Income Tax Appellate Tribunal - Ahmedabad
Kirti Construction, Baroda vs Assessee on 13 November, 2014
आयकर अपीलȣय अͬधकरण, अहमदाबाद Ûयायपीठ 'सी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" C " BENCH, AHMEDABAD
सम¢ Įी अǓनल चतव ȶ ȣ, लेखा सदèय एवं Įी कुल भारत, ÛयाǓयक सदèय ।
ु द
BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER And
SHRI KUL BHARAT, JUDICIAL MEMBER
Sl. ITA No(s) Nos. Assessment Appeal(s) by
No(s) Year(s) Appellant vs. Respondent
Appellant Respondent
1. 1686/Ahd/2013 2005-06 ITO M/s.Kirti
Ward-2(1) Construction
Baroda Ayodhya
Township
Kedar Park
Nr.Motinagar
-3
Tarsali Road
Baroda-390
009
PAN:AAGF
K 7066A
2. 1325/Ahd/2011 2007-08 Assessee Revenue
3. 485/Ahd/2012 2008-09 Revenue Assessee
4. 288/Ahd/2012 2008-09 Assessee Revenue
5. 2331/Ahd/2012 2009-10 Revenue Assessee
6. 2434/Ahd/2012 2009-10 Assessee Revenue
Assessee by : Shri Shri S.N.Soparkar, A.R.
Revenue by : Shri M.K. Singh, Sr.DR
ु वाई कȧ तारȣख /
सन Date of Hearing 30/10/2014
घोषणा कȧ तारȣख /Date of Pronounce ment 13/11/2014
आदे श / O R D E R
PER SHRI KUL BHARAT, JUDICIAL MEMBER :
These group of appeals by the Assessee and the Revenue are directed against the separate orders of the ld.Commissioner of Income Tax(Appeals)-II, Baroda ('CIT(A)' in short) pertaining to Assessment Years (AYs) 2005-06, 2007-08, 2008-09 & 2009-10. Out of these six ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10 -2- appeals, two set of appeals are cross-appeals pertaining to AYs 2008-09 & 2009-10. Since common issues and facts are involved in these appeals, these were heard together and are being disposed of by way of this consolidated order for the sake of convenience.
2. First, we take up the Revenue's appeal in ITA No.1686/Ahd/2013 for AY 2005-06 is against the order of the ld.CIT(A)-II, Baroda dated 31/01/2011. The Revenue has raised the following grounds of appeal:-
1. On the facts and in the circumstances of the case and in law, the ld.CIT(Appeals) erred in not considering 25.10.2000 as the base year for deciding the completion year and date of the project in view of the decision of the Hon'ble ITAT in ITA No.3074/Ahd/2008 dated 27.11.2009.
2. On the facts and in the circumstances of the case and in law, the ld.CIT(Appeals) erred in directing the Assessing Officer to allow deduction u/s.80IB(10) of the Act proportionately on the completed units of the project without appreciating that the assessee is eligible for deduction u/s.80IB(10) only when all the conditions of section 80IB(10) in respect of the 'entire project' is completed.
3. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary.
Relief claimed in appeal It is prayed that the order of the CIT(Appeals) be set aside and that of the Assessing Officer be restored.
3. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10 -3- Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 22.11.2011, thereby the Assessing Officer (AO in short) disallowed the claim of the assessee for deduction u/s.80IB(10) amounting to Rs.42,76,463/- in second round of litigation. In earlier round, the AO had framed assessment u/s.143(3) of the Act dated 26/12/2007, whereby the AO had disallowed the deduction u/s.80IB(10) of the Act. The matter travelled upto the ITAT by way of ITA No.3074/Ahd/2008 dated 27/11/2009 and the Tribunal restored the issued back to the file of AO with the direction as recorded in the assessment order in para-5, which is reproduced hereunder:-
"5. That ITAT, Ahmedabad vide order dated 27.11.2009 vide direction on page No.50 & 51 of the order restored the issues to the file of the AO with the direction that:
(1) The AO shall look into the agreement entered into by each of the assessee with the landowner and decide whether the assessee has in fact purchased the land for a fixed consideration from the landowner and has developed the housing project at its own cost and risks involved in the project.
In case the AO finds that practically the land has been bought by the Developer and Developer has all dominant control over the project and has developed the land at his own cost and risks, the AO should allow the deduction to the assessee u/s.80IB(10). In case the AO finds that the Developer has acted on behalf of the landowner and has got the fixed consideration from the landowner for the development of the housing projects, the assessee should not be allowed deduction u/s.80IB(10) to the assessee.
(2) The AO should also look into whether the assessee has in this case complied with the conditions as given u/s.80IB(10)(a) read with Explanation thereto about the completion of the housing ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10 -4- project by the assessee before 31st day of March, 2008. As per the explanation to section 80IB(10)(a) the date of approval in the case of the assessee, in our opinion, will be taken to be 25.10.2000 and not 16.06.2004 as that is the date on which the housing project was approved. If the opinion of the AO the assessee has not completed the project before 31st day of March, 2008, no deduction should be allowed to the assessee u/s.80IB(10) in our opinion, all the conditions as stipulated under sub-clauses (1), (b), (c), and (d) u/s.80IB10 must be compiled with by the assessee for claiming the deduction u/s.80IB(10).
In view of the direction No.1 & 2 mentioned above, the assessee was issued notice u/s.143(2) on 25.06.2010 and u/s.142(1) of the IT Act on 30.05.2011 and 27.10.2011 to furnish all the documentary evidence in support of their claim and also to furnish the completion certificate in respect of the said project."
3.1. The AO in pursuance of the direction of the Tribunal gave finding that so far as the first direction is concerned, the terms of the development agreement is such that the assessee i.e. developer has possesses all rights and risks on the constructed property and land owner only interested in receiving his part of the land consideration for transfer of land title. In respect of the second direction, the AO gave a finding that completion certificate was not issued within the stipulated time, therefore the assessee has failed to comply with the provisions of section 80IB(10) of the Act and proceeded to make disallowance claimed u/s.80- IB(10) of the Act. Against this, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions directed the AO to allow the deduction on 220 Units out of 223 Units.
ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10 -5- 3.2. The ld.Sr.DR submitted that the ld.CIT(A) was not justified in deleting the disallowance. He submitted that the appellant could not produce completion certificate in respect of 129 Units. However, the ld.CIT(A) granted the relief on the basis of the application made by the assessee to the Vadodara Municipal Corporation. He submitted that this approach of the ld.CIT(A) is not justified.
4. On the contrary, ld.Sr.counsel for the assessee submitted that the issue is squarely covered in favour of assessee and he placed reliance on the judgement of Hon'ble Gujarat High Court rendered in the case of CIT-IV vs. Tarnetar Corporation (2012) reported at 210 Taxman 206 (Guj.). He also placed reliance on the decision of the Coordinate Bench (ITAT Ahmedabad "D" Bench) rendered in the case of Saket Corporation vs. ITO in ITA No.3377/Ahd/2010 for AY 2007-08 dated 14/08/2014. He also placed reliance on the judgement of the Hon'ble Delhi High Court rendered in the case of CIT vs. CHD Developers Ltd. (2014) reported at 362 ITR 177 (Delhi). In support of this contention, delay on the part of the concerned authority for issuing the completion certificate would not disentitle the assessee from claim of deduction under section 80-IB(10) of the Act. He submitted that even otherwise also, when the housing project was approved, there was no provision for getting the completion certificate from the concerned authority, it was inserted by way of subsequent amendment in the provision.
ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10 -6-
5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the judgements relied upon by the ld.Sr.counsel for the assessee. The undisputed fact arising from the record is that out of 456 units the approval granted for 222 units of plots and 234 units of residential units from Vadodara Mahanagar Seva Sadan. The ld.Sr.counsel for the assessee contended that the assessee has made claim with regard to residential units only and not with regard to the plots. The ld.CIT(A) has given a finding that out of 223 units, the assessee has received completion certificate in respect of 129 units - on 20/04/2005 for 39 units, on 23/08/2005 for 20 units and on 10/02/2006 for 70 units and submitted duly acknowledge copy of Form No.7 i.e. completion report submitted to Vadodara Municipal Corporation on 9th May-2007 for 91 units. This fact is not disputed by the Revenue. We find that the ld.CIT(A) has followed the jdugement of Hon'ble Jurisdictional High Court rendered in the case of Tarnetar Corporation(supra). Wherein the Hon'ble High Court held that the assessee had not only completed the construction two years before the final date but had applied for the building use permission. Such building permission was not rejected on the ground that construction was not completed but on some other technical ground. Thus, granting the benefit of deduction could not be held to be illegal. In the instant case also, the assessee had completed the construction and applied for the issuance of completion certificate. While making application, the assessee also enclosed the certificate issued by the Architect/Engineer who have given the completion ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10 -7- certificate. It is noteworthy that the ld.CIT(A) has recorded a finding that out of 223 Units, the concerned authority gave completion certificate in respect of 129 units which is not disputed by the Revenue. Furthermore, the ld.CIT(A) has also given a finding that in respect of 91 units, the assessee had made application for issuance of the completion certificate on 09/05/2007. This fact is supported by the evidence of Form No.7 enclosed at page No.97 of the paper-book of the assessee. The Coordinate Bench of this Tribunal in Saket Corporation vs. ITO (supra) has followed the judgement of Hon'ble Delhi High Court rendered in the case of CIT vs. CHD Developers Ltd.(supra) and held that in the instance case the housing project was approved on 10/03/2004 by the competent authority. The above fact is not in dispute and the fact, as per the decision of Hon'ble Delhi Court rendered in the case of CIT vs. CHD Developers Ltd.(supra), the condition for obtaining completion certificate within four years of the date of approval for being eligible for deduction u/s.80IB(10) of the Act is not applicable. In the present case also, it is recorded by the AO that initially the approval of the project from Vadodara Municipal Corporation was obtained on 25/10/2000. This fact is not controverted by the Revenue. The Hon'ble Delhi High Court in the case of CIT vs. CHD Developers Ltd.(supra), held as under:-
"In the present case, concededly the approval for the project was given by the Mathura Vrindavan Development Authority on March 16, 2005. Clearly the approval related to the period prior to 2005, i.e., before the amendment, which insisted on issuance of the completion certificate by the end of the four-year period was brought into force. We are in full agreement with the Gujarat High Court that the application of such stringent conditions, which ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10 -8- are left to an independent body such as the local authority who is to issue the completion certificate, would have led to not only hardship but absurdity. As a consequence, we are of the opinion that the reasoning and conclusions of the Karnataka High Court and the Gujarat High Court are fully applicable to the facts of this case. The Tribunal was not, therefore, in error of law while holding in favour of the assessee.
In view of the above no substantial question of law arises for consideration. The appeal is accordingly dismissed."
5.1. In view of the binding precedents as cited hereinabove, we do not find good reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, ground no.1 of Revenue's appeal is rejected.
6. Apropos to ground No.2, ld.DR supported the order of the order of the AO, whereas ld.Sr.counsel for the assessee supported the order of the ld.CIT(A) and reiterated the submissions as were made before the ld.CIT(A).
7. We have considered the rival submissions and perused the material available on record. The ld.CIT(A) while deciding the issue has observed as under:-
"On the issue of proportionate deduction u/s.80IB(10) also High Court has opined in favour of the assessee that the same is allowable on the units which are fulfilling the eligibility condition. Though, in that case, the built up are was under consideration and in the present case, the issue is of completion certificates. However, in my opinion the ratio is the same and will apply on the residential units which are completed but where completion certificates have not been issued by the BMC. Hon'ble Madras ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10 -9- High Court in case of Sanghvi and Doshi Enterprise (supra) held that:
"36. This leaves us with the last question on proportionality, which was considered by us in T.C.(A)Nos.1348 and 1349 of 2007 dated 18.10.2012. Though the assessee had complied with the extent of built-up area as per clause (c) and the assessee is entitled to have the benefit of deduction under Section 80IB of the Income Tax Act, since the Tribunal had remanded the portion of the built-up area for verification before the Assessing Officer and a factual enquiry has to be made thereon as to whether the built-up area is in fact 1500 sq.ft. or more than that, we do not think that the Revenue could have any serious objection on this aspect. In the circumstances, we confirm the order of the Tribunal on the remand portion."
Ld. Authorized Representative for the appellant has also relied upon the decision of Madras High Court in case of Viswas Promoters (P.) Ltd. Vs. CIT (2013) 29 taxmann.com 19 (Mad.) wherein it has been held that each residential block in a housing project is a 'housing project' in itself for purpose of claiming deduction u/s.80IB(10) of the Act. It has been held by the High Court that the proportionate deduction has to be allowed to the assessee in respect of the units which fulfill the eligibility conditions.
The appellant is eligible for deduction u/s.80IB(10) on those units in respect of which completion certificates have been issued by the BMC. It will also get deduction u/s.80IB(10) in respect of those units for which assessee had applied to BMC before the due date i.e. 31.03.2008. The appellant has received completion certificate in respect of 129 units (on 20.04.2005 for 39 units, on 23.08.2005 for 20 units and on 10.02.2006 for 70 units and submitted duly acknowledged copy of Form no.7 i.e. completion report submitted ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
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to BMC (Vadodara Municipal Corporation) on 9th May 2007 for 91 units. According to the jurisdictional High Court in case of Tarnetar Corporation (Supra), the application for obtaining completion certificate by the assessee before the due date is sufficient compliance for the grant of deduction u/s.80IB(10). In the case of the appellant, it has been demonstrated that the application for such certificates was made on 09.05.2007, i.e. before the due date of 31.03.2008. Thus, only 3 units out of total 223 approved by the BMC remained incomplete on which deduction u/s.80IB(10) will not be available. As the appellant firm had completed construction of the 220 units much before 31st March 2008, i.e. the date before which construction was to be completed as per the provisions of section 80IB(10) of the Income Tax Act, 1961, the Assessing Officer is directed to allow full deduction u/s.80IB(10) on 220 units out of total 223 units. The deduction is worked out as under:
Total deduction claimed Rs.42,76,463 x 220 = Rs.42,18,932/-
------223
The assessee shall get relief of Rs.42,18,932/-."
7.1. We find that the ld.CIT(A) has followed the judgement of Hon'ble Madras High Court rendered in the case of CIT vs. Sanghvi and Doshi Enterprise reported at (2013) 255 CTR 156 (Mad.) . Therefore, we do not find any infirmity in the order of the ld.CIT(A), same is hereby upheld on this issue. Thus, this ground of Revenue's appeal is rejected.
7.2. During the course of hearing, ld.Departmental Representative raised an additional ground with regard to allowance of deduction u/s.80IB(10) of the Act in respect of unutilized FSI in view of the ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
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judgement of Hon'ble Gujarat High Court rendered in the case of CIT vs. Moon Star Developers in Tax Appeal No.549 of 2008. The ld.Sr.counsel for the assessee submitted that he has no objection if this issue is restored to the file AO for verification and decision afresh in the light of the judgement of Hon'ble Gujarat High Court rendered in the case of Moon Star Developers (supra). The ld.counsel for the assessee has relied on the judgement of Hon'ble High Court of Gujarat rendered in the case of CIT vs. Shreenath Infrastructure reported at (2014) 44 taxmann.com 461 (Guj.). The Hon'ble Gujarat High Court in the case of CIT vs. Shreenath Infrastructure has followed the judgement of Hon'ble Gujarat High Court in the case of CIT vs. Moon Star Developers (Tax Appeal No.549) and has reproduced the observation of the Hon'ble High Court in para-3 of their judgement as under:-
3....... It was held and observed as under:-
"28. In this context, we may examine, whether the decision of the Assessing Officer to treat the income of the assessees from sale of FSI separate and excludable from the purview of section 80IB(10) of the Act? The concept of FSI, is a well-known one. Local authorities, such as Corporations, Municipalities and Panchayats, frame regulations for regulating activities of development of lands within their local areas. Such regulations are popularly referred to General Development Control Regulations (GDCR). In addition to providing different zones controlling development activities in different areas for regulated and orderly development of urban areas, these regulations also provide for various other details such as maximum height up to which the construction can be carried out, maximum area on the ground floor or on other floors which can be covered under construction, margin to be left on sides, parking facilities to be provided ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
- 12 -
depending on the nature of building and most importantly, the maximum construction that can be carried out on a given piece of Y land. The last element, namely, the ratio of the land area versus the maximum construction permissible on such land, is referred to as floor space index (FSI for short). It is this FSI which will decide the maximum area of construction that can be carried out on any given piece of land. It is, therefore, not difficult to appreciate that besides several other factors of situational and other advantages and disadvantages, FSI permissible for the land in question would be an important factor in the context of development of the land. Given all other factors-same, higher the FSI, the greater the value of the land.
29. It is in this context, we have to appreciate the under utilization of the FSI by the assessees in different housing projects under consideration. From the figures recorded in the earlier portion of the judgment, we can gather that such utilization of the FSI by the assessees ranges from the minimum of 11.14% of the full FSI available to a maximum of 65.81%. In majority of the cases, the assessees have covered barely about one-fourth or one-third of the permissible FSI.
30. For any commercial activity of construction, be it residential or commercial complex maximum utilization of FSI is of great importance to the developer. Ordinarily, therefore, it would be imprudent for a developer to under-utilize available FSI. Sale price of constructed properties is decided on the built up area. It can thus be seen that given the rate of constructed area remaining same, non-utilization of available FSI would reduce the profit margin of the developer. When a developer therefore utilizes only say 25% of FSI and sells the unit leaving 75% FSI still available for construction, he obviously works out the sale price bearing in mind this special feature. Let us compare two instances. In the same area two residential schemes are developed. Both have residential units of 1500 sq. feet. In one scheme 100% FSI is used in another 25% FSI is used and 75% is passed on to the buyer of the unit. Price of the unit in the later scheme would for apparent reason be considerably higher than the former because the buyer there gets not only a residential unit of 1500 sq. feet, he also gets the right to build further construction of 4500 sq. feet. Whether this includes open land or not is not important. In terms of construction business, it is equivalent to sale of land. Thus, therefore, when a developer constructs residential unit occupying a fourth or half of usable FSI and sells it, his profits ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
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from the activity of development and construction of residential units and from sale of unused FSI are distinct and separate and rightly segregated by the Assessing Officer.
31. It is true that section 80IB(10) of the Act does not provide that for deduction, the undertaking must utilize 100% of the FSI available. The question however is, can an undertaking utilize only a small portion of the available area for construction, sell the property leaving ample scope for the purchaser to carry on further construction on his own and claim full deduction under section 80IB(10) of the Act on the profit earned on sale of the properly? If this concept is accepted, in a given case, an assessee may put up construction of only 100 sq. ft. on the entire area of one acre of plot and sell the same to a single purchaser and claim full deduction on the profit arising out of such sale under section 80IB(10) of the Act. Surely, this cannot be stated to be development of a housing project qualifying for deduction under section 80IB(10) of the Act. This is not to suggest that for claiming deduction under section 80IB (10) of the Act, invariably in all cases, the assessee must utilize the full FSI and any shortage in such utilization would invite wrath of the claim under section 80IB(10), being rejected. The question is where does one draw the line. In our opinion, the issue has to be seen from case to case basis. Marginal underutilization of FSI certainly cannot be a ground for rejecting the claim under section 80IB(10) of the Act. Even if there has been considerable underutilization, if the assessee can point out any special grounds why the FSI could not be fully utilized, such as, height restriction because of special zone, passing of high tension electric wires overhead, or any such similar grounds to justify under utilization, the case may stand on a different footing. However, in cases where the utilization of FSI is way short of the permissible area of construction, looking to the scheme of section 80IB(10) of the Act and the purpose of granting deduction on the income from development of housing projects envisaged thereunder, bifurcation of such pro fits arising out of such activity and that arising out of the net sell of FSI must be resorted to. In the present case, none of the assessees have made any special ground for non-utilization of the FSI.ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,
288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
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32. The contention of the counsel for the assessee that as long as there has been 100% utilization of the maximum permissible area on the ground floor, deduction under section 80IB(10) of the Act cannot be declined, cannot be accepted. As noted earlier, in case of M/s. Moon Star Developers and many other assessees, such full utilization of the ground floor area available for construction resulted into barely 20% to 25% of the FSI being used, remaining more than 75% being left unused.
33. What is available for deduction under section 80IB(10) of the Act is the profit of an undertaking derived from developing and building a housing project. Mere sale of open land or unused FSI as part of the housing project where utilization of the FSI is way short of permissible limits cannot be said to have been derived from such housing project. Terms "derived from", "arising out of and "attributable to" are often times used in the context of income tax in different connotation. In the case of Sterling Foods (supra), the assessee was engaged in processing prawns and other sea food which it exported. In the process, the assessee earned import entitlements to use itself or sell the same to others. During the year under consideration, the assessee included such sale proceeds for claiming relief under section 80HH of the Act, in case of any profit or gain derived from an industrial undertaking in backward areas. In this context, the Apex Court held that the import entitlements cannot be said to be derived from the industrial undertaking of the assessee. For the application of the words "derived from", there must be a direct nexus between the profits and gains and the industrial undertaking and in the case on hand, the nexus was not direct but only incidental."
7.3. After considering the totality of the facts of the present case, this issue is restored back to the file of AO to verify the unutilization of FSI and decide this issue afresh in the light of the judgement of Hon'ble Gujarat High Court rendered in the case of CIT vs. Moon Star ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
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Developers in Tax Appeal No.549 of 2008. Thus, this ground of the Revenue is allowed for statistical purposes.
8. As a result, Revenue's appeal in ITA No.1686/Ahd/2013 for AY 2005-06 is partly allowed for statistical purposes.
9. Now, we take up appeal of the Assessee in ITA No.1325/Ahd/2011 for AY 2007-08. The assessee has raised the following grounds of appeal:-
1. The learned CIT(A) has erred in law and on facts in disallowing claim of Rs.43,98,491/- made under the provisions of section 80IB(10) of the Act by the appellant on all together different grounds and reasoning that were not the basis for making additions in the assessment order and which are far from the fact and evidences on records and are based on conjectures and surmises. The order of ld.CIT(A) being bad in law, prejudiced and against the principles of Natural Justice deserves to be quashed.
2. The learned CIT(A) has grossly erred in law and on facts in placing reliance on the information received by AO subsequent to passing of the assessment order from Vadodara Mahanagar Seva Sadan for denying the benefit u/s.80IB(10) of the Act without affording opportunity to the appellant to mitigate the same. Thus, this action of ld.CIT(A) has resulted into assessing as altogether new source of disallowance which is not permissible under the law and therefore deserves to be quashed.
3. Levy interest u/s.234B/234C & 234D of the Act is not justified.
4. Initiation of penalty u/s.271(1)(c) of the Act is not justified.
The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
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10. Ground Nos.1 & 2 are inter-connected and, therefore, the same are decided together. Facts are identical to the facts of Revenue's appeal in ITA No.1686/Ahd/2013 for AY 2005-06(supra) except that in the AY 2005-06 the ld.CIT(A) has allowed the appeal of the assessee holding that the assessee is eligible for deduction in respect of 220 Units out of 223 Units. In the present year, the ld.CIT(A) has disallowed the deduction on the basis that the assessee could not produce the completion certificate. The ld.Sr.counsel for the assessee adopted the argument in the as advanced in the AY 2005-06 and submitted that this issue is squarely covered by the judgement of the Hon'ble Jurisdictional High Court rendered in the case of CIT-IV vs. Tarnetar Corporation (2012) reported at 210 Taxman 206 (Guj.), judgement of the Hon'ble Delhi High Court rendered in the case of CIT vs. CHD Developers Ltd. (2014) reported at 362 ITR 177 (Delhi) and decision of the Coordinate Bench rendered in the case of Saket Corporation vs. ITO in ITA No.3377/Ahd/2010 for AY 2007-08 dated 14/08/2014 .
11. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the judgements relied upon by the ld.counsel for the assessee. We find that the ld.CIT(A) has denied the deduction on the basis that the assessee could not produce completion certificate before 31/03/2008. The ld.CIT(A) observed that the completion certificate were issued only in respect of 132 units only on 31.03.2008. We find that the order in ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
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respect of AY 2007-08 was passed by the ld.CIT(A) on 31/01/2011. However, the order in respect of AY 2005-06 was passed by the ld.CIT(A), against the order of the AO passed u/s.143(3) rws 254 of the Act, on 15/03/2013, wherein the ld.CIT(A) has allowed deduction. This order of the ld.CIT(A) on this issue has been upheld by us in Revenue's appeal i.e. ITA No.1686/Ahd/2013 for AY 2005-06(supra), therefore there is no reason to take a different view for this assessment year. Thus, this ground of assessee's appeal is allowed. The AO is directed to allow deduction u/s.80-IB(10) of the Act, as per the order of ld.CIT(A) for AY 2005-06. Thus, ground Nos.1 & 2 of assessee's appeal are allowed.
12. Ground No.3 is consequential in nature in respect of levy of interest u/s.234B & 234C. In respect of levy of interest u/s.234D of the Act, no argument has been advanced by the ld.Sr.counsel for the assessee, therefore this ground is rejected.
13. Ground No.4 is against initiation of penalty u/s.271(1)(c) of the Act which is premature and the same is rejected as such.
13.1. Last ground of assessee's appeal is general in nature requires no independent adjudication.
14. As a result, assessee's appeal in ITA No.1325/Ahd/2011 for AY 2007-08 is partly allowed.
ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
- 18 -
15. Now, we take up the cross-appeals of the Assessee and the Revenue (in ITA Nos.288/Ahd/2012 and 485/Ahd/2012 for AY 2008-09 respectively) against the order of the ld.CIT(A)-II Baroda passed for AY 2008-09 dated 02/12/2011.
15.1. In Assessee's appeal (ITA No.288/Ahd/2012 for AY 2008-09), the following grounds have been raised:-
1. Learned CIT(A) erred in law and on facts in confirming disallowance of deduction claimed u/s.80IB (10) of the Act holding that the conditions laid down under the provisions of the section were not fulfilled by the appellant. The order of ld.CIT(A) being harsh, unjust and bad in law deserves to be quashed.
2. Learned CIT(A) erred in law and on facts in not taking cognizance of the fact that the appellant had already obtained completion certificate for 129 units whereas application in respect of another 91 units was pending before the authorities that were completed within prescribed time limit as laid down in the section.
Ld.CIT(A) ought to have appreciated the fact that the conditions for grant of deduction u/s.80IB(10) of the Act were complied in substance by the appellant and hence ought to have granted deduction as claimed by the appellant.
3. Alternatively and without prejudice ld.CIT(A) ought to have held that proportionate allowance for the units in respect of which completion certificate was obtained from the competent authority be allowed u/s.80IB(10) of the Act.
4. Learned CIT(A) erred in making applicable observations of the Special Bench decision dealing with concept of 'profit of housing project' for denying the benefit of proportionate deduction failing to appreciate that the appellant obtained completion certificate of units as 'housing project' only.
ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
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5. Both the lower authorities have erred in law and on facts in not considering various explanations, submissions and evidences placed on record by the appellant in its proper perspective. This action of both the lower authorities deserves to be quashed.
6. Levy of interest u/s.234A/234B/234C & 234D of the Act is not justified.
7. Initiation of penalty u/s.271(1)(c) of the Act is not justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
15.2. Ground Nos.1 to 5 are inter-connected and, therefore, the same are decided together. Facts are identical to facts of Revenue's appeal in ITA No.1686/Ahd/2013 for AY 2005-06 (supra), wherein we have decided the issue in favour of the assessee. Therefore, taking a consistent view, ground Nos.1 to 5 of assessee's appeal for AY 2008-09 are allowed. The AO is hereby directed to grant deduction in terms of order of ld.CIT(A) for the AY 2005-06. Ground No.6 is in respect of interest levied u/s.234A/234B/234C & 234D of the Act. So far the levy of interest u/s.234A,234B & 234C of the Act is concerned, the same are consequential in nature and we hold accordingly. In respect of levy of interest u/s.234D of the Act, no specific argument has been advanced by the ld.Sr.counsel for the assessee, therefore this ground of assessee's appeal is rejected. Thus, ground No.6 of assessee's appeal is partly allowed.
16. Ground No.7 is against initiation of penalty u/s.271(1)(c) of the Act which is premature.
ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
- 20 -
17. As a result, assessee's appeal in ITA No.288/Ahd/2012 for AY 2008-09 is partly allowed.
18. Revenue's appeal in ITA No.2485/Ahd/2012 for AY 2008-09, wherein following grounds have been raised:-
1. On the facts and in the circumstances of the case and in law the ld.CIT(Appeals) erred in directing the Assessing Officer to allow the deduction u/s.80IB(10) r.w.s.80IB(1) of the Income-tax Act, without appreciating the fact that relationship between the assessee and the end user of the units was that of 'work contract' since the approval by the local authority as well as completion certificate was not granted to the assessee but to the landowner and the rights and the obligations under the said approval were not transferable, and that transfer of dwelling units in favour of the en-users was made by the landowner and not by the assessee.
2. On the facts and in the circumstances of the case and in law, the ld.CIT(Appeal) erred in directing the Assessing Officer to allow the deduction u/s.80IB(10) r.w.s.80IB(1) of the Income-tax Act to the on profit derived from sale of unutilized FSI, without appreciating that this profit not an element of profits derived from the business activity of development and construction of the housing project relating to the sale of tenements.
3. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary.
Relief claimed in appeal It is prayed that the order of the CIT(Appeals) be set aside and that of the Assessing Officer be restored.
18.1. Parties have adopted the same argument as advanced in ITA No.1686/Ahd/2013 (Revenue's appeal-supra) for AY 2005-06.
ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
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18.2. Ground No.1 is against the disallowance on the basis that the relationship between the assessee and the end user of the units was that of 'work contract' since the approval by the local authority as well as completion certificate was not granted to the assessee but to the landowner and the rights and the obligations under the said approval were not transferable. This issue has been decided by us in favour of assessee by relying on the judgement of Hon'ble Gujarat High Court rendered in the case of CIT vs. Radhe Developers reported at (2012) 341 ITR 403 (Guj.). Therefore, we do not find any infirmity in the order of the ld.CIT(A), same is hereby upheld. Thus this ground of Revenue's appeal is rejected.
18.3. Ground No.2 is against the issue of allowability of deduction u/s.80IB(10) r.w.s.80IB(1) of the Act to the on profit derived from sale of unutilized FSI. Since the facts are identical to the facts of Assessee's appeal in ITA No.1325/Ahd/2011 for AY 2007-08, therefore, this issue is restored back to the file of AO for verification and decision afresh in the light of the judgement of Hon'ble Gujarat High Court rendered in the case of CIT vs. Moon Star Developers in Tax Appeal No.549 of 2008. Taking a consistent view, for this year also, this issue is restored back to the file of AO to decide in the light of the judgement of Hon'ble Gujarat High Court rendered in the case of CIT vs. Moon Star Developers in Tax Appeal No.549 of 2008. Thus, this ground is allowed for statistical purposes.
ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
- 22 -
18.4. Ground No.3 is general in nature requires no independent adjudication.
19. As a result, Revenue's appeal in ITA No.485/Ahd/2012 for 2008- 09 is partly allowed for statistical purposes.
20. Now, we take up the cross-appeals of the Assessee and Revenue in ITA Nos.2434/Ahd/2012 and 2331/Ahd/2012 for AY 2009-10 respectively against the order of the ld.CIT(A)-II Baroda passed for AY 2009-10 dated 31/08/2012.
20.1. In Assessee's appeal (ITA No.2434/Ahd/2012 for AY 2009-10), the following grounds have been raised:-
1. Ld.CIT(A) erred in law and on facts in confirming rejection of the claim of deduction u/s.80IB(10) of the Act made by the appellant on all together different grounds than AO holding that the appellant failed to fulfill the conditions laid down in the section for claiming the deduction. The order of ld.CIT(A) being harsh, unjust and bad in law deserves to be quashed.
2. Ld.CIT(A) erred in law and on facts in rejecting the claim of the appellant simply on the basis of appellate order of earlier year than independently examining the issue. Ld.CIT(A) relied upon order for AY 2005/06 in set aside proceedings not appreciating alternate plea to grant proportionate allowance for the units in respect of which completion certificate was obtained from the competent authority as 'housing project' to allow deduction u/s.80IB(10) of the Act.ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,
288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
- 23 -
3. Levy of interest u/s.234A/234B & 234C of the Act is not justified.
4. Initiation of penalty u/s.271(1)(c) of the Act is not justified.
20.2. Ground Nos.1 & 2 are inter-connected. Since the facts are identical to the facts in AY 2008-09 of Assessee's appeal(supra) and Revenue has not pointed out any change in the facts, therefore taking a consistent view for this year as well, these two grounds are decided in favour of assessee. Therefore, ground Nos.1 & 2 of assessee's appeal are allowed.
20.3 Ground No.3 is against levy of interest u/s.234A/234B & 234C of the Act. The levy of interest being consequential in nature. We direct accordingly.
20.4. Ground No.4 is against initiation of penalty u/s.271(1)(c) of the Act which is premature.
21. As a result, Assessee's appeal in ITA No.2434/Ahd/2012 for AY 2009-10 is partly allowed.
22. Now, we take up the Revenue's appeal in ITA No.2331/Ahd/2012 for AY 2009-10, wherein following grounds have been taken:-
1. On the facts and in the circumstances of the case and in law, the ld.CIT(Appeals) erred in allowing deduction of Rs.79,21,904/-
u/s.80IB(10) r.w.s. 80IB(1) to the assessee on profit derived from ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485, 288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
- 24 -
sale of unutilized FSI not being the element of profits derived from the business activity of development and construction of the housing project.
2. The appellant craves leave to ad to, amend or alter the above grounds as may be deemed necessary.
Relief claimed in appeal It is prayed that the order of the CIT(Appeals) be set aside and that of the Assessing Officer be restored.
22.1. The only effective ground raised in this Revenue's appeal is against in allowing deduction of Rs.79,21,904/- u/s.80IB(10) r.w.s. 80IB(1) to assessee on profit derived from sale of unutilized FSI. Since this issue has been restored back to the file of AO for verification and decision afresh in the light of the judgement of Hon'ble Gujarat High Court rendered in the case of CIT vs. Moon Star Developers in Tax Appeal No.549 of 2008, therefore taking a consistent view in this year also, this ground of Revenue's appeal is restored back to the file of AO for verification and decision afresh. Thus, this ground of Revenue's appeal is allowed for statistical purposes.
22.2. Ground No.2 is general in nature requires no independent adjudication. As a result, Revenue's appeal for AY 2009-10 is allowed for statistical purposes.
ITA Nos.1686/Ahd/2013, 1325/Ahd/2011, 485,288, 2331 and 2434/Ahd/2012 ITO vs. M/s.Kirti Construction (cross-appeals) Asst.Years - 2005-06,2007-08, 2008-09 & 2009-10
- 25 -
23. We summarize the result as under:
1. Revenue's appeal in ITA No.1686/Ahd/2013 for AY 2005- 06 is partly allowed for statistical purposes.
2. Assessee's appeal in ITA No.1325/Ahd/2011 for AY 2007-08 is partly allowed.
3. Assessee's appeal in ITA No.288/Ahd/2012 for AY 2008-09 is partly allowed.
4. Revenue's appeal in ITA No.485/Ahd/2012 for AY 2008-09 is partly allowed for statistical purposes.
5. Assessee's appeal in ITA No.2434/Ahd/2012 for AY 2009-10 is partly allowed.
6. Revenue's appeal in ITA No.2331/Ahd/2012 for AY 2009-10 is allowed for statistical purposes.
Order pronounced in Court on the date mentioned hereinabove at caption page Sd/- Sd/-
(अǓनल चतव
ु ȶदȣ) (कुल भारत)
लेखा सदèय ÛयाǓयक सदèय
( ANIL CHATURVEDI ) ( KUL BHARAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 13 / 11 /2014
टȣ.सी.नायर, व.Ǔन.स./T.C. NAIR, Sr. PS
आदे श कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. Ĥ×यथȸ / The Respondent.
3. संबंͬधत आयकर आयुÈत / Concerned CIT
4. आयकर आयÈ ु त(अपील) / The CIT(A)-II, Baroda
5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, स×याͪपत ĤǓत //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलȣय अͬधकरण, अहमदाबाद / ITAT, Ahmedabad