Income Tax Appellate Tribunal - Kolkata
Martin Burn Ltd., Kolkata vs Assessee on 14 November, 2012
आयकर अपीलीय अधीकरण, न्यायपीठ - " ऐ" कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA (समक्ष)Before श्री महावीर सिंह, न्यायीक सदस्य एवं/and श्री, सी.डी.राव लेखा सदस्य) [Before Shri Mahavir Singh, JM & Shri C. D. Rao, AM] आयकर अपील संख्या / I.T.A No. 1775/Kol/2011 निधॉरण वषॅ/Assessment Year: 2005-06 Martin Burn Ltd. Vs. Income-tax Officer, Wd-4(2), Kolkata. (PAN:AABCM9913A) (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) Date of hearing: 14.11.2012 Date of pronouncement: 06.12.2012 For the Appellant: S/Shri S. P. Choudhury & Soumitra Choudhury, Advocates For the Respondent: Shri : L. K. S. Dehiya, CIT (DR) आदेश/ORDER Per Mahavir Singh, JM ( महावीर सिंह, न्यायीक सदस्य)
This appeal by assessee is arising out of order of CIT(A)-VI, Kolkata in Appeal No.1007/CIT(A)-VI/2009-10/Cir-6/Kol dated 12.10.2011. Assessment was framed by DCIT, Circle-6, Kolkata u/s.147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Years 2005-06 vide his order dated 29.12.2008.
2. The first issue in this appeal of assessee is against the order of CIT(A) confirming the assumption of jurisdiction u/s. 148 by the AO. For this, assessee has raised following ground nos. 1 to 3:
"1. For that on the facts of the case, the Ld. C.I.T.(A) was wrong in upholding the reason recorded that there is escapement of income, although sec.801B(10) was rightly claimed in accordance with provision of the I.T. Act, so his finding is completely erroneous, perverse and illegal.
2. For that clause (d) of sec. 801B(10) was introduced and effective on and from 1.4.2005 having no retrospective effect, the project in the instant case was sanctioned by Rajarhat Gopalpur Municipality on 28.09.2000, due to misinterpretation of the said clause (d) of sec. 801B(10), the re-cause has been taken u/s. 148 of the I.T. Act, which is mala fide, erroneous, perverse and illega1.
3. For that on the facts of the case, the appellant has disclosed fully and truly all material facts filed along with the return and also filed Form 1OCCB against the claim under sec.801B(10), so the action of the A.O. in initiating proceeding u/s. 148 is completely arbitrary, unjustified and illega1."
3. Brief facts leading to the above issue are that the assessee filed its return of income on 31.10.2005 u/s. 139(1) of the Act along with audit report in Form No.3CD and accounts and computation of income. Assessee's return of income was processed u/s. 143(1) of the Act and assessed "Nil" income after allowing deduction u/s. 80IB of the Act at Rs.2,34,59,767/-. Subsequently, notice u/s 148 of the Act dated 29.04.2008 was issued and served on assessee. The assessee requested reasons for reopening, which was served upon it on 03.12.2009. The reasons recorded read as under:
"The assessee company M/s. Martin Burn Ltd. erroneously claimed deduction u/s. 80IB(10) as per Form 10CCB. From the built up area of the residential unit was 2,16,937 sq. ft. and that of shop was 10,245 sq. ft.
As per provision of Section 80IB(10) the entitlement to get deduction is 5% of aggregate built up area i.e. 1,245 sq. ft. which is more than 2000 sq. ft.
The assessee company wrongly claimed deduction u/s. 80IB of Rs.2,34,59,767/- which is not allowable as per I. T. Act. As such, I have reason to believe that the income has escaped assessment."
The AO completed assessment u/s. 147 r.w.s. 143(3) of the Act disallowing deduction u/s.80IB(10) of Rs.2,34,59,767/-. Aggrieved, assessee challenged reopening u/s. 147 r.w.s. 148 of the Act before CIT(A), who confirmed the reopening vide paras 6 and 8 to 11 of his order, which read as under:
"6. I have carefully considered the submissions of the assessee and the reasons recorded by the Assessing Officer at the time of re-opening of the case. The return was processed u/s. 143(1) and the Assessing Officer has not expressed any opinion regarding the eligibility of the claim of the assessee since there was no assessment u/s. 143(3). The case laws being relied upon by the assessee are on different issues and distinguishable since no assessment was done in this case and even the copy of audit report required to claim benefit for deduction u/s. 80IB(10) was not enclosed along with the return. The assessee has taken a chance of filing a return with a claim knowingly that very few returns are selected for scrutiny assessment and it has proved right in the case of assessee, since it was not picked up for scrutiny assessment u/s. 143(3) initially.
8. The Hon'ble Supreme Court in the case of ACIT vs Rajesh Jhaveri Stock Brokers (P) Ltd. reported in 291 ITR 500 (SC) has held that at the time of initiation of re-assessment proceedings only reason to believe that income chargeable to tax has escaped assessment is sufficient to invoke jurisdiction of Assessing Officer to initiate re-assessment proceedings. The Honble Kolkata bench has followed the said judgement in the case of DCIT vs. Hindusthan Motor Ltd. in ITA No. 351/Kol/2009 dated 14.08.2009.
9. The Hon'ble Delhi High Court has held in the case of Consolidated Photo & Finvest Ltd. vs ACIT 281 ITR 394 (Delhi) that action u/s 147 is permissible even if the Assessing Officer discovered reasons to believe that income has escaped assessment from the very some record which has been subject matter of completed assessment proceedings.
10. The Hon'ble ITAT Mumbai Bench in the case of ACIT vs Narayan Das Sugarmal (2009) 32 SOT 23 (Mumbai) has held that mere production of balance sheet, profit & loss Account and books of accounts will not initially account to disclosure within the meaning of the provisions of Section 147.
11. The Assessing Officer has right to re-open the assessment within 4 years of filing of the return when there was no scrutiny assessment and income has escaped assessment. There is no change of opinion by the Assessing Officer and the period of 4 (four) period has not expired The Explanation 1 to section 147 also provides that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the regoing proviso. In these facts and circumstances it is held that the Assessing Officer has rightly re-opened the assessment after recording the reasons and following the due procedure. The reasons recorded reveal that there is prima facie escapement of income from assessment. Therefore, all these four grounds of appeals are dismissed and the re-opening of the assessment is held valid."
Aggrieved, assessee is now in appeal before us.
4. At the outset, it was informed to the assessee that relevant AY is 2005-06 and assessee's return initially was processed u/s. 143(1) of the Act. No assessment was framed u/s. 143(3) of the Act in this case. The notice u/s. 148 of the Act was issued on 29.04.2008 i.e. within 4 years and no scrutiny assessment was made by AO. Once this is the position, the issue is squarely covered in favour of revenue and against the assessee by the decision of Hon'ble Supreme Court in the case of ACIT Vs. Rajesh Jhavery Stock Brokers Pvt. Ltd. 291 ITR 500 (SC). When this was informed to the Ld. counsel for the assessee, he fairly conceded the position and stated that he has no objection if the matter is taken up for hearing on merits. Hence, we dismiss the issue of reopening of assessee's appeal and will adjudicate the issue on merits.
5. On merits, the only issue is against the disallowance of claim u/s. 80IB(10) of the Act . For this, assessee has raised following ground nos. 5 to 8:
"5. For that on the facts of the case, the entire disallowance of claim by Ld. C.I.T. (A) at Rs. 2,34,59,766/- u/s. 801B(10) is completely arbitrary, unjustified, unwarranted and illegal.
6. For that clause (d) of sec.801B(10) having effect on and from 1.4.2005 without any retrospective effect, therefore, it is not binding where the project was sanctioned by Municipality on 28.9.2000, hence the appellant is entitled to benefit u/s. 801B(10) of the I. T. Act.
7. For that on the facts of the case, the residential flats of higher area exceeding 1500 sq ft. is entitled to pro rata benefit upto 1500 sq ft. and the balance to be ignored, but residential flats having higher area does not disentitle the appellant the entire benefit u/s. 801B(10), as held by Ld. CIT(A), such finding is completely erroneous, perverse, mala-fide and illegal.
6. Brief facts leading to the above issue are that the assessee undertook a housing project at VIP Road, Kolkata, which was sanctioned by Rajarhat Gopalpur Municipality on 13.11.2001 vide No.1313/2000-20. The assessee has given the details along with dates and built up area, commercial area and other details, which are not disputed by revenue as under:
"Details Project eligible for deduction - u/s. 80IB(10) of the I. T. Act, 1961 "1) Date of Approval of plan by Local Authority :
28th September 2000 and revised on 13th November, 2001 by Rajarhat Gopalpur Municipality.
2) Granting occupancy Certificate by Rajarhat Gopalpur Municipality :
Certificate No.3359 dt. 19.02.05 granting Occupancy Certificate on & from 25.10.2005.
3) Size and Plot of Land "
1,07.973 sft = 149 cattahs i.e. 2.29.97 acre
4) Built up Area of Residential Unit in Project :
2,16,937 sft.
5) Built up Area of Shops & Other Commercial Establishment in the Project :
10,245 sft."
The undisputed fact is that the project commenced on 13.11.2001 and assessee's project has also been awarded Occupancy Certificate as on 19.12.2005. Now, from the above, it is clear that during the FY 2004-05 relevant to AY 2005-06, the year under consideration, the assessee sold the following units:
"1) Flat having built up area of below 1500 sq. feet 47720 sq. feet 2) Flat having more than 1500 sq. feet area 17063 sq. feet 3) Shops/Commercial area 4576 sq. feet (Sold 2705 sq. feet)"
The assessee claimed deduction u/s 80IB(10) of the Act on the entire profit of the project i.e. Rs.2,34,59,767/-. The AO disallowed the claim of deduction u/s. 80IB(10) of the Act by applying clause (d) of section 80IB(10) of the Act by observing as under:
""The sec. 80IB does not provide liberty to ignore one condition and to follow the other conditions. The legislature made this special provision in view of social economic need of the society. The provision is not merely made to provide taxation escape route to the promoters. The limit of 200 sq. ft must have definite meaning and relevance in that direction. It may be recalled that the is limit to the residential unit size also. All these are to safe guard the promotion of Housing for common people and not to increase profit of any commercial venture.
The reply of the assessee does not deny the fact that they have not fulfilled the condition laid down in Sec. 80IB(10)(d) of the I. Tax Act, 1961. Therefore the claim of the assessee is disallowed."
7. Aggrieved, assessee preferred appeal before CIT(A), who upheld the disallowance of deduction u/s. 80IB of the Act by observing as under:
"17. The facts of the assessee are different from the case law cited by the assessee since in the case of the assessee large number of flats is more than 1500 sq. ft., which are part of the complex and not a separate unit and here the question is not only of commercial area being more than 3% or 5%. In the same block/building flats are built-up of more than 1500 sq. ft. The commercial area is also more than 5% of the residential area while in the relevant period it was only 3%. The provision of section 801B (10) provided that even in assessment year 2001-02 that residential unit should not have a maximum built-up area more than 1500 square feet. The assessee did not fulfill this condition at the time approval of the project. The project itself violated the basic condition(s) of area of residential unit(s) since it comprises of built-up area more than 1500 square feet in many residential units. The project cannot be divide into eligible residential units and non-eligible residential units since the benefit is to be given to the project in whole and not in parts. At the time of making the plan for construction of the project, the assessee very will knew that the housing project included flats which were having areas exceeding 1500 square feet. The assessee has entered into agreements for higher area flats with the prospective buyers. It is not the case of the assessee that some of the buyers have redesigned the adjacent flats and combined them together. It is held that if, there is any violation in respect of any of the residential units in the housing project on which the claim of the deduction u/s 801B (10) has been made, the assessee shall not be entitled to the deduction u/s 801B (10) in respect of the total project. The pro rata basis allocation of profits is not provided in the Act and the legislature intent is very clear that part of project is not entitled for deduction. There is no equity in taxation laws and for claiming any deduction the assessee has to fulfill all the conditions in to to. The law has provided deduction on year to year basis and not for five or ten years period from the date of starting of project as has been provided for industry and / or manufacturing units in the Act. The law relating to deductions/exemptions has to be interpreted strictly to get the benefit of taxation and the assessee has to prove that its case fall under the provisions of the law for deduction. The assessee cannot claim that once the project has been started at whatever time, the benefit will be allowed to him in the coming years indefinitely although not provided in the statute at the relevant time.
18. Therefore, it held that assessee is not entitled for deduction u/s. 80IB(10) in view of the above facts and circumstances including more commercial space than provided in clause (d), residential units having area more than 1500 square feet; non-attachment of Form No. 10CCB along with the return of income etc. The appeal of the assessee is dismissed. The disallowance of deduction u/s. 80IB is upheld."
Aggrieved, assessee came in appeal before us.
8. We have heard rival submissions and gone through facts and circumstances of the case. The undisputed facts are that the assessee undertook a housing project at VIP Road, Kolkata which was sanctioned by Rajarhat Gopalpur Municipality on 13.11.2001 vide permit no.1313/2000-01. The project commenced on 13.11.2001 and it was completed by awarding an occupancy certificate on 19.12.2005. During the AY 2005-06 assessee sold flats having built up area below 1500 sft. at 47720 sft. and flats having more than 1500 sft area at 17063 sft. In this project assessee also sold shop/commercial area at 2705 sft. out of constructed area of 4576 sft. The assessee through its counsel admitted that it is eligible for deduction on built up area below 1500 sft. i.e. profit on pro-rata basis of Rs.1,90,98,176/- and not on flats built up above 1500 sft. It was the contention of the assessee that the pro rata on shop/commercial space should be allowed out of profit of Rs.25,56,583/-. It means practically the assessee is claiming deduction of Rs.1,90,98,176/- on built up area below 1500 sft on pro rata bifurcation of eligible profits. As regards to commencement of project which was sanctioned by Rajarhat Gopalpur Municipality on 13.11.2001 and completed on 19.12.2005, assessee's contention is that the issue is squarely covered by the decision of Hon'ble Karnataka High Court in the case of CIT Vs. Anriya Project Management Services (P) Ltd. (2012) 21 Taxmann 140(Kar.), wherein vide para 6, it is held as under:
"6. In the case of CIT Vs. G. R. Developers (IT Appeal No.355 of 2009) disposed of on the even date, we have held that the definition of "built up area" inserted by Finance No. 2 of 2004 which came into effect from 1.4.2005 is only prospective in nature. It has no application to the housing projects which were approved by the local authority prior to that date. Prior to 1.4.2005, in calculating the 1,500 sq. ft of a residential unit, the area covered by a balcony was excluded. Therefore, the definition of built up area which is now inserted has no application to constructions which were put up in accordance with the housing projects approved by the local authority prior to that date. In the instant case, admittedly if the balcony area is excluded, none of the residential units is more than 1,500 sq. ft. Therefore, the assessee is entitled to 100% benefit of Section 80IB(10). The Tribunal was not justified in giving only the proportionate benefit. In that view of the matter, the order passed by the Tribunal is set aside and it is held that the assessee is entitled to the benefit of Section 80IB(10) in respect of the 152 flats."
9. Further, he relied on the decision of Hon'ble Gujarat High Court in the case of Manon Corporation Vs. ACIT, Tax Appeal No. 1053 of 2011 dated 03.09.2012, wherein vide paras 25, 26 and 27, it has been held as under:
"25. Corollary to this is one more aspect that requires reference here. The Government of India Ministry of Finance, Department of Revenue to all Chief Commissioners of Income-Tax and all Director Generals of Income-Tax issued Instruction No.4 of 2009 dated 30.6.2009 in respect of Section 80IB(10) of the Act would be available on year to year basis where the assessee is showing profit on partial completion or the same would be available on the year of completion of the project, which is clarified as under:
3. The above issue has been considered by the Board and it is clarified as under:
(a) The deduction can be claimed on a year to year basis where the assessee is showing profit from partial completion of the project in every year.
(b) In a case it is late, found that the condition of completing the project within the specified time limit of 4 years as started in section 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn."
26. From the reading of the above instruction, it can be also said that the Government being aware of both the accounting methods has expected either of them to be followed in cases of individual assessee. However, in post amendment period, strict adherence to completion period of four years is insisted upon where project completion method is followed. This limitation of period did not exist prior to the amendment, what is vital to draw completion method if in the interregnum period, amendment is brought in the statute. The say of the assessee therefore gets further fortified when it says that only because it chose to follow the method of accounting of project completion basis, whose completion date falls after 1.4.2005, they can be denied the deduction on profits derived and those assessee who claim deduction on work-in-progress basis, they would be entitled to such deduction. However, it necessitated strict compliance of the provisions and completion of the same within the stipulated time period.
27. The entire object of such deduction is to facilitate construction of residential housing project and while approving such project when initially there was no restriction and by amendment as stated permissible ratio for construction is 5% of the total built up area, reduction of this ratio to 3% of the total built up area has to be necessarily on prospective basis."
10. Lastly, the assessee also relied on the decision of Hon'ble Bombay High Court in the case of CIT Vs. Brahma Associates (2011) 333 ITR 289 (Bom), wherein at page 301, it has been held as under:
"The above conclusion is further fortified by clause (d) of section 80-IB(10) inserted with effect from April 1, 2005. Clause (d) of section 80-IB(10) inserted with effect from April 1, 2005 provides that even though shops and commercial establishments are included in the housing project, deduction under section 80-IB(10) with effect from April 1, 2005 would be allowable where such commercia1 user does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet whichever is lower. By the Finance Act, 2010, clause (d) is amended to the effect that the commercial user should not exceed three per cent of the aggregate built-up area of the housing project or five thousand square feet whichever is higher. The expression 'included' in clause (d) makes it amply clear that commercia1 user is an integral part of a housing project. Thus, by inserting clause (d) to section 80-IB(10) the Legislature has made it clear that though housing projects approved by the loca1 authorities with commercial user to the extent permissible under the Development Control Rules/ Regulation were entitled to section 80-IB(10) deduction, with effect from Apri1 1, 2005 such deduction would be subject to the restriction set out in clause (d) of section 80-IB(10). Therefore, the argument of the Revenue that with effect from April 1, 2005 the Legislature for the first time allowed section 80-IB(10) deduction to housing projects having commercial user cannot be accepted."
And finally concluded as under:
"In the result, the questions raised in the appeal are answered thus:
Up to March 31, 2005 (subject to fulfilling other conditions), deduction under section 80IB(10) is allowable to housing projects approved by the local authority having residential units with commercial user to the extent permitted under the Development Control Rules/Regulations framed by the respective local authority.
In such a case, where the commercial user permitted by the local authority is within the limits prescribed under the Development Rules/Regulation, the deduction under section 80-IB(10) up to March 31, 2005 would be allowable irrespective of the fact that the project is approved as 'housing project' or 'residential plus commercial'.
In the absence of any provisions under the Income-tax Act, the Tribunal was not justified in holding that up to March 31, 2005 deduction under section 80-IB(10) would be allowable to projects approved by the loca1 authority having residential building with commercial user up to 10 per cent. of the total built-up area of the plot.
Since the deduction under section 80-IB(10) is on the profits derived from the housing projects approved by the local authority as a whole, the Tribuna1 was not justified in restricting the section 80-IB (10) deduction only to a part of the project. However, in the present case, the assessee has accepted the decision of the Tribunal in allowing section 80-IB(10) deduction to a part of the project, we do not disturb the finding of the Tribunal in that behalf.
Clause (d) inserted to section 80-IB(10) with effect from April 1, 2005 is prospective and not retrospective and hence cannot be applied for the period prior to April 1, 2005."
11. In view of the above judgment of Hon'ble High Courts particularly the categorical decision of Hon'ble Bombay High Court in the case of Brahma Associates (supra) the clause inserted to section 80-IB(10) of the Act w.e.f. 01.04.2005 is prospective and not retrospective and will apply to the projects approved after that date. In the present case, the project was approved on 13.11.2001 vide permit no.1313/2000-01 and commenced construction on 13.11.2001 which was completed by awarding occupancy certificate on 19.12.2005. It means that the assessee is entitled for deduction u/s. 80-IB(10) of the Act on the project of built up area below 1500 sft. as well as on pro rata basis of shop/commercial space which was not disputed by assessee's counsel. In term of the above, the assessee is entitled to deduction u/s. 80-IB(10) of the Act. We order accordingly.
12. In the result, appeal of assessee is partly allowed.
13. Order pronounced in open court on 6th Dec., 2012.
Sd/- Sd/- सी.डी.राव लेखा सदस्य महावीर सिंह, न्यायीक सदस्य (C. D. Rao) (Mahavir Singh) Accountant Member Judicial Member (तारीख) Dated : 06th December, 2012 वरिष्ठ निजि सचिव Jd.(Sr.P.S.) आदेश की प्रतिलिपि अग्रेषितः- Copy of the order forwarded to: 1.
अपीलार्थी/APPELLANT - Martin Burn Ltd., 1, R. N. Mukherjee Road, Kolkata-700 001..
2प्रत्यर्थी/ Respondent - ITO, Ward-4(2), Kolkata.
3.
आयकर कमिशनर (अपील)/ The CIT(A), Kolkata
4.
आयकर कमिशनर/CIT, Kolkata
5.
वभागिय प्रतिनीधी / DR, Kolkata Benches, Kolkata
सत्यापित प्रति/True Copy, आदेशानुसार/ By order,
सहायक पंजीकार/Asstt. Registrar.
8 ITA 1775/K/2011 M/s.Martin Burn Ltd.
A.Y. 05-06