HAWARE CONSTRUCTIONS PVT. LTD., NAVI MUMBAI V. ITO 10(3)(3), MUMBAI

ITA 1547/MUM/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7274 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 23-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAO
• Keywords: Deemed dividend; Commercial expediency
• Section: 143(3); 80IB; 147; 56; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI N. V. VASUDEVAN, J.M. AND SHRI R.K. PAN DA, A.M. ITA NO.5601/MUM/2009 ASSESSMENT YEAR : 2005-06 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 413/416 VARDHAMAN MARKET, SECTOR 17, DBC, VASHI, MUMBAI-400 020 PAN NO: AABCH3858F VS. THE ITO 10(3)(3) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) & ITA NO.6861/MUM/2010 ASSESSMENT YEAR : 2006-07 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 413/416 VARDHAMAN MARKET, SECTOR 17, DBC, VASHI, MUMBAI-400 020 PAN NO: AABCH3858F THE ITO 10(3)(3) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) & ITA NO.1547/MUM/2011 ASSESSMENT YEAR : 2007-08 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 413/416 VARDHAMAN MARKET, SECTOR 17, DBC, VASHI, MUMBAI-400 020 PAN NO: AABCH3858F THE ITO 10(3)(3) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI J. P. BAIRAGRA DEPARTMENT BY : SHRI GOLI SRINIWAS RAO DATE OF HEARING : 07.06.2011 DATE OF PRONOUNCEMENT : 05.08.2011 O R D E R ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 2 PER R.K. PANDA, A.M. THE ABOVE APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST THE SEPARATE ORDERS OF THE LD. CIT(A)-22, MUMBAI RELATI NG TO A.Y.S 2005-06, 2006-07 & 2007-08 RESPECTIVELY. ALL THESE APPEALS W ERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.5601/MUM/2009 (A.Y. : 2005-06) 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND DEVELOPERS AND F ILED ITS RETURN OF INCOME DECLARING NIL TOTAL INCOME. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, ON BEING ASKED BY THE AO TO JUSTIFY THE PERCENTAGE COM PLETION METHOD, THE ASSESSEE REPLIED AS UNDER :- EARLIER, COMPANY WAS FOLLOWING PERCENTAGE COMPLETI ON METHOD, WHEREBY PROFITS ON PROJECTS WERE RECOGNIZED ON A PR OGRESSIVE BASIS IN EACH YEAR DEPENDING UPON THE PROGRESS. THI S METHOD WOULD CONTINUE TO APPLY TO PROJECTS WHICH COMMENCED PRIOR TO 1 ST APRIL, 2003. NOW DUE TO THE REVISION IN AS 9, FOR P ROJECTS COMMENCE AFTER 1 ST APRIL, 2003, REVENUE IS RECOGNIZED FOLLOWING THE PRINCIPLE OF ACCOUNTING STANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANCIES OF INDIA, WHEREBY THE PROFI T IS RECOGNIZED ON THE COMPLETION ON THE PROJECTS WHEN T HE RISK OF OWNERSHIP IS TRANSFERRED TO THE CUSTOMER. SALES OF FLATS AND SHOPS IS BOOKED WHEN THE PROJECTS IS FULLY COMPLETE . THE ASSESSEE FURTHER SUBMITTED THAT AS 7 IS FOR ACC OUNTING FOR CONSTRUCTION CONTRACTS WHICH HAS TO BE DISTINGUISHED FROM THE AC TIVITY OF A BUILDER AND DEVELOPER. THE PARA 1 OF AS 7 WAS BROUGHT TO THE NO TICE OF THE AO. IT WAS SUBMITTED THAT IT DOES NOT COVER THE CASE OF A BUIL DER OR DEVELOPER IN WHOSE CASE THE GENERAL PRINCIPLES OF REVENUE RECOGNITION AS PER AS-9 WOULD BECOME APPLICABLE. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 3 3. HOWEVER THE AO WAS NOT SATISFIED WITH THE EXPLAN ATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM THE ASSESSEE HAS TAKEN R ECOURSE TO AS-9 FOR RECOGNITION OF ITS PROJECT, WHEN THE RISK OF OWNERS HIP IS TRANSFERRED TO THE CUSTOMER. THIS IS HOWEVER INCORRECT. ACCORDING TO H IM FOR INCOME TAX PURPOSES EVERY YEAR IS A SEPARATE AND DISTINCT YEAR FOR THE PURPOSES OF DETERMINATION OF ASSESSED INCOME. THE GUIDANCE NOTE ON RECOGNITION OF REVENUE BY REAL ESTATE DEVELOPERS, ISSUED BY THE CO UNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ALSO STATES THAT REV ENUE IN CASE OF REAL ESTATE SALES SHOULD BE RECOGNIZED WHEN ALL THE FOLL OWING CONDITIONS ARE SATISFIED :- (I) THE SELLER HAS TRANSFERRED TO THE BUYER ALL SI GNIFICANT RISKS AND REWARDS OF OWNERSHIP AND THE SELLER RETAINS NO EFFECTIVE CONTROL OF THE REAL ESTATE TO A DEGREE USUALLY ASSO CIATED WITH OWNERSHIP. (II) NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING TH E AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE REAL ES TATE SALES, AND (III) IT IS NOT UNREASONABLE TO EXPECT ULTIMATE COL LECTION. 3.1 THE AO NOTED THAT IN THE INSTANT CASE, THE FACT THAT THE ASSESSEE HAS PRODUCED THE COMPLETION CERTIFICATE FROM THEIR ARCH ITECTS ITSELF MEANS THAT THERE IS NO EXISTENCE OF ANY SIGNIFICANT UNCERTAINT Y REGARDING CONSIDERATION DERIVED FROM THE BUSINESS. ALSO, THERE IS REASONABL ENESS IN EXPECTING OR ESTIMATING THE ULTIMATE COLLECTION WHEN THE SAID PR OJECT HAS GOT COMPLETED. THE ARCHITECT HAS CERTIFIED THAT THE PROJECT HAS BE EN COMPLETED AT PLOT NO.52 AND 56, WING A, B, C, D & E, AT KHARGAR, NAVI MUM BAI, ON 30.03.2006, AND WING G, H & L ON 26.06.2006. FURTHER, IN RESP ECT OF PROJECT AT AIROLI NODE, NAVI MUMBAI, WING A, ON PLOT NO.1, SECTOR -19 -A, THE PROJECT WAS ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 4 COMPLETED ON 10.06.2006. THIS, THEREFORE, MEANS THA T THE ASSESSEE HAS ALREADY RECOGNIZED THE COMPLETION OF PROJECT. HE WA S IN A POSITION TO SUBMIT COMPLETE DETAILS OF SALES AND COST INVOLVED IN ITS BUSINESS ON CONSTRUCTION. 4. THE AO THEREAFTER, DISCUSSED AS 7 TO DECIDE AS T O WHETHER PROJECT COMPLETION METHOD CAN BE TREATED AS VALID FOR THE C ONTRACTS ENTERED INTO OR THE PROJECTS UNDERTAKEN PRIOR TO 01.04.2003 FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THE INCOME TAX ACT. THE AO A SKED THE ASSESSEE TO FILE FULL DETAILS IN RESPECT OF THE AIROLI AND KHAR GAR PROJECTS COMPLETED AND CERTIFIED BY THE ARCHITECT. REJECTING THE VARIOUS E XPLANATIONS OFFERED BY THE ASSESSEE AND RELYING ON A COUPLE OF DECISIONS, THE AO CAME TO THE CONCLUSION THAT THERE IS ABSOLUTELY NO QUESTION OF VALIDITY OF PROJECT COMPLETION METHOD IN RESPECT OF CONTRACT ENTERED IN TO OR PROJECTS UNDERTAKEN AFTER 01.04.2003. HE NOTED FROM THE PROF IT & LOSS ACCOUNT IN SCHEDULE13 THAT THE WIP SHOWN FOR AIROLI AND KHARG AR PROJECT ARE AS UNDER:- A) AIROLI : RS.20503247/- B) GULMOHAR (I) SPLENDER RS.68905438/- C) GULMOHAR RS.13625946/- TOTAL: RS.10,30,34,631/- HE FURTHER NOTED FROM THE DETAILS FILED BY THE ASSE SSEE ALONG WITH THE RETURN THAT THE FOLLOWING AMOUNT HAS BEEN SHOWN AS INCREAS E / DECREASE IN WIP: OPENING RS.4,29,50,093/- CLOSING RS.26,20,43,984/- INCREASE RS.21,90,93,891/- HOWEVER, IN THE PROFIT AND LOSS ACCOUNT, THE ASSESS EE HAS DEBITED AN AMOUNT OF RS.21,90,93,891/- AS COST INCURRED DURING THE YEAR AND FURTHER ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 5 REDUCED RS.13,08,147/- AS INDIRECT EXPENSES FROM TH E WIP OF RS.21,90,93,891/- AND SHOWN BUSINESS LOSS OF RS.10, 03,842/- AT THE SAME TIME, THE AMOUNT RECEIVED FROM THE CUSTOMER AMOUNTI NG TO RS.14,54,23,513/- HAS BEEN SHOWN UNDER THE HEAD SU NDRY CREDITORS. 4.1 SINCE THE ASSESSEE DID NOT OFFER ANY DETAILS OF COST INCURRED AND DETAILS OF SALES TO CUSTOMERS, THEREFORE, THE AO TR EATED THE WIP SHOWN FOR THE PROJECT ALREADY COMPLETED FOR DETERMINING THE I NCOME OF THE ASSESSEE. HE ACCORDINGLY, CALCULATED THE TOTAL INCOME OF THE ASSESSEE AT 5% OF RS.10,30,34,631/- WHICH COMES TO RS.51,51,731/- AS AGAINST THE RETURNED LOSS OF RS.10,00,345/- DECLARED BY THE ASSESSEE. 5. IN APPEAL, THE LD. CIT(A) ASKED THE ASSESSEE TO FILE SAMPLE COPIES OF THE AGREEMENTS WHICH WERE ENTERED INTO WITH THE BUY ERS. ON PERUSAL OF ONE SUCH SALE AGREEMENT DATED 14.02.2005 BETWEEN THE AS SESSEE REFERRED TO AS THE BUILDER AND ONE MS. WAGHMARE AND OTHERS REFERRE D TO AS PURCHASERS, HE NOTED THAT THE SAID AGREEMENT TO SELL IS A REGISTER ED AGREEMENT ACCORDING TO WHICH THE CONSIDERATION FOR THE PROPERTY OF THE RES IDENTIAL FLAT HAS BEEN FIXED AT RS.4,96,176/-. THE FLAT HAS TO BE DELIVERED TO T HE PURCHASER WITHIN A SPECIFIED PERIOD. THE DATES ON WHICH THE CONSIDERAT ION HAS TO BE PAID HAVE ALSO BEEN PRESCRIBED AND SO HAS THE MEASUREMENT AND SPECIFICATIONS OF THE FLAT. THE ONLY CONDITION FOR TERMINATION OF THE AGR EEMENT IS IF THE PURCHASER FAILS TO PAY THE CONSIDERATION WITHIN THE TIME SPEC IFIED. HE ALSO ANALYZED CLAUSE 11 OF THE AGREEMENT WHICH LAYS DOWN THAT THE BUILDER SHALL NOT BE RESPONSIBLE FOR ANY LOSS/DAMAGE/INJURY ETC. FOR REA SONS BEYOND THEIR ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 6 CONTROL. IN OTHER WORDS, ALL THE RISKS OF THE SAID ASSETS HAVE BEEN TRANSFERRED TO THE PURCHASER VIDE THIS AGREEMENT. THE ONLY OBLI GATION OF THE BUILDER IS TO COMPLETE THE FLAT AND HANDOVER THE POSSESSION WITHI N 18 MONTHS OF THE AGREEMENT. FURTHER ACCORDING TO CLAUSE 19(A) SPECIF ICALLY MENTIONS THAT, OTHER THAN THE PARTICULAR FLAT / SHOP/ CAR PARKING SPACE, THE BUILDER SHALL BE DEEMED TO BE THE OWNER UNTIL THE PROPERTY IS TRANSF ERRED TO THE CO-OPERATIVE HOUSING SOCIETY. IN OTHER WORDS, THE OWNERSHIP OF T HE FLAT / SHOP / CAR PARKING SPACE SOLD VIDE THIS AGREEMENT RESTS WITH T HE PURCHASER. 6. IN VIEW OF THE ABOVE, THE LD. CIT(A) WAS OF THE OPINION THAT ALL THE RISKS AND REWARDS OF THE PROPERTY SOLD, VIDE THE AG REEMENT TO SELL, HAVE BEEN TRANSFERRED TO THE BUYER AT THAT STAGE ITSELF. THER EFORE, HE WAS OF THE OPINION THAT THE PROVISIONS OF AS 7 RELATING TO THE PERCENT AGE COMPLETION METHOD WOULD SQUARELY APPLY TO THE ASSESSEE AS STATED IN T HE GUIDANCE NOTE. 6.1 HE NOTED THAT THE AO HAS TAKEN THE FIGURE OF RS .10.30 CRORES AS THE COST INCURRED DURING THE YEAR ON THESE PROJECTS FOR APPLYING THE ADHOC RATE OF 5% AND DETERMINED THE TOTAL INCOME AT RS.51,51,7 31/-. HOWEVER THE ASSESSEE HAS RECOGNIZED THE INCOME OF THESE PROJECT S IN THE A.Y.S 2006-07 AND 2007-08 AS PER THE AUDITED COPIES FILED BEFORE HIM. FOR THE ABOVE TWO YEARS HE NOTED THAT THE TOTAL INCOME PRIOR TO CLAIM ING EXEMPTION U/S. 80- IB(10) HAVE BEEN DECLARED AT RS.7.07 CRORES AND RS. 2.04 CRORES RESPECTIVELY. HE NOTED THAT FOR THE A.Y. 2006-07, THE ASSESSEE HA S DECLARED NET PROFIT OF RS.7.07 CRORES AS AGAINST SALES OF RS.15.81 CRORES AND THE NET PROFIT RATIO COMES TO 26.73%. HE THEREFORE, DIRECTED THE AO TO A PPLY THE NET PROFIT RATIO ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 7 OF 26.74% TO THE TOTAL INCREASE IN WORK-IN-PROGRESS RELATING TO THOSE PROJECTS IN WHOSE CASE SALE AGREEMENTS HAVE BEEN EXECUTED PR IOR TO OR DURING THE F.Y. 2004-05, IN ORDER TO ARRIVE AT THE TAXABLE INC OME FOR THE A.Y. 2005-06. ACCORDING TO HIM THIS WOULD BE IN ACCORDANCE WITH T HE PERCENTAGE COMPLETION METHOD PRESCRIBED BY THE ACCOUNTING STAN DARDS. 7. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS :- 1. ENHANCING THE APPELLANTS INCOME WITHOUT ISSUIN G A NOTICE TO THAT EFFECT. THE ENHANCEMENT AS MADE BY THE LD. CIT(A), WITHOUT GRANTING ANY OPPORTUNITY TO THE APPELLANT V IOLATES THE PROVISIONS OF SECTION 251 (2) OF THE INCOME TAX ACT . 2. REJECTING THE PROJECT COMPLETION METHOD OF ACCOU NTING WHICH HAS BEEN REGULARLY FOLLOWED BY THE APPELLANT IN THE PAST. THE APPELLANT IS A BUILDERS AND DEVELOPER, AS PER T HE REVISED ACCOUNTING STANDARD -9(WHICH IS MADE MANDATORY BY T HE INSTITUTE OF CHARTERED ACCOUNTANTS TO BUILDERS AND DEVELOPERS) THE APPELLANT HAD CORRECTLY DETERMINED ITS INCOME A T A LOSS OF RS.10,00,345/-. 3. ESTIMATING THE BUSINESS PROFITS OF THE APPELLANT S, BY ADOPTING THE PERCENTAGE COMPLETION METHOD. IN DOING SO THE LD. CIT(A) HAS ERRED IN APPLYING THE PROVISIONS OF THE REVISED ACCOUNTING STANDARD (AS)-7, WHICH IS APPLICABLE TO CONSTRUCTION CONTRACTORS AND NOT TO BUILDERS AND DEVELOPERS. 4. IN ESTIMATING A NET PROFIT RATIO OF 26.74% UNDER THE PERCENTAGE COMPLETION METHOD AS AGAINST A NET RATIO OF 5% AS ADOPTED BY THE ASSESSING OFFICER. THE NET PROFIT R ATIO OF 26.74% IN ANY CASE IS EXCESSIVE. 5. WITH OUT PREJUDICE TO THE ABOVE, THE CIT(A) HAS ERRED IN NOT GRANTING THE APPELLANT DEDUCTION U/S.80IB (10) OF T HE INCOME TAX ACT (ITA), IN RESPECT OF THE ESTIMATED PROFITS. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS IS THE SECOND YEAR OF OPERATION. DURING THE A.Y. 2004-05, THE ASS ESSEE COMPANY HAS DECLARED A LOSS OF RS.5,63,501/-. HE SUBMITTED THAT IN THE PRECEDING YEAR ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 8 FIVE PROJECTS WERE UNDERTAKEN BY THE ASSESSEE COMPA NY AND ALL THESE PROJECTS WERE UNDER CONSTRUCTION AT THE END OF THE YEAR AND THE WIP OF THE PROJECTS WERE SHOWN AT RS.4,29,50,093/- WHICH IS AS PER PG. 15 OF THE PAPER BOOK. HE SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEAR, THE ASSESSEE IN THE NOTES TO ACCOUNTS UNDER THE HEAD REVENUE RECOG NITION HAS MENTIONED THAT THE COMPANY IS FOLLOWING AS 9 (REVISED) REVENU E RECOGNITION ISSUED BY ICAI FOR INCOME RECOGNITION. THE REVENUE HAS BEEN R ECOGNIZED FOLLOWING THE PRINCIPLE OF ACCOUNTING STANDARD ISSUED BY THE ICAI , WHEREBY THE PROFIT IS RECOGNIZED ON THE COMPLETION OF THE PROJECT WHEN TH E RISK OF OWNERSHIP IS TRANSFERRED TO THE CUSTOMER. DURING THE IMPUGNED AS SESSMENT YEAR FIVE PROJECTS WERE UNDER CONSTRUCTION. SINCE THE ASSESSE E IS FOLLOWING THE PROJECT COMPLETION METHOD, THEREFORE, NO INCOME WAS DECLARE D DURING THE YEAR. HE SUBMITTED THAT THE ASSESSEE COMPANY FOLLOWS THE PRO JECT COMPLETION METHOD OF ACCOUNTING FOR COMPUTING THE PROFIT / LOSS FROM THE SALE OF THE PROJECT. HE SUBMITTED THAT THE ABOVE METHOD FOR COMPUTING THE P ROFIT BY A BUILDER IS VERY MUCH A RECOGNIZED METHOD WHICH HAS BEEN ACCEPT ED BY VARIOUS BENCHES OF THE TRIBUNAL AND HIGH COURT. FOR THIS PR OPOSITION HE RELIED ON A SERIES OF DECISIONS AS MENTIONED IN THE PAPER BOOK. HE SUBMITTED THAT THE ASSESSEE COMPANY HAS DECLARED INCOME ON COMPLETION OF THE PROJECTS IN THE SUBSEQUENT YEAR, WHICH IS MUCH MORE THAN THE SMALL AMOUNT ESTIMATED BY THE AO DURING THIS YEAR. EVEN WHILE COMPUTING THE INCOME ON COMPLETION OF THE PROJECT, THE AO HAS NOT ALLOWED THE DEDUCTION O F THE INCOME ESTIMATED DURING THIS YEAR. HE SUBMITTED THAT THE AO HAS ACCE PTED THE COMPLETION METHOD FOR THE A.Y.S 2004-05 AND 2006-07, AS IN TH OSE YEARS NO INCOME ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 9 HAS BEEN ESTIMATED IN RESPECT OF INCOMPLETE PROJECT S. IN THE A.Y. 2004-05, THE RETURN WAS ACCEPTED U/S.143(1) AND THE METHOD F OLLOWED BY THE ASSESSEE COMPANY IN THIS YEAR STANDS ACCEPTED BY TH E DEPARTMENT, SINCE NO ACTION U/S. 147 OR 263 HAS BEEN INITIATED. SIMILARL Y DURING THE A.Y. 2006- 07, THE ASSESSMENT HAS BEEN COMPLETED U/S. 143(3) A ND THE AO HAS NOT ESTIMATED INCOME IN RESPECT OF INCOMPLETE PROJECTS, AND THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE COMPANY HAS BEEN ACCEPTED. REFERRING TO A NUMBER OF DECISIONS, HE SUBMITTED TH AT THE REVENUE AUTHORITIES ARE NOT JUSTIFIED IN REJECTING THE PROJ ECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE BY ADOPTING THE PERCENTAGE COMPLETION METHOD. 9. AS REGARDS, THE OBSERVATIONS OF THE LD. CIT(A) T HAT ALL THE RISK OF THE ASSETS HAVE BEEN TRANSFERRED TO THE PURCHASER VIDE AGREEMENT WITH MS. WAGHMARE, THE LD. COUNSEL FOR THE ASSESSEE REFERRIN G TO PAGE 189 OF THE PAPER BOOK SUBMITTED THAT CLAUSE 11 OF THE SALE AGR EEMENT WHICH HAS BEEN REFERRED TO BY THE LD. CIT(A) MENTIONS LOSS OR DAMA GES ON ACCOUNT OF NATURAL CAUSES I.E. LIGHTNING, EXPLOSION, FLOODING, RIOTS AND WAR ETC. WHICH ARE NOT IN THE CONTROL OF THE ASSESSEE. HOWEVER THE ASSESSEE IS RESPONSIBLE FOR ALL THE LOSSES AND DAMAGES CAUSED DURING THE CO URSE OF CONSTRUCTION ACTIVITY, AND EVEN AFTER THESE LOSSES/ DAMAGES, THE ASSESSSEE HAS TO COMPLETE THE PROJECT AND, THEREFORE, FOR THIS LOSSE S AND DAMAGES THE ASSESSEE IS RESPONSIBLE. REFERRING TO THE CLAUSE 19 (A) OF THE SAID AGREEMENT (AT PAGE 190 OF THE PAPER BOOK) AND REFERRED TO BY THE LD. CIT(A), THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THE SAID CLAUSE, THE ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 10 PURCHASER SHALL HAVE NO CLAIM IN RESPECT OF OPEN SP ACES, LOBBIES, STAIRCASE, TERRACES ETC. WHICH SHALL REMAIN THE PROPERTIES OF THE BUILDERS UNTIL THE WHOLE PROJECT IS TRANSFERRED TO THE PROPOSED CO-OPE RATIVE HOUSING SOCIETY AND, THEREFORE, THERE IS NOTHING IN THE CLAUSE BY V IRTUE OF WHICH IT CAN BE REFERRED THAT THE RISKS AND REWARDS ARE TRANSFERRED TO THE PURCHASER, AS THE PURCHASER HAS THE RIGHT TO OCCUPY ONLY THE FLAT WHI CH HAS BEEN PURCHASED BY HIM. REFERRING TO THE CLAUSE 32 OF THE AGREEMENT (WHICH IS AT PAGE 193 OF THE PAPER BOOK) THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE PURCHASER SHALL NOT LET, SUB-LET TRANSFER/ASSIGN OR PART WITH POSSESSION OF THE SAID FLAT/SHOP/CAR PARKING SPACE WITHOUT THE CO NSENT IN WRITING OF THE BUILDERS AND UNTIL ALL THE DUES PAYABLE BY HIM / HE R TO THE BUILDERS UNDER THIS AGREEMENT ARE FULLY PAID. THEREFORE, AS PER TH IS CLAUSE THE FULL PAYMENT OF THE PURCHASE PRICE AND POSSESSION OF THE CONSTRU CTED FLAT IS MUST BEFORE THE PURCHASER CAN TRANSFER OR ASSIGN THE FLAT. HE S UBMITTED THAT SIMPLY BY REFERRING TO ONE SAMPLE COPY OF THE SALE AGREEMENT, THE LD. CIT(A) CANNOT COME TO THE CONCLUSION THAT ALL THE RISK AND REWARD S OF THE PROPERTY SHOWN VIDE THE AGREEMENT TO SELL HAVE BEEN TRANSFERRED TO THE BUYER AT THAT STAGE ITSELF. FURTHER WITHOUT ISSUING AN ENHANCEMENT NOTI CE, THE LD. CIT(A) ENHANCED THE INCOME OF THE ASSESSEE BY DIRECTING TH E AO TO ADOPT 26.74% NET PROFIT TO THE TOTAL INCREASE IN WORK-IN-PROGRES S, RELATING TO THOSE PROJECTS IN WHOSE CASE SALE AGREEMENTS HAVE BEEN EXECUTED PR IOR TO OR DURING THE FY 2004-05, IN ORDER TO ARRIVE AT THE TAXABLE INCOME. HE SUBMITTED THAT THE LD. CIT(A) WAS ALSO NOT JUSTIFIED IN NOT ALLOWING DEDUC TION U/S.80IB(10) IN RESPECT OF SUCH PROFIT SO ESTIMATED, WHEN THE ASSES SEE IS OTHERWISE ELIGIBLE ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 11 TO DEDUCTION U/S.80IB(10). REFERRING TO A SERIES OF DECISIONS HE SUBMITTED THAT THE TRIBUNAL HAS POWER TO ALLOW RELIEF TO THE ASSESSEE TO WHICH IT WAS OTHERWISE ENTITLED TO EVEN THOUGH NO CLAIM WAS MADE BY THE ASSESSEE IN THE RETURN OF INCOME. HE ALSO RELIED ON THE CBDT INSTRU CTION NO.4 OF 2009 DATED 30.06.2009 WHEREIN THE BOARD HAVE CLARIFIED T HAT DEDUCTION U/S.80IB(10) CAN BE CLAIMED ON A YEAR TO YEAR BASIS WHERE THE ASSESSEE IS SHOWING PROFIT FROM PARTIAL COMPLETION OF THE PROJE CT IN EVERY YEAR. 10. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORD ER OF THE AO AND THE LD. CIT(A). 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE LD. CIT(A) AND THE PAPER BOOK FILED BEFORE US. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND BUILDERS AND DURING TH E A.Y. 2004-05 THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE HAS BEEN ACCEPTED. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE REVENUE HAS NOT TAKEN ANY REMEDIAL MEASURE U/S.263 OR 147 FOR THE A .Y. 2004-05 AND 2006- 07 EVEN AFTER THE ORDER OF THE AO AND LD. CIT(A) FO R A.Y. 2005-06 COULD NOT BE CONTROVERTED BY THE LD. DR. WE FIND THE ASSESSEE IN ITS NOTES TO ACCOUNTS FOR THE YEAR ENDED 31.03.2004 AT CLAUSE 1(C) OF NOT ES HAS MENTIONED AS UNDER :- C. REVENUE RECOGNITION: THE COMPANY IS FOLLOWING ACCOUNTING STANDARD 9 (REV ISED) REVENUE RECOGNITION ISSUED BY THE INSTITUTE OF CHAR TERED ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 12 ACCOUNTANTS OF INDIA FOR INCOME RECOGNITION. REVENU E IS RECOGNIZED FOLLOWING THE PRINCIPLE OF ACCOUNTING ST ANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WHEREBY THE PROFIT IS RECOGNIZED ON THE COMPLETION OF PROJECTS WHEN THE RISK OF OWNERSHIP IS TRANSFERRED TO THE CUSTOMER. 12. SIMILARLY WE FIND FOR THE IMPUGNED ASSESSMENT Y EAR THE ASSESSEE COMPANY, IN THE NOTES TO ACCOUNTS REGARDING REVENUE RECOGNITION, HAS MENTIONED IDENTICAL NOTES. WE FIND THE AO, DURING T HE A.Y. 2006-07 HAS ALSO ACCEPTED THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE AND HAS NOT DISTURBED THE INCOME BY MAKING ANY ESTIMATED I NCOME ON THE WORK-IN- PROGRESS. WE ALSO FIND MERIT IN THE SUBMISSION OF T HE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS DECLARED HUGE INCOME IN THE SUBSEQUENT YEAR AFTER COMPLETION OF THE SAID PROJECT AS AGAINS T MEAGRE INCOME ESTIMATED BY THE AO. 13. FROM THE VARIOUS DECISIONS CITED BY THE LD. COU NSEL FOR THE ASSESSEE, WE FIND PROJECT COMPLETION METHOD IS AN ACCEPTED ME THOD OF ACCOUNTING FOR BUILDERS. THE ASSESSEE IS REGULARLY FOLLOWING THIS METHOD OF ACCOUNTING WHICH HAS BEEN ACCEPTED BY THE AO IN THE PRECEDING AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEAR. FURTHER THE AS 7 AS DIS CUSSED BY THE AO AND THE LD. CIT(A) ARE APPLICABLE ONLY FOR CONTRACTORS ENGAGED IN THE CIVIL CONSTRUCTION BUSINESS AND THE SAME DOES NOT APPLY T O BUILDERS / DEVELOPERS. IT IS AN ESTABLISHED LEGAL PROPOSITION THAT AN ASSE SSEE CAN FOLLOW ANY RECOGNIZED METHOD OF ACCOUNTING AND THE CONDITION I S THAT THE SAME METHOD HAS TO BE FOLLOWED CONSISTENTLY. SINCE THE ASSESSEE IN THE INSTANT CASE WAS REGULARLY FOLLOWING THE PROJECT COMPLETION METHOD A ND HAS OFFERED THE ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 13 INCOME IN THE YEAR OF COMPLETION OF PROJECT, THEREF ORE, WE DO NOT FIND ANY SOUND REASON AS TO WHY THE SAME SHOULD BE REJECTED AND PERCENTAGE COMPLETION METHOD BE FOLLOWED. 13.1 WE FIND THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF AWADESH BUILDERS V. ITO REPORTED IN 37 SOT 122 (MUM BAI) HAS HELD THAT PROJECT COMPLETION METHOD ADOPTED BY THE ASSES SEE BUILDER AND REAL ESTATE DEVELOPER IS JUSTIFIED INSTEAD OF THE PERCEN TAGE COMPLETION METHOD AS COMPUTED BY THE DEPARTMENT. WHILE GIVING THIS FINDI NG, THE HON. TRIBUNAL RELIED ON THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF CIT V. BILAHARI INVESTMETN (P) LTD. REPORTED IN 299 ITR 1 (SC) AND DECISION OF THE HON. SUPREME COURT IN THE CASE OF CIT V. REALES T BUILDERS & SERVICES LTD REPORTED IN 307 ITR 202. THE HON. TRIB UNAL ALSO CONSIDERED AS-7 AND AS-9 ISSUED BY ICAI. 13.2 WE FIND THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF PRESTIGE ESTATE PROJECTS (P) LTD. VS. DCIT REPORTED IN 129 T TJ (BANG) 680 AND RELYING ON THE DECISION OF THE HON. SUPREME COURT I N THE CASE OF CIT V. BILAHARI INVESTMENT (P) LTD. REPORTED IN 299 ITR 1 (SC) AND THE DECISION OF THE TRIBUNAL IN THE CASE OF H. M. CONST RUCTIONS V. CIT REPORTED IN 90 TTJ (BANG) 510 HAS HELD THAT THE ASS ESSEE DEVELOPER HAVING REGULARLY EMPLOYED PROJECT COMPLETION METHOD, WHICH IS AN ACCEPTED METHOD OF ACCOUNTING AND THE CENTRAL GOVERNMENT HAVING NOT NOTIFIED AS-7 U/S.145(2), THE AO COULD NOT REJECT THE ACCOUNTS U/ S.145(3) ON THE GROUND ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 14 THAT THE ASSESSEE HAS NOT FOLLOWED PERCENTAGE COMPL ETION METHOD OF ACCOUNTING. 13.3 NOW COMING TO THE FINDING OF THE LD. CIT(A) TH AT ALL RISKS AND REWARDS IN THE PROPERTY SOLD AS PER THE SALE AGREEMENT HAS BEEN TRANSFERRED TO THE BUYER, WE FIND CLAUSE 11 OF THE SALE AGREEMENT (PAG E 189 OF THE PAPER BOOK) WHICH IS REFERRED TO BY THE LD. CIT(A) MENTIONS LOS S OR DAMAGES ON ACCOUNT OF NATURAL CAUSES I.E. LIGHTNING, EARTHQUAKE, FLOOD ING, RIOTS AND WAR, ETC. THESE ARE THE LOSSES WHICH ARE NOT IN THE CONTROL O F THE ASSESSEE. HOWEVER, THE ASSESSEE IS RESPONSIBLE FOR ALL THE LOSSES AND DAMAGES CAUSED DURING THE COURSE OF THE CONSTRUCTION ACTIVITY AND EVEN AFTER THESE LOSSES AND DAMAGES, THE ASSESSEE HAS TO COMPLETE THE PROJECT AND THEREF ORE, FOR THESE LOSSES AND DAMAGES, THE ASSESSEE IS RESPONSIBLE. 13.4 SIMILARLY WE FIND CLAUSE 19(A) OF THE SALE AGR EEMENT (PAGE 190 OF THE PAPER BOOK) REFERS THAT THE PURCHASER HAS NO CLAIM IN RESPECT OF OPEN SPACES, LOBBY, STAIRCASE, TERRACE, ETC. WHICH SHALL REMAIN THE PROPERTY OF THE BUILDER UNTIL THE WHOLE PROJECT IS TRANSFERRED TO T HE PROPOSED CO-OPERATIVE HOUSING SOCIETY AND, THEREFORE, THERE IS NOTHING IN THE CLAUSE BY VIRTUE OF WHICH IT CAN BE INFERRED THAT THE RISKS AND REWARDS ARE TRANSFERRED TO THE PURCHASER AS THE PURCHASER HAS THE RIGHT TO OCCUPY ONLY THE FLAT WHICH HAS BEEN PURCHASED BY HIM. 13.5 WE FIND CLAUSE 32 OF THE AGREEMENT (PAGE NO. 1 93 OF THE PAPER BOOK) HAS CLEARLY MENTIONED THAT THE PURCHASER SHALL NOT LET, SUB-LET, ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 15 TRANSFER/ASSIGN OR PART WITH THE POSSESSION OF THE SAID FLAT, SHOP/CAR PARKING SPACE WITHOUT THE CONSENT IN WRITING FROM T HE BUILDER AND UNTIL ALL THE DUES PAYABLE BY HIM/HER/THEM TO THE BUILDER UND ER THIS AGREEMENT ARE FULL PAID. THEREFORE, AS PER THIS CLAUSE, THE FULL PAYMENT OF THE PURCHASE PRICE AND POSSESSION OF THE CONSTRUCTED FLAT IS A M UST BEFORE THE PURCHASER CAN TRANSFER OR ASSIGN THE FLAT. 13.6 WE FIND MERIT IN THE SUBMISSION OF THE LD. COU NSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS TO CONSTRUCT THE COMPLETE BUI LDING AS PER THE SPECIFICATIONS OVER A PERIOD AND RECEIVE THE PURCHA SE CONSIDERATION FROM TIME TO TIME FROM THE PURCHASERS AND HAND OVER THE POSSESSION OF THE BUILDING WHEN THE BUILDING IS FULLY COMPLETED, OCCU PATION CERTIFICATE IS RECEIVED AND IT IS ONLY AT THAT TIME THE RISKS AND REWARDS ARE TRANSFERRED TO THE PURCHASER. 13.7 WE, THEREFORE, ARE OF THE OPINION THAT THE REV ENUE AUTHORITIES ARE NOT JUSTIFIED IN REJECTING THE PROJECT COMPLETION METHO D. IN OUR OPINION, MERELY ON THE BASIS OF ONE SAMPLE AGREEMENT, THE LD. CIT(A ) CANNOT COME TO THE CONCLUSION THAT ALL THE RISKS AND REWARDS IN THE PR OPERTY SOLD AS PER THE SALE AGREEMENT HAVE BEEN TRANSFERRED TO THE BUYER. 13.8 WE ALSO FIND MERIT IN THE SUBMISSIONS OF THE L D. COUNSEL FOR THE ASSESSEE THAT THE LD. CIT(A) WHILE ENHANCING THE IN COME OF THE ASSESSEE HAS NOT ISSUED THE ENHANCEMENT NOTICE WHICH IS STATUTOR ILY REQUIRED AS PER THE ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 16 PROVISIONS OF SECTION 251(2) OF THE I.T. ACT, FOR W HICH ALSO HIS ORDER HAS TO BE SET ASIDE. 13.9 IN THIS VIEW OF THE MATTER, WE HOLD THAT THE LD. CIT(A) IS NOT JUSTIFIED IN REJECTING THE PROJECT COMPLETION METHOD, CONSIST ENTLY FOLLOWED BY THE ASSESSEE. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) IS SET ASIDE AND THE GROUNDS OF APPEAL NO. 1 TO 4 RAISED BY THE ASSESSEE ARE ALLOWED. 13.10 SINCE THE PROJECT COMPLETION METHOD OF THE AS SESSEE HAS BEEN ACCEPTED BY US, THE WITHOUT PREJUDICE GROUND OF THE ASSESSEE CHALLENGING NON-GRANTING OF DEDUCTION U/S.80IB(10) BECOMES ACAD EMIC IN NATURE AND HENCE THE SAME IS NOT BEING ADJUDICATED. 13.11 THE APPEAL FILED BY THE ASSESSEE FOR THE A.Y. 2005-06 IS ACCORDINGLY ALLOWED. ITA NO.6861/MUM/2010 (A.Y. : 2006-07) 14. THE GROUNDS OF APPEAL NO. 1 I) & 1 II) BY THE A SSESSEE READ AS UNDER :- 1. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS), (CIT(A)) HAS ERRED IN : I) NOT GRANTING DEDUCTION OF RS.7,21,60,252/- AS CLAIM ED BY THE APPELLANT U/S.80IB(10) OF THE INCOME TAX ACT (I TA), IN RESPECT OF THE PROJECTS COMPRISING OF GULMOHAR & SP LENDOUR CONSTRUCTED AT PLOT NO.: 52/20 & 56/20, SECTOR 20, KHARGHAR, NAVI MUMBAI. II) NOT APPRECIATING THAT SECTION 80-IB(10) OF THE ITA IS AN INCENTIVE PROVISION FOR ECONOMIC GROWTH AND HAS TO BE INTERPRETED LIBERALLY. IN DOING SO, THE AO AS WELL AS CIT(A) HAVE NOT FOLLOWED THE PRINCIPLES IN THIS REGARD AS LAID DOWN ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 17 BY THE APEX COURT IN BAJAJ TEMPO VS. CIT 196 ITR 18 8 (SC). 14.1 FACTS OF THE CASE, IN BRIEF, ARE THAT FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE FILED ITS RETURN OF INCOME SHOWING PRO FIT FROM THEIR PROJECT GULMOHAR AND SPLENDOR WHICH HAS BEEN CONSTRUCTE D AT PLOT NO.52/20 AND 56/20, SECTOR-20, KHARGAR, NAVI MUMBAI. THE ENT IRE PROFITS EARNED BY THE ASSESSEE AMOUNTING TO RS.7,21,60,252/- ON THIS PROJECT HAS BEEN CLAIMED AS EXEMPT U/S.80IB(10) OF THE I.T. ACT, 196 1. 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF THE PROJECT UNDE RTAKEN /COMPLETED AND EXPLAIN AS TO HOW THE CONDITIONS LAID DOWN U/S. 80I B(10) OF THE I.T. ACT, 1961 WERE SATISFIED SO AS TO JUSTIFY THE CLAIM OF D EDUCTION U/S.80IB. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE FROM TIME TO TIME, THE AO NOTED THAT THE PROJECT COMMENCED ON 10.10.2003 AND THE ASSESSEE COMPANY RECEIVED APPROVAL/COMMENCEMENT CERTIFICATE ON 29.03.2006 FROM CIDCO. THE ASSESSEE RECEIVED PART OCCUPANCY CERTIFI CATE ON 29.09.2006 WHEREIN IT HAS BEEN INDICATED THE RESIDENTIAL CONST RUCTED AREA AT 4605.208 SQ MTR. (UNITS 126) AND COMMERCIAL CONSTRUCTED AREA AT 682.216 SQ. MTR (UNITS 45). FROM THE APPROVAL PLAN SUBMITTED BY THE ASSESSEE, THE AO NOTED THE FOLLOWING :- TOTAL PLOT AREA - 15599.98 SQ. MTR. PERMISSIBLE BUA - 23399.97 SQ. MTR. PERMISSIBLE COMMERCIAL AREA - 460.939 SQ.MTR. 15.1 FROM THE APPROVAL LETTER GIVEN BY CIDCO, THE A O NOTED THAT THE ASSESSEE WAS SUPPOSED TO BUILT THE MAXIMUM COMMERCI AL AREA FOR ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 18 CONSTRUCTION AT 15%. HOWEVER, THE ASSESSEE IN THE I NSTANT CASE HAS CONSTRUCTED TOTAL COMMERCIAL AREA OF 682.216 SQ MTR . OUT OF 5287.424 SQ. MTR. OF PROJECT COMPLETED AS PER PART OCCUPANCY CER TIFICATE ISSUED BY CIDCO VIDE ITS LETTER BEARING NO. CIDCO/BP/ATPO/1338 DATE D 29.09.2006. THUS THE COMMERCIAL AREA CONSTRUCTED BY THE ASSESSEE WOR KS OUT TO 6.75%. ACCORDING TO THE AO THE AMENDMENT OF THE FINANCE AC T, 2004 PEGS THE MAXIMUM PERMISSIBLE COMMERCIAL AREA TO BE AT 5% OF TOTAL PROJECT AREA OR 2000 SQ. FT. WHICHEVER IS LESS. SINCE THE COMMERCIA L AREA CONSTRUCTED BY THE ASSESSEE AT 682.216 SQ. MTRS IS MORE THAN 2000 SQ. FT. AND MORE THAN 5% OF THE TOTAL PROJECT AREA THEREFORE, THE AO WAS OF THE OPINION THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S. 80 IB(10) OF THE ACT. 16. AS REGARDS THE CONDITION THAT THE RESIDENTIAL U NIT HAS A MAXIMUM BUILT UP AREA OF ONE THOUSAND SQUARE FEET, THE AO N OTED THAT SOME OF THE PURCHASERS HAVE BOUGHT ADJACENT FLATS AND THE SUM T OTAL OF THESE FLATS EXCEED 1000 SQ. FT. RELYING ON A COUPLE OF DECISIO NS, THE AO WAS OF THE OPINION THAT THE ADJACENT HOUSES CONSTITUTE A SINGL E HOUSE FOR THE PURPOSE OF INCOME FROM HOUSE PROPERTY. SINCE SOME OF THE PURCHASERS HAVE PURCHASED TWO OR MORE SUCH FLATS WHICH ARE ADJACENT TO EACH OTHER AND THE TOTAL AREA EXCEEDS 1000 SQ. FT. THE AO WAS OF THE O PINION THAT THE CONDITIONS PRESCRIBED U/S.80IB(10) ARE NOT FULFILLED. SINCE TH E ASSESSEE FAILED TO COMPLY WITH THE SPECIFIC CONDITIONS LAID DOWN IN SUB-CLAUS E (A) AND (C) OF SECTION 80IB(10), THE ASSESSING OFFICER, RELYING ON A COUPL E OF DECISIONS, HELD THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM THE DEDUCTION U/S. 80IB(10) AMOUNTING ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 19 TO RS.7,07,88,251/-. THE AO FURTHER NOTED THAT AS P ER THE PROVISION OF SECTION 80IB(10), THE PROJECT SHOULD BE A HOUSING P ROJECT ONLY. SINCE THIS PROJECT IS APPROVED BY THE LOCAL AUTHORITY I.E. CID CO AS RESIDENTIAL CUM COMMERCIAL PROJECT, THE PROFIT OF THE SAME IS NOT E NTITLED TO DEDUCTION U/S. 80IB(10). REJECTING THE VARIOUS EXPLANATION GIVEN B Y THE ASSESSEE AND RELYING ON A COUPLE OF DECISIONS THE AO REJECTED TH E CLAIM MADE U/S. 80IB(10) OF THE I.T. ACT. 17. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT WHE N THE PROJECT WAS APPROVED ON 10.10.2003, THE RESTRICTIVE CONDITIONS TO COMMERCIAL AREA WERE NOT THERE IN THE STATUTE BOOK AND THE CONDITIONS AS SPELT BY A.O. WAS BROUGHT OUT BY THE FINANCE ACT NO.2 OF 2004. AS RE GARDS, THE OBJECTIONS OF THE AO THAT TWO FLATS WERE SOLD TO THE SAME PERSON AND HENCE THE AREA OF THE TWO FLATS COMBINED TOGETHER EXCEED 1,000 SQ. FT. AN D, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80 IB(10), IT WA S SUBMITTED THAT THE ASSESSEE HAD NOT SOLD THE TWO UNITS AS ONE CONSOLID ATED UNIT AFTER JOINING THE SAME, THEREFORE, THE BENEFIT OF DEDUCTION U/S.8 0IB(10) CANNOT BE DENIED TO THE ASSESSEE. AS REGARDS, THE OBSERVATIONS OF TH E AO THAT THE AREA OF SOME FLATS ARE EXCEEDING 1000 SQ. FT, IT WAS SUBMITTED T HAT THE SAME IS DUE TO WRONG INCLUSION OF OPEN TERRACE AREA IN THE BUILT U P AREA. IT WAS SUBMITTED THAT THE DEFINITION OF BUILT UP AREA WAS BROUGHT TO THE STATUTE BOOK BY THE FINANCE ACT 2004 W.E.F. 01.04.2005 I.E. A.Y. 2005-0 6. BEFORE THAT, OPEN TERRACE AREA WAS NOT TO BE INCLUDED IN THE BUILT U P AREA. IT WAS ALSO SUBMITTED THAT CIDCO AUTHORITIES APPROVED THE PROJE CT PRIOR TO THE ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 20 AMENDMENT OF FINANCE ACT, 2004 WHICH INCLUDED BALCO NIES AND TERRACES. THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF BRAHMA ASSOCIATES REPORTED IN 122 TTJ 443 WAS ALSO BOUGHT TO THE NOTICE OF THE LD. CIT(A). IT WAS ACCORDINGLY SUBMITTED THAT THE ASSES SEE IS ENTITLED TO CLAIM THE BENEFIT OF DEDUCTION U/S. 80IB(10) AMOUNTING TO RS.7,07,88,251/-. 18. HOWEVER THE LD. CIT(A) WAS NOT CONVINCED WITH T HE ARGUMENTS ADVANCED BEFORE HIM. HE OBSERVED THAT THERE IS NO S UCH FINDING GIVEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BRAHMA ASSOCIATES (SUPRA) WITH REFERENCE TO THE PROJECTS WHICH WERE APPROVED ON 10 .10.2003. THE DECISION IN THE SAID CASE RELATES TO THE COMMERCIAL AREA BEF ORE AMENDMENT WHICH HAS BEEN ALLOWED FROM 5% TO 10%. SINCE THE CASE OF THE ASSESSEE RELATES TO THE POST AMENDMENT PERIOD I.E. A.Y. 2006-07, THEREFORE, IT IS NOT COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL. AS R EGARDS THE OBJECTION TO THE TREATMENT OF TWO FLATS SOLD TO SAME PERSON AS SINGL E UNIT AND, THEREFORE, THE AREA EXCEEDS 1000 SQ. FT, HE NOTED THAT THE PURCHAS ER OF THE PROPERTY IS A SINGLE PERSON AND HE HAS PURCHASED MORE THAN 1,000 SQ. FT. UNIT AND HENCE THIS ARGUMENT OF THE ASSESSEE CANNOT BE ACCEPTED. A S REGARDS THE SUBMISSION OF THE ASSESSEE THAT OPEN TERRACE ARE TO BE EXCLUDED FROM THE BUILT UP AREA, THE LD. CIT(A) WAS OF THE VIEW THA T THE AMENDED PROVISION IS APPLICABLE FOR A.Y. 2005-06 AND ONWARDS AND SHALL A PPLY TO THE ASSESSEE AS WELL AND HENCE THE AO WAS RIGHT IN INCLUDING THE TE RRACES IN THE BUILT UP AREA WHICH CLEARLY FALLS UNDER THE DEFINITION OF B UILT UP AREA AS PROVIDED U/S. 80IB (14)(A). RELYING ON A COUPLE OF DECISIONS , THE LD. CIT(A) WAS OF THE ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 21 OPINION THAT TAXING STATUTES HAVE TO BE STRICTLY CO NSTRUED AND NOTHING CAN BE READ IN IT. SINCE THE ASSESSEE IN THE INSTANT CA SE HAS NOT FULFILLED THE CONDITIONS MENTIONED IN SECTION 80IB(10), THE LD. C IT(A) REJECTED THE VARIOUS ARGUMENTS ADVANCED BEFORE HIM AND UPHELD THE ACTION OF THE AO. 19. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE US. 20. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT VARIOUS SUBMISSIONS GIVEN BEFORE THE LD. CIT(A) ALONG WITH THE COPIES O F AGREEMENTS WERE NOT CONSIDERED BY HIM PROPERLY. HE SUBMITTED THAT THE P ROVISIONS OF SECTION 80IB(10)(D) RESTRICTING THE BUILT UP AREA OF SHOPS AND OTHER COMMERCIAL ESTABLISHMENTS INCLUDED IN THE HOUSING PROJECT AT 5 % OR 2,000 SQ. FT. WAS BROUGHT TO THE STATUTE BOOK BY THE FINANCE ACT NO.2 W.E.F 01.04.2005. PRIOR TO ITS SUBSTITUTION THE SECTION GRANTING 100% DEDUC TION OF INCOME ARISING FROM HOUSING PROJECTS DID NOT CONTAIN ANY RESTRICTI ON ON THE AREA OF SHOPPING COMPLEX INCLUDED IN THE HOUSING PROJECTS T HAT WERE APPROVED PRIOR TO 31.03.2005. SINCE IN THE INSTANT CASE THE HOUSIN G PROJECT NAMELY NISARG PROJECT WAS APPROVED ON 10.10.2003 I.E. PRIOR TO 3 1.03.2005, THEREFORE, THERE IS NO RESTRICTION OF AREA OF SHOPPING COMPLEX . THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF THE TRIBUNA L IN THE CASE OF SAROJ SALES ORGANISATION VS. ITO REPORTED IN 115 TTJ 485, ACIT VS. SHETH DEVELOPERS REPORTED IN 33 SOT 277 AND HIRANANADANI AKRUTI JV V S. DCIT REPORTED IN 39 SOT 498. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 22 21. AS REGARDS THE OBJECTION OF THE REVENUE THAT TW O OR MORE FLATS HAVE BEEN SOLD TO THE SAME PERSON AND, THEREFORE THE BUI LT UP AREA OF THE UNIT EXCEEDS 1,000 SQ. FT, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE AREA OF THESE FLATS CANNOT BE COMBINED TOGETHER SIN CE THE ASSESSEE HAS SOLD THESE TWO FLATS IN SEPARATE AGREEMENTS. THE FLATS W ERE APPROVED BY THE CIDCO AS TWO SEPARATE FLATS. HE SUBMITTED THAT THER E IS NO EVIDENCE WITH THE AO THAT THE ASSESSEE HAS SOLD THESE TWO FLATS A S A SINGLE FLAT AFTER COMBINING THE TOTAL AREA TOGETHER. HE SUBMITTED THA T THE REVENUE HAS NOT VERIFIED EVEN TILL TODAY AS TO WHETHER THESE FLATS ARE USED AS ONE FLAT OR TWO FLATS. HE SUBMITTED THAT THE ASSESSEE IS NOT RESPON SIBLE IF AFTER PURCHASING THESE TWO FLATS SEPARATELY, THESE ARE USED BY THE P URCHASER AS ONE FLAT. REFERRING TO THE VARIOUS PAGES OF THE PAPER BOOK, T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN MOST OF THE CASES THE BU ILT UP AREA OF EACH FLAT IS LESS THAN 1,000 SQ. FT. EVEN AFTER INCLUDING THE TE RRACE AREA. HE SUBMITTED THAT AREA OF NONE OF THE FLATS EXCEEDS 1,000 SQ.FT, IF THE TERRACE AREA IS EXCLUDED. HE SUBMITTED THAT IN THE COMMON PARLANCE, TERRACE IS NOT TO BE ACCOUNTED FOR IN THE BUILT UP AREA. EVEN AS PER CID CO RULES, TERRACE AREA IS NOT INCLUDED IN THE BUILT UP AREA AND THEREBY, NOT ACCOUNTED FOR IN THE FSI. HE SUBMITTED THAT THE DEFINITION OF BUILT UP AREA IS INTRODUCED BY THE FINANCE ACT, 2004 BY INTRODUCING SUB-SECTION 14(A) IN SECTION 80-IB W.E.F. 01.04.2005 AND, THEREFORE, THE SAME IS NOT APPLICAB LE TO THE PROJECTS APPROVED AND COMMENCED BEFORE 01.04.2005. REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. SHETH DEVELOPE RS REPORTED IN 33 SOT ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 23 277, HE SUBMITTED THAT IT HAS BEEN HELD THAT PRIOR TO 01.04.2005, BALCONY WOULD NOT FORM PART OF THE BUILT UP AREA. THE DEFIN ITION OF BUILT UP AREA INTRODUCED BY THE FINANCE ACT, 2005 WAS MANIFESTLY PROSPECTIVE. IT HAS FURTHER BEEN HELD IN THE SAID DECISION THAT WHERE, ANY UNIT EXCLUDING THE BALCONY AREA, WAS OF MORE THAN 1000 SQ. FT., THE AS SESSEE WAS ENTITLED TO THE DEDUCTION U/S.80IB(10) ON PRO-RATA BASIS, IN RESPEC T OF THE FLATS OF 1000 SQ. FT. OR LESS AND THE DEDUCTION CANNOT BE DENIED. 22. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORD ER OF THE LD. CIT(A). 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE B Y BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE LD. CIT(A) AND THE PAPER BOOK FILED BEFORE US. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. FROM THE BODY OF THE ASSESSMENT ORDER, WE FIND THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR HAS SHOWN THE SALES DETAIL S FOR THE YEAR ENDING 31.03.2006 WHICH IS AS UNDER : KHARGHAR NODE A) GULMOHAR SALE OF FLATS/SHOPS RS.4,55,67,937/- OTHER CHARGES RS. 37,54,920/- EXTRA AMENITIES RS. 33,832/- RS.4,92,73,211/- B) SPLENDOR SALE OF FLATS / SHOPS RS.9,78,11,526/- OTHER CHARGES RS.1,10,21,647/- EXTRA AMENITIES RS. 1,38,535/- RS.10,88,28,637/- TOTAL RS.15,81,01,848/- 24. WE FIND FROM THE BODY OF THE ASSESSMENT ORDER T HAT THE PROJECT COMMENCED ON 10.10.2003 AND THE ASSESSEE COMPANY RE CEIVED ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 24 APPROVAL/COMMENCEMENT CERTIFICATE ON 29.03.2006 FRO M CIDCO. WE FIND THE AO DENIED THE BENEFIT OF DEDUCTION U/S.80IB(10) FOR THE FOLLOWING REASONS:- 1. THE COMMERCIAL AREA IN THE HOUSING PROJECT BEING 682.216 SQUARE METERS EXCEEDS 5% OF THE TOTAL PROJECT AREA OR 2000 SQ. FT. 2. SOME OF THE PURCHASERS HAVE PURCHASED ADJACENT F LATS, THE SUM TOTAL OF THESE FLATS EXCEEDS 1000 SQ. FT. THERE FORE, THE SAME IS NOT ENTITLED TO THE BENEFIT OF DEDUCTION U/S.80IB(1 0). FOR THIS PURPOSE, HE TOOK THE EXAMPLE OF ALEYOMANA EDICULA W HO HAS PURCHASED THE FLAT NO. G-102 & G-103. SIMILARLY NEW CITY EDUCATION TRUST HAS PURCHASED THE FLAT NO. H-101, H -102, H- 104, H-105 & H-106, THE TOTAL OF WHICH COMES TO 432 1 SQ.FT. 3. MAJORITY OF FLATS SOLD IN PROJECT SPLENDOR 52/20 AND SPLENDOR 56/20 WERE EXCEEDING AREA OF 1000 SQ. FT. INCLUDING BALCONY AND TERRACE, AS ACCORDING TO THE AO BALCONY AND TERRACE AREA HAS TO BE EXCLUDED FOR THE PURPOSE OF CALCULAT ING THE AREA OF 1000 SQ. FT. 25. WE FIND THE LD. CIT(A) WHILE DECIDING THE ISSUE REJECTED THE VARIOUS DECISIONS CITED BEFORE HIM HAD CONFIRMED THE ACTION OF THE AO. 26. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT BALCONY AND TERRACE AREA HAS TO BE EXCLUDED FOR THE PURPOSE OF CALCULATION OF THE CARPET AREA OF 1000 SQ. FT. SIMILARLY SINCE THE ASS ESSEE HAS SOLD EACH FLAT UNDER SEPARATE AGREEMENTS, AND THE ASSESSEE HAS NOT SOLD TWO FLATS BY COMBINING THEM TOGETHER AS ONE FLAT TO ONE PARTY, T HEREFORE, THE AREA OF TWO FLATS OR MORE THAN TWO SHOULD NOT BE COMBINED EVEN THOUGH THESE FLATS WERE SOLD TO ONE PERSON. SIMILARLY IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT WHEN THE APPROVAL IS OBTAINED PRIOR T O 31.03.2005, THE CONDITION OF SHOPPING AREA NOT EXCEEDING 5% OF BUIL T UP AREA OR 2000 SQ. FT WHICHEVER IS LESS, AS INTRODUCED BY THE SUBSEQUENT AMENDMENT ARE NOT ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 25 APPLICABLE IN RESPECT OF PROJECTS APPROVED AND COMM ENCED BEFORE 01.04.2005. 27. WE FIND MERIT IN THE ABOVE SUBMISSIONS OF THE L D. COUNSEL FOR THE ASSESSEE. AS REGARDS THE ALLEGATION OF THE REVENUE THAT THE COMMERCIAL AREA IN THE PROJECT IS MORE THAN 5%, WE FIND THE ISSUE N OW HAS BEEN SETTLED IN VIEW OF THE VARIOUS DECISIONS OF THE CO-ORDINATE BE NCHES OF THE TRIBUNAL, INCLUDING THE DECISION IN THE CASE OF BRAHMA ASSOCI ATES (SUPRA) WHICH HAS BEEN UPHELD BY THE HON'BLE BOMBAY HIGH COURT. 28. WE FIND THE CO-ORDINATE BENCH OF THE TRIBUNAL I N THE CASE OF SHRI GIRDHARILAL K. LULLA WHERE ONE OF US (THE ACCOUNTAN T MEMBER) IS A PARTY VIDE ITA NO : 4207/MUM/2009 ORDER DATED 30.05.2011 HAS H ELD AS UNDER :- WE HAVE CONSIDERED THE RIVAL SUBMISSION MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF A.O. AND THE CIT(A) AN D THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE A.O. DENIED THE BENEFIT OF DEDUCTION U/S 80IB(10) OF THE ACT ON THE GROUND THAT THE COMMERCIAL AREAS IN THE PROJECT IS 3399 SQ. FT. WHICH IS WELL ABOVE 2000 SQ. FT. OR 5% OF THE PROJECT WHICH IS ON E OF THE PRE- CONDITIONS FOR CLAIMING DEDUCTION U/S 80IB (10) OF THE ACT. WE FIND THE CONDITION OF 2000 SQ.FT. OR 5% OF THE PROJ ECT WAS BROUGHT TO THE STATUTE BY THE FINANCE (NO.2) ACT, 2004 W.E. F. 1.4.2005. PRIOR TO THIS INSERTION, THERE WAS NO SUCH CONDITIO N. WE FIND THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF HI RANANDANI AKRUTI JV (SUPRA) AT PARA NO. 26 & 27 HAS OBSERVED AS UNDER:- 26. THERE IS TRUTH IN THE PLEA OF HARDSHIP PUT FOR TH ON BEHALF OF THE ASSESSEE. LET US ASSUME AN ASSESSEE A PPLIES AND OBTAINS APPROVAL OF A LOCAL AUTHORITY FOR BUILD ING A HOUSING PROJECT IN THE PREVIOUS YEAR RELEVANT TO AY 02-03. AS PER THE LAW AS IT STOOD IN THE PREVIOUS YEAR REL EVANT TO AY 02-03 UPTO 04-05, THERE WAS NO TIME LIMIT WITHIN WHICH THE CONSTRUCTION HAS TO BE COMPLETED OR ANY RESTRIC TION REGARDING COMMERCIAL AREA THAT CAN BE BUILT IN A HO USING PROJECT. LET US ASSUME THAT THE ASSESSEE COMPLIES W ITH ALL ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 26 THE CONDITIONS FOR ALLOWING RELIEF U/S.80-IB(10) I. E., IT IS APPROVED AS A HOUSING PROJECT BY THE LOCAL AUTHORIT Y BUT THE AREA OF COMMERCIAL SPACE AS APPROVED BY THE LOC AL AUTHORITY IS MORE THAN 2000 SQ.FT. THE ASSESSEE COMMENCES THE PROJECT BUT IS ABLE TO COMPLETE ONLY IN THE PREVIOUS YEAR RELEVANT TO AY 05-06. AS PER THE CHAN GE IN LAW FROM AY 05-06 WITH REGARD TO THE AREA OF COMMER CIAL SPACE IN A HOUSING PROJECT THE ASSESSEE WOULD LOOSE HIS ELIGIBILITY TO CLAIM DEDUCTION. IN SUCH CASES THERE IS DEFINITELY GRAVE HARDSHIP TO THE ASSESSEE. THE INTERPRETATION SOUGHT TO BE CANVASSED BY THE LEARNE D D.R. WILL ALSO LEAD TO ABSURD SITUATION. LET US ASSUME A N ASSESSEE OBTAINS APPROVAL OF A HOUSING PROJECT PRIO R TO 1-4- 2005 SAY IN PREVIOUS YEAR RELEVANT TO AY 02-03. HE BUILDS COMMERCIAL SPACE IN EXCESS OF 2000 SQ.FT. IN THE HO USING PROJECT. HE FOLLOWS PERCENTAGE COMPLETION METHOD OF ACCOUNTING AND OFFERS PROFITS IN AY 02-03 TO 04-05, CLAIMS EXEMPTION U/S.80-IB(10) AND IS ALLOWED EXEMPTION. O N THE SAME PROJECT IN AY 05-06, THE ASSESSEE WOULD NOT GE T THE BENEFIT OF SEC.80-IB(10). WE THEREFORE FIND NO GROU NDS TO TAKE A VIEW DIFFERENT FROM THE ONE TAKEN BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SAROJ SALES ORGANIZATION (SUPRA). 27. WE ARE OF THE VIEW THAT WE ARE NOT SUPPLYING A NY WORDS TO THE STATUTE BUT ARE ONLY HOLDING THAT THE LAW AS IT EXISTED IN THE A.Y.04-05 WHEN THE ASSESSEE SUBMITTE D ITS PROPOSAL FOR SLUM REHABILITATION AND THE PERMISSION FOR CARRYING OUT THE DEVELOPMENT WAS ACCORDED ON 17.11. 2003 AND WHEN THE ASSESSEE COMMENCED DEVELOPMENT IS TO B E APPLIED. THEREFORE THE SUBMISSIONS OF THE LEARNED D .R. IN THIS REGARD CANNOT BE ACCEPTED. WE ARE OF THE VIEW THAT THE LEGISLATURE WOULD NOT HAVE INTENDED TO TAKE AWAY A VESTED RIGHT WITHOUT CLEAR WORDS TO THAT EFFECT IN THE PRO VISIONS OF SEC.80-IB(10) AS AMENDED BY THE FINANCE ACT, 2005, W.E.F. 1-4-2005. WE THEREFORE HOLD FOLLOWING THE DECISION IN THE CASE OF SAROJ SALES ORGANISATION (SUPRA) THAT THE L AW AS IT EXISTED IN THE A.Y.04-05 WHEN THE ASSESSEE SUBMITTE D ITS PROPOSAL FOR SLUM REHABILITATION AND THE PERMISSION FOR CARRYING OUT THE DEVELOPMENT WAS ACCORDED ON 17.11. 2003 AND WHEN THE ASSESSEE COMMENCED DEVELOPMENT IS TO B E APPLIED. 29. SINCE IN THE INSTANT CASE, THE PROJECT UNDISPUT EDLY WAS APPROVED BEFORE 1.4.2005 THEREFORE THE PROVISIONS O F THE OLD LAW WILL APPLY. THEREFORE,, THE ORDER OF THE LD. CIT(A ) ON THIS ISSUE ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 27 BEING IN CONSONANCE WITH THE DECISION OF THE CO-ORD INATE BENCH OF THE TRIBUNAL IS UPHELD. SO FAR AS THE ORDER OF THE LD. CIT(A) RESTRICTING THE DEDUCTION ON ACCOUNT OF COMMERCIAL COMPONENT IS CONCERNED, WE FIND THE ISSUE NOW STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF BRAHMA ASSOCIATES (SUPRA) WHERE THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BRAHM A ASSOCIATES (SUPRA) HAS BEEN UPHELD ACCORDING TO WHICH THE PROJ ECT HAVING COMMERCIAL AREA UPTO 10% OF THE PROJECT IS ELIGIBLE FOR DEDUCTION U/S 80IB(10) OF THE ACT. SINCE ADMITTEDLY THE COMME RCIAL AREA IN THE INSTANT CASE IS LESS THAN 10% OF THE BUILT UP A REA, THEREFORE, THE ASSESSEE IS ENTITLED TO THE DEDUCTION U/S 80IB( 10) AND THE LD. CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE DEDUCTI ON. IN THIS VIEW OF THE MATTER, THE GROUND RAISED BY THE REVENUE IS DISMISSED AND THE GROUND RAISED BY THE ASSESSEE IN THE C.O. IS AL LOWED. 29. SINCE THE APPROVAL IN THE INSTANT CASE WAS OBTA INED ON 10.10.2003 I.E. PRIOR TO 01.04.2005, THEREFORE, IN VIEW OF THE DECI SION CITED ABOVE AND IN VIEW OF THE CONSISTENT DECISIONS OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN VARIOUS OTHER CASES (COPIES OF WHICH ARE PLACED IN THE PAPER BOOK) WE HOLD THAT THE AMENDMENT AS INTRODUCED BY THE FINANCE ACT , 2004 W.E.F. 01.04.2005 I.E. A.Y. 2005-06, IS NOT APPLICABLE TO ASSESSEES CASE. THEREFORE, THE ASSESSEE CANNOT BE DENIED THE BENEFIT OF DEDUCT ION U/S.80IB(10) FOR THE COMMERCIAL AREA EXCEEDING 5% OF THE BUILT UP AREA O R 2000 SQ. FT. WHICHEVER IS LESS. 30. AS REGARDS THE SECOND OBJECTION OF THE REVENUE THAT THE ASSESSEE HAS SOLD TWO OR MORE THAN TWO FLATS TO ONE PARTY, THE C OMBINED AREA OF WHICH IS MORE THAN 1000 SQ. FT, WE FIND MERIT IN THE SUBMISS ION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE AREA OF TWO FLATS SHOULD NOT BE COMBINED EVEN THOUGH THE TWO FLATS WERE SOLD TO ONE PERSON BECAUS E (A) THE BUILT UP AREA OF EACH FLAT AS APPROVED BY CIDCO IS LESS THAN 1000 SQ . FT AS PER THE APPROVED ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 28 PLAN AND OCCUPANCY CERTIFICATE RECEIVED. (B) THE AS SESSEE HAS SOLD EACH FLAT UNDER SEPARATE AGREEMENTS. (C) THE ASSESSEE HAS NOT SOLD TWO FLATS BY COMBINING THESE TOGETHER AS ONE FLAT TO ONE PARTY A ND D) THERE IS NO EVIDENCE WITH THE DEPARTMENT THAT THE ASSESSEE HAS SOLD AFTE R COMBINING THE TWO FLATS TOGETHER AND SOLD TO ONE PARTY. FURTHER THERE IS NO EVIDENCE ON RECORD TO SUGGEST THAT THE ASSESSEE ITSELF HAS ADVERTISED THAT THE FLATS WERE OF MORE THAN OF 1000 SQ. FTS AND THAT MERELY TO GET THE BEN EFIT OF DEDUCTION U/S.80IB(10) HE DREW THE PLAN IN SUCH A MANNER THAT EACH RESIDENTIAL UNIT WAS SHOWN AS NOT MORE THAN 1000 SQ. FT OF BUILT UP AREA. IT IS ALSO NOT THE CASE OF THE REVENUE THAT EACH FLAT IN THE HOUSING P ROJECT UNDERTAKEN BY THE ASSESSEE COULD NOT HAVE BEEN USED AS AN INDEPENDENT OR AS A SELF CONTAINED RESIDENTIAL UNIT NOT EXCEEDING 1000 SQ. FT OF BUILT UP AREA AND THERE WOULD BE A COMPLETE HABITABLE RESIDENTIAL UNIT ONLY IF TW O OR MORE FLATS ARE JOINED WITH EACH OTHER WHICH WOULD ULTIMATELY EXCEED 1000 SQ. FT. OF BUILT UP AREA. THEREFORE, MERELY BECAUSE SOME OF THE PURCHASERS HA VE PURCHASED MORE THAN ONE FLAT AND COMBINED THE SAME, THE SAME IN OU R OPINION, WILL NOT DISENTITLE THE ASSESSEE TO CLAIM THE DEDUCTION U/S. 80IB(10). 31. FURTHER THE CONDITION THAT NOT MORE THAN ONE RE SIDENTIAL UNIT IN THE HOUSING PROJECT IS ALLOTTED TO ANY PERSON NOT BEING AN INDIVIDUAL HAS BEEN INSERTED BY THE FINANCE (NO.2) ACT, 2009 W.E.F. 01. 04.2010. THEREFORE, THE ALLEGATION OF THE REVENUE IS ALSO NOT APPLICABLE FO R THE IMPUGNED ASSESSMENT YEAR. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 29 32. NOW COMING TO THE THIRD ALLEGATION OF THE REVEN UE THAT THE BUILT UP AREA OF SOME OF THE FLATS IS MORE THAN 1000 SQ. FT, WE FIND THE ASSESSEE HAS ALREADY SUBMITTED THE CHART WHICH GIVES THE BUILT U P AREA AS ANALYZED BY THE AO. IT IS THE CASE OF THE REVENUE THAT IF THE T ERRACE AREA IS INCLUDED, THE TOTAL BUILT UP AREA IN SOME OF THE CASES EXCEEDS 10 00 SQ. FT. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE DEFINITION OF BUILT UP AREA AS GIVEN IN SUB SECTION 14(A) OF SECTION 8 0IB IS INSERTED BY THE FINANCE (NO.2) ACT, 2004 W.E.F. 01.04.2005 AND, THE REFORE, THE SAME IS APPLICABLE ONLY IN RESPECT OF THE PROJECTS APPROVED AFTER 01.04.2005. WE FIND MERIT IN THE ABOVE SUBMISSIONS OF THE LD. COUNSEL F OR THE ASSESSEE. THE CO- ORDINATE BENCHES OF THE TRIBUNAL ARE TAKING THE CON SISTENT VIEW THAT WHEN THE ASSESSEE SUBMITS THE PROPOSAL FOR CARRYING OUT THE DEVELOPMENT OF A HOUSING PROJECT, THEN WHATEVER LAW IS THERE ON THAT DAY, THAT WOULD REGULATE THE RIGHTS OF THE ASSESSEE. IN THE INSTANT CASE, UN DISPUTEDLY THE PROJECT WAS APPROVED ON 10.10.2003 I.E. PRIOR TO 01.04.2005, TH EREFORE, WE ARE OF THE OPINION, THAT THE REVENUE AUTHORITIES ARE NOT JUSTI FIED IN INCLUDING THE BALCONY/TERRACE IN THE BUILT UP AREA SO AS TO DENY THE BENEFIT OF DEDUCTION U/S. 80IB(10). FURTHER THE ASSESSEE HAS GIVEN THE C HART, COPY OF WHICH IS PLACED AT PG. NO. 165, ACCORDING TO WHICH THE AO IN SOME OF THE CASES HAS ADOPTED THE WRONG FIGURE, ALTHOUGH THE BUILT UP ARE A INCLUDING THE BALCONY PUT TOGETHER DOES NOT EXCEED 1000 SQ. FT. 32.1 IT HAS BEEN HELD IN VARIOUS DECISIONS THAT IF SOME OF THE FLATS IN A HOUSING PROJECT EXCEED THE PERMISSIBLE LIMIT, THAN THE BENEFIT OF DEDUCTION ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 30 U/S.80IB(10) HAS TO BE GRANTED ON PRO-RATE BASIS AN D THE ASSESSEE CANNOT BE DENIED THE EXEMPTION. HOWEVER, SINCE THE AREA OF NONE OF THE FLATS EXCEEDS 1000 SQ. FT. AFTER EXCLUDING THE BALCONY/TE RRACE, THE ASSESSEE, IN OUR OPINION, HAS NOT VIOLATED THIS CONDITION. 33. CONSIDERING THE TOTALITY OF THE FACTS OF THE CA SE AND IN VIEW OF THE DECISIONS CITED ABOVE, WE DO NOT FIND ANY REASON WH Y THE ASSESSEE SHALL NOT BE GRANTED THE BENEFIT OF DEDUCTION U/S. 80IB(10). WE THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO GR ANT THE BENEFIT OF DEDUCTION U/S.80IB(10). THE GROUNDS OF APPEAL NO. 1 (I) AND 1(II) BY THE ASSESSEE ARE ALLOWED. 34. THE GROUNDS OF APPEAL NO. 1 III) READS AS UNDER : III) NOT REDUCING THE PROFITS COMPUTED BY THE AO ON PERCENTAGE COMPLETION METHOD IN ASSESSMENT YEAR 2005-06 IN RES PECT OF THE PROJECTS SPLENDOUR & GULMOHAR FROM THE TOTAL PROF ITS OF RS.7,07,88,250/- WORKED OUT FROM THE SAID PROJECTS FOR ASSESSMENT YEAR 2006-07. THIS HAS LED TO DOUBLE TAX ATION OF THE SAID PROFITS, AS ASSESSED BY THE AO ONCE IN ASSESSM ENT YEAR 2005-06 & ONCE AGAIN IN ASSESSMENT YEAR 2006-07. 35. AFTER HEARING BOTH THE SIDES WE FIND THE GRIEVA NCE OF THE ASSESSEE IS THAT THE AO WHILE COMPUTING THE PROFIT BY REJECTING THE PROJECT COMPLETION METHOD FOR THE A.Y. 2005-06 HAS NOT REDUCED THE SAM E FROM THE PROFITS OF THE PROJECTS FOR THE A.Y. 2006-07 FOR WHICH IT LEAD S TO DOUBLE TAXATION OF THE SAME PROFITS. WE HAVE ALREADY ALLOWED THE CLAIM OF THE ASSESSEE IN A.Y. 2005-06 BY ACCEPTING THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE. THEREFORE, THIS GROUND RAISED BY THE ASSE SSEE BECOMES INFRUCTUOUS AND ACCORDINGLY THE SAME IS DISMISSED. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 31 36. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR THE A.Y. 2006-07 IS PARTLY ALLOWED. ITA NO.1547/MUM/2011 (A.Y. : 2007-08) 37. THE GROUNDS OF APPEAL NO. 1 AND 3 BY THE ASSESS EE READ AS UNDER : 1. REJECTING THE PROJECT COMPLETION METHOD OF ACCO UNTING WHICH HAS BEEN REGULARLY FOLLOWED BY THE APPELLANT IN THE PAST. THE APPELLANT IS A BUILDER AND DEVELOPER, AS PER THE RE VISED ACCOUNTING STANDARD-9(WHICH IS MADE MANDATORY BY TH E INSTITUTE OF CHARTERED ACCOUNTANTS TO BUILDERS AND DEVELOPERS ) THE APPELLANT HAD CORRECTLY DETERMINED ITS PROFIT AT RS .2,04,83,103/-. 3. UPHOLDING THE PROFITS ESTIMATED BY THE A.O. IN R ESPECT OF UNCOMPLETED PROJECTS AT RS.3,00,97,024/-, WHICH HAS BEEN DONE BY THE AO BY FOLLOWING THE PERCENTAGE COMPLETION ME THOD. 37.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSEE COMPANY WHICH IS INVOLVED IN THE BUSINESS OF BUILDER AND DEVELOPER, IS INVOLVED IN DEVELOPING THE FOLLOWING PROJECTS : 37.2 SR. NO. DESCRIPTION OF PROJECTS 1 AIROLI-1/19 NILAMBARI 2 KAMOTHE 49, 57 TO 62 / 36 3 KHARGHAR 184/13 TIARA 4 KHARGHAR (I) 52/20 GULMOHAR (A,B,C,D,E) (II) 56/20 GLORY (N & O) III) 56/20 SPLENDOR (IJKM) IV) 56/20 SPLENDOR (GHL) 5 NERUL 89 TO 92 / 19-A CENTURIAN 6 TILAK NAGAR ND 30. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 32 37.3 THE AO NOTED THAT OUT OF THE ABOVE PROJECTS, R EVENUES HAVE BEEN RECOGONISED FOR GULMOHAR (ABCDE) & SPLENDOR (GHL) I N A.Y. 2006-07. THE SALE OF THE UNSOLD STOCK OF THESE BUILDINGS IS OFFE RED IN A.Y. 2007-08. AS THE OTHER PROJECTS ARE NOT COMPLETED, REVENUE THERE FRO M HAS NOT BEEN RECOGNIZED. OUT OF THE ABOVE PROJECTS, ACCORDING TO THE ASSESSEE, THE PROJECTS GULMOHAR, SPLENDOR & GLORY ARE 80IB(10) COMPLIANT PROJECTS. AS FAR AS THE OTHER PROJECTS ARE CONCERNED THE ASSESSEE HAS NOT R ECOGNIZED ANY PROFITS FOLLOWING PROJECT COMPLETION METHOD. 37.4 SO FAR AS THE INCOMPLETE PROJECTS ARE CONCERNE D, THE AO ASKED THE ASSESSEE TO COMPUTE THE PROFIT @ 25% ON THE INCREAS E OF WIP DURING THE YEAR. FROM THE VARIOUS SUBMISSIONS FILED BY THE ASSESSEE, THE AO NOTED THE INCREASE OF WIP PROJECT WISE IS AS UNDER : SITE OPENING WIP CLOSING WIP DIFFERENCE ESTIMATED PROFIT @ 25% AIROLI 4,01,76,202 5,58,11,877 1,56,35,675 39,08,918 KHARGAR 184/13 TIARA 2,10,53,789 5,37,75,748 3,27,21,959 81,80,489 SPLENDOR M 2,90,00,000 1,56,00,000 1,34,00,000 33,50,000 GLORY 3,49,99,306 5,48,44,572 1,98,45,266 49,61,316 NERUL 14,56,29,867 18,44,15,071 3,87,85,204 96,96,301 KAMOTHE 97,50,169 97,50,169 TILAK NAGAR 2,79,088 3,52,680 73,592 3,00,97,024 IN RESPECT OF KAMOTHE AND TILAK NAGAR PROJECT THE A O NOTED THAT THERE IS NO SALE YET EXECUTED HENCE HE DID NOT ESTIMATE THE PRO FIT ON THE SAME. 37.5 HE NOTED THAT DURING A.Y. 2005-06 HIS PREDECES SOR AO HAS REJECTED THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE AND ESTIMATED THE ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 33 INCOME ON THE BASIS OF PERCENTAGE COMPLETION METHOD WHICH HAS BEEN UPHELD BY THE LD. CIT(A). THE ASSESSEE HAS FILED AP PEAL BEFORE THE TRIBUNAL WHICH IS PENDING. FOLLOWING THE ORDER OF HIS PREDEC ESSOR, THE AO ADOPTED PERCENTAGE COMPLETION METHOD BY REJECTING THE PROJE CT COMPLETION METHOD FOLLOWED BY THE ASSESSEE AND MADE ADDITION OF RS.3, 00,97,024/- TO THE TOTAL INCOME OF THE ASSESSEE BEING PROFIT ON INCOMPLETE PROJECTS. IN APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE AO FOR WHICH TH E ASSESSEE IS IN APPEAL BEFORE US. 38. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOVE GROUNDS BY THE ASSESSEE ARE IDENTICAL TO THE GROUNDS OF APPEAL NO. 1 TO 3 IN ASSESSES APPEAL FOR A.Y. 2005-06. WE HAVE ALREADY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AT PARA 11 TO 13.10 OF THE IMPUGNED ORDER UPHOLDING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND DELETING TH E ESTIMATED ADDITION MADE. FOLLOWING THE SAME RATIO THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS SET ASIDE AND THE GROUNDS RAISED BY THE ASSESSEE ARE AL LOWED. 39. THE GROUNDS OF APPEAL NO. 2 BY THE ASSESSEE RE ADS AS UNDER : 2. UPHOLDING THE ASSESSING OFFICER (A.O.) VIEWS IN RESPECT OF RECOGNIZING REVENUE IN RESPECT OF I, J & K WINGS OF THE BUILDING SPLENDOUR, THEREBY ESTIMATING PROFITS AT RS.6,29,38 ,999/-, ON THE GROUNDS THAT OCCUPATION CERTIFICATE IN RESPECT OF T HESE WINGS WERE RECEIVED ON 26.06.2006 AND 29.06.2006. IN DOING SO, BOTH THE AO AS WELL AS THE CIT(A) HAVE FURTHER ERRED IN REJECTI NG THE APPELLANTS PLEA THAT REVENUE IN RESPECT OF I, J & K WINGS WAS NOT RECOGNIZED FOLLOWING THE PRINCIPLES OF ACCOUNTING S TANDARD 9, ACCORDING TO WHICH REVENUE IN RESPECT OF THESE WING S WAS RECOGNIZED IN ASSESSMENT YEAR 2008-09 I.E. FINANCIA L YEAR 2007- 08. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 34 39.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSEE HAS SHOWED GULMOHAR AND SPLENDOR AS COMPLETED IN A.Y. 2006-07. THESE BU ILDINGS ARE CONSTRUCTED ON PLOT NO. 52 AND 56 AT SECTOR 20, KHARGHAR AND AR E FORMING PART OF ONE COMMENCEMENT CERTIFICATE. THE NAMES OF THE BUILDING S ARE GULMOHAR, SPLENDOR & GLORY. THE ASSESSEE HAS ACCOUNTED THE PR OFITS OF GULMOHAR (A,B,C,D & E) AND SPLENDOR (G, H & L) IN A.Y. 2006- 07. FROM THE DETAILS OF RECEIPT OF THE PART OCCUPATION CERTIFICATE OBTAINE D BY THE ASSESSEE, THE AO NOTED THE FOLLOWING FACTS: NAME OF THE WING DATE OF OC GULMOHAR (A,B,C,D,E) 26.6.2006 SPLENDOR (G,H & L) 29.9.2006 SPLENDOR (I,J & K) 1.12.2006 SPLENDOR (M) & GLORY (N & O) 31.3.2008 THE AO NOTED THAT THE ASSESSEE HAS GOT THE O.C. FOR SPENDOR (I,J & K) ON 1.12.2006. THEREFORE, HE ASKED THE ASSESSEE AS TO W HY THE PROFITS OF THE SPLENDOR (I, J & K) SHOULD NOT BE OFFERED FOR TAXAT ION IN THE CURRENT YEAR. 39.2 IN RESPONSE TO THE SAME, THE ASSESSEE REPLIED AS UNDER :- 1. THE DATE FOR COMPLETION OF THE PROJECT GLORY AND SPLENDOR (I,J,K AND M) WINGS AS CERTIFIED BY THE ARCHITECT ARE ENCL OSED AT ANNEXURE H ALONG WITH THE SUPPORTING DOCUMENTS THER ETO. IN THE ARCHITECT CERTIFICATE IT HAS BEEN CERTIFIED THAT T HE I,J AND K WINGS OF SPLENDOR WERE COMPLETED ON 1 ST DECEMBER, 2006, THE OCCUPANCY CERTIFICATE DTD. 31.03.2008 MENTIONS THAT PART OCCU PANCY OF THE BUILDING WAS RECEIVED ON 01.12.06, THIS PART OC WAS OF NO CONSEQUENCE FOR GIVING THE POSSESSION. AS CERTIFIED BY THE ARCHITECT THOUGH THE PART OCCUPANCY CERTIFICATE WAS ISSUED ON 1.12.06 THE ACTUAL POSSESSION OF RESIDENTIAL FLATS IN THESE WIN GS COULD BE ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 35 HANDED OVER ONLY IN THE NEXT FINANCIAL YEAR AS CERT AIN WORKS ON THE AMENITIES AS PROVIDED WERE NOT UP TO THE SPECIF ICATIONS AS CALLED FOR BY THE PURCHASERS AND HENCE WORK HAD TO BE REDONE ON THESE TO THEIR SATISFACTION. IT IS ONLY THEREAFTER IN THE FINANCIAL YEAR ENDING 2008 THAT POSSESSION OF THESE FLATS WERE HAN DED OVER TO THE PURCHASERS AND REVENUE IN RESPECT OF THESE SALE S WAS RECOGNIZED BY FOLLOWING THE ACCOUNTING STANDARD. EV EN THE OCCUPANCY CERTIFICATE DT. 31.03.2008 CERTIFIES THAT THE PART OC WAS GIVEN ON 01.12.2006. 2. IN THE CERTIFICATE ISSUED BY THE ARCHITECT WHICH IS ANNEXURE TO THE FORM 10 CCB IT HAS BEEN STATED THAT I,J AND K WINGS OF SPLENDOR HAVE NOT BEEN COMPLETED UP TO 31 MARCH, 20 07. THE ABOVE CLARIFICATION HAS BEEN INADVERTENTLY MISSED I N THE SAID CERTIFICATE AS ISSUED BY THE ARCHITECT. 39.3 HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXP LANATION GIVEN BY THE ASSESSEE. HE NOTED FROM THE DETAILS FURNISHED BY TH E ASSESSEE THAT IN RESPECT OF GULMOHAR AND SPLENDER G & H THE OCCUPATION CERTI FICATE WAS RECEIVED ON 26.06.2006 AND 29.09.2006. DESPITE THIS, THE REVENU E WAS RECOGNIZED IN THE EARLIER YEAR. OCCUPATION CERTIFICATE IS GENERALLY I SSUED FOR COMPETED WORK AS MENTIONED IN THE COMMENCEMENT CERTIFICATE. THE ASSE SSEE HAS OBTAINED PART OCCUPANCY ON THE BASIS OF THE WORK COMPLETED, BUILD ING WISE. THE REFERENCE GIVEN BY THE ASSESSEE THAT THE OCCUPATION CERTIFICA TE IS OBTAINED ONLY ON 31.03.2008 IS ONLY AN INDICATION THAT THE ENTIRE WO RK AS PER THE COMMENCEMENT CERTIFICATE OF 14 BUILDINGS ARE COMPLE TE. THE ASSESSEE HAS, IN CASE OF PART O.C. RECEIVED, RECOGNIZED THE REVENUE INSPITE OF NOT RECEIVING THE O.C. THUS THE ASSESSEE IS NOT CONSISTENT IN FOLLOWI NG THE METHOD OF ACCOUNTING ADOPTED BY ITS. REJECTING THE VARIOUS EX PLANATIONS GIVEN BY THE ASSESSEE, THE AO MADE ADDITION OF RS.6,29,38,999/- WHICH WAS UPHELD BY THE LD. CIT(A). AGGRIEVED WITH SUCH ORDER OF THE LD . CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 36 40 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH OCCUPANCY CERTIFICATE IS RECEIVED ON 1.12.2006, BUT THE POSSE SSION OF THE FLATS WERE HANDED OVER TO THE PURCHASERS IN THE NEXT YEAR AS C ERTAIN WORKS ON THE AMENITIES PROVIDED BY THE ASSESSEE COMPANY WERE NOT UPTO THE SPECIFICATIONS AND THEREFORE, THE PURCHASERS HAVE N OT TAKEN POSSESSION AND HENCE, WORK HAD TO BE RE-DONE TO MEET THEIR SPECIFI CATIONS. ACCORDINGLY, THE POSSESSION OF THESE FLATS WERE HANDED OVER TO THE P URCHASERS IN THE NEXT YEAR. REFERRING TO THE PAPER BOOK PAGES 317 TO 319 HE DREW THE ATTENTION OF THE BENCH TO THE AFFIDAVIT MADE BY THE EXECUTIVE DI RECTOR OF THE ASSESSEE COMPANY MR. SANJAY KASHINATH HAWARE WHEREIN HE HAS STATED THAT THE FLATS WERE HANDED OVER DURING F.Y. 2007-08 I.E. A.Y. 2008 -09. ACCORDINGLY, INCOME IN RESPECT OF I, J&K WINGS OF SPLENDOR PROJE CT IS CORRECTLY DECLARED IN THE ASSESSMENT YEAR 2008-09. 40.1 HE SUBMITTED THAT IN THE A.Y. 2008-09, INCOME IN RESPECT OF THE COMPLETED PROJECTS I, J&K WINGS HAS BEEN DECLARED A T RS.15,31,71,399/- AND IN THE A.Y. 2009-10, THE SAME IS DECLARED AT RS .3,29,54,873/-. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSI NG OFFICER HAS INCLUDED THE INCOME IN RESPECT OF THIS PROJECT IN THE A.Y. 2 008-09 AT RS.15,31,71,399/- AND WHILE DOING SO, HE HAS NOT AL LOWED DEDUCTION OF THE ESTIMATED PROFIT OF RS.6,29,38,999/- COMPUTED BY HI M IN THE A.Y. 2007-08. THIS AMOUNTS TO TAXATION OF THE SAME AMOUNT TWICE. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 37 40.2 THE LD. COUNSEL SUBMITTED THAT FROM THE FACTS MENTIONED BY THE ASSESSING OFFICER IN THE ORDER IT IS CLEAR THAT THE ASSESSEE COMPANY DECLARED THE PROJECTS COMPLETED IN THE YEAR WHEN THE PROJECT S ARE COMPLETED IN ALL RESPECTS AND POSSESSIONS WERE GIVEN TO THE INTENDIN G PURCHASERS ON RECEIPT OF THE FULL PAYMENT AGAINST THE AGREEMENT VALUE AND THEREBY, RISK AND REWARDS ARE TRANSFERRED TO THE PURCHASERS UNDER THE SALE AGREEMENT. ACCORDINGLY, THE ASSESSEE COMPANY HAS TAKEN THE TWO PROJECTS COMPLETED IN THE LAST YEAR WHEN THE POSSESSIONS ARE GIVEN TO THE INTENDING PURCHASERS THOUGH THE OCCUPANCY CERTIFICATE WERE RECEIVED ON 2 6.6.2006 AND 29.9.2006 WHICH FALL IN THE A.Y. 2007-08. FOLLOWIN G THE SAME ANALOGY IN RESPECT OF THE PROJECT I, J&K WINGS, THOUGH THE OCC UPANCY CERTIFICATE IS RECEIVED IN THIS YEAR ON 01.12.2006, BUT POSSESSION S WERE GIVEN IN THE NEXT YEAR AFTER RE-DOING SOME AMENITIES AS PER SPECIFICA TIONS AND INCOME IS DECLARED IN THE NEXT YEAR I.E. A.Y. 2008-09. 40.3 WITHOUT PREJUDICE, HE SUBMITTED THAT SINCE THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S 80-IB(10) ON THIS PROJECT BY SATISFYING ALL THE CONDITIONS, IT DOES NOT AFFECT THE COMPUTATION OF I NCOME WHETHER PROJECT IS TAKEN AS COMPLETED IN A.Y. 2007-08 OR 2008-09. 41. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORD ER OF THE AO AND THE LD. CIT(A). 42. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND LD. CIT(A) AND THE PAPER BOOK FILED ON ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 38 BEHALF OF THE ASSESSEE. THE ONLY DISPUTE IN THE IMP UGNED GROUND IS REGARDING TAXABILITY OF INCOME FORM I, J AND K WING OF THE BUILDING SPLENDOUR. ACCORDING TO THE AO SINCE O.C. IN RESP ECT OF THESE WINGS WERE RECEIVED ON 26.06.2006 AND 29.06.2006, THEREFORE, R EVENUE SHOULD HAVE BEEN RECOGNIZED DURING THIS YEAR. IT IS THE SUBMISS ION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE CERTAIN WORKS ON THE AMENIT IES WERE TO BE REDONE, THE FLATS WERE HANDED OVER IN THE NEXT FINANCIAL YE AR AND REVENUE HAS BEEN RECOGNIZED ACCORDINGLY. ALTERNATIVELY, IT IS THE SU BMISSION OF THE LD. COUNSEL THAT IF REVENUE IS RECOGNIZED DURING THE YE AR, THE PROFIT WILL BE EXEMPTED U/S.80IB(10) AND, THEREFORE, THE SAME IS R EVENUE NEUTRAL. WE FIND THE ASSESSEE HAS SUBMITTED BEFORE THE AO THAT THE F LATS WERE HANDED OVER ONLY IN THE NEXT FINANCIAL YEAR. AN AFFIDAVIT OF TH E DIRECTOR TO THIS EFFECT HAS ALSO BEEN FILED. HOWEVER, THE AO HAS NOT CONDUCTED ANY INDEPENDENT ENQUIRY FROM ANY OF THE PURCHASERS SO AS TO NEGATE THE CONTENTION OF THE ASSESSEE. FURTHER, THE AFFIDAVIT OF THE DIRECTOR HA S ALSO NOT BEEN REJECTED OR PROVED TO BE FALSE OR UNTRUE. UNDER THESE CIRCUMSTA NCES WE FIND SUFFICIENT FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSSEE THAT ALTHOUGH THE O.C. WERE OBTAINED ON 26.06.2007 AND 29.06.200 6, BUT THE FLATS WERE COMPLETED IN ALL RESPECTS ACCORDING TO THE SPECIFIC ATIONS AND WERE HANDED OVER ONLY AFTER THE END OF THE F.Y. 2006-07. THEREF ORE, THE ASSESSEE IS RIGHT IN RECOGNIZING THE REVENUE IN A.Y> 2008-09. FURTHER , WE ALSO FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE ASSESSEE FULFILLS ALL THE CONDITIONS PRESCRIBED U/S.80IB(10) , THE ENTIRE PROFIT HAS TO BE ALLOWED AS DEDUCTION U/S.80IB(10) AND IT DOES NOT A FFECT THE COMPUTATION. IN ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 39 THIS VIEW OF THE MATTER WE SET ASIDE THE ORDER OF T HE LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION. GROUND NO .2 BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 43. THE GROUNDS OF APPEAL NO. 4, 5 & 6 BY THE ASSES SEE ARE AS UNDER 4. UPHOLDING THE VIEW OF THE AO IN NOT GRANTING THE APPELLANT DEDUCTION CLAIMED U/S.80-IB(10) OF THE INCOME TAX A CT (ITA) OF RS.2,04,83,103/-, IN RESPECT OF THE PROJECTS GULMOH AR & SPLENDOUR, WINGS A, B, C, D, E, WHICH WAS CONSTRU CTED AT PLOT NOS.52/20 & 56/20, SECTOR 20, KHARGHAR, NAVI MUMBAI . 5. REJECTING THE APPELLANTS PLEA THAT DEDUCTION U/ S.80-IB(10) OF THE INCOME TAX ACT SHOULD BE GRANTED IN RESPECT OF THE PROFITS ESTIMATED BY THE AO, WHICH WERE ADDED TO THE TOTAL INCOME DURING THE COURSE OF THE ASSESSMENT. 6. NOT APPRECIATING THE SECTION 80-IB(10) IS AN INC ENTIVE PROVISION FOR ECONOMIC GROWTH AND HAS TO BE INTERPR ETED LIBERALLY. IN DOING SO, THE AO HAS NOT FOLLOWED THE PRINCIPLES IN THIS REGARD AS LAID DOWN BY THE APEX COURT IN BAJAJ TEMPO VS. C IT 196 ITR 188 (SC). 44. FACTS OF THE CASE IN BRIEF ARE THAT THE AO DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS S HOWN PROFITS FROM THEIR PROJECTS GULMOHAR & SPLENDOR WHICH HAVE BEEN CO NSTRUCTED AT KHARGHAR, NAVI MUMBAI AND EARNED PROFITS AMOUNTING TO RS.2,04 ,83,103/-. THIS PROJECT HAS BEEN CLAIMED AS EXEMPT U/S.80IB(10) OF THE I.T. ACT. THE AO ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM OF EXEMPTIO N U/S.80IB(10). HE NOTED THAT ASSESSEE HAS FAILED TO FULFILL THE CONDITIONS LAID DOWN THEREIN BEING AREA OF FLATS EXCEEDING BUA 1000 SQ. FT. AND COMBINED AR EA OF FLATS EXCEEDING 1000 SQ.FT., THAT COMMERCIAL AREA EXCEEDS 5% OR 200 0 SQ. FT. WHICHEVER IS LESS AND THAT NO CLAIM FOR DEDUCTION U/S. 80IB(10) WAS MADE FOR SPLENDOR J,K,L BUILDING IN THE RETURN OF INCOME FILED. THE A O FURTHER NOTED THAT AS PER ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 40 AMENDMENT BY FINANCE ACT, 2004, THE MAXIMUM PERMISS IBLE COMMERCIAL AREA HAS TO BE AT 5% OF TOTAL PROJECT AREA OR 2000 SQ.FT. WHICHEVER IS LESS. ACCORDING TO THE AO AS PER SECTION 80IB(10) THE PRO JECTS UNDER REFERENCE MUST NECESSARILY BE A HOUSING PROJECT AND HOUSING P ROJECT ALONE WHEREAS THE CIDCO HAS APPROVED THE PROJECT AS A RESIDENTIAL C UM COMMERCIAL PROJECT. IN VIEW OF THESE FACTS, THE AO REJECTED ASSESSEES CLAIM OF DEDUCTION U/S.80IB(10) OF THE I.T. ACT. 45. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED T HAT THE PROJECT WAS APPROVED ON 10.10.2003, DURING WHICH TIME THE RESTR ICTIVE CONDITIONS TO COMMERCIAL AREA WERE NOT THERE IN THE STATUE BOOK A ND CONDITIONS AS SPELT BY AO WAS BROUGHT OUT BY THE FINANCE ACT (NO.2) OF 200 4. THE ASSESSEE SUBMITTED THAT THE OBJECTION OF THE AO THAT TWO FLA TS WERE SOLD TO THE SAME PERSON AND HENCE THE AREA OF THE TWO FLATS COMBINED TOGETHER EXCEED 1,000 SQ.FT., DOES NOT MEAN THAT THE ASSESSEE IS NOT ELIG IBLE FOR CLAIM U/S.80IB(10). THE ASSESSEE FURTHER SUBMITTED THAT IT HAD NOT SOLD THE TWO UNITS AS ONE CONSOLIDATED UNIT, SO AS TO DENY IT ANY DEDUCTION U /S.80IB(10). IT WAS SUBMITTED THAT SOME OF THE FLATS ARE EXCEEDING 1,00 0 SQ.FT. INCLUDING TERRACE AND IN THAT AREAS OF OPEN TERRACES WERE NOT TO BE I NCLUDED IN THE BUILT UP AREAS AND THE AMENDMENT REGARDING BUILT-UP AREAS WA S BROUGHT IN BY THE FINANCE ACT, 2004 W.E.F. 01.04.2005 I.E. A.Y. 2005- 2006. THE ASSESSEE FURTHER CONTENDED THAT CIDCO AUTHORITIES APPROVED T HE PROJECT PRIOR TO THE AMENDMENT OF FINANCE ACT WHICH EXCLUDED BALCONIES A ND TERRACES. THE ASSESSEE RELIED ON THE DECISION OF THE SPECIAL BENC H OF THE TRIBUNAL IN ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 41 BRAHMA ASSOCIATES, 122 TTJ 443. ACCORDINGLY, IT WAS SUBMITTED THAT DEDUCTION CLAIMED U/S. 80IB(10) MAY BE ALLOWED. 46. HOWEVER, THE LD. CIT(A) FOLLOWING HIS ORDER FOR A.Y. 2006-07 UPHELD THE ACTION OF THE AO FOR WHICH THE ASSESSEE IS IN A PPEAL BEFORE US. 47. AFTER HEARING BOTH THE SIDES WE FIND THE GROUND S RAISED BY THE ASSESSEE IN THE IMPUGNED APPEAL ARE IDENTICAL TO GR OUNDS IN ITA NO.6861/M/2010 FOR A.Y. 2006-07. WE HAVE ALREADY DE CIDED THE ISSUE IN FAVOUR OF THE ASSESEE AT PARA 23 TO 33 OF THE IMPUG NED ORDER. FOLLOWING THE SAME RATIO, THE ORDER OF THE LD. CIT(A) ON THIS ISS UE IS SET ASIDE AND THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 48. GROUNDS OF APPEAL NO. 7 BY THE ASSESSEE READS A S UNDER:- UPHOLDING THE VIEW OF THE A.O. FOR TREATING A SUM O F ` 8,01,97,900/- AS DEEMED DIVIDENDS U/S 2(22)E OF THE INCOME TAX ACT, THEREBY ASSESSING THE SAID SUM AS THE APPELLAN TS INCOME. 48.1 FACTS OF THE CASE IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. OBSERVED THAT ASSESSEE COMPANY (HCPL) HAS TAKEN UN- SECURED LOAN FROM HAWARE ENGINEERS & BUILDERS PVT. LTD. (HEBPL) AMOUNTING TO ` 8,01,97,900/- WHICH WAS SQUARED UP DURING THE YEAR AND THERE EXISTED BALANCE OF ` 13,481/- AT THE END OF THE YEAR. THE BALANCE SHEET OF HEBPL SHOWS RESERVE OF ` 50.96 CRORES AS ON 31.03.2007. THE A.O. FURTHER NOTED THAT MRS. UJJWALA HAWARE HOLDS MORE T HAN 20% EQUITY CAPITAL IN BOTH THE COMPANIES. IN VIEW OF THESE FACTS, A.O. WAS OF THE OPINION THAT ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 42 PROVISIONS OF SECTION 2(22)(E) IS ATTRACTED AND ASK ED THE ASSESSEE AS TO WHY THE AMOUNT SHOULD NOT BE TAXED AS DEEMED DIVIDEND U /S 2(22)(E) OF THE I.T. ACT. A.O. ALSO REPRODUCED PROVISIONS OF SECTION 2( 22)(E) IN THE ASSESSMENT ORDER ON PAGE 21 AND ALSO NOTED THAT M/S HEBPL AND THE ASSESSEE COMPANY ARE NOT COMPANIES IN WHICH PUBLIC ARE SUBST ANTIALLY INTERESTED. A.O. FURTHER NOTED THAT AMOUNT RECEIVED IN ASSESSEE S ACCOUNT FOR APPLICATION AS DESIRED BY THE ASSESSEE AND IT IS NO T FOR THE BUSINESS APPLICATION OF THE DONOR AND THE SAME IS SHOWN AS L OAN UNDER THE HEAD LOANS AND ADVANCES FROM A COMPANY. ACCOUNTS OF A SSESSEE NOWHERE REVEALED THE RECEIPT OF ICD IN BALANCE SHEET. IN V IEW OF THESE FACTS A.O. HELD THAT LOAN RECEIVED FROM M/S HEBPL BY THE ASSESSEE C OMPANY IS DEEMED DIVIDEND AND ASSESSEE MUST BE DEEMED TO HAVE RECEIV ED DIVIDENDS ON THE DATES ON WHICH ASSESSEE WITHDREW THE SAID AMOUNTS F ROM THE COMPANY. ACCORDING TO THE A.O. LOAN OR ADVANCE TAKEN FROM TH E COMPANY MAY HAVE BEEN ULTIMATELY REPAID OR ADJUSTED BUT THAT WILL NO T ALTER THE FACT THAT THE ASSESSEE IN THE EYE OF LAW, HAD RECEIVED DIVIDEND F ROM THE COMPANY DURING THE RELEVANT ACCOUNT PERIOD. FOR THE ABOVE PROPOSI TION, THE A.O. RELIED ON THE FOLLOWING DECISIONS:- 1. M/S EXTEMPORE SECURITIES & INVESTMENTS P. LTD. VS. DCIT (2009) 29 SOT 40 MUMBAI ITAT. 2. MISS P. SARADA VS. CIT 229 ITR 444(SC) 3. SMT. TARULATA SHYAM VS. CIT (1977) 108 ITR 345 4. P.K. BADIANI VS. CIT 105 ITR 642 (SC_ 5. S. KUMARASWAMY VS. ITO 43 ITR 423 ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 43 ACCORDINGLY THE A.O. TREATED AN AMOUNT OF ` 8,01,97,900/- AS RECEIPT OF DEEMED DIVIDEND AND ASSESSED THE SAME UNDER THE HEA D INCOME FROM OTHER SOURCES. 48.2 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT TH E SAID TRANSACTION IS OF THE NATURE OF PAYMENT BY WAY OF LOANS AND ADVANCES AND IT HAD SPECIFICALLY MENTIONED THAT THE TRANSACTIONS ARE IN THE NATURE O F ICDS PAID TO HEBPL DURING THE YEAR ENDINGS 31.03.2007. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAD RECEIVED ICD ` 8.02 CRORES AND ICD OF ` 9.55 CRORES WERE PAID AND THE SAID ICD WAS PAID FOR THE PURPOSE OF BUSINESS TRANSACTIONS PROPOSED TO BE ENTERED INTO BETWEEN TH E TWO COMPANIES I.E HAWARE CONSTRUCTION P. :LTD. (HCPL) & HEBPL. IT WA S ALSO STATED THAT THE PAYMENT MADE BY HEBPL TO HCPL AND FROM HCPL TO HEBP L ARE SUCH PAYMENTS ON ACCOUNT OF THE PROPOSED PURCHASE OF THE RELEVANT PROJECTS. IT WAS SUBMITTED THAT SINCE THE TERMS AND OTHER ASPECT S OF THE PROJECT WERE NOT FINALIZED TO ENTER INTO AN AGREEMENT, THEREFORE , IN THE INTERVENING PERIOD AS A COMMERCIAL EXPEDIENCY, THE NET BALANCE WAS WOR KED OUT AND INTEREST ON THE DIFFERENCE WAS LEVIED. THE ASSESSEE ALSO DIS TINGUISHED THE PROVISIONS OF SECTION 2(22)(E) STATING THAT SECTION 2(22)(E) C REATES A FICTION BRINGING IN AMOUNTS PAID OTHERWISE THAN AS DIVIDENDS INTO THE N ET OF DIVIDENDS AND AS PER CLAUSE (II) OF SECTION 2(22)(E) THE PAYMENT BY A CLOSELY HELD COMPANY TO A SHAREHOLDER OR TO ANY CONCERN ETC. SHOULD BE BY WAY OF ADVANCE OR LOAN. RELYING ON A COUPLE OF DECISIONS, IT WAS SUBMITTED THAT ADDITIONS MADE OF ` 8,01,97,900/- U/S 2(22)(E) MAY BE DELETED. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 44 48.3 HOWEVER, THE LD. CIT(A) WAS NOT CONVINCED WIT H THE ARGUMENTS ADVANCED BEFORE HIM AND UPHELD THE ACTION OF THE A. O. WHILE DOING SO HE NOTED THAT THE FACTS ON RECORD DO NOT SUPPORT THIS CONTENTION OF THE ASSESSEE. HE OBSERVED FROM THE COPY OF ACCOUNT OF H EBPL IN THE BOOKS OF THE APPELLANT FOR F.Y. 2006-07 THAT THE FUNDS OF ` 7.87 CRORES HAVE BEEN TRANSFERRED BY HEBPL THROUGH DIFFERENT BANKS REGULA RLY FROM 15 TH APRIL TO 31.03.2007. REGULAR TRANSFER OF FUNDS DOESNT PROV E THAT THESE ARE FOR A TRANSFER AGAINST COST OF SOME PLOTS. FURTHER, THE ASSESSEE HAS ALSO PRODUCED THE COPY OF AGREEMENT DATED 23.4.2007 THOU GH THE LAND HAS BEEN TRANSFERRED. HOWEVER, THERE IS NO LINK BETWEEN THE TWO. FURTHER, PAYMENT OF ` 93 LACS ONLY HAS BEEN MADE AS PER AGREEMENT AND TH ERE IS NO REFERENCE OF ANY ADVANCE GIVEN. THUS, THE CLAIM OF THE ASSES SEE THAT ADVANCE WAS MADE FOR PURCHASE OF PLOT IS NOT SUPPORTED BY ANY E VIDENCE. HE DISTINGUISHED THE DECISION IN THE CASE OF BOMBAY OI L INDUSTRIES LTD. (SUPRA) BY HOLDING THAT THE LENDER COMPANY IN THAT CASE WAS ENGAGED IN THE BUSINESS OF GIVING LOANS. THE OTHER CASES RELIED UP ON BY THE ASSESSEE ARE ALSO BASED ON DIFFERENT SET OF FACTS AND HENCE NOT RELEVANT TO THE CASE OF THE ASSESSEE. HE ACCORDINGLY UPHELD THE ACTION OF THE A.O. 48.4 AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) TH E ASSESSEE IS IN APPEAL BEFORE US. 49. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO T HE COPY OF THE AGREEMENT DATED 16.04.2007 ENTERED INTO BETWEEN HEB PL AND THE ASSESSEE COMPANY (PLACED AT PAPER BOOK PAGES 336 TO 368) SUB MITTED THAT THE SAME ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 45 IS FOR THE PURCHASE OF PREMISES AND SALEABLE BUILT UP AREA OF 1 LAKH SQ.FT. IN THE COMPLEX HAWARE CITY PROJECT FOR CONSIDERATION O F RS.35 CRORES. 49.1 REFERRING TO THE COPY OF THE AGREEMENT DATED 2 3.04.2007 (PLACED AT PAPER BOOK PAGES 369 TO 398) ENTERED INTO BETWEEN T HE ASSESSEE COMPANY AND HEBPL HE SUBMITTED THAT THE SAME IS FOR PURCHAS E OF OWNERSHIP FLATS AND SALEABLE CONSTRUCTED AREA OF 1 LAKH SQ.FT. IN T HE BUILDING TO BE CONSTRUCTED AT SECTION 36, PHASE II, NAVI MUMBAI FO R A CONSIDERATION OF RS.30 CRORES. 49.2 HE SUBMITTED THAT IN VIEW OF THE ABOVE AGREEME NTS THE ASSESSEE COMPANY DURING THE YEAR HAS RECEIVED A SUM OF RS.8 ,01,97,900/- FROM HEBPL TOWARDS CONSTRUCTED AREA AGREED TO BE SOLD BY THEM AND SIMILARLY PAID A SUM OF RS.9,55,44,000/- TO HEBPL TOWARDS CON STRUCTED AREA PURCHASED FROM THEM. SINCE THE AGREEMENTS WERE NOT ENTERED DURING THE YEAR (WHICH WERE ENTERED IN THE MONTH OF APRIL,2007 ) IT WAS DECIDED TO CHARGE INTEREST ON THAT AND ACCORDINGLY, A SUM OF R S.2,96,896/- WAS THE INTEREST PAYABLE TO HEBPL. THEREFORE, THESE AMOUNTS ARE PAID AND RECEIVED TOWARDS BUSINESS TRANSACTIONS ENTERED BETWEEN BOTH THE COMPANIES. 49.3 RELYING ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NAGINDAS M. KAPADIA REPORTED IN 177 ITR 393 HE SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 2(22)(E), BUSINESS TRANSACTIONS ARE NOT TO BE TREATED AS DEEMED DIVIDEND. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 46 49.4 HE SUBMITTED THAT SINCE THE AGREEMENTS WERE YE T TO BE ENTERED, THE TRANSACTIONS WERE TREATED AS ICDS. RELYING ON THE D ECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF BOMBAY OIL IND USTRIES LTD V. DCIT CEN. CIR. 35 28 STO 383 (BOM), HE SUBMITTED THAT ICDS DO NOT COME WITHIN THE PURVIEW OF DEEMED DIVIDEND U/S.2(22)(E) 49.5 HE SUBMITTED THAT THE TRIBUNAL IN THE CASE OF THE SAID DECISION HAS HELD THAT THERE IS DISTINCTION BETWEEN DEPOSITS VIS --VIS LOANS/ADVANCES. SECTION 2(22)(E) ENACTS A DEEMING FICTION WHEREBY T HE SCOPE AND AMBIT OF THE WORD DIVIDEND HAS BEEN ENLARGED TO BRING WITHIN I TS SWEEP CERTAIN PAYMENTS MADE BY A COMPANY AS PER THE SITUATIONS EN UMERATED IN THE SAID SECTION. SUCH A DEEMING FICTION WOULD NOT BE GIVEN A WIDER MEANING THAN WHAT IT PURPORTS TO BE. THE PROVISIONS WOULD NECESS ARY BE ACCORDED STRICT INTERPRETATION AND THE AMBIT OF THE FICTION WOULD N OT BE PRESSED BEYOND ITS TRUE LIMITS. THE REQUISITE CONDITION FOR INVOKING S EC.2(22)(E) IS THAT PAYMENT MUST BE MADE BY WAY OF LOAN OR ADVANCE. SINCE THERE IS A CLEAR DISTINCTION BETWEEN THE INTER-CORPORATE DEPOSITS VIS--VIS LOAN S/ADVANCES, THE LOWER AUTHORITIES WERE NOT RIGHT IN TREATING THE SAME AS DEEMED DIVIDEND UNDER SEC. 2(22)(E) SINCE IT WAS HELD THAT ICDS DO NOT CO ME WITHIN THE PURVIEW OF DEEMED DIVIDEND U/S.2(22)(E). 49.6 HE SUBMITTED THAT IF THE TRANSACTION BETWEEN C OMPANY A AND COMPANY B WAS A NORMAL BUSINESS TRANSACTION, IT C ANNOT BE TERMED AS DEEMED DIVIDEND U/S.2(22)(E) BECAUSE OF THE SHAREHO LDING PATTERN OF TWO COMPANIES. FOR THIS PREPOSITION HE RELIED ON THE FO LLOWING DECISIONS:- ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 47 A) CIT VS. AMBASSADOR TRAVELS (P) LTD. 318 ITR 376 ( DEL) B) NH SECURITIES LTD. V. DCIT 11 SOT 302 (MUMBA I) 49.7 REFERRING TO THE COPY OF DAY TO DAY ACCOUNT OF HEBPL IN THE BOOKS OF THE ASSESSEE COMPANY FOR THE YEAR ENDED 31.03.2007 INCLUDING GIVING EACH DEBIT AND CREDIT AND DAILY BALANCE (PAGE NOS.230 TO 235 OF THE PAPER BOOK) HE SUBMITTED THAT THERE WAS CREDIT BALANCE IN THEIR ACCOUNT FROM 01.04.2006 TO 06.05.2006 AND THEREAFTER, IT WAS ALW AYS DEBIT BALANCE. THAT PROVES THAT FROM 06.05.2006 ONWARDS, THE ASSESSEE C OMPANY HAS FIRST PAID MONEY TO HEBPL AND SUBSEQUENT CREDITS IN THEIR ACCO UNTS ARE REPAYMENT OF THE LOANS GIVEN BY THE ASSESSEE COMPANY TO HEBPL. H E SUBMITTED THAT BETWEEN 01.04.2006 TO 06.05.2006, THERE ARE ONLY FO UR CREDIT ENTRIES IN THE ACCOUNT OF HEBPL WHICH ARE AS UNDER : 15.04.2006 RS.8,00,000 17.04.2006 RS.10,00,000 25.04.2006 RS.10,00,000 25.04.2006 RS.10,00,000 TOTAL RS.38,00,000 49.8 HE SUBMITTED THAT IF THE OPENING CREDIT BALANC E OF RS.1,50,35,750/- IS EXCLUDED THE ASSESSEE COMPANY ALWAYS GIVES MONEY TO HAWARE ENGINEERS PVT. LTD. AND THEREAFTER, THERE IS A REPAYMENT OF T HE SAME AND, THEREFORE, SUCH RECEIPT OF MONEY AGAINST REPAYMENT OF LOAN CAN NOT BE TREATED AS DEEMED DIVIDEND. HE SUBMITTED THAT THE TOTAL INTERE ST CREDITED TO THE ACCOUNT OF HEBPL OF RS.2,96,869/- FOR THE WHOLE YEA R AND AFTER THAT, THE DEBIT BALANCE IN THE ACCOUNT FOR HEBPL IS OF RS.13, 481/-. ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 48 49.9 REFERRING TO A NUMBER OF DECISION HE SUBMITTED THAT NO DEEMED DIVIDEND U/S. 2(22)(E) CAN BE TAXED IN THE HANDS OF THE COMPANY. 49.10 THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE 227 TO 228 OF THE PAPER BOOK DREW THE ATTENTION OF THE BENCH TO THE L IST OF SHAREHOLDERS OF HEBPL AND HCPL ON 31.3.2007 AND SUBMITTED THAT THE ASSESSEE COMPANY IS NOT A REGISTERED SHAREHOLDER OF HEBPL. REFERRING TO THE CERTIFICATE ISSUED BY THE ASSESSEE COMPANY (PAPER BOOK PAGE 229), HE S UBMITTED THAT THERE ARE NO TRANSACTIONS WITH UJJWALA HAWARE AND DURING THE YEAR ENDED ON 31.3.2007 THEY HAVE PAID ONLY REMUNERATION OF ` 10,50,000/- TO HER. REFERRING TO THE DECISION OF THE SPECIAL BENCH OF T HE TRIBUNAL IN THE CASE OF CIT VS. BHAUMIK COLOUR P. LTD. REPORTED IN 118 ITD 1 (SB), HE SUBMITTED THAT THE SPECIAL BENCH IN THE SAID DECISION HAS HEL D THAT ADDITION OF DEEMED DIVIDEND CAN BE MADE IN THE HANDS OF THE PERSON WHO IS A REGISTERED SHAREHOLDER AS WELL AS A BENEFICIAL SHAREHOLDER. I T HAS BEEN HELD IN THE SAID DECISION THAT DEEMING PROVISION AS IT APPLIES TO TH E CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHA REHOLDER HAS SUBSTANTIAL INTEREST IS BASED ON THE PRESUMPTION TH AT THE LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLD ERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. THE INTENTION OF THE LE GISLATURE IS THEREFORE TO TAX THE DIVIDEND ONLY IN THE HANDS OF THE SHAREHOLDER A ND NOT IN THE HANDS OF THE CONCERN. HE SUBMITTED THAT THE ABOVE VIEW OF TH E SPECIAL BENCH OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE JURISDICTIO NAL HIGH COURT IN THE ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 49 CASE OF CIT V. UNIVERSAL MEDICARE (P) LTD. 324 ITR 263 (BOM). SIMILAR VIEW HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT IN TH E CASE OF CIT V. ANKITECH PVT. LTD. (ITA NO. 462 OF 2009 ORDER DT. MAY 11, 20 11) WHEREIN THE HONBLE DELHI HIGH COURT HAS FOLLOWED THE DECISION OF THE S PECIAL BENCH OF THE TRIBUNAL. SINCE THE ASSESSEE IS NOT A REGISTERED SH AREHOLDER IN HAWARE ENGINEERS PVT. LTD., THEREFORE, IT CANNOT BE TREATE D AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY. 49.11 HE SUBMITTED THAT IT IS ONLY MRS, UJJWALA HA WARE WHO IS THE COMMON SHAREHOLDER OF BOTH THE COMPANIES. AS PER T HE SPECIAL BENCH DECISION IN THE CASE OF BHAUMIK COLOUR PVT. LTD. (S UPRA) IT HAS TO BE SEEN AS TO WHETHER THE LOAN GIVEN BY HAWARE ENGINEERS PVT. LTD. TO THE ASSESSEE COMPANY IS USED BY UJJWALA HAWARE FOR HER BENEFIT O R NOT. IN THIS CASE, THE ASSESSEE COMPANY HAS NO LOAN OR ADVANCE TRANSACTION S WITH SMT. UJJWALA HAWARE. REFERRING TO THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF CIT VS. MUKUNDRAY K. SHAH REPORTED IN 290 ITR 433 ( SC), HE DREW THE ATTENTION OF THE BENCH TO THE OBSERVATIONS OF THE H ONBLE APEX COURT WHICH IS AS UNDER:- IF IT IS PROVED THAT THE LOAN PAYMENT MADE BY COMP ANY A TO COMPANY B WAS NOT AT ALL FOR THE BENEFIT OF MR. J , PERHAPS THERE WILL NOT BE ANY CASE FOR ADDITION U/S 2(22)E IN THE HANDS OF MR. J. IN THE IDENTICAL CASE OF CIT V. MUKUNDRAY K. SHAH 290 ITR 433 (SC), THE ASSESSEE WAS A SHAREHOLDER IN COMPANY MKP TL, A PRIVATE COMPANY, WHICH PAID ` 5.99 CRORES TO THE TWO FIRMS MKF AND MKI IN WHICH ASSESSEE WAS A PARTNER. IT WAS HE LD THAT ADDITION IN RESPECT OF DEEMED DIVIDEND IS LIABLE TO MADE IN THE HANDS OF THE ASSESSEE AS THE PAYMENTS MADE BY THE C OMPANY MKPTL THOUGH ROUTED THROUGH THE TWO FIRMS, WERE IN FACT FOR THE BENEFIT OF THE ASSESSEE WHO HAD PURCHASED RBI RELIE F BONDS WORTH ` 26.35 CRORES BY WITHDRAWING SUMS FROM HIS CAPITAL A/C ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 50 WITH THE TWO FIRMS RESULTING INTO THE DEBIT BALANCE OF ` 8.18 CRORES. HE ACCORDINGLY SUBMITTED THAT NO ADDITION CAN BE MA DE U/S 2(22)(E)OF THE ACT IN THE HANDS OF THE ASSESSEE COMPANY. 50. THE LD. D.R., ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF A.O. AND CIT(A). 51. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDER OF A.O. AND THE LD. CIT(A) AND TH E PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. IN THE INSTANT CASE, WE FIND THE A.O. T REATED THE SUM OF ` 8,01,97,900/- AS DEEMED DIVIDEND U/S 2(22)(E) OF TH E I.T. ACT IN THE HANDS OF THE ASSESSEE COMPANY ON THE GROUND THAT MRS. UJJ WALA HAWARE HOLDS MORE THAN 20% EQUITY CAPITAL IN HEBPL AND HCPL AND THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN AMOUNT OF ` 8,01,97,900/- DURING THE YEAR FROM HEBPL WHICH HAS GOT FREE RESERVES OF ` 50.96 CRORES. WE FIND THE ASSESSEE COMPANY HAS FURNISHED A LIST OF SHARE HOLDERS OF HE BPL AND HCPL (PLACED AT PAPER BOOK PAGE 227 & 228) DETAILS OF WHICH ARE AS UNDER: HAWARE ENGINEERS & BUILDERS PVT. LTD. LIST OF SHAREHOLDERS SR NO. NAME OF SHAREHOLDER 31.03.2007 31.03.2006 NO. OF SHARES HELD NOMINAL VALUE ` . 100/- EACH 1 NALINI HAWARE 12,472 12,472 2 ANJALI HAWARE 12,000 12,000 3 PRAVIN HAWARE 12,236 12,236 4 UJJWALA HAWARE 9,750 9,750 5 SATISH HAWARE 169,986 169,986 ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 51 6 HAWARE LOTUS HOTELS 56,000 56,000 7 HAWARE INFOTECH LTD. 16,400 16,400 8 HAWARE PUBLICATION PVT. LTD. 4,000 4,000 9 SURESH HAWARE 4,320 4,320 10 SANJAY HAWARE 2,000 2,000 299,164 299,164 HARE CONSTRUCTION PVT. LTD. LIST OF SHAREHOLDERS SR NO. NAME OF SHAREHOLDER 31.03.2007 31.03.2006 NO. OF SHARES HELD NOMINAL VALUE ` . 100/- EACH 1 UJJWALA HAWARE 4,450 4,450 2 SATISH HAWARE 500 500 3 HAWARE FINANCE PVT. LTD. 50 50 5,000 5,000 FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE IS NO T A REGISTERED SHARE HOLDER IN HEBPL NOR HCBPL IS A REGISTERED SHAREHOLDER IN T HE ASSESSEE COMPANY. IT HAS BEEN HELD BY THE SPECIAL BENCH OF THE TRIBUN AL IN THE CASE OF BHAUMIK COLOUR P. LTD. (SUPRA) THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF THE PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLD ER AND NOT IN THE HANDS OF THE BORROWING CONCERN IN WHICH SUCH SHAREHOLDER IS MEMBER OR PARTNER HAVING SUBSTANTIAL INTEREST. SINCE THE ASSESSEE CO MPANY IS NOT A SHAREHOLDER IN HEBPL, THEREFORE, MERELY BECAUSE SMT . UJJWAL HAWARE IS A SHAREHOLDER IN BOTH THE CONCERNS HAVING 20% EQUITY SHARE NO AMOUNT CAN BE TAXED IN THE HANDS OF THE ASSESSEE COMPANY U/S 2 2 (2)(E) OF THE I.T. ACT. SINCE THE ASSESSEE SUCCEEDS ON THIS PROPOSITION, TH E VARIOUS OTHER ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 52 PROPOSITIONS ARGUED BY THE LD. COUNSEL IN OUR OPINI ON DO NOT REQUIRE CONSIDERATION. IN THIS VIEW OF THE MATTER, WE SET A SIDE THE ORDER OF THE LD. CIT(A() ON THIS ISSUE AND DIRECT THE A.O. TO DELETE THE ADDITION. 52. IN THE RESULT, ITA NO. 5601/MUM/2009 FOR A.Y. A ND ITA NO. 1547/MUM/2010 ARE ALLOWED AND ITA NO. 6861/MUM/2010 IS PARTLY ALLOWED. ORDER PRONOUNCED ON 05.08.2011. SD/- SD/- (N.V. VASUDEVAN) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 05.08.2011. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) I, MUMBAI 4. THE DIRECTOR OF I.T. (EXEMPTION) MUMBAI 5. THE DR BENCH, C 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI PRONOUNCED IN THE OPEN COURT ON 5.8.2011 SD/- SD/- (B. RAMAKOTAIH) (N.V. VASUDEVAN) AM JM ITA NO.5601/M/2009, 6861/M/2010 & 1547/M/2011 M/S. HAWARE CONSTRUCTIONS PVT. LTD. 53 DATE INITIALS DRAFT DICTATED ON 07/07/2011, 3.8.2011 DRAFT PLACED BEFORE THE AUTHOR 02/08/2011, 3.8.2011 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER AM/JM DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM APPROVED DRAFT COMES TO THE SR. PS KEPT FOR PRONOUNCEMENT ON. FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK DATE ON WHICH FILE GOES TO THE AR DATE OF DISPATCH