Income Tax Appellate Tribunal - Bangalore
Krishna Enterprises, Bangalore vs Department Of Income Tax on 27 September, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCH "A"
BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND
SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
I.T.A. No.1256/Bang/2010
(Assessment Year : 2007-08)
M/s. Krishna Enterprises (Housing & Infrastructures) Pvt. Ltd.,
(formerly known as M/s. Krishna Enterprises),
No.357/9, 2nd Floor, MSR Road,
Mathikere, Bangalore-560 054 .... Appellant.
PAN AAGFK 4916K
Vs.
Asst. Commissioner of Income Tax,
Circle 6(1), Bangalore-560 001 ..... Respondent.
I.T.A. No.1372/Bang/2010
(Assessment Year : 2007-08)
(By Revenue)
Assessee By : Shri V.Chandrashekar.
Revenue By : Shri S.K. Ambastha.
Date of Hearing : 27.9.2012.
Date of Pronouncement : 19.10.2012.
O R D E R
Per Shri Jason P. Boaz :
These are cross appeals both by the assessee and Revenue directed against the order of Commissioner of Income Tax (Appeals)-III, Bangalore dt.19.8.2010.
2. The facts of the case, in brief, are as under :
2.1 The assessee, a partnership firm, carrying on the business of property development, builders, contractors, filed its return of income for Assessment Year 2007-08 on 29.10.2007 declaring income of Rs.11,69,090 after claiming deduction of Rs. 1,46,05,187 under section 80 IB of the Income Tax Act, 1961 (herein after referred to as 'the Act') in respect of profits derived from sale of flats in "Krishna Dwellington" Project. In order to examine and verify the assessee's claim for deduction under section 80 IB, a survey action under section 133A of the Act was carried out at the business premises of the 2 ITA Nos.1256 & 1372/Bang/10 assessee on 29.2.2008 to examine whether it fulfilled all the conditions laid down in section 80 IB (10) of the Act. The return was processed under section 143(1) of the Act, and the case was subsequently taken up for scrutiny. The assessment was completed by an order under section 143(3) of the Act on 16.12.2009 in which the income of the assessee was determined at Rs. 1,79,36,760. In doing so the Assessing Officer -
i) Disallowed the assessee's claim for deduction u/s.80 IB Rs.1,46,05,187.
ii) Estimated the assessee's net profit @ 10% as against Rs.10,97,968 declared by the assessee Rs.21,62,481. 2.2 Aggrieved by the order of assessment for Assessment Year 2007-08 dt.26.12.2009, the
assessee went in appeal before the CIT (Appeals) on both the issues adjudicated against by the Assessing Officer.
2.2.1 On the issue of the denial of deduction under section 80 IB of the Act claimed by the assessee, the learned CIT (Appeals), at para 11 on page 14 of his order, followed the ratio of the decision of the Special Bench of the ITAT in the case of Brahma Associates, which laid down the principle that merely because some flats exceeded the permissible area of 1500 sq. ft., the assessee would not lose the benefit of the deduction for the entire project and is to be allowed the deduction on a proportionate basis. It is only with reference to the flats which have more than the prescribed area that the assessee would lose the benefit of deduction under section 80 IB. The learned CIT (Appeals) also followed these judicial decisions of the co-ordinate bench of this Tribunal in the cases of -
i) Brigade Enterprises in ITA No.1198/Bang/2007 dt.29.8.2008.
ii) Mystic Investments in ITA No.1170/Bang/2007 dt.25.4.2008.
iii) S.J. R. Builders in ITA No.1129/Bang/2008 dt.21.8.2009 and held that the deduction under section 80 IB of the Act ought to be allowed proportionately by allowing the deduction in respect of those flats which were within the limit of 1500 sq. ft. and disallowing the deduction claimed on flats which exceeded 1500 sq. ft.3
ITA Nos.1256 & 1372/Bang/10 2.2.2 On the other issue of estimation of net profit @ 10%, the learned CIT (Appeals) sustained the order of the Assessing Officer on the ground that this addition was agreed to by the assessee before the assessing authority.
3.0 Both the assessee and Revenue are aggrieved by the order of the learned CIT (Appeals) dt.19.8.2010 and are before us in appeal.
4.1 The grounds / revised grounds raised by the assessee are as under :
" 1. The order of the authorities below in so far as it is against the appellant, is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case.
2. The appellant denies itself liable to be assessed on a total income of Rs. 1,79,36,760 as against the returned income of Rs.11,69,090 under the facts and circumstances of the case.
3. The authorities below are not justified in allowing only a portion of the claim of deduction. 80 IB (10) of the Act but ought to have allowed the entire claim of deduction of Rs.1,46,05,187, made by the appellant under the facts and circumstances of the case.
4. The authorities below are not justified in law in disallowing the amounts paid to Sri Sudhir Mahajan, Smt. Radha Mohan and M/s. Vijaya Holdings totaling to Rs.3,75,000 under section 40(a)(ia) of the Act under the facts and circumstances of the case."
4.2 The grounds raised at S.Nos.1 and 2 are general in nature and no adjudication is therefore called for thereon.
4.3 The two issues on which the assessee's dispute lies are that :
a) Ground No.3 - the deduction of Rs. 1,46,05,187 claimed by the assessee under section 80 IB of the Act is to be allowed entirely and not proportionally as held by the learned CIT (Appeals).
b) Ground No.4 - the addition made as a result of estimation of net profit at 10% is to be deleted.
5.1 The grounds raised by Revenue are as under :
" 1. The order of the learned CIT (Appeals) is opposed to law and facts of the case.
2. The learned CIT (Appeals) erred in law in directing the Assessing Officer to calculate proportionally the disallowance to be made under section 80 IB with respect to income of housing project "Krishna Dwellington" with reference to flats whose total built up area exceeds 1500 sq. ft. The CIT (Appeals) ought to have appreciated that once there is violation of any of the conditions mentioned in section 80 IB (10) in a housing project, the as is not entitled to claim any deduction under the said section in respect of profits of the housing project as the section does not envisage partial exemption. 80 IB (10) of the profits from a housing project.
3. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.4
ITA Nos.1256 & 1372/Bang/10
4. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above."
5.2 The grounds raised at S.Nos.1, 2 and 4 are general in nature and therefore no adjudication is called for thereon.
5.3 The ground raised at S.No.3 is the only issue on which Revenue's appeal challenges the grant of deduction under section 80 IB of the Act to the assessee on a proportional basis. Revenue has sought the sustaining of the order of the Assessing Officer thereby denying the assessee's claim for deduction under section 80 IB of the Act.
6.0 We have heard both parties at length and carefully perused and considered the material on record, including the judicial decisions relied on and placed before us. We now proceed to decide the issues of dispute before us as under :
7.0 Issue of Eligibility of deduction under section 80 IB of the Act.
From a perusal of the orders of the assessment, we find that the Assessing Officer has disallowed the assessee's claim for deduction. 80 IB of the Act for a number of reasons which are adduced hereunder -
7.1.1 The Assessing Officer noted that the assessee had constructed a total built up area of 83,449.8 sq. ft., excluding common areas, as against the area of 78,039 sq. ft. as per sanctioned plan and has thus not constructed the building in accordance with the sanctioned plan. The Assessing Officer was of the view that the provisions of section 80 IB of the Act stipulate that the plan must be sanctioned by the local authority and any violation on the part of the assessee in not constructing as per the sanctioned plan warrants denial of deduction under section 80 IB.
7.1.2 The Hon'ble High Court of Karnataka, in the case of CIT Vs. G.R. Developers in ITA No.355/2009 has held that the definition of 'Built up area' as inserted by Finance (No.2) Act of 2004 w.e.f. 1.4.2005 is prospective in nature and applies to only those cases where plan approvals have been obtained after 1.4.2005. In the instant case, as per the records, the assessee has obtained plan 5 ITA Nos.1256 & 1372/Bang/10 sanction for construction of 74 flats on 22.7.2004 and therefore the definition of 'Built up area' as inserted by Finance (No.2) Act of 2004 w.e.f. 1.4.2005 is not applicable to the facts of the case. 7.1.3 As regards the reason cited by the Assessing Officer for denying deduction under section 80 IB, that the actual constructed area exceeds the area as approved by the sanctioned plan, this issue has been dealt with by the co-ordinate bench of this Tribunal in the case of ITO Vs. Mahaveer Marvel in ITA Nos.154 & 997/Bang/2011 dt.31.8.2012. At para 5.4.5 on page 11 of this order, the Tribunal held that it was for the BBMP to look into violations of this nature, if any, in the construction of the housing project and that there is no provision in the Act for the Assessing Officer to deny the deduction under section 80 IB of the Act on this ground. We, therefore, hold that this reason cited by the Assessing Officer cannot be a ground for denial of deduction under section 80 IB of the Act.
7.2.1 The Assessing Officer noted that (a) the built up area of Flat T-011 exceeds the limit of 1500 sq. ft. and (b) that the terrace area is to be added to the built up area in the case of 22 flats which are located on the top floor having separate staircase access to the terrace from respective flats and that if this is taken into account in the case of 20 out of the 22 flats, the area would exceed 1500 sq. ft. 7.2.2 In respect of the built up area of Flat T-011 being in excess of the limit of 1500 sq. ft., we find that the Assessing Officer had come to this conclusion based on a statement filed by the assessee before the Assessing Officer in the course of assessment proceedings which the assessee subsequently by letter dt.3.3.2008 clarified was a typing mistake which gave the built up area of this flat at 1,559.78 sq. ft. as against the actual area of 1,459.78 sq. ft. The Assessing Officer has ignored the letter dt.3.3.2008. It is also strange to see that the Assessing Officer has not got any measurement of this project by the District Valuation Officer but has proceeded only on the basis of details furnished by the assessee. After consideration of the facts and circumstances of the case, we find that the Assessing Officer has erred in not considering the letter dt.3.3.2008 and therefore hold that this reason cited by the Assessing Officer cannot be a ground for denial of the deduction under section 80 IB of the Act. 7.2.3 One of the Assessing Officer's observation finding that if the terrace area is added on to the flats located on the top floor, which are separately connected by stair case to the terrace, then 20 out of 22 6 ITA Nos.1256 & 1372/Bang/10 flats situated on the top floor would each have built up area in excess of 1500 sq. ft. and therefore deduction. u/s. 80 IB of the Act was to be denied. This issue, we find, is covered by the decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Pramod & Others in ITA No.231 of 2010 dt.29.2.2012. In the said case, the assessee, a developer, sold the terrace portion to the owners of the residential flats located on the top floor along with terrace walls constructed thereupon. The Hon'ble High Court held that " the terrace portion cannot be taken into consideration for calculating the built up area and has to be excluded. It appears that along with the terrace some walls constructed were sold to them. Even the construction of the walls would not add to the built up area. ...." Respectfully following this decision of the Hon'ble jurisdictional High Court (supra), we hold that in the instant case of the assessee also the terrace portion cannot be added to calculate the built up area in the case of 22 flats located on the top floor and that this cannot be a ground for denying deduction under section 80 IB of the Act.
7.3.1 Another reason cited by the Assessing Officer for denying the assessee deduction under section 80 IB of the Act was the fact that these flat owners who had each purchased two separate flats by two separate sale deeds, had each got their two flats combined into a single flat with a built up area of more than 1500 sq. ft. and that the work in respect of combining of the two flats into one single flat was done by the assessee for which he has charged separately.
7.3.2 In respect of this issue, we find that this issue is squarely covered by the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Anriya Project Management Services Pvt Ltd in ITA Nos.138 & 139 / 2010 dt.29.2.2010. In this case, the jurisdictional High Court at Para 7 on page 11 thereof has held that where the purchasers of the pent house and the top floor have purchased them under two independent sale deeds, with the area sold in each sale deed being less than 1500 sq. ft., it cannot be said to be in violation of the provisions of section 80 IB (10) of the Act. 7.3.3 In the instant case of the assessee, it is an undisputed fact that the these flat owners have each purchased two flats by separate sale deeds and the area sold under each sale deed was less than 1500 sq. ft. which they have subsequently asked the assessee to combine the two flats purchased and made 7 ITA Nos.1256 & 1372/Bang/10 it into a single flat. It is also not disputed that the assessee has been paid separately to carry out this work, purely as a contractor. In view of the decision of the Hon'ble High Court of Karnataka in the case of Anriya Project Management Services Pvt Ltd (supra), we hold that the assessee having made the sale of flats to these three owners by separate sale deeds and the area sold not exceeding 1500 sq. ft. in any of the sale deeds has not violated the provisions of section 80 IB (10) of the Act and therefore cannot be denied the benefits of deduction under section 80 IB for the reason cited by the Assessing Officer. Revenue has also not brought on record any evidence to establish that the two flats were combined into one single flat before the same were sold by the assessee to the three flat owners. In fact the Hon'ble Karnataka High Court in the case of Pramod & Others (supra) at page 4 of the order have held that the deduction under section 80 IB of the Act cannot be denied to the assessee for the reason that the purchasers of the flat have put up constructions after the sale for which the assessee cannot be held responsible. The facts in the instant case being similar the issue is covered in favour of the assessee and this reason given by the Assessing Officer to deny the assessee deduction under section 80 IB of the Act is accordingly rejected.
7.4.1 The Assessing Officer found that one of the flat owners to whom a portion of the garden area was sold had put up a structure in his portion of the garden and was of the view that in this instance if the garden area construction was also to be treated as built up area, then the total built up area of the said flat would exceed 1500 sq. ft.
7.4.2 In respect to this issue, we find that this issue is covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in the cases of -
i) CIT Vs. Pramod & Others in ITA No.231 / 2010 dt.29.2.2012 and
ii) CIT Vs. M/s. Anriya Project Management Services Pvt Ltd in ITA Nos.138 & 139 / 2010 dt.29.2.2012.
In these decisions of the Hon'ble High Court, it was held so in view of the fact that no evidence has been brought on record to establish that the construction was put up in the garden area before the sale of the flat to the purchaser.
8
ITA Nos.1256 & 1372/Bang/10
8. In the light of the facts and circumstances of the case as discussed from para 7 to 7.4.2 of this order, we are of the considered view and hold that the assessee is entitled to be given deduction under section 80 IB of the Act for the entire project and not proportionately as held by the learned CIT (Appeals). It is ordered accordingly.
9.0 In the ground of appeal raised at S.No.4, the assessee challenges the addition of Rs.21,62,486 made and confirmed by the authorities below as a result of estimation of the assessee's net profit @ 10% of turnover from non 80 IB projects. We find from the records of assessment that both the Assessing Officer and learned CIT (Appeals) have noted the fact that the authorized representative of the assessee had consented to this estimation of income / net profit @ 10% of turnover of non 80 IB projects at 'Krishna Greens' before the Assessing Officer. This fact that the assessee agreed for this estimation of net profit and resultant addition is not disputed and this is clearly an agreed addition. The proposition put forth by the learned counsel for the assessee that the 'consent does not confer jurisdiction' does not hold much water in the facts and circumstances of this case. The very fact that the learned counsel for the assessee agreed for this estimation of income during assessment proceedings only prevented the Assessing Officer from carrying out any further investigations in the matter, which he very well could have had the learned counsel for the assessee not agreed. In our considered view, the assessee cannot now challenge this agreed addition. We, therefore, sustain this addition made by the Assessing Officer and consequently the assessee's ground on this issue is dismissed.
10. In the result, the assessee's appeal is partly allowed and the appeal of Revenue is dismissed.
Order pronounced in the open court on 19th October, 2012.
Sd/- Sd/-
(GEORGE GEORGE K) (JASON P BOAZ)
Judicial Member Accountant Member
*Reddy gp