M/s Vaswani Estates Developers Private Limited, Bangalore V. ACIT, Bangalore

ITA 882/BANG/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0676 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 10-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA CITIDR
• Assessee Lawyers: V SRINIVASAN
• Keywords: Question of law; Benefit of exemption
• Section: 133A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO. 882/BANG/2011 ASSESSMENT YEAR : 2006-07 M/S. VASWANI ESTATES DEVELOPERS PVT. LTD., # 52, VITTAL MALLYA ROAD, BANGALORE 560 001. PAN : AABCV 1065C VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(5), BANGALORE. APPELLANT RESPONDENT ITA NO. 1058/BANG/2011 ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(5), BANGALORE. VS. M/S. VASWANI ESTATES DEVELOPERS PVT. LTD., # 52, VITTAL MALLYA ROAD, BANGALORE 560 001. PAN : AABCV 1065C APPELLANT RESPONDENT ASSESSEE BY : SHRI V. SRINIVASAN, C.A. RESPONDENT BY : SHRI S.K. AMBASTHA, CIT-I(DR) DATE OF HEARING : 20.03.2013 DATE OF PRONOUNCEMENT : 28.03.2013 ITA NOS.881 & 1058/BANG/2011 PAGE 2 OF 17 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA 1058/B/11 IS AN APPEAL BY THE REVENUE AND IT A 882/B/11 IS THE ASSESSEES APPEAL. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDERS DATED 25.08.2011 OF CIT(APPEALS)-III, BANGALORE REL ATING TO A.Y. 2006-07. 2. THE ASSESSEE IS A COMPANY, WHICH IS ENGAGED IN THE DEVELOPMENT OF PROPERTIES. IN THE RETURN OF INCOME FILED FOR T HE A.Y. 2006-07, THE ASSESSEE CLAIMED DEDUCTION U/S. 80IB(10) OF THE INC OME TAX ACT, 1961 (THE ACT) OF A SUM OF RS.2,42,91,930 BEING THE PROFITS D ERIVED BY THE ASSESSEE FROM DEVELOPMENT OF HOUSING PROJECT BY NAME VASWAN I TRANQUIL. THE ASSESSEE HAD FILED THE RETURN OF INCOME ON 24.10.20 06. 3. ACCORDING TO THE AO, ONE OF THE CONDITIONS FOR A LLOWING DEDUCTION U/S. 80IB(10) OF THE ACT WAS THAT THE BUILT-UP AREA OF EACH OF THE RESIDENTIAL UNIT IN THE PROJECT SHOULD NOT EXCEED 1500 SQ.FT. TO VERIFY WHETHER EACH OF THE RESIDENTIAL UNIT IN THE PROJECT DOES NOT EXCEED 1500 SQ.FT., THE AO CONDUCTED A SURVEY U/S. 133A OF THE ACT ON 25.02.20 08 IN THE OFFICE PREMISES OF THE ASSESSEE. THE AO ALSO VISITED THE PROJECT SITE OF VASWANI TRANQUIL ON 12.03.2008 AND MEASURED THE VARIOUS FLA TS. HE NOTICED THAT THERE WERE DUPLEX FLATS (ONE UNIT EACH IN TWO FLOOR S) WHICH HAD INTERNAL STAIRCASE CONNECTED FROM ONE FLOOR TO ANOTHER. THE AREA OF BOTH THE FLATS PUT TOGETHER WAS IN EXCESS OF 1500 SQ.FT. THE DETA ILS IN THIS REGARD WERE AS FOLLOWS:- ITA NOS.881 & 1058/BANG/2011 PAGE 3 OF 17 FLAT NO.201 & 201A = 2177 SQ.FT. (1088.5 + 1088.5) FLAT NO.204 & 204A = 2252 SQ.FT. (1126 + 1126) FLAT NO.205 & 205A = 2262 SQ.FT. (1131 + 1131) FLAT NO.206 & 206A = 2427 SQ.FT. (1213.5 + 1213.5) FLAT NO.208 & 208A = 2438 SQ.FT. (1219 + 1219) FLAT NO.210 & 210A = 2343 SQ.FT. (1171.5 + 1171.5) IT IS NOT IN DISPUTE THAT BOTH THE UNITS WERE OWNED BY ONE AND THE SAME PERSON, BUT THERE WERE DIFFERENT AGREEMENT AND SALE DEEDS, EXCEPT ONE OF THE FLATS WHICH WAS OWNED BY TWO MEMBERS OF THE SAM E FAMILY. 4. BESIDES THE ABOVE, THE AO ALSO NOTICED THAT THE BUILT-UP AREA OF THE FOLLOWING FLATS WAS IN EXCESS OF 1500 SQ.FT. FLAT NO.207 = 1651 SQ.FT. FLAT NO.211 = 1647 SQ.FT. FLAT NO.302 = 1651 SQ.FT. 5. THE AO CONFRONTED THE ASSESSEE AS TO WHY THE DED UCTION U/S. 80IB(10) OF THE ACT SHOULD NOT BE REJECTED FOR THE REASON THAT SOME OF THE RESIDENTIAL UNITS IN THE PROJECT EXCEED 1500 SQ.FT. IN REPLY, THE ASSESSEE POINTED OUT THAT THE DUPLEX FLATS WERE TWO DISTINCT UNITS AS PER THE SANCTIONED PLAN. THE CUSTOMER WHO PURCHASED THE SA ID UNITS UNDER TWO DIFFERENT SALE DEEDS TOOK POSSESSION OF THE SEPARAT E UNITS AND MADE CERTAIN INTERNAL MODIFICATION TO ENJOY THE DIFFEREN T UNITS LOCATED ON DIFFERENT FLOORS AS A SINGLE DUPLEX UNIT. THE ASSESSEE EMPHA SIZED THAT IT HAD SOLD ITA NOS.881 & 1058/BANG/2011 PAGE 4 OF 17 TWO UNITS UNDER TWO DIFFERENT SALE DEEDS AND THE BU ILT-UP AREA OF EACH OF THE UNIT WAS LESS THAN 1500 SQ.FT. THE ASSESSEE ALSO P OINTED OUT THAT IN RESPECT OF FLAT 204 & 204A, THE TWO UNITS WERE PURC HASED BY DIFFERENT PERSONS, BUT MEMBERS OF THE SAME FAMILY. IN RESPEC T OF OTHER UNITS VIZ., 201 & 201A, 205 & 205-A, 206 & 206-A. 208 & 208-A, 210 & 210A, BOTH THE UNITS WERE PURCHASED BY THE SAME PERSON. THE A SSESSEE ALSO POINTED OUT THAT THERE WAS AN EXTERNAL STAIRCASE FOR ACCESS TO THE UNITS LOCATED IN THE LOWER FLOOR AND UPPER FLOOR. IT WAS ARGUED THA T HAD THE INTENTION OF THE ASSESSEE BEEN TO SELL THE TWO UNITS AS DUPLEX APART MENTS, SUCH EXTERNAL STAIRCASE WOULD NOT HAVE BEEN CONSTRUCTED. 6. THE AO, HOWEVER, DID NOT ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 80IB(10) OF THE ACT BY OBSERVING AS FOLLOWS:- 6.8 I HAVE CONSIDERED THE OVER ALL FACTS OF THE C ASE AND REPLY OF THE ASSESSEE AND I FIND IT TOTALLY UNTENABLE AND BA SELESS. DURING THE INSPECTION OF THE UNITS IT WAS CLEARLY NOTICED THAT WITHOUT PROPER PREPLANNING, IT WAS NOT POSSIBLE TO CONSTRUC T THE ABOVE SAID FLATS IN CUSTOM-BUILT WAY, SO THAT THEY CAN RE UNITE AND MAKE IT AS DUPLEX. EVEN IF IT IS ASSUMED THAT THESE FLAT S WERE RE- CONSTRUCTED OR MODIFIED LATER BY THE CUSTOMERS, BUT IN RESPECT OF THE OTHER FLATS, WHICH ARE NOT IN NATURE OF DUPLEX ARE ALSO MEASURING MORE THAN 1500 SQ.FT. AGAIN WHICH MAKES T HE ASSESSEE NOT LIABLE FOR CLAIMING DEDUCTION U/S. 80IB. CONSIDERING THE FACTS OF THE CASE, THE CLAIM OF TH E ASSESSEE IN RESPECT OF 80IB IS REJECTED. 7. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED APPEAL BEFORE THE CIT(A). THE CONTENTIONS OF THE ASSESSEE BEFORE THE CIT(APPEALS) WERE AS FOLLOWS:- ITA NOS.881 & 1058/BANG/2011 PAGE 5 OF 17 (A) EVEN ASSUMING THAT DUPLEX FLATS EXCEED THE BUIL T-UP AREA OF 1500 SQ.FT., IT WAS NOT POSSIBLE TO REJECT THE CLAIM FOR DEDUCTION U/S. 80IB(10) OF THE ACT IN ITS ENTIRETY. THE ASSESSEE ARGUED THAT TO THE EXTENT THE BUILT-UP AREA OF THE UNITS IN THE PROJEC T ARE LESS THAN 1500 SQ.FT., THE ASSESSEE SHOULD BE ENTITLED TO THE DEDU CTION U/S. 80IB(10) OF THE ACT. (B) IN RESPECT OF THE DUPLEX FLATS, THE ASSESSEE SU BMITTED THAT THE AO SHOULD NOT AGGREGATE THE BUILT-UP AREA OF TWO SEPAR ATE UNITS BECAUSE THE ASSESSEE CONCEIVED AND PROMOTED THE PRO JECT AS TWO DIFFERENT AND DISTINCT UNITS AND IT WAS ONLY THE PU RCHASER WHO CONVERTED TWO INDEPENDENT UNITS LOCATED ON TWO DIFF ERENT FLOORS BY CONSTRUCTING A INTERNAL STAIRCASE BETWEEN THE FLOOR AND THEREBY CONVERTING THE TWO UNITS AS ONE DUPLEX FLAT. IT WA S ARGUED THAT AS FAR AS THE ASSESSEE IS CONCERNED, HE CANNOT BE HELD RES PONSIBLE FOR THE SAME. (C) AS FAR AS THREE UNITS VIZ., 207, 211 & 302 WHI CH WERE STATED BY THE AO TO BE HAVING A BUILT-UP AREA OF 1651, 1647 & 165 1 SQ.FT., THE ASSESSEE SUBMITTED THAT THE AO HAS CONSIDERED THE S UPER BUILT-UP AREA AS PER THE SALE DEED AND THAT WHAT HAS TO BE C ONSIDERED AS BUILT-UP AREA IS IN TERMS OF EXPLANATION IN CLAUSE (A) OF SUB-SECTION (14) OF SECTION 80IB(10) OF THE ACT. THE ASSESSEE SUBMITTED THAT IF THE BUILT-UP AREA IS CONSTRUED IN THE LIGHT OF THE AFORESAID DEFINITION, THEN THE AREA OF THE AFORESAID FLATS WOULD BE LESS THAN 1500 SQ.FT. ITA NOS.881 & 1058/BANG/2011 PAGE 6 OF 17 THE ASSESSEE THUS ARGUED THAT THE ENTIRE CLAIM FOR DEDUCTION U/S. 80IB(10) OF THE ACT OUGHT TO HAVE BEEN ALLOWED. 8. THE CIT(APPEALS) REJECTED THE CONTENTION OF THE ASSESSEE WITH REGARD TO THE POINTS (B) & (C) REFERRED TO ABOVE BY HOLDING AS FOLLOWS:- 5.1 WITH REGARD TO THE MAIN CONTENTION OF THE APP ELLANT THAT IT HAS NOT VIOLATED THE CONDITIONS MENTIONED U/S. 80IB (10) OF THE ACT, I FIND THAT THE AO HAS GIVEN TWO INSTANCES WH ERE CERTAIN FLATS HAVE EXCEEDED THE BUILT-UP AREA OF 1500 SQ.FT . FIRSTLY, THE AO HAS REFERRED TO 3 FLATS VIZ., FLAT 207, 211 AND 302. IN SO FAR AS THE OBSERVATIONS OF THE AO THAT IN RESPECT OF THESE 3 FLATS VIZ., 207, 211 AND 302 ARE CONCERNED, THE BUILT-UP AREA A S PER THE SALE DEEDS WAS IN EXCESS OF 1500 SFT. HOWEVER, THE APPE LLANT HAS EXPLAINED THAT IN RESPECT OF THESE FLATS, THE AO HA S CONSIDERED THE SUPER-BUILT AREA AS PER THE SALE DEEDS AND WHAT IS TO BE CONSIDERED IS THE BUILT-UP AREA IN TERMS OF THE EXPLANATION IN CLAUSE (A) OF SUB-SECTION 14 OF SECTION 80IB(10) OF THE ACT. IF THE BUILT-UP AREA IS CONSIDERED, THE AREA OF THESE FLATS IS LESS THAN 1500 SFT. ONLY. THIS CONTENTION OF THE APPELLANT IS NOT ACCE PTABLE ESPECIALLY DUE TO THE FACT THAT THE AO HAS CONDUCTED SURVEY AN D HAS DULY VERIFIED THAT THE AREA OF THESE FLATS EXCEED THE PR ESCRIBED LIMIT OF 1500 SFT. FURTHER, FROM THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER IT REVEALS THAT THE APPELLANT HAS CONSTRUCTED 6 FLATS VIZ., FLAT 201 AND 201A, FLAT 204 AND 204A, F LAT 205 AND 205A, FLAT 206 AND 206A, FLAT 208 AND 208A AND FLAT 210 AND FLAT 210A, WHICH ARE IN THE NATURE OF DUPLEX APARTM ENTS. HERE, THERE IS NO DISPUTE ON THE FACT THAT THE COMBINED A REAS OF THE AFORESAID FLATS ARE MORE THAN 1500 SFT. FROM A PER USAL OF THE SALE DEEDS IN RESPECT OF THE ABOVE 6 FLATS, IT IS SEEN T HAT THE SAME HAVE BEEN SOLD TO THE SAME PERSON OR FAMILY MEMBERS. WH EN THE CASE IS SUCH THAT THE 6 FLATS HAVE BEEN PURCHASED BY THE SAME PERSON, IT IS NOT UNREASONABLE TO ASSUME THAT THE SAID FLATS W ERE PURCHASED WITH THE INTENTION OF HOLDING THE SAME AS ONE RESID ENTIAL UNIT. THIS IS ALL THE MORE SO WHEN THE FLATS ARE STATED T O BE DUPLEX APARTMENTS WITH INTERNAL CONNECTION. THIS GOES AGAI NST THE ASSERTION OF THE APPELLANT THAT IT HAS EXECUTED SEP ARATE DOCUMENTS CONVEYING THE PROPERTY TO ITS CUSTOMERS. THAT MAY BE SO BUT ONE CANNOT IGNORE THE REALITY WHICH WAS ALSO OBSERVED A T THE TIME OF SURVEY. IT WAS OBSERVED AT THE TIME OF SURVEY THAT THE FLATS ARE CONSTRUCTED AS A DUPLEX AND IT WOULD NOT BE POSSIBL E WITHOUT PROPER PREPLANNING. THE ASSESSING OFFICER HAS RIGH TLY HELD THAT FOR THE 6 FLATS THERE IS A VIOLATION OF THE CONDITI ONS LAID DOWN IN ITA NOS.881 & 1058/BANG/2011 PAGE 7 OF 17 SECTION 80IB(10) IN AS MUCH AS THE BUILT AREA OF EA CH OF THESE FLATS EXCEEDS 1500 SFT. HENCE, THE APPELLANTS CONTENTIO NS IN THIS REGARD ARE REJECTED. THEREFORE THE APPELLANT FAILS ON THIS POINT. 9. THE ALTERNATIVE SUBMISSION MADE BY THE ASSESSEE BEFORE THE CIT(A) WAS THAT AT LEAST DEDUCTION U/S. 80IB(10) ON THE PR OFITS IN RESPECT OF RESIDENTIAL UNITS WHERE THE BUILT-UP AREA IS LESS T HAN 1500 SQ.FT. SHOULD BE ALLOWED. THE ASSESSEE RELIED ON THE DECISIONS OF T HE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF BRIGADE ENTERPRISES IN ITA NO.1198/B/07 DATED 29.08.08 AND SJR BUILDERS IN ITA NO.1192/B/08 DATED 21.08.09 . IN THE AFORESAID DECISIONS, THE TRIBUNAL HAS TAKE N THE VIEW THAT DEDUCTION U/S. 80IB(10) OF THE ACT CAN BE DENIED ON LY IN RESPECT OF PROFITS DERIVED WITH REFERENCE TO AREA OF THE FLATS WHOSE B UILT-UP AREA IS MORE THAN THE PRESCRIBED LIMIT OF 1500 SQ.FT. THE CIT(APPEA LS), FOLLOWING THE AFORESAID DECISIONS, DIRECTED THE AO TO ALLOW DEDUC TION U/S. 80IB(10) OF THE ACT PROPORTIONATELY OBSERVING AS FOLLOWS:- 6.5 FOLLOWING THE BINDING PRECEDENT OF HONBLE ITA T BANGALORE BENCH, I HOLD THAT THE RESTRICTION FOR DE DUCTION U/S. 80IB OF INCOME-TAX ACT, 1961 IS TO BE MADE ONLY WIT H REFERENCE TO AREA OF THOSE FLATS WHERE BUILT UP AREA IS MORE THAN THE PRESCRIBED LIMIT OF 1500 SQ.FT AS HELD BY THE AO. ACCORDINGLY, I DIRECT THE ASSESSING OFFICER TO PROPORTIONATELY CAL CULATE THE DISALLOWANCE TO BE MADE U/S. 80IB FOR IN PROPORTION TO THE AREA OF THOSE FLATS AND RESTRICT THE DISALLOWANCE U/S. 80IB OF INCOME-TAX ACT, 1961 ONLY TO THE SAME. FOR THE BALANCE AREA, THE APPELLANT WOULD BE ENTITLED TO THE DEDUCTION U/S. 80IB OF INC OME-TAX ACT, 1961. 10. AGGRIEVED BY THE ABOVE DIRECTION OF THE CIT(A) TO ALLOW DEDUCTION U/S. 80IB(10) OF THE ACT IN RESPECT OF THE PROFITS DERIVED FROM THE RESIDENTIAL ITA NOS.881 & 1058/BANG/2011 PAGE 8 OF 17 UNITS WHOSE BUILT-UP AREA IS LESS THAN 1500 SQ.FT., THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE ASSES SEE HAS PREFERRED THE APPEAL BEFORE THE TRIBUNAL AGGRIEVED BY THE ORDER O F THE CIT(A) IN NOT ALLOWING DEDUCTION IN RESPECT OF THE DUPLEX FLATS A S WELL AS THE THREE FLATS WHOSE BUILT-UP AREA WAS MORE THAN 1500 SQ.FT. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS. AS FAR AS THE APPEAL OF THE REVENUE IS CONCERNED, WE ARE OF THE VIEW THAT THE Q UESTION AS TO WHETHER DEDUCTION U/S. 80IB(10) OF THE ACT HAS TO BE ALLOWE D PROPORTIONATE TO THE PROFITS DERIVED FROM SALE OF RESIDENTIAL UNITS WHOS E BUILT-UP AREA IS LESS THAN 1500 SQ.FT., EVEN THOUGH SOME OF THE RESIDENTIAL UN ITS IN THE VERY SAME PROJECT EXCEEDS THE BUILT-UP AREA OF 1500 SQ.FT., T HE SAME HAS BEEN DECIDED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. SJR BUILDERS IN ITA NO.32 OF 2010 DATED 19.03.12 . THE HONBLE HIGH COURT HAS TAKEN THE VIEW CONFIRMING THE ORDER OF TH E TRIBUNAL, BY HOLDING THAT WHERE RESIDENTIAL UNITS EXCEED THE BUILT-UP AR EA OF 1500 SQ.FT., SUCH UNITS MAY BE EXCLUDED FOR DEDUCTION, BUT THE ASSESS EE WILL NOT LOSE THE BENEFIT OF DEDUCTION U/S. 80IB(10) IN ITS ENTIRETY. IT IS ONLY WITH REFERENCE TO THE FLATS WHICH IS MORE THAN THE PRESCRIBED AREA TH AT THE ASSESSEE WILL LOSE THE BENEFIT OF DEDUCTION. THE TRIBUNAL IN ITS DECI SION HAD FOLLOWED THE RULING OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BRAHMOS ASSOCIATES V. JCIT (313 ITR (AT) 268 (PUNE) (SB) . IN VIEW OF THE AFORESAID DECISION OF THE HONBLE HIGH COURT OF KARNATAKA, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE APPEAL OF THE REVENUE. ITA NOS.881 & 1058/BANG/2011 PAGE 9 OF 17 12. AS FAR AS THE APPEAL OF THE ASSESSEE IS CONCERN ED, WE WILL FIRST DEAL WITH THE ISSUE AS TO WHETHER THE ASSESSEE WILL BE E NTITLED TO THE BENEFITS OF DEDUCTION U/S. 80IB(10) OF THE ACT IN RESPECT OF TH E DUPLEX FLATS, FOR WHICH THE BUILT-UP AREA, ADMITTEDLY, ON A COMBINED MEASUR EMENT OF THE TWO UNITS WAS IN EXCESS OF 1500 SQ.FT. ON THE ABOVE ISSUE, T HE LD. COUNSEL FOR THE ASSESSEE PLACED STRONG RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF GR DEVELOPERS IN ITA NO.355 OF 2009 DATED 29.02.2012 . IN THE AFORESAID DECISION, THE FACTS WERE THAT TH E ASSESSEE CONSTRUCTED A RESIDENTIAL HOUSING PROJECT. ONE OF THE DISPUTES WAS THAT OUT OF TOTAL 84 UNITS SOME OF THE UNITS IN THE THIRD FLOOR, HAD A ROOM CONSTRUCTED ON THE TERRACE. THE MEASUREMENT OF THE SAID FLAT AFTER INCLUDING THE ROOM CONSTRUCTED ON THE TERRACE WAS I N EXCESS OF 1500 SQ.FT. THE ASSESSEE HAD CONTENDED THAT THE ROOM ON THE 3 RD FLOOR WAS CONSTRUCTED BY THE PURCHASERS AND THEREFORE THE SAM E SHOULD NOT BE THE BASIS ON WHICH THE ASSESSEE SHOULD BE DENIED DEDUCT ION U/S. 80IB(10). THE QUESTION BEFORE THE HONBLE HIGH COURT WAS AS F OLLOWS:- ( I ) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE ASSESSING OFFICER HAD FAILED TO PROVE THAT THE RESI DENTIAL FLATS EXCEEDED BUILT-UP AREA OF 1500 SQ. FEET EACH AND PENTHOUSE FLATS AND OTHER FLATS WHICH WERE SPECIALL Y BUILT CONTRARY TO THE SANCTIONED PLAN WAS BUILT BY THE AS SESSEE OR BY THE OWNERS HAD NOT BEEN PROVED BY THE ASSESSING OFFICER BY SHIFTING THE BURDEN WHEN ALLOWING DEDUCT ION U/S. 80-IB(10) OF THE ACT? 13. THE HONBLE HIGH COURT ON THE ABOVE QUESTION, H ELD AS FOLLOWS:- ITA NOS.881 & 1058/BANG/2011 PAGE 10 OF 17 3. FIRST SUBSTANTIAL QUESTION OF LAW: FROM THE AFORESAID MATERIAL, IT IS CLEAR THAT THE A SSESSEE OBTAINED APPROVAL FOR BUILDING HOUSING PROJECT ON 14.6.2002 AND HAS BUILT 84 FLATS IN AN AREA, WHICH IS IN EXCESS OF ONE ACRE OF LAND. THE CONSTRUCTION IS COMPLETED WITHIN THE PERIOD STIPULA TED. 84 FLATS, ACCORDING TO THE ASSESSEE IS WITHIN THE 1,500 SQ. F T. THE MATERIAL ON RECORD DISCLOSES THAT A HEAD ROOM IS CONSTRUCTED . THE HEAD ROOM IS NOT INCLUDED IN THE SALE DEED. THE LOCAL AU THORITY, AFTER CONSTRUCTION OF THE BUILDING, INSPECTED THE SAME AN D HAS GRANTED OCCUPANCY CERTIFICATE. THEREFORE, THE CONSTRUCTION PUT UP BY THE ASSESSEE PRIMA FACIE CAN BE SAID TO BE AS PER THE S ANCTIONED PLAN. IF AFTER ISSUE OF OCCUPANCY CERTIFICATE AND AFTER S ALE OF THESE RESIDENTIAL FLATS, IF THE OWNERS OF THESE FLATS ON THE TOP FLOOR DECIDED TO PUT UP A HEAD ROOM AND ENGAGED THE VERY SAME CONTRACTOR AND THE ENGINEER MAY HAVE PUT UP THE IDE NTICAL STRUCTURES, IT CANNOT BE SAID THAT THE ASSESSEE HAS PUT UP THE SAID CONSTRUCTION AND THUS, CONTRAVENED THE REQUIREMENT OF SECTION 80- IB. THE MATERIAL ON RECORD DOES NOT DISCLOSE THAT T HE ASSESSEE PUT UP THE SAID CONSTRUCTION PRIOR TO THE SALE OF THOSE FLATS AND EXCLUDED THE SAID CONSTRUCTION IN THE SALE DEED WIT H AN INTENTION OF GETTING BENEFIT OF SECTION 80-IB(10). 14. THE HONBLE HIGH COURT ACCORDINGLY ACCEPTED THE CONTENTION OF THE ASSESSEE. OUR ATTENTION WAS DRAWN TO ANOTHER DECIS ION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. PRAMOD & OTHERS, ITA NO.231 OF 2010 DATED 29.02.2012 . IN THE AFORESAID CASE, THE FACTS WERE IDENTICAL IN WHICH THE TERRACE PORTION AND PRO JECTIONS ABOVE THE FLAT IF TAKEN INTO CONSIDERATION, THE BUILT-UP AREA OF THE RESIDENTIAL FLAT WAS IN EXCESS OF 1500 SQ.FT. THE QUESTION BEFORE THE HON BLE COURT WAS AS UNDER:- (II) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING TH AT THE MAIN FLAT AND THE PENT HOUSE/PROJECTED AREA ARE DIFFEREN T UNITS AND THE SAME CANNOT BE TREATED AS ONE UNIT WITHOUT TAKING I NTO CONSIDERATION THAT THE CONSTRUCTION HAS BEEN CARRIE D OUT AS A SINGLE UNIT AND THERE WAS NO PROVISION FOR OTHERS T O UTILIZE THE PROJECTED AREA/PENT HOUSE EXCEPT THE OCCUPANTS OF T HE MAIN FLAT? ITA NOS.881 & 1058/BANG/2011 PAGE 11 OF 17 15. THE HONBLE HIGH COURT HELD AS FOLLOWS:- 9. IN A CONSTRUCTION OF 121 RESIDENTIAL UNITS, IF THERE OR FIVE UNITS, WHICH ARE ON THE TOP FLOOR, DO NOT CONFIRM S TRICTLY TO THIS REQUIREMENT OF 1,500 SQ.FT. BUILT-UP AREA, THAT IS NOT A JUSTIFICATION TO DENY THE BENEFIT OF EXEMPTION FROM PAYMENT OF IN COME-TAX UNDER THIS PROVISION. IN FACT, THE EVIDENCE ON REC ORD IS VERY CLEAR THAT PURCHASERS OF THE FLATS HAVE PUT UP THE CONSTR UCTION AFTER THE SALE FOR WHICH THE ASSESSEE CANNOT BE HELD RESPONSI BLE. MERELY BECAUSE THE ASSESSEE HAD MADE THE PROVISION WHICH E NABLE THE PURCHASER TO PUT-UP THE CONSTRUCTION, IS NO GROUND TO DENY THE BENEFIT WHICH IS GRANTED UNDER THE ACT, WHEN THE OB JECT OF HOUSING SCHEME IN SUBSTANCE IS IMPLEMENTED STRICTLY IN ACCORDANCE WITH LAW. 16. SIMILAR DECISIONS OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. C. GOPALAN ENTERPRISES IN ITA NO.235 OF 2010 DATED 29.02.2012 AND ITA NO.228 OF 2010 DATED 29.02.2012 WERE ALSO BROUGHT TO OUR NOTICE. 17. THE LD. DR DREW OUR ATTENTION TO THE SANCTIONED PLAN OF THE 2 ND FLOOR IN WHICH SOME OF THE UNITS IN THE 2 ND FLOOR HAS AN INTERNAL STAIRCASE TO THE 3 RD FLOOR. IT WAS HIS SUBMISSION THAT THE ASSESSEE HAD THE IDEA OF SELLING THE TWO UNITS LOCATED IN THE 2 ND FLOOR & 3 RD FLOOR AS A DUPLEX FLAT AND THAT IS THE REASON WHY EVEN IN THE SANCTIONED PLAN THERE IS AN INTERNAL STAIRCASE CONNECTING THE 2 ND & 3 RD FLOORS. THIS FACT HAS NOT BEEN NOTICED BY THE LOW ER AUTHORITIES AND HAS BEEN POINTED OUT BY THE LD. DR FOR THE FIRST TIME BEFORE US. IN THE LIGHT OF THE SANCTIONED PLAN, WHICH CLE ARLY EVIDENCES THE FACT THAT THE ASSESSEE INTENDED TO SELL 2 ND & 3 RD FLOOR UNITS AS A DUPLEX FLAT, THE LD. ITA NOS.881 & 1058/BANG/2011 PAGE 12 OF 17 DR SUBMITTED THAT DEDUCTION IN RESPECT OF THE DUPLE X FLATS SHOULD NOT BE ALLOWED. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HA VE ALSO SEEN THE SANCTIONED PLAN WHICH WAS PRODUCED BEFORE US BY THE LD. DR. IT IS CLEAR FROM THE SANCTIONED PLAN THAT THE ASSESSEE WHILE CO NCEIVING THE PLAN FOR THE BUILDING HAD INTENDED TO PUT UP A DUPLEX FLAT A ND THIS IS EVIDENT FROM THE FACT THAT THE UNIT IN THE 2 ND FLOOR HAS AN INTERNAL STAIRCASE TO THE 3 RD FLOOR. FROM THE MERE FACT THAT THE UNITS IN THE 2 ND FLOOR & 3 RD FLOOR HAD BEEN SOLD UNDER DIFFERENT SALE DEEDS AND DIFFERENT AGREEMENTS AND THE FACT THAT THEIR BUILT-UP AREA TAKEN INDIVIDUALLY IS LESS THAN 1500 SQ.FT., IT CANNOT BE THE BASIS TO HOLD THAT THE ASSESSEE SHOULD BE ALLOWED D EDUCTION U/S. 80IB(10) OF THE ACT IN RESPECT OF THOSE FLATS. AS WE HAVE ALREADY SEEN, THE DECISIONS RENDERED BY THE HONBLE HIGH COURT OF KAR NATAKA ARE ON THE BASIS OF THE FACT THAT THE EXTRA CONSTRUCTION OR JO INING OF THE TWO UNITS AND CONVERTING AS ONE UNIT WAS DONE BY THE PURCHASER AN D NOT BY THE DEVELOPER. IN THE PRESENT CASE, HOWEVER, WE FIND T HAT THE DEVELOPER HAD CONCEIVED AND BUILT DUPLEX FLATS TO BE SOLD AS ONE UNIT. ON THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE REVENUE A UTHORITIES WERE JUSTIFIED IN DENYING THE BENEFIT OF DEDUCTION U/S. 80IB(10) O F THE ACT IN RESPECT OF THE DUPLEX FLATS. 19. AS FAR AS THE DEDUCTION IN RESPECT OF THREE FLA TS IN WHICH THE BUILT-UP AREA WAS MORE THAN 1500 SQ.FT., IT WAS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT BUILDING PLAN OF THE ASSESSEE WAS APP ROVED PRIOR TO 01.04.2005. HE BROUGHT TO OUR NOTICE THAT THERE WA S NO DEFINITION OF BUILT- ITA NOS.881 & 1058/BANG/2011 PAGE 13 OF 17 UP AREA IN SECTION 80IB(10) OF THE ACT AND FINANCE ACT, 2004 W.E.F. 01.04.2005 INSERTED A DEFINITION OF BUILT-UP AREA I N SECTION 80IB(14)(A) OF THE ACT. AS PER THE AMENDED DEFINITION, BUILT-UP A REA MEANS THE INNER MEASUREMENTS OF THE RESIDENTIAL UNIT AT THE FLOOR L EVEL, INCLUDING THE PROJECTIONS AND BALCONIES, AS INCREASED BY THE THIC KNESS OF THE WALLS BUT DOES NOT INCLUDE THE COMMON AREAS SHARED WITH OTHER RESIDENTIAL UNITS. 20. THE LD. COUNSEL FOR THE ASSESSEE FURTHER POINTE D OUT THAT THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF GR DEVELOPERS (SUPRA) EXAMINED THE AFORESAID AMENDED PROVISIONS AND HELD THAT THOS E PROVISIONS WERE APPLICABLE ONLY IN RESPECT OF HOUSING PROJECTS WHIC H ARE APPROVED SUBSEQUENT TO 01.04.2005. THE HONBLE HIGH COURT F URTHER HELD THAT PRIOR TO THE AFORESAID AMENDMENT, BUILT-UP AREA DID NOT I NCLUDE THE PROJECTIONS AND BALCONIES AS PER THE NATIONAL BUILDING CODE, BU ILDING INDUSTRY PRACTICES AND ALSO ACCORDING TO THE BUILDING BYE-LA WS. IT WAS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IF THE PROJECTIONS AND BALCONIES ARE EXCLUDED, THEN THE THREE UNITS WHICH ARE CLAIMED BY THE REVENUE TO BE IN EXCESS OF THE BUILT-UP AREA OF 150 0 SQ.FT., WILL BE LESS THAN 1500 SQ.FT. AND IN RESPECT OF THOSE THREE FLATS, TH E ASSESSEE SHOULD BE ALLOWED BENEFIT OF DEDUCTION U/S. 80IB(10) OF THE A CT. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF GR DEVELOPERS (SUPRA) DEALT WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW:- ( II ) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE DEFINITION OF 'BUILT UP AREA' INSERTED BY FINANCE N O. 2 ACT OF 2004 W.E.F. 01.04.2005 TO SECTION 80-IB(10) OF THE ACT CANNOT BE ITA NOS.881 & 1058/BANG/2011 PAGE 14 OF 17 APPLICABLE TO THE CURRENT ASSESSMENT YEAR AS THE SA ME IS NOT CLARIFICTORY AND WOULD HAVE TO BE READ PROSPECTIVEL Y? 22. THE HONBLE HIGH COURT HELD AS FOLLOWS:- 4. SECOND SUBSTANTIAL QUESTION OF LAW : THE QUESTION IS WHETHER THE DEFINITION OF 'BUILT-UP AREA' AS INSERTED BY FINANCE (NO.2) ACT OF 2004 WITH EFFECT FROM 01.04.2005 IS PROSPECTIVE OR RETROSPECTIVE IN NATUR E. THE SAID PROVISION READS AS UNDER:- 'SECTION 80IB (14)(A): FOR THE PURPOSE OF THIS SECTION,- ( A ) 'BUILT-UP AREA' MEANS THE INNER MEASUREMENTS OF T HE RESIDENTIAL UNIT AT THE FLOOR LEVEL, INCLUDING THE PROJECTIONS AND BALCONIES, AS INCREASED BY THE THICKNESS OF THE WAL LS BUT DOES NOT INCLUDE THE COMMON AREAS SHARED WITH OTHER RESIDENT IAL UNITS' 5. PRIOR TO THE INSERTION OF THIS DEFINITION IN TH E AFORESAID SECTION, BUILT-UP AREA DID NOT INCLUDE PROJECTIONS AND BALCONIES AS PER THE NATIONAL BUILDING CODE, BUILDING INDUSTRY P RACTICE AND ALSO ACCORDING TO THE BUILDING BY-LAWS. PROBABLY TA KING ADVANTAGE OF THIS FACT, THE BUILDERS PROVIDED THESE BALCONIES AND PROJECTIONS WHICH MADE THESE RESIDENTIAL UNITS BIGG ER THAN 1,500 SQ. FT. AND THUS, HAD THE BENEFIT OF THIS PREVISION ON THE ONE HAND. WHEREAS THE OBJECT, WITH WHICH THIS PROVISION WAS M ADE IN REALITY WAS DEFEATED AS PROBABLY SUCH RESIDENTIAL UNITS WOU LD BE BEYOND THE EACH OF THE COMMON MAN. 6. IT IS IN THIS BACKGROUND, THIS AMENDMENT WAS BR OUGHT TO LAW BY WAY OF INSERTION MAKING IT CLEAR THAT THE SA ID PROJECTION AND BALCONIES CONSTITUTE COMMON AREA SHARED WITH OT HER RESIDENTIAL UNITS AND THEY HAVE TO BE INCLUDED IN T HE DEFINITION OF BUILT-UP AREA AND THEN SUCH PREMISES SHOULD SATISFY THE REQUIREMENT OF 1,500 SQ. FT. THEREFORE, NOTWITHSTAN DING THE LAW GOVERNING THE CONSTRUCTION OF THE BUILDING, FOR THE PURPOSE OF GETTING A BENEFIT UNDER THE ACT, THEY HAVE TO BRING THE CONSTRUCTION WITHIN THE REQUIREMENT PRESCRIBED UNDE R THIS ACT. THEN ONLY, THEY WOULD BE ENTITLED TO THE BENEFIT OF TAX EXEMPTION UNDER SECTION 80-IB. NORMALLY, WHEN AN AMENDMENT IS EFFECTED BY WAY OF INSERTION, THE EFFECT IS THAT THE EARLIER SECTION WHICH IS ITA NOS.881 & 1058/BANG/2011 PAGE 15 OF 17 SUBSTITUTED BY THIS SECTION IS WIPED OUT AND IN ITS PLACE, THIS SUBSTITUTED SECTION IS INSERTED, AS IF THE SAID SEC TION WAS IN THE STATUTE BOOK FROM THE DAY, THE ENACTMENT WAS PASSED . THEREFORE, IT IS RETROSPECTIVE IN NATURE. BUT IT IS NOT AN INV ARIABLE RULE. .. .. . 8. FROM THE AFORESAID PROVISION, IT IS CLEAR THAT THE FIRST CONDITION TO BE SATISFIED FOR APPLICATION OF THIS P ROVISION IS THAT THE HOUSING PROJECT REQUIRES TO BE APPROVED BY A LO CAL AUTHORITY. BEFORE AN APPROVAL IS SOUGHT FOR, THE ASSESSEE HAS TO GET THE PLAN PREPARED. IF THE ASSESSEE WANTS TO HAVE THE BENEFIT OF THE AFORESAID SECTION, NOTWITHSTANDING THE LAW CONTAINE D IN THE BUILDING BY-LAWS, THE SAID PLAN ALSO SHOULD BE IN C ONFORMITY WITH THE AFORESAID PROVISION UNDER THE ACT. AFTER PREPAR ING THE PLAN, OBTAINING APPROVAL, HE HAS TO COMMENCE THE CONSTRUC TION AND COMPLETE IT WITHIN THE PERIOD STIPULATED IN THE SAI D PROVISION. IN THE SUBSTITUTED PROVISION, THE LEGISLATURE HAS CONS CIOUSLY BIFURCATED SUCH CONSTRUCTION OF HOUSING PROJECT INT O THREE CASES. THE FIRST CASE DEALS WITH THE APPROVAL OBTAINED BY THE LOCAL AUTHORITY BEFORE THE 1ST DAY OF APRIL 2004; IN THE SECOND CASE, AFTER 1ST DAY OF APRIL 2004 AND BEFORE THE 31ST DAY OF MARCH 2005 AND IN THE THIRD CASE, APPROVALS OBTAINED AFTER THE 1ST DAY OF APRIL 2005. 9. IN RESPECT OF APPROVALS OBTAINED PRIOR TO 01.04 .2005, IF SUB-SECTION 14(A) OF SECTION 80-IB IS HELD TO BE AP PLICABLE, THEN, THE ASSESSEE HAS TO NECESSARILY SEEK FOR A MODIFIED PLAN. OTHERWISE, IF HE PROCEEDS WITH THE CONSTRUCTION WIT HOUT OBTAINING THE SANCTION OF THE MODIFIED PLAN, HE WOULD NOT BE ELIGIBLE FOR BENEFIT OF TAX EXEMPTION UNDER SECTION 80-IB(10). S IMILARLY, IF A VALID APPROVAL IS OBTAINED AND THE BUILDING IS CONS TRUCTED IN ALL RESPECTS PRIOR TO 01.04.2005 AND IF THE SAID SUBSTI TUTED PROVISION IS HELD TO BE APPLICABLE RETROSPECTIVELY, THE ASSES SEE WOULD NOT BE ENTITLED TO THE BENEFIT OF TAX EXEMPTION, IF HE EFF ECTS SALES SUBSEQUENT TO 01.04.2005. SUCH AN INTERPRETATION NO T ONLY WOULD BE ABSURD BUT HAVE DISASTROUS CONSEQUENCES SO FAR A S THE ASSESSEE IS CONCERNED. THEREFORE, IT CANNOT BE SAID THAT, TH AT WAS THE INTENTION OF THE LEGISLATURE WHILE BRINGING IN THE SUBSTITUTION. SO WE SHOULD KEEP IN MIND THE OBJECT BEHIND ENACTING T HIS PROVISION, NAMELY TO BRING IN INVESTMENTS AND TO ENCOURAGE THE INFRASTRUCTURE DEVELOPMENT OF MIDDLE INCOME HOUSING PROJECTS. IF THE AFORESAID PROVISION IS HELD TO BE RETROSPECTIVE IN NATURE, IT ITA NOS.881 & 1058/BANG/2011 PAGE 16 OF 17 WOULD NEGATE THE OBJECT OF THE SAID PROVISION. IT I S SETTLED LAW THAT THE COURTS HAVE TO HARMONIZE THESE PROVISIONS AND I NTERPRET THE SAME IN A MANNER TO ACHIEVE THE OBJECT OF THE LEGIS LATURE THAN TO DISTRESS THE SAID OBJECT. IN THAT VIEW OF THE MATTER, THE DEFINITION OF BUILT-UP AREA AS INSERTED IN SUB-SECT ION 14(A) OF SECTION 80-IB BY FINANCE NO.2 ACT OF 2004, WHICH CA ME INTO EFFECT FROM 01.04.2005 CANNOT BE HELD TO BE RETROSP ECTIVE; IT APPLIES ONLY TO SUCH HOUSING PROJECTS, WHICH ARE AP PROVED SUBSEQUENT TO 01.04.2005. IN THAT VIEW OF THE MATTE R, THE ASSESSEE, IN THE INSTANT CASE, IS ENTITLED TO THE B ENEFIT OF THE AFORESAID PROVISION AND HENCE THE SAID SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAIN ST THE REVENUE. (EMPHASIS SUPPLIED) 23. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE AFO RESAID DECISION OF THE HONBLE HIGH COURT OF KARNATAKA, THE BUILT-UP AREA OF THE IMPUGNED THREE FLATS NEED TO BE VERIFIED BY THE AO AFRESH. IN CAS E THE AO AFTER CONSIDERING THE AFORESAID DECISION FINDS THAT THE BUILT-UP AREA IS LESS THAN 1500 SQ.FT., THEN THE ASSESSEE SHOULD BE GIVEN THE BENEFIT OF DE DUCTION U/S. 80IB(10) OF THE ACT IN RESPECT OF THOSE FLATS. WE HOLD ACCORD INGLY. 24. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL BY THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF MARCH, 2013. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 28 TH MARCH, 2013. DS/- ITA NOS.881 & 1058/BANG/2011 PAGE 17 OF 17 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.