Income Tax Appellate Tribunal - Bangalore
M/S Rns Infrastructure Ltd., , Hubli vs Assessee on 10 April, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCH 'A'
BEFORE SHRI N.BARATHVAJA SANKAR, VICE-PRESIDENT
and
SHRI GEORGE GEORGE K, JUDICIAL MEMBER
ITA No.115/Bang/2012
(Assessment year: 2008-09)
M/s.RNS Infrastructure Ltd.
Murdeshwar Bhavan,
Gokul Road,
Hubli. ... Appellant
PAN:AACCR 7165 G
Vs.
Deputy Commissioner of Income-tax,
Range 3(1),
Hubli. ... Respondent
Appellant : Shri S.Sukumar, Advocate.
Respondent : Shri S.K.Ambastha, CIT-DR
Date of hearing: 10-04-2012.
Date of pronouncement: 04-05-2012.
O R D E R
Per GEORGE GEORGE, K, JM:
This appeal of the assessee-company is directed against the order of the learned CIT (A), Hubli dated 29.12.2011. The relevant assessment year is 2008-09.
2. Though the assessee-company has raised thirteen grounds under two distinctive heads in an illustrative and narrative manner, the issues are confined to two issues, namely:
ITA 115(Bang)/2012 Page 2 of 26
(i) Disallowance of deduction of Rs.27,51,23,476/- u/s 80IB (10) of the Act; &
(ii) Disallowance of expenditure amounting to Rs.11.60 lakhs.
2.1 The assessee had also raised additional grounds of appeal which, for appreciation of facts, are reformulated in a concise manner as under:
(i) that the CIT (A) ought to have considered the fact that the amendment to provisions in the Act to extend the period of completion of housing project from four to five years as explained in the Memorandum explaining the provisions of Finance Bill 2010; &
(ii) that the CIT (A) failed to appreciate that the Circular No.1 of 2011 dated 6.4.2011 extending the period of completion from 4 to 5 years is to allow for extraordinary condition due to global recession and resultant slow down in housing sector in general and not in any particular builder/developer and applicable to all assesses.
3. The facts in brief, are follows: The assessee is a developer and is engaged in the business of construction. During the year under consideration, the assessee-company had claimed deduction u/s 80IB(10) of the Act, aggregating to Rs.27.51 crores in respect of a housing property Yeshwantpur, Bangalore. The AO, in scrutiny assessment, after seeking details of approval of the Layout plan, commencement and occupancy certificates issued by the BBMP, Bangalore etc., and after considering the submissions of the assessee-company, denied the assessee's claim of deduction u/s 80IB(10) of the Act. The relevant finding of the AO reads as follows:
ITA 115(Bang)/2012 Page 3 of 26 "(On page 7) It is quite obvious from the above that the main conditions for claiming the deduction u/s 80IB (10) are that in case, if the approval of the local authority with regard to the project is obtained after 1st day of April, 2004, then the project should be completed within four years from the end of the FY in which the housing project is approved by the local authority, and secondly that the date of completion of construction of the housing project shall be the date on which the completion certificate in respect of the such project is issued by the local authority. In the assessee's case, the local authority viz., BBMP has issued the approval for the construction of the project vide their No.ML/01/05-06 dated 15.10.2005. therefore, the date of commencement of the project in assessee's case 15.10.2005. as per the second main condition i.e., the time limit for completion of the project in assessee's case is four years from the end of the financial year in which the approval has been received by the assessee from the local authority. Therefore, the project in assessee's case should have been completed on or before 31.3.2010. however, the occupancy certificate issued by the BBMP vide their letter No.JDIP/LP/NO.01/05-06 is dated 22.4.2010 i.e., the date of completion of the project in assessee's case is 22.4.2010 which is beyond the time limit as prescribed in the Act and hence in view of section 80IB (10)(a)(ii). Deduction claimed by the assessee u/s 80IB (10) amounting to Rs.27,51,23,476/- cannot be allowed and, therefore disallowed. Assessee has contended in its letter dated 27.10.2010 that Finance Bill 2010 specifically provided one year's extra time for the completion of the project (5 years instead of 4 years) due to recession in the market. In this connection, it is mentioned that the amendment brought by the Government in respect of section 80IB (10) by increasing the period of completion of the project to five years vide Finance Act 2010 is w.e.f 1.4.2010 and is applicable for AY 2010-11 and onwards only.
In this regard, it is significant to mention that the substantive provisions of the Act provided u/s 80IB (10), as existed prior to amendment are not applicable to the case of the assessee for the reason that assessee got approval for commencement of housing project on 15.10.2005 which is after 1.4.2005, and accordingly the project was required to be completed by 31.3.2010. but since the project is completed after 31.3.2010, therefore, the assessee company is not eligible for deduction for the year ITA 115(Bang)/2012 Page 4 of 26 under consideration. Moreover, the case of the assessee is not covered by the amended provisions of the Act for the reasons firstly that the assessee's case is not covered by substantive provisions of sec 80IB (10) as existed prior to amendment through the Finance Act, 2010 and secondly that amended provisions are made effective from AY 2010-11.
therefore, the profits for FY 2007-08 (AY 2008-09) are not eligible for deduction u/s 80IB (10) even by virtue of amendment. Thirdly, in nut shell, it is vital to mention that if the case of the assessee does not fall within the ambit of substantive provisions of the Act as existed prior to the amendment, in that situation any further amendment will not be applicable to the case of the assessee by virtue of the fact that the substantive provisions are not applicable. Thus even the profits for 31.3.2010 will also not be eligible for deduction u/s 80IB (10), even though the amended provisions made effective from 01.04.2010.
The assessee has submitted the copies of the blue print of the site plan, sanction drawing and approval of the project by the local authority i.e., BBMP vide LP No.ml/01/05-06 dated 15.10.2005. On verification of the Xerox copy of the blue print, it is seen that the approval has been given by the local authority to the company viz., M/s Fire Bricks Potteries Pvt. Ltd (FBPPL) Khata No.4/6 (Old Plot), N.H 4 Yeshwantpur, Bangalore [(signed by the Chairman of the company Shri R.N. Shetty- for Fire Bricks & Potteries Pvt. Ltd)
- in the place meant for owners signature] which is not the assessee i.e., M/s RNS Infrastructures Ltd (RNSIL). The occupancy certificate dated 22.4.2010 with regard to the project at 4/6, Tumkur Road, Yeshwantapur, Bangalore has been issued by the BBMP to the company viz., M/s. FBPPL and not to the assessee i.e., M/s. RNSIL. The letter of occupancy certificate dated 22.4.2010 issued by the Joint Director, Town Planning, BBMP has been addressed to M/s. FBPPL and Shri R.N. Shetty being the Chairman of the company M/s. RNSIL. When the project for which the deduction claimed u/s 80IB (10) is not FBPPL the assessee M/s RNSIL was questioned about the veracity for claiming the deduction u/s 80IB (10) and the assessee has stated that the housing project is a joint venture housing project wherein M/s FBPPL is the land owner and M/s RNSIL is the developer. As per the joint venture agreement the developer - M/s RNSIL by undertaking the investment risk started the housing project by ITA 115(Bang)/2012 Page 5 of 26 obtaining the proper approval from the BBMP, Bangalore within the statutory period allowed by the Act i.e;, 15.10.2005. the assessee also states that the project commencement certificate enclosed proves the sanction under the joint development and FBPPL is getting only the fixed percentage towards the cost of the land only out of the project. It is further contended that the FBPPL is assessed to tax separately and has offered capital gains. M/s. RNSIL is the sole developer and not works contractor. Considering the replies given, the assessee was asked to furnish the copies of the joint venture agreement entered between M/s FBPPL and M/s. RNSIL....................................................................................... ............................................................................................... Considering all these facts and figures available on record and verifying all the details submitted by the assessee, it can be concluded that the project has not been completed before the due date i.e., 31.3.2010 and also that the amended provisions are not applicable to the case of the assessee by virtue of the fact that the substantive provisions of sec. 80IB (10) are not applicable to the assessee. Therefore, the claim made by the assessee of deduction u/s 80IB (10) of Rs.27,51,23,476/-is rejected and disallowed....."
3.1 With regard to lump-sum addition of Rs.11.60 lakhs, the AO had reasoned that the expenditure claimed under the heads (i) repairs and maintenance, (ii) general expenses, (iii) workman and staff welfare, (iv) carriage inwards, (v) watch and ward etc., were self-made vouchers and fully unverifiable.
4. Aggrieved, the assessee-company took up the issues with the learned CIT(A) for relief. The submission of the assessee-company was more or less what has been contended before the AO. The appellant had also placed reliance on a number of case laws to drive home its arguments. After due consideration of the contentions of the appellant, the learned CIT (A) had observed thus:
ITA 115(Bang)/2012 Page 6 of 26 "(On page 8) I have gone through the facts of the case, contents in the assessment order and written submissions of assessee including the case laws and Board Circular relied by the assessee. The fact is that the project to be completed and the occupancy certificate has to be issued by BBMP on or before 31.3.2010 but the occupancy certified was issued by the BBMP on 22.4.2010 which is beyond due date that i.e., 31.3.2010. Hence, the AO is correctly disallowed the claim of the assessee u/s 80IB (10) and the disallowance of the AO is confirmed."
4.1 With regard to the disallowance of expenditure of Rs.11.60 lakhs made by the AO, the stand of the learned CIT (A) was that "(On page 9) I have gone through the facts of the case and the contents of the assessment order, regarding the above mentioned disallowance of expenditure, the assessee did not produce any evidence in support of the claim of expenditure. Hence, the addition made by the AO is confirmed."
5. Aggrieved, the assessee-company has come up with the present appeal. The lengthy submissions made by the learned A R, during the course of hearing, are summarized as under:
The learned AO's decision to deny deduction u/s 80IB (10) was on the ground that the Occupancy Certificate issued by BBMP in favour of the land owners, M/s. Firebricks & Potteries and that the deduction would be available to the land owners and not to the appellant who is the developer. The inference of the AO was incorrect for the following reasons:
(i) that M/s. Fire Bricks & Potteries, the land-owner is the title holder and as such the plan approval would always be in its name only; that the local authority recognizes the legal title holder of the ITA 115(Bang)/2012 Page 7 of 26 property; and all sanctions, permissions and approvals were issued only in the name of such legal title holder. When plan approval was in the name of the title-holder, the occupancy certificate would only be in the same name and such Governmental procedure cannot be faulted with.
The claim of the appellant for deduction is in its capacity as a developer of the property and not as owner. In any case, the deduction allowable u/s 80IB (10) is in respect of the undertaking developing the housing project and is not based on ownership of land;
Relies on:
(a) the finding of the Chennai Tribunal in ACIT v.
Smt. C. Rajini (2011) 9 ITR (Trib) 487 (Chennai); &
(b) CIT v. Radhe Developers 341 ITR 403 (Guj) Thus, the application for occupancy certificate in the name of the land owner could make no difference to the appellant's claim because occupancy certificate can be issued in the land owner's name only. The opinion of the AO that such certificate should be in the name of the developer as a pre-condition for allowance of deduction u/s 80-IB (10) is a stipulation outside what has been prescribed by law and, hence, not sustainable That the application for occupancy certificate refers to RNS Shanthi Nivas the subject by name; and that this is relevant as the deduction is in respect of an undertaking being a housing project so that the occupancy certificate is in respect of the project which is more relevant than the name of the party;
(ii) With regard to the disallowance on the ground that the project completion was beyond the stipulated time limit, it was contended that - Explanation (ii) to s.80IB (10) implicitly subscribes:
"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"
The inference of the AO that the occupancy certificate having been issued only on 22.4.2010 i.e., beyond the time stipulated u/s 80IB (10), ITA 115(Bang)/2012 Page 8 of 26 the appellant was disentitled for deduction, is incorrect for the following reasons:
(a) as per the law applicable to the AY 2008-09, the project should be completed on or before 31.3.2010 whereas an application was made to the local authority during January, 2010 informing them that the project has been completed and that occupancy certificate to be issued; that a certificate dt.21.1.2010 from the Architect was submitted to the local authority that the construction was complete which was a statutory requirement;
(b) a letter has been issued by the local authority on 6.3.2010 certifying that the project was complete as per the sanctioned plan and occupancy certificate was issued by the local authority in April, 2010;
(c) the authorities below erred in considering the date of 'occupancy certificate' as to be date of completion of the housing project;
(d) that the project was complete before 31.3.2010, the statutory due date under the Income-tax law as evidenced below:
- Certificate dt 21.1.2010 from the Architects in the prescribed form -
Schedule VIII - certifying that the construction completed was submitted to the Joint Director of Town Planning, BBMP, Bangalore;
- Letter to Jt. Director of Town Planning, BBMP by Firebricks & Potteries Pvt Ltd, the land owners dt.22.1.2010 and 25.2.2010 seeking occupancy certificate;
- Letter dt.6.3.2010 from the Jt. Director of Town Planning, BBMP confirming that the project has been completed as per the approved plan.
(e) that the authorities below erred in considering the date of occupancy certificate as to be the date of completion of housing project ignoring the very fact that the date of the completion of project was well before the statutory due date of 31.3.2010;
(f) Alternatively, if the date of completion was to be taken as 22.4.2010 - date of ITA 115(Bang)/2012 Page 9 of 26 occupancy certificate - even then it was within the extended time limit of five years as per amendment by the Finance Act 2010;
(g) With regard to AO's objection of date of completion was ultra-technical, it was contended that -
- at the time when the AO concluded the order, the provisions in its amended form were part of the Statute; and that if the law was to apply only for approval beyond the date of amendment i.e., 1.4.2010, it would mean that the amendment would have no effect because no approval was possible after 31.3.2008 so that the amendment would be still born and after the amendment, it is clear that it will cover all approvals on or after 1.4.2005;
- that during the appellate proceedings, the learned CIT (A)'s attention was drawn to the Board's Circular No. 1 of 2011 which specifically prescribes that 'the extension of time for project completion is available for housing projects approved on or after 1.4.2005 but on or before 31.3.2008.'
(h) taking cue from the findings of the jurisdictional Tribunal in the case of DCIT v. M/s. Akshay Eminence Developers Pvt. Ltd in ITA Nos.387, 388 & 822/2010 dated 22.6.2011, it was claimed that the plan approval, a statutory requirement, dates back to the date of application and that the application for issuance of occupancy certificate was made on 21.1.2010, though the said certificate was dated 22.4.2010. applying this analogy, the occupancy certificate for the subject project was to be considered as dating back to the date of application, i.e., 21.1.2010 well before the project completion statutory due date of 31.3.2010.
(i) it was the case of the appellant that the project was completed within four years and the architect certificate from the registered architect recording completion was recorded on 21.1.2010; and application for occupancy certificate was filed with the Joint Director of Town Planning, BBMP on ITA 115(Bang)/2012 Page 10 of 26 21.1.2010. There was a communication from the Director of Town Planning dt.6.3.2010 confirming that the project has been completed as per the approved plan.
Occupancy certificate from the local authority was an evidence certifying that the Units were fit for occupation in all respects and it was not an evidence of project completion. If these facts were to be considered, there was no need for dependence on relaxation of time limit for completion.
(iii) Claim of expenditure of Rs.11.6 lakhs:
that these expenses disallowed were supported by vouchers prepared by an employee and authenticated by the cashier, though external evidence may not have been available, considering the nature of the expenses. The AO had not indicated in his impugned order the basis on which the estimates were made. The AO had rather ignored the extent of work, the extent of such expenses, contemporary records of payments and audited books of account while resorting to disallowance.
5.1 In conclusion, it was pleaded that the disallowances of (i) claim of deduction of Rs.27,51,23,476/- u/s 80IB (10) and the (ii) expenses aggregating to Rs.11.6 lakhs require to be deleted.
5.2 On the other hand, the learned D R supported the stand of the learned AO on this count which has been sustained by the learned CIT (A) in a judicious manner. It was, therefore, pleaded that the stand of the income-tax authorities requires no intervention of this Bench.
6. We have carefully considered the rival submissions and attentively perused the relevant case records. The assessee-
company derives income as developer of housing project and ITA 115(Bang)/2012 Page 11 of 26 civil contractor entered into a joint development agreement dated 20.6.2006 with M/s.Firebricks & Potteries Pvt. Limited [FPPL], the absolute owners of a land situated at No.4/6, Tumkur Road, Yeshwantpur, Bangalore for the development of the subject property. Subsequently, supplementary agreements to joint development were entered into between the parties concerned on 26.12.2006, 30.12.2006 and again on 30.3.2009. Accordingly, layout plan was approved on 15.10.2005 by the Bruhat Bangalore Mahanagara Palike [BBMP], the local authority [source: Page 41 of PB]. On completion of the project, the Registered Architect who had supervised the erection of apartments, furnished a Completion Certificate in the prescribed proforma - Schedule - VIII (Bye law No.5.5) dated 21.1.2010 to the Joint Director of Town Planning (BBMP) certifying that 'I certify that the erection of apartment building RNS Shanthinivas of M/s. Firebricks & Potteries Pvt. Ltd at Khatha No.4/6, 2275, Tumkur Road, Yeshwanthpur, Bangalore-560022 has been supervised by me and has been completed on 21.1.2010...." [courtesy: Page 43 of PB]. FPPL in its communication dated 21.1.2010 addressed to the Joint Director of Town Planning requested to issue occupancy certificate of the building. Both the communications have been duly acknowledged by the Joint Director of Town Planning, Bangalore, on 21.1.2010 vide his Office Seal with signature (Refer: Page 44 of PB). The BBMP was reminded by FPPL vide its letter 25.2.2010 to issue the occupancy certificate ITA 115(Bang)/2012 Page 12 of 26 as per its earlier application submitted on 21.1.2010 along with necessary certificates [Refer: Page 47 of PB]. The Joint Director of Town Planning vide his Endorsement in No.JDTP/LP/01/05-06 dated 6.3.2010 had communicated as under:
"Sub: Request for occupancy certificate for residential complex building - Property No.4/6, Tumkur Road, Old Ward No.2, Bangalore - reg -
Ref: Your application dt.21.01.2010.
.............
With reference to the above mentioned subject and the reference request for issue of occupancy certificate for residential building complex situated at property No.4/6, Tumkur Road, Old Ward No.2, Bangalore, consisting of 2 cellar + ground + 12 upper floors, we have conducted a project site inspection and have found that the building construction is complete as per the revised sanctioned plan, and you are hereby informed that after the approval of the Commissioner, suitable action will be taken regarding issue of occupancy certificate."
[Refer: Pages 48 & 49 of PB - free English translation on P 49] 6.1 The BBMP vide its communication No.JDTP/LP No.01/05-06 dated 22.4.2010 had conveyed Occupancy Certificate [Refer: P 50 of PB]. On the basis of the above documents, the assessee-company had, for the AY under consideration, claimed deduction of Rs.27.51 crores u/s 80IB (10) of the Act. However, the learned AO, by extensively quoting the provisions of s. 80IB (10) of the Act, took a divergent view that [at the cost of repetition] -
"(On page 8).... , it is significant to mention that the substantive provisions of the Act provided u/s 80IB (10), as existed prior to amendment are not applicable to the case of the assessee for the reason that assessee got approval for commencement of housing project on 15.10.2005 which is after 1.4.2005, and accordingly the ITA 115(Bang)/2012 Page 13 of 26 project was required to be completed by 31.3.2010. but since the project is completed after 31.3.2010, therefore, the assessee company is not eligible for deduction for the year under consideration. Moreover, the case of the assessee is not covered by the amended provisions of the Act for the reasons firstly that the assessee's case is not covered by substantive provisions of sec 80IB (10) as existed prior to amendment through the Finance Act, 2010 and secondly that amended provisions are made effective from AY 2010-11. Therefore, the profits for FY 2007-08 (AY 2008-09) are not eligible for deduction u/s 80IB (10) even by virtue of amendment. Thirdly, in nut shell, it is vital to mention that if the case of the assessee does not fall within the ambit of substantive provisions of the Act as existed prior to the amendment, in that situation any further amendment will not be applicable to the case of the assessee by virtue of the fact that the substantive provisions are not applicable. Thus even the profits for 31.3.2010 will also not be eligible for deduction u/s 80IB (10), even though the amended provisions made effective from 01.04.2010.
Accordingly, the claim of the assessee-company was rejected.
6.1.2 However, on a careful perusal of the documents produced, it has been observed that the local authority had sanctioned the plan vide LP NO.01/05-06 dated 15.10.2005. Application of time frame prescribed under the Act for claiming deduction u/s 80IB (10) of the Act, the relevant portion of which, is extracted as under:
"S.80IB (10).....................................................................................
(a)...................................................2..........................................
(i)..................................................................................................
(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, within four years from the end of financial year in which the housing project is approved by the local authority.
Explanation............"
ITA 115(Bang)/2012 Page 14 of 26 In the case on hand, the local authority [BBMP] had issued the approval for the construction on 15.10.2005 and, thus, the date of commencement of the project in the appellant's case was 15.10.2005. Therefore, the project should have been completed on or before 31.3.2010. No doubt, the Occupancy Certificate issued by the BBMP was dated 22.4.2010 which was, according to the learned AO, beyond the time limit as prescribed in the Act and, accordingly, the assessee-company has been denied deduction.
6.1.3 In this connection, we would like to point out that the Registered Architect in the prescribed Form - Schedule VIII (Bye law No.5.5) certified that the project has been completed on 21.1.2010. The local authority was duly informed and requested to issue the occupancy certificate for the said project. The local authority has duly acknowledged the receipt of such a request made in the prescribed pro forma [See Page 43 of PB). On its part, the owners of the land - FPPL - have in their communication dated 21.1.2010 requested the local authority to expedite the issuance of Occupancy Certificate for the said project. This communication has also been acknowledged by the BBMP on 21.1.2010 [Refer: Page 44 of PB]. To suffice, the Joint Director of Town Planning had, in his endorsement, duly acknowledged that "the building construction is complete as per the revised sanction plan and you are hereby informed that after the approval of the Commissioner, suitable action will be taken regarding issue of occupancy certificate." [Page 49 of ITA 115(Bang)/2012 Page 15 of 26 PB]. Above all, the local authority in its Occupancy Certificate date 22.4.2010 had recorded the following under its reference that -
"Ref: 1) Your application dt.21.01.2010.
2) Proceedings of the Plan Scrutiny Committee sub.No.06.
3) Approval of Commissioner dated: 20.4.2010"
The above narration goes to vouch that (i) the project has been completed on 21.1.2010 and, accordingly, a Completion Certificate was furnished to the Local Authority on 21.01.2010;
(ii) on the basis of the Completion Certificate of the Architect, the Plan Scrutiny Committee of BMP conducted its proceedings on 26.2.2010; and (iii) the Local Authority, on physical inspection of the subject project, in its Endorsement dated 6.3.2010 acknowledged that the building construction is complete and awaiting for approval of the Commissioner, BBMP, for issuance of occupancy certificate. It is, therefore, quite obvious that the project was complete much before the due date of 31.3.2010 so as to qualify itself for deduction u/s 80IB (10) of the Act.
6.1.4 Another salient feature noticed in the wordings of Explanation (ii) to s.80IB (10) (a) are that [of course, at the cost of repetition] -
"Explanation: (i)..............................................................................
(ii) The date of completion of construction of the housing project shall be taken to the date on which the completion certificate in respect of such housing project is issued by the local authority"
ITA 115(Bang)/2012 Page 16 of 26 6.1.5 It is rather more significant to note that the Act subscribes only completion certificate in respect of such housing project issued by the local authority and NOT the occupancy certificate as clamoured for by the authorities below. In the instant case, the local authority - Joint Director of Town Planning - in its Endorsement in No.JDTP/LP/01/05-06 dated 6.3.2010 had unambiguously made it clear and duly acknowledged that "We have conducted a project site inspection and have found that the building construction is complete........" This Endorsement of the Competent Authority of BBMP cannot be brushed aside. This assertion of the local authority makes it abundantly clear that the construction of the subject project was complete in all respects well before the due date of 31.3.2010. The formal 'Occupancy Certificate' was issued only after obtaining the approval from the Commissioner of BBMP which, in our considered view, cannot vitiate the date of completion of the project as certified by none other than a qualified Architect dated 21.1.2010 which was duly endorsed by the local authority by its Endorsement dated 6.3.2010. Taking into account the above mentioned facts and circumstances of the issue, we are of the firm view that the authorities below were not justified in denying the legitimate claim of the appellant for deduction u/s 80IB (10) of the Act. The above finding has been arrived at on the basis of the Completion Certificate issued by the Registered Architect which was duly filed with the local authority. The Local Authority, in turn, had ITA 115(Bang)/2012 Page 17 of 26 endorsed the Completion Certificate of the Architect on physical inspection of the subject project. This assertion of the none other than the Competent Authority of BBMP cannot simply be ignored on the gambit that the Occupancy Certificate was issued only after 31.3.2010. The provisions of s. 80IB (10) of the Act have not prescribed that the claim of deduction can be extended only on the basis of 'occupancy certificate', but, subscribe only on 'completion certificate'. There may have been administrative procedural delay in the echelon of BBMP to accord approval for issuance of occupancy certificate for which the assessee-company cannot be penalized.
6.2 Alternatively even if the date of completion taken to be only on 22.4.2010 (the date of occupancy certificate), it is still within the extended time limit of five years vide the amendment by the Finance Act, 2O10. (Please refer to the Additional Grounds filed on 27.03.2012). The extended time limit is available to all projects approved on or after 1.4.2005 so as to cover all projects pending on 31st March, 2010. The AO having taken the view that the project was pending completion on 31.3.2010, could not have legitimately taken the view that the amended provisions are not applicable to the appellant. The amendment has been explained in Board Circular No.1 of 2011 dated 6.4.2011 [2011] 333 ITR (St.) 7 as under:
ITA 115(Bang)/2012 Page 18 of 26
16. Deduction for developing and building housing projects 16.1 Under the existing provisions of section 80-IB(10),100 per cent deduction is available in respect of profits derived by an undertaking from developing and building housing projects approved by a local authority before 31.3.2008. This benefit is available subject to, inter alia, the following conditions:
(a) the project has to be completed within 4 years from the end of the financial year in which the project is approved by the local authority.
(b) ...
16.2 To allow for extraordinary conditions due to the global recession and the resultant slowdown in the housing sector, the period allowed for completion of a housing project in order to qualify for availing the tax benefit under the section, has been increased from the existing 4 years to 5 years from the end of the financial year in which the housing project is approved by the local authority. This extension will be available for housing projects approved on or after 1.4.2005 but on or before 31.3.2008.
16.3 Further, __________ 16.4 Applicability - These amendments have been made applicable with retrospective effect from 15t April, 2010 and will accordingly apply to the ITA 115(Bang)/2012 Page 19 of 26 assessment year 2010-11 and subsequent assessment years.
16.5 Vide Instruction No.4/2009 dated 30.6.2009, the Board has already clarified regarding deduction under section 80-IB(10) in respect of undertakings developing and building housing projects. It was clarified that the deduction can be claimed on a year-to-year basis where the assessee is showing profit from partial completion of the project in every year. In case it is found that the condition of completing the project within the specified time limit of 4 years as stated in section 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn. The conditions regarding the time-limit for completion of the project and for the permissible built up area of shops and other commercial establishments included in the housing project have been relaxed as indicated above.
Accordingly, the deduction granted to an assessee in the earlier years should be withdrawn only if the revised conditions are not satisfied"
It may also be seen from the circular that deduction has to be allowed on year to year basis. The claim of deduction has to be allowed for the assessment year 2008-09 for this reason, since assessee is not endowed with foresight as to the date of completion, when he files the return of income. Law provides for withdrawal of the allowed deduction, when the project is not completed before the prescribed period. The circular states that ITA 115(Bang)/2012 Page 20 of 26 withdrawal may not be made, when the project is completed within the extended period as per the revised Law. For all these reasons, the order of the Assessing Officer is contrary to Law.
6.2.1 The AO's objection with reference to date of completion is ultra-technical. The very purpose of the amendment extending the period of construction completion from four to five years was because of the recession. The provision in sub-clause (iii) in clause (a) to sub-section (10) of section 801B after amendment reads as under:
(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 (emphasis supplied) The Notes on Clauses to the Finance Bill, 2010 -- reference (2010) 321 ITR (St.) 96 reads as under:
Clause 27 of the Bill seeks to amend section 80-lB of the Income-tax Act relating to deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.
Under the existing provisions contained in sub- section (10) of the aforesaid section, hundred per cent. deduction is available in respect of profits derived by an undertaking from developing and building housing projects approved by a local ITA 115(Bang)/2012 Page 21 of 26 authority before 31st March, 2008. It is further provided in clause (a) that where a housing project has been, or, is approved by the local authority on or after 1st April, 2004, it should be completed within four years from the end of the financial year in which the housing project is approved by the local authority.
It is proposed to increase the period for completion of a housing project, approved on or after 1st April, 2005, from four years to five years." (emphasis supplied) The reason for the amendment has been explained in the Memorandum explaining the provisions of the Finance Bill, 2010 (2010) 321 ITR (St.) 125-126 as under:
To allow for extraordinary conditions due to the global recession and the resultant slowdown in the housing sector, it is proposed to increase the period allowed for completion of a housing project in order to qualify for availing the tax benefit under the section, from the existing 4 years to 5 years from the end of the financial year in which the housing project is approved by the local authority. This extension will be available for housing projects approved on or after 1.4.2005." (emphasis supplied) 6.2.2 When the Assessing Officer passed the assessment order, the provision in its amended form was part of the statute.
If the law was to apply only for approvals beyond the date of amendment i.e., 01.04.2010 - it would mean that the ITA 115(Bang)/2012 Page 22 of 26 amendment would have no effect, because no approval is possible after 31st March, 2008, so that the amendment would be still-born and a dead letter. Further, after the amendment, it is clear that it will cover all approvals on or after 1st April, 2005.
6.3 With regard to the Assessing Officer's assertion that the assessee-company was disentitled to deduction under section 80IB (10) on the ground that the 'occupancy certificate' issued by the BBMP was in favour of the land owners - FPPL - and therefore the deduction would not be available to the assessee-company who was the developer etc., the learned AR contended that the learned CIT (A) had sustained the disallowance only on the alleged project completion being beyond the stipulated date and, thus, the inference of the AO that the assessee was not entitled to deduction because of the plan approval and occupancy certificate being in the name of the owner - does not survive for consideration.
6.3.1 During the course of hearing, the learned A R made a specific submission that if the AO's assertion were to be taken up for consideration by this Bench, he earnestly averred that the AO's inference doesn't hold water in view of the recent finding of the Hon'ble Chennai Tribunal reported in (2011) 9 ITR (Trib) 487 (Chennai) and the ruling of the Hon'ble Gujarat High Court reported in 341 ITR 403 (Guj).
ITA 115(Bang)/2012 Page 23 of 26 6.3.2 We have duly considered the submission of the learned AR as well as the reasoning of the learned AO on the issue. At this juncture, we would like to recall the finding of the Hon'ble 'A' Bench of the Chennai Tribunal in the case of ACIT v. Smt.C Rajini and DCIT v. C. Subba Reddy (HUF) reported in (2011) 9 ITR (Trib) (Chennai). The issue, in brief, was that the assessee was a property developer in the State of Tamil Nadu where it was the common practice for developers to obtain development projects through Power of attorney (POA) after making full payment of the settled consideration, for the land to the owner of the land. The POA was worded keeping in line with the legal requirements to pass proper title to the prospective buyers of the flats. All the activities connected with development of land, including demolition, approval, preparation of scheme drawings and submission of plans to the Development Authority were undertaken by assessee, the developer. Although the fees were paid in the name of the owner, the construction was done by the assessee. All the activities connected with selling of flats like advertising, marketing, were carried out by the assessee in that case. The land owner after receiving the full consideration of the land did not spend anything towards its development activities. On these facts, for the AY 2005-06, the assessee claimed deduction u/s 80IB (10) of the Act, but the claim was not allowed mainly on the ground that the assessee was not the owner of the land and had also not developed the property. The CIT (A) held in ITA 115(Bang)/2012 Page 24 of 26 favour of the appellant. On appeal, the Hon'ble Bench held that:
"the assessee had not been awarded any such works contract by any person (including Central or State Government). After execution of the power of attorney when she had paid in full and final consideration of the land to the land owner and took vacant possession of the land and possession of the entire property was handed over to her, the 'transfer' as envisaged in section 2(47) of the Act was completed, and, thereafter, the assessee had to develop the project even though the approval was to be taken formally in the name of the owner of the land. It was not at all necessary that the developer should be a de jure owner of the land. It is quite possible to develop the property with consent of the owner. The assessee was de facto owner of the property when the entire allotment procedure was executed by her. It was the assessee who incurred all the expenses connected with the development of the property right from filing the application for planning permission and paying necessary fees. Marketing of the site was also done by the assessee through advertisement etc., this was not a works contract. The assessee was not required to be owner on record for claiming a deduction under section 80IB (10) of the Act. The assessee fulfilled all the conditions laid down in section 80IB (10) of the Act and the Explanation appended thereto."
6.3.3 Yet another ruling, the Hon'ble Gujarat High Court in the case of CIT vs. Radhe Developers (341 ITR 403)(Guj), had held that ownership of property is not a condition precedent for ITA 115(Bang)/2012 Page 25 of 26 granting deduction u/s 80IB(10). The relevant finding of the Hon'ble Gujarat High Court reads as follows:
"That even in cases where the agreement provided that the assessee was to receive a remuneration, the assessee was given full rights to develop the land by putting up the housing project at its own risk and cost. The entire profit flowing there-from was to be received by the assessee. The project was being developed by the assessee at its own risk and cost and not that of the land owners. The assessee thus was not working as a works contractor. Introduction of the Explanation to section 80-IB(10) in this case also would have no effect. The assessee was entitled to the benefit under section 80-IB(10) of the Act even where title to the land had not passed on to the assessee and the development permission may also have been obtained in the name of the original land owners."
6.3.4 Considering the facts of the issue as deliberated upon in the foregoing paragraphs and in conformity with the finding/ruling of the judiciary, we are of the considered view, the appellant as a developer is entitled to claim deduction u/s 80IB (10) of the Act. It is ordered accordingly.
7. In respect of denial of claim of expenditure to the tune of Rs.11.6 lakhs, we have duly considered the submission of the learned A R. The learned A R conceded that the expenses disallowed were supported only by self-made vouchers prepared by the appellant. On perusal of the impugned assessment ITA 115(Bang)/2012 Page 26 of 26 order, it has been observed that the learned AO had resorted to make lump sum additions under each head, however, the basis or yardstick for such additions have not been spelt out. At the same time, the assessee-company had also failed to bring any documentary evidence on record to belie the AO's stand. Under these circumstances, we are of the view that there is no justifiable scope for us to interfere with the AO's action on this point. It is ordered accordingly.
7.1 Before parting with, we would like to reiterate that the case law on which the learned A R placed reliance is on the different footing and clearly distinguishable.
8. In the result, the appellant's appeal is partly allowed. Order pronounced in the open court on 4-5-2012.
Sd/- sd/-
(N.Bharathvaja Sankar) (George George K)
VICE-PRESIDENT JUDICIAL MEMBER
Eks
Copy to :
1. Appellant
2. Respondent
3. CIT(A) concerned
4. CIT
5. DR, ITAT, Bangalore
6. Guard file
By Order
Assistant Registrar, ITAT, Bangalore