Income Tax Appellate Tribunal - Bangalore
M/S Raghavendra Constructions , ... vs Assessee on 6 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
ITA No.425/Bang/2012
Assessment year : 2007-08
M/s. Raghavendra Constructions, Vs. The Income Tax Officer,
No.42/6, Flat No.1, Aster Block, Ward 7(3),
Marathahalli, Bangalore.
Bangalore - 560 037.
PAN : AAIFR 1301B
APPELLANT RESPONDENT
Appellant by : Shri Narendra Sharma, Advocate
Respondent by : Shri Farahat Hussain Qureshi, CIT-II(DR)
Date of hearing : 06.12.2012
Date of Pronouncement : 14.12.2012
ORDER
Per N.V. Vasudevan, Judicial Member
This appeal is by the assessee against the order dated 18.02.2010 of the CIT(Appeals)-III, Bangalore relating to assessment year 2007-08.
2. The assessee is a partnership firm engaged in the business of developing and constructing apartments. For the A.Y. 2007-08, the assessee filed a return of income declaring Nil income after claiming ITA No.425/Bang/2012 Page 2 of 14 deduction u/s. 80IB(10) of the Income Tax Act, 1961 ("Act"). The assessee had claimed deduction u/s. 80IB(10) of the Act of Q 18,36,78,280. The assessee had developed a project by name 'Paramount Raghavendra Arisht' on a plot of land measuring 2 acres in Sy.No.42/6, Munnekolalu, Vartur Hobli, Bangalore (East). The assessee had built about 160 flats.
3. There was a survey u/s. 133A of the Act conducted on 03.10.2007 at the project site. One of the conditions for grant of deduction u/s. 80IB(10) of the Act was that the built-up area of each of the flats in the apartment should not exceed 1500 sq.ft. The AO referred the question with regard to built-up area of each flat to the DVO. The DVO submitted his report on 06.11.2007. As per the DVO's report, the following 16 flats had a built-up area which was in excess of 1500 sq.ft.
Flat Nos. Block
1, 2, 3 & 4 A
5, 6, 7 & 8 B
1, 2, 3 & 4 C
5, 6, 7 & 8 D
4. The DVO in computing the built-up area of the flats, also included balcony area. According to the AO, the balcony area so included was under the exclusive possession of the flat owners. The assessee however was contending that the balcony area was a common area to be enjoyed by the other flat owners as well and therefore should not be reckoned for the purpose of arriving at the built-up area of each flat. ITA No.425/Bang/2012 Page 3 of 14
5. The Assessing Officer held that since the built-up area of each of the flats was not 1500 sq.ft. or less, the assessee was not entitled to get deduction u/s. 80IB of the Act.
6. On appeal by the assessee, the CIT(Appeals) held that Assessee should be allowed deduction u/s.80-IB(10) of the Act on the profits of the project after excluding the profits attributable to the 16 flats which are said to be of an area of above 1500 Sq.ft. The relevant findings of the CIT(A) were as follows:-
"5.0. I have perused the assessment order, the relevant records, the basic documents as also various case laws cited.
5.1. The deduction u/s. 80IB is mainly based on the built area of the flat.
Sub clause-a of subsection 14 of section 80IB defines built area as under :-
"(a) 'built-up area' means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units;"
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 2 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 Assessing Officer in para 7 of his this order are to be excluded for calculating the built up area of the respective flats.ITA No.425/Bang/2012 Page 4 of 14
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 801B(10) in as much as the built area of each of the flat exceeds 1500 Square Feet. 8.0. The appellant has also made detailed and elaborate submissions on the alternate ground, that in the event it is held that there is violation of condition of 80IB(10) in respect of these 16 flats then the deduction is to be restricted only for the profit proportionate to the area covered by these flats. For this proportion, apart from other tribunal orders the Brigade Enterprises in ITA No.1198(Bang)/2007 dated 29-08-2008, wherein it is held that "Therefore, if a particular unit satisfies the condition of 80IB, the assessee is entitled for deduction. So considered, it is only in respect of those units which have not fulfilled the stipulated conditions, deduction should be denied. The appellant also relied upon the Jurisdictional Tribunal's decision of Bangalore 'A' Bench, in the case of M/s. Mystic Investment in ITA 1170/Bang/2007 dated 25-04-2008. The appellant, further relied upon the Hon'ble ITAT's decision in the case of SJR Builders in ITA No.1192/Bang/2008 dated 21-08- 2009 of Bangalore 'A' Bench, wherein it is held that "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. However, in the light of the decision of the Special Bench in the case of Brahma Associates (supra), merely because some flats are larger than 1500 sft, the assessee will not lost the benefit in its entirety. Only with reference to the flats which has more than the prescribed, the assessee will lose the "benefit". 9.0. Following the binding precedent of Hon'ble ITAT Bangalore Bench, I hold that the restriction for deduction u/s. 8OIB of Income-tax Act, 1961 is to be made only with reference to area of'these 16 flats whose built up area is more than the prescribed limit of 1500 sq.ft. 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. 8OIB of Income-tax Act, 1961 only to the same. For the balance area, the appellant would be entitled to the deduction u/s. 80IB of Income-tax Act. 1961."
7. On appeal by the Revenue against the order of CIT(A) allowing proportionate deduction u/s.80-IB(10) of the Act, the Tribunal confirmed the ITA No.425/Bang/2012 Page 5 of 14 above order of the CIT(A). Against the order of the Tribunal allowing proportionate deduction u/.s 80IB of the Act, the revenue preferred appeal before the Hon'ble High Court of Karnataka in ITA No.177/2011 and the Hon'ble High Court of Karnataka by its order dated 28.02.2012 dismissed the appeal of the revenue. The Hon'ble Karnataka High Court also went into the question of built-up area of the 16 flats and has observed as follows:-
"6. Therefore the substantial question of law that arises for consideration in this appeal is:-
"To be eligible for exclusion from the built up area, whether the common areas have to be shared with all the residents, who have occupied the residential units, or even if it is shared with one, the assessee would be entitled to the said benefits?"
7. The Circular No.5/10 dated 3.6.2010 issued by the Central Board of Direct Taxes exercising the power under Section 119 of the Act explains rationalizing the provisions of deduction under Section 80-IB(10). The principle object behind the provision is to provide for 100% deduction of the profits derived by an undertaking from developing and building housing projects. In order to be eligible for the said benefit, the assessee should satisfy the following conditions:-
"(a) The project has to be approved by the local
authority before 31.3.2007;
(b) The project is constructed on a plot of land having
a minimum area of one acre;
(c) The built-up area of each residential unit should not
exceed 1,500 sq.ft. in the cities of Delhi and
Mumbai (including areas falling within 25 Kms. of municipal limits of these cities) and 1,500 sq.ft. in other places;
(d) The built-up area of the shops and other commercial establishments included in the housing project should not exceed 5% of the total built-up ITA No.425/Bang/2012 Page 6 of 14 area of the housing project or 2,000 sq.ft.
whichever is less.
(e) The project has to be completed within four years from the end of the financial year in which the project is approved by the local authority."
Once these conditions are fulfilled, the assessee would be entitled to the benefit flowing from the aforesaid provision. By a subsequent amendment, the project approval by the local authority was extended to 31.3.2008. The object of the aforesaid tax concession is to provide tax benefit to the person undertaking the investment risk i.e., the actual developer. However, any person undertaking pure contract risk not entitled to the tax benefits. With a view to clarify accordingly, an Explanation after sub-section (1) of Section 80-IB has been inserted so as to provide that nothing contained in sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any other person including Central or State Government. This amendment has been made applicable with retrospective effect from 1st April, 2001 and will accordingly apply in relation to assessment year 2001-02 and subsequent assessment years. Further, the objective of the tax benefit for housing projects is to build housing stock for low and middle income households. This has been ensured by limiting the size of the residential unit. Therefore, while interpreting Section 80-IB(10) this object has to be kept in mind and if there is any ambiguity or difficulty, it is the substance, which has to preferred to the format. Keeping in mind the fact that while implementing these projects at the ground level, the builders encountered innumerable problems. If there are minor defects in the construction put up, which is unintentional or by which they have not made any special gains of money, the benefit which is accrued to them under this provision should not be denied on that score for the main object sought to be achieved by introduction of this provision is achieved while considering the claim for benefit under this provision, the authorities should lean in favour of encouraging such housing projects and not discouraging the persons from taking up such housing projects. It is in this context probably that obstacles were put in assessees getting the benefit, the Legislature introduced the definition of built- up area, which is very crucial factor in determining the benefit of tax to the assessee, which reads as under:- ITA No.425/Bang/2012 Page 7 of 14
"14(a) "built-up area" means the inner measurement of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units."
8. Therefore the intention is clear. In calculating the built up area it is only the inner measurements of the residential unit on the floor level, which has to be taken into consideration. If there are any projections and balconies and if it exhaustively belongs to the residential units, then, that also has to be taken into consideration for deciding the built up area. However, if the said residential unit is provided the facility of common areas shared with other residential units such common areas have to be excluded while computing the built up area. The language employed in defining built up area as the common area shared with other residential units, it does not mean that every common area should be shared with other residential units. If that area does not conclusively belong to the owner of the residential unit and if he has to share that common area with the owner of another residential unit, then that common area has to be excluded from the built up area. If this principle is kept in mind and applied to the facts of this case, in respect of 16 flats, the common area is shared by those 16 owners of residential units. In respect of A-1 and A-2 the common area is shared by the owners of flats A-1 and A-2. This common area is not the subject matter of sale as is clear from the recitals in the sale deed. In other words, the owners of the residential units do not have exclusive right to use these balconies as they have to share it with others. It is immaterial whether they have to share it with other 159 owners of the residential units or they have to share it with the adjoining owner of the residential unit, this area cannot be taken into consideration to decide the built up area. From the facts, it is clear that if this balcony space is excluded all the 160 units are less than 1500 sq.ft. and therefore the assessee was entitled to 100% tax exemption on this project. However, the Appellate Authority as well as the Tribunal have not extended the said benefit to 16 residential units. As the assessee has not preferred any appeal against the said order, it will not be appropriate for this Court to extend the said benefit in these proceedings. However, as the law stands today, in view of the interpretations placed by them on the aforesaid provisions, the assessee has not violated the provisions of section 80-IB(10) of the Act and in fact was entitled to 100% tax exemption on the profits ITA No.425/Bang/2012 Page 8 of 14 derived from the project. Therefore the substantial question of law framed is answered in favour of the assessee and against the revenue.
9. Therefore, we do not see any merit in this appeal and accordingly the appeal is dismissed. No costs."
8. We have already seen that the CIT(A) did not allow deduction in respect of portion of the project viz., 16 flats which were according to the revenue of an area of over 1500 Sq.ft. We have also seen that the assessee was contending that the balcony area was a common area to be enjoyed by the other flat owners as well and therefore should not be reckoned for the purpose of arriving at the built-up area of each flat. The contention of the Assessee was not accepted by the CIT(A). The Assessee did not prefer any appeal against that portion of the order of CIT(A) by which deduction u/s.80-IB(10) of the Act on proportionate profits of the project attributable to the 16 flats were not allowed. It can also be seen that the Hon'ble High Court of Karnataka in the appeal by the Revenue against the order of the Tribunal, dealt with the above issue as to whether the calculation of area of 16 flats was correct or not and have held that the balcony area of the 16 flats considered as part of the built of area of the 16 flats were in fact common area and not in the exclusive area meant for the 16 flats alone and therefore should not be reckoned for calculating the built of area of the 16 flats. If the balcony area is so excluded then even in respect of profits of the project attributable to the 16 flats, deduction u/s.80-IB(10) of the Act ought to be allowed. ITA No.425/Bang/2012 Page 9 of 14
9. After the decision of the Hon'ble Karnataka High Court the Assessee has filed appeal against the order of CIT(A) by which deduction u/s.80- IB(10) of the Act on proportionate profits of the project attributable to the 16 flats were not allowed. As far as the present appeal by the assessee is concerned, there is a delay in filing the appeal. The impugned order of the CIT(Appeals) dated 18.02.2010 was received by the assessee on 19.03.2010. The assessee ought to have filed the appeal within 60 days from the receipt of the order of the CIT(A) i.e., on or before 18.05.2010. The appeal has however been filed by the assessee only on 26.03.2012. There is a delay of 678 days in filing the appeal by the assessee before the Tribunal.
10. The assessee has filed an application for condonation of delay and the contentions of the said application have been verified by an affidavit of Akash Ranka, partner of the assessee. In the application for condonation of delay, the assessee has stated that when the appeal of the revenue came up for consideration before the Hon'ble High Court of Karnataka, the counsel who appeared on behalf of the assessee before the Hon'ble Karnataka High court, after examining the order of the CIT(A), advised the assessee to file an appeal against the order of the CIT(Appeals), whereby the CIT(A) had not allowed deduction u/s. 80IB of the Act on 16 flats, which according to the CIT(A), exceeded the built-up area of 1500 sq.ft. It has further been mentioned that on receiving such advice, the assessee filed an application within 4 days of obtaining the professional advice. It has further been submitted that if this application for condonation of delay in filing the appeal is not allowed, the assessee would be put to great ITA No.425/Bang/2012 Page 10 of 14 hardship and irreparable injury and on the other hand no hardship or injury would be caused to the Respondent, if this application of Condonation of delay is allowed. Reliance was placed on the decision of the Hon'ble Apex Court in the case of Collector, Land Acquisition v. Mst. Katiji & Ors. (1987) 167 ITR 471 and also in the case of Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi and Ors. 118 ITR 507. Further the assessee also relied on decisions of the Hon'ble Apex Court in the case of Radha Krishna Rai v. Allahabad Bank & Ors. (2009) 9 SCC 733 and Commissioner of Income-tax v. West Bengal Infrastructure Development Finance Corporation Ltd. (2011) 334 ITR 269 (SC).
11. The ld. counsel for the assessee submitted that on merits, the Hon'ble High Court has already held that the balcony area was not exclusive of 16 flats and was the common area and therefore to be excluded in computing the 1500 sq.ft. built-up area. He therefore submitted that on merits, the assessee' case is squarely covered by the decision of the Hon'ble Karnataka High Court. With regard to the delay, the ld. counsel reiterated the stand of the assessee as reflected in the application for condonation of delay. He also relied on the decision of the ITAT Bangalore Bench in the case of Shakuntala Hegde, L/R of R.K. Hegde v. ACIT, ITA No.2785/Bang/2004 for the A.Y. 1993-94, wherein the Hon'ble Tribunal condoned the delay of about 1331 days in filing the appeal. Further reference was made to the decision of the Hon'ble ITA No.425/Bang/2012 Page 11 of 14 Karnataka High Court in the case of CIT v. ISRO Satellite Centre, ITA No. 532/2008 dated 28.10.2011 wherein the Hon'ble Court condoned the delay of five years. In the aforesaid decision, the Hon'ble Court found that the very liability of the assessee was non-existent and therefore the delay deserved to be condoned.
12. The ld. DR for the revenue, however, opposed the application for condonation of delay. It was submitted by him that the reasons given in the application for condonation of delay are not sufficient to condone the delay which is inordinate.
13. We have considered the rival submissions. At the outset, we observe that the Hon'ble Supreme Court, in the case of Mst. Katiji (supra), has explained the principles that need to be kept in mind while considering an application for condonation of delay. The Hon'ble Apex Court has emphasized that substantial justice should prevail over technical considerations. The Court has also explained that a litigant does not stand to benefit by lodging the appeal late. The Court has also explained that every day's delay must be explained does not mean that a pedantic approach should be taken. The doctrine must be applied in a rational common sense and pragmatic manner. In the case of Shakuntala Hegde, L/R of R.K. Hegde v. ACIT, ITA No.2785/Bang/2004 for the A.Y. 1993-94, the Hon'ble Tribunal condoned the delay of about 1331 days in filing the appeal wherein the plea of delay in filing appeal due to advice given by a new counsel was accepted as sufficient. The Hon'ble ITA No.425/Bang/2012 Page 12 of 14 Karnataka High Court in the case of CIT v. ISRO Satellite Centre, ITA No. 532/2008 dated 28.10.2011 has condoned the delay of five years in filing appeal before them which was explained due to delay in getting legal advice from its legal advisors and getting approval from Department of Science and PMO. In the aforesaid decision, the Hon'ble Court found that the very liability of the assessee was non-existent and therefore condoned the delay in filing appeal.
14. Keeping in mind the aforesaid principles, we shall consider the claim of the assessee in the present case. Admittedly the advice was given by the counsel who appeared on behalf of the Assessee before the Hon'ble High Court. The decision of the Hon'ble High Court was rendered on 28.2.2012. The appeal has been filed by the Assessee before the Tribunal on 26.3.2012. Hence, we find that there has been no willful neglect on the part of the Assessee. In such matters the advice of the professional would be the point of time at which the Assessee would begin to explore the option of exhausting all legal remedies. We are also of the view that by condonation of delay there is no loss to the revenue as legitimate taxes payable in accordance with law alone would be collected. We therefore accept the reason given for condonation of delay in filing the appeal. The delay in filing the appeal is accordingly condoned.
15. As far as the merits of the appeal are concerned, we find that the Hon'ble High Court has already accepted the plea of the Assessee that the balcony areas, which were added as forming part of the built of area of the 16 flats which were considered as exceeding the built up area of 1500 ITA No.425/Bang/2012 Page 13 of 14 sq.ft., were common areas and had to be excluded while measuring the built up area. There was covered balcony area in the 16 flats and such covered balcony could be used by two adjoining flats and was common between them. The DVO in measuring the area of these flats divided the covered balcony area and apportioned them between the two flats. The definition of built up area for the purpose of Sec.80-IB(10) of the Act excludes area which are meant for common use. The fact that it was not common area for all the flats in the building cannot be the basis to apportion the area of covered balcony in measuring the area of the two adjoining flats to which the covered balcony was common. The definition of the built up area in the provisions of sec.80-IB(1) does not speak of common area for all flats in a housing project. Therefore the Assessee should get the benefit of the provisions of Sec.80IB(10) which are exemption provisions. In view of the above, we hold that the Assessee would be entitled to deduction u/s.80-IB(10) of the Act on the profits of the 16 flats which were excluded by the CIT(A) in the impugned order. We hold accordingly.
16. In the result, the appeal by the Assessee is allowed.
Pronounced in the open court on this 14th day of December 2012.
Sd/- Sd/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member Bangalore, Dated, the 14th December, 2012. Ds/- ITA No.425/Bang/2012 Page 14 of 14 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order Senior Private Secretary ITAT, Bangalore.