Income Tax Appellate Tribunal - Hyderabad
M/S Prashanth Sai Builders,, Hyderabad vs Department Of Income Tax on 11 December, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 696/Hyd/2013 - A.Y. 2007-08
ITA No. 697/Hyd/2013 - A.Y. 2008-09
The Income Tax Officer vs. M/s. Prashanth Sai Builders
Ward-8(1) Hyderabad
Hyderabad PAN: AAHFP6577A
Appellant Respondent
Appellant by: Smt. K. Haritha
Respondent by: Sri K.C. Devadas
Date of hearing: 11.12.2013
Date of pronouncement: 22.01.2014
ORDER
PER CHANDRA POOJARI, AM:
These two appeals by the Revenue are directed against different order of the CIT(A), Vijayawada dated 8.2.2013 for A.Ys. 2007-08 and 2008-09. Since the issue involved is identical, these appeals are clubbed together, heard together and are being disposed of by this common order. For the sake of convenience, the grounds and the facts are narrated as given in ITA No. 696/Hyd/2013 for A.Y. 2007-08.
2. The following grounds are raised by the Revenue:
1. The order of the CIT(A) is erroneous in law as well as on the facts of the case.
2. Whether the CIT(A) is correct in holding that the assessee is eligible for deduction u/s. 80IB(10) despite the fact that project was not completed by the stipulated time i.e., 31/03/2008 as held in the assessment order for the A.Y. 2008-09.
3. The Hon'ble CIT(A) erred in law in granting relief to the assessee even when the assessee has not furnished the completion certificate till the 2 ITA Nos. 696-697/Hyd/2013 M/s. Prashanth Sai Builders ==============-======= finalisation of scrutiny assessment i.e., on 24.12.2009 which is much later than the period of the completion of the project i.e., 31.03.2008.
4. The Hon'ble CIT(A) erred in ignoring the explanation (ii) to clause (a) of sec. 80IB of the IT Act that:
"(ii) the date of completion of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority."
5. The Hon'ble CIT(A) erred in granting relief to the assessee on the basis of reasons discussed in the appellate order for the A.Y. 2008-09 wherein the deduction claimed by the assessee is disallowed on the basis of information available.
3. Brief facts of the case are that the assessee firm is engaged in the business of construction and sale of flats. The assessee firm entered into a Development Agreement cum GPA with Md. Khadeer Shareef and others vide agreement dated 11.03.2003 in respect of land situated at Hafeezpet, Seri- lingmaplly, Hyderabad. The assessee undertook development of a housing project in the said site of 5 acres 21 guntas. The plan for development of the housing project was approved by the concerned authority on 10.03.2004. The assessee proceeded with the development of the project in 7 blocks containing 490 flats. Each flat was admeasuring less than 1500 sft. As per the agreement dated 11.03.2003, 275 flats in all blocks put together fallen to the share of the assessee and the balance 215 flats have gone to the share of land owners. The assessee recognised income in respect of the project on the basis of advances/sale proceeds received. The assessee claimed deduction u/s. 80IB(10) of the Income-tax Act, 1961 for the A.Ys. 2004-05, 2005-06 and 2006-07 and the same was allowed by the AO. For the A.Y. 2007-08 the AO rejected the deduction u/s. 80IB(10) of the Act and the assessee went in appeal before the CIT(A) 3 ITA Nos. 696-697/Hyd/2013 M/s. Prashanth Sai Builders ==============-======= against the order dated 24.12.2009. For the A.Y. 2007-08 the assessee claimed Rs. 3,74,77,241 towards deduction u/s. 80IB(10) of the IT Act. The AO rejected the claim of the assessee on the ground that the assessee did not produce project completion certificate.
4. Before the CIT(A), the AR of the assessee submitted that the assessee complied with all the conditions laid down u/s. 80IB(10) of the IT Act and, therefore, the assessee was eligible for deduction u/s. 80IB(10) of the IT Act. He further, submitted that as can be seen from the assessment order the AO also agreed with the fact that the assessee complied with all the requirements as laid down u/s. 80IB(10) of the IT Act. The objection for the AO for allowing deduction u/s. 80IB(10) was that the completion certificate was not produced and, therefore, it cannot be accepted that the project was completed by 31.3.2008. The AR mentioned that A.Y. 2007-08 is only an intermediately year i.e., 4th year and, therefore, there is no need to produce completion certificate which should be obtained at a future date i.e., 31.03.2008. The AR further mentioned that each assessment year is a unit and, therefore, the income pertaining to that year only has to be brought to tax allowing the deductions for which the assessee was eligible. The argument of the AR is that future eventualities should not influence the decision for an earlier assessment year. Further, he also relied on CBDT circular dated 30.06.2009 and the decision of ITAT, Hyderabad Bench in the case of Maytas Housing Pvt. Ltd (order dated 26.12.2012) and M/s. Nagarjuna Homes vs. ITO (46 SOT 287).
4 ITA Nos. 696-697/Hyd/2013M/s. Prashanth Sai Builders ==============-=======
5. Further the CIT(A) admitted the additional evidence under Rule 46A of Income-tax Rule, 1962 in the shape of certain sale documents pertaining to flats in various blocks, details of municipal tax assessment of various flats, copy of application for regularisation filed before the GHMC authorities along with enclosures etc. As the same constitute additional evidence, it was forwarded to the AO for furnishing a Remand Report with regard to admissibility of additional evidence as well as merits of the material produced. The AO furnished the Remand Report dated 11.6.2012 through the Addl. CIT, Range-8, Hyderabad. A copy of the report was made available to the assessee. The assessee furnished detailed submission with regard to various points covered in the Remand Report.
6. After hearing the assessee's counsel, the CIT(A) observed that the assessee obtained permission for development of a housing project in March 2004. For the assessment years 2004-05 onwards the assessee claimed deduction u/s. 80IB(10) of the IT Act in respect of the profits of the said housing project and the same was allowed, as the assessee complied with the stipulated conditions laid under that section, that the "housing project" should be approved before 31.3.2005, each unit should not exceed 1500 sft and the area of the land in which the housing project was developed should be 1 acre.
7. The CIT(A) observed that the claim of the assessee for deduction u/s. 80IB(10) was disallowed for the A.Y. 2007-08 onwards. As can be seen from the assessment order for A.Y. 2008-09 the AO rejected the claim of the assessee for deduction u/s. 80IB(10) on the ground that the "housing Project" was not completed by 31.3.2008 as required under that provisions. In that process the AO relied on the letter furnished by municipal 5 ITA Nos. 696-697/Hyd/2013 M/s. Prashanth Sai Builders ==============-======= authorities dated 22.03.2010. The AO arrived at such conclusion basing on the contents of the communication especially the remarks that the building construction was under
progress and out of 490 flats, 207 flats were assessed to municipal tax and 183 flats were not occupied and also that 100 flats were under construction. As can be seen from the said communication of the Deputy Commissioner dated 22.03.2010 no other details such as, the basis for municipal authority for arriving at the conclusion that the building work was in progress and work relating to which flats/blocks was under
construction. The letter dated 22.03.2010 mentioned earlier does not indicate the details such as (a) what was the basis for identifying/bifurcating the flats into various categories, (b) how many flats for each block were brought into the earlier mentioned bifurcation, (c) what was the basis for arriving at the conclusion that 100 flats were under construction (i.e., the progress of the stage of construction) and (d) how many flats belonging to the assessee, fall into each category identified/ bifurcated by the authority, etc.
8. Further, from the assessment order, the CIT(A) observed that the AO deputed the inspector for verification of progress of construction and according to him work was in progress in certain blocks. Here also no details have been mentioned i.e., whether the work was being executed by the assessee or the individual owners who purchased the flats. Further the Remand Report submitted does not contain any comments with regard to submissions made by the assessee that they were not aware of the fact of the submission of report by the inspector after visiting the "housing project". In support of his conclusions, the AO observed that the assessee debited expenditure to Profit and Loss A/c. for the A.Y. 2009-10 and, therefore, be concluded that the assessee incurred expenditure 6 ITA Nos. 696-697/Hyd/2013 M/s. Prashanth Sai Builders ==============-======= towards construction even in the FY 2008-09. The AO further observed that there was inconsistency with regard to claim of obtaining of completion certificate. It was observed by the AO that the concerned authority issued completion certificate on the basis of self certification of the assessee. Further, the AO observed that the fact of application for BRS before the municipal authorities was not brought to the notice of the department in the course of assessment proceedings for the A.Y. 2007 -08 which were finalized on 24.12.2009.
9. The CIT(A) observed that the result of all the observations by the AO culminated in rejection of claim of the assessee u/s. 80IB(10) for the reason that the assessee did not complete the project by the stipulated date i.e., 31.03.2008. During the course of scrutiny assessment proceedings the assessee produced a letter dated 26.02.2010 addressed by the Zonal Commissioner to the assessee firm. For clarity the contents of the letter are extracted here under:
"GREATER HYDERABAD MUNICIPAL CORPORATION OFFICE OF THE ZONAL COMMISSIONER, WEST ZONE Phone. No. 040-23010062, Fax No. 040-23011963 From The Zonal Commissioner, Greater Hyderabad Municipal Corporation West Zone, Serilingampally Hyderabad.
To M/s. Prashanth Sai Builders, 8-3-318/6/6, Bandaru Bhavan Engineers Colony, Yousufguda, Hyderabad.
Lr. No. 735/A/WZ/GHMC/2010, Date: 26.02.2010 Sir, 7 ITA Nos. 696-697/Hyd/2013 M/s. Prashanth Sai Builders ==============-======= Sub:- GHMC - West Zone - Serilingampally - Housing Project in Bhanu Township in Sy. Nos. 10,18,19,21, and 22 of Hafeezpet (V) Serilingampally (M), R.R. District - Completion Certificate - Requested - Reg.
Ref:- Application of Sri T.Bhanu Prasad Rao, Managing Partner, M/s.Prasanth Sai Builders, dt: 23.02.2010.
*** It is to inform that vide reference cited, M/s Prasanth Sai Builders informed that they are having Registered Office at No. 8-3-318/6/6, Flat No. 501, Bandaru Bhavan Engineers Colony, Yousufguda, Hyderabad, and obtained approval of building plans for Housing Projects from HUDA on 04.11.2003 as GPA Holder of Sri Md. Kadher Sharef and others in Survey. Nos. 10, 18, 19, 21, and 22 of Hafeezpet (V), Serilingampally (M), Ranga Reddy District and the project was completed before 31st March 2008, and they have applied for Building Regularization Scheme on 15.07.2008 and ready to clear the BPS dues, if any, once the Demand Notices are received from GHMC.
On the basis of the information furnished vide reference cited, and after verifying the same it is to inform that the construction of the Housing Project "Bhanu Township" as approved by HUDA and released by erstwhile Serilingampally Municipality, R. R. District was completed before 31.03.2008.
Therefore, it is certified that the project is completed before 31.03.2008, and this can be filed for the purpose of Income Tax as requested vide reference cited.
Yours faithfully, ZONAL COMMISSIONER GHMC,WEST ZONE SERILINGAMPALLY
10. The CIT(A) observed from the contents of the letter, the Zonal Commissioner, GHMC categorically mentioned that the housing project was completed by 31.03.2008. It was also 8 ITA Nos. 696-697/Hyd/2013 M/s. Prashanth Sai Builders ==============-======= mentioned in the same letter that the assessee applied for building regularization scheme on 15.07.2008. It was also mentioned that the Housing Project "Bhanu Township" as approved by HUDA was completed before 31.03.2008. Not satisfied with the above, the AO addressed a letter to Deputy Commissioner of Serilingampally requiring certain details and he communicated information in general terms stating that the work was in progress and certain flats were under construction. The relevant contents of the letter furnished by Deputy Commissioner of Serilingampally as brought out in the assessment order are as under:-
1. ............
2. The building construction work is under progress.
3. The completion certificate should be certified by the concerned engineer only and this office has not issued any occupancy certificate and they have not applied so far any application to seek the above certificate.
4. .................
5. a) Total number of flats are 490 Nos.
b) 207 flats are assessed. The 1st flat assessment date was 23.03.2007 and the last assessment date was 11.12.2009.
c)183 flats are under constructions
d)100 flats are under constructions"
11. The CIT(A) observed from the above that the Deputy Commissioner of GHMC furnished information in general. The information furnished is not supported by any documents available with the authority. Further, the Deputy Commissioner did not specifically mention the basis for compiling the information incorporated in the communication dated 22.03.2010. It was also mentioned that their office has not issued any occupancy certificate. However, in the same letter it was mentioned that 207 flats were assessed to municipal tax 9 ITA Nos. 696-697/Hyd/2013 M/s. Prashanth Sai Builders ==============-======= commencing from 23.03.2007. From the letter it is not clear that as to how the 207 flats were assessed to tax and occupied when the occupancy certificate yet to be issued.
12. The CIT(A) observed that the AO did not cross-verify the information communicated by the Deputy Commissioner with the Zonal Commissioner to find out the veracity of the contents of the letter issued by the Zonal Commissioner. He observed that the hierarchy of the municipal authorities is not a relevant matter as far as the present case now under consideration. In this connection He agreed with the submission of the AR that the authority who has to issue the completion certificate was not defined in the Act. As per section 80IB(10) Explanation (ii) the fact that requires confirmation is whether the housing project was completed by 31.03.2008. General observations without any specific particulars such as which flats were assessed to tax by 11.12.2009 and as to how 207 flats were occupied in the absence of occupancy certificate issued by the authority, which flats were not occupied and the details of flats under construction, cannot be considered as a conclusive evidence for arriving at a conclusion that the project was not completed by 31.03.2008. The CIT(A) also observed that the observation of the AO that the Zonal Commissioner issued the completion certificate basing on self certification of the assessee cannot hold water because the concerned authority issued the certificate confirming the fact that the project was completed by 31.03.2008 and no material was brought on record to reject the contents of such certificate. Once a competent authority issues a certificate the same has to be taken into consideration unless and until it is proved to be incorrect. As mentioned no such material is available on record to prove to the contrary that the project was not completed by 31.3.2008 as certified by the municipal authority.
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13. The CIT(A) observed that, in this connection, it is important to refer to the relevant provision of the IT Act. Section 80IB(10) Explanation (ii) states as under:-
"in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April 2004 but not later than the 31st day of March 2005 within four years from the end of the financial year in which the housing project is approved by the local authority."
14. The CIT(A) observed that the certificate issued by the local authority mentioning the date of completion is the date on which the housing project was completed. As submitted by the AR the "authority" mentioned in Explanation to section 80IB(10) is not defined In the present case such certificate was issued by the Zonal Commissioner on 26.02.2010 certifying that the project was completed by 31.03.2008. This certificate is not a subject matter of verification before the Deputy Commissioner. In his communication the Deputy Commissioner furnished certain details but did not deny the contents of the certificate issued by the Zonal Commissioner dated 26.02.2010. Further, the observation of the AO that certain flats were left as closing stock as on 31.3.2008 is not a relevant factor for deciding the eligibility of the assessee for deduction u/s. 80IB(10). Even subsequent expenditure incurred also cannot influence the decision of the AO with regard to deduction, because as mentioned by the AR, the assessee might have been obliged to undertake certain extra works as well as certain restructurings as per the terms and conditions of the agreement with the prospective purchasers. Hence, the CIT(A) of the opinion that there is no force in those observations of the AO in the process of deciding the eligibility of the assessee for the deduction claimed.
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15. The CIT(A) observed that from the material available and from the facts discussed in the assessment order it is clear that the assessee produced certificate from local authority. As per the certificate issued by the local authority, the project was completed by 31.03.2008. The communication of the Deputy Commissioner contained only certain general details. He did not mention the date on which those details were gathered and other details such as the details of flats, blocks etc. From the details it is clear that the claim of the assessee is supported by positive documentary evidence. The conclusion of the AO is basing on certain assumptions. Such assumptions cannot override the basic facts with regard to the claim available on record.
16. The CIT(A) also observed that there is force in the contention of the AR that no opportunity was allowed with regard to the report furnished by the Inspector of Income-tax during the course of regular assessment proceedings or photographs submitted along with Remand Report claiming the same as evidence and, therefore, those informations cannot be the basis for arriving at any conclusion. In the interest of natural justice as held by various judicial authorities proper opportunity ought to have been allowed by the AO. However, as far as decision with regard to the present appeal is concerned those points do not have vital role to play. In the light of facts of the case coupled with the judicial decisions cited, the reasonable and judicious conclusion that can be arrived at is that the assessee completed the "housing project" as on 31.3.2008. In the light of the same, as the assessee complied with the requirement laid down in Explanation (ii) of section 80IB(10) of the IT Act, in his opinion, there is no scope for the AO to reject the claim. Hence, he has directed the AO to allow 12 ITA Nos. 696-697/Hyd/2013 M/s. Prashanth Sai Builders ==============-======= the claim of the assessee. Against this, the Revenue is in appeal before us.
17. We have heard both the parties and perused the material on record. In this case, the housing project plan was approved by the concerned authority on 10.03.2004 and due date for commencement of project was 31.03.2008. Since this is a crucial date, the pre-amended section 80IB of the Act as stood at the time of getting approval from the local authority is applicable. As per provisions of section 80IB(10) Income-tax Act, 1961 an undertaking which develops and builds housing projects approved before 31.3.2007 by a local authority is eligible for deduction u/s. 80IB(10) of the Act subject to the following conditions:
"i) In a case where the housing project has been approved by the Local Authority before 01-04-2004, the construction should be completed on or before 31-
03-2008. In a case where the approval from Local Authority is obtained on or after 01-04-2004, the construction should be completed within 4 years from the end of the financial year in which the housing project is approved by the Local Authority.
ii) The housing project is constructed on a plot of land which has a minimum area of 1 acre.
iii) The residential units constructed in the housing project have a maximum built up area of 1500 sq. ft. where such units are situated in places other than Delhi or Mumbai.
iv) The built-up area of shops and other commercial establishments included in the housing projects does not exceed 5% of the aggregate built-up area of the housing project or 2000 sq. ft., whichever is less."
18. In the present case, the building plan approval was obtained on 10.3.2004 and there is no dispute on this issue.
13 ITA Nos. 696-697/Hyd/2013M/s. Prashanth Sai Builders ==============-======= Being so, the provisions as stood during the A.Y. 2004-05 are applicable which read as follows:
"80IB(10): The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of March, 2005 by a local authority, shall be hundred per cent of the profits derived in any previous year relevant to any assessment year from such housing project if,-
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998;
(b) the project is on the size of a plot of land which has a minimum area of one acre; and
(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place."
19. As is evident from the substitution of Section 80IB(10)(a) of the Act, prior to the amendment, there was no such requirement as regards furnishing of completion certificate and the deduction provision pointed out to the grant of 100% deduction on the profits derived from a housing project, if the undertaking had commenced development and construction of the housing project on or· after 1st October, 1998. Thus, till 2005, there was no clause dealing with completion, in which event, one cannot read into the provision as a condition, which is not specifically provided for therein.
20. As far as the present case is concerned, though the assessee's case is related to A.Ys. 2007-08 and 2008-09, the project was got approved by the concerned local authority before 1.4.2004. The provisions of section 80IB as stood prior to the amendment are applicable to the assessee's case. As the 14 ITA Nos. 696-697/Hyd/2013 M/s. Prashanth Sai Builders ==============-======= substitution of Explanation to clause (a) to subsection (10) of section 80IB of the Income-tax Act, 1961 was brought in under Finance (No. 2) Act of 2004, effective from 1.4.2005. Thus, in the absence of any such requirement read into the section, we find it difficult to accept the observation of the AO that the claim for deduction was rejected on the ground that the assessee had not furnished the completion certificate. Being so, in the absence of any requirement u/s. 80IB(10)(a) of the Act and going by the provisions as applicable to the relevant assessment year, it is difficult to accept the contention of the Department that the claim of deduction has to be allowed to the assessee only on production of completion certificate.
21. Further, our view is supported by judgement of Madras High Court in the case of CIT vs. Jain Housing & Construction Ltd., reported in 214 Taxman 178, wherein their Lordships held as under:
"9. As is evident from the substitution of Section 80IB(10) (1) of the Act, prior to the amendment, there was no such requirement as regards furnishing of completion certificate and the deduction provision pointed out to the grant of 100% deduction on the profits derived from a housing project, if the undertaking had commenced development and construction of the housing project on or after 1st October, 1998. Thus, till 2005, there was no clause dealing with completion, in which event, one cannot read into the provision as a condition, which is not specifically provided for therein.
10. As far as the present case is concerned, it relates to the assessment year 2004-05. The substitution of Explanation to clause (a) to sub-section (10) of Section 80IB of the Income Tax Act was brought in under Finance No.(2) Act of 2004, effective from 01.04.2005. Thus, in the absence of any such requirement read into the Section, we find it difficult to accept the case of the Revenue that the claim for deduction has to be rejected on the ground that the 15 ITA Nos. 696-697/Hyd/2013 M/s. Prashanth Sai Builders ==============-======= assessee had not furnished the completion certificate. Leaving that aside, as is evident from the reading of the Commissioner's order, in any event, the assessee had produced the completion certificate in respect of the projects Jains Sagarika, MRC Nagar, Chennai and Jains Swarnakamal, Vadapalani, Chennai and the projects at Velacherry, Chitlapakkam and Virugambakkam. As far as the projects at Manapakkam and Pallavaram are concerned, if the assessee had submitted certificates from sewerage and Electricity Board, which according to the Commissioner would not satisfy the requirement of the Rules, as already pointed out, in the absence of any requirement under Section 80IB(10)(a) of the Income Tax Act and going by the provision, as it stood during relevant assessment year, 2004-05, it is difficult to accept the contention of the Revenue that the claim for deduction rested on the assessee's production of completion certificates."
22. In view of the above discussion, there is no infirmity in the order of the CIT(A) and the same is to be confirmed.
23. Further there is a controversy regarding issue of completion certificate by the Zonal Commissioner, vide his letter dated 26.2.2010. Admittedly, there was a certificate issued by Zonal Commissioner, GHMC, West Zone, Serilingampally which was discussed by the CIT(A) in para 6 of his order for A.Y. 2008-
09. Contrary to this, there is one more letter issued by the Deputy Commissioner, Circle 12, West Zone, Serilingampally vide his letter dated 22.3.2010. According to this letter, there was no completion certificate issued by the authorities concerned. In our opinion, the controversy on issue of completion certificate is irrelevant at this point of time in view of the judgement of Madras High Court in the case of CIT vs. Jain Housing & Construction Ltd. (cited supra), though the certificate issued by the Zonal Commissioner is to be considered as proper.
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24. In the result, both the appeals of the Revenue are dismissed.
Order pronounced in the open court on 22nd January, 2014.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 22nd January, 2014
tprao
Copy forwarded to:
1. The Income Tax Officer, Ward-8(1), 'D' Block, 8th Floor, IT Towers, AC Guards, Hyderabad.
2. M/s. Prashanth Sai Builders, 8-3-318/6/6, F. No. 501, Bandaru Bhavan, Engineers Colony, Yousufguda, Hyderabad.
3. The CIT(A), Vijayawada.
4. The CIT-III, Hyderabad.
5. The DR - 'A' Bench, ITAT, Hyderabad.