Paras Bhomraj Oswal, Kolhapur V. Assistant Commissioner of Income-tax,

ITA 1300/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1098 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-08-2016
• Assessment Year: misc
• Appeal Filed On: 17-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Earning of tax free income; Retrospective amendment; Competent authority
• Section: 234B; 14A; 80IB; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! # $% , & ' BEFORE SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM ( / ITA NO. 1300/PN/2014 ) * +* / ASSESSMENT YEAR : 2011-12 SHRI PARAS BHOMRAJ OSWAL, PROP. M/S. POOJA BUILDERS & DEVELOPERS, 2804/B WARD, MANGALWAR PETH, KOLHAPUR PAN : AABPO1487C ....... / APPELLANT ) / V/S. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 1, KOLHAPUR / RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI P.L. KUREEL / DATE OF HEARING : 09-08-2016 / DATE OF PRONOUNCEMENT : 12-08-2016 , / ORDER PER VIKAS AWASTHY, JM : THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS), KOLHAPUR DATED 28-03- 2014 FOR THE ASSESSMENT YEAR 2011-12. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE IS A PROPRIETOR OF M/S. POOJA BUILDERS AND DEV ELOPERS AND IS 2 ITA NO. 1300/PN/2014, A.Y. 2011-12 ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND CONSTRUCTION. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMEN T YEAR 2011-12 ON 26-09-2011 DECLARING TAXABLE INCOME OF ` 24,27,815/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE ON 27-09-2012. THE A SSESSEE IN ITS RETURN OF INCOME HAD CLAIMED DEDUCTION OF ` 21,84,183/- U/S. 80IB(10) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) IN RESPECT OF HOUSING PROJECT BHAKTI POOJA NAGAR. THE A SSESSING OFFICER DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS DIS ALLOWED THE CLAIM OF THE ASSESSEE U/S. 80IB(10) ON THE PREMISE THAT TH E BUILT UP AREA OF THE SHOPS AND OTHER COMMERCIAL ESTABLISHMENTS INC LUDED IN THE HOUSING PROJECT IS MORE THAN THE PRESCRIBED LIMIT FOR CLAIMING DEDUCTION U/S. 80IB(10) OF THE ACT. THE ASSESSING OFFICER FURTHER REJ ECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE BUILT UP AR EA OF TWO RESIDENTIAL UNITS VIZ. C-5, D-5 AND 19 BUNGALOWS EXCEEDED T HE MAXIMUM PERMISSIBLE LIMIT OF 1500 SQ. FT. APART FROM THE ABOV E THE ASSESSING OFFICER MADE DISALLOWANCE OF ` 19,79,526/- U/S. 14A R.W. RULE 8D ON THE SHARE OF PROFIT RECEIVED FROM PARTNERSHIP FIR M AND DISALLOWANCE OF ` 6,90,172/- U/S. 69 OF THE ACT. AGGRIEVED BY THE ASSESSMENT ORDER DATED 20-01-2014, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE APPEAL OF THE ASSESSEE IN TOTO. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDINGS OF COMMISSIONER OF IN COME TAX (APPEALS). 3. SHRI M.K. KULKARNI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN DISALLOWING THE DE DUCTION U/S. 3 ITA NO. 1300/PN/2014, A.Y. 2011-12 80IB(10) CLAIMED BY THE ASSESSEE. THE RESTRICTION OF BUILT U P AREA OF COMMERCIAL ESTABLISHMENT IN THE HOUSING PROJECT WAS INSER TED BY THE FINANCE (NO. 2) ACT, 2004 W.E.F. 01-04-2005. THE BUILDING PLAN OF THE PROJECT BHAKTI POOJA NAGAR WAS APPROVED BY THE KOLH APUR MUNICIPAL CORPORATION PRIOR TO THE AMENDMENT. THEREFORE, THE AMEN DED PROVISIONS OF THE SECTION WOULD NOT APPLY ON THE PROJECT DEVELOPED BY THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DISALLOWANCE U/S. 80IB(10) FOR SIMILAR REASONS WAS MADE DURING THE ASSESSMENT YEARS 2005-06 TO 2009-10. THE MATTER TRA VELLED UP TO THE TRIBUNAL. THE TRIBUNAL IN ITA NOS. 561 TO 565/PN/2013 FOR ASSESSMENT YEARS 2005-06 TO 2009-10 DECIDED ON 29-11 -2013 HELD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S. 80IB(10) AND THE RESTRICTION OF COMMERCIAL AREA INSERTED BY THE FINANCE (NO. 2) ACT, 2004 W.E.F. 01-04-2005 WOULD NOT APPLY IN THE CASE OF THE ASSE SSEE. THE LD. COUNSEL CONTENDED THAT WITH REGARD TO THE RESIDENTIAL UN ITS C-5. D-5 AND 19 BUNGALOWS WHERE THE BUILT UP AREA IS STATED TO B E IN EXCESS OF MAXIMUM PERMISSIBLE LIMIT OF 1500 SQ. FT., THE TRIBUNAL REMITTE D THE ISSUE BACK TO THE ASSESSING OFFICER. THE COUNSEL PLACED O RECORD A COPY OF THE ORDER OF CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NOS. 561 TO 565/PN/2013 (SUPRA). 3.1 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A UTHORITIES BELOW HAVE ERRED IN MAKING DISALLOWANCE U/S. 14A R.W. RULE 8D IN RESPECT OF SHARE OF PROFIT RECEIVED BY THE ASSESSEE FROM PARTNERSHIP FIRM. THE LD. COUNSEL CONTENDED THAT THE INCOME OF THE PAR TNERSHIP FIRM IS NOT TAX FREE OR EXEMPT FROM TAX. THE SHARE RECEIV ED BY THE ASSESSEE FROM THE PROFITS OF THE PARTNERSHIP FIRM IS ALREAD Y SUBJECT TO TAX IN THE HANDS OF FIRM. SINCE THE INCOME HAS SUFFERED TA X IN THE 4 ITA NO. 1300/PN/2014, A.Y. 2011-12 HANDS OF FIRM IT IS NOT AGAIN TAXED IN THE HANDS OF PARTNER . MERELY BECAUSE TO AVOID DOUBLE TAXATION OF SAME INCOME IT IS NOT TAXED IN THE HANDS OF PARTNER, THE INCOME CANNOT BE SAID TO BE TAX F REE. THEREFORE, THE PROVISIONS OF SECTION 14A R.W. RULE 8D ARE NOT ATTRAC TED. THE LD. COUNSEL IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE CIRCULAR NO. 8/2014 DATED 31-03-2014. 3.2 THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THA T THE ASSESSING OFFICER HAS MADE ADDITION OF ` 6,90,172/- U/S. 69 OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS SOLD SOME PROPER TY TO ONE MRS. SUNITA KULKARNI. THE ADDITION HAS BEEN MADE ON THE BASIS OF INFORMATION RECEIVED AS PER CIB COMPULSORY CODE TRANSAC TION. THE LD. COUNSEL SUBMITTED THAT THE PROPERTY WHICH HAS BEEN ALLEG EDLY TRANSFERRED BY ASSESSEE IS STATED TO BE REGISTERED VIDE REGISTRATION NO. 4907. THE ASSESSEE APPROACHED THE OFFICE OF SUB-REGISTRA R, KOLHAPUR SEEKING INFORMATION WITH REGARD TO SALE TRANSACTION OF THE PROPERTY REGISTERED VIDE REGISTRATION NO. 4907 IN THE NAME OF MRS. SUNITA KULKARNI. THE REGISTERING AUTHORITY HAS CONFIRMED THAT NO SUCH PROPERTY IS REGISTERED IN THE NAME OF MRS. SUNITA KULKARNI VIDE DOCUMENT NO. 4907/2010. THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAD NEVER SOLD THE SAID PROPERTY OR ANY OTHE R PROPERTY DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPE AL. THE LD. COUNSEL ALSO PLACED ON RECORD A COPY OF LETTERS DATED 10 -02-2014 AND 25-02-2014 FROM THE OFFICE OF ASSISTANT REGISTRAR, KARVEER , KOLHAPUR. THE LD. COUNSEL FOR THE ASSESSEE PRAYED FOR SETTING ASIDE THE IMPUGNED ORDER AND ALLOWING THE APPEAL OF THE ASSESSEE. 5 ITA NO. 1300/PN/2014, A.Y. 2011-12 4. SHRI P.L. KUREEL REPRESENTING THE DEPARTMENT VEHEMENT LY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APP EALS) AND PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. THE LD. D R FAIRLY ADMITTED THAT THE ISSUE RELATING TO DISALLOWANCE OF DEDUC TION U/S. 80IB(10) HAS BEEN ADJUDICATED BY THE TRIBUNAL IN ASSESSEE S OWN CASE DURING THE PRECEDING ASSESSMENT YEARS. THE LD. DR FURTH ER CONTENDED THAT THE ISSUE RELATING TO BUILT UP AREA OF RESIDENTIAL UNIT S C-5, D-5 AND 19 BUNGALOWS MAY BE REMITTED BACK TO ASSESSING OFFICER, IN ACCORDANCE WITH THE ORDER OF TRIBUNAL. IN RESPECT OF DISALLOWANCE OF DEDUCTION U/S. 14A R.W. RULE 8D THE LD. DR SUBMITTED THAT THE AUTHORITIE S BELOW HAVE RIGHTLY MADE DISALLOWANCE ON THE EXEMPT INCOME EARNED BY THE ASSESSEE. THE SHARE OF PROFIT FROM PARTNERSHIP FIRM IS TAX FREE INCOME IN THE HANDS OF ASSESSEE AND THUS WOULD BE SUBJECT TO THE PROVISIONS OF SECTION 14A OF THE ACT. THE LD. DR REFERRED TO THE DECIS ION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HOSHANG D. NANAVATI V S. ASSISTANT COMMISSIONER OF INCOME TAX REPORTED AS 16 ITR (T) 614 T O SUPPORT HIS SUBMISSIONS THAT PROFIT SHARE FROM THE PARTNERSHIP FIRM IS T AX FREE INCOME IN THE HANDS OF THE ASSESSEE AND THE PROVISIONS O F SECTION 14A WOULD APPLY ON THE SAME. 4.1 WITH REGARD TO ADDITION MADE U/S. 69 OF THE ACT, THE LD . DR SUBMITTED THAT THE ADDITION WAS MADE ON THE BASIS OF CI B INFORMATION. AS PER THE INFORMATION RECEIVED THE ASSESSEE HAD SOLD PR OPERTY CTSO, 2811/A, B-WARD, KOLHAPUR VIDE REGISTRATION NO. 4907 TO MRS . SUNITA KULKARNI FOR A CONSIDERATION OF ` 6,90,172/-. THE DETAILS OF THE TRANSACTION WERE FILED BY THE OFFICE OF JOINT SUB-REGISTRA R, KARVEER, KOLHAPUR. THE ASSESSING OFFICER MADE ADDITION ON THE SPECIFIC INFORMATION RECEIVED FROM THE OFFICE OF SUB-REGISTRAR. 6 ITA NO. 1300/PN/2014, A.Y. 2011-12 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE ASSESSEE IN HIS APPEAL HAS RAISED 6 GROUNDS. THE GROUND NO. 1 AND 2 OF THE APPEAL BY ASSESSEE RELATE TO DISALLOWANCE OF DEDUC TION ` 21,84,183/- CLAIMED U/S. 80IB(10) OF THE ACT. THE DISALLOWANCE HAS BEEN MADE ON TWO COUNTS : I. THE COMMERCIAL AREA IN THE HOUSING PROJECT DEVELOPED BY THE ASSESSEE IS MORE THAN THE 3% OF THE AGGREGATE BUILT UP AREA OF THE HOUSING PROJECT OR 5000 SQ. FT. THE ASSESSING OFFICER IN HIS ORDER HAS OBSERVED THAT THE BUILT UP AREA OF THE COMMERCIAL ESTABLISHMENT IN THE HOUSING PROJECT IS 6701.43 SQ. FT. WHIC H IS ALMOST 5.39% OF THE TOTAL BUILT UP AREA, AND II. THE RESIDENTIAL UNITS C-5, D-5 AND 19 BUNGALOWS HAVE BUILT UP AREA IN EXCESS OF MAXIMUM PERMISSIBLE LIMIT OF 1500 SQ. FT. THE LD. COUNSEL HAS DRAWN OUR ATTENTION TO THE ORDER O F THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 561 TO 565/PN/2013 FOR ASSESSMENT YEARS 2005-06 TO 2009- 10 DECIDED ON 29-11-2013. THE ASSESSING OFFICER IN ASSESSMENT YEARS 20 05-06 TO 2009-10 HAD DISALLOWED THE CLAIM OF DEDUCTION U/S. 80IB(10) IN RESPECT OF SAME HOUSING PROJECT FOR SIMILAR REASONS. THE COMMISSION ER OF INCOME TAX (APPEALS) GRANTED RELIEF TO THE ASSESSEE AFTER CALLING REMAND REPORT. THE DEPARTMENT CARRIED THE MATTER IN APPEAL BE FORE THE TRIBUNAL. THE TRIBUNAL HELD THAT THE LIMIT SPECIFYING THE BU ILT UP AREA OF SHOPS AND COMMERCIAL ESTABLISHMENT IN THE HOUSING PROJE CT WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004 W.E.F. 01-04-2005. SINCE, THE PROJECT WAS APPROVED PRIOR TO THE INSERTION OF AMENDMEN T, THE AMENDED 7 ITA NO. 1300/PN/2014, A.Y. 2011-12 PROVISIONS OF SECTION WOULD NOT APPLY ON THE ASSESSEE. T HE RELEVANT EXTRACT OF THE FINDINGS OF THE TRIBUNAL ARE AS UNDER : 2.9 REGARDING DENIAL OF DEDUCTION U/S. 80IB(10) ON ACCOUNT OF CONSTRUCTION AND SALE OF COMMERCIAL SPACE ADMEASURI NG 6701.43 FEET IN THE PROJECT SANCTIONED PRIOR TO 01.04.2005 AS STATE D ABOVE, THE PROJECT WAS APPROVED BY COMPETENT AUTHORITY BEFORE 01.04.20 05 MEANING THEREBY THAT PROJECT WAS AN APPROVED HOUSING PROJEC T AS PER LOCAL DC RULES. ON THE DATE ON WHICH THE LEGISLATURE INTRODU CED 100% DEDUCTION UNDER THE I.T ACT, 1961 ON THE PROFITS DERIVED FROM HOUSING PROJECTS APPROVED BY A LOCAL AUTHORITY, IT WAS KNOWN THAT TH E LOCAL AUTHORITIES COULD APPROVE THE PROJECTS AS HOUSING PROJECTS WITH COMMERCIAL USER TO THE EXTENT PERMITTED UNDER THE DEVELOPMENT CONTROL RULES FRAMED BY THE RESPECTIVE LOCAL AUTHORITY. THE LOCAL AUTHORITY COU LD APPROVE A HOUSING PROJECT WITHOUT OR WITH COMMERCIAL USE TO THE EXTEN T PERMITTED UNDER DEVELOPMENT RULES AS HELD IN CIT, PUNE VS. BRAHMA A SSOCIATES (2011) 333 ITR 289 (BOM), WHEREIN, THE HONBLE BOMBAY HIGH COURT HELD AS UNDER; 22. IT IS NOT IN DISPUTE THAT WHERE A PROJECT IS A PPROVED AS A HOUSING PROJECT WITHOUT OR WITH COMMERCIAL USER TO THE EXTENT PERMITTED UNDER THE RULES/REGULATIONS, THEN, DEDUCT ION UNDER SECTION 80-IB(10) WOULD BE ALLOWABLE. IN OTHER WORD S, IF A PROJECT COULD BE APPROVED AS A HOUSING PROJECT HAVING RESID ENTIAL UNITS WITH PERMISSIBLE COMMERCIAL USER, THEN IT IS NOT OP EN TO THE INCOME-TAX AUTHORITIES TO CONTEND THAT THE EXPRESSI ON 'HOUSING PROJECT' IN SECTION 80- IB(IO) IS APPLICABLE TO PRO JECTS HAVING ONLY RESIDENTIAL UNITS. 24. THE FACT THAT THE DEDUCTION UNDER SECTION 80-IB (10) PRIOR TO 1- 4-2005 WAS ALLOWABLE ON THE PROFITS DERIVED FROM TH E HOUSING PROJECTS CONSTRUCTED DURING THE SPECIFIED PERIOD, O N A SPECIFIED SIZE OF THE PLOT WITH RESIDENTIAL UNITS OF THE SPEC IFIED SIZE, IT CANNOT BE INFERRED THAT THE DEDUCTION UNDER SECTION 10-IB( IO) WAS ALLOWABLE TO HOUSING PROJECTS HAVING RESIDENTIAL UN ITS ONLY, BECAUSE, RESTRICTION ON THE SIZE OF THE RESIDENTIAL UNIT IS WITH A VIEW TO MAKE AVAILABLE LARGE NUMBER OF AFFORDABLE H OUSES TO THE COMMON MAN AND NOT WITH A VIEW TO DENY COMMERCIAL U SER IN RESIDENTIAL BUILDINGS. IN OTHER WORDS, THE RESTRICT ION UNDER SECTION 80-IB(10) REGARDING THE SIZE OF THE RESIDENTIAL UNI T WOULD IN NO WAY CURTAIL THE POWERS OF THE LOCAL AUTHORITY TO AP PROVE A PROJECT WITH COMMERCIAL USER TO THE EXTENT PERMITTED UNDER THE DC 8 ITA NO. 1300/PN/2014, A.Y. 2011-12 RULES/REGULATIONS. THEREFORE, THE ARGUMENT OF THE R EVENUE THAT THE RESTRICTION ON THE SIZE OF THE RESIDENTIAL UNIT IN SECTION 80-IB(IO) AS IT STOOD PRIOR TO 1-4-2005 IS SUGGESTIVE OF THE FACT THAT THE DEDUCTION IS RESTRICTED TO HOUSING PROJECTS APPROVE D FOR RESIDENTIAL UNITS ONLY CANNOT BE ACCEPTED. 25. THE ABOVE CONCLUSION IS FURTHER FORTIFIED BY CL AUSE (D) TO SECTION 80IB(10) INSERTED WITH EFFECT FROM 1-4-2005 . CLAUSE (D) TO SECTION 80IB(10) INSERTED WITH EFFECT FROM 1-4- 200 5 PROVIDES THAT EVEN THOUGH SHOPS AND COMMERCIAL ESTABLISHMENTS ARE INCLUDED IN THE HOUSING PROJECT, DEDUCTION UNDER SECTION 80-IB( 10) WITH EFFECT FROM 1-4-2005 WOULD BE ALLOWABLE WHERE SUCH COMMERC IAL USER DOES NOT EXCEED FIVE PER CENT OF THE AGGREGATE BUIL T-UP AREA OF THE HOUSING PROJECT OR TWO THOUSAND SQUARE FEET WHICHEV ER IS LOWER. BY FINANCE ACT, 2010, CLAUSE (D) IS AMENDED TO THE EFFECT THAT THE COMMERCIAL USER SHOULD NOT EXCEED THREE PER CENT OF THE AGGREGATE BUILT-UP AREA OF THE HOUSING PROJECT OR FIVE THOUSA ND SQUARE FEET WHICHEVER IS HIGHER. THE EXPRESSION 'INCLUDED' IN C LAUSE (D) MAKES IT AMPLY CLEAR THAT COMMERCIAL USER IS AN INTEGRAL PART OF A HOUSING PROJECT. THUS, BY INSERTING CLAUSE (D) TO SECTION 8 0IB(10) THE LEGISLATURE HAS MADE IT CLEAR THAT THOUGH THE HOUSI NG PROJECTS APPROVED BY THE LOCAL AUTHORITIES WITH COMMERCIAL U SER TO THE EXTENT PERMISSIBLE UNDER THE DC RULES/REGULATIONS W ERE ENTITLED TO SECTION 80IB(10) DEDUCTION, W.E.F. 01.04.2005 SU CH DEDUCTION WOULD BE SUBJECT TO THE RESTRICTION SET OUT IN CLAU SE (D) OF SECTION 80IB(10). THEREFORE, THE ARGUMENT OF THE REVENUE TH AT W.E.F. 01.04.2005 THE LEGISLATURE FOR THE FIRST TIME ALLOW ED SECTION 80IB(10) DEDUCTION TO HOUSING PROJECTS HAVING COMME RCIAL USER CANNOT BE ACCEPTED. 2.10 THUS, PRIOR TO 01.04.2005, THERE WAS NO SCOPE UNDER ACT FOR AN UNDERTAKING TO CONSTRUCT ANY COMMERCIAL SPACE AND P ROJECT SHOULD BE 100% IN ORDER TO AVAIL BENEFIT OF SECTION 80IB(10) HAS NOT FOUND FAVOUR WITH THE HIGH COURT. THUS ASSESSEE WAS ENTITLED TO BENEFIT OF DEDUCTION U/S. 80IB(10) IN RESPECT OF PROFITS DERIVED FROM AP PROVED PROJECT INCLUDING PROFITS FROM SALE OF COMMERCIAL SPACE . THIS FACTUAL LEGAL BACKGROUND, NEED NO INTERFERENCE FROM OUR SIDE ON THIS POINT. W E UPHOLD THE SAME. 6. THE TRIBUNAL WHILE DEALING WITH THE ISSUE RELATING TO THE BUILT UP AREA OF RESIDENTIAL UNITS C-5, D-5 AND 19 BUNGALOWS HELD AS UNDER : 9 ITA NO. 1300/PN/2014, A.Y. 2011-12 3. IN RESPECT OF OTHER REASON THAT 21 BUNGALOWS VI OLATED THE REQUIREMENT OF RESIDENTIAL UNIT BEING MORE THAN 1500 FEET AND T HEREFORE, THE DEDUCTION WOULD BE DENIED. THE CLAUSE (A) OF SUB-SECTION (14) , INTRODUCED BY THE FINANCE (NO.2) ACT, 2004 W.E.F. 01.04.2005 TO DEFIN E BUILT UP AREA WHEREIN PROJECTION COMMONLY KNOWN AS VERANDAH IS IN CLUDED IN THE 'BUILT-UP AREA'. THE ISSUE IS WHETHER THE PROVISION S OF CLAUSE (A) OF SUB- SECTION (14) WILL HAVE RETROSPECTIVE APPLICATION OR NOT? ACCORDING TO CIT(A), RESTRICTION IN 'BUILT-UP AREA' IMPOSED FOR THE FIRST TIME W.E.F. 01/04/2005 CANNOT HAVE RETROSPECTIVE APPLICATION. T HE HONBLE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE VS. ANRIYA PROJECT MANAGEMENT SERVIC ES (P.) LTD. REPORTED IN [2012] 21 TAXMANN.COM 140 (KARNATAKA), WHEREIN T HIS PROVISION WAS EXAMINED. THE QUESTION WAS WHETHER THE DEFINITION O F 'BUILT-UP AREA' INSERTED BY FINANCE (NO.2) ACT, WHICH BECAME EFFECT IVE FROM 01/04/2005 IS PROSPECTIVE OR RETROSPECTIVE IN NATURE. IT WAS H ELD TO BE PROSPECTIVE IN NATURE. THE SAID AMENDMENT WOULD HAVE NO APPLICATIO N TO THE HOUSING PROJECTS, WHICH WERE APPROVED BY THE LOCAL AUTHORIT Y PRIOR TO 01/04/2005 IN CALCULATING 1500 FEET OF RESIDENTIAL UNIT AND IT FURTHER HELD THAT ONCE SUCH HOUSING PROJECT OF ASSESSEE IS APPROVED BY LOCAL AUTHORITY PRIOR TO 01.04.2005, IT WOULD BE ENTITLED TO 100% BENEFIT OF PROVISIONS OF SECTION 80IB(10). SIMILARLY, THIS VIE W HAS BEEN TAKEN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF MANAN COR PORATION V. ACIT, CIRCLE-5 WHEREIN DECISION OF ASSESSEE HAS REFERENCE OF SUPREME COURT IN THE CASE OF CIT U. GOLD COIN HEALTH FOOD P. LTD. [2 008] 304 ITR 308 (SC),CIT V. TVS LEAN LOGISTICS LTD. [2007) 293 ITR 432(MAD), AND NATIONAL AGRICULTURAL CO-OPERATIVE MARKETING FEDERA TION OF INDIA LTD. AND ANOTHER, VS. UNION OF INDIA AND OTHERS AIR 2003 SC 1329, WHEREIN ON THE POINT OF RETROSPECTIVE DATE WAS HELD THAT CRITERIA TO HOLD THIS AMENDMENT RETROSPECTIVE WAS ABSENT AS THERE WAS NO EXPLICIT R ETROSPECTIVE SPECIFIC WORDING EXPRESSING RETROSPECTIVITY AND EVEN IF IT I S ASSUMED FOR THE SAKE OF ARGUMENTS THAT THE SAME IS TO BE READ BY IMPLICA TION THE SAME DOES NOT APPEAR TO BE REASONABLE BUT, IN FACT EMERGES TO BE HARSH AND UNREASONABLE WHEN IT COMES TO IMPLEMENTATION. THUS, THE AMENDMENT WITH RESPECTIVE BUILT UP AREA DISCUSSED ABOVE WAS F OUND SUBSTANTIVE AMENDMENT AND NOT CLARIFICATORY ONE. ACCORDINGLY, S AME HAS NO RETROSPECTIVE EFFECT. 3.1 WITHOUT PREJUDICE TO THE ABOVE, THE MAIN LIMB O N WHICH DEDUCTION WAS DENIED WAS FOR THE REASON THAT AREA OF VERANDAH WAS NOT EXCLUDED OR EXEMPT UNDER SECTION 78(3) OF THE BYE-LAWS OF KO LHAPUR MUNICIPAL CORPORATION. CIT(A) FOLLOWING THE DECISION OF HIS P REDECESSOR, DECIDED THE ISSUE IN FAVOUR OF ASSESSEE WITH REGARD TO 19 BUNGA LOWS. WITH REGARD TO 10 ITA NO. 1300/PN/2014, A.Y. 2011-12 BUNGALOWS C5 AND D5 WHICH ADMITTEDLY ARE MORE THAN 1500 SQ.FT., BUT WERE SOLD TO THE OWNERS OF THE LAND AND PROFIT THER EOF HAS NOT BEEN THE SUBJECT MATTER OF SECTION 80IB(10). ACCORDINGLY, NO ADVERSE VIEW HAS TAKEN BY CIT(A). COMING BACK TO THE ISSUE OF BUILT UP AREA AS PER BYE- LAWS OF KOLHAPUR MUNICIPAL CORPORATION WITH REGARD TO 19 BUNGALOWS MENTIONED ABOVE, WE FIND THAT TRIBUNAL HAS SET ASID E THIS ISSUE TO ASSESSING OFFICER BY OBSERVING AS UNDER; 9. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT. THEMAIN ISSUE CONCERNS THE DEFINITION OF BUILT UP AREA. THE RE WAS NO DEFINITION IN THE ACT OF THE TERM 'BUILT UP AREA' F OR THE YEAR UNDER APPEAL. THE FINANCE ACT OF 2004 WITH EFFECT FROM 01 /04/2005 INSERTED THE DEFINITION OF BUILT UP AREA AT SUBSECT ION 14(1) OF SECTION 80IB. THE 'BUILT UP AREA' WAS DEFINED AS UN DER: BUILT UP AREA MEANS THE INNER MEASUREMENTS OF THE RESIDENTIAL UNIT AT THE FLOOR LEVEL INCLUDING THE P ROJECTIONS AND BALCONIES AS INCREASED BY THE THICKNESS OF THE WALL S BUT DOES NOT INCLUDE COMMON AREAS SHARED WITH OTHER RESIDENTIAL AREAS. TECHNICALLY SPEAKING, THE DEFINITION OF 'BUILT UP A REA' AS GIVEN ABOVE WILL BE APPLICABLE ONLY WITH EFFECT FROM 01/0 4/2005. THE HONOURABLE SUPREME COURT IN A RECENT FIVE JUDGE BEN CH DECISION IN THE CASE OF CIT V/S VARAS INTERNATIONAL PVT. LTD ., 283 ITR 485 HAS HELD THAT FOR AN AMENDMENT TO BE CONSTRUED AS B EING RETROSPECTIVE, THE AMENDED PROVISION MUST INDICATE EITHER BY TERMS OR BY NECESSARY IMPLICATION THAT IT IS TO OPERATE R ETROSPECTIVELY. THE APEX COURT HAS REFERRED TO ITS EARLIER DECISION S IN THE CASE OF ALLIED MOTORS PVT. LTD. 224 ITR 677 (SC), PODDAR CE MENT PVT. LTD. 223 ITR 825 (SC) AND BRIJMOHANDAS LAXMANDAS V/S CIT , 226 ITR 625. THE ABOVE JUDGEMENT HAS CLEARED THE CONTROVERS Y OF WHETHER A CLARIFICATORY AMENDMENT SHOULD BE CONSTRUED AS BE ING RETROSPECTIVE UNLESS SPECIFIED OTHERWISE. 3.2 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REAS ONING, WE RESTORE THIS ISSUE TO ASSESSING OFFICER WITH SIMILAR DIRECTIONS. AS A RESULT, APPEAL OF REVENUE IS PARTLY ALLOWED AS INDICATED ABOVE. SIMILA R ISSUE AROSE IN OTHER YEARS. FACTS BEING SIMILAR, SO FOLLOWING THE SAME R EASONING, WE PARTLY ALLOWED THE REVENUES APPEAL AS INDICATED ABOVE. 11 ITA NO. 1300/PN/2014, A.Y. 2011-12 7. SINCE, THE ISSUE IN PRESENT APPEAL RELATES THE SAME PR OJECT AND THE REASONS FOR DENYING THE BENEFIT OF DEDUCTION U/S. 80IB (10) ARE IDENTICAL, RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BEN CH WE HOLD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S. 80 IB(10) DEHORS THE AREA OF COMMERCIAL ESTABLISHMENT. IN SO FAR AS THE BUILT UP AREA OF RESIDENTIAL UNITS C-5, D-5 AND 19 BUNGALOWS IS CONC ERNED THE ISSUE IS SET ASIDE TO THE ASSESSING OFFICER TO DECIDE THE ISSUE IN LINE WITH THE DIRECTIONS GIVEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL WHILE ADJUDICATING THE APPEALS IN THE PRECEDING ASSESSMENT YEARS. ACCORDINGLY, GROUND NOS. 1 AND 2 RAISED BY THE ASSESSEE IN HIS APPEAL ARE PARTLY ACCEPTED IN THE AFORESAID TERMS. 8. THE GROUND NO. 3 RAISED BY THE ASSESSEE IN APPEAL IS WITH RESPECT TO DISALLOWANCE OF DEDUCTION U/S. 14A R.W. RULE 8D IN RESPEC T OF SHARE OF PROFIT RECEIVED BY THE ASSESSEE FROM PARTNERSHIP FIRM. T HE ASSESSEE HAS RECEIVED TAX FREE INCOME OF ` 49,79,071/- FROM M/S. TIRUPATI POOJA CONSTRUCTION WHERE THE ASSESSEE HAS HOLDING 60% SHARE. THE CONTENTION OF THE ASSESSEE IS THAT THE INCOME OF THE PAR TNERSHIP FIRM IS NOT TAX FREE. BEFORE DISTRIBUTION OF PROFITS, TAX IS PAID ON T HE INCOME OF PARTNERSHIP FIRM, THEREFORE, NO DISALLOWANCE U/S. 14A SHOULD B E MADE ON THE SHARE OF PROFIT RECEIVED FROM PARTNERSHIP FIRM. THE LD. COUNSEL HAS PLACED RELIANCE ON THE CIRCULAR NO. 8/2014 TO SUPPORT HIS CONTENTIONS THAT ONCE THE TAX HAS BEEN PAID BY THE FIRM THE SAME IS NOT LIABLE TO BE TAXED IN THE HANDS OF THE PARTNERS OF THE AS SESSEE. THEREFORE, NO DISALLOWANCE SHOULD BE MADE IN THE HANDS OF THE ASSESSEE. WE DO NOT FIND MERIT IN THE SUBMISSIONS OF THE LD. COUNSEL FO R THE ASSESSEE. DISALLOWANCE U/S. 14A IS WITH RESPECT TO EXPEND ITURE 12 ITA NO. 1300/PN/2014, A.Y. 2011-12 INCURRED FOR EARNING TAX FREE INCOME. THE SHARE OF PROFITS FROM PARTNERSHIP FIRM IS EXEMPT FROM TAX U/S. 10(2A) OF THE ACT IN THE HANDS OF THE PARTNER. THEREFORE, IT IS TAX FREE INCOME IN THE HAN DS OF THE ASSESSEE. THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE FO R EARNING TAX FREE INCOME. THE ASSESSING OFFICER HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 14A R.W. RULE 8D FOR MAKING SUCH DISALLOWANCE. TH E CIRCULAR NO. 8/2014 RATHER CLARIFIES THE REASON AS TO WHY THE SHARE OF PROFITS O F A PARTNERSHIP FIRM IS EXEMPT FROM TAX IN THE HANDS OF PARTNE R. THE SAME IS REPRODUCED HERE-IN-UNDER : SECTION 10(2A) OF THE INCOME TAX ACT, 1961 FIRM SHARE OF PROFITS TO PARTNER OF FIRM CLARIFICATION ON INTERPRETATION OF PROVISIONS OF SECTION 10(2A) IN C ASES WHERE INCOME OF FIRM IS EXEMPT CIRCULAR NO. 8/2014 [F.NO.173/99/2013-ITA-I], DATED 31-3-2014 A REFERENCE HAS BEEN RECEIVED IN THE BOARD IN CONNE CTION WITH THE INTERPRETATION OF PROVISIONS OF SECTION 10(2A) OF T HE INCOME TAX ACT, 1961 (ACT) SEEKING CLARIFICATION AS TO WHAT WILL BE TH E AMOUNT EXEMPT IN THE HANDS OF THE PARTNERS OF A PARTNERSHIP FIRM IN CASE S WHERE THE FIRM HAS CLAIMED EXEMPTION/DEDUCTION UNDER CHAPTER III OR VI -A OF THE ACT. 2. THE MATTER HAS BEEN EXAMINED. SUB SECTION (2A) O F SECTION 10 WAS INSERTED BY THE FINANCE ACT, 1992 W.E.F. 1-4-1993 D UE TO A CHANGE IN THE SCHEME OF TAXATION OF PARTNERSHIP FIRMS. SINCE ASSE SSMENT YEAR 1993-94, A FIRM IS ASSESSED AS SUCH AND IS LIABLE TO PAY TAX ON ITS TOTAL INCOME. A PARTNER IS NOT LIABLE TO TAX ONCE AGAIN ON HIS SHAR E IN THE SAID TOTAL INCOME. 3. IT IS CLARIFIED THAT TOTAL INCOME OF THE FIRM FOR SUB SECTION (2A) OF SECTION 10 OF THE ACT, AS INTERPRETED CONTEXTUALLY, INCLUDES INCOME WHICH IS EXEMPT OR DEDUCTIBLE UNDER VARIOUS PROVISIONS OF THE ACT. IT IS, THEREFORE, FURTHER CLARIFIED THAT THE INCOME OF A F IRM IS TO BE TAXED IN THE HANDS OF THE FIRM ONLY AND THE SAME CAN UNDER NO CI RCUMSTANCES BE TAXED IN THE HANDS OF ITS PARTNERS. ACCORDINGLY, TH E ENTIRE PROFIT CREDITED TO THE PARTNERS ACCOUNTS IN THE FIRM WOULD BE EXEM PT FROM TAX IN THE HANDS OF SUCH PARTNERS, EVEN IF THE INCOME CHARGEAB LE TO TAX BECOMES 13 ITA NO. 1300/PN/2014, A.Y. 2011-12 NIL IN THE HANDS OF THE FIRM ON ACCOUNT OF ANY EXEM PTION OR DEDUCTION AS PER THE PROVISIONS OF THE ACT. 4. THIS MAY BE BROUGHT TO THE NOTICE OF ALL CONCERN ED. A PERUSAL OF CIRCULAR WOULD SHOW THAT THE INTERPRETATION D RAWN BY LD. COUNSEL FOR EXCLUDING SHARE OF PARTNERSHIP FIRM FROM SCOPE OF SECTION 14A IS NOT SUSTAINABLE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN UPHOLDING T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ACCORDINGLY, TH E GROUND NO. 3 RAISED BY THE ASSESSEE IN ITS APPEAL IS DISMISSED. 9. THE GROUND NO. 4 OF THE APPEAL RAISED BY THE ASSESS EE RELATES TO ADDITION OF ` 6,90,172/- U/S. 69 OF THE ACT. THE ADDITION HAS BEEN MAD E ON THE BASIS OF CIB INFORMATION RECEIVED. AS PER THE CO NTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE, THE ASSESSEE NEITHER OWNS T HE PROPERTY MENTIONED IN THE INFORMATION RECEIVED FROM CIB NOR IT HAS S OLD ANY SUCH PROPERTY DURING THE PERIOD RELEVANT TO THE ASSES SMENT YEAR 2011-12. THE LD. COUNSEL HAS ALSO PLACED ON RECORD THE L ETTERS FROM THE OFFICE OF SUB-REGISTRAR, KARVEER, KOLHAPUR IN SUPPORT OF HIS CONTENTIONS. WE ARE OF THE VIEW THAT THIS ISSUE NEEDS A REVISIT TO THE ASSESSING OFFICER FOR VERIFICATION. THE ASSESSING OFFICER AFTER VERIFICATION OF RECORDS AND THE LETTERS PLACED ON RECORD B Y LD. COUNSEL FROM THE OFFICE OF SUB-REGISTRAR, KOLHAPUR SHALL DECIDE THIS ISS UE AFRESH, IN ACCORDANCE WITH LAW. ACCORDINGLY, GROUND NO. 4 O F THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 10. THE GROUND NO. 5 RAISED IN THE APPEAL BY THE ASSES SEE RELATES TO LEVY OF INTEREST U/S. 234B AND 234C OF THE ACT. THE LEV Y OF INTEREST 14 ITA NO. 1300/PN/2014, A.Y. 2011-12 UNDER THE AFORESAID SECTIONS IS MANDATORY AND CONSEQUEN TIAL. ACCORDINGLY, GROUND NO. 5 RAISED IN THE APPEAL IS REJECTED. 11. THE GROUND NO. 6 IS GENERAL IN NATURE, HENCE, REQUIRES NO ADJUDICATION. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON FRIDAY, THE 12 TH DAY OF AUGUST, 2016. SD/- SD/- (PRADIP KUMAR KEDIA) (VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; !' / DATED : 12 TH AUGUST, 2016 RK ,-#./0+. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. # # $ () / THE CIT(A), KOLHAPUR 4. # # $ / THE CIT-I/II, KOLHAPUR/CIT (CENTRAL), PUNE 5. '() *+ , # *+ , , ,-. , / DR, ITAT, B BENCH, PUNE. 6. )/0 12 / GUARD FILE. // ' // TRUE COPY// #3 / BY ORDER, 4 *. / PRIVATE SECRETARY, # *+ , / ITAT, PUNE