Income Tax Appellate Tribunal - Pune
M/S. Brahma Associates, Pune vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench "A" , Pune
Before Shri I.C. Sudhir (JM)
and Shri D. Karunakara Rao (AM)
ITA No. 1202/PN/2009
(Asstt. Year : 2004-05)
Asstt. Commissioner of Income tax, ... Appellant
Circle-4, Pune
v.
M/s. Brahma Associates, ... Respondent
250-251 M.G. Road
Pune 411 001
PAN AAFFB 6764 P
ITA No. 1184/PN/2009
(Asstt. Year : 2004-05)
M/s. Brahma Associates, ... Appellant
250-251 M.G. Road
Pune 411 001
PAN AAFFB 6764 P
Asstt. Commissioner of Income tax, ... Respondent
Circle-4, Pune
Assessee by : Shri Sunil Pathak
Department by : Shri Hareshwar Sharma
ORDER
Per I.C. Sudhir, JM
ITA No.1202/PN/2009
The Revenue has questioned first appellate order on several Grounds. Ground Nos. 1 to 5 are on the issue as to whether Ld CIT(A) has erred in restricting the disallowance made by the A.O on the assessee's claim of deduction u/s. 80 IB(10) to the extent of commercial buildings instead of confirming the disallowance in full i.e. in respect of residential buildings as well. The Ground Nos. 6 & 7 involves the issue as to whether ld CIT(A) has erred in directing the A.O. to exclude profit of Rs.13,67,687/- on undisclosed sale of Rs. 30,98,520/- after verifying if such profit have been considered and added in the A.Y. 2003-04. 2 ITA . Nos.1202 & 1184/PN/2009
Brahma Associates A.Y 2004-05 Page of 11
2. The assessee (ITA No. 1184/PN/2009), on the other hand, questioned first appellate order on the following Grounds :
"1. The Learned Commissioner of Income tax (Appeals) has erred in disallowing the Appellant AOP's claim of deduction u/s 80 IB (10) of the Income tax Act, 1961, in respect of profit from the commercial portion of the project 'Bramha Estate".
2. Without prejudice to Ground No. 1 above, the Learned Commissioner of Income tax (Appeals) has failed to appreciate that deduction for cost of land ought to have been allowed for computing the correct total income of the Appellant."
Ground Nos. 1 to 5 (Revenue) & Ground No. 1 (Assessee)
3. We find that the issue raised in Ground Nos. 1 to 5 of the appeal preferred by the Revenue and the issue raised in Ground No. 1 of the appeal preferred by the assessee are connected, hence these are being disposed off vide a consolidated order. The relevant facts are that the assessee an A.O.P had executed a project "Bramha Estate". There were total 17 buildings being A1 to A 9, B 7 to B 12, C1 & C 2, out of which C1 and C2 were commercial buildings. The A.O on the basis of assessment order for the A.Y. 2003-04 denied the claimed deduction u/s. 80IB (10) of the Act made during the year . In the A.Y. 2003-04, deduction u/s. 80 IB(10) was disallowed on the basis that total area of the commercial buildings C1 and C 2 is more than 7000 sq. mtrs. out of the total laid down plan area of 22, 290 sq. mtrs which was more than 20% of the total built up area. The claimed deduction was also denied by the A.O on the basis that the Pune Municipal Corporation (PMC) had sanctioned the project as "Residential + Commercial", whereas as per Sec. 80 IB (10) deduction was allowable 3 ITA . Nos.1202 & 1184/PN/2009 Brahma Associates A.Y 2004-05 Page of 11 only to "Housing Project". The A.O also referred to the amendment to Section 80 IB (10), brought out by the Finance Act, 2004 w.e.f. 1.4.2005 to which the limitation of commercial area was provided at 2000 sq ft. or 5 % of the total built up area whichever is less. According to him, this amendment is clarificatory in nature and was also applicable to the A.Y under consideration.
4. The Ld CIT(A) following the decision of Special Bench of the Tribunal in the case of Brahma Associates & Others in ITA Nos. 1417/PN/2006 for A.Y. 2005-04 and others reported in 30 SOT 155 (2009) (Pune) directed the A.O to allow deduction u/s. 80IB(10) on the residential portion , in case the conditions mentioned in Sec. 80IB(10) are fulfilled in respect of the residential buildings of the assessee. He mentioned that the Special Bench have addressed to the question as to whether in a Housing project, commercial use of built up area was at all permissible in the A.Ys. before 2005-06. The Special Bench held that construction of commercial area to the extent of 10% was possible up to A.Y. 2004-05 and earlier years as still 90% of the built up area will be residential portion which will not vitiate the true character of the housing project. Following the decision of Special Bench, the Ld CIT(A) held that since in the assessee's case, built up area of commercial units exceeded 10% of the total built up area, assessee will not be eligible for deduction u/s. 80IB(10) in respect of profits from the sale of commercial buildings. Now before the Tribunal, the Revenue has questioned action of the Ld CIT(A) in allowing claimed deduction u/s. 80 IB (10) on the profits earned out of the construction of residential buildings whereas the assessee has impugned the first appellate order whereby the ld CIT(A) has not found the assessee eligible to claim deduction u/s. 80 IB (10) in respect of profits earned from the sale of the commercial buildings. 4 ITA . Nos.1202 & 1184/PN/2009
Brahma Associates A.Y 2004-05 Page of 11
5. In support of the Ground Nos. 1 to 5, appeal preferred by the Revenue, the Ld. D.R. submitted that ld CIT(A) has failed to appreciate that provisions of Sec. 80 IB (10) as were applicable to the A.Y. 2004-05 i.e. prior to the amendment w.e.f. 2005-06, unambiguously referred to a housing project in its totality and did not provide for bifurcation of a housing project into residential and commercial units. The Ld CIT(A) also failed to appreciate that housing project of the assessee did not fulfil the conditions mentioned in Sec. 80 IB(10) in as much as it included built up area of commercial units which was not at all permissible prior to A.Y. 2005-06.
6. The Ld. A.R. on the other hand tried to justify the relief granted by the Ld CIT(A) towards claimed deduction u/s. 80 IB (10) in respect of profits earned out of selling of residential units. In support of the Ground No.1 of the appeal preferred by the assessee, he submitted that the assessee was also eligible to claim deduction u/s. 80 IB(10) of the Act in respect of profits earned from the selling of the commercial portion of the project. In this regard, placed reliance on the recent decision of Hon'ble jurisdictional Bombay High Court in the case of CIT v/s. M/s. Brahma Associates, Income Tax Appeal No. 1194 of 2010 dated 22nd February 2011 (copy supplied). He submitted that as per the decision of Hon'ble Bombay High Court, in the case of CIT v/s. Brahma Associates (Supra), up to 31st March 2005, deduction u/s. 80 IB (10) is allowable to Housing Projects approved by the local authority having residential units with commercial user to the extent permitted under the DC Rules/Regulations framed by the respective local authority. He submitted further that the Hon'ble High Court has been pleased to hold that in absence of any provisions under the Income Tax Act, the Tribunal was not justified in holding that up to March 2005, deduction u/s. 80 IB (10) would be 5 ITA . Nos.1202 & 1184/PN/2009 Brahma Associates A.Y 2004-05 Page of 11 allowable to the projects approved by the local authority having residential building with commercial user up to 10% of the total built up area of the plot. The Hon'ble High Court has been further pleased to hold further that since deductions u/s. 80 IB (10) is on the profits derived from the housing projects approved by the local authority, as a whole, the Tribunal was not justified in restricting Sec. 80 IB (10) deduction only to a part of the project. The Ld A.R pointed out that during the year, the portion of commercial area to the total built up area is only 20.83%. He submitted that the project was commenced on 14.8.2000 and completed in the year 2005. He submitted that built up area of the residential flats was 24583.31 sq. mtrs and built up area of the commercial premises were 7128.87 sq. mtrs. The Ld. A.R. accordingly submitted that in view of the above decision of Hon'ble Bombay High Court, the Ld CIT(A) was not justified in disallowing the claimed deduction u/s. 80 IB(10) of the Act in respect of profits from the commercial portion of the project on the basis that it exceeds 10% of the total built up area on the plot as held by the Tribunal in the case of Brahma Associates, which has been reversed by the Hon'ble High Court.
7. The Ld. DR rejoined with this submission that in para No. 28 of the decision in the case of CIT v/s. Brahma Associates (Supra), Hon'ble Bombay High Court has been pleased to hold that if the conditions set out in Sec. 80 IB (10) are satisfied, then deduction is allowable on the entire project approved by the local authority and there is no question of allowing deduction to a part of the project. He submitted that since in the present case, built up commercial area was exceeding the prescribed limit, the entire project was not eligible for deduction u/s 80 IB (10). 6 ITA . Nos.1202 & 1184/PN/2009
Brahma Associates A.Y 2004-05 Page of 11
8. Considering the above submissions, we find that one of the basis on which the A.O has disallowed the claimed deduction u/s. 80 IB (10) remained that as per clause (d) to sub-section (10) to Section 80 IB inserted w.e.f. 1.4.2005 having retrospective effect as per him that the assessee exceeds commercial area provided therein. CIT(A) has allowed claimed deduction on residential units fulfilling conditions like prescribed area etc. envisaged in different clauses of the section 80 IB(10) but denied the claimed deduction on commercial units, since even as per Special Bench decision in the case of assessee itself and others (Supra) it was exceeding the limit of 10%. The parties are accordingly in appeals against this first appellate order.
8.1. Undisputedly, the built up area of the commercial premises is 20.83% of the total built up area. Now we have benefit of the decision of Hon'ble jurisdictional Bombay High Court on the issues involved in the case of CIT Vs. M/s Brahma Associates & Others, Income Tax Appeal No. 1194 of 2010 judgment dated 22.2.2011. On going through this decision especially para nos. 28 and 30 thereof, we find that the Hon'ble High Court has not approved the view of granting deduction on stand alone basis i.e. if the assessee fulfills the requirement of residential units as per S. 80 IB(10), it is eligible to claim deduction u/s. 80 IB (10) to that extent even if there is violation in the construction of commercial premises i.e. exceeding the prescribed area limit. The Hon'ble High Court also did not approve the stand of the Special Bench in restricting the deduction claimed u/s. 80IB(10) on the commercial area up to 10% of the total built up area in absence of any provision to this effect in the Income Tax Act. The Hon'ble High Court held that the amended provisions of Section 80 IB(10) w.e.f. 1.4.2005 is not retrospective in effect and that deduction u/s. 80 IB (10) is available on the housing 7 ITA . Nos.1202 & 1184/PN/2009 Brahma Associates A.Y 2004-05 Page of 11 project approved by the PMC as residential + commercial. The relevant para nos. 28 and 30 of the decision of Hon'ble Bombay High Court in the case of CIT Vs. M/s Brahma Associates & Others (Supra) are being reproduced hereunder for a ready reference :
"28. In the present case, though the commercial user is more than 10% of the plot area, the Tribunal has allowed Section 80IB(10) deduction in respect of 15 residential buildings on the ground that the profits from these exclusively residential buildings could be determined on stand alone basis. In our opinion that would not be proper, because, Section 80 IB(10) allows deduction to the entire project approved by the local authority and not to a part of the project. If the conditions set out in Section 80IB(10) are satisfied, then deduction is allowable on the entire project approved by the local authority and there is no question of allowing deduction to a part of the project. In the present case, the commercial user is allowed in accordance with the DC Rules and hence the assessee was entitled to Section 80IB(10) deduction on the entire project approved by the local authority. However, the assessee has not challenged the decision of the Tribunal in restricting the deduction to a part of the project. Therefore, while holding that in law, the assessee was entitled to Section 80IB(10) deduction on the profits of the entire project, in the facts of the present case, since the assessee has not challenged the decision of the Tribunal, we are not inclined to disturb the decision of the Tribunal in restricting the Section 80IB(10) deduction only in respect of the profits derived from 15 residential buildings.
-
"30. In the result, the questions raised in the appeal are answered thus :-
a) Upto 31/3/2005 (subject to fulfilling other conditions), deduction under Section 80IB(10) is allowable to housing projects approved by the local authority having residential units with commercial user to the extent permitted under the DC Rules / Regulations framed by the respective local authority.8 ITA . Nos.1202 & 1184/PN/2009
Brahma Associates A.Y 2004-05 Page of 11
b) In such a case, where the commercial user permitted by the local authority is within the limits prescribed under the DC Rules / Regulation, the deduction under Section 80IB(10) upto 31/3/2005 would be allowable irrespective of the fact that the project is approved as 'housing project' or 'residential plus commercial'.
c) In the absence of any provisions under the Income Tax Act, the Tribunal was not justified in holding that upto 31/3/2005 deduction under Section 80IB(10) would be allowable to the projects approved by the local authority having residential building with commercial user upto 10% of the total built-up area of the plot.
d) Since deductions under Section 80IB(10) is on the profits derived from the housing projects approved by the local authority as a whole, the Tribunal was not justified in restricting Section 80IB(10) deduction only to a part of the project. However, in the present case, since the assessee has accepted the decision of the Tribunal in allowing Section 80IB(10) deduction to a part of the project, we do not disturb the findings of the Tribunal in that behalf.
e) Clause (d) inserted to Section 80IB(10) with effect from 1/4/2005 is prospective and not retrospective and hence cannot be applied for the period prior to 1/4/2005."
9. We respectfully following the above decision of Hon'ble Bombay High Court hold that the Ld. CIT(A) was not justified in allowing the claimed deduction u/s. 80 IB(10) on the residential units on stand alone basis, but at the same time he was not justified in upholding the denial of the claim on commercial units on the basis that it was exceeding 10% of the total built up area, especially when clause (d) to Section 80 IB(10) inserted w.e.f. 1.4.2005 (i.e. A.Y. 2005-06) was not available to apply by 9 ITA . Nos.1202 & 1184/PN/2009 Brahma Associates A.Y 2004-05 Page of 11 the revenue during the A.Y. under consideration, and PMC does not put such restriction in the plan approved.
10. The issue raised in Ground No.1 to 5 of the appeal preferred by the Revenue is thus decided in favour of the assessee with this finding that Ld CIT(A) was justified in allowing claimed deduction u/s. 80 IB (10) on the profits earned from the sale of residential units as directed by him to the A.O. The issue raised in Ground No. 1 of the appeal preferred by the assessee is also decided in favour of the assessee with this finding that in view of the decision of Hon'ble Bombay High Court in the case of CIT v/s. Brahma Associates (Supra), the Ld CIT(A) was not satisfied in denying the claimed deduction u/s. 80 IB (10) of the Act on the profits earned from the sale of commercial area by restricting permissible limit at 10% of the total built up area,in absence of any such restriction in Sec. 80 IB(10) of the Act applicable during the A.Y. under consideration. The Ground Nos. 1 to 5 of the appeal preferred by the Revenue are thus rejected and Ground No. 1 of the appeal preferred by the assessee is accordingly allowed with direction to the A.O to allow the claimed deduction u/s. 80 IB (10) on the profits earned from selling of the commercial area during the year.
Ground No. 6 & 7 (Revenue)
11. The relevant facts are that the AO did not allow deduction of Rs.13,67,687/- being profit on undisclosed sales of Rs. 30,98,520/- of the commercial unit. The contention of the assessee before the authorities below remained that this profit was already assessed in the A.Y. 2003-04. It was further contended that the profit on sale of the particular commercial unit comes to Rs. 30,98,520/- which was already added in the A.Y. 2003-04, has in fact, been offered during the A.Y. 10 ITA . Nos.1202 & 1184/PN/2009 Brahma Associates A.Y 2004-05 Page of 11 2004-05, therefore, a deduction to this extent of the profit assessed in the earlier years should be allowed in this year. The Ld CIT(A) agreed with the submission of the assessee that in case the profit pertaining to same commercial unit on which sales of Rs. 30,98,520/- were considered and added in A.Y. 2003-04, the same should be excluded from the profit of the current year i.e. A.Y. 2004-05. Under these circumstances, we are of the view that the Ld CIT(A) was justified in directing the A.O to verify the above submissions and in case the corresponding sales have been included by the assessee in A.Y. 2003-04, the same should be excluded from the profit of the A.Y. 2004-05 under consideration to prevent taxation of the same amount twice. We thus do not find infirmity in the first appellate order on the issue. The same is upheld. The Ground Nos. 6 & 7 involving this issue are thus rejected.
Ground No.2 (Assessee)
12. During the course of hearing of the appeal, the Ld. A.R. did not press this alternative ground. The same is rejected as such.
13. Consequently, appeal preferred by the Revenue is dismissed and that preferred by the assessee is partly allowed. 11 ITA . Nos.1202 & 1184/PN/2009
Brahma Associates A.Y 2004-05 Page of 11 The order is pronounced in the open Court on 27th June 2011.
Sd/- Sd/-
(D. KARUNAKARA RAO) (I.C. SUDHIR )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, dated the 27th June, 2011
US
Copy of the order is forwarded to :
1. The Appellant
2. The Respondent
3. The CIT-II, Pune
4. The CIT(A)- II, Pune
5. The D.R. "A" Bench, Pune
6. Guard File
By order
Assistant Registrar
Income Tax Appellate Tribunal
Pune