The ITO,Wrd-9(2), Ahmedabad V. M/s. L.N. Developers, Ahmedabad

ITA 1463/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89722 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAKAR SHARMA
• Assessee Lawyers: SONIA KUMAR
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S.S. GODARA JM] I.T.A. NO.: 1463 (AHD) OF 2011 ASSESSMENT YEAR: 2007-08 INCOME TAX OFFICER WARD 9(2),AHMEDABAD ....................APPEL LANT VS. M/S L. N. DEVELOPERS . .RESPO NDENT KRISHNA PARK, VASTRAL ROAD, NR. NIRANTCHOWKDI, VASTRAL, AHMEDABAD PAN AALFM 9888R APPEARANCES BY: SAKAR SHARMA, FOR THE APPELLANT SONIA KUMAR, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING: JULY 1, 2015 DATE OF PRONOUNCING THE ORDER: JULY 8 , 2015 O R D E R PER PRAMOD KUMAR, AM : 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CALLED INTO QUESTION THE CORRECTNESS OF ORDER DATED 20 TH JANUARY 2010 PASSED BY THE LEARNED CIT(A), IN THE MATTER OF ASSESSMENT UNDER SECTION 1 43(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2007-08. 2. GRIEVANCES RAISED BY THE APPELLANT ARE AS FOLLOW S: 1. THE LD. COMMISIONER OF INCOME-TAX (A)-XV, AHMEDA BAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWA NCE AMOUNTINT TO RS.48,47,943/- MADE BY THE ASSESSING OFFICER U/S 80IB(10) OF THE ACT. 2. THE LD. COMMISSIONER OF INCOME-TAX (A)-XV, AHMED ABAD HAS ERRED IN HOLDING THAT THE ASSESSEE FULFILS THE COND ITIONS LAID DOWN FOR CLAIMING DEDUCTION U/S 80IB(10) EVEN WHEN THE TWO PLOTS OF LAND WERE PURCHASED IN THE NAME OF UMA (VA STRAL) CO- OPERATIVE HOUSING SOCIETY LTD. AND UMIYA (VASTRAL) CO- OPERATIVE HOUSING SOCIETY WHICH IS A SEPARATE LEGAL ENTITITY IN THE EYE OF LAW AND THE ASSESSEE ENTERED INTO THE PR OJECT BY A DEVELOPMENT AGREEMENT WITH THE SOCIETY. THE ENTIRE RESPONSIBILITY TO EXECUTE THE HOUSING PROJECT AND A BIDE BY THE TERMS AND CONDITIONS OF ITS APPROVAL RIGHT FROM THE INCEPTION OF THE PROJECT TILL ITS COMPLETION RESTS WITH THE SOCI ETY. ASSESSEE WAS JUST A CONTRACTOR OF THE LAND OWNERS CONSTRUCTI NG 115 RESIDENTIAL FLATS AND NOT A DEVELOPER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A)-XV, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. DURING THE COURSE OF THE SCRUTINY ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT WHILE THE ASSESSE HA S CLAIMED THE DEDUCTION UNDER SECTION 80IB IN RESPECT OF THE PROFITS OF RS 48,47,755 IN RESPECT OF RESIDENTIAL SCHEME BY THE NAME OF KRISHNA PARK, THE ASSESSE DID NOT OWN THE LAND ON WHICH THE PROJECT WAS DEVELOPED AND THE ASS ESSE HAD DONE THE CONSTRUCTION WORK, UNDER A CONTRACT, FOR THE HOUSIN G SOCIETY CONSISTING OF THE END OWNERS OF THE RESIDENTIAL UNITS. IT WAS ALSO NO TED THAT THE ASSESSE HAD ENTERED INTO AGREEMENTS WITH UMA (VASTRAL) COOPERAT IVE HOUSING SOCIETY LTD AND UMIYA (VASTRAL) HOUSING SOCIETY LIMITED, AND, U NDER THIS AGREEMENT, THE ASSESSE WAS TO CARRY ON THE CONSTRUCTION WORK OF KR ISHNA PARK AS PER THE APPROVED PLANS, THE ASSESSE WAS TO ENROL THE PROSPE CTIVE BUYERS AS MEMBERS OF THESE SOCIETIES, AND THE ASSESSE WAS ALLOWED TO COLLECT THE CONSIDERATION FOR CONSTRUCTION AND LAND COSTS. IN EFFECT THUS, AL L THE WORK, INCLUDING DECIDING AS TO WHO SHOULD BE MEMBER OF THE SOCIETY, WAS DONE BY THE ASSESSE. ON THESE FACTS, THE ASSESSING OFFICER WAS OF THE OPINI ON THAT THE ASSESSE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB(10) A S THE ASSESSE DID NOT OWN THE LAND AND THE ASSESSE HAD MERELY CARRIED OUT THE CONSTRUCTION WORK UNDER A CONTRACT. HE RELIED UPON A LARGER BENCH DECISION IN THE CASE OF B T PATIL& SONS (BELGAUM) CONSTRUCTIONS PVT LTD VS ACIT [(2010 ) 1 ITR (TRIBUNAL) 703 (MUM)], IN SUPPORT OF THE PROPOSITION THAT THE WOR K CARRIED ON AS CONTRACTOR WOULD NOT AMOUNT TO DEVELOPING A PROJECT. AS REGA RDS THE ASSESSEES CONTENTION THAT THE SOCIETIES WERE CREATED BY THE A SSESSE AND THE FUNDS WERE ARRANGED BY THE ASSESSE TO BUY THE LAND ON WHICH PR OJECT WAS DEVELOPED, THE ASSESSING OFFICER NOTED THIS CONTENTION BUT REJECTE D THE SAME ON THE GROUND THAT A LEGAL ENTITY CREATED TO TAKE ADVANTAGE OF S OME LEGAL PROVISION CANNOT BE BRUSHED ASIDE FOR CLAIMING THE BENEFITS UNDER AN OTHER STATUTE SO AS TO CAUSE LOSS TO THE EXCHEQUER ON BOTH THE POINTS. T HE CLAIM FOR DEDUCTION UNDER SECTION 80IB(10) WAS ACCORDINGLY REJECTED. AG GRIEVED, ASSESSE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO DELETED THE DISALLOWANCE BY OBSERVING AS FOLLOWS: 5. THE POINT OF OWNERSHIP OF LAND NOT ENTITLING TH E APPELLANT FOR THE DEDUCTION HAS TO BE SEEN IN THE LIGHT OF THE DE CISION OF HONBLE ITAT BENCH A, AHMEDABAD DECISION DATED 7.11.2008 IN THE CASE OF M/S SHAKTI CORPORATION, BARODA IN ITA NO.1503/AHD/2 008 IN AY 2005-06. ACCORDING TO THIS DECISION DEVELOPMENT AGR EEMENT HAS TO BE REFERRED TO AND IF IT IS FOUND THAT THE ASSES SEE HAS PRACTICALLY PURCHASED THE LAND AND HAS ACQUIRED DOMINANT CONTRO L AND HAS DEVELOPED THE PROJECT AT ITS OWN RISK IT IS ENTITLE D FOR DEDUCTION. 6. AFTER GOING THROUGH RIVAL SUBMISSIONS IT IS SEEN THAT THE APPELLANT HAD BORNE THE COST OF LAND TO THE EXTENT OF RS.10,00,000/- OUT OF THE TOTAL COST OF LAND OF RS.12,80,000/-. FR OM THE BANK ACCOUNT OF THE PARTNER VINOD T. PATEL, HUF MAINTAIN ED AT INDIAN OVERSEAS BANK, VASTRAL BRANCH (ACCOUNT NO.17060) TW O CHEQUES OF RS.5,00,000 EACH WERE ISSUED TO UMA (VASTRAL) COOPE RATIVE HOUSING SOCIETY DTD.26.8.2005 AND DATED 5.9.2005 WH ICH ARE REFLECTED CREDITED IN THE BANK ACCOUNTS OF THE TWO SOCIETIES MAINTAINED IN THE SAME BANK ALSO SUBSEQUENT ISSUANC E OF TWO CHEQUES OF RS.4,99,000 EACH TO THE LAND OWNER H.V. THAKKAR ON THE SAME DATE. THE APPELLANT ENTERED INTO TWO DEVELOPMENT AGREEMEN TS WITH THE TWO SOCIETIES DATED 10.8.2005. THE APPELLANT ACQUIR ED DOMINANT CONTROL OVER THE LAND AND THE PROJECT AS EVIDENT FR OM THE CLAUSES OF THE DEVELOPMENT AGREEMENT DATED 10.8.2005 LIKE C LAUSE -7 ACCORDING TO WHICH THE APPELLANT FIRM HAD TO DECIDE ABOUT THE COST AND CLAUSE -8 OF THE AGREEMENT ACCORDING TO WHICH T HE PROFIT FROM THE PROJECT WOULD BE THAT OF THE APPELLANT FIRM. AS THE APPELLANT HAS PRACTICALLY PURCHASED THE LAND THERE IS NO QUES TION OF IT WORKING AS A CONTRACTOR. THE APPELLANT HAD ACQUIRED DOMINANT CONTROL AND DEVELOPED THE PROJECT AT ITS OWN COST A ND RISK THE AO IS THEREFORE, DIRECTED TO ALLOW THE DEDUCTION CLAIM ED SPECIALLY WHEN THE AO HAS NOT FOUND ANY OF THE CONDITIONS STI PULATED FROM CLAUSE (A) TO (D) OF SECTION 80IB(10) VIOLATED AND THE APPELLANT MEETS THE TESTS LAID DOWN BY HONBLE ITAT IN THE DE CISION IN THE CASE OF SHAKTI CORPORATION. 4. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE CIT(A)N AND IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE IN T HE LIGHT OF THE APPLICABLE LEGAL POSITION. 7. WE FIND THAT, IN THE CASE OF CIT VS RADHE DEVELOPERS [(2012) 341 ITR 403 (GUJ)] , HONBLE JURISDICTIONAL HIGH COURT HAD AN OCCASION TO CONSIDER THE ISSUE OF OWNERSHIP OF LAND, ON WHICH HOUSING PROJEC T IS DEVELOPED, IN THE CONTEXT OF ELIGIBILITY OF DEDUCTION UNDER SECTION 8 0IB(10). HONBLE JURISDICTIONAL HIGH COURT HAS, IN THIS CONTEXT, INTER ALIA OBSERVED AS FOLLOWS: 32. SEC. 80-IB(10) OF THE ACT THUS PROVIDES FOR DED UCTIONS TO AN UNDERTAKING ENGAGED IN THE BUSINESS OF DEVELOPING A ND CONSTRUCTING HOUSING PROJECTS UNDER CERTAIN CIRCUMS TANCES NOTED ABOVE. IT DOES NOT PROVIDE THAT THE LAND MUST BE OW NED BY THE ASSESSEE SEEKING SUCH DEDUCTIONS . 33. IT IS WELL SETTLED THAT WHILE INTERPRETING THE STATUTE, PARTICULARLY, THE TAXING STATUTE, NOTHING CAN BE READ INTO THE PR OVISIONS WHICH HAS NOT BEEN PROVIDED BY THE LEGISLATURE. THE CONDI TION WHICH IS NOT MADE PART OF S. 80-IB(10) OF THE ACT, NAMELY TH AT OF OWNING THE LAND, WHICH THE ASSESSEE DEVELOPS, CANNOT BE SUPPLI ED BY ANY PURPORTED LEGISLATIVE INTENT. 34. WE HAVE REPRODUCED RELEVANT TERMS OF DEVELOPMEN T AGREEMENTS IN BOTH THE SETS OF CASES. IT CAN BE SEE N FROM THE TERMS AND CONDITIONS THAT THE ASSESSEE HAD TAKEN FU LL RESPONSIBILITIES FOR EXECUTION OF THE DEVELOPMENT P ROJECTS. UNDER THE AGREEMENTS, THE ASSESSEE HAD FULL AUTHORITY TO DEVELOP THE LAND AS PER HIS DISCRETION. THE ASSESSEE COULD ENGAGE PROFESSIONAL HELP FOR DESIGNING AND ARCHITECTURAL W ORK. ASSESSEE WOULD ENROLL MEMBERS AND COLLECT CHARGES. PROFIT OR LOSS WHICH MAY RESULT FROM EXECUTION OF THE PROJECT BELONGED E NTIRELY TO THE ASSESSEE. IT CAN THUS BE SEEN THAT THE ASSESSEE HAD DEVELOPED THE HOUSING PROJECT. THE FACT THAT THE ASSESSEE MAY NOT HAVE OWNED THE LAND WOULD BE OF NO CONSEQUENCE. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 8. IN OUR HUMBLE UNDERSTANDING, THEREFORE, IN ORDER TO ANSWER THE QUESTION AS TO WHETHER THE CONDITION PRECEDENT FOR DEDUCTION UNDER SECTION 80IB HAS BEEN SATISFIED INASMUCH AS WHETHER OR NOT THE ASSES SEE IS ENGAGED IN DEVELOPING AND BUILDING HOUSING PROJECTS, ALL THA T IS MATERIAL IS WHETHER ASSESSEE IS TAKING THE ENTREPRENEURSHIP RISK IN EXE CUTION OF SUCH PROJECT. WHEN PROFITS OR LOSSES, AS A RESULT OF EXECUTION OF PROJECT AS SUCH, BELONG PREDOMINANTLY TO THE ASSESSEE, THE ASSESSEE IS OBVI OUSLY TAKING THE ENTREPRENEURSHIP RISK QUA THE PROJECT AND IS, ACCORDINGLY, ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB(10) IN RESPECT OF THE SAME. THE ASSUMPTION OF SUCH AN ENTREPRENEURSHIP RISK IS NOT DEPENDENT ON O WNERSHIP OF THE LAND. THE BUSINESS MODEL OF DEVELOPING AND BUILDING HOUSING PROJECTS BY BUYING, ON OUTRIGHT BASIS, AND CONSTRUCTING RESIDENTIAL UNITS THEREON COULD PROBABLY BE THE SIMPLEST BUSINESS MODELS IN THIS LINE OF ACTIVI TY, BUT MERELY BECAUSE THERE IS AN IMPROVISATION IN THE BUSINESS MODEL OR BECAUS E THE ASSESSE HAS ADOPTED SOME OTHER BUSINESS MODELS FOR THE PURPOSE OF DEVELOPING AND BUILDING HOUSING PROJECT DOES NOT VITIATE FUNDAMENT AL CHARACTER OF THE BUSINESS ACTIVITY AS LONG AS THE RISKS AND REWARDS OF DEVELOPING THE HOUSING PROJECT, IN SUBSTANCE, REMAIN WITH THE ASSESSE. IT IS DIFFICULT, IF NOT ALTOGETHER IMPOSSIBLE, TO VISUALIZE ALL THE BUSINESS MODELS TH AT AN ASSESSEE MAY USE IN THIS DYNAMIC COMMERCIAL WORLD EVEN AS, IN SUBSTANCE , THE FUNDAMENTAL CHARACTER OF THE BUSINESS REMAINS THE SAME, BUT CER TAINLY SUCH MODALITIES OR COMPLEXITIES OF BUSINESS MODELS CANNOT COME IN THE WAY OF ELIGIBILITY FOR AN INCENTIVE WHICH IS FOR THE PURPOSE OF DEVELOPING A ND BUILDING A HOUSING PROJECT. THERE IS NO JUSTIFICATION, CONCEPTUAL OR LEGAL, IN RESTRICTING ELIGIBILITY OF DEDUCTION UNDER SECTION 80IB(10) TO ANY PARTICUL AR BUSINESS MODEL THAT AN ENTREPRENEUR ADOPTS IN THE COURSE OF DEVELOPING AND CONSTRUCTING HOUSING PROJECT. 9. AS REGARDS THE ASSESSING OFFICERS RELIANCE ON T HE DECISION OF A LARGER BENCH OF THIS TRIBUNAL, IN THE CASE OF B T PATIL& SONS (BELGAUM) CONSTRUCTIONS PVT LTD VS ACIT [(2010) 1 ITR (TRIBUN AL) 703 (MUM)], WHAT HAS BEEN REFERRED TO BY HER IS THE VIEW OF THE THRE E MEMBER BENCH RESOLVING THE POINT OF DIFFERENCE BETWEEN THE MEMBERS OF THE DIVISION BENCH. HOWEVER, THIS VIEW WAS STILLBORN, AND ITS RELEVANCE IS CONFI NED TO ACADEMIC SIGNIFICANCE, FOR THE REASON THAT THAT WHILE GIVING EFFECT TO THE MAJORITY VIEW, VIDE ORDER DATED 28 TH FEBRUARY, 2013 AND ON SOMEWHAT PECULIAR FACT SITUA TION IN THIS CASE, THE FINAL ORDER OF THE TRIBUNAL DID NOT ENDOR SE THESE VIEWS. QUITE TO THE CONTRARY, RESPECTFULLY FOLLOWING HONBLE BOMBAY HI GH COURTS DECISION IN THE CASE OF CIT VS ABG HEAVY INDUSTRIES LTD AND ORS [(2010) 322 ITR 323 (BOM)] AND BY TAKING INTO ACCOUNT HONBLE BOMBAY HIGH COUR TS SPECIFIC DIRECTIONS IN THE CASE BEFORE THE TRIBUNAL, THE TRI BUNALS FINAL ORDER HAD, INTER ALIA , CONCLUDED AS FOLLOWS: .WHILE GIVING EFFECT TO THE OPINION OF THIRD MEM BER U/S.255(4) OF THE ACT, WE TAKE VIEW IN CONFORMITY WITH ORDER O F JURISDICTIONAL HIGH COURT IN CASE OF ABG HEAVY INDUSTRIES LTD. (SU PRA) AVAILABLE AT THIS TIME THOUGH CONTRARY TO THE OPINION EXPRESS ED BY THE THIRD MEMBER. SO IN VIEW OF ABOVE DISCUSSION, FOLLOWING T HE RATIO OF JURISDICTIONAL HIGH COURT IN CASE OF ABG HEAVY INDU STRIES LTD. (SUPRA), THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTI ON U/S.80IA(4) OF THE ACT TO THE ASSESSEE WITH REGARD TO THE PROJECTS IN QUESTION FOR BOTH THE YEARS. 10. IT IS NOT EVEN THE CASE OF THE ASSESSING OFFICE R THAT THE ASSESSEE DID NOT ASSUME THE ENTREPRENEURSHIP RISKS OF THE HOUSIN G PROJECT. THE FORMAT OF ARRANGEMENTS FOR TRANSFER OF BUILT UP UNIT, AND BUS INESS MODEL OF THE ASSESSEE FOR THAT PURPOSE, IS NOT DECISIVE FACTOR F OR DETERMINING ELIGIBILITY OF DEDUCTION UNDER SECTION 80 IB (10), BUT THAT IS ALL THAT THE AUTHORITIES BELOW HAVE FOUND FAULT WITH. AS REGARDS THE HOUSING SOCIE TIES WITH WHICH THE ASSESSE HAS ENTERED INTO AGREEMENTS, ONCE IT IS NOT IN DISPUTE THAT THESE SOCIETIES WERE FORMED AND CONTROLLED BY THE ASSESSE HIMSELF, AS A PART OF HIS BUSINESS MODEL, IT CANNOT BE SAID THAT THE ASSESSE WAS NOT THE DEVELOPER OF THE PROJECT. THE RISK AND REWARDS BELONGED TO THE A SSESSE, AND THE SOCIETIES WERE USED IN FURTHERANCE OF ASSESSEES BUSINESS. TH E OBJECTIONS OF THE ASSESSING OFFICER WERE THUS DEVOID OF LEGALLY SUSTA INABLE MERITS. IN VIEW OF THE ABOVE DISCUSSIONS, AND BEARING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE STAND OF THE ASSESSING OFF ICER, IN DECLINING DEDUCTION UNDER SECTION 80IB (10) AND ON THE FACTS OF THIS CASE, WAS INCORRECT AND THE CIT(A) WAS QUITE JUSTIFIED IN GRANTING THE IMPUGNED RELIEF. WE CONFIRM THE ACTION OF THE CIT(A) AND DECLINE TO INTERFERE I N THE MATTER. 11. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUN CED IN THE OPEN COURT TODAY ON 8 TH DAY OF JULY, 2015. SD/- SD/ - S. S. GODARA PRA MOD KUMAR (JUDICIAL MEMBER) (AC COUNTANT MEMBER) AHMEDABAD, THE 8 TH DAY OF JULY, 2015 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD