOWED. [PARA 6.7 ] SIMILARLY, IN SJR BUILDERS (SUPRA), THE BANGALORE B ENCH OF THE ITAT HELD THAT:- HOWEVER, IN THE LIGHT OF THE DECISION OF THE SPECI AL BENCH IN THE CASE OF BRAHMA ASSOCIATES V. JOINT CIT [2009] 315 ITR (AT) 268 (PUNE), MERELY BECAUSE SOME FLATS ARE LARGER THAN 1500 SQ.FT, THE ASSESSEE WILL NOT LOSE THE BENEFIT IN ITS ENTIRETY. ONLY WITH REFEREN CE TO THE FATS WHICH HAVE THAN THE PRESCRIBED AREA, THE ASSES SEE WILL LOSE THE BENEFIT. THE CHENNAI BENCH OF THE ITAT, IN THE CASE OF SREEV ATSA REAL ESTATES (P) LTD. (SUPRA), HELD THAT :- THE ASSESSEE WAS A COMPANY ENGAGED IN PROPERTY DEVELOPMENT AND CLAIMED DEDUCTION UNDER SECTION 80-IB( 10). THE ASSESSING OFFICER DENIED THE CLAIM CITING VARIOUS REASONS, ONE OF THEM BEING - PROJECT WAS NOT EXCLUSIVELY FOR UNITS WITH BUILT-UP AREA LE SS THAN 1500 SQ. FT. COMMISSIONER (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. IN SECOND APPEA L, ITAT CHENNAI HELD - FURTHER AS REGARDS REVENUE'S CONTENTION THAT SINCE SOME OF THE HOUSING UNITS EXCEEDED 1500 SQ. FEET., NO CLAIM UNDER SECTION 80-111(10) COULD BE ALLOWED, IT WAS TO BE HELD THAT THE ASSESSEE WAS ELIGIBLE FO R I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 32 CLAIMING DEDUCTION UNDER SECTION 80-IB(10), PRO RATA FOR THE HOUSING UNITS HAVING AREA OF LESS THAN 1500 SQ. FT. FOR BOTH THE YEAR. [PARA 15] KEEPING IN VIEW THE REPORT OF THE DVO AS WELL AS TH E RATIO OF JUDGMENTS AS DISCUSSED ABOVE, WE CONCUR WITH THE FI NDING OF THE LD. CIT(A) THAT THE ASSESSEE WAS ELIGIBLE TO GET PR OPORTIONATE DEDUCTION U/S 80IB(10) OF THE ACT IN RESPECT OF FLA TS SOLD DURING THE YEAR ON FULFILLING THE PRESCRIBED CONDITIONS. HENCE GROUND NO. 2 OF THE DEPARTMENTS APPEAL IS DISMISSED AND THE F INDINGS OF THE LD. CIT (A) ARE UPHELD. 34. AS FAR AS THE ISSUE OF REQUIREMENT OF A SEPARA TE APPROVAL FOR EACH HOUSING PROJECT IS CONCERNED (CORRESPONDING TO GROUND NO 3 OF THE DEPARTMENTS APPEAL), WE ARE OF THE CONSIDER ED OPINION THAT SECTION 80IB (10) PRESCRIBES APPROVAL OF A HOU SING PROJECT. A HOUSING PROJECT MAY COMPRISE OF BOTH ELIGIBLE AS WE LL AS INELIGIBLE UNITS. THE DEDUCTION WILL BE AVAILABLE AND LIMITED TO THE CLAIM ON ELIGIBLE UNITS IRRESPECTIVE OF THE FACT THAT THE EN TIRE PROJECT COMPRISING OF ELIGIBLE AND INELIGIBLE UNITS HAS BEE N APPROVED BY THE AUTHORITY BY WAY OF A SINGLE APPROVAL/COMPOSITE APPROVAL. SECTION 80IB(10) REFERS TO THE APPROVAL OF A HOUSIN G PROJECT BUT DOES NOT PRESCRIBE A PRE-CONDITION THAT THE DEDUCTI ON WILL BE AVAILABLE IN RESPECT OF ONLY THAT UNIT OR PART OF T HE PROJECT WHICH I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 33 HAS BEEN SEPARATELY APPROVED BY THE LOCAL AUTHORITY . HENCE, IT IS OUR CONSIDERED VIEW THAT A SEPARATE APPROVAL FOR EA CH ELIGIBLE UNIT OR PROJECT IS NOT THE INTENTION OF THE ACT. T HE HON'BLE MADRAS HIGH COURT IN THE CASE OF VISWAS PROMOTERS ( P) LTD. VS ACIT 255 CTR 149 HAS HELD THAT THE MERE FACT THAT O NE OF THE BLOCKS HAVE UNITS EXCEEDING BUILT-UP AREA OF 1500 S Q FT PER SE, WOULD NOT RESULT IN NULLIFYING THE CLAIM OF THE ASS ESSEE FOR THE ENTIRE PROJECT. CONSEQUENTLY, IT WAS HELD, THAT AS SESSEE WAS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80IB (10(C ) OF THE ACT IN RESPECT OF EACH OF THE BLOCKS. THE PUNE BENCH OF T HE ITAT HAS HELD IN THE CASE OF SIDDHIVINAYAK KOHINOOR VENTURE VS ACIT (2014) 159 TTJ 390 THAT CONSTRUCTION OF EVEN ONE BU ILDING WITH SEVERAL RESIDENTIAL PROJECTS OF THE PRESCRIBED SIZE WOULD CONSTITUTE A HOUSING PROJECT FOR THE PURPOSE OF SECTION 80IB(1 0) OF THE ACT. THE PUNE BENCH FURTHER HELD THAT EACH BLOCK IN A PA RTICULAR PROJECT HAS TO BE TAKEN AS AN INDEPENDENT BUILDING AND HENCE IS TO BE CONSIDERED A HOUSING PROJECT FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IB(10). PARA 32 OF THE ORDER IS RE LEVANT IN THE PRESENT APPEAL ALSO AND IS BEING REPRODUCED HEREIN UNDER FOR A READY REFERENCE:- 32. THE ARGUMENT OF THE REVENUE, BASED ON THE STATEMENT OF CHIEF ENGINEER, PCMC, IN OUR VIEW, DOE S NOT I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 34 HELP THE CASE OF THE REVENUE AS THE FOLLOWING DISCUSSION WOULD SHOW. THE CASE SET UP BY THE REVEN UE IS THAT TWO PROJECTS HAVE BEEN SANCTIONED BY A COMM ON APPROVAL AND THUS THE PCMC HAS VIEWED THE TWO PROJECTS AS A SINGLE COMPOSITE PROJECT. IT IS CONTE NDED BY THE REVENUE THAT THE EXPRESSION 'HOUSING PROJECT', THOUGH NOT DEFINED IN S. 80-113(10) OF THE ACT, SHOULD BE TAKEN TO BE THE PROJECT PER SE, AS APPROVED BY A 'LOCAL A UTHORITY' FOR THE PURPOSES OF S. 80-IB( 10) OF THE ACT. NO DO UBT, FOR A 'HOUSING PROJECT' TO BE ELIGIBLE FOR DEDUCTION UN DER S. 80-IB (10) OF THE ACT, IT IS REQUIRED TO BE APPROVE D BY A 'LOCAL AUTHORITY', SO HOWEVER, THE PHRASEOLOGY OF S . 80-IB (10) OF THE ACT DOES NOT REFLECT A LEGISLATIVE INTE NT THAT THE PROJECT SHOULD BE 'AS APPROVED' BY A 'LOCAL AUTHORI TY'. THE REQUIREMENT OF S. 80-IB (10) OF THE ACT TO THE EFFE CT THAT PROJECT SHOULD BE APPROVED BY A 'LOCAL AUTHORITY' I S FULFILLED NO SOONER WHEN THE 'HOUSING PROJECT' CONS IDERED BY AN ASSESSEE IS APPROVED BY A 'LOCAL AUTHORITY'. MOREOVER, THE EXPRESSION 'HOUSING PROJECT' IS NOT D EFINED IN THE DEVELOPMENT CONTROL RULES FOR PCMC I.E. THE 'LOCAL AUTHORITY' IN THE CASE BEFORE US AND THUS, THE SAID ENACTMENT CANNOT BE RESORTED TO FOR THE PURPOSE OF UNDERSTANDING THE MEANING OF EXPRESSION 'HOUSING PROJECT' CONTAINED IN S. 80-IB(10) OF THE ACT. THER EFORE, SO LONG AS THE CLAIM OF DEDUCTION IS IN RELATION TO A 'HOUSING PROJECT', WHICH HAS BEEN APPROVED BY THE 'LOCAL AUTHORITY', IT WOULD SATISFY THE REQUIREMENT OF S. 80- IB(10) OF THE ACT. PERTINENTLY, IF THE PROPOSITION OF THE REVENUE IS TO BE UPHELD, THE SAME WOULD BE QUITE CONTRARY TO THE MANNER IN WHICH THE EXPRESSION 'HOU SING PROJECT' CONTAINED IN S. 80-IB (10) OF THE ACT HAS BEEN UNDERSTOOD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF VANDANA PROPERTIES (SUPRA) AND ALSO BY THE HON'BLE MADRAS HIGH COURT IN VISWAS PROMOTERS (P.) LTD. (SUPRA) AND ARUN EXCELLO FOUNDATIONS (P.) LTD. (SUP RA). IT MAY ALSO BE PERTINENT TO OBSERVE THAT THE HON'BLE BOMBAY HIGH COURT IN VANDANA PROPERTIES (SUPRA) NOT ONLY NOTED THAT THE EXPRESSION 'HOUSING PROJECT' IS NOT DEFINED UNDER S. 80-IB(10) OF THE ACT BUT ALSO NOTE D THAT THE SAME WAS NOT DEFINED EVEN UNDER THE RELEVANT LO CAL REGULATIONS BEFORE IT, VIZ. THE MUMBAI MUNICIPAL CORPORATION ACT, 1988 AND THE DEVELOPMENT CONTROL REGULATIONS FOR GREATER MUMBAI, 1991. THUS, THE HON 'BLE HIGH COURT PROCEEDED TO OBSERVE THAT THE EXPRESSION 'HOUSING PROJECT' IN S. 80-IB(10) WOULD HAVE TO BE CONSTRUED AS COMMONLY UNDERSTOOD. EVEN IN THE CASE BEFORE US, THERE IS NO DISPUTE THAT THE EXPRESSION 'HOUSING PROJECT' IS NOT DEFINED IN THE DEVELOPMENT CONTROL RULES FOR PCMC AND THEREFORE, THE CONCEPT OF'HOUSING PROJECT AS SOUGHT TO BE UNDERSTOOD BY T HE AO I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 35 BASED ON THE EXPLANATION OF CHIEF ENGINEER. PCMC IS NOT RELEVANT FOR THE PURPOSES OF S, 80IB (I0) OF THE AC T. THUS, THE ARGUMENT OF THE REVENUE TO THE EFFECT THAT SINC E SWRH AND S' 1 PROJECTS HAVE BEEN APPROVED BY PCMC UNDER A COMMON APPROVAL, THE TWO PROJECTS SHOULD BE COMBINED AND CONSIDERED AS A SINGLE PROJECT FOR THE PURPOSE OF S. UNDER S. 80-IB( 10) OF THE ACT IN OUR OPINION IS MISPLACED. 35. THEREFORE, IN VIEW OF THE FACTS OF THE CASE A S WELL AS THE JUDICIAL PRECEDENTS DISCUSSED ABOVE, WE DISMISS GRO UND NO. 3 OF THE DEPARTMENTS APPEAL. GROUND NOS. 4 & 5 OF THE DEPARTMENTS APPEAL BEING GENERAL IN NATURE ARE NOT BEING ADJUDI CATED UPON AND ARE DISMISSED. IN THE RESULT, THE APPEAL OF TH E DEPARTMENT IS DISMISSED. 36. AS FAR AS GROUND NOS. 1 & 2 OF THE ASSESSEES APPEAL ARE CONCERNED, THE FIRST ISSUE REQUIRING ADJUDICATION I S WHETHER THE PROJECTIONS OPEN TO SKY ARE TO BE INCLUDED OR EXCLU DED IN THE CALCULATION OF THE BUILT-UP AREA OF A PARTICULARS R ESIDENTIAL UNIT. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT PUNE BENCH IN THE CASE OF NARE SH T. WADHWANI VS DCIT (52 TAXMANN.COM 360 PUNE-TRIB) WHE REIN, IN PARA 27, THE BENCH HAS HELD AS FOLLOWS:- 27. CONSIDERED IN THE ABOVE BACKGROUND, WE CONCLU DE BY HOLDING THAT THE ASSESSING OFFICER AND THEREAFTE R THE CIT(A) HAS ERRED IN INCLUDING THE AREA OF PROJECTED TERRACE (OPEN TO SKY) FOR THE PURPOSES OF COMPUTING 'BUILT- UP AREA' WHILE EXAMINING THE CONDITION PRESCRIBED I N I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 36 CLAUSE (E) OF SECTION 80IB( 10) OF THE ACT. ONCE TH E AREA OF PROJECTED TERRACE (OPEN TO SKY) IS EXCLUDED THEN TH ERE IS NO DISPUTE THAT THE RESIDUAL BUILT-UP AREA OF SIX U NITS IN QUESTION FALLS WITHIN THE PRESCRIBED LIMIT OF 1500 SQ.FT. AS A RESULT, WE HOLD THAT ASSESSEE FULFILLS THE CON DITION PRESCRIBED IN CLAUSE (C) OF SECTION 80IB (10) OF TH E ACT WITH REGARD TO THE SIX UNITS IN QUESTION. THEREFORE , WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AS SESSING OFFICER TO CONSIDER THAT THE SIX UNITS IN QUESTION FULFILL THE CONDITION PRESCRIBED IN CLAUSE (E) OF SECTION 80I B (10) OF THE ACT AND THE ASSESSEE IS ENTITLED TO THE BENEFIT OF SECTION 80IB(10) OF THE ACT. 37. IN THE PROCEEDINGS BEFORE US, THE DEPARTMENT C OULD NOT POINT OUT ANY JUDGMENT/JUDICIAL PRECEDENT TO THE CONTRARY . WE ACCORDINGLY HOLD THAT THE BALCONIES OPEN TO THE SKY ARE TO BE EXCLUDED FROM THE CALCULATION OF THE BUILT-UP AREA OF A PARTICULAR RESIDENTIAL UNIT. WE, THEREFORE, DIRECT THAT THE A SSESSEE BE ALLOWED THE CLAIM OF DEDUCTION U/S 80IB (10) IN RES PECT OF FLATS (AT S.NOS. 2 & 3 AS IN THE CHART REPRODUCED IN ON PARA 28 OF THIS ORDER) WHICH HAVE BEEN EXCLUDED FROM THE BENEFIT OF DEDUCTION BY INCLUDING THE BALCONIES OPEN TO SKY FOR THE PURPOSE OF CALCULATING THE BUILT-UP AREA OF THE INDIVIDUAL UNITS. 38. THE ONLY ISSUE REMAINING FOR ADJUDICATION AFTE R THIS IS THE CLAIM OF THE ASSESSEE CHALLENGING THE MEASUREMENTS OF THE DVO IN RESPECT OF FLATS AT SL. NO. 1 & 4 OF THE CHART ( PARA 28 OF THIS I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 37 ORDER). IT IS THE ASSESSEES CONTENTION THAT THE C ORRECT MEASUREMENT IS 988.79 SQ FT WHEREAS THE DVO HAS CAL CULATED THE BUILD UP AREA AT 1029.28 SQ. FT. IT IS ALSO THE AS SESSEES PLEA THAT IT HAD NOT BEEN AFFORDED A PROPER OPPORTUNITY TO EX PLAIN THE DISCREPANCY BEFORE THE LD. CIT (A). HENCE IN THE I NTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE THIS LIMITED ISSUE OF DISCREPANCY IN MEASUREMENT, AS CLAIMED BY THE ASSES SEE, TO THE FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINATION AND ADJUDICATION THEREON AFTER GIVING DUE OPPORTUNITY T O THE ASSESSEE TO PRESENT ITS CASE. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 39. IN THE FINAL RESULT , BOTH THE APPEALS OF THE DEPARTMENT ARE DISMISSED, THE C.O. OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY, 2016. SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT J UDICIAL MEMBER DATED: THE 30TH MAY, 2016 GS I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 38 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 4. DR, ITAT BY ORDER ASSTT.REGISTRAR I.T.A. NOS. 5614, 1950, 5849/D/2012, CO 20/D/15 ASSESSMENT YEARS: 2009-10, 2008-09 40