Income Tax Appellate Tribunal - Bangalore
Sjr Builders, Bangalore vs Assessee on 21 August, 2009
ITA.1192/B/08 Page - 1
IN THE INCOME-TAX APPELLATE TRIBUNAL
BANGALORE BENCH 'A'
BEFORE SHRI. K. P. T. THANGAL, VICE PRESIDENT
AND
SHRI. A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
I.T.A.No.1192/Bang/2008
(Assessment year : 2005-06)
M/s. SJR Builders,
Rep. by successor SJR Enterprises P. Ltd.,
7th and 8th floor, "SJR Primus",
No.1, Industrial Layout, 7th Block,
Koramangala, Bangalore 560 095 .. Appellant
v.
Asst. Commissioner of Income tax,
Circle -7(1), Bangalore .. Respondent
Appellant by : Shri. Devaraj
Respondent by : Shri. Harsha Prakash
ORDER
PER K. P. T. THANGAL, VICE PRESIDENT :
This appeal by the assessee is for the Assessment Year 2005-
06. The first objection is against the order of the Commissioner of Income-tax(A) in confirming the action of the Assessing Officer of rejecting the benefit u/s.80IA(10) relating to assessee's claim with regard to the "SJR Redwoods" project, on the reason that some of the residential flats falling to the share of the owner were exceeding 1500 sqft of built-up area and not following the decision of the ITAT, ITA.1192/B/08 Page - 2 Chennai Bench in Arun Excello Foundations Pvt. Ltd., in ITA Nos.2090 and 2091/Mad/06 and the Kolkatta Bench decision in the case of Bengal Ambuja Housing Development Ltd., in ITA No.1735/Kol/05. The facts leading to the dispute briefly is as under.
2. The assessee filed the return declaring income at Rs.75,70,303/- on 31.10.05. The return was processed u/s.143(1) on 28.3.07 resulting in a demand of Rs.2,42,590/-. Subsequently the case was selected for scrutiny and there was a survey u/s.133A on 8.7.07. Notice u/s.143(2) was issued along with questionnaire u/s.142(1) on 19.2.07. The assessee vide reply dt.26.2.07 contested the transfer of jurisdiction. Subsequently, the objection was withdrawn.
3. The assessee is engaged in the construction and real estate business in the name and style of SJR Builders. There are two partners in the firm namely, J. Vijay Reddy and J. Bhupesh Reddy sharing the profit and loss equally. During the period under consideration the assessee had undertaken layout projects in the name of SJR Eastwood and multistorey residential project in the name of SJR Redwood. Park Vista, Spencer and Brookland residential projects were in the initial stage. The turnover shown by the assessee ITA.1192/B/08 Page - 3 was Rs.27,43,95,992/-. After claiming various expenses the profit shown was Rs.2,73,72,397/-. During the period under consideration the assessee changed the method of accounting from project completion method to percentage completion method and the assessee claimed deduction u/s.80IB(10) amounting to Rs.2,02,08,690/- being 100% of the profit in respect of Redwood project. The deduction was claimed by the assessee on the ground that each dwelling units/flats constructed in Redwood project was less than 1500 sft per unit. There was a survey action u/s.133A on 8.2.07 which covered the project sites as well. It was noted that the project was constructed by the assessee on joint development basis and the land was owned by Shivaprasad Reddy, Siddharam Reddy and Anila Reddy, who got 40 flats in terms of the joint development agreement. Shivaprasad Reddy was summoned and examined on oath. He stated that out of the four flats given to him the area of one of the flats was 2350 sft while the area of other flat was 3800 sft. He produced a copy of allotment letter from SJR builders dt.6.12.06 which indicated that the flats No. M-105 in 'M' Block consisted of an area of 3738 sft and M- 408 consisted of 2354 sft. The Assessing Officer was left with no doubt that the area of the same unit in Redwood project was above 1500 sft and, therefore, he came to the conclusion that the assessee was not eligible for deduction u/s.80IB(10) of the Act. The flats were ITA.1192/B/08 Page - 4 inspected by the Assessing Officer personally and found the area of these units were 3738 sft and 2354 sft respectively which was above 1500 sft i.e., the limit prescribed in section 80IB(10). Coming to the inspection of 4th floor of the Redwood project, it was further noted that the assessee had constructed pent house against the initial approved plan by the BDA. Subsequently, this unauthorized construction was regularized by the BDA. He further noted that flat no.M-408 was a pent house which was given to the share of Shivaprasada Reddy. Similarly, flat nos.401 to 407 were all pent houses having area of more than 1500 sft. On the basis of the above facts, he held that the assessee was not entitled for the benefit of Section 80IB(10). Aggrieved by the above order, the assessee approached the first appellate authority.
4. It was submitted that the project is a housing project consisting of residential apartments constructed on the land admeasuring 1,56,000 sft approximately more than 1 acre. The land was provided by original owners in exchange for a specific number of flats equivalent to 27% of the total constructed area. The land owners transferred 73% of undivided interest in the land to the assessee under the joint development agreement dt.16.4.04 and1.9.04. The said project was approved by BBMP, the competent statutory authority.
ITA.1192/B/08 Page - 5 The assessee had derived income of Rs.202.09 lakhs from the said project. The assessee satisfied all the conditions prescribed u/s.80IB(10). Therefore, the assessee claimed deduction of the entire amount of Rs.202.09 lakhs which was denied on the ground that the built-up area of some of the flats was exceeding the maximum permissible area of 1500 sft. The assessee contended that the built-up area means "the inner measurement 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." The learned representative argued before the Commissioner of Income-tax(A) that the construction done is in conformity with the stipulated provisions in the relevant Act and so the residential units does not include the common areas shared with the other units. Therefore, it was contended that the construction undertaken is in conformity with the provisions under the relevant Act. It was contended that Section 80IB(10) is provided to address housing the requirements in the country. The assessee satisfies all the three conditions excepting a few flats like M-105, M-401 to 403 and M-405 to 407, which are constructed with built-up area exceeding the maximum permissible of 1500 sft. Hence, the assessee contended that deduction should be allowed in proportion in respect of the flats which conforms to the pre conditions. For the proposition that the ITA.1192/B/08 Page - 6 deduction u/s.80IB(10) cannot be denied if a housing complex contains both smaller and larger units, the assessee relied on the ITAT, Kolkata Bench decision in ITA.1735/Kol/05, dt.August, 2007 in the case of ACIT v. Bengal Ambuja Housing Development Ltd., and also the decision of the ITAT, Chennai in the case of Arun Excello Foundations P. Ltd., v. ACIT in ITA Nos.2090 and 2091/Mad/06, dt.16.2.07, for the proposition that benefit should be given on pro-rata basis. The assessee relied on the decision of the Supreme Court in the case of Bajaj Tempo reported in 196 ITR 188, for the proposition that the beneficial provisions should be interpreted liberally. The assessee further submitted the decision of the Tribunal, Mumbai Bench in the case of Loukik Developers in 105 ITD 657 is not applicable in the instant case of the assessee, as in that case the claim of deduction u/s.80IB(10) was in respect of a housing project and the Bench further had not decided with regard to allowability of deduction u/s.80IB(10) on proportionate basis.
5. The Commissioner of Income-tax(A) held that the assesse satisfies all the conditions prescribed u/s.80IB(10) except violation of the BUA in respect of a few flats constructed therein. He held that the section 80IB(10) was introduced with a social objective aimed at mitigating the suffering of common man due to shortage of residential ITA.1192/B/08 Page - 7 units. Accordingly the assessee was entitled for the incentive in the form of the said deduction u/s.80IB(10). Hence, he held that so as to claim the deduction, the projects should strictly conform to the conditions prescribed in the statute. He held that there is nothing in the section to say that the preconditions therein can be satisfied in fragments by an assessee and get proportionate deduction. The Commissioner of Income-tax(A) held that the incentive provisions are to be interpreted strictly so as not to frustrate the legislative intention of mitigate the sufferings of the common man. The Commissioner of Income-tax(A) held as far as the assessee's case is concerned, the assessee's project is a joint development project aimed at seekers of luxury-residential units, otherwise, the assessee would not have exceeded the maximum BUA specifications. He further held that the assessee had violated the sanctioned plan by constructing pent houses which are luxurious units on the fourth floor of the above project, which reveals that the project is not intended to address the housing needs of the common man, but it aimed at meeting the luxurious requirements of a few. Therefore, he held that since some of the residential units are not conforming to the maximum built-up area of 1500 sft prescribed u/s.80IB, assessee's project is not entitled for the relief. He further held that the assessee's act of change the method of accounting from project completion method to percentage completion ITA.1192/B/08 Page - 8 method, that too only for the current assessment year is suggestive of the project having not been conceived as a housing project within the scope of Section 80IB(10). He further held, conceding the assessee's claim of proportional deduction in the light of the foregoing analysis of the issue, would frustrate the objectives of section 80IB(10) and, therefore, he held that the assessee is not entitled for deduction u/s.80IB(10). The assessee is in appeal before the Tribunal.
6. The learned representative for the assessee submitted that the claim of the assessee for the benefit of section 80IB(10) was rejected by the revenue authorities on the ground that the built-up area of some of the flats were more than 1500 sft i.e., the maximum prescribed, to avail the benefit u/s.80IB(10)(c) for the Metros other than Delhi and Mumbai. The assessee's representative submitted that the revenue authorities are not fully correct on the ground that the excess area of the flat includes, even according to the revenue authorities, the super-built-up area and includes the common area. The learned representative submitted that this notion of the revenue authorities is incorrect and he specifically brought our attention to section 80IB(10)(a) which was inserted by the Finance Act (No.2), 2004, w.e.f.1.4.2005, which reads as under :
ITA.1192/B/08 Page - 9 (14) For the purposes of this section,--
(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; The assessee's representative submitted that the built-up area means the carpet area plus balconies plus the projections. The assessee's representative submitted that this would lead to the question as to what is the meaning of the floor level of a residential unit. Inviting our attention to Part-3 - Development Control Rules and General Building Requirements at page 16 of paper book no.1, wherein at 2.38, the term 'Floor' is defined as under :
"The lower surface in a storey on which one normally walks in a building. The general term 'floor' unless specifically mentioned otherwise shall not refer to a 'mezzanine floor'."
Again he brought our attention to page 19 of the paper book no.1 i.e., page 4 of the Revised Master Plan -2015 - Zoning Regulation, Bangalore - 2007, Volume 3 published by the BDA. At item 32, 'Mezzanine floor' is defined to mean an intermediate floor between ground floor and first floor only. The area of the mezzanine floor shall not exceed 1/3rd of covered area of ground floor.
ITA.1192/B/08 Page - 10 The learned representative brought our attention to paper book no.1 at page 20 under 3.3 the term 'Floor' is defined as under :
The lower surface of storey on which one normally walks into the building; the general term floor does not refer to basements/cellar or mezzanine floor.
In other words, the above are to be excluded while calculating the floor level area.
7. In the premises of the above facts the assessee's representatie further submitted briefly as under. Section 80IB(10) provides for deducting from the total income the profit and gains derived from a housing project, if the conditions prescribed in clauses (a) to (d) are fulfilled. He submitted that even according to the revenue authorities the assessee has fulfilled all the conditions specified in the said clauses including the one in clause (c) to the extent of built-up area as defined in section 80IB(14)(a). The premises was inspected by the DVO for measurement purposes on 5.7.07 after more than one year from the date of issue of Occupancy Certificate on 16.10.06. There could be every possibility of the occupants themselves making certain changes which is not attributable to the assessee at all. He further submitted that while sanctioning the plan it was evident that the assessee never envisaged any unit with a built-up area of more than ITA.1192/B/08 Page - 11 1500 sft. The fact that the occupancy certificate was issued in the month of June, 2006 indicates that the assessee had adhered to the plan. A perusal of the occupancy certificate shows that it relates to 152 residential apartments of which 38 are duplex units. The total area of the duplex units may exceed 1500 sft. The total area of each of the duplex apartment may exceed 1500 sft but the area of such apartment when viewed within the meaning of the definition of "built-
up area within the ambit of section 80IB(14)(A) do not exceed 1500 sft. Actually the DVO has not physically measured any of the apartment discussed in the assessment order. The DVO's conclusion that each of the unit exceeds 1500 sft is based on the assumption that they are pend houses and hence must have exceeded the prescribed area of 1500 sft. The only unit measured by the DVO in the Redwood project does not fit into the definition of built-up area as defined in the section. He argued that it is pertinent to note that the inspection was made only after the passing of the assessment order. The DVO has considered the total area of the duplex apartment and not at the floor level which is required to be considered for the purposes of section 80-IB(14)(a). A reconciliation statement has been enclosed at page 14 of the paper book no.1. The assessee also brought our attention to the decision of the Tribunal in ITA Nos.668 and 669/Bang/2006 in the case of M/s. G. R. Developers which was ITA.1192/B/08 Page - 12 decided in assessee's favour on similar set of facts. The assessee's representative submitted that none of the residential apartments had, therefore, contravened the provisions of Section 80IB(10). Therefore, he submitted that the claim for deduction amounting to Rs.2,02,08,690/- should be allowed.
8. The learned representative further submitted that alternatively, even if some of the residential units exceeded 1500 sft then the deduction permissible must be residential unit-wise deduction and, therefore, proportionate deduction should be allowed. As per clause
(c) of section 80IB(10), the residential unit should have a maximum built up area of 1500 sft. The assessee's representative reiterated that clause (c) of section 80IB(10) refers to area of "the residential unit". The residential u nit means deduction should operate and be computed unit-wise and, therefore, a particular unit satisfied the condition of section 80IB, deduction should be automatically allowed in respect of that unit. It is only in respect of those units which have not fulfilled the stipulated condition the deduction is to be denied. He further submitted that if the law had wanted all the units to be within the specified limits, it would have stated that "all the residential units"
should have a maximum built up area of 1500 sft. In the absence of such all-pervasive condition, deduction should be allowed in respect ITA.1192/B/08 Page - 13 of profits for the units that fulfills the condition. Law prescribes maximum permissible size with reference to each residential unit. It does not do so qua the commercial units. Instead, it provides for the maximum overall size and all such commercial area together. This differentiation in stipulation indicates that exemption for residential apartment should be computed unit-wise. For the above proposition, he relied on the decision of the Bangalore Bench of the Tribunal in the case of Brigade Enterprises P. Ltd., in ITA No.1198/Bang/07, dt.29.8.2008, particularly to para 5.1. He also relied on the decision of the Special Bench of the ITAT, Pune in the case of Brahma Associates and Others in ITA.1417/PN/06, dt.6.4.2009, wherein the Tribunal held that the tax incentives by way of deduction u/s.80IB(10) is predominantly for the purpose augmenting affordable dwelling units and it must be interpreted in that light only. The assessee's representative submitted that profits from units are to be allowed on the basis of method of accounting employed by the assessee. Accounting principles mandate recognition of profits from each unit separately and deduction should be allowed as such.
9. In support of the above, the assessee's representative submitted that the provisions relating to exemption, allowance and deduction, rebate or relief should be interpreted liberally and broadly. For the ITA.1192/B/08 Page - 14 above proposition he relied on the case of Union of India and Others v. M/s. Wood Papers Ltd., and another (AIR 1991 (SC) 2049). The assessee's representative particularly relied on the following observation :
"Literally exemption is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially in a growing economy. For instance tax holiday to new units, concessional rate of tax to goods or persons for limited period or with the specific objective etc., That is why its construction, unlike charging provision, has to be tested on a different touchstone. In fact an exemption provision is like an exception and on normal principle of construction or interpretation of statutes is construed strictly either because of legislative intention or on economic justification of inequitable burden or progressive approach. But once exception or exemption becomes applicable, no rule or principle requires it to be construed strictly. Truly, taking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then, it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then, full play should be given to it and it calls for a wider and liberal construction."
ITA.1192/B/08 Page - 15 For the above proposition he relied further on the case reported in Commissioner of Income-tax v. Gwalior Rayon Silk Manufacturing Co. Ltd., (AIR 1992 SC 1782). In Bajaj Tempo Ltd., (96 ITR 188) and also on the case of R. Kanakasabai & Others (89 ITR 251). The assessee's representative summed up that where there is a partial non- compliance of the requirements of the law, there should not be complete disallowance of the deductions. Disallowance, if any, the assessee's representative submitted will have to be restricted to the extent of non-compliance of the provisions. This rule of proportionality is well founded in the Income-tax law and is recognized under various sections of the Act. For eg., the assessee's representative submitted that sections 10A(4), 10B(4), 10BA(4), 80HHC(3)(c)(i), 80HHD(3), 80HHE(3) and 80HHF(3), allow deduction in proportion of the export turnover to the total turnover. Further, u/s.54EA, 54EB, 54EC, 54ED and 54F, exemption towards capital gains and under section 115F(1)(b), the benefit is available in proportion of the net consideration utilized to acquire new consideration arising out of transfer of old assets. In the present case, the profits attributable to the eligible residential units out of 152 residential units should be allowed as a deduction.
ITA.1192/B/08 Page - 16
10. The assessee's representative further relied on the decision of the Chennai Tribunal in the case of Arun Excello Foundations P. Ltd., (supra) and submitted that deduction u/s.80IB(10) on the residential units constructed be given on pro rata basis. The above proposition was accepted by the Tribunal in this case. Again the assessee's representative referred to the decision of the Calcutta Bench of the Tribunal in Bengal Ambuja Housing Development Ltd., in ITA.1735/Kol/2005, wherein the Tribunal was seized of a case involving a project consisting of 261 residential units wherein the individual unit sizes varied between 800 sft to 3000 sft. Deduction u/s.80IB(10) was claimed with reference to profit attributable to the built-up area, which was occupied by the residential units having individual flat size of less than 1500 sft. The assessee's representative further submitted that in the case of the assessee if there is a 10% excess as far as a flat is concerned, it should be considered as in conformity with the stipulations contained in section 80IB(10)(c) because such violation is nominal and it could be discarded. For the above proposition, he referred to the decision of the Full Bench in the case of DCIT, Central Circle -11(1), Bangalore v. M/s. Brigade Enterprises, particularly, page 7, wherein at para 5.1, the Tribunal held that the word "residential unit" used in the section should mean that the unit should be taken independently and on that basis ITA.1192/B/08 Page - 17 proportionate deduction should be allowed. The Special Bench of the Tribunal, Pune, in the case of Brahma Associates and Others in ITA.1417/PN/06, dt.6.4.09, held that proportionate deduction should be given with regard to the flats which satisfies the condition in clause (c) of the section 80IB(10), in the light of the discussion that mezzanine floor, common area etc., should be excluded while calculating 1500 sft.
11. The learned DR supported the order of the revenue authorities and brought our attention to the Budget speech of the Finance Minister introducing the section which is reported in Volume 236 ITR page 24, particularly para 96. The learned DR submitted that the incentive was mooted first of all to mitigate the difficulties faced by the middle class investors showing wishing to purchase dwelling unit, in order to promote the middle income group housing projects and to boost the viability of the housing finance companies. Keeping this in view, the built-up area for dwelling units in cities other than Mumbai and Delhi was increased from 1,000 sft to 1500 sft. The learned DR submitted incentive provisions are to be interpreted strictly so as to give the benefit only to the intended group of people and not to others. Undisputedly, even according to the assessee, the area of some of the flats are more than 1,500 sft and some of the flats are ITA.1192/B/08 Page - 18 pent houses, the whole built area of each of such pent houses are to be considered as the area of one flat. On the premises of the above facts, the learned DR relying upon the decision of the Tribunal in the case of Loukik Developers v. DCIT (2008) 303 ITR 356, submitted that the assessee is not entitled for the benefit contemplated u/s.80IB(10).
The DR submitted that in this case, the assessee got permission for construction of residential project but the assessee also constructed shops/commercial spaces along with the housing project and the Tribunal held that the assessee was not entitled or exemption merely because the assessee's site fell within the residential zone. He further relied upon the decision of the Tribunal, Chennai Bench in the case of ACIT, Central Circle v. Chitra Construction P. Ltd., in IT(SS)A. No.206/Mds/2006, dt.28.3.2008. In this case, the Tribunal held that the mandate of section 80IB(10) is that the exemption in this regard is to be provided to the project in which the residential unit has a maximum built-up area of 1,500 sft. Then, if there is a variation in this condition in any of the residential units, there is a clear violation of the provisions of the Act and the claim made by the assessee is to be disallowed.
12. Considering the rival submissions, we are of the view that the appeal by the assessee is to be allowed to the extent of the flats the ITA.1192/B/08 Page - 19 built-up area of the flat is not more than 1500 sft. We agree with the submission of the learned representative for the assessee that while considering the built0up area of 1500 sft for the purpose of exemption u/s.80IB(10), the mezzanine floor and common areas are to be excluded. The Assessing Officer is directed accordingly. We hold that in respect of the pent houses the built-up area of which is more than 1500 sft, they may be excluded for exemption. However, in the light of the decision of the Special Bench in the case of Brahma Associates (supra), merely because some flats are larger than 1500 sft, the assessee will not lost the benefit in its entirety. Only with reference to the flats which has more than the prescribed, the assessee will lose the benefit.
13. In the result, appeal by the assessee is allowed in part, as indicated above. Order pronounced in open court on 21st day of August, 2009.
Sd/- Sd/-
(A. MOHAN ALANKAMONY) (K. P. T. THANGAL)
ACCOUNTANT MEMBER VICE PRESIDENT
Bangalore
Dated : 21st August, 2009
MCN*
ITA.1192/B/08 Page - 20
Copy to:
1. The assessee
2. The Assessing Officer
3. The Commissioner of Income-tax
4. Commissioner of Income-tax(A)
5. DR
6. GF, ITAT, New Delhi
7. GF, ITAT, Bangalore