DCIT-1(1), MUMBAI V. M/S. BOMBAY REAL ESTATE DEVELOPMENT CO.PVT.LTD., MUMBAI

ITA 6505/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49089 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Assessee Lawyers: ARVIND SONDE
• Keywords: Business income; Earning of tax free income; Cost of acquisition; Fair market value; Competent authority
• Section: 143(3); 14A; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI T R SOOD, ACCOUNTANT MEMBER I T A NO: 6504/MUM/2008 ASSESSMENT YEAR: 2002-03 I T A NO: 4219/MUM/2009 ASSESSMENT YEAR: 2003-04 I T A NO: 4728/MUM/2007 ASSESSMENT YEAR: 2004-05 I T A NO: 6505/MUM/2008 ASSESSMENT YEAR: 2005-06 ASSISTANT / DEPUTY COMMISSIONER OF INCOME APPELL ANT TAX 1(1), MUMBAI VS BOMBAY REAL ESTATE DEVELOPMENT RESPONDENT COMPANY PRIVATE LIMITED, MUMBAI (PAN: AAACB2092E) APPELLANT BY: MR SATBIR SINGH RESPONDENT BY: MR ARVIND SONDE O R D E R R V EASWAR, PRESIDENT: THESE ARE APPEALS FILED BY THE REVENUE FOR THE ASS ESSMENT YEARS 2002-03 TO 2005-06. THE ASSESSEE RESPONDENT IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS AS BUILDER AND DEVELOPER. THESE APPEALS ARISE OUT OF ASSESSMENTS MADE ON THE ASSESSEE UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. WE MAY FIRST TAKE UP ITA NO: 4728/MUM/2007 FOR DISPOSAL. IT REL ATES TO THE ASSESSMENT YEAR 2004-05. THIS IS THE YEAR IN WHICH THE CONTROVERSY RAISED IN THE PRESENT APPEALS FIRST ARO SE AND BASED ON THE DECISION TAKEN BY THE ASSESSING OFFICER FOR THI S YEAR; THE ASSESSMENTS FOR THE OTHER THREE YEARS WERE REOPENED UNDER SECTION 147 OF THE ACT. THUS, IN RESPECT OF THE ASSESSMENT YEAR 2004-05, ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 2 THE APPEAL ARISES OUT OF ORIGINAL ASSESSMENT PROCEE DINGS, WHEREAS IN RESPECT OF THE OTHER THREE YEARS THE APPEALS ARI SE OUT OF THE REASSESSMENT ORDERS. HOWEVER, THE FACTS IN ALL THE FOUR YEARS AND THE CONTROVERSY ARISING OUT OF THOSE FACTS ARE THE SAME AND HENCE ALL THE APPEALS WERE HEARD TOGETHER AND ARE DISPOSE D OF BY A SINGLE ORDER. 2. IN RESPECT OF THE ASSESSMENT YEAR 2004-05, THE A SSESSEE FILED ITS RETURN ON 01.11.2004, IN WHICH IT CLAIMED DEDUCTION OF ` 22,07,52,051/- UNDER SECTION 80-IB(10) IN RESPECT O F THE PROFITS FROM THE PROJECT CALLED EVERSHINE PROJECT. THE A SSESSING OFFICER CALLED UPON THE ASSESSEE TO JUSTIFY THE CLAIM. THE ASSESSEE SUBMITTED THAT IN TERMS OF THE DEVELOPMENT AGREEMEN T ENTERED INTO ON 22.12.1999 WITH M/S EVERSHINE BUILDERS PRIVATE L IMITED (HEREINAFTER REFERRED TO AS EBPL), IT HAD UNDERTAKE N THE ACTIVITIES FOR DEVELOPMENT OF THE PROJECT, WHICH ACTIVITIES ENTITL ED THE ASSESSEE TO CLAIM DEDUCTION UNDER SECTION 80-IB(10) AND REFEREN CE WAS MADE TO THE IMPORTANT TERMS OF THE AGREEMENT. IT WAS SUBMI TTED THAT UNDER THE TERMS OF THE AGREEMENT, THE ASSESSEE DEVELOPED THE PROPERTY BY UNDERTAKING SEVERAL RESPONSIBILITIES AND ACTIVIT IES RELATING TO THE CONSTRUCTION OF THE BUILDINGS AND EBPL WERE ASSOCIA TED WITH THE PROJECT AS JOINT DEVELOPERS. IT WAS ALSO POINTED O UT THAT THE ASSESSEE CONTRIBUTED THE LAND FOR DEVELOPMENT WHERE AS EBPL UNDERTOOK THE CONSTRUCTION ACTIVITY AS WELL AS FINA NCE CUM MARKETING ACTIVITIES AND THE PROFITS FROM THE PROJE CT WERE TO BE SHARED BETWEEN THE ASSESSEE AND EBPL IN THE RATIO O F 43 : 57. IT ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 3 WAS REPEATED THAT THE ASSESSEE FULFILLED ALL THE CO NDITIONS OF SECTION 80-IB(10) IN ORDER TO QUALIFY FOR THE DEDUCTION. T HESE SUBMISSIONS WERE PUT FORTH IN WRITING BY LETTER DATED 20.11.200 6 BEFORE THE ASSESSING OFFICER AND THE SAID LETTER HAS BEEN REPR ODUCED IN FULL IN THE ASSESSMENT ORDER. 3. THE ASSESSING OFFICER EXAMINED THE FACTS RIGHT F ROM THE INCEPTION WHEN THE ASSESSEE ACQUIRED THE DEVELOPMEN T RIGHTS OVER THE LAND AND AFTER EXAMINING THE TERMS OF THE AGREE MENT BETWEEN THE ASSESSEE AND EBPL, CAME TO THE CONCLUSION THAT THE ASSESSEE SHOULD BE BOTH A DEVELOPER AND A BUILDER TO BE ELIG IBLE FOR THE DEDUCTION, THAT IT WAS EBPL WHICH ACTUALLY DEVELOPE D AND CONSTRUCTED THE HOUSING PROJECT, THAT THE ASSESSEE MERELY PROVIDED THE OTHER INCIDENTAL SERVICES SUCH AS OBTAINING FSI AND ALL STATUTORY PERMISSIONS, PUTTING UP THE PIPELINE UP TO THE BOUN DARY OF THE PROJECT, SETTING UP THE INFRASTRUCTURE AND COMPLYIN G WITH THE CONDITIONS IMPOSED BY MMC AND THESE ACTIVITIES DO N OT AMOUNT TO DEVELOPING AND BUILDING THE HOUSING PROJECT. HE AC CORDINGLY REJECTED THE ASSESSEES CLAIM FOR DEDUCTION UNDER S ECTION 80-IB(10) OF THE ACT. 4. ON APPEAL, THE ASSESSEE FILED DETAILED WRITTEN S UBMISSIONS, WHICH ARE REPRODUCED IN PARAGRAPHS 5 AND 5.1 OF THE IMPUGNED ORDER OF THE CIT(A). THE CIT(A), AFTER EXAMINING T HE FACTS IN SOME DETAIL AND THE VARIOUS AGREEMENTS ENTERED INTO BY T HE ASSESSEE, ACCEPTED THE SUBMISSIONS OF THE ASSESSEE AND SUMMED UP HIS FINDINGS AS BELOW: - ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 4 7.7. ON THE BASIS OF THE FACTS, THE ISSUE IS SUMMED UP AS UNDER: - A) THE APPELLANT PREPARED THE LAND FOR BUILDING THE HOUSING PROJECT TILL THE ISSUE OF COMMENCEMENT CERTIFICATES DATED 17.09.2001 AND 01.10.2001 AS A DEVELOPER. B) THE APPELLANT JOINTLY CONTRIBUTED THE COST OF THE ENTIRE HOUSING PROJECT AT ` 46,51,16,279/- AND JOINTLY APPOINTED THE CONTRACTORS FOR CONSTRUCTION OF FLATS; MARKETING AND SALE OF CONSTRUCTED FLATS. C) THE ENTIRE SALE PROCEEDS OF THE FLATS ETC. WERE DEPOSITED IN THE JOINTLY OPERATED CURRENT ACCOUNT NUMBER 1800102462 WITH GLOBAL TRUST BANK LTD. AND THEIR RESPECTIVE SHARES WERE SUBSEQUENTLY TRANSFERRED BY THE BANK TO SEPARATE BANK ACCOUNTS OF THE APPELLANT AND M/S EVERSHINE BUILDERS PVT. LTD. IN THE RATIO OF 43% & 57% RESPECTIVELY, AS MAINTAINED WITH THE SAME BANK. D) THE ABOVE FACTS CONFIRM THAT THE APPELLANT WAS ENGAGED TO DEVELOP AND BUILD THE HOUSING PROJECT AND AS SECTION 80-IB(10) DOES NOT PRESCRIBE THE PROPORTION OF DEVELOPING AND BUILDING HOUSING PROJECT, THE APPELLANT IS ENTITLED FOR DEDUCTION UNDER SECTION 80-IB TO THE EXTENT OF ITS BUSINESS INCOME AS THE APPELLANT WAS A DEVELOPER AND BUILDER FOR THE POISAR HOUSING PROJECT AT KANDIVLI (E). ACCORDINGLY, THE GROUNDS OF APPEAL ARE ALLOWED AND THE AO IS DIRECTED TO GRANT THE DEDUCTION UNDER SECTION 80-IB TO THE APPELLANT. 5. IT IS AGAINST THE AFORESAID ORDER OF THE CIT(A) THAT THE REVENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL. SI NCE THE ORIGINAL GROUNDS OF APPEAL FILED BY THE REVENUE WERE NOT PRO PERLY FRAMED, ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 5 THE FOLLOWING REVISED GROUNDS OF APPEAL WERE FILED, WHICH HAVE BEEN TAKEN INTO CONSIDERATION WHILE DISPOSING OF THE APP EAL: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE DEDUCTION U/S 80-IB(10) TO THE ASSESSEE AS ALLOWABLE TO A DEVELOPER AND BUILDER FOR THE POISAR HOUSING PROJECT AT KANDIVALI (E). 1.1 WHETHER THE RECEIPTS OF SALE PROCEEDS OF DEVELOPMENT RIGHT WOULD AMOUNT TO INCOME ELIGIBLE FOR DEDUCTION U/S. 80-IB. 1.2 WHETHER MERE SALE OF DEVELOPMENT RIGHTS WOULD EQUATE TO ACTIVITIES OF DEVELOPER AND BUILDER ELIGIBLE FOR DEDUCTION U/S. 80-IB. 1.3 WHETHER THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S. 80-IB(10) EVEN THOUGH THE DEVELOPMENT PROJECT WAS STARTED PRIOR TO 01.10.1998 . 6. IN RESPECT OF THE ASSESSMENT YEARS 2002-03 AND 2 003-04, THE ASSESSING OFFICER REOPENED THE ASSESSMENTS TO D ISALLOW THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 80-IB( 10) OF THE ACT. THE CIT(A), FOLLOWING HIS PREDECESSORS ORDER FOR T HE ASSESSMENT YEAR 2004-05, ACCEPTED THE ASSESSEES CLAIM, AGAINS T WHICH THE REVENUE HAS COME IN APPEAL. IT APPEARS THAT FOR TH E ASSESSMENT YEAR 2003-04 THE REVENUE BY OVERSIGHT FILED WRONG G ROUNDS OF APPEAL BEFORE THE TRIBUNAL, WHICH MISTAKE HAS BEEN CORRECTED BY FILING REVISED GROUNDS, WHICH ARE IDENTICAL TO THE REVISED GROUNDS FILED IN THE APPEAL FOR THE ASSESSMENT YEAR 2004-05 . THE ORIGINAL GROUNDS OF APPEAL FILED BY THE REVENUE FOR THE ASSE SSMENT YEAR ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 6 2002-03, HOWEVER, HAVE BEEN CORRECTLY FRAMED AND TH EREFORE THERE ARE NO REVISED GROUNDS FOR THAT YEAR. 7. IN RESPECT OF THE ASSESSMENT YEAR 2005-06, THE A SSESSING OFFICER, EVEN WHILE FRAMING THE ASSESSMENT UNDER SE CTION 143(3) OF THE ACT PURSUANT TO THE RETURN FILED BY THE ASSESSE E, DISALLOWED THE DEDUCTION CLAIMED UNDER SECTION 80-IB(10) FOR REASO NS WHICH ARE IDENTICAL WITH THE REASONS GIVEN IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2004-05. THE CIT(A), FOLLOWING HIS PREDECESSORS ORDER FOR THE ASSESSMENT YEAR 2004-05, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. CERTAIN OTHER DISALLOWANCES WERE ALSO MADE BY THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NT, WHICH WERE DELETED BY THE CIT(A), AGAINST WHICH ALSO THE REVEN UE HAS FILED GROUNDS OF APPEAL. THEREFORE, IN THE APPEAL FOR TH E ASSESSMENT YEAR 2005-06, THE REVENUE HAS CHALLENGED THE FINDIN GS OF THE CIT(A) NOT ONLY WITH REGARD TO THE CLAIM UNDER SECT ION 80-IB(10), BUT ALSO WITH REGARD TO THE VARIOUS OTHER RELIEFS GIVEN BY HIM. THEY WOULD BE DEALT WITH AT THE APPROPRIATE JUNCTURE. 8. IN RESPECT OF THE ASSESSEES CLAIM UNDER SECTION 80-IB(10), THE ARGUMENT OF THE REVENUE, IN TUNE WITH THE REASO NING OF THE ASSESSING OFFICER, IS THAT THE ASSESSEE IS NOT A DE VELOPER OF HOUSING PROJECTS AND IT HAS ONLY PROVIDED SOME SERV ICES TO EBPL WHICH IS ACTUALLY THE DEVELOPER AND THEREFORE THE A SSESSEE IS NOT ENTITLED TO THE DEDUCTION. IT IS SUBMITTED THAT ME RE OWNERSHIP OF LAND BY THE ASSESSEE IS NOT SUFFICIENT COMPLIANCE W ITH SECTION 80- IB(10) AND THE ASSESSEE HAS TO UNDERTAKE FURTHER AC TIVITIES FOR ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 7 DEVELOPMENT OF THE HOUSING PROJECT, IN WHICH CASE A LONE HE WOULD BE ENTITLED TO THE DEDUCTION. IT IS FURTHER CONTEN DED BY THE LEARNED CIT DR THAT THIS IS A SIMPLE CASE OF TRANSFER OF LA ND BY THE ASSESSEE FOR CONSIDERATION, WHICH GIVES RISE TO CAPITAL GAIN S AND NOT BUSINESS PROFITS AND THAT SUCH TRANSFER WAS CAMOUFLAGED IN T HE PRESENT CASE AND PUT THROUGH AS A DEVELOPMENT ACTIVITY SO AS TO CLAIM DEDUCTION UNDER SECTION 80-IB(10). IN THIS CONNECTION IT WAS SUBMITTED THAT THE FACT THAT THE ASSESSEE WAS DESCRIBED AS A DEVEL OPER OR JOINT DEVELOPER IN THE VARIOUS AGREEMENTS WAS NOT CONCLUS IVE OF THE MATTER AND THAT THESE AGREEMENTS ACTUALLY CONCEALED THE REAL INTENTION OF THE ASSESSEE, WHICH WAS ONLY TO TRANSF ER THE LAND FOR A SURPLUS. IT WAS POINTED OUT THAT NO DEVELOPMENT WO RK WAS UNDERTAKEN BY THE ASSESSEE AND THAT MERELY BECAUSE THE ASSESSEE WAS EARLIER CONSIDERED AS DEVELOPER IS NOT CONCLUSI VE SO FAR AS THE PRESENT TRANSACTION OR PRESENT YEARS ARE CONCERNED AND WHAT THE ASSESSEE WAS ACTUALLY OBLIGED TO DO UNDER THE VARIO US AGREEMENTS WAS ONLY TO COMPLETE THE LEGAL FORMALITIES TO PUT T HROUGH THE TRANSFER OF THE LAND. IT IS SUBMITTED THAT THE ENTIRE DOCUM ENTATION, ON THE BASIS OF WHICH THE CLAIM IS PUT FORWARD BY THE ASSE SSEE, WAS DESIGNED TO AVOID PAYMENT OF LEGITIMATE TAXES ON WH AT IS ESSENTIALLY A LAND DEAL. 9. THE LEARNED CIT DR ASSAILED THE FINDINGS OF THE CIT(A) RECORDED IN PARAGRAPH 7.7 OF THE IMPUGNED ORDER ON THE FOLLOWING GROUNDS: - ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 8 (A) NONE OF THE FINDINGS MAKE THE ASSESSEE A DEVELOPER. THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE MERELY AMOUNT TO PRESERVATION OF THE LAND AND CANNOT BE CALLED DEVELOPMENT ACTIVITIES. (B) ALL THE ACTIVITIES ON WHICH RELIANCE WAS PLACED BY THE CIT(A) ARE ONLY PAPER TRANSACTIONS AND NOT ACTIVITIES OF A DEVELOPER. (C) ASSESSEE HAS ONLY INCURRED THE EXPENDITURE TO MAINTAIN ITS TITLE TO THE LAND AND NOTHING MORE. (D) THE ENTIRE ARRANGEMENT IS A CAMOUFLAGED SALE OF LAND TO THE BUYER OF THE FLATS IN THE HOUSING PROJECT AND THE MEDIUM ADOPTED IS THE DOCUMENTATION TO SHOW AS IF THE ASSESSEE IS ALSO A DEVELOPER SO THAT IT CAN CLAIM DEDUCTION UNDER SECTION 80-IB(10) OF THE ACT. 10. IN ORDER TO TEST THE CORRECTNESS OF THE ARGUMEN TS OF THE LEARNED CIT DR AND BEFORE WE REFER TO THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE, IT IS NECESSARY TO BRIEFL Y REFER TO CERTAIN FACTS. WE MAY FIRST REFER TO THE AGREEMENT DATED 2 9.06.1982, A COPY OF WHICH IS AT PAGES 330 TO 357 OF THE PAPER B OOK. THIS IS AN AGREEMENT ENTERED INTO BETWEEN A COMPANY BY NAME BY RAMJEE JEEJEEBHOY PRIVATE LIMITED (HEREINAFTER REFERRED TO AS BJPL), REFERRED TO AS THE OWNERS IN THE AGREEMENT AND TH E ASSESSEE COMPANY WHICH IS REFERRED TO AS THE DEVELOPERS IN THE SAID ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 9 AGREEMENT. THE PREAMBLE OF THE AGREEMENT NARRATES THAT BJPL OWNED ABOUT 370 ACRES PLUS AT VILLAGE POISAR NEAR K ANDIVLI IN GREATER BOMBAY AND THAT THEY HAD AGREED TO SELL THE SAID LAND TO THE DEVELOPERS (THE ASSESSEE HEREIN) AND ALLOW THE DEVELOPERS TO DEVELOP THE LANDS. THE CONSIDERATION IS FIXED AT ` 1,11,00,000/-. CLAUSE 1 OF THE TERMS AND CONDITIONS OF THE AGREEME NT STATES THAT BJPL SHALL ALLOW THE ASSESSEE TO DEVELOP AND THE AS SESSEE SHALL DEVELOP THE LAND FOR A CONSIDERATION OF ` 1,11,00,000/-. CLAUSE 2 PRESCRIBES THE MODE AND THE INSTALMENTS IN WHICH TH E CONSIDERATION WAS TO BE PAID. CLAUSE 5 ONWARDS REFER TO THE OBLI GATIONS OF THE DEVELOPER (THE ASSESSEE HEREIN) UNDER THE AGREEMENT . THE FIRST OBLIGATION OF THE ASSESSEE WAS TO REMOVE AT ITS OWN COSTS AND EXPENSE THE UNAUTHORIZED PERSONS / STRUCTURES IF AN Y UPON THE LAND. CLAUSE 6 PROVIDES THAT THE ASSESSEE SHALL DEVELOP T HE LAND SUBJECT TO ALL PREVAILING LAWS, ACTS AND ENACTMENTS IN FORC E. CLAUSE 7 SAYS THAT THE ASSESSEE SHALL OBTAIN ALL THE NECESSARY OR REQUIRED PERMISSIONS, ORDERS OR NO OBJECTION CERTIFICATES IN WRITING FROM THE COMPETENT AUTHORITY UNDER THE PROVISIONS OF THE URB AN LAND (CEILING & REGULATION) ACT, 1976 [HEREINAFTER REFERRED TO AS ULCRA] FROM THE COLLECTOR OR DEPUTY COLLECTOR OF BOMBAY OR THE GOVE RNMENT OF INDIA OR THE GOVERNMENT OF MAHARASHTRA OR ANY OTHER COMPE TENT AUTHORITY UNDER ANY OF THE PROVISIONS OF ANY OF THE APPLICABL E LAWS IN RELATION TO THE LAND AT THE ASSESSEES OWN COSTS AND EXPENSE S. HOWEVER, BJPL, WHEREVER REQUIRED, SHALL JOIN IN AND SIGN SUC H APPLICATIONS. CLAUSE 8 PROVIDED FOR THE OBLIGATION OF THE ASSESSE E TO REMOVE THE ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 10 UNAUTHORIZED STRUCTURES, HUTMENTS OR OCCUPANTS THER EOF AND TO TAKE SUCH STEPS IN THAT BEHALF AT ITS OWN COSTS AND EXPE NSES. ANY PERMISSION REQUIRED TO DO SO WAS ALSO TO BE TAKEN B Y THE ASSESSEE AT ITS OWN EXPENSE. CLAUSE 9 REITERATED THE ASSESS EES OBLIGATION TO OBTAIN PERMISSIONS UNDER THE ULCRA AS ALSO THE P ERMISSIONS UNDER THE MAHARASHTRA REGIONAL TOWN PLANNING ACT, 1 961, AT ITS OWN COSTS AND EXPENSES. CLAUSE 11 PROVIDED FOR THE OBLIGATION OF THE ASSESSEE TO COMPLETE THE TRANSACTION RELATING T O THE SAID LAND ON OR BEFORE 30 TH JUNE 1986. UNDER CLAUSE 12, IT WAS THE OBLIGATION OF THE DEVELOPERS (THE ASSESSEE) TO BEAR AND PAY AL L RATES AND TAXES (EXCLUDING PERSONAL TAXES SUCH AS INCOME TAX) , CESS, LAND REVENUE AND ALL OTHER OUTGOINGS IN RESPECT OF THE L AND OR ANY PART THEREOF OR IN RESPECT OF ANY STRUCTURE STANDING ON THE LAND OR IN RESPECT OF BUILDINGS OR STRUCTURES TO BE CONSTRUCTE D ON THE LAND BY THE DEVELOPER AND PAYABLE TO THE GOVERNMENT OR THE MUNICIPAL CORPORATION OR ANY OTHER PUBLIC BODY AFTER THE DEVE LOPER IS PUT IN POSSESSION OF THE LAND. 11. CLAUSE 13 PROVIDES FOR CERTAIN OTHER OBLIGATION S OF THE ASSESSEE UNDER THE AGREEMENT. IT PROVIDES FOR THE FOLLOWING OBLIGATIONS OF THE ASSESSEE: - (A) THE LAND SHALL BE DEVELOPED BY THE DEVELOPER AT ITS OWN RISK, COSTS AND EXPENSES AND SHALL CARRY OUT THE DEVELOPMENT WORK IN ACCORDANCE WITH THE PLANS AND SPECIFICATIONS DULY APPROVED AND SANCTIONED BY THE MUNICIPAL CORPORATION OF ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 11 GREATER BOMBAY AND OTHER CONCERNED LOCAL AUTHORITIES. (B) THE ASSESSEE AS DEVELOPER SHALL COMPLY WITH ALL THE BUILDING RULES AND BYE-LAWS AND ORDERS AND DIRECTIONS THAT MAY BE ISSUED BY THE AFORESAID BODIES. (C) THE ASSESSEE SHALL BEAR ALL CHARGES AND EXPENSES IN RELATION TO THE CONSTRUCTION WORK INCLUDING THE PAYMENT OF SALARY AND WAGES OF THE PERSONNEL AND WORKMEN EMPLOYED IN THE CONSTRUCTION WORK OR THE PAYMENT OF ANY COMPENSATION IN CASE OF INJURY OR DEATH OF ANY EMPLOYEE OR WORKER. (D) FROM THE DATE ON WHICH THE ASSESSEE IS PUT IN POSSESSION OF THE LAND; ALL RATES, TAXES, CESS AND OTHER OUTGOINGS IN RESPECT OF THE LAND AND THE CONSTRUCTION WORK MADE THEREON INCLUDING THE FEES OF ARCHITECTS, SURVEYORS, RCC CONSULTANTS AND SPECIALISTS / PROFESSIONALS ENGAGED IN REGARD TO THE CONSTRUCTION WORK SHALL ALSO BE THE RESPONSIBILITY OF THE ASSESSEE. (E) THE ASSESSEE SHALL INDEMNIFY BJPL AGAINST ANY CLAIMS OR DAMAGES MADE AGAINST BJPL BY ANY PERSON FOR ANY BREACH OF THE BUILDING BYE- LAWS AND RULES AND REGULATIONS ISSUED BY THE ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 12 COMPETENT AUTHORITIES. THE INDEMNITY ALSO EXTENDS TO OTHER EXPENDITURE INCURRED BY BJPL IN RELATION TO THE CONSTRUCTION WORK EITHER AS SALARY OR WAGES OR COMPENSATION OR AS PAYMENT IN RESPECT OF SUPPLIERS OF BUILDING MATERIALS OR ANY OTHER LOSS THAT MAY BE SUFFERED BY BJPL AS A RESULT OF THE CONSTRUCTION WORK BEING CARRIED ON BY THE ASSESSEE. 12. CLAUSE 14 PROVIDES THAT THE ASSESSEE SHALL BEAR ALL THE EXPENSES RELATING TO THE SUBMISSION OF THE SCHEME O R PROJECT TO THE GOVERNMENT OF MAHARASHTRA FOR SANCTION. CLAUSE 18 STATES THAT THE ASSESSEE AS DEVELOPER ALONE SHALL BE ENTITLED TO EN TER INTO AGREEMENTS FOR SALE OF FLATS, SHOPS, GARAGES, GODOW NS, UNITS AND OTHER PREMISES COMPRISED IN THE BUILDING TO BE CONS TRUCTED BY THE DEVELOPER ON THE LAND ON OWNERSHIP BASIS. THIS OBL IGATION IS FURTHER SUBJECT TO THE RIGHT OF THE BJPL UNDER THE AGREEMEN T AND SHALL ALSO BE SUBJECT TO THE TERMS AND CONDITIONS AND OBLIGATI ONS ON THE PART OF THE ASSESSEE. CLAUSE 19 PROVIDES THAT THE ASSESSEE ALONE SHALL BE ENTITLED TO THE RIGHTS AS ALSO BE LIABLE AND RESPON SIBLE FOR THE OBSERVANCE AND PERFORMANCE OF THE TERMS AND CONDITI ONS OF THE AGREEMENTS FOR SALE OF THE FLATS, SHOPS, ETC. AND T HE OWNERS (BJPL) SHALL NOT BE REQUIRED TO JOIN AND EXECUTE SUCH AGRE EMENTS. THE CLAUSE FURTHER STATES THAT THE ASSESSEE AGREES AND UNDERTAKES THAT THE PURCHASERS OF THE FLATS ETC. SHALL NOT BE GIVEN POSSESSION UNTIL THE DEVELOPERS HAD PAID IN FULL TO BJPL THE CONSIDE RATION MONEY ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 13 PAYABLE TO BJPL IN TERMS OF CLAUSE 2 (I.E. THE AMOU NT OF ` 1,11,00,000/-). 13. CLAUSE 20 OF THE AGREEMENT PROVIDES THAT THE AS SESSEE AS DEVELOPER FURTHER AGREES TO TAKE A CONVEYANCE OR AN Y OTHER DOCUMENTATION IN RESPECT OF THE LAND IN THEIR FAVOU R OR IN FAVOUR OF THE NOMINEE OR NOMINEES OR A CO-OPERATIVE SOCIETY O R A LIMITED COMPANY OR AN ASSOCIATION OF APARTMENT OWNERS OR AN Y OTHER BODY CORPORATE, AS THE CASE MAY BE, AFTER THE ASSESSEE H AS PAID THE FULL CONSIDERATION MONEY PAYABLE TO BJPL. CLAUSE 21 PRO VIDES THAT THE DEVELOPER SHALL NOT BE ENTITLED TO TRANSFER OR ASSI GN THE BENEFIT OF THE AGREEMENT FOR DEVELOPMENT TO ANY OTHER PERSON W ITHOUT THE PRIOR WRITTEN CONSENT OF BJPL. CLAUSE 26 PROVIDED THAT IT WAS THE OBLIGATION OF THE ASSESSEE AS DEVELOPER TO PAY BROK ERAGE AT THE RATE OF 2% OF THE CONSIDERATION MONEY ON COMPLETION OF THE TRANSACTION. 14. THE ABOVE ARE IN EFFECT THE OBLIGATIONS UNDERTA KEN BY THE ASSESSEE UNDER THE AGREEMENT WITH BJPL. 15. IT WOULD APPEAR THAT AFTER THE AFORESAID AGREEM ENT WAS SIGNED BETWEEN BJPL AND THE ASSESSEE AND AFTER THE ASSESSEE HAD PAID TO BJPL THE CONSIDERATION OF ` 1,05,00,000/- PURSUANT TO WHICH BJPL HAD ALSO AGREED TO GIVE A POWER OF ATTOR NEY TO THE ASSESSEE, ITS DIRECTORS, OFFICERS OR EMPLOYEES OR A NY NOMINEE TO ENABLE THE ASSESSEE TO EFFECTIVELY DEVELOP AND DEAL WITH THE SAID PROPERTY UNDER THE AGREEMENT, CERTAIN DISPUTES AROS E BETWEEN BJPL AND ANOTHER COMPANY BY NAME NANABHOY JEEJEEBHO Y PRIVATE ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 14 LIMITED (HEREINAFTER REFERRED TO AS NJPL). THESE D ISPUTES WERE ULTIMATELY DECIDED BY THE HONBLE BOMBAY HIGH COURT ON 21.12.1988 IN COMPANY PETITION NO: 868 OF 1988 AND IN TERMS OF THE ORDER PASSED BY THE HONBLE HIGH COURT, THE ENT IRE LAND OF 370 ACRES AND ODD VESTED ABSOLUTELY IN NJPL. THEREAFTE R THE ASSESSEE REQUESTED NJPL TO HONOUR THE EARLIER AGREEMENT DATE D 29.06.1982 AND GIVE IRREVOCABLE POWER OF ATTORNEY IN FAVOUR OF THE ASSESSEE FOR THE PURPOSE OF DEVELOPING THE PROPERTY. NJPL AGREE D TO THE REQUEST OF THE ASSESSEE AND IN ORDER TO GIVE EFFECT TO THE ARRANGEMENT BETWEEN THE ASSESSEE AND NJPL, AN AGREE MENT WAS ENTERED INTO ON 28.02.1989 BETWEEN NJPL AND THE ASS ESSEE (COPY IS PLACED AT PAGES 354 TO 375 OF THE PAPER BOOK). THIS IS ACTUALLY TERMED AS IRREVOCABLE GENERAL POWER OF ATTORNEY G IVEN BY NJPL TO THE ASSESSEE. UNDER THE POWER OF ATTORNEY, THE FOL LOWING WERE THE OBLIGATIONS OF THE ASSESSEE: - (1) TO LOOK AFTER AND MANAGE THE PROPERTY DILIGENTLY. (2) TO OBTAIN THE PLANS FOR CONSTRUCTION OF THE BUILDINGS INCLUDING SUB-DIVISION AND LAYOUT PLANS, SUBMIT THEM TO THE MCGM OR OTHER AUTHORITIES FOR OBTAINING THEIR APPROVAL / CONSENT AND TO REVISE SUCH PLANS IF NECESSARY AND TO OBTAIN IOD, COMMENCEMENT, OCCUPATION AND COMPLETION CERTIFICATES FROM THE MCGM. ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 15 (3) TO PREPARE LAYOUT PLAN OR DEVELOPMENT SCHEME WITH ALL DETAILS AND TO SUBMIT THE SAME FOR APPROVAL TO THE CONCERNED AUTHORITIES, INCLUDING INTERNAL AND MAIN ROADS, WATER MAINS AND ALSO TO DESIGN AND PLAN DWELLING UNITS FOR WEAKER SECTIONS OF THE SOCIETY. (4) TO ENGAGE ARCHITECTS AND ENGINEERS ETC. FOR DEVELOPMENT OF THE PROPERTY AT THEIR OWN EXPENSE. (5) TO COMPLETE THE CONSTRUCTION IN ACCORDANCE WITH THE APPROVED PLANS AND TO SELL THE UNITS. (6) TO ACT AND REPRESENT NJPL BEFORE THE VARIOUS AUTHORITIES, PUBLIC BODIES, ETC. IN ANY INQUIRIES AND PROCEEDINGS IN CONNECTION WITH ALL MATTERS RELATING TO THE DEVELOPMENT OF THE PROPERTY. (7) TO OBTAIN ALL PERMISSIONS UNDER THE ULCRA FOR SALE OR ASSIGNMENT OF THE PROPERTY OR PART THEREOF AND TO EXECUTE ALL APPLICATIONS, PLANS, AFFIDAVITS, ETC. IN THE NAME OF NJPL BEFORE THE STATE OR CENTRAL AUTHORITIES FUNCTIONING UNDER ULCRA. (8) TO OBTAIN PERMITS FOR CEMENT, STEEL AND OTHER BUILDING MATERIALS, WATER SUPPLY, ELECTRICITY SUPPLY, GAS, TELEPHONES, DRAINAGE AND SEWERAGE ETC. AT THE ASSESSEES COSTS. ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 16 (9) IF REQUIRED BY BSES, THE ASSESSEE SHALL ALSO PUT UP A SUB-STATION ON THE PROPERTY FOR SUPPLYING ELECTRICITY TO THE BUILDINGS TO BE CONSTRUCTED. (10) TO OBTAIN COMMENCEMENT, OCCUPATION AND COMPLETION CERTIFICATES IN RESPECT OF THE BUILDING TO BE CONSTRUCTED. THERE ARE SEVERAL OTHER CLAUSES IN THE POWER OF ATT ORNEY WHICH OBLIGED THE ASSESSEE TO TAKE VARIOUS STEPS IN CONNE CTION WITH THE DEVELOPMENT OF THE PROPERTY AND THE CONSTRUCTION TO BE PUT UP THEREON. THEY ARE MOSTLY STATUTORY OBLIGATIONS WHI CH ARE REQUIRED TO BE UNDERTAKEN BY A DEVELOPER IN CONNECTION WITH DEVELOPMENT WORK. THESE ARE CONTAINED IN CLAUSES 21 TO 30 OF T HE POWER OF ATTORNEY. 16. ON 22.12.1999 AN AGREEMENT WAS ENTERED INTO BET WEEN THE ASSESSEE WHO IS REFERRED TO THEREIN AS THE DEVELOP ERS, EBPL WHO IS REFERRED TO AS THE JOINT DEVELOPER AND M/S THA KUR BROTHERS AGRICULTURAL FARM AS THE CONFIRMING PARTY. THE P REAMBLE TO THIS AGREEMENT REFERS TO THE GRANT OF DEVELOPMENT RIGHTS ON THE LAND BY BJPL TO THE ASSESSEE BY AGREEMENT DATED 29.06.1982 AND THE SUBSEQUENT COURT ORDER UNDER WHICH THE LAND BECAME VESTED IN NJPL AS WELL AS THE POWER OF ATTORNEY GIVEN BY NJPL TO THE ASSESSEE ON 29.02.1989 ENABLING THE ASSESSEE TO FUL LY DEAL WITH THE DEVELOPMENT ACTIVITY IN THE LAND. THEREAFTER, CLAUSE 7 OF THE PREAMBLE REFERS TO THE ASSESSEE HAVING OBTAINED SAN CTION AND ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 17 APPROVAL FOR THE DEVELOPMENT OF THE LAND FROM THE U LCRA AUTHORITIES UNDER ORDERS DATED 28.10.1989. CLAUSE 12 OF THE PREAMBLE REFERS TO THE FACT THAT M/S THAKUR BROTHER S AGRICULTURAL FARM, A PARTNERSHIP FIRM, WHICH IS THE CONFIRMING P ARTY IN THE AGREEMENT, WAS IN ADVERSE POSSESSION OF SOME PORTIO N OF THE LAND AND ALSO GOES ON TO REFER TO A MEMORANDUM OF UNDERS TANDING (MOU) DATED 06.10.1986 ENTERED INTO BETWEEN THE ASS ESSEE AND THE SAID M/S THAKUR BROTHERS AGRICULTURAL FARM (WHI CH WAS CONFIRMED BY BJPL) UNDER WHICH THE ASSESSEE AGREED TO MAKE AVAILABLE TO M/S THAKUR BROTHERS AGRICULTURAL FARM 25% OF THE PERMISSIBLE FSI IN RESPECT OF THE SAID LAND. CLAUS E 13 OF THE PREAMBLE REFERS TO THE SUPPLEMENTARY MOU DATED 29.0 1.1992 UNDER WHICH THE ASSESSEE AGREED TO MAKE AVAILABLE T O M/S THAKUR BROTHERS AGRICULTURAL FARM 40% OF THE PERMISSIBLE F SI IN RESPECT OF THE LAND. CLAUSE 14 OF THE PREAMBLE REFERS TO THE PROPOSAL OF THE ASSESSEE TO CONSTRUCT SEVERAL BUILDINGS ON THE LAND HAVING AN AGGREGATE BUILT-UP AREA OF 20,00,000 SQ. FT. BY UTI LIZING NOT ONLY THE FSI AVAILABLE IN RESPECT OF THE LAND BUT ALSO THE F SI OF OTHER PROPERTIES AS MAY BE AVAILABLE BY WAY OF TRANSFER O F DEVELOPMENT RIGHTS (TDR). CLAUSE 15 OF THE PREAMBLE REFERS TO THE FACT THAT PURSUANT TO THE SCHEME OF DEVELOPMENT THE ASSESSEE HAD ALREADY OBTAINED IOD (INTIMATION OF DISAPPROVAL) IN RESPECT OF SANCTIONED FSI OF 2,50,000 SQ. FT. CLAUSE 16 OF THE PREAMBLE STATES THAT THE ASSESSEE AND EBPL, WHO IS REFERRED TO AS THE JOINT DEVELOPER, PROPOSED TO DEVELOP THE SAID LAND JOINTLY AND THE D EVELOPMENT WORK ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 18 SHALL BE CARRIED OUT JOINTLY WITH THE CONSENT OF M/ S THAKUR BROTHERS AGRICULTURAL FARM AND THAT THE SAID M/S THAKUR BROT HERS AGRICULTURAL FARM HAVE GRANTED UNCONDITIONAL AND IRREVOCABLE CON SENT. CLAUSE 18 OF THE PREAMBLE STATES THAT THE REVISED LAYOUT A ND BUILDING PLANS SHALL BE PREPARED BY EBPL AND APPROVED BY THE ASSES SEE IN RESPECT OF THE FSI OF 20,00,000 SQ. FT. TO BE UTILI ZED IN THE CONSTRUCTION OF THE BUILDINGS ON THE LAND. CLAUSE 20 OF THE PREAMBLE REFERS TO THE DECLARATION / CONFIRMATION O F THE ASSESSEE TO EBPL TO THE EFFECT THAT ITS TITLE TO THE SAID LAND IS CLEAR, MARKETABLE AND FREE FROM ENCUMBRANCES AND CLAUSE 21 STATES THA T THE ASSESSEE HAS NOT ENTERED INTO ANY PRIOR COMMITMENT FOR GRANT OF DEVELOPMENT RIGHTS ON THE LAND IN FAVOUR OF ANY OTH ER PERSON. CLAUSE 24 OF THE PREAMBLE STATES THAT EBPL AGREES T O CARRY OUT AND COMPLETE THE JOINT CONSTRUCTION ON THE LAND PHASE-W ISE AS A RESIDENTIAL/ SHOPPING/ COMMERCIAL/ RECREATIONAL COM PLEX AS MAY BE PERMITTED BY THE CONCERNED LOCAL AUTHORITIES. CLAU SE 25 REFERS TO THE ASSURANCE OF EBPL THAT IT HAS THE REQUISITE FIN ANCIAL, MANAGERIAL AND ORGANIZATIONAL RESOURCES AS WELL AS THE INFRAST RUCTURE TO CARRY OUT THE JOINT DEVELOPMENT OF THE LAND AND MARKETING OF THE BUILDINGS TO BE CONSTRUCTED THEREON. CLAUSE 26 OF THE PREAMB LE SAYS THAT THE ASSESSEE AND EBPL HAVE AGREED TO DEVELOP THE SAID L AND IN FOUR PHASES AND THAT THE ASSESSEE HAS PERMITTED EBPL TO ENTER UPON THE LAND ON WHICH PHASE III AND PHASE IV-A ARE TO B E CONSTRUCTED. IT IS ALSO STATED THAT EBPL HAS BEEN PERMITTED BY T HE ASSESSEE TO CONSTRUCT BUILDINGS ON THIS LAND. ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 19 17. NOW WE TURN TO THE MAIN TERMS OF THE AFORESAID AGREEMENT DATED 22.12.1999. CLAUSE 3 STATES THAT THE ASSESSE E AND EBPL SHALL DEVELOP THE SAID LAND THROUGH UTILIZATION OF THE FSI OF APPROXIMATELY 20,00,000 SQ. FT. BY CONSTRUCTING BUI LDING ON THE SAID LAND IN DIFFERENT PHASES ACCORDING TO THE REVISED L AYOUT AND BUILDING PLANS. IT WAS THE DUTY OF THE ASSESSEE TO ENSURE T HAT THE REVISED PLANS ARE SANCTIONED BY THE BMC INCLUDING THE TDR W HICH ARE TO BE ACQUIRED BY THE ASSESSEE AT ITS COSTS AND MADE AVAI LABLE FOR JOINT DEVELOPMENT IN ACCORDANCE WITH THE AGREEMENT. CLAU SE 4 STATES THAT THE REVISED LAYOUT AND THE REVISED BUILDING PL ANS ARE TO BE PREPARED BY EBPL IN CONSULTATION WITH THE ASSESSEE AND IT IS THE ASSESSEES DUTY TO GET THEM APPROVED BY THE BMC. T HE CONDITION HOWEVER IS THAT NO CHANGES SHALL BE MADE BY THE ASS ESSEE UNILATERALLY WITHOUT OBTAINING THE PRIOR WRITTEN AP PROVAL OF EBPL. CLAUSE 5 STATES THAT ALL THE DEPOSITS AND OTHER CHA RGES FOR OBTAINING APPROVAL FOR THE REVISED LAYOUT PLAN AND THE REVISE D BUILDING PLAN SHALL BE MADE BY EBPL BY ACCOUNT PAYEE CHEQUES DRAW N IN FAVOUR OF BMC AND THESE AMOUNTS CAN BE RECOVERED BY EBPL F ROM THE PURCHASERS OF FLATS, SHOPS, ETC. AT THE TIME OF DEL IVERY OF POSSESSION. EBPL SHALL ALSO BE ENTITLED TO WITHDRAW THE DEPOSIT S DIRECTLY FROM BMC. CLAUSE 6 PROVIDES THAT ALL PREMIUMS AND CHARG ES PAYABLE TO BMC FOR OBTAINING ADDITIONAL FSI SHALL BE BORNE BY THE ASSESSEE ALONE. IT IS HOWEVER PROVIDED THAT INITIALLY THESE AMOUNTS MAY BE PAID BY EBPL TO THE ASSESSEE BUT THE AMOUNT IS SUBJ ECT TO RECOVERY LATER FROM THE ASSESSEE. CLAUSE 7 STATES THAT THE EXPENSES OF ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 20 OBTAINING ADDITIONAL FSI IN THE FORM OF COMPENSATOR Y TDR AND THE COST OF ACQUISITION OF THE TDR SHALL BE BORNE AND P AID BY THE ASSESSEE. THE OTHER OBLIGATIONS OF THE ASSESSEE UN DER THE AFORESAID AGREEMENT ARE : - (A) TO OBTAIN PLINTH COMMENCEMENT CERTIFICATE FROM THE BMC (CLAUSE 8). (B) TO PAY PREMIUM FOR OBTAINING FSI IN RESPECT OF STAIRCASE, LIFT AND BALCONIES (CLAUSE 9). (C) TO PROVIDE THE REQUISITE PIPELINE UP TO THE BOUNDARY OF THE LAND FOR SUPPLY OF POTABLE WATER FOR CONSTRUCTION PURPOSES AND DRINKING PURPOSES AT ITS OWN COST. IT IS THE DUTY OF THE ASSESSEE TO PROVIDE THE PIPELINE IN TIME SO THAT THE CONSTRUCTION OF THE BUILDINGS IS NOT DELAYED OR IMPEDED (CLAUSE 10). (D) THE FUNDS REQUIRED FOR THE CONSTRUCTION OF THE BUILDINGS ON THE SAID LAND SHALL BE EXPENDED BY EBPL ALONE AND THE ASSESSEE SHALL NOT BE REQUIRED TO SPEND ANY AMOUNT FOR THE SAME. EBPL IS NOT ENTITLED TO CLAIM ANY INTEREST ON SUCH EXPENSES (CLAUSE 11). (E) THE ASSESSEE IS RESPONSIBLE FOR OBTAINING ALL STATUTORY PERMISSIONS INCLUDING IOD PLINTH CERTIFICATES (CLAUSE 13). ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 21 (F) THE ASSESSEE SHALL AT ITS OWN COSTS OBTAIN ALL REQUISITE PERMISSIONS AND ORDERS FROM ULCRA AUTHORITIES UNTIL THE CONSTRUCTION IS COMPLETE (CLAUSE 14). 18. UNDER THE AFORESAID AGREEMENT DATED 22.12.1999 EBPL ALSO HAD CERTAIN RIGHTS AND OBLIGATIONS AND THESE BRIEFL Y ARE AS FOLLOWS:- (A) TO SPEND MONIES FOR THE CONSTRUCTION OF ALL THE BUILDINGS WITHOUT CHARGING ANY INTEREST THEREON (CLAUSE 11). (B) IN PARTICULAR, EBPL SHALL INCUR EXPENSES ON CONSTRUCTION AND COMPLETION OF ALL THE BUILDINGS AND ALSO ALL OCCUPATION AND COMMENCEMENT CERTIFICATES, EXPENSES ON CONSULTANTS FEE INCIDENTAL TO THE CONSTRUCTION INCLUDING ARCHITECTS AND RCC CONSULTANTS FEES (CLAUSE 12). (C) EBPL WAS TO CARRY OUT THE CONSTRUCTION OF THE BUILDINGS IN FOUR PHASES USING GOOD BUILDING MATERIALS, FITTING AND FIXTURES AND GOOD WORKMANSHIP IN THE MATTER OF CONSTRUCTION. IT IS TO COMPLETE THE CONSTRUCTION UNDER EACH PHASE WITHIN THREE YEARS FROM THE COMMENCEMENT OF CONSTRUCTION, FAILING WHICH THE ASSESSEE SHALL HAVE THE OPTION TO ADDRESS A LETTER TO EBPL TO CALL UPON IT TO COMPLETE THE CONSTRUCTION WITHIN ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 22 SIX MONTHS FROM THE DATE OF THE LETTER. IF THE CONSTRUCTION IS NOT COMPLETED WITHIN SUCH EXTENDED PERIOD, EBPLS RIGHT AS JOINT DEVELOPER SHALL STAND FORFEITED AND THE RIGHT TO UTILIZE THE BALANCE FSI SHALL BE REVOKED AND THE ASSESSEE SHALL BE ENTITLED TO DEAL WITH AND DISPOSE OF THE BALANCE CONSTRUCTION AS IT MAY DEEM FIT (CLAUSE 15). (D) EBPL IS ENTITLED TO CARRY OUT THE CONSTRUCTION ON ITS OWN AND ALSO TO APPOINT SELLING AGENTS IN ITS OWN RIGHT FOR THE MARKETING OF THE FLATS (CLAUSE 18). (E) EBPL IS ENTITLED TO SELL IN ITS OWN RIGHT AND O N ITS OWN ACCOUNT ON OWNERSHIP BASIS OR OTHERWISE THE FLATS / SHOPS / COMMERCIAL UNITS ETC. CONSTRUCTED ON THE LAND (CLAUSE 20). 19. THE OTHER IMPORTANT CLAUSE IN THE AGREEMENT IS CLAUSE 21, WHICH STATES AS TO HOW THE GROSS SALE PROCEEDS OF T HE FLATS, SHOPS, ETC. SHALL BE SHARED BETWEEN THE ASSESSEE AND EBPL. ACCORDING TO THE SAID CLAUSE, 43% OF THE GROSS SALE PROCEEDS SHA LL BELONG TO THE ASSESSEE AND 57% THEREOF SHALL BELONG TO EBPL. THI S CLAUSE FURTHER REFERS TO THE FACT THAT A SUM OF ` 20,00,00,000/- WHICH EBPL HAD EARLIER DEPOSITED WITH THE ASSESSEE SHALL BE FI RST RECOVERED OUT OF THE GROSS SALE PROCEEDS. CLAUSE 22 DEFINES GRO SS SALE PROCEEDS TO MEAN ALL PROCEEDS OF SALES RECEIVED FR OM THE SALE OF ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 23 PREMISES EXCLUDING CERTAIN DEPOSITS AND OTHER RECOV ERIES MADE FROM THE PURCHASERS OF THE FLATS. CLAUSE 28 REFERS TO THE DEPOSIT MADE BY EBPL TO THE ASSESSEE IN THE AMOUNT OF ` 20,00,00,000/-. IT IS THIS DEPOSIT WHICH CAN BE RECOVERED BY EBPL F ROM THE ASSESSEE ON PRIORITY BASIS FROM THE SALE PROCEEDS A S PER CLAUSE 21. THE OTHER CLAUSES OF THIS AGREEMENT ARE NOT VERY RE LEVANT FOR THE PURPOSE OF THE PRESENT APPEALS. 20. IT IS NECESSARY TO REFER TO A SPECIMEN AGREEMEN T FOR SALE OF THE FLAT (PAGE 117 OF THE PAPER BOOK) ONLY FOR THE PURPOSE OF NOTING THAT IN THIS AGREEMENT EBPL AND THE ASSESSEE ARE RE FERRED TO AS JOINT DEVELOPERS. 21. FROM THE ABOVE FACTS WE ARE TO DECIDE WHETHER T HE ASSESSEE CAN BE DESCRIBED AS A DEVELOPER AND BUILDER SO AS T O BE ENTITLED TO THE DEDUCTION UNDER SECTION 80-IB(10) OF THE ACT. THIS PROVISION CONFERS DEDUCTION TO AN UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECTS . WHAT IS DEVELOPMENT OF A HOUSING PROJECT HAS NOT BEEN DEFINED IN THE SUB-SECTION. THE CENTRAL A RGUMENT OF THE LEARNED CIT DR BEFORE US, BASED ON THE COMMENTARY O N INCOME TAX BY A C SAMPATH IYENGAR, 10 TH EDITION, PAGES 5793, 5794 OF VOLUME FOUR, IS THAT THE ASSESSEE MERELY TRANSFERRE D THE LAND TO THE PURCHASERS OF THE FLATS FOR CONSIDERATION AND T HIS WAS CAMOUFLAGED BY REFERENCE TO CERTAIN ACTIVITIES, WHI CH WERE ONLY ON PAPER, AND WHICH CANNOT AMOUNT TO ANY DEVELOPMENT A CTIVITY, AND THEREFORE THE ASSESSEE OUGHT TO HAVE DECLARED THE R ECEIPTS AS CAPITAL GAINS. THOUGH THE WORD DEVELOP APPEARING IN THE SUB- ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 24 SECTION HAS NOT BEEN DEFINED IN THE ACT, IT SHOULD MEAN, IN OUR HUMBLE OPINION, THE ACTIVITIES WHICH A PERSON UNDER TAKES IN ORDER TO PREPARE THE LAND, BOTH FACTUALLY AND LEGALLY, FOR P UTTING UP HOUSING PROJECTS THEREON. THE DEVELOPMENT ACTIVITY PRECEDE S THE ACTUAL CONSTRUCTION OR BUILDING ACTIVITY. A CLUE TO THIS POSITION IS GIVEN IN CLAUSE (A) OF SUB-SECTION (10) OF SECTION 80-IB, WH ICH SAYS THAT THE DEDUCTION WILL BE GIVEN IF THE UNDERTAKING HAS COMM ENCED OR COMMENCES DEVELOPMENT AND CONSTRUCTION OF THE HOUSI NG PROJECT ON OR AFTER A PARTICULAR DATE AND COMPLETES THE CON STRUCTION BY A PARTICULAR DATE. THIS SHOWS THAT THE DEVELOPMENT A CTIVITY PRECEDES THE ACTUAL CONSTRUCTION ACTIVITY. THERE IS NO OBJE CTION ON THE GROUND THAT THE ASSESSEE IS NOT A BUILDER OF HOUSING PROJE CTS. THE OBJECTION IS THAT THE ASSESSEE SHOULD BE BOTH A DEV ELOPER AND A BUILDER AND THE ASSESSEE IN THE PRESENT CASE HAS NO T UNDERTAKEN ANY DEVELOPMENT ACTIVITY. WE HAVE ALREADY REFERRED TO THE VARIOUS RESPONSIBILITIES UNDERTAKEN BY THE ASSESSEE FROM TH E DAY ON WHICH IT ACQUIRED THE DEVELOPMENT RIGHTS OVER THE LAND FR OM BJPL IN 1982. SECTION 80-IB(10) WAS INTRODUCED IN THE STATUTE BOO K WITH EFFECT FROM 01.04.2000 BY THE FINANCE ACT, 1999. IT CANNO T BE POSTULATED THAT THE ASSESSEE, EVEN IN 1982, WITH A VIEW TO OBT AINING DEDUCTION UNDER SECTION 80-IB UNDERTOOK CERTAIN PAPER TRANSAC TIONS IN ORDER TO CLAIM DEDUCTION AT A MUCH LATER PERIOD ON THE GROUN D THAT THOSE TRANSACTIONS AMOUNTED TO DEVELOPMENT ACTIVITY PRECE DING THE CONSTRUCTION OF THE HOUSING PROJECTS. BE THAT AS I T MAY, THE OBLIGATIONS AND RESPONSIBILITIES UNDERTAKEN BY THE ASSESSEE UNDER ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 25 THE VARIOUS AGREEMENTS, WHICH WE HAVE REFERRED TO E ARLIER, UNMISTAKABLY SHOW THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE ARE ACTIVITIES RELATING TO DEVELOPMENT OF THE HOUSI NG PROJECT. WE ARE IN COMPLETE AGREEMENT WITH THE REASONING AND FI NDINGS OF THE CIT(A) IN SUPPORT OF THE CONCLUSION THAT THE VARIOU S ACTIVITIES CARRIED ON BY THE ASSESSEE AMOUNTED TO DEVELOPMENT ACTIVITI ES WITHIN THE MEANING OF SECTION 80-IB(10). IN ADDITION, THE ASS ESSEE HAS BEEN IN THE BUSINESS OF DEVELOPERS AND BUILDERS SINCE MA NY YEARS AND HAVE UNDERTAKEN AND COMPLETED SEVERAL HOUSING PROJE CTS SUCH AS VICEROY PARK, VASUNDHARA, ETC. AND HITHERTO THE ASS ESSING OFFICER HAS NOT RAISED ANY OBJECTION ON THE GROUND THAT THE ASSESSEE IS NOT A DEVELOPER. THE FACT THAT THE CONSTRUCTION ACTIVI TY WAS FINANCED BY EBPL CANNOT OBLITERATE OR TAKE AWAY ALL THE EARLIER RESPONSIBILITIES UNDERTAKEN BY THE ASSESSEE TO LEGALLY AND FACTUALLY PREPARE THE LAND FOR PUTTING UP THE HOUSING PROJECTS. IN BUSIN ESS WORLD IT IS COMMON TO FIND PERSONS HAVING DIFFERENT TALENTS POO LING THEM TOGETHER. IN THE SAME WAY, THE ASSESSEE WHICH HAD THE DEVELOPMENT RIGHTS OVER THE LAND AND WHICH HAD UNDE RTAKEN THE RESPONSIBILITY OF OBTAINING ALL STATUTORY CLEARANCE S, PERMISSIONS, ETC. FOR PUTTING UP THE HOUSING PROJECT ON THE LAND, HAD COLLABORATED WITH EBPL WHICH HAD THE NECESSARY TECHNICAL KNOWHOW AS W ELL AS THE FINANCE FOR PUTTING UP THE CONSTRUCTION. IT SHOULD ALSO BE REMEMBERED THAT THE ASSESSEE HAD ALSO UNDERTAKEN TO REMOVE ALL THE STRUCTURES AND UNAUTHORIZED OCCUPANTS ON THE LA ND. IN FACT M/S THAKUR BROTHERS AGRICULTURAL FARM HAD ADMITTEDLY BE EN IN ADVERSE ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 26 POSSESSION OF THE LAND AND THEREFORE THEY HAD TO BE GIVEN 40% OF THE FSI AND THIS WAS LARGELY DUE TO THE EFFORTS OF THE ASSESSEE, AS CAN BE SEEN FROM THE TRIPARTITE AGREEMENT DATED 22. 12.1999 TO WHICH THE ASSESSEE, EBPL AND M/S THAKUR BROTHERS AG RICULTURAL FARM WERE PARTIES. WE HAVE REFERRED TO THE TERMS A ND CONDITIONS IN THIS AGREEMENT IN CONSIDERABLE DETAIL EARLIER. THE MEMORANDUM OF UNDERSTANDING DATED 06.10.1986 AND 29.01.1992 UNDER WHICH M/S THAKUR BROTHERS AGRICULTURAL FARM WERE GIVEN 25% AN D 40% RESPECTIVELY OF THE FSI WAS ENTERED INTO ONLY BETWE EN THE ASSESSEE AND THE SAID M/S THAKUR BROTHERS AGRICULTURAL FARM WITH BJPL CONFIRMING THE MEMORANDUM OF UNDERSTANDING. EBPL W AS NOT A PARTY TO THE MOU UNDER WHICH 40% FSI WAS GIVEN TO M /S THAKUR BROTHERS AGRICULTURAL FARM IN CONSIDERATION OF THEI R GIVING UP ADVERSE POSSESSION OF THE LAND. 22. THUS MOST OF THE CRUCIAL, PRELIMINARY AND BASIC DEVELOPMENTAL ACTIVITIES NECESSARY FOR THE PURPOSE OF MAKING THE LAND READY AND PREPARED FOR CONSTRUCTION ACTIVITY, BOTH LEGALLY AND FACTUALLY, WERE UNDERTAKEN AND PUT THROUGH ONLY BY THE ASSESSEE. IT WOULD BE UNFAIR TO IGNORE OR BRUSH ASIDE THESE ACTI VITIES BY CALLING THEM NOT DEVELOPMENTAL ACTIVITIES MERELY BECAUSE TH E ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF THE PROFITS UND ER SECTION 80- IB(10). IT WOULD BE PARTICULARLY SO BECAUSE THE DE PARTMENT HAS CONSISTENTLY ACCEPTED THE ASSESSEE AS A DEVELOPER I N THE OTHER ASSESSMENT YEARS, WHICH WERE REOPENED ONLY BECAUSE THE ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 27 ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CLA IM FOR DEDUCTION IN THE ASSESSMENT YEAR 2004-05. 23. IT IS ALSO NOT FAIR TO TREAT THE ACTIVITIES UND ERTAKEN BY THE ASSESSEE AS PAPER TRANSACTIONS MERELY TO ENABLE IT TO CLAIM DEDUCTION, BECAUSE MANY OF THE ACTIVITIES AND RESPO NSIBILITIES UNDERTAKEN BY THE ASSESSEE WERE STATUTORY IN NATURE SUCH AS THE CLEARANCE UNDER THE ULCRA, PERMISSIONS, APPROVALS A ND IODS FROM THE BMC ETC. THESE CANNOT BE TREATED AS PAPER TRAN SACTIONS. NOR IS IT CORRECT TO SAY THAT WHATEVER EXPENDITURE THE ASSESSEE HAD INCURRED TO LEGALLY AND FACTUALLY PREPARE THE LAND FOR CONSTRUCTION WAS ONLY INCURRED TO PRESERVE AND MAINTAIN THE ASSE SSEES TITLE TO THE LAND. RIGHT FROM THE DAY ON WHICH THE ASSESSEE OBTAINED THE DEVELOPMENT RIGHTS FROM BJPL, WHICH WAS SUBSEQUENTL Y CONFIRMED BY NJPL, THE ASSESSEE UNDERTOOK ALL THE DEVELOPMENT AL ACTIVITIES ONLY WITH A VIEW TO PUTTING UP HOUSING PROJECTS ON THE LAND. THE VERY FACT THAT THE ASSESSEE WAS GIVEN DEVELOPMENT R IGHTS BY BJPL OVER THE LAND MEANS THAT THE ASSESSEE INTENDED TO D EVELOP THE LAND BY REMOVING ALL UNAUTHORIZED PERSONS AND STRUCTURES AND TO OBTAIN THE NECESSARY PERMISSIONS FROM ALL CONCERNED STATUT ORY AUTHORITIES SO THAT THE CONSTRUCTION OF THE HOUSING PROJECT THE REON CAN BE COMMENCED AND PROCEEDED WITH WITHOUT ANY HITCH. AL L THE CLAUSES IN THE AGREEMENT DATED 29.06.1982 BETWEEN BJPL AND THE ASSESSEE ARE CALIBRATED ONLY TOWARDS THIS END. WE HAVE ALREADY REFERRED TO THIS AGREEMENT IN SOME DETAIL AND AT TH E COST OF REPETITION WE MAY NOTE THAT CLAUSE 13 OF THE SAID A GREEMENT IN ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 28 PARTICULAR STATES THAT THE ASSESSEE SHALL DEVELOP T HE LAND AT ITS ENTIRE RISK AS TO COSTS AND EXPENSES AND SHALL CARR Y OUT THE ENTIRE DEVELOPMENT WORK IN ACCORDANCE WITH THE PLANS AND S PECIFICATIONS DULY APPROVED AND SANCTIONED BY THE MCGM. THE CLAU SE EVEN REFERRED TO THE FACT THAT THE ASSESSEE WILL BEAR TH E EXPENSES IN RELATION TO THE CONSTRUCTION WORK INCLUDING COMPENS ATION PAYABLE FOR INJURY. CLAUSE 20 REFERRED TO THE UNDERSTANDING TH AT THE ASSESSEE WOULD GET THE CONVEYANCE EITHER IN ITS OWN FAVOUR O R IN FAVOUR OF ITS NOMINEE OR NOMINEES OR A COOPERATIVE SOCIETY OR ANY OTHER ENTITY IN RESPECT OF THE STRUCTURES SOLD TO THE FLAT BUYERS. ALL THESE CLAUSES PUT THE MATTER BEYOND DOUBT AND IF ANY CLARIFICATIO N IS NEEDED REFERENCE MAY BE MADE TO CLAUSE 18 OF THE SAID AGRE EMENT WHICH SAYS THAT THE ASSESSEE ALONE IS ENTITLED TO ENTER I NTO AGREEMENTS FOR SALE OF THE FLATS, SHOPS, ETC. ON OWNERSHIP BASIS O R OTHERWISE. THE ASSESSEE IS A BUSINESSMAN ENGAGED IN THE DEVELOPMEN T AND CONSTRUCTION OF HOUSING PROJECTS AND IT WOULD MAKE NO SENSE FOR HIM TO ACQUIRE DEVELOPMENT RIGHTS OF SUCH A LARGE PARCE L OF LAND (370 ACRES PLUS) IF HE DID NOT HAVE IN MIND THE PROPOSAL TO UTILIZE THE LAND FOR PURPOSES OF CONSTRUCTION OF HOUSING PROJECTS. AS EVENTS TURNED OUT THE ASSESSEE COULD NOT FIND THE NECESSARY WHERE WITHAL FOR THE CONSTRUCTION AND THE SAME WAS SUPPLIED BY EBPL ALON G WITH THE KNOWHOW. THE ASSESSEE THEREFORE THOUGHT IT IDEAL T O COLLABORATE WITH EBPL AND PUT UP THE HOUSING PROJECT. THE ASSE SSEE HAD ALL THE CLEARANCES AND STATUTORY PERMISSIONS READY. EB PL WAS ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 29 PREPARED TO FINANCE THE PROJECT. BOTH OF THEM COLL ABORATED AND PUT UP THE HOUSING PROJECT. 24. THERE IS ALSO NO ESCAPEMENT OF TAX BY WAY OF DO UBLE DEDUCTION. WE HAVE ALREADY NOTICED THAT THE GROSS SALE PROCEEDS ARE TO BE DIVIDED BETWEEN THE ASSESSEE AND EBPL ON THE BASIS OF 43% AND 57% RESPECTIVELY. THUS THE ASSESSEE WOULD BE GETTING DEDUCTION UNDER SECTION 80-IB(10) IN RESPECT OF THE PROFITS DERIVED BY IT FROM THE HOUSING PROJECT AND EBPL WILL BE SIM ILARLY CLAIMING DEDUCTION IN RESPECT OF ITS SHARE OF THE PROFITS. BOTH OF THEM COMBINED DO NOT EXCEED 100% OF THE PROFITS FROM THE HOUSING PROJECT. THUS THERE IS ALSO NO DOUBLE DEDUCTION. 25. FOR THE ABOVE REASONS WE ARE OF THE VIEW THAT T HE CIT(A) WAS RIGHT IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO THE DEDUCTION UNDER SECTION 80-IB(10). THE APPEAL IN ITA NO: 472 8/MUM/2007 FOR THE ASSESSMENT YEAR 2004-05 IS THEREFORE DISMISSED . 26. WE MAY ADD THAT GROUND NOS: 1.1 AND 1.2 TAKEN B Y THE DEPARTMENT DO NOT ARISE OUT OF THE ORDERS OF THE DE PARTMENTAL AUTHORITIES. THE ONLY OBJECTION RAISED BY THE ASSE SSING OFFICER WAS THAT THE ASSESSEE WAS NOT A DEVELOPER. THE ABOVE G ROUNDS HOWEVER RAISE THE POINT WHETHER THE RECEIPTS ON ACC OUNT OF DEVELOPMENT RIGHTS WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS OBJECTION WAS NOT RAISED BY THE ASSESSING OFFICER. EVEN OTHERWISE, FACTUALLY THE ASSESSEE HA S NOT CLAIMED DEDUCTION IN RESPECT OF SALE PROCEEDS OF DEVELOPMEN T RIGHTS. THE PROFITS HAVE BEEN SHOWN ONLY FROM THE SALE OF THE U NITS IN THE ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 30 HOUSING PROJECT. SIMILARLY, GROUND NO: 1.3, WHICH RAISES THE POINT THAT THE DEVELOPMENT OF THE PROJECT WAS STARTED PRI OR TO 01.10.1998, DOES NOT ARISE FROM THE ORDERS OF THE DEPARTMENTAL AUTHORITIES BECAUSE NO SUCH OBJECTION WAS TAKEN BY THE ASSESSIN G OFFICER. THIS POINT WAS NOT ALSO ARGUED BEFORE US BY THE DEP ARTMENT. 27. AS REGARDS THE ASSESSMENT YEAR 2003-04, THE GRO UNDS ARE IDENTICAL WITH THOSE TAKEN IN THE ASSESSMENT YEAR 2 004-05. OUR OBSERVATIONS WITH REGARD TO THE REVISED GROUNDS RAI SED IN THIS YEAR ARE THE SAME AS IN OUR DECISION IN THE APPEAL FOR T HE ASSESSMENT YEAR 2004-05. THE APPEAL IN ITA NO: 4219/MUM/2009 IS DISMISSED IN LINE WITH OUR DECISION IN THE APPEAL FOR THE ASS ESSMENT YEAR 2004-05. 28. AS REGARDS THE ASSESSMENT YEAR 2002-03, THE ONL Y GROUND RELATES TO THE DECISION OF THE CIT(A) TO ALLOW DEDU CTION UNDER SECTION 80-IB(10). IN LINE WITH OUR DECISIONS FOR THE ASSESSMENT YEARS 2004-05 AND 2003-04, THE DECISION OF THE CIT( A) IS CONFIRMED AND THE APPEAL IN ITA NO: 6504/MUM/2008 IS DISMISSE D. 29. WE MAY NOW TAKE UP THE APPEAL OF THE DEPARTMENT FOR THE ASSESSMENT YEAR 2005-06. THE FIRST GROUND IS THAT THE CIT(A) ERRED IN ALLOWING DEDUCTION UNDER SECTION 80-IB(10) OF TH E ACT. THE CIT(A) HAS FOLLOWED HIS PREDECESSORS ORDER FOR THE ASSESSMENT YEAR 2004-05, WHICH HAS BEEN CONFIRMED BY US IN THE APPEAL FILED BY THE DEPARTMENT FOR THAT YEAR. IN LINE WITH OUR DECISION, WE CONFIRM THE DECISION OF THE CIT(A) FOR THIS YEAR AL SO AND DISMISS THE GROUND. ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 31 30. THE SECOND GROUND RELATES TO THE DISALLOWANCE U NDER SECTION 40A(2)(B) OF THE ACT. THE ASSESSEE PAID ` 4,45,40,974/- TO ITS MANAGING DIRECTOR, SHRI P R MODY, ON ACCOUNT OF SAL ARY, EXGRATIA AND MEDICAL REIMBURSEMENT. THE ASSESSING OFFICER W AS OF THE VIEW THAT IT WAS ON THE HIGHER SIDE IN COMPARISON WITH T HE PAYMENT MADE TO THE OTHER DIRECTORS OF THE COMPANY. THE ASSESSE E WAS THEREFORE ASKED TO JUSTIFY THE PAYMENT AND ALSO FURNISH A DET AILED NOTE AS TO THE APPLICABILITY OF THE SECTION. THE ASSESSEE FIL ED THE DETAILS OF THE PAYMENTS MADE TO SHRI P R MODY BUT DID NOT SUBMIT A NY JUSTIFICATION AS TO WHY THE SECTION CANNOT BE APPLI ED. THE ASSESSING OFFICER NOTICED THAT IN THE ASSESSMENT YE AR 2004-05 THE TOTAL PAYMENTS AS DIRECTORS REMUNERATION WAS ` 1,58,21,555/- WHEREAS FOR THE YEAR UNDER CONSIDERATION IT WAS THR EE TIMES MORE. THE INCREASE WAS FOUND TO BE MAINLY DUE TO THE PAYM ENT MADE TO SHRI P R MODY. THE ASSESSING OFFICER THEN COMPARED THE INCOME OF THE YEAR WITH THE INCOME OF THE EARLIER YEAR AND FOUND THAT EVEN THIS DOES NOT JUSTIFY THE INCREASE IN THE PAYMENT T O SHRI P R MODY. THE OTHER TWO DIRECTORS, SHRI P D COLABAWALA AND SH RI K E VAID WERE FOUND TO HAVE BEEN PAID ONLY ` 5,73,320/- AND ` 2,60,707/- RESPECTIVELY, THOUGH THEY ARE ALSO OF THE SAME CAPA BILITY AS SHRI P R MODY. THE ASSESSING OFFICER FOR THESE REASONS HE LD THAT THE PAYMENT OF REMUNERATION TO SHRI P R MODY WAS UNREAS ONABLE AND EXCESSIVE. HE RESTRICTED THE PAYMENT TO THAT OF TH E LAST YEAR, NAMELY, ` 1,49,68,760/- AND THE EXCESS OF ` 3,01,26,247/- WAS DISALLOWED UNDER SECTION 40A(2)(B) OF THE ACT. ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 32 31. ON APPEAL, IT WAS SUBMITTED BY THE ASSESSEE THA T SHRI P R MODY AS MANAGING DIRECTOR RUNS THE ENTIRE BUSINESS AND CANNOT BE COMPARED WITH THE OTHER TWO DIRECTORS WHO HARDLY WO RKED. SHRI P R MODY IS A CHARTERED ACCOUNTANT FROM LONDON AND WAS EARLIER WORKING FOR ABOUT TEN YEARS WITH M/S A A FERGUSON & COMPANY. THE OTHER TWO DIRECTORS WERE STATED TO BE NOT EVEN GRADUATES. SHRI P R MODY, IT WAS POINTED OUT, WAS PAID ONLY 8% OF T HE PROFITS AND SINCE THE REMUNERATION WAS LINKED TO THE PROFITS, T HE SAME INCREASED COMMENSURATE WITH THE PROFITS. IT WAS AC CORDINGLY SUBMITTED THAT IT CANNOT BE SAID TO BE UNREASONABLE OR EXCESSIVE HAVING REGARD TO THE LEGITIMATE NEEDS OF THE BUSINE SS. 32. THE CIT(A) FOUND THAT THERE WAS NOTHING TO SHOW THAT THE OTHER TWO DIRECTORS WERE EQUALLY CAPABLE AS SHRI P R MODY. HE FURTHER FOUND THAT THE REASONABLENESS OF THE PAYMEN T SHOULD BE COMPARED TO THE PAYMENT FOR SIMILAR SERVICES IN THE OPEN MARKET. THE ASSESSING OFFICER HAS NOT COMPARED THE PAYMENT TO SHRI P R MODY WITH THE PAYMENT MADE BY OTHER COMPANIES TO SI MILARLY QUALIFIED AND CAPABLE MANAGING DIRECTORS. ACCORDIN G TO THE CIT(A), THE ASSESSING OFFICER WAS NOT JUSTIFIED IN COMPARIN G THE PAYMENT TO SHRI P R MODY WITH THE PAYMENTS MADE TO OTHER TWO D IRECTORS, NOR WAS HE JUSTIFIED IN COMPARING THE PAYMENT WITH THAT MADE IN THE EARLIER YEAR. IN THESE CIRCUMSTANCES HE CANCELLED THE DISALLOWANCE. 33. WE HAVE CONSIDERED THE FACTS. THE FACTS ARE NO T IN DISPUTE. AS RIGHTLY POINTED OUT BY THE CIT(A), SHRI P R MODY IS A CHARTERED ACCOUNTANT FROM LONDON AND HAD QUALITY EXPERIENCE A S EMPLOYEE ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 33 OF M/S A A FERGUSON & COMPANY FOR TEN YEARS BEFORE JOINING THE ASSESSEE. HE IS ALSO STATED TO BE RUNNING THE ENTI RE SHOW WHEREAS THE OTHER TWO DIRECTORS ARE NOT SO QUALIFIED AND AL SO DID NOT TAKE PART IN THE BUSINESS IN THE SAME WAY IN WHICH SHRI P R MODY TOOK PART IN THE ASSESSEES BUSINESS. THE CIT(A) IS ALS O RIGHT IN SAYING THAT THE ASSESSING OFFICER OUGHT TO HAVE COMPARED T HE PAYMENT MADE TO SHRI P R MODY WITH PAYMENTS MADE FOR SIMILA R SERVICES BY OTHER COMPANIES. COMPARISON OF THE PAYMENT WITH TH E PAYMENTS MADE TO THE OTHER TWO DIRECTORS IS NOT JUSTIFIED BE CAUSE IN EVERY ORGANIZATION THERE MAY BE DIFFERENTIAL PAYMENTS DEP ENDING UPON THE QUALIFICATION, EXPERIENCE, ETC. OF EACH EMPLOYE E. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANYTHIN G TO SHOW THAT THE PAYMENT TO SHRI P R MODY IS EXCESSIVE OR UNREAS ONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES FOR WHICH THE PAYMENT WAS MADE OR THE LEGITIMATE NEEDS OF THE BUS INESS OR THE BENEFIT DERIVED FROM THE SERVICES OF SHRI P R MODY. THE CONDITIONS OF SECTION 40A(2)(B) NOT HAVING BEEN FULFILLED, THE CIT(A) WAS RIGHT IN DELETING THE DISALLOWANCE. HIS DECISION IS CONFIRM ED AND THE GROUND IS DISMISSED. 34. THE THIRD GROUND RELATES TO THE ADDITION OF ` 31,30,792/- BEING SUNDRY BALANCES WRITTEN OFF. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF THE SUNDRY BALANCES WRITTEN OFF IN THE PROFIT AND LOSS ACCOUNT ON THE GROUND THAT THE COMPLETE DOCUME NTARY EVIDENCE WAS NOT ADDUCED BY THE ASSESSEE. HE NOTED THAT THE BALANCES PERTAINED TO PAYMENTS MADE TO CONTRACTORS WHICH WERE ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 34 INITIALLY NOT APPROVED BUT WERE FINALLY APPROVED AN D ONE PAYMENT WAS MADE TO A PERSON WHO WAS DECLARED BANKRUPT. HE THEREFORE DISALLOWED THE CLAIM. 35. ON APPEAL, THE ASSESSEE SUBMITTED THAT THE MAJO R AMOUNT OF ` 21,59,960/- WAS IN RESPECT OF ONE PERSON BY NAME HE MENDRA SHETH AND THE OTHER BALANCES WERE BELOW ` 1,00,000/- EACH. THE AMOUNTS HAVE BEEN PAID BY THE ASSESSEE AS ADVANCES TO CONTRACTORS FOR EXECUTION OF VARIOUS PROJECTS. IF THE WORK DONE BY THEM AND CERTIFIED IS LESS THAN THE ADVANCES PAID T O THEM, THERE IS AN OUTSTANDING BALANCE IN THEIR ACCOUNT WHICH IS TO BE WRITTEN OFF AS A LOSS. THE ASSESSEE WROTE OFF THE AMOUNTS OUTSTAN DING AGAINST THE CONTRACTORS BECAUSE THERE WAS NO SCOPE OF GETTI NG BACK THE AMOUNT. IN THE CASE OF HEMENDRA SHETH, HE HAD BECO ME BANKRUPT. THESE FACTS WERE ACCEPTED BY THE CIT(A) AND HE THER EFORE UPHELD THE ASSESSEES CLAIM. 36. ON A CAREFUL CONSIDERATION OF THE MATTER WE SEE NO GROUND TO INTERFERE, ESPECIALLY WHEN THE FACTUAL FINDINGS OF THE CIT(A) ARE NOT DISPUTED. THE GROUND IS ACCORDINGLY DISMISSED. 37. THE FOURTH GROUND RELATES TO THE DISALLOWANCE O F ` 7,48,734/- UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE PAID PROFESSIONAL FEES OF ` 6,03,692/- AND BROKERAGE AND COMMISSION OF ` 1,45,042/-, AGGREGATING TO ` 7,48,734/- DURING THE YEAR, FROM WHICH TAX OF ` 43,801/- WAS DEDUCTED IN THE MONTHS OF FEBRUARY AND MARCH 2005. THE TAX SO DEDUCTED WAS NOT DEPOSITED BY THE ASSESSEE WITH THE GOVERNMENT ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 35 BEFORE THE DUE DATES. THE RELEVANT DETAILS ARE SET OUT IN PARAGRAPH 5 OF THE ASSESSMENT ORDER IN THE FORM OF A CHART AN D THEY ARE NOT REPRODUCED HERE FOR THE SAKE OF BREVITY AND ALSO BE CAUSE THERE IS NO DISPUTE ABOUT THEM. SINCE SECTION 40(A)(IA) SAY S THAT NO DEDUCTION WOULD BE ALLOWED IN COMPUTING THE BUSINES S INCOME IF THE ASSESSEE FAILS TO DEDUCT, OR FAILS TO DEPOSIT THE T AX AFTER DEDUCTION, THE TAX WHICH IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B OF THE ACT FROM INTEREST, COMMISSION OR BROKERAGE, RENT, R OYALTY, FEES FOR PROFESSIONAL OR TECHNICAL SERVICES, THE ASSESSING O FFICER, RELYING ON THE SAID PROVISION, DISALLOWED THE PROFESSIONAL FEE S AND BROKERAGE AND COMMISSION. 38. ON APPEAL, THE ASSESSEE POINTED OUT THAT THE TA X DEDUCTED HAS BEEN DEPOSITED ON 06.04.2005 AND THEREFORE THER E IS NO DEFAULT WHICH WOULD ATTRACT THE PROVISIONS OF THE AFOREMENT IONED SECTION. THE CIT(A) ACCEPTED THE CONTENTION AND DELETED THE DISALLOWANCE. 39. THE REVENUE IS IN APPEAL. IN THE PRESENT CASE THE ASSESSEE HAS ADMITTEDLY DEDUCTED THE TAX AT SOURCE AT THE TI ME OF THE PAYMENT. ACCORDING TO SECTION 40(A)(IA), AS IT STO OD AT THE RELEVANT TIME, IF THE TAX WAS DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, IT SHOULD HAVE BEEN DEPOSITED BEFORE THE DUE DATE SPECIFIED IN SECTION 139(1) AND ANY OTHER CASE IT SHOULD HAVE BE EN DEPOSITED WITH THE GOVERNMENT ON OR BEFORE THE LAST DAY OF TH E PREVIOUS YEAR. ACCORDING TO THE DETAILS SET OUT IN THE ASSESSMENT ORDER, THE TAX OF ` 35,316/- WAS DEDUCTED FROM THE PROFESSIONAL FEES IN THE MONTH OF MARCH 2005. THE DUE DATE FOR DEPOSITING THE TAX, A CCORDING TO ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 36 EXPLANATION 2 BELOW SECTION 139(1) IS 31.10.2005. THE TAX OF ` 35,316/- WAS DEPOSITED ON 22.06.2005, WHICH IS WITH IN THE DUE DATE. THEREFORE, THERE IS NO JUSTIFICATION FOR THE DISALLOWANCE OF THE PROFESSIONAL FEES OF ` 6,03,692/-. 40. AS REGARDS THE BROKERAGE AND COMMISSION, FROM T HE DETAILS GIVEN BY THE ASSESSING OFFICER, IT IS SEEN THAT TAX OF ` 2,240/- WAS DEDUCTED IN THE MONTH OF FEBRUARY 2005 AND AS PER S ECTION 40(A)(IA), AS IT STOOD AT THE RELEVANT TIME, THE TA X OUGHT TO HAVE BEEN DEPOSITED BEFORE 31.03.2005, WHICH IS THE LAST DAY OF THE PREVIOUS YEAR. THE TAX WAS ACTUALLY DEPOSITED ONLY ON 06.04 .2005. THEREFORE, SO FAR AS THE BROKERAGE AND COMMISSION P AYMENT, ON WHICH TAX OF ` 2,240/- WAS DEDUCTED IN FEBRUARY 2005 IS CONCERNED, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOU LD BE UPHELD. THE ASSESSING OFFICER IS DIRECTED TO ASCERTAIN THE RELEVANT AMOUNT AND DISALLOW THE SAME. HOWEVER, WITH REGARD TO THE TAX OF ` 6,245/- DEDUCTED IN MARCH 2005, THE SAME HAS BEEN DEPOSITED ON 06.05.2005, WHICH IS WITHIN THE DUE DATE AS PER SEC TION 139(1). THEREFORE, THE BROKERAGE AND COMMISSION PAYMENT REF ERABLE TO THE TAX OF ` 6,245/- DEDUCTED AT SOURCE CANNOT BE DISALLOWED. T HE SAID DISALLOWANCE IS HELD TO BE RIGHTLY DELETED. THUS G ROUND NO: 4 IS PARTLY ALLOWED. 41. GROUND NO: 5 RELATES TO THE DISALLOWANCE OF CAR EXPENSES. WHEREAS THE ASSESSING OFFICER DISALLOWED ` 7,85,375/-, THE CIT(A) RESTRICTED THE SAME TO ` 2,00,000/-. AFTER GOING THROUGH THE ORDERS ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 37 OF THE DEPARTMENTAL AUTHORITIES, WE SEE NO REASON T O INTERFERE. THE GROUND IS REJECTED. 42. GROUND NO: 6 RELATES TO THE DISALLOWANCE OF THE DELAYED EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. THE AMO UNT DISALLOWED IS ` 28,840/-. ACCORDING TO THE ASSESSMENT ORDER, THE D UE DATE FOR DEPOSIT OF THE AMOUNT WAS 15.06.2004 AND IT WAS ACT UALLY PAID THE NEXT DAY, I.E. 16.06.2004. THE PAYMENT IS WITHIN T HE GRACE PERIOD ALLOWED AS PER THE CIRCULAR ISSUED BY CPDC WHICH IS REFERRED TO IN PARAGRAPH 9.1 OF THE ORDER OF THE CIT(A). IT GIVES A GRACE PERIOD OF FIVE DAYS. THE ASSESSEE HAS DEPOSITED THE CONTRIBU TION WITHIN THE GRACE PERIOD. ACCORDINGLY THE DECISION OF THE CIT( A) TO DELETE THE DISALLOWANCE IS UPHELD AND THE GROUND IS REJECTED. 43. GROUND NOS: 7(A) & 7(B) RELATES TO THE DISALLOW ANCE UNDER SECTION 14A OF THE ACT, IN RESPECT OF ADMINISTRATIV E EXPENSES ATTRIBUTABLE TO THE EXEMPT INCOME. THE ASSESSING O FFICER DISALLOWED ` 15,26,507/- BY INVOKING SECTION 14A, NOTING THAT TH E ASSESSEE RECEIVED DIVIDEND INCOME OF ` 1,58,32,195/- WHICH WAS EXEMPT FROM TAX. HE NOTED THAT THE DIVIDEND INCOME CONSTITUTED 2.49% OF THE INCOME AS PER THE PROFIT AND LOSS ACCO UNT, WHICH CAME TO ` 63,56,24,975/-. THE TOTAL ADMINISTRATIVE EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT WAS ` 6,13,05,507/-. THE ASSESSING OFFICER DISALLOWED 2.59% OF THE ADMINISTR ATIVE EXPENSES WHICH CAME TO ` 15,26,507/-. ON APPEAL, THE ASSESSEE SUBMITTED THAT IT INVESTED SURPLUS FUNDS IN MUTUAL FUNDS THRO UGH STANDARD CHARTERED BANK AND THE ENTIRE ACTIVITY OF SELECTION OF THE ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 38 APPROPRIATE FUND, PAPER WORK AND REDEMPTION WAS UND ERTAKEN BY THE BANK AND THE ASSESSEE WAS NOT INVOLVED IN THE W ORK AT ALL. IT WAS THEREFORE CONTENDED THAT NO SPECIFIC EXPENSES C AN BE SAID TO HAVE BEEN INCURRED FOR EARNING THE DIVIDEND INCOME. IT WAS POINTED OUT THAT EVEN THE DIVIDEND WARRANTS WERE DIRECTLY D EPOSITED IN THE BANK BY THE MUTUAL FUNDS. THE CIT(A) DID NOT ACCEP T THE BROAD CONTENTION THAT NO ADMINISTRATIVE EXPENSES WERE INC URRED BY THE ASSESSEE SINCE IT HAD APPOINTED STANDARD CHARTERED BANK FOR INVESTING IN MUTUAL FUNDS. HE HOWEVER HELD THAT TH E CALCULATION OF THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER W AS NOT PROPER. ACCORDING TO THE CIT(A), A DISALLOWANCE OF 3% OF TH E DIVIDEND INCOME CAN BE HELD TO BE A PROPER ESTIMATE OF ADMIN ISTRATIVE EXPENSES ATTRIBUTABLE TO THE EARNING OF THE DIVIDEN D INCOME. THIS CAME TO ` 4,75,965/-, WHICH WAS CONFIRMED, THEREBY GIVING REL IEF OF ` 10,51,541/- TO THE ASSESSEE. 44. THERE IS NO APPEAL BY THE ASSESSEE AGAINST THE DISALLOWANCE SUSTAINED BY THE CIT(A). THE CONTENTION OF THE REV ENUE IS THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD B E RESTORED. ON A CAREFUL CONSIDERATION OF THE FACTS, WE ARE OF THE VIEW THAT THE DISALLOWANCE SUSTAINED BY THE CIT(A) BASED ON A PER CENTAGE OF THE DIVIDEND INCOME SEEMS LESS REASONABLE THAN THE METH OD ADOPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HA S ADOPTED THE SAME PERCENTAGE WHICH THE DIVIDEND INCOME BEARS TO THE TOTAL INCOME OF THE ASSESSEE AS PER THE PROFIT AND LOSS A CCOUNT. THIS SEEMS TO BE A MORE REASONABLE APPROACH. WE ACCORDI NGLY REVERSE ITA NO: 6504/MUM/2008 ITA NO: 4219/MUM/2009 ITA NO: 4728/MUM/2007 ITA NO: 6505/MUM/2008 39 THE DECISION OF THE CIT(A) AND RESTORE THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER. 45. GROUND NOS: 8 AND 9 ARE GENERAL AND REQUIRE NO DECISION. 46. THE APPEAL OF THE DEPARTMENT FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO: 6505/MUM/2008 IS THUS PARTLY ALL OWED. 47. TO SUM UP, ITA NOS: 4728/MUM/2007, 6504/MUM/200 8 AND 4219/MUM/2009 ARE DISMISSED AND ITA NO: 6505/MUM/20 08 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JUNE 2011. SD/- SD/- (T R SOOD) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 3 RD JUNE 2011 SALDANHA COPY TO: 1. BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD. NOSHIRWAN MANSION, 3 RD FLOOR HENRY ROAD, COLABA, MUMBAI 400 039 2. ACIT / DCIT 1(1), MUMBAI 3. CIT-I, MUMBAI 4. CIT(A)-I, MUMBAI 5. DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI