Income Tax Appellate Tribunal - Mumbai
Sai Radha Developers, Mumbai vs Department Of Income Tax on 22 December, 2009
Sai Radha Developers
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI 'E
'E' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI B RAMAKOTAIAH AM & SHRI VIJAY PAL RAO, JM
ITA No. 1004/Mum/2010
(Asst Year 2006-
2006-07)
07)
The Dy Commr of Income Tax Vs Sai Radha Developers
Cir 1 C J Complex
Mumbai 3rd Floor
Super Bazar K M Marg
Udupi 576 101, Karnataka
(Appellant) (Respondent)
PAN No. AAYFS8343M
Assessee by Sh H S Raheja
Revenue by Sh B Jayakumar
Dt.of hearing 16th Dec 2011
Dt of pronouncement 20th Jan 2012
ORDER
PER VIJAY PAL RAO, RAO, JM This appeal by the revenue is directed against the order dated 22.12.2009 of the CIT(A) for the AY 2006-07.
2 The revenue has raised the following effective grounds in this appeal:
"1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in allowing the deduction u/s.80IB(1O) claimed by the assessee without appreciating the fact that the assessee should have filed the audit report in the prescribed form no.1OCCB along with the return of income as required under section 80IA(7) read with section 801B(13) of the IT. Act, 1961, which stipulates that the deduction "shall not be admissible unless assessee furnishes along with his return of income."
2. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in allowing the deduction u/s.801B(1O) claimed by the assessee without appreciating the fact that the assessee did not own one acre of land at the time of commencement of project and also at the time of approval of the project."
3. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in allowing the deduction uls.801B(1O) claimed by the 2 Sai Radha Developers assessee without appreciating the fact that the assessee is not the full fledged owner in respect of an area of one acre which is the minimum requirement for eligibility for deduction uls.801B(1O) as the assessee has sold undivided interest over the land held by entering into agreements with individuals for transfer of undivided share of interest in land and into contracts for construction of residential units."
4. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the disallowance of interest of Rs.75,750/- without appreciating the fact that the interest bearing funds were diverted by the assessee for giving interest free advances to assessee's sister concern."
3 Ground no.1 is late filing of the audit report in form 10CCB. 3.1 The Assessing Officer noticed that the audit report in form 10CCB for the AY under consideration was not filed along with the original return of income but was filed with the revised return in response to the notice u/s 148. The Assessing Officer further observed that the audit report filed on 8.12.2008 is defective as clause 23 in form 10CCB has been left blank. Accordingly, the Assessing Officer considered the belated audit report filed by the assessee as not valid report. 3.2 On appeal, the CIT(A) has held that the Assessing Officer was not justified in rejecting the assessee's claim for deduction u/s 80IB on the ground that the audit report was not submitted in time or was defective. While holding so, the CIT(A) has followed the following decisions:
CIT Vs. Contimeters Electrical (P.) Ltd. [2009] 178 Taxman 422 (Del) CIT Vs. Berger Paints (India) Ltd. (No. 2)(2003) 126 Taxman 435 (Cal) CIT Vs. Gujarat Oil & Allied Industries (1993) 201 lTR 325 (Guj) CIT Vs. A.N. Arunachalam (1994) 122 CTR 87 (Mad)
4 Before us, the ld DR has relied upon the order of the Assessing Officer on this point and submitted that the audit report in form 10CCB is mandatory and should have been filed along with the original return of income. 4.1 On the other hand, the ld AR of the assessee has relied upon the decision of the CIT(A) and submitted that filing of the audit report is mandatory for 3 Sai Radha Developers claiming of deduction u/s 80IB but it is not mandatory to file along with the return of income, if it is filed during the assessment proceedings and therefore, when the assessee has already filed the audit report, then the conditions prescribed u/s 80IB(7) is complied with. He has further submitted that as far as the defect in the report as pointed out by the Assessing Officer is only regarding column, which was not relevant and were required to be considered not applicable, which were left blank. Therefore, it would not effect the relevant information required to be given in the audit report.
5 We have considered the rival contention as well as the relevant material on record. The assessee filed the audit report in form 10CCB belated and not along with the return of income. Further, the audit report in form 10CCB, though filed, but the Assessing Officer found that two columns of the report were left blank by the assessee and therefore, in view of the Assessing Officer, it was defective. The ld CIT(A) decided the issue in favour of the assessee by following the decisions as relied upon by the assessee (supra) in pars 26 to 28 as under:
26. As for the first two reasons, the following decisions cited by the appellant are relevant. In CIT Vs. Contimeters Electricals (P.) Ltd. [2009] 178 Taxmann 422, the Hon'ble High Court of Delhi has held that, the provisions of section 80-IA(7) requiring filing of audit report along with return were not mandatory but directory. If the audit report was filed at any time before framing of assessment, then the requirement of section 80-lA(7) would be met. In CIT Vs. Berger Paints (India) Ltd. (No. 2)(2003) 126 Taxman 435, the Hon'ble High Court of Calcutta has held that, furnishing of auditor's report on date of filing of return was not mandatory, but only directory in nature, and, therefore, the assessee could not be denied investment allowance merely on the ground that it failed to tender the auditor's report on the date of filing of return.
27. In CIT Vs. Gujarat Oil & Allied Industries (1993) 201 lTR 325, the Hon'ble High Court of Gujarat has held that, where an assessee could riot file audit report along with return, but filed it later before completion of assessment by ITO, he was entitled to deduction under section 80J. In CIT Vs. A.N. Arunachalam (1994) 122 CTR 87, the Hon'ble High Court of Madras has held. that where the return filed by assessee was not accompanied by the audit report as required by section 8OJ(6A), the 4 Sai Radha Developers assessee could still claim deduction under section 80J. In ITO Vs. Vijayadurga Offset Printers (1988) 30 TTJ173, the Hon'ble Hyderabad Bench of ITAT has held that, the requirement to file the audit report along with the return under section 80i(6A) was only directory and riot mandatory.
28. Following the ratio of the above judgments, which is squarely applicable to the present case, I hold that the assessing officer was not right in rejecting the appellant's claim for deduction under section 80-
18(10) on the ground that the audit report was not submitted in time or was defective.
5.1 As it has been settled by series of decisions of the Hon'ble High Courts as referred by the CIT(A), the requirement of filing the audit report along with the return is directory and not mandatory. Therefore, we do not find any error or illegality in the order of the ld CIT(A) on this point.
6 Ground no.2 is regarding the size of the land is less than one acre. 6.1 The Assessing Officer after verifying the documents produced by the assessee found that the project in question was on the size of plot of land which is less than the minimum area of one acre as prescribed u/s 80IB(10) (b). The Assessing Officer noted that the plan of the project was approved on 29.1.2003 and on that date, the assessee was having land to the extent of only 68 cents. Therefore, the Assessing Officer was of the view that at the time of commencement of the project, the assessee was having less than one acre of land and subsequently additional land was brought and the plan was revised. Therefore, the assessee is not entitled for deduction u/s 80IB as the conditions as prescribed u/s 80IB (10) is not fulfilled.
5
Sai Radha Developers 6.2 On appeal, the CIT(A), though allowed the claim of the assessee but no specific finding has been given regarding the size of the plot being less than one acre or more than one acre.
7 Before us, the ld DR has submitted that the Assessing Officer has given a finding of fact that at the time of approval of the plan on 29.1.2003 the assessee was having less than one area of land as clear from the table given by the Assessing Officer at page 10 of his order. He has further submitted that at the time of approval of the plan when the project was having the plot size of less than one acre as prescribed u/s 801B(10)(a), the assessee has not fulfilled the conditions and therefore, the assessee is not entitled for deduction u/s 80IB of the Act. He has relied upon the order of the Assessing Officer. 7.1 On the other hand, the ld AR of the assessee has submitted that the project has been completed on the land of more than one acre and therefore, the conditions prescribed u/s 80IB(10) is fulfilled. He has referred the site plan sanctioned on 9.2.2005 and submitted that the size of the plot is more than one acre and the project plan has been sanctioned by the local authorities. The ld AR has further submitted that the requirement of the provisions is that the project should be on the plot of land having minimum area of one acre and therefore, when the project, which is completed by the assessee is admittedly on the plot of land having size of more than one acre then the said condition is fulfilled. The ld AR has submitted that the assessee held 0.96 acres and 0.5 acre was held by the partner of the firm. It was further submitted that the section does not require that the land should be one acre at the starting of the project. The assessee however has a total one acre of land at the time of completion.. 7.2 He has further submitted that the project was completed on 28.6.2005 as per the occupancy certificate issued by the local authorities and the completion 6 Sai Radha Developers of the project is as per the revised plan sanctioned by the local authorities on 9.2.2005 having more than one acre of land.
8 We have considered the rival contention as well as the relevant material on record. It is an undisputed fact that the first plan of the project was approved on 27.1.2003. The commencement certificate was also issued by local authorities on 29.1.2003. As per the plan approved on 27.1.2003 the area of the plot of land was less than one acre. Subsequently, the plan was revised on 1.3.2004, then on 25.3.204 and finally on 9.2.2005. The approval of the project is relevant for the duration of completion of the project as provided under clause (a) of sec. 80IB(10) and to clarify the situation, where more than one approval has been obtained by the assessee, Explanation to clause (a) has been inserted and as per the said Explanation, the date on which the first approval has been granted to the building plan of the housing project shall be deemed to be the date of approval. Therefore, the date of approval of the project is relevant only for ascertaining the fact that the project has been completed within the time period as provided under clause (a) of sec 80IB(10). There is no dispute in the case in hand that the project was finally completed on the plot of land having area of more than one acre. Therefore, the area of plot of land at the time of approval of the first plan has a limited when it was revised after adding the deficit area in the area of plot and finally the project was completed on the plot of land having more than one acre as required under clause (b) of sec. 80IB(10). In view of the fact that when the project was completed on the plot of land having more than one acre, then the condition as prescribed u/s 80IB(10)(b), in our opinion, is fulfilled because the plan was sanctioned and occupancy certificate was issued by the local authorities to the project on more than one acre of land. 7
Sai Radha Developers 9 At the cost of reputation, we further clarify that the approval of the project has per clause (a) of sec. 80IB is relevant for completion of the project within the prescribed time period. Therefore, we are of the considered opinion that the assessee has complied with the requirement of having the project on the area of plot of land minimum of one acre. Accordingly, this issue is decided against the revenue and in favour of the assessee.
10 Ground no.3 is regarding the ownership of land.
10.1 The Assessing Officer was of the view that since the assessee has executed the sale deed for sale of undivided interest in the land and entered into separate agreements for construction of building; therefore, what was done by the assessee for execution of contract for construction of the building on behalf of the persons to whom the undivided interest in land has been transferred. Accordingly, the Assessing Officer held that the assessee was not the owner of the land but has constructed the project on behalf of the individual and therefore, the assessee is a contractor not eligible for deduction u/s 80IB as per Explanation to sec. 80IA.
10.2 On appeal, the CIT(A) has held that there is no requirement of the assessee must be the owner of the land on which the housing project was constructed. The CIT(A) relied upon the decision of the Ahmedabad Bench of the Tribunal in the case of Radhe Developers reported in 113 TTJ 300 and held that the assessee need not to be the owner of the land to be eligible for deduction. 10.3 As regard the assessee has constructed the building as a Contractor, the CIT(A) has held that the transfer of undivided shares in the land to the 8 Sai Radha Developers prospective owners of residential units is only a method of sale of the project and therefore, it is not a work contract awarded by any person or individual. 11 Before us, the ld DR has relied upon the order of the Assessing Officer and submitted that before completing the project the assessee has already transferred the undivided shares in the land to the individuals, therefore, construction of the project by the assessee is only on behalf of the land owners and not as a developer of the project. Therefore, the assessee is not entitled for deduction as per Explanation to sec 80IA as applicable to sec. 80IB. 11.1 The ld AR of the assessee has submitted the assessee has formed a scheme to sell the undivided interest in the land and simultaneously execute a construction agreement to help potential buyers obtain facilities from banks. The assessee has invested Rs. 40,40,000 in purchase of land and Rs. 6,05,41,798 in construction. Unlike in the case of a pure contractor who has no investment or risk, The ld AR has submitted that the assessee has taken permission, procured material, appointed architects and consultant etc., for the project. 12 We have considered the rival contention as well as the relevant material on record. There is no dispute that the assessee has first acquired the land in question for construction of the housing project. The only requirement under the provisions of sec. 80IB(10) is existence of undertaking must develop and build the building of the house project duly approved by the local authorities. The assessee has developed the project in its own name; therefore, transfer of undivided share in the land to the identified buyers of the constructed residential units is only a modus-operandi by the assessee to transfer the project in two parts viz constructed units and interest in the land separately. This 9 Sai Radha Developers method appears to be adopted by the assessee to save the stamp duty as different rate is applicable if the residential unit along with the undivided interest is sold together in comparison of the rate applicable on separate sale of land and building. Further, this arrangement was to facilitate the finance from banks. Therefore, we do not find any merit or substance in the ground raised by the revenue. Accordingly, we do not find any reason to interfere with the order of the CIT(A), qua this issue.
13 The last ground is regarding disallowance of interest of Rs. 75,750/-. 13.1 The Assessing Officer noted that the assessee firm had advanced a peak interest free loan of Rs. 16 lacs to the sister concern and an amount of Rs. 10 lacs was outstanding at the end of the year. The Assessing Officer held that there was diversion of interest bearing funds for non business and accordingly disallowed a sum of Rs. 75,750/-.
13.2 On appeal, the CIT(A) deleted the addition made by the Assessing Officer on the ground that there was sufficient credit balance in the bank account of the assessee on each occasion when the advance was given to the sister concern. Further, substantial amount of interest free advances were received from the customers; therefore, in the absence of direct nexus, disallowance is not justified.
14 We have heard the rival contention as well as the relevant material on record. Nothing has been brought before us by the revenue to controvert the factual finding of the CIT(A) that the assessee was having sufficient credit balance in the bank account as well as advances received from the customers 10 Sai Radha Developers when the advance was given to the sister concern. Therefore, in the absence of direct nexus between the interest bearing funds and advance given to the sister concern, the disallowance is not justified. Accordingly, we do not find any error or illegality in the order of the CIT(A), qua, this issue.
15 In the result, the appeal filed by the revenue is dismissed. Order pronounced on the 20th, day of Jan 2012.
Sd/ Sd/-
( B RAMAKOTAIAH ) ( VIJAY PAL RAO )
Accountant Member Judicial Member
Place: Mumbai : Dated:20th, Jan 2012
Raj*
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai