Income Tax Appellate Tribunal - Bangalore
M/S Raghavendra Construction , ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
ITA No.715/Bang/10
Assessment year : 2007-08
The Income Tax Officer,
Ward 7(3),
Bangalore. : APPELLANT
Vs.
M/s. Raghavendra Construction,
"Paramount Raghavendra Arish"",
No.42/6, Kundalahalli Gate,
Airport Whitefield Road,
Bangalore - 560 037. : RESPONDENT
Appellant by : Smt. Preethi Garg, CIT-III(DR)
Respondent by : None
ORDER
Per A. Mohan Alankamony, Accountant Member
This appeal instituted by the Revenue is directed against the order of the CIT (A)-III, Bangalore, in ITA No: 140/W 7(3)/CIT (A)- III/BNG/08-09 dated: 18.2.2010 for the assessment year 2007-08 in the case of Raghavendra Constructions, Bangalore.
2. Though the Revenue has, in its grounds of appeal, raised five grounds, the crux of the issue was confined to a lone ground that - ITA No.715/Bang/10 Page 2 of 8
"the CIT (A) erred in holding that the assessee was entitled to deduction u/s 80-IB proportionately with reference to the area of flats, the built-up area does not exceed the permitted limit of 1500 sft."
3. The facts of the issue, in brief, were that the assessee firm engaged in the business of construction, development and sale of flats and in its course of business, entered into a Joint Development Agreement [JDA] in respect of a land admeasuring around 2 acres and developed the residential complex consisting of 160 flats. During the year under dispute, it had claimed the entire net profit of Rs.18.36 crores as exempt u/s 80-IB (10) of the Act. The AO, for the reasons set-out in his impugned order, held that the assessee, having not fully satisfied all the conditions laid down in s. 80IB (10) of the Act, denied the exemption so claimed. The AO's reasoning, in brief, was that on being surveyed the residential complex premises, it was noticed that some of the flats in the complex exceeded the prescribed plinth area of 1500 sft. After obtaining the report of the District Valuation Officer and also considering the assessee's explanation/contentions, 16 out of 160 flats having area which were more than 1500 sft, the AO was of the view that these flats having balcony areas which were under the exclusive possession and enjoyment and not available to other flat owners and, therefore, to be added to the plinth area for the purpose of claiming exemption u/s 80IB (10) of the Act. Accordingly, the AO had come to the conclusion that the plinth area of those sixteen flats exceeded 1500 sft and, thus, the assessee had violated one of the conditions of s.80IB (10) and, therefore, it was not eligible for exemption under the provisions of s. 80-IB(10) of the Act. ITA No.715/Bang/10 Page 3 of 8
4. After hearing the assessee's lengthy contentions as recorded in his impugned order under dispute, deliberating the sub-clause (a) of sub- section (14) of s.80-IB of the Act and also perusing the findings of the jurisdictional Hon'ble Tribunal on which the assessee had placed a strong reliance, the CIT (A) had observed thus -
"6.0. It is no doubt true that the common areas shared with other residential units are to be excluded for calculating built-up area. The words 'common area shared with other residential units' only mean that such area should be accessible to all the users/occupiers of the residential units of the complex. Therefore, to find out the exact position of the disputed 16 flats the plan of the area was called for. From the perusal of the drawing of the plan, it is clear that in each of the disputed flat there is a common area between 2 flats which is accessible from inside the flats by owner/occupier of these two flats only. The other owners of the complex/building do not have any access to this common area. Therefore, it is difficult to accede to the claim of the appellant that the plinth area of the balconies as referred to by AO in para 7 of his order are to be excluded for calculating the built-up area of the respective flats.
7.0. Therefore the appellant fails on this point. The assessing officer has rightly held that for the 16 flats there is a violation of the conditions laid down in section 80IB (10) in as much as the built area of each of the flat exceeds 1500 square feet."
4.1. After due perusal of the findings of the Hon'ble Tribunal in the cases of (i) Brigade Enterprises in ITA No;1198(Bang) 2007 dt.29.8.2008;
(ii) Mystic Investment in ITA No.1170/Bang/2007 dt. 25.4.2008, (iii) SJR Builders in ITA No:1192/Bang/2008 dt.21.8.2009; and also (iv) Brahma Associates v. JCIT reported in (2009) 122 TTJ (Pune)(SB) 433; (2009) 119 ITD 255: (2009) 30 SOT 155: (2009) 22 DTR 1, the Ld. CIT (A) had concluded that -
"9.0. Following the binding precedent of Hon'ble ITAT Bangalore Bench, I hold that the restriction for deduction u/s 80-IB of Income-tax Act, 1961 is to be made only with reference to area of these 16 flats whose built-up area is ITA No.715/Bang/10 Page 4 of 8 more than the prescribed limit of 1500 sft. Accordingly, I direct the assessing officer to proportionately calculate the disallowance to be made u/s 80IB for in proportion to the area of these 16 flats and restrict the disallowance u/s 80IB of I.T.Act only to the same. For the balance area, the appellant would be entitled to deduction u/s 80IB of I.T. Act, 1961."
5. Aggrieved, the Revenue has come up with the present appeal. The submission of the Revenue, in brief, was that the CIT (A) erred in directing the AO to restrict the disallowance of deduction u/s 80IB proportionately with respect to the area of 16 flats in which the built-up area exceeded 1500 sft, relying upon the findings of the Hon'ble Tribunal cited supra; that the CIT(A) ought to have appreciated the fact that the said findings have not yet become final. To prop up the stand further, the Ld. D R invited the reference of this Bench to the observation of Hon'ble Tribunal, Pune Special Bench in the case of Brahma Associates cited supra wherein it has been viewed thus -
"76. We are, therefore, of the considered view that the tax incentive by way of deduction under s.80-IB(10) is predominantly for the purpose of augmenting affordable dwelling units, and it must be interpreted in that light. We are unable to see any legally sustainable merits in learned counsel's plea that the purpose of s.80-IB (10) is to encourage house building activity per se and it is immaterial whether such an activity is to construct dwellings units or commercial units. The interpretation canvassed by the learned counsel for the assessee is clearly contrary to the scheme of the Act and legislative history of the provisions of s. 80-IB (10).
6. We have duly considered the submission of the Revenue and also attentively perused the relevant records. None was present from the assessee's side.
6.1. While appreciating the Ld. D. R's efforts to draw the attention of this Bench to the observation of the Hon'ble Special Bench cited supra, we would like to point out that the above view expressed by the Hon'ble ITA No.715/Bang/10 Page 5 of 8 Special Bench was in the context that 'the very intention of the Legislature was to dole out the tax incentive by way of deduction for the purpose of boosting the affordable dwelling units'.
6.2. At the out-set, we would like to record our view that fundamentally and primarily the issue before the Hon'ble Pune Special Bench was whether the purpose of s.80-IB(10) was to encourage house building activity per se and it was immaterial whether such an activity was to construct dwelling units or commercial units? The Hon'ble Special Bench had unambiguously observed that 'where approximately 90 per cent or more of the total area is utilized for building dwelling units and other conditions of s.80-IB (10) are fulfilled, there is no justification to deny the benefit where the project has been passed as 'residential-commercial project'. However, the issue of violation of the conditions laid down in section 80IB (10) of the Act in as much as the built up area of residential flat exceeding 1500 sft was concerned, it was not before the Hon'ble Special Bench and the issue before the Hon'ble Bench was incidentally pertaining to the assessment year 2003-04 i.e., prior to the amendment to s.80-IB (10) of the Act by the Finance (No.2) Act, 2004 w.e.f. 2005 whereas the issue under dispute now was for the assessment year 2007- 08 and chiefly - whether deduction u/s 80-IB of the Act was to be allowed proportionately to the profits attributable to units/flats in which the assessee had complied with the requirements of s. 80-IB of the Act? Thus, we are of the firm view that the present issue cannot be equated with the issue which was dealt by the Hon'ble Pune Special Bench as it was standing on a ITA No.715/Bang/10 Page 6 of 8 different footing in the sense that the question of allowing proportionate or otherwise of the allowance of deduction u/s 80-IB (10) in case of violation of built-up area of residential flats of more than the prescribed limit, i.e., of 1500 sft was not at all before the Hon'ble Special Bench for adjudication.
6.3. Reverting back to the issue on hand, as precisely highlighted by the Ld. CIT (A), the common areas shared with other residential units are to be excluded for calculating built-up area. The words 'common area shared with other residential units' only mean that such area should be accessible to all the users/occupiers of the residential units of the complex. As could be seen from the drawing of the plan of the said residential complex, it was clear that in each of the disputed flat, there was a common area between 2 flats which was accessible from inside the flats by the owners/occupiers of these two flats only. The other owners of the complex/building do not have any access to this common area. This very fact clearly belies the claim of the assessee that the plinth area of such balconies as referred to by the AO in his impugned order which are to be excluded for calculating the built-up area of the respective flats. Accordingly, sixteen flats as rightly held by the AO that there was a violation of the conditions laid down in section 80IB (10) in as much as the built-up area of each of the flat exceeds 1500 square feet was concerned. 6.4. Incidentally, the assessee had also made a detailed and elaborate submission with regard to its alternate ground before the first appellate authority and conceded unambiguously that in the event it were ITA No.715/Bang/10 Page 7 of 8 to be held that there was a violation of condition laid down in s.80IB (10) of the Act in respect of these sixteen flats, the deduction was to be restricted only for the profit proportionate to the area covered by those flats. 6.5. In this connection, we would like to refer to the finding of the Hon'ble Tribunal in the case of SJR Builders in ITA No:1192/Bang/2008 dated:21.8.2009 wherein an identical issue had cropped in. To illustrate the issue further, in brief, that the assessee had developed two residential projects and, accordingly, claimed deduction u/s 80IB (10) of the Act. While considering the assessee's claim, the AO found that some of flats exceeded the built-up area of more than 1500 sft and, thus, the assessee was disentitled to claim such deduction. On an appeal, after due consideration of the assessee's contention that it had satisfied all the three conditions except a few flats which were constructed with built-up area exceeding 1500 sft., the deduction be restricted to in proportion in respect of the flats which conform to the pre-conditions, etc., the CIT (A) was of the view that the assessee had violated the sanctioned plan by constructing pent houses were luxurious units which revealed that the project was not intended to address the house needs of the common man, but, it aimed at meeting the luxurious requirements of a few. He, further, held that since some of the residential units were not conformity to the maximum built-up area of 1500 sft., prescribed u/s 80IB, assessee's project was not entitled for the relief.
6.5.1. After analyzing the pros and cons of the issue and also the judicial view on the subject, the Hon'ble Tribunal had observed thus - ITA No.715/Bang/10 Page 8 of 8
"12. Considering the rival submissions, we are of the view that the appeal by the assessee is to be allowed to the extent of the flats the built-up area of the flat is not more than 1500 sft. We agree with the submission of the learned representative for the assessee that while considering the built-up area of 1500 sft. for the purpose of exemption u/s 80-IB (10), the mezzanine floor and common areas are to be excluded. The assessing officer is directed accordingly. We hold that in respect of the pent houses the built-up area of which is more than 1500 sft., they may be excluded for exemption......."
6.6. In an overall consideration of the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs and also in conformity with the finding of the Hon'ble Tribunal cited supra, we are of the considered view that the assessee is entitled to claim deduction u/s 80-IB (10) of the Act to the extent of the flats, the built-up area of the flat was NOT MORE THAN 1500 sft. It is ordered accordingly.
7. In the result, the Revenue's appeal is dismissed.
Pronounced in the open court on this 7th day of January, 2011.
Sd/- Sd/-
( SMT. P. MADHAVI DEVI ) (A. MOHAN ALANKAMONY )
Judicial Member Accountant Member
Bangalore,
Dated, the 7th January, 2011.
Ds/-
Copy to:
1. Appellant 2. Respondent 3. CIT 4. CIT(A)
5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar
ITAT, Bangalore.