Total Lubricants India Ltd ( Now Known As ... vs Assessee

ITA No.7021&7022/Mum/2012 ( Assessment Year :2005-06 & 2009-10) ACIT-Cir-1, Thane - 400 604 Vs. Shri Harish M. Aggarwal, Prop. M/s Agarwal Estate, Chitalsar, Manpada, Thane (W )-607 PAN/GIR No. : AAOPA 6367 G ( Appellant) .. ( Respondent)

/Revenue by : Shri Jitendra Kumar /Assessee by : Shri Vimal Punamiya

Date of Hearing : 05/01/2015 Date of Pronouncement : 21 /01/2015 ORDER

PER R.C.SHARMA (A.M.) :

These are the appeals filed by the Revenue against the order of

CIT(A) for the assessment year 2005-06 & 2009-10, in the matter of order

passed u/s.143(3) r.w.s.147 of the I.T.Act.

2. Since common grounds have been raised by the Revenue in both

the appeals with regard to deletion of disallowance of deduction

u/s.80IB(10) of the Act, therefore, both the appeals were heard and are

being disposed of by this common order.

3. We have heard rival contentions and gone through the orders of the

authorities below. Brief facts of the issue under consideration are that the 2 ITA No.7021&7022/2012

assessee is a proprietor of 'Aggarwal Habitat' engaged in the construction

of the housing project at Thane. During the course of assessment

proceedings for the AY. 2006-07, the claim of the assessee for deduction

u/s. 80IB(10) amounting to Rs. 5,27,918/- was rejected by the AO on the

ground that the date of the commencement of the project of the assessee

was 25/01/1989 as per the plan approved by the Thane Municipal

Corporation and as per the provisions of section 80IB (10) the deduction

is available to such undertaking which has commenced or commences

development and construction of the housing project on or after the 1s1

day of October, 1998. In view of the above facts, the AO disallowed the

deduction u/s. 80IB(10) amounting to RS.5,27,918/- to the assessee for

the AY. 2006-07. On the basis of the above decision of the AO disallowing

the deduction u/s.80IB(10) in the case of the assessee for the AY. 2006-

07, notice u/s. 148 was issued to re-assess the income of the assessee

for the period relevant to AY.2005-06 as the assessee had claimed

deduction u/s. 80IB (10) in this year also.

4. During the course of re-assessment proceedings, it was noticed by

the AO that the assessee has shown profits from construction and

development of his housing project 'Aggarwal Habitat' at Rs. 42,42,808/-

for the period relevant to A.Y.2005-06 and claimed deduction on such

profits u/s.80IB(10). According to the AO, from the copy of the sanctioned

plan of the Thane Municipal Corporation submitted by the assessee of its

housing project, the date of the commencement of the project is shown as

25/01/1989. The provisions of section 80IB(10) provides that the

deduction is available to such undertaking which has commenced or 3 ITA No.7021&7022/2012

commences development and construction of the housing project on or

after the 1st day of October 1998. In view of the above facts, the AO

asked the assessee to justify its claim of deduction u/s. 80IB(10) for the

year under consideration as his housing project had commenced prior to

01/10/1998. According to the AO, the question arises as to whether the

sanction of the original plan dated: 25/01/1989, [which is much earlier

than 1st October 1998 as per section 80IB(10)] should be counted for

deciding the commencement or the amended plans thereafter should be

considered. The AO further observed that the housing project of the

assessee had commenced in the year 1989 which was the first approval

of the project and therefore the housing project is ineligible for deduction

u/s 80IB(10). The AO referred to the Explanatory notes issued by the

CBDT vide circular no. 5 of 2005 dated 15/07/2005, wherein it was

explained that for the purpose of claiming the deduction under section

80IB(10), the date of approval shall be the date on which the building plan

is first approved by the local authority. After having the above observation

the AO held that the assessee cannot undo the legal effect of the

Explanation below section 80IB(10)(iii) and therefore the assessee is not

entitled to the deduction under section 80IB(10) since his project has

been approved prior to 1st October, 1998. Accordingly, the AO disallowed

the deduction claimed amounting to Rs.42,42,808/- under section

80IB(10) by the assessee for the year under consideration.

5. By the impugned order, the CIT(A) allowed assessee's claim for

deduction after having the following observations :-

"4.1. I have carefully considered the assessment order as well as the above written submissions filed by the appellant and have also 4 ITA No.7021&7022/2012

gone through the various documents filed during the course of the appellate proceedings. The issue is identical to the issue decided by me in the favour of the appellant in its own case for the A.Y. 2006-07 vide my order dated: 26/05/2011. While deciding the issue in favour of the appellant, it was held in the order as under:

"The AR of the appellant has vehemently argued that in the housing project of the appellant consisting of buildings F1, F2 and G had not started the construction activity before 01/10/1998. A fresh ULC was obtained by the appellant in respect of the above project from the local authority TMC as per amended Town Planning and Development plans 1999. According to this amended Town Planning and Development plans 1999, there was a requirement to get the land boundaries re-surveyed by the TILR authorities and there was a requirement of 10 mtr. wide DP road, without which there was no access to the said project. Once the 10 mtr. road was constructed giving access to the housing project that the construction activity was started vide amended plan certificate dated 09/10/2001, prior to this period, the appellant has not incurred any expenses on the construction of this project.

In support of his above contentions, the appellant has filed the following documents :-

• Copy of the Plan for the entire project showing Gut no. 60/1 & 60/2.

• The building plan of buildings F1, F2 , G & H developed in Gut no. 60/2, which shows that the Gut no. 60/2 had no access unless road is developed. Without this road, Gut no. 60/2 had no approach since access to Gut no. 60/2 was blocked by proposed HCMTR development.

• Copy of 7/12 extract indicating the surrendering the following areas to Thane Municipal Corporation

(a) Gut no. 60/2 - 2012 sq. mtr. for DP road

(b) Gut no. 60/2 - 3391 sq. mtrs. For HCMTR.

• The commencement certificate dated 25/01/1989 and 23/04/1990 • The commencement certificate for the buildings no. F1, F2 , G & H dated 09/10/2001

After the perusal of the above documents filed and after considering the arguments of the AR of the appellant, in my opinion, there is a merit in the arguments of the appellant. Although all the above documents were before the AO but he has not appreciated the facts of the case in the correct perspective. The AO has argued that the original commencement certificate for the project was issued on 25/01/1989 but the deduction u/s. 8018(10) is available to the projects which commences development and construction of the housing project on or after 01/10/1998.

The AO has not tried to appreciate the fact that the commencement certificate issued by the TMC on 25/01/1989 ( placed on record) 5 ITA No.7021&7022/2012

was a general permission and the certificate was valid for one year only and subject to three conditions namely :-

(i) Reservation for HCMTR to be decided and required land handed over to TMC;

(ii) 10 mtr. proposed road to be handed over to TMC;

(iii) 6 mtr. of proposed road of 10 mtr. to be constructed by the appellant as per specification of TMC.

The AO has not placed any evidence on record to suggest that the actual construction of the project had started after the above sanction granted on 25/01/1989. There was in fact another plan and commencement certificate issued by the local authority to the appellant dated: 23/04/1990, which was again valid for one year only with conditions attached and the construction did not commence. As the above conditions were difficult to fulfill in the stipulated time of one year, the proposed housing project could not be started before 01/10/1998. From the documents placed on record, it can be observed that the TMC resurveyed the entire area in the year 2001-02 and thereafter the amended plan of construction was submitted by the appellant and sanctioned vide amended plan certificate dated : 09/10/2001. This commencement certificate clearly mentions that the appellant is allowed to carry out the development work and or to erect the buildings no.F1, F2, G & H at Gut no.60/2. The buildings in question have been sanctioned and find mention in the commencement certificate for the first time vide this commencement certificate of Thane Municipal corporation dated 09/10/2001. The AO has not been able to place any evidence on record that the appellant had commenced the construction activity in respect of the buildings in this housing project before 01/10/1998, while all the facts mentioned above and documents placed on record shows that the construction activity in respect of the buildings in question i.e. F1, F2, G & H started in the year 2001-

02. All the facts therefore leads to the conclusion that for all practical purposes the housing project of the appellant commenced only after the permission granted by the local authority vide certificate dated 09/10/2001. As per Thane Municipal Town Planning and Development Plan 1999, there was a requirement to construct a 10 mtr. DP Road. In this case, if the 10 mtr. DP road was not constructed by the TMC, the development of the buildings in question was not possible because only this road gave access to these buildings and plot of the appellant which is very much evident from the Site Plan submitted during the course of appellate proceedings and taken on record. The DP road called Jai Bhawani Road was completed in 2001. The appellant had to resubmit the plan for approval in view of the DP road to be constructed and this new development plan accordingly was approved on 09/10/2001 and after this compliance, the appellant was allowed the construction of its housing project buildings F1, F2, G & H. All the documentary evidences relating to these facts have been placed on record by the appellant. The AO has also not been able to place any evidence on record to suggest that the appellant had incurred any expense on this project prior to the above date.

6 ITA No.7021&7022/2012

While deciding a similar issue in the case of NIRMITI CONSTRUCTION vs. DEPUTY COMMISSIONER OF INCOME TAX, (2005) 95 TT J (Pune) 1117, it has been held by the ITAT that

"The deduction under s. 80-IB(10) was admissible to those undertakings which commenced the development and construction of housing project on or after 1st Oct., 1998. In the instant case, it is the contention of the assessee that the development and construction of housing project was commenced after 1st Oct., 1998. However, the Department took the stand that in this case the development commenced with the development agreement and acquiring irrevocable power of attorney and more so, when layouts were furnished to the municipal corporation for preliminary sanction on 6th June, 1998. It is clear that the assessee had not made any material change as far as the land is concerned. Admittedly, construction work was commenced after building permission (Bandhkam Parwangi) was sanctioned by the municipal corporation on 23rd July, 1999. The only debits prior to 1st Oct., 1998, were in respect of land purchased and two items, viz., Rs. 6,000 and Pooja expenses of Rs. 1,140. Admittedly, the bank account in the name of housing project was opened on 20th Oct., 1998. The assessee also incurred land measurement charges of Rs.10,350 on 25th Nov., 1998. Admittedly, non-agricultural tax was paid on 15th Jan.1999, of Rs.1,25,150.

The assessee also informed the AO regarding commencement of the housing project on 23rd Nov., 1999. It is also admitted position that the land was converted into non-agriculture on 30th Jen., 1999. This fact alone shows that the assessee had commenced the development and construction after 1st Oct., 1998. Without obtaining the permission of the Collector, the assessee could not have commenced development and construction of the housing project. It is also admitted fact that the assessee presented the building plan to the municipal corporation and the said corporation sanctioned the building plan on 23rd July, 1999. It means that the municipal corporation granted the permission of construction on 23rd July, 1999. The activities, viz., approval of the plan, marketing for booking the residential units, availing of finance, receipt of advance booking money, etc. could not be construed to mean commencement of development and construction of housing project. As per the certificate of architect, the project of constructing housing units commenced after 1st Oct., 1998. The assessee had also opened bank account in the name of housing project on 29th Oct., 1998. All these facts indicate that development and construction commenced after 1st Oct., 1998. It is also seen that the assessee had incurred a sum of Rs. 6,000 towards the cleaning of land and also incurred an expense of Rs.1,140 towards Pooja expense.

These expenses do not indicate that development and construction of housing project had been commenced before 1st Oct., 1998. Rs.6,000 was incurred for cleaning the land, so that correct measurement of the land could be done. There is no material on record to show that the assessee had made any material change on the land before 1st Oct., 1998. From the above discussion, it would be clear that the assessee had commenced the development and construction of the housing project after 1st day of October, 1998, and completed the same before the specified 7 ITA No.7021&7022/2012

date. There is no dispute that the assessee had fulfilled the remaining conditions under the law for claiming deduction under s. 80-18(10). Accordingly, the AO is directed to allow the deduction to the assessee."

In the case of ACIT Vs Shree Ostwal Builders Ltd, ITA no. 2144 & 2153/M/2010, the AO denied the deduction u/s. 80IB(10) on the ground that building plans were approved by CIDCO prior to 01/10/1998 on the basis of the arguments that the activities culminating into the approval of the building plan were integral part of the project and thus the commencement of the project was prior to 01/10i1998. While deciding the issue in favour of the appellant, it has been held by the ITAT, Mumbai Bench 'F' Mumbai, that-

"it is observed that the land on which the said project was to be constructed was purchased by the assessee in the month of August 2001 from MIs Sonal Venture and till the date of the said purchase, there was no construction activity which had commenced in respect of Ostwal Nagari Project. As a matter of fact, the assessee company revised the building plans which were originally prepared by MIs. Sonal Venture and approved by CIDCO and the plans so revised got sanctioned by CIDCO only on 4.01.2002 as is evident from the copy of the sanction letter placed at page 100 of the assessee's paper book. Only after that date, the assessee thus started the construction work of Oswal Nagari project and this position was substantiated from the fact that construction expenses in respect of Oswal Nagari Project were debited in the books of account of the assessee only after 01.04.2002. As per the relevant provisions, the deduction under section 80IB(10) is allowable in the case of an undertaking developing and building housing projects if such undertaking has commenced development and construction of the said housing projects on or after 151 day of October, 1998. In the present case, the assessee company is such as an undertaking which has developed and built the housing project, viz. Ostwal Nagari Project and the relevant land itself having been purchased by it only in the month of August, 2001, we are of the view that it cannot be said that it has commenced development and construction of housing project prior to 1.10.1998. As rightly held by the learned CIT(A), the development and construction of Ostwal Nagari Project could have been commenced by the assessee company only after purchase of land in the month of August, 2001 and the conditions stipulated for making the said project eligible for deduction u/s. 80lB thus was duly satisfied."

It is therefore clear from the evidences placed on record that the development 1 commencement of the housing project of the appellant for all practical purposes started only after the resubmission of the plan and after according of the approval by the Thane Municipal Corporation's commencement certificate dated:

09/10/2001, which means that the housing project of the appellant commenced much after 01/10/1998. Therefore, the conditions as laid down in the section 80IB(10) stands complied with and the conclusions drawn by the AO for denying the deduction to the appellant are erroneous and are not justified. The AO is directed to 8 ITA No.7021&7022/2012

allow the claim of deduction u/s. 80IB(10) to the appellant. This ground of appeal of the appellant is allowed.

4.2. It is clear from the above appellate order in the case of the appellant for the A.Y. 2006-07 that the housing project of the appellant for which the deduction u/s.80IB(10) is being claimed, for all practical purposes, was first approved in the year 2001 and it commenced the construction after obtaining the commencement certificate dated: 09/10/2001 from the Thane Municipal Corporation.

The approval dated: 25/01/1989 was for one year only and during that period only Phase-I of the housing project of the appellant was completed.

4.3. There was no question of commencing the construction of the buildings in question i.e. F1, F2, and G as this area had no access prior to 1999 and this area of the plot was land locked as can be observed from the copy of the site plan placed on record by the appellant.

4.4. As per Thane Municipal Town Planning and Development Plan 1999, there was a requirement to construct a 10 mtr. DP Road on this area and only then the access to the plot was possible .. In this case, if the 10 mtr. DP road was not constructed by the TMC, the development of the buildings in question was not possible because only this road gave access to these buildings and to plot of the appellant which is very much evident from the Site Plan submitted and placed on record. The DP road called 'Jai Bhawani Road' was completed in 2001 which made possible the access to this area of the plot of the appellant. Thereafter, the appellant had to resubmit the plan for approval in view of the DP road to be constructed and this new development plan was accordingly approved on 09/10/2001 and after this compliance, the appellant was allowed the construction of its housing project buildings F1, F2, G.

4.5. From the facts mentioned above, it is clear that the buildings in question could not be contemplated while submitting the earlier plan of construction in 1989 because of the existence of peculiar circumstances at that time in the area of the buildings F1, F2, G as mentioned above. The appellant was required to get land boundaries of the area re-surveyed by the TILR authorities and TMC and TILR undertook the re-survey of the entire plot and the plan for the buildings F1, F2 and G was approved thereafter in the year 2001.

4.6. It can be further observed from the plinth completion certificates in respect of these buildings that the construction of the buildings commenced after 2001. The details of these certificates are as under :-

Name of the Buildinq Date of plan Date of 1st plinth F1 09/10/2001 28/08/2002 G 09/10/2001 28/08/2002 F2 09/10/2001 28/08/2002 9 ITA No.7021&7022/2012

4.7. It is a matter of record that after the condition of compliance in respect of the 10 mtr D P road to be provided to the TMC, the appellant started the work for F1,F2 and G buildings in the year 2001 and continued thereafter. The commencement certificate in respect of these buildings was a fresh approval as per the amended town development plan and not the extension of the earlier plan of 25/01/1989 as the entire earlier plan of the proposed buildings was scrapped as required by the Thane Municipal Town Planning and Development Plan 1999.

4.8. While deciding a similar issue in the case of CIT Vs M/s Vandana Properties in ITA no. 3633 of 2009 and 4361 of 2010 dated: 28.03.2012, it has been held by the Hon'ble High Court of Bombay as under :-

" The question, then, to be considered is, whether construction of E building is an independent housing project or extension of the housing project already existing on the plot in question. It is the contention of the Revenue that since the approval for construction of E building was granted by the local authority subject to the conditions set out in the first approval granted on 12th May 1993 for construction of A and B building, construction of E building must be considered to be the extension of the earlier housing project for which approval was granted prior to 1st October 199a and, therefore, the benefit of section 80IB(10) cannot be granted. There is no merit in the above argument, because, when the plans for A, B, C and D buildings were approved during the period from 1993 to 1996, construction of E building was not even contemplated on the plot in question. It is only in the year 2001 when the status of the land was converted from surplus vacant land into within the ceiling limit land by the State Government, an additional building could be constructed on the plot in. question and accordingly building plan for construction of E building was submitted and the same was approved by the local authority on 11th October 2002.

21. The fact that the local authority, namely the Municipal Corporation approved the building plan for E building on the condition that all the objections raised in the Intimation of Disapproval dated 12th May 1993 relating to the earlier housing project on the same plot of land shall be applicable and should be complied with, cannot be a ground to hold that E building is extension of the earlier housing project because the earlier housing project was completed prior to 1st October. 199a and the housing project for construction of E building was approved for the first time on 11th October 2002. Nowhere in the Intimation for Disapproval granted for construction of E building on 11th October 2002, it is stated that building E constitutes extension of the earlier housing project which is already completed. The fact that the objections raised while approving the earlier housing project on the same plot of land were made applicable to the housing project in question, it cannot be inferred that the housing project in question constitutes extension of the earlier housing project. Therefore, in the facts of the present case, where, neither the assessee had sought approval of the building plan for construction of E building as extension of the 10 ITA No.7021&7022/2012

earlier housing project, nor the Municipal Corporation has granted approval for the housing project consisting of E building as extension of the earlier housing project, it is not open to the income-tax authorities to contend that approval to the housing project granted by the Municipal Corporation on 11th October 2002 constitutes extension of the housing project which was approved in the year 1993.

22. Reliance placed by the Revenue on the Explanation to section BOIB(10)(a) which was introduced with effect from 1st April 2005 is also misplaced. What the said Explanation contemplates is that where the approval in respect of a housing project is granted more than once, then, that 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. For example, in respect of a housing project, the assessee may seek amendment of the building plan at several stages of the construction and the same may be approved. In such a case, the explanation provides that for the purposes of section 8018(10) the housing project shall be deemed to have been approved on the date on which the first approval was granted by the local authority. Thus, the Explanation to section 8018(10)(a) refers to the approval granted to the same housing project more than once and the said Explanation would not apply where the approval is granted to different housing projects. In the present case, as noted earlier, construction of E building constitutes an independent housing project and, therefore, the date on which to the housing project consisting of E building merely because the conditions set out while granting approval to the earlier housing project have also beer made applicable to the housing project in question."

4.9. The question of placing reliance on the Explanation (i) to section 801B(10)(a) by the AO in the assessment order and denying the deduction to the appellant on that basis, also gets answered by the above judgement of the Hon'ble High Court of Bombay wherein it is held that "the Explanation to section 80IB(10)(a) refers to the approval granted to the same housing project more than once and the said Explanation would not apply where the approval is granted to different housing projects". In the instant case, the housing project of the appellant comprising of buildings F1, F2 and G is not a part of the originals housing project called Phase-I approved on 25/01/1989. The project comprising of buildings F1, F2 and G is a freshly approved project after the entire area was resurveyed as per Thane Municipal Town Planning and Development Plan 1999. The project comprising of buildings F1, F2 and G is not an extension of the earlier plan of the appellant because when the earlier project was approved, there was no access to this area and the appellant could not have thought of construction on this area of plot. This instant project could be visualized only after the changes introduced by the local authority after 1999 as explained above. Therefore by placing reliance on this explanation, the deduction u/s 801B(1 0) cannot be denied to the appellant and such a reliance is misplaced without appreciating the facts of the case. The AO has nowhere mentioned the facts of 11 ITA No.7021&7022/2012

the case in question and without appreciating and discussing the facts in the assessment order, has proceeding to disallow the deduction by placing reliance on the Explanation (i) to section 80IB(10)(a) , which is not correct.

4.10 In view of the facts and circumstances as well as the judicial pronouncements cited supra, in my considered opinion, the conditions as laid down in the section 80IB(10) stands complied with and the conclusions drawn by the AO for denying the deduction to the appellant are erroneous and are not justified. The AO is directed to allow the claim of deduction u/s. 80IB(10) to the appellant for the year under consideration i.e. the A.Y.2005-06. This ground of appeal of the appellant is allowed.

In the result the appeal of the appellant is allowed."

6. We have considered rival contentions and carefully gone through

the orders of the authorities below and found that the above findings of

the CIT(A) have not been controverted by the ld. DR by brining any

positive material on record. Accordingly, we do not find any reason to

interfere in the findings recorded by the CIT(A) resulting into deletion of

addition made by the AO.

7. Similarly in the assessment year 2009-2010, assessee's claim of

deduction u/s.80IB was declined by the AO by observing that the housing

project of the assessee had commenced in the year 1989 which was the

first approval of the project and therefore the housing project is ineligible

for deduction u/s 80IB(10). The AO referred to the Explanatory notes

issued by the CBDT vide circular no. 5 of 2005 dated: 15/07/2005,

wherein it was explained that for the purpose of claiming the deduction

under section 80IB(10), the date of approval shall be the date on which

the building plan is first approved by the local authority. The AO further

referred to the Explanation below the clause (iii) to the sub- section (10) to

the section 80lB which reads as under :-

(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 12 ITA No.7021&7022/2012

have been approved on the date on which the building plan of the such housing project is first approved by the local authority.

According to the AO, in view of the above provisions of the Act, the

assessee cannot undo the legal effect of the Explanation below section

80(10)(iii) and therefore the assessee is not entitled to the deduction

under section 80IB(10) since his project has been approved prior to 1st

October, 1998. Accordingly, the AO disallowed the deduction claimed

amounting to Rs.33,31,043/- under section 80IB(10) by the assessee for

the year under consideration.

8. By the impugned order, the CIT(A) deleted the disallowance after

having the following observations :-

"4.1. I have carefully considered the assessment order as well as the above written submissions filed by the appellant and have also gone through the various documents filed during the course of the appellate proceedings. The issue is identical to the issue decided by me in the favour of the appellant in its own case for the A.Y. 2006-07 vide my order dated: 26/05/2011. While deciding the issue in favour of the appellant, it was held in the order as under:

"The AR of the appellant has vehemently argued that in the housing project of the appellant consisting of buildings F1, F2 and G had not started the construction activity before 01/10/1998. A fresh ULC was obtained by the appellant in respect of the above project from the local authority TMC as per amended Town Planning and Development plans 1999. According to this amended Town Planning and Development plans 1999, there was a requirement to get the land boundaries re-surveyed by the TILR authorities and there was a requirement of 10 mtr. wide DP road, without which there was no access to the said project. Once the 10 mtr. road was constructed giving access to the housing project that the construction activity was started vide amended plan certificate dated 09/10/2001, prior to this period, the appellant has not incurred any expenses on the construction of this project.

In support of his above contentions, the appellant has filed the following documents :-

• Copy of the Plan for the entire project showing Gut no. 60/1 & 60/2.

• The building plan of buildings F1, F2 , G & H developed in Gut no. 60/2, which shows that the Gut no. 60/2 had no access unless road is developed. Without this road, Gut no. 60/2 had 13 ITA No.7021&7022/2012

no approach since access to Gut no. 60/2 was blocked by proposed HCMTR development.

• Copy of 7/12 extract indicating the surrendering the following areas to Thane Municipal Corporation

(a) Gut no. 60/2 - 2012 sq. mtr. for DP road

(b) Gut no. 60/2 - 3391 sq. mtrs. For HCMTR.

• The commencement certificate dated 25/01/1989 and 23/04/1990 • The commencement certificate for the buildings no. F1, F2 , G & H dated 09/10/2001

After the perusal of the above documents filed and after considering the arguments of the AR of the appellant, in my opinion, there is a merit in the arguments of the appellant. Although all the above documents were before the AO but he has not appreciated the facts of the case in the correct perspective. The AO has argued that the original commencement certificate for the project was issued on 25/01/1989 but the deduction u/s. 8018(10) is available to the projects which commences development and construction of the housing project on or after 01/10/1998.

The AO has not tried to appreciate the fact that the commencement certificate issued by the TMC on 25/01/1989 ( placed on record) was a general permission and the certificate was valid for one year only and subject to three conditions namely :-

(i) Reservation for HCMTR to be decided and required land handed over to TMC;

(ii) 10 mtr. proposed road to be handed over to TMC;

(iii) 6 mtr. of proposed road of 10 mtr. to be constructed by the appellant as per specification of TMC.

The AO has not placed any evidence on record to suggest that the actual construction of the project had started after the above sanction granted on 25/01/1989. There was in fact another plan and commencement certificate issued by the local authority to the appellant dated: 23/04/1990, which was again valid for one year only with conditions attached and the construction did not commence. As the above conditions were difficult to fulfill in the stipulated time of one year, the proposed housing project could not be started before 01/10/1998. From the documents placed on record, it can be observed that the TMC resurveyed the entire area in the year 2001-02 and thereafter the amended plan of construction was submitted by the appellant and sanctioned vide amended plan certificate dated : 09/10/2001. This commencement certificate clearly mentions that the appellant is allowed to carry out the development work and or to erect the buildings no.F1, F2, G & H at Gut no.60/2. The buildings in question have been sanctioned and find mention in the commencement certificate for the first time vide this commencement certificate of Thane Municipal corporation dated 09/10/2001. The AO has not been able to place any evidence on record that the appellant had commenced the construction activity in respect of the buildings in this housing project before 01/10/1998, while all the facts mentioned above and documents 14 ITA No.7021&7022/2012

placed on record shows that the construction activity in respect of the buildings in question i.e. F1, F2, G & H started in the year 2001-

02. All the facts therefore leads to the conclusion that for all practical purposes the housing project of the appellant commenced only after the permission granted by the local authority vide certificate dated 09/10/2001. As per Thane Municipal Town Planning and Development Plan 1999, there was a requirement to construct a 10 mtr. DP Road. In this case, if the 10 mtr. DP road was not constructed by the TMC, the development of the buildings in question was not possible because only this road gave access to these buildings and plot of the appellant which is very much evident from the Site Plan submitted during the course of appellate proceedings and taken on record. The DP road called Jai Bhawani Road was completed in 2001. The appellant had to resubmit the plan for approval in view of the DP road to be constructed and this new development plan accordingly was approved on 09/10/2001 and after this compliance, the appellant was allowed the construction of its housing project buildings F1, F2, G & H. All the documentary evidences relating to these facts have been placed on record by the appellant. The AO has also not been able to place any evidence on record to suggest that the appellant had incurred any expense on this project prior to the above date.

While deciding a similar issue in the case of NIRMITI CONSTRUCTION vs. DEPUTY COMMISSIONER OF INCOME TAX, (2005) 95 TT J (Pune) 1117, it has been held by the ITAT that

"The deduction under s. 80-IB(10) was admissible to those undertakings which commenced the development and construction of housing project on or after 1st Oct., 1998. In the instant case, it is the contention of the assessee that the development and construction of housing project was commenced after 1st Oct., 1998. However, the Department took the stand that in this case the development commenced with the development agreement and acquiring irrevocable power of attorney and more so, when layouts were furnished to the municipal corporation for preliminary sanction on 6th June, 1998. It is clear that the assessee had not made any material change as far as the land is concerned. Admittedly, construction work was commenced after building permission (Bandhkam Parwangi) was sanctioned by the municipal corporation on 23rd July, 1999. The only debits prior to 1st Oct., 1998, were in respect of land purchased and two items, viz., Rs. 6,000 and Pooja expenses of Rs. 1,140. Admittedly, the bank account in the name of housing project was opened on 20th Oct., 1998. The assessee also incurred land measurement charges of Rs.10,350 on 25th Nov., 1998. Admittedly, non-agricultural tax was paid on 15th Jan.1999, of Rs.1,25,150. The assessee also informed the AO regarding commencement of the housing project on 23rd Nov., 1999. It is also admitted position that the land was converted into non-agriculture on 30th Jen., 1999. This fact alone shows that the assessee had commenced the development and construction after 1st Oct., 1998. Without obtaining the permission of the Collector, the assessee could not have commenced development and construction of the housing project. It is also admitted fact that the assessee presented 15 ITA No.7021&7022/2012

the building plan to the municipal corporation and the said corporation sanctioned the building plan on 23rd July, 1999. It means that the municipal corporation granted the permission of construction on 23rd July, 1999. The activities, viz., approval of the plan, marketing for booking the residential units, availing of finance, receipt of advance booking money, etc. could not be construed to mean commencement of development and construction of housing project. As per the certificate of architect, the project of constructing housing units commenced after 1st Oct., 1998. The assessee had also opened bank account in the name of housing project on 29th Oct., 1998. All these facts indicate that development and construction commenced after 1st Oct., 1998. It is also seen that the assessee had incurred a sum of Rs. 6,000 towards the cleaning of land and also incurred an expense of Rs.1,140 towards Pooja expense. These expenses do not indicate that development and construction of housing project had been commenced before 1st Oct., 1998. Rs.6,000 was incurred for cleaning the land, so that correct measurement of the land could be done. There is no material on record to show that the assessee had made any material change on the land before 1st Oct., 1998. From the above discussion, it would be clear that the assessee had commenced the development and construction of the housing project after 1st day of October, 1998, and completed the same before the specified date. There is no dispute that the assessee had fulfilled the remaining conditions under the law for claiming deduction under s. 80-18(10). Accordingly, the AO is directed to allow the deduction to the assessee."

In the case of ACIT Vs Shree Ostwal Builders Ltd, ITA no. 2144 & 2153/M/2010, the AO denied the deduction u/s. 80IB(10) on the ground that building plans were approved by CIDCO prior to 01/10/1998 on the basis of the arguments that the activities culminating into the approval of the building plan were integral part of the project and thus the commencement of the project was prior to 01/10i1998. While deciding the issue in favour of the appellant, it has been held by the ITAT, Mumbai Bench 'F' Mumbai, that-

"it is observed that the land on which the said project was to be constructed was purchased by the assessee in the month of August 2001 from MIs Sonal Venture and till the date of the said purchase, there was no construction activity which had commenced in respect of Ostwal Nagari Project. As a matter of fact, the assessee company revised the building plans which were originally prepared by MIs. Sonal Venture and approved by CIDCO and the plans so revised got sanctioned by CIDCO only on 4.01.2002 as is evident from the copy of the sanction letter placed at page 100 of the assessee's paper book. Only after that date, the assessee thus started the construction work of Oswal Nagari project and this position was substantiated from the fact that construction expenses in respect of Oswal Nagari Project were debited in the books of account of the assessee only after 01.04.2002. As per the relevant provisions, the deduction under section 80IB(10) is allowable in the case of an undertaking developing and building housing projects if such undertaking has commenced development and construction of 16 ITA No.7021&7022/2012

the said housing projects on or after 151 day of October, 1998. In the present case, the assessee company is such as an undertaking which has developed and built the housing project, viz. Ostwal Nagari Project and the relevant land itself having been purchased by it only in the month of August, 2001, we are of the view that it cannot be said that it has commenced development and construction of housing project prior to 1.10.1998. As rightly held by the learned CIT(A), the development and construction of Ostwal Nagari Project could have been commenced by the assessee company only after purchase of land in the month of August, 2001 and the conditions stipulated for making the said project eligible for deduction u/s. 80lB thus was duly satisfied."

It is therefore clear from the evidences placed on record that the development 1 commencement of the housing project of the appellant for all practical purposes started only after the resubmission of the plan and after according of the approval by the Thane Municipal Corporation's commencement certificate dated:

09/10/2001, which means that the housing project of the appellant commenced much after 01/10/1998. Therefore, the conditions as laid down in the section 80IB(10) stands complied with and the conclusions drawn by the AO for denying the deduction to the appellant are erroneous and are not justified. The AO is directed to allow the claim of deduction u/s. 80IB(10) to the appellant. This ground of appeal of the appellant is allowed.

4.2. It is clear from the above appellate order in the case of the appellant for the A.Y. 2006-07 that the housing project of the appellant for which the deduction u/s.80IB(10) is being claimed, for all practical purposes, was first approved in the year 2001 and it commenced the construction after obtaining the commencement certificate dated: 09/10/2001 from the Thane Municipal Corporation.

The approval dated: 25/01/1989 was for one year only and during that period only Phase-I of the housing project of the appellant was completed.

4.3. There was no question of commencing the construction of the buildings in question i.e. F1, F2, and G as this area had no access prior to 1999 and this area of the plot was land locked as can be observed from the copy of the site plan placed on record by the appellant.

4.4. As per Thane Municipal Town Planning and Development Plan 1999, there was a requirement to construct a 10 mtr. DP Road on this area and only then the access to the plot was possible .. In this case, if the 10 mtr. DP road was not constructed by the TMC, the development of the buildings in question was not possible because only this road gave access to these buildings and to plot of the appellant which is very much evident from the Site Plan submitted and placed on record. The DP road called 'Jai Bhawani Road' was completed in 2001 which made possible the access to this area of the plot of the appellant. Thereafter, the appellant had to resubmit the plan for approval in view of the DP road to be constructed and this new development plan was accordingly approved on 17 ITA No.7021&7022/2012

09/10/2001 and after this compliance, the appellant was allowed the construction of its housing project buildings F1, F2, G.

4.5. From the facts mentioned above, it is clear that the buildings in question could not be contemplated while submitting the earlier plan of construction in 1989 because of the existence of peculiar circumstances at that time in the area of the buildings F1, F2, G as mentioned above. The appellant was required to get land boundaries of the area re-surveyed by the TILR authorities and TMC and TILR undertook the re-survey of the entire plot and the plan for the buildings F1, F2 and G was approved thereafter in the year 2001.

4.6. It can be further observed from the plinth completion certificates in respect of these buildings that the construction of the buildings commenced after 2001. The details of these certificates are as under :-

Name of the Building Date of plan Date of 1st plinth F1 09/10/2001 28/08/2002 G 09/10/2001 28/08/2002 F2 09/10/2001 28/08/2002

4.7. It is a matter of record that after the condition of compliance in respect of the 10 mtr D P road to be provided to the TMC, the appellant started the work for F1,F2 and G buildings in the year 2001 and continued thereafter. The commencement certificate in respect of these buildings was a fresh approval as per the amended town development plan and not the extension of the earlier plan of 25/01/1989 as the entire earlier plan of the proposed buildings was scrapped as required by the Thane Municipal Town Planning and Development Plan 1999.

4.8. While deciding a similar issue in the case of CIT Vs M/s Vandana Properties in ITA no. 3633 of 2009 and 4361 of 2010 dated: 28.03.2012, it has been held by the Hon'ble High Court of Bombay as under :-

" The question, then, to be considered is, whether construction of E building is an independent housing project or extension of the housing project already existing on the plot in question. It is the contention of the Revenue that since the approval for construction of E building was granted by the local authority subject to the conditions set out in the first approval granted on 12th May 1993 for construction of A and B building, construction of E building must be considered to be the extension of the earlier housing project for which approval was granted prior to 1st October 199a and, therefore, the benefit of section 80IB(10) cannot be granted. There is no merit in the above argument, because, when the plans for A, B, C and D buildings were approved during the period from 1993 to 1996, construction of E building was not even contemplated on the plot in question. It is only in the year 2001 when the status of the land was converted from surplus vacant land into within the ceiling limit land by the 18 ITA No.7021&7022/2012

State Government, an additional building could be constructed on the plot in. question and accordingly building plan for construction of E building was submitted and the same was approved by the local authority on 11th October 2002.

21. The fact that the local authority, namely the Municipal Corporation approved the building plan for E building on the condition that all the objections raised in the Intimation of Disapproval dated 12th May 1993 relating to the earlier housing project on the same plot of land shall be applicable and should be complied with, cannot be a ground to hold that E building is extension of the earlier housing project because the earlier housing project was completed prior to 1st October. 199a and the housing project for construction of E building was approved for the first time on 11th October 2002. Nowhere in the Intimation for Disapproval granted for construction of E building on 11th October 2002, it is stated that building E constitutes extension of the earlier housing project which is already completed. The fact that the objections raised while approving the earlier housing project on the same plot of land were made applicable to the housing project in question, it cannot be inferred that the housing project in question constitutes extension of the earlier housing project. Therefore, in the facts of the present case, where, neither the assessee had sought approval of the building plan for construction of E building as extension of the earlier housing project, nor the Municipal Corporation has granted approval for the housing project consisting of E building as extension of the earlier housing project, it is not open to the income-tax authorities to contend that approval to the housing project granted by the Municipal Corporation on 11th October 2002 constitutes extension of the housing project which was approved in the year 1993.

22. Reliance placed by the Revenue on the Explanation to section BOIB(10)(a) which was introduced with effect from 1st April 2005 is also misplaced. What the said Explanation contemplates is that where the approval in respect of a housing project is granted more than once, then, that 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. For example, in respect of a housing project, the assessee may seek amendment of the building plan at several stages of the construction and the same may be approved. In such a case, the explanation provides that for the purposes of section 8018(10) the housing project shall be deemed to have been approved on the date on which the first approval was granted by the local authority. Thus, the Explanation to section 8018(10)(a) refers to the approval granted to the same housing project more than once and the said Explanation would not apply where the approval is granted to different housing projects. In the present case, as noted earlier, construction of E building constitutes an independent housing project and, therefore, the date on which to the housing project consisting of E building merely because the conditions set out while granting 19 ITA No.7021&7022/2012

approval to the earlier housing project have also been made applicable to the housing project in question."

4.9. The question of placing reliance on the Explanation (i) to section 801B(10)(a) by the AO in the assessment order and denying the deduction to the appellant on that basis, also gets answered by the above judgement of the Hon'ble High Court of Bombay wherein it is held that "the Explanation to section 80IB(10)(a) refers to the approval granted to the same housing project more than once and the said Explanation would not apply where the approval is granted to different housing projects". In the instant case, the housing project of the appellant comprising of buildings F1, F2 and G is not a part of the originals housing project called Phase-I approved on 25/01/1989. The project comprising of buildings F1, F2 and G is a freshly approved project after the entire area was resurveyed as per Thane Municipal Town Planning and Development Plan 1999. The project comprising of buildings F1, F2 and G is not an extension of the earlier plan of the appellant because when the earlier project was approved, there was no access to this area and the appellant could not have thought of construction on this area of plot. This instant project could be visualized only after the changes introduced by the local authority after 1999 as explained above. Therefore by placing reliance on this explanation, the deduction u/s 801B(1 0) cannot be denied to the appellant and such a reliance is misplaced without appreciating the facts of the case. The AO has nowhere mentioned the facts of the case in question and without appreciating and discussing the facts in the assessment order, has proceeding to disallow the deduction by placing reliance on the Explanation (i) to section 80IB(10)(a) , which is not correct.

4.10 In view of the facts and circumstances as well as the judicial pronouncements cited supra, in my considered opinion, the conditions as laid down in the section 80IB(10) stands complied with and the conclusions drawn by the AO for denying the deduction to the appellant are erroneous and are not justified. The AO is directed to allow the claim of deduction u/s. 80IB(10) to the appellant for the year under consideration i.e. the A.Y.2005-06. This ground of appeal of the appellant is allowed.

In the result the appeal of the appellant is allowed."

9. We have considered rival contentions, carefully gone through the

orders of the authorities below and also deliberated on the judicial

pronouncements cited at bar by ld. DR and AR as well as the decisions

referred by the lower authorities in their respective orders. From the

record we found that during the relevant assessment year under

consideration, assessee's eligibility for claim of deduction u/s.80IB(10) 20 ITA No.7021&7022/2012

envisaged that the undertaking has commenced or commences

development and construction of the housing project on or after 1.10.

1998. The assessee has commenced construction on receipt of the

permission / commencement of certificate dated: 9.10.2001 and therefore

it is an assumption by the assessing officer that the assessee has

commenced construction of phase II prior to 1. 10. 1998 because the

Block plan was first sanctioned prior to 1998. There is no evidence on

record, that the development and construction has commenced earlier

than 1.10.1998 since the approval of 25.1.1989 was valid for one year

only & was a conditional approval for construction of 10 mtr. wide road.

From the record we found that the buildings constructed, in' the Phase-I

prior to 1998 were not claimed u/s. 80lB whereas in the Phase-II, Building

F1, F2 & G were started for which certificate of completion of plinth was

received only on 28.08.2002. As per plant there is no extension of Phase-I

to Phase-II & hence it cannot be concluded that the permission of Phase-I

is extended to Buildings constructed in Phase-II. All the events which

made the Phase-II possible have taken place only after 1998. In support

of the same, assessee has enclosed following documents alongwith the

statement of facts submitted on 16.08.2012.

(1) Copy of the original return of income filed for the assessment year 2005-06 and the assessment order passed by the assessing officer allowing the claim u/s. 80IB(10). The assessment order uls. 143(3) was passed on 7.12.2007.

(2) Copy of the survey report, the amended permission 1 commencement certificate, alongwith Plan dated: 9.10.2001.

(3) Occupancy certificate issued by the Thane Municipal Corporation on 14.03.2005.

(4) Indemnity Bond dt. 26.09.2003.

21 ITA No.7021&7022/2012

(5) Commencement Certificate dated: 2510111089 & 2310411990 alongwith the English translation specifying the condition of construction of road of 10 mtr. [copy enclosed.

10. It is clear that the commencement certificate issued by the Thane

Municipal Corporation on 25.01.1989 was a general permission and the

certificate was valid for one year only and subject to three conditions viz.

(1) Reservation of HCMTR to be decided and required land handed over to Thane Municipal Corporation.

(2) 10 mtr. proposed road to be handed over to Thane Municipal Corporation.

(3) 6 mtr. of proposed road of 10 mtr. to be constructed by the appellant as per specification of Thane Municipal Corporation.

11. As per the chronological date and events, we found that on 9-10-

2001, the plan was approved by the Thane Municipal Corporation. On 2-

8-2002, the order was passed under ULC Act and surveyor also inspected

the site. On 28-8-2002, certificate of completion of plinth was received by

the assessee. On 26-9-2003, the assessee executed indemnity bond for

DP road. On 14-3-2005, assessee received occupancy certificate. The

assessee filed return of income for assessment year 2005-06 on 20-10-

2005, wherein deduction u/s.80IB(10) was claimed on F1, F2 & G block.

The AO passed assessment order u/s.143(3) on 7-12-2007, wherein

deduction u/s.80IB(10) was allowed. A remand order for assessment year

2006-07 was also passed u/s.143(3) of the Act on 29-12-2008, wherein

deduction u/s.80IB(10) was disallowed on the basis that the project is

approved on 25-1-1989. Thereafter case of assessment year 2005-06

was reopened in 2011 on the basis of assessment year 2006-07. In the

assessment order passed for assessment year 2005-06 u/s.143(3)

r.w.s.147, the deduction u/s.80IB disallowed on the basis of assessment 22 ITA No.7021&7022/2012

year 2006-07, was decided in favour of assessee by following the order

for assessment year 2006-07. It is pertinent to mention that the

disallowance made u/s.80IB(10), which was deleted by the CIT(A) in the

assessment year 2006-07, the Revenue did not file any appeal before the

Tribunal, meaning thereby the department has accepted CIT(A)'s version

for eligibility of assessee for allowing claim of deduction.

12. We also found that the scrutiny assessment order for assessment

year 2009-2010, passed u/s.143(3) of the Act on 30-12-2011, wherein

claim of deduction u/s.80IB(10) was disallowed. For both the assessment

years i.e. A.Y.2005-06 & 2009-2010, the CIT(A) decided in favour of the

assessee. It is crystal clear from the above that the commencement

certificate in respect tof Phase II (building F1, F2 and G) is a fresh

approval and not an extension of original plan approved on 25.1.1989.

Therefore, project approval date is 9-10-2001 i.e. much after 1-10-1998.

Hence, assessee is entitled for deduction u/s.80IB(10). For this purpose

reliance was placed on the following decisions :-

i) CIT Vs. Vandana Properties, ITA No.3633 of 2009(HC)

ii) ITO Vs. Kasturi Construction [2012] 24 taxmann.com 331 mum)

iii) ITO Vs. Neeta Enterprises, ITA No.2898, 5126, 4580/Mum/2010.

13. As per our considered view, the plan was resubmitted and

amended subsequently after modification a DP road for access to the plot

on 9-10-2001. It is a fact that without access to plot work cannot be

commenced. Hence, it is clear that project was commenced after 1-10-

1998 and, therefore, the assessee is eligible for deduction u/s.80IB(10).

23 ITA No.7021&7022/2012

14. Now, coming to the Explanation (i) of sec.80IB(10)(a) of the Act,

which applies only when approval of housing project was obtained more

than once, not when housing project itself changed. It is also not in

dispute that construction of housing project is as per new plan since the

earlier plan has already been lapsed. It is also pertinent to mention that in

the years between A.Y.2005-06 and AY 2009-2010, the department has

allowed deduction. The summary of proceedings is as under :-.

PARTICULARS AY 2006- AY 2007- AY 2008-2009 AY 2010-2011 2007 2008 Amount of deduction 527,518 1,817,654 17.260,170 10,639,395 claimed u/s.80IB(10) As per intimation 527,518 1,817,654 17,260,170 10,639,395 u/s.143(1) Whether order passed Yes No return Yes No notice or u/s.143(3) accepted order received, u/s.143(1) hence accepted u/s.143(1). Refund received Whether deduction Disallowe N.A. Allowed N.A. allowed as per d assessment order u/s.1436(3) Whether deduction Allowed N.A. N.A. N.A. allowed as per Order of CIT(A)

15. Even though the principles of res-judicata does not apply to income

tax proceedings but there must be some substantial ground for one stand

to differ from another as taken in an earlier A.Y. The same has been held

in the case of C.I.T Vs. Hindustan Motors Ltd., 192 ITR 19 (Cal.). The

Income Tax Department cannot take a different view especially when the

facts are the same.

16. In view of the above discussion, when the findings recorded by the

CIT(A) has not been controverted by department by bringing any positive

material on record, we do not find any reason to interfere in the findings 24 ITA No.7021&7022/2012

so recorded resulting into deletion of disallowance of claim of deduction

u/s.80IB(10) of the Act.

17. In the result, both appeals of the Revenue are dismissed.

Order pronounced in the open court on this 21st January.2015.

21st Jan,2015 Sd/- Sd/- ( ) ( ) (VIVEK VARMA) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai; Dated 21/01/2015 /pkm, PS Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. / The CIT(A)-X, Mumbai. 4. / CIT 5. / DR, ITAT, Mumbai

6. Guard file.

//True Copy// / BY ORDER,

(Asstt. Registrar) / ITAT, Mumbai