Ideal Relators , Vasai vs Assessee

The aforesaid appeal has been filed by the Assessee, against order dated 17.07.2013 for the A.Y. 2005-06, passed by Ld. CIT(A)-2, Mumbai for the quantum of assessment passed u/s 143(3) of the Income-tax Act. In the grounds of appeal the assessee has raised following grounds:-

"The Ld. CIT(A) erred in confirming the disallowance of deduction u/s 80IB (10) of the I.T. Act 1961 amounting to Rs.21,71,646/-, in respect of profit from the housing project "Ideal Grand Manor"

at village Goddeo, Bhayander, Dist. Thane fro the reason that commercial establishments of 2014.52 sq. feet area existed in the said housing project.

2 ITA No. 5799/Mum/2013 Assessment Year: 2005-06

The Ld. CIT(A) erred in not following the binding decision of the Hon. Bombay High Court in t case of CIT Vs. Brahma Associates, 333 ITR 289 (2011) (Bom) as per which the appellant was fully entitled for deduction u/s 80IB (10) of the I.T. Act 1961."

2. Brief facts of the case are that assessee is a partnership firm engaged in the business of builder and developer. During the year the assessee as undertaken a project, Grand Manor Ideal Park, consisting of six wings and two row houses. The project consist of ground + 4 floors situated at village Goddeo, Bhayander. The project was approved by Mira Bhayandar Municipal Corporation vide commencement certificate dated 04.02.2003. The assessee has claimed exemption of its profit of Rs.21,71,646/- on account of exemption u/s 80IB(10). In the first ground of proceedings, the issue of disallowance of deduction u/s 80IB(10) had reached to the stage of ITAT, wherein the Tribunal has set aside the issue to the file of the AO to decide the issue afresh in line of the decision of the Special Bench in the case of Brahma Associates Vs. JCIT reported in (2009) 119 ITD 255 (Pune)(SB). In the set aside proceedings, the assessing officer observed that the decision of the Special Bench has not reached finality as the department has preferred on appeal before the Hon'ble High Court. He deputed Income Tax Inspector (ITI) for inspection and received information that in the 6 buildings constructed by the assessee, there are 22 number of shops having a total area of 3640 sq. ft. and therefore, he was of the opinion that assessee's project cannot be held to the housing project, because the total area of shops exceeded the permissible limit of 2000 sq. ft. Accordingly, he disallowed the claim of deduction U/S 80IB(10) of Rs.21,71,646/-

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3. Before the Ld. CIT(A), the assessee submitted that the said housing project was approved by Mira Bhayander Municipal Corporation on 04.02.2003 to be developed by the assessee in the following manner:-

"Area of Residential units 4551.37 Sq. mtrs Area of Shops 188.80 Sq. mtrs Total 4740.17 Sq. mtrs"

Thus, it was submitted that the commercial unit was only 3.98% of the total project areas. It was also pointed out that the decision of Special Bench has NOW been settled by the Hon'ble Bombay High Court in the case of CIT Vs. Brahma Associates (2011) 333 ITR 298 (Bom). However, the Ld. CIT(A) held that the direction of the Tribunal was to follow the decision of Special Bench. In the said decision, the ITAT has clarified that clause (d) of u/s 80IB(10) has no retrospective application as it applied only w.e.f. A.Y. 2005-06. Since the amended provision in this regard relating to maximum permissible limit of 2000 sq. ft. on 5% of the total area whichever is less, is applicable from 01.04.2005 i.e. A.Y. 2005-06. Accordingly, he confirmed the order of the AO.

4. Before us, learned counsel submitted that, this issue is not only covered by the decision of Hon'ble Bombay High Court in the case of Brahma Associates (supra) but also by the latest High Court decision in the case of CIT Vs. Happy Home Enterprises reported in (2014) 51 taxman.com 281 (Bom) wherein it was held that amendment to u/s 80IB(10) relating to restriction of the commercial areas was prospective in nature and would not apply to housing projects which are approved prior to 31.03.2005. Here-in-this case, admittedly the housing project was approved much prior to 31.03.2005 i.e. on 04.02.2003. Therefore, 4 ITA No. 5799/Mum/2013 Assessment Year: 2005-06

this issue is squarely covered by the decision of the Hon'ble jurisdictional High Court.

5. Ld. DR also admitted that on the facts of the present case the issue involved is squarely covered by the decision of Hon'ble jurisdictional High Court.

6. We have heard the rival submissions and also perused the relevant finding given in the impugned order. The sole ground for the accepting the claim of deduction u/s 80IB (10) raised by the Ld. CIT(A) was on the interpretation of Special Bench decision that clause D of sub section 10 of section 80IB giving the limit of the commercial area has been brought into force w.e.f. 01.04.2005 and the assessee's case being for A.Y. 2005-06 and therefore, assessee's case is squarely hit by the limitation provided in the said clause. In this case it is an admitted fact that the approval of the housing project by the municipal corporation was obtained on 04.02.2003 i.e. much prior to 31.03.2005. The Hon'ble jurisdictional High Court in the case of CIT Vs. Happy Home Enterprising (supra) has held that the amendment brought w.e.f. 01.04.2005 putting restriction of quantum of commercial area that could be included in the housing project, is prospective in nature and will not apply to housing projects that were approved before 31.03.2005. The relevant reasoning given by the Hon'ble High Court in this regard is as under:-

35. However, the provisions of section 80-IB(10) were substantially amended by way of Finance (No.2) Act, 2004 w.e.f.

1st April, 2005. As can be noted from the amended provisions, there were several conditions that were imposed in the newly substituted section 80-IB(10) that were absent in the said section prior to its amendment. One such condition inserted w.e.f. 1st April, 2005 was clause (d) that put a restriction on the quantum of commercial area that could be included in a housing project in order to entitle the assessee to claim the deduction as set out in 5 ITA No. 5799/Mum/2013 Assessment Year: 2005-06

the said section. It is pertinent to note that in the appeals before us, it is an admitted fact that the housing projects were approved prior to 31st March, 2005. In ITXA No.308 of 2012, in fact, the project was even completed prior to 31st March, 2005 an only the profits were offered to tax in A.Y. 2005-06. We do not think that the Legislature intended to give any retrospectivity to clause (d) of section 80-IB(10) This more so because it is clearly a condition that relates to and/or is linked with the approval and construction of the housing project. At the time when the housing project is approved by the local authority, it decides, subject to its own rules and regulations, what quantum of commercial area is to be included in the said project. It is on this basis that building plans are approved by the local authority and construction is commenced and completed. It is very difficult, if not impossible to change the building plans and/or alter construction midway, in order to comply with clause (d) of section 80-IB(10). It would be highly unfair to require an Assessee to comply with section 80- IB(10)(d) who has got his housing project approved by the local authority, before 31st March 2005 and has either completed the same before the said date or even shortly thereafter, merely because the assessee has offered its profits to tax in A.Y.

2005- 06 or thereafter. Requiring the Assessee y with the condition set out in cause (d) of sub-section (10) of section 80-IB merely because he has offered his profits to tax in A.Y. 2005-06 or thereafter, even though his housing project was approved before 31st March 2005, would be requiring the Assessee to virtually do a humanly impossible task. This, in our opinion, could never have been the intention of the Legislature. In fact, to our mind, it would run counter to the very object for which these provisions were introduced, namely to tackle the shortage of housing in the country and encourage investment therein by private players. It is therefore clear that clause (d) of sub-section (10) of section 80-IB cannot have any application to housing projects that are approved before 31st March, 2005. The said clause (d) being inextricably linked to the date of approval of the housing project, it will have to be held that the said clause operates only prospectively i.e. for housing projects approved after 1st April, 2005. This is notwithstanding the fact that the profits were offered to tax by the Assessee for the AY.

2005-06 or thereafter.

36. There is yet another reason for coming to the aforesaid conclusion. Take a scenario where an Assessee following the project completion method of accounting, has completed the housing project approved by the local authority complying with all the conditions as set out in section 80-IB(10) as it stood prior to 6 ITA No. 5799/Mum/2013 Assessment Year: 2005-06

1st April, 2005. If we were to accept the argument of the Revenue, then in that event, despite having completed the entire construction prior to 1st April, 2005 and complying with all the conditions of section 80-IB(10) as it stood then, the Assessee would be disentitled to the entire deduction claimed in respect of such housing project merely because he offered his profits to tax in the AY. 2005-06. In contrast, if the same Assessee had followed the work-in-progress method of accounting, he would have been entitled to the deduction under section 80-IB(10) upto the AY. 2004-05, and denied the same from AY. 2005-06 and thereafter. It could never have been the intention of the Legislature that the deduction under section 80-IB(10) available to a particular Assessee would be determined on the basis of the accounting method followed. This, to our mind and as rightly submitted by Mr Mistry would lead to startling results. We therefore have no hesitation in holding that section 80-IB(10)(d) is prospective in nature and can have no application to a housing project that is approved before 31st March, 2005. As the deduction sought to be claimed under section 80-IB(10) is inseparably linked with the date of approval of the housing project, it would make no difference if the construction of the said project was completed on or after 1st April, 2005 or that the profits were offered to tax after 1st April, 2005 i.e. in AY.

2005-06 or thereafter. We therefore find no substance in the argument of the Revenue that notwithstanding the fact that the housing project was approved prior to 31st March 2005, if the construction was completed on or after 1st April, 2005 or if the profits are brought to tax in the A.Y. 2005-06 or thereafter, the said housing project would have to comply with the provisions of clause (d) of section 80-IB(10). To our mind, we do not think that the condition/restriction laid down in clause (d) of section 80-IB(10) has to be revisited and/or looked at and complied with in the assessment year in which the profits are offered to tax by the Assessee. When the Assessee claims a deduction under section 80- IB(10), the Assessee is required to comply with such a condition only if it is on the statute-book on the date of the approval of the housing project and it has nothing to do with the year in which the profits are brought to tax by the Assessee. We have come to this conclusion only because we fmd that clause (d) of section 80-IB(10) is inextricably linked to the date of the approval of the housing project and the subsequent development/construction of the same, and has nothing to do with the profits derived there from.

We may hasten to add that if a particular condition is not inseparably linked to the date of 7 ITA No. 5799/Mum/2013 Assessment Year: 2005-06

approval of the housing project, different considerations would arise. However, we are not called upon to decide any such condition and hence we are not laying down any general proposition of law, save and except that clause (d) of section 80- IB(10) being a condition linked to the date of the approval of the housing project, would not apply to any housing project that was approved prior to 31st March, 2005 irrespective of the fact that the profits of the said housing project are brought to tax after the said provision was brought into force."

Thus, respectively following decision of Hon'ble High Court we hold that assessee is liable for deduction u/s 80IB for the amount of Rs.21,71,646/-. Accordingly, ground raised by the assessee is allowed.

5. In the result, the appeal filed by the Assessee is allowed.

Order pronounced in the open court on this 13th day of February, 2015.

Sd/- Sd/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 13.02.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "I" Bench

//True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai.