Mukesh Kimtani, Ulhasnagar vs Assessee

Shri Mukesh Kimtani ACIT, Central Circle-1 Office No. 1, Ground Floor I.T. Ashar Park, 6th Floor Vs. Kala Palace, Madhuben Hotel Wagle Industrial Estate Road, Ulhasnagar 421001 Thane (West) PAN - ACGPK4387A Appellant Respondent

Appellant by: Dr. P. Daniel/Shri S.M. Makhija Respondent by: Shri Surender Jit Singh

Date of Hearing: 11.03.2015 Date of Pronouncement: 18.03.2015

ORDER

Per D. Manmohan, V.P.

This appeal by the assessee is directed against the order passed under section 263 of the Income Tax Act, 1961 and it pertains to A.Y. 2005-06.

2. Facts in brief are as follows. Assessee is a Director of Konark Infrastructure Ltd. which was engaged in diversified business activities such as Octroi and Toll collection, steel industry, development and construction commercial and housing projects, etc. The group is also known as 'Regency Group' which is substantially engaged in steel rolling mill and commercial/housing projects.

3. Search was carried out at Konark Group of companies and also the residential premises of the assessee. During the course of search several incriminating materials were found and therefore a notice under section 153A was issued and served on the assessee in respect of which the assessee declared total income of `1,14,75,900/-, as declared in the original return filed under section 139(1) of the Act. Assessee claimed deduction under section 80IB(10) of the Act to the tune of `2,62,13,437/- since he was 2 ITA No. 2696/Mum/2014 Shri Mukesh Kimtani

a builder and developer having proprietorship concern under the name and style of 'Nancy Builders'. He undertook a housing project at Pune. During the course of assessment proceedings the AO noticed that the original project was approved by the local authority on 30th March, 2011 for three buildings, i.e. A, B & C on the land admeasuring 4000 sq.mts. which is less than one acre (4048 sq.mts.) Therefore, according the AO, the condition provided under section 80IB(10) sub-clause (b) was not fulfilled. Therefore a show cause notice was issued in that regard. In response to the notice assessee submitted that there was a mistake on the part of the Land Revenue Authorities in as much as the area was actually 40.50 acres in the 7/12 extract whereas it was wrongly mentioned as 40 acres. Upon a petition filed by the assessee to the Pune Revenue Authorities, the Tahsildar, Pune City issued a fresh 7/12 extract mentioning the correct area. It was also submitted that the assessee applied for a revised approval plan and the local authority has approved the plan for total area of 40.50 acres. Since the plea of the assessee was corroborated by the Pune Municipal Corporation's certificate, AO allowed the claim of deduction under section 80IB(10) of the Act in his order dated 29.12.2011.

4. The learned Commissioner, in exercise of his powers vested under section 263 of the Act, perused the assessment record and noticed that the AO has wrongly allowed the deduction under section 80IB(10) of the Act. In his opinion the original project was approved by the local authority for three buildings, i.e. A, B and C on the land admeasuring 3147 sq.mts. (net area of plot) which is less than one acre. Though in the third approval of Pune Municipal Corporation the land size was increased to 4050 sq.mts. as gross area of plot, after deducting area for road and open space the net area was worked out to 3192 sq.mts. only. Further, assessee had taken TDR from Shri Satish Majar, Pune for expanding the building from parking plus one to parking plus four floors. These changes were made by the assessee on his own and hence he is not eligible for deduction under section 80IB(10). He has also taken note of the CBDT clarification (circular No. 5 of 2005) to observe that though the section does not specifically provide for area limit for garden, development plan, roads, etc. but it should conform to the 3 ITA No. 2696/Mum/2014 Shri Mukesh Kimtani

project plan approved by the local authority in accordance with the regulations in force and in this case the net plot area is only 3147 sq.mts. which is less than one acre. Therefore, the Revisional Authority was of the opinion that the order of the AO was prima facie erroneous and prejudicial to the interest of Revenue. He also referred to various decisions on this point to reinforce his conclusion and finally observed that the assessment order passed under section 153A r.w.s. 143(3) is not only erroneous but also prejudicial to the interest of Revenue and therefore the assessment order was set aside to the file of the AO to pass a fresh assessment order after conducting necessary enquiries to ascertain fulfilment of conditions relating to area of land for allowability of deduction under section 80IB(10) of the Act.

5. Aggrieved, assessee is in appeal before us. As could be noticed from the grounds of appeal, the main contention of the assessee is that the learned CIT erred in passing an order under section 263 of the Act since the order passed by the AO under section 153A r.w.s 143(3) be neither erroneous nor prejudicial to the interests of Revenue for the simple reason that the AO had considered the issue independently and after taking into account the submissions of the assessee and the material on record he was satisfied that the assessee is entitled to deduction under section 80IB(10) of the Act in which event the view taken by the Commissioner can at best be considered as a change of opinion which is not permissible under section

263. It was also contended that the learned Commissioner erred in relying upon various judicial pronouncements, which are distinguishable and the Revisional Authority ignored the decision of the jurisdictional Bench of ITAT/High Court which was relied upon by the assessee in the course of proceedings under section 263. The learned counsel for the assessee filed paper book containing 105 pages and also a fact sheet to briefly bring out the facts. The case of the learned counsel for the assessee is that during the course of assessment proceedings the AO made independent inquiry and upon scrutiny of the claim of the assessee deduction was granted under section 80IB(10) of the Act. The area of the plot was certified by the Pune Municipal Corporation, which was taken note of by the AO. The decision of 4 ITA No. 2696/Mum/2014 Shri Mukesh Kimtani

the Hon'ble Bombay High Court, in the case of Gabriel India Ltd. 203 ITR 108, squarely applies to the facts of the instant case in as much as the Revisional Authority has no jurisdiction to take a different view on the matter so long as the AO had taken note of the facts and legal decisions to come to a fairly acceptable conclusion, which is not totally contrary to the law. He also relied upon several other decisions on this aspect. He has also referred to page No. 88 of the paper book to establish that area of the plot is 40.50 acres and reduction of area for setting up roads, gardens, etc. should not be excluded for the purpose of considering whether area of the plot is more than one acre or not and in this regard he relied upon the decision of the ITAT, Mumbai Benches in the case of M/s. Vidhi Builders (pages 95 to 104 of case law paper book) as well as the case of M/s. Umiya Enterprises (pages 48 to 54 of the case law paper book). He further submitted that demarcation of some area for road widening, etc. had been compensated by giving FSI rights, which was utilised for the same project. In particular, he relied upon the decision of the Pune Bench in the case of Bunty Builders 127 ITD 286 wherein the facts are as follows: -

"Assessee firm was in the business of construction as a Builder. It purchased land admeasuring 4600 sq.mts., which was demarcated into three plots and the layout was sanctioned by Pune Municipal Corporation wherein an area admeasuring 690.70 sq.mts. was reserved for amenity space which was to be handed over to Pune Municipal Corporation in which event the net area available for the project has become 3909 sq.mts. Under these facts the Bench observed that the language of section 80IB(10) shows that the project has to be on the size of a plot of land which has a minimum area of one acre and all the calculations and specifications are based upon the area of 4600 sq.mts. In other words, granting of FSI, calculation of amenities, etc. were based upon the area of land which is above one acre in which event assessee is entitled to deduction under section 80IB (10) of the Act."

It was further submitted that the circular issued by CBDT dated 15th July, 2005 is not applicable for the assessment year under consideration; in fact the circular issued by CBDT was considered by various Benches of ITAT, Pune. He thus strongly supported the order passed by the AO and submitted that this is not a fit case for invoking provisions of section 263 of the Act and hence the order passed by the Revisional Authority deserves to be quashed.

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6. On the other hand, the learned D.R. submitted that the assessee merely purchased development rights and on the basis of demarcation of some land for road widening, etc. he was entitled for FSI which could have been sold to outsiders also though, in the instant case, it was utilised for this project but the fact remains that FSI granted can be sold outside and hence the portion which was delineated for road, parks, etc. should not be taken into consideration for the purpose of computing net available area for development. In the instant case the net available area for development is less than one acre. He strongly relied upon the circular issued by CBDT to submit that the view taken by the AO is contrary to the circular issued by CBDT which is binding upon the AO and hence the view taken by the AO is erroneous and prejudicial to the interest of Revenue.

7. Joining the issue the learned counsel for the assessee submitted that it was not the case of the AO or CIT, at any stage, that FSI was utilised for any other purpose. In other words, merely because the net area of plot has been worked out by the Pune Municipal Corporation only for the purpose of determination of TDR permissible, it cannot be taken into consideration for the purpose of considering the conditions prescribed under section 80IB(10) of the Act. He also submitted that the ITAT, Pune Benches has specifically considered the circular and the fact that the builders who sacrifice amenities, space but should not be in a disadvantageous position because the development authority sanctions additional FSI on the space earmarked for amenities and under these facts ITAT, Pune Benches had taken a view that the area of land, for the purpose of provisions of section 80IB(10), is the area which was projected before the Municipal authorities for the purpose of obtaining approval and not the net area on which building can be constructed. He has also relied upon the decision of the ITAT, Hyderabad Benches in the case of Sigma Constructions 59 SOT 83 wherein identical issue was considered in favour of the assessee and the same was confirmed by the Hon'ble High Court of Andhra Pradesh in ITTA No. 502 of 2013 dated 24.10.2013.

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8. We have considered the rival submissions and carefully perused the record. It is not in dispute that the AO had taken into consideration the revised certificate issued by the Pune Municipal Corporation while granting the benefit of deduction under section 80IB(10) of the Act. In the light of several decision cited before us it cannot be disputed that the view taken by the AO is one of the possible views on the matter. As rightly observed by the Hon'ble Bombay High Court in the case Gabrial India Ltd. (supra) as well as the decision of Hon'ble Delhi High Court in the case of Sunbeam Auto Ltd. [322 ITR 167 (Del)] merely because the Commissioner of Income Tax holds a different opinion on the matter an order passed by the AO cannot be considered as erroneous and prejudicial to the interests of Revenue particularly when it cannot be attributed to lack of enquiry by the AO. Having regard to the overall circumstances of the case we are of the firm view that the learned Commissioner has no jurisdiction to invoke provisions of section 263 of the Act in the facts and circumstances of the case. We, therefore, quash the proceedings initiated under section 263 of the Act and allow the appeal filed by the assessee.

Order pronounced in the open court on 18th March, 2015.

Sd/- Sd/- (N.K. Billaiya) (D. Manmohan) Accountant Member Vice President

Mumbai, Dated: 18th March, 2015

Copy to:

1. The Appellant 2. The Respondent 3. The CIT - Central, Pune 4. The DR, "B" Bench, ITAT, Mumbai

By Order

//True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p.