THE G.C. DAXINI ACIT 20(3), MUMBAI V. M/S. VIJAY MALLYA, MUMBAI

ITA 2339/MUM/2008

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3684 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 04-03-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 04-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A P SINGH
• Assessee Lawyers: S S PHADKAR RAJESH P MEHTA
• Keywords: Capital asset; Retrospective amendment; Cost of acquisition; Competent authority; Reason to believe; Reassessment proceedings
• Section: 143(3); 80IB; 131; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND , SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 THE ACIT 20(3), ROOM NO.506, 5 TH FLOOR, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI - 400 012. ! ! ! ! / VS. SHRI VIJAY MALLYA, B-103/202, AMEYA HOUSE, RAJKUMAR CORNER, J.P.ROAD, ANDHERI (W), MUMBAI 400 058. # ./ $ ./ PAN/GIR NO. : ACJPM 4438P ( #% / APPELLANT ) .. ( &'#% / RESPONDENT ) #% ( / APPELLANT BY: SHRI A.P.SINGH &'#% ) ( / RESPONDENT BY : S/SHRI S.S.PHADKAR/ RAJESH P. MEHTA ! ) * / DATE OF HEARING : 09/04/2013 +,' ) * / DATE OF PRONOUNCEMENT : 08/5/2013 - / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DI RECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-XXXII, MUMBAI DATED 27/12/2007 FOR ASSESSMENT YEAR 2002-03. THE GROUNDS OF APPEAL READ AS UNDER: . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 2 1. THE LD. CIT(A) ERRED IN ALLOWING THE ASSESSEE C LAIM FOR DEDUCTION U/S 80-LB OF RS. 2,85,97,433/- MERELY RELYING ON THE DE CISION OF THE ITAT MUMBAI IN THE CASE OF PATEL ENGINEERING LTD. VS. DY .CIT 94 ITD 411. 2. THE LD. CIT(A) ERRED IN RELYING ON THE DECISION OF PATEL ENGINEERING LTD. WHICH WAS DELIVIERED IN CONTEXT OF DEDUCTION U/S 80 1A WHILE ASSESSEES CASE IS COVERED U/S 801B. 3. THE LD. CIT(A) HAS ALSO ERRED IN NOT APPRECIATIN G THE FACT THAT DECISION OF PATEL ENGINEERING LTD RELIED UPON BY HIM, IS RENDER ED IN A DIFFERENT CONTEXT. IN THE CASE OF PATEL ENGINEERING LTD., THE ASSESSEE DEVELOPED SOME INFRASTRUCTURAL FACILITY FOR GENERATION OF POWER AN D ELECTRICITY AND IRRIGATION AND HANDED OVER THE SAME TO THE GOVERNMENT AND THER E WAS NO QUESTION OF THE GOVERNMENT SELLING IT FURTHER AND THE STATE GOVERNMENTS OF MAHARASHTRA AND ANDHRA PRADESH WHICH UTILIZED THE I NFRASTRUCTURE FOR PUBLIC ADVANTAGE. IT WAS IN THIS CONTEXT THE DEVELO PER WAS ALLOWED DEDUCTION U/S. 801A. 4. WITH PREJUDICE TO GROUND NO.S.1 TO 3 THE CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THE DECISION OF ITAT IN THE CASE OF P ATEL ENGINEERING LTD., WAS NOT ACCEPTED BY THE REVENUE, AND AN APPEAL AGAINST THE SAME IS STILL PENDING WITH THE BOMBAY HIGH COURT FOR ADJUDICATION . 5. THE APPELLANT PRAYS THAT THE ORDER OF CIT(APPEAL S) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AC BE RESTORED. 2. THE IMPUGNED ASSESSMENT ORDER IS DATED 29/12/200 6 PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1 961 (THE ACT). EARLIER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(1) ON 31/3/ 2003. LATER, ON THE BASIS OF FINDINGS GIVEN IN ASSESSMENT ORDER FOR AS SESSMENT YEAR 2003-04 REASONS WERE RECORDED FOR RE-OPENING OF THE IMPUGNE D ASSESSMENT. THESE REASONS HAVE BEEN REPRODUCED IN THE ASSESSMENT ORDE R AS WELL AS IN THE ORDER OF LD. CIT(A). IN THE NUTSHELL THE REASONS ARE TH AT DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2003-04 IT WAS NOT ICED THAT ASSESSEE HAS CLAIMED DEDUCTION OF RS. 2,85,97,438/- UNDER SECTIO N 80 IB(10) OF THE ACT. ON GOING THROUGH THE DETAILS OF THE CLAIM IT WAS FOUND THAT ASSESSEE WAS NOT OWNER OF THE PLOT ON WHICH THE HOUSING PROJECT WAS CONSTR UCTED AND HE DID NOT ALSO ACQUIRE DEVELOPMENT RIGHTS IN RESPECT OF THE SAID L AND. A PERUSAL OF DEVELOPMENT AGREEMENT DATED 20/11/1999 ENTERED INTO BETWEEN THE ASSESSEE AND ARUNASMRUTI CO-OPERATIVE HOUSING SOCIETY LTD.( THE SOCIETY) IT WAS . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 3 OBSERVED THAT THE LAND WAS OWNED BY THE SOCIETY AND IT AWARDED A CONTRACT TO THE ASSESSEE FOR CONSTRUCTION OF THE FLATS FOR ITS MEMBERS. THE INTIMATION OF DISAPPROVAL(IOD), COMMENCEMENT CERTIFICATE AND PR OJECT PLANS WERE APPROVED BY THE LOCAL AUTHORITY IN THE NAME OF THE SOCIETY WHICH WAS REFERRED TO BE THE OWNER OF THE LAND. THE TERMS OF SO CALL ED AGREEMENT ARE IDENTICAL TO THE CONTRACT OF WORK. A SUMMON WAS ISSUED TO TH E SOCIETY UNDER SECTION 131 AND THE SOCIETY CONFIRMED THE DEVELOPMENT AGREEMENT DATED 20/11/1999 AND COPIES OF AGREEMENT OF PURCHASE OF LAND DATED 15/1 /1974 AND CONVEYANCE DEED DATED 26/6/2000 BETWEEN ERSTWHILE OWNER OF THE LAND SHRI BABU NAVSHYA PAGE AND THE SOCIETY WERE PRODUCED. ACCOR DING TO REASONS THESE FACTS WERE SUFFICIENT TO PROVE THAT ASSESSEE DID N OT BECOME THE OWNER OF THE LAND. THE TITLE GIVEN TO THE AGREEMENT DATED 20/11 /1999 WAS A COLORABLE DEVICE TO GET THE CLAIM UNDER SECTION 80 IB(10) OF THE ACT. THE SALE PRICE OF THE FLATS SHOWN BY THE ASSESSEE WERE FIXED AT RS. 1100 /- PER SQ.FT. FOR OLD MEMBERS AND RS.1200/- PER SQ.FT. FOR THE MEMBERS ENROLLED AT LATER STAGE WHICH DOES NOT INCLUDE COST OF LAND. ACCORDING TO THE RATE PR EVAILING IN THE MARKET THE RATE WAS MUCH HIGHER AND VARIES FROM RS.2,000/- TO RS.2 ,500/- PER SQ. FT., WHICH SHOWS THAT THE CONTRACT VALUE OF THE ASSESSEE INC LUSIVE OF ITS PROFIT WAS FIXED AT THE ABOVE PRICE. THE ASSESSEE WAS UNDER THE OBL IGATION TO CONSTRUCT THE UNITS ONLY FOR THE MEMBERS OF THE SOCIETY. SUCH R ESTRICTION SHOWS THAT ASSESSEE IS A CONTRACTOR. BENEFIT UNDER SECTION 8 0 IB(10) CAN BE GIVEN TO THE BUILDER AND DEVELOPER AND NOT TO THE CONTRACTOR HAV ING NO DEVELOPMENT RIGHTS. THE ASSESSEE WAS REQUIRED TO JUSTIFY ADMISSIBILITY OF THE CLAIM. THE ASSESSEE DID NOT SUBMIT ANY EXPLANATION. THEREFORE, ON THE FACTS AVAILABLE ON RECORD THERE IS A REASON TO BELIEVE THAT ASSESSEE IS NOT E NTITLED TO DEDUCTION UNDER SECTION 80 IB(10) OF THE ACT WHICH CONSTITUTE INCOM E ESCAPING THE ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. IN T HIS MANNER ASSESSMENT PROCEEDINGS FOR IMPUGNED ASSESSMENT YEAR HAVE BEEN RE-OPENED BY ISSUE OF NOTICE UNDER SECTION 148. . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 4 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS REQUIRED TO JUSTIFY ITS CLAIM REGARDING DEDUCTION UNDER SEC TION 80IB(10) OF THE ACT. VIDE LETTER DATED 12/10/2006 IT WAS SUBMITTED BY THE ASS ESSEE THAT SO AS IT RELATES TO BORIVALI PROJECT ONE SHRI BABU N. PAGE HAS BEEN AN AGRICULTURAL TENANT IN RESPECT OF LAND WHO FILED A CASE BEFORE COMPETENT AUTHORITY FOR TRANSFER OF LAND IN HIS FAVOUR AND ACCORDINGLY PURCHASE PRICE WAS DE TERMINED BY COMPETENT AUTHORITY DURING THE YEAR 1973. SHRI BABU N. PAGE WANTED TO BUY THE LAND UNDER SECTION 23G OF THE LAND REVENUE ACT FROM A AGBOATWALA AND FAMILY WHO WERE THE OWNERS OF THE LAND. HE MADE THE PAYM ENT OF NAZRANA TO THE LAND OWNER AND OBTAINED A CERTIFICATE UNDER SECTION 32M OF THE BOMBAY TENANCY AND AGRICULTURAL LAND ACT, 1948 IN HIS FAVO UR. 60% OF THE LAND WAS ENGAGED BY ILLEGAL LIQUOR MANUFACTURERS. SHRI BAB U N. PAGE DID NOT HAVE THE MEANS TO DEVELOP THE PLOT, THEREFORE, HE APPROACHED ONE SHRI P.C. WADHAWKAR, WHO WAS EMPLOYED AS T.C UNDER CENTRAL RAILWAY. SH RI WADHAWKAR AGREED TO PURCHASE THE SAID LAND VIDE AGREEMENT DATED 15/1/19 74 AND PAID THE EARNEST DEPOSIT MONEY AND PROPOSED TO FORM A CO-OPERATIVE SOCIETY. THEN SHRI WADHAWKAR TOOK OVER THE RIGHT FROM SHRI BABU N. PA GE AND APPLIED TO URBAN LAND CEILING AUTHORITY(ULC) AND OBTAINED NECESSARY EXEMPTION CERTIFICATE IN THE NAME OF A PROPOSED CO-OPERATIVE HOUSING SOCIET Y. HOWEVER, SHRI WADHAWKAR COULD NOT TAKE ANY FURTHER STEP DUE TO V ARIOUS REASONS WHICH INCLUDE ENCROACHMENT BY HUTMENT DWELLERS AND LITIG ATION ETC. HE ALSO DID NOT POSSESS REQUISITE FUNDS AND EXPERTISE TO DEVELOP TH E PROPERTY, THEREFORE, HE LOOK OUT FOR COMPETENT DEVELOPER TO DEVELOP THE PROPERTY. IN THE MEANTIME HE WAS SERVED A FINAL NOTICE FROM ULC AUTHORITY COMPEL LING HIM EITHER TO DEVELOP THE PROPERTY OR HIS EXEMPTION WOULD LAPSE. THUS HE APPROACHED SHRI VIJAY MALLYA PROPRIETOR OF M/S. AMYA DEVELOPERS TO INVOL VE HIMSELF IN DEVELOPING THE PROPERTY. SILENT FEATURES OF THE DEVELOPMENT OF P ROPERTY AGREED BETWEEN SHRI . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 5 WADHAWKAR IN THE CAPACITY OF CHIEF PROMOTER OF THE PROPOSED CO-OPERATIVE HOUSING SOCIETY AND SHRI VIJAY MALLYA WERE AS UNDER : MR. VIJAY MALLYA PROP: AMEYA DEVELOPERS SHALL BE T HE SOLE DEVELOPER OF THE ENTIRE PROPERTY INCLUDING TO DO THE FOLLOWING ACT A ND THINGS FOR THE PURPOSE ENTIRELY AT THE COST OF THE DEVELOPER (MR. VIJAY S. MALLYA). 1. THE ENTIRE COST OF DEVELOPING THE PROPERTY INCLU DING THE COSTS OF LAND, LAND DEVELOPMENT, STAMP DUTY, REGISTRATION FEE, LEGAL CH ARGES ETC. IS TO BE ENTIRELY PAID AND BORNE BY THE DEVELOPER. 2. NEGOTIATE AND SETTLE ALL DISPUTES, CLAIMS ETC. O F THE ENCROACHERS AND OCCUPANTS ON THE SAID PROPERTY AND BEAR ALL COSTS THEREOF 3. LOOK AFTER ALL THE PRESENT AND FUTURE LITIGATION S THAT MAY OCCUR DURING THE DEVELOPMENT OF THE PROJECT. 4. APPOINT ARCHITECTS, ENGINEERS. PROFESSIONALS ET C. AND TO DEAL WITH ALL THE CONCERNED GOVERNMENT AUTHORITIES AND PAY THEIR COST S, CHARGES, DEPOSITS, LEVIES ETC. AND OBTAIN ALL THE NECESSARY APPROVALS, CLEARA NCES AS MAY BE REQUIRED FROM TIME TO TIME FOR DEVELOPMENT OF THE PROJECT. 5. TO INCUR ALL COSTS AND CHARGES IN RELATION TO TH E DEVELOPMENT OF THE PROJECT. 6. TO SELL THE FLATS TO THE PROSPECTIVE BUYERS AT S UCH SUM AS MAY BE MUTUALLY AGREED UPON BY THEM AND RECOVER THE SALE PROCEEDS D IRECTLY FROM THE FLAT PURCHASERS WHO WILL BE ADMITTED AS THE MEMBERS OF T HE SOCIETY AS AND WHEN FORMED. 7. THE SOCIETY AFTER ITS FORMATION WILL EXECUTE AN IRREVOCABLE POWER OF ATTORNEY IN FAVOUR OF THE DEVELOPERS AND IT THE ABOVE ARRANGEM ENTS. 3.1 IT WAS FURTHER SUBMITTED THAT ASSESSEE WAS INVO LVED WITH THE BORIVALI PROJECT FROM A.Y 1999-2000 I.E. F.Y 1998-99. REFE RENCE WAS MADE A CHART OF PAYMENT MADE WITH REGARD TO LAND. IT WAS SUBMITT ED THAT UNDER THE PROVISIONS OF ULC ACT THE PROJECT PLAN COULD BE PAS SED ONLY IN FAVOUR OF THE HOUSING SOCIETY. THE ASSESSEE TOOK OVER THE PROJEC T FROM SHRI WADHAWKAR WHO HAD ALREADY APPLIED FOR THE ULC CLEARANCE IN TH E NAME OF THE PROPOSED HOUSING SOCIETY NAMELY ARUNASMRUTI CO-OPERATIVE HOU SING SOCIETY. AFTER THE . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 6 INVOLVEMENT OF SHRI VIJAY MALLYA WITH THE BORIVALI PROJECT WITH ABOUT 28 INITIAL MEMBERS THE SOCIETY WAS FORMED, WHEREIN ALL MEMBERS ARE FAMILY FRIENDS AND EMPLOYEES OF SHRI VIJAY MALLYA. OUT OF INITIAL 28 MEMBERS HARDLY THREE MEMBERS ARE ALLOTTED FLATS IN THE BORIVALI PROJECT . IT WAS SUBMITTED THAT SOCIETY IN THE PRESENT CASE IS MERELY A SPECIAL P URPOSE VEHICLE( SPV) TO DEVELOP PLOT OF LAND. 3.2. THE LAND WAS ILLEGALLY OCCUPIED BY SOME ANTI-S OCIAL ELEMENTS WHO WERE DOING ILLICIT LIQUOR BUSINESS. THE ASSESSEE CLEAR ED ALL THE ILLEGAL OCCUPANTS AND SETTLED WITH VARIOUS KABZEDARS AND SETTLED CLAIMS OF VARIOUS PEOPLE OVER THE LAND. THUS ASSESSEE HAD CLEARED ALL HURDLES TO GE T THE LAND TITLE ACQUIRED AND MARKETABLE. THE APPLICATION WITH BMC FOR APPROVAL OF THE PROJECT CLEARLY NEEDS 3 TO 4 MONTHS TIME. IF PLANS WERE TO BE SENT FOR APPROVAL BY THE SOCIETY THEN IT SHOULD HAVE BEEN SENT ATLEAST THREE MONTHS EARLIER THE DATE OF APPROVAL AND IN THE PRESENT CASE PLANS WERE GOT APPROVED FROM BMS IMMEDIATELY ON FORMATION OF THE SOCIETY BECAUSE OF THE FACT THAT ASSESSEE SE NT THE PLANS FOR APPROVAL THROUGH HIS OWN ARCHITECT IN THE NAME OF PROPOSED S OCIETY BEFORE FORMATION OF THE SOCIETY. THUS IT WAS SUBMITTED THAT SOCIETY WA S MERE SPV TO DEVELOP THE PLOT. COPY OF APPROVED PLANS AS WELL AS CERTIFICA TE OF REGISTRATION WAS SUBMITTED TO THE AO AND IT WAS SUBMITTED THAT THE A SSESSEE HAS DEVELOPED THE PROJECT AT HIS OWN RISK AND COST. HE HAS INVES TED FUNDS IN THE LAND COST TO OWNERS, PURCHASE OF TDR, CLEARED LITIGATION OVER T HE PLOT, PAID ALL CHARGES TO BMC, RCC CONSULTANCY WITH ARCHITECT AND SOLICITORS AND FURTHER SPENT MONEY TO CONSTRUCT THE BUILDINGS. THUS IT WAS SUBMITTED THAT ASSESSEE HAS ACTED AS A DEVELOPER. REPLYING TO THE QUERY OF THE AO THAT ASSESSEE IS NOT A CONTRACTOR BUT A DEVELOPER REFERENCE WAS MADE TO THE PROVISIO NS OF SECTION 80 IB(10) OF THE ACT WHICH ENTITLES THE DEVELOPER TO BE ELIGIBL E OF DEDUCTION EQUAL TO 100% PROFIT DERIVED FROM SUCH PROJECTS. IT WAS SUBMITTE D THAT CONDITION FOR ALLOWABILITY OF THE DEDUCTION ARE (I) THE LAND AREA SUBJECT TO DEVELOPMENT SHOULD BE ATLEAST ONE ACRE IN SIZE; (II) THE HOUSING PROJ ECT SHOULD HAVE COMMENCED ON . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 7 OR AFTER 1 ST DAY OF OCTOBER 1998; (III) RESIDENTIAL UNITS IN TH E HOUSING PROJECT SHOULD HAVE MAXIMUM BUILT-UP AREA OF 1000 SQ.FT. I N MUMBAI AND DELHI AND WITHIN 25 KMS FROM THE MUNICIPAL LIMIT OF THESE CI TIES AND MAXIMUM BUILT UP AREA OF 1500 SQ.FTS. AT OTHER PLACES; (IV) PROJECT SHOULD HAVE BEEN APPROVED BY LOCAL AUTHORITY. IT WAS SUBMITTED THAT THE SECTI ON DOES NOT REFER TO ANY STIPULATION AS TO WHETHER THE LAND UNDER DEVELOPMEN T IS TO BE OWNED AND PURCHASED BY THE DEVELOPER IN HIS OWN NAME. NEITHE R THE SECTION PROHIBITS ANY PERSON FROM DEVELOPING LAND OF SOMEBODY ELSE. THE SCOPE OF SECTION IS LARGE AND INTEND TO APPLY TO ANY ENTITY/UNDERTAKING WHICH UNDERTAKES HOUSING PROJECTS ON ITS OWN RISKS AND REWARDS. IT WAS SUBM ITTED THAT ACCORDING TO NORMAL PRACTICE IN MUMBAI THAT THE DEVELOPER OF A PLOT OF LAND GETS DEVELOPMENT RIGHTS AND POWER OF ATTORNEY TO EXECUT E DEVELOPMENT RIGHTS. WITH THESE POWERS THE BUILDINGS ARE DEVELOPED AND A LSO SOLD TO VARIOUS PARTIES AFTER COMPLETION OF THE PROJECT BY THE DEVELOPER AN D SUCH PRACTICES FOLLOWED IN ORDER TO AVOID DOUBLE STAMP DUTY OF CONVEYANCE OF T HE PROPERTY. 3.3. IT WAS SUBMITTED THAT DEDUCTION UNDER SECTION 80 IB(10) SHOULD BE ALLOWED ON THE FOLLOWING GROUNDS: .(A) THAT THE SOCIETY HAS HANDED OVER THE POSSESS ION OF PLOT TO THE DEVELOPER FOR DEVELOPMENT VIDE A DEVELOPMENT AGREEMENT AND POWER OF ATTORNEY. (B) THAT THE ARUNASMRUTI HOUSING SOCIETY PROJECT HA S BEEN APPROVED BY LOCAL AUTHORITY A L999 AND THE SAID PROJECT COMMENCED ON THE SAME DAY I.E. 16/09/1999. HENCE, CONDITION OF COMMENCEMENT OF THE PROJECT ON OR AFTER OLD 0.1998 IS SATISFIED. (C) THAT THE LAND AREA OF THE PLOT ON WHICH PROJECT DEVELOPED IS MORE THAN ONE ACRE. THE SIZE OF THE PLOT IS 6373 SQ. MT. OR EQUIV ALENT TO 1.75 ACRE. THUS THE CONDITION OF PLOT AREA OF MORE THAN ONE ACRE IS ALS O SATISFIED. (D) THAT THE RESIDENTIAL UNITS CONSTRUCTED ARE LESS THAN 1000 SQ. FT BUILT UP IN SIZE, AS THE PROJECT IS LOCATED IN THE CITY OF MUMBAI. (E) THAT THE PROJECT HAS BEEN DULY APPROVED BY THE LOCAL AUTHORITIES AS PER PLANS AND OTHER DOCUMENTS THE PLANS AND DOCUMENTS ARE ALR EADY SUBMITTED TO THE THEN ASSESSING OFFICER. THE CONDITION OF APPROVAL OF PRO JECT BY LOCAL AUTHORITY IS ALSO SATISFIED. . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 8 (F) A CERTIFICATE IN PRESCRIBED FORM NO. 1 OCCB HAS BEEN OBTAINED FROM A PRACTICING CHARTERED ACCOUNTANT AND ATTACHED WITH T HE RETURN OF INCOME FOR A.Y. 2002-2003 3.4. FURTHER REFERENCE WAS MADE TO THE TERMS AND CO NDITIONS OF DEVELOPMENT AGREEMENT AND POWER OF ATTORNEY GRANTED BY THE HOU SING SOCIETY TO THE ASSESSEE AND IT WAS SUBMITTED THAT THESE CONDITIONS INTER-ALIA INCLUDE TO PURCHASE LAND; TO CLEAR THE LITIGATION ON THE LAND; TO CLEAR THE ENCROACHMENT ON THE LAND AND TO DEVELOP THE PROJECT AS PER THE PLAN S TO BE APPROVED BY THE LOCAL AUTHORITY ENTIRELY AT HIS RISK AND COST. IT WAS SUBMITTED THAT SOCIETY DID NOT PERFORM ANY DUTY WITH REGARD TO ACQUISITION AND POSSESSION OF THE LAND, APPROVAL OF PLANS FROM THE LOCAL AUTHORITY, BUT T HE SOCIETY HAVE UNCONDITIONALLY ALLOWED THE DEVELOPER TO PREPARE TH E PLANS SUITING TO THE NEEDS OF THE DEVELOPER. THE DEVELOPER GET PLANS APPROVED BY THE LOCAL AUTHORITY AND HAS AUTHORITY TO SELL THE UNITS TO ANY PERSON AND R ECOVER HIS COST OF LAND AND BUILDINGS. THUS IT WAS SUBMITTED THAT CONDITIONS CLEARLY INDICATE THAT THE ASSESSEE BEING DEVELOPER HAS ASSUMED ALL RISKS AND REWARDS OF THE PROJECT. HE INVESTED HIS OWN FUNDS. HE GOT THE PLANS AND PROJE CT APPROVED FROM THE LOCAL AUTHORITY AND FINALLY THE HOUSING PROJECT AND MARKE TED THE SAME ON HIS OWN. THE ENTIRE SALE PROCEEDS ARE RECEIVE BY THE ASSESS EE AND ARE ADJUSTED TOWARDS HIS COST OF LAND, CONSTRUCTION, MARKETING AND SELLI NG EXPENSES OF THE PROJECT. IT WAS SUBMITTED THAT IN THE DEVELOPMENT AGREEMENT OF THE SOCIETY NOWHERE THE SOCIETY HAS GUARANTEED THE DEVELOPER FOR HIS INVES TMENT IN THE LAND AND BUILDING, THEREFORE, IT IS CLEAR THAT ASSESSEE HAS UNDERTAKEN HIS OWN RISK TO DEVELOP THE PROJECT AND HAS HIS RIGHT OF REWARD W HICH INCLUDE TAX CONCESSION. 3.5. IT WAS FURTHER SUBMITTED THAT AT THE END OF TH E YEAR BORIVALI PROJECT HAS FIVE FLATS, WHICH REMAINED UNSOLD. OUT OF THESE F IVE FLATS THREE FLATS WERE SOLD IN A.Y 2003-04 ON WHICH LOSS OF RS.5,76,100/- WAS I NCURRED AND THE SAID LOSS WAS NOT CLAIMED AS DEDUCTION SINCE THE PROJECT WAS CONSIDERED AS COMPLETE IN A.Y 2002-03. IT WAS SUBMITTED THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS FOR A.Y 2003-04 IT WAS UNNECESSARY TO DEAL WITH THE DEDUCTION . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 9 UNDER SECTION 80 IB(10) OF THE ACT. IT WAS NOT CLA IMED AT ALL AND IN THE SAID ASSESSMENT THE AO WITHOUT APPRECIATING THE FACTS HAS FORMED AN OPINION THAT ASSESSEE IS WORKING AS A CONTRACTOR AND IS NOT CARR YING ON BUSINESS AS BUILDER OR DEVELOPER. IN THE SAID ASSESSMENT THE VIEW OF T HE AO THAT THE ASSESSEE IS A CONTRACTOR BASED ON THE FOLLOWING GROUNDS: .1.THE ASSESSEE IS NEITHER THE OWNER OF THE LAND O N WHICH HOUSING PROJECT WAS CONSTRUCTED NOR ACQUIRED THE DEVELOPMENT RIGHTS IN RESPECT OF THE SAID LAND. 2. THE AGREEMENT DATED 20.11.99 BETWEEN ARUNASMRUTI CO-OP HSG. SOC. LTD. AND THE ASSESSEE CANNOT BE CONSIDERED AS DEVELOPM ENT AGREEMENT THOUGH TERMED AS DEVELOPMENT AGREEMENT, SINCE THE SINCE IO D COMMENCEMENT CERTIFICATE AND THE PROJECT PLANS WERE APPROVED BY THE LOCAL A UTHORITY IN THE NAME OF THE SOCIETY. 3. ALL THE LEGAL FORMALITIES COMPLETED BY THE SOCIE TY. 4. THE SALE AGREEMENTS WHICH ARE ENTERED INTO WITH THE PURCHASERS DOES NOT INCLUDE THE COST OF LAND 3.6 REFERRING TO THE ABOVE IT WAS SUBMITTED THAT TH E AO HAS MISREAD THE DEVELOPMENT AGREEMENT DATED 20/11/1999 ENTERED INTO BETWEEN THE ASSESSEE AND SOCIETY. REFERENCE WAS MADE TO THE FOLLOWING C LAUSES OF THE AGREEMENT: THE SOCIETY HEREBY DECLARE AS UNDER: CLAUSE 1(G): THEY HAVE NOT GRANTED THE DEVELOPMENT RIGHTS TO ANY OTHER DEVELOPERS IN RESPECT OF THE SAID PROPERTY. CLAUSE 1(E): THEY FURTHER AGREE TO UNDER TAKE TO EX ECUTE AN IRREVOCABLE GENERAL POWER OF ATTORNEY IN FAVOUR OF THE DEVELOPERS AND / OR HIS NOMINEES FOR EFFECTIVELY DEVELOPING THE SAID PROPERTY AND FOR SELLING UNITS, FLATS, GARAGES, PARKING PLACE AND / OR ANY OTHER PERMISSIBLE USER ON THE SAID PRO PERTY TO BE CONSTRUCTED AS PER RULES AND REGULATIONS. CLAUSE 3: IT IS EXPRESSLY AGREED BETWEEN THE PARTIE S THAT (A) THE PARTY OF THE SECOND PART (MR. VJAY S. MALLY A) SHALL SELL THE UNITS CONSTRUCTED ON THE SAID PROPERTY TO THE MEMBERS OF THE SAID SOCIETY WHO SHALL PAY THE DEVELOPERS DIRECTLY SUCH SUM AS MAY BE MUTUALLY AGREED. THE PARTY OF THE . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 10 SECOND PART SHALL BE BOUND TO PROVIDE THE AMENITIES DETAILED IN ANNEXURE A TO THIS AGREEMENT. (D) THE PARTY OF THE SECOND PART AGREES AND UNDERTA KES TO GIVE THE PARTY OF THE FIRST PART AN OFFICE PREMISES IN THE STILT OF THE B UILDING TO BE CONSTRUCTED ON THE SAID PROPERTY ADMEASURING ABOUT 200 SQ. FT AND TO P AY A SUM OF RS. 10,00,000/- (RUPEES TEN LAKHS ONLY) AN OBTAINING THE DELETION / SHIFTING ORDER FROM THE CONCERNED AUTHORITIES IN RESPECT OF THE RESERVATION ON THE SAID PROPERTY. ALL EXPENSES PERTAINING TO OBTAINING THE SAID ORDER SHA LL BE BORNE BY THE PARTY OF THE SECOND PART. THE PARTY ON THE SECOND PART IS AUTHOR IZED TO CONSTRUCT AND SELL THE UNITS ON THE DE RESERVED PLOT AREA. (E) IT IS EXPRESSLY AGREED BETWEEN THE PARTIES THAT THE PARTY OF THE FIRST PART SHALL EXECUTE AN IRREVOCABLE GENERAL POWER OF ATTORNEY IN FAVOUR OF THE PARTY OF THE SECOND PART OR HIS NOMINEE FOR THE PURPOSE OF DEVEL OPMENT OF THE AFORESAID PROPERTY. (F) IT IS EXPRESSLY AGREED BETWEEN THE PARTIES THAT THE DEVELOPER IS ENTITLED TO USE THE PERMISSIBLE TDR AND/OR SET BACK AREA ON THE SAI D PROPERTY AND THE OWNER SHALL NOT CLAIM ANY RIGHT, TITLE OR INTEREST OF WHA TSOEVER NATURE OVER THE SAID TDR AND OR PORTION OF THE TDR USED BY THE DEVELOPERS ON THE SAID PROPERTY AND SHALL ALWAYS CO-OPERATE WITH THE DEVELOPER AND SHALL EXEC UTE SUCH DOCUMENTS AS AND WHEN CALLED UPON BY THE DEVELOPER FOR CONSUMING SUC H TDR ON THE SAID PROPERLY. COST AND CONSEQUENCES OF THE USE OF THE TDR IS THE SOLE RESPONSIBILITY OF THE DEVELOPERS I.E. THE PARTY OF SECOND PART. THE PAR TY OF SECOND PART IS ENTITLED TO CONSUME THE ENTIRE FSI AND PERMISSIBLE TDR ON THE SAID PROPERTY. (G) IT IS EXPRESSLY AGREED BETWEEN THE PARTIES THAT THE DEVELOPERS ARE ENTITLED TO SELL THE FLATS, GARAGES, PARKING LOT ON THE BUILDIN G TO BE CONSTRUCTED ON THE SAID PROPERTY AND TO ACCEPT THE CONSIDERATION AND TO PAS S ON VALID RECEIPT FOR THE SAME AND ALSO MORTGAGE THE SAID PROPERTY. (K) THE PARTY OF THE SECOND PART (MR. VIJAY S. MALL YA) IS FREE TO TRANSFER THE DEVELOPMENT RIGHTS UNDER THIS AGREEMENT WITHOUT THE CONSENT OF THE SOCIETY TO ANY OTHER PARTY. NOTE: THE CLAUSE 3(K) OF THE DEVELOPMENT AGREEMENT IS ENOUGH INDICATOR OF THE NATURE OF THE TRANSACTION. SUCH RIGHTS ARE USUALLY ENJOYED BY THE DEVELOPERS AND BUILDERS ONLY BUT NOT BY CONTRACTORS. THIS PROVES T HAT YOUR ASSESSEE IS A DEVELOPER AND NOT A MERE CONTRACTOR WHO WORKS FOR T HE FEES OR REMUNERATION FIXED IN ADVANCE. 3.7. IT WAS FURTHER SUBMITTED THAT IN PURSUANCE OF AFOREMENTIONED AGREEMENT POWER OF ATTORNEY DATED 23/11/1999 WAS EXECUTED AND FOLLOWING CLAUSES FROM POWER OF ATTORNEY WERE REFERRED: . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 11 PARA NO. 2 OF POWER OF ATTORNEY. 2. TO MANAGE THE AFFAIRS OF OUR SAID PROPERTY AND T O CHANGE THE USER OF THE SAID LAND AND CONVERT IT INTO NON AGRICULTURAL USE AND F OR THAT PURPOSE TO SEEK PERMISSIONS FROM COMPETENT AUTHORITIES BY APPOINTIN G ARCHITECTS, ADVOCATES AND MAKING SUCH NECESSARY WRITINGS, APPLICATIONS, UNDER TAKING AS MAY BE REQUIRED AND TO PAY IN OUR NAME AND ON OUR BEHALF NA TAKES, CHARGES AND ALL OTHER LEVIES. PARA NO. 3 OF POWER OF ATTORNEY 3. TO ENGAGE ARCHITECTS, ENGINEERS, SUPERVISORS AS MAY REQUIRED FOR GETTING THE PLANS ON THE SAID PROPERTY DULY APPROVED FROM MUNIC IPAL CORPORATION OF GREATER MUMBAI AND TO PAY NECESSARY DEPOSITS FOR OBTAINING JOD AND C. C. IN OUR NAME AND ON OUR BEHALF. PARA NO. 6 OF POWER O ATTORNEY 6. TO PAY THE BALANCE CONSIDERATION TO MR. B. N. P AGE AND ALL OTHER PERSONS INTERESTED IN THE SAID PROPERTY IN OUR NAME AND ON OUR BEHALF AND TO OBTAIN THE CONVEYANCE FROM SAID MR. B. N. PAGE IN RESPECT OF T HE SAID PROPERTY. PARA NO. 13 OF POWER OF ATTORNEY 13. TO CONSTRUCT ON THE SAID PROPERTY AS PER THE PL ANS SANCTIONED BY THE CORPORATION AND TO ALLOT THE SAME TO OUR MEMBERS AS PER OUR DIRECTIONS BY PROVIDING AMENITIES AS PRESCRIBED BY THE SOCIETY FR OM TIME TO TUNE. PARA 14 OF POWER OF ATTORNEY: 14. TO COLLECT DIRECTLY FROM OUR MEMBERS THE LAND CLEARANCE COST AND PROPORTIONATE DEVELOPMENT COST AND THE CONSTRUCTIO N COST (INCLUSIVE OF ARCHITECTS FEES, RCC CONSULTANTS FEES, DEPOSITS MADE TO CORPO RATION AND LEGAL FEES) AND TO PASS ON VALID RECEIPT FOR THE SAME. 3.8. REFERRING TO THESE DOCUMENTS IT WAS SUBMITTED THAT AGREEMENTS ARE NOT BETWEEN THE OWNER OF THE LAND AND THE CONTRACTOR FO R CONSTRUCTION OF BUILDINGS. THE ASSESSEE HAS BEEN GIVEN FULL AUTHORITY TO DEA L WITH THE LAND TO CONSTRUCT BUILDINGS THEREON, SELL THE FLATS ON OWNERSHIP BASI S AND GIVEN THE POSSESSION TO THE PERSON WHO HAVE TO BECOME THE MEMBERS OF THE AR UNASMRUTI CO-OPERATIVE HOUSING SOCIETY LTD. THE ASSESSEE HAD PAID LAND CO ST INCLUDING TDR RATE OF RS.57,24,380/- OVER A PERIOD OF 5 YEARS COVERING TH E FINANCIAL YEARS 1998-99 TO 2002-03. A CHART WAS FURNISHED TO SHOW THAT SUCH P AYMENT WAS MADE AND IT WAS SUBMITTED THAT IT CAN BE OBSERVED FROM THE SAI D CHART THAT THE ASSESSEE HAD PAID THE LAND COST EVEN PRIOR TO DEVELOPMENT A GREEMENT DATED 20/11/1999. IT WAS SUBMITTED THAT THE LAND COST WA S SPREAD OVER FIVE YEARS AS THE ASSESSEE HAD TO CLEAR ENCROACHERS / CLAIMANTS. THUS IT WAS SUBMITTED . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 12 THAT THE FIRST OBJECTION OF THE AO IS NOT RIGHT THA T THE ASSESSEE HAS NOT PAID COST OF LAND. 3.9. IT WAS FURTHER SUBMITTED THAT DURING THE PERIO D COVERING A.Y. 1999-2000 TO 2002-03 THE ASSESSEE HAD SOLD FLATS WORTH OF RS. 8,56,15,997/- AND ALL PURCHASERS OF THE FLATS HAD BECOME THE MEMBERS OF T HE SOCIETY. THE LIST OF ALL SUCH MEMBERS WAS FILED ALONG WITH SALE PRICE PAID B Y THEM AND DETAILS REGARDING AVAILABLE FSI WERE ALSO FILED TO THE A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF A.Y 2003-04. 3.10. IT WAS FURTHER SUBMITTED THAT AS ASSESSEE HAS FULFILLED ALL THE CONDITIONS LAID DOWN IN SECTION 80 IB(10) AND ASSESSEE IS NOT CONTRACTOR AND SUCH FACT IS EVIDENT FROM THE FACT THAT ASSESSEE HAS SHOWN THE VALUE OF CLOSING STOCK OF UNSOLD FIVE FLATS IN P&L ACCOUNT AND BALANCE SHEET, THE ASSESSEE CANNOT BE TREATED TO BE CONTRACTOR. OUT OF FIVE UNSOLD FLAT S THREE FLATS WERE SOLD DURING THE ASSESSMENT YEAR 2003-04 AND BALANCE TWO FLATS A RE SHOWN IN STOCK AND SUCH ACCOUNTING POSITION HAS BEEN ACCEPTED BY THE A O IN A.Y 2003-04. A CONTRACTOR FOR CONSTRUCTION IS GENERALLY NOT CONCER NED WITH THE PROFIT OR LOSS OF THE PROJECT. THE CONTRACTOR CARRY OUT CONSTRUCTION WORK ON BEHALF OF THE PRINCIPAL, WHEREAS BUILDER AND DEVELOPER ACT ON HI S OWN AND IS LIABLE FOR LOSSES, IF ANY, INCURRED BY HIM AND ALL THESE CONDI TIONS ARE SATISFIED BY THE ASSESSEE WHO CANNOT BE CONSIDERED AS CONTRACTOR. T HE ASSESSEE HAS FILED RETURN FOR THE YEAR UNDER CONSIDERATION DECLARING T HE PROFIT OF RS.2,85,85,938/- AND HAS INCURRED TOTAL EXPENDITURE OF RS.57,24,380/ - BEING ON ACCOUNT OF LAND, THEREFORE, ASSESSEE CANNOT BE DENIED WITH THE BENEF IT OF DEDUCTION UNDER SECTION 80 IB(10) OF THE ACT. 3.11. HOWEVER, WITH REGARD TO THE AFOREMENTIONED SU BMISSIONS A.O HAS OBSERVED THAT THE EARLIER A.O HAD ELABORATELY RECO RDED THE REASONS FOR REOPENING THE ASSESSMENT AND HAS FOUND THAT ASSESSE E IS NOT ENTITLED TO . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 13 DEDUCTION UNDER SECTION 80 IB(10) AND ON THIS ISSUE THE ASSESSEE IS IN APPEAL BEFORE LD. CIT(A). THE AO AGAIN ISSUED NOTICE TO T HE ASSESSEE VIDE LETTER DATED 8/12/2006. IN RESPONSE REPLY DATED 9/12/2006 WAS FILED. IT WAS SUBMITTED THAT AS DEDUCTION UNDER SECTION 80 IB (10) WAS NOT CLAIMED IN A.Y 2003-04, LD. CIT(A) HAS DISMISSED THIS ISSUE INLIMINE AS NO DEDUCTION WAS CLAIMED. IT WAS SUBMITTED THAT ASSESSEE COULD NOT BE TREATED AS A CONTRACTOR ACCORDING TO THE DEFINITION AND ALSO IN THE LIGHT OF DECISION OF ITAT IN THE CASE OF PATEL ENGINEERING LTD. VS. DCIT, 94 ITD 411(MUM). 3.12. HOWEVER, A.O DID NOT AGREE WITH SUCH CONTENTI ON OF THE ASSESSEE ON THE GROUND THAT DECISION IN THE SAID CASE DOES NOT APPL Y IN THE CASE OF THE ASSESSEE. ACCORDING TO A.O THE ASSESSEE IN ITS REP LY COULD NOT REBUT THE FACTS AND FINDING OF THE AO FOR RE-OPENING OF THE ASSESSM ENT AND CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE HE CONCLUDED TH AT ASSESSEE IS A CONTRACTOR AND NOT A DEVELOPER WITHIN THE MEANING OF SECTION 8 0 IB(10) OF THE ACT AND THUS WOULD NOT BE ENTITLED TO CLAIM DEDUCTION UNDER SECT ION 80 IB (10). IT IS IN THIS MANNER A.O HAS REJECTED THE CLAIM OF THE ASSESSEE UNDER SECTION 80 IB(10) OF THE ACT. 4. BEING AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE LD. CIT(A). BEFORE LD. CIT(A) THE SUBMISSIONS MADE BEFORE AO WERE REITERA TED. ON THESE SUBMISSIONS OF THE ASSESSEE LD. CIT(A) HAS OBSERVED THAT AO WAS NOT CORRECT IN UPHOLDING THAT THE ASSESSEE IS NOT ENTITLED TO DEDU CTION UNDER SECTION 80 IB(10). DURING THE YEAR UNDER CONSIDERATION, THE A SSESSEE COMPLETED THE BORIVALI PROJECT WHICH WAS CONSTRUCTED FOR MEMBERS OF ARUNASRUTI CO- OPERATIVE HOUSING SOCIETY LTD. FOR SUCH PURPOSE D EVELOPMENT AGREEMENT DATED 20/11/1999 WAS EXECUTED. THE HISTORY OF THE PROJECTS STARTS FROM SHRI. BABU N. PAGE, WHO WAS AN AGRICULTURAL TENANT IN RES PECT OF THE SAID LAND. THE LAND WAS ENCROACHED BY ILLICIT LIQUOR MANUFACTURERS , THEREFORE, SHRI PAGE APPROACHED ONE SHRI WADHAWKAR FOR PURCHASED OF THE SAID LAND. ALTHOUGH . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 14 SHRI WADHAWKAR AGREED TO PURCHASE THE LAND AND FOR M A CO-OPERATIVE HOUSING SOCIETY, HOWEVER, COULD NOT TAKE ANY FURTHER STEP D UE TO VARIOUS REASONS INCLUDING REMOVAL OF ENCROACHMENT. HE IN TURN APPR OACHED THE ASSESSEE FOR THE PURPOSE OF DEVELOPMENT OF THE PROPERTY. THE AS SESSEE AGREED TO DEVELOP THE SAID LAND AND CONSTRUCT FLATS ON THE SAID LAND AS PER TERMS OF AGREEMENT DATED 20/11/1999. LD. CIT(A) OBSERVED THAT THOUGH THE AO HAS STATED TO HAVE CONSIDERED THE ARGUMENTS OF THE ASSESSEE, TERM S AND CONDITIONS OF THE AGREEMENT AS WELL AS CASE OF M/S. PATEL ENGINEERING LTD. (SUPRA), BUT WHILE REJECTING THE CLAIM OF DEDUCTION UNDER SECTION 80 I B(10) HE HAS NOT ELABORATED UPON THE REASONS ON WHICH THE SAID CLAIM WAS REJECT ED. THE AO ALSO FAILED TO STATE REASON THAT WHY FACTS IN THE CASE OF M/S. PAT EL ENGINEERING ARE DIFFERENT FROM THE FACTS OF THE CASE OF THE ASSESSEE. LD. CI T(A) HAS OBSERVED THAT AO HAS MERELY STATED THAT ASSESSEE HAS NOT BEEN ABLE TO RE BUT THE FACTS AND FINDINGS OF THE AO FOR RE-OPENING OF THE ASSESSMENT AS PER REA SONS RECORDED BY HIM AND AO HAS NOT ELABORATED SUCH ASPECT. LD. CIT(A) OBSE RVED THAT ASSESSEE HAD ACQUIRED ABSOLUTE DEVELOPMENT RIGHTS BY VIRTUE OF DEVELOPMENT AGREEMENT DATED 20/11/1999, IN CONSEQUENCE OF WHICH THE GENE RAL POWER OF ATTORNEY WAS ALSO EXCLUDED BY THE SOCIETY IN HIS FAVOUR. THERE ARE NUMBER OF STIPULATIONS IN THE AGREEMENT WHICH HAS GIVEN THE ASSESSEE THE ABSO LUTE POWER OF DEVELOPMENT OF THE SAID LAND. THEN LD. CIT(A) HAS REPRODUCED R ELEVANT CLAUSES OF THE DEVELOPMENT AGREEMENT AND AFTER REPRODUCING THE SA ME HE HAS OBSERVED THAT THE AFOREMENTIONED CLAUSES OF AGREEMENT, IF SEEN IN THE LIGHT OF DECISION OF MUMBAI ITAT IN THE CASE OF M/S. PATEL ENGINEERING L TD.(SUPRA), ARE ON STRONG FOOTING AS IN THE SAID CASE ASSESSEES CONTRACTOR RIGHTS OF DEVELOPMENT WERE EVEN MORE DILUTE. IN THE CASE OF THE ASSESSEE N OT ONLY WORK OF CONSTRUCTION OF PROJECT WAS PERFORMED BUT INFRASTRUCTURE FACILITIES WERE ALSO DEVELOPED. THE ASSESSEE HELD GENERAL POWER OF ATTORNEY TO CARRY OUT THE WORK OF OBTAINING ALL LEGAL PERMISSIONS, DECIDING ENTRY OF NEW MEMBERS TO THE SOCIETY AS WELL AS TO COLLECT FROM MEMBERS THE LAND ACQUISITION COST A ND PROPORTIONATE DEVELOPMENT AND CONSTRUCTION COST. THE ASSESSEE WA S ALSO LIABLE TO BEAR THE . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 15 COST OF LAND OVER A PERIOD OF FIVE YEARS. THE AO H AS NOT READ THE SAID AGREEMENT PROPERLY AND MISSED OUT THESE RIGHTS AND POWERS ENJOYED BY THE ASSESSEE FOR EXECUTION OF THE SAID PROJECT. THEREF ORE, LD. CIT(A) HAS HELD THAT THE ASSESSEE HAS ENJOYED ABSOLUTE DEVELOPMENT RIG HT IN THE LAND WHICH WAS DEVELOPED BY HIM, THEREFORE, IS ENTITLED FOR GRANT OF DEDUCTION UNDER SECTION 80 IB(10) OF THE ACT. HE DELETED THE DISALLOWANCE OF THE DEDUCTION. THE DEPARTMENT IS AGGRIEVED AND HAS FILED AFOREMENTIONE D ROUNDS OF APPEAL. 5. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY LD . DR THAT NEITHER DEVELOPMENT AGREEMENT NOR POWER OF ATTORNEY WAS REG ISTERED, THEREFORE, RELYING UPON THEM IT CANNOT BE PLEADED THAT ASSESSEE DID NO T WORK AS A CONTRACTOR. HE SUBMITTED THAT DECISION IN THE CASE OF M/S. PATEL E NGINEERING LTD. VS. CIT(SUPRA) IS ON THE PROVISIONS OF SECTION 80 IA( 4) AND CANNOT BE APPLIED TO THE CASE OF THE ASSESSEE AS DEDUCTION IN THE PRESE NT CASE HAS BEEN CLAIMED UNDER SECTION 80 IB(10). HE SUBMITTED THAT THE SAI D DECISION IS NO LONGER A GOOD LAW AFTER INSERTION OF EXPLANATION BY THE FINA NCE (NO.2) ACT 2005 WITH RETROSPECTIVE EFFECT FROM 1/04/2001 AND IT HAS BEEN CLARIFIED AND DECLARED THAT NOTHING CONTAINED IN SECTION 80 IB(10) SHALL APPLY TO ANY UNDERTAKING WHICH EXECUTES THE HOUSING PROJECT AS A WORK CONTRACT AW ARDED BY ANY PERSON INCLUDING CENTRAL OR STATE GOVERNMENT. HE SUBMITTE D THAT ACCORDING TO THE FACTS OF THE CASE THE ASSESSEE DID NOT INCUR COST O F LAND AS THE SAME HAS NOT BEEN PAID TO THE ASSESSEE BY THE SOCIETY. FOR THIS PURPOSE LD. DR REFERRED TO THE CONSTRUCTION COST, DETAILS OF WHICH IS PLACED A T PAGE 12 OF THE PAPER BOOK. FURTHER, HE REFERRED TO PAGE-13 OF THE PAPER BOOK, WHERE THE DETAILS REGARDING CONSTRUCTION EXPENSES HAS BEEN SUBMITTED, WHEREIN L AND/LAND DEVELOPMENT COST IS SHOWN AT RS. 8,91,212/-. HE SUBMITTED THAT WHATEVER THE PRICE OF LAND PAID BY THE ASSESSEE IS I.E. FOR VACATING ADVERSE POSSESSION AND NO PAYMENT HAS BEEN PAID TO THE ASSESSEE. REFERRING TO THE DE TAILS OF LAND COST SHOWN AT RS.57,24,380/-, DETAILS OF WHICH IS FILED AT PAGE 1 69 OF THE PAPER BOOK, LD. DR SUBMITTED THAT THESE ARE PAYMENTS MADE BY THE ASSES SEE TO VACATE THE LAND . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 16 FROM ADVERSE POSSESSION FOR WHICH THE EVIDENCE HAVE BEEN FILED BY THE ASSESSEE FROM PAGES 114 TO 126 OF THE PAPER BOOK. HE SUBMI TTED THAT IT IS ONLY A WORK CONTRACT GIVEN BY THE MEMBERS OF THE SOCIETY TO THE ASSESSEE, WHEREIN ALL THE COST WERE TO BE INCURRED BY THE ASSESSEE AND THAT C OST ALONG WITH PROFIT WAS RECOVERED FROM MEMBERS OF THE SOCIETY. 5.1. FOR THIS PURPOSE LD. D.R REFERRED TO THE TERMS OF POWER OF ATTORNEY WHEREIN IN THE RECITAL CLAUSE HAS BEEN MENTIONE D AS UNDER: AND WHEREAS THEREFORE THE PROMOTER OF THE ARUNASM RUTU SOCIETY HAVE APPROACHED MR. VIJAY MALLYA, PROPRIETOR OF M/ S. AMEYA DEVELOPERS, WHO IS EXPERT IN CONSTRUCTION AND REQU ESTED HIM TO HELP THE SOCIETY BY USING HIS TECHNICAL KNOW-HOW AS WELL AS FINANCIALLY TO MAKE THE PAYMENT TO THE LANDLORD, TO CLEAR UP THE A CCESS AND TO SETTLE WITH THE TENANTS, ENCROACHERS AND GET THE PLANS APP ROVED FROM B.M.C. BY PAYING THE DEPOSIT INITIALLY, TO CONSTRUCT THE BUIL DING AND TO RECOVER THE SAME FROM THE MEMBERS. HE SUBMITTED THAT ASSESSEE DID NOT SUBMIT ANY DOCUM ENTS REGARDING PURCHASE OF LAND BY SHRI BABU N. PAGE AND SHRI WADHAWKAR. NO DOCUMENT HAS BEEN BROUGHT ON RECORD TO SHOW THAT TITLE OF THE PROPERT Y HAS BEEN CHANGED HAND AND UNLESS THERE IS A CHANGE IN TITLE, THE CAPACITY OF THE ASSESSEE TO CARRYOUT CONSTRUCTION WORK WAS ONLY OF A CONTRACTORS AND NOT A DEVELOPER. 6. ON THE OTHER HAND, LD. A.R SUBMITTED THAT THE A SSESSEE HAS DEVELOPED THE PROPERTY AT HIS OWN RIGHT. THE FLATS CONSTRUC TED WERE SOLD BY THE ASSESSEE AND SALE PRICE HAS BEEN CREDITED TO THE BOOKS OF TH E ASSESSEE. THE TERMS OF THE DEVELOPMENT AGREEMENT AND POWER OF ATTORNEY CLEARLY INDICATE THAT ASSESSEE HAD WORKED IN THE CAPACITY OF DEVELOPER AND NOT IN THE CAPACITY OF CONTRACTOR. HE SUBMITTED THAT ASSESSEE HAS SHOWN UNSOLD FLATS A S CLOSING STOCK IN HIS BOOKS OF ACCOUNT AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE NEXT YEAR ASSESSMENT. HE SUBMITTED THAT CONTRACTOR CANNOT TREAT THE CONSTRUCTED PROPERTY AS HIS CLOSING STOCK. HE SUBM ITTED THAT ASSESSEE HAS . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 17 PAID ALL THE PAYMENTS FOR THE LAND DETAILS OF WHICH WERE FIELD BEFORE AO AND IT IS NOT EVEN THE CASE OF AO THAT ASSESSEE DID NOT MA KE PAYMENT OF THE LAND COST AS PER AGREEMENT. HE SUBMITTED THAT THE ONLY OBJEC TION OF A.O IS THAT ASSESSEE HAS WORKED AS A CONTRACTOR AND LD. CIT(A) AFTER ANA LYZING THE TERMS AND CONDITIONS OF THE DEVELOPMENT AGREEMENT WHICH HAVE BEEN REPRODUCED BY THE LD.CIT(A) IN HIS ORDER, HAS RIGHTLY COME TO A CONC LUSION THAT ASSESSEE WAS WORKING AS A DEVELOPER AND IS ENTITLED FOR DEDUCTI ON UNDER SECTION 80IB(10) OF THE ACT. 6.1. LD. A.R REFERRED TO THE DECISION RELIED UPON BY LD. CIT(A) AND ALSO REFERRED TO THE DECISION OF HONBLE GUJARAT HIGH CO URT IN THE CASE OF CIT VS. RADHE DEVELOPERS, 341 ITR 403(GUJ). IN THE SAID DE CISION THEIR LORDSHIP OF GUJARAT HIGH COURT AFTER CONSIDERING THE PROVISIONS OF SECTION 2(47)(V) OF THE INCOME TAX ACT, 1961 AND SECTION 53A OF TRANSFER O F PROPERTY ACT HAVE OBSERVED THAT A COMBINED READING THEREOF WOULD LEA D TO A SITUATION WHERE THE LAND WOULD BE FOR THE PURPOSE OF INCOME TAX ACT D EEMED TO HAVE BEEN TRANSFERRED TO THE ASSESSEE. IN THAT VIEW OF THE MATTER, FOR THE PURPOSE OF INCOME DERIVED FROM SUCH PROPERTY, THE ASSESSEE WOU LD BE THE OWNER OF THE LAND FOR THE PURPOSE OF THE SAID ACT. IT IS TRUE THAT THE TITLE IN THE LAND HAD NOT YET PASSED ON TO THE ASSESSEE. IT IS EQUALLY TRUE THAT SUCH TITLE WOULD PASS ONLY UPON EXECUTION OF A DULY REGISTERED SALE DEED. HOWEVER, WE ARE FOR THE LIMITED PURPOSE OF THESE PROCEEDINGS, NOT CONC ERNED WITH THE QUESTION OF PASSING OF THE TITLE OF THE PROPERTY, BUT ARE ONLY EXAMINING WHETHER FOR THE PURPOSE OF BENEFIT UNDER SECTION 80 IB(10) OF THE ACT, THE ASSESSEE COULD BE CONSIDERED AS AN OWNER OF THE LAND IN QUESTION. RE FERRING TO THE DECISION OF HONBLE APEX COURT IN THE CASE OF MYSORE MINERALS L TD. VS. CIT, 239 ITR 775(SC) AND IN THE CASE OF PODAR CEMENT PVT. LTD., 226 ITR 625, IT WAS OBSERVED THAT FOR THE LIMITED PURPOSE OF DEDUCTI ON UNDER SECTION 80 IB (10) OF THE ACT THE ASSESSEE HAD SATISFIED THE CONDITION OF OWNERSHIP; ALSO EVEN IF IT WAS NECESSARY. THEIR LORDSHIP REFERRED TO THE CA SE OF M/S. SHAKTI . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 18 CORPORATION, WHICH WAS ALSO RESPONDENT IN THE SAID CASE. THE SAID CONCERN HAD ENTERED INTO A DEVELOPMENT AGREEMENT WITH THE L AND OWNER AND THERE WERE CERTAIN MINOR DIFFERENCES. HOWEVER, THE ASSESSEE B EING DEVELOPER WAS GIVEN FULL RIGHT TO DEVELOP THE LAND BY PUTTING UP HOUSING PRO JECT AT HIS OWN RISK AND COST. ENTIRE PROFIT FLOWING THERE FROM WAS TO BE R ECEIVED BY THE ASSESSEE THOUGH THE AGREEMENT WAS PROVIDING THAT THE ASSESS EE WOULD RECEIVE REMUNERATION. THEIR LORDSHIP OBSERVED THAT SUCH ONE WORD USED IN THE AGREEMENT WAS NOT TO BE INTERPRETED IN ISOLATION OU T OF CONTEXT. THE ENTIRE READING OF THE DOCUMENTS WOULD REVEAL THAT THE ASSE SSEE HAD TO BEAR THE LOSS OR AS THE CASE MAY BE TO TAKE HOME THE PROFIT, IT BEC OMES ABUNDANTLY CLEAR THAT THE PROJECT WAS BEING DEVELOPED BY HIM AT HIS OWN R ISK AND COST AND NOT THAT OF THE LAND OWNERS. THUS IT WAS HELD THAT ASSESSEE DI D NOT WORK AS A WORK CONTRACTOR. IT WAS HELD THAT THE INTRODUCTION OF THE EXPLANATION TO SECTION 80 IB(10) IN THESE CASES ALSO WILL HAVE NO IMPACT. 6.2. LD. A.R FURTHER REFERRED TO THE DECISION OF HO NBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SHRAVANEE CONSTRUCTIONS, 20 9 TAXMAN 6 (KAR). IN THAT CASE A JOINT DEVELOPMENT AGREEMENT WAS ENTERED INTO BETWEEN OWNER OF THE LAND, DEVELOPER OF THE LAND AND ASSESSEE WHO WAS U NDER THE OBLIGATION TO OBTAIN KHATHA FROM THE MUNICIPALITY; OBTAIN PLAN SA NCTION FOR CONSTRUCTION OF APARTMENTS ON THE SAID PROPERTY BY THE LOCAL AUTHOR ITY; MAKING THE LAND USEABLE FOR THE PURPOSE OF APARTMENT CONSTRUCTION B Y PROVIDING PROPER ROAD AND TO GIVE AN APPROACH TO THE SITE; JOINTLY SUPE RVISING CONSTRUCTION OF APARTMENTS; MARKETING THE APARTMENTS FALLING TO THE SHARE OF THE ASSESSEE AND UNDERTAKING LEVELING OF THE ROAD AND REMOVAL OF ROC KY SERVICES IN THE SAID LAND AND MADE IT USEABLE FOR THE PURPOSE OF CONSTRUCTION OF APARTMENT COMPLEXES WAS ALSO HELD ENTITLED FOR DEDUCTION UNDER SECTION 80 IB(10) ALONG WITH THE DEVELOPER. OUT OF TOTAL 211 FLATS BUILT 40 FLATS W ERE ALLOTTED TO THE ASSESSEE, UPON SALE OF WHICH THE ASSESSEE HAD CLAIMED DEDUC TION UNDER SECTION 80 IB (10). . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 19 6.3 THUS IT WAS PLEADED BY LD. AR THAT THE FACTS O F THE ASSESSEES CASE ARE ON STRONGER FOOTINGS AND BENEFIT TO THE ASSESSEE CA NNOT BE DENIED. IN THIS MANNER LD. AR HAS CONCLUDED HIS ARGUMENTS. 7. IN THE REJOINDER IT WAS SUBMITTED BY LD. DR THAT IN THE REASONS RECORDED BY AO IT HAS BEEN CLEARLY MENTIONED THAT THE DEVELO PMENT AGREEMENT OF THE ASSESSEE IS A COLOURABLE DEVISE. HE, THEREFORE, SU BMITTED THAT ASSESSEE HAS RIGHTLY BEEN DENIED WITH THE BENEFIT OF DEDUCTION U NDER SECTION 80 IB (10) BY THE AO AND LD. CIT(A) HAS WRONGLY ALLOWED THE SAM E TO THE ASSESSEE. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF MATERIAL PLACED BEFORE US. WE HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER. REASSESSMENT PROCEEDINGS WERE INITIATED IN THE PRESENT CASE AND THE COPY OF REASONS IS REPRODUCED BY THE AO IN THE ASSE SSMENT ORDER. IT IS WRITTEN IN THOSE REASONS THAT A SUMMON WAS ISSUED TO THE SO CIETY UNDER SECTION 131 OF THE ACT AND SOCIETY HAS CONFIRMED THE AGREEMENT DAT ED 15/11/1999 AND COPY OF AGREEMENT OF PURCHASE OF LAND DATED 15/1/1974 WA S ALSO FILED ALONG WITH CONVEYANCE DATED 20/6/2000 BETWEEN ERSTWHILE OWNER OF THE LAND SHRI BABU N. PAGE AND THE SOCIETY. THE REASON FOR RE-OPENING WAS THAT ASSESSEE DID NEVER BECOME THE OWNER OF THE LAND AND TITLE GIVEN TO THE DEVELOPMENT AGREEMENT WAS A COLOURABLE DEVISE. UPON THESE OBSERVATIONS IN THE REASONS RECORDED LD. CIT D.R SOUGHT TO PLEAD THAT THE DEVELOPMENT AGREEM ENT WAS A COLOURABLE DEVISE. HOWEVER, IF CONTENTS OF THE ASSESSMENT ORD ER AND FINDINGS OF THE AO GIVEN IN THE ASSESSMENT ORDER ARE CONSIDERED THEN I T IS NOWHERE THE CASE OF THE AO THAT THE DEVELOPMENT AGREEMENT ENTERED INTO BY THE ASSESSEE WAS A COLOURABLE DEVISE. AT LEAST, NO MATERIAL HAS BEEN BROUGHT ON RECORD DURING THE COURSE OF IMPUGNED ASSESSMENT PROCEEDINGS FROM WH ERE IT CAN BEEN GATHERED THAT THE DEVELOPMENT AGREEMENT ENTERED BY THE ASS ESSEE WITH THE SOCIETY WAS A COLOURABLE DEVISE. THE SCHEME OF ASSESSMENT ORDE R IS THAT AFTER REPRODUCING THE REASONS OF REOPENING, THE AO HAS REPRODUCED TH E SUBMISSIONS OF THE . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 20 ASSESSEE RUNNING FROM PAGE-3 UPTO PAGE 12 OF THE AS SESSMENT ORDER, WHEREIN THE ASSESSEE HAS FILED A DETAILED REPLY CITING TERM S OF THE AGREEMENT AND THE PROVISIONS OF SECTION 80 IB(10) AND PLEADING THAT ASSESSEE WAS ENTITLED FOR THE DEDUCTION UNDER SECTION 80 IB(10) OF THE ACT. AFTE R REPRODUCING THE SUBMISSIONS OF THE ASSESSEE IN PARA -4 AT PAGE 12 OF THE ASSESSMENT ORDER, THE AO HAS JUST RELIED UPON THE REASONS RECORDED B Y THE THEN AO FOR RE- OPENING OF THE ASSESSMENT AND BASED ON THE FINDING GIVEN IN A.Y 2003-04 HE HAS HELD THAT ASSESSEE IS NOT ENTITLED FOR DEDUCTI ON UNDER SECTION 80 IB(10) OF THE ACT. HE AGAIN ASKED THE ASSESSEE TO FURNISH CERTAIN EVIDENCES AND HE HAS REPRODUCED THE REQUIREMENTS TO BE SUBMITTED BY THE ASSESSEE VIDE LETTER ISSUED BY HIM DATED 8/12/2006. THE ASSESSEE AGAIN SUBMITT ED THE REPLY VIDE LETTER DATED 9/12/2006 WHICH IS ALSO REPRODUCED BY THE AO IN THE ASSESSMENT ORDER. IT WAS SUBMITTED BY THE ASSESSEE THAT ASSESSEE DID NOT ACT AS A CONTRACTOR AND HIS CAPACITY WAS TO DEVELOP THE PROJECT AND ACCORD ING TO THE DECISION OF ITAT IN THE CASE OF PATEL ENGINEERING LTD. VS. DCIT (SUPRA ), THE ASSESSEE IS ENTITLED TO GET BENEFIT OF DEDUCTION UNDER SECTION 80 IB(10). THE AO VIDE PARA-7 HAS REJECTED SUCH SUBMISSIONS OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: 7. WITH DUE RESPECT, I REGRET TO STATE THAT THE F ACTS OF M/S. PATEL ENGGS CASE RELIED ON BY THE ASSESSEE ARE NOT COMPARABLE WITH F ACTS OF THE ASSESSEES CASE. IT MAY ALSO BE NOTED THAT EVEN EXTENSIVE SUBMISSIO NS MADE BY THE ASSESSEE, THE ASSESSEE HAS NOT BEEN IN A POSITION TO REBUT THE FA CTS AND FINDING OF THE AO FOR REOPENING THE ASSESSMENT. CONSIDERING ALL THE FACT S AND CIRCUMSTANCES OF THE CASE, I HAVE COME TO THE CONCLUSION THAT THE ASSESS EE IS A CONTRACTOR AND NOT A DEVELOPER WITHIN THE MEANING OF SECTION 80IB(10) OF THE ACT AND ACCORDINGLY, HE WOULD NOT BE ENTITLED TO CLAIM DEDUCTION U/S. 80IB (10) OF THE ACT. THEREFORE, AS IT CAN BE SEEN FROM THE ASSESSMENT OR DER, THE ONLY CASE OF AO IS THAT ASSESSEE IS NOT A DEVELOPER BUT A CONTRACTOR, THEREFORE, ASSESSEE CANNOT BE HELD TO BE ENTITLED FOR DEDUCTION UNDER SECTION 80 IB(10) OF THE ACT. 8.1. SUBMISSIONS MADE BEFORE LD. CIT(A) WERE REITER ATED BY THE ASSESSEE AND FROM THE TERMS OF THE DEVELOPMENT AGREEMENT IT WAS FOUND THAT ASSESSEE CANNOT BE TREATED TO BE A CONTRACTOR. THE CAPACI TY OF THE ASSESSEE WAS OF A . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 21 DEVELOPER WHO IS ENTITLED FOR DEDUCTION UNDER SECT ION 80 IB(10). RELIANCE HAS ALSO BEEN PLACED BY LD. CIT(A) ON THE AFOREMENTIONE D DECISION OF ITAT IN THE CASE OF M/S. PATEL ENGINEERING LTD. (SUPRA). IN TH E GROUNDS OF APPEAL THE CASE OF THE REVENUE IS THAT LD. CIT(A) HAS WRONGLY RELIE D UPON THE DECISION IN THE CASE OF M/S. PATEL ENGINEERING LTD.(SUPRA) AS THE S AME HAS BEEN RENDERED IN RESPECT OF A DIFFERENT SECTION OF THE ACT AND THE S AID DECISION OF THE ITAT HAS NOT BEEN ACCEPTED BY THE REVENUE AS AN APPEAL HAS B EEN FILED AGAINST THE SAID ORDER. NOT GOING INTO DETAIL THAT WHETHER OR NOT T HE DECISION OF ITAT MUMBAI IN THE CASE OF M/S. PATEL ENGINEERING LTD.(SUPRA) IS APPLICABLE TO THE CASE OF THE ASSESSEE WE FOUND THAT MOOT POINT INVOLVED IN THE PRESENT CASE IS THAT WHETHER THE CAPACITY OF THE ASSESSEE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IS THAT OF A CONTRACTOR SO AS TO DISENTITLE HIM FROM CLAIMING DEDUCTION UNDER SECTION 80 IB(10) IN VIEW OF FOLLOWING EXPLA NATION INSERTED BY FINANCE (NO.2) ACT 2009 WITH RETROSPECTIVE EFFECT FROM 1/04 /2001. EXPLANATION: FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT NOTHING CONTAINED IN THIS SUB-SECTION SHALL APPLY TO ANY UN DERTAKING WHICH EXECUTES THE HOUSING PROJECT AS A WORKS CONTRACT AWARDED BY ANY PERSON (INCLUDING THE CENTRAL OR STATE GOVERNMENT). 8.2 ACCORDING TO THE ABOVE EXPLANATION IT HAS BEEN CLARIFIED AND DECLARED THAT PROVISIONS OF SECTION 80 IB(10) SHALL NOT APPL Y TO ANY UNDERTAKING WHICH EXCECUTES THE HOUSING PROJECT AS A WORK CONTRACT A WARDED BY ANY PERSON (INCLUDING THE CENTRAL AND STATE GOVERNMENT). IF T HE ASSESSEE IS HELD TO BE ACTING IN THE CAPACITY OF A CONTRACTOR THEN HE HAS TO BE HELD BEING NOT ENTITLED FOR DEDUCTION UNDER SECTION 80 IB(10). EVEN, IF W E ACCEPT THAT THE DECISION OF ITAT MUMBAI IN THE CASE OF M/S. PATEL ENGINEERING LTD. (SUPRA) WAS RENDERED UNDER DIFFERENT SECTION THEN WE HAVE TO CONSIDER TH E PRESENT CASE IN THE LIGHT OF DECISIONS WHICH ARE RENDERED UNDER SECTION 80 I B(10). 8.3. ONE OF THE IMPORTANT DECISION IN THIS REGARD IS THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. RADHE DE VELOPERS (SUPRA). IN THAT CASE HONBLE HIGH COURT HAS DEALT WITH SEVERAL CASE S OF DEVELOPERS WHICH . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 22 INCLUDE TWO STREAMS. ONE STREAM WAS RELATING TO TH E CASE OF M/S. RADHE DEVELOPERS IN WHICH THE ASSESSEE HAD CLAIMED DEDUC TION UNDER SECTION 80 IB(10). THE HOUSING PROJECT EXECUTED BY THE ASSE SSEE WAS IN RESPECT OF DEVELOPMENT AGREEMENT ENTERED INTO BY THE ASSESSEE WITH M/S. VINODBHAI NATHBHAI PATEL (HUF) BEING PARTY OF THE FIRST PART AND THE SECOND PARTY WAS LEGAL HEIRS OF DECEASED AMBALA MOTIBHAI PATEL AND ASSESSEE WAS PARTY OF THIRD PART. THE PARTY OF SECOND PART REPRESENTED THE LA ND OWNER, PARTY OF THE FIRST PART REPRESENTED THE PERSONS WHO HAD PREVIOUSLY ENTERED INTO AN AGREEMENT TO PURCHASE THE LAND FROM THE LAND OWNER. UNDER DE VELOPMENT AGREEMENT THE ASSESSEE HAD AGREED TO DEVELOP THE LAND BELONGING T O PARTY OF SECOND PART. ON THE SAME DAY ANOTHER AGREEMENT WAS ENTERED INTO BY THE ASSESSEE FOR PURCHASE OF LAND FROM THE OWNERS WHICH DESCRIBED THE ASSESSE E AS PURCHASER AND THE AFOREMENTIONED TWO LAND OWNERS BEING SELLERS OF THE LAND. THE AO DENIED THE BENEFIT UNDER SECTION 80 IB(10) ON THE GROUND THAT THE ASSESSEE WAS NOT THE OWNER OF THE LAND; APPROVAL BY LOCAL AUTHORITY AS WELL AS PERMISSION TO DEVELOP THE PROJECT AND PERMISSION TO COMMENCE THE CONSTRU CTION WAS NOT IN THE NAME OF THE ASSESSEE; THE ASSESSEE HAD MERELY ACTED AS A N AGENT OR CONTRACTOR FOR CONSTRUCTION OF RESIDENTIAL HOUSE. 8.4. THE ASSESSEE CARRIED THE MATTER IN APPEAL AND LD. CIT(A) PUT CONSIDERABLE STRESS ON THE REQUIREMENT OF OWNERSHIP OF LAND FOR QUALIFYING DEDUCTION UNDER SECTION 80 IB(10). ACCORDING TO LD . CIT(A) THE LAND IS INTRINSIC AND INALIENABLE PART OF THE HOUSING PROJECT. NO A SSESSEE, THEREFORE, COULD CARRY ON BUSINESS ON UNDERTAKING, DEVELOP AND BUIL D HOUSING PROJECT WITHOUT OWNING THE LAND. THE TRIBUNAL HOWEVER CONSIDERING THE PROVISIONS OF SECTION 2(47) OF THE INCOME TAX ACT AND SECTION 53A OF THE TRANSFER OF PROPERTY ACT AND RELYING UPON THE DEVELOPMENT AGREEMENT CAME TO THE CONCLUSION THAT ASSESSEE FOR THE PURPOSE OF INCOME TAX HAD BECOME T HE OWNER OF THE LAND, THEREFORE, ENTITLED FOR DEDUCTION UNDER SECTION 80 IB(10) OF THE ACT. . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 23 8.5. IN SECOND STREAM OF CASES( THE CASE OF M/S. SH AKTI CORPORATION) THE VIEW OF THE REVENUE WAS THAT ASSESSEE BEING NOT OWNER OF THE LAND CANNOT BE CONSIDERED AS ENTITLED FOR DEDUCTION UNDER SECTION 80 IB (10). HOWEVER, LD. CIT(A) FOLLOWING THE DECISION OF TRIBUNAL IN RADHE DEVELOPERS CASE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 8.6. DEALING WITH THESE TWO TYPES OF CASES AND GOIN G THROUGH THE TERMS OF DEVELOPMENT AGREEMENT AND ALSO CONSIDERING THE PROV ISIONS OF SECTION 80 IB(10) THEIR LORDSHIP HAVE OBSERVED THAT NEITHER THE PROVI SIONS OF SECTION 80 IB NOR ANY OTHER PROVISION CONTAINED IN ANY OTHER RELATE D STATUTE WERE BROUGHT TO THEIR NOTICE TO DEMONSTRATE THAT OWNERSHIP OF LAND WOULD BE A CONDITION PRECEDENT FOR DEVELOPING THE HOUSING PROJECT. THEI R LORDSHIP HAVE NOTED THAT IT IS NOT EVEN THE CASE OF REVENUE THAT UNDER THE OTHE R LAWS GOVERNING CONSTRUCTION IN URBAN AND SEMI-URBAN AREAS THERE WA S ANY SUCH RESTRICTION AND THE THRUST OF THE ARGUMENTS OF REVENUE IS THAT SUCH REQUIREMENT MUST BE READ INTO THE STATUTE. THEIR LORDSHIP HAVE REJECTE D SUCH CONTENTION ON THE GROUND THAT PROVISIONS OF SECTION 80 IB(10) OF THE INCOME TAX ACT DOES NOT REQUIRE THAT OWNERSHIP OF THE LAND MUST VEST ON THE DEVELOPER TO ENABLE HIM TO QUALIFY FOR SUCH DEDUCTION. SECONDLY; THEIR LORDSH IP HAVE REFERRED TO THE DEFINITION OF THE TERM DEVELOPER AND AFTER CONSI DERING THE SAME THEIR LORDSHIP HAVE COME TO A CONCLUSION THAT ACCORDING T O THE PROVISIONS IT IS NOT REQUIRED THAT LAND MUST BE OWNED BY THE ASSESSEE SE EKING SUCH DEDUCTIONS. THEIR LORDSHIP HAVE OBSERVED THAT IT IS WELL SETTL ED THAT WHILE INTERPRETING THE STATUTE, NOTHING CAN BE READ INTO THE PROVISIONS W HICH HAS NOT BEEN PROVIDED BY THE LEGISLATURE. THE CONTENTION WHICH IS NOT MA DE PART OF SECTION 80 IB(10) OF THE ACT, NAMELY, THAT OF OWNING THE LAND, WHIC H ASSESSEE DEVELOPS, CANNOT BE SUPPLIED BY ANY PURPORTED LEGISLATIVE INTENT. GOING THROUGH THE TERMS OF THE DEVELOPMENT AGREEMENT THEIR LORDSHIP HAVE OBSER VED THAT UNDER THOSE AGREEMENTS THE ASSESSEE HAD TAKEN FULL RESPONSIBILI TY FOR EXECUTION OF THE DEVELOPMENT PROJECT; THE ASSESSEE HAD FULL AUTHORIT Y TO DEVELOP THE LAND AS PER . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 24 HIS DISCRETION; THE ASSESSEE COULD ENGAGE PROFESSIO NAL HELP FOR DESIGNING AND ARCHITECTURAL WORK; THE ASSESSEE WOULD ENROLL MEMB ERS AND COLLECT CHARGES; PROFIT OR LOSS WHICH MAY RESULT FROM EXECUTION OF THE PROJECT BELONGED ENTIRELY TO THE ASSESSEE. KEEPING IN VIEW THESE STREAMS OF THE AGREEMENT THEIR LORDSHIP OBSERVED THAT THE ASSESSEE HAD DEVELOPED T HE HOUSING PROJECT AND THE FACT THAT ASSESSEE BEING NOT OWNER OF THE LAND WOUL D BE OF NO CONSEQUENCE. FOR THIS PURPOSE THEIR LORDSHIP HAVE ALSO EXAMINED EXPLANATION BELOW SECTION 80 IB(10) WHICH HAS BEEN RETROSPECTIVELY EFFECTED. THEIR LORDSHIP HAVE CONCLUDED BY REFERRING TO SEVERAL DECISIONS AVAIL ABLE ON THE ISSUE THAT IN WHAT CIRCUMSTANCES A DEVELOPMENT CONTRACT CAN BE CONSID ERED TO BE WORK CONTRACT. THEIR LORDSHIP HAVE HELD THAT THE ASSES SEE HAD UNDERTAKEN THE DEVELOPMENT OF HOUSING PROJECT AT ITS OWN RISK AND COST. THE LAND OWNER HAD ACCEPTED ONLY FULL PRICE OF THE LAND AND NOTHING FU RTHER. THE ENTIRE RISK OF INVESTMENT AND EXPENDITURE WAS THAT OF THE ASSESSEE . RESULTANTLY, PROFIT AND LOSS ALSO WOULD ACCRUED TO THE ASSESSEE ALONE. IN THAT VIEW OF THE MATTER, THE ADDITION OF EXPLANATION TO SECTION 80 IB(10) WITH R ETROSPECTIVE EFFECT FROM 01/04/2001 WOULD HAVE NO MATERIAL BEARING IN CASES IN HAND. 8.7. THEIR LORDSHIP ALSO HAVE REFERRED TO THE DEFIN ITION OF TRANSFER GIVEN UNDER SECTION 2(47) OF THE INCOME TAX ACT AND ALSO THE PROVISIONS OF SECTION 53A OF TRANSFER OF PROPERTY ACT AND HAVE COME TO TH E CONCLUSION THAT BY VIRTUE OF THESE SECTIONS THE ASSESSEE FOR THE PURPOSE OF I NCOME TAX ACT WILL BE CONSIDERED AS OWNER OF THE LAND IN VIEW OF DECISI ON OF HONBLE SUPREME COURT IN THE CASES OF MYSORE MINERALS VS. CIT (SUPRA) AND CIT VS. PODAR CEMENT PVT. LT.(SUPRA). IN THIS MANNER THEIR LORDSHIP HAVE HEL D THAT THE ASSESSEES WERE ENTITLED FOR DEDUCTION UNDER SECTION 80 IB(10) OF T HE ACT. 8.8. WE HAVE TO SEE THE FACTS OF THE PRESENT CASE I N THE LIGHT OF THE AFOREMENTIONED DECISION. THE FACTS OF THE PRESENT CASE ARE ALMOST SIMILAR TO THE AFOREMENTIONED DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 25 VS. RADHE DEVELOPERS (SUPRA). THE ARGUMENTS OF THE PARTIES WERE ALMOST SIMILAR. HERE IT WOULD BE RELEVANT TO REFER SOME O F THE TERMS AND CONDITIONS OF THE DEVELOPMENT AGREEMENT WHICH THROW LIGHT AND DEM ONSTRATE THAT ASSESSEE WHILE ACTING IN THE CAPACITY OF DEVELOPER HAS NOT W ORKED LIKE A WORK CONTRACTOR. HE HAD INVESTED THE FUNDS AND HAD TA KEN FULL AUTHORITY TO DEVELOP THE LAND. THE ASSESSEE WAS AUTHORIZED TO E NGAGE PROFESSIONAL HELP FOR DESIGNING AND ARCHITECTURAL WORK. PROFIT AND LOSS ACCOUNT WHICH HAS RESULTED FROM EXECUTION OF THE PROJECT ALSO BELONGS TO ASSES SEE ENTIRELY. THESE TERMS HAVE ALREADY BEEN REPRODUCED IN THE ABOVE PART OF T HIS ORDER. FOR EXAMPLE, IN CLAUSE 3(A) IT HAS BEEN AGREED BETWEEN THE PARTIES THAT ASSESSEE SHALL SELL THE UNITS CONSTRUCTED ON THE SAID PROPERTY TO THE MEMBE RS OF THE SAID SOCIETY WHO SHALL PAY TO THE ASSESSEE DIRECTLY SUCH SUM AS MAY BE MUTUALLY AGREED SUBJECT TO ASSESSEE BEING BOUND TO PROVE THE AMENITIES DET AILED IN ANNEXURE-A OF THE AGREEMENT. IN CLAUSE 3(D), THE ASSESSEE HAD AGREED TO PAY A SPECIFIED SUM FOR THE LAND AND ALSO AN OFFICE PREMISES IN THE STILT O F THE BUILDING. ACCORDING TO CLAUSE 3(F) ASSESSEE HAS BEEN AGREED TO BE ENTITLE D TO USE PERMISSIBLE TDR AND/OR SET BACK AREA ON THE SAID PROPERTY AND OWNER HAS BEEN DEBARRED FROM CLAIMING ANY RIGHT, TITLE OR INTEREST OF WHATSOEVER NATURE OVER THE SAID TDR AND/OR PORTION OF THE TDR USED BY THE ASSESSEE ON THE SAID PROPERTY. COST AND CONSEQUENCES OF USE OF TDR IS THE SOLE RESPONSI BILITY OF DEVELOPER. THE ASSESSEE IS ENTITLED TO CONSUME THE ENTIRE FSI AND PERMISSIBLE TDR ON THE SAID PROPERTY. ACCORDING TO CLAUSE 3(G) THE ASSESSEE IS ENTITLED TO SELL THE FLATS, GARAGES, PARKING LOT ON THE BUILDING TO BE CONSTRUC TED ON THE SAID PROPERTY AND TO ACCEPT THE CONSIDERATION AND TO PASS ON VALID R ECEIPT FOR THE SAME AND ALSO MORTGAGE THE SAID PROPERTY. UNDER CLAUSE 3(K) THE ASSESSEE IS ALSO FREE TO TRANSFER THE DEVELOPMENT RIGHTS UNDER DEVELOPMENT A GREEMENT EVEN WITHOUT THE CONSENT OF THE SOCIETY TO ANY OTHER PARTY. TH E ASSESSEE HAS ALSO SHOWN ALL EXPENSES INCURRED BY IT ON THE PROJECT IN HIS PROFI T AND LOSS ACCOUNT AND RECEIPTS HAVE ALSO BEEN CREDITED. THUS THE PROFIT AND LOSS BELONGS TO THE ASSESSEE ONLY. . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 26 8.9. IF THE AFOREMENTIONED TERMS OF THE DEVELOPMENT AGREEMENT IS TAKEN INTO CONSIDERATION ALONG WITH THE FACT THAT FRUITS OF DE VELOPMENT OF PROJECT HAVE BEEN ENJOYED BY THE ASSESSEE HIMSELF THEN BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT THE ASSESSEE HAD ACTED IN THE CAPACITY OF A WORK CONTRACTOR. WE, THEREFORE, FIND NO SUBSTANCE IN THE ARGUMENTS OF TH E REVENUE THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE DEDUCTION SHOULD NOT BE ALLOWED TO THE ASSESSEE AS THE WORK CARRIED OUT BY THE ASSESSEE W AS IN THE NATURE OF WORK CONTRACT. THE ASSESSEE HAS DEVELOPED THE PROJECT I N THE CAPACITY OF DEVELOPER BY TAKING ALL RISKS AND COSTS AND HAS ENJOYED FRUI TS OF PROFIT. THEREFORE, WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A) VIDE WHICH THE ASSESSEE HAS BEEN CONSIDERED TO BE ENTITLED FOR DEDUCTION UN DER SECTION 80 IB(10) OF THE ACT. WE DECLINE TO INTERFERE IN THE RELIEF GRANTED BY HIM AND DISMISS THE APPEAL FILED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/05/2013 - ) +,' . /!0 08/05/2013 , ) 1 2 SD/- SD/- ( / RAJENDRA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; /! DATED 08 /05/2013 . / ITA NO.2339/MUM/2008 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2002-03 27 - - - - ) )) ) &*45 &*45 &*45 &*45 65'* 65'* 65'* 65'* / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &'#% / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 581 &*! , , / DR, ITAT, MUMBAI 6. 19 : / GUARD FILE. -! -! -! -! / BY ORDER, '5* &* //TRUE COPY// ; ;; ; / < < < < (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ! . ./ VM , SR. PS