ACIT CEN CIR 30, MUMBAI V. MANJU R. GUPTA, MUMBAI

ITA 4842/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54861 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 11-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Benefit of exemption
• Section: 234B; 14A; 80IB

Judgement Text

1 SMT MANJU GUPTA IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI P M JAGTA, AM & SHRI VIJAY PAL RAO, JM ITA NO. 4332/MUM/2010 (ASSESSMENT YEAR 2002-03) ITA NO. 4333/MUM/2010 (ASSESSMENT YEAR 2004-05) ITA NO. 4334/MUM/2010 (ASSESSMENT YEAR 2005-06) ITA NO. 4335MUM/2010 (ASSESSMENT YEAR 2006-07) ITA NO. 4336/MUM/2010 (ASSESSMENT YEAR 2007-08) SMT MANJU GUPTA RAJA BAHADUR BUILDING 28 B S MARG, FORT MUMBAI 40 023 VS THE ASST COMMR OF INCOME TAX CENTRAL CIRCLE 30, MUMBAI (APPELLANT) (RESPONDENT) ITA NO. 4806/MUM/2010 (ASSESSMENT YEAR 2003-04) ITA NO. 4807/MUM/2010 (ASSESSMENT YEAR 2004-05) ITA NO. 4808/MUM/2010 (ASSESSMENT YEAR 2005-06) ITA NO. 4842/MUM/2010 (ASSESSMENT YEAR 2006-07) ITA NO. 4809/MUM/2010 (ASSESSMENT YEAR 2007-08) ITA NO. 4810/MUM/2010 (ASSESSMENT YEAR 2008-09) THE ASST COMMR OF INCOME TAX CENTRAL CIRCLE 30, MUMBAI VS SMT MANJU GUPTA RAJA BAHADUR BUILDING 28 B S MARG, FORT MUMBAI 40 023 (APPELLANT) (RESPONDENT) PAN NO. AASPG 0264C ASSESSEE BY SHRI J P BAIRAGRA REVENUE BY SHRI GOLI SRINIWAS RAO DT.OF HEARING 18 TH JULY 2011 DT OF PRONOUNCEMENT 12 TH AUG 2011 PER BENCH: FOR THE ASSESSMENT YEARS 2004-05 TO 2007-08 THE ASS ESSEE AS WELL AS THE REVENUE FILED CROSS APPEALS AGAINST THE RESPECTIVE ORDERS OF THE CIT(A). FOR THE AY 2002-03, THE ASSESSEE IS IN APPEAL BEFORE US WHEREA S FOR THE AY 2003-04 AND 2008-09 ONLY THE REVENUE HAS FILED THE APPEALS AGAINST THE ORDER OF THE CIT(A). 2 SMT MANJU GUPTA 2 IN THE APPEALS FOR AY 2002-03 TO 2006-07, THE ASS ESSEE HAS RAISED THE ONLY COMMON GROUND AS UNDER: THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MA DE BY THE AO U/S 14A OF THE I T ACT. 3 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFF ICER APPLIED RULE 8D FOR DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A OF THE ACT. THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY FOLL OWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL M ANAGEMENT P LTD REPORTED IN 119TTJ 283 (SB). 4 BEFORE US THE LD AR HAS MAINLY CONTENDED THAT THE RULE 8D IS NOT APPLICABLE FOR THE ASSESSMENT YEARS UNDER CONSIDERATION. HE HA S FURTHER POINTED OUT THAT WHEN NO INTEREST EXPENDITURE WAS INCURRED BY THE ASSESSE E IN RELATION TO EARNING OF TAX FREE INCOME (DIVIDEND), THEN, NO DISALLOWANCE IS CALLED FOR. HE HAS RELIED UPON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS HERO CYCLES LTD REPORTED IN 323 ITR 518. HE HAS ALSO RE LIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG LTD VS ACIT REPORTED IN 328 ITR 81. THE LD AR FURTHER POINTED OUT THAT THE ASSESSEE HAS INVESTED IN SHARES FROM THE SURPLUS FUNDS AVAILABLE WITH IT AND NO BORROWED FUNDS WERE USED FOR THE PURPOSE OF INVESTMENT AS WELL AS INVESTMENT IN SHARES. 3 SMT MANJU GUPTA 4.1 ON THE OTHER HAND, THE LD DR HAS RELIED UPON TH E ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT IN VIEW OF THE DECIS ION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG LTD (SUP RA), THE MATTER IS REQUIRED TO BE EXAMINED AND ADJUDICATED AFRESH. 5 AT THE OUTSET, WE ARE OF THE VIEW THAT IN THE LIG HT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOY CE MFG LTD (SUPRA), THE MATTER IS REQUIRED TO BE ADJUDICATED AT THE LEVEL OF THE ASSE SSING OFFICER. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER TO EXAMINE AND ADJUDICATE THE SAME AFRESH AFTER CONSIDERING ALL THE CONTENTIO NS OF THE ASSESSEE IN LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF GODREJ BOYCE MFG LTD (SUPRA). 6 IN THE APPEAL FOR THE AY 2007-08, THE ASSESSEE HA S RAISED THE ONLY GROUND AS UNDER: THE LD CIT(A) ERRED IN HOLDING THAT WHILE DEDUCTIO N U/S 80IB (10) IN RESPECT OF THE PROJECT N G COMPLEX, MAROL SHOULD BE GRANTED AFTE R EXCLUDING HE PROFIT FROM SALE OF TWO FLATS I.E FLAT NO.B-103 AND B 903 IN THE SAID PROJECT. 8 AS PER THE PLAN APPROVED BY THE BOMBAY MUNICIPAL CORPORATION (BMC), THE CARPET AREA OF EACH OF THE FLATS NO.B-103 AND B-90 3 IS 701 SQ. FT APPROXIMATELY. THE ASSESSEE SOLD THESE TWO FLATS AS PER THE REQUIREMEN T OF THE BUYER AFTER INCLUDING ONE ROOM EACH OF 225 SQ.FT AREA APPROX, FROM THE ADJAC ENT FLAT THEREBY THE BUILT-UP AREA OF THESE FLATS SOLD BY THE ASSESSEE EXCEEDED 1 000 SQ.FT. THE ASSESSING OFFICER 4 SMT MANJU GUPTA HELD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTIO N U/S 80IB(10) INTER-ALIA ON THE GROUND THAT THE AREA OF THESE TWO FLATS EXCEEDS 100 0 SQ.FT 8.1 ON APPEAL, THE ASSESSEE HAS CONTENDED BEFORE TH E CIT(A) THAT THE ASSESSEE CONSTRUCTED THE FLATS B-103 & B-903 AS PER THE APPR OVED PLAN AND THE AREA AS PER THE APPROVED PLAN IS LESS THAN 1000 SQ.FT. THEREFOR E, EVEN IF THE ASSESSEE ADDED ONE ROOM TO THESE FLATS AS PER THE REQUIREMENT OF THE B UYER THAT DOES NOT VIOLATE CONDITION PRESCRIBED U/S 80IB(10) OF THE ACT. THE ASSESSEE HAS FURTHER CONTENDED BEFORE THE CIT(A) THAT OUT OF 212 FLATS, ONLY THESE TWO FLATS WERE SOLD AFTER ADDING ONE ROOM FROM THE ADJACENT FLAT AS PER THE NEED AND REQUIREMENT OF THE BUYER. 8.2 ALTERNATIVELY, THE ASSESSEE HAS ALSO URGED BEF ORE THE CIT(A) THAT MERELY BECAUSE THESE TWO FLATS EXCEEDS 1000 SQ.FT AREA, T HE DEDUCTION U/S 80IB(10) CANNOT BE REJECTED FOR THE ENTIRE PROJECT AND ONLY PROPORT IONATE DEDUCTION BE DISALLOWED. THE ASSESSEE HAS RELIED UPON VARIOUS DECISIONS OF T HE TRIBUNAL INCLUDING THE DECISION OF THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF CIT VS AMBUJA HOUSING DEVELOPMENT LTD, WHICH HAS BEEN AFFIRMED BY THE HON BLE KOLTAKA HIGH COURT VIDE ORDER DATED 15.1.2007. THE CIT(A), AFTER FOLLOWING THE DECISIONS OF THE TRIBUNAL INCLUDING THE DECISION OF THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF AMBUJA HOUSING DEVELOPMENT LTD (SUPRA) DIRECTED THE ASSESS ING OFFICER TO WORK OUT THE DEDUCTION U/S 80IB(10) AFTER EXCLUDING THE PROFIT F ROM THE SALE OF THESE TWO FLATS. 5 SMT MANJU GUPTA 9 BEFORE US, THE LD AR OF THE ASSESSEE HAS REITERAT ED THE CONTENTIONS AS RAISED BEFORE THE CIT(A) AND SUBMITTED THAT AS PER THE PLA N APPROVED BY THE BMC, THE BUILT UP AREA IS LESS THAN 1000 SQ.FT. WHEN THE ASS ESSEE HAS CONSTRUCTED THESE FLATS OF LESS THAN 1000 SQ.FT AREA AND THE BMC HAS GIVEN COM PLETION CERTIFICATE ACCORDING TO THE CONSTRUCTION AS PER THE APPROVED PLAN HAVING LE SS THAN 1000 SQ.FT AREA, THEN THE DEDUCTION U/S 80IB(10) CANNOT BE DENIED ONLY BECAU SE AS PER THE DEMAND AND REQUIREMENT OF THE BUYER ONE ROOM HAS BEEN ADDED FR OM THE ADJACENT FLAT. HE HAS FURTHER CONTENDED THAT THE TOTAL AREA OF THE FLATS REMAINS THE SAME AND THERE IS NO ADDITION IN THE TOTAL AREA OF THE CONSTRUCTED FLATS . 9.1 PER CONTRA, THE LD DR HAS SUBMITTED THAT WHEN T HE ASSESSEE HAS VIOLATED THE CONDITION AS PRESCRIBED U/S 80IB(10) THEN, THE ENTI RE PROJECT HAS BECOME INELIGIBLE FOR DEDUCTION U/S 80IB(10). HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 10 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERU SED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE FIND THAT THE TRIBUNA L HAS BEEN TAKING CONSISTENT VIEW OF PROPORTIONATE DEDUCTION U/S 80IB(10), IF SOME OF T HE FLATS ARE CONSTRUCTED IN VIOLATION OF THE CONDITIONS OF BUILT-UP AREA AS PRESCRIBED U/S 80IB(10). HOWEVER, TO CLARIFY THAT PROPORTIONATE DEDUCTION IS AVAILABLE ONLY WHEN THE OTHER CONDITIONS AS REGARDS THE AREA OF THE PLOT IS SATISFIED AFTER EXCLUDING T HE PROPORTIONATE AREA OF THE PLOT ATTRIBUTING TO THE FLATS, HAVING MORE THAN 1000 SQ. FT AREA. SINCE IN THIS CASE, ONLY TWO FLATS ARE EXCEEDING MORE THAN 1000 SQ.FT AREA; THER EFORE, IT DOES NOT AFFECT THE CONDITION OF MINIMUM AREA OF ONE ACRE OF THE PLOT SIZE. WE FURTHER NOTE THAT THE ASSESSEE SOLD THESE TWO FLATS AFTER MERGING ONE ROO M EACH FROM ADJACENT FLAT AND 6 SMT MANJU GUPTA AS PER THE SALE AGREEMENT, THE AREA OF THE FLATS SO LD BY THE ASSESSEE IS MORE THAN 1000 SQ.FT. THEREFORE, WE APPROVE THE FINDINGS OF THE CIT(A), QUA THIS ISSUE BEING CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN V ARIOUS DECISIONS AS RELIED UPON BY THE CIT(A). ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS DISMISSED. 11 IN THE APPEALS FOR AYS 2003-04 TO 2008-09, THE R EVENUE HAS RAISED THE FOLLOWING COMMON GROUNDS: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW D EDUCTION U/S 80IB IN RESPECT OF THE PROJECT NAMED NG ESTATE. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN HOLDING THAT THE ASSESSEE HAD COMMENCED T HE PROJECT ONLY IN 2001, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD RECEIVED THE IOD FOR THE FIRST TIME IN THE YEAR 1991 AND ON SUCH IOD IS RECEIV ED, FOR ALL PRACTICAL PROPOSES, THE ASSESSEE IS FREE TO COMMENCE THE PROJE CT. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN HOLDING THAT THE COMMERCIAL AREA 2638 SQF.T BEING LESS THAN 10% OF THE TOTAL BUILT-UP AREA OF 71,56 SQ.FT, THE ASSESSE E IS ENTITLED TO DEDUCTION/S 80IB, WITHOUT APPRECIATING THE FACT THAT PRIOR TO 1. 4.2005, THE PRESENCE OF ANY SHOP OR OTHER COMMERCIAL ESTABLISHMENT IN THE HOUSIN G PROJECT WOULD MAKE THE PROJECT TOTALLY INELIGIBLE FOR CLAIM OF DEDUCTION /S 80IB IRRESPECTIVE OF THE AREA OF SHOPS AND/OR OTHER COMMERCIAL ESTABLISHMENTS IN THE PROJECT AND THAT IT IS ONLY WITH EFFECT FROM 1.4.2005, WHEN SUB CLAUS E 80IB(10(D) HAS BEEN INSERTED, THAT SHOPS AND OTHER COMMERCIAL ESTABLISHM ENTS SUBJECT TO THE STIPULATED LIMITS, HAVE BEEN INCLUDED IN THE HOUSE PROJECT. 11.1 FOR THE AY 2007-08, AND 2008-09, THE REVENUE H AS RAISED ANOTHER COMMON GROUND AS UNDER: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW D EDUCTION U/S 80IB IN RESPECT OF THE PROJECT NAMED N G COMPLEX, MAROL AFTER EXCLUDI NG THE PROFIT DERIVED FROM SALE OF TWO FLATS WHOSE BUILT-UP AREA EXCEEDS THE STIPULATED LIMIT OF 1000 SQ.FT. 7 SMT MANJU GUPTA THE OTHER GROUNDS RAISED BY THE REVENUE IN THESE AP PEALS ARE ONLY IN THE NATURE OF ARGUMENTS AND IN SUPPORT OF THE MAIN GROUNDS. 12 GROUND NOS 1 & 2 REGARDING COMMENCEMENT OF THE D EVELOPMENT AND CONSTRUCTION OF HOUSING PROJECT. 12.1 THE ASSESSEE CLAIMED DEDUCTION U/S 80IB(10) IN RESPECT OF N G ESTATE, MIRA ROAD (E) PROJECT. THE ASSESSING OFFICER DENIED THE DEDUCTION INTER-ALIA ON THE GROUND THAT THE PROJECT DID COMMENCE PRIOR TO 1.10. 1998 AS THE DATE STIPULATED U/S 801B(10). ON APPEAL, THE CIT(A) HELD THAT THE PROJE CT COMMENCED AFTER THE RECEIPT OF THE COMMENCEMENT CERTIFICATE ON 2.3.2001 WHICH I S MUCH AFTER THE DEAD LINE OF 1.10.1998 AS PER SEC. 80IB(10) OF THE ACT. 13 BEFORE US, THE LD DR HAS STRONGLY RELIED UPON TH E ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE IOD/COMMENCEMENT CERTIFICATE HAS BEEN ISSUED IN RESPECT OF THE PROJECT IN QUESTION BY THE LOCAL AUTHORITY O N 15.2.1991 (CORRECT DATE IS 15.5.1991). ONCE THE ASSESSEE RECEIVED THE IOD/COM MENCEMENT CERTIFICATE, THE ASSESSEE IS FREE TO COMMENCE THE PROJECT. THEREFO RE, THE PROJECT IS CONSIDERED TO BE COMMENCED ONCE THE IOD/COMMENCEMENT CERTIFICATE IS ISSUED BY THE LOCAL AUTHORITIES, WHICH IS PRIOR TO 1.10.1998. 13.1 ON THE OTHER HAND, THE LD AR HAS SUBMITTED THA T INITIALLY THE BMC HAS ISSUED IOD/COMMENCEMENT CERTIFICATE DATED 15.5.1991 AND TH EREAFTER, COMMENCEMENT CERTIFICATE WAS ISSUED ON 12.2.1993. HE HAS CONTEN DED THAT THESE COMMENCEMENT CERTIFICATES WERE ISSUED FOR A PERIOD OF ONE YEAR AND WHEN THE CONSTRUCTION WORK 8 SMT MANJU GUPTA WAS NOT STARTED WITHIN THE ONE YEAR, THEY AUTOMATIC ALLY LAPSED, AS IT CAN BE SEEN FROM CLAUSE 28 OF THE COMMENCEMENT CERTIFICATE ISSU ED ON 15.5.1991 AND 12.2.1993. THE LD AR HAS REFERRED THE COPIES OF THE COMMENCEME NT CERTIFICATES DATED 15.5.1991 AND 12.3.1993. THE ENGLISH TRANSLATION O F THE SAME ARE PLACED AT PAGES 143 TO 147 AND 148 TO 152 OF THE PAPER BOOK. HE HA S FURTHER CONTENDED THAT THEREAFTER COMMENCEMENT CERTIFICATE DATED 2.3.2001 WAS ISSUED BY THE BMC AND BY VIRTUE OF THE SAID COMMENCEMENT CERTIFICATE; THE EARLIER COMMENCEMENT CERTIFICATE ISSUED ON 12.2.1993 WAS STAND CANCELLED . HE HAS REFERRED CLAUSE 22 OF THE COMMENCEMENT CERTIFICATE DATED 2.3.2001, THE ENGLIS H TRANSLATION OF WHICH IS PLACED AT PAGES 153 TO 158 OF THE PAPER BOOK AND SU BMITTED THAT A REFERENCE OF CANCELLATION OF EARLIER COMMENCEMENT CERTIFICATE DT 12.3.1993 IS MADE UNDER THIS CLAUSE 22. THE LD AR OF THE ASSESSEE, THUS, CONTEND ED THAT WHEN THE EARLIER COMMENCEMENT CERTIFICATES WERE EXPIRED WHEN NO DEVE LOPMENT AND CONSTRUCTION WAS COMMENCED WITHIN THE STIPULATED PERIOD AND THER EAFTER WHEN COMMENCEMENT CERTIFICATE DT 2.3.2001 IS ISSUED, THE EARLIER CERT IFICATE STANDS CANCELLED. 13.2 HE HAS FURTHER POINTED OUT THAT SINCE THE ASSE SSEE DID NOT OBTAIN THE CERTIFICATE OF CLEARANCE AND EXEMPTION U/S 20 OF THE URBAN LAND CEILING ACT AND THEREFORE, DEVELOPMENT AND THE CONSTRUCTION OF THE PROJECT COULD NOT BE COMMENCED. THE ASSESSEE FINALLY GOT ISSUED THE CER TIFICATE U/S 20 OF THE ULC ACT VIDE LETTER DATED 10.2.2000. THE LAND IN QUESTION WAS CONTINUED TO BE SHOWN AS LAND TILL 31.3.2001 AND NO EXPENDITURE TOWARDS THE CONST RUCTION AND OTHER DEVELOPMENT HAS BEEN INCURRED PRIOR TO THE YEAR 2001 WHEN THE A SSESSEE PAID THE DEVELOPMENT CHARGES TO MBMC ON 29.1.2001. THEREAFTER, THE CONST RUCTION WORK WAS STARTED FROM THE YEAR ENDING 31.1.2002. 9 SMT MANJU GUPTA 13.3 THE LD AR HAS ALSO REFERRED THE OCCUPATION CER TIFICATE DATED 23.7.2002 ISSUED FOR COMPLETION OF THE PROJECT IN PURSUANCE OF COMME NCEMENT CERTIFICATE ISSUED ON 2.3.2001. HE HAS FURTHER SUBMITTED THAT THE CONDIT IONS OF COMMENCEMENT OF CONSTRUCTION AND DEVELOPMENT OF HOUSING PROJECT ARE SEPARATE AND INDEPENDENT OF CONDITIONS OF THE APPROVAL OF THE HOUSING PROJECT. THE APPROVAL OF THE HOUSING PROJECT ON OR PRIOR TO THE DATE AS MENTIONED U/S 80 IB(10) IS ONLY FOR THE FIXING TIME PERIOD OF COMPLETION OF THE PROJECT AND NOTHING TO DO WITH THE COMMENCEMENT OF THE PROJECT. THE PROJECT, WHICH HAS BEEN APPROVED O N OR AFTER 1.4.2002, THE SAME HAS BEEN COMPLETED WITHIN FOUR YEARS FROM THE END O F THE FY IN WHICH APPROVAL BY LOCAL AUTHORITY. AFTER AMENDMENT, IF THE PROJECT IS APPROVED ON OR AFTER 1.4.2005, THEN THE PROJECT HAS TO BE COMPLETED WITHIN FIVE YE ARS FROM THE END OF THE FY IN WHICH THE PROJECT IS APPROVED BY THE LOCAL AUTHORIT IES. THUS, THE LD AR HAS SUBMITTED THAT THE ASSESSING OFFICER HAS COMMITTED AN ERROR WHILE TAKING THE COMMENCEMENT DATE AS THE DATE OF APPROVAL OF THE PROJECT BY THE LOCAL AUTHORITIES. HE HAS RELIED UPON THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF NIRMITI CONSTRUCTION VS DCIT REPORTED IN 95 TTJ 1117 . HE HAS ALSO RELIE D UPON THE ORDER OF THE TRIBUNAL IN CASE OF ITO VS SHRI VIMALCHND M DHOKA IN ITA NO. 55 20/MUM/2005 DATED 19.5.2009. 14 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERU SED THE RELEVANT MATERIAL ON RECORD. THE AO DENIED THE DEDUCTION U/S 80IB(10 ) IN RESPECT OF N G ESTATE, MIRA ROAD (E) PROJECT INTER-ALIA ON THE GROUND THAT THE PROJECT WAS COMMENCED PRIOR TO 1.10.1998. THE ASSESSING OFFICER WAS OF THE VIEW TH AT THE COMMENCEMENT DATE IS THE DATE WHEN THE ASSESSEE RECEIVED THE APPROVAL FOR TH E FIRST TIME FROM THE AUTHORITIES CONCERNED. THE RELEVANT PART OR THE ASSESSMENT ORDE R IS REPRODUCED AS UNDER: 10 SMT MANJU GUPTA .............................NEXT, THE ASSESSEE HA S CONTENDED THAT THE IOD DATE SHOULD NOT BE TAKEN INTO ACCOUNT WHILE DETERMINING THE COMM ENCEMENT DATE OF THE PROJECT. THIS STAND OF THE ASSESSEE IS ALSO NOT ACCEPTABLE. THE COMMENCEMENT DATE IS THE DATE WHEN THE ASSESSEE RECE IVED APPROVAL FOR THE FIRST TIME FROM THE AUTHORITY CONCERNED. ONCE THE ASSESSEE RECEIVES THE IOD, FOR ALL PRACTICAL PURPOSES, THE ASSESSEE IS FRE E TO COMMENCE THE PROJECT. IN THIS CASE, THE IOD WAS RECEIVED IN 1991, WHICH IS WAY PRIOR TO 1.10.1998 STIPULATED IN SEC 80IB. IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT THE AS SESSING OFFICER TOOK THE DATE OF COMMENCEMENT AS THE DATE WHEN THE PROJECT WAS APPRO VED BY LOCAL AUTHORITY AND THE COMMENCEMENT CERTIFICATE WAS ISSUED ON 15.5 .1991. BEFORE DISCUSSION ON THE ISSUE IT IS OPT TO QUOTE THE RELEVANT PROVISION OF SECTION 80IB OF THE I T ACT. THE SUB SEC. (10) OF SEC. 80IB WAS AMENDED BY THE FINANCE A CT 2000 W.E.F. 1.4.2001 READS AS UNDER: THE AMOUNT OF PROFITS IN CASE OF AN UNDERTAKING DEVE LOPING AND BUILDING HOUSING PROJECTS APPROVED BEFORE THE 31 ST DAY OF MAR 2001 BY A LOCAL AUTHORITY, SHALL BE HUNDRED PER CENT OF THE PROFITS DERI VED IN ANY PREVIOUS YEAR RELEVANT TO ANY ASSESSMENT YEAR FROM SUCH HOUSING PROJ ECT IF; A) SUCH UNDERTAKING HAS COMMENCED OR COMMENCES DEVELO PMENT AND CONSTRUCTION OF THE HOUSING PROJECT ON OR AFTER T HE 1 ST DAY OF OCT 1998 AND COMPLETE THE SAME BEFORE THE 31 ST DAY OF MAR 2003; B) THE PROJECT IS ON THE SIZE OF A PLOT OF LAND WHIC H HAS A MINIMUM AREA OF ONE ACRE; AND C) THE RESIDENTIAL UNIT HAS A MAXIMUM BUILT UP AREA OF ONE THOUSAND SQUARE FEET WHERE SUCH RESIDENTIAL UNIT IS SITUATED WI THIN THE CITIES OF DELHI OR MUMBAI OR WITHIN TWENTY FIVE KILOMETRES F ROM THE MUNICIPAL LIMITS OF THESE CITIES AND ONE THOUSAND AND FIVE HU NDRED SQUARE FEET AT ANY OTHER PLACE. 14.1 INITIALLY THE PROVISION CONTEMPLATES THREE CON DITIONS FOR AVAILING THE DEDUCTION/S 80IB(10) NAMELY ; (I) SUCH UNDERTAKING HAS COMMENCED OR COMMENCES DEVELOPMENT AND CONSTRUCTION OF HOUSING PROJECT ON OR AFTER 1.10.98 (II) THE PROJECT IS 11 SMT MANJU GUPTA ON THE SIZE OF MINIMUM ONE ACRE OF THE PLOT AND (II I) THE RESIDENTIAL UNIT HAS MAXIMUM BUILT UP AREA OF 1000 SQ.FT OR 1500 SQ.FST AS THE CASE MAY BE. 14.2 AT THAT POINT OF TIME, THE AMOUNT OF PROFITS O F UNDERTAKING WITH RESPECT TO A HOUSING PROJECT APPROVED BY THE LOCAL AUTHORITY WAS ELIGIBLE FOR DEDUCTION OF SUCH HOUSING PROJECT COMMENCES THE DEVELOPMENT AND CONST RUCTION ON OR AFTER 1.10.98 AND COMPLETES THE SAME BEFORE 31.3.2003. SUBSEQUENT LY, THE SUB SEC. (10) HAS BEEN SUBSTITUTED BY THE FINANCE ACT 2003 W.E.F 1.4.2002 AND THEN BY THE FINANCE ACT (NO.2) 2004 W.E.F 1.4.2005. THE CONDITION (A) HAS B EEN FURTHER ENLARGED IN SUB CLAUSES. (I) AND (II)I AS UNDER: (A) SUCH UNDERTAKING HAS COMMENCED OR COMMENCES DEVE LOPMENT AND CONSTRUCTION OF THE HOUSING PROJECT ON OR AFTER THE 1 ST DAY OF OCT 1998 AND COMPLETE SUCH CONSTRUCTION:- I) IN A CASE WHERE A HOUSING PROJECT HAS BEEN APPROVED BY THE LOCAL AUTHORITY BEFORE THE 1 ST DAY OF APRIL, 2004 ON OR BEFORE THE 31 ST DAY OF MARCH 2008; II) IN A CASE WHERE A HOUSING PROJECT HAS BEEN, OR, I S APPROVED BY THE LOCAL AUTHORITY ON OR AFTER THE 1 ST DAY OF APRIL, 2004,BUT NOT LATER THAN THE 31 ST DAY OF MARCH, 2005, WITHIN FOUR YEARS FROM THE END OF THE FI NANCIAL YEAR IN WHICH THE HOUSING PROJECT IS APPROVED BY THE LOCAL AUTHORITY. EXPLANATION FOR THE PURPOSE OF THESE CLAUSES: I) IN A CASE WHERE THE APPROVAL IN RESPECT OF THE HO USING PROJECT IS OBTAINED MORE THAN ONCE, SUCH HOUSING PROJECT SHALL BE DEEMED TO HAVE BEEN APPROVED ON THE DATE ON WHICH THE BUILDING PLAN OF SUCH HOUSING PROJECT IS FIRST APPROVED BY THE LOCAL AUTHORITY. II) THE DATE OF COMPLETION OF CONSTRUCTION OF THE HO USING PROJECT SHALL BE TAKEN TO BE THE DATE ON WHICH THE COMPLETION CERTIF ICATE IN RESPECT OF SUCH HOUSING PROJECT IS ISSUED BY THE LOCAL AUTHORITY 15 THUS, FROM THE PLAIN READING OF PROVISION OF SUB .SEC.(10) OF SEC. 80IB, IT IS CLEAR THAT THE TIME OF APPROVAL OF THE PROJECT IS RELEVAN T FOR THE PERIOD OF COMPLETION OR IN OTHER WORDS, THE DURATION OF COMPLETION PERIOD REC KONED FROM THE DATE OF APPROVAL 12 SMT MANJU GUPTA OF THE PROJECT BY THE LOCAL AUTHORITY. SINCE THE P OST SUBSTITUTION OF PROVISIONS BY FINANCE ACT 2002, THE DATE OF COMPLETION PROVIDED U NDER SUB CLAUSE (I) & (II) DEPENDS AS WHEN THE PROJECT HAS BEEN APPROVED BY TH E LOCAL AUTHORITY. THEREFORE, IN THE CASE WHEN MORE THAN ONE APPROVAL S HAVE BEEN GRANTED BY THE LOCAL AUTHORITY, THE EXPLANATION TO CLAUSE (A) HAS BEEN I NSERTED TO CLARIFY THAT THE DATE ON WHICH THE FIRST APPROVAL HAS BEEN GRANTED TO THE B UILDING PLAN OF THE HOUSING PROJECT SHALL BE DEEMED TO BE THE DATE OF APPROVAL . THEREFORE, THE TERM USED AS COMMENCED OR COMMENCES DEVELOPMENT AND CONSTRUCTIO N OF HOUSING PROJECT IS SEPARATE AND DISTINCT FROM THE APPROVAL OF THE HOU SING PROJECT. THERE IS NO RESTRICTION ABOUT THE APPROVAL OF THE HOUSING PROJE CT PRIOR TO 1.10.98 WHEREAS THERE IS A THREAD-HOLD CONDITION FOR THE HOUSING PROJECT TO AVAIL DEDUCTION U/S 80IB(10) THAT THE SAID PROJECT HAS BEEN COMMENCED DEVELOPMENT AND CONSTRUCTION ON OR AFTER 1.10.98. THE PROVISION DOES NOT POSTULATE THAT THE FIRST APPROVAL OF PLAN SHALL BE DEEMED COMMENCEMENT OF DEVELOPMENT AND CONSTRUCTION OF THE HOUSING PROJECT. THEREFORE, THE DATE OF APPROVAL IN CASE IN HAND HAS NO RELEVANCE SO FAR AS THE ISSUE OF COMMENCEMENT OF DEVELOPMENT AND CONSTRUCTION OF THE HOUSING PROJECT IS CONCERNED. THERE IS NO DISPUTE ABOUT THE COMPLETI ON OF THE PROJECT WITHIN THE STIPULATED PERIOD OF TIME; THEREFORE, THE DATE OF A PPROVAL HAS NO ROLE TO PLAY. EVEN OTHERWISE, IT IS NOT THE CASE OF THE REVENUE THAT T HE ASSESSEE HAS ACTUALLY STARTED THE WORK OF DEVELOPMENT AND CONSTRUCTION PRIOR TO 1.10. L98 OR IN THIS REGARD HAS INCURRED ANY EXPENDITURE TOWARDS DEVELOPMENT AND CONSTRUCTIO N OF THE HOUSING PROJECT. WE HAVE REFERRED THE ASSESSMENT ORDER IN THE EARLIER P ART OF THIS ORDER AND NOTED THAT THE ASSESSING OFFICER TOOK THE DATE OF COMMENCEME NT OF THE DEVELOPMENT AND CONSTRUCTION OF THE HOUSING PROJECT WHEN THE COMM ENCEMENT CERTIFICATE DT 15.5.91 WAS ISSUED. IN OUR OPINION, THE SAID APPROACH OF TH E ASSESSING OFFICER IS TOTALLY CONTRARY TO THE PROVISIONS OF SEC.80IB(10). 13 SMT MANJU GUPTA 16 FURTHER, THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF NIRMITI CONSTRUCTION VS DCIT REPORTED N 95 TTJ 1117 HAS HELD AS UNDER: IN OUR VIEW, THE ACTIVITIES, VIZ APPROVAL OF THE P LAN, MARKETING FOR BOOKING THE RESIDENTIAL UNITS, AVAILING OF FINANCE, RECEIPT OF AD VANCE BOOKING MONEY, TC., COULD NOT BE CONSTRUED TO MEAN COMMENCEMENT OF DEVEL OPMENT AND CONSTRUCTION OF HOUSING PROJECT. AS PR THE CERTIFICATE OF ARCHITECT, THE PROJECT OF CONSTRUCTING HOUSING UNITS COMMENCED AFTER 1 ST OCT, 1998. THE ASSESSEE HAD ALSO OPENED BANK ACCOUNT IN THE NAME OF HOUSING PROJECT, NIRMITI VIHAR ON 29 TH OCT 1998. ALL THE FACTS INDICATE THAT DEVELOPMENT AND CONSTRUCTION COMMENCED AFTER 1 ST OCT 1998. IT IS ALSO SEEN THAT THE ASSESSEE HAD IN CURRED A SUM OF RS. 6000 TOWARDS THE CLEANING OF LAND AND AL SO INCURRED AN EXPENSE OF RS. 1,140 TOWARDS POOJA EXPENSE. IN OUR CONSIDERED VI EW, THESE EXPENSES DO NOT INDICATE THAT DEVELOPMENT AND CONSTRUCTION OF HO USING PROJECT HAD BEEN COMMENCED BEFORE 1 ST OCT 1998. RS. 6000 WAS INCURRED FOR CLEANING HE LAN D, SO THAT CORRECT MEASUREMENT OF THE LAND COULD BE DO NE. AS PER THE PROVISIONS OF THE MAHARASHTRA LAND REVENUE CODE, 1966, MENTION ED HEREINABOVE, THERE IS A PROCEDURE FOR CONVERSION OF USE OF LAND FRO M ONE PURPOSE TO ANOTHER AND THERE IS A PROVISION FOR PENALTY ALSO FOR VIOLATING THE PROVISIONS OF S.44 OF THE SAID CODE. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAD MADE ANY MATERIAL CHANGE ON THE LAND BEFORE 1 ST OCT 1998. FROM THE ABOVE DISCUSSION, IT WOULD BE CLEAR THAT T HE ASSESSEE HAD COMMENCED THE DEVELOPMENT AND CONSTRUCTION OF THE HO USING PROJECT AFTER 1ST DAY OF OCT 1998 AND COMPLETED THE SAME BEFORE THE SPECIFIED DATE. THERE IS NO DISPUTE THAT THE ASSESSEE HAD FULFILLED THE REMAINING CONDITIONS UNDER THE LAW FOR CLAIMING DEDUCTION U/ 80IB(1) OF T HE ACT. ACCORDINGLY, WE REVERSE THE FINDINGS OF THE CIT(A) AND DIRECT THE AS SESSING OFFICER TO ALLOW THE DEDUCTION TO THE ASSESSEE 17 IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT TH E DATE OF COMMENCEMENT OF DEVELOPMENT AND CONSTRUCTION OF THE HOUSING PROJECT IS THE DATE WHEN THE ASSESSEE ACTUALLY STARTED AND CARRIED OUT THE WORK OF DEVELO PMENT AND CONSTRUCTION OF THE HOUSING PROJECT AND NOT THE DATE WHEN THE PROJECT W AS FIRST APPROVED BY THE LOCAL AUTHORITY. THE ORDER OF THE CIT(A) IS UPHELD, QUA, THIS ISSUE. 18 GROUND NO.3 REGARDING CONDITIONS OF COMMERCIAL A REA IN THE HOUSING PROJECT. 14 SMT MANJU GUPTA 18.1 THE ASSESSING OFFICER OBTAINED THE REPORT OF T HE VALUATION OFFICER DT 27.3.2008 WHEREBY REPORTED THAT THE PROJECT N G ESTATE CONSI STS OF 19 SHOP. THE ASSESSING OFFICER MENTIONED THAT THE CARPET AREA OF THE SHOPS ACTUALLY MEASURED IS 2368.90 SQ.FT WHICH IS MORE THAN 2000 SQF.FT AS PROVIDED U NDER CLAUSE (D) OF SC. 80IB(10). ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE DE DUCTION U/S 80IB(10) IS NOT ADMISSIBLE AS THE ENTIRE PROJECT LOSES ITS ELIGIBIL ITY. 18.2 APART FROM THIS, THE ASSESSING OFFICER ALSO TO OK A NOTE OF THE FACT THAT THE ASSESSEE SOLD 32 FLATS TO M/S ACTION CONSTRUCTION E QUIPMENT LTD. THE CARPET AREA OF EACH FLAT IS 225 SQ.FT AND THE TOTAL CARPET AREA OF THE 32 FLATS IS 7200 SQ.FT. THESE 32 FLATS WERE FURTHER LET OUT BY M/S ACTION CONSTRUCTI ON EQUIPMENT LTD TO M/S UNIQUE HOSPITALITIES. THE ASSESSING OFFICER, ACCORDINGLY, HELD THAT THE BUILT UP AREA OF THE SHOP AND OTHER ESTABLISHMENT (32 FLATS) IN THE PROJ ECT, AS A WHOLE, EXCEEDS THE STIPULATED LIMIT OF 2000 SQF.FT AND THEREFORE, THE DEDUCTION U/S 80IB(10) CANNOT BE GIVEN TO THE ASSESSEE. 18.3 ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE PUNE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BRAHMA ASSOCIATES VS JCIT REPORTED IN 119 ITD 255 ((PUNE) (SB) HEL D THAT THE N G ESTATE PROJECT IS ELIGIBLE FOR DEDUCTION U/S 80IB(10). 19 BEFORE US, THE LD DR HAS SUBMITTED THAT THOUGH C LAUSE (D) OF SEC. 80IB(10) INSERTED W.E.F 1.4.2005, EVEN PRIOR TO 1.4.2005 THE PRESENCE OF ANY SHOPS AND ANY 15 SMT MANJU GUPTA COMMERCIAL ESTABLISHMENT IN THE HOUSING PROJECT WOU LD MAKE THE PROJECT TOTALLY IN ELIGIBLE FOR DEDUCTION U/S 80IB(10). HE HAS FURTHE R POINTED OUT THAT THE ASSESSEE HAS ALSO VIOLATED CLAUSE (E) OF SEC. 80IB(10) WHEREBY A N EMBARGO HAS BEEN PUT ON TRANSFER/SELLING OF MORE THAN ONE RESIDENTIAL UNIT OF HOUSING PROJECT TO ANY PERSON NOT BEING AN INDIVIDUAL. THE ASSESSEE SOLD 32 RESIDEN TIAL UNITS TO ONE PERSON NAMELY M/S ACTION CONSTRUCTION EQUIPMENT LTD. HE HAS FURTHER S UBMITTED THAT THESE FLATS FURTHER LET OUT BY M/S ACTION CONSTRUCTION EQUIPMENT LTD TO M/S UNIQUE HOSPITALITIES FOR RUNNING HOSPITALITY SERVICES BY HIRING OUT THE SAID APARTMENTS TO ITS CUSTOMERS. THEREFORE, THESE UNITS HAVE TO BE CONSIDERED AS NON -RESIDENTIAL UNITS FOR THE PURPOSE OF DEDUCTION U/S 80IB(10). THE LD DR HAS SUBMITTED THAT THE ASSESSEE HAS VIOLATED THE SPECIFIC CONDITION U/S 80IB(10) AND THEREFORE, THE CLAIM OF DEDUCTION U/S 80IB(10) IS NOT AVAILABLE TO THE ASSESSEE. 19.1 ON THE OTHER HAND, THE LD AR OF THE ASSESSEE H AS SUBMITTED THAT THE HOUSING PROJECT, UNDISPUTEDLY APPROVED IN THE YEAR 2001 AND ALSO COMMENCED THE DEVELOPMENT AND CONSTRUCTION IN THE YEAR 2001; THER EFORE, THE AMENDMENT OF OF CLAUSE (D) OF PROVISIONS OF SEC. 80IB(10) OF THE I T ACT IS NOT APPLICABLE TO THE PROJECT OF THE ASSESSEE AS FAR AS 5% LIMIT OF COMMERCIAL ESTABLISHMENT IS CONCERNED. HE HAS FURTHER CONTENDED THAT EVEN OTHERWISE THE COMMERCIA L AREA IS LESS THAN 10% OF THE TOTAL BUILT-UP AREA AND THEREFORE, IN VIEW OF THE D ECISION OF THE PUNE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BRAHMA ASSOCIATES (S UPRA) WHICH HAS BEEN UPHELD BY THE HONBLE HIGH COURT, DEDUCTION CANNOT BE DENIED TO THE ASSESSEE. 16 SMT MANJU GUPTA 20 AS REGARDS THE SELLING OF 32 FLATS TO M/S ACTION CONSTRUCTION EQUIPMENTS LTD, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THERE WAS NO RESTRICTION IN THE ACT FOR SELLING MORE THAN ONE FLAT TO ONE PERSON PRIOR TO THE AMENDMENT OF CLAUSE (E) OF SEC. 80IB(10) W.E.F 1.4.2010. HE HAS FURTHER SUBMIT TED THAT THE HOSING PROJECT HAS BEEN CONSTRUCTED AS PER THE APPROVED PLAN. THE COMP LETION AND OCCUPANCY CERTIFICATES HAVE BEEN GRANTED IN RESPECT OF THE HO USING PROJECT COMPLETED AS PER THE APPROVED PLAN INCLUDING THESE 32 FLATS WHICH WE RE CONSTRUCTED AS AN INDEPENDENT RESIDENTIAL UNIT AND HAVE BEEN SOLD TO M/S ACTION CONSTRUCTION EQUIPMENT LTD., BEING SEPARATE AND INDIVIDUAL RESID ENT UNIT THROUGH SEPARATE SALE DOCUMENTS. HE HAS SUBMITTED THAT AFTER THE SALE OF THESE FLATS, IF THE PURCHASER SOLD THESEFLATS TO A THIRD PERSON, WHO HAS USED THESE FL ATS FOR COMMERCIAL PURPOSES, THEN THE SAME WOULD NOT AMOUNT TO CONSTRUCTION OF COMMER CIAL ESTABLISHMENT OR NON RESIDENTIAL UNIT. THE DEDUCTION U/S 80IB(10) IS AVA ILABLE, IF THE HOUSING PROJECT IS DEVELOPED AND CONSTRUCTED AS PER THE APPROVED PLAN AND THE CONDITIONS PROVIDED U/S 80IB(10). ONCE THE PROJECT IS COMPLETED AND THE RESIDENTIAL UNITS ARE TRANSFERRED SUBSEQUENTLY DEVELOPMENT OR CHANGE OF USER WOULD N OT AFFECT THE ELIGIBILITY OF THE PROJECT FOR DEDUCTION U/S 80IB(10). 21 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERU SED THE RELEVANT MATERIAL ON RECORD. FIRST WE WILL TAKE UP THE ISSUE OF SALE OF 32 FLATS TO M/S ACTION CONSTRUCTION EQUIPMENTS LTD. AS THERE IS NO DISPUTE THAT EACH OF THE 32 FLATS HAS BEEN CONSTRUCTED AS PER THE BUILDING PLANT AS DULY APPRO VED BY MUNICIPAL AUTHORITIES HAVING 225 SQ.FT AREA EACH MUCH LESS THAN THE PRESC RIBED LIMIT. THERE IS ALSO NO DISPUTE THAT EACH OF THE FLAT IS AN INDEPENDENT AND SEPARATE RESIDENTIAL UNIT. IF AFTER 17 SMT MANJU GUPTA THE SALE OF THESE FLATS, THE END-USER OF THE FLATS USING THESE FLATS FOR NON RESIDENTIAL PURPOSES WOULD NOT RENDER THE CONSTRUCTION OF THESE FLATS AS NON RESIDENTIAL UNITS. 22 IT IS PERTINENT TO NOTE THAT WHAT IS REQUIRED U/ S 80IB(10) IS RESIDENTIAL UNIT AND IN THE ABSENCE OF ANYTHING TO THE CONTRARY IN THE I T ACT, THE EXPRESSION RESIDENTIAL UNITS MUST HAVE THE SAME CONNATION AS ASSIGNED T O IT BY THE LOCAL AUTHORITIES GRANTING APPROVAL TO THE PROJECT. WHEN THERE IS NO DISPUTE ABOUT THE FACTS THAT THESE FLATS WERE CONSTRUCTED AS STAND ALONE RESIDEN TIAL UNIT AS PER THE APPROVED PLAN AND ALSO AS PER THE COMPLETION CERTIFICATE, TH EN ANY USE OF NON-RESIDENTIAL PURPOSE OF THESE FLATS BY THE END-USER BEING TRANS FERRED BY THE ASSESSEE WOULD NOT CHANGE THE NATURE OF THE RESIDENTIAL UNIT IN THE HO USING PROJECT. THEREFORE, SUBSEQUENT USE OF THE FLATS FOR NON RESIDENTIAL PUR POSE WOULD NOT BE CONSIDERED AS CONSTRUCTION OF COMMERCIAL ESTABLISHMENT BY THE AS SESSEE IN THE HOUSING PROJECT AND THEREFORE, DEDUCTION U/S 80IB(10) CANNOT BE DEC LINED BECAUSE OF THESE REASONS. 23 AS FAR AS THE PROHIBITION AGAINST THE SALE OF MO RE THAN ONE FLAT IN A HOUSING PROJECT TO ONE PERSON IS CONCERNED, NOW THE SAID CO NDITION HAS BEEN INSERTED SPECIFICALLY W.E.F 1.4.2010 AND THEREFORE, THIS AME NDMENT IN OUR VIEW CAN ONLY BE TREATED AS PROSPECTIVE IN NATURE UNTIL AND UNLESS T HERE IS A CLEAR AND EXPRESSED INTENTION OF THE LEGISLATURE OF RETROSPECTIVE EFFEC T. THEREFORE, IT IS CLEAR THAT SO FAR AS PRE-AMENDMENT POSITION IS CONCERNED AS LONG AS A RE SIDENTIAL UNIT HAS LESS THAN SPECIFIED AREA CONSTRUCTED AS PER THE DULY APPROVED PLANS AND IS CAPABLE OF BEING USED FOR RESIDENTIAL PURPOSES ON STAND ALONE BASIS, DEDUCTION U/S 80IB(10) CANNOT BE 18 SMT MANJU GUPTA DECLINED ON THE GROUND THAT MORE THAN ONE FLAT WER E SOLD TO ONE PERSON. IT IS TO BE NOTED THAT BY VIRTUE OF AMENDMENT, THE LEGISLATURE HAS PUT AN ADDITIONAL CONDITION OF SALE OF RESIDENTIAL UNIT TO A PERSON IN THE HOUS ING PROJECT AND THERE IS NO INDICATION THAT THESE RESTRICTIONS ARE APPLIED WITH RETROSPECT IVE EFFECT. 23.1 THE EXPLANATORY MEMORANDUM EXPLAINED THE LEGIS LATIVE AMENDMENT REPORTED IN 314 ITR(ST) 203) AS UNDER: FURTHER, THE OBJECT OF THE TAX BENEFIT FOR HOUSING PROJECTS IS TO BUILD HOUSING STOCK FOR LOW AND MIDDLE INCOME HOUSEHOLDS. THIS HA S BEEN ENSURED BY LIMITING THE SIZE OF THE RESIDENTIAL UNIT. HOWEVER, THIS IS BEING CIRCUMVENTED BY THE DEVELOPER BY ENTERING INTO AGREEMENT TO SELL MULT IPLE ADJACENT UNITS TO A SINGLE BUYERS. ACCORDINGLY, IT IS PROPOSED TO INSERT NEW CLAUSES IN THE SAID SUB- SECTION TO PROVIDE THAT THE UNDERTAKING WHICH DEVELO PS AND BUILDS THE HOUSING PROJECT SHALL NOT BE ALLOWED TO ALLOT MORE T HAN ONE RESIDENTIAL UNIT IN THE HOUSING PROJECT TO THE SAME PERSON, NOT BEING AN INDIVIDUAL, AND WHERE THE PERSON IS AN INDIVIDUAL, NO OTHER RESIDENTIAL U NIT IN SUCH HOUSING PROJECT IS ALLOTTED TO ANY OF THE FOLLOWING PERSON:- (I) SPOUSE OR MINOR CHILDREN OF SUCH INDIVIDUAL; (II) THE HINDU UNDIVIDED FAMILY IN WHICH SUCH INDIV IDUAL IS THE KARTA; (III) ANY PERSON REPRESENTING SUCH INDIVIDUAL, THE SPOUSE OR MINOR CHILDREN OF SUCH INDIVIDUAL OR THE HINDU UNDIVIDED F AMILY IN WHICH SUCH INDIVIDUAL IS THE KARTA. THIS AMENDMENT WILL TAKE EFFECT FROM THE 1ST APRIL, 2010 AND SHALL ACCORDINGLY APPLY IN RELATION TO ASSESSMENT YEAR 2010-2011 AND S UBSEQUENT YEARS. 24 IT IS CLEAR FROM THE ABOVE EXPLANATIORY MEMORAND UM THAT THE AMENDMENT HAS BEEN BROUGHT WITH PROSPECTIVE EFFECT I.E. FROM 1ST DAY OF APRIL, 2010, EVEN OTHERWISE, THE LAW IS VERY CLEAR THAT UNLESS PROVID ED IN THE STATUTE, THE LAW IS ALWAYS PRESUMED TO BE PROSPECTIVE IN NATURE. IF LAW PERMI TTED SO, THERE WAS NO NEED OF THE INSERTION OF CLAUSE (E) TO SECTION U/S 80IB(10). T HEREFORE, NO ELIGIBILITY CONDITIONS COULD BE READ INTO PRE-AMENDMENT LEGAL POSITION. 19 SMT MANJU GUPTA 25 AS REGARDS THE AREA OF SHOPS IN THE HOUSING PROJ ECT IS CONCERNED, THE CIT(A HAS GIVEN A FINDING THAT THE COMMERCIAL AREA IS LE SS THAN 10% OF THE TOTAL BUILT-UP AREA AND THEREFORE, BY FOLLOWING THE DECISION OF TH E SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BRAHMA ASSOCIATES (SUPRA), HE HAS ALLO WED THE CLAIM OF THE ASSESSEE IN PARA 36 & 37 AS UNDER: 36. WITH REGARD TO ITEM NO.(II), THE ASSESSING OFFI CER HA STATED THAT SINCE THE PROJECT IS COMMENCED PRIOR TO THE ACCOUNTI NG YEAR RELEVANT TO AY 2005-06, THERE SHOULD BE NO COMMERCIAL AREA OF THE PROJECT IF THE PROJECT IS TO BE ENTITLED FOR DEDUCTION/S 80IB(1 0) OF THE ACT. IN THIS PROJECT, THE COMMERCIAL AREA IS 2638 SQ.FT.(MORE THAN 2000 SQ.FT WHICH IS MENTIONED IN THE AMENDED PROVISIONS OF SECTION 8 0IB(10(D) OF THE ACT. THE ASSESSING OFFICER HELD THAT THE APPELLANT I S NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. THE APPELLANT IS OF THE VIEW THAT THE AMENDED PROVISIONS ARE APPLICABLE FROM /AY 2005-06 AND PRIOR TO THAT COMMERCIAL AREA CAN EXCEED 2000 SQ.FT. THE APPELLANT RELIED ON THE ITAT SPECIAL BENCHS DECISION IN THE CASE OF BRAHMA ASSOCIATED 119 ITD 255 ((SB)(PUNE). THE HONBLE ITAT HAS HELD IN PARA 92 TO 94 AND ARA 114 HAS HELD (TAKEN FROM THE HELD AND IT IS EXTRACTED BE LOW: DOMINANT OBJECTIVE OF THE TAX INCENTIVE IS TO AUGM ENT THE SUPPLY OF AFFORDABLE DWELLING UNITS. THE PROJECT ELI GIBLE FOR THIS TAX CONCESSION, THEREFORE, HAS TO BE A HOUSING PROJEC T FOR RESIDENTIAL DWELLING UNITS AND NOT A PROJECT TO SERVE COMMERCIAL PURPOSES. IT SHOULD PREDOMINANTLY BE A PROJECT FOR DWEL LING UNITS. AS REGARDS ASSESSEE'S CONTENTION THAT EVEN IF ONE OF THE UNIT IS DWELLING UNIT AND THE PROJECT IS APPROVED AS RESIDENTI AL-CUM- COMMERCIAL PROJECT, THE ASSESSEE WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB(10) IN RESPECT OF ENTIRE PROFITS OF THE HOUSING PROJECT, SUCH AN INTERPRETATION WILL CLEARLY LEAD TO AN ABSURDITY INASMUCH AS THE BENEFIT OF TAX INCENTIVE UNDER SECT ION 80-IB(10) WILL THEN BE AVAILABLE IN RESPECT OF A PROJECT WHICH IS NOT EVEN AIMED AT AUGMENTING THE SUPPLY OF AFFORDABLE DWELLIN G UNITS. SUCH A PROJECT, BY NO STRETCH OF LOGIC, CAN BE CONST RUED AS A PROJECT WHICH CAN BE SAID TO BE FOR THE PURPOSE OF M AKING AVAILABLE THE DWELLING UNITS. SIMILARLY, THE LIMIT O F 51 PER CENT ON RESIDENTIAL USE OF BUILT-UP AREA, AS SUGGESTED BY LEA RNED COUNSEL FOR THE ASSESSEE, IS ALSO INCOMPATIBLE WITH OUR FIND ING THAT DOMINANT OBJECTIVE OF SECTION 80-IB(10) IS TO PROVID E TAX INCENTIVE FOR A HOUSING PROJECT WHICH IS PREDOMINANT LY FOR AFFORDABLE DWELLING UNITS. WHEN COMMERCIAL USE AND R ESIDENTIAL USE IS ALMOST EQUAL, IT CANNOT AT ALL BE SAID THAT PREDOMINANT OBJECTIVE OF THE PROJECT IS FOR PROVIDING DWELLING UNI TS. WHEN TWO DIFFERENT TYPE OF USAGE ARE EQUAL OR CLOSE TO EQUAL, AS FIFTY ONE 20 SMT MANJU GUPTA PER CENT CEILING ON RESIDENTIAL BUILT-UP AREA NECESS ARILY MANDATES, NONE OF THE USAGE CAN BE SAID TO BE PREDO MINANT, AS, ON A CONCEPTUAL NOTE, EQUALITY IS CLEARLY ANTIT HESIS OF PREDOMINANCE. THAT APART, EVEN FROM A REASONABLENES S POINT OF VIEW, IT WOULD INDEED BE UNREASONABLE TO SUGGEST THA T WHEN AS MUCH AS FIFTY PER CENT OF THE BUILT-UP AREA IN A HOU SING PROJECT IS BEING USED FOR COMMERCIAL PURPOSES, THE PROJECT CAN STI LL BE SAID TO BE A PROJECT PREDOMINANTLY FOR THE PURPOSES O F RESIDENTIAL UNITS. ON THE OTHER EXTREME, REVENUE CONT ENDS THAT SHOPPING COMPLEX OR COMMERCIAL PORTION SHOULD BE RES TRICTED TO 5 PER CENT OF TOTAL CONSTRUCTED AREA WHICH IS MORE OR LESS ON THE SAME LINES AS CLAUSE (D) INTRODUCED SUBSEQUENTLY. TH IS EXTREME VIEW ALSO, FOR THE REASONS WE HAVE ALREADY SET OUT, CA NNOT BE ACCEPTED EITHER. . WE HAVE TO DRAW UP SOME LAKSHMAN REKHA NONETHELESS SO AS TO ENSURE THAT THE BASIC CHARACTER OF THE PROJECT CONTINUES TO REMAIN IN HARMONY WITH THE OBJE CT OF THE TAX INCENTIVE I.E., AUGMENTING AFFORDABLE DWELLING U NITS. IN THE ABOVE BACKGROUND, IT WILL ONLY BE REASONABLE, IN OUR OPINION, GRANT BENEFIT OF INCENTIVE PROVISION TO PROJECTS IN WHICH BUILT-UP AREA FOR COMMERCIAL PURPOSES IS MORE THAN 5 PER CENT S AY 6 PER CENT TO 9 PER CENT. IT WOULD BE PALPABLE INJUSTICE T O DENY BENEFIT OF EXEMPTION TO BORDER LINE CASES MERELY BECA USE COMMERCIAL BUILT-UP AREA IN THEIR CASES HAS EXCEEDED T HE BUILT UP AREA BY A SMALL PERCENTAGE ON THE TOUCHSTONE OF C ONDITION (D) APPLIED SUBSEQUENTLY. WE ARE OF VIEW THAT BENCHE S OF THE TRIBUNAL WERE CORRECT IN HOLDING THAT CONDITIONS OF SECTION WERE SATISFIED WHERE THE COMMERCIAL BUILT UP AREA HAD EXC EEDED 9 PER CENT OF TOTAL AREA. THIS WAS RIGHTLY DONE BY ADOP TING PURPOSIVE INTERPRETATION OF AN INCENTIVE PROVISION U NDER CONSIDERATION. WE ARE, THEREFORE, OF THE VIEW THAT CA SES WHERE COMMERCIAL BUILT-UP AREA DID NOT EXCEED 10 PER CENT O F THE TOTAL AREA, THE BENEFIT OF STATUTORY PROVISION COULD NOT BE DENIED IN SUCH CASES. WHERE APPROXIMATELY 90 PER CENT OR MORE OF THE TOTAL AREA IS UTILISED FOR BUILDING DWELLING UNITS OF SPECIFIED AREA AND OTHER CONDITIONS OF THE SECTION ARE FULFILL ED, THERE IS NO JUSTIFICATION TO DENY THE BENEFIT MERELY BECAUSE TH E PROJECT HAD BEEN PASSED AS 'RESIDENTIAL - COMMERCIAL PROJECT'. SUCH PROJECT SHOULD BE HELD TO BE PREDOMINANTLY RESIDENTIAL PROJE CT FULLY SATISFYING THE DESCRIPTION OF TERM 'HOUSING PROJECT' AS ENVISAGED UNDER STATUTORY PROVISION PRIOR TO ASSESSMENT YEAR 2005 -06. ON REFERENCE TO OTHER PROVISIONS OF THE INCOME-TAX ACT, W E FIND THAT 90 PER CENT OF COMPLIANCE IS TAKEN AS SUBSTANTIAL O R FULL COMPLIANCE OF THE PROVISION, FOR EXAMPLE, OF DISCHARGI NG ADVANCE TAX OBLIGATIONS. WE, THEREFORE, HOLD THAT WHE RE 90 PER CENT IS BUILT-UP FOR RESIDENTIAL UNIT, AND COMMERCIA L USE IS 10 PER CENT OR LESS, THERE IS SUBSTANTIAL COMPLIANCE OF THE STATUTORY PROVISIONS AND THE PURPOSE OF THE PROVISION IS DULY MET. IN THIS CONNECTION, WE MAY USEFULLY REFER TO AND RELY UPON PR OVISION OF SECTION 234B OF THE ACT WHICH HOLDS THAT WHEN 90 PE R CENT OR MORE ADVANCE TAX IS PAID BY THE ASSESSEE, THE ADVANC E TAX OBLIGATIONS ARE TREATED AS DISCHARGED. IN CASES WHERE 21 SMT MANJU GUPTA COMMERCIAL USE OF BUILT-UP AREA IS 10 PER CENT OR LES S, IT SHOULD NOT BE OPEN TO THE REVENUE TO PROCEED ON THE BASIS T HAT THE PROJECT IS NOT A HOUSING PROJECT. THE ENACTMENT DID NOT PROVIDE FOR ANY LIMIT ON COMMERCIAL BUILT-UP AREA OUT OF TOT AL AREA.THE VIEW THAT NON-RESIDENTIAL USE OF BUILT-UP AREA UP TO 10 PER CENT WILL NOT VITIATE THE TRUE CHARACTER OF A HOUSING PROJ ECT IS FULLY JUSTIFIED IN THE BACKGROUND OF PROVISION DISCUSSED A BOVE. IN OUR VIEW, IT WOULD BE ILLEGAL TO APPLY CEILING OF 5 PER CENT TO ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2005-06 THO UGH NO SUCH CEILING WAS PROVIDED UNDER THE STATUTE, AND DEN Y BENEFIT TO BORDERLINE CASES. AT THE SAME TIME THERE IS NO JUS TIFICATION TO ALLOW EXEMPTION TO PROJECT NOT CARRIED AS PER THE DO MINANT OBJECTIVE OF THE PROVISION. THE LEGISLATURE ITSELF HA S ACCEPTED 5 PER CENT AS PERMISSIBLE COMMERCIAL USE FROM ASSESSMEN T YEAR 2005-06 ONWARDS, AND IN THE PERIOD WHEN SUCH A LIMIT WAS NOT IN FORCE , WE CAN SAFELY TAKE 10 PER CENT AS THE MAXIMU M PERMISSIBLE COMMERCIAL USE IN A HOUSING PROJECT, FOR T HE REASONS DISCUSSED IN DETAIL ABOVE. WE ARE, THEREFORE, OF THE V IEW THAT THERE WOULD BE NO JUSTIFICATION TO DENY BENEFIT OF STATUTORY PROVISIONS TO CASE WHERE 90 PER CENT OR MORE OF THE T OTAL AREA HAS BEEN UTILISED FOR BUILDING DWELLING UNITS OF SPE CIFIED AREA AND OTHER CONDITIONS OF THE SECTION ARE FULFILLED. T HE PURPOSE OF THE LEGISLATURE IN SUCH CASE IS CLEARLY MET. TO SUM UP, WE HOLD THAT A HOUSING PROJECT WOULD FULFIL THE REQUIREMENT OF SECTION 80- IB IF 90 PER CENT OF THE AREA IS UTILISED FOR BUILDIN G OF DWELLING UNITS AND UTILISATION OF COMMERCIAL BUILDING IS RESTRI CTED TO 10 PER CENT OF THE BUILT-UP AREA. SUCH PROJECT SHOULD BE HE LD TO BE PREDOMINANTLY RESIDENTIAL PROJECT AND, THEREFORE, SATI SFYING DESCRIPTION OF 'HOUSING PROJECTS' AS ENVISAGED UNDER THE STATUTORY PROVISION PRIOR TO ASSESSMENT YEAR 2005-06. IT WILL NOT BE JUST AND FAIR OR EVEN LEGAL TO DENY EXEMPTION OF THE SECTION TO THE AFORESAID TYPE OF PROJECTS CARRIED BY AN UNDERTAK ING. IDEAL REALTORS (ITA NO.4292/MUM/2007). ARUN EXCELLO FOUNDATION P LTD VS ACIT (2007) 108 TTJ (CHENNAI) 71, HARSHAD DOSHI VS ACIT(2007) 109 TTJ (MUM) 335 AND SAROJ SALES ORIGINAT ION VS ITO (2008) 115 TTJ (MUM) 485 APPROVED; LAUKIK DEVELOPERS V DCIT(2007) 108 TTJ (MUM) 364 (207) 105 ITD 657 (MUM ) OVERRULED 37. IN THIS PROJECT, THE TOTAL BUILT-UP AREA IS 71,5 06 SQ.FT WHEREAS THE COMMERCIAL AREA IS ONLY 2638 SQ.FT WHICH IS LESS THAN 10% OF THE TOTAL BUILT-UP AREA. RESPECTFULLY FOLLOWING THE HONBLE IT AT SPECIAL BENCHS DECISION, I HOLD THAT THIS PROJECT WILL NOT LOSE ITS DEDUCTION/S 80IB(10) JUST BECAUSE IT HAS COMMERCIAL BUILT-UP AREA OF 2638 SQ. FT. 22 SMT MANJU GUPTA 26 THE ABOVE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL HAS BEEN UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS BRAHMA ASSOCIATES REPORTED IN 333 ITR 289 (BOM). NOTHING CONTRARY HA S BEEN BROUGHT BEFORE US BY THE REVENUE. ACCORDINGLY, WHEN THE CIT(A) HAS DECIDED T HE ISSUE BY FOLLOWING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF BRAHMA ASSOCIATES (SUPRA), WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE C IT(A), QUA, THIS ISSUE. 27 ANOTHER ISSUE RAISED BY THE REVENUE FOR THE AY Y 2007-08 AND 2008 IS REGARDING THE AREA OF TWO FLATS I.E B 103 AND B903 IS MORE THAN 1000 SQ.FT AND THEREFORE, THE ENTIRE PROJECT IS INELIGIBLE FOR CLA IM F DEDUCTION U/S 8IB(10). THIS ISSUE WE HAVE ALREADY DEALT WITH WHILE DECIDING THE APPEAL O F THE ASSESSEE. ACCORDINGLY, IN VIEW OF THE FINDINGS IN THE ASSESSES APPEAL, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 28 IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED WHEREAS THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THE 12 TH , DAY OF AUG 2011. SD/- SD/- ( P M JAGTAP ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 12 TH , AUG 2011 RAJ* 23 SMT MANJU GUPTA COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI