ITO 15(3)(2), MUMBAI V. HARSH CONSTRUCTION, MUMBAI

ITA 2216/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49255 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 23-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAO
• Keywords: Retrospective amendment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH BEFORE SHRI N.VASUDEVAN, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.2216/MUM/2010 A.Y 2006-07 INCOME TAX OFFICER 15(3)(2), MUMBAI. VS. M/S HARSH CONSTRUCTION, 103/104 ANURADHA APT. 1 ST FLOOR, TPS RD., PLOT NO. 183, BORIVALI, MUMBAI 400 092. PAN:AAAAH 1471 K (APPELLANT) (RESPONDENT) REVENUE BY : SHRI GOLI SRINIWAS RAO [CIT DR] ASSESSEE BY : SHRI SHASHI TULSIYAN. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING G ROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THE FA CT THAT RESIDENTIAL PROJECT HAVE SHOPS/COMMERCIAL ESTABLISH MENTS [WHICH IS NOT IN THE NATURE OF CONVENIENT SHOPPING] WITH BUILT UP AREA EXCEEDING 5% OF THE AGGREGATE BUILT-UP AREA OR 2000 SQ.FT. WHICHEVER IS LESS, WHICH CONTRAVENES THE STI PULATION OF SEC.80IB(10)(D) FOR INSTANT ASSESSMENT DISENTITLING THE ASSESSEE FROM THE CLAIM OF DEDUCTION U/S.80IB(10). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT T HE ASSESSEE IS ENTITLED TO DEDUCTION U/S.80IB(10) OF RS.2,89,99 ,020/- IGNORING THE FACTS THAT THE ITAT SPECIAL BENCH, PUN E (2009) 30 SOT 155 IN THE CASE OF M/S BRAHMA ASSOCIATES HAS CATEGORICALLY HELD THAT THE PROVISIONS OF CLAUSE (D ) OF SEC.80IB(1)), INSERTED BY FINANCE ACT, 2004 WEF 01- 04-2005 HAS NO RETROSPECTIVE EFFECT AND IT APPLIES ONLY WEF 01-04-2004 RELEVANT TO A.Y 2005-06 AND ONWARDS, WHICH HAS BIND ING EFFECT IN THIS CASE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT T HE ASSESSEE IS ENTITLED TO DEDUCTION U/S.80IB(10) OF RS.2,88,99 ,020/- BASING ON IRRELEVANT FACT OF APPROVAL OF PLAN OF PR OJECT EARLIER TO 1-4-2005 WITHOUT ANY LEGAL MANDATE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE ASSESSEE ITA NO.2216/M/10 2 IS AOP AND CAME INTO EXISTENCE ON 06-03-2004 WHEREA S THE PROJECT WAS APPROVED ON 19-07-2003 I.E. MUCH BEFORE FORMATION OF AOP AND THE APPROVAL WAS IN THE NAME O F HARSHAD P. DOSHI, WHO WAS HOLDING THE DEVELOPMENT R IGHTS IN HIS INDIVIDUAL CAPACITY AND SUBSEQUENTLY BECAME MEM BER OF THE AOP AFTER FORMATION OF THE SAME BY WAY OF RECON STITUTATION AMOUNTING TO RECONSTRUCTION OF BUSINESS CONTRAVENIN G THE GENERAL PROVISIONS OF SEC.80IB(2)(1) DISENTITLING T HE ASSESSEE FROM CLAIMING DEDUCTION U/S.80IB(10). 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS CLAIMED DE DUCTION U/S.80IB(10) AMOUNTING TO RS.2,89,99,016/-. HE FURT HER NOTICED THAT THE ASSESSEE HAD CONSTRUCTED 3078.88 SQ.FT. OF COMM ERCIAL AREA IN THE FORM OF SHOPS WHICH EXCEEDED THE LIMIT OF 5%, THERE FORE, DEDUCTION WAS NOT ALLOWABLE. HE ALSO NOTICED THAT THE PROJECT WAS APPROVED IN THE NAME OF SHRI HARISH P. DOSHI ON 19-7-2003 WHERE AS THE ASSESSEE AOP CAME INTO EXISTENCE ON 26-4-2004. THEREFORE, AS SESSEE HAD NOT DEVELOPED THE PROJECT AND WOULD BE HIT BY THE CONDI TIONS PRESCRIBED U/S.80IB(2)(I) AND DEDUCTION COULD NOT BE ALLOWED. 3. ON APPEAL, LD. CIT(A) ALLOWED THE DEDUCTION. 4. NOW THE REVENUE IS IN APPEAL BEFORE US AND HAS R AISED THREE ISSUES BY WAY OF ABOVE FOUR GROUNDS WHICH WE HAVE A LREADY PRODUCED. 5. AT THE OUT SET LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT ALL THESE ISSUES RAISED BY THE REVENUE ARE SQUARELY COV ERED AGAINST THE REVENUE BY VARIOUS DECISIONS RELIED ON BY THE LD. C IT(A) AND IN THIS REGARD HE CARRIED US THROUGH VARIOUS PARAS OF THE A PPELLATE ORDER. 6. HE SUBMITTED THAT THE FIRST ISSUE IS REGARDING C ONSTRUCTION OF COMMERCIAL AREA IN EXCESS OF 5% IS SQUARELY COVERED BY THE DECISION OF ITA NO.2216/M/10 3 THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . BRAMHA ASSOCIATES [333 ITR 289] WHEREIN IT WAS CLEARLY HEL D THAT DEDUCTION HAS TO BE ALLOWED ON THE ENTIRE PROJECT APPROVED BY THE CONCERNED AUTHORITIES EVEN IF COMMERCIAL AREA IS MORE. THE SE COND ISSUE THAT DEDUCTION SHOULD NOT BE ALLOWED BECAUSE OF AMENDMEN T IN LAW W.E.F. 1-4-2005, IS ALSO COVERED AGAINST THE REVENUE BY TH E DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HIRANAN DANI AKRUTI VS. DCIT [39 SOT 498] WHEREIN AFTER DETAILED DISCUSSION IT WAS CLEARLY OBSERVED THAT THE AMENDMENT OF 2005 WILL NOT EFFECT THE PROJECTS WHICH HAVE ALREADY BEEN APPROVED. THE THIRD ISSUE R AISED BY THE REVENUE THAT SINCE AOP CAME INTO EXISTENCE ONLY FRO M 26-4-04 IS ALSO COVERED AGAINST THE REVENUE BY THE DECISION OF MUMB AI BENCH OF THE TRIBUNAL IN THE CASE OF PARTH CORPORATION VS. ITO [ 23 SOT 368], WHEREIN IT WAS CLEARLY HELD THAT SEC.80IB(2) HAS NO APPLICATION FOR CLAIMING DEDUCTION U/S.80IB(10). 7. ON THE OTHER HAND, LD. DR READ OUT PROVISIONS OF SEC.80IB(1) AND POINTED OUT THAT DEDUCTION UNDER THIS SECTION W AS TO BE ALLOWED ONLY TO AN ASSESSEE BECAUSE THE SECOND PROVISO STAR TS WITH WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES.. SI NCE IN THIS CASE PROJECT WAS APPROVED IN THE NAME OF SHRI HARSHAD P. DOSHI ON 19-7-03 WHEREAS THE AOPS AGREEMENT WAS DATED 26-4-04, WHIC H MEANS THE APPROVED PROJECT HAS BEEN SOLD TO AOP AND AOP IS NO T THE DEVELOPER. 8. IN THE REJOINDER, LD. COUNSEL OF THE ASSESSEE CA RRIED US THROUGH PARA-5.4 OF THE APPELLATE ORDER AND POINTED OUT THA T CIT(A) HAS ITA NO.2216/M/10 4 ALLOWED THE RELIEF IN UNIQUE CIRCUMSTANCES OF THE C ASE AS WELL AS BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF PARTH CORPORATION VS. ITO [SUPRA], WHEREIN IT WAS CLEARLY HELD THAT S EC.80IB(2)(I) IS NOT APPLICABLE FOR CLAIMING DEDUCTION U/S.80IB(10). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE FIND THAT AS FAR AS THE FIRST OBJECTION RAISED BY THE REVENUE REGARDING EXCESS COMMERCIAL AREA IS CONCERNED, THE HON'BLE BOMBAY HI GH COURT IN THE CASE OF CIT VS. BRAHMA ASSOCIATES [SUPRA] WHILE REV ERSING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BRAHMA ASSOCIATES VS. JCIT 315 ITR (AT) 268 (PN) HELD AS UNDER: HELD THAT CLAUSE (D) INSERTED IN SECTION 80IB[10] WITH EFFECT FROM APRIL 1, 2005, IS PROSPECTIVE AND NOT RETROSPECTIVE AND HENCE COULD NOT BE APPLIED FOR THE PERIOD PRIOR TO APRIL 1, 200 5. SINCE DEDUCTION UNDER SECTION 80IB[10] WERE ON THE PROFITS DERIVED FROM THE HOUSING PROJECTS APPROVED BY THE LOCAL AUTHORITY AS A WHOLE , THE TRIBUNAL WAS NOT JUSTIFIED IN RESTRICTING THE SECTION 80IB[10] D EDUCTION ONLY TO A PART OF THE PROJECT. HOWEVER, IN THE PRESENT CASE, SINCE THE ASSESSEE HAD ACCEPTED THE DECISION OF THE TRIBUNAL IN ALLOWI NG SECTION 80IB[10] DEDUCTION TO A PART OF THE PROJECT, THE FININGS OF THE TRIBUNAL IN THAT BEHALF COULD NOT BE DISTURBED. THUS, FROM THE ABOVE, IT IS CLEAR THAT ONCE THE PRO JECT IS APPROVED BY THE LOCAL AUTHORITIES, THEN DEDUCTION HAS TO BE ALL OWED ON THE WHOLE OF THE PROJECT AND, THEREFORE, FOLLOWING THIS DECISION , WE REJECT THIS OBJECTION OF THE REVENUE. 10. AS FAR AS SECOND OBJECTION IS CONCERNED, WE FIN D THAT THIS ISSUE WAS DISCUSSED IN DETAIL BY THE TRIBUNAL IN THE CASE OF HIRANANDANI AKRUTI JV VS. DCIT [SUPRA] AT PARAS 24 TO 27. THE T RIBUNAL NOTED VARIOUS AMENDMENTS MADE IN SEC.80IB(10) AND ULTIMAT ELY HELD VIDE PARAS 26 AND 27 AS UNDER: ITA NO.2216/M/10 5 26. THERE IS TRUTH IN THE PLEA OF HARDSHIP PUT FORT H ON BEHALF OF THE ASSESSEE. LET US ASSUME AN ASSESSEE APPLIES AND OBT AINS APPROVAL OF A LOCAL AUTHORITY FOR BUILDING A HOUSING PROJECT IN THE PREVIOUS YEAR RELEVANT TO AY 02-03. AS PER THE LAW AS IT STOOD IN THE PREVIOUS YEAR RELEVANT 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 HOUSING PROJ ECT. LET US ASSUME THAT THE ASSESSEE COMPLIES WITH ALL THE CONDITIONS FOR ALLOWING RELIEF U/S.80-IB(10) I.E., IT IS APPROVED AS A HOUSING PRO JECT BY THE LOCAL AUTHORITY BUT THE AREA OF COMMERCIAL SPACE AS APPRO VED BY THE LOCAL AUTHORITY IS MORE THAN 2000 SQ.FT. THE ASSESSEE COM MENCES THE PROJECT BUT IS ABLE TO COMPLETE ONLY IN THE PREVIOU S YEAR RELEVANT TO AY 05-06. AS PER THE CHANGE IN LAW FROM AY 05-06 WI TH REGARD TO THE AREA OF COMMERCIAL SPACE IN A HOUSING PROJECT THE A SSESSEE WOULD LOOSE HIS ELIGIBILITY TO CLAIM DEDUCTION. IN SUCH C ASES THERE IS DEFINITELY GRAVE HARDSHIP TO THE ASSESSEE. THE INTERPRETATION SOUGHT TO BE CANVASSED BY THE LEARNED D.R. WILL ALSO LEAD TO ABS URD SITUATION. LET US ASSUME AN ASSESSEE OBTAINS APPROVAL OF A HOUSING PROJECT PRIOR 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. ON THE SAME PROJECT IN AY 05-06, THE ASS ESSEE WOULD NOT GET THE BENEFIT OF SEC.80-IB(10). WE THEREFORE FIND NO GROUNDS TO TAKE A VIEW DIFFERENT FROM THE ONE TAKEN BY THE CO-ORDIN ATE BENCH OF THE TRIBUNAL IN THE CASE OF SAROJ SALES ORGANIZATION (S UPRA). 27. WE ARE OF THE VIEW THAT WE ARE NOT SUPPLYING AN Y WORDS TO THE STATUTE BUT ARE ONLY HOLDING THAT THE LAW AS IT EXI STED IN THE A.Y.04-05 WHEN THE ASSESSEE SUBMITTED ITS PROPOSAL FOR SLUM R EHABILITATION AND THE PERMISSION FOR CARRYING OUT THE DEVELOPMENT WAS ACCORDED ON 17.11.2003 AND WHEN THE ASSESSEE COMMENCED DEVELOPM ENT IS TO BE APPLIED. THEREFORE THE SUBMISSIONS OF THE LEARNED D .R. IN THIS REGARD CANNOT BE ACCEPTED. WE ARE OF THE VIEW THAT THE LEG ISLATURE WOULD NOT HAVE INTENDED TO TAKE AWAY A VESTED RIGHT WITHOUT C LEAR WORDS TO THAT EFFECT IN THE PROVISIONS OF SEC.80-IB(10) AS AMENDE D BY THE FINANCE ACT, 2005, W.E.F. 1-4-2005. WE THEREFORE HOLD FOLLO WING THE DECISION IN THE CASE OF SAROJ SALES ORGANISATION (SUPRA) THAT T HE LAW AS IT EXISTED IN THE A.Y.04-05 WHEN THE ASSESSEE SUBMITTED ITS PR OPOSAL FOR SLUM REHABILITATION AND THE PERMISSION FOR CARRYING OUT THE DEVELOPMENT WAS ACCORDED ON 17.11.2003 AND WHEN THE ASSESSEE CO MMENCED DEVELOPMENT IS TO BE APPLIED. THEREFORE, FOLLOWING THE ABOVE DECISION, WE REJECT THIS OBJECTION ALSO. 11. AS FAR AS THE THIRD OBJECTION IS CONCERNED, WE FIND THAT THE LD. CIT(A) ADJUDICATED THIS ISSUE VIDE PARA 5.4 WHICH I S AS UNDER: 5.4 THUS, THE RELIANCE PLACED BY LD. AO IS OVER RU LED BY THE SPL. BENCH OF PUNE ITAT. FURTHER, IN PARAGRAPH 6.3 LD. A O HAS MENTIONED ITA NO.2216/M/10 6 THAT PROJECT WAS APPROVED ON 19.07.2003. BUT AOP WA S FORMED ON 26.04,2004 AND IN PARA 6.4 IT IS ARGUED BY THE OC T HAT SHRI HARSHAD P. DOSHI IS HOLDING THE DEVELOPMENT RIGHT AND NOT THE AOP AND HE HAS SOLD OUT THE PROPERTIES IN A.Y 2005-06 AND FURTHER IT IS MENTIONED BY THE LD. AO HAT APPELLANT HAS BEEN FORMED BY WAY OF RE-CONSTITUTION HENCE DOES NOT FULFILL THE CONDITIONS OF SECTION 80 1B(2)(I) AND THEREFORE DEDUCTION U/S.80IB(10) IS NOT ALLOWABLE. THESE FINDINGS AND ARGUMENTS ARE NOT HAVING CONVINCING LOGIC OR SUBSTA NCE BECAUSE OF THE FACTS OF THE CASE. IT APPEARS THAT LD. AO HAS N OT PROPERLY APPRECIATED THE FACTS OF THE CASE AND DECISIONS OF THE HONBLE ITAT. THE APPELLANT IS AN AOP WHICH HAS BEEN FORMED ON 26 /04/2004 WHEREIN THE MAJOR MEMBER IS SHRI HARSHAD P DOSHI WI TH 70% SHARE ALONG WITH KUNAL S DOSHI AND HEMAL J DPSJO HAVING O NLY 30% OF THEIR SHARES. THE PLOT OF LAND AND ITS LAND DEVELOPMENT RIGHTS BELONGED TO MR. H P DOSHI SINCE 1991 AND HE HAS OBTAINED MAS TER APPROVAL TO ITS HOUSING PROJECT CALLED AS POONAM VIHAR ON 19/07 /2003 FOR ENTIRE PIECE AND PARCEL OF LAND ADMEASURING OF MORE THAN 2 30000 SQ. NTRS. AT PENKARPADA LOCATED AT MIRA ROAD CONSISTING OF VA RIOUS SURVEY NOS. ONE MORE IMPORTANT FACT IS THERE ON RECORD REGARDIN G PHYSICAL DISABILITY OF SHRI HAJSHAD P. DOSHI. I FIND TRUTHFU LNESS AND MERIT IN THE ARGUMENT OF AR THAT MR. HARSHAD P DOSIII IS HUNDRED PERCENT PHYSICALLY HANDICAP AND NOT CAPABLE TO ATTEND MANY MULTIFARIOUS ACTIVITIES INVOLVED IN THE CONSTRICTION INDUSTRY, H ENCE HE HAS DECIDED TO FORM JOINT VENTURE WITH TWO OTHERS UNDER COMPULS ION, AND IN CONSIDERATION HAS CONTRIBUTED THE LAND IN THE AOP A T ITS COST IN PLACE OF ITS MARKET VALUE I.E. AT RS. 10.87,093/- OF 7247 2.88 SQ. IFS. SINCE MAJOR MEMBER IS MR. H P DOSHI HIMSELF IT CANNOT BE SAID THAT THE A.O.P. IS NOT THE OWNER OF THE LAND DEVELOPMENT RIG HTS AND ALSO IT IS BEING CONTRIBUTED CAPITAL IN THE FORM OF LAND DEVEL OPMENT RIGHTS BY MR. DOSHI. FURTHER, IT IS NOT PERTINENT TO MENTION THAT SECTION 80IB(2)(I) IS NOT AT ALL APPLICABLE TO THE DEDUCTIO N UNDER SECTION 80IB(10) SINCE ITSELF IS A SEPARATE CODE AND INDEPE NDENT OF THE PROVISIONS OF SECTION8OLB(2). THIS FACT HAS BEEN CO NSIDERED AND UPHELD IN THE CASE OF PARTH CORPORATION V5. ITO, IT AT MUMBAI BENCH C REPORTED AT (23 SOT 420) AND THERE IS NO NECESS ITY FOR SUCH APPELLANT TO BE OWNER OF THE LAND OR HAVE APPROVAL IN THEIR NAME. ACCORDING TO THIS JUDGMENT THE REQUIREMENT FOR CLAI MING DEDUCTION U/S.80IB(10) IS THAT ASSESSEE IS AN UNDERTAKING MUS T DEVELOP AND BUILD HOUSING PROJECT, IRRESPECTIVE OF THE FACT THA T WHETHER IT IS ACTING AS A CONTRACTOR FOR DEVELOPING AND BUILDING HOUSING PROJECT OR ACTIVE AS AN OWNER OF LAND. THUS, ON ACCOUNT OF DECISION O F THIS CASE, REASONING OF LD .ASSESSING OFFICER BECOMES INFRUCTU OUS. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE VIZ-A-VIZ DECISION OF HONBLE ITATS, SPECIALLY OF JURISDICTIONAL ITAT AND DECISIONS OF FELIOW WORTHY CIT(APPEALS)25 AND 27 AND PREDECESSOR S LD. CIT(A), I HOLD THAT THE APPELLANT IS ENTITLED TO DEDUCTION U/ S.80IB(10) AND THEREFORE AO IS DIRECTED TO ALLOW THE DEDUCTION AS CLAIMED BY THE APPELLANT OFRS.2,89,99,016/-. ITA NO.2216/M/10 7 FROM THE ABOVE, IT IS CLEAR THAT THE PROJECT WAS AL READY APPROVED IN THE NAME OF SHRI HARISH P. DOSHI WHO IS A PHYSICALLY CH ALLENGED PERSON AND, THEREFORE, HE FLOATED AN AOP BY TAKING HELP OF OTHERS FOR EXECUTION AND DEVELOPMENT OF THE PROJECT. SHRI DOSH I REMAINED A MAJOR SHAREHOLDER IN THE AOP, THEREFORE, THE LD. CI T(A) CORRECTLY OBSERVED THAT BASICALLY THE PROJECT HAS BEEN DEVELO PED BY THE AOP. IN ANY CASE, LD. CIT(A) HAS FOLLOWED THE DECISION OF P ARTH CORPORATION VS. ITO [SUPRA] WHEREIN IT WAS HELD THAT SEC.80IB(2)(I) IS NOT APPLICABLE FOR CLAIMING DEDUCTION U/S.80IB(10). THEREFORE, FOLLOWI NG THIS DECISION, WE REJECT THE THIRD OBJECTION ALSO. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 30/6/2011. SD/- SD/- (N.VASUDEVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 30/6/ 2011. P/-*