Income Tax Appellate Tribunal - Pune
Agarwal Constructions, Pune vs Assessee
Author: G.S.Pannu
Bench: G.S. Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI SHAILENDRA KUMAR YADAV,
JUDICIAL MEMBER AND
SHRI G.S. PANNU, ACCOUNTANT MEMBER
S.No. ITA No. Asstt.year
1. 872/PN/06 2003-04
2. 1318/PN/07 2004-05
M/s Agarwal Constructions, .. Appellant
248 Jedhe Park,
Near Hotel Shantai,
Rasta Peth, Pune
PAN AAIFA1665R
Vs.
Asstt.Commissioner of Income-tax,
(OSD),Pune .. Respondent
Appellant by : S/Shri Sunil Pathak &
Nikhil Pathak
Respondent by : Shri H. C. Leuva
ORDER
PER G.S.PANNU, A.M:
The two captioned appeals are filed by the assessee against separate orders passed by the Commissioner of Income-tax (Appeals)-II, Pune dated 22.5.2010 & 3.7.2007 which, in turn, have arisen from orders of the Assessing Officer dated 30.12.2005 & 15.11.2006 passed under section 143(3) of the income-tax Act, 1961 (in short "the Act") pertaining to assessment years 2003-04 & 2004-05 respectively. In both the appeals, the issues involved are common and, therefore, a common order is being passed for the sake of convenience and brevity.
2. In the captioned appeals, the sum and substance of the dispute relates to the deduction claimed by the assessee under section 80-IB(10) of the Act with respect to the profits derived from housing project. We may refer to the facts and circumstances as emerging from the orders of the assessment year 2003-04. In 2 ITA Nos 872/PN/06 & 1318/PN/07 M/s Agarwal Constructions, Pune the course of the assessment proceedings for the assessment year 2003-04, the Assessing Officer examined the deduction claimed by the assessee under section 80-IB(10) in respect of the Shrikrishna Complex housing project undertaken by the assessee at Hadapsar, Pune. As per clause (b) of section 80- IB(10), one of the conditions for the claim of deduction is that the project shall be on the size of a plot of land which has a minimum area of one acre. The Assessing Officer examined the said condition and found that out of the total plot of 6800 sq. mts. with the land owners, assessee had development rights for an area of 5026 sq. mts. only. Further-more, an area of 753.43 sq. mts. was earmarked to be covered under Green Belt and an area of 280.60 sq. mts was subsumed for road widening. Therefore, out of an area of 5026 sq. mts. actual area available for development of the project was 3991.97 sq. mts. Only, and this showed that the size of the plot of land for the project was less than one acre and, therefore, according to the Assessing Officer, assessee did not satisfy the requirements of clause (b) of section 80-IB(10) of the Act. The Assessing Officer also referred to the case of M/s Bunty Builders, Pune, wherein exclusion of the area meant for amenities and road widening for the purpose of determining the limit of one acre under section 80-IB(10)(b) was upheld by the Commissioner of Income-tax (Appeals)-II, Pune. Thus, as per the Assessing Officer, assessee was not entitled for deduction under section 80-IB(10) in respect of the profits of the Shrikrishna Complex project. Resultantly, the profits of Shrikrishna Complex of Rs 8,91,379/- were held ineligible for the deduction under section 80-IB(10) of the Act. The Commissioner of Income-tax (Appeals) has since sustained the disallowance against which the assessee is in further appeal before us.
3. Before us, learned Counsel for the assessee pointed out that the lower authorities have wrongly held that the area covered under the Green Belt and reserved for road-widening of 753.43 sq. mts. and 280.60 sq. mts. respectively was to be excluded for determining the size of plot for the purpose of clause (b) of section 80-IB(10) of the Act. On both the aspects, it was sought to be pointed out that the issues are covered by the earlier decisions of the Pune Bench of the 3 ITA Nos 872/PN/06 & 1318/PN/07 M/s Agarwal Constructions, Pune Tribunal in the cases of M/s Bunty Builders, Pune vide ITA No 1808/PN/05 dated 16.02.2010, and M/s Navnirman Developers, Nashik vide ITA No 7 to 9/PN/2007 dated 04.05.2010, copies of the said decisions have been placed on record. It has also been explained by the learned counsel, with reference to the precedents, that the issues have been decided in the light of the Circular No 5 of 2005 dated 15.7.2005 issued by the Central Board of Direct Taxes reported at 276 ITR 151 (St.), relevant portion as appearing at page 170 (St.) of the said Report.
4. On the other hand, the learned Departmental representative strongly supported the orders of the authorities below.
5. We have considered the rival submissions carefully. The primary dispute relates to the determination of size of the plot of land for the purposes of section 80-IB(10)(b) of the Act. Clause (b) of section 80-IB(10) requires that the housing project is on the size of a plot of land which has a minimum area of one acre. As per the assessing Officer, in ascertaining the prescribed area of one acre, the areas earmarked for Green belt and for road-widening be excluded. Similar issue was the subject-matter of consideration by our co-ordinate Bench in the cases of M/s Bunty Builders, Pune (supra) and M/s Navnirman Developers, Nashik (supra). For the sake of convenience, we think it appropriate to reproduce below the relevant portion of the order of the Tribunal in the case of M/s Bunty Builders, Pune (supra):
"8.1 As per the Revenue authorities, both AO and ld CIT (A), since the net area available for the purpose of construction was less than 1 acre therefore the assessee was not entitled for claim of deduction u/s 80-IB(10). However, we are not in agreement with such an approach of the Revenue authorities. To give strength to our reasons for such disagreement, we hereby refer one of the point as explained in the CBDT Circular cited in 276 ITR 170 (Statute), wherein the guidelines issued were as follows:
'Extension of the time-limit for obtaining approval of housing project for the purpose of tax holiday under section 80-IB, and allowing deduction for re- development or reconstruction of existing building in slum areas. This section does not specifically provide area limit for the garden, the development plan roads, internal means of access, etc., in the housing project. Therefore, the same should conform to the project plan approved by the local authority in accordance with the regulations in force. Also, the area limit of the plot has to be construed with reference to the area of the site on which the housing project is constructed and not with reference to the demarcation of land done by the land development authority.'
9. This circular thus gives a clear indication that though the section do not specifically provide for the Development Plan roads or grant of other facilities etc. in a 4 ITA Nos 872/PN/06 & 1318/PN/07 M/s Agarwal Constructions, Pune housing project but the same should conform to the project plan approved by the local authority. Our next reasoning is on the basis of above discussion that the limit of the plot has to be construed with reference to the area available on the site on which the housing project is to be constructed and not with reference to the demarcation of land. Meaning thereby the housing project thus constitute development plan roads and grant of other facilities, therefore those areas should exist within the prescribed limits and to be considered as part and parcel of the project. Even in the present case the facts have revealed that the plan would not have been approved if the assessee would not have made 15% amenity space available to the corporation. Though amenity pace was stated to be surrendered to the corporation but such sacrifice of the builder was duly recognized and compensated by granting additional FSI for the said project. If we accept the proposition of the Revenue department that the area which was directly under the building construction should only be held as the project for construction, then a builder has to acquire a land more than 1 acre of land. Then only after the set-apart of the amenity space he could be left with the balance one acre for project development. But such a proposition was not intended in the legislature. The language of the section did not prescribe such hypothetication. Therefore an another reasoning of our rejection of such a proposition of the Revenue department is that it would be illogical to expect from a builder to have excess land area than one acre; at lest 15% excessive area applicable for Pune Corporation, so that after setting apart 15% area the balance should remain one acre for the purpose of construction. This suggestion or approach of interpretation of a statute is not idealistic because we cannot read beyond the scope of the statute. Normal rule of interpretation of statutes is that the general words must receive general construction unless there is something otherwise expressly provided in the statute.
General words have ordinarily a general meaning, then the first task in interpretation is to give the words their plain and ordinary meaning. This is what we have gathered from the books available on this subject with an attempt to subscribe a simple and realistic meaning to the clause (b) to section 80-IB(10) of I.T. Act. Nothing more can be added hence we have to restrict the interpretation that the area of one acre should be available for the housing project inclusive of amenities required to be set apart as per the norms of a Corporation. Therefore a justifiable construction is that when there is no doubt, more so it is not in dispute that a portion of the land, in the present case it is 15%, to be earmarked or set-apart or reserved or segregated out of the total land in question, minimum one acre, meant for the purpose of project in terms ofl rules/regulation of a local body, i.e. Pune Municipal Corporation, and without that segregation the project could not be sanctioned then that portion being mandatory for amenity purposes has to be taken as a part and parcel of the land available for the project. In the present case since the area available for the housing project was 4600 sq. mtr. that is more than 1 acre (4046 sq. mtr.) therefore the appellant is entitled for the claim of deduction u/s 80-IB(10)(b) on this portion of land. We hold accordingly."
6. Subsequently, the Pune Bench considered a similar controversy in the case of M/s Navnirman Developers (supra). After considering the precedent in the case of M/s Bunty Builders (supra) and the C.B.D.T. Circular 15.7.2005 (supra), it has been held that the area specified for garden and development plan road are to be treated as a portion of the housing project. The Bench has further observed that such areas should conform to the standards and rules/regulations in force and mandated by the local authority. The following observation by the Bench is worthy of notice:
"Our next enquiry was about the controversy of D.P. Road, whether it was part of the project in question or it had already existed at the site and whether being provided by the Municipal Corporation. In other words, whether it was the Municipal Road or it was carved out from the land of the project and handed over to the Corporation. It was explained that out of the total amalgated area of 4264.10 sq. mts. the developer had to reserve apportion for the road. There was a question about the handing over of the said D.P. Road and the clarification given to the AO was that the road was tendered and actually acquired in July 2001. The fact of acquisition of road by the NMC was stated to be supported by the evidence of 'development right certificate' granted by NMC on 24.7.2001. It was explained that the property so acquired shall rest to the Corporation on 5 ITA Nos 872/PN/06 & 1318/PN/07 M/s Agarwal Constructions, Pune payment of consideration. Rather the ownership right of D. P. Road area were transferred to NMC as per entry No 48388 dated 1.4.2003. Therefore the vehement contention was that the DP Road was carved out of the impugned housing project and very much part and parcel of the said project. It was given to NMC by this appellant at a much later date after the project was started. To further strengthen this plea it was also submitted that the TDR rights granted on acquisition of land area have direct close nexus with the project and therefore that FSI was utilized by the assessee developer in the building construction of the very said project.
In the light of the above background and considering the factual as well as legal aspect of the issue we can hold that the ratio laid down by the respect co-ordinate Bench in the case of M/s Bunty Builders (supra) applies to the facts of the resent appeal. Our first observation in this regard is that considering CBDT circular No 5/2005 cited in 276 ITR 151 (statute) the area specified for garden, development plan road are internal means of access have to be treated as a portion of the housing project. However it was specifically mentioned in the said circular that those areas should conform to the project plan as approved by the local authority. Meaning thereby that the roads and gardens should comply with the standards and the rules and regulations in force and mandated by local authority.
From that area of the site the builder has to carve out and sacrifice the open space for garden and development plan road. Since a builder has to follow norms of the local authority therefore it was mandatory on his part to sacrifice the open space for this very purpose. In the present case out of the total area available on the site of 4264.10 sq.mts. the colony road and open space was carved out. However the local authority gives incentive in lieu of the said sacrifice by granting FSI on that area left open for road etc. In the present appeal it has been established that the said FSI was directly used in the same housing project having direct nexus with the open space left for road with the additional construction made on account of the grant of FSI. Upto this extent the view goes in favour of the assessee not only by or verdict but as noticed by us the same issue was also held by the First Appellate."
Following the aforesaid precedents, in principle the issue is decided in favour of the assessee, subject to verification that the areas on account of garden area and road widening comply with the project plan as approved by the local authority. For this purpose, the matter is restored back to the file of the Assessing Officer to carry out the necessary verification with respect to the Shrikrishna Complex project in the light of the observations of the Tribunal in the cases of M/s Bunty Builders (supra) and M/s Navnirman Developers (supra). Needless to mention, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and thereafter pass an order in accordance with law. Thus, on this Ground, assessee succeeds as above.
6. The next substantive Ground of appeal raised by the assessee in the assessment year 2003-04 reads as follows:
"The learned CIT (A) erred in confirming the disallowance of deduction u/s 80IB(10) on the ground that the project constructed was not a housing project since the built up area of shops and commercial establishments exceeded 2000 sq. ft."
6 ITA Nos 872/PN/06 & 1318/PN/07 M/s Agarwal Constructions, Pune In the course of assessment proceedings, the Assessing Officer further noticed that in Shrikrishna Complex assessee had also constructed some shops and commercial establishments with built up area of more than 2000 sq.ft. He, therefore, disallowed the deduction under section 80-IB(10) on the ground that the built up area of commercial establishment cannot exceed 2000 sq.ft. The Commissioner of Income-tax (Appeals) was of the view that a project, which contains shops and commercial establishments, is outside the purview of the provisions of section 80-IB(10), as the provisions of law as it then stood and as applicable to the assessment year under appeal were applicable only to residential projects, which cannot be said to include shops and commercial establishments and, therefore, if there was any shop or commercial establishment contained in a project, such project did not remain as a housing project. In this view of the matter, the Commissioner of Income-tax (Appeals) affirmed the decision of the Assessing Officer, against which the assessee has raised the impugned Ground of Appeal'
7. At the time of hearing, the learned Counsel for the appellant refers to the judgment of the Hon'ble Bombay High Court in the case of CIT, Pune vs. M/s Brahma Associates, Pune in Income-tax Appeal No 1194 of 2010 dated 22.02.2011, wherein the Hon'ble High Court has held as under:
"a) Upto 31.3.2005 (subject to fulfilling other conditions), deduction under section 80-
IB(10) is allowable to housing projects approved by the local authority having residential units with commercial user to the extent permitted under the DC Rules/Regulations framed by the respective local authority.
b) In such a case, where the commercial user permitted by the local authority is within the limits prescribed under the DC Rules/Regulation, the deduction under section 80-IB(10) upto 31.3.2005 would be allowable irrespective of he fact that the project is approved s 'housing project' or 'residential plus commercial'.
c) In the absence of any provisions under the Income Tax Act, the Tribunal was not justified in holding that upto 31.3.2005 deduction under section 80IB(10) would be allowable to the projects approved by the local authority having residential building with commercial user upto 10% of the total built-up area of the plot.
d) Since deductions under section 80IB(10) is on the profits derived from the housing projects approved by the local authority as a whole, the Tribunal was not justified in restricting Section 80IB(10) deduction only to a part of the project. However, in the present case, since the assessee has accepted the decision of the Tribunal in allowing Section 80IB(10) deduction to a part of the project, we do not disturb the findings of the Tribunal in that behalf.
e) Clause (d) inserted to Section 80IB(10) with effect from 1.4.2005 is prospective and not retrospective and hence cannot be applied for the period prior to 1.4.2005."
7 ITA Nos 872/PN/06 & 1318/PN/07 M/s Agarwal Constructions, Pune In the light of the aforesaid judgment, it was submitted on behalf of the appellant that the matter be restored back to the file of the Assessing Officer to be decided in the light of the above. In view of the binding judgment of the Hon'ble jurisdictional High Court, the matter is set aside to the file of the Assessing Officer. Accordingly, we set aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to examine the assessee's claim for grant of deduction under section 80-IB(10) of the Act. In view of the judgment of the Hon'ble Bombay High Court (supra), the Assessing Officer shall allow the assessee, a reasonable opportunity of being heard and thereafter pass an order in accordance with law. Thus, on this Ground also assessee succeeds.
8. In the result, appeal of the assessee for the assessment year 2003-04 is allowed, as above.
9. As the facts and circumstances in the assessment year 2004-05 are similar, our decision in the assessment year 2003-04 applies mutatis mutandis to the assessment year 2004-05 also.
10. Resultantly, both the appeals are allowed, as above.
Pronounced in the open Court on this 23 rd day of March, 2011.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated: 23 rd March, 2011
Copy to:-
1) M/s Agarwal Construction, Pune
2) ACIT (OSD) Pune
3) The CIT(A)-II, Pune
4) The CIT II, Pune.
5) The DR, "B" Bench, ITAT, Pune
By Order
"true copy"
Asst. Registrar,
I.T.A.T., Pune
B
8 ITA Nos 872/PN/06 & 1318/PN/07
M/s Agarwal Constructions, Pune