Income Tax Appellate Tribunal - Mumbai
Harsh Unique Constructions, Mumbai vs Assessee on 24 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH H' BENCH
BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND
SHRI RAJENDRA (ACCOUNTANT MEMBER)
ITA No.4465/Mum/2007: Assessment Year: 2005 -06
ITO 25(2)(1), Harsh Unique Construction,103-104,
C-11, Building R.No.106, Anuradha Apartment, TPS Road, Plot
P.K.Bhavan, BKC, Bandra (E), No.183, Borivali (W),
Mumbai. Vs. Mumbai-92
PA No.AADFH 1865 P
(Appellant) (Respondent)
ITA No.3365/Mum/2007: Assessment Year: 2005 -06
ITA No.4487/Mum/2009: Assessment Year: 2006 -07
Harsh Unique Construction,103-104, ITO 25(2)(1),
Anuradha Apartment, TPS Road, Plot C-11, Building R.No.106, P.K.Bhavan, BKC,
No.183, Borivali (W), Bandra (E),
Mumbai-92 Vs. Mumbai.
PA No.AADFH 1865 P
(Appellant) (Respondent)
Revenue by : Shri Goli Srinivas Rao
Assessee by: Shri Sashi Tulsiyan
Date of hearing: 24.7.2012
Date of pronouncement: 8 .8.2012
ORDER
Per B.R.Mittal, JM:
The assessee and department have filed cross appeals against order of ld CIT(A) dt. 30.3.2007 for assessment year 2005-06.
2. Grounds of appeal taken by department are as under:
2 ITA No.4465/Mum/2007: Assessment Year: 2005 -06 ITA No.3365/Mum/2007: Assessment Year: 2005 -06 ITA No.4487/Mum/2009: Assessment Year: 2006 -07 Harsh Unique Construction "1. On the facts and in the circumstances of the case and in law, ld CIT(A) erred in allowing the deduction u/s.80IB(10) of the I.T.Act, 1961.
2. On the facts and in the circumstances of the case and in law, ld CIT(A) further erred in not considering the fact that the assessee did not fulfill the conditions stipulated for eligibility of deduction under section 80IB(10) of I.T.Act, 1961 on the date of claiming the deduction."
3. Grounds raised by assessee are as under:
"1. On the facts and in the circumstances of the case, ld CIT(A) has erred in confirming the disallowance of Rs.28,20,760 on proportionate basis attributable to shopping area out of the housing projects out of the total claim of Rs.5,10,35,110 for deduction u/s.80IB made in regard to the project carried out in the name of "Poonam Sagar Complex" as against the claim of 100% made by the appellant in respect of profits attributable to the housing projects as contemplated u/s.80IB of the Act.
2. The ld CIT(AO) failed to appreciate and ought to have held that the appellant is carrying out a housing project as approved by a local authority and all the conditions prescribed under the provision of the section 80IB(10) in respect of housing project have been complied with.
3. On the facts and circumstances of the case, ld CIT(A) erred in approving reduction in profit to the extent of Rs.98,26,575 on account of stock valuation."
4. The assessee has filed appeal for assessment year 2006-07 against order of ld CIT(A) dt.18.6.2009 on following grounds:
"1. On the facts and in the circumstances of the case, ld CIT(A) has erred in confirming the disallowance of deduction u/s.80IB(10) in respect of the profit derived from the activity of construction of 'housing project' to the tune of Rs.82,85,781 as claimed by the appellant in respect of profits attributable to the housing projects as contemplated u/s.0IB(10) of the Act for the alleged contravention of provisions of section 80IB(10)(d) of the Act.
2. The ld CIT(AO) failed to appreciate and ought to have held that the appellant is carrying out a construction of 'housing project' on a land exceeding one acre area and has obtained approval in the year 2002 when there was no restriction on convenience commercial shopping area included in the housing project approval under the Development Controls Regulations of Mira Bhayander Muncipal Corporation. The appellant did not envisage the amendment as regards to overall limit of 2000 sq.ft area for commercial shops to be enacted. Therefore, the insertion of clause
(d) in Section 80IB(10) w.e.f. 1.4.2005 shall not apply to the projects 3 ITA No.4465/Mum/2007: Assessment Year: 2005 -06 ITA No.3365/Mum/2007: Assessment Year: 2005 -06 ITA No.4487/Mum/2009: Assessment Year: 2006 -07 Harsh Unique Construction approved before 31.3.2005 as such since it was not on the Act in the previous years under which such projects got approved and commenced its construction. The appellant prays that the claim u/s.80IB(10) be allowed as claimed by the appellant."
5. At the time of hearing, ld representatives of both parties submitted that grounds of appeal taken by assessee in A.Y. 2006-07 is connected with the appeal for assessment year 2005-06. In view of above, we dispose of all the appeals by a common order for the sake of convenience.
6. The relevant facts giving rise to appeals for assessment year 2005-06 are that assessee is association of persons constituted on 11.11.2002 vide an agreement of joint venture dated 11.9.2002. It is engaged in the business of builders and land developers and developing house building project called as "Poonam Sagar Complex" at Mira Road (E). The assessee has carried out a housing project on a plot size of 8715 meters (more than 1 acre) at Penkarpada, Mira Road(E) bearing Survey No.201 (Part)/New Survey No.33 (part) having FSI of 111296 sq.ft out of which residential area is 102624 sq.ft and the commercial area is 8672 sq.ft. Assessee got approval from local authority, namely, Mira Bhayender Muncipal Corporation as housing project vide their approval letter dated 14.2.2006. Assessee obtained commencement certificate from Municipal Corporation vide letter dated 19.7.2003 and completed its housing project as "Poonam Sagar Complex" and obtained building completion certificate on 19.5.2004 and 31.3.2005. Assessee claimed deduction u/s.80IB(10) of the I.T.Act. The AO disallowed the claim of deduction u/s.80-IB in respect of the profits derived, on the ground that the percentage of total built-up area of shops(commercial) as to the total built up area of the project is 7.79%. The total no. of flats constructed is 178 and shops constructed are 40. Further, AO stated that the residential flats namely Flat Nos.103 & 104 and 401 & 402 are amalgamated and the area of amalgamated units exceeded the permitted maximum built-up area of 1000 sq.fts prescribed in clause (c) of Section 80IB(10) of the Act. Being aggrieved, assessee filed appeal before ld CIT(A).
7. Ld CIT(A) after considering the submissions of the assessee and also considering the statements of amalgamated flat owners, held that assessee commenced its project as per approval of Muncipal Corporation in the year 2002-03. In that year, there was no 4 ITA No.4465/Mum/2007: Assessment Year: 2005 -06 ITA No.3365/Mum/2007: Assessment Year: 2005 -06 ITA No.4487/Mum/2009: Assessment Year: 2006 -07 Harsh Unique Construction restriction on convenient commercial shopping area included in the housing project approved under Development Control Regulation of Mira Bhayender Municipal Corporation. The project of the assessee has been approved as housing project. The area of plot is more than 1 acre. The construction and development of project started after 1.10.1999. Ld CIT(A) has held that the new clause (d) to Section 80IB(10) is inserted w.e.f. 1.4.2005 by the Finance (No.2) Act, which provides the ceiling for the built-up area of shops and other commercial establishment included in the housing project which shall not exceed 5% of the aggregate built-up area or 2000 sq.ft, whichever is less. However, the project of the assessee was completed much before the date of presentation of bill in the Lok Sabha in August, 2004. ld CIT (A) has further stated that on consideration of statements of owners of amalgamated flats, no adverse inference could be drawn as the alternation work done in Flat No.401 & 402 and 103 & 104 by the occupants after taking possession of flat.
8. However, in regard to giving deduction u/s.80IB(10) of the Act, ld CIT(A) has held that in view of clause (d) inserted by Finance (No.2) Act, 2004, the disallowance of deduction of commercial area is to be worked out, which he has made at page 22 of the impugned order, as under:
"1) Net profit as per P&L account : Rs. 5,10,35,110
2) Total sale value of the project : Rs.13,95,06,179
3) Net construction cost : Rs. 8,84,71,069
4) Therefore construction cost per sq.ft. : Rs. 795
5) Total sale value of the residential units : Rs.12,97,91,179
6) Total sale value of the commercial units : Rs. 97,15,000
7) Construction cost of shops : Rs. 68,94,200
8) Net profit of shops : Rs. 28,20,760"
9. Therefore, ld CIT(A) disallowed Rs.28,20,760 and deleted balance amount of disallowance made by the AO. Hence, assessee has disputed in Ground Nos.1 & 2 of appeal regarding confirmation of disallowance of Rs.28,20,760 sustained by ld CIT(A) and department has disputed allowing the deduction to the assessee u/s.80IB(10) of the Act.
5 ITA No.4465/Mum/2007: Assessment Year: 2005 -06 ITA No.3365/Mum/2007: Assessment Year: 2005 -06 ITA No.4487/Mum/2009: Assessment Year: 2006 -07 Harsh Unique Construction
10. At the time of hearing, ld representatives of both parties submitted that the issue is squarely covered by the decision of Hon'ble Bombay High Court in the case of CIT vs. Brahma Associates, 333 ITR 289(Bom), wherein, Their Lordships held that restriction inserted by clause (d) of Section 80IB(10) w.e.f. 1.4.2005 as to the permissible limit of commercial use in project is not retrospective. Ld A.R. referred para 33 (c) of above order at page 304 and submitted that Hon'ble High Court held that in the absence of any provisions under the Income Tax Act,, the Tribunal was not justified in holding that upto March 31, 2005, deduction under section 80IB(10) would be allowable to projects approved by the local authority having residential building with commercial user upto 10 per cent of the total built up area of the flat. Therefore, Their Lordships held that the Tribunal was not justified in restricting deduction under section 80IB(10) only to part of the project. He submitted that in view of above decision of Hon'ble Jurisdictional High Court, disallowance of Rs.28,20,760 made by ld CIT(A) is not justified. Ld D.R. did not dispute said contention of ld A.R. and conceded fairly that above issue is covered in favour of assessee by the decision of Hon'ble Jurisdictional High Court in the case of Brahma Associates (supra).
11. On consideration of submissions of ld representatives of parties and orders of authorities below, we observe that ld CIT(A) restricted the disallowance in respect of commercial area following the decision of ITAT Pune Bench in the case of Brahma Associates vs JCIT, 315 ITR (AT) 268 which set 10% limit for the commercial area to be constructed in respect of the project which was completed before 1.4.2005. However, Hon'ble High Court held that the Tribunal was not justified to set the limit of 10% of total built-up area of the flat for commercial use in respect of residential project approved by the local authority and completed before 31.3.2005 as there was no such restriction in the Income tax Act before clause (d) was inserted to section 80IB(10) of the Act. In view of above we agree that issue is covered in favour of assessee by the decision of Hon'ble Jurisdictional High Court in the case of Brahma Associates (supra) and, accordingly, we delete the disallowance of Rs.28,20,760 made by ld CIT(A) on proportionate basis attributable to shopping area within the housing project out of total claim of assessee of Rs.5,10,35,110. Hence, Ground No.1 & 2 of assessee is allowed and consequently, ground of appeal taken by department is rejected.
6 ITA No.4465/Mum/2007: Assessment Year: 2005 -06 ITA No.3365/Mum/2007: Assessment Year: 2005 -06 ITA No.4487/Mum/2009: Assessment Year: 2006 -07 Harsh Unique Construction
12. In respect of Ground No.3 of appeal of the assessee, the relevant facts are that assessee valued the closing stock of Rs.2,04,81,090 as on 31.3.2005 at realizable value. AO rejected the method of accounting for valuation of closing stock adopted by the assessee u/s.145 of the Act and valued the closing stock considering it to be valued at cost or market price whichever is less. AO considered the cost of unsold flats and shops at Rs.1,06,54,515 at page 3 of the assessment order and considered that assessee has valued closing stock excess by Rs.98,26,575 and, accordingly reduced the same and valued the closing stock at Rs.1,06,54,515. Ld CIT(A) confirmed the action of AO vide para 4.2 of the impugned order. Hence, assessee is in appeal before us.
13. At the time of hearing, ld A.R. submitted that he does not press this ground but the closing stock valued by the AO as on 31.3.2005 be considered as opening stock for A.Y. 2006-07. Ld D.R. has no objection to above contention of assessee.
14. In view of above, we reject ground No.3 of assessee subject to the direction that department will follow closing stock of assessment year 2005-06 i.e. as on 31.3.2005 as opening stock in next financial year i.e. as on 1.4.2005 for allowing deduction to assessee u/s.80IB(10) of the Act.
I.T.A. No.4487/M/2009 for A.Y. 2006-07:
15. In respect of appeal for assessment year 2006-07 filed by assessee, ld A.R. did not make any submission save and except submitting that the closing stock as adopted as on 31.3.2005 be taken as opening stock in next financial year i.e. as on 1.4.2006. The above contention of assessee is justified. We accept the same and direct the AO accordingly. Moreover, we observe on perusal of orders of authorities below that AO has computed the profit for A.Y. 2006-07 by considering the opening stock as on 1.4.2006, which was considered as closing stock on 31.3.2005. Hence, ground of appeal taken by assessee is rejected subject to above observation.
7 ITA No.4465/Mum/2007: Assessment Year: 2005 -06 ITA No.3365/Mum/2007: Assessment Year: 2005 -06 ITA No.4487/Mum/2009: Assessment Year: 2006 -07 Harsh Unique Construction
16. In the result, appeal for A.Y. 2005-06 filed by revenue is dismissed and appeal filed by assessee is partly allowed. However, appeal for assessment year 2006-07 filed by assessee is dismissed.
Pronounced in the open court on 8th August, 2012
Sd/- Sd/-
(RAJENDRA) (B.R. MITTAL)
Accountant Member Judicial Member
Mumbai, Dated 8th August, 2012
Parida
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),XXV, Mumbai
4. Commissioner of Income Tax,XXV , Mumbai
5. Departmental Representative, Bench 'H' Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI