Sri Sai Builders, Hyd, Hyderabad V. ITO, Ward-11(4), Hyderabad, Hyderabad

ITA 208/HYD/2015

• Counselvise Citation: 20822514 RSA 2015
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-05-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: S RAMA RAO
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 208/HYD/2015 ASSESSMENT YEAR: 2010-11 SRI SAI BUILDERS, HYDERABAD. PAN ABGFS 4180G VS. INCOME TAX OFFICER, WARD 11(4), HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI RAJAT MITRA DATE OF HEARING 13-05-2015 DATE OF PRONOUNCEMENT 27-05-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER DATED 21/01/2015 OF LD. CIT(A)-VII, HYDERABAD PERTAINING TO AY 2010-11. 2. THE ONLY ISSUE ARISING IN THE AFORESAID APPEAL I S RELATED TO DIRECTION OF CIT(A) WITH REGARD TO CLAIM OF DEDUCTI ON U/S 80IB(10) OF THE ACT. 3. BRIEFLY THE FACTS ARE, ASSESSEE A PARTNERSHIP FI RM, IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. FOR THE AY UNDER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME ON 13/10/2010 DECLARING TOTAL INCOME OF RS. 4,00,000 AFTER CLAIMI NG DEDUCTION U/S 80IB(10) OF THE ACT. DURING THE ASSESSMENT PROCEEDI NG, AO WHILE EXAMINING ASSESSEES CLAIM OF DEDUCTION U/S 80IB(10 ) FOUND THAT ASSESSEE HAS PURCHASED LAND ADMEASURING FOUR ACRES AT MALLAPUR VILLAGE, UPPAL MANDAL ON 10/07/2003. FURTHER, ASSES SEE ON 14/02/05 2 ITA NO. 208 /HYD/2015 SRI SAI BUILDERS HAS APPLIED TO HYDERABAD URBAN DEVELOPMENT AUTHORIT Y (HUDA) FOR APPROVAL OF A PLAN FOR CONSTRUCTION OF GROUP HOUSES ON THE SAID LAND AND ON THE BASIS OF THE APPLICATION MADE BY ASSESSE E, HUDA ACCORDED TECHNICAL PERMISSION ON 22/08/05 AND AUTHO RIZED KAPRA MUNICIPALITY FOR APPROVING THE PLAN. HOWEVER, AFTER RECEIVING THE APPROVED PLAN, ASSESSEE SOLD 2 ACRES 23.85 GUNTAS O UT OF THE TOTAL FOUR ACRES OF LAND TO M/S MODI VENTURES BY EXECUTIN G AN AGREEMENT OF SALE-CUM-GPA. FURTHER, ON 22/10/05, ASSESSEE ENTERE D INTO A JOINT DEVELOPMENT AGREEMENT WITH M/S MODI VENTURES FOR DE VELOPMENT OF RESIDENTIAL APARTMENTS UNDER GROUP HOUSING SCHEME I N THE NAME AND STYLE OF GULMOHAR GARDENS. AO OBSERVED THAT AS PER THE JOINT DEVELOPMENT AGREEMENT TOTAL NUMBER OF FLATS TO BE C ONSTRUCTED ON THE ENTIRE LAND OF FOUR ACRES IS 350 FLATS AND OUT OF W HICH 97 FLATS WILL FALL TO THE SHARE OF ASSESSEE AND THE REMAINING 253 WILL BE IN THE SHARE OF M/S MODI VENTURES. HE NOTICED THAT ONE OF THE CLAUS ES IN THE SAID JOINT DEVELOPMENT AGREEMENT, STATED THAT ASSESSEE I S TO PAY COST OF CONSTRUCTION FOR THE FLATS FALLING TO ITS SHARE AGG REGATING TO RS. 300 PER SFT. AO FURTHER NOTICED THAT THE FIRM HAS SUBSE QUENTLY ENTERED INTO A SUPPLEMENTARY AGREEMENT ON 22/12/08 WITH M/S MODI VENTURES FOR THE DEVELOPMENT OF SOME MORE BLOCKS WHEREIN ASSESSE E HAS AGREED TO PAY COST OF CONSTRUCTION OF RS. 600 PER SFT. AO , HOWEVER, DISALLOWED DEDUCTION CLAIMED U/S 80IB(10) OF THE AC T BY OBSERVING THAT THE DEVELOPMENT ACTIVITIES HAVING ENTIRELY DON E BY M/S MODI VENTURES AND ASSESSEE BEING A MERE LAND OWNER IS NO T ELIGIBLE FOR DEDUCTION U/S 80IB(10). AO OBSERVED THAT AS PER THE JOINT DEVELOPMENT AGREEMENT, IT IS M/S MODI VENTURES, WHO HAS CARRIED OUT THE DEVELOPMENT ACTIVITIES. ACCORDINGLY, DEDUCTION CLAIMED U/S 80IB(10) WAS DISALLOWED. BEING AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). 4. LD. CIT(A), THOUGH, AGREED IN PRINCIPLE THAT ASS ESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IB(10) THEREBY UPSETTING THE D ECISION OF AO, SHE HOWEVER RELYING UPON THE PROVISIONS CONTAINED U/S 8 0(IB(10) READ WITH 3 ITA NO. 208 /HYD/2015 SRI SAI BUILDERS SECTION 80IA(10) OF THE ACT, OBSERVED THAT THE COST OF CONSTRUCTION PAID AT RS. 300 PER SFT. TO THE DEVELOPER M/S MODI VENTURES IS INADEQUATE. ACCORDINGLY, SHE DIRECTED AO TO VERIFY THE COST OF CONSTRUCTION IN THE HANDS OF M/S MODI VENTURES AND ADOPT MARK UP OF 10% TO ARRIVE AT THE REASONABLE COST OF CONSTRUCTIO N AT ASSESSEES HAND. SHE FURTHER OBSERVED, IF THE FIGURE SO WORKED OUT IS LOWER TO RS. 300 PER SFT., THE DIFFERENCE SHOULD BE IGNORED, OTH ERWISE, IF IT IS FOUND TO BE MORE THAN RS. 300 PER SFT., SUCH HIGHER FIGUR E SHOULD BE ADOPTED AND THE PROFIT DERIVED FROM ELIGIBLE BUSINE SS SHOULD STAND REDUCED TO THAT EXTENT FOR COMPUTING DEDUCTION U/S 80IB(10). 5. LD. AR DRAWING OUR ATTENTION TO THE PROVISIONS C ONTAINED U/S 80IA(10), SUBMITTED BEFORE US, THE CONDITIONS LAID DOWN THEREIN HAS NOT BEEN PROVED TO CONCLUDE THAT THE COST OF CONSTR UCTION HAS BEEN UNDERSTATED. LD. AR FURTHER SUBMITTED, BEFORE APPLY ING THE PROVISIONS OF SECTION 80IA(10), LD. CIT HAS NOT GIVEN ANY OPPO RTUNITY TO ASSESSEE TO EXPLAIN ITS CASE. LD. AR SUBMITTED, WHILE CONSID ERING IDENTICAL ISSUE OF UNDERSTATEMENT OF COST OF CONSTRUCTION INC ASE OF DEVELOPER I.E. M/S MODI VENTURES, THE TRIBUNAL HAS HELD THAT JOINT DEVELOPMENT AGREEMENT BETWEEN ASSESSEE AND M/S MODI VENTURES IS GENUINE AND THE COST OF CONSTRUCTION @ RS. 300 PER SFT. HAVING BEEN AGREED UPON BETWEEN THE PARTIES IN THE YEAR 2003-04 ON THE BASI S OF PREVAILING FAIR MARKET RATE CANNOT BE DISPUTED OR DISBELIEVED. 6. LD. DR ON THE OTHER HAND SUPPORTING THE REASONIN G OF LD. CIT(A) SUBMITTED BEFORE US, THERE BEING CLOSE CONNECTION B ETWEEN ASSESSEE AND THE DEVELOPER, THE DIRECTION OF LD. CIT(A) IS J USTIFIED. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. AS CAN BE SEEN, THERE IS N O DISPUTE TO THE FACT THAT ASSESSEE IS OTHERWISE ELIGIBLE FOR DEDUCT ION U/S 80IB(10) AS THE DEPARTMENT HAS NOT CHALLENGED THE DECISION OF L D. CIT(A) ON THIS ISSUE. HOWEVER, COMING TO THE QUANTUM ASPECT, IT IS SEEN THAT LD. 4 ITA NO. 208 /HYD/2015 SRI SAI BUILDERS CIT(A) ON THE BASIS OF THE PROVISION CONTAINED U/S 80IA(10) HAS INFERRED UNDERSTATEMENT OF COST OF CONSTRUCTION AS DISCLOSED AT RS. 300 PER SFT. AND HAS ISSUED A DIRECTION TO AO TO CO NSIDER THE COST OF CONSTRUCTION TO THE DEVELOPER WITH A MARK UP OF 10% . A REFERENCE TO SECTION 80IA(10) WOULD SHOW THAT WHERE AO ON CONSID ERING THE CLOSE CONNECTION BETWEEN ASSESSEE CARRYING ON THE ELIGIB LE BUSINESS AND ANY OTHER PERSON OR FOR ANY OTHER REASON COMES TO A CONCLUSION THAT IT HAS BEEN ARRANGED IN A MANNER TO RESULT IN MORE THA N ORDINARY PROFIT TO ASSESSEE, THEN, AO WHILE COMPUTING PROFIT AND GA INS OF SUCH ELIGIBLE BUSINESS FOR COMPUTING DEDUCTION U/S 80IB SHALL TAKE THE AMOUNTS OF PROFITS AS MAY BE REASONABLY DEEMED TO H AVE BEEN DERIVED THEREFROM. THUS, AS PER THE AFORESAID PROVI SION, AO CAN ESTIMATE THE PROFIT FROM ELIGIBLE BUSINESS AT A REA SONABLE RATE IF HE THINKS THAT ASSESSEE FOR DERIVING MORE BENEFIT HAS ENTERED INTO A TRANSACTION WITH ANOTHER PERSON IN A MANNER WHICH C OULD GIVE HIM PROFIT MORE THAN THE ORDINARY PROFIT. IN THE PRESE NT CASE, AO HAS NOT INVOKED THE AFORESAID PROVISION, IT IS LD. CIT(A) W HO EVEN THOUGH AGREES THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IB(10), BUT WAS OF THE VIEW THAT ASSESSEE HAS ENTERED INTO A TRANSACTI ON WITH A CLOSELY RELATED PERSON AND THEREBY UNDERSTATED THE COST OF CONSTRUCTION TO SHOW MORE PROFIT FROM THE ELIGIBLE BUSINESS. HOWEVE R, IT IS TO BE NOTED THAT BEFORE COMING TO SUCH CONCLUSION, LD. CIT(A) H AS NOT DISCLOSED THE REASONS ON THE BASIS OF WHICH SHE HAS COME TO S UCH A CONCLUSION. MOREOVER, AS RIGHTLY POINTED BY LD. AR, SHE HAS NOT GIVEN ANY OPPORTUNITY TO ASSESSEE TO HAVE HIS SAY ON THE ISSU E BEFORE INVOKING THE PROVISIONS OF SECTION 80IA(10). IT FURTHER NEE DS TO BE MENTIONED THAT WHEN THE DEPARTMENTS APPEAL IN CASE OF THE DE VELOPER M/S MODI VENTURES CAME UP FOR CONSIDERATION BEFORE ITAT IN I TA NO. 1529/H/12, THE COORDINATE BENCH IN ORDER DATED 27/0 8/2014 WHILE CONSIDERING THE GENUINENESS/VALIDITY OF JOINT DEVEL OPMENT AGREEMENT HELD AS FOLLOWS: 12. WE HAVE HEARD BOTH THE PARTIES. WE FIND NO INF IRMITY IN THE ORDER OF THE CIT(A) AS NOTHING HAD BEEN BROUGHT OUT BY THE D EPARTMENT TO PROVE 5 ITA NO. 208 /HYD/2015 SRI SAI BUILDERS THAT THE AGREEMENT OF THE ASSESSEE WITH M/S. SRI SA I BUILDERS IS NOT GENUINE. THE DEPARTMENT HAS ALSO NOT BEEN ABLE TO P ROVE THAT THE JOINT DEVELOPMENT AGREEMENT AND AGREEMENT OF CONSTRUCTION ARE BETWEEN CLOSE RELATIVES AND WE FIND THAT BOTH THE PARTIES A RE INDEPENDENT. THE RATE OF RS. 300 PER SFT TOWARDS CONSTRUCTION COST H AD BEEN AGREED UPON AFTER DUE DELIBERATIONS BETWEEN THE PARTIES IN THE YEAR 2003-04 AT THE TIME OF PREPARING AND FINALISING THE BUILDING PLAN AT THE THEN PREVAILING FAIR MARKET RATE FOR THE COST OF CONSTRUCTION. THE LOSS COULD HAVE ARISEN DUE TO ESCALATION IN THE CONSTRUCTION COST SUBSEQUE NTLY ESPECIALLY BETWEEN THE YEARS 2006 AND 2009 AND, THEREFORE, IN THESE CIRCUMSTANCES IT CANNOT BE HELD THAT CHARGING OF RS . 300 PER SFT PAYABLE BY M/S. SRI SAI BUILDERS IS VERY LOW WHEN COMPARED TO THE COST OF CONSTRUCTION AT RS. 849.42 PER SFT. FURTHER IN THIS PROJECT AS A WHOLE A GROSS PROFIT OF 25% AND NET PROFIT OF 19% WAS EARNE D AND HAD BEEN DECLARED. THESE PROFITS WERE COMPUTED AFTER ABSORBI NG THE ENTIRE LOSS INCURRED ON CONSTRUCTION RECEIPTS FROM M/S. SRI SAI BUILDERS. THE PERSON RUNNING THE BUSINESS HAS VIEWED THE ENTIRE PROJECT INSTEAD OF TAKING CONSTRUCTION CONTRACT OF A SINGLE STAND ALONE TRANS ACTION AND THAT IS WHY AT THE END OF THE PROJECT, THE ASSESSEE FIRM MADE T HE NET PROFIT ABOUT 19%. IN THESE CIRCUMSTANCES, WE CONFIRM THE ORDER O F THE CIT(A) AND DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE. ON CAREFUL READING OF THE AFORESAID OBSERVATION OF THE COORDINATE BENCH, IT IS VERY MUCH EVIDENT THAT NOT ONLY THE TR IBUNAL HAS HELD THE JOINT DEVELOPMENT AGREEMENT BETWEEN ASSESSEE AND DE VELOPER M/S MODI VENTURES AS GENUINE BUT THEY HAVE ALSO NEGATED THE CONTENTION OF THE DEPARTMENT THAT JOINT DEVELOPMENT AGREEMENT WAS BETWEEN CLOSELY RELATED PERSONS. FURTHER, THE TRIBUNAL HAS ALSO HELD THAT THE COST OF CONSTRUCTION AT RS. 300 PER SFT. AS PER THE JOINT DEVELOPMENT AGREEMENT CANNOT BE HELD TO BE VERY LOW. IN VIEW OF SUCH OBSERVATIONS OF THE COORDINATE BENCH GIVEN IN CASE OF THE BUILDER, IN OUR VIEW, THE DIRECTION OF LD. CIT(A) IS NOT SUSTAI NABLE. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER OF LD. CIT(A) ON TH E ISSUE AND DIRECT AO TO ALLOW ASSESSEES CLAIM OF DEDUCTION U/S 80IB( 10) OF THE ACT. 6 ITA NO. 208 /HYD/2015 SRI SAI BUILDERS 8. IN THE RESULT, ASSESSEES APPEAL IS CONSIDERED T O BE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 TH MAY, 2015. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 27 TH MAY, 2015 KV COPY TO:- 1) SRI SAI BUILDERS, C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREET NO. 9, HIMAY ATNAGAR, HYD-29 2) ITO, WARD 11(4), HYDERABAD 3 CIT(A)-VII, HYDERABAD 4) CIT-VII, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.