The ITO, Ward-2(1), Baroda V. M/s. Kirti Corporation, Baroda

ITA 3022/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6461 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PATEL
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : AH MEDABAD ( BEFORE HONBLE SHRI T.K.SHARMA, J.M. & HONBLE SHRI A.N.PAHUJA, A.M.) I.T.A.NO. 3022/AHD./2009 : ASSESSMENT YEAR 200 6-07 ITO, WARD-2(1), BARODA VS- M/S. KIRTI CONSTRUCTION, BARODA (PAN : AAGFK 7066A) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K.PATEL, D.R. RESPONDENT BY: SMT. URVASHI SODHAN, A.R. O R D E R PER SHRI T.K.SHARMA, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF LD. CIT(A)-II, BARODA DATED 13.08.2009 FOR ALLOWING THE DEDUCTION TO THE ASSESSEE MADE UNDER SECTION 80IB(10) BY THE AO FOR THE ASSESSMENT YEAR 2006-200 7. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEVELOPMENT OF LAND AND CONSTRUCTION OF RESIDENTIAL BUILDING. FOR THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE FILED TH E RETURN OF INCOME DECLARING INCOME OF RS. NIL AFTER CLAIMING NET PROFIT OF RS.9 6,42,973/-. THE AO FRAMED THE ASSESSMENT UNDER SECTION 143(3) OF THE I.T. ACT, 19 61 ON 26.12.2008 WHEREIN HE DISALLOWED DEDUCTION CLAIMED UNDER SECTION 80IB(10) AMOUNTING TO RS. 96,42,973/-. 3. ON APPEAL, THE LD. CIT(A), AFTER TAKING INTO CON SIDERATION OF THE SUBMISSIONS MADE BY THE LD. COUNSEL AND THE FACTS OF THE CASE, THE DEVELOPMENT AGREEMENT, THE REMAND REPORT FROM THE AO AND THE RECENT DECISIONS OF HONBLE ITAT, AHMEDABAD IN THE CASE OF M/S. RADHE DEVELOPERS & OTHER VIDE ORDE R IN ITA NO.2482/AHD/2006 DATED 29.06.2007, DELETED THE ADDITIONS FOR THE DET AILED REASONS GIVEN IN PARA 2.3, WHICH READS AS UNDER: 2 ITA NO.3022/AHD./2009 2.3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEA RNED COUNSEL AND THE FACTS OF THE CASE AND THE RECENT DECISIONS OF HON'BLE ITA T, AHMEDABAD, IN THE CASE OF M/S. RADHE DEVELOPERS & OTHER VIDE ORDER IN ITA NO. 2482/AHD/2006 DATED 29.06.2007. THE FACTS AND CIRCUMSTANCES OF THE APPE LLANT ARE IDENTICAL TO THE CASES DECIDED BY HON'BLE ITAT, AHMEDABAD. ALSO ALL THE PLEAS RAISED BY THE ASSESSING OFFICER HAVE BEEN EFFECTIVELY DEALT WITH AND DISCUSSED IN THE SAID ORDER AND THEREAFTER THE HON'BLE ITAT HAS ALLOWED T HE DEDUCTION UNDER SECTION 80IB(10). THE HON'BLE ITAT HAS ALSO DECIDED IN FAVO UR OF THE APPELLANT WITH REGARD TO THE ADMISSIBILITY OF DEDUCTION U/S. 80IB( 10) ON SALE OF UNUTILISED FSI. WITH REGARD TO THE DECISION OF THE ITAT IN THE CASE OF M/S. SHAKTI CORPORATION (SUPRA), THE LAND OF THE INSTANT PROJECT BELONGS TO 6 PERSONS, ALL OF WHOM ARE PARTNERS OF THE FIRM AND HAVE ENTERED INTO AN AGREE MENT WITH THE APPELLANT FOR DEVELOPMENT OF THE LAND. ON GOING THROUGH THE DEVEL OPMENT AGREEMENT THE FOLLOWING POINTS EMERGE:- THE PAYMENT TERM OF 5 YEARS IS SPECIFIED. THE RIGHT OF OBTAINING PERMISSION TO CONSTRUCT AND CARRY OUT ALL THE ACTIVITIES AS PER SUCH PERMISSION WILL BE OF THE APPELLANT: TO MAKE ADVERTISEMENT, TO ISSUE RECEIPT FOR THE SAL E CONSIDERATION TO CUSTOMERS, TO ENTER INTO AGREEMENT TO SALE WITH THE SPECIFIC C ONDITION THAT AIL THE RESPONSIBILITY WILL BE OF YOUR APPELLANT. IT WILL BE THE DUTY OF THE APPELLANT TO OBEY THE CO NDITION OF APPROVED PLAN. TO APPOINT ARCHITECT, ENGINEERS, SUPERVISORS, CONTR ACTORS ETC, AND IT WILL BE RESPONSIBILITY OF THE APPELLANT TO PAY REMUNERATION TO THEM. TO PURCHASE ALL THE MATERIALS FOR CONSTRUCTION AND THE BILLS SHALL BE IN THE APPELLANT'S NAME AND IT WILL BE RESPONSIBILITY OF T HE APPELLANT TO PAY FOR IT. TO COLLECT CONSIDERATION FROM MEMBERS IN THE APPELL ANT'S NAME AND ISSUE RECEIPTS AND IT WILL BE RESPONSIBILITY TO THE APPEL LANT FOR SUCH CONSIDERATION. WHATEVER PROFIT/LOSS IS EARNED OUT OF THE CONSTRUCT ION ACTIVITY OR OTHERWISE, IT WILL BE OF THE APPELLANT. DUE TO ANY CIRCUMSTANCES, IF ANY DISPUTE ARISES BET WEEN LAND OWNER AND THE APPELLANT THAN ALSO IT WILL NOT AFFECT THIS DEVELOP MENT AGREEMENT. IT IS CONFIRMED BY THE LANDLORDS THAT THIS PIECE OF LAND IS NOT SOLD TO ANY OTHER PARTY IN ANY MANNER AND TITLE OF THE PROPERTY IS CL EAR AND MARKETABLE. AND BASED ON THAT AFTER DECIDING TO SELL THE SAME TO TH E APPELLANT, THIS AGREEMENT OF DEVELOPMENT IS ENTERED INTO. 3 ITA NO.3022/AHD./2009 WHATEVER CONSTRUCTION IS BEING CARRIED OUT WILL BEL ONG TO THE APPELLANT ONLY AND LAND OWNERS WILL HAVE RIGHT TO THE EXTENT OF SA LE CONSIDERATION OF LAND ONLY. BY VIRTUE OF THIS DEED, THE APPELLANT IS ENTITLED T O ASSIGN TO THIRD PARTY ALL THE RIGHTS WHICH ARE GIVEN BY THIS DEED AND LANDLORD WI LL COOPERATE IN SUCH ASSIGNMENT SUBJECT TO CONDITION LISTED IN THIS AGRE EMENT. THE LAND LORDS WILL HAVE RIGHT TO THE EXTENT OF SAL E CONSIDERATION OF PLOT OF LAND ONLY AND BASED ON THIS AGREEMENT, IF ANY LIABILITY ARISES ON ACCOUNT OF INCOME TAX FOR OTHER THAN SALE CONSIDERATION OF PLOT OF LA ND THEN IT WILL BE OF THE APPELLANT. IF REVISED PERMISSION IS REQUIRED BY THE APPELLANT THAN IT IS TO BE OBTAINED BUT AT THE COST OF THE APPELLANT ONLY AND LAND OWNERS W ILL SIGN ALL DOCUMENTS WHEN EVER REQUIRED. FROM THE ABOVE IT CAN BE SEEN THAT THE CONTROL OVER THE LAND, AND THE RISKS AND COSTS OF THE PROJECT ARE OF THE APPELLANT. THE LAND OWNERS GET A FIXED COST FOR THE LAND IRRESPECTIVE OF THE PROFIT/LOSS OF THE VEN TURE. THE SUPREME COURT IN SUNIL SIDDHARTHBHAI VS. CIT [1985] 156 ITR 509 HELD THAT A CONVERSION OF AN EXCLUSIVE INTEREST INTO A SHARED INTEREST CONSTITUT ES A TRANSFER. SINCE THE FIRM THROUGH ITS PARTNERS IS THE DEVELOPER OF THE PROJEC T, IT HAS ALL CONTROL OVER THE PROJECT AND HAS DEVELOPED THE LAND AT ITS COST AND RISK, HENCE THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION U/S. 80IB(10). THE ADDITION MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. WITH REGARD TO GROUND NO. 2 FOLLOWING THE DECISION OF THE HON'BLE ITAT IN THE CASE OF M/S. RADHE BUILDERS AND OTHERS (SUPRA) THE ASSESSING OFFICER'S DECISION OF RESTRICTING THE CLAIM OF 80IB(10) ON AC COUNT OF UNUTILISED FSI IS NOT ACCEPTABLE AND IS DIRECTED TO BE DELETED. 4. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS: (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE ID. CIT(A) ERRED IN ALLOWING THE DEDUCTION U/S 801B(10) TO THE ASSESSEE, WHO WAS NOT GRANTED APPROVAL BY THE LOCAL AUTHORITY TO CARRY ON THE BUSINESS OF AN UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECT S, IN CONTRAVENTION OF A PLAIN READING OF SECTION 80IB(10) R.W.S. 80IB(1), E XPLANATION TO SECTION 80IB(10) AND RULE 18BBB. (II) THE ID. CIT(A) FAILED TO MAKE A COMBINED READI NG OF SECTION 80IB(1), WHICH IS THE SUBSTANTIVE PROVISION, AND SECTION 801B(10), WHICH IS A MACHINERY PROVISION, ' POSTULATING COMPLETE IDENTITY BETWEEN THE ASSESSEE AS REFERRED TO IN 4 ITA NO.3022/AHD./2009 SECTION 80IB(1), AND THE UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECTS APPROVED BY THE LOCAL AUTHORITY AS REFERRED TO IN S ECTION 80IB(10), NOT PERMITTING SUCH SPLITTING BETWEEN THE ASSESSEE AND THE PERSON WHO IS GRANTED APPROVAL BY THE LOCAL AUTHORITY FOR DEVELOPING AND BUILDING HOUSING PROJECTS, AS PRESUMED BY THE CIT(A). (III) THE ID CIT(A) FAILED TO ABIDE BY THE SCHEME O F SECTION 80IB BASED ON COMPLETE IDENTITY BETWEEN THE ASSESSEE AS REFERRED TO IN SECTION 80IB(1), ON THE ONE HAND, AND THE ENTITY FULFILLING THE CONDITIONS LAID DOWN IN SECTIONS 80IB(3), 80IB(9), 80IB(11) AND 80IB(11AA), BESIDES SECTION 8 0IB(10), ON THE OTHER. (IV) THE ID CIT(A) FAILED TO APPRECIATE THAT THE L AND BEING INTEGRAL PART OF ANY HOUSING PROJECT, THE ASSESSEE, WITHOUT OWNING THE L AND COMPONENT, COULD NOT PASS ON FULL TITLE OVER DWELLING UNITS TO THE CUSTO MERS SO AS TO DERIVE PROFITS FROM DEVELOPING AND BUILDING HOUSING PROJECTS AND T HIS INTEGRATION IS FURTHER FORTIFIED BY THE REQUIREMENT OF APPROVAL BY THE LOC AL AUTHORITY AS WELL AS GRANT OF COMPLETION CERTIFICATE BY THE LOCAL AUTHORITY UN DER CLAUSE (II) OF THE EXPLANATION BELOW SECTION 80IB(10), BOTH OF WHICH A RE GRANTED TO THE LANDOWNER, THUS TREATING HIM ALONE AS RUNNING THE U NDERTAKING FROM THE BEGINNING TO THE END . (V) THE LD. CIT(A) ERRED IN DISPENSING WITH THE OW NERSHIP OF LAND INTRINSICALLY LINKED WITH THE APPROVAL BY THE LOCAL AUTHORITY, AL SO IN DISREGARD OF SECTION 80IB(10)(B) PROVIDING FOR THE CONDITION OF MINIMUM SIZE OF THE PLOT OF LAND, WHICH CAN BE FULFILLED ONLY BY THE LANDOWNER AND TH E PERSON GETTING APPROVAL FROM THE LOCAL AUTHORITY. (VI) THE LD. LD. CIT(A) ERRED IN MAKING ASSUMPTION REGARDING PASSING ON OF THE BENEFIT OF SECTION 80IB(10) BY THE LANDOWNER GETTIN G APPROVAL FROM THE LOCAL AUTHORITY FOR DEVELOPING AND BUILDING OF HOUSING PR OJECTS TO THE PERSON WITH WHOM HE ENTERS INTO AGREEMENT FOR EXECUTION OF SUCH PROJECTS, WITHOUT THERE BEING ANY PROVISION IN SECTION 80IB FOR SUCH PASSIN G ON, AS CONTAINED IN SECTION 80HHC(1A). (VII) WITHOUT PREJUDICE, THE LD. CIT(A) ERRED IN AL LOWING DEDUCTION U/S 80IB(10) IN RESPECT OF THE PROCEEDS ATTRIBUTABLE TO THE SALE OF UNUTILISED FSI AND NOT TO THE DWELLING UNITS IN THE HOUSING PROJECTS, WHICH C OULD NOT BE TERMED AS PROFIT DERIVED FROM DEVELOPING AND BUILDING HOUSING PROJ ECTS IN TERMS OF THIS PROVISION. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE REVENUE, SHRI A.K.PATEL APPEARED AND CONTENDED THAT WHETHER THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IB(10) NEEDS RE-VERIFICATION IN THE LIGHT OF THE HONBLE APEX COURT 5 ITA NO.3022/AHD./2009 JUDGEMENT IN THE CASE OF FAKIR CHAND GULATI VS- UP PAL AGENCIES PVT. LTD. & ANR. IN CIVIL APPEAL NO.3302 OF 2005 DATED 10.07.2008 AS WE LL AS THE DECISION OF THE ITAT IN THE CASE OF ITO & ORS. VS- SHAKTI CORPORATION BARO DA AND ORS. IN ITA NO.1503/AHD/2008 DATED 07.11.2008. THEREFORE, IT MA Y BE REMANDED TO THE AO. 6. ON THE OTHER HAND, ON BEHALF OF THE ASSESSEE, SM T. URVASHI SODHAN APPEARED AND POINTED OUT THAT NO USEFUL PURPOSE WILL BE SERV ED IN REMANDING THIS ISSUE TO THE FILE OF THE AO BECAUSE IN THE IMPUGNED ORDER, THE L D. CIT(A), AFTER CONSIDERING THE DECISION OF THE ITAT IN THE CASE OF SHAKTI CORPORAT ION ( SUPRA ) AS WELL AS THE HONBLE APEX COURT IN THE CASE OF FAKIR CHAND GULATI ( SUPRA ), CALLED THE REMAND REPORT FROM THE AO AND ARRIVED AT A CONCLUSION THAT CONTROL OVE R THE LAND, RISK AND THE COSTS OF THE PROJECT ARE OF THE ASSESSEE. THE LAND OWNERS GET A FIXED COST FOR THE LAND IRRESPECTIVE OF THE PROFIT/LOSS OF THE VENTURE. ON THIS BASIS, T HE LD. CIT(A) HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 80IB(1 0). THEREFORE, THE VIEW TAKEN BY THE LD. CIT(A) BE UPHELD. THE LD. COUNSEL OF THE AS SESSEE ALSO PRODUCED A COPY OF DECISION DATED 08.10.2010 OF THE ITAT, C BENCH, A HMEDABAD IN THE CASE OF ITO-VS- M/S. NIRMAN DEVELOPERS IN ITA NO.1670/AHD/2010, WHE REIN ON ALMOST IDENTICAL FACTS, THE VIEW TAKEN BY THE LD. CIT(A) IS UPHELD. 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND CONSIDERABLE FORCE IN TH E SUBMISSIONS MADE BY THE LD. COUNSEL OF THE ASSESSEE. IT IS PERTINENT TO NOTE TH AT IN THIS CASE, THE LD. CIT(A) CALLED THE REMAND REPORT. THE AO, VIDE REMAND REPORT, STAT ED THAT THE ASSESSEE HAS 11 PARTNERS. SIX PARTNERS ARE THE OWNERS OF THE SAID L AND. THESE PARTNERS ENTERED INTO A BANAKHAT FOR SALE OF LAND TO THE SAID FIRM AT THE RATE OF RS.110/- TO RS.115/- SQ.FT. THE ASSESSEE FIRM HAS SHOWN LAND AS INVENTORY IN THE BA LANCE-SHEET FOR THE FINANCIAL YEAR 2004-05 AND 2005-06. THE AO, VIDE REMAND REPORT, AL SO STATED THAT THE ASSESSEE FIRM HAS INCURRED ALL THE EXPENSES FOR CONSTRUCTION. AFT ER CONSIDERING THE REMAND REPORT, THE LD. CIT(A) IN PARA 2.3.2 EXAMINED THE ADMISSIBILITY OF THE DEDUCTION UNDER SECTION 80IB(10), KEEPING IN VIEW OF THE DECISION OF THE IT AT IN THE CASE OF SHAKTI CORPORATION ( SUPRA ) AND CAME TO THE CONCLUSION THAT THE ASSESSEE IS E NTITLED TO 6 ITA NO.3022/AHD./2009 DEDUCTION UNDER SECTION 80IB(10). IN THESE CIRCUMST ANCES, WE ARE OF THE VIEW THAT NO USEFUL PURPOSE WILL BE SERVED IN REMANDING THE MATT ER ONCE AGAIN TO THE FILE OF THE AO BECAUSE THE LD. CIT(A) HIMSELF HAS EXAMINED THE SAM E AND THEREAFTER CAME TO THE CONCLUSION THAT THE ASSESSEE IS ENTITLED TO DEDUCTI ON UNDER SECTION 80IB(10). WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF THE LD. C IT(A). HENCE, THE APPEAL OF THE REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 10.06.2011 SD/- SD/- (A.N.PAHUJA) (T.K.SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10/06/2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT 3) CIT(A) CONCERNED 4) CIT CONCERNED 5) D.R., ITAT, AHMEDABAD TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD TALUKDAR/SR.P.S. 7 ITA NO.3022/AHD./2009