L.N. Developers, Ahmedabad vs Department Of Income Tax

I.T.A. No.: 1463 (Ahd) of 2011 Assessment year: 2007-08 Income Tax Officer Ward 9(2),Ahmedabad ..........................Appellant

Vs.

M/s L. N. Developers .... ................Respondent Krishna Park, Vastral Road, Nr. NirantChowkdi, Vastral, Ahmedabad PAN AALFM 9888R

Appearances by:

Sakar Sharma,for the appellant Sonia Kumar,for the respondent

Date of concluding the hearing: July 1, 2015 Date of pronouncing the order: July 8 , 2015

O R D E R

Per Pramod Kumar, AM :

1. By way of this appeal, the Assessing Officer has called into question the correctness of order dated 20 th January 2010 passed by the learned CIT(A), in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2007-08.

2. Grievances raised by the appellant are as follows:

1. The ld. Commisioner of Income-tax (A)-XV, Ahmedabad has erred in law and on facts in deleting the disallowance amountint to Rs.48,47,943/- made by the Assessing Officer u/s 80IB(10) of the Act.

2. The ld. Commissioner of Income-tax (A)-XV, Ahmedabad has erred in holding that the assessee fulfils the conditions laid down for claiming deduction u/s 80IB(10) even when the two plots of land were purchased in the name of Uma (Vastral) Co-

operative housing Society Ltd. And Umiya (Vastral) co- operative housing society which is a separate legal entitity in the eye of law and the assessee entered into the project by a development agreement with the Society. The entire responsibility to execute the housing project and abide by the terms and conditions of its approval right from the inception of the project till its completion rests with the society. Assessee was just a contractor of the land owners constructing 115 residential flats AND not a developer.

3. On the facts and in the circumstances of the case, the ld. CIT(A)-XV, Ahmedabad ought to have upheld the order of the Assessing Officer.

3. To adjudicate on this appeal, only a few material facts need to be taken note of. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that while the assesse has claimed the deduction under section 80IB in respect of the profits of Rs 48,47,755 in respect of residential scheme by the name of Krishna Park, the assesse did not own the land on which the project was developed and the assesse had done the construction work, under a contract, for the housing society consisting of the end owners of the residential units. It was also noted that the assesse had entered into agreements with Uma (Vastral) Cooperative Housing Society Ltd and Umiya (Vastral) Housing Society Limited, and, under this agreement, the assesse was to carry on the construction work of Krishna Park as per the approved plans, the assesse was to enrol the prospective buyers as members of these societies, and the assesse was allowed to collect the consideration for construction and land costs. In effect thus, all the work, including deciding as to who should be member of the society, was done by the assesse. On these facts, the Assessing Officer was of the opinion that the assesse was not eligible for deduction under section 80IB(10) as the assesse did not own the land and the assesse had merely carried out the construction work under a contract. He relied upon a larger bench decision in the case of B T Patil& Sons (Belgaum) Constructions Pvt Ltd vs ACIT [(2010) 1 ITR (Tribunal) 703 (Mum)], in support of the proposition that the work carried on as contractor would not amount to 'developing' a project. As regards the assessee's contention that the societies were created by the assesse and the funds were arranged by the assesse to buy the land on which project was developed, the Assessing Officer noted this contention but rejected the same on the ground that "a legal entity created to take advantage of some legal provision cannot be brushed aside for claiming the benefits under another statute so as to cause loss to the exchequer on both the points". The claim for deduction under section 80IB(10) was accordingly rejected. Aggrieved, assesse carried the matter in appeal before the CIT(A) who deleted the disallowance by observing as follows:

"5. The point of ownership of land not entitling the appellant for the deduction has to be seen in the light of the decision of Hon'ble ITAT Bench A, Ahmedabad decision dated 7.11.2008 in the case of M/s Shakti Corporation, Baroda in ITA No.1503/Ahd/2008 in AY 2005-06. According to this decision Development Agreement has to be referred to and if it is found that the assessee has practically purchased the land and has acquired dominant control and has developed the project at its own risk it is entitled for deduction.

6. After going through rival submissions it is seen that the appellant had borne the cost of land to the extent of Rs.10,00,000/- out of the total cost of land of Rs.12,80,000/-. From the bank account of the partner Vinod T. Patel, HUF maintained at Indian Overseas Bank, Vastral branch (Account No.17060) two cheques of Rs.5,00,000 each were issued to Uma (Vastral) cooperative housing society dtd.26.8.2005 and dated 5.9.2005 which are reflected credited in the bank accounts of the two societies maintained in the same bank also subsequent issuance of two cheques of Rs.4,99,000 each to the land owner H.V. Thakkar on the same date.

The appellant entered into two Development agreements with the two societies dated 10.8.2005. The appellant acquired dominant control over the land and the project as evident from the clauses of the Development Agreement dated 10.8.2005 like clause -7 according to which the appellant firm had to decide about the cost and clause -8 of the agreement according to which the profit from the project would be that of the appellant firm. As the appellant has practically purchased the land there is no question of it working as a contractor. The appellant had acquired dominant control and developed the project at its own cost and risk the AO is therefore, directed to allow the deduction claimed specially when the AO has not found any of the conditions stipulated from clause (a) to (d) of section 80IB(10) violated and the appellant meets the tests laid down by Hon'ble ITAT in the decision in the case of Shakti Corporation.''

4. The Assessing Officer is aggrieved of the relief so granted by the CIT(A)n and is in appeal before us.

5. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position.

7. We find that, in the case of CIT Vs Radhe Developers [(2012) 341 ITR 403 (Guj)], Hon'ble jurisdictional High Court had an occasion to consider the issue of ownership of land, on which housing project is developed, in the context of eligibility of deduction under section 80IB(10). Hon'ble jurisdictional High Court has, in this context, inter alia observed as follows:

32. Sec. 80-IB(10) of the Act thus provides for deductions to an undertaking engaged in the business of developing and constructing housing projects under certain circumstances noted above. It does not provide that the land must be owned by the assessee seeking such deductions.

33. It is well settled that while interpreting the statute, particularly, the taxing statute, nothing can be read into the provisions which has not been provided by the legislature. The condition which is not made part of s. 80-IB(10) of the Act, namely that of owning the land, which the assessee develops, cannot be supplied by any purported legislative intent.

34. We have reproduced relevant terms of development agreements in both the sets of cases. It can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects. Under the agreements, the assessee had full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architectural work. Assessee would enroll members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence.

(Emphasis, by underlining, supplied by us)

8. In our humble understanding, therefore, in order to answer the question as to whether the condition precedent for deduction under section 80IB has been satisfied inasmuch as whether or not the assessee is engaged in "developing and building housing projects", all that is material is whether assessee is taking the entrepreneurship risk in execution of such project. When profits or losses, as a result of execution of project as such, belong predominantly to the assessee, the assessee is obviously taking the entrepreneurship risk qua the project and is, accordingly, eligible for deduction under section 80IB(10) in respect of the same. The assumption of such an entrepreneurship risk is not dependent on ownership of the land. The business model of "developing and building housing projects" by buying, on outright basis, and constructing residential units thereon could probably be the simplest business models in this line of activity, but merely because there is an improvisation in the business model or because the assesse has adopted some other business models for the purpose of developing and building housing project does not vitiate fundamental character of the business activity as long as the risks and rewards of developing the housing project, in substance, remain with the assesse. It is difficult, if not altogether impossible, to visualize all the business models that an assessee may use in this dynamic commercial world even as, in substance, the fundamental character of the business remains the same, but certainly such modalities or complexities of business models cannot come in the way of eligibility for an incentive which is for the purpose of 'developing and building a housing project'. There is no justification, conceptual or legal, in restricting eligibility of deduction under section 80IB(10) to any particular business model that an entrepreneur adopts in the course of developing and constructing housing project.

9. As regards the Assessing Officer's reliance on the decision of a larger bench of this Tribunal, in the case of B T Patil& Sons (Belgaum) Constructions Pvt Ltd vs ACIT [(2010) 1 ITR (Tribunal) 703 (Mum)], what has been referred to by her is the view of the three member bench resolving the point of difference between the members of the division bench. However, this view was stillborn, and its relevance is confined to academic significance, for the reason that that while giving effect to the majority view, vide order dated 28 th February, 2013 and on somewhat peculiar fact situation in this case, the final order of the Tribunal did not endorse these views. Quite to the contrary, respectfully following Hon'ble Bombay High Court's decision in the case of CIT Vs ABG Heavy Industries Ltd and Ors [(2010) 322 ITR 323 (Bom)] and by taking into account Hon'ble Bombay High Court's specific directions in the case before the Tribunal, the Tribunal's final order had, inter alia, concluded as follows:

..........while giving effect to the opinion of Third Member u/s.255(4) of the Act, we take view in conformity with order of jurisdictional High Court in case of ABG Heavy Industries Ltd. (supra) available at this time though contrary to the opinion expressed by the Third Member. So in view of above discussion, following the ratio of jurisdictional High Court in case of ABG Heavy Industries Ltd. (supra), the Assessing Officer is directed to allow deduction u/s.80IA(4) of the Act to the assessee with regard to the projects in question for both the years.

10. It is not even the case of the Assessing Officer that the assessee did not assume the entrepreneurship risks of the housing project. The format of arrangements for transfer of built up unit, and business model of the assessee for that purpose, is not decisive factor for determining eligibility of deduction under section 80 IB (10), but that is all that the authorities below have found fault with. As regards the housing societies with which the assesse has entered into agreements, once it is not in dispute that these societies were formed and controlled by the assesse himself, as a part of his business model, it cannot be said that the assesse was not the developer of the project. The risk and rewards belonged to the assesse, and the societies were used in furtherance of assessee's business. The objections of the Assessing Officer were thus devoid of legally sustainable merits. In view of the above discussions, and bearing in mind entirety of the case, we are of the considered view that the stand of the Assessing Officer, in declining deduction under section 80IB (10) and on the facts of this case, was incorrect and the CIT(A) was quite justified in granting the impugned relief. We confirm the action of the CIT(A) and decline to interfere in the matter.

11. In the result, the appeal is dismissed. Pronounced in the open court today on 8 th day of July, 2015.

Sd/- Sd/- S. S. Godara Pramod Kumar (Judicial Member) (Accountant Member)

Ahmedabad, the 8 th day of July, 2015

Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order etc

Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad