Income Tax Appellate Tribunal - Chennai
South India Shelters, , Chennai vs Department Of Income Tax on 26 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND SHRI S.S. GODARA, JUDICIAL MEMBER
I.T.A. Nos. 945 & 946/Mds/2012
(Assessment Years : 2005-06 & 2008-09)
The Assistant Commissioner M/s South India Shelters,
of Income Tax, 14, Gulmohar Avenue,
Business Circle - V, v. Velachery Main Road,
Chennai - 600 034 . Chennai - 600 041.
PAN : AAHFS6061L
(Appellant) (Respondent)
C.O. Nos. 96 & 97/Mds/2012
(in I.T.A. Nos. 945 & 946/Mds/2012)
Assessment Years : 2005-06 & 2008-09
M/s South India Shelters, The Assistant Commissioner of
14, Gulmohar Avenue, Income Tax,
Velachery Main Road, v. Business Circle - V,
Chennai - 600 041. Chennai - 600 034 .
(Cross-objector) (Respondent)
Revenue by : Shri S. Dasgupta, JCIT
Assessee by : Shri N. Quadir Hoseyn, Advocate
Date of Hearing : 26.07.2012
Date of Pronouncement : 26.07.2012
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
These are appeals and cross-objections filed by the Revenue and assessee respectively, for the impugned assessment years, 2 I.T.A. Nos.945 & 946/Mds/12 C.O. Nos.96 & 97/Mds/12 directed against orders dated 20.1.2012 of Commissioner of Income Tax (Appeals)-VIII, Chennai. Grievance of the Revenue is that CIT (Appeals) held assessee to be eligible for deduction under Section 80-IB(10) of Income-tax Act, 1961 (in short 'the Act'). As per the Revenue, assessee was only a contractor appointed by the prospective flat buyers for constructing flats and was not an undertaking, which was developing a project, on its own. For assessment year 2008-09, one more grievance has been raised by the Revenue that the CIT(Appeals) deleted an addition of ` 1,83,38,125/- made by the Assessing Officer, under Section 2(22)(e) of the Act.
2. Facts apropos are that assessee, engaged in the business of construction engineers, civil contractors and building developers, had filed its returns for the impugned assessment years, inter alia, claiming deduction under Section 80-IB(10) of the Act. Such claim for assessment year 2005-06 came to ` 3,80,71,082/- and for assessment year 2008-09, it came to ` 41,86,904/-. The claim related to a project by name SIS Meridian situated at Gangaiyal Nagar, Velachery, Chennai-42. Assessee was following completed contract method for accounting the revenue. Assessee had entered 3 I.T.A. Nos.945 & 946/Mds/12 C.O. Nos.96 & 97/Mds/12 into an agreement with land owners and a power of attorney obtained by one of its partners from the land owners. But for the power of attorney, no conveyance deed was executed in assessee's name. As per the A.O., the power of attorney was executed in the name of one of the partners of the assessee-firm and such partner was not holding the power for and on behalf of assessee-firm. Permission from local body was also taken by this partner and not by assessee-firm. Completion certificate was also issued to the said partner and not to the firm. As per the Assessing Officer, Explanation to Section 80- IB(10) inserted by Finance (No.2) Act, 2009 with retrospective effect from 1.4.2001 clearly applied, since assessee had constructed flats based upon individual agreements entered with prospective flat buyers. Through such construction agreement, the prospective flat buyer had appointed assessee, only as a contractor for constructing the apartment. In this view of the matter, he was of the opinion that the Explanation inserted by Finance (No.2) Act, 2009 applied and the assessee could only be considered as works contractor. He, therefore, denied the claim of Section 80-IB(10) for both the years.
3. In its appeals before CIT(Appeals), argument of the assessee was that the land was purchased by the assessee out of its own funds and it had also effected payments to the land owners before 4 I.T.A. Nos.945 & 946/Mds/12 C.O. Nos.96 & 97/Mds/12 embarking on the project. The cost of land was accounted in the books of the assessee-firm and shown it as stock. The agreement with land owners was entered by Shri A. Mohammed Ali, its Managing Partner, and such agreement was only on behalf of the firm though not specifically stated so in such agreement. Assessee was a project developer and just because the land permissions for development of project was obtained in the name of its Managing Partner, the claim could not have been disallowed. As per the assessee, it was not a works contractor falling in Explanation to Section 80-IB(10) added by Finance (No.2) Act, 2009, but was a project developer.
4. CIT(Appeals) was appreciative of these contentions. According to him, assessee was not a contractor simpliciter, nor a builder simpliciter, nor a developer simpliciter, but, assessee was a developer, builder and also a contractor. Assessee had invested money for purchasing of the land and the land agreement dated 31st December, 2004 and sale agreement between the land owners and Managing Partner of the assessee-firm clearly proved this. Assessee was a firm constituted in 1996 and was in the business of developers and builders since that date and the project as a whole was under the control of the assessee. Assessee was enjoying possession of 5 I.T.A. Nos.945 & 946/Mds/12 C.O. Nos.96 & 97/Mds/12 property, constructing flat and handing over the flats to ultimate customers who were the prospective flat buyers. Plan sanction obtained from competent authority clearly showed that the assessee was a developer. As per CIT(Appeals), the question to be answered was who actually developed the land. The circumstances of the case clearly showed that assessee was indeed the developer of the project. Assessee had exclusive right for determining price of the flat and selling the flat. Original owner of land was entitled only to cost of the land. In this view of the matter, he held that assessee was very much eligible for claiming deduction under Section 80-IB(10) of the Act. Reliance was placed on the decisions of co-ordinate Bench of this Tribunal in the case of ACIT v. Smt. C. Rajini [9 ITR (Trib.) 487] as also that of Hon'ble Gujarat High Court in the case of CIT v. Radhe Developers (2012) 204 Taxman 543.
5. Now before us, learned D.R., assailing the orders of CIT(Appeals), submitted that assessee was only a building contractor and came within the ambit of Explanation added to Section 80-IB(10) vide Finance (No.2) Act, 2009 with retrospective effect from 1.4.2001.
6. Per contra, learned A.R. strongly supported the orders of the CIT(Appeals).
6 I.T.A. Nos.945 & 946/Mds/12
C.O. Nos.96 & 97/Mds/12
7. We have perused the orders and heard the rival submissions. In our opinion, there can be no doubt that assessee was developing the project. Assessee, through its Managing Partner, had power of attorney from the land owners. May be the power of attorney was only in the name of Managing Partner. Nevertheless, cost of the land was accounted by the assessee-firm and payments were also effected by it. All the development costs of the project were also charged in the assessee-firm. Just because assessee-firm entered into separate agreements with prospective flat buyers for construction of flats, we cannot say that the project was not being developed by the assessee. Assessee was in possession of the property after obtaining the power of attorney. Development work was carried on by the assessee and it had exclusive rights to determine the sale price of the flat and sell the flat. What went to original owner of the land was only the cost of the land and nothing more. We are of the opinion that in this situation, assessee's claim under Section 80- IB(10) was not hit by the Explanation added thereto vide Finance (No.2) Act, 2009 with retrospective effect from 1.4.2001. Assessee was not executing the housing project as works contractor. In similar fact situation, Hon'ble Gujarat High Court in the case of Radhe Developers (supra) as also the co-ordinate Bench of this Tribunal in 7 I.T.A. Nos.945 & 946/Mds/12 C.O. Nos.96 & 97/Mds/12 the case of Smt. C. Rajini (supra) have held that assessees who were doing project development in a bundled manner were eligible for deduction under Section 80-IB(10) of the Act. We, therefore, find no reason to interfere with the orders of CIT(Appeals) on this issue.
8. This leaves with the issue of deletion of addition made by the A.O. under Section 2(22)(e) of the Act, for assessment year 2008-09.
9. Assessee had received a loan of ` 1,83,38,125/- from M/s South India Shelters (P) Ltd., wherein partners of the assessee-firm also Directors. Assessing Officer considered it as deemed dividend under Section 2(22)(e) of the Act, since assessee was unable to substantiate with relevant document that the loan was a part of its normal business with the said company.
10. In its appeal before CIT(Appeals), assessee argued that the loan received as well as re-paid were part of its business transaction. As per the assessee, it had not received any loan or advance from the company and accounts of the said company in assessee's books were in debit. It was only on account of journal entry passed with regard to sale of seven flats to the said company, which led to the 8 I.T.A. Nos.945 & 946/Mds/12 C.O. Nos.96 & 97/Mds/12 reversal of the debit. CIT(Appeals) was appreciative of this contention and deleted the addition made.
11. Now before us, learned D.R. submitted that nothing was produced by the assessee before the Assessing Officer to prove that the transactions with the said company were in the course of its business. CIT(Appeals) had accepted the claim without giving an opportunity to the Assessing Officer, while considering the fresh submissions of the assessee and there was violation of Rule 46A of Income-tax Rules, 1962.
12. Per contra, learned A.R. fairly admitted that the matter required a fresh look by the Assessing Officer.
13. We have perused the orders and heard the rival submissions. Before the Assessing Officer, assessee did not produce any explanation when a proposal was made that the sum of ` 1,83,38,125/- would be considered as deemed dividend coming within Section 2(22)(e) of the Act. Before the CIT(Appeals), assessee did produce number of evidence, which inter alia included journal entry passed reversing earlier sales made to the said company, which resulted in the debit balance turning into a credit 9 I.T.A. Nos.945 & 946/Mds/12 C.O. Nos.96 & 97/Mds/12 balance. Such particulars were never produced by the assessee before Assessing Officer. Therefore, we are of the opinion that in the interest of justice, the matter has to be re-visited by the A.O. We, therefore, set aside the orders of authorities below with regard to the addition under Section 2(22)(e) of the Act and remit it back to the file of the A.O. for consideration afresh in accordance with law. Assessee shall be given an opportunity to file its explanation.
14. Appeal of the Revenue for assessment year 2005-06 is dismissed, whereas, that for assessment year 2008-09 is partly allowed for statistical purposes.
15. When cross-objections of the assessee for impugned assessment years were taken up, learned A.R. submitted that cross- objection for assessment year 2005-06 was not being pressed by him. As for cross-objection for assessment year 2008-09, learned A.R. submitted that grievance was with regard to levy of interest under Section 234B of the Act.
16. Since we have already upheld the decision of CIT(Appeals) ruling assessee to be eligible for deduction under Section 80-IB(10) of the Act, the ground against levy of interest under Section 234B raised by the assessee, in its cross-objection has become academic. 10 I.T.A. Nos.945 & 946/Mds/12
C.O. Nos.96 & 97/Mds/12
17. Thus, both the cross-objections of the assessee are dismissed.
18. To summarize the result, appeal of the Revenue for assessment year 2005-06 is dismissed, whereas, that for assessment year 2008-09 is partly allowed for statistical purposes. Both the cross-objections raised by the assessee are dismissed. The order was pronounced in the Court on Thursday, the 26th of July, 2012, at Chennai.
sd/- sd/-
(S.S. Godara) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 26th July, 2012.
Kri.
Copy to: (1) Assessee
(2) Assessing Officer
(3) CIT(A)-VIII, Chennai
(4) CIT-VI, Chennai-34
(5) D.R.
(6) Guard file