Income Tax Appellate Tribunal - Mumbai
Thistle Properties Pvt. Ltd , Mumbai vs Assessee on 12 August, 2005
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI 'J' BENCH
BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER &
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
I.T.A.NO.1082/Mum/2008 - A.Y 2003-04
M/s Thistle Properties Pvt. Ltd., Vs. Asst. Commissioner of I.T.,
B 124, Vardhaman Complex, Fitwell Central Circle 45,
Compound, L.B.S.Marg, Mumbai.
Vikhroli [West],
Mumbai 400 083.
PAN: AABCT 4274 D
(Appellant) (Respondent)
Appellant by : Shri Dharmesh Shah.
Respondent by : Shri R.K.Singh
ORDER
Per T.R.SOOD, AM:
In this appeal various grounds have been raised, but at the time of hearing ground Nos.1 to 3 were not pressed, therefore, they are dismissed as not pressed. Ground Nos.4 & 5 are as under:
"4. The Learned Commissioner of Income Tax [Appeals] ought to have appreciated that the notices issued by the assessing officer are invalid and hence the assessment order u/s.143[3] of the Act was also void ab initio.
5. The Learned Commissioner of Income Tax [Appeals] has erred in law and in facts in not appreciating that the interest charged u/s.234B and 234C of the Act are incorrect."
2. Ground No.4: This ground relates to the service of notice u/s.143[3]. It seems on earlier occasion the Bench had asked the department to file proof of service of notice, in response to which a copy of an acknowledgement of Speed Post was filed. However ld. DR made it clear that he is not relying on the same. He pointed out that 2 this acknowledgment does not show the year of notice or the date of receipt clearly and it may refer to some other year [we will consider the other argument of the ld. DR little later].
3. The Ld. Counsel of the assessee referred to this receipt and pointed out that this cannot be called a valid service because against the name of recipient it has been stamped by some Novacare Drug Ltd. and address is shown as B 119, Vardhman Complex, LBS Road, Mumbai, whereas address of the assessee was B-124, Vardhman Complex, LBS Road, Mumbai. Therefore, this cannot be construed as valid service of notice. Since Revenue has failed to prove the service, assessment has to be quashed.
4. On the other hand, ld. DR filed a copy of the order sheet of assessment proceedings and pointed out that Shri Kulin Mehta, Chartered Accountant and Authorised Representative of the assessee attended the assessment proceedings as early as 7-3-2006. If no notice was served, then how Chartered Accountant of the assessee attended the proceedings. In such circumstances a service of notice has been held to be valid by the Hon'ble Delhi High Court in the case of CIT vs. Regency Express Builders Pvt. Ltd. [291 ITR 55]. He also filed a copy of the letter dated 12-8-2005 through which it was informed that a notice has been served u/s.143[2] raising various queries and no objection was taken ever against this notice. This fact clearly shows that the notice was duly served on the assessee. He then referred to the acknowledgement and submitted that no assessment 3 year has been mentioned in this acknowledgement, therefore, it is not necessary that this notice relates to this year only.
5. He argued that no objection was taken against the service of notice before the AO. However, this issue was taken up before the CIT[A] vide ground No.3 of the assessee's appeal. However, this ground was not pressed before the CIT[A] and the same has been dismissed by the CIT[A] as not pressed. This clearly shows that assessee has accepted the service of notice and now assessee cannot be allowed to rake-up this issue again. He then referred to the decision of the Hon'ble Kerala High Court in the case of CIT vs. Abdul Khader Ahamed [285 ITR 57] wherein it was clearly held that the aggrieved party could not dispute the record before a higher forum and remedy, if any, would lie against the same authority. The assessee cannot at this stage after a gap of almost five years be allowed to raise this objection regarding service of notice because after such a long gap, it may not always be possible for the Revenue authorities to produce the proof of service of notice. Therefore, assessee could not agitate this issue now.
6. In the rejoinder, Ld. Counsel of the assessee submitted that there cannot be any waiver of the notice and in this regard he relied on the decision of the Hon'ble Gujarat High Court in the case of P. V. Doshi vs. CIT [113 ITR 22]. In this decision it was clearly held that the jurisdictional provision which was mandatory and enacted in public interest could never be waived. He also submitted that though 4 Sec.292BB has been inserted by the Finance Act 2008 w.e.f. 1-4-2008, wherein it is provided that if an assessee has attended the proceedings it shall be deemed that notice, if any, under which it is required to be served, has been duly served under any provisions of the Act, then such assessee is barred from taking this objection later on. However, this provision has been held to be of prospective nature by the Special Bench of the Tribunal in the case of Kuber Tobacco Products (P) Ltd. [117 ITD 273]. He also pointed out that service of notice is a mandatory requirement and in this regard relied on the decision of the Hon'ble Bombay High Court in the case of CWT vs. HUF of H. H. Late J. M. Scindia [300 ITR 193].
7. We have considered the rival submissions carefully and are unable to agree with the submissions of the Ld. Counsel of the assessee. The second para of the assessment order reads as under:
" Notices u/s.143[2] & 142[1] of the Income Tax Act, 1961 was issued and duly served on the assessee along with a detailed questionnaires. Subsequently, with the change in incumbent, notice u/s.143[2] of the I. T. Act, 1961 was issued by the undersigned. Shri Kulin Mehta, C. A. attended from time to time and furnished the various details as called for such as details of sales party-wise, details of sundry debtors/creditor, details of secured/unsecured loans. Loan confirmations, details of additions to fixed assets, details of rent & compensation, details of various expenses debited to P & L account etc. the case was discussed with him."
The above clearly shows that Shri Kulin Mehta appeared against notice served u/s.143[1]. Further a letter has been issued on 12-8-2005 in which it is again stated that the case was selected for scrutiny vide notice dated 7-10-2004 issued u/s.143[2] but no objection has been 5 taken even to this letter. If the assessee's contention is correct that no notice was served, then one fails to understand how assessee's Authorised Representative Shri Kulin Mehta made appearance before the AO starting from 7-3-2006. The noting sheet dated 7-3-2006 reads as under:
"Shri Kulin Mehta, C.A. attended. Filed letter dated 6-3-06 in response to notice [questionnaire] dated 12-8-2005 by previous AO. He is to attend on 13-3-06 at 11.00 am."
This clearly shows that assessee's Authorised Representative had attended in response to the letter dated 12/8/2005 as well as notice u/s.143[2]. In any case, the fact of notice is clearly mentioned in the letter dated 12-8-2005. The Hon'ble Delhi High Court in the case of CIT vs. Regency Express Builders Pvt. Ltd. [supra] where assessee had denied the service of notice, has observed as under:
"Even assuming for arguments sake that no notice under Section 143(2) of the Act has been received on behalf of the assessed on 29th December, 2000, then there was no occasion for assessed or his representative to appear before the Assessing Officer on 11th January, 2001.
The fact that on 11th January, 2001 Mr. Harish Bansal, Chartered Accountant appeared before the Assessing Officer and filed his Power of Attorney and was asked to file details/information and thereafter on 7th February, 2001, one Shri Mohammad Aslam, Assistant Along with M/s. S. Prasad and Co., Chartered Accountant appeared before the Assessing Officer and filed a letter seeking adjournment, goes on to show that notice under Section 143(2) of the Act has been duly served on the assessed through his representative on 29th December, 2000 and that is why the representatives of the assessed have been appearing before the Assessing Officer in pursuance of the notice."
Thus from the above it is clear that allegation that no notice was served but, still assessee's appearance before the authorities itself 6 shows that the notice must have been served otherwise there was no occasion for the assessee to go before the assessing authority.
8. As far as the decision of the Hon'ble Gujarat High Court in the case of P.V.Doshi vs. CIT [supra] is concerned, the High Court was concerned with the following facts:
"An order of reassessment was passed on the assessee. In appeal against the order of the Appellate Assistant Commissioner the assessee gave up the contention regarding the validity of the notice of reassessment. On merits, the Appellate Assistant Commissioner dismissed the appeal. On further appeal the Tribunal remanded the case to the Income-tax Officer with directions to cross-examine a witness. On appeal from the order passed on remand the assessee contended that the reassessment proceedings were not validly initiated the Appellate Assistant Commissioner examined the original order sheet and found that no reasons had been recorded by the Income-tax Officer as required by section 148[2]. He further found that the Income-tax Officer had not specified in clause of section 147 under which the assessment had been reopened. He, therefore, annulled the order of reassessment. The Tribunal, however, held that once the Tribunal passed an order the matter became final and that the order restoring the case to the file of the Income-tax Officer with clear instructions only to cross-examine a witness meant that the only point that was left open was in respect of the sum and not the legal or jurisdictional aspect whether the reassessment proceedings were correctly initiated."
On the above facts, it was held as under:
"Held, that as a jurisdictional provision which was mandatory and enacted in public interest could never be waived and the want of jurisdiction was discovered by the Appellate Assistant Commissioner, there was no question of waiver by the assessee. No question of finality of the remand order of the Tribunal would arise because the mandatory conditions for founding jurisdiction for initiating re- assessment proceedings had been fulfilled. The order of re-assessment was held to be not valid."
Thus it is clear from the above that the issue was regarding reopening of the assessment u/s.147 under which recording of the reason is mandatory and such reason only provides jurisdiction to the assessing 7 authority for doing the re-assessment and that is why the Hon'ble High Court held that this issue could not be waived because it provided the valid jurisdiction for re-assessment. Therefore, in our view, this decision is not applicable to the facts of the case.
10. Similarly, the question before the Special Bench in the case of Kuber Tobacco Pvt. Ltd. vs. DCIT [supra] was as under:
"Whether the assessee who has participated in the block assessment proceedings is precluded from taking any objection that notice under s. 143(2) was not served upon him or was not served upon him in time in view of the provisions of s. 292BB inserted by the Finance Act, 2008 w.e.f. 1st April, 2008 and if so, since when he can be said to be so precluded?"
In this case a search was concluded against the assessee u/s.132 of the Act and consequently notice u/s.158BC was issued. The assessment order was silent about the issuance of notice u/s.143[2] and no objection was taken by the assessee either before the AO or CIT[A]. This issue was raised for the first time by way of an additional ground before the Special Bench of the Tribunal. In the meantime u/s.292BB had also been inserted by the Finance Act 2008 w.e.f. 1-4- 2008. However, it has to be noticed carefully that in respect of block assessment lot of controversy was going on, whether notice u/s.158BC itself was sufficient or a further notice was required to be served u/s.143[2]. That is why perhaps no objection was taken before the AO or the CIT[A]. In fact, this issue became settled only by the decision of the Hon'ble Supreme Court in the case of ACIT vs. Hotel Blue Moon [321 ITR 362] wherein it was held that it shall be mandatory to issue 8 notice u/s.143[2] in addition to the notice u/s.158BC. Therefore, it is clear again that the issue before the Special Bench of the Tribunal in the case of Kuber Tobacco Pvt. Ltd. vs. DCIT [supra] was not regarding service of notice u/s.143[2]. At the same time reference was made to sec.292BB and it was held that slec.292BB would be applicable only prospectively.
11. In the case before us assessee never raised any objection for service of notice u/s.143[2] before the AO. An objection was definitely taken before the CIT[A] vide ground No.3 which reads as under:
"The Assessing Officer has erred in law and in facts in issuing various notices which are invalid and illegal. The consequential assessment order is void ab initio."
But the above ground was not pressed before the ld. CIT[A] who held vide para-4 as under:
"4. Ground No.3 is a general ground relating to the issue of various notices being invalid and illegal thereby making the consequential assessment order null and void. This ground of appeal was again not pressed during the course of appeal proceedings, and is therefore, treated as dismissed."
Thus, it is clear that the above ground was not pressed before the CIT[A], which means that assessee was not aggrieved in respect of service of notice. In any case, as pointed out by the ld. DR, if assessee had any problem in this respect he cannot agitate this issue now before the higher forum, i.e. before us as held by the Hon'ble Kerala High Court in the case of CIT vs. Abdul Khader Ahmed [supra]. In that case the facts were as under:
9
"Gold biscuits of weight 5595 grams were seized from the assessee by airport security staff and handed over to the police. The income tax authorities requisitioned the seized gold from the police authorities. The assessee moved this Court challenging the request made by the IT authorities. This Court set aside the action taken by the IT authorities and ordered return of the gold to the Magistrate's Court. A notice was issued to the assessee under section 142 of the Income-tax Act, 1961 upon which the assessee filed a nil return, which was processed and no further action was taken. The income tax authorities moved the Magistrate for the custody of the gold, but this was refused. The Income-tax Department moved the Sessions court, which ordered delivery of gold to it. The Department took possession of the gold and deposited the gold biscuits with the Reserve Bank of India. The Commissioner by letter dated May 30, 2003, directed the Deputy Commissioner who was the assessing officer, to "initiate income-tax proceedings by issuing notice under s. 148 of the Act after recording his reasons for the same" and directing the Assessing Officer "to comply with all the requirements of law while initiation action". On receipt thereof the Deputy Commissioner after verifying the records recorded reasons for the belief that income had escaped assessment and after issuance of notice completed the assessment, treating the value of gold as escaped income. An appeal against the assessment was dismissed but on further appeal, the Appellate Tribunal allowed it, holding that the notice under section 148 had been issued acting under the dictates of his superior without application of mind".
From the above fact, it was observed by the Hon'ble High Court as under:
The question what transpired before a Court or Tribunal can be gathered from the proceedings or order of the court no party will ordinarily be permitted to take exception to or contradict the statement to that effect in the order. What has been stated in the order should be taken as the last word on that question. Even if a wrong record has been made in the order as to what transpired before the Court or Tribunal, the remedy of the aggrieved party is not to dispute the record before a higher forum, but to seek a review before the lower forum itself."
Thus, the Hon'ble court clearly held that if a particular finding has been given in a year even if erroneously, then the remedy would lie before that authority and not before the higher forum. Thus, in the case before us if the ld. CIT[A] has given a finding that the ground 10 regarding service of notice was not pressed before him, even if presuming is a erroneous finding, then the assessee should have moved the office of the CIT[A] only but cannot rake up this issue before the Tribunal.
12. Normally when assessee has not received a notice, then assessee is supposed to raise this legal objection before the AO or in any case before the CIT[A]. Having chosen not to raise any objection before the AO and then not agitating the issue before the CIT[A], assessee cannot press this issue again before the Tribunal after a gap of 5 years because at that point of time it may not be always possible for the Revenue authorities to show the proof of service. In these circumstances, we reject the ground regarding validity of service of notice and hold that assessee has been served notice u/s.143[2].
13. Ground No.5: The issue regarding charging of interest u/s.234B and 234C is of consequential nature, therefore, we direct the AO to charge interest in accordance with the law.
14. In addition to the above grounds, assessee has also filed an additional ground vide letter dated 7th May, 2010 which reads as under:
"The Learned Commissioner of Income Tax [Appeals] has erred in law and in facts in confirming the disallowance of deduction u/s.80IB of the Act amounting to `.80,16,478/- made by the Assessing Officer ."
15. The Ld. Counsel of the assessee submitted that the issue regarding deduction u/s.80IB(10) is purely of legal nature and all the facts required for adjudication of the same are already on the records. 11 This issue was raised even before the CIT[A] and just by over-sight this was omitted while raising the normal grounds. He also relied on the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. 229 ITR 383.
16. On the other hand, ld. DR had no serious objection for admission of the additional ground.
17. After considering the rival submissions, we find that the issue raised in additional ground is purely of legal nature and all the facts for adjudication of the same are available on record. Therefore, this ground is admitted.
18. After hearing both the parties, we find that the assessee had made a claim u/s.80IB(10) and the AO during assessment proceedings requested the Authorised Representative of the assessee to produce the purchase agreement of the land and copies of sale agreement, brouchers of the projects etc. Some of the details were not filed and accordingly show-cause notice dated 20-3-2006 was issued raising following points:
From the details filed and explanation/clarification offered by your representative Shri Kulin Mehta, it is observed that the project on which have claimed the deduction is not eligible for it for the following reasons:
1. Even though the Municipal approved plans show the individual flat areas less than the specified limit of 1500 sq.ft. for each unit from the details filed of the sale effected shows that adjoining two units have been sold to one buyer only in all the Wings.
2. The layout of the adjoining unit from the approved plant as well as the sale agreement clearly shows that the units are complimentary to each other i.e. intended to be sold as one unit 12 and in reality also all the adjoining unit have invariably been sold to one buyer.
3. From the certified true copy made available by you today and as discussed with Shri Kulin Mehta, the interior of the adjoining flat compliments each other to make a single unit only and the units as shown in the approved plan will not survive independent user by any buyer if he is to purchase only one unit considering further that:
i. The project is apparently intended to be constructed for high income group only given the fact that the society has a club house, swimming pool, etc. which goes with the requirement of the elite class in the society;
ii. The size and layout of kitchen which is directly opening to toilet, Living, Bedroom and Dinning clubbed into one big flat with a wide balcony in one unit and with adjoining and having proper kitchen, bedroom etc. All these goes to indicate that the two adjoining units are for all practical purposes, to be sold as one unit only. On such clubbing the area in any given case is invariably much above the specified limit of 1500 sq.ft. thus making the project ineligible for deduction u/s.80IBof the I.T.Act. The issue has been discussed in detail with Shri Kulin Mehta, C.A. your representative, in the hearing today.
During the course of hearing even though repeatedly required to file the brochure of the project, the requirement has not been met till now. You are required to file a copy of brochure along with a reply to this letter."
In response to the above, neither any details were furnished nor anybody attended and, therefore, AO made the following observations:
As regards the eligibility of the project for the deduction u/s.80IB certain queries raised in the show cause notice dt. 29-3-2006 issued to the assessee has not been replied by the assessee. as is discussed in the said notice the project viz. Paradise Towers is a residential complex, basically intended for the higher income group complete with the club house, swimming pool etc. The building is having four units per floor and four wings A,B,C and D. it is seen from the details filed by the assessee that each floor adjoining flats have invariably been sold to one buyer only. The adjoining flats have got a long wall separating the units. Typical floor plan of wing A B is attached as Annexure 'A' to this order to bring out bring out clearly the lay out of the adjoining units. The interior lay out as discussed in the show cause notice dt. 29- 3-06 clearly brings out the fact that these adjoining units are being used/intended to be used as a single unit only. When the adjoining units are clubbed into one in any individual case, built up area of the 13 unit is above 2000 sq. feet making the project ineligible for the deduction u/s.80IB of the Act. A housing project with swimming pool, club house etc. and having small areas with size of 900 sq.ft. for individual flat is something which will not attract higher income ground and therefore, the practical way of attracting customers of the sort that will go with the project as also get the benefit of deduction u/s.80IB for the project.
The obvious conclusion that can be drawn from the above is even though each individual units are having area lesser than 1500 sq.ft. to make the project eligible for the claim of deduction u/s.80IB, sale effected clearly indicates the reality that the adjoining flats clubbed for use for one individual buyer. Therefore, assessee's claim of deduction u/s.80IB is rejected on the ground that it does not satisfy the condition prescribed of i8ndividual unit being less than 1500 sq.ft. in area. Assessee's claim for deduction u/s.80IB 80,16,478/- is not admitted."
19. On appeal, ld. CIT[A] noted that show-cause notice was issued on 29-3-2006 to submit the details before 31-3-2006 which means adequate opportunity of being heard was not allowed to the assessee and, therefore, a remand report was called for. The remand report dated 9-2-2007 was received but even from that remand report it was observed that proper opportunity of being heard was not given. Therefore, the matter was again sent for the remand report and the fresh remand report dated 13-7-2007 was received. From that remand report it became clear that assessee has, in spite, of various opportunities did not furnish the requisite details. It was observed that there was certain gap in the inquiry made and, therefore, CIT[A] herself got certain enquiries conducted. The last of such enquiry report was received on 23-10-2007 and the appellant was confronted with the remand reports, statement of oath taken during the remand report as well as enquiry report during the assessment proceedings. The ld. 14 CIT[A] thereafter examined the submissions and observed that one of the main condition for allowing deduction u/s.80IB(10) was that the size of a flat should not be more than 1500 sq.ft. and thereafter has made the following observations:
"5.3 In the present case, on the basis of enquiries made during remand proceedings through spot enquiries and camp office at Pune as well as enquiries during appeal proceedings, it is clear that that it was only in order to claim the benefit u/s.80IB that each residential unit was shown on paper to be less than 1,500sq.ft. in area. For all other practical purposes, however, each residential unit was never meant to be sold separately. It was two such individual residential units taken together which comprised a flat and was sold as such. Investigations further revealed that right from the inception stage, the two residential units were always intended to be sold as one flat, except that on paper i.e. in the brochure and the floor plans, they were shown as two residential units. And once two such individual residential units were combined, the area undisputedly was more than 1,500 sq.ft., a fact not even disputed by the appellant, thereby making it ineligible to claim deduction u/s.80IB.. Detailed below are the results of the enquiries which are also the reasons as to why the appellant is not eligible to claim deduction u/.80IB.
(i) The most vital evidence that the single residential unit measuring less than 1500 sq.ft. was never meant to be sold as such is that the builder, i.e. the appellant applied for one electric meter not for every residential unit, as would be practical and expected, but for every two residential units taken together. This clearly proves that the intention was never to sell the individual residential unit measuring less than 1500 sq.ft. as one flat but sell two units combined as one flat.
The AO, in his enquiry report dated 27-02-2003, a copy of which was also given to the Annual Report of the appellant, had clearly brought out the fact there was only one electric meter installed for every two residential units. A copy of the letter of the Dy. Commissioner of Income Tax,. Executive Engineer, Aundh Sub-division, MAHA DISCOM, Pune, dated 16-102007, which stated that M/s Thistle Properties Pvt. Ltd. made the application for the electric meter vide application dated 21-01-2003 and the same was provided on 27-02- 2003 was also given to the appellant. During the appeal proceedings, the appellant was required to explain why, if the intention was to sell individual residential units, application for electric meters for every two adjoining residential units was made. However, no reply on this point was filed.
What therefore clearly emerges from the above facts is that by making application for one electricity meter for every two individual residential units, it was never the intention of the appellant to sell the 15 individual residential unit as such. This clearly also proves that it was only on paper that the residential units were shown to be less than 1500 sq.ft. merely for the purposes of claiming deduction u/s.80IB. In reality what the appellant constructed and sold were residential units much more in area than 1,500 sq.ft. and thus ineligible for deduction u/s.80IB.
(ii) The fact that the individual residential unit as shown on paper i.e. brochure and the floor plans was never meant to be sold as such but always together with the adjacent unit, thereby making the area more than 1,500 sq.ft. is further glaringly brought out by the examination of the layout of the two adjacent residential units, which complement each other. Though on paper each unit was shown to have a kitchen, bedroom, living room and toilet each, on actual spot enquiry, it was found that the space earmarked for kitchen in one unit neither had any drainage facilities nor any provision for water supply. This proves that even during construction stage, the intention was to combine the two flats as one and to cater to buyers looking for bigger flats. When confronted with this finding during appellate proceedings, again, no explanation was forthcoming.
(iii) Furthermore, if any layout of one residential unit is taken in isolation of the adjacent unit, then one residential unit would be without a separate bedroom and the other without its living room, leading to logical conclusion that the two residential units together constitute one flat.
(iv) Furthermore, the brochure/floor plan shows that there is only one entry to every two adjoining residential units, further, strengthening fact that the two residential units were never intended to be sold separately but to one owner only.
(v) It is common for builders to complete one sample flat at the stage of construction itself for showing to the prospective buyers. In this case, interestingly, the sample flat was made by clubbing together flat No.A-111 and A-112 and a big flat was shown to the buyers. This again substantiates the findings by the AO that the single residential units were never intended to be sold individually but two residential units combined to make a flat and thereby the built up area exceeded 1500 sq.ft. When confronted with this finding, again, no explanation was given by the appellant.
(vi) All these find further substantiation from the undisputed fact that no single residential unit has been sold as single residential unit, but in twos as is as is borne out by the list of occupants mentioned on the board in the lobby, reproduced below:-
16
Block A & B Block C & D
First Floor First Floor
A 111/112 Radhika S. Bapat C 111/112 Menon
B 111/112 Radhika Bapat D 111/112 Kamalini Babhubai
Second Floor Second Floor
A 211/112 Vevek & Anuja Joshi C 211/212 K Moras
B 211/112 Vevek & Anuja Joshi D 211/212 Prakash Telan
Third Floor Third Floor
A 311/112 K.K.Ramani C 311/312 Sidjarajan Prasad
B 311/112 Arindum & Suchita D 311/312 Dark K. t.
Basu
Fourth Floor Fourth Floor
A 411/112 S.D.Dikshit C 411/412 --
B 411/112 Anant Gupta D 411/412 S.V.Rohankhedkar
Fifth Floor Fifth Floor
A 511/112 D Venkatesh C 511/512 C Belh
B 511/112 Anat Gupta D 511/512 B.S.Dabke
Sixth Floor Sixth Floor
A 611/112 Jayashree P. Sawant C 611/612 Dongre
B 611/112 R.S.Jaisinghani D 611/612 Shaill & Kiran Nataraj
Seventh Floor Seventh Floor
A 711/112 Sunil Shah C 711/712 Poonam & Madhav
Kudekar
B 711/112 Sunil Shah. D 711/712 Rita Daljit Jagtiani
The list makes it very clear that without exception, each flat, comprising two residential units were sold as one flat to one family.
(vii) The Paradise Towers complex has amenities like club house, gymnasium, swimming pool and still parking, indicating that it was constructed for the higher middle class. It was also found that the quality of construction was very high with Italian marble flooring and granite kitchen platform. The manicured laws at the entrance of the lobby, the stilt parking facilities as well as the high quality constructions all indicate that the prospective buyers would of the upper middle class, who would not be interested in purchasing one very small residential unit, but bigger flats. The fact that none of the units were sold individually but in twos further substantiates this point.
Therefore, if an overall view is taken, each of the above facts indicates that the individual residential unit, measuring less than 1,500 sq.ft. in built up area on paper was never meant to be sold as such but was always to be sold together with the adjoining unit, the built-up area of the two units exceeding 1500 sq.ft. and thereby making the appellant ineligible to claim the deduction u/s.80IB. 5.4 As a last ditch effort, during the appellate proceedings, it was submitted by the appellant that the structural changes in converting two residential units into one residential unit had been undertaken by the respective flat owners. The photo copy of the agreement with the M/s 17 Vatsalya Engineers Pvt. Ltd., sister concern of M/s Thistle Properties Pvt. Ltd. was filed to substantiate that M/s Vatsalya Engineers Pvt. Ltd. as per agreement was required to carry out the structural changes. The matter was remanded to the AO for examination as the agreements were not produced during assessment proceedings and, therefore, constituted fresh evidence. The AO examined the flat owners during remand proceedings on this point and found that -
"Neither the structural changes were made by any flat owner nor was any additional expenditure incurred for such structural alternation."
Therefore, the appellant's contentions is found to be false and no consideration and is, therefore, rejected.
6. What therefore, clearly emerges after on the spo9t enquiry of flats, the examination of flat owners and the enquiries made from various authorities is that the appellant is not entitled to claim deduction u/s.80IB on the Paradise Tower Project, Baner, Pune as it has not fulfilled the condition laid down in sec.80IB(10)© because the residential flats constructed and sold by the appellant, as elaborated above, have a built up area of more than 1,500 sq.ft. The action of the AO in denying the claim of deduction u/s.80IB of `.80,16,678/- is, therefore, upheld."
20. Before us, Ld.counsel of the assessee submitted that deduction has been mainly rejected by pointing out five defects by the CIT(A) which mainly rest on the issue that size of the flats constructed by the assessee was more than 1500 sq.ft.. Then he referred to para 5.3 of the CIT(A)'s order and pointed out that the first defect pointed out is that there was only one electric meter for every two flats. He submitted that this fact has been brought out by the enquiry report dated 17-2-03 and it has been alleged that the copy was given to the assessee. Reference was also made to the copy of the letter of Deputy Executive Engineer, Aundh Sub-Division, MAHA DISCOM, Pune, to the letter dated 16-10-07. He wondered how this letter of 2007 was given to the assessee in 2003. However, on a query from the Bench whether 18 there was one electric meter for two flats, he gave an evasive reply. He could not point out to any documentary evidence in the paper book to show that this finding was wrong and every flat had an independent electric meter. He then referred to page 12 of the paper book which is a copy of the submissions made before the AO along with the approved plan and completion certificate and submitted that the plan was sanctioned for the flats and each of the flats, according to the sanction, was less than 1500 sq.ft. Even as per the completion certificate, each of the flat was less than 1500 sq.ft. He then tried to explain to us from two copies of the plans for individual flats and submitted that the observations of the ld. CIT(A) that the flats were constructed in such a way that they were complementary to each other and would be of no use independently, is not correct. He tried to explain that all the flats have independent bath-rooms as well as kitchens and also all the independent flats had independent entries. He also submitted that spot enquiries were made in 2007 in which it was observed that there was no drainage pipe in the kitchen. This report has been made much after the completion of the flat and by that time drainage pipe might had been removed by the individual buyers.
21. He also submitted that it is not correct that all the flats have been sold i.e. two adjoining flats to the same buyer. However, he admitted that the adjoining flats were sold to the members of the same family. He submitted that it is a matter of chance that few of the buyers purchased two adjacent flats and by seeing this behaviour more 19 customers became interested in the pair of flats i.e. to buy adjoining flats but no adverse inference can be drawn from this fact. He then referred to the two affidavits filed at pages 64-65 of the paper book by Shri Sadanand Dattatrey Bapat and Shri Chittaranjan Behel respectively. He pointed out that in these affidavits it is clearly explained that the size of each flat was less than 1500 sq.ft. and even the sample flat shown was less than 1500 sq.ft. He also referred to page 72 of the paper book, which is a copy of the statement recorded by the Department of Shri Davies K. Thalakottur. In this statement in response to question as to what was the purpose for purchasing adjacent flat, it was stated that it was to avail large space and in response to question no.10 it was stated that corporation tax was being paid for each of the flats separately. This shows that the flats are independent flats. In response to question no.11 whether any approval was required for structure changes, it was submitted that since changes were to internal wall therefore no approval was required. This clearly shows that changes were made by the flat owners on their own.
22. He then referred to sec.80IB[10] and pointed out that clauses [e] and [f] were inserted by the Finance Act, 2009 w.e.f. 1-4-2010 by which a restriction was put that not more than one residential unit in a housing project could be allotted to any person. This means that at the relevant point of time there was no such restriction and two or more flats could be allotted to one person in the same housing society. Therefore, even if two flats have been sold to same person or same 20 family member, it will not make any difference for allowance of deduction u/s.80IB[10].
23. On the other hand, Ld.DR submitted that assessee has constructed about 100 flats then how it is possible that in all the cases two adjacent flats have been sold to the same buyer and/or family. This only shows that, in fact, assessee had constructed only one flat which was complimentary to each other. He pointed out that through spot enquiry it was clearly found that there was only one electric meter per set of two flats. If the flats were meant to be individual flats, then how and why only one electric connection was obtained for two adjoining flats. Spot enquiries further revealed that in one of the flats kitchen was shown only on the paper as no drainage pipe was there. Once the drainage pipes have been laid out same cannot be later on removed. This further shows that assessee has manipulated the sanctioned plan only for the purpose of claiming deduction u/s.80IB[10]. Spot enquiries have further revealed that there was only one entry and merely showing two entries on the paper would not alter the situation. He then referred to copies of affidavits of Shri Sadanand Dattatrey Bapat and Shri Chittaranjan Behel filed by the assessee at pages 64-65 of the paper book and pointed out that the language is identical which only shows that it is a self serving affidavits. In any case, both the affidavits contained clause [4] through which it is clearly mentioned that the particular buyer was in need of two separate flats and was looking for one flat and such prospective buyers asked the 21 assessee whether same could be combined into one. This clearly shows that assessee had itself converted the two flats into one which becomes further clear from the statement recorded from various parties, e.g. in the case of statement recorded from Shri Davies K. Thalakottur. In response to question whether any internal structural changes were made to the flats, it was stated that internal changes were made through agreement with Vatsalya Engg. Pvt. Ltd. which is a sister concern of the assessee. He then referred to the statement of Shri Anant Gupta at page 75 wherein in response to question no.15 whether the idea of purchasing two units was his own or of the builder's, it was stated that it was builder's idea. This clearly shows that builder had planed both the flats together and gave ideas to the buyers for purchase the adjacent flats. He then referred to the statement of Shri Sumit Shah, copy of which is at page 84 of the paper book wherein in response to question no.5 whether any internal structural changes were made to the flats, the answer was no structural changes were made. This clearly shows that even without internal structural changes two adjacent flats could be used as one. In turn, this could only lead to the inference that, in fact, only one flat was constructed and the same was shown as two flats only on paper.
24. He also submitted that it is not the case of the department that assessee has sold two flats to the same buyers, therefore, deduction should be denied. The case of the Revenue is that the assessee had actually never constructed the flats which were less than 1500 sq.ft. 22 The assessee has, in fact, constructed a single flat which was more than 1500 sq.ft. but same was shown only on paper being less than 1500 sq.ft. by manipulating various records.
25. We have considered the rival submissions carefully. We have also perused the various documents filed in the paper book. The case of the Revenue for denying deduction u/s.80IB[10] is that assessee has not actually constructed the flats which were less than 1500 sq.ft. as per the condition under cl.(c). We find force in the submissions of the Ld.DR. We have already extracted the order of the ld. CIT(A) in the above noted paras which clearly give detailed reasons for hold that flats constructed were of more than 1500 sq.ft.. The first objection raised is that assessee had only one electricity meter for two adjacent flats. If assessee really wanted to construct each of the flats independently then why only one electric meter was taken for two adjacent flats is not clear. Though the Ld.counsel of the assessee tried to raise certain doubts in our mind with reference to letter dated 16- 10-07 of Dy. Executive Engineer, Aundh Sub-Division MAHA DISCOM, Pune by pointing out how this letter could be attached with the enquiry reported dated 27-2-03, it may be a simply typographical mistake in writing the date as the actual letter has not been produced by either of the authorities. However, we had raised a specific query whether assessee had any evidence to show that there was separate meter for adjacent flats and the Ld.counsel of the assessee had shown his inability to produce any evidence to show that separate electric meter 23 was provided. It was not difficult if assessee actually had separate meter in each of the flats. The second objection is that physical examination itself shows that adjacent flats were meant to be only one unit. In this regard in the enquiry report dated 23-1-07, copy of which has been filed by the assessee at pages 45-46 of the paper book, para- 3 is relevant and reads as under:
"3. The kitchen shown in the layout of every unit is in fact a bedroom k- neither there is any drainage nor is there anything to suggest that the kitchen has been so converted. This shows that though in each unit the space has been earmarked as kitchen but in actual construction or construction plan it was never meant to be a kitchen. The wing-wise observations made will make this fact amply clear."
The above clearly shows that the adjacent flats were actually physically one unit. We agree with the submissions of the Ld.DR that if some drainage pipes were laid without which the kitchen cannot function, then the pipes could not have been removed later on. The Ld.counsel of the assessee simply stated that the spot enquiries were made in 2007 by which drainage pipes could have been removed, which is not possible. In any case, in the letter written by the assessee to the AO during remand proceedings on 31-3-06 it is mentioned at para-8 as under:
"8. Further, the size and the layout of the kitchen which is directly opening to toilet, living and bedroom and dining clubbed into one big hall with a vide balcony in one unit and with adjoining unit having proper kitchen, bedroom, etc. itself proves that there were two units being constructed and which has been combined together to suit the needs of the buyer. It is submitted that the fact that there are two kitchens, 2 toilets and 2 livings/bedrooms, all being differently and distantly located in both the units and that none of the said sub-units are closely and located adjoining; itself proves that the 2 flats though purchased by single buyer were in effect 2 different flats.:24
In fact, in the above para it has been admitted that these flats were combined to suit the needs of the buyers. Further it is mentioned that kitchen in one of the flats was directly opening to toilets, which is not possible, because kitchen in a house would never open to a toilet.
Though assessee tried to explain to us through the maps that two units were combined and it is very difficult to judge the actual lay out of the flats on a small plan but if we read this plan along with the above enquiry report, then it seems that both the flats were only one unit and planning was right from the beginning to have one unit. This is further corroborated by the fact that all the 104 units have been sold in adjoining pairs to 52 families and the buyers have been shown either same person or husband and wife. In this regard also again in the letter dated 31-3-06 the assessee stated vide para 4 before the AO as under:
"4. Without prejudice of your goodself in the said letter are devoid of merits. At the outset, your goodself has stated that the adjoining flats have been sold by the assessee only to a single buyer. However, this fact cannot lead to any inference that the unit is of size larger than 1,500 sq.ft. It is submitted that 2 flats have been sold to single buyer only because it suits their needs. It is submit that the project was developed with the intentions that the middle class society also gets tuned to the facilities of the higher class and hence the flats of smaller sizes [i.e. less than 1,599 sq.ft.] were developed with the objective that the middle class society could afford the cost of flats. However, considering the locality of the project and the nature of constructions, the assessee received more and more booking for purchase of two flats adjoining to each other. Since the demand for 2 adjoining flats increased, the assessee was forced to sell the flats together and also allow the unit holders/prospective purchasers to make necessary changes in the internal construction of their respective units. It is submitted that there are ample evidence to prove that 2 flats were sold together to each buyer by the assessee only to stock-in-trade suit the needs of the buyers and because it was insisted upon by the buyers. In fact because some of buyers purchased 2 flats together, the new and 25 prospective buyers also opted for the same looking at the earliest proposals. This was how the adjoining flats came to be sold to a single buyer."
Therefore, it was clearly admitted that all the adjacent flats were sold to the same buyers. There is a further finding by the ld. CIT(A) that in the broucher only one entry was shown for two flats and this was not rebutted by the Ld.counsel of the assessee and even copies of the broachers have not been filed before us.
27. Coming to the two affidavits from Shri Sadanand Dattatrey Bapat and Shri Chittaranjan Behel placed at pages 64-65 of the paper book, both these affidavits have identical nine clauses. The various clauses read as under:
1) I say that I am a resident of the Paradise Towers Society Ltd. I say that that the said flat was purchased by me from M/s Thistle Properties Pvt. Ltd. during the year 2002-2003.
2) I say that I was in search of the bigger premises for my resident. At the time when I approached the site office of "A"
Building [M/s Thistle Properties Ltd.], I found that the project was meant for smaller flats.
3) I say that upon inquiry with the sale staff, I was told that the flats are of size less than 1,500 sq.ft.
4) I say that since I am not in need of two separate flats, I asked them if I purchased two flats, would it be possible for them to combine the same into one as per my specification.
5) I say that I was told by them the flats could be combined into one, but the same will continue to be held as two flats for legal purposes as well as for the purpose of registration.
6) I say that since I had no objection in registering two flats independently, I agreed to purchase the same.
7) I say that the sample flat shown to me was of smaller size as compared to the one owned by me. Almost all the flats were stated to be of the identical size less than 1500 sq.ft. I was told that if the two flats are to be purchased, I will be provided two adjacent flats so that the same could be combined.
8) I say that the two flats chosen by me were two independent flats in all respect and they were combined at my specific request.
26
9) I say that whatever is stated above is true to best of my knowledge and belief.
Clauses 4, 5 and 6 clearly show that buyers were looking for bigger place and assessee even offered help in converting two adjacent flats into one. In any case, these affidavits can at best be described as self serving documents. The Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More [82 ITR 540] has observed as under:
"(iii) that though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self-
serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals."
We further find no force in the argument of the Ld.counsel of the assessee that in the statement of Shri Davies K. Thalakottur, two flats were purchased by that party to avail large space to question no.9 the answer is as under:
Q.9: I the adjacent flat owner is a close relative, what was the purpose behind making two separate agreements and purchasing separate flats?
N.A. TO AVAIL OF LARGER SPACE If this answer is examined in the over all circumstances, then it becomes clear that the buyer was looking for a large place and assessee sold large flats in the guise of two flats. Similarly, payment of municipal taxes for each of the flats separately will not prove anything.
28. On the other hand, in the statement recorded from Shri Anand Gupta answer to question No.15 is as under:
27
Q.15: Whether the idea of purchasing two units was your own or your builders?
Ans: Builders. The entire society has similar flats.
The above clearly shows that builder himself put on sale two adjacent flats to individual families otherwise all the 52 adjacent flats could not have been sold to same families. In fact, in the statement of Shri Amit Shah in response to question No.5 it was stated as under:
Q.5Were there any alternations/structural changes, made to the flat? If so, give details regarding the date/month in which such changes were made< Ans: No structural changes were made.
The above clearly shows that two adjacent flats could be used even without making any internal changes. This further proves that both the adjacent flats were originally planned and designed and constructed as a single unit.
29. Though Ld.counsel of the assessee has referred to clauses [e] and [f] to sec.80IB[10][c] which has been introduced by the Finance Act, 2009 w.e.f. 1-4-2010 whereby it is provided that deduction will not be available if more than one residential unit is allotted to any one single persons. Though this provision could not be attracted in the case of the assessee, but as we have noted earlier Revenue's case is that assessee never constructed the flats which were less than 1500 sq.ft. as per the requirement of law u/s.80IB[10]. The flats have been merely shown in the municipal plan to be one, whereas on physical examination and all the surrounding circumstances which we have discussed in detail above, show that adjacent flat was meant to be 28 single unit only. In these circumstances, we find nothing wrong in the order of the ld. CIT(A) and confirm the same.
30. In the result, assessee's appeal is partly allowed. Order pronounced in the open Court on this day of 1/4/2011.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (T.R.SOOD)
Judicial Member Accountant Member
Mumbai: 1/4/2011.
P/-*
FIT FOR PUBLICATION
Sd/- Sd/-
(AVR JM) (T.R.S AM)