ACIT 24(1), MUMBAI V. CHAMUNDA BUILDERS & DEVELOPERS, MUMBAI

ITA 2604/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4975 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 10-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHU RY ARUN K SINGH
• Keywords: Business income; Commercial expediency
• Section: 143(3); 80IB; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2604/MUM/2017 ASSESSMENT YEAR: 2012 - 13 ACIT - 24(1), R OOM NO. 604, PIRAMAL CHAMBERS, 6 TH FLOOR, LALBAUG, MUMBAI - 400012. VS. M/S CHAMUNDA BUILDERS & DEVELOPERS 111, CHAMUNDA HERITAGE B/H JIVANVIKAS, JIJAMATA ROAD, KODONGRI, ANDHERI (EAST), MUMBAI - 400069. PAN NO. AAAFC4837H APPELLANT RESPONDENT REVENUE BY : MR. CHAUDHU RY ARUN K. SINGH, DR ASSESSEE BY : MR. BHUPENDRA SHAH , AR DATE OF HEARING : 30/ 11 / 2018 DATE OF PRONOUNCEMENT : 21/01/2019 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE R EVENUE . THE RELEVANT ASSESSMENT YEAR IS 2012 - 13 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) - MUMBAI 51 [IN SHORT CIT(A)], AND ARISES OUT OF THE ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE 1 ST , 2 ND AND 3 R D GROUND OF APPEALS ADDRESS A COMMON ISSUE AND THESE READ AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S. 80IB OF M/S CHAMUNDA BUILDERS ITA NO. 2604/MUM/2017 2 RS.20,87,54,481/ - WITHOUT APPRECIATING THE FACT THAT NOWHERE IN SECTION 80IB(10 ), IT IS MENTIONED THAT THE ASSESSEE CAN BE ALLOWED DEDUCTION ON PRO - RATA BASIS OR THE DEDUCTION B E ALLOWED IF ASSESSE E FULFILS CONDITIONS PARTIALLY . 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S. 80IB OF RS.20,87,54,481/ - WITHOUT APPRECIATING THAT THE FACT THE ASSESSEE HAS ALLOTTED MORE THAN ONE RESIDENTIAL UNIT TO MEMBERS OF THE SAME FAMILY. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CI T(A) ERRED IN ALLOWING DEDUCTION U/S. 80IB OF RS.20,87,54,481/ - WITHOUT APPRECIATING THE FACT THE ASSESSEE HAS NOT COMPLIED WITH ALL THE CONDITIONS AS STIPULATED IN SEC 80IB(10) OF THAT I.T. ACT, 1961. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A BUILDER AND DEVELOPER. IT WAS FOLLOWING PROJECT COMPLETION METHOD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPLETED ITS GOREGAON PROJECT AND WORK ON SHIVAJI NAGAR PROJECT WAS GOING ON. IN THE RETURN OF INCOME FILED ON 28.09.2012, THE ASSESSEE HAS SHOWN NET PROFIT FROM BUSINESS TO THE TUNE OF RS.22,07,58,231/ - . OUT OF THIS INCOME, THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.20,87,54,481/ - U/S 80IB(10) OF THE ACT. FURTHER THE ASSESSEE HA S OFFERED TO TAX BUSINESS INCOME OF RS.1,20,03,750/ - AND INCOME FROM OTHER SOURCES OF RS.6, 19,052/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) OBSERVED FROM THE DETAILS FILED, THAT THE ASSESSEE HAS ALLOTTED MORE THAN ONE RESID ENTIAL UNIT IN GOREGAON PROJECT TO MEMBERS OF THE SAME FAMILY. IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN WHY THE ENTIRE DEDUCTION CLAIMED U/S 80IB SHOULD NOT BE DISALLOWED, THE ASSESSEE M/S CHAMUNDA BUILDERS ITA NO. 2604/MUM/2017 3 SUBMITTED THAT IT HA D ALREADY DISALLOWED THE DEDUCTION U/S 80 IB ON PRO RATA BASIS. IT WAS STATED BEFORE THE AO, THAT THE ASSESSEE HAS DISALLOWED A BUILT - UP AREA OF 363.08 SQ. MTR. ON PRO RATA BASIS AMOUNTING TO RS.1,20,03,750/ - AS NOT ELIGIBLE FOR DEDUCTION U/S 80IB. THUS THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB( 10) ON REMAINING INCOME. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE FOR THE REASON THAT THERE IS NO PROVISION OF PRO RATA DISALLOWANCE FOR DEDUCTION U/S 80IB OF THE ACT. THE AO FURTHER OBSERVED THAT THE PAYMENT SCHEDULE FO R THESE FLATS AND DATE OF REGISTRATION FALL BETWEEN 11.06.2009 AND 08.011.2011. AS THE ASSESSEE FAILED TO COMPLY WITH THE CONDITIONS STIPULATED IN SECTION 80IB(10), THE AO MADE A DISALLOWANCE OF RS.20,87,54,481/ - . 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) VIDE ORDER DATED 09.01.2017 HAS HELD AS UNDER: 6.14. FOLLOWING THE AFORESAID RATIO LAID DOWN BY THE VARIOUS JUDICIAL PRONOUNCEMENTS OF APEX COURT, HIGH COURT AND ITAT BENCHES, IT IS MY CONSIDERED OPINION THAT MERELY BECAUSE THE APPELLANT HAD VIOLATED THE PROVISIONS OF SECTION 80IB(10)(F) OF THE ACT IN RESPECT OF EIGHT UNITS AS PER AOS VIEW AS DETAILED IN THE TABLE SUPRA, THE DEDUCTION U/S 80IB(10) COULD NOT BE DENIED IN ENTIRELY. THE APPELLANT IS ENTITLED TO THE SAID DEDUCTION U/S 80IB(10) OF THE ACT IN RESPECT OF BALANCE UNITS/FLATS WHICH HAVE BEEN CONSTRUCTED AS PER THE CONDITIONS LAID DOWN IN SECTION 80IB(10)(F) OF THE ACT. THE APPELLANT HAS HIMSELF DISALLOWED DEDUCTION U/S 80I B(10) OF THE ACT ON PRO - RATA BASIS ADMEASURING 363.08 SQ. MTS. OF FLATS AT SL. NO. 2,3,4,6 & 7 OUT OF EIGHT FLATS AND OFFERED RS.1,20,03,750/ - AS THE AMOUNT OF DEDUCTION INELIGIBLE U/S 80IB(10) WHILE FILING THE RETURN ITSELF. FURTHER, I UNDERSTAND THAT THE M/S CHAMUNDA BUILDERS ITA NO. 2604/MUM/2017 4 PROVISIONS OF SEC. 80IB(10)(E) AND (F) OF THE ACT ARE NOT APPLICABLE TO ALL THE ABOVE TRANSACTIONS OF THE APPELLANT BUT ARE APPLICABLE TO THE ALLOTMENT AND BOOKINGS DONE AFTER 01.04.2010. IN VIEW THESE FACTS, ONLY THE FLATS WHERE APPELLANT HAS HIMSELF DIS ALLOWED DEDUCTION U/S 80IB(10)(F) OF THE ACT ON PRO - RATA BASIS ADMEASURING 363.08 SQ. MTS. OF FLATS AT SL. NO. 2,3,4,6 & 7 OUT OF EIGHT FLATS AND OFFERED RS.1,20,03,750/ - , THE ASSESSING OFFICER IS DIRECTED TO RE - COMPUTE THE DEDUCTION U/S 80IB(10) OF THE AC T IN RELATION TO THE SAID PROJECT BY LIMITING THE DENIAL ONLY IN RESPECT OF FLATS APPEARING AT SL. NO. 2,3,4,6 & 7 IN THE TABLE SUPRA AND FOR THE BALANCE UNITS THE APPELLANT WOULD BE ENTITLED TO THE SAID DEDUCTION U/S 80IB(10) OF THE ACT. 5. BEFORE US, THE LD. DR RELIES ON THE ORDER PASSED BY THE AO, WHEREAS THE LD. COUNSEL OF THE ASSESSEE SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). FURTHER, THE LD. COUNSEL RELIES ON THE DECISION OF THE ITAT C BENCH MUMBAI IN THE CASE OF OM SWAMI SMARAN DEVELOPERS PVT . LTD. V. ITO FOR THE ASSESSMENT YEAR 2011 - 12 (ITA NO. 6355/MUM/2014) AND FILES A COPY OF IT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT A SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN O M SWAMI SMARAN DEVELOPERS PVT. LTD. (SUPRA). THE TRIBUNAL VIDE ORDER DATED 31.01.2018 HELD AS UNDER: 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS COULD BE SEEN FROM THE FACTS AVAILABLE ON RECORD, THE ASSESSEE HAS DE VELOPED A HOUSING PROJECT UNDER THE SLUM REHABILITATION SCHEME OF THE GOVERNMENT. IT IS ALSO A FACT THAT IN THE IMPUGNED ASSESSMENT YEAR FOR THE FIRST TIME, THE ASSESSEE HAD OFFERED PROFIT FROM THE SAI D HOUSING PROJECT AMOUNTING TO RS. 1,48,66,701 / - AND HA S CLAIMED DEDUCTION THEREOF UNDER SECTION 80IB(10) OF THE ACT. THERE IS NO DISPUTE THAT THE ASSESSEE HAS SOLD THREE FLATS TO A SINGLE INDIVIDUAL IN THE SAID HOUSING PROJECT. THE ASSESSING M/S CHAMUNDA BUILDERS ITA NO. 2604/MUM/2017 5 OFFICER HAS DISALLOWED ASSESSEES CLAIM OF DEDUCTION ALLEGING VIOLAT ION OF CONDITIONS OF CLAUSE (F) OF SECTION 80IB(10) OF THE ACT, WHICH PROVIDES THAT MORE THAN ONE RESIDENTIAL UNIT IN A HOUSING PROJECT CANNOT BE SOLD TO A PERSON / INDIVIDUAL. THE FACTUAL MATRIX OF THE CASE REVEALS THAT EXCEPT VIOLATION OF CONDITIONS OF C LAUSE (F) OF SECTION 80IB(10) OF THE ACT, IN THE SENSE THAT THE ASSESSEE HAS SOLD THREE FLATS TO A SINGLE INDIVIDUAL, THERE IS NO ALLEGATION BY THE DEPARTMENTAL AUTHORITIES THAT ANY OTHER CONDITIONS OF SECTION 80IB(10) OF THE ACT IN RESPECT OF ANY OTHER FL ATS OF THE HOUSING PROJECT ARE VIOLATED. THUS, THE ISSUE BEFORE US IS WHETHER FOR VIOLATION OF THE CONDITIONS OF CLAUSE (F) OF SECTION 80IB(10) OF THE ACT IN RESPECT OF TWO FLATS, ASSESSEES CLAIM OF DEDUCTION IN RESPECT OF ENTIRE HOUSING PROJECT CAN BE DI SALLOWED. IN OUR VIEW, READING THE PROVISIONS OF SECTION 80IB(10) AS A WHOLE AND THE LEGISLATIVE INTENT / OBJECT BEHIND INTRODUCING SUCH PROVISION INTO THE STATUTE WOULD REVEAL THAT IT IS A BENEFICIAL PROVISION INTRODUCED BY THE LEGISLATURE TO DEAL WITH TH E HOUSING PROBLEM. THUS, SUCH PROVISION HAS TO BE CONSTRUED LIBERALLY. UNDISPUTEDLY, EXCEPT VIOLATION OF CONDITIONS OF CLAUSE (F) OF SECTION 80IB(10) OF THE ACT IN RESPECT OF TWO FLATS, ALL OTHER CONDITIONS OF SECTION 80IB(10) OF THE ACT ARE FULFILLED IN R ESPECT OF THE HOUSING PROJECT WHICH IS EVIDENT FROM THE FACT THAT THERE IS NO OTHER ALLEGATION MADE BY THE ASSESSING OFFICER. THEREFORE, IN OUR VIEW, FOR VIOLATION OF CONDITIONS OF CLAUSE (F) OF SECTION 80IB(10) OF THE ACT IN RESPECT OF TWO FLATS, THE DEDU CTION FOR THE ENTIRE HOUSING PROJECT OR IN RESPECT OF OTHER FLATS WHICH OTHERWISE ARE COMPLYING TO THE CONDITIONS OF SECTION 80IB(10) CANNOT BE DISALLOWED. THE DISALLOWANCE, IF ANY, HAS TO BE RESTRICTED TO THE FLATS WHICH VIOLATE THE CONDITIONS OF SECTION 80IB(10). THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S BRAMHA ASSOCIATES, 333 ITR 289, HAS HELD THAT DEDUCTION UNDER SECTION 80IB(10) CAN BE ALLOWED ON PROPORTIONATE BASIS IN RESPECT OF FLATS WHICH FULFILLED THE CONDITIONS OF SECTION 80IB(10). THE SAME VIEW WAS EXPRESSED BY THE HON'BLE MADRAS HIGH COURT IN THE DECISIONS CITED BY THE LEARNED AUTHORISED REPRESENTATIVE. IN OUR VIEW, THE RATIO LAID DOWN IN THE AFORESAID DECISIONS, M/S CHAMUNDA BUILDERS ITA NO. 2604/MUM/2017 6 THOUGH, ARE IN THE CONTEXT OF CLAUSE (C) OF SECTION 80IB(10) OF THE ACT, HOW EVER, THEY WILL APPLY TO THE FACTS OF THE PRESENT CASE AS THERE IS NOT MUCH DIFFERENCE IN THE OBJECT FOR WHICH SECTION 80IB(10) WAS INTRODUCED, EVEN AFTER INTRODUCTION OF CLAUSE (E) AND (F) TO SECTION 80IB(10) BY FINANCE ACT, 2009. THEREFORE, APPLYING THE RATIO LAID DOWN IN THE DECISIONS CITED BEFORE US, WE HOLD THAT THE ASSESSEE WILL BE ENTITLED TO DEDUCTION UNDER SECTION 80IB(10) OF THE ACT PROPORTIONATELY IN RESPECT OF FLATS WHICH FULFILLED ALL THE CONDITIONS OF SECTION 80IB(10) OF THE ACT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO COMPUTE DEDUCTION UNDER SECTION 80IB(10) OF THE ACT. GROUND RAISED IS PARTLY ALLOWED. 6.1 FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDER OF THE CO - ORDINATE BENCH AND UPHOLD THE ORDER OF THE LD. CIT(A). THUS THE 1 ST , 2 ND AND 3 RD GROUNDS OF APPEAL ARE DISMISSED. 7. THE 4 TH AND 5 TH GROUND OF APPEAL ADDRESS A COMMONS ISSUE AND THESE ARE AS UNDER : 4 TH GROUND OF APPEAL WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED DELETING THE ADDITION OF RS.1,21,967/ - BEING DISALLOWED BY THE AO ON ACCOUNT OF INTEREST ON INTEREST FREE LOANS OF RS.45,50,000/ - WITHOUT APPRECIATING THE FACT THAT T HE ASSESSEE COULD NOT PROVE THE B EARING OF THESE INTEREST FREE LOANS WITH THE INTEREST FREE FUNDS NOR COULD ESTABLISH ANY COMMERCIAL EXPEDIENCY TO EXTEND SUCH LOAN AS INTEREST FREE. 5 TH GROUND OF APPEAL WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED DELETING THE ADDITION OFRS.1,21,967/ - BEING DISALLOWED BY THE AO ON ACCOUNT OF INTEREST ON INTEREST FREE LOANS OF RS.45,50,000/ - WITHOUT APPRECIATING THE FACT THAT TH E ASSESSEE COULD M/S CHAMUNDA BUILDERS ITA NO. 2604/MUM/2017 7 NOT PROVE THE NEXUS OF INTEREST FREE LOANS WITH THE SURPLUS FUND LYING WITH THE ASSESSEE. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD GIVEN INTEREST - FREE LOANS AND ADVANCES TO M/S LAXMI TRADING CO. AND PRATIK JAI N AGGREGATING TO RS.45,50,000/ - . IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN WHY INTEREST SHALL NOT BE CHARGED ON THE SAID LOANS, THE ASSESSEE SUBMITTED THAT IT HAD GIVEN INTEREST - FREE LOANS TO THE ABOVE PARTIES OUT OF INTEREST - FREE LO ANS RECEIVED FROM FRIENDS AND RELATIVES OF THE PARTNERS. FURTHER, IT WAS STATED THAT THE ASSESSEE HAD RECEIVED INTEREST - FREE LOANS OF RS.6,35,58,882/ - AS ON 31.03.2012. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE FOR THE RE ASON THAT IT COULD NOT PROVE THE NEXUS OF INTEREST - FREE LOANS WITH THE AFORESAID SURPLUS FUNDS LYING WITH IT. SINCE THE ASSESSEE COULD NOT PROVE THE BEARING OF THESE INTEREST - FREE LOANS WITH THE INTEREST - FREE FUNDS NOR COULD ESTABLISH ANY COMMERCIAL EXPEDI ENCY TO EXTEN D SUCH LOAN AS INTEREST - FREE, THE AO MADE A DISALLOWANCE OF RS.1,21,967/ - . 9. IN APPEAL, THE LD. CIT(A) OBSERVED THAT (I) THE ASSESSEE HAD OPENING BALANCE AS ON 01.04.2009 AT RS.3,48,22,000/ - AND DURING THE YEAR IT HAD RECEIVED ADDITIONAL INT EREST - FREE LOANS OF RS.25,00,000/ - AND FURTHER, IT HAD REPAID LOAN OF RS.84,50,000/ - , HENCE IT HAD A CLOSING BALANCE OF RS.2,88,72,000/ - AS ON 31.03.2010, (II) THE ASSESSEE HAD OPENING BALANCE OF RS.2,88,72,000/ - AS ON 01.04.2010 AND DURING THE YEAR IT HAD RECEIVED NIL ADDITIONAL INTEREST - FREE LOANS BUT IT HAD REPAID LOAN OF RS.2,19,72,000/ - . M/S CHAMUNDA BUILDERS ITA NO. 2604/MUM/2017 8 THEREFORE, THE LD. CIT(A) HELD THAT THE ASSESSEE HAD MORE OWN FUNDS THAN INTEREST - FREE LOANS OF RS.40,00,000/ - GIVEN TO M/S LAXMI TRADING CO. AND RS.5,50,000/ - GIVEN TO M/S PRATIK JAIN. OBSERVING THAT INTEREST - FREE LOANS MIGHT HAVE BEEN GIVEN OUT OF OWN FUNDS, THE LD. CIT(A) DELETED THE DISALLOWANCE OF RS.1,21,967/ - MADE BY THE AO. 10. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO, WHEREAS THE LD. COUNSEL OF TH E ASSESSEE SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM), IT HAS BEEN HELD THAT WHERE AN ASSESSEE I S HAVING OWN FUNDS MORE THAN THE INTEREST - FREE LOANS, IT SHOULD BE PRESUMED THAT INTEREST - FREE LOANS HAVE BEEN GIVEN OUT OF OWN FUNDS AND NO DISALLOWANCE OF INTEREST IS CALLED FOR. IN THE INSTANT CASE, THE ASSESSEE WAS HAVING MORE OWN FUNDS THAN INTEREST - F REE LOANS. THEREFORE, FOLLOWING THE DECISION IN RELIANCE UTILITIES & POWER LTD . (SUPRA), WE UPHOLD THE ORDER OF THE LD. CIT(A). 12. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/01/2019. SD/ - SD/ - ( MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 21/01/2019 RAHUL SHARMA, SR. P.S. M/S CHAMUNDA BUILDERS ITA NO. 2604/MUM/2017 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI