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

ITA 1464/AHD/2011

• Counselvise Citation: 146420514 RSA 2011
• 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: 2008-2009
• Appeal Filed On: 23-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: SAKAR SHARMA
• 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.: 1464 (AHD) OF 2011 ASSESSMENT YEAR: 2008-09 INCOME TAX OFFICER WARD 9(2),AHMEDABAD ....................APPELL ANT VS. M/S L. N. DEVELOPERS . .RESPONDENT KRISHNA PARK, VASTRAL ROAD, NR. NIRANTCHOWKDI, VASTRAL, AHMEDABAD PAN AALFM 9888R APPEARANCES BY: SONIA KUMAR, FOR THE APPELLANT SAKAR SHARMA, 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 21 ST 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 2008-09. 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.54,06,950/- 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. LEARNED REPRESENTATIVES FAIRLY AGREE THAT WHATEV ER WE DECIDE IN THE ITA NO. 1463/AHD/11, I.E. APPEAL FOR THE ASSESSMENT YEA R 2007-08, WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. VIDE OUR ORDER O F EVEN DATE, WE HAVE REJECTED THE GRIEVANCE OF THE ASSESSI NG OFFICER IN THE SAID CASE, AND, WHILE DOING SO, OBSERVED AS FOLLOWS: 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. DURING THE COURSE OF THE SCRUTINY AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT WHI LE THE ASSESSE HAS CLAIMED THE DEDUCTION UNDER SECTION 80IB IN RESPECT OF THE PROFITS OF RS 48,47,755 IN RESPECT OF RESIDENTIAL SCHEME BY THE N AME OF KRISHNA PARK, THE ASSESSE DID NOT OWN THE LAND ON WHICH THE PROJECT WAS DEVELOPED AND THE ASSESSE HAD DONE THE CONSTRUCTION WORK, UNDER A CONTRACT, FOR THE HOUSING SOCIETY CONSISTING OF THE END OWNERS OF THE RESIDENTIAL UNITS. IT WAS ALSO NOTED THAT THE ASSES SE HAD ENTERED INTO AGREEMENTS WITH UMA (VASTRAL) COOPERATIVE HOUSING S OCIETY LTD AND UMIYA (VASTRAL) HOUSING SOCIETY LIMITED, AND, UNDER THIS AGREEMENT, THE ASSESSE WAS TO CARRY ON THE CONSTRUCTION WORK O F KRISHNA PARK AS PER THE APPROVED PLANS, THE ASSESSE WAS TO ENROL TH E PROSPECTIVE BUYERS AS MEMBERS OF THESE SOCIETIES, AND THE ASSES SE WAS ALLOWED TO COLLECT THE CONSIDERATION FOR CONSTRUCTION AND LAND COSTS. IN EFFECT THUS, ALL THE WORK, INCLUDING DECIDING AS TO WHO SHOULD B E MEMBER OF THE SOCIETY, WAS DONE BY THE ASSESSE. ON THESE FACTS, T HE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB(10) AS THE ASSESSE DID NOT OWN THE LAND AND THE ASSESSE HAD MERELY CARRIED OUT THE CONSTRUC TION 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 PROPOSITI ON THAT THE WORK CARRIED ON AS CONTRACTOR WOULD NOT AMOUNT TO DEVEL OPING A PROJECT. AS REGARDS THE ASSESSEES CONTENTION THAT THE SOCIETIE S WERE CREATED BY THE ASSESSE AND THE FUNDS WERE ARRANGED BY THE ASSE SSE TO BUY THE LAND ON WHICH PROJECT WAS DEVELOPED, THE ASSESSING OFFICER NOTED THIS CONTENTION BUT REJECTED THE SAME ON THE GROUND THAT A LEGAL ENTITY CREATED TO TAKE ADVANTAGE OF SOME LEGAL PROVISION C ANNOT BE BRUSHED ASIDE FOR CLAIMING THE BENEFITS UNDER ANOTHER STATU TE SO AS TO CAUSE LOSS TO THE EXCHEQUER ON BOTH THE POINTS. THE CLA IM 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 TH E DECISION 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/2008 IN AY 2005-06. ACCORDING TO THIS D ECISION DEVELOPMENT AGREEMENT HAS TO BE REFERRED TO AND IF IT IS FOUND THAT THE ASSESSEE HAS PRACTICALLY PURCHASED THE LAN D AND HAS ACQUIRED DOMINANT CONTROL AND HAS DEVELOPED THE PRO JECT AT ITS OWN RISK IT IS ENTITLED 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/-. FROM THE BANK ACCOUNT OF THE PARTNER VINOD T. PATEL , HUF MAINTAINED AT INDIAN OVERSEAS BANK, VASTRAL BRANCH (ACCOUNT NO.17060) TWO CHEQUES OF RS.5,00,000 EACH WERE ISSU ED TO UMA (VASTRAL) COOPERATIVE HOUSING SOCIETY DTD.26.8.2005 AND DATED 5.9.2005 WHICH ARE REFLECTED CREDITED IN THE BANK A CCOUNTS OF THE TWO SOCIETIES MAINTAINED IN THE SAME BANK ALSO SUBS EQUENT ISSUANCE 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 WH ICH THE PROFIT FROM THE PROJECT WOULD BE THAT OF THE APPELLANT FIR M. AS THE APPELLANT HAS PRACTICALLY PURCHASED THE LAND THERE IS NO QUESTION OF IT WORKING AS A CONTRACTOR. THE APPELLANT HAD AC QUIRED DOMINANT CONTROL AND DEVELOPED THE PROJECT AT ITS O WN COST AND RISK THE AO IS THEREFORE, DIRECTED TO ALLOW THE DED UCTION CLAIMED SPECIALLY WHEN THE AO HAS NOT FOUND ANY OF THE COND ITIONS STIPULATED FROM CLAUSE (A) TO (D) OF SECTION 80IB(1 0) VIOLATED AND THE APPELLANT MEETS THE TESTS LAID DOWN BY HONBLE ITAT IN THE DECISION 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 CA SE IN THE 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 WHIC H HOUSING PROJECT IS DEVELOPED, IN THE CONTEXT OF ELIGIBILITY OF DEDUCTI ON UNDER SECTION 80IB(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 DEVELOPIN G AND CONSTRUCTING HOUSING PROJECTS UNDER CERTAIN CIRCUMS TANCES NOTED ABOVE. IT DOES NOT PROVIDE THAT THE LAND MUST BE OWNED BY THE ASSESSEE SEEKING SUCH DEDUCTIONS . 33. IT IS WELL SETTLED THAT WHILE INTERPRETING THE STATUTE, PARTICULARLY, THE TAXING STATUTE, NOTHING CAN BE RE AD INTO THE PROVISIONS WHICH HAS NOT BEEN PROVIDED BY THE LEGIS LATURE. THE CONDITION WHICH IS NOT MADE PART OF S. 80-IB(10 ) OF THE ACT, NAMELY THAT OF OWNING THE LAND, WHICH THE ASSE SSEE DEVELOPS, CANNOT BE SUPPLIED BY ANY PURPORTED LEGIS LATIVE 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 AUTHORI TY TO DEVELOP THE LAND AS PER HIS DISCRETION. THE ASSESSEE COULD ENGAGE PROFESSIONAL HELP FOR DESIGNING AND ARCHITEC TURAL WORK. ASSESSEE WOULD ENROLL MEMBERS AND COLLECT CHA RGES. PROFIT OR LOSS WHICH MAY RESULT FROM EXECUTION OF T HE PROJECT BELONGED ENTIRELY TO THE ASSESSEE. IT CAN THUS BE S EEN 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 ASSESSEE IS ENGAGED IN DEVELOPING AND BUILDING HOU SING PROJECTS, ALL THAT IS MATERIAL IS WHETHER ASSESSEE IS TAKING THE ENTREPRENEURSHIP RISK IN EXECUTION OF SUCH PROJECT. WHEN PROFITS OR LOSSE S, AS A RESULT OF EXECUTION OF PROJECT AS SUCH, BELONG PREDOMINANTLY TO THE ASSESSEE, THE ASSESSEE IS OBVIOUSLY TAKING THE ENTREPRENEURSH IP 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 OWNERSHIP OF THE LAND. THE BUSINESS MODEL OF DEVELOPING AND BUILDING HOUSING PROJECTS BY BUYING, ON OUTRIGHT BASIS, AND CONSTRUCTING RESIDEN TIAL UNITS THEREON COULD PROBABLY BE THE SIMPLEST BUSINESS MODELS IN T HIS LINE OF ACTIVITY, BUT MERELY BECAUSE THERE IS AN IMPROVISATION IN THE BUSINESS MODEL OR BECAUSE THE ASSESSE HAS ADOPTED SOME OTHER BUSINESS MODELS FOR THE PURPOSE OF DEVELOPING AND BUILDING HOUSING PROJECT DOES NOT VITIATE FUNDAMENTAL CHARACTER OF THE BUSINESS ACTIVITY AS L ONG AS THE RISKS AND REWARDS OF DEVELOPING THE HOUSING PROJECT, IN SUBST ANCE, REMAIN WITH THE ASSESSE. IT IS DIFFICULT, IF NOT ALTOGETHER IM POSSIBLE, TO VISUALIZE ALL THE BUSINESS MODELS THAT AN ASSESSEE MAY USE IN THI S DYNAMIC COMMERCIAL WORLD EVEN AS, IN SUBSTANCE, THE FUNDAME NTAL CHARACTER OF THE BUSINESS REMAINS THE SAME, BUT CERTAINLY SUCH M ODALITIES OR COMPLEXITIES OF BUSINESS MODELS CANNOT COME IN THE WAY OF ELIGIBILITY FOR AN INCENTIVE WHICH IS FOR THE PURPOSE OF DEVEL OPING AND BUILDING A HOUSING PROJECT. THERE IS NO JUSTIFICATION, CONCEP TUAL OR LEGAL, IN RESTRICTING ELIGIBILITY OF DEDUCTION UNDER SECTION 80IB(10) TO ANY PARTICULAR BUSINESS MODEL THAT AN ENTREPRENEUR ADOP TS 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 I TR (TRIBUNAL) 703 (MUM)], WHAT HAS BEEN REFERRED TO BY HER IS THE VIEW OF T HE THREE MEMBER BENCH RESOLVING THE POINT OF DIFFERENCE BETW EEN THE MEMBERS OF THE DIVISION BENCH. HOWEVER, THIS VIEW WAS STILL BORN, AND ITS RELEVANCE IS CONFINED TO ACADEMIC SIGNIFICANCE, FOR THE REASON THAT THAT WHILE GIVING EFFECT TO THE MAJORITY VIEW, VIDE ORDE R DATED 28 TH FEBRUARY, 2013 AND ON SOMEWHAT PECULIAR FACT SITUATION IN THI S CASE, THE FINAL ORDER OF THE TRIBUNAL DID NOT ENDORSE 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 COURTS SPECIFIC DIRECTIONS IN THE CASE BEFORE THE TRIBUNAL, THE TRIBUNALS FINAL ORDER HAD, INTER ALIA, CONCLUDED A S FOLLOWS: .WHILE GIVING EFFECT TO THE OPINION OF THIRD MEM BER U/S.255(4) OF THE ACT, WE TAKE VIEW IN CONFORMITY W ITH ORDER OF JURISDICTIONAL HIGH COURT IN CASE OF ABG HEAVY I NDUSTRIES LTD. (SUPRA) AVAILABLE AT THIS TIME THOUGH CONTRARY TO THE OPINION EXPRESSED BY THE THIRD MEMBER. SO IN VIEW O F ABOVE DISCUSSION, FOLLOWING THE RATIO OF JURISDICTIONAL H IGH COURT IN CASE OF ABG HEAVY INDUSTRIES LTD. (SUPRA), THE ASSE SSING OFFICER IS DIRECTED TO ALLOW DEDUCTION U/S.80IA(4) OF THE ACT TO THE ASSESSEE WITH REGARD TO THE PROJECTS IN QUES TION 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 HO USING PROJECT. THE FORMAT OF ARRANGEMENTS FOR TRANSFER OF BUILT UP UNI T, AND BUSINESS MODEL OF THE ASSESSEE FOR THAT PURPOSE, IS NOT DECISIVE F ACTOR FOR 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 SOCIETIES WITH WHICH THE ASSESSE HAS ENTERED INTO A GREEMENTS, ONCE IT IS NOT IN DISPUTE THAT THESE SOCIETIES WERE FORMED AND CONTROLLED BY THE ASSESSE HIMSELF, AS A PART OF HIS BUSINESS MODEL, I T CANNOT BE SAID THAT THE ASSESSE WAS NOT THE DEVELOPER OF THE PROJECT. T HE RISK AND REWARDS BELONGED TO THE ASSESSE, AND THE SOCIETIES WERE USE D IN FURTHERANCE OF ASSESSEES BUSINESS. THE OBJECTIONS OF THE ASSESSIN G OFFICER WERE THUS DEVOID OF LEGALLY SUSTAINABLE MERITS. IN VIEW OF TH E ABOVE DISCUSSIONS, AND BEARING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE STAND OF THE ASSESSING OFFICER, IN DECLINI NG DEDUCTION UNDER SECTION 80IB (10) AND ON THE FACTS OF THIS CASE, WA S 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. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER, THAN THE VIEW SO TAKEN BY US FOR THE ASSESSMENT YEAR 2007-08. IN THIS VIEW OF THE MATTER, AND FOR THE DETAILED REASONS REPRODUCED ABOVE, WE R EJECT THE GRIEVANCE OF THE ASSESSING OFFICER. WE APPROVE THE CONCLUSIONS ARRIV ED AT BY THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 5. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNC ED IN THE OPEN COURT TODAY ON 8 TH DAY OF JULY, 2015. SD/- S D/- S. S. GODARA PR AMOD 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