PODDAR & ASHISH DEVELOPERS, MUMBAI V. ITO 15(1)(3), MUMBAI

ITA 4239/MUM/2013

• Counselvise Citation: 423919914 RSA 2013
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 27-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJIT K SRIVASTAVA
• Assessee Lawyers: N R RAO
• Keywords: Bonafide belief; Difference of opinion
• Section: 133A; 80IB; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI , BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 4239/MUM/2013 (ASSESSMENT YEAR: 2010-11) PODDAR & ASHISH DEVELOPERS, 5C, COURT CHAMBER, NO. 35 NEW MARINE LINES, MUMBAI -400 020 .: PAN: AAAAP 4750 D VS INCOME TAX OFFICER-15(1)(3), 1 ST FLOOR, INCOME TAX OFFICES, MATRU MANDIR, GRANT ROAD, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N R RAO RESPONDENT BY : SHRI AJIT K SRIVASTAVA !' # $% /DATE OF HEARING : 08-12-2014 &'( # $% / DATE OF PRONOUNCEMENT : 02-01-2015 O R D E R , , , , PER VIVEK VARMA, JM: INSTANT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-26, MUMBAI, DATED 29.04.2013, WHEREIN THE SOLITARY ISSU E RAISED IS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A)-26, MUMBAI ERRED IN UPHOLDING THE DECISION OF THE ASSESSING OFFICER THAT WHENEVER THE PURCHASERS AND/OR THEIR FAMILY MEMBERS BOUGHT MORE THAN ONE BHK UNITS IN THE PROJECT AND JOINED THEM T O FORM A DUPLEX FLAT THE COMBINED AREA OF WHICH EXCEE DED 1000 SQ. FT. BUILT UP AREA, IT EXCEEDED THE LIMITS PRESCRIBED U/S 80-IB(10) OF THE INCOME TAX ACT, 196 1 AND THEREFORE THE PROFITS ATTRIBUTABLE TO THOSE FLATS D ID NOT QUALIFY FOR DEDUCTION U/S 80-IB(10) OF THE INCOME T AX ACT, 1961. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, VARY O R AMEND THE ABOVE GROUND OF APPEAL. 2. THE ONLY ISSUE IS DENIAL OF DEDUCTION U/S 80IB(10). THE AO HAS DENIED THE DEDUCTION BECAUSE, AS PER THE AO, 1 BHK FLATS DO NOT CONFORM TO THE CONDITIONS FOR THE CLAIM OF DEDUCTION U/ S PODDAR AND ASHISH DEVELOPERS ITA NO. 4239/MUM/2013 2 80IB(10), AS THE MAJORITY OF THE FLATS HAVE BEEN JOINED TOG ETHER AND EXCEEDED THE LIMIT OF 1000 SQ.FT. 3. IN THE ASSESSMENT PROCEEDINGS, IT WAS PLEADED BY THE ASSESSEE THAT IT WAS THE PURCHASERS WHO JOINED THE FLAT S. BUT THE EXPLANATION WAS NOT ACCEPTED BY THE AO. 4. FROM THE ORDER IT IS SEEN THAT IN THE PRECEDING YEAR S THE ISSUE REACHED THE ITAT AND COORDINATE BENCH OF THE ITA T HAD ALLOWED THE CLAIM OF DEDUCTION BY THE ASSESSEE U/S 80IB(10). 5. AT THE TIME OF HEARING, THE AR SUBMITTED THAT THE ISSU E IS IDENTICAL AND COMING FROM THE PRECEDING YEAR IN ITA NO. 2443/MUM/2012 IN ASSESSMENT YEAR 2009-10, WHEREIN IT WA S OBSERVED, 13. BEFORE US, IN CONNECTION WITH THE APPEAL OF TH E ASSESSEE, SHRI J.D. MISTRY, LD COUNSEL FOR THE ASSESSEE MADE VARIOUS SUBMISSIONS/ ARGUMENTS. ON FACTS, HE MENTIONED THAT THE PROJECT UNDER CONSIDERATION MADE A BEGINNING IN THE A.Y. 2005- 06 AFTER OBTAINING DUE APPROVALS AND THE SAME IS CO MPLETED IN THE CURRENT ASSESSMENT YEAR 2009-10. IN THE INITIAL A.YS. OF THE PROJECT, THERE WAS DIFFERENCE OF OPINION BETWEEN HE ASSESSEE AND THE AO ON THE PROPER TIMING /AO FOR RECOGNITION OF PROFITS OF THE PROJECT. AO DISTURBED THE ACCOUNTS OF THE ASSES SEE AND THRUST ON HIM THE PERCENTAGE COMPLETION METHOD/WIP METHOD IN PLACE OF THE PROJECT COMPLETION METHOD (PCM)FO LLOWED BY THE ASSESSEE. THE MATTER TRAVELED TO THE SAA IE ITAT AN D EVENTUALLY, IT IS A DECIDED ISSUE NOW AND THE PROFI TS OF THE PROJECT NEEDS TO BE COMPLETED BASED ON THE PROJECT COMPLETION METHOD AS ORIGINALLY FOLLOWED BY THE ASSESSEE. FURT HER, HE NARRATED THE FINDING OF THE SURVEY TEAM DURING THE ACTION U/S 133(A) ON 11/03/2008, WHEN THE PROJECT IS STILL IN PROGRESS. IT IS AN UNDISPUTED FACT THAT THE PROJECT WAS APPROVED BY THE LOCAL AUTHORITIES AND THE ASSESSEE HAS APPROVAL TO CONSTR UCT 1-BHK FLATS, 24 IN NUMBER. REGISTRATION OF EACH OF SUCH F LATS WAS DONE AS 1-BHK FLAT AND NOT AS DUPLEX FLATS AS ALLEGED BY THE REVENUE. THE OWNERSHIP EACH OF THE FLATS IS INDIVIDUALIZED. ON THE FINDING OF THE SURVEY TEAM ABOUT THE PROVIDING PROVISION FO R SQUARE SHAPED HOLE IN THE CEILING/FLOOR AND PROVIDING A SI NGLE KITCHEN PLATFORM IS A MATTER OF MAKING A PROVISION FOR FACI LITATING CREATION OF DUPLEX FLAT, IF THE FLAT OWNERS/BUYERS SO DESIRE AFTER THE SALE. MAKING SUCH A PROVISIONS IS AIMED AT THE MARKETING OF THE 1-BHK FLATS TO ATTRACT MORE BUYERS FROM THE SAM E FAMILY. ASSESSEE PROVIDED REQUISITE DESIGN TO HELP THE BUYE RS IN MERGING THE TWO 1-BHK FLATS INTO A DUPLEX FLAT WI TH SINGLE KITCHEN. AS PER LD COUNSEL, THE ASSESSEE HAS NOT CO NSTRUCTED ANY STAIRCASE BEFORE THE FLATS WERE REGISTERED/SOLD TO THE FLAT BUYERS OF THE ONE BHK FLATS. IT IS ON RECORD THAT A LL OTHER FLAT PODDAR AND ASHISH DEVELOPERS ITA NO. 4239/MUM/2013 3 BUYERS HAVE FILED THEIR REPLIES NOTICES SENT U/S 13 3(6) OF THE ACT. WHILE SOME BUYERS GAVE A CATEGORICAL STATEMENTS MEN TIONING THAT THEY HAVE NOT COMBINED TWO FLATS AND OTHERS HA VE MENTIONED THAT THEY GOT THE FLATS MERGED AFTER THE FLATS ARE PURCHASED BY THEM USING THE SAID THE PROVISION FOR CONSTRUCTING THE STAIR CASE USING THE DESIGN AND SERVICES OF THE DEVELOPER. THUS, THE DEVELOPER JOINED THE FLATS AT THEIR REQUE ST AFTER TAKING THE POSSESSION OF THE FLATS. PARA 16 EXTRACTED ABOV E IS RELEVANT HERE AND AO WHEN VISITED THE FLATS, FOUND THAT FOUR OF THE FLATS ARE WITHOUT ANY PROVISION FOR STAIRCASE AND THEY HA VE INDEPENDENT KITCHEN. INDIVIDUAL FAMILIES ARE FOUND RESIDING IN THEM. IT IS CATEGORICAL ASSERTION OF THE ASSESSEE T HAT A FLAT BUYERS COMBINED FLATS IN SOME CASES AFTER TAKING PO SSESSION OF THE FLATS AND IN SIX OTHER FLATS, THERE IS NO SUCH CONVERSION OR MERGER OF FLATS. ASSESSEE HAS MERELY MADE A PROVISI ON FOR SUCH MERGER OR COMBINING AND IN SUCH CASE, IT CAN NOT BE SAID THAT ASSESSEE VIOLATED THE NAMES UNDER THE PROVISION U/S 80IB(10) OF THE ACT. THE COUNSEL ARGUED THAT IN A CASE WHERE TH E JOINING OF THE FLATS IS DONE BY THE PURCHASER, IT CANNOT BE ST ATED THAT THE ASSESSEE WHO MERELY PROVIDED FOR SUCH MERGER, HAS C ONSTRUCTED FLATS IN VIOLATION OF THE AREA PRESCRIBED FOR EACH FLATS. REFERRING TO THE PROVISION OF CLAUSE (C) OF EXPLANATION TO SE CTION 80IB(10) OF THE ACT, LD. COUNSEL MENTIONED THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION OF 100% OF THE PROFITS OF HOUSING PRO JECTS, IF APART FROM THE OTHER CONDITION, THE RESIDENCE UNIT HAS MA XIMUM BUILT UP AREA OF LESS THAN 1,000 SQ. FT. IN MUMBAI. CONST RUCTION OF A RESIDENTIAL UNIT (1-BHK FLATS) WITH A PROVISION OF A SQUARISH HOLE IN THE ROOF/CEILING, DOES NOT MAKE THE ASSESSEE INE LIGIBLE FOR CLAIM OF DEDUCTION MERELY WHEN THE SAID PROVISION W AS MADE BY THE ASSESSEE. IT IS FOR THE FLAT BUYER TO USE OF RE JECT THE SAID PROVISION. THE ASSESSEE SHOULD BE DECLARED ELIGIBLE FOR CLAIM OF THE SAID DEDUCTION. IN THIS REGARD, COUNSEL BROUGHT OUR ATTENTION TO THE DECISION IN THE CASE OF BABA PROMOTERS AND D EVELOPERS IN ITA NO. 629/PN/2009 A.Y.2004-05, ITA NO.625/PN/2011 A.Y.2006-07 & ITA NO.159/PN/2010 A.Y. 2005-06 DATED 29/02/2012 AND RELIED ON THE CONTENTS OF THE PARA 1 3 OF THE SAID ORDER. 14. FURTHER, LD. COUNSEL BROUGHT OUR ATTENTION TO T HE DECISION OF COORDINATE BENCH ITAT, MUMBAI IN THE CASE OF G.V. C ORPORATION 38 SOT 174 FOR IDENTICAL PROPOSITION THAT WHERE THE PURCHASER HAVE REQUESTED FOR JOINING OF TWO FLATS THEREBY EXC EEDING THE PRESCRIBED LIMIT, THE ASSESSEE IS FOUND ELIGIBLE FO R DEDUCTION. PARA 12 OF THE ORDER OF THE TRIBUNAL IS RELEVANT 15. DRAWING PARALLEL IN THE INSTANT CASE, LD COUNSE L MENTIONED THAT THE IMPOUNDED BROCHURE MERELY PROVIDES FOR MANNER/DESIGN OF CONVERTING THE FLATS IN DUPLEX AND IT NEVER ADVERTISED FOR THE SAKE OF FLAT S EXCEEDING THE ARE A OF 1000 SQ. FT. FOR EACH 1BHK FLATS. FURTHER, HE BROUGHT OUR AT TENTION TO THE FACTS GATHERED DURING THE POST SURVEY ACTION AND ME NTIONED THAT MOST OF THE FLATS ARE NEVER JOINED BY NOT EVEN THE FLAT BUYERS. T 16. ON THE OTHER HAND LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE CIT(A) ON THIS ISSUE AND MENTIONED THAT ASSE SSEE HAS CLEAR INTENTION OF MAKING SALES OF THE 1BHK FLATS A S DUPLEX FLATS RIGHT FROM THE BEGINNING OF THE CONSTRUCTION OF THE PROJECT. IN SUCH CIRCUMSTANCES THE CONDITION SPECIFIED IN CLAUS E (C) OF THE EXPLANATION TO SECTION 80IB(10) OF THE ACT ARE DEEM ED VIOLATED RIGHTLY BY THE AO. ON THE CONTENTS OF THE PROCEEDIN GS U/S 133(6) OF THE ACT, LD. DR RELY ON THE ORDER OF THE AO. PODDAR AND ASHISH DEVELOPERS ITA NO. 4239/MUM/2013 4 17. WE HAVE HEARD BOTH THE PARTIES. THE FACTS NECES SARY OF ADJUDICATION OF THE ISSUES UNDER CONSIDERATION INCL UDE THAT THE ASSESSEE STARTED A PROJECT NAMED GARDEN ESTATE WI TH A AND B WINGS WITH 96 AND 95 FLATS RESPECTIVELY. THE PROJEC T WAS APPROVED BY THE LOCAL AUTHORITIES TO CONSTRUCT 1-BH K, 2-BHK AND 3-BHK FLATS AND ACCORDINGLY, THE BUILT UP AREA OF E ACH OF THESE FLATS SO APPROVED DOES NOT EXCEED 1000SQ FT. NO DUP LEX FLATS ARE TO BE ENVISAGED IN THIS PROJECT. THERE IS NO DISPUT E WITH REGARD TO THE 2-BHK AND 3-BHK FLATS BEFORE US AND THE DISP UTE NOW IS RESTRICTED TO 1- BHK FLATS ALLEGEDLY MERGED INTO TH E DUPLEX FLATS ONLY. 18. ON THIS DISPUTE, THE FACTS ARE THAT THERE ARE 2 4 SUCH 1-BHK FLATS IN THE PROJECT. OUT OF THEM, THERE IS NO DISP UTE WITH REGARD TO 6 OF SUCH 1-BHK FLATS. DISPUTE IS RESTRICTED TO 18 OF SUCH 24 ONE-BHK FLATS. THE DISPUTE REVOLVES AROUND (A) DEVE LOPER MAKING A PROVISION (A SQUARE SHAPED HOLE IN THE CEI LING /FLOOR) FOR CONSTRUCTION OF THE STAIRCASE CONNECTING THE LO WER 1-BHK FLAT TO GENERATE A DUPLEX FLAT WITH SINGLE KITCHEN AND (B) THE IMPOUNDING FROM THE ASSESSEES PREMISES OF A BROCH URE WITH THE DESIGN ON HOW TO MERGE TWO 1-BHK FLATS INTO A DUPLEX FLAT. AO MADE USE OF THE SAME TO INTERPRET THAT THE ASSES SEE ALWAYS INTENDED TO CONSTRUCTED DUPLEX FLATS, EACH OF WHICH HAS THE BUILT UP AREA EXCEEDING THE SPECIFIED AREAS IN SAID CLAUS E (C) OF THE EXPLANATION TO SECTION 80IB(10) OF THE ACT. IN THE SURVEY AS WELL AS THE ASSESSMENT PROCEEDINGS, ASSESSEE PLEADED THA T THE ASSESSEE MERELY MADE PROVISION AS A PART OF THE MAR KETING STRATEGY FOR SELLING THE 1-BHK FLATS AND SUCH A PRO VISION WAS MADE USE OF BY THE FLAT BUYERS AFTER TAKING POSSESS ION OF THE FLATS. AS PER THE ASSESSEE, CONSTRUCTION OF DUPLEX FLATS WAS NEVER A PART OF HIS PROJECT. HE NEVER CONSTRUCTED S UCH DUPLEX FLATS. ASSESSEE FILED CONFIRMATION LETTERS FROM THE FLAT BUYERS BEFORE THE AO AND THE SAME WERE NOT CONSIDERED. DUR ING THE ASSESSMENT PROCEEDINGS, AO ALSO VARIED THE SAID CLA IM OF THE ASSESSEE BY ISSUING THE LETTERS U/S 133(6) OF THE A CT AND IN FACT MADE A PERSONAL INSPECTION ALONG WITH THE DVO AND E VENTUALLY IGNORED THE SAID EVIDENCES GARNERED IN THE PROCEEDI NGS. CIT(A) CONFIRMED THE OPINION OF THE AO BY REFERRING TO THE INTENTION OF THE ASSESSEE AND INTERPRETING THE SAID PROVIDING A HOLE IN THE ROOF AGAINST THE ASSESSEE. IN THE PROCESS, THE FAC TS RELATING TO THE DESIGN AND PLAN OF EACH OF THE RESIDENTIAL FLAT , APPROVAL GRANTED BY THE LOCAL AUTHORITIES, COMPLETION CERTIF ICATE ISSUED BY THE LOCAL AUTHORITIES ETC ARE IGNORED. THUS, IN THE ASSESSEES APPEAL, ONLY DISPUTE FOR ADJUDICATION RELATES TO IF THERE IS ANY VIOLATION BY THE ASSESSEE OF THE CONDITIONS SPECIFI ED IN CLAUSE (C) TO EXPLANATION TO SECTION 80IB(10) OF THE ACT RELAT ING TO THE MAXIMUM BUILT UP AREA OF EACH RESIDENTIAL UNIT IE 1-BHK FLAT. TO DECIDE THE ISSUE UNDER CONSIDERATION, WE NEED TO DELVE ON THE FOLLOWING ASPECTS AND THEY ARE: A. RELEVANCE OF THE DISCREPANCIES NOTICED DURING TH E SURVEY ACTION ON 11/03/2008, WHEN THE PROFITS OF PROJECT A RE ASSESSABLE TO TAX IN AY 2009-10 BASED ON PROJECT C METHOD: 19. TAKING INTO CONSIDERATION THE TIMING OF THE DIS CREPANCIES NOTED DURING THE SURVEY ACTION IN MARCH 2008, AOS W HO MADE THE ASSESSMENTS FOR THE AY 2005-06 TO 2008-09, WERE UNDER THE BONAFIDE BELIEF THAT THE PROFITS OF THE PROJECT NEE DS TO BE RECOGNIZED BASED ON THE PERCENTAGE COMPLETION (WIP) METHOD IN PLACE OF PROJECT COMPLETION METHOD ADOPTED BY THE ASSESSEE. THE DISCREPANCIES NOTED BY THE SURVEY TEAM WERE USE D AGAINST PODDAR AND ASHISH DEVELOPERS ITA NO. 4239/MUM/2013 5 THE ASSESSEE IGNORING THE FACT THAT WHAT NEEDS TO B E SEEN ARE IF THE PROJECT IS COMPLETED AS PER THE PLAN APPROVED B Y THE LOCAL AUTHORITIES OR NOT. IF THE SAME IS CONSIDERED, WHAT IS RELEVANT TO BE SEEN BY THE AO IS IF THE ASSESSEE AS A DEVELOPER HAS COMPLETED THE CONSTRUCTION OF 24 1-BHK FLATS OR NOT . IF THE DEVELOPER HAS DUTIFULLY CONSTRUCTED THE SAID FLATS IN ACCORDANCE WITH PROJECT STARTED IN 2005- 06 A SURVEY U/S 133A ON 11/03/2008 (AY 08-09) B PROJECT IS COMPLETED IN AY 2009-10 DIAGRAM SHOWING THE RELEVANT DATES THE PLAN APPROVE D BY THE LOCAL AUTHORITIES IN THE AY 2009-10, WHERE THE PROF ITS NEEDS TO BE RECOGNIZED FOR TAX PURPOSE BASED ON THE PROJECT COMPLETION METHOD, THE SAID DISCREPANCIES IE MAKING A PROVISI ON OF SQUARE SHAPPED HOLE AS DISCOVERED DURING SURVEY ACTION IN AY 2008-09, BECOMES IRRELEVANT. IMPOUNDING OF THE BROCHURE WITH DETAILS OF METHOD OF MERGER OF 1-BHK FLATS INTO A DUPLEX, CANN OT BE USED AGAINST THE ASSESSEE AS IT ONLY PROVIDES THE DESIGN OF MERGER. IT IS NOT CASE OF THE REVENUE THAT THE DEVELOPER CONST RUCTED THE DUPLEX FLATS BY MERGER OF TWO 1-BHK FLATS WITH IT O WN MONEY AND THEN SOLD AS SUCH TO THE BUYERS. IT IS ON THE R ECORDS THAT THE OWNERS OF DUPLEX HAVE MERGED THE FLATS AFTER TAKING POSSESSION OF THEIR FLATS USING THE DESIGN PROVISIONS SUPPLIED BY THE ASSESSEE IN THE BROCHURE. THERE IS EVIDENCE CONTRAR Y TO THE SAME. B. RELEVANCE OF THE INTENTION OF THE ASSESSEE: 20. BOTH AO AND HE CIT(A) INTERPRETED THE DISCREPAN CIES NOTED DURING THE SURVEY ACTION TO READ INTO THE INTENTION OF THE DEVELOPER AND DENIED THE DEDUCTION IN RESPECT OF TH E PROFITS OF THE PROJECT. OF COURSE, CIT(A) RESTRICTED THE DISA LLOWANCE AND DETAILS ARE ALREADY DISCUSSED ABOVE. INTERPRETING T HE PROVISION OF HOLE AND THE IMPOUNDING OF THE BROCHURE, IRS OFF ICERS ARE OF THE OPINION THAT THE ASSESSEE HAS THE INTENTION FRO M THE VERY BEGINNING OF THE PROJECT THAT THE ASSESSEE INTENDS TO CONSTRUCT THE DUPLEX FLATS AND NOT THE 1-BHK FLATS. THEREFORE , SUCH VERY INTENTION IS MADE USE BY THE AO TO DENY THE BENEFIT S OF DEDUCTION U/S 80IB (10) OF THE ACT. BUT THE FACT IS THAT THE ASSESSEE GOT THE APPROVAL FOR CONSTRUCTING IMPUGNED 10BHK FLATS FROM THE AUTHORITIES AND COMPLETED THE CONSTR UCTED AS PER THE APPROVED PLANS. ASSESSEE OBTAINED COMPLETION C ERTIFICATE TOO FROM THE CONCERNED AUTHORITIES ABOUT WHICH THER E IS NO DISPUTE. IN OUR OPINION, WHAT IS REQUIRED TO BE SEE N SHOULD INCLUDE, WHAT ARE THE PLANS, DESIGNS OF THE PROJECT AND BUILT UP AREAS PARTICULARS OF THE RESIDENTIAL UNITS AT THE A PPROVAL STAGE, CONSTRUCTION STAGE AND FINALLY AT SALES POINT. IN T HE INSTANT CASE, FROM THE APPROVAL STAGE TILL THE STAGE OF ISSUANCE OF THE COMPLETION CERTIFICATE, THERE IS NO VIOLATION BY TH E DEVELOPER. THE DISCREPANCIES NOTED DURING THE SURVEY ACTION COULD HAVE BEEN MADE GOOD DURING THE PERIOD FROM DATE OF SURVEY IE 11/03/2008, TO THE DATE OF COMPLETION OF THE HOUSIN G PROJECT IE MARCH 2009. THERE IS NO EVIDENCE TO SUGGEST THAT IT IS THE DEVELOPER WHO PLANNED AND GENERATED DUPLEX FLATS OU T OF THE 1- BHK FLATS AND THEN SOLD AS SUCH TO THE BUYERS. IN F ACT THERE IS EVIDENCE TO INDICATE THAT IT IS THE FLAT BUYERS WHO MERGED THE FLATS INTO DUPLEX FLATS DURING THE POST SALES PERIO D. MEANING PODDAR AND ASHISH DEVELOPERS ITA NO. 4239/MUM/2013 6 THEREBY, THE MERGER OF FLATS IF ANY TAKEN PLACE AFT ER THE SALE OF THE SAID 1-BHK FLATS BY THE FLAT BUYERS AND, MAY BE USING THE DESIGN MADE AVAILABLE BY THE DEVELOPER, THE ASSESSE E CANNOT BE PENALIZED AND DENIED THE CLAIM OF DEDUCTION. AS SUCH, THE RELEVANT LEGAL PROVISION S DO NOT AUTHORIZE THE AO TO DENY DEDUCTION BASED ON THE INT ENTION. WHAT IS REQUIRED TO BE SEEN IS IF THE 1-BHK FLATS A RE PLANNED, DESIGNED, APPROVED FOR CONSTRUCTION, CONSTRUCTED AN D FINALLY OBTAINED THE COMPLETION CERTIFICATE OR NOT. IF TH E ANSWER IS AFFIRMATIVE, THE CLAIMS CANNOT BE DENIED BASED ON T HE INTENTION OF THE ASSESSEE. C. IGNORING THE CONFIRMATION FILED BY THE FLAT BUYE RS: 21. AO UNDERTOOK THE EXERCISE OF VERIFICATION U/S 1 33(6) OF THE ACT AND ALL THE FLAT BUYERS RESPONDED TO THE SAID Q UERIES. NOT EVEN A SINGLE FLAT OWN STATED THAT DUPLEX FLAT BEIN G A RESIDENTIAL UNIT EXCEEDING THE SPECIFIED LIMIT OF BUILT UP AREA S WAS CONSTRUCTED BY THE DEVELOPER AND SOLD TO THE ASSESS EE. IN OUR OPINION, THE REVENUE AUTHORITIES HAVE DECIDED THE I SSUE AGAINST THE ASSESSEE PREJUDICIALLY AND IGNORED THE EVIDENCE S THAT ARE GIVEN AGAINST THE REVENUE. IN SUCH CASE, THE ORDERS OF THE REVENUE CANNOT BE HELD JUDICIOUS ONES. D. ABSENCE OF ANY DIRECT EVIDENCE TO SUGGEST THAT T HE ASSESSEE CONSTRUCTED THE DUPLEX FLATS: 22. WE HAVE EXAMINED THE ORDERS OF THE REVENUE AND THE PAPERS FILED BEFORE US IN SEARCH OF THE MATERIAL THAT ESTA BLISHES CONCLUSIVELY TO THE EFFECT THAT THE ASSESSEE CONSTR UCTED DUPLEX FLATS WHOSE BUILT UP AREA EXCEEDED THE SPECIFIED LI MITS IN CLAUSE (C) OF THE SAID EXPLANATION. THERE IS SUCH MATERIAL OR DIRECT EVIDENCE TO DEMONSTRATE THE AOS ALLEGATION. IN OUR OPINION, WHEN 1-BHK FLATS ARE OTHERWISE BUILT AND SOLD AS SU CH, MERE MAKING A PROVISION TO HELP THE FLAT BUYERS TO MERGE THEM TO SUIT THEIR CONVENIENCE DURING THE POST-SALE, SHOULD NOT DISENTITLE TO THE ASSESSEE TO MAKE CLAIM OF DEDUCTION U/S 80IB(10 ) OF THE ACT. IT IS UNDISPUTED FACT THAT FEW 1-BHK FLATS REMAIN S O WITHOUT ANY MERGER DESPITE THE PROVISION OF HOLE LEFT AND OTH ERS ARE MERGED INTO DUPLEX DURING THE POST SALE USING SUCH PROVISI ON. IN OUR OPINION, THE DEVELOPER CANNOT BE PENALIZED BY DENYI NG THE DEDUCTION. AS SUCH CLAIM OF DEDUCTION WAS FOUND ALL OWABLE BY THE THEN CIT(A) WHO DECIDED THE ISSUES IN EARLIER A SST YEARS. OF COURSE, THESE ORDERS ARE NOT RELEVANT NOW CONSIDERI NG THE ORDER OF THE TRIBUNAL. E. FLAT BUYERS OWNS UP THE FACT OF MERGER OF FLATS INTO DUPLEX FLATS BY THEM USING THE DESIGN OF THE DEVELOPER: 23. WE HAVE DISCUSSED THIS ISSUE IN THE EARLIER PAR AGRAPHS OF THE ORDER. IT IS BORNE ON THE RECORDS THAT THE AO I NVOKED THE PROVISION OF SECTION 133(6) OF THE ACT AND THE FLAT BUYERS STATED CATEGORICALLY, THEY MERGED THE FLATS VERTICALLY INT O DUPLEX FLATS AVAILING THE PROVISIONS PROVIDED BY THE DEVELOPER. IN OUR OPINION, MERE MAKING A PROVISION OF A HOLE FOR FUTURE USE BY THE FLAT BUYERS FOR ERECTING THE STAIR CASE OR SO, SHOULD NO T COME ON THE WAY OF THE ASSESSEE TO CLAIM DEDUCTION. F SCOPE OF THE LEGAL PRONOUNCEMENTS ON THE MERGER O F FLATS BY THE BUYERS AND BY ASSESSEE AT THE INSTANCE OF FLAT BUYERS: 24. THE PROVISIONS OF CLAUSE (C) OF THE EXPLANATION TO SECTION 80IB(10) OF THE ACT SPECIFIES A CONDITION FOR THE A SSESSEE TO CLAIMING DEDUCTION IN RESPECT OF THE UNDERTAKING DE VELOPING AND BUILDING HOUSING PROJECTS. THE CONDITION SO SPECIFI ED AS PART OF THE EXPLANATION IS FOR THE PURPOSE OF CLAUSE (A) TO SECTION PODDAR AND ASHISH DEVELOPERS ITA NO. 4239/MUM/2013 7 80IB(10) OF THE ACT AND THE SAID CLAUSE PROVIDES TH AT THE UNDERTAKING HAS COMMENCED OR COMMENCES THE DEVELOP MENT AND CONSTRUCTION OF THE HOUSING PROJECT ON OR AFTER THE 1 ST DAY OF OCTOBER 1998 AND COMPLETES SUCH CONSTRUCTION ON SP ECIFIED DATES DEPENDING ON THE DATE OF APPROVAL BY LOCAL AU THORITIES. CONDITION SPECIFIED IN CLAUSE (C) TO EXPLANATION PR OVIDES FOR THE RESIDENTIAL UNIT HAS A MAXIMUM BUILT UP AREA OF ONE THOUSAND SQUARE FEET WHERE SUCH RESIDENTIAL UNIT IS SITUATED WITHIN THE CITY OF DELHI OR MUMBAI OR...... THESE PROVISIONS DO NOT PROVIDE ANY DISCRETION TO T HE AO TO DECIDE ANYTHING BASED ON THE INTENTION OF THE ASSES SEE. THE CONDITIONS HAVE TO BE MET ADEQUATELY BEFORE CLAIMI NG THE DEDUCTION. THESE PROVISIONS ARE SUBJECT MATTER OF A DJUDICATION IN VARIOUS CASES AND SOME OF THEM BROUGHT TO OUR NOTIC E ARE DETAILED AS FOLLOWS. THESE PROVISIONS ARE INTERPRET ED BY VARIOUS TRIBUNALS. IT IS A SETTLED PROPOSITION OF THE LAW T HAT THAT FOR JOINING OF TWO FLATS WHETHER HORIZONTALLY OR VERTIC ALLY, SO JOINED BY OR AT THE REQUEST OF THE PURCHASER, THE APPELLAN T CANNOT BE FAULTED UNDER THE PROVISIONS OF SECTION 80 IB(10) O F THE ACT. THE FOLLOWING DECISIONS OF THE MUMBAI TRIBUNAL SUPPORT THE VIEW POINT OF THE APPELLANT: I. SMT. MANJU GUPTA VS. ACIT (134 ITR 503) MUMBA I, II. EMGEEN HOLDING PVT. LTD., MUMBAI VS. DCIT (47 SOT 98) MUMBAI, III. G V CORPORATION VS. ITA (38 SOT 174) MUMBAI . ...... THE APPELLANT WILL BE ENTITLED TO 100% DEDUCTION CLAIMED U/S 80 IB(10) OF ACT. WE HAVE ALSO PERUSED THE ORDER OF THE TRIBUNAL IN T HE CASE OF BABA PROMOTERS AND DEVELOPERS (SUPRA) AND PERUSED T HE CONTENTS OF PARA 13 AND RELEVANT PORTIONS READ AS F OLLOWS,- SO FAR AS MERGER OF FLATS AND THEREBY EXCEEDING THE PR ESCRIBED LIMIT .......... DENIAL OF THE DEDUCTION ........., IS CO NCERNED THERE IS NO SUBSTANCE SINCE IT IS UNDISPUTED FACT THAT EACH OF PRESCRIBED LIMIT..... AREA AND IF AFTER PURCHASING OF TWO FLAT S OWNERS OF FLATS MERGES IT INTO A LARGER FLAT, THE CLAIM OF DEDUCTIO N TO THE ASSESSEE CANNOT DENIED ON THIS BASIS. FURTHER ALSO , WE PERUSED THE DECISION OF COORDINATE BENCH ITAT, MUMBAI IN TH E CASE OF G.V. CORPORATION 38 SOT 174 AND FIND PARA 12 IS REL EVANT AND THE SAME READ AS FOLLOWS,- IT IS COMMON KNOWLEDGE THAT MEMBERS OF THE SAME FAMILY WHO PURCHASE SEPARATE RE SIDENTIAL UNITS ADJACENT OR CONTIGUOUS TO EACH OTHER OFTEN JO IN THEM BY BREAKING DOWN A WALL OR BY OPENING A DOOR WAY OR IN MANY OTHER WAYS SO THAT THE ENTIRE FAMILY LIVES TOGETHER AND GETS MORE SPACE TO LIVE. IN MANY CASES, A REQUEST IS MADE BY THE PURCHASERS TO THE BUILDER OR DEVELOPER OF THE HOUSI NG PROJECT TO JOIN THE FLATS/RESIDENTIAL UNITS AND THE REQUEST IS CARRIED OUT BY THE BUILDER. IN SUCH CASES, IT IS NOT POSSIBLE TO H OLD THAT THE BUILDER BUILT THE RESIDENTIAL FLAT OF MORE THAN 1,0 00 SQ.FT. OF BUILT- UP AREA. THERE IS NO EVIDENCE ON RECORD TO SUGGEST THAT THE ASSESSEE ITSELF ADVERTISED THAT THE FLATS WERE OF M ORE THAN 1,000 SQ.FT. AND THAT MERELY TO GET THE BENEFIT OF SECTIO N 80-IB HE DREW THE PLANS IN SUCH A MANNER THAT EACH RESIDENTIAL UN IT WAS SHOWN AS NOT MORE THAN 1,000 SQ.FT. OF BUILT-UP ARE A. IT IS NOT ALSO THE CASE OF THE CIT THAT EACH FLAT IN THE HOUS ING PROJECTS UNDERTAKEN BY THE ASSESSEE COULD NOT HAVE BEEN USED AS AN INDEPENDENT OR SELF-CONTAINED RESIDENTIAL UNIT NOT EXCEEDING 1,000 SQ.FT. OF BUILT-UP AREA AND THAT THERE WOULD BE A COMPLETE, HABITABLE RESIDENTIAL UNIT ONLY IF TWO OR MORE FLAT S ARE JOINED PODDAR AND ASHISH DEVELOPERS ITA NO. 4239/MUM/2013 8 WITH EACH OTHER, WHICH WOULD ULTIMATELY EXCEED 1,00 0 SQ.FT. OF BUILT-UP AREA. IN SUCH A SITUATION, MERELY BECAUSE 9 OUT OF 140 PURCHASERS DESIRED TO JOIN THE FLATS PURCHASED BY T HEM INTO ONE SINGLE UNIT, WHICH EXCEEDED 1,000 SQ.FT. OF BUILT-U P AREA, CANNOT DISENTITLE THE ASSESSEE TO THE DEDUCTION. IN OTHER WORDS, TAKING THE EXAMPLE OF THE FLATS PURCHASED BY THE SONAWANES ', THERE IS NO ALLEGATION THAT THE FLAT NO. 704 MEASURING 244 S Q.FT. PURCHASED BY MEERA SONAWANE, FLAT NO. 705 MEASURING 578 SQ.FT. PURCHASED BY SUPRIYA SONAWANE AND FLAT NO. 7 06 MEASURING 780 SQ.FT. PURCHASED BY ETHIN SONAWANE WE RE NOT INDEPENDENT RESIDENTIAL UNITS BY THEMSELVES AND COU LD BECOME INDEPENDENT RESIDENTIAL UNITS ONLY WHEN THEY WERE J OINED OR COMBINED TOGETHER. IF EACH RESIDENTIAL UNIT DOES NO T EXCEED THE BUILT-UP AREA OF 1,000 SQ.FT., THE FACT THAT THEY W ERE JOINED TOGETHER BY THE PURCHASERS FOR BETTER LIVING OR FOR MORE SPACE OR FOR ANY OTHER REASON DOES NOT DISENTITLE THE ASSESS EE TO THE CLAIM FOR DEDUCTION UNDER SECTION 80-IB. DRAWING PA RALLEL IN THE INSTANT CASE, WE FIND THAT THERE IS IOTA OF DIRECT EVIDENCE TO DEMONSTRATE THAT IT IS THE ASSESSEE WHO MERGED THE TWO 1-BHK FLATS IN TO DUPLEX ONE WITH ONE KITCHEN. ON THE CON TRARY THERE IS EVIDENCE TO SUGGEST THAT THE FLAT BUYERS HAVE DONE IT SO TO THEIR BETTER LIVING IN THE RESIDENTIAL UNITS. IN OUR OPIN ION, MERE MAKING A PROVISIONS OF HOLE AND PROVIDING METHODS/DESIGN V IDE THE BROCHURE TO THE ADVANTAGE OF THE FLAT BUYERS DOES N OT AMOUNT TO CONSTRUCTION OF DUPLEX FLATS BY THE DEVELOPER, WHO IS AWARE OF THE CONSEQUENCES IN MATTERS OF CLAIMS OF DEDUCTION ONE SIDE AS WELL AS THE OBTAINING THE COMPLETION /OCCUPANCY CER TIFICATES FROM THE AUTHORITIES, WHO APPROVED THE PROJECT WITH 1 TO 3 BHK FLATS ONLY AND NOT TO THE DUPLEX FLATS. 25. THUS, THE DISCREPANCY OF MERE PROVIDING A HOLE FOR INTENDED STAIR CASE FOR FLAT BUYERS AND SUPPLYING OF THE DES IGN TO MERGE THE FLATS INTO A DUPLEX FLAT IN OUR OPINION CONSTIT UTES A MARKETING STRATEGY TO BOOST THE SALE OF THE 1-BHK. OTHERWISE, THE ASSESSEE CONSTRUCTED THE FLATS IN ACCORDANCE WITH THE PLAN A PPROVED BY THE AUTHORITIES AND SOLD THEM AS SUCH TO THE BUYERS . SO LONG AS THE PERMANENT STRUCTURE LIKE PILLARS OF FLAT ARE CO NSTRUCTED AS PER THE APPROVED PLAN OF A RESIDENTIAL UNIT WITH BUILT UP ARE OF LESS THAN LOOKS LIKE SMALL AND MINOR DEVIATION MADE FOR MARKETING REASONS MUST NOT COME ON THE WAY OF GRANTING DEDUCT ION. AS SUCH THERE IS NO PROHIBITION FOR SALE OF THE MORE F LATS TO THE MEMBERS OF A FAMILY. THE AMENDMENTS ARE UNDISPUTEDL Y INAPPLICABLE TO THE PROJECTS UNDER CONSIDERATION. T HEREFORE, WE ARE OF THE OPINION, THE ASSESSEE IS ENTITLED TO DED UCTION IN RESPECT OF THE PROFITS ATTRIBUTABLE TO ALL THE 1-BH K FLATS OF THE PROJECT TOO. TO THIS EXTENT WE REVERSE THE ORDER OF THE CIT(A). ACCORDINGLY, WE ALLOW THE APPEAL OF THE ASSESSEE. 26. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. 6. SINCE THE ISSUE IS IDENTICAL AND IS COVERED BY THE FACTU AL FINDINGS BY THE COORDINATE BENCH IN PRECEDING YEARS IN THE CASE OF THE INSTANT ASSESSEE, WE DO NOT FIND ANY REASON TO DE VIATE OR DISTINGUISH THE FACTS AS PER RECORDS. PODDAR AND ASHISH DEVELOPERS ITA NO. 4239/MUM/2013 9 7. WE, THEREFORE, RESPECTFULLY RELYING ON THE DECISION OF THE COORDINATE BENCH, SET ASIDE THE ORDER OF THE CIT(A) ON TH E IMPUGNED ISSUE AND DIRECT THE AO TO ALLOW THE DEDUCTION U /S 80IB(10) AS CLAIMED BY IT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JANUARY, 2015. SD/- SD/- ( ) ( ) (R C SHARMA) ( VIVEK VARMA ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 2 ND JANUARY, 2015 $/ COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A)-26, MUMBAI. 4) THE CIT- 15, MUMBAI. 5) ,'-. $! , , / THE D.R. C BENCH, MUMBAI. 6) ./0 1 COPY TO GUARD FILE. 23! / BY ORDER / / TRUE COPY / / 4 / 5 6 , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *895! '.!. *CHAVAN, SR.PS