Income Tax Appellate Tribunal - Pune
Ghanshyam J. Sukhawani(Huf), Pune vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench "B" , Pune
Before Shri I.C. Sudhir Judicial Member
and Shri G.S. Pannu Accountant Member
ITA No. 1059/PN/2009
(Asstt. Year: 2005-06)
The Asstt. Commissioner of Income-Tax ... Appellant
Central Cir - 1(1), Pune
v.
Shri. Ghanshyam J. Sukhwani (HUF) ... Respondent
Prop Vikram Construction
32,Sukhwani Chamber
Pimpri, Pune-411 017
PAN : AABHS 9560 G
Appellant by : Ms. Ann Kapthuama
Respondent by : None
Date of hearing :17.8.11
Date of Pronouncement: .10.11
ORDER
Per I.C. Sudhir, JM
The revenue has questioned first appellate order on the following grounds :
revisional order passed u/s. 263 of the Act on the following Grounds :
"1. The Ld.CIT (A) has erred in allowing deduction of Rs.62,35,245/- u/s. 80IB(10) of the I.T. Act, 1961.
2. The learned CIT(A) has erred in holding that the assessee is eligible for deduction u/s. 80IB(10) of the Act on the profit without appreciating that the project consists of commercial area and residential area.
3. The learned CIT(A) has failed to appreciating the fact that Act does not permit for deduction to be allowed in respect of violation made while availing the deduction u/s. 80IB (10).
4. The Ld CIT (A) has failed in appreciating the fact that the A.O has clearly established that the assessee has violated the conditions prescribed under section 80IB (10) of the Act. and thus not eligible for deduction u/s. 80IB (10) of the Act.
5. In particular assessment year law as on 1st April of relevant year is applicable accordingly as on 01/04/2005 as per provision of section 80IB(10) if in a project commercial built up area is more than 2000 sq.ft. then
2 ITA . No 1059/PN/2009 Shri Ghanshyam Sukhwani (HUF).
A.Y. 2005-06 Page of 7 deduction u/s. 80IB (10) is not available. In present case admittedly commercial area is 2815 sq. ft. Hence CIT (A) has erred in allowing deduction u/s. 80IB(10).
6. The Ld. CIT(A) has erred on relying on decision of ITAT special Bench in case of Bramha Associates Vs. JCIT in appeal No. 1417/PN/06 which was relevant for A.Y. 2003-04 and not A.Y. 2005-06."
2. The relevant facts are that out of ongoing 3 projects, the assessee, a builder claimed Section 80IB (10) deduction on the project "Vikram Residency". The A.O. denied the claimed deduction u/s. 80IB (10) of the Act on the profit earned on the project mainly on the basis that firstly, the housing project of the assessee has been approved prior to 1.4.2004, hence there is no scope for commercial space and secondly, the assessee's housing project has shops admeasuring 2815.22 sq.ft., hence not eligible for claiming deduction u/s,. 80 IB (10) of the Act. The A.O has further mentioned that in case during the appellate proceedings, it is held that assessee's project Vikram Residency is eligible for deduction u/s. 80IB(10), the expenditure can be allowed in a prorata way, so that the true income of the residency project is only exempted. The Ld CIT(A) has, however, allowed the claimed deduction on the basis that the project from which the profit is shown was approved as housing project by Pimpri Chinchwad Municipal Corporation (PCMC) and commercial area does not exceed 10% of the total construction in view of the Special Bench decision of the Tribunal in the case of Bramha Associates Vs. JCIT, ITA No. 1417/PN/2006.
3. In support of the grounds, the Ld. D.R. has basically placed reliance on the assessment order. She submitted further that the amended provisions of Section 80IB(10) of the Act was very much in operation during the A.Y. under consideration. Hence, the A.O was justified in denying the claimed deduction following the amended provision as per which, the maximum commercial area permissible in any residential project should be 5% of the total built up area or 2000 sq. ft. whichever 3 ITA . No 1059/PN/2009 Shri Ghanshyam Sukhwani (HUF).
A.Y. 2005-06 Page of 7 is lower. In the case of the assessee, the commercial area is to the extent of 2815 sq.ft. which is in excess of the permissible limit for the commercial area.
4. The issue involved in the grounds is as to whether the assessee was eligible for claiming deduction u/s. 80IB(10) of the Act on the profits earned on the project during the year. The undisputed material facts of the present case are that (a) the assessee had commenced development and construction of housing project after 1st October 1998; (2) the project is on the size of plot of land which is more than 1 acre, and (c) all residential units are less than 1500 sq.ft. of built up area. It has also not been disputed that the assessee commenced the project on 19.10.2000 as per the approval by PCMC. The PCMC approved the project as "housing project". The relevant facts are that the building project was constructed on the plot of land admeasuring about 13900 sq. mts. It consists 9 shops admeasuring about 261.54 sq.mts. of the total project area. The Special bench of the Tribunal in the case of Bramha Associates (Supra), approved by the Hon'ble jurisdictional High Court (in ITA No. 1194 of 2010 dated 22.2.2011) has held that amendment in Section 80IB(10) whereby Clause (d) inserted therein, restricting the construction of commercial area applicable w.e.f. 1.4.2005 is prospective in application, and housing project includes residential as well as commercial area. The Special bench held further that in absence of any such prescribed limit of commercial area in a housing project before the amendment of the provisions u/s. 80IB(10) by insertion of clause (d) therein, 10% of the total built up area would be allowed for commercial construction. The Hon'ble High Court, however, did not approve such type of restriction prescribed by the Special Bench and was pleased to hold that there is no such restriction in the provisions of Section 80 IB(10) of the Act. In other words, before coming into operation of the amended provision of Section 80 IB (10)(d), restriction of 10% of the construction of commercial area of the built up area is not proper. Vide para No. 30 of the decision, the Hon'ble High Court as summarized its finding as under :
4 ITA . No 1059/PN/2009 Shri Ghanshyam Sukhwani (HUF).
A.Y. 2005-06 Page of 7 "30. In the result, the questions raised in the appeal are answered thus :-
a) Upto 31/3/2005 (subject to fulfilling other conditions), deduction under Section 80IB(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 80IB(10) upto 31/3/2005 would be allowable irrespective of the fact that the project is approved as '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."
5 ITA . No 1059/PN/2009 Shri Ghanshyam Sukhwani (HUF).
A.Y. 2005-06 Page of 7 We thus do not find substance in the objection raised by the A.O that housing project is restricted to residential project only for claiming deduction u/s. 80 IB(10) of the Act. As to whether the amended provisions of Section 80 IB (10)(d) are applicable in the A.Y. 2005-06 under consideration to the project,, the Pune Bench of the Tribunal has decided an identical issue in the case of Opel Shelters Pvt. Ltd. Vs. ACIT and others, ITA Nos. 219 & 17/PN/2009 (A.Y. 2005-06), order dated 31.5.2011 holding that income-tax law in existence as on the date of approval of the project approved by the local authority will be applicable for claiming deduction u/s. 80 IB(10) of the Act as the assessee cannot be expected to complete the project as per the provisions of the Income Tax Act which was not in operation when the project was approved and started but came in existence much after the starting of the project. Relevant para nos. 19 & 20 thereof are being reproduced hereunder for a ready reference :
"19. We, thus, find that the issues raised in the present appeals are fully covered in favour of the assessee by the decision of Mumbai Bench of the Tribunal in the case of Hiranandani Akruti J.V v/s. DCIT (Supra). Respectfully followig the said decision in the case of Hiranandani Akruti J.V. (Supra), we decide the issues in favour of the assessees that a housing project will also consist of commercial area to a permissible limit, as settled by the Special Bench of the Tribunal in the case of Bramha Assocates (Supra) (now upheld by the Hon'ble Bombay High Court) as applicable upto A.Y. 2004-05. And secondly, the law as it existed in the Assessment Year when the assessee submitted its proposal of the project and permission for the same was accorded to and when the assessee commenced the project is to be applied. In the present case, undisputedly the assessees had started the project in the year 2001 when sub-clause (d) to Section 80IB(10) was not in existence, hence it cannot be applied on such projects as held by the Mumbai Bench of the Tribunal in the case of Hirnandani Akruti J.V. (Supra). In this regard, we also find strength from this plea of the Ld. A.R. which was also raised before in the case of Hiranandani Akruti J.V. that if the assessee had followed WIP (Work-in-progress) method, the income from the project would 6 ITA . No 1059/PN/2009 Shri Ghanshyam Sukhwani (HUF).
A.Y. 2005-06 Page of 7 have been taxable in the earlier years as the project was completed earlier to the amendment and in that case, as per the old provision the assessee would have been eligible for the deduction. But, just because the assessee has followed the Project Completion method, in these cases, the deduction is being denied because it falls in A.Y. 2005-06. In our view the newly inserted clause (d) to Section 80IB(10) will not apply on the projects approved upto 31.3.05 since in those projects assessees are required to construct what has been approved. The only fissible compliance is required to be met as per the harmonious interpretation of Section 80IB(10) as amended is to complete such projects (approved before 1.4.2004) on or before 31.3.2008. In the cases before us the projects have been completed well before this date. Putting of such condition of time limit is well understood. Since the legislature intended the completion of projects within a time frame to avoid inconvenience to the beneficiaries i.e. the buyers. In this regard the Legislature has categorised the time limit for the projects approved on different period before 31.3.2007 but requirement remained the same that projects would be approved by the local authority. Compliance of the requirement provided in clause (d) to the Section is possible only in those projects which have been started on or after 1.4.2005 as by then those assessees were all aware about the provisions laid down in clause (d)."
In the present case, the project in question was approved by the local authority i.e. PCMC on 19.10.2000. There is no dispute that the project was completed as per the approved plan by the PCMC or that the project was not completed within the prescribed time limit. The amended provision u/s. 80 IB (10)(d) has come into operation w.e.f. 1.4.2005, thus admittedly, it was not in existence on 19.10.2000 when the project was approved by the PCMC and commenced. Hence, the amended provision cannot be applied in the case of the assessee. The PCMC had approved the project as housing project. Before the lower authority, the assessee has referred CBDT's reply to the query raised by Maharashtra Chamber of Housing 7 ITA . No 1059/PN/2009 Shri Ghanshyam Sukhwani (HUF).
A.Y. 2005-06 Page of 7 Industry wherein CBDT vide letter dated 4th May 2001 to Maharashtra Chamber of Housing Industry stated that any project which is approved by a local authority as a housing project should be considered adequate for the purpose of Section 10(23G) and 80 IB (10) of the Act. Under these circumstances, we are of the view that the ld CIT(A) has rightly held that the assessee was eligible for claiming the deduction u/s. 80 IB (10) of the Act in income earned on the project during the year under consideration. We thus uphold this finding of the Ld CIT(A). A.O. in the assessment order has observed that the assessee has not allocated the expenditure incurred on the eligible project separately while computing the profit earned on the project. We thus make amendment to the first appellate order to this limited extent that while allowing the claimed deduction, the A.O will examine and ensure that in case of common expenditure shown to have incurred on eligible and not eligible projects, the expenditure should be allowed on a prorata basis. The issue raised in the grounds is thus decided accordingly in favour of the assessee. The grounds are thus rejected.
5. In result, appeal is dismissed.
The order is pronounced in the open Court on 14th October 2011.
Sd/- Sd/-
(G.S. PANNU) (I.C. SUDHIR )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, dated the 14th October, 2011
US
Copy of the order is forwarded to :
1. The Appellant
2. The Respondent
3. The CIT (Central), Pune
4. The CIT(A) -I, Pune
5. The D.R., "B" Bench, ITAT Pune
6. Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal
Pune