Vaminee Promoters, Erode vs Assessee

अपीलाथ क ओर से / Appellant by : Shri. G. Baskar, Advocate यथ क ओर से / Respondent by : Dr. Nischal, IRS, JCIT.

सन ु वाई क तार ख/Date of hearing : 15.04.2015 घोषणा क तार ख /Date of Pronouncement : 29.05.2015

आदे श / O R D E R

PER CHANDRA POOJARI, ACCOUNTANT MEMBER

This appeal by assessee is directed against the order of

the Commissioner of Income Tax (Appeals)-I, Coimbatore, dated

06.02.2013 for the assessment year 2009-2010.

:- 2 -: I.T.A.No.903/Mds/2013.

2. The first ground of the assessee in this appeal is with

regard to deletion of addition u/s.80IB(10) of the Act.

2.1 The facts relating to the issue are that the assessee had

claimed deduction u/s.80IB(10) of the Act at D10,20,122/- for its

construction works done in the name of "Aitheriya Avenue-III'' at

Vanjinathansalai, Thindal, Erode. The Assessing Officer during the

course of assessment asked the assessee to furnish the copy of the

approval of the project issued by the local authorities. The

assessee's representation vide letter dated 03.10.2011 has stated

that the approval has been obtained by the assessee firm from the

local authorities namely viz., Thindal Panchayat, Erode. However,

the assessee not furnished the copy of the approval of the local

authorities. Once again, the Assessing Officer vide letter dated

23.12.2011 issued show cause notice stating that the assessee has

not furnished the copy of the approval of the local authorities and

assessee has only furnished copy of the letters of the President of

Thinadal Panchayat dated 10.02.2005 only in support of its claim

for the approval of projects. However, on perusing these letters, it

is seen that these letters are addressed to the Sub-Registrar,

Karungalpalyam with a request to register the lands. Being so, the :- 3 -: I.T.A.No.903/Mds/2013.

Assessing Officer gave final opportunity to assessee to explain

these discrepancies. Consequent to this, the assessee filed a letter

dated 26.12.2011 stating that :-

For the claim of. deduction under section 80IB for housing project in respect of Aithreya Aveenue 3 project of the assessee firm we submit the following.

a) Housing project' has not been defined in the Act.

b)The benevolent Section 80IB has been brought in only to confer benefit of tax exemption to an undertaking which undertakes developing and constructing housing projects construction of which commences on or after 1st October, 1998. There are also other conditions as to dates of approval, commencement and completion of construction.

c) In our state the State Government has formulated that all bigger housing projects shall be subject to approval by the Director of Town Planning, Chennai. In case of smaller housing projects situate in Village panchayats and Town Panchayats, the power of approval is given to the respective panchayats. The approval originates even from the registration of the hosing plots. Without the prior approval of the jurisdictional panchayats even' the Sub Registrar shall not register the transfer of plots. That is the reason why in the appellant's case the approval was given by the Thindal' Panchayat which by its letter addressed the letter of approval to the Sub Registrar Erode to register transfer of land.

d) The second stage is with regard to the approval of the hosing plans. Every plan of everyone of the houses in the housing project of the assessee has been approved by the said Thindal Panchayat, Erode being the jurisdictional local authority.

e) The project is on an over all area of 47,425.37 square feet which is in excess of the required minimum area of 1 acre (43,600 square feet) contemplated under section 80IB.

f) The area of construction of everyone of the houses :- 4 -: I.T.A.No.903/Mds/2013.

carried out by the assessee is less than 1500 square feet being the permitted maximum area under section 80IB.

g) The project consists of number of houses as stated in the layout plan submitted. The package of facilities provided to all the beneficiaries in the housing project included common tar topped road, street lights, common bore well, electric motor, street pipes for every 5 houses in the project, drainage, common compound wall for the entire Aithreya Avenue project 3, common area for the housing project along with an office room built therein and handed over for the benefit of the residents of the Aithreya Avnue project 3 and children's play area for the housing project.

h) The road in the housing project was settled in favour of the local authority as a pre condition for approval.

i) The approval by the Thindal Panchayat by a letter to the Sub Registrar, Erode communicating No Objection to register the plots, acceptance by the local authority of the road settled in its favour for maintenance upon completion of the project, the grant of approval of the house plans of all the houses in the housing projects by the local authority, levy of tax on the houses after completion of construction by the local authority, provision of the street lights in the housing project maintenance of drainage together go only to establish that approval of housing project by the local authority and accorded as contemplated in section 80IB.

2.2 According to assessee the approval by the Thindal Panchayat

by a letter to the Sub-Registrar, Erode communicating No

Objection to Register the plots, the grant of approval of the

house plans of all the houses in the housing projects by the local

authority, levy of tax on the houses after completion of

construction by the local authority, provision of electric supply to :- 5 -: I.T.A.No.903/Mds/2013.

the street lights in the housing project, maintenance of drainage

together go only to establish that approval of housing project by

the local authority was accorded as contemplated in section 80IB.

3. According to the Assessing Officer, the above contention of

the assessee is not placing as a proof for approval of project-

which was nothing but no-objection certificate issued by the

President, Thindal Panchayat, Erode for registering the lands in site

Nos.18 to 37. In this certificates the name of the assessee firm is

not at all appeared anywhere, to consider the contention of the

assessee. In other words, there was no nexus between these

certificates and the so-called the approval of the project as stated

by the assessee. The certificates which the assessee has relied

upon for claiming deduction u/s.80IB cannot be stretched to treat

or construed as approval of the projects of the assessee. In view of

these facts, the above contention of the assessee that it has got

approval from the local authority as stipulated in the provisions of

section 80IB of the Income Tax Act was incorrect, inadmissible and

not maintainable, since the local authority has not given any

approval to the assessee-from. In other words, the assessee has

failed to discharge the onus of proving that its project got approval :- 6 -: I.T.A.No.903/Mds/2013.

of local authority as statutory precondition for claiming the

deduction u/s.80IB of the Act. Hence, the Assessing Officer

rejected the claim of the assessee u/s.80IB of the Act. Aggrieved,

the assessee went in appeal before the Commissioner of Income

Tax (Appeals).

4. On appeal, the Commissioner of Income Tax (Appeals)

observed that the assessee was not the owner of the land. The

land owner did the layout and sold the plots to different people.

The approval for housing plans was done by Thindal Panchayat,

Erode. As seen from the details, the Housing Plans were submitted

by the individual plot owners to Thindal Panchayat for approval.

The assessee was not involved in the approval of the Housing

plans of the project. The persons who purchased the individual

plots have applied separately in their individual status to the said

Panchayat for approval of the Housing Plan. The assessee was

involved at this stage of the project and was executing the

construction part of the individual houses of the plot owners. As

seen from the agreement it was very clear that the individual

persons/plot owners entered into a construction contract

agreement with the assessee for construction of their houses. The

assessee was a mere contractor and was doing construction of the :- 7 -: I.T.A.No.903/Mds/2013.

houses. The Assessing Officer in his order at page 5 stated that

"Thindal Panchayat has only issued a no-objection certificate for

construction of their houses and not a approval of the plan of the

houses. As seen from the certificates the name of the assessee

Firm does not appear, which clearly proves that the assessee firm

is not involved in the approval of the project. The Assessing Officer

elaborately discussed about the Audit Report in Form No.10CCB. As

seen form the provisions of Section 80lB(10) the approval of the

plan by the local Authority for a House Property is very crucial,

because the Section specifies the time of the completion of the

project, after the approval to claim the deduction u/s.80IB(10).

The date of the completion of the housing project will be taken as

the date on which the completion certificates were issued by the

local authority. The assessee failed to satisfy this condition. In the

case of the assessee, the individual plot owners submitted the

housing plan for approval which clearly shows that the project is

not developed by the assessee firm. The Assessing Officer has

clearly brought out in his order regarding the violation made by the

appellant firm in fulfilling the conditions for claiming deduction

u/s.80IB(10). Hence, the Commissioner of Income Tax (Appeals)

confirmed the action of the Assessing Officer in disallowing the :- 8 -: I.T.A.No.903/Mds/2013.

deduction u/s80IB(10). Against this, the assessee is in appeal

before us.

5. The ld. Authorised Representative submitted that assessee

had developed "Aithreya Avenue Project III". The assessee

organized the purchase of the land from the original owner, laid

them into plots, got the plots registered in the name of the buyers,

got the housing plans approved, developed the housing project,

provided the necessary infrastructure, obtained housing loans for

the buyers. The ld. Authorised Representative for assessee

submitted that the State Government has formulated that all bigger

projects shall be subject to approval by Director of Town Planning,

Chennai. In case of smaller housing projects situate in Village

Panchayats the power of approval is given to the respective

Panchayats. The approval originates even from the stage of

registration of the housing plots by the jurisdictional Sub Registrars.

Without the prior approval of the jurisdictional Panchayats even the

Sub Registrar shall not register the transfer of plots. This is the

reason why the approval for registration of plots was given by the

Thindal Panchayat, the jurisdictional local authority for housing

project. The ld. Authorised Representative for assessee further

submitted that everyone of the housing plans in the housing project :- 9 -: I.T.A.No.903/Mds/2013.

was approved by the local authority and tax was levied on only on

completion of the housing project. The ld. Authorised

Representative for assessee submitted that the project is on an area

of 47,425.37 square feet being in excess of the prescribed

minimum area of 1 acre. The ld. Authorised Representative for

assessee submitted that the area of everyone of the houses in the

housing project is less than 1500 square feet. The ld. Authorised

Representative for assessee submitted that the learned Assessing

Officer failed to consider that the housing project envisages not

only the construction of houses. It encompasses a package of

facilities provided to all the beneficiaries in the housing project

including provision of common tar topped road, provision of street

lights, common bore well, electric motor, street pipes for every 5

houses in the housing project, drainage, common compound wall

for the entire housing project along with the office room built and

handed over for the benefit of the residents of the Aithreya Avenue

Project III and children's play area for the housing projects. The

learned Assessing Officer erred in considering that the letter by

the local authority to the jurisdictional Sub Registrar conveying

no objection for registration of land, acceptance of the road

within the housing project settled in its favour by the land :- 10 -: I.T.A.No.903/Mds/2013.

owner, approval of individual house plans, constitute approval

of the housing project. The learned Assessing Officer erred in

contending that the application for approval should have been

made in Assessee firm, the approval should have been in

assessee name, the land should have been owned by the

Assessee, the road within the housing project should have been

owned by and settled in favour of the local authority by the

Assessee. The Assessing Officer erred in contending that the

size of the various plots of land in the housing project should

have been uniform to be eligible for availing of the benefit of

deduction under section 80IB(10). It is submitted that other

housing activity by name "Aithreya Nagar" was not mentioned

since the assessee firm has not claimed deduction under section

80IB(10) for the "Aithreya Nagar" project. While agreeing with

the contention of the learned Assessing Officer that the "built up

area" is inner measurement of the house as increased by wall

thickness, projections and balconies, not including the common

area within the meaning of section 80IB(10), it was contended

that the area as stated in the plan is exactly the same within the

meaning of built up area under section 80IB(10). The ld.

Authorised Representative for assessee submitted that :- 11 -: I.T.A.No.903/Mds/2013.

deduction under section 80lB could be claimed only on

completion of the project and not every year during the course

of construction based on percentage completion method. The

ld. Authorised Representative for assessee submitted that

deduction under section 80lB is allowable for developing and

building housing project. The section does not contemplate owning

of the land prior to construction of land by the assessee as held by

Radhe Developers & Others Vs. Income Tax Officer and Others

(43(I)ITCL 232 Gujarat High Court) wherein it was held that where

the assessee entered into agreement with the land owners for

development of housing project on the said land by utilising its

knowledge and capital, then the deduction under section 80IB(10)

cannot be denied to the assessee by treating it as a mere works

contractor. Further it was held that it is the entrepreneurial activity

in development which meets the objective of promoting housing.

The developer is eligible for deduction even in the context of a

narrower interpretation.

5.1 The ld. Authorised Representative for assessee contended

that commencement certificate and completion certificate are

required only for the purpose of ascertaining and reckoning the :- 12 -: I.T.A.No.903/Mds/2013.

period of commencement and completion and that they are not the

factors for determining the eligibility of deduction under section

80IB in view of the fact that there are no prescribed format for

commencement and completion certificates.

5.2 According to the ld. Authorised Representative for assessee

the Assessing Officer erred in contending that only percentage

completion method should have been followed by the assessee. We

submit that the assessee is under no such obligation to follow only

percentage completion method. Section 145 does not necessitate

that since percentage completion method has not yet been notified.

Only now the CBDT has called for assessee's response for the

proposed Tax Accounting Standards which would call upon the

assessee to follow percentage completion method from the date to

be notified.

5.3 The ld. Authorised Representative for assessee submitted

that section 80lB is a benevolent section and hence it is to be

construed liberally. In the following cases the honourable Income

Tax Appellate Tribunals have held that even if the built up area of

some of the residential units are in excess of the prescribed limits,

proportionate deduction shall be allowed to the assessee under :- 13 -: I.T.A.No.903/Mds/2013.

section 801B. The built up are of one or more of the residential

units in the housing project in excess of the limits will not make the

claim of deduction under section 801B ineligible. ITO Vs AIR

Developers (2009) 30 (II) 3191TR (AT) 167 (NAGPUR); ClT VS.

Brigade Enterprises Private Limited (Bang Trib. ITA No.1198/Bang

2007 dated 29.08.2008 (25 (II) ITCL 300; Asst.ClT VS. Sheth

Developers P Ltd 31 (II) ITCL 397 (Mumbai Tribunal) 33 S0T

277; Bengal Ambuja Housing Development Ltd VS Deputy ClT ITA

No.1595/KOL/2005 and ClT Vs Ekta Housing P Ltd 471 (II) ITCL

404 Mumbai 'J' Tribunal) Sir Builders Vs. Assistant ClT (2010) 35

(1/) ITCL 176 (Bangalore 'A' Tribunal) 3 ITRS 569.

5.4 According the ld Authorised Representative for assessee

the learned Assessing Officer failed to appreciate that the assessee

was a developer and builder and not a mere works contractor. This

is fortified by the various evidences like provision of infra structure

and facilities provided to the residents of the housing project.

5.5 The ld. Authorised Representative for assessee further

submitted that the contention of the learned assessing Officer that

the size of the plots and the built up are of the residential units

should be uniform so as to claim the benefits of deduction under :- 14 -: I.T.A.No.903/Mds/2013.

section 80IB is contrary to the provision of section 80IB. Further,

the contention of the learned Assessing Officer that the area of

park in excess of the prescribed limit of 2000 square feet is in

violation of section 80IB is contrary to the provisions of section

80IB.

6. The ld. Departmental Representative relied on the orders of

the lower authorities.

7. We have heard both the parties and perused the material on

record. The contention of the assessee's counsel is that the

assessee registered the purchase of the land from the original

owner, laid them into plots, got the plots registered in the name of

the buyers, got the housing plan approved, developed the housing

project, providing the necessary infrastructure, providing housing

loans for the buyers, his involvement from the commencement of

the project to the completion of the project undertaken by the

assessee himself and in view of the order of the co-ordinate bench

in the case of Sanghvi & Doshi Enterprise vs. ITO (2011) 131 ITD

151 (Chen), the assessee is entitled for deduction u/s.80IB(10) of

the Act. Admittedly, as held by the co-ordinate bench in the case :- 15 -: I.T.A.No.903/Mds/2013.

of Sanghvi & Doshi Enterprise confirmed by Madras High Court,

the assessee need not be a owner of the land and assessee is

entitled for deduction u/s.80IB (10). The assessee undertakes all

the risk involved from the commencement of the project to the

completion of the project. In other words, the assessee undertook

development of the project in terms of section 80IB(10) of the Act.

The assessee is entitled for deduction u/s.80IB(10) of the Act. In

our view to give a finding whether the assessee is actually a

developer or contractor, one has to see the agreement the

assessee entered with the prospective buyer. Though there is an

elaborate discussion in the assessment order, the contents of the

agreement the assessee entered with the prospective buyer were

not discussed. In our opinion, it is appropriate to go through the

agreement entered with the prospective buyer and decide the

issue in the light of the judgment of Madras High Court in the case

of Sanghvi & Doshi Enterprise [2013] 29 taxmann.com 386 (Madras).

Accordingly, we remit the entire issue to the file of Assessing

Officer with direction to examine whether the assessee made

investment by himself and executed development work and carried

out civil works, deployment of technical personal, plant and

machinery, technical knowhow, expertise and financial resources :- 16 -: I.T.A.No.903/Mds/2013.

before handing over the completed project. If it is so, then the

assessee has to be treated as developer rather than contractor.

In other words, the assessee would not be denied deduction

u/s.80IB(10) if the contract involves design, development, financial

involvement and technical knowhow from assessee's side itself.

7. Accordingly, we remit the entire issue to the file of the

Assessing Officer for fresh consideration.

8. In the result, the appeal of the assessee in ITA

No.903/Mds/2013 is partly allowed for statistical purposes.

Order pronounced on Friday, the 29th day of May, 2015, at Chennai.

Sd/- Sd/- (च ला नागे !साद ) (चं पज ू ार ) (CHALLA NAGENDRA PRASAD) (CHANDRA POOJARI) या"यक सद य/ JUDICIAL MEMBER लेखा सद य/ ACCOUNTANT MEMBER चे#नई/Chennai. $दनांक/Dated:29.05.2015. KV

आदे श क त'ल(प अ)े(षत/Copy to: 1. अपीलाथ /Appellant 2. यथ / Respondent

3. आयकर आयु+त (अपील)/CIT(A) 4. आयकर आयु+त/CIT 5. (वभागीय त न.ध/DR 6. गाड फाईल/GF.

:- 17 -: I.T.A.No.903/Mds/2013.