The ITO, Ward-2(4), Baroda V. M/s. Pratham Developers, Baroda

ITA 2880/AHD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60463 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 21-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K S PANDYA
• Keywords: Business income
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD B BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTAN T MEMBER I.T.A. NO.2880/AHD/2011 A. Y. 2008-09 INCOME TAX OFFICER, WARD-2 (4), BARODA APPELLANT VS. M/S PRATHAM DEVELOPERS, PRATHAM MAKRAND DESAI ROAD, NR. MOTHERS SCHOOL, BARODA PAN-AAHFP2699D RESPONDENT DEPARTMENT BY : SHRI B.K.S. PANDYA, CIT- D.R. ASSESSEE BY : SHRI MILIN MEHTA, A.R. DATE OF HEARING : 23.05.2012 DATE OF PRONOUNCEMENT : 31.05.2012 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER THIS IS REVENUES APPEAL AGAINST THE ORDER OF LD. C IT(A) DATED 26.09.2011 PASSED IN APPEAL NO.CAB/II-157/10-11. 2. THE REVENUE HAS TAKEN TWO GROUNDS. THE FIRST G ROUND RELATES TO DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IB(10) OF RS.4,59,94,673/- MADE BY THE A.O. WHICH HAS BEEN DELETED BY LD. CIT(A). 3. THE ASSESSEE IN ITS RETURN OF INCOME CLAIMED DE DUCTION U/S 80IB(10) WHICH WAS DISALLOWED BY THE A.O. ON THE GROUND THAT THE ASSESSEE WAS NOT THE I.T.A. NO.2880/AHD/2011 A. Y. 2008-09 2 OWNER OF THE PROPERTY. THE PERMISSION WAS NOT GRAN TED IN THE ASSESSEES NAME. THE APPROVAL OF BARODA MUNICIPAL CORPORATION WAS GR ANTED IN THE NAME OF ORIGINAL LAND OWNER AND NOT IN THE NAME OF ASSESSEE S DEVELOPERS. THE ORIGINAL LAND OWNER HAD ACQUIRED THE SERVICES OF ASSESSEE FI RM FOR DEVELOPMENT AND CONSTRUCTION OF PROJECT. IN VIEW OF THE A.O. SINCE THE FUNDAMENTAL CONDITION FOR THE APPROVAL FOR DEVELOPMENT AND CONSTRUCTION MUST BE ACCORDED IN THE ASSESSEES NAME WAS NOT SATISFIED, THE ASSESSEE WAS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 80IB(10) OF THE I.T. ACT. 4. BEFORE LD. CIT(A) THE ASSESSEES SUBMISSION WAS THAT SIMILAR ISSUE CAME BEFORE THE HONBLE ITAT, AHMEDABAD IN I.T.A. N O.2482/AHD/2006 IN THE CASE OF M/S RADHE DEVELOPERS AND OTHERS AND THE HON BLE ITAT HELD THAT FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IB(10) OF THE A CT IT IS NOT NECESSARY FOR THE ASSESSEE TO OWN THE LAND SINCE SUCH CONDITION IS NO T MENTIONED IN THE SECTION, IT WOULD NOT BE CORRECT TO DENY DEDUCTION ON THIS GROU ND. IT WAS ALSO BROUGHT TO THE NOTICE OF LD. CIT(A) THAT IN THE DECISION IN TH E CASE OF ITO & OTRS VS. SHAKTI CORPORATION BARODA, ITA NO.1503/AHD/2008 DATED 7.11 .2008 FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF FA QUIR CHAND GULATI VS. UPPAL AGENCIES PVT. LTD. AND ANR., THE HONBLE ITAT HAS HELD AS UNDER:- 16. THE FACTS INVOLVED IN THE CASE OF THE ASSESSEE ARE SIMILAR TO THE FACTS IN THE CASE OF RADHE DEVELOPERS (SUPRA ) AND ACCORDINGLY WE ARE OF THE VIEW THAT THE ASSESSEE HAS ACQUIRED T HE DOMINANT OVER THE LAND AND HAS DEVELOPED THE HOUSING PROJECT BY I NCURRING ALL THE EXPENSES AND TAKING ALL THE RISKS INVOLVED THEREIN. WE MAY MENTION HERE THAT, IN OUR OPINION, THE DECISION IN THE CASE OF RADHE DEVELOPERS (SUPRA) WILL NOT APPLY IN A CASE WHERE T HE ASSESSEE HAS ENTERED INTO THE AGREEMENT FOR A FIXED REMUNERATION MERELY AS A CONTRACTOR TO CONSTRUCT OR DEVELOP THE HOUSING PROJ ECT ON BEHALF OF THE LANDOWNER. THE AGREEMENT ENTERED INTO IN THAT CASE WILL NOT ENTITLE THE DEVELOPER TO HAVE THE DOMINANT CONTROL OVER THE PROJECT I.T.A. NO.2880/AHD/2011 A. Y. 2008-09 3 AND ALL THE RISKS INVOLVED THEREIN WILL VEST WITH T HE LANDOWNER ONLY. THE INTEREST OF THE DEVELOPER WILL BE VEST WITH THE LANDOWNER ONLY. THE INTEREST OF THE DEVELOPER WILL BE RESTRICTED ON LY FOR THE FIXED REMUNERATION FOR WHICH HE WOULD BE RENDERING THE SE RVICES. THE DECISION IN THE CASE OF RADHE DEVELOPERS (SUPRA) HA S NOT DEALT WITH SUCH SITUATION. THE PROPOSITION OF LAW LAID DOWN IN THE CASE OF RADHE DEVELOPERS CANNOT BE APPLIED UNIVERSALLY WITHOUT LO OKING INTO THE DEVELOPMENT AGREEMENT ENTERED INTO BY THE DEVELOPER ALONG WITH THE LANDOWNER. IN THE CASE OF SHAKTI CORPORATION SINCE THE ASSESSEE HAS FILED COPY OF THE DEVELOPMENT AGREEMENT AND CRUX OF THE AGREEMENT IS THAT THE ASSESSEE HAS PURCHASED THE LAND AND HAS DEVELOPED THE HOUSING PROJECT AT ITS OWN, THEREFORE, WE ARE OF TH E VIEW THAT THE ASSESSEE WILL BE ENTITLED FOR THE DEDUCTION U/S 80I B(10). THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F FAQIR CHAND GULATI (SUPRA) WILL NOT ASSIST THE REVENUE, AS THE AGREEMENT IS NOT SHARING OF THE CONSTRUCTED AREA. IN OTHER CASES TH E COPY OF AGREEMENT SINCE HAS NOT BEEN SUBMITTED BEFORE US, I F SUBMITTED, THE TERMS AND CONDITIONS OF THE AGREEMENT WERE NOT SPEC IFICALLY ARGUED BEFORE AND PLACED BEFORE US, WE THEREFORE, IN THE I NTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE PARTIES SET ASIDE THE ORD ER OF THE CIT(A) AND RESTORE ALL OTHER APPEALS TO THE FILE OF THE ASSESS ING OFFICER WITH THE DIRECTION THAT THE ASSESSING OFFICER SHALL LOOK INT O THE AGREEMENT ENTERED INTO BY EACH OF THE ASSESSEE WITH THE LANDO WNER AND DECIDE WHETHER THE ASSESSEE HAS IN FACT PURCHASED THE LAND FOR A FIXED CONSIDERATION FROM THE LANDOWNER AND HAS DEVELOPED THE HOUSING PROJECT AT ITS OWN COST AND RISKS INVOLVED IN THE P ROJECT. IN CASE THE ASSESSING OFFICER FINDS THAT PRACTICALLY THE LAND H AS BEEN BROUGHT BY THE DEVELOPER AND DEVELOPER HAS ALL DOMINANT CONTRO L OVER THE PROJECT AND HAS DEVELOPED THE LAND AT HIS OWN COST AND RISKS, THE ASSESSING OFFICER SHOULD ALLOW THE DEDUCTION TO THE ASSESSEE U/S 80IB(10). IN CASE THE ASSESSING OFFICER FINDS THAT THE DEVELOPER HAS ACTED ON BEHALF OF THE LANDOWNER AND HAS GOT THE FI XED CONSIDERATION FROM THE LANDOWNER FOR THE DEVELOPMENT OF THE HOUSI NG PROJECTS, THE ASSESSEE SHOULD NOT BE ALLOWED DEDUCTION U/S 80IB(1 0). IT WAS FURTHER BROUGHT TO THE NOTICE OF LD. CIT(A) THAT IN RESPECT OF ASSESSMENT YEAR 2006-07 AND 2007-08 IN ASSESSEES OWN CASE, TH E ASSESSEES APPEAL WAS ALLOWED ON IDENTICAL FACTS. 5. TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE DIRECTING THE A. O. TO ACCEPT THE CLAIM OF THE ASSESSEE U/S 80IB(10) OF THE ACT BY OBSERVING AS UN DER:- I.T.A. NO.2880/AHD/2011 A. Y. 2008-09 4 I HAVE CONSIDERED THE SUBMISSION OF THE AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER. THE DECISION OF THE HONBLE ITAT IN THE CASE OF M/S SHAKTI CORPO RATION AND OTHERS AND THE GUIDELINES LAID DOWN HAS ALSO BEEN CONSIDER ED. ACCORDINGLY, THE COMMENTS OF ASSESSING OFFICER WAS CALLED FOR AF TER CARRYING OUT DUE VERIFICATION OF FACTS. THE ASSESSING OFFICER V IDE HIS REPORT DATED 30.08.2011, HAS STATED AS UNDER:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WA S NOTICED THAT THE ASSESSEE HAS PURCHASED THE LAND IN RESPECT OF THE PRATHAM VATIKA & PRATHAM RESIDENCY AND THE CLAI M OF DEDUCTION U/S. 80IB(10) WAS FOUND TENABLE, AND THUS ALLOWED. HOWEVER, IN THE CASE OF PRATHAM AVENUE AND PRATHAM UPAVAN PROJECTS ASSESSEE HAS ACQUIRED THE LAND DEVELOPMENT S RIGHTS AND NOT THE OWNER OF THE LAND. AS SUCH FOR THE DET AILED DISCUSSION GIVEN IN THE BODY OF THE ASSESSMENT ORDE R (PAGE NOS.2 TO 16), THE CLAIM OF THE ASSESSEE U/S. 80IB(1 0) WITH RESPECT TO THESE TWO PROJECTS WAS DISALLOWED. FURT HER, THOUGHT THE ASSESSEE IS RESPONSIBLE FOR THE RISK AND COSTS INVOLVED IN BOTH THESE PROJECTS AS ENVISAGED IN THE DEVELOPMENT RIGHTS/AGREEMENTS AND SINCE THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE HONBLE ITAT IN THE CASE OF M/S . RADHE DEVELOPERS AND M/S SHAKTI CORPORATION AND THE MATTE R IS SUBJUDICE BEFORE THE HIGH COURT OF GUJARAT, THE CON TENTION PUT FORTH BY THE ASSESSEE HAS NOT ACCEPTED AS CONCLUDED AT PARA 25 OF THE ASSESSMENT ORDER. SINCE THE ASSESSING OFFICER, AFTER DUE VERIFICATION , HAS STATED THAT THE ASSESSEE IS RESPONSIBLE FOR THE RISK AND C OSTS INVOLVED IN BOTH THESE PROJECTS, THE CONDITIONS PRESCRIBED IN T HE SHAKTI CORPORATION CASE CITED ABOVE, HAVE BEEN MET. HENCE , AS HELD BY HONBLE AHMEDABAD ITAT IN THE CASE OF M/S SHAKTI CO RPORATION AND OTHERS, THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 80IB(10). THE DEPARTMENT HAVING CHALLENGED THESE DECISIONS OF AHM EDABAD ITAT IN THE GUJARAT HIGH COURT, WILL NOT PRECLUDE THE APPEL LANT FROM GETTING RELIEF AT THE LEVEL OF CIT(A). THEREFORE, FOR THE YEAR UNDER CONSIDERATION, FOLLOWING THE ABOVE MENTIONED JUDGME NTS OF HONBLE AHMEDABAD ITAT, THE CLAIM OF THE APPELLANT FOR DEDU CTION U/S 80IB(10) IS ALLOWED. SINCE THE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESS EE BY PLACING RELIANCE ON THE DECISIONS OF HONBLE ITAT AHMEDABAD IN THE CASE OF ITO AND OTRS. VS. SHAKTI CORPORATION BARODA IN ITA NO.1503/AHD/2008 WHICH IN TURN WAS PASSED BY HONBLE ITAT FOLLOWING THE DECISION OF HONBLE APE X COURT IN THE CASE OF FAQUIR I.T.A. NO.2880/AHD/2011 A. Y. 2008-09 5 CHAND GULATI (SUPRA), WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS DISMISSED. 6. THE SECOND GROUND OF THE REVENUES APPEAL RELAT ES TO DISALLOWANCE OF DEDUCTION U/S 80IB(10) ON THE FOLLOWING AMOUNTS ON THE GROUND THAT THEY DO NOT CONSTITUTE BUSINESS INCOME AND ARE NOT ELIGIBLE FOR DEDUCTION U/S 80IB(10) OF THE ACT:- PARTICULARS AMOUNT(IN RS.) SALES OF SCRAP-BUSINESS MATERIALS 1,77,501 INTEREST RECEIVED FROM PARTIES ON DELAYED PAYMENTS 4,36,561 BALANCE WRITTEN OFF CONTRACTOR/SUPPLIER-RS.8,37,440/- EMPLOYEE -RS. 32,637/- TOTAL -RS.8,70,077/- 8,70,077 TOTAL INCOME 14,84,885 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O . OBSERVED THAT ASSESSEE HAD SHOWN RS.14,84,885/- AS OTHER INCOME AND HAD CL AIMED DEDUCTION U/S 80IB(10) OF THE I.T. AT. BEFORE THE A.O. THE ASSES SEE CONTENDED THAT OTHER INCOME OF RS.2,07,000/- HAS BEEN INCLUDED IN PRATHA M REVENUE PROJECT FOR COMPUTING DEDUCTION U/S 80IB(10) WHICH HAS ALREADY BEEN DISALLOWED AND MISCELLANEOUS INCOME OF RS.1,72,829/- WAS ACTUALLY SALE OF SCRAP GENERATED DURING CONSTRUCTION ACTIVITY SHOULD BE EXONERATED F OR THE REMAINING OTHER INCOME OF RS.11,05,556/-. THE A.O. WAS OF THE VIEW THAT I T WAS NOT DIRECTLY DERIVED FROM SALE OF SCRAP AND THUS IS NOT ELIGIBLE FOR DEDUCTIO N U/S 80IB(10) AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. BEFORE LD. CIT (A) THE ASSESSEE RELIED ON THE FOLLOWING SUBMISSIONS:- VIDE GROUND NO.2 , THE APPELLANT HAS CHALLENGED THE ACTION OF THE AO IN DISALLOWING DEDUCTION ON THE SALE OF SCRA P, INTEREST RECEIVED I.T.A. NO.2880/AHD/2011 A. Y. 2008-09 6 ON DELAYED PAYMENT AND AMOUNTS WRITTEN OFF. THE AO HAS DISALLOWED THE CLAIM ON THE GROUND THAT THESE DO NOT CONSTITUT E BUSINESS INCOME AND NOT ELIGIBLE FOR DEDUCTION U/S 80IB(10) OF THE ACT. SALE OF SCRAP: IT MAY BE MENTIONED THAT THE AO HAS ACCEPTED THE SA LE OF SCRAP REPRESENTS SCRAP GENERATED DURING CONSTRUCTIO N ACTIVITY. THIS SALE OF SCRAP IS DIRECTLY CONNECTED TO THE BUSINESS OF THE APPELLANT AND THEREFORE DEDUCTION U/S 80IB(10) IS ALLOWABLE ON THE SAME. THE SCRAP IS GENERATED DURING THE CONSTRUCTION ACTIVITY AND THEREFORE DERIVED FROM THE BUSINESS OF HOUSING PROJECT. WE TH EREFORE SUBMIT THAT DEDUCTION U/S 80IB(10) IS ALLOWABLE ON THE SAME. WE RELY ON THE DECISION OF MIRA INDUSTRIES REPORTED IN 87 ITD 475 (AHD) WHEREIN IT HAS BEEN HELD THAT SALE OF SCR AP GENERATED DURING THE MANUFACTURING PROCESS IS ELIGIBLE FOR DE DUCTION U/S 80IB OF THE ACT. WE THEREFORE SUBMIT THAT THE ADDITION IS R EQUIRED TO BE DELETED. INTEREST RECEIVED ON DELAYED PAYMENTS FROM CUSTOMER S:- THE ISSUE IS NOW DIRECTLY COVERED BY THE DECISION O F THE GUJARAT HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD. V. DY. CIT REPORTED 202 CTR 198 (GUJ)/283 ITR 402 (GUJ). IT WAS HELD TH AT INTEREST RECEIVED FROM TRADE DEBTORS FOR LATE PAYMENT OF SAL ES CONSIDERATION INTEREST RECEIVED FROM TRADE DEBTORS FOR LATE PAYME NT OF SALES CONSIDERATION IS INCOME DERIVED FROM THE BUSINESS O F THE INDUSTRIAL UNDERTAKING AND IT CANNOT BE EXCLUDED FROM THE PROF ITS OF THE INDUSTRIAL UNDERTAKING WHILE COMPUTING DEDUCTION U/ S 80-1. SINCE THE ISSUE IS A COVERED ISSUE WE REQUEST YOUR KIND OFFICE TO ALLOW THE DEDUCTION ON THE SAME. SUNDRY BALANCE WRITTEN OFF: THE AMOUNTS HAVE BEEN GENERATED DURING THE COURSE OF BUSINESS. IN CASE OF SUPPLIER PAYMENTS SOMETIMES T HE APPELLANT DEDUCTS SOME AMOUNTS AND PAYS THE BILLS. SINCE THE AMOUNTS ARE GENERATED DURING THE COURSE OF BUSINESS THE SAME AR E ELIGIBLE FOR DEDUCTION U/S 80IB(10) OF THE ACT. WE MAY FURTHER LIKE TO MENTION THAT SIMILAR ISSUE HAD ARISEN FOR AY 2004-05 IN CASE OF M/S. PRATHAM REALTY PVT. LTD. PVT. LTD. THE HONBLE CIT(A)-III, BARODA VIDE PAGE 5 (REFER PAGE 80 OF PAPER BOOK) HAD ALLOWED THE CLAIM OF THE APPELLANT. WE THEREFO RE REQUEST YOUR KIND OFFICE TO DELETE THE ADDITION MADE. WITHOUT PREJUDICE TO ABOVE, EVEN IF THE MOST ADVERSE VIEW IS TAKEN, IN THAT CASE ALSO THE GROSS AMOUNT CANNOT BE EXCLUDED. IT IS THE INCOME INCLUDED IN THE GROSS AMOUNT WHICH IS RE QUIRED TO BE EXCLUDED. WE THEREFORE REQUEST YOU KIND OFFICE TO DIRECT THE AO TO REDUCE THE NET INCOME AFTER VERIFICATION AND NOT TH E GROSS INCOME. I.T.A. NO.2880/AHD/2011 A. Y. 2008-09 7 7. AFTER TAKING INTO CONSIDERATION THESE SUBMISSIO N OF THE ASSESSEE LD. CIT(A) DELETED THIS ADDITION BY OBSERVING AS UNDER: - I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED A UTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER. IN VIEW OF THE DETAILS SUBMITTED ABOVE THE NATURE OF THESE OTHER INCOME AND CASE LAWS CITED, THE CONTENTION OF THE AUTHORIZED REPRES ENTATIVE IS ACCEPTED WITH RESPECT TO SUNDRY BALANCES WRITTEN OF F RS.8,70,077/- AND INTEREST RECEIVED ON DELAYED PAYMENT RS.4,36,56 1/-. HOWEVER, WITH RESPECT TO INCOME FROM SALE OF SCRAP RS.1,72,8 29/-, MS. NIKITA BRAHMBHATT STATED VIDE ORDER SHEET ENTRY DATED 26.0 8.2011 THAT THE NATURE OF SCRAP IS THE SAME AS IN ASSESSMENT YEAR 2 006-07, WHEN THE DEDUCTION U/S 80IB(10) FOR THIS ITEM WAS NOT ALLOWED BY CIT(A)- II, BARODA. FOLLOWING THAT DECISION BY MY PREDECES SOR, INCOME FROM SALE OF SCRAP RS.1,72,829/- INCLUDED IN PRATHAM UP VAN PROJECT IS NOT CONSIDERED ELIGIBLE FOR DEDUCTION U/S 80IB(10) . HENCE, THE DEDUCTION U/S 80IB(10) ALLOWED TO PRATHAM UPVAN PRO JECT IS RESTRICTED TO RS.4,16,33,619/- (RS.4,18,06,448-RS.1 ,72,829). THE DISALLOWANCE OF RS.11,05,056/- MADE BY THE ASSESSIN G OFFICER IS DIRECTED BE DELETED. SINCE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE A S THE ISSUES INVOLVED IN THIS GROUND WERE EITHER COVERED BY THE DECISIONS OF HONBLE ITAT, AHMEDABAD BENCH OR OF THE JURISDICTIONAL HIGH COURT AND EARLIER DECISION OF LD. CIT(A) WHICH WERE NOT APPEALED AGAI NST BY THE REVENUE, WE FEEL NO NEED TO INTERFERE WITH THE ORDER OF LD. CIT (A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON .05.201 2 SD/- SD/- (A. MOHAN ALANKAMONY) ( D.K. TYAGI) ACCOUNTANT MEMBER JU DICIAL MEMBER I.T.A. NO.2880/AHD/2011 A. Y. 2008-09 8 TRUE COPY N.K. CHAUDHARY, SR. P.S. / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. ! , ' , #$ / DR, ITAT, AHMEDABAD 6. %& '( / GUARD FILE. BY ORDER/ , ) / # * ' , #$ +