The ITO, Ward-2(6), Baroda V. M/s. Rudraksh Developers, Baroda

ITA 2129/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6457 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 03-07-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K PATEL
• Keywords: Opportunity of being heard
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : AH MEDABAD ( BEFORE HONBLE SHRI T.K.SHARMA, J.M. & HONBLE SHRI A.N.PAHUJA, A.M.) I.T.A.NO. 2129/AHD./2009 : ASSESSMENT YEAR 200 6-07 ITO, WARD-2(6), BARODA VS- M/ S. RUDRAKSH DEVELOPERS, BARODA (PAN : AAIFR 1340J) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K.PATEL, D.R. RESPONDENT BY: NONE O R D E R PER SHRI T.K.SHARMA, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF LD. CIT(A)-II, BARODA DATED 14.05.2009 FOR ALLOWING THE DEDUCTION TO THE ASSESSEE MADE UNDER SECTION 80IB(10) BY THE AO FOR THE ASSESSMENT YEAR 2006-200 7. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEVELOPMENT OF LAND AND CONSTRUCTION OF HOUSING PROJECTS. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN O F INCOME ON 28.12.2006 DECLARING INCOME AT RS. NIL. IN THE RETURN OF INCOME, THE A SSESSEE CLAIMED DEDUCTION UNDER SECTION 80IB(10) AMOUNTING TO RS.36,32,257/-. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS UND ERTAKEN TO CONSTRUCT ONLY A PART OF FSI AVAILABLE TO IT UNDER THE APPROVAL ACCORDED TO IT BY THE LOCAL AUTHORITY. THE AO ACCORDINGLY HELD THAT PROFIT ARISING FROM SALE OF U NUTILISED FSI CANNOT BE ATTRIBUTABLE TO THE PROFITS ATTRIBUTABLE TO THE DEVELOPMENT AND CONSTRUCTION OF THE PROJECT. ON THIS BASIS, HE RESTRICTED THE DEDUCTION CLAIMED UNDER SE CTION 80IB(10) TO RS.21,54,398/-. 3. ON APPEAL BEFORE THE LD. CIT(A), IT WAS CONTEND ED BY THE A.R. THAT SIMILAR ISSUE CAME UP BEFORE THE HONBLE ITAT, AHMEDABAD IN ITA NO.2482/AHD/2006 IN THE CASE OF M/S. RADHE DEVELOPERS & OTHERS. THE LD. CIT (A), FOLLOWING THE AFORESAID 2 ITA NO.2129/AHD./2009 DECISION OF THE ITAT IN THE CASE OF RADHE DEVELOPER S HELD THAT THE AO IS NOT JUSTIFIED IN RESTRICTING THE CLAIM OF DEDUCTION UNDER SECTION 80IB(10) TO RS.21,54,398/-. SHE ACCORDINGLY DIRECTED THE AO TO ALLOW DEDUCTION UNDE R SECTION 80IB(10) AMOUNTING TO RS.36,32,257/-. 4. AGGRIEVED WITH THE ABOVE ORDER OF THE LD. CIT(A) , THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS: (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE ID. CIT(A) ERRED IN ALLOWING THE DEDUCTION U/S 801B(10) TO THE ASSESSEE, WHO WAS NOT GRANTED APPROVAL BY THE LOCAL AUTHORITY TO CARRY ON THE BUSINESS OF AN UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECT S, IN CONTRAVENTION OF A PLAIN READING OF SECTION 80IB(10) R.W.S. 80IB(1), E XPLANATION TO SECTION 80IB(10) AND RULE 18BBB. (II) THE ID. CIT(A) FAILED TO MAKE A COMBINED READI NG OF SECTION 80IB(1), WHICH IS THE SUBSTANTIVE PROVISION, AND SECTION 801B(10), WHICH IS A MACHINERY PROVISION, ' POSTULATING COMPLETE IDENTITY BETWEEN THE ASSESSEE AS REFERRED TO IN SECTION 80IB(1), AND THE UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECTS APPROVED BY THE LOCAL AUTHORITY AS REFERRED TO IN S ECTION 80IB(10), NOT PERMITTING SUCH SPLITTING BETWEEN THE ASSESSEE AND THE PERSON WHO IS GRANTED APPROVAL BY THE LOCAL AUTHORITY FOR DEVELOPING AND BUILDING HOUSING PROJECTS, AS PRESUMED BY THE CIT(A). (III) THE ID CIT(A) FAILED TO ABIDE BY THE SCHEME O F SECTION 80IB BASED ON COMPLETE IDENTITY BETWEEN THE ASSESSEE AS REFERRED TO IN SECTION 80IB(1), ON THE ONE HAND, AND THE ENTITY FULFILLING THE CONDITIONS LAID DOWN IN SECTIONS 80IB(3), 80IB(9), 80IB(11) AND 80IB(11AA), BESIDES SECTION 8 0IB(10), ON THE OTHER. (IV) THE ID CIT(A) FAILED TO APPRECIATE THAT THE L AND BEING INTEGRAL PART OF ANY HOUSING PROJECT, THE ASSESSEE, WITHOUT OWNING THE L AND COMPONENT, COULD NOT PASS ON FULL TITLE OVER DWELLING UNITS TO THE CUSTO MERS SO AS TO DERIVE PROFITS FROM DEVELOPING AND BUILDING HOUSING PROJECTS AND T HIS INTEGRATION IS FURTHER FORTIFIED BY THE REQUIREMENT OF APPROVAL BY THE LOC AL AUTHORITY AS WELL AS GRANT OF COMPLETION CERTIFICATE BY THE LOCAL AUTHORITY UN DER CLAUSE (II) OF THE EXPLANATION BELOW SECTION 80IB(10), BOTH OF WHICH A RE GRANTED TO THE LANDOWNER, THUS TREATING HIM ALONE AS RUNNING THE U NDERTAKING FROM THE BEGINNING TO THE END . (V) THE LD. CIT(A) ERRED IN DISPENSING WITH THE OW NERSHIP OF LAND INTRINSICALLY LINKED WITH THE APPROVAL BY THE LOCAL AUTHORITY, AL SO IN DISREGARD OF SECTION 80IB(10(B) PROVIDING FOR THE CONDITION OF MINIMUM S IZE OF THE PLOT OF LAND, 3 ITA NO.2129/AHD./2009 WHICH CAN BE FULFILLED ONLY BY THE LANDOWNER AND TH E PERSON GETTING APPROVAL FROM THE LOCAL AUTHORITY. (VI) THE LD. LD. CIT(A) ERRED IN MAKING ASSUMPTION REGARDING PASSING ON OF THE BENEFIT OF SECTION 80IB(10) BY THE LANDOWNER GETTIN G APPROVAL FROM THE LOCAL AUTHORITY FOR DEVELOPING AND BUILDING OF HOUSING PR OJECTS TO THE PERSON WITH WHOM HE ENTERS INTO AGREEMENT FOR EXECUTION OF SUCH PROJECTS, WITHOUT THERE BEING ANY PROVISION IN SECTION 80IB FOR SUCH PASSIN G ON, AS CONTAINED IN SECTION 80HHC(1A). (VII) WITHOUT PREJUDICE, THE LD. CIT(A) ERRED IN AL LOWING DEDUCTION U/S 80IB(10) IN RESPECT OF THE PROCEEDS ATTRIBUTABLE TO THE SALE OF UNUTILISED FSI AND NOT TO THE DWELLING UNITS IN THE HOUSING PROJECTS, WHICH C OULD NOT BE TERMED AS PROFIT DERIVED FROM DEVELOPING AND BUILDING HOUSING PROJ ECTS IN TERMS OF THIS PROVISION. 5. AT THE TIME OF HEARING BEFORE US, NONE WAS PRESE NT FROM THE SIDE OF THE ASSESSEE. HOWEVER, WE PROCEED TO DISPOSE OFF THIS A PPEAL AFTER HEARING THE LD. D.R. ON BEHALF OF THE REVENUE, SHRI A.K.PATEL APPEARED AND CONTENDED THAT THE RATIO LAID DOWN IN THE CASE OF RADHE DEVELOPERS & OTHERS IS NOT APP LICABLE TO THE FACTS OF THE IMPUGNED CASE. THE SALIENT FEATURES OF THE FACTS AS EXISTED IN THE CASE OF RADHE DEVELOPERS DECISION ARE AS UNDER: 1. THERE WAS AN AGREEMENT TO SALE IN FAVOUR OF ASS ESSEE DEVELOPER AND POSSESSION WAS GIVEN BY THE LAND OWNER. SALE CONSID ERATION WAS ALSO PAID. 2. ALL APPROVALS / PERMISSIONS WERE OBTAINED BY POW ER OF ATTORNEY OF LAND OWNER I.E. ASSESSEE. 3. RIGHT TO TAKE / PERUSE ALL GOVT. / QUASI GOVT. P ROCEEDINGS RESTED WITH THE ASSESSEE DEVELOPER BY AN AGREEMENT. 4. FOR ALL THESE BUNDLES OF RIGHTS THE ASSESSEE DEV ELOPER HAD PAID CONSIDERATION TO LAND OWNER AND OBTAINED ALL RIGHTS INCLUDING OWN ERSHIP RIGHTS. 5.1 THE LD. D.R. FURTHER DREW OUR ATTENTION TO THE FINDINGS OF THE ITATS ORDER IN PARA 18 IN THE CASE OF RADHE DEVELOPERS ( SUPRA ), WHICH IS THE FOUNDATION OF THE DECISION, READS AS UNDER: '... .... FROM THE CLAUSES OF THE DEVELOPMENT AND CONSTRUCTIO N AGREEMENTS AS WELL AS AGREEMENT FOR SALE, BOTH DATED 18.05.2000, EXTRACTED ABOVE WE OBSERVE THAT THESE TWO AGREEMENTS EFFECTIVELY TRANSFER TO T HE ASSESSEE-FIRM ALL THE RIGHTS OF DEVELOPMENT AND CONSTRUCTION AND TO DEAL WITH TH E LAND FOR CONSIDERATION PAYABLE WITHIN A STIPULATED TIME; THAT THE ASSESSES HAD BEEN PUT IN POSSESSION 4 ITA NO.2129/AHD./2009 OF THE LAND OF THE TERMS AND CONDITIONS AS MENTIONE D IN THESE TWO AGREEMENTS; THAT THE ASSESSEE-FIRM HA ALSO PAID CONSIDERATION O F RS.56 LACS DURING THE TWO F.YRS. I.E. 2000-01 AND 2001-02; THAT THE ASSESSEE- FIRM HAS TO OBTAIN NECESSARY APPROVALS FROM THE LOCAL AUTHORITIES; I.E., BMC ON BEHALF OF THE LAND OWNERS AND ALL THE EXPENSES FOR SUCH PURPOSES ARE TO BE IN CURRED BY THE ASSESSEE; THAT THE ASSESSEE-FIRM HAS ENGAGED THE FIRM OF ARCHITECT AND ALSO INCURRED EXPENSES TOWARDS THE CHARGES PAYABLE TO CORPORATION, ETC., F OR OBTAINING THE APPROVALS; THAT EVEN FROM THE BOOKS OF ACCOUNT, IT IS NOTICED THAT FOR OBTAINING THE APPROVAL, THE ASSESSEE-FIRM HAS PAID THE DEVELOPMEN T CHARGES TO VARIOUS REGULATING AGENCIES I.E AUDA, BMC AND GEB(GUJARAT E LECTRICITY BOARD), ETC. AND THAT THESE EXPENSES ARE INCURRED BY THE ASSESSE E-FIRM AND THE ASSESSING OFFICER HAS BROUGHT OUT THE COMPLETE DETAILS YEAR-W ISE IN HIS ASSESSMENT ORDERS AT PAGE NO.5 READING AS UNDER:- 5.2 THE LD. D.R. FURTHER REFERRED TO THE PRINCIPLE LAID DOWN IN THE RECENT CASE OF HONBLE APEX COURT IN THE CASE OF FAQIR CHAND GULAT I VS- UPPAL AGENCIES PVT. LTD. & ANR. IN CIVIL APPEAL NO.3302 OF 2005 DATED 10.07. 2008 AND STATED THAT THE FOLLOWING ISSUES WERE RAISED. (I) A DEVELOPMENT AGREEMENT IS ONE WHERE THE LAND-H OLDER PROVIDES THE LAND. THE BUILDER PUTS UP A BUILDING. THEREAFTER, THE LAN D OWNER AND BUILDER SHARE THE CONSTRUCTED AREA. THE BUILDER DELIVERS THE 'OWN ER'S SHARE' TO THE LAND- HOLDER AND RETAINS THE 'BUILDER'S SHARE'. THE LAND- HOLDER SELLS / TRANSFERS UNDIVIDED SHARE/S IN THE LAND CORRESPONDING TO THE BUILDER'S SHARE OF THE BUILDING TO THE BUILDER OR HIS NOMINEES. THE LAND-H OLDER WILL HAVE NO SAY OR CONTROL IN THE CONSTRUCTION OF HAVE ANY SAY AS TO W HOM AND AT WHAT COST THE BUILDER'S SHARE OF APARTMENTS ARE TO BE DEALT WITH OR DISPOSED OF. SUCH AN AGREEMENT IS NOT A 'JOINT VENTURE' IN THE LEGAL SEN SE. IT IS A CONTRACT FOR 'SERVICES'. (II) ON THE OTHER HAND, AN AGREEMENT BETWEEN THE OW NER OF A LAND AND A BUILDER, FOR CONSTRUCTION OF APARTMENTS AND SALE OF THOSE OF APARTMENTS SO AS TO SHARE THE PROFITS IN A PARTICULAR RATIO MAY BE A JO INT VENTURE, IF THE AGREEMENT DISCLOSES AN INTENT THAT BOTH PARTIES SHALL EXERCIS E JOINT CONTROL OVER THE CONSTRUCTION / DEVELOPMENT AND BE ACCOUNTABLE TO EA CH OTHER FOR THEIR RESPECTIVE ACTS WITH REFERENCE TO THE PROJECT. (III) THE TITLE OF THE DOCUMENTS IS NOT DETERMINATI VE OF THE NATURE AND CHARACTER OF THE DOCUMENT, THOUGH THE NAME MAY USUALLY GIVE S OME INDICATION OF THE NATURE OF THE DOCUMENT. THE USE OF THE WORDS 'JOINT VENTURE' OR 'COLLABORATION' IN THE AGREEMENT WILL NOT MAKE THE TRANSACTION A JO INT VENTURE, IF THERE ARE NO PROVISIONS FOR SHARED CONTROL AND LOSSES. 5 ITA NO.2129/AHD./2009 5.3 ON THE BASIS OF THE AFORESAID ARGUMENTS, THE LD . D.R. STATED THAT NEITHER THE AO NOR THE LD. CIT(A) HAS GONE INTO THE AGREEMENTS AND BUILDERS DEVELOPMENT AGREEMENT, FROM WHERE IT CAN BE INFERRED THAT THE A SSESSEE IS A DEVELOPER OR A CONTRACTOR. HE ACCORDINGLY CONTENDED TO SET ASIDE T HE ISSUE FOR VERIFICATION OF DIFFERENT AGREEMENTS AND DOCUMENTS IN THE LIGHT OF THE JUDGME NT OF HONBLE APEX COURT IN THE CASE OF FAQIR CHAND GULATI ( SUPRA ). FURTHER, THE LD. CIT(A) HAS NOT CONSIDERED THE REASONING GIVEN BY THE AO AND MERELY FOLLOWED THE D ECISION OF M/S. RADHE DEVELOPERS ( SUPRA ). THEREFORE, THIS ISSUE BE REMANDED TO THE FILE OF THE AO. 6. AFTER HEARING THE LD. D.R., WE HAVE CAREFULLY GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE CASE L AWS. WE FIND CONSIDERABLE FORCE IN THE SUBMISSIONS MADE BY THE LD. D.R. BECAUSE THE IS SUE INVOLVED IN THIS APPEAL NEEDS RE-VERIFICATION IN THE LIGHT OF THE JUDGEMENT OF TH E HONBLE APEX COURT IN THE CASE OF FAQIR CHAND GULATI ( SUPRA ). SIMILARLY, THE ITAT, AHMEDABAD BENCH IN THE CASE S ALSO LAID DOWN CERTAIN PRINCIPLES IN THE LIGHT OF THE JU DGEMENT OF THE HONBLE APEX COURT IN THE CASE OF FAQIR CHAND GULATI ( SUPRA ) AND THE AO IS ALSO REQUESTED TO CONSIDER THE CASE LAW OF THE ITAT IN THE CASE OF SHAKTI CORPORAT ION ( SUPRA ). THE ITAT, IN THIS CASE, HELD AS UNDER: '16. THE FACTS INVOLVED IN THE CASE OF THE ASSESSEE ARE SIMILAR TO THE FACTS IN THE CASE OF RADHE DEVELOPERS (SUPRA) AND ACCORDINGLY WE ARE OF THE VIEW THAT THE ASSESSEE HAS ACQUIRED THE DOMINANT OVER THE LAND AN D HAS DEVELOPED THE HOUSING PROJECT BY INCURRING ALL THE EXPENSES AND T AKING ALL THE RISKS INVOLVED THEREIN. WE MAY MENTION HERE THAT, IN OUR OPINION, THE DECISION IN THE CASE OF RADHE DEVELOPERS (SUPRA) WILL NOT APPLY IN A CASE W HERE THE ASSESSEE HAS ENTERED INTO THE AGREEMENT FOR A FIXED REMUNERATION MERELY AS A CONTRACTOR TO CONSTRUCT OR DEVELOP THE HOUSING PROJECT ON BEHALF OF THE LANDOWNER. THE AGREEMENT ENTERED INTO IN THAT CASE WILL NOT ENTITL E THE DEVELOPER TO HAVE THE DOMINANT CONTROL OVER THE PROJECT AND ALL THE RISKS INVOLVED THEREIN WILL VEST WITH THE LANDOWNER ONLY. THE INTEREST OF THE DEVELOPER W ILL BE RESTRICTED ONLY FOR THE FIXED REMUNERATION FOR WHICH HE WOULD BE RENDERING THE SERVICES. THE DECISION IN THE CASE OF RADHE DEVELOPERS (SUPRA) HAS NOT DEALT WITH SUCH SITUATION. THE PROPOSITION OF LAW LAID DOWN IN THE CASE OF RADHE D EVELOPERS CANNOT BE APPLIED UNIVERSALLY WITHOUT LOOKING INTO THE DEVELOPMENT AG REEMENT ENTERED INTO BY THE DEVELOPER ALONG WITH THE LANDOWNER. IN THE CASE OF SHAKTI CORPORATION SINCE THE ASSESSEE HAS FILED COPY OF THE DEVELOPMENT AGREEMEN T AND CRUX OF THE AGREEMENT IS THAT THE ASSESSEE HAS PURCHASED THE LA ND AND HAS DEVELOPED THE HOUSING PROJECT AT ITS OWN, THEREFORE, WE ARE OF TH E VIEW THAT THE ASSESSEE WILL BE ENTITLED FOR THE DEDUCTION U/S 80IB(10). THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF FAQIR CHAND GULATI (SUPRA) WIL L NOT ASSIST THE REVENUE, AS 6 ITA NO.2129/AHD./2009 THE AGREEMENT IS NOT SHARING OF THE CONSTRUCTED ARE A. IN OTHER CASES THE COPY OF AGREEMENT SINCE HAS NOT BEEN SUBMITTED BEFORE US, I F SUBMITTED, THE TERMS AND CONDITIONS OF THE AGREEMENT WERE NOT SPECIFICALLY A RGUED BEFORE AND PLACED BEFORE US, WE THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE PARTIES SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE ALL O THER APPEALS TO THE FILE OF THE AO WITH THE DIRECTION THAT THE AO SHALL LOOK INTO THE AGREEMENT ENTERED INTO BY EACH OF THE ASSESSEES WITH THE LANDOWNER AND DECIDE WHET HER THE ASSESSEE HAS IN FACT PURCHASED THE LAND FOR A FIXED CONSIDERATION F ROM THE LANDOWNER AND HAS DEVELOPED THE HOUSING PROJECT AT ITS OWN COST AND R ISKS INVOLVED IN THE PROJECT. IN CASE THE AO FINDS THAT PRACTICALLY THE LAND HAS BEE N BOUGHT BY THE DEVELOPER AND DEVELOPER HAS ALL DOMINANT CONTROL OVER THE PROJECT AND HAS DEVELOPED THE LAND AT HIS OWN COST AND RISKS, THE AO SHOULD ALLOW THE DEDUCTION TO THE ASSESSEE U/S 80IB(10). IN CASE THE AO FINDS THAT THE DEVELOPER H AS ACTED ON BEHALF OF THE LANDOWNER AND HAS GOT THE FIXED CONSIDERATION FROM THE LANDOWNER FOR THE DEVELOPMENT OF THE HOUSING PROJECTS, THE ASSESSEE S HOULD NOT BE ALLOWED DEDUCTION U/S 80IB(10) TO THE ASSESSEE. 6.1 IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION THAT HE WILL CONSIDER THE PRINCIPLES LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF FAQIR CHAND GULATI ( SUPRA ) AS WELL AS THE DECISION OF THE ITAT IN THE CASE OF M/S. SHAKTI CORPORATION ( SUPRA ) AND RE- ADJUDICATE THE CLAIM OF THE ASSESSEE REGARDING ALLO WING OF CLAIM OF DEDUCTION UNDER SECTION 80IB(10), AFTER GIVING OPPORTUNITY OF BEING HEARD TO BOTH SIDES. 7. IN THE RESULT, FOR STATISTICAL PURPOSES THE APPE AL OF THE REVENUE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 10.06.2011 SD/- SD/- (A.N.PAHUJA) (T.K.SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10 /06/2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT 3) CIT(A) CONCERNED 4) CIT CONCERNED 5) D.R., ITAT, AHMEDABAD TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD TALUKDAR/SR.P.S. 7 ITA NO.2129/AHD./2009