Income Tax Appellate Tribunal - Pune
Paras Bhomraj Oswal, Kolhapur vs Assessee on 25 November, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI SHAILENDRA KUMAR YADAV,
JUDICIAL MEMBER
AND SHRI G.S. PANNU, ACCOUNTANT MEMBER
ITA Nos.561 to 565/PN/2013
(Asst. Years: 2005-06 to 2009-10)
Asst. Commissioner of Income Tax,
Circle 1, Kolhapur Appellant
Vs.
Shri Paras Bhomraj Oswal
Prop. Of Pooja Builders & Developers,
2804, "B" Ward,
Mangalwar Peth, Kolhapur.
PAN:AABPO1487C Respondent
C.O Nos.10 to 14/PN/2013
(arising out of ITA Nos.561 to 565/PN/2013
(Asst. Years: 2005-06 to 2009-10)
Shri Paras Bhomraj Oswal
Prop. Of Pooja Builders & Developers,
2804, "B" Ward,
Mangalwar Peth, Kolhapur.
PAN:AABPO1487C Cross Objector
Vs.
Asst. Commissioner of Income Tax,
Circle 1, Kolhapur Appellant
Department by : Shri S.B. Walimbe
Assessee by : Shri M.K. Kulkarni
Date of hearing : 25.11.2013
Date of Pronouncement : 29.11.2013
ORDER
PER SHAILENDRA KUMAR YADAV, JM:
All these appeals filed by Revenue and Cross Objections are filed by assessee pertain to same assessee and arising from the consolidated order of the CIT(A), Kolhapur dated 13-12-2012 for 2 the A.Ys. 2005-06 to 2009-10, so all are being disposed off together for the sake of convenience. The Revenue has taken the following grounds in its appeals in A.Y.2005-06.
1. Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in applying the ratio of the case Brahma Associates V/s. CIT-II, Pune when in fact the assessee has violated the provisions of section 80 IB(10)(d) of the I. T. Act, 1961.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in allowing deduction u/s.80IB(10) of the I. T. Act, 1961 when the assessee had violated the condition laid down in section 80IB(10) (c ) of the said Act in constructing the 21 bungalows exceeding the limit of 1500 s.f.t. for each bungalow as provided in the said provision irrespective of the fact that such violation was marginal or more.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in not appreciating that in order to claim deduction u/s.80IB(10) of the I. T. Act, 1961 the assessee has to fulfill all the conditions laid down therein and even non-fulfillment of a single condition shall debar the assessee from entitling to deduction under the said section.
4. Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in not considering the fact of filing of Miscellaneous Petition by the AO before the ITAT for not considering two grounds in the appellate order passed, when the information relating re-assessment made by the AO pointing out such fact was in the possession of the Ld. CIT(A) and when the said issue was dominant in deciding the allowability of deduction u/s.80IB(10) of the act as claimed by the assessee.
5. Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in holding that space occupied by 'verandah' has to be excluded for the purpose of calculating the 'built up area' of the bungalows.
36. The order of the Ld.CIT(A), Kolhapur be vacated and that of the AO be restored.
7. The appellant craves leave to add, alter, amend or modify any other grounds of appeal at the time of hearing.
2. The assessee is a builder and developer had undertaken construction of housing project viz. Bhakti Pooja Nagar at R.S No.284B, plot No.63, B-Ward, Kolhapur. This case was selected for scrutiny and during the assessment proceedings, Assessing Officer noticed in the computation enclosed, assessee had claimed deduction u/s.80IB(10) in respect of his housing project Bhakti Pooja Nagar. Assessee has also made similar claim in earlier years i.e. 2003-04 and 2004-05 in respect of above housing project. In these years, in the assessment order passed u/s. 143(3), assessee claim was rejected on the ground that residential units exceeded 1500 sq.ft., being maximum area permissible u/s. 80IB(10).
2.1 The issue of claim u/s. 80IB(10) was examined in all the years under appeal. Assessee had obtained approval for his plan from Kolhapur Municipal Corporation twice on 22.02.2002 and 10.10.2002. After introduction of section 80IB(10) b Finance (No.2) Act, 2003 w.e.f. 01.04.2002, assessee had submitted revised plan which was approved on 31.03.2004. On verification of revised plan, Assessing Officer noticed that two residential units viz. C-5 and D-5 and built up area of 19 other bungalows exceeded maximum permissible limit of 1500 sq.ft. Further, the total commercial area in the above project had also exceeded allowable built up area of 2000 sq. ft., and similarly, the built up area of the shops and other commercial establishments was in excess of 5% of aggregate built up area of the housing project. In view of the violation of section 80IB(10) as observed above, the Assessing Officer asked the assessee to justify the claim of deduction in respect of the above project. CIT(A) having considered the submissions on behalf of assessee all kinds i.e. built up area of two residential units C-5 and D-5 are permissible, 4 built up area of 19 bungalows exceeded permissible limit as per provisions of section 80IB(10) of I.T Act. Accordingly, disallowance was made.
2.2 Matter was carried before first appellate authority, wherein CIT(A) had granted relief after calling remand report. Claim of the assessee was allowed, same has been opposed before us. On other hand, learned Authorized Representative supported the order of CIT(A), inter alia Departmental Representative submitted that order of CIT(A) be set aside and that of the Assessing Officer.
2.3 After going through the rival submissions and material on record, we find that section 80IB(10) prior to amendment to the Finance (No.2) Act, 2004 w.e.f. 01.04.2005 stood as under:
"(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 percent 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 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."
2.4 Section 80IB(10) in post amendment period stood as under:
"17[(10) 18The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 19[2008] by a local authority shall be hundred per cent of the profits derived in 5 the 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, 1998and completes such construction-
(i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;
(ii) 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.
(iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority.] Explanation-For the purposes of this clause,-
(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;
(ii) the date of completion of construction 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;
(b) the project is on the size of a plot of land which has a minimum area of one acre:
Provided that nothing contained in clause(a) or clause(b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;6
(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;21[...]
(d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed 22[three] per cent of the aggregate built-up area of the housing project of 23[five thousand square feet, whichever is higher];] 24[(e) not more than one residential unit in the housing project is allotted to any person not being an individual; and
(f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:--
(i) the individual or the spouse or the minor children of such individual,
(ii) the Hindu undivided family in which such individual is the karta,
(iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.] 25 [Explanation.--For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).] Sub-section (14) was also introduced by Finance Act 2005 w.e.f. 01/04/2005. Clause (a) of this sub-section defined the 'built-up area to mean--
[(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;] 7 2.5 The provision of section 80IB(10) prior to the amendment by Finance (No.2) Act, 2004 w.e.f. 01.04.2004 permitted a deduction of 100% of the profit derived in any previous year relating to any assessment year from housing project subject to conditions in respect of such housing project which was approved prior to 31.03.2005. These conditions required the assessee to commence development and construction of project on or before 01.10.1998 on the plot of land which is minimum area of one acre and residential units at maximum built up area of 1500 sq.ft. if not situated at the Delhi, Mumbai or even 25 kilometres from municipal limits of these area in which case maximum permissible built up area of residential unit was 10,000 sq.ft. The provisions of section 80IB(10) as amended by Finance (No.2) Act, 2004 w.e.f. 01.04.2005 as clause (a) which further qualified necessitating completion of construction on or before 31.03.2008 if project was approved by local authority before 01.04.2005 i.e. within 4 years from the end of the financial year in which housing project is approved by the local authority if the project was approved by the local authority on or after 01.04.2004 but on or before 31.03.2005, and within 5 years from the end of the financial year in which housing project is approved by the local authority if the project was approved by the local authority on or after 01.04.2005 (w.e.f. 01.04.2010). The amended provisions provided for limit for completion of project which was not there in the earlier section.
2.6 Clause (d) was introduced to the provisions of section 80IB(10) by the by the Finance (2) Act 2004 specifying that built up area of ships and other commercial establishments included in the housing project should not exceed 5% of aggregate built up area of housing project or 2000 sq.ft. whichever is less, which is changed to 3% of aggregate area of housing project or 5000 sq.ft. whichever is higher w.e.f. 01.04.2010.
82.7 Clause (a) of sub-section 14 was introduced by the Finance (No.2) Act, 2004 w.e.f. 01.04.2005 to define built up area as the inner measurements of the residential unit at the floor lever, including projection and balconies as increased by the thickness of walls, but not including common area shared with other residential units.
2.8 In the instant case, the insertion of definition of built up area in the context of completion of projects which has been approved and which has commenced prior to 01.04.2005 in the amended provision have to be appreciated. As mentioned above, the assessee had undertaken construction of project viz. Bhakti Pooja Nagar the profits in respect of which assessee has claimed deduction u/s. 80IB(10) for all the years. According to Assessing Officer, the project did not fulfil basic requirements and conditions of limitation of built up area of 5000 sq. ft., per unit as laid down under the statute. He found two residential bungalows have area of about 1500 sq.ft. and 19 residential bungalows have area of beyond stipulated 1500 sq.ft. of verandah was also included. Assessing Officer noticed that project contained residential units built for owners of land and transferred to them in consideration as price in terms of development agreement, residential units to be sold to the public and shops for sale. He noted that project accounts were not maintained for two types of residential units and commercial space and that various expenses were of nature that they could not be segregated. He, therefore, held that entire project was one and that all bungalows were part of the project. He also observed that municipal authorities have given approval for construction of all units including bungalows in same proposal. He found that in revised proposal submitted to the concerned authorities and approved on , the construction area of all bungalows including those being constructed for land owners, except two bungalows were found below 1500 sq.ft. Thereafter, Assessing Officer applied provision of clause (a) of sub-section 14, 9 introduced by the Finance (No.2) Act, 2004 w.e.f. to define built up area and included the area of verandah in built up area in respect of 19 others bungalows to hold that provisions of section 80IB(10) were not complied with. He also noticed that area of verandah is not excluded or exempted u/s. 78(3) of the Bye-Laws of Kolhapur Municipal Corporation. Therefore, he held that since verandah is a projection which is not a common area shares with other residential units and also because it is a part of total area which is not exempt under relevant bye-laws of the Kolhapur Municipal Corporation. Thus, according to the Assessing Officer since 21 residential units of the project violated provisions requiring residential units to be below 1500 sq.ft., deduction u/s.80IB(10) was not allowable. Further, according to Assessing Officer, other condition of the total area of commercial shops was also violated in as much as the total built up area of shops (6701.43 feet) was found to be exceeding maximum limit of 2000 feet. According to Assessing Officer prior to 01.04.2005 there was no scope under the Act to construct any commercial space, hence, he held that by virtue of constructing and selling commercial space admeasuring 6701.43 feet, the assessee was not eligible for deduction u/s.80IB(10).
2.9 Regarding denial of deduction u/s. 80IB(10) on account of construction and sale of commercial space admeasuring 6701.43 feet in the project sanctioned prior to 01.04.2005 as stated above, the project was approved by competent authority before 01.04.2005 meaning thereby that project was an approved housing project as per local DC Rules. On the date on which the legislature introduced 100% deduction under the I.T Act, 1961 on the profits derived from housing projects approved by a local authority, it was known that the local authorities could approve the projects as housing projects with commercial user to the extent permitted under the Development Control Rules framed by 10 the respective local authority. The local authority could approve a housing project without or with commercial use to the extent permitted under Development Rules as held in CIT, Pune Vs. Brahma Associates (2011) 333 ITR 289 (Bom), wherein, the Hon'ble Bombay High Court held as under;
"22. It is not in dispute that where a project is approved as a housing project without or with commercial user to the extent permitted under the Rules/Regulations, then, deduction under section 80-IB(10) would be allowable. In other words, if a project could be approved as a housing project having residential units with permissible commercial user, then it is not open to the income-tax authorities to contend that the expression 'housing project' in section 80- IB(IO) is applicable to projects having only residential units.
24. The fact that the deduction under section 80-IB(10) prior to 1-4-2005 was allowable on the profits derived from the housing projects constructed during the specified period, on a specified size of the plot with residential units of the specified size, it cannot be inferred that the deduction under section 10-IB(IO) was allowable to housing projects having residential units only, because, restriction on the size of the residential unit is with a view to make available large number of affordable houses to the common man and not with a view to deny commercial user in residential buildings. In other words, the restriction under section 80-IB(10) regarding the size of the residential unit would in no way curtail the powers of the local authority to approve a project with commercial user to the extent permitted under the DC Rules/Regulations. Therefore, the argument of the Revenue that the restriction on the size of the residential unit in section 80-IB(IO) as it stood prior to 1-4-2005 is suggestive of the fact that the deduction is restricted to housing projects approved for residential units only cannot be accepted.
25. The above conclusion is further fortified by clause (d) to section 80IB(10) inserted with effect from 1-4-2005. Clause (d) to section 80IB(10) inserted with effect from 1-4- 2005 provides that even though shops and commercial establishments are included in the housing project, deduction under section 80-IB(10) with effect from 1-4-2005 would be allowable where such commercial user does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet whichever is lower. By Finance Act, 2010, clause (d) is amended to the 11 effect that the commercial user should not exceed three per cent of the aggregate built-up area of the housing project or five thousand square feet whichever is higher. The expression 'included' in clause (d) makes it amply clear that commercial user is an integral part of a housing project. Thus, by inserting clause (d) to section 80IB(10) the Legislature has made it clear that though the housing projects approved by the local authorities with commercial user to the extent permissible under the DC Rules/Regulations were entitled to section 80IB(10) deduction, w.e.f. 01.04.2005 such deduction would be subject to the restriction set out in clause (d) of section 80IB(10). Therefore, the argument of the revenue that w.e.f. 01.04.2005 the Legislature for the first time allowed section 80IB(10) deduction to housing projects having commercial user cannot be accepted."
2.10 Thus, prior to 01.04.2005, there was no scope under Act for an undertaking to construct any commercial space and project should be 100% in order to avail benefit of section 80IB(10) has not found favour with the High Court. Thus assessee was entitled to benefit of deduction u/s. 80IB(10) in respect of profits derived from approved project including profits from sale of commercial space. This factual legal background, need no interference from our side on this point. We uphold the same.
3. In respect of other reason that 21 bungalows violated the requirement of residential unit being more than 1500 feet and therefore, the deduction would be denied. The clause (a) of sub- section 14, introduced by the Finance (No.2) Act, 2004 w.e.f. 01.04.2005 to define built up area wherein projection commonly known as verandah is included in the 'built-up area'. The issue is whether the provisions of clause (a) of sub-section (14) will have retrospective application or not? According to CIT(A), restriction in 'built-up area' imposed for the first time w.e.f. 01/04/2005 cannot have retrospective application. The Hon'ble Karnataka High Court in the case of Commissioner of Income-Tax, Central Circle vs. Anriya Project Management Services (P.) Ltd. reported in [2012] 21 12 taxmann.com 140 (Karnataka), wherein this provision was examined. The question was whether the definition of 'built-up area' inserted by Finance (No.2) Act, which became effective from 01/04/2005 is prospective or retrospective in nature. It was held to be prospective in nature. The said amendment would have no application to the housing projects, which were approved by the local authority prior to 01/04/2005 in calculating 1500 feet of residential unit and it further held that once such housing project of assessee is approved by local authority prior to 01.04.2005, it would be entitled to 100% benefit of provisions of Section 80IB(10). Similarly, this view has been taken by the Hon'ble Gujarat High Court in the case of Manan Corporation v. ACIT, Circle-5 wherein decision of assessee has reference of Supreme Court in the case of CIT u. Gold Coin Health Food P. Ltd. [2008] 304 ITR 308 (SC),CIT v. TVS Lean Logistics Ltd. [2007) 293 ITR 432(Mad), and National Agricultural Co-operative Marketing Federation of India Ltd. and another, vs. Union of India and others AIR 2003 SC 1329, wherein on the point of retrospective date was held that criteria to hold this amendment retrospective was absent as there was no explicit retrospective specific wording expressing retrospectivity and even if it is assumed for the sake of arguments that the same is to be read by implication the same does not appear to be reasonable but, in fact emerges to be harsh and unreasonable when it comes to implementation. Thus, the amendment with respective built up area discussed above was found substantive amendment and not clarificatory one. Accordingly, same has no retrospective effect.
3.1 Without prejudice to the above, the main limb on which deduction was denied was for the reason that area of verandah was not excluded or exempt under section 78(3) of the Bye-laws of Kolhapur Municipal Corporation. CIT(A) following the decision of his predecessor, decided the issue in favour of assessee with 13 regard to 19 bungalows. With regard to bungalows C5 and D5 which admittedly are more than 1500 sq.ft., but were sold to the owners of the land and profit thereof has not been the subject matter of section 80IB(10). Accordingly, no adverse view has taken by CIT(A). Coming back to the issue of built up area as per bye-laws of Kolhapur Municipal Corporation with regard to 19 bungalows mentioned above, we find that Tribunal has set aside this issue to Assessing officer by observing as under;
"9. I have considered the submissions of the appellant. Themain issue concerns the definition of built up area. There was no definition in the Act of the term 'built up area' for the year under appeal. The Finance Act of 2004 with effect from 01/04/2005 inserted the definition of built up area at sub- section 14(1) of section 80IB. The 'built up area' was defined as under:
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 common areas shared with other residential areas.
Technically speaking, the definition of 'built up area' as given above will be applicable only with effect from 01/04/2005. The Honourable Supreme Court in a recent Five Judge Bench decision in the case of CIT V/s Varas International Pvt. Ltd., 283 ITR 485 has held that for an amendment to be construed as being retrospective, the amended provision must indicate either by terms or by necessary implication that it is to operate retrospectively. The Apex Court has referred to its earlier decisions in the case of Allied Motors Pvt. Ltd. 224 ITR 677 (SC), Poddar Cement Pvt. Ltd. 223 ITR 825 (SC) and Brijmohandas Laxmandas V/s CIT, 226 ITR
625. The above judgement has cleared the controversy of whether a clarificatory amendment should be construed as being retrospective unless specified otherwise."
3.2 Facts being similar, so following the same reasoning, we restore this issue to Assessing Officer with similar directions. As a result, appeal of revenue is partly allowed as indicated above. Similar issue arose in other years. Facts being similar, so 14 following the same reasoning, we partly allowed the revenue's appeal as indicated above.
4. Cross Objections filed on behalf of assessee are nothing but supporting the order of CIT(A) which are taken care by us while disposing off revenue's appeal, so they are also disposed off accordingly.
5. In the result, all appeals filed by the revenue as well as cross objections filed by assessee are partly allowed as indicated above.
Pronounced in the open Court on this the 29th day of November, 2013.
Sd/- Sd/-
(G.S. PANNU) (SHAILENDRA KUMAR YADAV)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, Dated 29th November, 2013
GCVSR
Copy to:-
1) Department
2) Assessee
3) The CIT(A), Kolhapur
4) The CIT, Kolhapur
5) The DR, "B" Bench, I.T.A.T., Pune
6) Guard File
//True copy// By Order
Senior Private Secretary
ITAT Pune Benches, Pune