Shipra Estateltd., Ghaziabad vs Department Of Income Tax

PER I.C. SUDHIR: JUDICIAL MEMBER In these cross-appeals, the Revenue has preferred the appeal against

the First Appellate Order on the following grounds:

"1. The Learned CIT(Appeals) has erred in law and on facts by allowing the deduction u/s. 80IB(10) amounting to Rs.1,19,04,619 in respect of sub projects namely Brahmputra, kaveri, Amravati and Damodar which are the part of main project i.e. Shipra Riviera in which the development and construction work was started before Ist 2

October, 1998 and assessee did not fulfill the requisite conditions as laid down in sec. 80IB(10) of I.T. Act, 1961, hence the order of A.O. be restored and CIT(A) be set aside.

2. That the Learned CIT(Appeals) has erred in law and on facts by allowing the deduction under sec. 80IB(10), ignoring the fact that assessee had started the construction activities prior to 01.10.1998 and was not fulfilling the conditions as laid down under sec. 80IB(10) of the I.T. Act, 1961.

3. That the Learned CIT(Appeals) has erred on facts and in law in allowing the deduction under sec. 80IB(10) on the part of the project treating it a separate project, while approval of the whole project and construction was started prior to 01.10.1998.

4. That the order of the Learned CIT(Appeals) deserves to be set

aside and the order of the A.O. be restored."

2. At the outset of hearing, the Learned AR pointed out that the issue

raised in the grounds questioning the action of the Learned CIT(Appeals) in

allowing the claimed deduction under sec. 80IB(10) of the Income-tax Act,

1961 in respect of the sub-projects, namely, Brahamputra, Kaveri, Amravati

and Damodar which are the part of the main project 'Shipra Riviera' is

covered by the order dated 30.10.2009 of the Delhi Bench of the ITAT in the

case of assessee itself for the assessment years 2000-01, 2001-02 and 2002- 3

03 in ITA Nos.4628/Del/2003. 3719/Del/2004 & 1329/Del/2005, a copy

whereof has been made available on record. The learned AR referred para

Nos.17 to 26 of the said order of the ITAT in support. The Learned AR

pointed further that the same issue has again decided in favour of the

assessee by the ITAT for the assessment year 2004-05 and 2006-07 vide

order dated 03.12.2010 in ITA Nos.2613, 2614, 2739 and 2741/Del/2010. A

copy of this order has also been furnished for a ready reference.

3. The Learned Sr. DR did not dispute the above submissions. He,

however, placed reliance on the assessment order.

4. The facts in brief are that assessee is a limited company engaged in

the construction activities. During the year, the assessee in joint venture with

Ghaziabad Development Authority (GDA) was engaged in the business of

development and construction of houses of different categories. The assessee

company had undertaken the commencement of construction on two major

complexes mainly M/s. Shipra Riviera at Indirapuram and M/s. Shipra Sun

City at Indrapuram. Each complex was further sub-divided in two small

projects consisting of number of flats of various sizes. The Shipra Riviera

Complex was sub-divided into six projects while Shipra Sun City Complex

was sub-divided into five projects. The development and construction of 4

four projects, namely, Brahamputra, Kaveri, Amravati and Damodar in

Shipra Riviera Complex were claimed to have been commenced after

01.10.1998. The development and construction of Shipra Sun City Complex

was claimed to have been undertaken in the year 1999. The assessee had

claimed benefit of tax holidays relief as available under sec. 80IA(4F) and

80IB (10) of the Income-tax Act, 1961. There was no dispute about the tax

holiday benefit in respect of Shipra Sun City Complex, however, the

Assessing Officer disallowed the claimed benefit in respect of Brahamputra,

Kaveri, Amravati and Damodar Projects falling in Shipra Riviera Complex.

The Assessing Officer observed that the development and construction on

the above projects in Shipra Riviera Complex had commenced much before

the prescribed dates as contained under the provisions of sec. 80IA(4F) and

section 80IB(10) of the Act. The Learned CIT(Appeals) following the

decision of ITAT on an identical issue in the case of assessee itself for the

assessment year 2000-01 to 2002-03 has allowed the claimed deduction

under sec. 80IB of the Act in respect of the above said projects with

direction to the Assessing Officer to delete the disallowance of

Rs.1,19,04,619 made in this regard.

5 5. Having gone through the orders of the authorities below as well of the

ITAT in the case of assessee itself, cited above, we find that under similar

set of facts, the ITAT after dealing in detail has decided the issue in favour

of the assessee for the assessment year 2000-01 & 2001-02 (supra). For a

ready reference, para nos. 17 to 26 thereof are being reproduced hereunder:

"17. We have considered the rival contentions and have gone through the orders of the authorities below and the relevant provision of law. Section 80lA Inserted by Finance (No.2) Act 1991, sub- section (4F) during the relevant assessment year reads as under:-

"80lA(4F) This section applies to an undertaking, engaged in developing and building housing projects approved by a local authority subject to the condition that the size of the plot of land has a minimum area of one acre, and the residential unit has a built up area not exceeding one thousand square feet:

Provided that the undertaking commences development and construction of the housing project on or after the 1st day of October, 1998 and completes the same before the 31st day of March, 2001."

18. Subsequently, Section 80lA was substituted by Section 80lA and Section 80IB by Finance Act, 1999 w.e.f. 1.4.2000. Sub-section 10 of Section 80IB at the relevant time reads as under:-

"80IB(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st 6

day of March,2008 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if

(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,-

(i)In a case where a housing projects has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;

(ii) In a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project Is approved by the local authority.

Explanation-For the purposes of this clause,-

(i) In a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;

(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;

(b) the project is on the size of a plot of land which has a minimum area of one acre:

7 Provided that nothing contained In clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board In this behalf;

(c) the residential unit has a maximum built-up area of one thousand square feet where such residential Unit is situated within the city of Delhi or Mumbai or within twenty-five Kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place; (and)

(d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet, whichever is less."

19. It is crystal clear from the above provisions that for claiming exemption in respect of profit derived from housing project, following three conditions are required to be satisfied:-

(I) Commences development and construction of housing project after 1.10.1998 and complete construction before 1.4.2004;

(ii) Required land area under each project is more than one acre.

(iii) Built-up area of house is not more than 1000 sq.ft.

20. The assessee has claimed fulfillment of all the conditions. The AO was not satisfied with the condition of commencement of development and construction of four projects of Shipra Riviera 8

Complex after 1.10.1998. He therefore declined the exemption claimed.

21. The assessee company had claimed benefit of Section 80lA subsequently amended to 80IB in respect of the four projects from out of the Shipra Riviera Complex, and in respect of one project from out of the Shipra Sun City Complex. The income derived from out of the housing projects was claimed to be exempt from tax, subject to the fulfillment of the terms and conditions as laid out under the provisions of Section 80IA/80IB of the Act. The AO has allowed benefit of exemption of income to the Shipra Sun City complex in respect of the one project that was stated and completed during the financial year ending 31.03.2001. The dispute is with regard to the four projects of Shipra Riviera Complex. The exemption in respect of four projects under Shipra Riviera Complex has been denied by the Assessing Officer.

22. It is clear from the order of the AO that he has basically declined deduction u/s 80IA/80IB on following plea:-

i. The assessee has purchased the land on which proposed construction was to be done prior to 01.10.1999. ii. The development authority had sanctioned the plan of construction prior to 01.10.1999.

(iii). The assessee has advertised for booking of flats in the newspaper prior to the insertion of section 80IA i.e. 01.10.1998.

9 (iv). The assessee has undertaken earth filling activity of the land so purchased for undertaking the construction of the project prior to 01.10.1998.

23. From the order of the AO, we found that the AO himself has observed that for the commencement of development and construction, a person might own land which may be ancestral or even purchased prior to 01.10.1998, and the assessee may think of constructing housing project for availing deduction u/s 80IA in view of the newly inserted provisions for development and construction after the specified date. Thus, as per AO, the date of purchase of land alone cannot be and should not be considered as a criteria for deciding the actual time of commencement of development and construction of housing project. Similarly, the AO himself has observed at page 10 in para 7.4 that approval of plan by the lower authorities may either get automatically cancelled for the expiry of the time limit when no construction Is carried out, or may be cancelled by the assessee himself at his own and replaced by a new plan depending upon the changed circumstances. These observations of the AO clearly indicate that in all reasonable probabilities the purchase of land and approval of construction plan may not necessarily lead' to the inference that the development and construction of 'a project has commenced. Now there remains two more reasons with the AO for declining exemption u/s 80lA which are booking of advertisement for sale of flat under various projects and earth filling activities on the land acquired for undertaking the construction and development thereon prior to 1.10.1998. In this respect, we found from the record that foundation 10

laying ceremony and Bhoomi Pujan was performed by the assessee only after the specified date i.e. 1.10.1998 and that construction contracts with the contractors were entered into by the assessee in the form of written agreement only after the specified date i.e. 1.10.1998. In this respect, the observation of the AO was that foundation laying ceremony can be held after the construction of the entire project and that there can always be oral contracts which may, be put in writing at a later date to suit the convenience of the assessee. In this regard, from the material available on record, we found that the assessee had undertaken bhoomi pujan when the project was initiated and even before digging the foundation. No contrary material was brought on record by the' AO to suggest that the construction activities were undertaken prior to perform bhoomi pujan and/or the construction material was available at the site when project was Initiated before bhoomi pujan was performed. In respect of the observation of the AO to the effect that construction contracts with the sub contractors in writing always be framed for convenience is wrong and incorrect, as nothing was brought on record by the "AO to substantiate his assertion that these agreements were entered Into after the specified date. The assessee is a big company and had undertaken a huge project wherein construction is undertaken with the help of the various sub contractors and without written contracts, the work cannot start at all. As it was project for constructing thousands of houses, the same cannot be presumed to be initiated without valid and written contracts. Nothing was brought on record by the AO to substantiate his assertion to this effect. As per our considered view, in case of such a huge contracts, contractors are short listed after Inviting tenders. Actual 11

construction contract is awarded to them hand thereafter only construction work starts. Once the construction is undertaken by the contractors, the bills are raised by him and the required tax at source out of every payment made to the contractor for each specific project, is deducted at sources. Thus, the presumption of the AO to the effect that construction contract/agreement has no relevance to the implementation of the project undertaken by the assessee is factually Incorrect and not supported by any material on record. From the record, we also found that during the course of assessment proceedings Itself, complete details of all agreements entered into with various contractors, details of payments made to them for various projects and the tax deducted at source thereon, has already been filed. The language used. In the Section is "development and construction, of housing project". The development is an integral part of the construction. Both cannot be segregated. There is always development for a purpose. Had it been development of Independent park only, it could be done at any point of time. Even if it is development of a farm house or a garden, it can also be done at any point of time but if it is development of a housing project, it cannot be said that such development can be undertaken prior to undertaking of the construction of the housing project itself. The language so used by 'the legislature is, the commencement of the development and construction of the housing project and that means to include the construction of the housing project and after the construction is complete, the waste material' is removed then follows development of surroundings such as roads and parks. In the instant case, it was a big housing project where sufficient houses which ranged in thousands were proposed to 12

be constructed. It was a project where several different categories of houses were proposed to be built up and for undertaking construction of such a huge housing project, lot of different material is required to be stored around ,the project like sand, bricks, roll, iron and steel, huts for labourers etc. For all these purposes, the "and was required to be leveled or cleaned, but It cannot be taken as commencement of development insofar as development itself has no meaning unless it is in reference to construction of project. In Section 80IA, the legislature has used the language in a very simple form "commences development and construction of the housing project" and the legislature has not used the language "commences development of land and construction of housing project", This shows that AO has deviated himself from the language used In the Section. Hon'ble Delhi High Court in the case of M.P.Poddar, HUF, - 156 CTR 363 observed that meaning and intention of a taxing statute must be gathered from the -plain and unambiguous expression used therein rather than to find out what is just or expedient. After discussing in length and recording a categorical finding with respect to each of the project undertaken by the assessee for which claim was made and also the projects for which no claim u/s 80IA was made by the assessee, the CIT(A) held that all the conditions contained u/s 80IA(4F) subsequently amended to Section 801B(10) of the Act were compiled with, the assessee was eligible for claim of benefit. It was further observed that language used in the Act is very clear and unambiguous wherein exemption has been granted to the assessee in respect of Income earned on building construction to promote housing sector when undertaken after the specified date i.e. 30.9.1998. After taking into account all the 13

evidences placed on record, the CIT(A) held that the activities performed, if any incidental to achieve the main object by the assessee company to undertake housing construction would not snatch away from him the benefit, otherwise provided under the law. Thus mere act of levelling the earth will not amount to construction of housing project within the meaning of sec 80IA(4F). Therefore assessee's act of mere levelling the earth prior to 30-9-1998 will not snatch the deduction permissible on account of construction of housing project which was undisputedly carried out only after 30-9-1998. The CIT(A), also observed that the technical interpretation taken by the AO carried a statute away from the original meaning and intention of the legislature and found that earth filling activities if at all performed, at the time of starting of first two projects and booking the amount received in few cases would not change the situation as available under the law, insofar as main construction activities as mentioned u/s 80IA(4F) and 80IB( 10) were undertaken only after 30.9.1998. As per CIT(A), the evidence filed on record proved that contracts for construction of the four projects under Shipra Riviera was started after 30.9.1998, wherein even foundation laying ceremony was also performed after 30.9.1998, A categorical observation was made by the CITCA) with respect to the findings, recorded by the AO in his assessment order for AY 1998-99 wherein AO himself has stated 'In bold letters that four projects in question commenced in the next financial year. Merely getting booking money in advance in respect of project which commenced development and construction of housing project after 1st October,1998 will not disentitle the assessee from the benefit of deduction u/s 80IA(4F)/80IB(10), In so far as crucial 14

condition is commencement of development and construction of housing project and not the receipt of booking amount in advance. It the commencement of development and construction is prior to 1.10.'1998, no deduction will be allowed u/s 80IA(4F)/80IB(10) notwithstanding the receipt of advance booking money prior or subsequent to 1.10.1998.

24. As per evidence placed on record the date of work order in respect of four projects of Shipra Riviera complex are as under:-

(i) Brahmputra 5.10.1998 (ii ) Cavery 10.10.1998 (iii) Amravati 6.10.1998 (Iv) Damodar 15.10.1998

25. Since the work order itself in case of all the four projects were subsequent to 1.10.1998, there is no reason to assume that commencement of development and construction of housing project was started prior to 1.10.1998 for the purpose of declining the claim of deduction u/s 80IA(4F)/80IB( 10) of IT Act. As per evidence placed on record, contract for construction of all the four projects of Shipra Riviera was awarded only after 30.9.1998.

26. The issue with regard to commencement of development and construction of housing project with reference to Section 80IB(10) has been elaborately dealt with by the ITAT Pune Bench in the case of Nirmati Constructions Vs. DCIT - 95 ITJ 1117 wherein it was held that activities like approval of plan, marketing for booking the residential units, availing of finance, receipts of advance booking 15

money would not be construed to mean commencement of development construction of housing projects was also held that merely on the plea that assessee has incurred expenditure on cleaning of land and towards puja prior to 1.10.1998 will not take away assessee's right to claim deduction u/s 80IB( 10) which he is entitled in respect of housing project to be commenced after 1.10.1998. It was specifically observed that these expenses do not indicate that development and construction of housing project had been commenced before1.10.1998. Expenses were incurred on cleaning of land so that correct measurement of the land could be done. The issue with regard to expenditure on levelling of land, approval of plan, marketing of booking the residential units, receipt of advance booking money etc. has arisen in the instant case and by taking shelter of some of these activities having taken place prior to 1.10.1998, the AO has denied claim of deduction u/s 80IB. Respectfully following the decision of the Coordinate Bench, we do not find any merit in the action of the Assessing Officer".

6. In the present assessment year under consideration as well as, no

reason to assume that commencement of development and construction of

the housing projects was started prior to 01.10.1998 for the purpose of

declining the claim of deduction under sec. 80IA(4F)/80IB(10) of the

Income-tax Act, 1961, has been shown by the Revenue and keeping in mind

the fact that contract for construction of all the four projects of Shipra

Riviera was awarded only after 30.9.1998, we are of the view that the issue 16

is fully covered by the above decisions of the ITAT for the assessment years

2000-01 and 2001-02 which has also been followed by the ITAT in the case

of assessee itself for the assessment years 2004-05 and 2006-07.

Respectfully following the same, we uphold the First Appellate Order in this

regard with this finding that the Learned CIT(Appeals) was justified in

directing the Assessing Officer to delete the disallowance of Rs.1,19,04,619

which was made by the Assessing Officer while denying the claimed

deduction under section 80-IB of the Act in respect of the above stated four

projects. The related ground Nos. 1 to 3 involving the issue are thus rejected.

7. In result, the appeal is dismissed.

ITA No.5588/Del/2010: 8. The assessee has questioned First Appellate Order on the following

grounds:

" 1. Because the Learned CIT(Appeals) has erred in confirming addition of Rs.232,556 on account of charity and donation without assigning any good reasons.

2. Because the Learned CIT(Appeals) has erred in confirming addition of Rs.100,000 out of various expenses claimed on repair, maintenance, travelling, conveyance, stationary etc. 17

3. Because the Learned CIT(Appeals) has erred in confirming addition of Rs.10,000 paid as compounding fee to the Registrar of Companies.

4. Because the Learned CIT(Appeals) has wrongly confirmed addition of Rs.1077 on account of PPF.

5. Because the Learned CIT(Appeals) has erred in confirming addition of Rs.854,750 as non-business expenses.

6. Because the Learned CIT(Appeals) has erred in confirming addition of Rs.87,616 on account of depreciation on car.

9. The Learned AR submitted that the assessee does not wish to press

ground Nos. 3 and 4 having a nominal amount. These grounds are

accordingly rejected as such.

10. Regarding the other grounds, questioning the additions made on

account of charity and donations, out of various expenses claimed on repair,

maintenance, travelling, conveyance, stationery etc.; non-business expenses

and on account of depreciation on car, the Learned AR submitted that these

are also covered by the decision of the ITAT in the assessment years 2004-

05 and 2006-07 - order dated 03.12.2010 in the case of the assessee in ITA

Nos.2613/Del/2010 and Ors. (supra).

18 11. The learned Sr.DR on the other hand placed reliance on the orders of

the authorities below.

12. On perusal of orders of the authorities below, we find that the Learned

CIT(Appeals) has upheld the additions in question following the First

Appellate Order for the assessment year 2004-05 in the case of the assessee

on similar issues. The submissions of the Learned AR before us is that the

very basis on which the Learned CIT(Appeals) has upheld the additions and

disallowances in question was order of his predecessor in the assessment

year 2004-05 wherein the ITAT has taken a different view in the appeal

preferred by the assessee in the assessment year 2004-05 against the said

First Appellate Order. Having gone through the order of the ITAT for the

assessment year 2004-05, we find that the ITAT has deleted the

additions/disallowances in question by passing a detailed order. In the

assessment year 2004-05, the ITAT has held that three disallowances under

the head 'charity and donations', prior period expenses and interest on TDS

(UPTT) total amount of Rs.85,419 was added by the assessee in its

computation of total income and hence to this extent, the disallowance made

by the Assessing Officer is justified. Since the Learned CIT(Appeals) has

simply upheld the addition on the basis of First Appellate Order for the

assessment year 2004-05 without discussing the related facts on the issue for 19

the assessment year under consideration, we set aside the matter to the file of

the Assessing Officer to decide the issue afresh noting down the facts of the

case for the assessment year under consideration by passing a speaking

order. The ground No.1 is accordingly allowed for statistical purposes.

Regarding the addition of Rs.1,00,000 out of various expenses claimed on

repair, maintenance, travelling, conveyance, stationery etc., we find that the

Assessing Officer has made the disallowance considering the element of

non-business expenditure as well as self-made vouchers on record in a few

instances. The ITAT in the assessment year 2004-05 has deleted this

addition with this finding that on the basis of general observations ad hoc

disallowance cannot be made in absence of even a single specific instance of

non-verifiablity of the expenses or expenses having been incurred for non-

business purposes. Following this decision of the ITAT for the assessment

year 2004-05, we direct the Assessing Officer to delete the addition of

Rs.1,00,000 in question. The ground No.2 is accordingly allowed.

13. Regarding the addition of Rs.8,54,750 as non-business expenses

questioned in ground No.5, the Learned AR submitted that the amount is

wrong and the same has been rectified by the Learned CIT(Appeals) vide its

order dated 09.12.2011 under sec. 154 of the Act substituting the correct 20

amount as Rs.2,54,750 as added by the Assessing Officer. We find that the

Assessing Officer has made the disallowance of Rs.2,54,750 debited in P &

L account as membership fee on the basis that the amount is not expended

wholly and exclusively for the purpose of business and cannot be even

equated with the business promotion or similar such expenses. The ITAT in

the assessment year 2004-05 has deleted similar addition with the finding

that it was for the business purpose of the assessee. The membership fee was

paid to National Real Estates Development Council which was established

in the year 1998 under the aegis of Union Ministry of Housing & Urban

Poverty Alleviation, Government of India for the development and

promotion of housing and real estates sector in India. The ITAT held that

since the assessee is in the business of housing development and real estates,

this subscription is relating to business purpose of the assessee. Following

the same, we direct the Assessing Officer to delete the addition. The ground

No. 5 is accordingly allowed.

14. In ground No.6, addition of Rs.87,616 on account of depreciation on

car has been questioned. The Assessing Officer has made this disallowance

at 10% of the claimed depreciation of Rs.8,76,150 on cars on account of

possible personal use by the directors of the company. The Learned

CIT(Appeals) has upheld the same on the basis of his predecessor order in 21

this regard for the assessment year 2004-05. The ITAT in the assessment

year 2004-05 has deleted the disallowance on the basis that the depreciation

was claimed as per the schedule attached with the balance sheet and

following the decision of Hon'ble Gujarat High Court in the case of Saya Ji

Iron holding that even if there is personal use of cars by the directors of the

assessee company, addition can be made in the hands of the employees

directors on account of perquisites but no disallowance can be made in the

hands of company by alleging that there is personal use of cars. Respectfully

following this decision, we direct the Assessing Officer to delete the

addition of Rs.87,616. Ground No. 6 is accordingly allowed.

15. In result, the appeal is partly allowed.

16. In summary, appeal preferred by the Revenue is dismissed and that

preferred by the assessee is partly allowed.

Decision pronounced in the open court on 19 .03.2015

Sd/- Sd/-

( B.C. MEENA ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 19 /03/2015 Mohan Lal 22

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR

Date Draft dictated on Computer directly 17 & 18.03.2015 Draft placed before author 18.03.2015 Draft proposed & placed before the second member Draft discussed/approved by Second Member. Approved Draft comes to the Sr.PS/PS 19.03.2015 Kept for pronouncement on 19.03.2015 File sent to the Bench Clerk 20.03.2015 Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order.