M/S Raj Ganga Developers, Lucknow vs Department Of Income Tax

Income Tax Officer-1(2), Vs M/s Raj Ganga Developers, Lucknow. 3/446, Vishal Khand, Gomti Nagar, Lucknow. PAN:AAHFR5105L (Appellant) (Respondent)

Appellant by Shri K. K. Upadhyay, D. R. Respondent by Shri Yogesh Agarwal, Advocate Date of hearing 07/01/2015 Date of pronouncement 13/02/2015

ORDER PER A. K. GARODIA, A.M.

This is Revenue's appeal directed against the order passed by learned CIT(A)-I, Lucknow dated 17/11/2008 for the assessment year 2005-2006.

2. In this appeal, the Revenue has raised the following grounds:

"1. The Ld. Commissioner of Income Tax (A) has erred in law and on facts in allowing the deduction u/s 80IB (10) only on the basis of submissions of the assessee that the project has been approved by the local authority and that too without examining whether the conditions laid down under sub clause- a, b, c, & d of section 80 IB(10) have been fulfilled or not, as without fulfilling these condition, the assessee shall not be eligible for deduction u/s 80 IB (10).

2. The Ld. Commissioner of Income-tax (A) has erred in law and on facts in allowing the deduction u/s 80 IB (10) without appreciating that in the absence of approved project report, the AO was legally bound not to allow the deduction as the fulfillment of various conditions as 2

prescribed under sub clauses- a, b, c & d of section 80IB (10) could not be examined by the A.O.

3. The Ld. Commissioner of Income-tax (A) has erred in law and without appreciating that the deduction u/s 80 IB (10) cannot be allowed unless the project is completed within the stipulated time period provided u/s 80IB (10)

(a) and the completion certificate is also issued by the local authority by the date provided under the aforesaid section 80IB (10) (a) and in the instant case, such date is 31.03.2008.

4. The Ld. Commissioner of Income-tax (A) has erred in law and on facts in allowing the deduction u/s 80 IB(10) without appreciating that the completion certificate has not been issued by the local authority by the prescribed date of 31.3.2008.

5. The Ld. Commissioner of Income-tax (A) has erred in law and on facts in accepting the few sale deeds and electricity connections as proof of completion of the project in place of completion certificate from local authority which is not acceptable in terms of the explanation (ii) below sub clause 80 IB (10) (a) of the Act.

6. The Ld. Commissioner of Income-tax (A) has erred in law in accepting the UP Avas evam Vikas Parishad as local authority for section 80 IB (10) even when the assessee failed to furnish any evidence to show that the project is located in the area for which the Parishad has been notified by the UP Govt. to exercise the powers and function of a local authority.

7. The Ld. Commissioner of Income-tax (A) has erred in law and on facts in deleting the addition of Rs.2,00,000/- on a/c of disallowance of expenses on material consumed without appreciating that the vouchers were self made and signed by unknown assistants and that the assessee could not furnish the details of consumption / utilization of these materials before the A.O.

8. The Ld. Commissioner of Income-tax (A) has erred in law and on facts in deleting the addition of Rs.1,08,380/- on 3

a/c of unverifiable nature of labour expenses, without appreciating that all the vouchers were not available and therefore the expenses were not verifiable.

9. The Ld. Commissioner of Income-tax (A) has erred in law and on facts in deleting the addition of Rs.10,00,000/- on a/c of disallowance of under writing charges by relying on additional evidences furnished by the assessee in contravention of Rule 46A of the IT Rules.

10. The Ld. Commissioner of Income-tax (A) has erred in law and on facts in treating the expenditure of Rs.10,00,000/- to be connected with the housing project without appreciating that this expenditure relates to repurchase of flats on premium from original buyers which is in no way connected with the construction on development of housing project. This expenditure is therefore not at all allowable as expenditure incurred in connection with the project.

11. The Ld, Commissioner of Income-tax (A) has erred in law and on facts in deleting the addition of Rs.3,73,000/- on a/c of unexplained and unreconciled difference in the account of Ms. Manju Agarwal without giving the A.O an opportunity to examine the submissions / additional evidence furnished by the assessee which is in contravention of rule '46A' of the IT rules."

3. Regarding ground Nos. 1 to 6, as per which the Revenue is raising the issue regarding the decision of CIT(A) to allow deduction to the assessee u/s 10IB(10), it was submitted by Learned D.R. of the Revenue that there was no approval of the competent authority and there is no completion certificate issued by the competent authority and therefore, deduction u/s 80IB(10) is not allowable to the assessee.

4. As against this, Learned A.R. of the assessee supported the order of learned CIT(A). He also submitted that the approval is already obtained from U.P. Avas Avam Vikas Parishad on 21/06/2003 and the approval letter is available on pages 51 to 52 of the paper book. Regarding completion of 4

the project, it was submitted that application was made on 23/07/2007 for issue of completion certificate and he submitted a copy of such application duly received by U.P. Avas Avam Vikas Parishad on 23/07/2007. He also submitted that although the completion certificate has not been received from such authority till date, but other materials available on record establish that the project was completed. He submitted that flats constructed by the assessee were sold and sale deeds executed. He further submitted that copies of such sale deeds are available on pages 59 to 168 of the paper book. He also submitted that on pages 57 and 58 is NOC issued by fire Department on 26/10/2002. He also submitted that copy of sanction letter issued by electricity department along with the streets and diagrams are available on pages 53 to 55 of the paper book and the same is dated 28/07/2005. He also pointed out that on page No. 56 is the copy of house tax bill dated 09/10/2004 in the name of the assessee. He also drawn our attention to page No. 49 of the paper book, which contains copy of demand notice issued by electricity department on 05/08/2004. He also submitted that it is noted by CIT(A) in Para 10.7 of his order that the assessee has filed the photocopies of the electricity bills of majority of the flats and the sale deeds executed in favour of flat owners were also produced, which are dated much prior to 31/03/2008. He also pointed out that a clear finding has been given by CIT(A) that the sale deeds can only be executed for completed flats and further the electricity connections are also sanctioned for completed flats. He submitted that this finding of CIT(A) clearly established that the project was completed within the prescribed period.

5. We have considered the rival submissions. We find that although the Assessing Officer has raised several objections regarding allowability of deduction u/s 80IB(10) of the Act but as per the grounds of appeal raised by the Revenue, the Revenue is raising the issue regarding two objections that the project was not approved project and secondly that the project was 5

not completed because no completion certificate has been issued. Regarding the first objection of the Revenue that the project was not approved, we find that as per the approval letter of U.P. Avas Avam Vikas Parishad dated 21/06/2003 available on page No. 51 & 52 of the paper book, the project was approved on this date and such approval was valid for five years up to 20/06/2008. In this regard, it was one of the main objections of the Assessing Officer that U.P. Avas Avam Vikas Parishad is not a local authority. In this regard, in Para 9.6 of his order, CIT(A) has referred to a judgment of Hon'ble Apex Court in the case of Union of India and Others vs. R. C. Jain reported in ILR [1980] 1 Delhi 29 in which it was held by Hon'ble Apex Court that local authority includes Delhi Development Authority. The CIT(A) has also referred to various sections of U.P. Housing Boards' Act, 1965 for giving a finding that the scheme under which the assessee's project has been approved is known as Indira Nagar Scheme and came into existence in 1970s and this is well known fact that this is the approved scheme of the State Government. Considering all these facts and legal position, in our considered opinion, there is no infirmity in the order of CIT(A) on this aspect.

6. Regarding the second aspect i.e. regarding completion of the project, we find that although the completion certificate has not been issued but the assessee has already made application for issue of completion certificate on 23/07/2007, copy of which is available on record. Moreover, Para 10.7 from the order of CIT(A) is very relevant on this aspect and which is reproduced below for the sake of ready reference:-

"10.7 The last point raised by the Assessing Officer is that there is no document from which an inference can be drawn regarding completion of project. It is observed by me that the project was sanctioned on 21-6-2003 and thus the last day for completion of the project is 31-3-2008. The assessment order is dated 28-12-2007 which is prior to the due date for completion.

6 The appellant has filed the photocopies of the Electricity Bills of majority of the Flats. Moreover, the Sale Deeds executed of Flat owners were also produced which are dated much prior to 31- 3-2008. The Sale Deeds can only be executed for completed flats and further the electricity connections are also sanctioned for completed flats."

7. In the above Para, a clear finding has been given by learned CIT(A) that the assessee has filed photocopy of the electricity bills of majority of the flats and has also noted that the sale deeds were executed in favour of various flat owners and same were also produced before him which are dated much prior to 31/03/2008. He has given a clear finding that the sale deeds could only be executed for completed flats and further the electricity connections are also sanctioned for completed flats. These findings of CIT(A) could not be controverted by Learned D.R. of the Revenue. There are various judgments of various High Courts in which, it was held that even if completion certificate is not issued but it is otherwise established that the project was completed, deduction u/s 80IB (10) is allowable. Hence, on this aspect also, we do not find any infirmity in the order of CIT(A).

8. Since on both the issues for which grievances have been raised by the Revenue as per ground No. 1 to 6, we do not find any infirmity in the order of CIT(A), we decline to interfere in the order of CIT(A). Ground Nos. 1 to 6 are rejected.

9. Regarding ground No. 7 & 8, Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

10. We have considered the rival submissions. We find that both these issues were decided by learned CIT(A) as per Para 12.3 of his order, which is reproduced below for the sake of ready reference:-

7 "12.3 I have considered the submissions made on behalf of the appellant as well as the order of the AO. The Assessing Officer while making this disallowance has not brought any specific material on record. In absence of any specific finding on this addition the addition cannot be sustained and the additions of Rs.2,00,000/- under the head material expenses and Rs.1,08,380/- towards Labour Expenses are deleted. Further, as the entire earnings of the Firm from the project is deductible u/s 80IB(10) hence there is no question of claiming higher expenses and any addition even if made shall go to increase the deduction available u/s 8018(10). The Appellant gets a relief of Rs.2,00,000/- and Rs.1,08,830/-."

10.1 From the above Para from the order of CIT(A), we find that a clear finding has been given by him that the Assessing Officer while making this disallowance has not brought any specific material on record and in absence of any specific finding on this addition, the addition cannot be sustained. He has also given a finding that as the entire earnings of the assessee from the project is deductible u/s 80IB(10), there is no question of claiming higher expenses and any addition, even if made, shall increase the deduction available u/s 801B(10). We have already decided that the assessee is eligible for deduction u/s 80IB(10) and therefore, both these issues are of academic interest only. Considering all these facts, we decline to interfere in the order of CIT(A) on this issue also. Accordingly, ground no. 7 & 8 are also rejected.

11. Regarding ground No. 9 & 10, Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

12. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) as per Para 13.2 of his order, which is reproduced below for the sake of ready reference:-

8 "13.2 I have considered the submissions made on behalf of the appellant as well as the order of the AO. The appellant has given a chart regarding the rate, area, flat nos., amount of premium paid and also the copies of the Return and Computation of five flat owners. These flats were further sold for higher amounts, which is apparent from the copies of the sale deeds of these flats placed on record. The Flat owners have respectively shown these amounts in their incomes during the year. The total of the amounts for which the details are provided is Rs.10,00,000/-. No detail is given regarding Rs.10,000/-. It is seen that these flats were subsequently sold at a much higher price than the agreed price of the original booking. Moreover, the amounts so paid as underwriting charges are also disclosed in the income tax returns of the parties. Thus, I find no justification in the addition so made and the addition to the extent of Rs.10,00,000/- is deleted. As no details regarding the amount of Rs.10,000/- is furnished, the same is upheld."

12.1 From the above Para from the order of CIT(A), we find that a clear finding is given by him that those flats for which premium was paid by the assessee were sold for higher amounts. Since by making this payment of premium of Rs.10 lac, the assessee has actually made extra income because of sale of those flats on higher price, we do not find any justification for making disallowance and therefore, we decline to interfere in the order of CIT(A) on this issue also. Accordingly, ground No. 9 & 10 are rejected.

13. Regarding ground No. 11, Learned D. R. of the Revenue supported the assessment order whereas learned A. R. of the assessee supported the order of learned CIT(A).

14. We have considered the rival submissions. We find that this issue was decided by learned CIT(A) as per Para 14.2 of his order, which is reproduced below for the sake of ready reference:-

"14.2 I have considered the submissions made on behalf of the appellant as well as the order of the AO. It appears that the Assessing Officer has not looked into the matter carefully and 9

has passed the order without appreciating the facts. The balance of Rs.12,73,000/- as assumed by him to be credit balance is actually a debit balance given to Smt. Manju Agarwal as a loan and the amount of Rs.9,00,000/- assumed as a debit balance is actually a credit balance in her account. Thus, there was a difference of Rs.3,73,000/- as debit in her account which has been presumed to be a credit. Further, these amounts are not relatable to the current year and are brought forward balances from previous years. They have further been accepted in the previous year u/s 143(3). Thus, I have no alternative but to delete this addition. The appellant gets a relief of Rs.3,,73,000/-."

14.1 From the above Para from the order of CIT(A), we find that a clear finding is given by him that the Assessing Officer has taken the debit balance as credit balance. He has also given a finding that these amounts are not relatable to current year but are brought forward balances from previous years and the same has been accepted in the previous year u/s 143(3). These findings of CIT(A) could not be controverted by Learned D.R. of the Revenue and hence, we decline to interfere in the order of CIT(A) on this issue. Accordingly, ground No. 11 is rejected.

15. In the result, the appeal of the Revenue stands dismissed.

(Order was pronounced in the open court on the date mentioned on the caption page)

Sd/. Sd/.

(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member

Dated:13/02/2015. *C.L.Singh

Copy of the order forwarded to : 1.The Appellant 2.The Respondent. 3.Concerned CIT 4.The CIT(A) 5.D.R., I.T.A.T., Lucknow Asstt. Registrar