Addl. CIT, Bangalore V. M/s Sobha Developers, Bangalore

ITA 1027/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51386 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 24-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARCHANA CHOWDHRY CITII
• Assessee Lawyers: S VENKATESAN
• Keywords: Business income; Earning of tax free income
• Section: 14A; 80IB

Judgement Text

PAGE 1 OF 15 ITA NOS.1026 & 1027/BANG/ 2010 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N K SAINI, ACCOUNANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NOS.1026 & 1027/BANG/2010 (ASST. YEARS 2006-07 & 2007-08) THE ADDITIONAL COMMISSIONER OF INCOME-TAX, (LTU), BANGALORE. - APPELLANT VS M/S SOBHA DEVELOPERS, 42, II FLOOR, DICKENSON ROAD, BANGALORE-58. - RESPONDENT PA NO.AABCS7723E DATE OF HEARING : 13/12/2011 DATE OF PRONOUNCEMENT : 16/12/2011 APPELLANT BY : SMT. ARCHANA CHOWDHRY, CIT-II RESPONDENT BY : SHRI S VENKATESAN, C.A. O R D E R PER GEORGE GEORGE K : THESE APPEALS INSTITUTED BY THE DEPARTMENT ARE DIR ECTED AGAINST THE CONSOLIDATED ORDER OF THE CIT(A)-LTU, B ANGALORE DATED 30/06/2010.. THE RELEVANT ASST. YEARS ARE 2006-07 A ND 2007-08. 2. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEA LS AND THEY RELATE TO THE SAME ASSESSEE, THEY ARE DISPOSED OFF B Y THIS CONSOLIDATED ORDER. PAGE 2 OF 15 ITA NOS.1026 & 1027/BANG/ 2010 2 ITA NO.1026/BANG/2010 (AY 2006-07) 3. THE REVENUE HAS RAISED FIVE GROUNDS OF APPEAL. GROUND NOS.1, 5 AND 6 ARE GENERAL IN NATURE AND NO SPECIFIC ADJUDIC ATION IS REQUIRED AND HENCE, THEY ARE DISMISSED AS INFRUCTUOUS. 3.1 REMAINING EFFECTIVE GROUNDS, NAMELY, GROUND NOS .2, 3 AND 4 READS AS FOLLOWS:- 2) THE CIT(A) HAS ERRED IN NOT HOLDING ALLOCATION OF C OMMON EXPENSES IN RATIO OF TURNOVER OF A PROJECT TO THE T OTAL TURNOVER OF THE COMPANY FOR 80IB DEDUCTION. 3) THE CIT(A) HAS ERRED IN HOLDING PERCENTAGE OF COMPLETION METHOD FOR ALLOCATING OVERHEAD EXPENSES FOR CLAIMING 80IB DEDUCTION. 4) THE CIT(A) HAS ERRED IN ALLOWING 80IB DEDUCTION IN RESPECT OF PROFIT ON SALE AND DEVELOPMENT OF LAND. 3.2 BRIEF FACTS IN RELATION TO THE ABOVE GROUNDS A RE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE B USINESS OF DEVELOPMENT OF REAL ESTATE AND EXECUTION OF CONSTRU CTION CONTRACTS. RETURN OF INCOME FOR THE ASST. YEAR 2006-07 WAS FILED ON 29 .11.2006 DECLARING AN INCOME OF RS.54,18,32,997/- AFTER CLAIMING DEDUCTIO N U/S 80IB(10) OF THE ACT AMOUNTING TO RS.56,80,76,159/-. THE ASSESSMENT WAS COMPLETED ON 24/12/2008 FIXING THE TOTAL INCOME AT RS.70,65,43,6 46/-. THE AO, WHILE COMPLETING THE ASSESSMENT, RECOMPUTED THE DEDUCTION U/S 80IB OF THE ACT AND RESTRICTED THE SAME TO RS.40,33,65,510/- INSTEA D OF RS.54,18,32,997/- CLAIMED BY THE ASSESSEE. THE DEDUCTION U/S 80IB OF THE ACT WAS REDUCED MAINLY ON ACCOUNT OF TWO REASONS, VIZ. PAGE 3 OF 15 ITA NOS.1026 & 1027/BANG/ 2010 3 (I) DIFFERENCE IN THE METHOD OF ALLOCATION OF GENER AL OVERHEAD EXPENSES AND (II) EXCLUSION OF THE PROFIT ON SALE OF UNDIVIDED I NTEREST IN LAND IN RESPECT OF CERTAIN PROJECT. DIFFERENCE IN THE METHOD OF ALLOCATION OF GENERAL O VERHEAD EXPENSES 4. GROUND NOS. 2 AND 3 RELATE TO THE ABOVE ISSUE RAISED BY THE REVENUE. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO, WHILE PERUSING THE P&L ACCOUNT OF THE VARIOUS HOUSING PROJECTS ALO NG WITH THE WORKING OF THE ALLOCATION OF COMMON EXPENSES, FOUND THAT THE T OTAL ADMINISTRATIVE EXPENSES OF THE COMPANY WAS TO THE TUNE OF RS.111,38 ,45,460/-. AFTER DEBITING VARIOUS EXPENSES DIRECTLY ATTRIBUTABLE TO T HE DIFFERENT PROJECTS, IT WAS NOTICED THAT THE ASSESSEE HAD SHOWN A NET FIGUR E OF RS.68,11,90,719/- AS THE OFFICE EXPENSES NOT DEBITED TO ANY PARTICULAR PROJECT. THIS COMMON EXPENDITURE WAS ALLOCATED BY THE ASSESSEE TO THE PRO JECTS CLAIMING DEDUCTION U/S 80IB IN THE RATIO OF COST INCURRED DU RING THE YEAR IN THE PROJECT TO THE TOTAL EXPENDITURE OF THE COMPANY. TH E AO ASKED THE ASSESSEE WHY COST INCURRED DURING THE YEAR SHOULD BE ADOPTED AS A BASIS FOR ALLOCATION OF OVERHEAD EXPENSES TO THE INDIVIDUAL P ROJECTS. ACCORDING TO THE AO, THE TURNOVER WOULD BE A BETTER BASIS FOR THE AL LOCATION OF EXPENDITURE. 4.1 IN REPLY, THE ASSESSEE FILED ITS OBJECTIONS VID E LETTER DATED 19/11/2008. THE RELEVANT EXTRACT OF ASSESSEES LE TTER READS AS FOLLOWS:- AS BRIEFED DURING OUR PERSONAL APPEARANCE, THE COS TING PRINCIPLES PREFER ALLOCATION OF OVERHEADS TO EACH P ROJECT BASED ON EXPENDITURE INCURRED RATHER THAN TURNOVER PAGE 4 OF 15 ITA NOS.1026 & 1027/BANG/ 2010 4 BECAUSE, THE TURNOVER DOES NOT REFLECT THE REAL ACT IVITY LEVEL. ASSUMING THAT THERE ARE NO SALES DURING THE YEAR (IN RESPECT OF PROJECTS WHICH HAVE A COMPLETION PERCENTAGE OF LESS THAN 25%), EXPENSES OF CORPORATE OFFICE DO NOT GET ALLOCATED IN SUCH CASES, THOUGH S UCH PROJECTS NEED TO BE LOADED WITH THE PROPORTIONATE OVERHEADS. SIMILARLY, ON ASSUMING A HYPOTHETICAL SITUATION OF PROJECTS GETTING COMPLETED IN THE FIRS T YEAR WITHOUT ANY SALES AND THE ENTIRE PROJECT GETTING SOL D OUT IN THE SECOND YEAR, IN BOTH THE YEARS THE OVERHEADS D O NOT GET ALLOCATED TO THE PROJECTS. CONSIDERING THE ABOVE ANOMALIES IN CONSIDERING THE TURNOVER AS THE BASE F OR ALLOCATION OF OVERHEADS TO THE PROJECTS, THE COST H AS BEEN TAKEN AS THE BASE. 4.2 THE OBJECTIONS RAISED BY THE ASSESSEE WAS REJEC TED BY THE AO FOR THE REASONS MENTIONED IN PARA 2.1.5 AND 2.1.6 O F THE IMPUGNED ASSESSMENT ORDER. THE ASSESSING OFFICER CONCLUDED THAT THE ALLOCATION OF THE OVERHEAD EXPENSES OF THE YEAR ON THE BASIS OF TU RNOVER IS A FAIR METHOD TO ARRIVE AT THE TRUE PROFITS DERIVED FROM THE 80IB PROJECT AND IS MORE REASONABLE THAN THE COST BASIS AS THE REVENUE RECOG NIZED ON THE BASIS OF PERCENTAGE OF COMPLETION IS A GOOD INDICATOR OF LEV EL OF ACTIVITY . THIS VIEW IS ALSO SUPPORTED BY THE ITAT, DELHI BENCH IN THE CASE OF FOOD SPECIALITIES LTD. V ACIT (54 ITD 352). 4.3 THE DIFFERENCE IN THE METHOD OF ALLOCATION OF THE OVERHEAD EXPENSES RESULTED IN A REDUCTION OF THE PROFITS FRO M THE PROJECT AND THE CONSEQUENT DEDUCTION CLAIMED U/S 80IB(10) OF THE AC T IN RESPECT OF THE VARIOUS PROJECTS AS UNDER:- PAGE 5 OF 15 ITA NOS.1026 & 1027/BANG/ 2010 5 SL. NO. NAME OF THE PROJECT EXPENSES ALLOCATED BY THE APPELLANT (RS.) EXPENSES ALLOCATED BY THE AO (RS.) DIFFERENCE IN THE ALLOCABLE EXPENSES (RS.) 1. SOBHA DAHLIA 1,89,56,067/- 2,99,58,7 22/- 1,10,02,655/- 2. SOBHA HIBISCUS 1,39,95,236/- 1,91,0 5,669/- 51,10,433/- 3. SOBHA IRIS 2,98,07,045/- 5,19,96,90 2/- 2,21,89,857/- 4. SOBHA MAYFLOWER 1,90,66,198/- 2,96,6 4,140/- 1,05,97,942 5. SOBHA PRIMROSE 1,42,52,889/- 2,12,6 5,291/- 70,12,402/- 6. SOBHA ROSE 2,46,66,608/- 4,00,55,18 5/- 1,53,88,577/- 7. SOBHA DAISY 1,32,70,699/- 1,29,73,5 18/- [2,97,181/-] TOTAL 13,40,14,742/- 20,50,19,427/- 7 ,10,04,685/- 4.4 AGGRIEVED BY THE ALLOCATION OF THE OVERHEAD EXP ENSES ON THE BASIS OF TURNOVER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4.5 THE FIRST APPELLATE AUTHORITY, FOLLOWING THE O RDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST. YEAR 2 005-06 (ITA NO.965/BANG/09 DT.31.5.2010), ALLOWED THE APPEAL OF THE ASSESSEE. 4.6 THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFOR E US. 4.7 AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASS ESSEE POINTED OUT THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF TH E TRIBUNAL IN ASSESSEES OWN CASE CITED SUPRA. 4.8 THE LEARNED DR FAIRLY SUBMITTED THAT THE ISSUE IS COVERED BY THE ABOVE SAID ORDER OF THE TRIBUNAL. HOWEVER, THE MATTER IS PENDING IN APPEAL BEFORE THE HONBLE HIGH COURT. 4.9 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE FIND THE ISSUE IN QUESTION IS SQUARE LY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST. YE AR 2005-06. THE GIST OF PAGE 6 OF 15 ITA NOS.1026 & 1027/BANG/ 2010 6 FINDINGS/CONCLUSIONS OF THE TRIBUNAL ARE GIVEN IN D ETAIL IN PARA 6 OF THE IMPUGNED ORDER OF THE CIT(A) AND HENCE, IT IS NOT R EITERATED AGAIN. THE TRIBUNAL HAD CATEGORICALLY FOUND THAT THE ALLOCATION OF OVERHEAD EXPENSES OF THE YEAR ON THE BASIS OF THE TURNOVER IS NOT A FAIR METHOD AND MORE REASONABLE IS THE COST/EXPENDITURE BASIS. THE FACT S BEING IDENTICAL, FOLLOWING THE COORDINATE BENCH DECISION CITED SUPRA , WE HOLD THAT THE ORDER OF THE CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW AND NO INTERFERENCE IS CALLED FOR. HENCE, GROUND NOS. 2 AND 3 RAISED BY TH E REVENUE ARE DISMISSED. EXCLUSION OF THE PROFIT ON SALE OF UNDIVIDED INTERE ST IN LAND IN RESPECT OF CERTAIN PROJECT 5. WHILE COMPLETING THE ASSESSMENT FOR ASST. YEAR 2 006-07, DEDUCTION U/S 80IB(10) WAS RECOMPUTED BY EXCLUDING T HE PROFIT FROM THE SALE OF UNDIVIDED INTEREST IN LAND IN RESPECT OF TH E FOLLOWING PROJECTS:- SL. NO. NAME OF THE PROJECT PROFIT ON SALE OF LAND EXCLUDED BY THE AO COMPANY IN WHICH THE LAND WAS ORIGINALLY PURCHASED BEFORE TRANSFER TO APPELLANT 1. SOBHA DAHLIA 2,50,34,176/- SOBHA INNERCITY TECHNO POLIS 2. SOBHA MAYFLOWER 3,16,37,025/- SOBHA INNERCITY TECH NOPOLIS 3. SOBHA PRIMROSE 41,47,715/- SOBHA INNERCITY TECH NOPOLIS 4. SOBHA ROSE 2,32,56,408/- SOBHA TECHNOCITY 5. SOBHA DAISY 96,30,639/- SOBHA INNERCITY TECHNOP OLIS TOTAL 9,37,05,963/- THE REASON BY THE AO FOR THE EXCLUSION OF THE PROFIT ON THE SALE OF LAND IN COMPUTING DEDUCTION U/S 80IB ARE MENTIONED AT 4.1 O F THE IMPUGNED ORDER OF THE CIT(A). PAGE 7 OF 15 ITA NOS.1026 & 1027/BANG/ 2010 7 5.1 ON FURTHER APPEAL BEFORE THE FIRST APPELLATE A UTHORITY, THE CIT(A), FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSE SSEES OWN CASE FOR THE ASST. YEAR 2005-06, DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE. THE CIT(A) DIRECTED THE AO THAT THE PROFITS DERIVED BY T HE ASSESSEE BY WAY OF SALE OF UNDIVIDED INTEREST IN LAND SHOULD NOT BE EX CLUDED WHILE COMPUTING DEDUCTION U/S 80IB OF THE ACT. 5.2 THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFOR E US. 5.3 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN QUESTION IS COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST. YEAR 2005-06 IN FAVOUR OF THE ASSESSEE (ITA NO.965/BANG/2009 DATED 31.5.2010). 5.4 THE LEARNED DR WAS UNABLE TO CONTROVERT THE SU BMISSION OF THE ASSESSEES COUNSEL THAT THE ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL CITED SUPRA. 5.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE ISSUE IN QUESTION IS COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST. YEAR 2005-06. THE RELEVANT FINDING OF THE TRIBUNAL AT PARA 19 TO 19.4 READS AS FOLLOWS:- AQUAMARINE : 19. THE MAIN FINDING OF THE AUTHORITIES B ELOW WAS THAT THERE WAS NO REGISTERED SALE DEED CONVEYING THE LAN DS IN QUESTION IN FAVOUR OF THE ASSESSEE. AS PER THE AGR EEMENT OF SALE DATED: 3.1.2005, [SOURCE: PAGE 146 OF P.B A. R], STPL HAD PAGE 8 OF 15 ITA NOS.1026 & 1027/BANG/ 2010 8 SOLD THE LANDS TO THE ASSESSEE. SINCE THE LAND WAS STILL IN THE NAME OF STPL IN THE REVENUE RECORDS; STPL WAS MADE A PARTY TO THE TRANSACTION OF SALE OF APARTMENTS TO FULFILL THE LEGAL REQUIREMENTS, IN SPITE OF A FACT THAT THE ASSESSEE WAS THE LEGITIMATE OWNER AND THE PHYSICAL POSSESSION OF THE LAND AS PER THE AGREEMENT OF SALE DT.3.1.2005. THIS ARRANGEMENT DOESNT CULMINATE THAT THE ASSESSEE WAS A MERE BUILDER ON T HE STRENGTH OF THE DOCUMENTS EXECUTED FOR THE PURPOSES OF CONVEYANCE OF THE FLATS DEVELOPED UNDER THE PECULIA R CIRCUMSTANCES AS EXPLAINED BY THE LD. A.R. IT IS A FACT THAT ANY BUILDER CANNOT VENTURE TO CONSTRUCT APARTMENTS WITHOUT ANY LAND. AS COULD BE SEEN FROM THE RECORDS THAT T HE ASSESSEE WAS DEVELOPING THE PROJECT AS AGREED UPON WITH ITS SISTER CONCERN TO PURCHASE THE LAND FROM IT AND SUBSEQUENT LY THE ADVANCES ALREADY TAKEN FROM THE ASSESSEE WAS, PERHA PS, ADVANCED FOR THE TRANSFER OF THE SAID LAND, THE VE RY FACT HAS NOT BEEN DENIED BY THE REVENUE. 19.1. THE AGREEMENT OF SALE ENTERED INTO BY THE A SSESSEE WITH STPL WHICH WAS SUBSISTING AND THAT THE PHYSICA L POSSESSION OF THE LAND BY THE ASSESSEE WAS NOT DISP ROVED BY THE AO WITH ANY DOCUMENTARY EVIDENCE. ANOTHER VITA L POINT WHICH CLINCHES THE ISSUE TO STRENGTHEN THE ARGUMENT OF THE ASSESSEE WAS THAT STPL HAD OFFERED THE PROCEEDS O N SALE OF LAND AS ITS BUSINESS INCOME, AS AGREED UPON IN THE AGREEMENT OF SALE DATED 3.1.2005, IN ITS RETURN OF INCOME WHI CH, ACCORDING TO THE ASSESSEE, HAS BEEN ACCEPTED BY THE DEPARTMENT. FURTHERMORE, THE AO HAD ASSESSED THE P ROFIT FROM SALE OF LAND AS INCOME IN THE HANDS OF ASSESSE E AND THE SAME HAS NOT BEEN EXCLUDED. HOWEVER, WHEN THE ISSU E OF DETERMINING THE CLAIM OF DEDUCTION U/S 80IB CAME IN TO FORE, THE AO CAME FORWARD TO DENY THE CLAIM OF THE ASSESS EE. THE AOS STAND THAT DEDUCTION U/S 80IB (10) OF THE ACT WAS AVAILED ONLY FOR BUILDING A HOUSING PROJECT AND NOT FOR THE DEVELOPMENT OF LAND WAS RATHER MISCONCEIVED. AS A MATTER OF FACT, THE AO HAD FAILED TO SEE THAT THE ASSESSEE HA D NOT DEVELOPED ANY LAND, BUT, CONSTRUCTED A HOUSING PROJ ECT AND THAT THERE CANNOT BE A DEVELOPMENT OR A BUILDING OF A HOUSING PROJECT WITHOUT ANY LAND. AS COULD BE SEEN FROM TH E COMMENCEMENT CERTIFICATE OF THE BDA [P.151 OF PB-AR ], NO DOUBT THAT THE CERTIFICATE WAS ISSUED IN THE NAME O F H.R. PAGE 9 OF 15 ITA NOS.1026 & 1027/BANG/ 2010 9 CHANDRASHEKAR, C/O SOBHA DEVELOPERS PVT. LTD. NO.E- 106, SUNRISE CHAMBERS, 22, ULSOOR, BANGALORE.42. THE GO ES TO CLEAR THE AIR THAT SINCE THE SAID CHANDRASHEKAR WAS THE ORIGINAL OWNER OF THE SAID LAND AS PER THE REVENUE RECORDS A ND AS PER THE RULES, THE COMMENCEMENT CERTIFICATE FOR CONSTRU CTION COULD BE ISSUED TO A PERSON WHOSE NAME WAS FINDING A PLACE IN THE RECORDS AT THE RELEVANT TIME OF ISSUING SUCH CE RTIFICATE. ACCORDINGLY, THE SAID CERTIFICATE WAS OBTAINED IN T HE NAME OF CHANDRASHEKAR. HAD CHANDRASHEKAR HIMSELF BEEN AN INCLINATION TO VENTURE A CONSTRUCTION PROJECT ON HI S OWN, HE WOULD NOT HAVE GONE WITH THE ADDRESS OF C/O M/S. SOBHA DEVELOPERS PVT. LD. NO.E-106, SUNRISE CHAMBERS, 22, ULSOOR ROAD, BANGALORE.42? THIS PROVES WITHOUT ANY IOTA O F DOUBT THAT THE COMMENCEMENT CERTIFICATE WAS OBTAINED BY T HE ASSESSEE ONLY FOR THE COMMENCEMENT OF THE SAID HOUS ING PROJECT. THE NAME OF CHANDRASHEKAR COULD HAVE BEEN USED AS A PLOY TO OBTAIN THE SAID CERTIFICATE, AS HIS NAME, ACCORDING TO THE ASSESSEE, WAS APPEARING IN THE REVENUE RECORDS AS THE OWNER OF THE LAND IN QUESTION AT THAT RELEVANT PERI OD. HAD THE AO DOUBTED THE BONA FIDE OF THE ASSESSEES CLAIM, T HIS FACT COULD HAVE BEEN GOT CROSS VERIFIED WITH THE RECORDS OF THE BDA TO BRING OUT THE TRUTH? THIS EXERCISE HAD NOT PRECISELY BEEN CARRIED OUT BY THE REVENUE TO NAIL THE ASSESSE E ON THIS COUNT, IF THE AO HAD DOUBTED THE ASSERTION OF THE A SSESSEE. WHEN THE ASSESSEE HAD DISCHARGED ITS ONUS, THE REVE NUE HAD, IN OUR VIEW, NOT DISCHARGED THE ONUS WHICH WAS PLAC ED AT ITS DOORSTEP; INSTEAD, IT WENT ON TO BUILD A MANSION ON LY ON ASSUMPTION. 19.2. WHEN THE AUTHORITIES HAVE DULY ASSESSED THE PROFIT ON SALE OF LAND AS ADMITTED BY THE ASSESSEE AS ITS INC OME, THE REVENUE CANNOT TAKE A DIFFERENT STAND THAT THE ASSE SSEE WAS NOT THE OWNER OF THE LAND ONLY TO DENY THE DEDUCTIO N TO THE ASSESSEE U/S 80IB OF THE ACT. 19.3. IT IS NOT UNCOMMON IN HOUSING SECTOR THAT W HEN THE DEVELOPER OR THE OWNER SELLS THE APARTMENTS TO CUST OMERS AND THE SALE OF APARTMENT WOULD GENERALLY BE ACHIEVED B Y ENTERING INTO AN AGREEMENT FOR SALE OF UNDIVIDED INTEREST IN LAND TOGETHER WITH A CONSTRUCTION AGREEMENT FOR CONSTRUC TING AND DELIVERING THE BUILT-UP AREA. EVEN THOUGH, THERE W ERE TWO PAGE 10 OF 15 ITA NOS.1026 & 1027/BANG /2010 10 SEPARATE AGREEMENTS TO CONVEY THE UNDIVIDED INTERES T IN LAND AND THE BUILT-UP AREA, BUT, IN PRACTICE, THERE WOUL D BE A SINGLE AND COMPOSITE TRANSACTION, I.E., SALE OF APARTMENT. THE CONSIDERATION FOR SALE OF AN APARTMENT WOULD BE FIX ED BASED ON THE EXTENT OF BUILT-UP AREA AND THE SALE PRICE. ONCE THE DEAL WAS STRUCK, THE BUILDER OR THE OWNER, AS THE C ASE MAY BE, MAKE A BIFURCATION OF SALE PROCEEDS TOWARDS THE SAL E OF UNDIVIDED INTEREST IN LAND AND THAT OF THE SALE OF THE BUILT UP AREA. THIS BIFURCATION COULD BE RESORTED TO MAINLY FOR THE REGISTRATION OF THE UNDIVIDED INTEREST IN LAND IN F AVOUR OF THE BUYER WHICH CANNOT BE CATEGORIZED THAT THERE WERE T WO DIFFERENT TRANSACTIONS BETWEEN THE BUILDER AND THE BUYER OF THE APARTMENT. IN FACT, THERE WOULD BE A COMPOSITE TRANSACTION FOR SALE OF AN APARTMENT AS SALE OF APA RTMENT CULMINATES THE OWNERSHIP OF THE UNDIVIDED INTEREST IN LAND TO BE TRANSFERRED TO THE BUYER. THE DEVELOPER CLASSIF IES THE PROFIT AS ON SALE OF LAND PURELY FOR THE PURPOSE OF ACCOUNTING ENTRIES PASSED IN HIS/ITS BOOKS OF ACCOUNT, HOWEVER , THE FACT REMAINS THAT THE PROFIT DERIVED BY THE DEVELOPER WA S FROM THE DEVELOPMENT OF THE HOUSING PROJECT ONLY AND NOTHING ELSE. 19.4. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE, THE ENTIRE PROFIT EARNE D BY A DEVELOPER WAS PART AND PARCEL OF THE OVER ALL PROFI TS DERIVED FROM THE HOUSING PROJECT. WE ARE, THEREFORE, OF TH E CONSIDERED VIEW THAT THE EXCLUSION OF THE PROFIT ON THE SALE OF LAND ON A SOLE GROUND THAT THE ASSESSEE HAD SHOWN T HE PROFITS SEPARATELY AND THE SAME WOULD NOT RELATE TO THE ASS ESSEE WAS MISCONCEIVED AND, THUS, EXCLUSION OF THE PROFIT ON SALE OF LAND WAS RATHER UNJUSTIFIED. IT IS ORDERED ACCORDINGLY. 5.6 THE FACTS BEING IDENTICAL, FOLLOWING THE COORD INATE BENCH DECISION OF THE TRIBUNAL FOR THE ASST. YEAR 2005-06, WE HOLD THAT THE ORDER OF THE CIT(A) REQUIRES NO INTERFERENCE, SINCE IT IS IN ACCORDANCE WITH LAW. HENCE, GROUND NO.4 MENTIONED ABOVE RAISED BY THE REV ENUE IS DISMISSED. PAGE 11 OF 15 ITA NOS.1026 & 1027/BANG /2010 11 ITA NO.1027/BANG/2010 (AY 2007-08) 6. THE REVENUE HAS RAISED SEVEN GROUNDS. GROUND N OS. 1, 6 AND 7 ARE GENERAL IN NATURE AND NO SPECIFIC ADJUDICATION IS CALLED FOR. HENCE, THEY ARE DISMISSED. 7. GROUND NOS. 2, 3 AND 4 RELATE TO THE ISSUE OF A LLOCATION OF COMMON EXPENSES AND DEDUCTION U/S 80IB IN RESPECT O F PROFIT ON SALE AND DEVELOPMENT OF LAND. 7.1 THESE ISSUES HAVE BEEN CONSIDERED BY US IN ITA NO.1026/BANG/2010 CONCERNING ASST. YEAR 2006-07. BO TH SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES FOR ASSE SSMENT YEAR 2006-07 ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE ASSESS MENT YEAR 2007-08, BUT FOR VARIATION IN THE FIGURES. THEREFORE, THE FINDI NG/CONCLUSION OF OURS IN RESPECT OF ASST. YEAR 2006-07 HOLDS GOOD FOR THIS AS ST. YEAR ALSO. FOR ASSESSMENT YEAR 2006-07, WE HAVE DISMISSED THE GROUN DS RAISED BY THE REVENUE; HENCE, FOR THE REASONS RECORDED AT PARA 4. 9, 5.5 & 5.6 (SUPRA), GROUND NOS. 2 TO 4 ARE DISMISSED. ACCORDINGLY, THE ORDER OF THE CIT(A) ON THIS COUNT IS AFFIRMED. 8. THE OTHER GROUND, NAMELY GROUND NO.5 READS AS FO LLOWS:- THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE U/S 14A IN RESPECT OF EXPENDITURE RELATING TO EARNING O F EXEMPT INCOME. 8.1 BRIEF FACTS IN RELATION TO THE ABOVE GROUND AR E AS FOLLOWS:- PAGE 12 OF 15 ITA NOS.1026 & 1027/BANG /2010 12 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO, WHILE PERUSING THE ANNUAL REPORT FOR THE FINANCIAL YEAR 20 06-07, NOTICED THAT THE ASSESSEE HAD INVESTED 500.70 MILLION IN PURCHASE OF CERTAIN UNITS. THE ASSESSEE WAS SHOW-CAUSED TO EXPLAIN WHY THE EXPENDIT URE IN RELATION TO THOSE UNITS WHOSE INCOME WAS EXEMPT SHOULD NOT BE D ISALLOWED. 8.2 IN RESPONSE, THE ASSESSEE, VIDE LETTER DATED 2 2.12.2009, STATED THAT THE ASSESSEE HAS NO DIRECT EXPENDITURE NOR INT EREST PAYMENT ON EARNING SUCH INCOME, SINCE IT HAS COME OUT WITH IPO DURING THE YEAR AMOUNTING TO RS.32 CRORES. IT WAS FURTHER STATED THAT THE EXPEN DITURE INCURRED FOR BRINGING OUT THE IPO WAS NOT CLAIMED AS EXPENDITURE IN THE BOOKS OF ACCOUNTS. THE AO HOWEVER REJECTED THE CONTENTION R ELYING ON SECTION 14A(3) AND DETERMINED THE EXPENDITURE IN RELATION T O THE EXEMPTED INCOME BY INVOKING RULE 8D OF THE I T RULES, 1961. THE REL EVANT FINDING OF THE AO READS AS FOLLOWS:- 6.4 AS PER RULE 8D 1(III) THE INCOME ON THE FIRST DAY OF THE PREVIOUS YEAR IS ZERO AND INCOME AT THE END OF T HE PREVIOUS YEAR IS RS.500.70 MILLION, HENCE THE EXPEND ITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOM E WORKS OUT TO 1.25175 MILLIONS WHICH IS 0.5% OF THE AVERAG E OF VALUE OF INVESTMENT (500.70/2 * 0.5% = RS.12,51,750 /-). (ADDITION = RS.12,51,750/-). 8.3 ON FURTHER APPEAL, THE CIT(A), FOLLOWED THE JU DGEMENT OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT V HERO CYCLES LTD. (2010) 323 ITR 518 AND ALLOWED THE APPEAL OF THE AS SESSEE. THE CIT(A) HELD, IN THE INSTANT CASE, IN THE ABSENCE OF ANY SUCH FIND ING OR EVIDENCE OF PAGE 13 OF 15 ITA NOS.1026 & 1027/BANG /2010 13 ANY EXPENDITURE HAVING BEEN ACTUALLY INCURRED TO EARN THE EXEMPT INCOME, I AM OF THE OPINION THAT THE DISALLOWANCE OF RS.12,5` ,750/- IS NOT PERMISSIBLE. 8.4 THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFOR E US, 8.5 THE LEARNED DR RELIED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. V DCIT 328 ITR 81 AND CONTENDED THAT THE MATTER SHOULD BE REMITTED BA CK TO THE AO SO THAT HE CAN DETERMINE WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE, (DIRECT OR INDIRECT), IN RELATION TO EARNING OF EXE MPTED INCOME. IT WAS SUBMITTED THAT IN THE INSTANT CASE, THE ASSESSING O FFICER APPLIED RULE 8D WITHOUT EXAMINING WHETHER THE EXPENDITURE IS ACTUAL LY INCURRED FOR EARNING EXEMPTED INCOME. 8.6 THE LEARNED AR ON THE OTHER HAND REITERATED TH E SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. 8.7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFI CER HAS APPLIED RULE 8D AND NOTIONALLY DISALLOWED A SUM OF RS.12,51,750/-. HE HAS NOT ENTERED A FINDING WHETHER ANY EXPENDITURE HAS BEEN INCURRED FO R EARNING THE EXEMPTED INCOME. THE HONBLE BOMBAY HIGH COURT IN T HE CASE CITED SUPRA HAS CATEGORICALLY HELD THAT RULE 8D WOULD APPLY W.E.F . ASST. YEAR 2008-09. THEREFORE, APPLICATION OF RULE 8D FOR THE CONCERNED ASSESSMENT YEAR, NAMELY 2007-08, IS BAD IN LAW. HOWEVER, THE HONBLE BOMBAY HIGH COURT HAD REMITTED BACK THE ISSUE TO THE AO FOR DETERMINATION WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE IN RELATION TO THE EXEM PTED INCOME AS PAGE 14 OF 15 ITA NOS.1026 & 1027/BANG /2010 14 CONTEMPLATED U/S 14A OF THE ACT. THE RELEVANT FIND ING OF THE HONBLE BOMBAY HIGH COURT READS AS FOLLOWS:- THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOUL D APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS N OT APPLICABLE, THE ASSESSING OFFICER HAD TO ENFORCE TH E PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHI NG A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCEEDINGS FO R ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHOULD DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED A NY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIV IDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECT ION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE . 8.8 IN VIEW OF THE ABOVE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT, THE MATTER IS REMITTED BACK TO THE FILE OF T HE AO TO DETERMINE WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (D IRECT OR INDIRECT) IN RELATION TO THE EXEMPTED INCOME/INCOME NOT FORMING PART OF THE TOTAL PAGE 15 OF 15 ITA NOS.1026 & 1027/BANG /2010 15 INCOME, AS CONTEMPLATED U/S 14A OF THE ACT. THEREF ORE, GROUND NO.5 RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE F OR THE ASSESSMENT YEAR 2006-07 IS DISMISSED, WHEREAS, THE A PPEAL PREFERRED BY THE REVENUE FOR ASSESSMENT YEAR 2007-08 IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DAY OF DECEMBER, 2011 SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.