ITO, CHENNAI V. M/s. S.N. Constructions, CHENNAI

ITA 2779/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4617 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 26-09-2016
• Court: TRIBUNAL
• Department Lawyers: ARUN C BHARAT
• Keywords: Non compliance
• Section: 143(3); 142(1); 80IB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , . , ' # BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 2779/MDS/2016 / ASSESSMENT YEAR : 2011-12 THE INCOME TAX OFFICER, NON CORPORATE WARD 2(1), CHENNAI 600 034. VS. M/S. S.N. CONSTRUCTIONS, NO. 14, GN CHETTY ROAD, T. NAGAR, CHENNAI 600 017. [PAN: ABIFS 8053N] ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI ARUN C. BHARAT, CIT )*% & / RESPONDENT BY : NONE & /DATE OF HEARING : 16.03.2017 & /DATE OF PRONOUNCEMENT : 04.05.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-2, CHENNAI IN ITA NO. 126/CIT(A)- 2/2014-15 DATED 30.06.2016 PASSED U/S. 143(3) OF TH E INCOME TAX ACT. :-2-: I.T.A. N0. 2779/MDS/2016 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 2. THE LEARNED CIT(A) ERRED IN DELETING THE DISALL OWANCE MADE U/S, 80IB(10) OF THE IT ACT, WITHOUT APPRECIAT ING THE FACT THAT THE ASSESSEE FIRM HAD VIOLATED THE CONDITIONS ENVISAGED IN SECTION 80IB(10) OF THE IT ACT, AND THEREFORE THE R ESIDENTIAL PROJECT CONSTRUCTED BY THE ASSESSEE IS NOT ELIGIBLE FOR SUCH DEDUCTION. 2.1 THE LEARNED CITCA) ERRED IN DELETING THE DISAL LOWANCE MADE U/S.80IB(10) WITHOUT APPRECIATING THE RATIONAL E EXPRESSED BY THE HON'BLE HIGH COURT OF ANDHRA PRADESH, IN THE CASE OF ANDHRA PRADESH WELFARE FUND VS. CIT REPORTED IN 12 TAXMAN 242 [A.PJ. 2.3 THE LEARNED CITCA) FAILED TO APPRECIATE THE FA CT THAT THE BENEFIT OF DEDUCTION IS EXTENDED TO A RESIDENTIAL P ROJECT AS A WHOLE, AND NOT TO THE INDIVIDUAL RESIDENTIAL FLATS COMPRISED IN IT. THEREFORE, WHEN THE PROJECT VIOLATES THE CONDITIONS , EVEN BY REASON OF NON COMPLIANCE BY A SINGLE FLAT, THE PROJ ECT SHOULD AUTOMATICALLY LOSE THE BENEFIT OF DEDUCTION. 2.4 THE CITCA) ERRED IN HOLDING THAT THE PRIVATE T ERRACE CANNOT BE CLASSIFIED AS PROJECTION AND OMITTED IT T O GET INCLUDED IN COMPUTING THE BUILT UP AREA, WITHOUT APPRECIATING T HE FACT THAT THE PRIVATE TERRACE IS NOT SOLD TO THE BUYERS FREE OF C OST, GETS INCLUDED IN DETERMINING THE UNDIVIDED SHARE OF LAND AND FURT HER OPEN TERRACE AREA IS NOT A COMMON AREA. 3. THE CITCA) ERRED IN EXCLUDING THE PRIVATE TERRA CE FOR THE PURPOSE OF COMPUTING THE BUILT UP AREA WHEN THE PRO VISIONS OF THE ACT U/S. 80IB(14)(A) HAD CLEARLY DEFINED THE MEANIN G OF BUILT UP AREA WHICH CAME INTO EFFECT FROM 01.04.2005. :-3-: I.T.A. N0. 2779/MDS/2016 3.1 THE LD. CIT(A) ERRED IN APPLYING THE DECISION O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF SUBBA REDD Y (HUP) 56 TAXMANN.COM 204(MAD), WHICH WAS UNDERTAKEN PRIOR TO THE DATE OF INSERTION (01.04.2005) OF THE DEFINITION OF BUI LT UP AREA UNDER THE ACT 4. THE CIT(A) OUGHT TO HAVE DENIED DEDUCTION U/S. 80IB(10) IN RESPECT OF THE PROFITS EARNED ON SALE O F EXCLUSIVE PRIVATE TERRACE, WHEN IT WAS CONCLUDED THAT THE SAM E ARE NOT PART OF THE RESIDENTIAL AREA. 3. AT THE TIME OF HEARING, WE FIND THE NOTICE WAS S ENT TO THE ASSESSEE AND WAS RETURNED BACK BY THE POSTAL AUTHORITIES WITH EN DORSEMENT LEFT WITHOUT THE INSTRUCTIONS. ACCORDINGLY, WE ARE INCLINED TO HEAR THE LD. DR AND IN THE EARLIER DATE OF HEARING ALSO THERE IS NO REPRESENTA TION FROM THE ASSESSEE COMPANY. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN PROMOTING HOUSING AND PROJECTS AND FILED THE INCOME TAX RETURN FOR THE ASSESSMENT YEAR 2011-12 ON 30.09.2011 WITH TOTAL IN COME OF 5,47,740/- AND THE RETURN OF INCOME WAS PROCESSED U/S. 143(1) OF T HE ACT ON 27.01.2012. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AN D NOTICE U/S. 142(1) AND 143(2) OF THE ACT WAS ISSUED. IN COMPLIANCE TO NOT ICE, LD. AR APPEARED ON BEHALF OF THE ASSESSEE AND FILED THE AVAILABLE INFO RMATION. THE ASSESSING OFFICER ON VERIFYING THE DETAILS AND FROM THE ASSES SMENT RECORD FOUND THAT THE :-4-: I.T.A. N0. 2779/MDS/2016 ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IB OF THE ACT . THE ASSESSEE HAS PROMOTED PROJECT IN THE NAME OF SIDHARTH NATURA AT MEDAVAKKAM, CHENNAI CONSISTING OF 104 DWELLING UNITS IN 4 BLOCKS. THE LD. AO FOUND THAT THE 4 BLOCKS ARE CONSTRUCTED WITH SILT AND 4 FLOORS AND R EFERRED THE NAME OF THE REGISTERED OWNERS OF THE FLATS OR CUSTOMERS AT PAGE 2 TO 5 OF HIS ORDER. DURING THE SAID FINANCIAL YEAR, THE ASSESSEE HAS CL AIMED DEDUCTION U/S. 80IB(10) OF THE ACT RS. 17,64,10,328/- AND THE ASSE SSEE HAS FILED LETTER DATED 21.11.2013 EXPLAINING THAT THE PROJECT IS SUBSTANTI ALLY COMPLETED DURING THE YEAR AND PROFIT FROM THE PROJECT IS OFFERED IN THE CURRENT YEAR ON COMPLETION OF PROJECT. 4.1 WHEREAS, THE ASSESSING OFFICER ON PERUSAL OF TH E DOCUMENTS RELATING TO PURCHASE OF LAND AND DETAILS OF BUILT UP AREA OF EA CH DWELLING UNIT AND COMMON AREA ALLOTTED FOUND THAT THE ASSESSEE HAS CO NTRAVENED THE PROVISIONS OF SECTION 80IB OF THE ACT IN RESPECT OF BUILT UP O F FLATS. THE ASSESSEE HAS UNDERTAKEN THE DEVELOPMENT WORKS ON CONTRACT AS IS NOT THE OWNER OF THE LAND AND DIFFERENCE IN BUILT UP AREA AND FOUND 10 U NITS OUT OF THE TOTAL FLATS CONSIDERED, THE AREA IS MORE THAN 1500 SQ.FT. AND D EALT AT PAGE 5 AND 6 OF THE ORDER. THE LD. AO PROPOSED TO DISALLOW THE DEDUCTI ON AS THE 10 FLATS EXCEEDING THE PRESCRIBED LIMIT OF AREA AS PER SEC. 80IB(10) OF THE ACT AND THE ASSESSEE HAS CONTRAVENED THE PROVISIONS OF SECTION 80IB(10) OF THE ACT AND THE LETTER WAS SENT ON 12.02.2014 TO DISALLOW DEDUC TION AND THE ASSESSEE HAS :-5-: I.T.A. N0. 2779/MDS/2016 FILED HIS OBJECTIONS ON 28.02.2014 REFERRED AT PARA A.5 PAGE 5 TO 9. THE CONTENTION OF THE ASSESSEE THAT THE OPEN TERRACE AR EA AND MEASURING 440 SQ.FT. IS EXCLUDED FROM THE TOTAL BUILT UP AREA FRO M THE DWELLING UNIT AND THEREFORE PROJECT UNIT BECOME ELIGIBLE FOR DEDUCTIO N U/S. 80IB OF THE ACT. WHEREAS, THE ASSESSING OFFICER FOUND THE OPEN TERRA CE AREA OF THE TOTAL BUILT UP AREA AND HAS TO BE ANALYSED WITH THE ACTUAL FACT S AND FIND THAT THE PROJECT HAS AN OPEN TERRACE AREA ON THE PENT-HOUSE. THE AS SESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATIONS ON THE OPEN TERRACE AREA AND NOT SHARED WITH OTHER RESIDENTIAL UNITS AND DEALT ON THE PROVISIONS AND MADE CONCURRENT FINDINGS AT PARA B PAGE 20 OF THE ORDER. WITH THESE OBSERVATIONS, THE ASSESSING OFFICER DEALT ON THE NATURE OF WORKS UNDE RTAKEN AS OWNER AND THE BUILDER AND FINALLY CONCLUDED THAT THE ASSESSEE HAS VOILATED THE PROVISIONS OF SECTION 80IB OF THE ACT AND DISALLOWED THE CLAIM AN D ASSESSED THE TOTAL INCOME OF RS. 17,69,58,065/- AND PASSED ORDER U/S. 143(3) ON 19.03.2014. 5. AGGRIEVED BY THE ORDER, ASSESSEE FILED AN APPEAL WITH THE CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD. AR ARGUED THE GR OUNDS AND SUBSTANTIATED THE SUBMISSIONS OF THE ASSESSMENT PROCEEDINGS WITH DOCUMENTS/EVIDENCE AND THE LD. AR MADE SUBMISSION BEFORE THE APPELLATE AUT HORITY ON THE ISSUE OF BUILT UP AREA AND WORKS CONTRACTS AND OWNERSHIP OF LAND AND SUPPORTED WITH JUDICIAL DECISIONS. THE LD. CIT(A) CONSIDERED THE FACTS AND WRITTEN SUBMISSIONS AND FINDINGS OF THE ASSESSEE ON THE BU ILT UP AREA AND THE JUDICIAL :-6-: I.T.A. N0. 2779/MDS/2016 DECISIONS AND CBDT DECISIONS AND DELETED THE ADDITI ON REFERRED AT PARA 4.2 WHICH READ AS UNDER: 4.2. APPELLANT'S CONTENTIONS & MY OBSERVATIONS THEREON: 4.2.1. IN THE GROUNDS OF APPEAL AND WRITTEN SUBMISS IONS, THE APPELLANT HAS MAINLY CONTENDED THAT THE ASSESSING O FFICER FAILED TO APPRECIATE THAT THE DEFINITION OF THE TERM 'BUILT-U P AREA' MEANS ONLY THE 'INNER MEASUREMENTS OF THE RESIDENTIAL UNITS IN CLUDING THE PROJECTIONS AND BALCONIES AND DOES NOT INCLUDE THE OPEN TERRACE AND COMMON AREA. FOR THIS, THE APPELLANT HAS PLACED RELIANCE ON A FE W DECISIONS OF THE JURISDICTIONAL HIGH COURT, AND THE SAME ARE DISCUSSED BELOW: (A) CIT VS. SANGHVI & DOSHI ENTERPRISES (2013) 29 TAXMANN.COM 386 (MAD): IN THIS CASE, THE HON.'BLE JURISDICTIONAL HIGH COUR T HAS HELD THAT THE PROVISIONS OF SECTION 80IB(10) NOWHERE REQ UIRE THAT DEVELOPERS, WHO ARE THE OWNER OF THE LAND ALONE WOU LD BE ENTITLED FOR GRANT OF DEDUCTION U/S, 80IB(10). FURTHER THAT, WITH ALL THE RISK ATTACHED IN DEVELOPING AND EXECUTING THE PROJECT, T HE ASSESSEE, BEING A DEVELOPER AND BUILDER, QUALIFIED FOR DEDUCT ION U/S. 80IB(10) OF THE ACT. AS FAR AS THE ISSUE OF WHETHER OPEN TER RACE AREA ATTACHED TO PARTICULAR FLATS AND ADJOINING THE DWELLING UNIT FORMS PART OF 'BUILT- UP AREA' IS CONCERNED, THE HON.'BLE COURT HAS RELIE D ON ITS DECISION IN TC(A) NO. 581/2011 (I.E. IN THE ASSESSEE'S OWN CASE ), WHEREIN IT WAS HELD THAT OPEN TERRACE AREA COULD NOT BE THE SUBJEC T MATTER OF INCLUSION AS A BUILT-UP AREA TO DENY THE BENEFIT OF SECTION 80IB OF THE ACT. IN OTHER WORDS, THIS ISSUE HAS ALSO BEEN DECID ED IN FAVOUR OF THE ASSESSEE. :-7-: I.T.A. N0. 2779/MDS/2016 (B) M/S CEEBROS HOTELS PVT. LTD. VS. DCIT, CENTRAL CIRCLE IV(3), CHENNAI[TC(A) NO. 581/2008], CIT, CHENNAI VS . M/S CEEBROS HOTELS PVT. LTD. [TC(A) NO. 1186/2008] AND CIT VS. M/S CEEBROS HOTELS PVT. LTD. [TC(A) NO. 136 OF 2009 ]: IN THIS CASE, THE HON'BLE HIGH COURT HAS HELD AS FO LLOWS: 'GOING BY THE SUBSTANTIVE PART OF SECTION 80IB(10), WHAT IS REQUIRED FOR GRANT OF DEDUCTION IS THE HOUSING PROJ ECT APPROVED BY THE LOCAL AUTHORITY. THAT BEING THE CAS E, THE DEFINITION OF 'BUILT-UP AREA'~ HAS TO HAVE THE SAME MEANING AS HAS BEEN GIVEN IN THE DEVELOPMENT CONTROL RULES. OTHERWISE, THE SUBSTANTIVE PART IN SECTION 80IB REF ERRING TO APPROVAL BY THE LOCAL AUTHORITY BECOMES MEANINGLESS FOR THE PURPOSE OF DEDUCTION U/S. 80 IB(1 0) AND THE APPROV AL FOR THE PURPOSE OF SECTION 80IB HAS TO EMANATE FROM THE IT ACT. WE DO NOT THINK THE ACT CONTEMPLATES SUCH EXERCISE ALS O BY THE REVENUE. GIVEN THE FACT THAT CONTEMPLATION OF DEDUC TION IS TO HOUSING PROJECTS APPROVED BY THE LOCAL AUTHORITY, W E HOLD THAT ONCE THE LOCAL AUTHORITY HAVE EXCLUDED OPEN TE RRACE FROM THE WORKING OF BUILT-UP AREA, IT IS NOT OPEN TO THE REVENUE TO REVIEW THE APPROVAL GIVEN BY THE COMPETENT AUTHORIT Y TO HOLD THAT TERRACE WOULD ALSO BE INCLUDED IN THE BUILT-UP AREA. AS ALREADY HELD THE DEFINITION ALSO DOES NOT SPEAK IN DIFFERENT LANGUAGE FROM WHAT IS GIVEN IN THE MEASUREMENT PROV ISION OF BUREAU OF INDIAN STANDARD IN THE CONTEXT OF THE DEF INITION OF BALCONY IN THE INDIAN STANDARD. ' A CAREFUL PERUSAL OF THESE DECISIONS CITED BY THE A PPELLANT, SHOWS THAT BOTH THE ISSUES, BASED ON WHICH THE ASSE SSING OFFICER HAS DENIED DEDUCTION U/S. 80 IB(1) TO THE APPELLANT , I.E. (A) BUILT-UP :-8-: I.T.A. N0. 2779/MDS/2016 AREA OF CERTAIN FLATS (BY INCLUDING 'OPEN TERRACE') HAS EXCEEDED 1500 SQ.FT. (B) THE ASSESSEE HAS UNDERTAKEN THE WORK AS WORKS C ONTRACT AND IS NOT THE OWNER OF THE LAND, ARE COVERED IN FA VOUR OF THE APPELLANT VIDE THESE DECISIONS. THE HON'BLE JURISDICTIONAL HIGH COURT HAVING CLEARL Y HELD THAT THE AREA OF THE OPEN TERRACE, EVEN WHERE SUCH A TER RACE ATTACHED TO PARTICULARS FLATS PURCHASED WERE ADJOINING TO THE D WELLING UNITS, COULD NOT BE THE SUBJECT MATTER AND INCLUDE AS A BU ILT UP AREA TO DENY THE BENEFIT OF SECTION 80IB OF THE ACT, THE QU ESTION OF PROPORTIONATE DISALLOWANCE FOR THE 10 FLATS ALONE A LSO NOT ARISE AND PASSED THE ORDER. THE LD. CIT(A) ALLOWED THE ASSESSEE APPEAL. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E HAS FILED AN APPEAL WITH THE TRIBUNAL. BEFORE US, THE LD. DR ARGUED TH AT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE WITHOUT CONSIDERING TH E PROVISIONS OF SECTION 80IB OF THE ACT ON RESIDENTIAL PROJECT CONSTRUCTED BY TH E ASSESSEE AND RELIED ON JUDICIAL DECISIONS. THE LD. CIT(A) ALSO DELETED TH E ADDITION WITHOUT CONSIDERING DECISION OF HONBLE HIGH COURT OF AP IN THE CASE OF WELFARE FUND VS CIT, 12 TAXMAN.242 (A.P). THE CIT(A) HAS ERRED IN HOLDING THAT THE PRIVATE TERRACE CANNOT BE INCLUDED IN THE COMMON AR EA AND THE PROJECT WAS UNDERTAKEN PRIOR TO 01.04.2005 AND THEREFORE AS PER THE DEFINITION OF BUILT UP AREA AND LD. DR FILED THE WRITTEN SUBMISSIONS AND P RAYED FOR ALLOWING THE APPEAL. CONTRA, THE LD. AR RELIED ON THE ORDERS OF THE CIT(A). :-9-: I.T.A. N0. 2779/MDS/2016 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS. WE FOUND THE LD. DR SUBMISSION S THAT THE LD. CIT(A) HAS ERRED IN DISALLOWING THE CLAIM U/S. 80IB(10) OF THE ACT AND IGNORED THE FACT THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS AND A O MADE FINDINGS AS: 1. THE 'OPEN TERRACE AREA' COULD BE ACCESSED ONLY THROUGH THE BEDROOM AND DINING HALL OF THE FLAT OWNERS. NO SEPARATE ENTRANCE IS AVAILABLE TO THE 'OPEN TERRACE AREA'; 2. 'OPEN TERRACE AREA' IS NOT A PROJECTION, RATHER IT IS BUILT ON THE TERRACE OF THE THIRD FLOOR; 3. THE RIGHT TO USE THE 'OPEN TERRACE AREA' IS VEST ED WITH THE FLAT OWNERS ONLY NOT TO OTHERS. THE OPEN TERRACE AR EA IS NOT SHARED BY OTHER RESIDENTS. 4. OPEN TERRACE AREA IS NOT A COMMON AREA AS EVIDEN CED BY CLAUSE 31 OF THE BUILDERS AGREEMENT; 5. AS PER DEFINITION OF BUILT UP AREA IN SECTION 80 1B(10), THE 'OPEN TERRACE AREA' HAS TO BE CONSIDERED AS BUILT U P AREA SINCE IT IS NOT A COMMON AREA; 6. THE MAINTENANCE FEE IS FIXED BY THE FLAT OWNERS ASSOCIATION BASED UPON THE BUILT UP AREA WHICH INCL UDES 'OPEN TERRACE AREA'; 7. THE UNDIVIDED SHARE OF LAND IS ALLOTTED BASED ON THE BUILT UP AREA, WHICH INCLUDES 'OPEN TERRACE AREA' ALSO. WE CONSIDERING THE APPARENT FACTS, MATERIAL ON RECO RD AND JUDICIAL DECISIONS AND WRITTEN SUBMISSIONS, WE CONSIDER IT APPROPRIATE TO SET ASIDE THE ORDER OF THE CIT(A) APPEAL AND REMIT THE ENTIRE DISPUTE ISSU E TO THE FILE OF THE :-10-: I.T.A. N0. 2779/MDS/2016 ASSESSING OFFICER TO VERIFY THE CLAIM AND APPLY THE PROVISIONS APPLICABLE AND THE ASSESSEE SHOULD BE PROVIDED WITH ADEQUATE OPPOR TUNITY OF HEARING BEFORE PASSING THE ORDER ON MERITS. 8. IN THE RESULT, THE REVENUE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 4 TH DAY OF MAY, 2017 AT CHENNAI. SD/ - ( . ) ( A. MOHAN ALANKAMONY ) # / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) ) # /JUDICIAL MEMBER /CHENNAI, 0 /DATED: 4 TH MAY, 2017 JPV & )'23 43 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 5 ( )/CIT(A) 4. 5 /CIT 5. 3 )'' /DR 6. 9 /GF