Income Tax Appellate Tribunal - Mumbai
Krishna Developers, Mumbai vs Assessee on 29 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH A' BENCH
BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND
SHRI RAJENDRA SINGH (ACCOUNTANT MEMBER)
ITA No.7016/Mum/2010
Assessment Year: 2007 -08
ITO 25(1)(4), Krishna Developers, 222, Sagar Prabhat
C-10, R.No.308, Pratyakhakar Indl. Complex, W.E. Highway, Dahisar(E),
Bhavan, Bandra Kurla Complex, Mumbai-08
Bandra (E), Mumbai-51 Vs. PA No.ABGFS 5819 L
(Appellant) (Respondent)
C.O.No.199/Mum/2011
(arising out of I.T.A. No.7016/M/10)
Assessment Year: 2007 -08
Krishna Developers, 222, Sagar ITO 25(1)(4),
Prabhat C-10, R.No.308, Pratyakhakar Bhavan,
Indl. Complex, W.E. Highway, Bandra Kurla Complex,
Dahisar(E), Vs. Bandra (E), Mumbai-51
Mumbai-08
PA No.ABGFS 5819 L
(Appellant) (Respondent)
Assessee by : Dr. K.Shivram/Rahul Hakani
Revenue by: Shri P.K.B. Menon
Date of hearing: 29.5.2012
Date of pronouncement: 8. 6.2012
ORDER
Per B.R.Mittal, JM:
The department has filed this appeal for assessment year 2007-98 against order dated 26.7.2010 of ld CIT(A)-35, Mumbai.
2. The only issue in this appeal as to whether assessee is entitled, on the facts and circumstances of the case, deduction u/s.80IB(10) of the I.T.Act, 1961.
2 ITA No.7016/Mum/2010 C.O.No.199/Mum/2011Assessment Year: 2007 -08
3. The assessee has filed cross objection. In the cross objection, assessee has supported the order of ld CIT(A).
4. The relevant facts giving rise to this appeal are that assessee is a partnership firm engaged in the business of builder and developer. The assessee undertook project at Yogeshwari Vrindavan, Aurangabad in the assessment year under consideration. The assessee has filed return of income admitting total income at Rs.Nil after claiming deduction u/s.80IB(10) of the Act at Rs.17,02,169. The AO completed the assessment under section 143(3) of the Act determining the total income of the assessee at Rs.17,02,170 by denying deduction u/s 80IB(10) of the Act. The AO stated that in respect of housing project undertaken at Aurangabad, there is no doubt that the commencement certificate is dated 26.5.2006, occupation certificate is dated 22.4.2008 and copy of land agreement also confirmed that plot area wise was more than 1(one) acre. However, the land on which, assessee developed the project was owned by M/s. Aadhar with whom assessee executed an agreement for construction of building. The assessee was not the owner of the land as there was no conveyance of land transferring the land in the name of the assessee. The AO further stated that the project on which assessee has claimed deduction u/s. 80IB(10) of the Act was approved in the name of M/s. Aadhar. The commencement certificate as well as occupancy certificate was issued in the name of M/s Aadhar. He has stated that assessee was authorized to construct the building on the land owned by M/s. Aadhar. The AO has further stated that as per sale agreement with flat purchasers, M/s Aadhar appointed the architect and structural designer. He has further stated that M/s Aadhar agreed to sell the flats on ownership basis and handed over the possession of the apartments. He has further stated that the additional FSI or TDR which would become available belonged to M/s Aadhar and not to the assessee. He has further stated that all the risk and dispute with the flat purchasers was the responsibility of the vendor i.e. M/s Aadhar and not the assessee. Therefore, the housing project was developed by M/s Aadhar and not by the assessee. The assessee only executed the work contract and thus as per explanation inserted by Finance Act, 2009 w.e.f. 1.4.2001 to section 80IB(10) of the Act, assessee is not entitled to deduction u/s. 80IB(10) of the Act and, accordingly, AO denied the claim of deduction to the assessee. Being aggrieved, assessee filed appeal before ld CIT(A).
3 ITA No.7016/Mum/2010 C.O.No.199/Mum/2011Assessment Year: 2007 -08
5. Ld CIT(A) after considering the development agreement entered into by the assessee with M/s Aadhar has held that AO was not correct in holding that assessee executed only work contract and thereby denying the claim of deduction u/s. 80IB(10). Ld CIT(A) allowed the claim of the assessee and para 3.3 of the order of ld CIT(A) reads as under:
"I have considered the submissions of the representative and the stand taken by the AO. A perusal of various clauses of the development agreement dated 16.12006 clearly shows that the appellant was entitled to develop the housing project and sell the same to the prospective buyers of flats/shops. M/s. Aadhar did not have any interest in development of the housing project except receiving Rs.75,00,000/- towards land cost. It is no doubt that the land was not legally conveyed to the appellant but as a general power of attorney holder, the appellant was developing the project and as seen from the P&L account, the appellant admitted the sale proceeds of flats and shops and claimed expenditure towards construction cost. The understanding between M/s. Aadhar and the appellant as evident from the development agreement is that the appellant was to develop the housing project The A.O. was misled the fact that the land was owned by M/s. Aadhar and commencement certificate, occupancy certificate and property card were in the name of the M/s .Aadhar. The Hon'ble Cuttack Tribunal in the case of KZK Developers Vs CIT(2010) (130 TTJ 57)(uo) held that when the assessee having entered into an agreement with OSHB, lessee of a plot, on principal to principal basis for constructing a multi-storied residential complex whereby it was assigned the right to use, develop, construct, sell or transfer the saleable area, it was not a contractor at all and, therefore, deduction under section 801B(10), is allowable to the assessee, notwithstanding the fact that the approval for developing the project was given by the competent authority in favour of OSHB. From it could be seen that merely because the project was approved in of M/s.Aadhar and commencement certificate and completion were issued in the name of M/s.Aadhar, deduction u/s.801B(10) cannot be denied. Further as contended by the representative there is no requirement that the appellant should legally own the land for claiming deduction uls.8O-lB(10) as held by the Hon'ble Ahmedabad Tribunal in the case of Radhe developers (23 SOT 4720). It is further seen that the A.O. was under the impression that the word "vendor" in the sale agreement referred to M/s.Aadhar whereas it referred jointly both M/s.Aadhar and the appellant as per sale deed. The appellant had obtained general power of attorney from M/s Aadhar and in fact the sale agreement is signed by the appellant in the capacity of power holder and the same is not signed by M/s Aadhir. The A.O. has held that M/s.Aadhar had agreed to sell the flat, When M/s. Aadhar had not signed such agreement, it cannot be accepted that they had agreed to sell the flat on their own but the same sale agreement shows that it was through the appellant in the capacity of general power of attorney holder. Further, a perusal of sale deed shows that the word jointly and severally referred to builder (the appellant) and 4 ITA No.7016/Mum/2010 C.O.No.199/Mum/2011 Assessment Year: 2007 -08 owner (M/s. Aadhar). It cannot be taken that M/s. Aadhar alone represents vendor as assumed by the AO. Further it is seen that the entire sale proceeds of flats! shops were received by the appellant and receipts for such payments were issued by the appellant and possession letters were also issued by the appellant and a perusal of the bank account of the appellant shows that the sale consideration was deposited in their bank account. The above facts clearly indicate that the appellant only developed the housing project which fulfilled all the conditions laid down u"s.801B(1O). The A.O. is not justified in denying the claim of deduction u!s.8OlB(1O) on the ground that the appellant executed works contract. As rightly contended by the representative if the appellant had executed works contract, the firm would be entitled to receive the contract receipts from M/s Aadhar whereas the facts of the case clearly show that the appellant sold the flats/shops and accounted sale proceeds in the P&L account in the capacity of general power of attorney holder for M/s Aadhar. In the circumstances, the AO was not correct in holding that the appellant executed only works contract and thereby not entitled to deduction u/s. 801B(1O). The AO is directed to allow the same."
Hence, assessee is in further appeal before the Tribunal.
6. During the course of hearing, ld D.R. supported the action of AO and whereas ld A.R. supported the order of ld CIT(A). He submitted that assessee entered into a development agreement with M/s Aadhar, the land owner, copy placed at pages 43 to 55 of PB. The relationships between land owner and the assessee are connected with this agreement and not by the sale agreement entered into with flat purchasers. It was contended that as per development agreement, assessee became entitled to develop the project and owner to sell the whole land for which assessee paid to M/s Aadhar a sum of Rs.75,00,000. Apart from this consideration of Rs.75,00,000, M/s Aadhar did not have any right or any interest in the project even though the entire development was done in the name of M/s. Aadhar by the assessee as power of attorney holder. Ld A.R. referred to clause 3 of the development agreement and submitted that the assessee is entitled to undertake construction and to sell the whole of the property even without undertaking construction to any party for the price fixed by the assessee. He further submitted that all the expenses of the project for development including fees of the architect was borne by the assessee and that the entire construction cost of the project was met by the assessee at his own cost which was debited to the profit and loss account and only after receiving the agreed consideration of Rs.75,00,000 in full from 5 ITA No.7016/Mum/2010 C.O.No.199/Mum/2011 Assessment Year: 2007 -08 the assessee, M/s Aadhar agreed to transfer all the rights and interest and executed power of attorney in favour of the assessee. He submitted that as per clause 12 of the agreement, M/s Aadhar was not entitled to any profit or loss arising out of construction of flats/shops and M/s Aadhar was not liable for any municipal or other taxes in connection with development and construction of housing project. He further submitted that one of the partner of the assessee as per development agreement was given general power of attorney to do various acts, deeds and things for and on behalf of the land owner. Therefore, it is the assessee who developed the project and completed the housing project. He further submitted that as per clause 14 of the said development agreement, assessee was entitled to commence construction, carry out the construction and dispose off the construction as per the choice of the assessee. Therefore, AO was not justified to state that the assessee only executed the works contract. He further submitted that if M/s Aadhar had awarded only contract to the assessee, assessee would have received contract receipt from M/s Aadhar after deducting TDS. The assessee credited to its profit and loss account the entire sales proceeds of flats/shops and claimed expenditure towards construction cost. Therefore, the assessee developed the said project. He further submitted that the said consideration of Rs.75,00,000 was paid by the assessee to M/s Aadhar towards cost of the land. He submitted that as per decision of ITAT Ahmedabad in the case of Radhe Developers vs ITO (2008) 23 SOT 420(Ahd), it is not necessary that assessee should be the legal owner of the land for claiming deduction. He further submitted that the decisions relied upon by the AO on Mumbai Bench of ITAT in the case of B.T.Patil & sons Construction (P) Ltd vs. ACIT, 35 SOT 171 and Belgaum construction Pvt Ltd (I.T.A. No.1408 and 1409/B/2003) are no longer good law in view of the decision of Hon'ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd, 322 ITR 323 (Bom) and the decision of ITAT Pune in the case of Laxmi Civil Engg. Pvt Ltd. vs ACIT(I.T.A. No.766/Pn/2009 dt.8.6.2011). He submitted that ld CIT(A) has rightly held that assessee is entitled to deduction u/s.80IB(10) of the Act.
7. We have considered the submissions of ld representatives of parties and orders of authorities below.
6 ITA No.7016/Mum/2010 C.O.No.199/Mum/2011Assessment Year: 2007 -08
8. We observe that AO has denied the claim of the assessee on the ground that the land on which project has come up is not in the name of the assessee but is in the name of M/s Aadhar. Therefore, he has treated that the assessee executed works contract awarded by M/s Aadhar. We are of the considered view that said finding of the AO is neither factually correct nor is based on facts placed on record. On the other hand, on perusal of development agreement dt.16.1.2006 entered into between M/s Aadhar and of the assessee, placed at pages 43 to 55 of PB, it is observed that in consideration of Rs.75,00,000 to M/s Aadhar, assessee got the right to undertake construction of the work on the said plot of land to develop a housing project. It is observed that the sale proceeds were credited by the assessee in its profit and loss account and whereas the expenditure incurred for completing the said housing project is shown as cost of construction of the project in assessee's books of account. The AO has not rejected the book results. It is observed that as per clause 13 of the said agreement, one of the partner's was granted general power of attorney to do all acts necessary for completion of the said project. The flats after the construction were also sold as per choice of the assessee. It is not disputed that save and except receipt of Rs.75,00,000 by M/s. Aadhar from the assessee, owner of the land agreed to transfer all the rights and interest and executed the power of attorney making the assessee entitled to dispose off the constructed flats in the project as per its choice. Therefore, it was the assessee who developed the project and sold the flats on its own and merely because in the sale deed, the owner is mentioned M/s. Aadhar cannot make M/s. Aadhar representing as vendor, though the entire sale proceeds of the said flats/shops were received by the assessee and the possession letters were also issued by the assessee. The department has not disputed the fact that on perusal of books of account of the assessee, it was found that the entire sales considerations were deposited in the bank account of the assessee. The issue as to whether assessee should also be legal owner of the land for claiming deduction u/s. 80IB(10) has been considered by Ahmedabad Bench of the Tribunal in the case of Radhe Developers vs ITO, 23 SOT 420, where, on identical facts, it was held that assessee was developer and not contractor though there was joint development agreement and the permissions were obtained in the name of land owners by the assessee through its partner's as power of attorney holder. The said decision was disputed by the department before Hon'ble Gujarat High Court, reported at 341 ITR 403(Guj) and Their Lordships have held after considering the amendment made by 7 ITA No.7016/Mum/2010 C.O.No.199/Mum/2011 Assessment Year: 2007 -08 inserting explanation to Section 80IB(10) of the Act that the provisions nowhere require that only those developers who themselves own the land would receive the deduction under section 80IB(10) of the Act. Neither the provisions of section 80IB nor any other provisions contained in other related statutes demonstrate that ownership of the land would be a condition precedent for developing the housing project. It is stated that section 80IB(10) of the Act requires involvement of an undertaking in developing and building housing projects approved by the local authority and certain conditions are prescribed in sub-section (10) such as the date by which the undertaking must commence the developing and construction work and the minimum area of plot of land on which such project would be put up as well as maximum built up area of each of the residential units to be located thereon. We observe that in the case before us, the said conditions are fulfilled. In respect of concerned housing project, the commencement certificate is dated 26.5.2006, occupation certificate is dt.22.4.2008 and the plot area was more than 1 acre. The architect certificate regarding built up area also satisfy the conditions of section 80IB(10) of the Act. Since the requisite conditions laid down as prescribed in sub-section (10) of Section 80IB of the Act are fulfilled, we are of the considered view that the action of AO to deny the claim on the basis that the assessee is not the owner of the land in its own name is not justified. We also hold that inference drawn by the AO that assessee only executes works contract and is not a developer is also not based on facts of the case before us. We hold that the case of the assessee is squarely covered by the decision of Hon'ble Gujarat High Court in the case of Radhe Developers (supra). Hence, we hold that there is no infirmity in the order of ld CIT(A). Therefore, we uphold the order of ld CIT(A) by rejecting the ground of appeal taken by the department.
9. In respect of cross objection, we find that assessee has supported the order of ld CIT(A), which we have upheld. Therefore, cross objections are allowed for statistical purposes.
10. In the result, appeal filed by department is dismissed and whereas cross objection filed by assessee is allowed for statistical purposes.
Pronounced in the court on 8th June, 2012
Sd/- Sd/-
(RAJENDRA SINGH) (B.R. MITTAL)
Accountant Member Judicial Member
8 ITA No.7016/Mum/2010
C.O.No.199/Mum/2011
Assessment Year: 2007 -08
Mumbai, Dated 8th June, 2012
Parida
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),35, Mumbai
4. Commissioner of Income Tax, 25, Mumbai
5. Departmental Representative, Bench 'A' Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI