Income Tax Appellate Tribunal - Ahmedabad
Income Tax Officer,Ward-2(3),, Baroda vs Nirman Developers, Baroda on 29 November, 2016
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'सी' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" C " BENCH, AHMEDABAD
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER And
SHRI MAHAVIR PRASAD, JUDICIAL MEMBER
आयकर अपील सं./I.T.A.
No. 1799/Ahd/2013
( नधारण वष / Assessment Year : 2009-10)
Income Tax Officer बनाम/ M/s Nirman
nd
Ward-2(3), 2 Floor, Vs. Developers,
Aayakar Bhavan, Race Taksh Bunglow, Vasna
Course Circle, Baroda. Road, Baroda
थायी ले खा सं ./जीआइआर सं ./ PAN/GIR No. : AAFFN 3161 L
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से / Appellant by : Shri Prasoon Kabra, Sr.DR
यथ क ओर से / Respondent by : Shri Soparkar, AR with
Ms. Ukti Shah
सुनवाई क तार ख / Date of Hearing 06/10/2016
घोषणा क तार ख /Date of Pronounce ment 29 /11/2016
आदे श/O R D E R
PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER :
This present appeal has been filed by the department is directed against the order of the learned Commissioner of Income Tax (Appeals)-II Baroda [CIT(A) in short] dated 11/03/2013 passed for Assessment Year (AY) 2009-2010 and following grounds have been taken:-
(i) On the facts and in the circumstances of the case and in law, the Id.CIT (Appeals) erred in allowing deduction of Rs.1,27,05,960/- u/s 80IB(10) of the Income-tax Act without appreciating that the nature of agreement between the assessee and the unit purchasers shows that it was only a "works contract" in so far as the agreement ITA No.1799/Ahd/2013 Income tax Officer vs. Nirman Developers Asst.Year -2009-2010 -2- entered into before the constructions was complete and not after the flat or unit was constructed.
(ii) On the facts and in the circumstances of the case and in law, the Id CIT(A) erred in allowing deduction u/s 80IB(10) r.w.s. 80IB(1) to the assessee on the profit of Rs.8,06,802/- derived from sale of unutilized FSI not being the element of profits derived from the business activity of development and construction of the housing project relating to the sale of tenements.
2. During the year under assessment, the assessee firm has constructed housing project and shown total net profit at Rs.1,27,05,963/- as having been derived from the development and building of the housing project. The profit of business has been claimed as deduction at 100% from the total income of the assessee firm u/s. 80IB(10) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
"1. To substantiate the its claim, the assessee has filed copy of layout plan, the audit report in Form 10CCB etc. for the housing project. However, on perusal of supporting documents filed in favour of the claim of deduction u/s. 80IB(10), it has been observed that permission for development / Raja Chitthi issued by the local authority i.e., Vododara Municipal Corporation, shows name of the applications in whose name the project is approved as Shri Jayanti F. Patel and Samir J Amin. This documents categorically states that permission for construction is granted as per approved plan enclose with it and the permission is subject to various rules and bye laws laid down by the Gujarat Town Planning and Urban Development Rules, Vadodara Urban Development Authority, General Development Control Regulation etc. The permission clearly mentioned that the permission is granted to Shri Jayanti F Patel and Samir J Amin for construction of housing projects on the area of land owned by them.ITA No.1799/Ahd/2013
Income tax Officer vs. Nirman Developers Asst.Year -2009-2010 -3-
2.As perused from the documents furnished, it is noticed that the permission for development / Raja Chitthi issued by the local authority is not in the name of the assessee. Moreover, the land on which the housing project constructed is also not owned by the assessee. As per section 80IB(10) of the Act, the basic requirement for claiming deduction is approval of housing project by local authority in the name of an undertaking developing and building house projects. It is also required that the area of land on which the housing project is constructed shall be owned by the assessee."
3. Accordingly, it was stated against the assessee that since one of the fundamental conditions laid down in the provisions of section 80IB(10) of the Act, relating to the approval of the said project had not been complied with by the assessee in as much as it had not taken the approval from Local Authorities for the development and construction of the said project. Hence, he could not be regarded as the builder and developer within the meaning of the provisions of section 80IB(10) of the Act and therefore did not become eligible for deduction u/s.80IB(10) of the Act, as claimed by it.
4. It was also observed that the assessee firm had not undertaken the completion of the project in its entirety as far as development and construction of he utilizable FSI is concerned. The assessee firm had total plot area of 23764 sq. mtrs for development, after reduction on account of common plot and roads etc. Thus, it was eligible to construct super built up area of 34219 sq. mtrs. @ 1.6 FSI. The assessee had constructed the housing project by depoying ITA No.1799/Ahd/2013 Income tax Officer vs. Nirman Developers Asst.Year -2009-2010 -4- construction of 7879 sq mtrs of FSI. Thus, the FSI of 7879 sq mtrs has been utilized for the construction of the same, out of permissible FSI of 34219 sq. mtrs. The profits ensuring from entire project for the year as per the profit and loss account, includes additional profit attributable to sale of unutilized FSI has also been booked by the assessee firm. Since the eligible profits for claim of deduction u/s 80IB(10) can only relate to those from the project of development and construction, the profits attributable to the sale of unutilized FSI not relating to development and construction undertaken shall not become eligible for the said claim.
5. The assessee was asked to provide necessary details and information to work out the profit earned on sale of unutilized FSI. However, the assessee has not provided such information. Under the circumstances, such profit is worked out considering the details provided during the course assessment proceedings. The assessee firm has earned profit of Rs.1,27,05,963/- on sale of the housing unit clubbed with right of unutilized FSI. The ratio of utilized FSI via-a-vis unutilized FSI is 7879:26340. The profit relevant to the unutilized FSI is computed as under:-
Cost of land as per development karar as per reply to Rs. 17,09,000 show cause notice Total FSI available for development Sq.Mtr. 34,219 FSI consumed for development Sq.Mtr. 7,879 FSI not utilized for development Sq.Mtr. 26,340 Cost of FSI consumed = Total cost x FSI consumed/ Rs. 3,93,501 Total FSI available ITA No.1799/Ahd/2013 Income tax Officer vs. Nirman Developers Asst.Year -2009-2010 -5- Cost of FSI unutilized = (Total cost of land - cost of Rs. 13,15,499 FSI consumed) Cost of Construction = (Total exp - land purchases) Rs. 1,90,08,184 Total cost of project at this stage Rs. 2,07,17,184 Net Profit Rs. 1,27,05,963 Net Profit relevant to FSI unutilized = Net Profit x cost Rs. 8,06,802 of FSI unutilized/Total cost
2. But ld.AO was not satisfied reply filed by the assessee and held the assessee firm is not found to be eligible for deduction under section 80IB of the Act as it is not satisfying the prescribed condition under section 80IB(10) of the Act.
3. The Senior issue has also been examined by Hon'ble Gujarat High Court in the case of ITO Vs. Amar Corporation in ITA No. 1286 OF 2011 vide order dated 31.01.2012. High Court has considered the decision in case of Radhe Developers wherein the Apex Court decision in the case of state of Andhra Pradesh vs. Kone Elevators (India) Ltd., AIR 2005 SC 1581 has been discussed. It has been held that section 80IB(10) allows deduction to an undertaking engaged in the business of developing and constructing housing projects. There is no requirement that the land must be owned by the assesse seeking the deduction. Under the development agreement, the assessee had undertaken the development of housing project at its own risk and cost. The land owner had accepted the full price of the land and had not responsibility. The entire risk of investment and expenditure was that of the assessee.
Resultantly, profit and loss also accrued to the assessee alone. The assessee had total and complete control over the land and could put ITA No.1799/Ahd/2013 Income tax Officer vs. Nirman Developers Asst.Year -2009-2010 -6- the land to the agreed use. It had full authority and responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. The risk element was entirely that of the assessee. The assessee was a "developer" in common parlance as well as legal parlance and could not be regarded as only a "work contractor". The Explanation to Section 80IB inserted w.r.e.f 1.4.2001 has no application as the project is not a "work contract". Further, as the assessee was, in part performance of the agreement to sell the land, given possession and had also carried out the construction work for development of the housing project, it had to be deemed to be the "owner" u/s 2(47)(v) r.w.s. 53A of the Transfer of Property Act even though formal title had not passed.
4. Further, High Court of Gujarat in CIT(A)-IV Vs. Tarnetar Corporation [2012] 210 Taxman 206 (Guj) has decided this issue in favour of the assessee by rejecting Revenue's appeal in I.T. Appeal No. 1241 of 2011 vide order dated September 12, 2012 by holding that:
"The issue pertains to deduction claimed by the assessee under section 80-IB(10) of the Act on development of housing project. The Assessing Officer was of the opinion that such deduction was not justified. Revenue's stand appears to be that the assessee was not a developer and that therefore, would not be qualified for deduction under section 80-IB(10)of the Act. Additional contention ITA No.1799/Ahd/2013 Income tax Officer vs. Nirman Developers Asst.Year -2009-2010 -7- of the Revenue was that the assessee did not fulfil one of the essential conditions required for claiming deduction under section 80-IB(10) of the Act. With respect to the first contention, the learned counsel for the Revenue candidly agree that such issue was discussed by this Court at considerable length in the case of CIT(A)v. Radhe Developers (2012) 341 ITR 403/204 Taxman 543/17 Taxmann.com 156 (Guj.) and under similar circumstances held that the assessees cannot be denied the benefit of deduction. Without further elaboration, therefore, such contention is turned down."
5. Hon'ble Madras High Court in CIT(A) Vs. Sanghvi and Doshi Enterprise (2013) 255 CTR 156 (Mad.) has also followed Radhe Developers (Supra) in holding that various clauses in the agreement between the assessee and the owner clearly points out the role of the assessee; which is not just as that of a builder to put up construction as per the direction of the owner; on the other hand as rightly pointed out by the Tribunal, the risk element that is involved in the project undertaken by the assessee is more than of a normal builder, undertaken mere construction. High Court has allowed the deduction u/s 80IB to the assessee.
6. So far as the issue of profit on the sale of unutilized FSI is concerned, the matter is covered in favour of the appellant by the decision of the jurisdictional ITAT, Ahmedabad in case of Radhe Developers [2008] 23 SOT 420 (Ahd.) which has held that the concept of element of unutilized FSI sold is imaginary and based on surmises and conjunctures. Hon'ble Tribunal dealt with the same as under.
ITA No.1799/Ahd/2013Income tax Officer vs. Nirman Developers Asst.Year -2009-2010 -8- "A question has also been raised by the revenue that the profit earned by the assessee are not for developing and building housing project alone but for the sale of extra FSI, which has not been utilized for developing and building housing project. On a perusal of the provisions of section 80-IB(10), we find that it is not mandatory requirement to fully utilize permissible FSI; there is no condition as to FSI under the scheme of the provision of section 80-IB(10)of the Act; there is no question of selling unused FSI to the individual buyer for each project and also there is not question of calculating the profitability on FSI as the same has not been contemplated under section 80-IB(10) of the Act. On verification of the sale deeds executed in favour of buyers of the residential houses, it is clear that the assessee had made this sale deed for sale of plot of land. Further, on verification of development agreement with the landowner, we find that here also the reference is with respect to land area only. In both the documents assessee had not acquired rights and has not relinquished rights with reference to FSI. Further, on verification of approval map for each unit is with reference to built-up area only. Under the circumstances, the assessee has never dealt with FSI, both in terms of acquiring rights in the land and for relinquishment of such rights in the land. The calculation given in approved plan is of maximum permissible FSI and by giving such calculation it is not made mandatory by any provision of any Act to make construction to the fullest extent of maximum permissible FSI. The utilization of FSI by the builder developer depends on many factors like situation of plot, the type of locality and the type of buyers' affordability. It is the market force, which determines the average size of the residential unit - a commercial decision, which prevails for the purpose of carrying out the business and for making residential units and not the permissible maximum FSI. It would also be impossible to construct any housing unit as per the provisions of section 80-IB(10) by utilizing the maximum FSI."
7. The utilization of FSI by the builder developer depends on many factors like situation of plot, the type of locality, and the type of ITA No.1799/Ahd/2013 Income tax Officer vs. Nirman Developers Asst.Year -2009-2010 -9- buyers' affordability. Thus, it is the market force, which determines the average size of the residential unit. The commercial decision, which will prevail for the purpose of carrying out the business and not the permissible maximum FSI, which will prevail for making residential units. In the normal circumstances any builder developer would like to gain maximum out of utilization of FSI.
8. We have considered rival submission and gone through the impugned order learned AR has submitted a copy of our own Co- ordinate Bench in which on similar facts relief was granted to the assessee following the case of M/s Sakti Corporation (Supra) and M/s Radhe Developers (Supra) in which respective assessee had dominating control over the project and development the land had their own risk and cost and therefore, were eligible for deduction under Section 80IB(10) of the income tax Act and the further hold that there are no material before them to take out of view in the matter and they were not inclined to interfere in the order passed by the CIT in which learned CIT gave relief to the assessee and dismissed the appeal of the department.
9. Learned AR has also cited a judgment (2014) 44 taxmann.com 461 (Gujarat), CIT(A)-(I) Vs. Shreenath Infrastructure.
10. In this case also assessee had undertaken the development of housing project at its own risk and cost. The land owner had accepted only the full price of the land and nothing further. The ITA No.1799/Ahd/2013 Income tax Officer vs. Nirman Developers Asst.Year -2009-2010
- 10 -
entire risk of investment and expenditure was that of the assessee. Resultantly, profit and loss also would accrue to the assessee alone.
11. Judgment of our Co-ordinate Bench in the matter following, the Co-ordinate bench order and order of the jurisdiction High Court as enumerated above we are not inclined to interfere in the order passed by the learned CIT(A) appeal.
12. In the result, appeal of the department was dismissed.
This Order pronounced in Open Court on 29 /11/2016
Sd/- Sd/-
(N.K. BILLAIYA) ( MAHAVIR PRASAD )
ACCOUNTANT MEMBER JUDICIAL MEMBER
True copy
Ahmedabad; Dated 29/ 11/2016
Priti yadav
आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं$धत आयकर आयु&त / Concerned CIT
4. आयकर आयु (अपील) / The CIT(A)-II, Baroda
5. 'वभागीय *त*न$ध, आयकर अपील य अ$धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड/ फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या'पत *त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad