Income Tax Appellate Tribunal - Bangalore
M/S M.D. Realtors Pvt. Ltd.,, Bangalore vs Department Of Income Tax on 20 September, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE 'C' BENCH, BANGALORE
BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT
AND
SHRI N.V.VASUDEVAN, JUDICIAL MEMBER
I.T.A.Nos.870 & 871 (B)/2011
(Assessment years : 2006-07 & 2007-08)
The Asst. Commissioner of Income-tax,
Circle-12(1), 14/3, 4th Floor,
Rashtrothana Bahavan, (Opp: RBI)
Bangalore-560 001
PAN No.AABCM4213B Appellant
Vs
M.D.Realtors Pvt.Ltd.,
No.150, Embassy Point,1st Floor,
Infantry Road,
Bangalore-560 001 Respondent
And
C.O.Nos.1 & 2/B/2010
(Arising out of ITA Nos.870 & 871/B/11)
(Assessment years : 2006-07 & 2007-08)
M.D.Realtors Pvt.Ltd.,
No.150, Embassy Point,1st Floor,
Infantry Road,
Bangalore-560 001
... Cross objector
Vs
The Asst. Commissioner of Income-tax,
Circle-12(1), 14/3, 4th Floor,
Rashtrothana Bahavan, (Opp: RBI)
Bangalore-560 001
2 ITA Nos.870 & 871B)/2011
& CO Nos.1 & 2(B)/2012
Respondent
Revenue by : Shri Etwa Munda, CIT-III
Assessee by : None(Written submissions)
Date of hearing : 20-09-2012
Date of pronouncement : 28-09-2012
ORDER
PER BENCH:
ITA No.870(B)/2011 is an appeal by the revenue against the order dated 30-06-2011 of CIT(A)-III, Bangalore relating to assessment year 2006-07. ITA No.871(B)/2011 is also an appeal by the revenue against the order dated 30-06-201 of CIT(A)-IIII Bangalore relating to assessment year 2007-08. The assessee has filed Cross Objections in both the assessment years against the orders of CIT(A) against which the revenue has filed appeals.
2. The grounds of appeal raised by the revenue in both the appeals are identical and they read as follows;
" 1. The order of the ld. CIT(A) is opposed to law and facts of the case.
2. The CIT(A) erred in holding that the assessee is eligible for proportionate deduction u/s 80IB(10) in respect of the units which are having built up area of less than 150sq.ft as provisions of sec.80IB(10) do not allow such proportionate deduction.
3. The CIT(A) erred in relying on the decisions of the ITAT, Bangalore in the cases of M/s SJR Builders Ltd., and M/s 3 ITA Nos.870 & 871B)/2011 & CO Nos.1 & 2(B)/2012 Raghavendra Constructions for granting proportionate deduction u/s 80IB(10) to the portion attributable to the units having built up area of less than 1500 sq.ft. without appreciating the fact that the said decisions of ITAT have not been accepted and the department's appeal u/s 260A are pending in those cases.
4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the AO may be restored.
3. The grounds raised by the assessee in its Cross Objections are also identical in both the C.O.'s and they read as follows;
" 1.The CIT(A) erred in both in law and on the facts of the case in holding that the appellant is not eligible to deduction u/s 80IB of the Act in respect of the whole project.
2. He erred in stating that the structural modifications exceeding 1500sq.ft were made before the sale of the flats and before transferring the rights to the buyers.
3. He also erred in rejecting the appellant's submissions that the structural changes were made by the buyers of the flats, after the purchase from the appellant.
4. The facts and circumstances giving rise to the appeals and the Cross Objections are as follows;
The assessee is a Private Limited Company. It is encaged in the business of development and construction of flats. The assessee developed a project by name 'Embassy Heritage' at Malleshwaram, Bangalore consisting of 132 flats. For the assessment year 2006- 07, the assessee has filed return of income claiming deduction of Rs.15,19,18,325/- in respect of project 'Embassy Heritage'. The return was filed by the assessee on 04-12-2006. In assessment year 4 ITA Nos.870 & 871B)/2011 & CO Nos.1 & 2(B)/2012 2007-08, the assessee filed return of income declaring a total income of Rs.38,29,528/- the same was claimed exempt u/s 80IB of the Act. This profit is also relating to the project 'Embassy Heritage' constructed at Malleshwaram.
5. On 12-06-2007, there was survey u/s 133A of the Income Tax Act, 1961 (the Act) carried out by the revenue in the case of the assessee. In the course of survey, it was noticed that the assessee had constructed units (flats) which were of an area of more than 1500sq.ft. One of the conditions for allowing deduction u/s 80IB(10) of the Act is that the area each constructed unit in the project should not exceed more than 1500sq.ft. The findings in this regard, were that there was several duplex houses having two floors connected by an internally built staircase. So also two adjacent flats were combined as one flat and the area of the combined flats exceeded 1500 sq.ft. The assessee took a plea that the said alterations occurred after the sale by the assessee for which he is not responsible. According to the AO, the assessee could not establish that these alterations were done without his permission. The AO held that the changes were effected on the request by the customers before completion of the transaction of sale. For all the above reasons, the AO held that the asseseee was not entitled to deduction u/s80IB of the Act for both the assessment years.
6. On appeal by the assessee, the CIT(A) found that the area of the following flats exceeded more than 1500 sq.ft.5 ITA Nos.870 & 871B)/2011
& CO Nos.1 & 2(B)/2012 Sl.No APT No. Type Area Name of the parties 1 172 3 B/R 1332 Mr. R.K.Kedia 2 182 2 B/R 925 Mr.R.K.Kedia 3 281 2 B/R 1446 Mr.Krishnakant Basrur & Mr.Sandeep Basrur 4 282 3 B/R 1419 Mr.Krishna K Basrur & Mrs.Padma Krishnakant Basrur 5 291 2 B/R 894 Mr.Krishnakant Basrur & Mr./Sandeep Krishna Basrur 6 292 2 B/R 918 Mr.Krishnakant Basrur & Padmakrishnakant Basrur 7 493 2 B/R 1236 Mr.Ravikumar Ramanan 8 494 2 B/R 1183 MRs. Sashi Ravikumar 9 363 2 B/R 1221 Mrs.Sudari Indu Kumari 10 461 2 B/R 1141 Mr.Jitendra Virwani 11 483 2 B/R 1170 Mr.Kunal Babu
7. The CIT(A) also took note of the statements recorded at the time of survey wherein the directors admitted that such alterations were done at the request of the customers of the assessee before transfer the rights to buyers. The CIT(A) therefore, held that the plea of the assessee that the customers after purchase altered the structure cannot be accepted. The CIT(A) however, allowed the deduction u/s 80IB in respect of proportionate income generated by sale of flats where the area did not exceed 1500 sq.ft. The relevant findings of the CIT(A) in this regard are as follows;6 ITA Nos.870 & 871B)/2011
& CO Nos.1 & 2(B)/2012 " 15.3 During the appellate proceedings, the appellant has taken the alternative plea that the exemption should be restricted in respect of those units which have fulfilled the conditions laid down in sec.80IB of the Act. Reliance is placed on the jurisdictional Tribunal decision in the case of SJR Builders in ITA No.1192/B/2008 dated 21-08- 2009 of Bangalore 'A' Bench, in which it was held;
"The appeal by the assessee is to be allowed to the extent that the built up area of the flat is not more han 1500 sq.ft. While considering the built up area of 1500 sq.ft for the purpose of exemption u/s 80IB(10), the mezzanine floor and common areas are to be excluded. The AO is directed accordingly, in respect of the pent houses the built up area of which is more than 1500 sq.ft, they may be excluded for exemption".
Further, reliance is also placed on the recent jurisdictional Tribunal decision in the case of Raghavendra Constructions ITA No.140/W-7(3)CIT(A)-III/BNG/08-09;
"The restriction for deduction u/s 80IB of the IT Act, 1961 is to be made only with reference to area of the flats whose built up area is more than the prescribed limit of 1500sq.ft. In respect of the pent houses the built up area of which is more than 1500 sq.ft., they may be excluded for exemption".
15.4 After due perusal of the findings of the jurisdictional Hon"ble ITAT Bangalore Bench decisions, I hold that the appellant is eligible for the proportionate exemption under section 80IB(10) to the portion attributable to the units which are having built up area less than 1500 sq.ft. Accordingly, I direct the AO to proportionately calculate the disallowance to be made u/s 80IB for in proportion to the area of the flats exceeding the prescribed limits and restrict the disallowance u/s 80IB of IT Act, 1961 to the same".
7 ITA Nos.870 & 871B)/2011& CO Nos.1 & 2(B)/2012
8. Similar orders were passed in assessment year 2007-08 also. Aggrieved by the order of the CIT(A) in allowing the deduction u/s 80IB(10) in respect of proportionate income generated by sale of flats where the area did not exceed 1500 sq.ft., the revenue has preferred the appeals before the Tribunal. Aggrieved by the order of the CIT(A), holding that some of the flats in the project exceeded 1500 sq.ft of built up area and such units are not entitled to deduction u/s 80IB of the IT Act, the assessee has filed Cross Objection.
9. We have heard the rival submissions. In our view, the order of CITA) allowing proportionate deduction to the assessee i.e. to the extent of profits attributable to the units where the built up area is below 1500 sq.ft has to be upheld. In this regard, we find that the Hon'ble Kolkatta Bench of ITAT in the case of Bengal Ambuja Housing Development Vs. DCIT, ITA No. 1595/Kol/2005 & 1735/Kol/2005 has held as follows:-
"It is apparent from the perusal of section 80IB(10) that this section has been enacted with a view to provide incentive for businessmen to undertake construction of residential accommodation for small residential units and the deduction is intended to be restricted to profit derived from the construction of smaller units and not from larger residential units. Though, the Assessing Officer has denied the claim of the assessee observing that larger units were also constructed by the assessee, at the same time, it is also a fact on record that the assessee had claimed deduction only on account of smaller residential units which were fulfilling all the conditions as contained in section 80IB(10) and the same has not been disputed by the Assessing Officer also. We have also 8 ITA Nos.870 & 871B)/2011 & CO Nos.1 & 2(B)/2012 noted down the fact that even the provision as laid down in section 80IB(10) does not speak regarding such denial of deduction in case of profit from a housing complex containing both the smaller and larger residential units and since the assessee has only claimed deduction on account of smaller qualifying units by fulfilling all the conditions as laid down under section 80IB(10), the denial of claim by the assessee is on account of rather restricted and narrow interpretation of provisions of clause (c) of section 80IB(10) while coming to such conclusion, we also find support from the order of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. (supra) wherein it was held that provisions should be interpreted liberally and since in the present case also, the assessee by claiming pro rata income on qualifying units has complied with all the provisions as contained in the said section, in our considered opinion, such claim of the assessee was rightly allowed by learned CIT(A) by reversing the order of the Assessing Officer."
10. The above view of the ITAT, Kolkata has been upheld by the Kolkata High court in its order in ITA no. 458 of 2006 by dismissing the appeal of the Department u/s. 260A of the I.T. Act, 1961. Even the ITAT 'E' Bench, Mumbai in a decision in the case of M/s. Saroj Sales Organization Vs. ITO in ITA no. 4008/Mum/2007 reported in (2008) 3 DTR (Mum)(Trib) 494 has followed the order of learned ITAT Kolkata Bench in the case of Bengal Ambuja Housing Development Ltd. The Ld. ITAT, Mumbai Bench has held that, if a housing project consists of certain residential units having maximum built up area exceeding the prescribed limit then the said residential units will not qualify for deduction u/s. 80IB(10) but the other residential units of the housing project fully complying with the conditions laid down in section 80IB(10) will qualify for deduction u/s. 80IB(10) of the I.T. 9 ITA Nos.870 & 871B)/2011 & CO Nos.1 & 2(B)/2012 Act, 1961. The decision of the ld. ITAT, Kolkata & the ld. ITAT, Mumbai and the judgement of the Kolkata High Court clearly lay down the principle that the residential units of a housing project complying all the conditions laid down in Section 80-IB (10) will be eligible for deduction u/s.80-IB(10) irrespective of the fact that certain residential units of the housing project have built up area in excess of the maximum permissible built up area. Apart from the decision of Hon'ble Kolkata Bench of ITAT in the case of Bengal Ambuja Housing Development Ltd. (supra), there are several decisions of the Tribunal taking identical view. Those decisions are as follows :-
• DCIT Vs. Brigade Enterprises (Pvt.) Ltd., 119 TTJ (Bangalore), 269 (2008) • ITO Vs. AIR Developers, 123 TTJ (Nag) 959/25 DTR 287 • ACIT Vs. Sheth Developers (P) Ltd., 33 SOT 277 (Mum) • ACIT Vs. Vaman Estate, ITA No. 3016/Mum/2008
11. In view of the above, we are of the view that there is no merit in the appeals of the Revenue. We therefore, confirm the order of CIT(A) in this regard and dismiss the appeals by the revenue.
12. As far as the Cross Objections filed by the assessee is concerned, the prayer of the assessee is that the following evidences were provided by it in support of its submission that the built up 10 ITA Nos.870 & 871B)/2011 & CO Nos.1 & 2(B)/2012 area of each unit was less than 1500 sq.ft and the same were ignored by the AO & CIT(A).
i) Plan approved by the BBMP
ii) Copies of the sale deeds
iii) Katha certificates issued by BBMP
iv) Electricity connections for each unit and installation of
separate meters for each unit.
v) Certificates from engineers to the effect that alteration
appeared to have been effected recently.
The Assessee prays that the cross objection has to be allowed and that AO should be directed to grant the exemption after verification. The learned DR relied on the findings of the Survey u/s.133A of the Act and the findings of the AO on the area of some of the flats in the project exceedings the limit of 1500 Sq.ft.
13. We have considered the submissions made on behalf of the assessee. It is no doubt true that evidence filed by the assessee in the form of plan approval and sale deeds as well as the electricity connections show the area of individual units in the project as less than 1500 sq.ft. However, in the course of survey, the directors in their statements have accepted that the alterations have been carried out on request made by the customers, prior to sale to the customers and that the area of some of the units after such alteration exceeded 1500 Sq.ft.. The question that would arise for consideration is as to whether one has to go by the documents relied upon by the assessee or the real state of affairs as brought out by the AO and the CIT(A) in their orders. It is not in dispute 11 ITA Nos.870 & 871B)/2011 & CO Nos.1 & 2(B)/2012 before us that the documents referred to by the assesseee before the AO/CIT(A) were not considered by them. Besides the above, there are statutory amendments to the provisions of Sec.80-IB(10) of the Act touching on the issue. We feel that it would be just and proper to direct the AO to look into the claim of the Assessee as raised in the cross objection afresh in the light of the observations made above. We therefore, set aside the order of the CIT(A) in so far as it relates to disallowance of deduction u/s 80IB of the Act, in respect of units where the size of the units was more than 1500 sq.ft. The AO will consider the aforesaid document, the findings in the survey afresh, the relevant statutory amendments and decide the issue in accordance with law, after affording an opportunity of being heard to the assessee. For statistical purposes, the Cross Objections are treated as allowed.
14. In the result, the appeals filed by the revenue are dismissed and the Cross Objections filed by the assessee are treated as allowed for statistical purposes.
Order pronounced in the open court on 28th day of Sept., 2012.
Sd/- Sd/-
(N. BARATHVAJA SANKAR) (N.V.VASUDEVAN)
VICE PRESIDENT JUDICIAL MEMBER
Place: Bangalore
Dated: 28-09-2012
Copy to
12 ITA Nos.870 & 871B)/2011
& CO Nos.1 & 2(B)/2012
1 The assessee
2. The Revenue
3. CIT(A)-III, Bangalore
4. CIT
5. DR
6. GF(B'lore)
By Order
Sr. Private Secretary, ITAT, Bangalore