Safal Associates, Ahmedabad vs Department Of Income Tax

Vs M/s. Safal Associates, Top Floor, Sarthik Annexe, B/s. Fun-Republic, Ahmedabad ..... Respondent PAN : ABFFS 8813 D Revenue by : Shri D.P. Gupta, CIT-DR Assessee(s) by : Shri P.M. Mehta, AR सुनवाई क तार ख/Date of Hearing 27/04/2015 घोषणा क तार ख /Date of Pronouncement 30/04/2015

आदे श/O R D E R

PER SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER:

This appeal has been filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-XV, Ahmedabad dated 13.06.2011 for Assessment Year 2008-09, on the following grounds:-

1. The Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad has erred in law and on facts in directing the Assessing Officer to allow the assessee's claim for deduction of Rs.32,72,64,595/- u/s 80IB(10) of the Act.

ITA No. 1968/Ahd/2011 ITO vs. Safal Associates AY 2008-09

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2. The Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad has erred in holding that the assessee fulfills the conditions laid down for claiming deduction u/s 80IB(10) even when the land was in the name of Sherin Co- op. Housing Society Part-I and II, and Jay Vaishno Devi Co- op. Housing Society, Part-VI which are separate legal entities in the eye of law and the assessee entered into the project by a development agreement with them. The entire responsibility to execute the housing project(s) and abide by the terms and conditions of its approval right from the inception of the project(s) till its completion rests with the Society. Assessee was just a contractor of the land constructing housing projects and not a developer.

3. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad ought to have upheld the order of the Assessing Officer.

4. It is therefore prayed that the order of the Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad may be set-aside and that of the Assessing Officer be restored.

2. In the case of the assessee for the year under consideration, the assessment was framed u/s 143(3) of the Act on 09.12.2010, in which disallowance of Rs.32,72,64,595/- was made by the Assessing Officer u/s 80IB(10) of the Act.

2.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having gone through the same, CIT(A) observed that the ITAT in assessee's own case for the Assessment Year 2007-08 has decided the similar issue, by observing as under:-

"7. We have examined the facts of the present case in the light of the decision in the case of M/s. Amaltas Associates (supra) and find that the assessee has satisfied all the ITA No. 1968/Ahd/2011 ITO vs. Safal Associates AY 2008-09

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requirements of section 80 IB (10) of the IT Act in the matter. The learned Counsel for the assessee referred to the terms of the development agreements extensively during the course of the arguments for the housing project PB -80 to 104 with both the societies for development and construction of residential housing project and it provides that the assessee has purchased all substantive development rights which includes all other rights for consideration of Rs.30,76,675/- and Rs.1,02,08,853/-. The same is also debited in the profit & loss account of the assessee. The sale consideration is not disputed and the confirmation of the societies from their accounts, copies of their bank account and copy of the bank account of the assessee and ledger accounts from the accounts of the assessee have been filed on record. It is also claimed that the assessee has also entered into agreement to sell the land with the societies on 23-5-2006 which is mentioned in the submission of the assessee reproduced in the assessment order as well as in the statement of facts filed before the Tribunal. The development agreements entered into by the assessee was over and above the agreement to sell to acquire the aforesaid 4 rights and domain over the land in question. According to the development agreements it was the responsibility of the assessee for planning, sanction of the building plan, work of construction, development of the housing projects along with all expenditure to be incurred by the assessee for development of the property in question. The assessee is also entitled to receive the sale consideration and shall accept all the payments from the buyers. The details of the same are filed on record to show that even in the sale deeds the name of the assessee is mentioned along with history as to how the property has been developed by the assessee as a developer and that the entire sale consideration is received by the assessee. The learned Counsel for the assessee also submitted that AUDA has granted permission to construct 324 residential units in 65310.22 sq. m. of land and in the permission for development the name of one of the societies and others and Safal Engineering Associates, 4th floor Sharthik Annexe, Nr. Fun Republic School, Ahmedabad is also mentioned. The address mentioned in the permission ITA No. 1968/Ahd/2011 ITO vs. Safal Associates AY 2008-09

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for development is of the assessee and the word 'other' is also mentioned which is not appreciated by the authorities below. The Building Use certificate is issued in the name of one of the societies as per the terms of the permission for development for the same area and for the same number of residential units. When the permission for development and Building Use certificates are considered in the light of the development agreements, it would clarify that the property numbers are same as has been mentioned by AUDA and that there is no objection from the side of the societies.

Therefore, it is clear that the building plans have been sanctioned in respect of the land acquired by the assessee through the agreement to sell and the development agreements in question. The details on record supports the case of the assessee that the assessee has undertaken the entire development of the housing project for which the plans were approved and permission to use was obtained in respect of the same property in question, the assessee incurred all the expenditure for development of the housing project and received the entire sale consideration from the buyers. It would, therefore, prove that the assessee undertaken to develop the building housing project in question. These facts would show and prove that the assessee made the payments of sale consideration of the property in question and the details of the sale proceeds received from the buyers have also been mentioned in the total sale proceeds in the books of accounts of the assessee. The facts of the case and evidences on record would prove that the assessee entered into development agreements and agreement to sell with the societies for consideration. All the responsibilities for carrying out construction, permission and development of the project lie with the assessee. The real owner of the land i.e. societies was only to co-operate with the assessee in carrying out the development and to execute necessary documents whenever required by the assessee as a developer. The societies have handed over physical possession of the land to the assessee as a developer for carrying out development of housing project. The societies were not left with any right, interest or title in the development which was carried out by the assessee. The motives of the societies were not to develop, construct or ITA No. 1968/Ahd/2011 ITO vs. Safal Associates AY 2008-09

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carrying out any business as a builder or developer and practically nothing was left with them. For all intent and purposes, the assessee has acquired dominant rights over the land and the assessee can deal in the land in the manner in which the assessee might have liked. The terms and conditions entered into between the assessee and the societies as per the development agreements provided all the dominant control and rights over the land to the assessee and the assessee developed and constructed the housing project at its own cost and would remain owner of the building without any interference from the societies. The development agreements in question did not provide that the assessee would be working as a contractor or agent on behalf of the societies. The agreements in question would not be regarded to be the joint venture or collaboration agreement. It was the agreements under which the assessee was entitled to develop the housing project on the land on its own cost and in the manner in which the assessee might have decided. The authorities below rejected the claim of the assessee because out of 324 units, 4 residential units have built up area in excess of 1500 sq. ft., on two grounds that additional construction have been carried out and if open terrace area is added the constructed area in regard to all the said 4 flats, total area is in excess of 1500 sq. ft.

The assessee filed copies of 4 sale deeds at PB- 181 to 269 of the paper book in which the constructed area by the assessee was below 1500 sq. ft. which is supported by possession- um-declaration letters of the developers filed at PB-295 to 298 of the paper book. According to the assessee the entire construction of the units referred to are made by the developer as per approved plan and only on that basis Building Use permission has been granted which was below 1500 sq. ft. After giving possession on sale to the occupants, the occupants might have made some additions which are also confirmed by the DVO in his report PB-293. Therefore, the assessee would not be responsible for the later development after receipt of sale consideration. Even, the owners of the flats who have purchased the residential units from the assessee have given confirmation for raising additional construction after receiving the sale consideration by the assessee. Copies of the confirmations ITA No. 1968/Ahd/2011 ITO vs. Safal Associates AY 2008-09

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are also filed in the paper book. Therefore, additional construction carried out by the subsequent flat owners cannot be taken into consideration against the assessee for not complying with the provisions of law. With regard to issue of inclusion of open terrace in the built up area, the issue is considered in detail in the case of M/s. Amaltas Associates (supra) and it was held that the authorities below were not justified in rejecting the claim of the assessee by taking the open terrace as balcony/verandah. It was, therefore, held that open terrace cannot be included in the built up area. With regard to the discrepancy of survey numbers mentioned in the approval and B. U. permission issued by AUDA, learned Counsel for the assessee explained that there was inadvertent mistake in English translation and if the original is taken into consideration no discrepancy is noted. The learned Counsel for the assessee explained that development permission was received for various survey numbers which was jointly received by the assessee along with other persons for a greater area but the assessee was granted permission to construct in 17938 sq. m. of area for 324 residential units only.

The survey numbers of the land in question match with the development agreements etc. as is clarified by the learned Counsel for the assessee. In brief, the same are mentioned at PB-91, 95 and PB- 103A. Since the approval of the development was granted for 324 residential units and on the same basis Building Use permission is granted for 324 residential units developed by the assessee which were as per the terms and conditions stipulated in the development permission and that there was no objection from the side of the societies, we do not find any discrepancy for any survey number for construction of the property in question. We may also note here that the competent authorities would never grant permission to raise construction without verifying the survey numbers/plot numbers of the property in question. The competent authorities always verify the area of the property along with their title number before granting permission for raising construction in the property. Moreover, the AO has not made out any case if the assessee raised construction in other's property. Even if, the contention of the Deptt. is accepted that the assessee raised ITA No. 1968/Ahd/2011 ITO vs. Safal Associates AY 2008-09

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construction in some other area/survey number, but nobody came forward to object to the raising of the construction by the assessee in their property. The huge housing complex can never be raised in a day or in a night, it would take long period, therefore, there would be bound to be objection from the owner of the land if their lands have been encroached by the assessee. However, the AO has not made out any such case against the assessee. Moreover, requirement of section 80 IB (10) of the IT Act is that the assessee had undertaken development and building housing project which is approved by the local authorities and that construction commenced and completed within the stipulated period within the prescribed area. The points raised by the authorities below are irrelevant as against specific requirement of section 80 IB (10) of the IT Act. The claim of the assessee for deduction has been disallowed on irrelevant consideration which has not been provided under the above provisions. The learned Counsel for the assessee has been able to explain the discrepancy if any noted by the authorities below with regard to the survey numbers. It is not in dispute that the assessee being a developer constructed the housing project as per the development agreements by incurring total expenditure and received the sale consideration. Therefore, the assessee is able to satisfy the requirement of section 80 IB (10) of the IT Act. We may also note that once plan is approved by AUDA on papers submitted by the assessee and others, it would be deemed approval of construction of housing units in favour of the assessee, more so, when the assessee entered into agreements for developing the whole of the property. Therefore, objection of the authorities below, the name of the assessee is not mentioned in the permission or survey numbers are different, are not sustainable in law. The facts of the case, if considered in the light of the decisions of ITAT Ahmedabad Bench in the cases of Radhe Developers, Shakti Corporation and M/s. Amaltas Associates (supra), we are of the view the issue is now fully covered in favour of the assessee for grant of deduction u/s 80 IB(10) of the IT Act because the assessee has acquired dominant right over the land and has developed the housing project by incurring all the expenses ITA No. 1968/Ahd/2011 ITO vs. Safal Associates AY 2008-09

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and taking all risks involved thereof. The crux of the matter would be that assessee has acquired the land in question and has developed the housing project at its own cost as per the requirement of section 80 IB (10) of the IT Act. Therefore, we are of the view the assessee would be entitled for deduction u/s 80 IB (10) of the IT Act. As regards alternate contention of the assessee with regard to pro rata deduction, the issue is already decided in favour of the assessee in the case of M/s. Amaltas Associates (supra) by following the decision of ITAT Nagpur Bench in the case of AIR Developers (supra), therefore, the authorities below should not have rejected the claim of the assessee at least on alternate contention that the assessee would be entitled for deduction u/s 80IB (10) of the IT Act on pro rata basis. However, we have held that the extension of the 4 units is not done by the assessee and that open area is not part of balcony/verandah, therefore, according to the submission of the assessee, the built up area of the assessee was within the prescribed limit, therefore, there is no need to give further finding with regard to alternate claim of the assessee. Considering the facts of the case in the light of the above decisions, we are of the view the issue is fully covered in favour of the assessee by the decision of the Tribunal in the case of M/s. Amaltas Associates (supra) as is contended by the learned Counsel for the assessee. We are of the view that assessee fulfilled the conditions and requirements of section 80 IB (10) of the IT Act, therefore, the claim of the assessee for deduction should not have been denied by the authorities below. We direct the AO to grant deduction to the assessee u/s 80 IB (10) of the IT Act as claimed by the assessee."

2.2 Following the aforesaid decision of Tribunal in assessee's own case for Assessment Year 2007-08, the CIT(A) granted relief to the assessee and directed the Assessing Officer to allow the claim of the assessee of Rs.32,72,64,595/- u/s 80IB(10) of the Act.

ITA No. 1968/Ahd/2011 ITO vs. Safal Associates AY 2008-09

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2.3 Nothing contrary was brought to our knowledge on behalf of the Revenue. The facts under the year consideration are also similar to the facts of Assessment Year 2007-08. Therefore, we are not inclined to interfere in the findings of the CIT(A) who had rightly granted relief to the assessee by following the decision of the Tribunal in assessee's own case for Assessment Year 2007-08 as discussed above. Accordingly, the same is upheld.

3. In the result, the appeal of Revenue is dismissed.

Order pronounced in the Court on 30th of April, 2015 at Ahmedabad.

Sd/- Sd/-

(ANIL CHATURVEDI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 30/04/2015 *BT

आदे श क ूितिल'प अमे'षत/Copy षत of the Order forwarded to :

1. अपीलाथ* / The Appellant 2. ू+यथ* / The Respondent. 3. संबंिधत आयकर आयु, / Concerned CIT 4. आयकर आयु,(अपील) / The CIT(A),

5. 'वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

आदे शानुसार/ ार BY ORDER,

//TRUE COPY// उप/सहायक उप सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अिधकरण अहमदाबाद / ITAT, Ahmedabad