ACIT, CHENNAI V. M/s. Ramesh Rajan Constructions P. Ltd., CHENNAI

ITA 1411/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61253 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 08-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: S SRIDHAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 1411/MDS/2011 (ASSESSMENT YEAR : 2008-09) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(3), CHENNAI - 600 034 . (APPELLANT) V. M/S RAMESH RAJAN CONSTRUCTION PVT. LTD., NO.11, GOPALAKRISHNAN STREET, T. NAGAR, CHENNAI - 600 017. PAN : AACCR7887H (RESPONDENT) APPELLANT BY : DR. S. MOHARANA, CIT-DR RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 25.06.2012 DATE OF PRONOUNCEMENT : 25.06.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANC E IS THAT COMMISSIONER OF INCOME TAX (APPEALS)-V, CHENNAI, VI DE HIS ORDER DATED 2 ND MAY, 2011, HELD THAT ASSESSEE WAS ELIGIBLE FOR DED UCTION UNDER SECTION 80-IB(10) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 2 I.T.A. NO. 1411/MDS/11 2. SHORT FACTS APROPOS ARE THAT ASSESSEE, ENGAGED I N PROPERTY DEVELOPMENT BUSINESS, HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR CLAIMING DEDUCTION OF ` 6,72,70,165/- UNDER SECTION 80-IB OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT ASSESSEE WAS SELLING UNDIVID ED SHARE OF LAND TO THE RESPECTIVE BUYERS AND THEREAFTER, ENTERING INTO CONTRACTS WITH PROSPECTIVE BUYERS FOR CONSTRUCTING FLATS. AS PER THE A.O., OWNERS OF THE UNDIVIDED SHARE OF LAND HAD ENTERED INTO CONTRACTS FOR CONSTRUCTION OF FLATS WITH THE ASSESSEE AND PAYMENTS RECEIVED BY TH E ASSESSEE FROM SUCH OWNERS WERE AS PER THE TERMS OF SUCH AGREEMENT S WITH THEM. ACCORDING TO HIM, EXPLANATION TO SECTION 80-IB(10) OF THE ACT CLEARLY EXCLUDED WORKS CONTRACTORS FROM THOSE WHO WERE ELIG IBLE FOR CLAIMING DEDUCTION UNDER SECTION 80-IB(10) OF THE ACT. WHEN PUT ON NOTICE, ASSESSEE REPLIED THAT IT HAD PURCHASED 2.85 ACRES O F LAND FOR A HOUSING PROJECT CONSISTING OF 197 RESIDENTIAL UNITS. AS PE R THE ASSESSEE, IT HAD CONTRIBUTED CAPITAL AND TAKEN LOANS FOR PROMOTION A ND DEVELOPMENT OF THE PROJECT. IT HAD RAISED WORKING CAPITAL AND TER M LOAN FROM CITY UNION BANK. AS PER THE ASSESSEE, IT HAD OBTAINED APPROVA L FROM CHENNAI METROPOLITAN DEVELOPMENT AUTHORITY (CMDA) AND ALSO OBTAINED ALL THE APPROVALS AND PERMISSIONS REQUIRED, IN ITS NAME. I T WAS ONLY AFTER GETTING APPROVALS, ASSESSEE OFFERED TO SELL PROPOSE D DWELLING UNITS AND STARTED PROJECTS. AFTER COMPLETION OF PROJECTS, AS SESSEE OBTAINED 3 I.T.A. NO. 1411/MDS/11 COMPLETION CERTIFICATE FROM CMDA. THE RESIDENTIAL UNITS WERE HANDED OVER TO BUYERS AFTER COMPLETION OF PROJECTS. IT CL EARLY SHOWED THAT THE ASSESSEE IS IN DEVELOPMENT OF THE PROJECT AND NOT A MERE WORKS CONTRACTOR. ACCORDING TO ASSESSEE, IT WAS NOT THE CASE OF A WORKS CONTRACT BEING AWARDED BY PROSPECTIVE BUYERS TO THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER WAS NOT IMPRESSED. ACCORDING TO HIM, ASSESSEE HAD FIRST SOLD THE UNDIVIDED SHARE OF LAND TO THE PROSPECTIVE CUSTOMERS AND THEREAFTER ENTERED INTO AGREEMENT FOR CONSTRUCTION OF FLATS. AFTER GOING THROUGH THE TERMS OF THE AGREEM ENT WITH PROSPECTIVE CLIENTS, WHICH ASSESSEE HAD ENTERED INTO, ASSESSING OFFICER CAME TO A CONCLUSION THAT CONSTRUCTION OF FLAT WAS DONE AS PE R THE REQUIREMENT OF THE OWNER AND ASSESSEE WAS ONLY A CONTRACTOR WHO HA D AGREED TO CONSTRUCT FLATS FOR THE PROPOSED OWNERS OF THE UNDI VIDED SHARE OF LAND. IN THIS VIEW OF THE MATTER, A.O. DENIED DEDUCTION U NDER SECTION 80-IB(10) OF THE ACT. 3. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT IT HAD SATISFIED ALL THE CONDITIONS MENTIONED IN SECTION 80-IB(10) OF THE ACT AND THE CLAIM WAS UNJUSTIFIABLY DENIED. RE LIANCE WAS PLACED ON THE DECISION OF A CO-ORDINATE BENCH OF THIS TRIBUNA L IN THE CASE OF ACIT V. SMT. C. RAJINI [9 ITR (TRIB.) 487]. CIT(APPEALS ) WAS APPRECIATIVE OF THIS CONTENTION OF THE ASSESSEE. ACCORDING TO HIM, ASSESSEE HAD 4 I.T.A. NO. 1411/MDS/11 SATISFIED ALL THE CONDITIONS REQUIRED FOR DEDUCTION UNDER SECTION 80- IB(10) OF THE ACT. AS PER CIT(APPEALS), ASSESSEE W AS UNDERTAKING DEVELOPMENT AND BUILDING HOUSING PROJECTS. SUCH HO USING PROJECTS WERE APPROVED BY LOCAL AUTHORITY. DEVELOPMENT AND CONST RUCTION HAD STARTED BEFORE 1.4.2005. THE PLOT SIZE WAS MORE THAN ONE A CRE. THE RESIDENTIAL UNITS WERE WITHIN THE AREA MENTIONED IN THE SECTION . HE ALSO NOTED THAT THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SMT. C. RAJINI (SUPRA) SUPPORTED THE ASSESSEES CASE. HE T HUS DIRECTED THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE. 4. NOW BEFORE US, LEARNED D.R. SUBMITTED THAT EXPLA NATION TO SECTION 80-IB(10) OF THE ACT CLEARLY EXCLUDED A WORKS CONTR ACTOR. HERE, THE ASSESSEE FIRST ENTERED INTO AGREEMENT FOR SALE OF U NDIVIDED SHARE OF LAND. SEPARATE AGREEMENTS WERE ENTERED FOR SALE OF UNDIVIDED SHARE LAND AND CONSTRUCTION OF FLATS WITH THE PROSPECTIVE BUYERS AND THE SECOND AGREEMENT CLEARLY SHOWED THAT IT WAS MERELY A WORKS CONTRACTOR FOR FLAT CONSTRUCTION. THEREFORE, ASSESSEE COULD N OT BE GIVEN THE BENEFIT OF DEDUCTION UNDER SECTION 80-IB(10) OF THE ACT, WH ICH WAS AVAILABLE FOR A DEVELOPER ONLY. LEARNED D.R. ALSO NOTED THAT INT ENTION OF THE LEGISLATURE WAS TO ALLOW DEDUCTION TO GENUINE DEVEL OPERS AND NOT TO ALLOW IT FOR CONTRACTORS. HERE, IN THE CASE OF THE ASSESSEE, THE CONDITIONS MENTIONED IN SECTION 80-IB(10) WERE NOT SATISFIED. 5 I.T.A. NO. 1411/MDS/11 5. PER CONTRA, LEARNED A.R. STRONGLY SUPPORTED THE ORDER OF CIT(APPEALS) AND ONCE AGAIN RELIED ON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SMT. C. RAJIN I (SUPRA). 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE INVESTMENT MADE BY THE ASSESSEE FOR THE PROJECT AND THE SOURCE FOR SUCH INVESTMENT WERE AS UNDER:- PARTICULARS AMOUNT ( `) `)`) `) INVESTMENT IN LAND DURING FY 2005 - 05 1,15,58,524 INVESTMENT IN DEVELOPMENT OF PROJECT FROM FY 2004-05 TO 2006-07 5,63,02,852 TOTAL SOURCES 6,78,61,376 SHARE CAPITAL & SHARE DEPOSIT MONEY 9,07,000 UNSECURED LOAN FROM PROMOTERS & RELATIVES 89,07,342 DEMAND LOAN & OVER DRAFT FROM CITY UNION BANK 5,51,70,156 ADVANCE FROM CUSTOMERS 28,76,878 TOTAL 6,78,61,376 NONE OF THESE FIGURES HAVE BEEN DISPUTED OR REBUTTE D BY THE REVENUE. IT IS ALSO NOT DISPUTED THAT ASSESSEE HAD PURCHASED THE LAND. IT MIGHT BE TRUE THAT ASSESSEE HAD ENTERED INTO INDIVIDUAL AGRE EMENTS WITH PROSPECTIVE BUYERS FOR SALE OF UNDIVIDED SHARE IN S UCH LAND AND FOR CONSTRUCTION OF FLATS THEREIN. BUT, THIS WOULD NOT MEAN THAT ASSESSEE WAS NOT A DEVELOPER OF THE PROJECT OR THAT ASSESSEE WAS ONLY A CONTRACTOR. ASSESSEE HAD OBTAINED LOANS IN ITS NAM E AND MADE SUBSTANTIAL INVESTMENT FOR PROMOTION OF THE PROJECT . IN OUR OPINION, ASSESSEE WOULD NOT BE CAUGHT WITHIN THE MEANING OF EXPLANATION TO 6 I.T.A. NO. 1411/MDS/11 SECTION 80-IB(10) INSERTED BY THE FINANCE ACT, 2009 WITH EFFECT FROM 1.1.2001. SAID EXPLANATION READS AS UNDER:- FOR THE REMOVAL OF DOUBTS IT IS HEREBY DECLARED THA T NOTHING CONTAINED IN THIS SUB-SECTION SHALL APPLY TO ANY UN DERTAKING WHICH EXECUTES THE HOUSING PROJECT AS A WORKS CONTRACT AWA RDED BY ANY PERSON (INCLUDING THE CENTRAL OR STATE GOVERNMENT. 7. IN A SIMILAR SITUATION, IN A CASE OF SMT. C.RAJI NI (SUPRA), IT WAS HELD BY THIS TRIBUNAL AS UNDER:- IN THE LAST PARA OF THE HIGH COURTS DECISION IT HA S BEEN HELD THAT THE TERM WORKS CONTRACT IN THAT ACT IS AN INCLUSI VE DEFINITION. IT DOES NOT INCLUDE MERELY A WORKS CONTRACT AS NORMALL Y UNDERSTOOD. IT HAS A WIDE DEFINITION WHICH INCLUDES ANY AGREEMENT FOR CARRYING OUT BUILDING OR CONSTRUCTION ACTIVITY FOR CASH, DEFERRE D PAYMENT OR OTHER VALUABLE CONSIDERATION. THE DEFINITION AS GIVEN IN THAT ACT DOES NOT MAKE ANY DISTINCTION BASED ON AS TO WHO CARRIES ON THE CONSTRUCTION ACTIVITY. THUS UNDER THAT ACT, EVEN THE OWNER OF T HE LAND CAN BE TREATED AS CARRYING ON A WORKS CONTRACT IF HE ENTER S INTO AN AGREEMENT TO CONSTRUCT FOR CASH, DEFERRED PAYMENT O R OTHER VALUABLE CONSIDERATION. THEREFORE, THE RATIO OF TH AT DECISION CANNOT AT ALL APPLIED TO THE FACTS OF THE GIVEN CASE WHICH IS UNDER INCOME- TAX ACT. 8. IN OUR OPINION, HERE THE ASSESSEE COULD ESTABLIS H THAT IT WAS A PROJECT DEVELOPER WHICH SATISFIED THE CONDITIONS SP ECIFIED IN SECTION 80- IB(10) OF THE ACT. THE DISALLOWANCE COULD NOT HAVE BEEN DONE CONSIDERING THE ASSESSEE AS A MERE WORKS CONTRACTOR . DISALLOWANCE WAS RIGHTLY DELETED BY THE CIT(A). WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT(APPEALS). 7 I.T.A. NO. 1411/MDS/11 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON MONDAY, TH E 25 TH OF JUNE, 2012, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 25 TH JUNE, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-V, CHENNAI-34 (4) CIT, CHENNAI-III, CHENNAI (5) D.R. (6) GUARD FILE