M/s. SJR Builders, Bangalore V. ACIT, Bangalore

ITA 1192/BANG/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9548 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 08-09-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DEVARAJ SHRI HARSHA PRAKASH
• Keywords: Capital Gains
• Section: 80IB; 6

Judgement Text

ITA.1192/B/08 PAGE - 1 IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A' BEFORE SHRI. K. P. T. THANGAL, VICE PRESIDENT AND SHRI. A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER I.T.A.NO.1192/BANG/2008 (ASSESSMENT YEAR : 2005-06 ) M/S. SJR BUILDERS, REP. BY SUCCESSOR SJR ENTERPRISES P. LTD., 7TH AND 8TH FLOOR, 'SJR PRIMUS', NO.1, INDUSTRIAL LAYOUT, 7TH BLOCK, KORAMANGALA, BANGALORE 560 095 .. APPELLANT V. ASST. COMMISSIONER OF INCOME TAX, CIRCLE -7(1), BANGALORE .. RESPONDENT APPELLANT BY : SHRI. DEVARAJ RESPONDENT BY : SHRI. HARSHA PRAKASH O R D E R PER K. P. T. THANGAL, VICE PRESIDENT : THIS APPEAL BY THE ASSESSEE IS FOR THE ASSESSMENT YEAR 2005- 06. THE FIRST OBJECTION IS AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME-TAX(A) IN CONFIRMING THE ACTION OF THE ASSES SING OFFICER OF REJECTING THE BENEFIT U/S.80IA(10) RELATING TO ASSE SSEE'S CLAIM WITH REGARD TO THE 'SJR REDWOODS' PROJECT, ON THE REASON THAT SOME OF THE RESIDENTIAL FLATS FALLING TO THE SHARE OF THE OWNER WERE EXCEEDING 1500 SQFT OF BUILT-UP AREA AND NOT FOLLOWING THE DECISIO N OF THE ITAT, ITA.1192/B/08 PAGE - 2 CHENNAI BENCH IN ARUN EXCELLO FOUNDATIONS PVT. LTD. , IN ITA NOS.2090 AND 2091/MAD/06 AND THE KOLKATTA BENCH DEC ISION IN THE CASE OF BENGAL AMBUJA HOUSING DEVELOPMENT LTD., IN ITA NO.1735/KOL/05. THE FACTS LEADING TO THE DISPUTE B RIEFLY IS AS UNDER. 2. THE ASSESSEE FILED THE RETURN DECLARING INCOME A T RS.75,70,303/- ON 31.10.05. THE RETURN WAS PROCESS ED U/S.143(1) ON 28.3.07 RESULTING IN A DEMAND OF RS.2,42,590/-. SU BSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND THERE WAS A SURV EY U/S.133A ON 8.7.07. NOTICE U/S.143(2) WAS ISSUED ALONG WITH QU ESTIONNAIRE U/S.142(1) ON 19.2.07. THE ASSESSEE VIDE REPLY DT. 26.2.07 CONTESTED THE TRANSFER OF JURISDICTION. SUBSEQUENTLY, THE OB JECTION WAS WITHDRAWN. 3. THE ASSESSEE IS ENGAGED IN THE CONSTRUCTION AND REAL ESTATE BUSINESS IN THE NAME AND STYLE OF SJR BUILDERS. TH ERE ARE TWO PARTNERS IN THE FIRM NAMELY, J. VIJAY REDDY AND J. BHUPESH REDDY SHARING THE PROFIT AND LOSS EQUALLY. DURING THE PE RIOD UNDER CONSIDERATION THE ASSESSEE HAD UNDERTAKEN LAYOUT PR OJECTS IN THE NAME OF SJR EASTWOOD AND MULTISTOREY RESIDENTIAL PROJECT IN THE NAME OF SJR REDWOOD. PARK VISTA, SPENCER AND BROOKLAND RES IDENTIAL PROJECTS WERE IN THE INITIAL STAGE. THE TURNOVER S HOWN BY THE ASSESSEE ITA.1192/B/08 PAGE - 3 WAS RS.27,43,95,992/-. AFTER CLAIMING VARIOUS EXPE NSES THE PROFIT SHOWN WAS RS.2,73,72,397/-. DURING THE PERIOD UNDE R CONSIDERATION THE ASSESSEE CHANGED THE METHOD OF ACCOUNTING FROM PROJECT COMPLETION METHOD TO PERCENTAGE COMPLETION METHOD A ND THE ASSESSEE CLAIMED DEDUCTION U/S.80IB(10) AMOUNTING TO RS.2,02 ,08,690/- BEING 100% OF THE PROFIT IN RESPECT OF REDWOOD PROJECT. THE DEDUCTION WAS CLAIMED BY THE ASSESSEE ON THE GROUND THAT EACH DWE LLING UNITS/FLATS CONSTRUCTED IN REDWOOD PROJECT WAS LESS THAN 1500 S FT PER UNIT. THERE WAS A SURVEY ACTION U/S.133A ON 8.2.07 WHICH COVERED THE PROJECT SITES AS WELL. IT WAS NOTED THAT THE PROJE CT WAS CONSTRUCTED BY THE ASSESSEE ON JOINT DEVELOPMENT BASIS AND THE LAN D WAS OWNED BY SHIVAPRASAD REDDY, SIDDHARAM REDDY AND ANILA REDDY, WHO GOT 40 FLATS IN TERMS OF THE JOINT DEVELOPMENT AGREEMENT. SHIVAPRASAD REDDY WAS SUMMONED AND EXAMINED ON OATH. HE STATED THAT OUT OF THE FOUR FLATS GIVEN TO HIM THE AREA OF ONE OF THE FLATS WAS 2350 SFT WHILE THE AREA OF OTHER FLAT WAS 3800 SFT. HE PROD UCED A COPY OF ALLOTMENT LETTER FROM SJR BUILDERS DT.6.12.06 WHICH INDICATED THAT THE FLATS NO. M-105 IN 'M' BLOCK CONSISTED OF AN AREA O F 3738 SFT AND M- 408 CONSISTED OF 2354 SFT. THE ASSESSING OFFICER W AS LEFT WITH NO DOUBT THAT THE AREA OF THE SAME UNIT IN REDWOOD PRO JECT WAS ABOVE 1500 SFT AND, THEREFORE, HE CAME TO THE CONCLUSION THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S.80IB(10) OF THE ACT. THE FLATS WERE ITA.1192/B/08 PAGE - 4 INSPECTED BY THE ASSESSING OFFICER PERSONALLY AND F OUND THE AREA OF THESE UNITS WERE 3738 SFT AND 2354 SFT RESPECTIVELY WHICH WAS ABOVE 1500 SFT I.E., THE LIMIT PRESCRIBED IN SECTION 80IB (10). COMING TO THE INSPECTION OF 4TH FLOOR OF THE REDWOOD PROJECT, IT WAS FURTHER NOTED THAT THE ASSESSEE HAD CONSTRUCTED PENT HOUSE AGAINS T THE INITIAL APPROVED PLAN BY THE BDA. SUBSEQUENTLY, THIS UNAUT HORIZED CONSTRUCTION WAS REGULARIZED BY THE BDA. HE FURTHE R NOTED THAT FLAT NO.M-408 WAS A PENT HOUSE WHICH WAS GIVEN TO THE SH ARE OF SHIVAPRASADA REDDY. SIMILARLY, FLAT NOS.401 TO 407 WERE ALL PENT HOUSES HAVING AREA OF MORE THAN 1500 SFT. ON THE B ASIS OF THE ABOVE FACTS, HE HELD THAT THE ASSESSEE WAS NOT ENTITLED F OR THE BENEFIT OF SECTION 80IB(10). AGGRIEVED BY THE ABOVE ORDER, TH E ASSESSEE APPROACHED THE FIRST APPELLATE AUTHORITY. 4. IT WAS SUBMITTED THAT THE PROJECT IS A HOUSING P ROJECT CONSISTING OF RESIDENTIAL APARTMENTS CONSTRUCTED ON THE LAND A DMEASURING 1,56,000 SFT APPROXIMATELY MORE THAN 1 ACRE. THE L AND WAS PROVIDED BY ORIGINAL OWNERS IN EXCHANGE FOR A SPECIFIC NUMBE R OF FLATS EQUIVALENT TO 27% OF THE TOTAL CONSTRUCTED AREA. T HE LAND OWNERS TRANSFERRED 73% OF UNDIVIDED INTEREST IN THE LAND T O THE ASSESSEE UNDER THE JOINT DEVELOPMENT AGREEMENT DT.16.4.04 AND1.9.0 4. THE SAID PROJECT WAS APPROVED BY BBMP, THE COMPETENT STATUTO RY AUTHORITY. ITA.1192/B/08 PAGE - 5 THE ASSESSEE HAD DERIVED INCOME OF RS.202.09 LAKHS FROM THE SAID PROJECT. THE ASSESSEE SATISFIED ALL THE CONDITIONS PRESCRIBED U/S.80IB(10). THEREFORE, THE ASSESSEE CLAIMED DED UCTION OF THE ENTIRE AMOUNT OF RS.202.09 LAKHS WHICH WAS DENIED ON THE G ROUND THAT THE BUILT-UP AREA OF SOME OF THE FLATS WAS EXCEEDING TH E MAXIMUM PERMISSIBLE AREA OF 1500 SFT. THE ASSESSEE CONTEND ED THAT THE BUILT-UP AREA MEANS 'THE INNER MEASUREMENT OF THE RESIDENTIA L UNIT AT THE FLOOR LEVEL, INCLUDING THE PROJECTIONS AND BALCONIES, AS INCREASED BY THE THICKNESS OF THE WALLS BUT, DOES NOT INCLUDE THE CO MMON AREAS SHARED WITH OTHER RESIDENTIAL UNITS.' THE LEARNED REPRESE NTATIVE ARGUED BEFORE THE COMMISSIONER OF INCOME-TAX(A) THAT THE C ONSTRUCTION DONE IS IN CONFORMITY WITH THE STIPULATED PROVISIONS IN THE RELEVANT ACT AND SO THE RESIDENTIAL UNITS DOES NOT INCLUDE THE COMMO N AREAS SHARED WITH THE OTHER UNITS. THEREFORE, IT WAS CONTENDED THAT THE CONSTRUCTION UNDERTAKEN IS IN CONFORMITY WITH THE PROVISIONS UND ER THE RELEVANT ACT. IT WAS CONTENDED THAT SECTION 80IB(10) IS PRO VIDED TO ADDRESS HOUSING THE REQUIREMENTS IN THE COUNTRY. THE ASSES SEE SATISFIES ALL THE THREE CONDITIONS EXCEPTING A FEW FLATS LIKE M-105, M-401 TO 403 AND M-405 TO 407, WHICH ARE CONSTRUCTED WITH BUILT-UP A REA EXCEEDING THE MAXIMUM PERMISSIBLE OF 1500 SFT. HENCE, THE ASSESS EE CONTENDED THAT DEDUCTION SHOULD BE ALLOWED IN PROPORTION IN R ESPECT OF THE FLATS WHICH CONFORMS TO THE PRE CONDITIONS. FOR THE PROP OSITION THAT THE ITA.1192/B/08 PAGE - 6 DEDUCTION U/S.80IB(10) CANNOT BE DENIED IF A HOUSIN G COMPLEX CONTAINS BOTH SMALLER AND LARGER UNITS, THE ASSESSE E RELIED ON THE ITAT, KOLKATA BENCH DECISION IN ITA.1735/KOL/05, DT .AUGUST, 2007 IN THE CASE OF ACIT V. BENGAL AMBUJA HOUSING DEVELO PMENT LTD., AND ALSO THE DECISION OF THE ITAT, CHENNAI IN THE C ASE OF ARUN EXCELLO FOUNDATIONS P. LTD., V. ACIT IN ITA NOS.209 0 AND 2091/MAD/06, DT.16.2.07, FOR THE PROPOSITION THAT B ENEFIT SHOULD BE GIVEN ON PRO-RATA BASIS. THE ASSESSEE RELIED ON TH E DECISION OF THE SUPREME COURT IN THE CASE OF BAJAJ TEMPO REPORTED I N 196 ITR 188, FOR THE PROPOSITION THAT THE BENEFICIAL PROVISIONS SHOULD BE INTERPRETED LIBERALLY. THE ASSESSEE FURTHER SUBMITTED THE DECI SION OF THE TRIBUNAL, MUMBAI BENCH IN THE CASE OF LOUKIK DEVELOPERS IN 1 05 ITD 657 IS NOT APPLICABLE IN THE INSTANT CASE OF THE ASSESSEE, AS IN THAT CASE THE CLAIM OF DEDUCTION U/S.80IB(10) WAS IN RESPECT OF A HOUSING PROJECT AND THE BENCH FURTHER HAD NOT DECIDED WITH REGARD T O ALLOWABILITY OF DEDUCTION U/S.80IB(10) ON PROPORTIONATE BASIS. 5. THE COMMISSIONER OF INCOME-TAX(A) HELD THAT THE ASSESSE SATISFIES ALL THE CONDITIONS PRESCRIBED U/S.80IB(10 ) EXCEPT VIOLATION OF THE BUA IN RESPECT OF A FEW FLATS CONSTRUCTED THERE IN. HE HELD THAT THE SECTION 80IB(10) WAS INTRODUCED WITH A SOCIAL O BJECTIVE AIMED AT MITIGATING THE SUFFERING OF COMMON MAN DUE TO SHORT AGE OF RESIDENTIAL ITA.1192/B/08 PAGE - 7 UNITS. ACCORDINGLY THE ASSESSEE WAS ENTITLED FOR T HE INCENTIVE IN THE FORM OF THE SAID DEDUCTION U/S.80IB(10). HENCE, HE HELD THAT SO AS TO CLAIM THE DEDUCTION, THE PROJECTS SHOULD STRICTLY C ONFORM TO THE CONDITIONS PRESCRIBED IN THE STATUTE. HE HELD THAT THERE IS NOTHING IN THE SECTION TO SAY THAT THE PRECONDITIONS THEREIN C AN BE SATISFIED IN FRAGMENTS BY AN ASSESSEE AND GET PROPORTIONATE DEDU CTION. THE COMMISSIONER OF INCOME-TAX(A) HELD THAT THE INCENTI VE PROVISIONS ARE TO BE INTERPRETED STRICTLY SO AS NOT TO FRUSTRATE T HE LEGISLATIVE INTENTION OF MITIGATE THE SUFFERINGS OF THE COMMON MAN. THE COMMISSIONER OF INCOME-TAX(A) HELD AS FAR AS THE ASSESSEE'S CASE IS CONCERNED, THE ASSESSEE'S PROJECT IS A JOINT DEVELOPMENT PROJECT A IMED AT SEEKERS OF LUXURY-RESIDENTIAL UNITS, OTHERWISE, THE ASSESSEE W OULD NOT HAVE EXCEEDED THE MAXIMUM BUA SPECIFICATIONS. HE FURTHE R HELD THAT THE ASSESSEE HAD VIOLATED THE SANCTIONED PLAN BY CONSTR UCTING PENT HOUSES WHICH ARE LUXURIOUS UNITS ON THE FOURTH FLOOR OF TH E ABOVE PROJECT, WHICH REVEALS THAT THE PROJECT IS NOT INTENDED TO A DDRESS THE HOUSING NEEDS OF THE COMMON MAN, BUT IT AIMED AT MEETING TH E LUXURIOUS REQUIREMENTS OF A FEW. THEREFORE, HE HELD THAT SIN CE SOME OF THE RESIDENTIAL UNITS ARE NOT CONFORMING TO THE MAXIMUM BUILT-UP AREA OF 1500 SFT PRESCRIBED U/S.80IB, ASSESSEE'S PROJECT IS NOT ENTITLED FOR THE RELIEF. HE FURTHER HELD THAT THE ASSESSEE'S ACT OF CHANGE THE METHOD OF ACCOUNTING FROM PROJECT COMPLETION METHOD TO PERCEN TAGE COMPLETION ITA.1192/B/08 PAGE - 8 METHOD, THAT TOO ONLY FOR THE CURRENT ASSESSMENT YE AR IS SUGGESTIVE OF THE PROJECT HAVING NOT BEEN CONCEIVED AS A HOUSING PROJECT WITHIN THE SCOPE OF SECTION 80IB(10). HE FURTHER HELD, CONCED ING THE ASSESSEE'S CLAIM OF PROPORTIONAL DEDUCTION IN THE LIGHT OF THE FOREGOING ANALYSIS OF THE ISSUE, WOULD FRUSTRATE THE OBJECTIVES OF SEC TION 80IB(10) AND, THEREFORE, HE HELD THAT THE ASSESSEE IS NOT ENTITLE D FOR DEDUCTION U/S.80IB(10). THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE SUBM ITTED THAT THE CLAIM OF THE ASSESSEE FOR THE BENEFIT OF SECTION 80 IB(10) WAS REJECTED BY THE REVENUE AUTHORITIES ON THE GROUND THAT THE B UILT-UP AREA OF SOME OF THE FLATS WERE MORE THAN 1500 SFT I.E., THE MAXIMUM PRESCRIBED, TO AVAIL THE BENEFIT U/S.80IB(10)(C) F OR THE METROS OTHER THAN DELHI AND MUMBAI. THE ASSESSEE'S REPRESENTATI VE SUBMITTED THAT THE REVENUE AUTHORITIES ARE NOT FULLY CORRECT ON TH E GROUND THAT THE EXCESS AREA OF THE FLAT INCLUDES, EVEN ACCORDING TO THE REVENUE AUTHORITIES, THE SUPER-BUILT-UP AREA AND INCLUDES T HE COMMON AREA. THE LEARNED REPRESENTATIVE SUBMITTED THAT THIS NOTI ON OF THE REVENUE AUTHORITIES IS INCORRECT AND HE SPECIFICALLY BROUGH T OUR ATTENTION TO SECTION 80IB(10)(A) WHICH WAS INSERTED BY THE FINAN CE ACT (NO.2), 2004, W.E.F.1.4.2005, WHICH READS AS UNDER : ITA.1192/B/08 PAGE - 9 (14) FOR THE PURPOSES OF THIS SECTION, (A) BUILT-UP AREA MEANS THE INNER MEASUREMENTS OF THE RESIDENTIAL UNIT AT THE FLOOR LEVEL, INCLUDING THE PROJECTIONS AND BALCONIES, AS INCREASED BY THE THICKNESS OF THE WALLS BUT DOES NOT INCLUDE THE COMMON AREAS SHARED WITH OTHER RESIDENTIAL UNITS; THE ASSESSEE'S REPRESENTATIVE SUBMITTED THAT THE BU ILT-UP AREA MEANS THE CARPET AREA PLUS BALCONIES PLUS THE PROJECTIONS . THE ASSESSEE'S REPRESENTATIVE SUBMITTED THAT THIS WOULD LEAD TO TH E QUESTION AS TO WHAT IS THE MEANING OF THE FLOOR LEVEL OF A RESIDEN TIAL UNIT. INVITING OUR ATTENTION TO PART-3 - DEVELOPMENT CONTROL RULES AND GENERAL BUILDING REQUIREMENTS AT PAGE 16 OF PAPER BOOK NO.1 , WHEREIN AT 2.38, THE TERM 'FLOOR' IS DEFINED AS UNDER : 'THE LOWER SURFACE IN A STOREY ON WHICH ONE NORMALL Y WALKS IN A BUILDING. THE GENERAL TERM 'FLOOR' UNLE SS SPECIFICALLY MENTIONED OTHERWISE SHALL NOT REFER TO A 'MEZZANINE FLOOR'.' AGAIN HE BROUGHT OUR ATTENTION TO PAGE 19 OF THE PA PER BOOK NO.1 I.E., PAGE 4 OF THE REVISED MASTER PLAN -2015 - ZONING RE GULATION, BANGALORE - 2007, VOLUME 3 PUBLISHED BY THE BDA. A T ITEM 32, 'MEZZANINE FLOOR' IS DEFINED TO MEAN AN INTERMEDIATE FLOOR BETWEEN GROUND FLOOR AND FIRST FLOOR ONLY. THE AREA OF THE MEZZANINE FLOOR SHALL NOT EXCEED 1/3RD OF COVERED AREA OF GROUND FL OOR. ITA.1192/B/08 PAGE - 10 THE LEARNED REPRESENTATIVE BROUGHT OUR ATTENTION TO PAPER BOOK NO.1 AT PAGE 20 UNDER 3.3 THE TERM 'FLOOR' IS DEFINED AS UN DER : THE LOWER SURFACE OF STOREY ON WHICH ONE NORMALLY W ALKS INTO THE BUILDING; THE GENERAL TERM FLOOR DOES NOT REFER TO BASEMENTS/CELLAR OR MEZZANINE FLOOR. IN OTHER WORDS, THE ABOVE ARE TO BE EXCLUDED WHILE CALCULATING THE FLOOR LEVEL AREA. 7. IN THE PREMISES OF THE ABOVE FACTS THE ASSESSEE' S REPRESENTATIE FURTHER SUBMITTED BRIEFLY AS UNDER. SECTION 80IB(1 0) PROVIDES FOR DEDUCTING FROM THE TOTAL INCOME THE PROFIT AND GAIN S DERIVED FROM A HOUSING PROJECT, IF THE CONDITIONS PRESCRIBED IN CL AUSES (A) TO (D) ARE FULFILLED. HE SUBMITTED THAT EVEN ACCORDING TO THE REVENUE AUTHORITIES THE ASSESSEE HAS FULFILLED ALL THE CONDITIONS SPECI FIED IN THE SAID CLAUSES INCLUDING THE ONE IN CLAUSE (C) TO THE EXTE NT OF BUILT-UP AREA AS DEFINED IN SECTION 80IB(14)(A). THE PREMISES WAS I NSPECTED BY THE DVO FOR MEASUREMENT PURPOSES ON 5.7.07 AFTER MORE T HAN ONE YEAR FROM THE DATE OF ISSUE OF OCCUPANCY CERTIFICATE ON 16.10.06. THERE COULD BE EVERY POSSIBILITY OF THE OCCUPANTS THEMSEL VES MAKING CERTAIN CHANGES WHICH IS NOT ATTRIBUTABLE TO THE ASSESSEE A T ALL. HE FURTHER SUBMITTED THAT WHILE SANCTIONING THE PLAN IT WAS EV IDENT THAT THE ASSESSEE NEVER ENVISAGED ANY UNIT WITH A BUILT-UP A REA OF MORE THAN ITA.1192/B/08 PAGE - 11 1500 SFT. THE FACT THAT THE OCCUPANCY CERTIFICATE WAS ISSUED IN THE MONTH OF JUNE, 2006 INDICATES THAT THE ASSESSEE HAD ADHERED TO THE PLAN. A PERUSAL OF THE OCCUPANCY CERTIFICATE SHOWS THAT IT RELATES TO 152 RESIDENTIAL APARTMENTS OF WHICH 38 ARE DUPLEX U NITS. THE TOTAL AREA OF THE DUPLEX UNITS MAY EXCEED 1500 SFT. THE TOTAL AREA OF EACH OF THE DUPLEX APARTMENT MAY EXCEED 1500 SFT BUT THE AREA OF SUCH APARTMENT WHEN VIEWED WITHIN THE MEANING OF THE DEF INITION OF 'BUILT- UP AREA WITHIN THE AMBIT OF SECTION 80IB(14)(A) DO NOT EXCEED 1500 SFT. ACTUALLY THE DVO HAS NOT PHYSICALLY MEASURED ANY OF THE APARTMENT DISCUSSED IN THE ASSESSMENT ORDER. THE D VO'S CONCLUSION THAT EACH OF THE UNIT EXCEEDS 1500 SFT IS BASED ON THE ASSUMPTION THAT THEY ARE PEND HOUSES AND HENCE MUST HAVE EXCEEDED T HE PRESCRIBED AREA OF 1500 SFT. THE ONLY UNIT MEASURED BY THE DV O IN THE REDWOOD PROJECT DOES NOT FIT INTO THE DEFINITION OF BUILT-UP AREA AS DEFINED IN THE SECTION. HE ARGUED THAT IT IS PERTI NENT TO NOTE THAT THE INSPECTION WAS MADE ONLY AFTER THE PASSING OF THE A SSESSMENT ORDER. THE DVO HAS CONSIDERED THE TOTAL AREA OF THE DUPLEX APARTMENT AND NOT AT THE FLOOR LEVEL WHICH IS REQUIRED TO BE CONS IDERED FOR THE PURPOSES OF SECTION 80-IB(14)(A). A RECONCILIATION STATEMENT HAS BEEN ENCLOSED AT PAGE 14 OF THE PAPER BOOK NO.1. THE AS SESSEE ALSO BROUGHT OUR ATTENTION TO THE DECISION OF THE TRIBUN AL IN ITA NOS.668 AND 669/BANG/2006 IN THE CASE OF M/S. G. R. DEVELOP ERS WHICH WAS ITA.1192/B/08 PAGE - 12 DECIDED IN ASSESSEE'S FAVOUR ON SIMILAR SET OF FACT S. THE ASSESSEE'S REPRESENTATIVE SUBMITTED THAT NONE OF THE RESIDENTI AL APARTMENTS HAD, THEREFORE, CONTRAVENED THE PROVISIONS OF SECTION 80 IB(10). THEREFORE, HE SUBMITTED THAT THE CLAIM FOR DEDUCTION AMOUNTING TO RS.2,02,08,690/- SHOULD BE ALLOWED. 8. THE LEARNED REPRESENTATIVE FURTHER SUBMITTED THA T ALTERNATIVELY, EVEN IF SOME OF THE RESIDENTIAL UNITS EXCEEDED 1500 SFT THEN THE DEDUCTION PERMISSIBLE MUST BE RESIDENTIAL UNIT-WISE DEDUCTION AND, THEREFORE, PROPORTIONATE DEDUCTION SHOULD BE ALLOWE D. AS PER CLAUSE (C) OF SECTION 80IB(10), THE RESIDENTIAL UNIT SHOU LD HAVE A MAXIMUM BUILT UP AREA OF 1500 SFT. THE ASSESSEE'S REPRESEN TATIVE REITERATED THAT CLAUSE (C) OF SECTION 80IB(10) REFERS TO AREA OF 'T HE RESIDENTIAL UNIT'. THE RESIDENTIAL U NIT MEANS DEDUCTION SHOULD OPERAT E AND BE COMPUTED UNIT-WISE AND, THEREFORE, A PARTICULAR UNI T SATISFIED THE CONDITION OF SECTION 80IB, DEDUCTION SHOULD BE AUTO MATICALLY ALLOWED IN RESPECT OF THAT UNIT. IT IS ONLY IN RESPECT OF THOSE UNITS WHICH HAVE NOT FULFILLED THE STIPULATED CONDITION THE DEDUCTIO N IS TO BE DENIED. HE FURTHER SUBMITTED THAT IF THE LAW HAD WANTED ALL TH E UNITS TO BE WITHIN THE SPECIFIED LIMITS, IT WOULD HAVE STATED THAT 'AL L THE RESIDENTIAL UNITS' SHOULD HAVE A MAXIMUM BUILT UP AREA OF 1500 SFT. I N THE ABSENCE OF SUCH ALL-PERVASIVE CONDITION, DEDUCTION SHOULD BE A LLOWED IN RESPECT ITA.1192/B/08 PAGE - 13 OF PROFITS FOR THE UNITS THAT FULFILLS THE CONDITIO N. LAW PRESCRIBES MAXIMUM PERMISSIBLE SIZE WITH REFERENCE TO EACH RES IDENTIAL UNIT. IT DOES NOT DO SO QUA THE COMMERCIAL UNITS. INSTEAD, IT PROVIDES FOR THE MAXIMUM OVERALL SIZE AND ALL SUCH COMMERCIAL AREA T OGETHER. THIS DIFFERENTIATION IN STIPULATION INDICATES THAT EXEMP TION FOR RESIDENTIAL APARTMENT SHOULD BE COMPUTED UNIT-WISE. FOR THE AB OVE PROPOSITION, HE RELIED ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF BRIGADE ENTERPRISES P. LTD., IN ITA NO .1198/BANG/07, DT.29.8.2008, PARTICULARLY TO PARA 5.1. HE ALSO RE LIED ON THE DECISION OF THE SPECIAL BENCH OF THE ITAT, PUNE IN THE CASE OF BRAHMA ASSOCIATES AND OTHERS IN ITA.1417/PN/06, DT.6.4.200 9, WHEREIN THE TRIBUNAL HELD THAT THE TAX INCENTIVES BY WAY OF DED UCTION U/S.80IB(10) IS PREDOMINANTLY FOR THE PURPOSE AUGME NTING AFFORDABLE DWELLING UNITS AND IT MUST BE INTERPRETED IN THAT L IGHT ONLY. THE ASSESSEE'S REPRESENTATIVE SUBMITTED THAT PROFITS FR OM UNITS ARE TO BE ALLOWED ON THE BASIS OF METHOD OF ACCOUNTING EMPLOY ED BY THE ASSESSEE. ACCOUNTING PRINCIPLES MANDATE RECOGNITI ON OF PROFITS FROM EACH UNIT SEPARATELY AND DEDUCTION SHOULD BE ALLOWE D AS SUCH. 9. IN SUPPORT OF THE ABOVE, THE ASSESSEE'S REPRESEN TATIVE SUBMITTED THAT THE PROVISIONS RELATING TO EXEMPTION, ALLOWANC E AND DEDUCTION, REBATE OR RELIEF SHOULD BE INTERPRETED LIBERALLY AN D BROADLY. FOR THE ITA.1192/B/08 PAGE - 14 ABOVE PROPOSITION HE RELIED ON THE CASE OF UNION OF INDIA AND OTHERS V. M/S. WOOD PAPERS LTD., AND ANOTHER (AIR 1991 (SC ) 2049). THE ASSESSEE'S REPRESENTATIVE PARTICULARLY RELIED ON TH E FOLLOWING OBSERVATION : 'LITERALLY EXEMPTION IS FREEDOM FROM LIABILITY, TAX OR DUTY. FISCALLY IT MAY ASSUME VARYING SHAPES, SPECIALLY IN A GROWING ECONOMY. FOR INSTANCE TAX HOLIDAY TO NEW U NITS, CONCESSIONAL RATE OF TAX TO GOODS OR PERSONS FOR LI MITED PERIOD OR WITH THE SPECIFIC OBJECTIVE ETC., THAT I S WHY ITS CONSTRUCTION, UNLIKE CHARGING PROVISION, HAS TO BE TESTED ON A DIFFERENT TOUCHSTONE. IN FACT AN EXEMPTION PROVI SION IS LIKE AN EXCEPTION AND ON NORMAL PRINCIPLE OF CONSTR UCTION OR INTERPRETATION OF STATUTES IS CONSTRUED STRICTLY EI THER BECAUSE OF LEGISLATIVE INTENTION OR ON ECONOMIC JUSTIFICATI ON OF INEQUITABLE BURDEN OR PROGRESSIVE APPROACH. BUT ON CE EXCEPTION OR EXEMPTION BECOMES APPLICABLE, NO RULE OR PRINCIPLE REQUIRES IT TO BE CONSTRUED STRICTLY. TR ULY, TAKING LIBERAL AND STRICT CONSTRUCTION OF AN EXEMPTION PRO VISION ARE TO BE INVOKED AT DIFFERENT STAGES OF INTERPRETING I T. WHEN THE QUESTION IS WHETHER A SUBJECT FALLS IN THE NOTIFICA TION OR IN THE EXEMPTION CLAUSE THEN, IT BEING IN NATURE OF EX CEPTION IS TO BE CONSTRUED STRICTLY AND AGAINST THE SUBJECT BU T ONCE AMBIGUITY OR DOUBT ABOUT APPLICABILITY IS LIFTED AN D THE SUBJECT FALLS IN THE NOTIFICATION THEN, FULL PLAY S HOULD BE GIVEN TO IT AND IT CALLS FOR A WIDER AND LIBERAL CO NSTRUCTION.' ITA.1192/B/08 PAGE - 15 FOR THE ABOVE PROPOSITION HE RELIED FURTHER ON THE CASE REPORTED IN COMMISSIONER OF INCOME-TAX V. GWALIOR RAYON SILK MA NUFACTURING CO. LTD., (AIR 1992 SC 1782). IN BAJAJ TEMPO LTD., (96 ITR 188) AND ALSO ON THE CASE OF R. KANAKASABAI & OTHERS (89 ITR 251). THE ASSESSEE'S REPRESENTATIVE SUMMED UP THAT WHERE THER E IS A PARTIAL NON- COMPLIANCE OF THE REQUIREMENTS OF THE LAW, THERE SH OULD NOT BE COMPLETE DISALLOWANCE OF THE DEDUCTIONS. DISALLOWA NCE, IF ANY, THE ASSESSEE'S REPRESENTATIVE SUBMITTED WILL HAVE TO BE RESTRICTED TO THE EXTENT OF NON-COMPLIANCE OF THE PROVISIONS. THIS R ULE OF PROPORTIONALITY IS WELL FOUNDED IN THE INCOME-TAX L AW AND IS RECOGNIZED UNDER VARIOUS SECTIONS OF THE ACT. FOR EG., THE ASSESSEE'S REPRESENTATIVE SUBMITTED THAT SECTIONS 10A(4), 10B( 4), 10BA(4), 80HHC(3)(C)(I), 80HHD(3), 80HHE(3) AND 80HHF(3), AL LOW DEDUCTION IN PROPORTION OF THE EXPORT TURNOVER TO T HE TOTAL TURNOVER. FURTHER, U/S.54EA, 54EB, 54EC, 54ED AND 54F, EXEMPT ION TOWARDS CAPITAL GAINS AND UNDER SECTION 115F(1)(B), THE BEN EFIT IS AVAILABLE IN PROPORTION OF THE NET CONSIDERATION UTILIZED TO ACQ UIRE NEW CONSIDERATION ARISING OUT OF TRANSFER OF OLD ASSETS . IN THE PRESENT CASE, THE PROFITS ATTRIBUTABLE TO THE ELIGIBLE RESIDENTIA L UNITS OUT OF 152 RESIDENTIAL UNITS SHOULD BE ALLOWED AS A DEDUCTION. ITA.1192/B/08 PAGE - 16 10. THE ASSESSEE'S REPRESENTATIVE FURTHER RELIED ON THE DECISION OF THE CHENNAI TRIBUNAL IN THE CASE OF ARUN EXCELLO FO UNDATIONS P. LTD., (SUPRA) AND SUBMITTED THAT DEDUCTION U/S.80IB(10) O N THE RESIDENTIAL UNITS CONSTRUCTED BE GIVEN ON PRO RATA BASIS. THE ABOVE PROPOSITION WAS ACCEPTED BY THE TRIBUNAL IN THIS CASE. AGAIN T HE ASSESSEE'S REPRESENTATIVE REFERRED TO THE DECISION OF THE CALC UTTA BENCH OF THE TRIBUNAL IN BENGAL AMBUJA HOUSING DEVELOPMENT LTD., IN ITA.1735/KOL/2005, WHEREIN THE TRIBUNAL WAS SEIZED OF A CASE INVOLVING A PROJECT CONSISTING OF 261 RESIDENTIAL U NITS WHEREIN THE INDIVIDUAL UNIT SIZES VARIED BETWEEN 800 SFT TO 300 0 SFT. DEDUCTION U/S.80IB(10) WAS CLAIMED WITH REFERENCE TO PROFIT A TTRIBUTABLE TO THE BUILT-UP AREA, WHICH WAS OCCUPIED BY THE RESIDENTIA L UNITS HAVING INDIVIDUAL FLAT SIZE OF LESS THAN 1500 SFT. THE AS SESSEE'S REPRESENTATIVE FURTHER SUBMITTED THAT IN THE CASE OF THE ASSESSEE IF THERE IS A 10% EXCESS AS FAR AS A FLAT IS CONCERNED, IT SHOULD BE CONSIDERED AS IN CONFORMITY WITH THE STIPULATIONS CONTAINED IN SECTI ON 80IB(10)(C) BECAUSE SUCH VIOLATION IS NOMINAL AND IT COULD BE D ISCARDED. FOR THE ABOVE PROPOSITION, HE REFERRED TO THE DECISION OF T HE FULL BENCH IN THE CASE OF DCIT, CENTRAL CIRCLE -11(1), BANGALORE V. M /S. BRIGADE ENTERPRISES, PARTICULARLY, PAGE 7, WHEREIN AT PARA 5.1, THE TRIBUNAL HELD THAT THE WORD 'RESIDENTIAL UNIT' USED IN THE S ECTION SHOULD MEAN THAT THE UNIT SHOULD BE TAKEN INDEPENDENTLY AND ON THAT BASIS ITA.1192/B/08 PAGE - 17 PROPORTIONATE DEDUCTION SHOULD BE ALLOWED. THE SPE CIAL BENCH OF THE TRIBUNAL, PUNE, IN THE CASE OF BRAHMA ASSOCIATES A ND OTHERS IN ITA.1417/PN/06, DT.6.4.09, HELD THAT PROPORTIONATE DEDUCTION SHOULD BE GIVEN WITH REGARD TO THE FLATS WHICH SATISFIES T HE CONDITION IN CLAUSE (C) OF THE SECTION 80IB(10), IN THE LIGHT OF THE DISCUSSION THAT MEZZANINE FLOOR, COMMON AREA ETC., SHOULD BE EXCLUD ED WHILE CALCULATING 1500 SFT. 11. THE LEARNED DR SUPPORTED THE ORDER OF THE REVEN UE AUTHORITIES AND BROUGHT OUR ATTENTION TO THE BUDGET SPEECH OF T HE FINANCE MINISTER INTRODUCING THE SECTION WHICH IS REPORTED IN VOLUME 236 ITR PAGE 24, PARTICULARLY PARA 96. THE LEARNED DR SUBM ITTED THAT THE INCENTIVE WAS MOOTED FIRST OF ALL TO MITIGATE THE D IFFICULTIES FACED BY THE MIDDLE CLASS INVESTORS SHOWING WISHING TO PURCH ASE DWELLING UNIT, IN ORDER TO PROMOTE THE MIDDLE INCOME GROUP HOUSING PROJECTS AND TO BOOST THE VIABILITY OF THE HOUSING FINANCE COMPANIE S. KEEPING THIS IN VIEW, THE BUILT-UP AREA FOR DWELLING UNITS IN CITIE S OTHER THAN MUMBAI AND DELHI WAS INCREASED FROM 1,000 SFT TO 1500 SFT. THE LEARNED DR SUBMITTED INCENTIVE PROVISIONS ARE TO BE INTERPRETE D STRICTLY SO AS TO GIVE THE BENEFIT ONLY TO THE INTENDED GROUP OF PEOP LE AND NOT TO OTHERS. UNDISPUTEDLY, EVEN ACCORDING TO THE ASSESS EE, THE AREA OF SOME OF THE FLATS ARE MORE THAN 1,500 SFT AND SOME OF THE FLATS ARE ITA.1192/B/08 PAGE - 18 PENT HOUSES, THE WHOLE BUILT AREA OF EACH OF SUCH P ENT HOUSES ARE TO BE CONSIDERED AS THE AREA OF ONE FLAT. ON THE PREMISE S OF THE ABOVE FACTS, THE LEARNED DR RELYING UPON THE DECISION OF THE TRI BUNAL IN THE CASE OF LOUKIK DEVELOPERS V. DCIT (2008) 303 ITR 356, SU BMITTED THAT THE ASSESSEE IS NOT ENTITLED FOR THE BENEFIT CONTEM PLATED U/S.80IB(10). THE DR SUBMITTED THAT IN THIS CASE, THE ASSESSEE GO T PERMISSION FOR CONSTRUCTION OF RESIDENTIAL PROJECT BUT THE ASSESSE E ALSO CONSTRUCTED SHOPS/COMMERCIAL SPACES ALONG WITH THE HOUSING PROJ ECT AND THE TRIBUNAL HELD THAT THE ASSESSEE WAS NOT ENTITLED OR EXEMPTION MERELY BECAUSE THE ASSESSEE'S SITE FELL WITHIN THE RESIDEN TIAL ZONE. HE FURTHER RELIED UPON THE DECISION OF THE TRIBUNAL, CHENNAI B ENCH IN THE CASE OF ACIT, CENTRAL CIRCLE V. CHITRA CONSTRUCTION P. LTD. , IN IT(SS)A. NO.206/MDS/2006, DT.28.3.2008. IN THIS CASE, THE T RIBUNAL HELD THAT THE MANDATE OF SECTION 80IB(10) IS THAT THE EXEMPTI ON IN THIS REGARD IS TO BE PROVIDED TO THE PROJECT IN WHICH THE RESIDENT IAL UNIT HAS A MAXIMUM BUILT-UP AREA OF 1,500 SFT. THEN, IF THERE IS A VARIATION IN THIS CONDITION IN ANY OF THE RESIDENTIAL UNITS, THE RE IS A CLEAR VIOLATION OF THE PROVISIONS OF THE ACT AND THE CLAIM MADE BY THE ASSESSEE IS TO BE DISALLOWED. 12. CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF TH E VIEW THAT THE APPEAL BY THE ASSESSEE IS TO BE ALLOWED TO THE EXTE NT OF THE FLATS THE ITA.1192/B/08 PAGE - 19 BUILT-UP AREA OF THE FLAT IS NOT MORE THAN 1500 SFT . WE AGREE WITH THE SUBMISSION OF THE LEARNED REPRESENTATIVE FOR THE AS SESSEE THAT WHILE CONSIDERING THE BUILT0UP AREA OF 1500 SFT FOR THE P URPOSE OF EXEMPTION U/S.80IB(10), THE MEZZANINE FLOOR AND COMMON AREAS ARE TO BE EXCLUDED. THE ASSESSING OFFICER IS DIRECTED ACCORD INGLY. WE HOLD THAT IN RESPECT OF THE PENT HOUSES THE BUILT-UP ARE A OF WHICH IS MORE THAN 1500 SFT, THEY MAY BE EXCLUDED FOR EXEMPTION. HOWEVER, IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH IN THE C ASE OF BRAHMA ASSOCIATES (SUPRA), MERELY BECAUSE SOME FLATS ARE L ARGER THAN 1500 SFT, THE ASSESSEE WILL NOT LOST THE BENEFIT IN ITS ENTIRETY. ONLY WITH REFERENCE TO THE FLATS WHICH HAS MORE THAN THE PRES CRIBED, THE ASSESSEE WILL LOSE THE BENEFIT. 13. IN THE RESULT, APPEAL BY THE ASSESSEE IS ALLOWE D IN PART, AS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 21ST DAY OF AUGUST, 2009. SD/- SD/- (A. MOHAN ALANKAMONY) (K. P. T. THANGAL) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 21ST AUGUST, 2009 MCN* ITA.1192/B/08 PAGE - 20 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, NEW DELHI 7. GF, ITAT, BANGALORE