Income Tax Appellate Tribunal - Chennai
Lavanyaa Property Developers Private ... vs Assessee on 17 August, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, CHENNAI
Before Shri Abraham P. George, Accountant Member and
Shri George Mathan, Judicial Member
.....
I.T.A. No. 148/Mds/2010
Assessment Year : 2005-06
M/s. Lavanyaa Property Developers The Assistant Commissioner of
Pvt. Ltd., v. Income-tax, Company Circle-II,
New No. 31/C-8, Third Cross East, Trichy.
Thillai Nagar, Trichy.
(PAN : AAACL1049D)
(Appellant) (Respondent)
Appellant by : Shri S. Sridhar, Advocate
Respondent by : Shri Shaji P. Jacob, Sr. DR
Date of Hearing : 17-08-2011
Date of Pronouncement : 16/09/2011
ORDER
PER GEORGE MATHAN, JUDICIAL MEMBER :
This is an appeal filed by the assessee against the order of the learned CIT(Appeals), Tiruchirappalli in ITA No. 380/07-08 dated 23-11-2009 for the assessment year 2005-06.
2. Shri S. Sridhar, Advocate represented on behalf of the assessee and Shri Shaji P. Jacob, learned Sr. DR represented on behalf of the Revenue. 2
I.T.A. No.148/Mds/2010
3. It was submitted by the learned authorised representative that in the assessee's appeal the main challenge was against the action of the learned CIT(A) in not granting the claim of the assessee under section 80-IB(10) inasmuch as the claim was not relating to the 'Sapphire Block' and the eligible profits were computed with reference to other four blocks. It was the submission that the assessee was also challenging the disallowance made by the learned CIT(A) in regard to the application of the provisions of section 40a(ia) of the Act in respect of the work-in-progress claimed by the assessee. It was submitted by the learned authorised representative that the assessee was a company which was doing the business of purchase and sale of lands; purchasing, developing and selling of plots and purchasing, developing, construction and sale of flats. It was the submission that during the assessment year 2003-04 the assessee company had started a project by name 'Lavanyaa Brindavanam' at State Bank Officers Colony and the project consisted of 5 blocks , namely, Padmavathi Block, Sapphire Block, Balaji Block, Raghavendra Block and Alamelumangai Block. It was the submission that the total land area purchased by the assessee was 1.5 acres. Out of the said area, the assessee had sold 5.5 cents as plot to one individual and got approval for 1.445 acres. As money was required for developing the flats, the assessee company had sold off the land pertaining to one of the approved blocks, viz. 'D' Block which was the 'Sapphire Block' Thus the assessee was left with a balance area of 1.2 acres, i.e. nearly 52,550 s.ft. in 4 Blocks. It was the submission that 3 I.T.A. No.148/Mds/2010 the land in relation to the Sapphire Block as also the construction in respect of the Sapphire Block was hived off through a Memorandum of Understanding dated 17- 06-2003 to M/s. Lavens Construction Pvt. Ltd. It was the submission that the construction of the Sapphire Block was done by M/s. Lavens Construction Pvt. Ltd. and 27% of the constructed area in the building was to be given to the assessee. It was the submission that as the said Sapphire Block fell within the total project area of the Lavanyaa Brindavanam, the common facilities as per the approved project was to be done by the assessee and only the construction of the building of Sapphire Block was hived off. The exclusive right to use the 23 feet access way to the property was retained by the assessee as the said Sapphire Block was in the front portion of the main property. It was thus the submission that the approval for the proposed apartments for Sapphire Block was also in the name of M/s. Lavens Construction Pvt. Ltd. It was the submission that there was physical demarcation indicating segregation of the Blocks being the 4 Blocks built by the assessee and the Sapphire Block built by M/s. Lavens Construction Pvt. Ltd. It was the further submission that the assessee had claimed deduction u/s. 80- IB(10) only in relation to the 4 Blocks built by the assessee and no portion of the claim under section 80-IB(10) related to any portion of the construction in respect of the Sapphire Block. It was the submission that the expenses relating to the construction of the superstructure of the Sapphire Block was also not taken into the books of the assessee company. It was the submission that as the Sapphire 4 I.T.A. No.148/Mds/2010 Block was part of the original project envisaged by the assessee and as the area of the flats in the Sapphire Block exceeded 1500 s.ft., the Assessing Officer had disallowed the claim of the assessee for deduction u/s 80-IB(10). It was the submission that excluding the Sapphire Block, there was no other violation in respect of the claim of deduction u/s. 80-IB(10) and as the assessee had hived off the said Sapphire Block along with the land appurtenant thereto, the same could not be considered in the hands of the assessee company. It was the further submission that the profits in relation to the Sapphire Block had been separately offered for taxation by M/s. Lavens Construction Pvt. Ltd. and the assessee had nothing to do with the said Sapphire Block or the land appurtenant to the said Sapphire Block. It was the submission that the learned CIT(A) had not accepted the assessee's claim on the ground that the approval obtained from the local authorities for developing the project included the land in relation to the Sapphire Block. The Sapphire Block was held to be part of the assessee's project and consequently denied the assessee the benefit of deduction u/s 80-IB(10). It was the submission that as the Sapphire Block was not belonging to the assessee, the same should not be considered in the hands of the assessee for the purpose of denying the assessee the claim of deduction under section 80-IB(10) of the Act.
4. In reply, the learned DR submitted that the approval for the project was composite approval and the construction of the Sapphire Block was done on the basis of the approval obtained by the assessee for the total project. It was the 5 I.T.A. No.148/Mds/2010 submission that the common facilities such as drainage etc. had been done by the assessee which included that for the Sapphire Block. The approval had not been modified to exclude the Sapphire Block. It was the further submission that the deduction u/s 80-IB(10) had been claimed in respect of the undivided share of the land sold by the assessee in respect of the various flats and the deduction u/s 80- IB(10) could be granted only in respect of the profits arising out of the sale of the residential houses as provided under section 80-IB(10). It was fairly agreed by the learned DR that the assessee had not included in its books the profits on the construction and sale of the Sapphire Block.
5. In reply, the learned authorised representative submitted that the assessee had demarcated the cost of the undivided share of the land and the cost of the superstructure and the profits included both that of the land and the superstructure in respect of the balance 4 Blocks. It was the submission that the same was fully permissible u/s 80-IB(10).
6. We have considered the rival submissions. A perusal of the provisions of section 80-IB(10) clearly shows that an undertaking which has commenced or commences the development of the construction of a housing project on or after the 1st day of October, 1998 and complies with all such conditions as prescribed under section 80-IB(10) is entitled to a deduction at 100% of the profits derived in the previous year relating to the assessment year from such housing project. It is noticed here that the housing project is an approved project of the assessee. 6
I.T.A. No.148/Mds/2010 The housing project originally was in relation to an area of land admeasuring 1.445 acres, which after hiving off the Sapphire Block came to 1.2 acres. Here we may specifically mention that the housing of the Sapphire Block of the project to M/s. Lavens Construction Pvt. Ltd. has not been challenged by the local authorities. Even after hiving off the Sapphire Block project the assessee still complies with all the conditions as prescribed under section 80-IB(10). A perusal of the Explanation (i) to section 80-IB(10(a) shows that if the approval is obtained more than once, then 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. This clearly shows that the Legislature did recognize that housing project could consist of various modifications, one such example being in the present case. As long as the conditions prescribed under section 80-IB(10) are fully complied with, just because the assessee hives off one Block in the project and the hived off Block has violated the conditions prescribed u/s 80-IB(10), it would not disentitle the complete project from the deduction under section 80-IB(10), especially when the hived off Block is not in any way connected with the assessee's balance project and the balance project complies with all the conditions u/s 80-IB(10). In fact, this is not a case where some of the units in the project have violated the conditions of section 80-IB(10) of the Act. This is the case where there has been a complete hiving off of a particular Block from the project itself. In the circumstances, we are of the view that the 7 I.T.A. No.148/Mds/2010 assessee is entitled to the claim of deduction under section 80-IB(10) in respect of the housing project developed and constructed by the assessee.
7. Coming to the issue as to whether the undivided interest in the land can be considered for the claim of deduction under section 80-IB(10), it is noticed that the deduction is in relation to the residential units in the housing project and the residential unit would include the undivided share in the land which is sold along with the residential unit. Just because the assessee has maintained separate accounts in relation to the undivided share in the land and in relation to the profits from the construction on the said undivided share in the land, would not deny the assessee the benefit of deduction u/s 80-IB(10) in respect of the undivided share in the land. The deduction is on the profits and gains from the housing project which is entitled to the deduction under section 80-IB(10). In the circumstances, we are of the view that the assessee is entitled to the deduction under section 80-IB(10) in respect of the 4 Blocks put up by the assessee. In the circumstances grounds 2 to 8 of the assessee's appeal stand allowed.
8. It was further submitted by the learned authorised representative that the Assessing Officer in the course of assessment noticed that the assessee had shown an amount of Rs 2,30,52,000/- to be credited in the accounts of M/s. Balaji Builders being in relation to the construction cost in respect of the Padmavathi Block which was shown as work-in-progress. It was the submission that as the assessee had not deducted TDS on the amount credited to M/s. Balaji Builders, 8 I.T.A. No.148/Mds/2010 the Assessing Officer had invoked the provisions of section 40a(ia) of the Act and had disallowed the expenditure of Rs. 2,30,52,000/-. It was the submission that there was a dispute between the assessee and M/s. Balaji Builders in regard to the cost of construction but to recognize the dues to M/s. Balaji Builders, the assessee had shown the same as work-in-progress and had included it in its Income and Expenditure Account and had also shown in the Balance Sheet of the assessee under the head "Stock of Inventories" in the current assets side. It was the further submission that in the computation of the total income, the assessee had started its computation by taking the net profits as per the P & L Account. It was the submission that the work-in-progress was shown in the Balance Sheet only to recognize the bills issued by M/s. Balaji Builders who had raised the bill on the assessee. It was the submission that the payment had been made only during the subsequent year and TDS had been made. The learned authorised representative drew our attention to page 18 of the submissions before the learned CIT(A) to show that the assessee was having dispute with M/s. Balaji Builders in regard to the cost of construction of Padmavathi Block. Subject to the finalisation of the contract price between the assessee company and M/s. Balaji Builders the amount of Rs. 2,30,52,000/-had been credited to the account of M/s. Balaji Builders on the basis of the bills raised by M/s. Balaji Builders as, if the same was not shown in the accounts, the accounts of the assessee would not show a true and clear picture. It was the submission that the same was also 9 I.T.A. No.148/Mds/2010 shown in the Balance Sheet as work-in-progress. It was the submission that the action of the learned CIT(A) in confirming the disallowance by invoking the provisions of section 40a(ia) was liable to be reversed.
9. In reply, the learned DR submitted that in the Income & Expenditure Account the assessee had shown the amount as expenditure though it had also shown the same in the work-in-progress in the income side. It was the submission that even assuming that the same was not an expenditure on account of the dispute, as the same was a contractual liability which was not crystallized in view of the decision of the Hon'ble Gujarat High Court in the case of Alembic Chemical Works Ltd. v. Deputy Commissioner of Income-tax, reported in 266 ITR 47, the expenditure could not be allowed and the income was liable to be assessed in the hands of the assessee.
10. In reply, the learned authorised representative submitted that if the deduction under section 80-IB(10) was granted to the assessee any addition which is made to the net profit on account of any disallowance would also be eligible deduction under section 80-IB(10) as the same is related to the housing project.
11. We have considered the rival submissions. Undisputedly, the amount of Rs. 2,30,52,000/- is shown as the work-in-progress. It has also been admitted by the learned authorised representative that the payment has been made in the subsequent year and TDS had also been deducted on the said amount. 10
I.T.A. No.148/Mds/2010 Consequently, if any disallowance is made by invoking the provisions of section 40a(ia) during the relevant assessment year in respect of this amount, the assessee would be entitled to claim the expenditure when the TDS on the said amount is deducted and paid in the subsequent year in view of the proviso to section 40a(ia). Further as we have already held that the assessee is entitled to the deduction under section 80-IB(10), this disallowance as it relates to the housing project, more specifically Padmavathi Block, the assessee would be entitled to the claim of deduction under section 80-IB(10) on this disallowance. Thus the assessee would become entitled to two deductions which are not permissible in respect of the same amount. The Legislature never intended for such benefits. In the circumstances, as it is noticed that the expenditure in respect of the Padmavathi Block due to M/s. Balaji Builders is shown in the Balance Sheet of the assessee as work-in-progress, we are of the view that no TDS is liable to be deducted on the said amount during the relevant assessment year. This view of ours is also supported by the decision of the Hon'ble Gujarat High Court in the case of Alembic Chemical Works Ltd., referred to supra, wherein it has been categorically held that the same being a contractual liability which has not been crystallized, the same cannot be claimed as an expenditure during the relevant assessment year. In the circumstances, grounds 9 and 10 of the assessee's appeal stand allowed. Grounds 1, 11 and 12 are general in nature and 11 I.T.A. No.148/Mds/2010 do not require any adjudication. In the circumstances, the appeal of the assessee is allowed.
12. The order was pronounced in the court on 16/09/2011.
Sd/- Sd/-
(Abraham P. George) (George Mathan)
Accountant Member Judicial Member
Chennai,
Dated the 16th Sept., 2011.
H.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file