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Income Tax Appellate Tribunal - Mumbai

Ackruti City Ltd ( Formely Knon As Akruti ... vs Assessee on 22 June, 2009

                 IN THE INCOME TAX APPELLATE TRIBUNAL
                       MUMBAI BENCH 'G', MUMBAI.



        Before Shri J. Sudhakar Reddy, Accountant Member
                and Shri V.D. Rao, Judicial Member.


           S.No.                I.T.A. No.           Asstt. Year.
           1.                4869/Mum/2009            2001-02
           2.                4870/Mum/2009            2002-03
           3.                4871/Mum/2009            2003-04
           4.                4872/Mum/2009            2004-05

M/s Ackruti City Ltd.,                           Dy. Commissioner of
(Formerly Known as Akruti           Vs.          Income Tax,
Nirmal Ltd.), 6th Floor,                         Central circle-6
Akruti Trade Centre, Road No.7,                  Mumbai.
Marol, MIDC, Andheri (E),
Mumbai - 400 093.
PAN AAACB0481D

   (Appellant)                                         (Respondent)

                      Appellant by : Shri Vijay Mehta.
                      Respondent by : Shri Ajay Kumar Srivastava.

                               ORDER

Per J. Sudhakar Reddy, A.M.

All these appeals are filed by the assessee directed against separate orders of the CIT(Appeals) dated 22-06-2009. The learned CIT(Appeals) had passed a common order for the assessment year 2001- 02, 2003-04 and another order for the assessment year 2002-03 and 2004-05. As the issues arising in all the appeals are common, for the sake of convenience they are heard together and disposed of by way of this common order.

2 ITA Nos. 4869 to 4872/Mum/2009

M/s. Ackruti City Ltd.

2. Facts in brief :

The assessee is a Company and is engaged in the business of real estate development and slum rehabilitation. For the assessment year 2001-02, the assessee had originally filed its return of income on 31-10- 2001 declaring an income of Rs.1,49,46,426/-. The original assessment order was passed u/s 143(3) on 27-02-2004 for the assessment year 2001- 02 and the total income was assessed at Rs.2,44,58,100/-. The claim for deduction u/s.80(IB) (10) was allowed.

3. Search and seizure operation was carried out u/s 132 of the Income-tax Act, 1961 in the Akruti Group of cases including the assessee on 10-08-2006. Notice u/s 153A was served on the assessee on 09-04-

2006. The assessee filed a return of income in response to the notice u/s 153A, on 08-05-2007, declaring the total income of Rs.2,48,33,420/-. In this return of income, the assessee claimed a deduction u/s 80IB(10) as was done in the original return of income. On the claim of deduction u/s 80IB the AO at para 3, 3.1 and 3.2 of page No.2 of the assessment order brings out the following facts.

"3. Claim of Deduction Under Section 80IB 3.1 During the period from Assessment Year 2001-02 to 2007- 08 the assessee had undertaken several projects, the details of which are as under :

        i.      SRA Project at Saiwadi
       ii.      SRA Project at Gavanpada
       iii.     SRA Project at Mayanagar
       iv.      SRA project at Ashram Chawl
       v.       SRA Project at MIDC
       vi.      Project at Shastri Nagar
       vii.     Commercial Projects at MIDC
       viii.    Project Mount Mary
       ix.      Project at Hari Nagar, Shivaji Nagar
                                     3       ITA Nos. 4869 to 4872/Mum/2009
                                                       M/s. Ackruti City Ltd.

       x.      Project at Shiramwadi
       xi.     Project at Ishwari Kailash
       xii.    Project Akruti Asha
       xiii.   Mahalasmi Car Parking Project
       xiv.    Industrial Park at MIDC
       xv.     Andhra Commercial Complex Project at Thane.
       xvi.    Project at Mogra Village
       xvii.   Rachana Sansad project.

3.2 Out of the above, the projects at Saiwadi, Gavanpada, MIDC (Rehab Projects), Mayanagar and Ashram Chawl have been claimed by the assessee as projects qualifying for deduction under Section 80IB(10) in the Assessment Years covered under search assessment including Assessment Year 2007-08. "

The AO asked the assessee to justify its claim of deduction u/s 80IB(10) of the Act for all the projects, in which it had made such claims. Thereafter at para 3.6 page 8 the AO gave detailed reasons as to why he is not agreeing with the submissions of the assessee. The AO observed that the assessee company did not fulfil the conditions laid down u/s 80IB(10). He observed that the conditions violated in different projects, range from -

a) In some of the projects the size of each unit is in excess of 1000 sq.ft.

b) The size of plot in some projects is less than 1 acre.

c) The commercial space in certain projects is more than 2000 sq.ft.

d) Certain projects could not be completed within the specified time.

The AO also rejected the submission of the assessee that when its claim for deduction has been duly approved in the past in scrutiny proceedings u/s 143(3) for the assessment years 2001-02 to 2004-05, the same cannot be reopened and revisited. He held that the assessee's wrong doings 4 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

could not be exposed by scrutinizing its cases and only after search a clear picture has emerged. He held that patent mistakes cannot be ignored. He held that proceedings u/s 153A are different from proceedings under erstwhile 158BC. On the argument of the assessee that speaking orders were passed u/s 143(3) for the assessment years 2001-02 to 2004-05 and hence the facts cannot be revisited, the AO held that the assessee himself has admitted in his return of income filed u/s 153A that certain projects had some units in excess of 1000 sq.ft. of built up area. He held that the assessee's claim for deduction in many projects was allowed incorrectly as the projects could not be completed within the stipulated time. He pointed out that the evidence gathered during the course of search and subsequently, clearly showed that the assessee had made false claim for deduction. After considering the objections of the assessee at para 3.9 page 13 of his order, he held that claim for deduction u/s. 80-IB(10) for assessee's project at Pocket 7 at MIDC and for the assessee's Ashram Chawl Project arise in the impugned assessment years and that in both these cases, the assessee has fulfilled all conditions specified u/s.80-IB(10) except the condition of the "Project" being on a plot of land which is more than one acre.

4. In all these four appeals we are concerned only with Pocket 7 and 10 of the MIDC and Ashrm Chawl Project and the only issue thast is to be decided is whther the project is constructed on a plot of land which is more than one acre.

5. The issue is the claim of deduction u/s 80IB(10) of the Act with regard to project at Pocket No.7 MIDC arises for the assessment 5 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

years 2002-03 and 2003-04 and the issue in respect to claim of deduction u/s 80IB(10) with respect to Project at Ashram Chawl in Vile Parle (East), Mumbai arises for the assessment years 2002-03 and 2004-05.

6. As already stated the sole ground on which the deduction has been denied for both these projects for the four assessment years is that, the total area of the plot of land on which the project is built is less than one acre, if the same is notionally divided. The A.O. held that, if the land is divided between the sale building and the re-hab building, the plot of land is less than one acre. He allowed the other claims for deduction made by the assessee.

7. There is no recording or submission made by the Revenue that any other condition for the claim of deduction u/s 80IB(10) were violated.

8. The assessee carried the matter in appeal. Before the first appellate authority the assessee contended that the AO should have followed the principle of consistency in approach in allowing deduction u/s 80IB(10), particularly when the assessments for assessment years 2001-02 to 2004-05 were passed u/s 143(3), allowing the deduction u/s 80IB(10). The assessee submitted that the total plot size of Pocket 7 was more than one acre i.e. it was 5813 sq.mts. equivalent to 1.43 acres. This plot was divided between slum rehab building portion of 34,527.36 sq.ft. and slum building portion of 28,043.77 sq.ft. The main contention of the assessee was that, for claiming deduction u/s 80IB(10), the project should be situated on a plot the area of which was more than one acre and that the project of rehab building is on a plot of land which is more than one acre, i.e. 1.43 acres. Reliance was placed by the assessee on the decision 6 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

of Vandna Properties vs. ACIT ITA No 1253/Mum/2007 31 SOT 392. The first appellate authority relied on the decision of the Special Bench of the Tribunal in the case of Brahma Associates 315 ITR (AT) 268, and upheld the findings of the AO. He further enhanced the assessment by disallowing the claim u/s. 80-IB(10) with respect to Project at Pocket 10 of MIDC. Aggrieved, the assessee is in appeal on the following grounds :

1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of deduction of Rs.56,42,820/- that was claimed under section 80IB of the I.T. Act, 1961 for the project at Pocket 7, MIDC holding that even though the total area of the plot is more than one acre (1.43 Acres), the area covered by the eligible component of the project on a STANDLONE BASIS is less than one acre.

2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in disallowing the claim under section 80IB(10) of the I.T. Act, 1961 of Rs.2,87,51,140/- that was made for the project at Pocket 10, MIDC holding (by enhancement) that the appellant would have been eligible for deduction only if it had constructed commercial are up to a maximum of 6404.35 q.ft. (10% of rehab building portion of 64043.54 sq.ft.) and the appellant could not show that the income from construction of residential unit could be worked out separately.

9. The learned counsel for the assessee Mr. Vijay Mehta filed an additional ground of appeal in all the four appals, which reads as follows :

" The learned CIT(A) has erred in law and in facts in confirming/enhancing the rejection of claim u/s 80IB(10) of the Act in respect of projects at Pocket 7 and Pocket 10, MIDC, Andheri without appreciating the fact that no incriminating material pertaining to the above projects have been found during the course of search. The learned CIT(A) ought to have appreciated 7 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

that in the absence of any incriminating document found during the course of search which could be relied upon by the AO/CIT(A) while rejecting the above claim, the assessment order passed u/s 153A of the Act and rejection of claim are without jurisdiction and bad in law."

He submitted that subsequent to the filing of the appeal before the Hon'ble Tribunal, the assessee came across certain decisions rendered by various Benches of the Tribunal, wherein it has been held that in assessment proceedings u/s 153A/153C of the Act, the authorities can make the addition/disallowance only in respect of those issues which are arising out of incriminating material found during the course of search. He submitted that in the case of the assessee, the disallowance has been made, not on the basis of incriminating documents found during the course of search, but on the reappraisal of the evidence already available on record and that the disallowances are unsustainable. He submitted that all the material facts required for the purpose of adjudication of the above ground are already on record and it was requested that additional ground being purely legal in nature, should be admitted and adjudicated upon. For the proposition that when an additional ground of appeal raises purely questions of law and when no new facts were required to be brought on record, the additional ground should be admitted, he relied on the following case laws:

i) National Thermal Power Corporation vs. CIT 229 ITR 380 (SC)

ii) Jute Corporation of India vs. CIT 186 ITR 388 (SC).

iii) Ahmedabad Electricity Co. Ltd. vs. CIT 199 ITR 351 (Bom) (FB).

10. Mr. Ajaykumar Srivastava, learned DR, opposed the admission of additional ground. He submitted that admission of the ground would require verification of facts and hence has to be rejected.

8 ITA Nos. 4869 to 4872/Mum/2009

M/s. Ackruti City Ltd.

11. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that the additional ground has to be admitted as it raises a purely question of law and as no new facts are required to be brought on record. The additional ground challenges the jurisdiction of the AO u/s 153A.

12. The learned counsel for the assessee Mr. Vijay Mehta first submitted the arguments on this additional ground. He argued that as nothing has been found during the course of search, which could be said to be incriminating material relatable to the assessment year 2001-02, the AO had no valid jurisdiction to issue notice u/s 153A or to complete the assessment in pursuance thereof. Reliance was placed on the following decisions :

a) Order of the Tribunal in the case of LMJ International Ltd. vs. DCIT 119 TTJ 214 (Kol).

b) Order of the Tribunal in the case of Shri Anil Kumar Bhatia vs. ACIT and Anr. In ITA Nos. 2660 to 2665/Del/2009 and others for A.Ys. 2000-01, 2002-03 to 2006-07.

c) Order of the Tribunal in the case of Shri Anil P. Khemani vs. DCIT in ITA Nos. 2885 to 2860/Mum/2008 for A.Ys. 1999-00 to 2004-05.

d) Order of the Tribunal in the case of M/s Viraj Forgings Ltd. vs. DCIT and Anr. in ITA No. 1948 and 1949/Mum/08 for A.Y. 2001-

02.

e) Order of the Tribunal in the case of Meghmani Organics Ltd. vs. DCIT 129 TTJ 255 (Ahd).

f) Order of the Tribunal in the case of S.K. Jain vs. ACIT in IT(SS)A Nos. 210 to 216/Ind/2007 dated 28-01-2010.

The learned counsel submitted that the AO did not acquire any jurisdiction to make the impugned addition as the original assessment in question, did not abate. He submitted that the mandate of section 153A of the Act, is to compute the total income as it is understood, in the sense 9 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

the total income means, income originally assessed plus any further income arising out of seized material. He submitted that the assessment orders passed u/s 143(3) become final and nothing has been found during the course of search. The concluded assessment proceedings cannot be reopened and reassessed u/s 153A.

13. On merits the learned counsel drew the attention of the Bench to section 80IB(10)(b) which read as follows :

"The project is on the size of a plot of land which has minimum area of one acre."

He submitted that the observations of the AO are very cryptic and are found on page 13 of the assessment order and that the AO has dealt with many other projects with which we are not concerned now. He submitted that the reason for which the AO held that, the assessee is not entitled to deduction u/s 80IB(10), is that the total area of plot is than one acre (equivalent to 40.47 sq.mts. or 43.562 sq.fts.) He disputed the finding of the AO that the area of the plot is to be ascertained keeping in view the built up area of 34,572.36 sq.ft. He pointed out that the CIT(Appeals), while recording that the plot size of Pocket 7 is more than one acre i.e. 5873 sq.mts. equivalent to 1.43 acres, had held that the plot is to be notionally divided between rehab building portion and sale building portion and that the size apportioned to eligible building comes to less than one acre, and hence the assessee is not eligible for deduction.

14. Mr. Vijay Mehta emphasised that there is no dispute about the factual aspect that the size of the plot on which the assessee's project is situated, is more than one acre and that the CIT(Appeals) himself has accepted the same. He further submitted that it is neither the case of the CIT(Appeals) or the AO that the plot has been subdivided after following 10 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

due process of law, governing such sub-division. He drew the attention of the Bench to the paper book filed by him running into 175 pages and specifically to page No. 1, where there is a letter issued by Maharashtra Industrial Development Corporation (hereinafter referred to as MIDC) dated 29-05-2001 wherein it is confirmed that the area of Pocket No.7 is more than one acre.. He further submits that there is no sub-division or demarcation of this plot area. He filed an additional evidence in the form of certificate at page 3 of the paper book and submitted that this is an Architect certificate and that this clarifies the position. As per Mr. Vijay Mehta, the short issue involved in the present case is as to whether, the plot area referred to in sub-clause (b) of section 80IB(10) of the Act is to be taken as per the records or the same is required to be divided or apportioned notionally on certain basis. He vehemently contends that the working in section 80IB(10)(b) is amply clear and does not call for any lengthy process of interpretation and that literal interpretation has to be applied. He submitted that the section does not provide for any formula for notional division of the plot area. He further submits that the section also does not provide for any prohibition, on the nature or type or extent of the construction on the said plot of land, outside the eligible project. Thus he argues that, since it is accepted that the rehab building is an eligible project and the sale building is an ineligible project, there is no question of providing any artificial condition about the nature and extent of the ineligible construction outside eligible project. He placed reliance on the decision of the Tribunal in the case of Vandana Properties 30 SOT

392. He referred to the representation made by the Maharashtra Chamber of Housing Industry to the Hon'ble Finance Minister which is at page 90 to 93 of the paper book and submitted that from the reply, of C.B.D.T., it is very clear that the expenses of the ineligible construction on the plot of land, does not entitle the assessee from claiming the deduction. He also 11 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

placed reliance on the decision of the Mumbai Bench of the Tribunal in the case of Saroj Sale Organisation vs. ITO 115 TTJ 485.

15. On the decision of the Special Bench of the Tribunal in the case of Bramha Associates, 119 ITD 255 (SB) (Pune), he submitted that the facts involved in this case are totally different and that the CIT(Appeals) was in error in applying the decision to the facts of the case. He distinguished the decision of the Special Bench as follows :

a) The primary issue involved before the Special Bench was regarding the applicability of amendments made with effect from 01-04-2005 to earlier years and that the controversy regarding the area of flat was not there at all before the Hon'ble Special Bench.

b) The Special Bench, first laid down that the amended provision of ceiling of commercial area at 5% or 2000 sq.ft. is prospective and hence not applicable in respect of the assessment year prior to the assessment year 2005-06. Secondly, it held that if in a the residential project the commercial area is 10% or less, the assessee would be eligible for deduction.

He submits that the Special Bench has held that if the commercial area within an eligible residential project is more than 10%, then only the assessee would be ordinarily ineligible for claim of deduction with exception that, if the profits of the residential segments can be computed separately and if the area of the plot excluding the commercial area is more than one acre, the assessee would still be eligible for deduction. He vehemently contended that the Special Bench was considering a case where the commercial area is within the eligible residential project. He submitted that in the case of the assessee each building is treated as a separate project and assessments were done over the years holding each building as a different project. He drew attention of the Bench to the chart given by the AO and submitted that it is accepted by the AO that 12 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

different buildings are different projects. Thus he submits that once there is no commercial area within a particular building which is accepted as a separate project, the ratio of the decision of the Special Bench does not apply. Thus he submits that his case is fully covered by the decisions of the Division Bench of the Tribunal in the case of Vandana Properties and Saroj Sales Organisation.

16. The learned counsel reiterated his contention that the rehab building is completely different in all respects from the sale building and hence these are two different projects. He further contended that without prejudice to his main contention, if at all a portion of the plot is to be deducted from the total plot area, then only the land beneath the sale building may have to be eliminated and not any other portion of the land. He submits that this is only an alternative argument and that his primary argument is that literal interpretation of section 80IB(10)(b) of the Act is to be applied.

17. Coming to ground No.2, which is disallowance of claim u/s 80IB(10) in respect of Pocket 10, MIDC, Andheri, the learned counsel submitted that the project consisted of both residential as well as commercial areas and the CIT(Appeals) had committed an error and enhanced the assessment order by holding that the commercial area of 10,012 sq.ft. is more than 10% of the plot area and that the order of the Special Bench of the Tribunal in the case of Bramha Associates is applicable to this case. The learned counsel for the assessee submitted that the CIT(Appeals), instead of comparing 10% of the constructed area, has compared only 10% of the plot area. His case is that the total project area is 1,63,734 sq.ft. and the commercial area is 10012 sq.ft. and hence less than 10%. Thus he submits that even going by the 13 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

decision of the Hon'ble Special Bench of the Tribunal in the case of Brahma Associates, the assessee should be granted deduction u/s 80IB(10).

18. Coming to the assessment year 2002-03 in ITA No. 4870/Mum/2009, the learned counsel submitted that the additional ground is the same and that ground No. 2 is similar to ground No. 1 for the assessment year 2001-02 and the arguments apply "mutatis mutandis".

19. Coming to assessment year 2003-04 in ITA No.4871/Mum/2009 he submitted that the grounds as well as the additional grounds are the same as in the assessment year 2001-02.

20. For the assessment year 2004-05 in ITA No. 4872/Mum/2007, he submitted that the additional ground is the same as that of the earlier years. He further submitted that ground No. 1 in respect of project Ashram Chawl is identical to ground No. 1 for the assessment year 2002-03.

21. On ground No.2 he submitted that this is in respect of addition of Rs.58,27,067/- on account of deemed dividend u/s 2(22)(e) of the Act. He submitted that this amount is received from M/s City Gold Management Services P. Ltd. and that the same is part and parcel of running and current account, between two entities. He submitted that thes e are sister concerns working on the same projects, doing separate functions and have bilateral business transactions. He submitted that these are neither loans nor advances and that these are merely exchange 14 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

of payments on a need basis, which are duly reflected in the current and mutual account of the parties. He prayed for relief.

22. The learned DR, Mr. Ajaykumar Srivastava, on the other hand, opposed the contentions of the assessee and submitted that an assessment u/s 153A(1)(b) need not be based only on seized material. He submitted that section 153A introduced by the Finance Act, 2003, as a complete new code and it now requires the AO to mandatorily issue notice u/s 153A(1)(a), where a search has been initiated. He submitted that the section nowhere requires that, notice can be issued only when there is material found or seized during the course of search. He submitted that the non obstante clause in section 153A, makes this intention very clear. He submits that the issue of notice for the period of 6 years for making of assessments u/s 153A(1)(b) is mandatory, irrespective of any other provisions of the Act and that it grants automatic jurisdiction to the AO. He submits that these are mandatory provisions and the AO has no discretion in the matter and notice has to be issued for six years. He contends that once a notice is mandatory, the AO automatically assumes jurisdiction for all the six years and the Act provides that the AO has to assess or reassess the total income for six years, after considering all other provisions of the Act and evidence available with him on the basis of seized material as well as otherwise. He submitted that the total income as defined in section 2(45) is the total income as per section 5 computed in accordance with the provisions of the Act. Thus he submits that the assessments need not be based on seized material, since the word used is 'total income' and the AO is bound to make an assessment, whether based on seized material or otherwise, so as to compute the total income as defined in section 2(45). He further drew support from the second proviso to section 153A and 15 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

submitted that it is provided that all pending assessment proceedings shall abate. His contention is that if there is seized material and if an assessment abates, then, if the argument of the learned counsel for the assessee is accepted, the AO would be prohibited from doing the assessment. He relied on the judgment of the Hon'ble Jharkhand High Court in the case of Abhay Kumar Shroff 290 ITR 114. He further submitted that there is a material change in the block assessment provisions and the provisions of section 153A and now what is to be computed is total income of the assessee and not the undisclosed income of the assessee. In the block procedure, it was specifically provided u/s 153B(1)(a) that the undisclosed income has to be computed as per the evidence found/seized during the search and that in these provisions no such condition exist. He emphasized on the phrase "assess or reassess"

used in section 153A(1)(b). He relied on the decision of the Hon'ble Supreme Court in the case of Additional Income-tax Officer, Circle-I, Salem and another vs. E. Alfred 44 ITR 442(SC) and submitted that the Apex Court held that the word "assessment" preserves the entire process of computation of levy of tax. He further relied on the Explanation to section 153A, which provides that save as otherwise provided, , all provisions of the Act shall apply and these include the provisions of 143(2)/142(1)/131 also and submitted that these sections require and confer jurisdiction on the AO to assess and reassess total income. He relied on the judgment of the Hon'ble Supreme Court in the case of V. Jagmohan Rao and Others vs. Commissioner of Income Tax and Excess Profit Tax 75 ITR 373 S.C.) for the proposition that, once the jurisdiction is validly assumed on one issue, the AO cannot be restricted to only assessment of the income which has escaped assessment, but it is duty to levy tax on entire income that has escaped assessment during the year. He pointed out that under section 153A, the 16 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

word is 'assessed' or 'reassessed', instead of 'computing' or 'aggregating' as u/s 158BB. He referred to the decision of the Kolkata Bench of the Tribunal in the case of LMJ International 119 TTJ 214 (Kol) and submitted that the interpretation of law by the Hon'ble Bench cannot be accepted. He further submits that it is not material and physical form that can be construed as evidence and information can be in intangible form and that in income-tax proceedings the rigours of evidence are much lesser. He relied on number of case laws for these propositions. Further he relied on series of case laws for the proposition that even in a block assessment, when entries are found in the books of account and when there is no material sized during the course of search, the AO can still make an addition u/s 158BC. On similar analogy he submits that even u/s 153A, additions can be made when there is no tangible material.

23. The learned DR further relied on the decision of the Delhi Bench of the Tribunal reported in 117 ITD 74 (Del) in the case of Shivnath Roi Harnarain (India) Ltd. vs. DCIT for the proposition that there is no requirement for an assessment u/s 153A being based on any material seized in the course of search. He further relied upon another decision of the Delhi 'G' Bench of the Tribunal in the case of Shyam Lata Kaushik 114 ITD 940 (Del) wherein it is held that the AO gets jurisdiction for making an assessment made u/s 153A, being based on any material search seized in the course of search. While accepting that there are certain decisions in favour of the assessee in the case of Anil Kumar Bhatia, of ITAT, Delhi and Anil P. Khemani, ITAT, Mumbai, he submitted that in view of the conflict of decision the matter may be referred to a Special Bench.

17 ITA Nos. 4869 to 4872/Mum/2009

M/s. Ackruti City Ltd.

24. Without prejudice to the above arguments, the learned DR, Mr. Srivastava, submitted that on facts a statement was recorded from Shri Vyomesh Shah, M.D. of the company during the course of search. From the perusal of the statement, it was clear that the assessee had developed certain rehabilitation projects and in reply to many questions, he had admitted that wrong claims for deduction u/s 80IB(10) were made in the returns for the assessment years 2004-05 and 2005-06. He, therefore, submitted that the authorised officers had also carried out spot verification of some of the residential units and had found that there were residential units more than 1000 sq.ft. in size and hence ineligible for deduction u/s 80IB(10). He submitted that in this background, when admittedly there are violations, it is not possible for the authorised officer to complete the detailed investigation of claim of section 80IB(10) for all the projects at that time itself, due to the fact that the search would have been continued for many more days and this would have caused hardship to the assessee as well as search party. He submitted that the mere fact that the assessee was claiming wrong deduction u/s 80IB(10) by misrepresenting the factual position as well as misrepresenting the nature of income in accounts, was proved beyond doubt and that this is nothing but a grate piece of evidence unearthed as a result of search. In brief, he submitted that the factum of wrong claim of deduction u/s 80IB(10) could not have come to light but for the search and consequent discovery. Thus he submits that one of the specific facts of this case, it cannot be said that there is no material found during search, on which the assessment has been made disallowing deduction u/s 80IB(10).

25. On merits the learned DR submitted that it should be noted that the assessee himself admits that the rehab portion and the sale of 18 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

building portion, constructed in Pocket 7 of MIDC are two separate and distinct projects, though the projects are approved under common rehabilitation scheme and though they are located on a single plot of land which has a single demarcation number in the municipal record. While agreeing that the rehab portion is a separate project and the sale building portion is a separate project and while agreeing that the area of the plot of land is of 1.43 acres, he submitted that the land beneath project is not common and that the same can be physically identified separately. He submitted that the plot area used under rehab portion is 0.79 acres only and the plot under same building portion is 0.64 acres. He submitted that the assessee himself admitted and treated these two projects separately and is considered the sale building portion, as distinct and ineligible project as far as deduction u/s 80IB(10) is concerned. The rehab portion was only claimed as eligible for deduction u/s 80IB(10). The sum and substance of the submission of the learned Departmental representative is that, he does not dispute the contention of the assessee that these are different projects.

26. Mr. Srivawsta submitted that a plain reading of section 80IB(10) makes it clear that deduction is project specific and all conditions of that section have to be fulfilled in respect of each project on standalone basis. He submits that any other ineligible project which might be developed by the assessee simultaneously will not have any relation or connection to the eligible project so far as the claim u/s 80IB(10) is concerned. He further submitted that sub-clause (b) in the section uses the term 'the project' and this refers to a project which is eligible u/s 80IB(10). Thus he submits that the condition of the size of plot of minimum of one acre is required to be fulfilled with reference to 19 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

a plot utilised in the eligible project only and not with reference to the plot utilised for some other ineligible project.

27. He further submits that a single eligible project may comprise one or more building in a common sanctioned layout irrespective whether all buildings are commenced at one time or at different intervals. Similarly he argued that an eligible project may be situated on one plot or more than one contiguous plots as per the municipal demarcations. Conversely, there may be more than one separate and distinct project, which may include eligible or ineligible projects on a single plot. Thus he vehemently contends that mere fact that two or more projects are situated on a plot which has same demarcation number as per the municipal records will not make the two project as a single project or vice-versa. He relied on the observations in the case of the Special Bench of the Tribunal in the case of Brahma Associates 119 ITD 255 (SB)(Pune) specifically to para 114 and submitted that, what is deductible is the profit of the housing project and not profit attributable to the dwelling units. Thus he submits that the profit in question could also include the profit referable to the land portion utilised in such project. Once the land which is utilised in the project influences the quantum of profit of the undertaking, he submits that, it will necessarily imply that the value of only that portion can be adopted which is actually used in the project. He submits that the land or the plot portion which is not used in that project but which is referable to some other project cannot be considered, as otherwise, it would lead to distortion of profits which is not permitted, in view of restriction u/s 80IB(13) read with section 80IB(8) and section 80IB(10). Thus he contends that for the purpose of calculation of size of the plot of one acre, only that portion of the plot which can be considered and which 20 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

has been actually used in the eligible project, can be considered, for this purpose of computing the size of the plot of eligible project. He submitted that the words used is 'profits derived from an undertaking' and thus the profits of an undertaking have to be separately computed on standalone basis

28. Mr. Srivastava further submitted that the assessee has only authority to construct on the plot of land and that it does not own it. He argued that once the two projects are separate and independent, the land used under the commercial project cannot be taken on notional basis for computing the minimum limit of one acre of land used for eligible project. He relied on the decision of the Pune Bench of the Tribunal in the case of Om Engineers and Builders 109 ITD 235 (Pune). He strongly disputed the contention of the assessee that the judgment of Brahma Associates is distinguishable and submitted that the case of the assessee is worse than that of Brahma Associates. He submitted that in the case before the Special Bench, it was held that one acre limit, has to be satisfied after excluding the area under commercial unit, though in that case the commercial unit was part of the same project and the same plot, and whereas in the case of the present assessee, the commercial unit is not the part of eligible project at all, as also admitted by the assessee and hence, there could be no question of including the plot of land under commercial unit on notional basis to be part of the eligible project. He submits that hence the ratio of the Special Bench is squarely applicable. He submitted that in the CBDT's letter which is issued as a clarification and which is relied upon by the learned counsel, required that all other conditions are to be fulfilled.

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M/s. Ackruti City Ltd.

29. Mr. Srivastava submitted that the incentive u/s 80IB(10) is intended to promote construction of houses and that this intention is achieved only when big projects having large number of dwelling units are to be constructed by the undertaking. He submitted that the minimum requirement of the undertaking having minimum size of plot of one acre and the unit having less than 1000 sq.ft. are specified. Thus he submits that if exemption is granted to the assessee who has constructed the rehab building on .79 acres, it would be against the legislative intend and does not cure the mischief sought to be avoided by the statute. He relied on the judgment of the Kerala High Court in the case of Mysore Sales 265 ITR 498 (Ker) and submitted that when a fiscal statute is introduced to eliminate a mischief, the Court cannot provide a beneficial interpretation thereby continuing the mischief. He referred to judgment of the Hon'ble Supreme Court in the case of IPCA Laboratories 266 ITR 521 (SC) wherein it is held that the interpretation has to be as per the wording of the section. He relied on the judgment of the Hon'ble Bombay High Court in the case of Indian Rayon Corpn. 231 ITR 26 (Bom) where it is held that principle of beneficial interpretation would apply only in a case where the Court is in doubt about the true scope or finds two equally reasonable interpretations. He submitted that when the conditions specified in the section are not fulfilled, the question of grant of deduction does not arise. He further submitted that when strict interpretation leads to absurd results, such interpretations are not to be adhered. For this proposition he relied upon the judgment of Hon'ble Bombay High Court in the case of CIT vs. Kishoresinh Kalyansinh Solanki 39 ITR 522 (Bom).

30. Coming to the decisions of the Tribunal in the case of Saroj Sales Corpn. and Vandana Properties, he submitted that these decisions 22 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

were not referred to in the case of Brahma Associates. On a plea of the assessee that on principle of consistency the claim should be allowed, as the Department has been allowing the claim of the assessee in the earlier assessment years, he submitted that the rule of consistency does not apply and for this he relied on the decision of the Hon'ble Supreme court in the case of Oswal Agro Mills 313 ITR 24 (SC) and the case of C.K. Gangadharan 304 ITR 61 (S.C.). He submitted that in this case also a substantial question of law is involved as to whether the assessee fulfils the condition of one acre or not and hence the principle of consistency cannot be applied. He prayed that the order of the first appellate authority be upheld.

31. In his rejoinder, the learned counsel for the assessee, Mr. Vijay Mehta, submitted that :

a) it is a common case of both the assessee and the Revenue that the rehab portion and the sale building portion are two different projects and that the deduction u/s 80IB(10) is being claimed on the project consisting of rehab portion. Hence, he submitted that the undisputed fact is that the Rehab Building is an independent project and that this is on a plot of 1.43 acres.

b) that sub-clause (b) of section 80IB(10) simply says that the project should be on the size of plot of land which has a minimum of 1 acre and does not describe any where whether, on the same plot, there could be other eligible/non-eligible projects or not. He further contends that the condition regarding the size of plot is not required to be fulfilled on a standalone basis for the simple reason that the legislative requirement is otherwise.

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M/s. Ackruti City Ltd.

He contended that the learned DR quoted the observations of Brahma Associates, out of context and submitted that they have no bearing on the facts of the present case. He argued that the calculation of profit arising out of land portion is a matter of accounting and that it does not mean that while examining as to whether conditions of clause (b) of section 80IB(10) has been satisfied or not, only the land portion of the eligible project is to be counted. He submits that there is no such stipulation in clause (b) and that the learned DR has fallen in error in mixing up the provisions dealing in pre-conditions and provisions regarding computation of income.

32. He further submitted that there is no question of considering the land used for commercial project on a notional basis and that the plot area has been duly measured and the same has been given on actual basis. He vehemently contended that the Department wants to allocate the area on notional basis. He further submitted that the ownership of land is immaterial and is not one of the preconditions of section 80IB(10). He reiterated his contention that in the case of Brahma Associates, the Hon'ble Special Bench was considering the issue of commercial usage within the same project. Thus he submits that the ratio laid down in the case of Vandana Properties and Saroj Sales Organisation is applicable to the facts of the case.

33. He further submitted that in the case of Brahma Associates, the basic condition of the project being residential is not satisfied and in such a situation the Special Bench held that, if the commercial area goes beyond 10% of the total area, the project ceased to be residential project. As an exception, the special Bench says that in certain circumstances, a proportionate allowance can be granted. Thus he 24 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

contends that in the case of Brahma Associates there is no wholly residential project to begin with and the project is having commercial area of more than 10%, it would make the assessee ineligible in normal circumstances. He contended that in the case of the assessee the fact that it is a pure residential project, without any commercial component is not in dispute. He repeated his contention that simply there are some ineligible construction on the plot of land, the question of denying exemption does not arise when the conditions are satisfied. Referring to the CBDT letter, he submitted that it talks about fulfilment of other conditions and this means the conditions other than the condition of one acre land. He referred to page No. 90 of the paper book. He strongly disputed the contentions of the learned DR that the plot actually used under the residential project should be 1 acre and submits that no such requirement exists in the statute. On the other hand, he submits that if it is the intention of the legislature that the assessee should use the entire 1 acre for commercial purpose, then the same would have been interpreted in the statute itself. He contended that there is no absurd result in the present case and one cannot violate the clear language of the statute. He reiterated that there is no contradiction between the decisions of Vandana Properties and Saroj Sales Organisation on the one hand and the decision in the case of Brahma Associates on the other hand. He pointed out that the decision in the case of Saroj Sales Organisation has been considered by the Special Bench in the case of Brahma Associates and the same is not overruled. He clarified that the plea of the assessee was, that since in the earlier years the learned CIT(Appeals) as well as the AO had accepted different buildings as individual projects, for the purpose of finding out the area of the plot, the eligible project as well as commercial project should not be combined and the area of land should not be calculated by notionally reducing area 25 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

pertaining to commercial building. He reiterated that even if the land beneath the same building portion is eliminated from the total plot of land, then also the area of the plot would be more than one acre. On a query from the Bench, he submitted that in Pocket No.7, Building No. 4 and 6 have been completed in the assessment year 2000-01 and were eligible for 80IB(10) and was granted the same. As far as building No.1 is concerned, it was completed in the assessment year 2003=04 and building No. 2 was completed in the assessment year 2004-05 and building No.5 was completed in the assessment year 2001-02. He explained that these were 7 separate projects in Pocket No. 7.

34. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record and the orders of the authorities below as well as the case laws cited, we hold as follows.

35. We first take up the additional ground of appeal which is on the jurisdiction of the AO. The assessee's contention is that, in the absence of any incriminating documents found during the course of search, the AO could not reject the claim of the assessee u/s 80IB(10). As already stated as this is a legal issue on the issue of jurisdiction, and as in our opinion the facts are on record, we admit this ground.

36. On the issue whether the AO has jurisdiction to issue notice u/s 153A of the Act and in completing assessment proceedings u/s 143(3) read with section 153A and disallowing the claim of deduction u/s 80IB(10) of the Act, according to the assessee, nothing incriminating was found during the course of search as far as the assessment year 2001-02 is concerned, we find that in case where no material 26 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

whatsoever is found in the search, there are different views taken by different Bench of the Tribunal on this issue.

37. The case laws in favour of the assessee are as follows :

g) Order of the Tribunal in the case of LMJ International Ltd. vs. DCIT 119 TTJ 214 (Kol).

h) Order of the Tribunal in the case of Shri Anil Kumar Bhatia vs. ACIT and Anr. In ITA Nos. 2660 to 2665/Del/2009 and others for A.Ys. 2000-01, 2002-03 to 2006-07.

i) Order of the Tribunal in the case of Shri Anil P. Khemani vs. DCIT in ITA Nos. 2885 to 2860/Mum/2008 for A.Ys. 1999-00 to 2004-05.

j) Order of the Tribunal in the case of M/s Viraj Forgings Ltd. vs. DCIT and Anr. in ITA No. 1948 and 1949/Mum/08 for A.Y. 2001-

02.

k) Order of the Tribunal in the case of Meghmani Organics Ltd. vs. DCIT 129 TTJ 255 (Ahd).

l) Order of the Tribunal in the case of S.K. Jain vs. ACIT in IT(SS)A Nos. 210 to 216/Ind/2007 dated 28-01-2010.

38. The case laws in favour of the Revenue are as follows :

i) Shivnath Roi Harnarain (India) Ltd. vs. DCIT ITA Nos. 4109, 4103 & 4104/Del/2006 dated 15th Feb., 2008.

ii) Shyam Lata Kaushik 114 ITD 305.

39. Though it is claimed before us that the decisions of the Delhi Bench of the Tribunal in the case of Shivnath Rai Harmarain (India) Ltd. and Shyam Lata Kaushik (supra) have been considered in a later order of the Tribunal relied upon by the assessee, we are of the considered opinion that, on the facts and circumstances of this case, we need not go into the controversy, for the simple reason that, the Department had found material during the course of search. It had come to the revenue's notice, during the course of search, that the assessee has made false claims of deduction u/s 80IB(10). In fact the assessee in response to question No. 27, 28 and 31 recorded u/s 132(4) had admitted to have made certain 27 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

wrong claims. Even after the search the assessee has suo motu given up. claims made for deduction u/s 80IB(10) for some of the years. Thus, there is not only a statement of having made e-xcessive claims, but it is followed up by su-motto surrender of the claims made earlier u/s. 80- IB(10) of the Act. Just because there is no statement or withdrawal of claim for this particular assessment year, it cannot be said that there is no possibility of the assessee not having made the false claim u/s 80IB(10) during this year. Once during the course of search, certain information has come to light, that the assessee has made certain false claims, on a particular issue, in our considered opinion, the AO has jurisdiction to examine the validity of the claim of exemption u/s 80IB(10) in all the assessment years, while processing the returns of income u/s. 153A read with section 143(3). Thus in view of the information that has come to light during the course of search and seizure operations on the claims of exemption made by the assessee u/s 80IB(10) during the period prior to the search, it is held that there is information, which is intangible material, unearthed as a result of search, and this material can be used for the purpose of assessment made u/s 153A read with section 143(3). Hence, on facts, we fully agree with the submission of the ld. Departmental Representative, Shri Srivastava.

40. In the result, this additional ground of the assessee is dismissed on facts, as devoid of merit. We do not give any finding on law, as it would be on academic exercise.

41. This brings us to ground No. 1 on merits. Before adjudicating the matter it would be appropriate to list out the facts which are not in dispute between the parties.

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M/s. Ackruti City Ltd.

42. Pocket 7 consists of Building 1, Building 2, Building 4, Building 5, Building 6 as well as sale building. Each of these buildings has been treated as a separate project by the assessee and has been assessed as such, by the Revenue. The other undisputed fact is that buildings 1, 2, 4, 5 and 6, i.e. except sale building are purely residential buildings and have no commercial component in the same. Sale building is a purely commercial building with no residential component in the same. The project in the form of 'Re-hab' building No.4 and the project in the form of 'Re-hab' building No. 6 were completed during the assessment year 2000-01 and the assessee had claimed deduction u/s 80IB(10) and the same was allowed u/s 143(3) in the original assessment proceedings. Possibly, because these projects were completed beyond the period of 6 years from the date of search, due to limitation, they could not be reassessed u/s 153A read with section 143(3). The other undisputed fact is that the total area of the plot is 1.43 acres i.e. 62571.13 sq.ft. It is also not disputed that the plot is a single plot of land and that this plot has not been sub divided or demarcated either by the municipal authorities or by any other person or authority. It continues to be the single plot of land having a single identification number on a total area of 1.43 acres six rehab building projects which are residential and one sale building project which is commercial have been constructed. It is also not in dispute that as far as Pocket 7 is concerned, the assessee has not violated, any of the other conditions specified u/s 80IB(10). Now the issue is whether each of the rehab building project, on the facts and circumstances of the case, is to be held as not eligible for exemption of profits u/s 80IB(10), for the reason that the building project is not situated on a plot of land which is more than 1 acre. At this stage we repeat that the ld. Departmental Representative has emphasised and confirmed the departments view that the Re-hab residential building project is an 29 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

independent project and has to be considered separately. Thus, we have no other choice but to consider the common agreed fact of both the parties that the residential building is a separate project and that the sale building project is a separate project and that we cannot mix up both projects.

43. Section 80IB(10) sub-section (b) reads as follows :

" The project is on the size of a plot of land which has a minimum area of 1 acre."

A plain and literal reading of this clause states that the project is to be on the size of a plot of land which has a minimum area of 1 acre. The argument of Shri Vijay Metha that nothing more can be read in the section is not a unacceptable proposition. There is some force in the argument that, it would not be correct to hold that the residential project should encompass and physically occupy a minimum area of 1 acre of land for getting exemption. The argument of the learned DR that no project, which does not have beneath the constructed area, i.e. which does not physically occupy, a minimum area of 1 acre of land, would be eligible for incentive u/s 80IB(10), can be considered as adding something more or reading some additional conditions into sec. 80IB(10)(b), of the Act. The undisputed fact is that each rehab building is 'a project' by itself and that the profit from that rehab building is assessed on a standalone basis on the ground that this is a project by itself. Each such a project is on a size of a plot of land, which has a minimum area of 1 acre in fact the plot area is 1.43 acre. The literal interpretation would lead to a conclusion that the profits from that project would be ordinarily eligible for deduction u/s 80IB(10). Such an interpretation cannot be rule out though the arguments of the ld. Departmental Representative at some points seemed to attractive at the first blush. When the meaning is evident 30 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

from the plain reading of the statute, there is no necessity of going into the intention of legislature, mischief rule or other interpretations. It appears to us that the literal interpretation, gives the benefit to the assessee. This is our prima facie opinion. Before we decide the issue we examine the case laws as well as the reply of the Finance Ministry to a query by the Chamber of Housing Industry.

44. At page 90 of the assessee's paper book, a photo copy of a letter addressed by the Mahrashtra Chamber of Housing Industry dated 1st January, 2001, to the then Hon'ble Minister of Finance is enclosed. Para 2 of the letter is extracted below for ready reference:

"2. There were certain areas in the provision of law under the Income Tax Act which need clarification so as to make them workable considering the practical ground realities of the housing sector in particular. This will also apply to 80IB(10) in addition to Sec. 10(23G). The same are discussed below :

(i) With a view to ensure even development of the areas in Metro cities like Mumbai, the local Government or the Regulatory Authorities have introduced what to popularly known as Transfer of Development Rights (TDRs). The developers is, therefore, entitled to utilize such TDR even on its existing project, of course, after obtaining suitable permission/approvals from the appropriate authorities in this regard. If a strict interpretation of the provisions of the I.T. Act is taken, it requires that the project has to be of a plot of land, the size of which is a minimum of 1 acre. This may result in unnecessary hardship in as much as if the Developer is permitted to utilize the TDR on its existing project which fulfils the requirement of the size of the plot of land of minimum 1 acre, it will still not be entitled to the benefit of tax free profits in spite of the fact that such a Developer fulfils the remaining stipulations contained in the said section 80IB(10) of the Act. It is, therefore, requested that even the utilization of TDR on the existing housing projects or any additional construction on the existing projects subject to fulfilling 31 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

the other stipulations to be also made eligible for exemption under section 10(23G) of section 80IB(10) of the Act. (Emphasis own)

(ii) What is referred to in the I.T. Act is the Housing Projects.

The term 'Housing Project' is not defined anywhere under the Act. Therefore, there is a possibility of different view points on the subject leading to protracted litigation. The basic issue that arises is with regard to a Developer developing and building a township and/or a residential complex etc. In such schemes, a developer is obliged to provide all basic necessities within the township such as park, green area, health-care facilities, telephone booth, convenient store, shopping facilities etc. There is a possibility that legal controversy may arise where a housing project mainly meant for residential purpose will also have shopping areas. The Department is likely to take a stricter view in the matter and reject the claim of the developer merely on the ground that there exists shopping centres within the residential complex, though it may form a very insignificant portion of the total project area. However, going by the present day concept of township, facilities like school, garden play area etc. are mandatory. The undertaking developing the housing project is likely to lose the benefit merely on the ground that any such housing project include the facilities enumerated or a public circular may be issued to ensure that such legal complications may not arise in future. On the alternative, it is recommended that suitable amendment be made to define the term "Housing Project" to include various ameneticies and facilities. Inter-alia, including that of a 'convenient shopping' etc. In response, the Ministry of Finance, Government of India in F.No.205 3 2001 ITA II vide letter dated 4th May, 2001 has clarified as under :

"The undersigned is directed to refer to your letter No. MCHI- RSAim:388/19799/3 dated 1st January, 2001 and to state that the additional housing project on existing housing project site can qualify as infrastructure facility under section 10(23G) and 80IB(10) provided it is taken up by a separate undertaking having 32 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

separate books of accounts o as to ensure that correct profits can be ascertained for the purpose of section 80IB and also to identify receipts and repayments of long term finances under the provisions of section 10(23G), separately financing arrangements and also if it separately fulfils all other statutory conditions listed in section 10(23G) and 80-IB(10).With regard to your query regarding the definition of Housing Project it is clarified that any project which has been approved by a local authority as a housing project should be considered adequate for the purpose of section 10(23G) and 80IB(10). [Page 93 of the PB].

45. The above clarification shows that an additional housing project constructed on an existing project, which fulfils the requirement of the size of the plot of land of minimum 1 acre, would be eligible for deduction u/s 80IB(10). This clarification, in our considered opinion supports the literal interpretation pleaded by the learned counsel for the assessee.

46. Coming to the case laws, in the case of Brahma Associates (supra) the Tribunal was considering clause (d) of 80IB(10) which is concerned with the built up area of the shops or other commercial establishments included in the housing project. In the case on hand, each rehab building is treated as a separate housing project and in none of the housing projects, there is any built up area of shops or other commercial establishments. In other words, the undisputed facts of this case is that, there is no element of commercial construction is their in the residential project in question. The factual position in the present case, is different from the factual position in the case of M/s. Brahma Associates (supra).

The Special Bench of the Tribunal has, in our humble opinion, has not 33 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

laid down any proposition, in cases where a housing project has no element of commercial construction. This fact is not disputed by the ld.

Departmental Representative, but his argument is that, if the ratio is applied, the assessee will not be eligible for any deduction u/s.80(1)(B)(10) when it is common ground that the order of the Special Bench relates to a 'project' having both residential and commercial components and that this case is not similar, we hold that the propositions therein do not apply to this case.

47. This is clear from the extract given herein below The Special Bench in its conclusions at page 336 brings out the issue in the following manner.

"(a) The deduction under section 80IB(10), as applicable prior to April 1, 2005, subject to and in the light of the observations made in the preceding paragraphs, is admissible in the case of a 'housing project' comprising of residential housing units and commercial establishments. In case these projects are approved as projects by the local authority, such an approval as housing project is sufficient for the purpose of eligibility. In any other case, where 90 per cent or more of the total built-up area is used for dwelling units, in accordance with the scheme of section 80IB(10), the benefit of deduction under section 80-IB(10) will not be declined.

49. Reading of the above shows that the decision was on the residential segment of the project, which means as claimed by the ld. Counsel of the assessee that a single project has both a residential segment, as well as a commercial segment. In this case the undisputed fact is that a residential project in the form of rehab buildings 1, 2, 3, 5, 6 do not have any commercial built up area or segment at all. Thus, we 34 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

may have to agree with the ld. Counsel for the assessee that the ld. CIT(A) has wrongly relied on this case law.

50. In the case of Om Engineers & Builders v. ITO, (109 ITR

235) , the Pune Bench 'B' of the Tribunal was considering a case where a builder had a plot of land admeasuring 3800 sq. mtrs. which is less than one acre. Another concern, i.e. M/s. MAEER agreed to allow a part of its land to be used as open space by the assessee. The ownership of such land was not transferred by M/s. MAEER in favour of the assessee. On these facts, the Tribunal held that the area of the plot of land on which the impugned housing project was built, was less than one acre and the assessee would not get the benefit under section 80-IB(10). The facts of the assessee's case are different and hence this decision does not apply.

51. Now we examine the decision of the Tribunal in the case of Saroj Sales Organisation. The Tribunal in this case held as follows :

"Held : The commencement certificates in respect of building No. 1 consisting of wings A and B were received by CAPL on 7th March, 2001 and 30th March, 2001 respectively. But the commencement certificates for various wings in block 'N' were approved by the municipality on various dates between 10th Sept., 2001 to 23rd Sept., 2003. All the six wings are part of 'N' block and independently satisfies the necessary approval of a housing project. It really makes no difference whether CAPL had applied for or the assessee had applied to the Municipal Corporation to make any difference in deciding the assessee's claim for deduction under s. 80-IB(10). It must be appreciated that the main developer was CAPL. The sanction plan have only approved the construction of the dwelling units of less than 1,000 sq.ft. ion all the wings of the said project. There is no dispute that all the flats in the wings in block 'N' contain the eligible units. It is not open to the Revenue to include the next project 'BC' block as part of the earlier housing project just to deny the statutory relief which 35 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

the assessee is entitled in respect of the eligible housing project. In that way the legislative intention to give a relief to the assessee who is undertaking the law housing projects will get defeated. 'BC' project was meant for higher strata of the society. The assessee has segregated the same and in no way mixed in these projects either in the design or in the structural manipulation or in the provision of amenities and the assessee has not claimed any relief in respect of project which admittedly does not admit the test laid down under s. 80- IB(10). Combining these two projects into one will lead to a result which manifestly will be unjust and absurd and defeat the very provisions of deduction sections. Unless there is a clear intention of the legislature the Revenue cannot be permitted to do so. After all the assessee has obtained different commencement certificates and started on different periods of time. They are separate by time, space and statutory approvals and even in designs, maintenance of separate books of account. The Revenue is not right in treating both the projects as one and integrated without the facts warranting for such conclusion. Objection of the AO that as the permissible shopping area of housing project exceeds 5 per cent, the assessee is not entitled for relief under s. 80IB(10) is not sustainable. The housing projects were approved before 31st March, 2005 and for such project which were so approved, there was no stipulation as to the shopping complex area is permissible in the project. The amendments were subsequently made while extending the deduction of income from housing project approved upto 31st March 2007, and the denial of deduction is clearly not in accordance with law. As the occupation certificate in respect of the wings F, F1 and G have been issued on 20th Dec., 2006 i.e. prior to 31st March, 2008, the condition relating to completion of the construction as prescribed in s. 80-IB(10) should also be taken to be satisfied.- Bengal Ambuja Housing Development Ltd. vs. Dy. CIT(ITA Nos. 1594 and 1737/Kol/2005 dt. 24th April, 2006) relied on.

Conclusion : Assessee having completed the construction of various wings of the building under the approval plan in two different blocks under different certificates of commencement, was eligible for deduction under s. 80-IB(10) in respect of one block in respect of which claim for deduction was made and which satisfied the requirement of s.

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M/s. Ackruti City Ltd.

80-IB(10); claim could not be denied by clubbing the two blocks especially when the second block had been kept separate by the assessee and for which deduction under s. 80- IB(10) was not claimed. " [Emphasis own] In this case the Tribunal was considering different projects which are in proximity to each other and a view is taken that the next project cannot be included in the earlier project to deny the exemption after clubbing different projects. The case was considered by the special Bench in the case of Brahma Associates and has not been specifically overruled.

52. The Mumbai F-Bench of the Tribunal in the case of Vandana Properties 31 SOT 392 held as follows :

"Further, building 'E' was planned and construction was commenced after 1-10-1998, therefore, building 'E' itself was an independent housing project as contemplated under section 80-IB(10) and it could not be fastened with earlier buildings, i.e., 'A', 'B', 'C' and 'D' which work was commenced in the year 1993. As plan for building 'E' was only approved once in the year 2002, the conclusion drawn by both the lower authorities that the commencement of building 'E' was a continuation of the existing project was erroneous.

There was no dispute about the fact that the assessee acquired the development rights in respect of the plot which was, admittedly, 2.36 acres on which the assessee executed the different building projects. The case of the Assessing Officer for rejecting the claim of the assessee was that if the said land was proportionately allocated among different buildings, then area allocated to building 'E' was less than one acre. In clause

(b) to section 80-IB(10), it is provided that the project should be on a size of plot of land which has minimum area of one acre.

As the area statement given in the plans, there was no specific demarcation made in respect of the plot of 2.36 acres.

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M/s. Ackruti City Ltd.

The surplus land available with the assessee or earlier owner was given the status as 'Within Ceiling Limit (WCL) and due to change or conversion of the land status, the assessee was able to plan the project for Building 'E'. The assessee brought to the Tribunal's notice the correspondence made by the Maharashtra Chamber of Housing Industry, Mumbai with the Finance Minister, Government of India, New Delhi, seeking clarification of certain aspects on section 10((23G) and section 80-IB(10). The main issue was in respect of the treatment to be given to the Transfer of Development Rights (TDR) which was purchased by the developer and used on the existing plot of land or the project. As per the letter dated 4-5- 2001, the CBDT, New Delhi had replied giving the clarification that additional housing project on the existing housing project can qualify for exemption/deduction under sections 10(23G) and 10-IB(10) provided the correct profit can be ascertained. So far as the instant case was concerned, it was evident that, though some of the buildings did not qualify for deduction under section 80-IB(10) and the same was also not claimed. Therefore, the view taken by the Assessing Officer as well as the Commissioner (Appeals) that the assessee had violated another condition in respect of the size of the plot was not correct. " .............[Emphasis own] The order of the Tribunal in the case of Vandana Properties (supra) applies on all fours to the facts of this case. The proposition laid down in this case is a co-ordinate bench order and a the learned Departmental Representative has not brought to our notice any contrary decision. Thus, in view of the factual position that the project in question is purely a residential project without a commercial element and as this project is located on a plot of land of a size of 1.43 acres, respectfully following the ratio laid down by the Co-ordinate bench of the Tribunal, we allow this ground of the assessee.

53. Coming to ground No.2 we find that the first appellate authority has erroneously considered 10% of the plot area instead of 38 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

considering 10% of the total constructed area while examining the eligibility for exemption u/s.80IB(10) of Pocket 10 MIDC. As per the mandate of the Special Bench of the Tribunal in the case of Brahma Associates as already referred above while dealing ground No.1, what is to be considered is 10% of the built up area and not 10% of the plot area. Thus we set aside this issue to the file of the AO for examining, if the assessee's built up commercial area is less than or more than 10% of the total built up area. If the commercial built up area is less than 10% of the total built up area, the case of the assessee should succeed. If it is not so, the assessee will not be entitled for any exemption u/s.80IB(10). With these observations we set aside the issue to the file of the A.O. for fresh adjudication. In the result, this ground is allowed for statistical purposes

54. Coming to the appeal for the assessment year 2002-03 in ITA No. 4870/Mum/09, the additional ground is dismissed for the same reason as given while disposing of the ground in the in assessment year 2001-02.

55. As far as the issues on merits are concerned, for the assessment year 2002-03, both the parties submitted that the facts and arguments are similar to the facts and arguments for the assessment year 2001-02 though the project in question is at Ashram Chawl. As the plot area recorded by the CIT(Appeals) is 1.298 acres, for the same reasons given while disposing of ITA No. 4869/Mum/2009 for the assessment year 2001-02, we allow this ground of the assessee.

56. For the assessment year 2003-04 the additional ground is dismissed for the same reasons as those given while disposing of the additional ground for the assessment year 2001-02 and ground No.2 is set aside to 39 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

A.O. allowed for the same reasons given while disposing of ground No.2 for the assessment year 2001-02.

57. Coming to assessment year 2004-05 both the parties submitted that ground No.1 is in respect of project Ashram Chawl and the issue is identical to ground No.1 for the assessment year 2002-03 and for the same reasons that are given while dealing with the issue for the assessment year 2001-02, we allow this ground.

58. Coming to ground No.2 for the assessment year 2004-05, it is with respect to an addition made u/s 2(22)(e). The facts are brought by the AO at para 8 page 29 to 31 of the assessment order. The total of 7 companies are sister concerns and all the companies are having inter related transactions. When the assessee was asked by the AO to explain why the provisions of section 2(22)(e) should not be invoked, he submitted that the subsidiaries and the group companies have been incorporated for specific projects and for the purpose of business expediency. The AO rejected the explanation, though he restricted the addition by reducing the dividend already deemed to have been distributed in the earlier years. On appeal, the first appellate authority rejected the contentions of the assessee that they are inter corporate deposits. At the last page i.e. page 16 of the appellate order, the CIT(Appeals) considered the arguments of the assessee that the transactions were in the nature of current accounts. He observed as follows :

"A current account is not expression defined or used in the income tax laws. A copy of the account of City Gold Management in the books of the appellant clearly indicates periodical amounts received by the appellant which are clearly in the nature of 40 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

advances received by the appellant to be repaid later. None of the transactions relates to any trading activity between the parties."

From the assessee's paper book page 183 it can be seen that the approval to building plans for proposed slum commercial building on Pocket No. 7 Marol Industrial area of MIDC is processed by City Gold Management Services. MIDC addressed a letter to M/s City Gold Management Services. Similar is the correspondence at page 188 and 193 of the assessee's paper book. This demonstrates that M/s City Gold Management Services Ltd. and the assessee are having business transactions and are working in tandem to complete certain projects as a common objection. Finding of the CIT(Appeals) also indicates that the copy of account indicates periodical transactions.

59. We now examine whether the financial transactions between sister concerns, which are admittedly working together in many cases for the same project, after dividing their functions, through under the same management, can be considered loans or advances. Every financial transaction cannot be a loan or advance. Commercial expediency, business necessity and emergency needs result in financial accommodation between sister concerns. This cannot be termed either a loan or an advance. These transfer of funds are with the object of achieving a common objective.

60. In the case of M/s Chandra Cement vs. DCIT 68 TTJ (Jaipur) 35, the Jaipur Bench held as follows :

" When one single individual is managing the affairs of two concerns and the decision to transfer the funds from one concern to another or to repay the funds could have been said to have been largely influenced by the same individual, it cannot be said that transaction partake the nature of either deposit or loan.

The Hon'ble Madhya Pradesh High Court has in the case of Patiram Jain held that :

41 ITA Nos. 4869 to 4872/Mum/2009

M/s. Ackruti City Ltd.

It has also been accepted by the respondents that the transactions made between the two sister concerns were under exceptional circumstances to accommodate the emergency needs of the sister concern for a very short and temporary period. As such, it did not amount to a loan or deposit as defined under Section 269SS of the Income-tax Act.

The Cochin Bench of the Tribunal in Muthoot M. George Bankers vs. ACIT (1994) 47 TTJ (cochin) 435 held as under :

"Against the background, we examine the transactions between the sister concerns and the assessee There are transfer of funds from and to the sister concerns. There is no evidence to show that money was loaned or kept deposited for a fixed period or repayable on demand. Further, the sister concerns and the assessee are owned by the same family group of people with a common managing partner with centralised accounts under the same roof. Transfer of funds has taken place in a whimsical manner. Therefore, it is rather difficult to say that the transactions are in the nature of deposits or loans with certain conditions attached to them, either as regards the period of such deposits or loans or with regard to their repayments. From the copies of the accounts furnished before us all that can be gathered is that funds have been transferred from and to the sister concerns as and when required and since the managing partner is common to all the sister concerns, the decision to transfer the funds from one concern to another concern or to repay the funds could be said to have been largely influenced by the same individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same individual. In such circumstances of the case, we hold that the transaction inter se between the sister concerns and the assessee cannot partake or the nature of either "deposit" or "loan" though interest might have been paid on the same. Excepting for the transfer of funds being witnessed in the books of account of the concerned firms, no material is on record to show issue of receipt or pronote in evidence of accepting deposits or loans as understood in common parlance. It only represents diversion of funds from one concern to another depending upon the exigencies of the business."

From the above, it is clear that transaction between sister concerns are just diversion of funds for meeting vistitudes of business and are neither 42 ITA Nos. 4869 to 4872/Mum/2009 M/s. Ackruti City Ltd.

loans or advances. These decisions support the view that current account transactions between the sister concerns cannot be called loans or advances for the purpose of invoking section 2(22)(e). The term 'advances' in this section is used along with the word 'loan' and this word does not include transfer of funds for trade or business advances as held by the Hon'ble Delhi High Court in CIT v. Raj Kumar (2009) 181 Taxman 155 (Del.).

61. The Hon'ble Delhi High Court in the case of CIT vs. Ambassador Travels P. Ltd. (2009) 318 ITR 376 (Del) held that when the assessee entered into normal business transaction as a part of day to day business activity, this cannot be treated as loans or as advances. The Mumbai 'A' Bench of the Tribunal in the case of N.H. Securities Ltd. vs. DCIT reported in 11 SOT 302 held that where payments are made by a company in the course of carrying on its regular business through a mutual, open and current account to a related party do not come under the purview of section 2(22)(e). Applying the propositions laid down in these case laws for the facts of the case, we accept the arguments of the learned counsel for the assessee that the transactions between these sister concerns are business transactions and are guided by commercial expediency and are mere diversion of funds and are neither a loan or advance as contemplated u/s 2(22)(e). Thus this ground of the assessee is allowed.

62. In the result, all the appeals are allowed in part.

Order pronounced on this 25th day of August, 2010.

           Sd.                                         Sd.
      (V.D. Rao)                                 (J. Sudhakar Reddy)
   Judicial Member.                               Accountant Member.
Mumbai, Dated : 25th August 2010.
                       43       ITA Nos. 4869 to 4872/Mum/2009
                                          M/s. Ackruti City Ltd.

Copy forwarded to :
   1. Appellant.
   2. Respondent
   3. C.I.T.
   4. CIT(A)
   5. DR, G-Bench.                 By Order
(True copy)
                                  Asstt. Registrar,
                           ITAT, Mumbai Benches, Mumbai.