Appeal Details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 63745 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 5 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-09-2012
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
09-07-2012
Assessment Year
2006-2007
Appeal Filed On
31-03-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N. BARATHVAJA SANKAR, VICE - PRESIDENT AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.339/BANG/2011 (ASSESSMENT YEAR: 2006-07) M/S.SOBHA DEVELOPERS LTD. # 43, II FLOOR, DICK ENSON ROAD, BANGALORE. APPELLANT PAN: AABCS 7723 E VS. COMMISSIONER OF INCOME - TAX (LTU), BANGALORE. RESPONDENT APPELLANT BY: SHR I V.SRINIVASAN. RESPONDENT BY : SHRI S.K.AMBASTHA, CIT. DATE OF HEARING: 19 - 07 - 2012. DATE OF PRONOUNCEMENT: 28 - 09 - 2012. O R D E R PER N. BARATHVAJA SANKAR, VP: THIS IS AN APPEAL PREFERRED BY THE ASSESSEE-M/S.SOB HA DEVELOPERS LTD., BANGALORE, AGAINST THE ORDER DATED 24-3-2011 PASSED U/S 263 OF THE INCOME-TAX ACT, 1961 [HEREINA FTER REFERRED TO AS 'THE ACT'] BY THE CIT(LTU), BANGALORE, FOR TH E ASSESSMENT YEAR 2006-07. 2. TWO ISSUES ARE BROUGHT BEFORE US FOR ADJUDICATIO N BY THE ASSESSEE VIZ. (I) THE CIT FAILED TO APPRECIATE THAT THERE WAS NO ITA 339/BANG/2011 PAGE 2 OF 18 ERROR MUCH LESS AN ERROR PREJUDICIAL TO THE INTERES TS OF REVENUE IN THE ORDER PASSED BY THE AO WARRANTING REVISION U/S 263 OF THE ACT AND (II) THE CIT IS NOT JUSTIFIED IN HOLDING THAT T HE ASSESSEE WAS ONLY A BUILDER AND NOT DEVELOPER AND THEREBY NOT EN TITLED TO THE DEDUCTION U/S 80-IB OF THE ACT. 3. LET US FIRST TAKE UP THE LEGAL ISSUE RELATING TO JURISDICTION U/S 263 OF THE ACT. THE BRIEF FACTS OF THE CASE AR E AS UNDER: THE ASSESSEE-COMPANY IS IN THE BUSINESS OF EXECUTIN G CONSTRUCTION CONTRACTS AND HOUSING PROJECTS AND ALS O MANUFACTURE OF CEMENT HOLLOW BLOCKS. RETURN OF INCOME WAS FILE D DECLARING INCOME OF ` 54,18,33,000/- AND THE SAME WAS PROCESSED U/S 143(1) OF THE ACT. SCRUTINY ASSESSMENT U/S 143(3) WAS CONCLUDED ON 24-12-2008 DETERMINING THE INCOME AT ` 70,65,43,646/- AND LATER ON RECTIFICATION ORDER U/S 154 WAS MADE DETER MINING THE INCOME AT ` 70,81,40,570/- ON 18-9-2009. 4. ON PERUSAL OF THE ASSESSMENT RECORDS, THE CIT NO TICED THAT A SUM OF ` 40,33,65,510/- WAS ALLOWED AS DEDUCTION U/S 80-IB AS AGAINST THE CLAIM OF ` 56,80,76,159/-. DISALLOWANCE OF A SUM OF ` 9,37,05,963/- [OUT OF `16,47,10,649/- I.E. `56,80,76,159/- - `40,33,65,510/-)] WAS ALSO MADE U/S 80-IB BY DENYING THE DEDUCTION IN RESPECT OF PROFITS DERIVED FROM UNDIVI DED SHARE OF LANDS. 4.1 THE CIT HAS NARRATED THE FACTS EMERGING FROM THE ASSESSMENT ORDER AS UNDER: I) THE LAND ON WHICH THE HOUSING PROJECTS CAME UP WAS NOT OWNED BY THE ASSESSEE COMPANY. THIS IS ITA 339/BANG/2011 PAGE 3 OF 18 EVIDENT FROM THE FACT THAT AGREEMENT WITH THE ULTIMATE BUYER IN RESPECT OF THE SALE OF UNDIVIDED SHARE OF LAND SHOWS THE ASSESSEE'S SISTER CONCERN AS THE OWNER OF THE LAND AND NOT THE ASSESSEE. II) T THE DEVELOPMENT WORK IN RESPECT OF SUCH LAND WAS ALSO NOT CARRIED OUT BY THE ASSESSEE COMPANY. III) THE ASSESSEE IS NOT THE OWNER OF THE LAND BUT ONLY BUILDS APARTMENTS IN THE LAND BELONGING TO THE SISTER CONCERNS. IV) INSTEAD OF BUYING THE LAND FROM THE SISTER CONCERNS, THE ASSESSEE ENTERS INTO AN AGREEMENT WITH THEM FOR CONSTRUCTION OF BUILDING. THE CONSIDERATION IS PAID BY WAY OF ADVANCES TO THE SISTER CONCERNS WHO OWN THE LAND. V) SALE OF AN APARTMENT IN A HOUSING PROJECT TYPICALLY CONSISTS OF TWO ELEMENTS, VIZ., INCOME FROM SALE OF UNDIVIDED SHARE OF LAND AND THE INCOME FROM SALE OF THE APARTMENT. VI) IN THE PRESENT CASE, THE AGREEMENT TO SELL THE UNDIVIDED SHARE OF LAND IS BETWEEN THE ASSESSEE'S SISTER CONCERNS AND THE ULTIMATE BUYERS. THE AGREEMENT FOR CONSTRUCTION OF APARTMENTS IS BETWEEN THE ASSESSEE AND THE ULTIMATE BUYERS. VII) THE ASSESSEE COLLECTS FROM THE ULTIMATE BUYERS, ENTIRE AMOUNT REPRESENTING THE COST OF LAND AS WELL AS THE APARTMENT. THE COST OF LAND IS ADJUSTED AGAINST THE MONEY ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERNS. VIII) BASED ON THESE FACTS, THE ASSESSING OFFICER HELD ITA 339/BANG/2011 PAGE 4 OF 18 THAT THE ASSESSEE IS NOT ELIGIBLE FOR THE DEDUCTION UNDER SECTION 80LB IN RESPECT OF THE PROFITS REPRESENTING THE VALUE/COST OF THE UNDIVIDED SHARE OF LAND. 4.2 THE CIT WAS OF THE OPINION THAT THE ABOVE FINDI NGS CONCLUSIVELY PROVE THAT THE ASSESSEES ROLE IS ONLY THAT OF A BUILDER OF THE APARTMENTS AND NOT THAT OF OWNER OR DEVELOPE R OF THE ENTIRE PROJECT. SINCE THE ASSESSEE IS ONLY A BUILDER AND NOT A DEVELOPER AND BUILDER, DEDUCTION U/S 80-IB IS NOT ALLOWABLE I N VIEW OF THE SPECIFIC PROVISIONS IN SEC.80-IB(10) OF THE ACT. T HE ASSESSEE MADE DETAILED SUBMISSIONS BEFORE THE CIT. 4.3 AFTER CONSIDERING THE DETAILED SUBMISSIONS OF T HE ASSESSEE, THE CIT HELD THAT THE AO FAILED TO REALIZ E THAT DEVELOPING AND BUILDING OF HOUSING PROJECTS ARE TWIN CONDITION S THAT ARE TO BE SATISFIED SIMULTANEOUSLY IN ORDER TO OBTAIN DEDUCTI ON U/S 80-IB(10) AND THE AO MISDIRECTED HERSELF AND MERELY EXCLUDED THE PROFIT ON SALE OF LAND FROM DEDUCTION U/S 80-IB. HE HELD THAT THIS CLEARLY SHOWS THAT THE PROVISIONS OF SEC.80-IB HAVE NOT BEE N PROPERLY APPLIED IN THE ASSESSMENT ORDER ITSELF. THE CIT HE LD THAT ASSESSMENT ORDER CAN BE REVISED U/S 263 ON THE QUES TION OF ELIGIBILITY OF DEDUCTION U/S 80-IB SINCE THESE ARE TWO DIFFERENT ISSUES. THEREFORE, THE CIT HELD THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. HENCE, HE DIRECTED THE AO TO MAKE NECESSARY ENQUIRIES AND VERIFY THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF HIS DIS CUSSIONS AND ARRIVE AT A CONCLUSION IN THE MATTER. ITA 339/BANG/2011 PAGE 5 OF 18 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US W ITH THE GROUNDS OF APPEAL AS UNDER: 1. THE LEARNED CIT FAILED TO APPRECIATE THAT THERE WAS NO ERROR MUCH LESS AN ERROR PREJUDICIAL TO THE INTEREST OF THE REVENUE IN THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER WARRANTING REVISION U/S 263 OF THE ACT AND CONSEQUENTLY THE ORDER PASSED BY THE CIT IS OPPOSED TO LAW AND FACTS OF THE APPELLANTS CASE AND REQUIRES TO BE CANCELLED. 2 THE LEARNED CIT FAILED TO APPRECIATE THAT THE ISSUE POINTED OUT IN THE NOTICE ISSUED U/S 263 OF THE ACT AS CONSTITUTING ERROR PREJUDICIAL TO THE INTEREST OF REVENUE WAS IN FACT EXAMINED IN GREAT DETAIL BY THE AO IN THE ASSESSMENT PROCEEDINGS AND THAT THE SAME WAS SUBJECT MATTER OF A DECISION OF THE HONBLE ITAT AND THEREFORE, THERE WAS NO JUSTIFICATION FOR INVOKING THE PROVISIONS OF SEC.263 OF THE ACT. THE IMPUGNED ORDER THUS BEING UNSUSTAINABLE IN LAW DESERVES TO BE CANCELLED. 3 . WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT IS NOT JUSTIFIED IN HOLDING THAT THE APPELLANT WAS ONLY A BUILDER AND NOT A DEVELOPER AND THEREBY NOT ENTITLED TO THE DEDUCTION U/S 80IB OF THE ACT UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE. 3 .1 THE LEARNED CIT FAILED TO APPRECIATE THAT THE FINDING THAT THE APPELLANT WAS ONLY A BUILDER AND NOT A DEVELOPER IS TOTALLY MISCONCEIVED AS THERE CAN BE NO DOUBT THAT THE APPELLANT HAS DEVELOPED THE VARIOUS HOUSING PROJECTS AND THE MERE FACT THAT THE LAND ON WHICH THE PROJECTS WERE DEVELOPED BY THE APPELLANT WERE INITIALLY ACQUIRED BY CERTAIN GROUP COMPANIES CANNOT BE A GROUND TO HOLD THAT THE APPELLANT HAS ACTED AS A BUILDER AND NOT A DEVELOPER IN RESPECT OF THESE PROJECTS. CONSEQUENTLY THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A) IS BAD IN LAW IS LIABLE TO BE CANCELLED. 6. AT THE TIME OF HEARING, THE LEARNED AR OF THE AS SESSEE FILED WRITTEN SUBMISSIONS (ARGUMENT NOTES) AS UNDER : ITA 339/BANG/2011 PAGE 6 OF 18 (I) THERE WAS NO JURISDICTION U/S.263 OF THE ACT, ON THE GROUND THAT THE AO HAS APPLIED THE MIND AND HAS DENIED DEDUCTION IN RESPECT OF A PORTION OF THE PRO FITS AND THE VIEW OF THE CIT IS THAT THE ENTIRE PROFITS DO N OT QUALIFY FOR DEDUCTION ONLY, WHICH ON THE FACTS OF THE ASSES SEES CASE ONLY AMOUNTS TO TAKING A DIFFERENT VIEW ON THE SAME SET OF FACTS APPRECIATED BY THE AO AND (II) THERE WAS NO JURISDICTION U/S.263 OF THE ACT, ON THE GROUND THAT THE ASSESSMENT ORDER PASSED BY THE LEARNED AO HAS MERGED IN THE APPELLATE ORDER OF THE CIT(A) AND AS SUCH, THE CIT COULD NOT REVISE THE ASSESSMENT ORDER ON ACCOUNT OF PRINCIPLE OF MERGER. 6.1 WITH REGARD TO AFORESAID CONTENTIONS, LD. AR OF THE ASSESSEE SUBMITTED THAT THE AO, WHILE PASSING THE O RDER OF ASSESSMENT FOR THE ASSESSMENT YEAR 2006- 07, HAS RE LIED ON THE FINDINGS ARRIVED AT FOR THE ASSESSMENT YEAR 2005-06 . HE SUBMITTED THAT IN FACT, IN PARA 3.1.6 OF THE ASSESS MENT ORDER THE AO HAS NOTICED THE FOLLOWING FACTS: (A) THAT THE LAND, ON WHICH THE PROJECTS WERE DEVELOPED, BELONGED TO A SISTER CONCERN OF THE ASSE SSEE AND THAT THE SAID SISTER CONCERN HAD SOLD THE UNDIV IDED INTEREST IN LAND TO THE CUSTOMERS OF THE ASSESSEE A ND BY VIRTUE OF THE SAID ARRANGEMENT, THE ASSESSEE IS NOT THE OWNER OF THE LAND AND THE AGREEMENT TO SELL ENTERED INTO BY THE SISTER CONCERN WITH THE ASSESSEE WAS ONLY A PAPER TRANSACTION. HENCE, THE ASSESSEE WAS ONLY A BUILDER AND THE SISTER CONCERN HAPPENED TO BE A LANDOWNER. (B) FROM THE PURCHASE DEEDS OF THE LANDS BY THE S ISTER CONCERNS OF THE ASSESSEE, IT WAS SEEN THAT SUBSTANT IAL PORTION OF THE LAND COST HAS BEEN PAID AS DEVELOPME NT ITA 339/BANG/2011 PAGE 7 OF 18 CHARGES BY THE ASSESSEE'S SISTER CONCERNS. HENCE, T HE DEVELOPMENT OF THE LAND WAS DONE BY THE SELLER OF T HE LANDS AND NOT BY THE ASSESSEE OR ITS SISTER CONCERN S AND THEREFORE, THE ASSESSEE WAS ONLY A BUILDER AND NOT A DEVELOPER. IT WAS SUBMITTED THAT BASED ON THE AFORESAID FINDIN GS, THE VIEW TAKEN BY THE AO IN THE ASSESSMENT ORDER IS THAT PRO FIT ON SALE OF UNDIVIDED INTEREST IN LAND PERTAINING TO THE SISTER CONCERNS OF THE ASSESSEE REQUIRES TO BE EXCLUDED FROM THE PROFIT OF THE ELIGIBLE PROJECT U/S.80-IB(10) OF THE ACT. IN OTHER WORDS, T HERE WAS A DENIAL OF DEDUCTION OF A PART OF THE PROFITS CLAIME D BY THE ASSESSEE FROM THE HOUSING PROJECT. THE SAID FINDING OF THE LEARNED AO HAS BEEN CONSIDERED BY THE ITAT IN THE ASSESSEE'S OWN C ASE FOR THE ASSESSMENT YEAR 2005-06 IN PARA 19.1 TO 19.4 OF TH E TRIBUNAL ORDER IN ITA NO.965/BANG/09. IT WAS FURTHER SUBMITT ED THAT THE CIT HAS ALSO NOTICED THE VERY SAME FACTS IN THE IMP UGNED ORDER. ACCORDING TO THE CIT, THE AO AFTER NOTICING THE AFO RESAID FACTS OUGHT TO HAVE DENIED THE ENTIRE DEDUCTION AND THERE FORE, THE ASSESSMENT ORDER IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT IS RELEVANT TO MENTION HERE THAT THERE ARE NO FACTS OR EVIDENCE AVAILABLE OR POINTED OUT BY THE CIT WHICH HAS NOT B EEN CONSIDERED BY THE AO TO INVOKE THE JURISDICTION U/S. 263 OF TH E ACT. THUS, THE SUBMISSION OF THE ASSESSEE IS THAT THE AO, AFTER NO TICING THE FACTS, HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION IN RESPECT OF A PORTION OF THE PROFITS WHEREAS THE CIT HELD THAT TH E ASSESSEE IS NOT ENTITLED TO ANY DEDUCTION AT ALL. ACTION U/S. 263 OF THE ACT IS ITA 339/BANG/2011 PAGE 8 OF 18 RESORTED TO BY THE CIT TO HOLD THAT THE VIEW OF THE AO OUGHT TO HAVE BEEN THAT THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION AND NOT MERELY A PART OF THE DEDUCTION. IT WAS FURT HER SUBMITTED THAT WHEN THERE ARE TWO VIEWS IN THE MATTER AND THE AO HAS ADOPTED A PARTICULAR VIEW WHICH IS NOT SHOWN TO BE ERRONEOUS, NO ACTION U/S. 263 OF THE ACT CAN BE RESORTED TO. FOR THIS PROPOSITION THE LEARNED AR OF THE ASSESSEE PLACED RELIANCE ON T HE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT (2000)(243 ITR 83)(SC), (II) CIT VS. MAX INDIA LTD. (295 ITR 282)(SC). 6.2 WITH REGARD TO THE MERGER OF ASSESSMENT ORDER W ITH THAT OF THE CIT(A), LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE AO CONSIDERED THE DEDUCTION CLAIMED BY THE ASSESSEE AN D TOOK A VIEW THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION IN R ESPECT OF PART OF PROFITS RELATING TO THE INCOME FROM SALE OF UNDIVID ED INTEREST OF LAND. ON APPEAL, THE LEARNED CIT(A) HAS ALLOWED THE DEDUCTION FOLLOWING THE ORDER OF THE ITAT IN THE ASSESSEE'S O WN CASE FOR THE ASSESSMENT YEAR 2005-06. IT WAS SUBMITTED THAT INAS MUCH AS THE ISSUE RELATING TO DEDUCTION U/S.80-IB(10) OF THE AC T WAS CONSIDERED BY THE CIT(A), THERE IS A MERGER OF THE ORDER OF THE AO WITH THAT OF THE CIT(A) AND THE JURISDICTION U/S 263 OF THE ACT IS NOT AVAILABLE TO THE CIT. IN SUPPORT OF THIS SU BMISSION, LEARNED AR RELIED ON THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF CIT VS. SHRI ARBUDA MILLS LTD (1998) 231 ITR 50(SC). ITA 339/BANG/2011 PAGE 9 OF 18 6.3 WITH REGARD TO THE FINDING OF THE CIT THAT THE ISSUE BEFORE THE CIT(A) WAS DIFFERENT, PLACING RELIANCE O N THE DECISION OF THE ITAT, DELHI BENCH IN THE CASE OF MODI XEROX LTD . REPORTED IN 67 ITD 252, TO HOLD THAT THE ELIGIBILITY TO CLAIM D EDUCTION IS A DIFFERENT ISSUE WHEN COMPARED TO THE QUANTUM OF DED UCTION, LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE DECIS ION OF THE ITAT, DELHI BENCH [SUPRA] WOULD NOT BE APPLICABLE T O THE FACTS OF THE ASSESSEE'S CASE. HE SUBMITTED THAT IN THE INSTA NT CASE, THE AO HAS TAKEN THE VIEW AND DENIED DEDUCTION IN RESPECT OF THE PROFIT ATTRIBUTABLE TO THE SALE OF UNDIVIDED INTEREST IN L AND AFTER NOTICING CERTAIN FACTS. ON THE SAME FACTS, THE CIT HOLDS U/S .263 OF THE ACT THAT THE AO OUGHT TO HAVE DENIED THE DEDUCTION ENTI RELY. HOWEVER, IN THE MEANWHILE, THE CIT(A) HAS HELD THAT THE ASSE SSEE IS ENTITLED TO DEDUCTION IN RESPECT OF THE PROFITS ATTRIBUTABLE TO THE SALE OF UNDIVIDED INTEREST IN LAND HAVING REGARD TO THE DEC ISION OF THE ITAT, FOR THE ASSESSMENT YEAR 2005-06 IN THE ASSESS EE'S OWN CASE. IN OTHER WORDS, ON THE SAME SET OF FACTS IN WHICH THE AO PROCEEDED TO DENY A PORTION OF THE DEDUCTION, WHICH HAS BEEN ALLOWED IN FULL BY THE CIT(A), THE CIT HAS EXERCISE D JURISDICTION U/S.263 OF THE ACT TO DENY THE DEDUCTION COMPLETELY . THE SAME IS IMPERMISSIBLE IN LIGHT OF THE PRINCIPLE OF MERGER A S THE ENTIRE ISSUE HAS BEEN CONSIDERED BY THE APPELLATE AUTHORITY AND IT CANNOT BE SAID THAT THE ISSUE FOR CONSIDERATION U/S. 263 OF THE ACT WAS ENTIRELY DIFFERENT. 6.4 WITH REGARD TO THE MERITS OF THE MATTER, LEARNE D AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS FULLY COVERED BY THE ITA 339/BANG/2011 PAGE 10 OF 18 DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. RADHE DEVELOPERS [TAX APPEAL NO.541 OF 2008 WITH TAX APPEAL NO.1225 OF 2008, TAX APPEAL NO.974 OF 2008 WITH TAX APPEAL NO.975 OF 2008 ETC., DATED 13-12-2011 WHEREIN IN PARA.31 OF THE JUDGMENT IT HAS BEEN HELD THAT THERE IS NO REQU I REMENT THAT THE OWNERSHIP OF THE LAND IS A CONDITION PRECEDENT FOR GRANT OF EXEMPTION U/S.80-1B(10) OF THE ACT. FURTHER, PARAS. 37 & 38 OF THE JUDGMENT HAS ALSO CONSIDERED AS TO WHETHER THE ASSE SSEE IN THAT CASE COULD BE REGARDED AS A CONTRACTOR OR BUILDER. IT HAS BEEN HELD THAT THE ASSESSEE IN THAT CASE HAD UNDERTAKEN THE D EVELOPMENT OF THE HOUSING PROJECT AT HIS OWN RISK AND COST AND TH E LANDOWNER HAD ACCEPTED ONLY THE FULL PRICE OF THE LAND AND NO THING FURTHER. HENCE , I T WAS HELD THAT THE ASSESSEE IN THAT CASE COULD NOT BE REGARDED AS A CONTRACTOR. THE RATIO OF THE AFORESAI D JUDGMENT IS SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEE'S CASE AS WELL . THE ASSESSEE HAS DEVELOPED THE HOUSING PROJECT AT HIS O WN RISK AND INVESTMENTS AND THE LANDOWNERS ARE NOT ENTITLED TO ANYTHING APART FROM THE FULL PRICE OF THE LAND. THIS ASPECT OF THE MATTER I S NOT IN DISPUTE AT ALL , AS THE ENTIRE PROJECT EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE AND THE SALES OF THE APARTMENT AND THE RESULTANT PROFIT HAS BEEN SHOWN AS INCOME OF THE ASSESSEE . THE PROFIT OR LOSS ACCRUES TO THE ASSESSEE ALONE. THE SISTER CONC ERNS WHO OWNED THE LAND ARE MERELY ENTITLED TO THE PRICE FOR LAND AND NOTHING BEYOND. UNDER THE CIRCUMSTANCES , IT WOULD NOT BE JUSTIFIED TO HOLD THAT THE ASSESSEE IS A MERE CONTRACTOR OR BUILDER A ND NOT A DEVELOPER. IN FACT, A DETAILED SUBMISSION ON THE N ATURE OF ITA 339/BANG/2011 PAGE 11 OF 18 ACTIVITIES CARR I ED ON BY THE ASSESSEE IS EXTRACTED IN THE IMPUGNED ORDER FOR THE ASSESSMENT YEAR 2005-06 (ITA NO.965/BANG/0 9). THE TRIBUNAL HAS ALSO CONSIDERED THE MATTER AND REF ERENCE WAS INVITED TO PARA. 19.1 TO 19 . 4 OF THE ORDER. HE SUBMITTED THAT THE OTHER ASPECT OF THE MATTER RELATING TO THE DEVELOPM ENT CHARGES INCURRED BY THE ERSTWHILE OWNERS OF THE LAND IS TO BE CONSIDERED. THE CIT HOLDS THAT SINCE THE DEVELOPMENT EXPENSES O N LAND WERE INCURRED BY THE EARLIER OWNERS, THE ASSESSEE COULD NOT BE REGARDED TO HAVE CARRIED OUT DEVELOPMENT AND ACCORDING TO TH E CIT THE ASSESSEE WOULD ONLY BE A BU I LDER, AS HE HAS NOT DEVELOPED THE LAND AND HAD ACQUIRED DEVELOPED LAND FOR CONSTRUCTI ON OF THE APARTMENT. THIS VIEW IS FALLACIOUS AND OPPOSED TO T HE PLAIN MEANING OF THE PROVISIONS OF SECTION 80-IB([10) OF THE ACT, WHICH READS ' THE AMOUNT OF DEDUCTION IN THE CASE OF THE UNDERTAK ING DEVELOPING AND BUILDING HOUSING PROJECTS ..... ' LEARNED AR FURTHER SUBMITTED THAT FROM THE AFORESAID PROVISION S, IT IS SEEN THAT THE DEDUCTION IS GIVEN TO AN UNDERTAKING THAT IS ENGAGED IN DEVELOPING AND BUILDING HOUSING PROJECT. THE DEVELO PMENT CONTEMPLATED UNDER THE PROVISION IS OF THE ENTIRE H OUSING PROJECT AND NOT MERELY LAND. THE DEVELOPMENT OF A HOUSING P ROJECT COMPRISES OF SEVERAL ACTIVITIES OF WHICH THE IDENTI FICATION OF LAND IS A MERE FACET. TOO MUCH EMPHASIS HAS BEEN LAID ON TH E FACT THAT DEVELOPMENT CHARGES WERE PAID BY THE ASSESSEES SIS TER CONCERN WHILE ACQUIRING THE LAND. THIS BY ITSELF DOES NOT M EAN THAT THERE IS NO DEVELOPMENT OF A HOUSING PROJECT BY THE ASSESSEE . THE VIEW OF ITA 339/BANG/2011 PAGE 12 OF 18 THE CIT IS PLAINLY OPPOSED TO THE PROVISIONS OF THE ACT RELATING TO THE GRANT OF DEDUCTION U/S. 80-IB(10) OF THE ACT . 7. PER CONTRA, THE CIT-DR RELIED ON THE FINDINGS OF THE CIT WHICH ARE EXTRACTED ELSEWHERE OF THIS ORDER. FOR W ANT OF TIME AND SPACE, WE ARE NOT REPEATING THE SAME. APART FROM A BOVE, THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO FILED ON R ECORD, COPY OF THE LETTER DATED 22-5-2012 RECEIVED BY HIM FROM THE ASST. CIT (LTU), BANGALORE WHEREIN THE AO HAS GIVEN DETAILS O F VARIOUS PROJECTS THAT WERE UNDERTAKEN BY THE ASSESSEE IN RE SPECT OF WHICH DEDUCTION U/S 80IB(10) OF THE ACT WAS CLAIMED, AGRE EMENTS WITH SISTER CONCERNS, DEVELOPMENT EXPENDITURE ON LAND IN CURRED BY THE TRANSFERORS (ASSOCIATED COMPANIES OF THE ASSESSEE) ON WHICH HOUSING PROJECTS WERE CONSTRUCTED BY THE ASSESSEE E TC. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED T HE FACTS AND MATERIAL ON RECORD INCLUDING THE DECISION S CITED BEFORE US. WE FIND FORCE IN THE CONTENTION OF THE ASSESSE E THAT WHEN AN ISSUE WHICH HAS BEEN AGITATED BEFORE THE CIT(A) WHO , IN TURN, AFTER DUE APPLICATION OF MIND, DECIDED THE ISSUE EI THER WAY, THERE WAS NO JURISDICTION U/S 263 OF THE ACT PRECISELY ON THE GROUND THAT THE ASSESSMENT ORDER PASSED BY THE AO GOT MERGED WI TH THE APPELLATE ORDER OF THE CIT(A). 8.1. HERE, IT IS MORE APPROPRIATE TO RECALL THE RUL ING OF THE HONBLE SUPREME COURT IN THE CASE OF SHRI ARBUDA MILLS LTD (SUPRA). IN THAT CASE, THE HONBLE SUPREME COURT H AS OBSERVED AS UNDER (HEADNOTE): ITA 339/BANG/2011 PAGE 13 OF 18 '. . . THE EXPLANATION TO SECTION 263(1) WHICH WAS SUBSTITUTED BY THE FINANCE ACT, 1988, WITH EFFECT F ROM JUNE 1, 1988, WAS AGAIN AMENDED BY THE FINANCE ACT, 1989, WITH RETROSPECTIVE EFFECT FROM JUNE 1, 1988, TO THE EFFECT THAT WHERE ANY ORDER REFERRED TO IN THE SUB- SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEE N THE SUBJECT-MATTER OF ANY APPEAL (FILED ON OR BEFOR E OR AFTER THE 1ST DAY OF JUNE, 1988), THE POWERS OF THE COMMISSIONER UNDER THE SUB-SECTION SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN S UCH APPEAL. THE CONSEQUENCE OF THE AMENDMENT MADE WITH RETROSPECTIVE EFFECT IS THAT THE POWERS UNDER SECTI ON 263 OF THE COMMISSIONER SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN AN APPEAL. ACCORDINGLY, IN RESPECT OF THE AFORESAID THREE ITEM S, THE POWERS OF THE COMMISSIONER UNDER SECTION 263 SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO THEM BECAUSE THE SAME HAD NOT BEEN CONSIDERED AND DECIDED IN THE APPEAL FILED BY THE ASSESSEE... 8.2. IN THE PRESENT CASE, DEDUCTION CLAIMED BY THE ASSESSEE HAS BEEN RESTRICTED BY THE AO TO THE EXTENT THAT DE DUCTION IN RESPECT OF A PART OF PROFITS RELATING TO THE INCOME FROM SALE OF UNDIVIDED INTEREST OF LAND. ON APPEAL, THIS ISSUE HAD BEEN DECIDED BY THE CIT(A). INASMUCH AS THE ISSUE RELATING TO D EDUCTION U/S 80-IB OF THE ACT THE SAME HAS BEEN SEIZED BY THE CI T(A) AND AFTER DELIBERATION, HE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THUS, THERE WAS MERGER OF THE ORDER OF THE AO WITH THAT O F THE CIT(A). AS RIGHTLY CONTENDED BY THE LEARNED AR OF THE ASSES SEE, THERE WAS NO JURISDICTION U/S 263 OF THE ACT AVAILABLE TO THE CIT. AS SUCH, THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT RE FERRED ABOVE IS DIRECTLY APPLICABLE TO THE FACTS OF THE ISSUE UN DER CONSIDERATION. 8.3. HOWEVER, THE CIT TOOK A DIVERGENT VIEW THAT: ITA 339/BANG/2011 PAGE 14 OF 18 III.5 .THE ASSESSING OFFICER FAILED TO REALIZE T HAT DEVELOPING AND BUILDING OF HOUSING PROJECTS ARE TWI N CONDITIONS THAT HAVE TO BE SATISFIED SIMULTANEOUSLY IN ORDER TO OBTAIN DEDUCTION U/S 80-IB(10). IN OTHER W ORDS, THE ASSESSING OFFICER MISDIRECTED HERSELF AND MEREL Y EXCLUDED THE PROFIT ON SALE OF LAND FROM DEDUCTION U/S 80-IB. THIS CLEARLY SHOWS THAT THE PROVISIONS OF SECTION 80-IB HAVE NOT BEEN PROPERLY APPLIED IN THE ASSESSMENT ORDER ITSELF. THE FINDINGS OF THE CIT(A ) DOES NOT COVER THIS ISSUE. HENCE, THE QUESTION OF MERGER OF THE ORDER OF THE CIT(A) WITH THAT OF THE ASSESSING OFFICER DOES NOT ARISE. THIS VIEW IS SUPPORTED BY THE DECISION OF THE DELHI BENCH OF HONBLE ITAT IN THE CASE OF MODI XEROX LTD. VS. DCIT 67 ITD 252 WHEREIN IT W AS HELD THAT THE ISSUE BEFORE THE CIT(A) WAS QUANTIFIC ATION OF 80-I DEDUCTION. THE COMMISSIONER CAN REVISE UNDE R SECTION 263 ON THE QUESTION OF ELIGIBILITY OF DEDUC TION UNDER SECTION 80-I SINCE THESE ARE TWO DIFFERENT IS SUES. 8.4. ON A CAREFUL CONSIDERATION OF THE VIEWS OF TH E CIT, WE ARE OF THE FIRM VIEW THAT THE AO HAD CONSIDERED THE PROVISIONS OF SECTION 80IB(10) IN ITS TOTALITY AND ON THE BASIS O F WHICH THE CIT(A) ANALYZED THE ISSUE IN DEPTH AND NEGATED THE STAND OF THE AO FOR THE REASONS RECORDED IN HIS ORDER. THUS, WE ARE UNABLE TO AGREE WITH THE CITS PERCEPTION THAT THE CIT CAN RE VISE U/S 263 ON THE QUESTION OF ELIGIBILITY OF DEDUCTION U/S 80-IB( 10) SINCE THOSE WERE TWO DIFFERENT VIEWS BY RELYING ON THE DELHI TR IBUNALS FINDING IN THE CASE OF MODI XEROX LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX REPORTED IN 67 ITR 252. 8.5. WITH DUE RESPECT TO THE FINDINGS OF THE DELHI TRIBUNAL CITED SUPRA, WE ARE OF THE VIEW THAT THE RULING OF THE HONBLE SUPREME COURT IN THE CASE OF SHRI ARBUDA MILLS LTD (CITED SUPRA) IS DIRECTLY APPLICABLE TO THE ISSUE UNDER CONSIDERATIO N. THUS, WE ARE OF THE VIEW THAT ONCE THE ORDER OF THE AO GOT MERGE D WITH THE ITA 339/BANG/2011 PAGE 15 OF 18 APPELLATE ORDER OF THE CIT(A) ON A PARTICULAR ISSUE , THE CIT CANNOT INVOKE THE PROVISIONS OF SEC.263 OF THE ACT ON THE PREMISE TO VERIFY THE ELIGIBILITY OF DEDUCTION U/S 80IB SINCE THOSE WERE TWO DIFFERENT ISSUES. 9. WITH REGARD TO THE TWO VIEWS ON SAME ISSUE, IT I S OBSERVED FROM THE ORDER OF THE AO THAT SHE HAD, IN FACT, DISCUSSED THE ISSUE THREADBARE AND ALSO IN CONFORMITY WITH TH E EARLIER STAND IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PREVIOUS ASSESSMENT YEAR VIZ., 2005-06 TOOK A STAND THAT PROFIT ON SALE OF UNDIVIDED INTEREST IN LAND PERTAINING TO ITS SISTER CONCERNS REQUIRED TO BE EXCLUDED FROM THE PROFIT OF THE ELIGIBLE PROJECT U/ S 80IB(10) OF THE ACT. IT IS PERTINENT TO MENTION HERE THAT THE CIT HAD TAKEN UP THE SAME ISSUE FOR ANALYSIS AND AFTER DELIBERATING IT E LABORATELY HELD THAT THE VIEW OF THE AO OUGHT TO HAVE BEEN THAT THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION AND NOT A PART OF THE DEDUCTION. THUS, THE AO HAD ADOPTED THE PARTICULAR VIEW AND TH E CIT TOOK A DIVERGENT VIEW. WHEN THERE ARE TWO VIEWS ON AN ISS UE, THE CIT CANNOT SUBSCRIBE THAT THE VIEW OF THE AO WAS ERRONE OUS THEREBY INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. 9.1. HERE, WE WOULD LIKE TO REFER TO THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF (I) MALABAR INDUSTRIAL CO. LTD., (SUPRA) AND (II) MAX INDIA LTD. (SUPRA) WHICH ARE VERY RELEVANT TO THE FACTS OF THE ISSUE UNDER CONSIDERAT ION. IN THE CASE OF MALABAR INDUSTRIAL CO. LTD., (SUPRA), IT HAS BEEN HELD BY THE HONBLE APEX COURT THAT: ITA 339/BANG/2011 PAGE 16 OF 18 A BARE READING OF PROVISIONS OF SEC.263 MAKES IT C LEAR THAT THE PREREQUISITE TO EXERCISE OF JURISDICTION B Y THE CIT SUO MOTU UNDER IT, IS THAT THE ORDER OF THE ITO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER ESTS OF THE REVENUE. THE CIT HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT IF THE ORDER OF THE ITO IS ERRONEOUS BUT IS NOT PREJUD ICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PRE JUDICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO S.263(1) . THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE AO; IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLI CATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BE ING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. THE PHRASE PREJUDICIA L TO THE INTERESTS OF THE REVENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFINED IN THE ACT. UNDERSTOOD IN ITS O RDINARY MEANING IT IS OF WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. THE SCHEME OF THE ACT IS TO LEVY AND COLLEC T TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND TH IS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS ORDER OF THE ITO, THE REVENUE IS LOSING T AX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE P HRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS T O BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE AO. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. 9.2. IN THE INSTANT CASE, WHEN THE AO HAD ADOPTED O NE OF THE POSSIBLE VIEWS IN LAW, WHICH HAS NOT BEEN AGREED UP ON BY THE CIT, ACCORDING TO THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE CITED SUPRA, THE ORDER PASSED BY THE AO CANNOT BE T REATED AS ITA 339/BANG/2011 PAGE 17 OF 18 ERRONEOUS ORDER AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THEREBY THE PROVISIONS OF SECTION 263 OF THE ACT HA VE NO ROLE TO PLAY. 9.3 THE HONBLE SUPREME COURT, IN THE CASE OF MAX INDIA LTD. (SUPRA) OBSERVED AS UNDER (HEADNOTE): THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REV ENUE IN SECTION 263 OF THE INCOME-TAX ACT, 1961, HAS TO BE READ IN CONJUNCTION WITH THE EXPRESSION ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS O F REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSI NG OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE. FOR EXAMPLE, WHEN THE ASSESSING OFFICER ADOPTS ONE OF TWO COURSES PERMISSIBLE IN LA W AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VI EWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ON E VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE REVENUE, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. IN ESSENCE, THE HONBLE SUPREME COURT HAD REAFFIRME D ITS EARLIER DECISION IN THE CASE OF MALABAR INDUSTRIAL CO. LTD., (SUPRA). 10. TAKING INTO ACCOUNT ALL THE ASPECTS AS DISCUSS ED ABOVE AND ALSO IN CONFORMITY WITH THE RULING OF THE HONB LE SUPREME COURT IN THE CASES CITED SUPRA, WE ARE OF THE VIEW THAT THE CIT WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SEC.263 OF THE ACT. IT IS ORDERED ACCORDINGLY. 11. SINCE WE HAVE ALREADY HELD THAT THE CIT HAS NO JURISDICTION TO INVOKE THE PROVISIONS OF 263, WE DO NOT FEEL IT NECESSARY TO GO INTO THE GROUNDS RAISED ON MERITS O F THE ISSUE (THOUGH ELABORATE SUBMISSIONS WERE MADE BY BOTH SID ES), SINCE IT WILL BE ONLY ACADEMIC. HENCE, WE ALLOW THE ASSESSE ES APPEAL ON JURISDICTION ITSELF. ITA 339/BANG/2011 PAGE 18 OF 18 11. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWE D ON JURISDICTION ITSELF. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER, 2012 . SD/- SD- (GEORGE GEORGE K) JUDICIAL MEMBER (N.BARATHVAJA SANKAR) VICE-PRESIDENT EKS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE
Mehul