Dy. CIT, Circle-8, Pune V. Ghanshyam J. Sukhwani (HUF), Pune

ITA 689/PUN/2013

• Counselvise Citation: 68924514 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M S VERMA
• Assessee Lawyers: VIPIN GUJRATI
• Keywords: Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS.688 AND 689/PN/2013 (ASSESSMENT YEARS : 200-4-05 & 2009-10) DY.CIT, CIRCLE-8, PUNE .. APPELLANT VS. GHANSHYAM J. SUKHWANI (HUF), 32, VIKRAM CONSTRUCTION, STATION ROAD, PIMPRI, PUNE 411 018 .. RESPONDENT PAN NO.AABHS9560G ASSESSEE BY : SHRI VIPIN GUJRATI REVENUE BY : MS. M.S. VERMA DATE OF HEARING : 27-06-2014 DATE OF PRONOUNCEMENT : 24-07-2014 ORDER PER R.K. PANDA, AM : THE ABOVE 2 APPEALS FILED BY THE REVENUE ARE DIRECT ED AGAINST THE SEPARATE ORDERS DATED 28-12-2012 OF THE CIT(A)-V, P UNE RELATING TO ASSESSMENT YEARS 2004-05 & 2009-10 RESPECTIVELY. F OR THE SAKE OF CONVENIENCE, BOTH THE APPEALS WERE HEARD TOGETHER A ND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.688/PN/2013 (A.Y.2004-05) : 2. GROUND OF APPEAL NO.1 BY THE REVENUE READS AS UN DER : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN ALLOWING DEDUCTION U/S.80IB(10) WHEN THE HOUSING PROJECT CONSISTED OF COMMERCIAL AREA OF 2815 SQ.FT. AN D THAT PRIOR TO THE AMENDMENT BY THE FINANCE ACT, 2004, NO COMMERCIAL A REA WAS PERMITTED IN A HOUSING PROJECT FOR CLAIMING DEDUCTIO N/S.80IB(10). 2 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSEE IS AN HUF AND IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOP MENT OF HOUSING AND COMMERCIAL PROJECTS. IT FILED ITS RETURN OF IN COME ON 01-11-2004 DECLARING TOTAL INCOME OF RS.18,69,220/-. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESS EE HAS CLAIMED DEDUCTION U/S.80IB(10) AMOUNTING TO RS.1,84,48,250/ - IN RESPECT OF VIKRAM CONSTRUCTION RESIDENCY PROJECT WHICH CONSIST ED OF 9 SHOPS HAVING COMMERCIAL AREA OF 261.54 SQ. MTRS. ACCORDI NG TO THE AO, PRIOR TO 01-04-2005 THERE WAS NO CONCEPT OF COMMERCIAL AR EA IN THE HOUSING PROJECT EXCEPT CONVENIENCE SHOPPING APPROVED BY THE LOCAL AUTHORITY. SINCE THE PROJECT CONSISTED OF BOTH RESIDENTIAL AS WELL AS COMMERCIAL AREA THE AO DENIED THE CLAIM OF DEDUCTION U/S.80IB( 10) MADE BY THE ASSESSEE. 3. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED A CERTI FICATE DATED 17 TH JULY 2007 AS ADDITIONAL EVIDENCE ISSUED BY PCMC WHI CH CERTIFIED THE PROJECT UNDERTAKEN BY THE ASSESSEE AS A HOUSING PRO JECT. THE CIT(A) FORWARDED THE SAME TO THE AO FOR HIS COMMENTS. IN HIS REPORT THE AO OBJECTED TO THE ADMISSION OF ADDITIONAL EVIDENCE. ON MERIT ALSO, THE AO SUBMITTED THAT FOR A PROJECT APPROVED W.E.F. 01-04- 2005 COMMERCIAL AREA TO THE EXTENT OF 5% OR THE AGGREGATE AREA OF 2 000 SQ.FT., WHICHEVER IS LESS WAS ONLY ALLOWABLE. 3.1 AFTER CONSIDERING THE REMAND REPORT OF THE AO A ND THE SUBMISSION OF THE ASSESSEE THE LD.CIT(A) OBSERVED T HAT THE HOUSING PROJECT CONSISTS OF 146 RESIDENTIAL UNITS ADMEASUR ING ABOUT 8104.21 SQ.MTRS AND 9 SHOPS ADMEASURING ABOUT 261.54 SQ.MTR S. THE TOTAL BUILT UP AREA OF THE PROJECT WAS 8365.75 SQ.MTRS AND BUIL T UP AREA OF 3 COMMERCIAL ESTABLISHMENTS IS 3.12% OF THE AGGREGATE BUILT UP AREA. SINCE PCMC HAS CERTIFIED THE PROJECT AS A HOUSING P ROJECT VIDE LETTER DATED 17.7.2007, THE CASE OF THE ASSESSEE IS COVERE D IN ITS FAVOUR BY THE DECISION OF HON'BLE BOMBAY HIGH COURT GIVEN IN THE CASE OF CIT VS. BRAHMA ASSOCIATES 239 CTR 30(BOMBAY) WHEREIN IT HAS BEEN HELD THAT IN RESPECT OF PROJECTS APPROVED PRIOR TO 1.4.2005, DEDUCTION U/S. 80IB(10) HAS TO BE ALLOWED IRRESPECTIVE OF THE COMM ERCIAL AREA CONSTRUCTED. HE, THEREFORE, DIRECTED THE A.O. TO A LLOW DEDUCTION U/S.80IB(10) OF RS.1,01,88,714/-. 3.2. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 4. AFTER HEARING BOTH THE SIDES WE FIND AN IDENTICA L ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A .Y. 2005-06. WE FIND THE TRIBUNAL VIDE ITA NO.1059/PN/2009 ORDER DA TED 14-10-2011 FOR THE A.Y. 2005-06, FOLLOWING VARIOUS DECISIONS INCLU DING THE DECISION IN THE CASE OF BRAHMA ASSOCIATES REPORTED IN 333 ITR 2 89 ALLOWED THE CLAIM OF DEDUCTION U/S.80IB(10) MADE BY THE ASSESSE E. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARA 4 ONWARDS OF THE ORDER READS AS UNDER : 4. THE ISSUE INVOLVED IN THE GROUNDS IS AS TO WHET HER THE ASSESSEE WAS ELIGIBLE FOR CLAIMING DEDUCTION U/S. 80IB(10) OF TH E ACT ON THE PROFITS EARNED ON THE PROJECT DURING THE YEAR. THE UNDISPUTED MAT ERIAL FACTS OF THE PRESENT CASE ARE THAT (A) THE ASSESSEE HAD COMMENCED DEVELO PMENT AND CONSTRUCTION OF HOUSING PROJECT AFTER 1 ST OCTOBER 1998; (2) THE PROJECT IS ON THE SIZE OF PLOT OF LAND WHICH IS MORE THAN 1 ACRE, AND (C) ALL RESIDENTIAL UNITS ARE LESS THAN 1500 SQ.FT. OF BUILT UP AREA. IT HAS ALSO NOT BEEN DISPUTED THAT THE ASSESSEE COMMENCED THE PROJECT ON 19.10.2000 AS PER THE APPROVAL BY PCMC. THE PCMC APPROVED THE PROJECT AS HOUSING P ROJECT. THE RELEVANT FACTS ARE THAT THE BUILDING PROJECT WAS CONSTRUCTED ON THE PLOT OF LAND ADMEASURING ABOUT 13900 SQ. MTS. IT CONSISTS 9 SHOPS ADMEASURING ABOUT 261.54 SQ.MTS. OF THE TOTAL PROJECT AREA. THE SPE CIAL BENCH OF THE TRIBUNAL IN THE CASE OF BRAMHA ASSOCIATES (SUPRA), APPROVED BY THE HONBLE JURISDICTIONAL HIGH COURT (IN ITA NO. 1194 OF 2010 DATED 22.2.2011) HAS HELD THAT AMENDMENT IN SECTION 80IB(10) WHEREBY CLAUSE ( D) INSERTED THEREIN, RESTRICTING THE CONSTRUCTION OF COMMERCIAL AREA APP LICABLE W.E.F. 1.4.2005 IS 4 PROSPECTIVE IN APPLICATION, AND HOUSING PROJECT INC LUDES RESIDENTIAL AS WELL AS COMMERCIAL AREA. THE SPECIAL BENCH HELD FURTHER T HAT IN ABSENCE OF ANY SUCH PRESCRIBED LIMIT OF COMMERCIAL AREA IN A HOUSI NG PROJECT BEFORE THE AMENDMENT OF THE PROVISIONS U/S. 80IB(10) BY INSERT ION OF CLAUSE (D) THEREIN, 10% OF THE TOTAL BUILT UP AREA WOULD BE AL LOWED FOR COMMERCIAL CONSTRUCTION. THE HONBLE HIGH COURT, HOWEVER, DID NOT APPROVE SUCH TYPE OF RESTRICTION PRESCRIBED BY THE SPECIAL BENCH AND WAS PLEASED TO HOLD THAT THERE IS NO SUCH RESTRICTION IN THE PROVISIONS OF SECTION 80 IB(10) OF THE ACT. IN OTHER WORDS, BEFORE COMING INTO OPERATION OF THE AMENDED PROVISION OF SECTION 80 IB (10)(D), RESTRICTION OF 10% OF THE CO NSTRUCTION OF COMMERCIAL AREA OF THE BUILT UP AREA IS NOT PROPER. VIDE PARA NO. 30 OF THE DECISION, THE HONBLE HIGH COURT AS SUMMARIZED ITS FINDING AS UND ER : 30. IN THE RESULT, THE QUESTIONS RAISED IN THE APP EAL ARE ANSWERED THUS :- A) UPTO 31/3/2005 (SUBJECT TO FULFILLING OTHER COND ITIONS), DEDUCTION UNDER SECTION 80IB(10) IS ALLOWABLE TO HOUSING PROJ ECTS APPROVED BY THE LOCAL AUTHORITY HAVING RESIDENTIAL UNITS WIT H COMMERCIAL USER TO THE EXTENT PERMITTED UNDER THE DC RULES / REGULA TIONS FRAMED BY THE RESPECTIVE LOCAL AUTHORITY. B) IN SUCH A CASE, WHERE THE COMMERCIAL USER PERMIT TED BY THE LOCAL AUTHORITY IS WITHIN THE LIMITS PRESCRIBED UND ER THE DC RULES / REGULATION, THE DEDUCTION UNDER SECTION 80IB(10) UP TO 31/3/2005 WOULD BE ALLOWABLE IRRESPECTIVE OF THE FACT THAT TH E PROJECT IS APPROVED AS HOUSING PROJECT OR RESIDENTIAL PLUS COMMERCIAL. C) IN THE ABSENCE OF ANY PROVISIONS UNDER THE INCOM E TAX ACT, THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING THAT UPTO 31/ 3/2005 DEDUCTION UNDER SECTION 80IB(10) WOULD BE ALLOWABLE TO THE PR OJECTS APPROVED BY THE LOCAL AUTHORITY HAVING RESIDENTIAL BUILDING WITH COMMERCIAL USER UPTO 10% OF THE TOTAL BUILT-UP AREA OF THE PLOT. D) SINCE DEDUCTIONS UNDER SECTION 80IB(10) IS ON TH E PROFITS DERIVED FROM THE HOUSING PROJECTS APPROVED BY THE L OCAL AUTHORITY AS A WHOLE, THE TRIBUNAL WAS NOT JUSTIFIED IN RESTR ICTING SECTION 80IB(10) DEDUCTION ONLY TO A PART OF THE PROJECT. H OWEVER, IN THE PRESENT CASE, SINCE THE ASSESSEE HAS ACCEPTED THE D ECISION OF THE TRIBUNAL IN ALLOWING SECTION 80IB(10) DEDUCTION TO A PART OF THE PROJECT, WE DO NOT DISTURB THE FINDINGS OF THE TRIB UNAL IN THAT BEHALF. E) CLAUSE (D) INSERTED TO SECTION 80IB(10) WITH EFF ECT FROM 1/4/2005 IS PROSPECTIVE AND NOT RETROSPECTIVE AND H ENCE CANNOT BE APPLIED FOR THE PERIOD PRIOR TO 1/4/2005. WE THUS DO NOT FIND SUBSTANCE IN THE OBJECTION RAI SED BY THE A.O THAT HOUSING PROJECT IS RESTRICTED TO RESIDENTIAL PROJEC T ONLY FOR CLAIMING DEDUCTION U/S. 80 IB(10) OF THE ACT. AS TO WHETHER THE AMEN DED PROVISIONS OF SECTION 80 IB (10)(D) ARE APPLICABLE IN THE A.Y. 2005-06 U NDER CONSIDERATION TO THE PROJECT,, THE PUNE BENCH OF THE TRIBUNAL HAS DECI DED AN IDENTICAL ISSUE IN THE CASE OF OPEL SHELTERS PVT. LTD. VS. ACIT AND OT HERS, ITA NOS. 219 & 17/PN/2009 (A.Y. 2005-06), ORDER DATED 31.5.2011 HO LDING THAT INCOME-TAX LAW IN EXISTENCE AS ON THE DATE OF APPROVAL OF THE PROJECT APPROVED BY THE LOCAL AUTHORITY WILL BE APPLICABLE FOR CLAIMING DED UCTION U/S. 80 IB(10) OF THE ACT AS THE ASSESSEE CANNOT BE EXPECTED TO COMPLETE THE PROJECT AS PER THE PROVISIONS OF THE INCOME TAX ACT WHICH WAS NOT IN OPERATION WHEN THE PROJECT WAS APPROVED AND STARTED BUT CAME IN EXISTE NCE MUCH AFTER THE STARTING OF THE PROJECT. RELEVANT PARA NOS. 19 & 2 0 THEREOF ARE BEING REPRODUCED HEREUNDER FOR A READY REFERENCE : 19. WE, THUS, FIND THAT THE ISSUES RAISED IN THE PRESENT APPEALS ARE FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HIRANAN DANI AKRUTI J.V 5 V/S. DCIT (SUPRA). RESPECTFULLY FOLLOWING THE SAID DECISION IN THE CASE OF HIRANANDANI AKRUTI J.V. (SUPRA), WE DECIDE THE ISSUES IN FAVOUR OF THE ASSESSEES THAT A HOUSING PROJECT WILL ALSO CONSIST OF COMMERCIAL AREA TO A PERMISSIBLE LIMIT, AS SETTLED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BRAMHA ASSOCA TES (SUPRA) (NOW UPHELD BY THE HONBLE BOMBAY HIGH COURT) AS APPLICABLE UPTO A.Y. 2004-05. AND SECONDLY, THE LAW AS IT EXIS TED IN THE ASSESSMENT YEAR WHEN THE ASSESSEE SUBMITTED ITS PRO POSAL OF THE PROJECT AND PERMISSION FOR THE SAME WAS ACCORDED TO AND WHEN THE ASSESSEE COMMENCED THE PROJECT IS TO BE APPLIED. I N THE PRESENT CASE, UNDISPUTEDLY THE ASSESSEES HAD STARTED THE PR OJECT IN THE YEAR 2001 WHEN SUB-CLAUSE (D) TO SECTION 80IB(10) WAS NOT IN EXISTENCE, HENCE IT CANNOT BE APPLIED ON SUCH PROJE CTS AS HELD BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HIR NANDANI AKRUTI J.V. (SUPRA). IN THIS REGARD, WE ALSO FIND STRENGT H FROM THIS PLEA OF THE LD. A.R. WHICH WAS ALSO RAISED BEFORE IN THE C ASE OF HIRANANDANI AKRUTI J.V. THAT IF THE ASSESSEE HAD FO LLOWED WIP (WORK-IN-PROGRESS) METHOD, THE INCOME FROM THE PROJ ECT WOULD HAVE BEEN TAXABLE IN THE EARLIER YEARS AS THE PROJ ECT WAS COMPLETED EARLIER TO THE AMENDMENT AND IN THAT CASE , AS PER THE OLD PROVISION THE ASSESSEE WOULD HAVE BEEN ELIGIBLE FOR THE DEDUCTION. BUT, JUST BECAUSE THE ASSESSEE HAS FOLL OWED THE PROJECT COMPLETION METHOD, IN THESE CASES, THE DEDUCTION I S BEING DENIED BECAUSE IT FALLS IN A.Y. 2005-06. IN OUR VIEW THE N EWLY INSERTED CLAUSE (D) TO SECTION 80IB(10) WILL NOT APPLY ON TH E PROJECTS APPROVED UPTO 31.3.05 SINCE IN THOSE PROJECTS ASSES SEES ARE REQUIRED TO CONSTRUCT WHAT HAS BEEN APPROVED. THE ONLY FISSIBLE COMPLIANCE IS REQUIRED TO BE MET AS PER THE HARMONI OUS INTERPRETATION OF SECTION 80IB(10) AS AMENDED IS T O COMPLETE SUCH PROJECTS (APPROVED BEFORE 1.4.2004) ON OR BEFORE 31 .3.2008. IN THE CASES BEFORE US THE PROJECTS HAVE BEEN COMPLETE D WELL BEFORE THIS DATE. PUTTING OF SUCH CONDITION OF TIME LIMIT IS WELL UNDERSTOOD. SINCE THE LEGISLATURE INTENDED THE COM PLETION OF PROJECTS WITHIN A TIME FRAME TO AVOID INCONVENIENCE TO THE BENEFICIARIES I.E. THE BUYERS. IN THIS REGARD THE LEGISLATURE HAS CATEGORISED THE TIME LIMIT FOR THE PROJECTS APPROVE D ON DIFFERENT PERIOD BEFORE 31.3.2007 BUT REQUIREMENT REMAINED TH E SAME THAT PROJECTS WOULD BE APPROVED BY THE LOCAL AUTHORITY. COMPLIANCE OF THE REQUIREMENT PROVIDED IN CLAUSE (D) TO THE SECTI ON IS POSSIBLE ONLY IN THOSE PROJECTS WHICH HAVE BEEN STARTED ON O R AFTER 1.4.2005 AS BY THEN THOSE ASSESSEES WERE ALL AWARE ABOUT THE PROVISIONS LAID DOWN IN CLAUSE (D). IN THE PRESENT CASE, THE PROJECT IN QUESTION WAS AP PROVED BY THE LOCAL AUTHORITY I.E. PCMC ON 19.10.2000. THERE IS NO DIS PUTE THAT THE PROJECT WAS COMPLETED AS PER THE APPROVED PLAN BY THE PCMC OR T HAT THE PROJECT WAS NOT COMPLETED WITHIN THE PRESCRIBED TIME LIMIT. THE AME NDED PROVISION U/S. 80 IB (10)(D) HAS COME INTO OPERATION W.E.F. 1.4.2005, THUS ADMITTEDLY, IT WAS NOT IN EXISTENCE ON 19.10.2000 WHEN THE PROJECT WA S APPROVED BY THE PCMC AND COMMENCED. HENCE, THE AMENDED PROVISION C ANNOT BE APPLIED IN THE CASE OF THE ASSESSEE. THE PCMC HAD APPROVED THE PROJECT AS HOUSING PROJECT. BEFORE THE LOWER AUTHORITY, THE ASSESSEE HAS REFERRED CBDTS REPLY TO THE QUERY RAISED BY MAHARASHTRA CHAMBER OF HOUSI NG INDUSTRY WHEREIN CBDT VIDE LETTER DATED 4 TH MAY 2001 TO MAHARASHTRA CHAMBER OF HOUSING INDUSTRY STATED THAT ANY PROJECT WHICH IS APPROVED BY A LOCAL AUTHORITY AS A HOUSING PROJECT SHOULD BE CONSIDERED ADEQUATE FOR T HE PURPOSE OF SECTION 10(23G) AND 80 IB (10) OF THE ACT. UNDER THESE CIR CUMSTANCES, WE ARE OF THE VIEW THAT THE LD CIT(A) HAS RIGHTLY HELD THAT T HE ASSESSEE WAS ELIGIBLE FOR CLAIMING THE DEDUCTION U/S. 80 IB (10) OF THE ACT IN INCOME EARNED ON THE PROJECT DURING THE YEAR UNDER CONSIDERATION. WE TH US UPHOLD THIS FINDING OF THE LD CIT(A). A.O. IN THE ASSESSMENT ORDER HAS O BSERVED THAT THE ASSESSEE HAS NOT ALLOCATED THE EXPENDITURE INCURRED ON THE ELIGIBLE PROJECT SEPARATELY WHILE COMPUTING THE PROFIT EARNED ON TH E PROJECT. WE THUS MAKE AMENDMENT TO THE FIRST APPELLATE ORDER TO THIS LIMI TED EXTENT THAT WHILE 6 ALLOWING THE CLAIMED DEDUCTION, THE A.O WILL EXAMI NE AND ENSURE THAT IN CASE OF COMMON EXPENDITURE SHOWN TO HAVE INCURRED O N ELIGIBLE AND NOT ELIGIBLE PROJECTS, THE EXPENDITURE SHOULD BE ALLOWE D ON A PRORATA BASIS. THE ISSUE RAISED IN THE GROUNDS IS THUS DECIDED ACCORDI NGLY IN FAVOUR OF THE ASSESSEE. THE GROUNDS ARE THUS REJECTED. 4.1 MERELY BECAUSE THE REVENUE HAS NOT ACCEPTED THE DECISION OF THE HONBLE BOMBAY HIGH COURT AND FILED AN APPEAL BEFOR E THE HONBLE SUPREME COURT THE SAME IN OUR OPINION CANNOT BE A G ROUND TO TAKE A DIFFERENT VIEW THAN THE VIEW ALREADY TAKEN BY THE T RIBUNAL IN ASSESSEES OWN CASE. THEREFORE, WE FIND NO INFIRMITY IN THE O RDER OF THE CIT(A) ALLOWING THE CLAIM OF DEDUCTION U/S.80IB(10). ACCO RDINGLY, THE SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISM ISSED. 5. GROUND OF APPEAL NO.2 BY THE REVENUE READS AS UN DER : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT SUPPRESSION OF EXPENSES AMOU NTING TO RS.51,12,933/- COMPUTED BY THE A.O. STANDS EXPLAINED T O THE EXTENT OF RS.44,64,831/- RELATING TO LAND COST CLAIMED FOR THE FIRST TIME BEFORE THE CIT(A) TO HAVE REMAINED CONSIDERED AS COST OF PROJECT, WHEN THE A.O. WHILE COMPUTING THE SUPPRESSION OF EXPENSES HAD NOT CON SIDERED THE LAND COST. 5.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD TWO PROJECTS IN HAND, I.E. VIKRAM CONSTRUCTION (NON-80IB(10) PROJECT) AND VIKRAM CONSTRUCTION-RESIDENTIAL (PROJECT ELIGIBLE FOR DEDU CTION U/S.80IB(10). SINCE THERE WAS HUGE DIFFERENCE IN PERCENTAGE OF GR OSS PROFIT FOR 80IB(10) PROJECT WHEN COMPARED WITH THE NON-80IB(10 ) PROJECT, THE AO ASKED THE ASSESSEE TO EXPLAIN THE HUGE VARIATION. FROM THE DETAILS GIVEN BY THE ASSESSEE THE AO PREPARED A COMPARATIVE CHART OF PERCENTAGE OF DIRECT EXPENSES INCURRED AS COMPARED TO TOTAL WORK DONE FOR BOTH THE PROJECTS. AFTER ANALYZING THE FIGURES IN THE SAID CHART THE AO NOTICED CERTAIN STRIKING FEATURES/IRREGULARITIES. HE NOTED THAT PERCENTAGE OF 7 MATERIAL REQUIRED WITH RESPECT TO TOTAL WORK DONE I N THE CASE OF 80IB(10) PROJECT IS AT 16.56% AS COMPARED TO 56.33% IN THE C ASE OF NON-80IB(10) PROJECT. ACCORDING TO THE AO, BOTH THESE PERCENTAG ES ARE FAR FROM REALTY, BECAUSE IN NORMAL COURSE, PERCENTAGE OF MATERIAL RE QUIRED WITH RESPECT TO TOTAL WORK DONE RANGES BETWEEN 35% TO 40% IN ANY CO NSTRUCTION PROJECT. HE, THEREFORE, INFERRED THAT THE ASSESSEE HAS NOT O NLY SHIFTED MATERIAL EXPENSES FROM 80IB(10) PROJECT TO NON-80IB(10) BUT HAS ALSO SUPPRESSED EXPENSES OF 80IB(10) PROJECT. TO WORK OUT THE QUAN TUM OF EXPENSES SUPPRESSED OF THE 80IB(10) PROJECT, THE AO ADOPTED THE IMPUGNED PERCENTAGE FORMALLY FOR VARIOUS ITEMS OF DIRECT EXP ENSES. FINALLY HE WORKED OUT THE QUANTUM OF SUPPRESSION OF EXPENSES OF 80IB(10) PROJECT AT RS.51,12,764/- WHICH HE ADDED TO THE TOTAL INCOM E OF THE ASSESSEE. 6. BEFORE THE CIT(A) IT WAS SUBMITTED THAT LAND COS T WAS NOT TAKEN INTO ACCOUNT IN THE PROFIT AND LOSS ACCOUNT FOR THE A.Y. 2004-05 THROUGH OVERSIGHT. THE ASSESSEE ACCORDINGLY SUBMITTED A RE VISED PROFIT AND LOSS ACCOUNT ON THE BASIS OF ALLOCATION OF LAND COST IN 3 ASSESSMENT YEARS, I.E. A.Y. 2004-05, 2005-06 AND 2006-07. AFTER CONSIDERI NG THE SUBMISSION OF THE ASSESSEE THE LD.CIT(A) OBSERVED THAT SUPPRES SION OF EXPENSES TO THE EXTENT OF LAND COST NOT DEBITED TO THE PROFIT A ND LOSS ACCOUNT AMOUNTING TO RS.44,64,831/- STANDS EXPLAINED. HE A CCORDINGLY RESTRICTED THE ADDITION ON ACCOUNT OF SUPPRESSION OF EXPENSES TO RS.6,47,933/-. THE RELEVANT OBSERVATION OF THE LD.CIT(A) READS AS UNDE R : I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT IN T HIS REGARD. IT IS SEEN THAT THE APPELLANT HAS NOT TAKEN INTO ACCOUNT AN D COST IN THE PROFIT AND LOSS ACCOUNT. THE APPELLANT SUBMITTED THE FOLLOWI NG DETAILS VIDE LETTER DATED 21-12-2012 IN THIS REGARD. THE APPELLANT DID NOT CHARGE THE LAND COST TO THE P ROFIT AND LOSS ACCOUNT FOR THE ASSESSMENT YEAR 2004-05 THROUGH OVER SI GHT AND THE SAME IS CHARGED TO THE PROFIT AND LOSS ACCOUNT OF T HE ASSESSMENT YEAR 2005-06 AND 2006-07. YOUR HONOUR HAS AS KED TO 8 GIVE THE PROFIT AND LOSS ACCOUNT FOR ALL THE ASSESSMENT Y EARS INVOLVED BY SPREADING OUT LAND COST ON THE BASIS OF ARE A SOLD IN EACH OF THE YEAR. THE TOTAL COST OF THE LAND IS 1,4 8,12,050/- AND THE TOTAL SALEABLE AREA OF THE PROJECT IS 1,00,878 SQ. FT. THEREFORE, THE AVERAGE COST OF THE LAND PER SQ.FT. OF SALEABLE AR EA IS RS.146.83 SAY RS.147/-. THE APPELLANT HAS SOLD BUILT UP AREA IN THE RESPECTIVE ASSESSMENT YEARS AS FOLLOWS : ASSESSMENT YEAR 2004-05 30,373 ASSESSMENT YEAR 2005-06 18,015 ASSESSMENT YEAR 2006-07 20,604 THE APPELLANT IS ENCLOSING HEREWITH PROFIT AND LOSS AC COUNTS FOR THE RESPECTIVE ASSESSMENT YEARS. THE APPELLANT ALSO SUBMITTED REVISED PROFIT AND LOSS ACC OUNT ON THE BASIS OF ALLOCATION OF LAND COST IN 3 ASSESSMENT YEARS, I.E. A. Y. 2004-05, 2005-06 & 2006-07 WHICH IS AS UNDER : PROFIT & LOSS A/C. FOR F.Y. 2003-04 EXPENDITURE SQ.FT. AMOUNT INCOME SQ.FT. AMOUNT TO OPENING STOCK 12987488 BY SALES 30373 30260401 TO PROPORTIONATE COST OF LAND 30373 4464831 TO PURCHASES 4847364 BY CLOSING STOCK WIP 70505 12000000 TO OTHER EXPENSES 5835996 0 TO GROSS PROFIT 46.68 14124722 TOTAL 42260401 PROFIT & LOSS A/C. FOR F.Y. 2004-05 EXPENDITURE SQ.FT. AMOUNT INCOME SQ.FT. AMOUNT TO OPENING STOCK 70505 12000000 BY SALES 18015 19547465 TO PROPORTIONATE COST OF LAND 18015 2648205 BY CLOSING STOCK WIP 52490 11462000 TO PURCHASES 3540205 TO OTHER EXPENSES 2213728 TO GROSS PROFIT 54.26 31009465 TOTAL 31009465 PROFIT & LOSS A/C. FOR F.Y. 2005-06 EXPENDITURE SQ.FT. AMOUNT INCOME SQ.FT. AMOUNT TO OPENING STOCK 52490 11462000 BY SALES 20604 26020441 TO COST OF LAND 20604 3028788 BY CLOSING STOCK WIP 31886 18966000 TO PURCHASES 7329620 TO OTHER EXPENSES 2687577 TO GROSS PROFIT 78.70142 20478456 TOTAL 44986441 TOTAL 44986441 AFTER CONSIDERING THE ABOVE SUBMISSION IT IS SEEN THAT SU PPRESSION OF EXPENSES IS EXPLAINED TO THE EXTENT OF LAND COST NOT DE BITED TO PROFIT & LOSS A/C. AMOUNTING TO RS.44,64,831/-. THUS, THERE REM AINS DIFFERENCE OF RS.6,47,933/- (51,12,764/- - 44,64,831/-). ACCORDINGLY, SUPPRESSION OF EXPENSES AMOUNTING TO RS.44,6 4,831/- STANDS EXPLAINED BEING LAND COST CHARGES TO THE PROFIT & LOSS A/C. ACCORDINGLY, PROFIT OF THE PROJECT IS REDUCED BY RS. 44,64,831/- AND SO WILL BE DEDUCTION U/S.80IB(10) OF INCOME-TAX ACT. AS FAR AS REMAINING AMOUNT OF RS.6,47,9331/- (51,12,764/- - 44,64,831/-) IS CONCERNED THE SAME IS UPHELD. ACCORDINGLY, SUPPRESSION OF EXPENSES IS R EDUCED TO RS.6,47,933/-. THUS, GROUND NO.2 IS PARTLY ALLOWED. 9 6.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY OBJ ECTED TO THE ORDER OF THE CIT(A). SHE SUBMITTED THAT WHILE MAKI NG ADDITION ON ISSUE OF SUPPRESSION OF EXPENSES OF 80IB(10) PROJECT, THE AO HAS SPECIFICALLY MADE A COMPARISON ON SOME DIRECT EXPENSES WHICH DOE S NOT INCLUDE LAND COST. THE AO HAD CLEARLY BROUGHT ON RECORD THAT SU PPRESSION OF EXPENSES WAS MADE IN SOME SPECIFIC EXPENSES. FURTHER, WHEN THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND THE ASSESSEE HAS MADE THE CLAIM OF LAND COST IN THE SUBSEQUENT ASSESSMENT YEARS WHICH HAD ALREADY A TTAINED FINALITY, THE CIT(A) WAS NOT JUSTIFIED IN ACCEPTING REVISED PROFI T AND LOSS ACCOUNT FOR THE 3 ASSESSMENT YEARS WHEREIN A PART OF THE LAND C OST OF SUBSEQUENT YEARS HAS BEEN TRANSFERRED TO THE CURRENT YEAR. TH IS IS AGAINST THE BASIC ACCOUNTING PRINCIPLES. THEREFORE, THE ORDER OF THE CIT(A) BEING NOT IN CONFORMITY WITH ANY ACCOUNTING STANDARD SHOULD BE S ET-ASIDE AND THAT OF THE AO BE REVERSED. 8. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE ASSESSE E HAS ACQUIRED THE LAND FOR THE PROJECT AT THE COST OF RS.1,48,12,050/ -. THE COST OF THE LAND INCLUDED IN THE OPENING STOCK AND COST OF THE LAND INCLUDED IN CLOSING STOCK HAS REMAINED UNCHANGED. THEREFORE, IT IS VER Y MUCH OBVIOUS THAT THE ASSESSEE HAD NOT CLAIMED THE COST OF THE LAND C ORRESPONDING TO THE LAND SOLD DURING THE YEAR. HE SUBMITTED THAT SINCE THE TOTAL SALEABLE BUILT UP AREA OF 9048.92 SQ. FT. WAS ORIGINALLY COMPUTE D, THEREFORE, THE COST OF THE LAND PER SQ.FT. OF SALEABLE AREA IS 164.49 S Q.FT. SINCE THE ASSESSEE 10 DURING THE YEAR HAS SOLD BUILT UP AREA ADMEASURING 29204 SQ.FT., THEREFORE, THE COST OF THE LAND CORRESPONDING TO TH E BUILT UP AREA SOLD WAS RS.48,03,765/-. SINCE THE SAME WAS NOT CHARGED TO THE PROFIT AND LOSS ACCOUNT, THEREFORE, THE CIT(A) WAS JUSTIFIED IN GIV ING CREDIT TO THIS EXPENDITURE. THEREFORE, THE ORDER OF THE CIT(A) I S FULLY JUSTIFIED AND DOES NOT REQUIRE ANY INTERFERENCE. HE ACCORDINGLY SUBMITTED THAT THE GROUND RAISED BY THE REVENUE SHOULD BE DISMISSED. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FI ND THE AO MADE ADDITION OF RS.51,12,764/- ON ACCOUNT OF SUPPRESSIO N OF EXPENSES FROM 80IB(10) PROJECT WHICH HAS BEEN DIVERTED TO NON-80I B(10) PROJECT. FOR THIS PURPOSE, HE COMPARED THE VARIOUS EXPENSES . H E NOTED THAT PERCENTAGE OF MATERIAL REQUIRED WITH RESPECT TO TOT AL WORK DONE IN THE CASE OF 80IB(10) PROJECT WAS 16.56% WHEREAS THE SAM E STANDS AT 56.35% IN THE CASE OF NON-80IB(10) PROJECT. HE ALSO HAD G IVEN A FINDING THAT ASSESSEE HAS NOT ONLY SHIFTED MATERIAL EXPENSES FRO M 80IB(10) PROJECT BUT HAS ALSO RESORTED TO SUPPRESSION OF EXPENDITURE . WE FIND BEFORE THE CIT(A) ASSESSEE MADE A PLEA THAT THE COST OF LAND H AS NOT BEEN DEBITED DURING THE YEAR FOR WHICH THERE WAS HUGE VARIATION. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK , WE FIND BY DEBITING THE COST OF LAND IN SUBSEQUENT YEARS THE ASSESSEE H AS ALREADY MADE THE CLAIM OF DEDUCTION U/S.80IB(10) AND THE SAME HAS AT TAINED FINALITY. THEREFORE, REVISING THE PROFIT AND LOSS ACCOUNT OF SUBSEQUENT YEARS TO BRING A PART OF THE COST OF LAND TO THIS YEAR WILL DISTURB THE FINALITY OF THE ASSESSMENTS FOR SUBSEQUENT YEARS. TO A POINTED QUE RY BY THE BENCH, THE 11 LD. COUNSEL FOR THE ASSESSEE COULD NOT SAY ANYTHING AS TO HOW THE EFFECT WILL BE GIVEN TO THE ENHANCED INCOME OF SUBSEQUENT YEARS IF A PART OF THE COST OF LAND IS SHIFTED FROM THE SUBSEQUENT YEARS T O THE CURRENT YEAR AND WHEN THE ASSESSMENT OF SUCH SUBSEQUENT YEARS HAVE A TTAINED FINALITY AT THE LEVEL OF THE TRIBUNAL. FURTHER, WHEN THE ACCOU NTS OF THE ASSESSEE ARE AUDITED, IT IS VERY DIFFICULT TO UNDERSTAND AS TO H OW SUCH A MISTAKE COULD CONTINUE FOR SO MANY YEARS. IN THIS VIEW OF THE MA TTER, WE ARE OF THE CONSIDERED OPINION THAT THE LD.CIT(A) WAS NOT JUSTI FIED IN BRINGING A PART OF THE COST OF LAND OF SUBSEQUENT YEAR TO THE CURRENT YEAR AS COST OF THE PROJECT. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THE ORDER OF THE AO. GROUND RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED. ITA NO.689/PN/2013 (A.Y. 2009-10) : 10. GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN ALLOWING DEDUCTION U/S 80IB(10) WHEN THE COMMERCIAL AREA OF THE HOUSING PROJECT EXCEEDED THE LIMIT AS LAI D DOWN IN THE PROVISIONS OF CLAUSE (D) OF SEC. 80IB(10) OF THE IT. AC T, 1961 W.E.F. 1.4.2005? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE CIT(A) WAS JUSTIFIED IN APPLYING THE LAW AS IT EXISTED, WHEN T HE PROPOSAL AND PERMISSION FOR CARRYING OUT THE DEVELOPMENT OF THE PR OJECT WAS ACCORDED BUT THE CLAIM FOR DEDUCTION U/S. 80IB(10) IS MADE AFT ER THE AMENDMENT TO SEC. 80IB(10) W.E.F. 1.4.2005? 10.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE CLAI M OF DEDUCTION U/S.80IB(10) AMOUNTING TO RS.22,77,181/- IN RESPECT OF THE PROJECT NAMED VIKRAM RESIDENCY AT DAPODI WAS DENIED BY THE AO BY FOLLOWING HIS ORDERS FOR EARLIER YEARS. WE FIND THE CIT(A) F OLLOWING HIS ORDER FOR A.YRS. 2005-06, 2006-07 AND 2007-08 ALLOWED THE DED UCTION HOLDING THAT CLAUSE (D) OF THE AMENDED PROVISIONS OF SECTIO N 80IB(10) IS NOT 12 APPLICABLE TO PROJECTS WHICH HAVE COMMENCED PRIOR T O 01-04-2005. HE HAD FURTHER NOTED THAT THE CLAIM OF THE ASSESSEE WA S ALSO ALLOWED IN A.Y. 2004-05. 10.2 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 11. AFTER HEARING BOTH THE SIDES, WE FIND THE GROUN DS RAISED BY THE REVENUE ARE IDENTICAL TO GROUND RAISED BY THE REVEN UE IN ITA NO.688/PN/2013. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE REVENUE HAS BEEN DISMISSED. FOLLOWIN G THE SAME RATIO, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 12. IN THE RESULT, ITA NO.688/PN/2013 IS PARTLY ALL OWED AND ITA NO.689/PN/2013 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 24-07-2014. SD/- SD/- (R.S. PADVEKAR) (R.K. PAND A) JUDICIAL MEMBER ACCOUN TANT MEMBER PUNE DATED: 24 TH JULY, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-V, PUNE 4. THE CIT-V, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER //TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE