TaxTMI 
TaxTMI 
2015 (12) TMI 564
X X X X Extracts X X X X
X X X X Extracts X X X X
....y to an undertaking involved in the business of developing and building housing projects and not to an individual who entered into a development agreement as the owner of the land. iii. Whether on the facts and in the circumstances of the case and in law the Ld. CIT (A) has erred in allowing deduction u/s 80IB to the assessee when the completion certificate of the project was not furnished by assessee as required in clause (ii) of explanation below section 80IB (10) (a) of the Act." 3.1 The assessee's CO for AY 2009-10 raising following ground, is not pressed being only to support the order of ld. CIT (A), the same is accordingly dismissed as academic. "The assessee having undertaken the activity of building and developing housing project within the meaning of Section 80IB (10) of I. T. Act, 1961 and having complied all the conditions laid down under the said provision is entitled hundred percent deduction of profits derived therefrom in respect of profit amounting to Rs. 5,22,92,252/- in the previous year relevant to this assessment year and Ld. CIT (A) - I, Jaipur is correct in law in allowing the said deduction to assessee." 4.1 Brief facts are the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 99 years lease for residential use which is placed on the record. The assessee for developing a Housing Project on this plot of land entered into a joint development agreement on 30-6-2005 with another reputed builder of Jaipur, M/s Unique Builders & Developers (Realty) hereinafter referred as UDB (Reality) for development and construction of a housing project on this plot of land. As per agreement assessee obtained the necessary permissions and other necessary approvals for proper development and construction of said Housing project from JDA. Necessary letter of approval dated 30-8-05 was issued in the name of assessee. As per this joint development agreement M/s UDB (Reality) undertook to bear the cost of construction of project and construct the flats under assessee's supervision in accordance with JDA approved plans in the name of the assessee. Under this arrangement, it was further stipulated that assessee will hand over the land, there will be joint supervision and after construction of housing project; ownership of 46% of constructed flats will be retained by assessee and 54% constructed flats will go to M/s UDB (Reality) as share as consideration of its part of work. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee allowed the claim u/s 80IB (10). Detailed order in for AY 2009- 10 which has been followed in subsequent years; relevant extract of ld. CIT(A) order for AY 2009-10 is as under: - "4.3 I have carefully perused the order of the AO and the submissions of the AR. The facts of the case and the law applicable to these facts are discussed below to bring clarity to the issue: 1. The appellant and his brother Shri Manik Lal Sanghi inherited agricultural land in Durgapura Tehsil, Sanganer on the death of his father Shri Chunni Lal Sanghi on 13/01/1975. 2. The use of land was got converted from agricultural to industrial for setting up of a manufacturing unit for automobile body building and repairs, from the Govt. of Rajasthan in 1983-84. 3. On 12/01/2004 there was a partition between the brothers vide a registered partition deed whereby land measuring 137973.25 sq. ft. came to the share of the appellant. 4. On 02/06/2005 the use of land measuring 15225.58 sq. yards was gotten converted from industrial to residential use vide an order of the JDA. 5. On 30/06/2005 the assessee converted the land from fixed assets to stock-in-trade. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s asset by way of land into stock-in-trade and signed the Development Agreement with the intention of developing and setting up of the residential complex. To say that the assessee had not debited any expenses related to the construction of the project in the P & L A/c would be an erroneous interpretation of the facts because cost of the land was his contribution to the cost of the project which has been properly accounted for at the initiation of the project wherein the appellant paid capital gains tax on conversion of this asset into stock-in-trade. It was precisely because he did not have the necessary financial and human resources that the agreement was signed and the undertaking came into existence. Thirdly, clauses 4 & 5 of the Development Agreement further establish that the appellant was not a mere owner of land but also a developer. As per these clauses M/s UDB (Reality) had to deposit a total sum of refundable/adjustable security deposit of Rs. 2,19,00,000/- with the appellant. It has been clearly mentioned that in case the builder did not commence construction work within the period of 3 years & 5 month than the owner would be at a liberty to cancel the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ering that the appellant has claimed the exemption u/s 80IB (10) in the next A.Y. that is 2009-10 when the first sale has been made by him it cannot be held that the project was not complete just because of the non availability of the completion certificate by the JDA. Moreover, even on perusal of the sale deed executed by the appellant in favour of Smt. Sheela Jain on 25/09/2008 it is seen that the appellant has sold a unit at 710 being a flat with a buildup area of 1291.49 sq. ft. As per clause 4 it is seen that at the time of execution of sale deed the seller handed over the possession of the unit in a good condition and not a piece of vacant terrace. Since this sale was registered by the Dept. of Stamp and Registration Govt. of Rajasthan it is seen that a Govt. Department recognized the fact that a flat was transferred and not an open space, which tantamounts to recognition of the fact that the construction of flat was completed and that is why it was registered as such. The appellant cannot be therefore penalized because the concerned Govt. Dept. had delayed in giving the completion certificate officially even though another Govt. Dept. had recognized and registered t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t from the facts of M/s Radhey Developers and others V/s ITO (Supra). First of all, the appellant did not relinquish his right to the land; he undertook all the activities required for developing the land from getting the use of land converted from industrial to residential etc. and even subsequent to signing of the Development Agreement continued to correspond with the respective authorities as a co signatory of the undertaking for requisite permissions etc. Thus he did not extinguish his right to develop the land in fact he retained with him the power to cancel the agreement if the developer did not adhere to the time schedule of construction of the residential complex. Secondly, he did not sell the land to the developer under the garb of Development Agreement neither did he opt out of the risk associated with the business. He was entitled to 46% of the project and share of profits there from. He undertook the sale of his share of the developed property independently as per the sale deed placed on record. In the order relied on by the AO the Hon'ble ITAT Ahmadabad has itself noted that "It is the undertaking that develops or builds the housing project that is en....
X X X X Extracts X X X X
X X X X Extracts X X X X
....able and feasible for assessee to develop the project on his own and required outsourcing of manpower and marketing skills to sell the flats, consequently assessee entered into an agreement with M/s UDB (Reality). A harmonious reading of various clauses of the agreement reveal that it was a joint development agreement. M/s UDB (Reality) agreed or contributed cost of construction, activity of construction under joint supervision and marketing of developed housing project in accordance with rules, regulations and terms of approval granted by competent authorities in the name of assessee. iv. The UDB (Reality) being an experienced organization undertook to provide the services of financial nature i.e bearing the cost of construction and marketing services as a part of their input in the project. For the services rendered it was to be reimbursed by 56% share of constructed flats. This was a viable commercial arrangement under a methodology which was very much prevalent in construction industry. No dispute or doubt has been raised by ld. AO about the genuineness of agreement or rendering of services by UDB (Reality). Thus the cost of land, administrative approval, clear title of land....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee to supervise the development of project. A harmonious reading of agreement will demonstrate that assessee gave away his rights of control and supervision and merely sold his land to M/s UDB (Reality). It is further manifested by the fact that the most important power of executing sale deeds in favor of purchasers of flats after successful completion of construction of housing project remained with assessee only. Had it been a simple case of sale of merely land or assessee had not been an integral part of development of housing project, M/s UDB (Reality) will have never allowed this power to remain with assessee. It was for assessee to ultimately ensure successful completion of development of impugned housing project as per JDA approved plan, to deal with authorities and obtain required completion certificate for the housing project from competent authorities which stood his own name and not in the name of M/s UDB (Reality). ix. All these facts clearly demonstrate that assessee was an integral and indispensable part of the development and construction of the impugned housing project as envisaged by sec. 80IB (10) of I. T. Act, 61 and CIT(A) rightly upheld the entitl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....held "It may also be born in mind that deduction is not exclusively to an assessee but to an undertaking developing and building housing project, be it developed as a contractor or as an owner. This fact is evident on the bare reading of sub-s. (1) of s. 80-IB, sub-s. (2) of s. 80-IB, which provides that "this section applies to an undertaking which fulfills all the following conditions viz.... ". The judgment thus rather supports assessee's case that if owner of land, develops and builds the housing project part of such process is eligible for deduction u/s 80IB (10), even if development & building i.e. construction work of housing project is carried on through any other developer. The Gujarat High Court also, while confirming the Radhey Developers judgment of ITAT (Ahmedabad Bench) held that the essence of sub s.(10) of S.80-IB requires involvement of an undertaking in developing and building housing projects approved by the local authority. The Jaipur Bench of ITAT in case of ACIT Vs. Indo Continental Hotel & Resorts Ltd. for A.Y. 2007-08 (ITA No. 351/JP/2010 order dated 6-05-2011) on the similar facts decided the issue of eligibility to claim u/s 80-IB in favour of assesse by f....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the ratio of this decision is not applicable on the facts of present case. 22.2 It is also a matter of fact that assessee has not claimed deduction under section 80IB(10) on entire profit of the project but has claimed deduction only on its share of profits. Provisions of section 80IB (10) are very clear by which it has been provided that on developing a housing project the deduction is allowable.'' A reading of the ITAT, Jaipur, judgment in the case of Indo Continental Hotel (supra) squarely applies to the facts of the case of assessee for entitlement to claim u/s 80IB(10). 4.6 Ld. Counsel adverting to facts again, contends that the development and building activities under taken by assessee as emerge from the record are as under: - i) Undertaking the comprehensive and fundamental tedious process of getting the land converted for residential use from competent authorities and obtaining patta from JDA for its residential use; ii) Coordination, compliance and meeting the lengthy queries about sanction of plan for development and construction of housing project on the impugned land from local authority which is undisputedly carried over by assessee over a perio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fit of middle and lower class people and when they have complied with all the conditions prescribed under the aforesaid provision, both of them are entitled to hundred percent benefit of tax deduction as provided under the said provision". Following the above judgment of Hon'ble Karnataka High Court recently the ITAT, Bangalore Bench in case of Abdul Khader Vs. ACIT (2012) 137 ITD 188 (copy placed on record) held as under: ''During the course of scrutiny assessment, the Assessing Officer noticed that the assessee had entered into a joint development agreement with a company for developing the housing project on land owned by the assessee. From such facts, the Assessing Officer formed an opinion that deduction under section 80-IB(10) could not be allowed to the assessee since he was only a land owner and no construction activity had been carried out by the assessee in developing the housing project. Accordingly the claim of deduction under section 80-IB(10) was disallowed.' The assessee entered into an agreement with Reddy Structures (P) Ltd., for development of housing project on the land owned by the assessee. The assessee got 24 per cent share in the said pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....struction activity, it is held that said reason is not sufficient to deny deduction under section 80-IB(10). In the instant case, the assessee made the contribution of his capital in the shape of land and incurred the initial expenses for development and building of housing project like sanction of plan. Therefore, merely on this basis that the assessee did not construct himself was not a ground to deny the deduction under section 80-IB(10), particularly when the assessee had undertaken the other work like making the land useful by getting it converted into non-agricultural purpose and getting plan sanctioned. [Para 14]. Therefore, considering the totality of the facts and following the ratio laid down by the Jurisdictional High Court in the case of CIT v. Shravanee Constructions [2012] 22 taxmann.com 250(Kar.), set aside the impugned order passed by the Commissioner (Appeals) and direct the Assessing Officer to allow the deduction under section 80-IB(10) to the assessee. [Para 15]. Recently the ITAT Hyderabad Bench also in case of Kura Homes P. Ltd. Vs. I.T.O. (2012) 139 ITD 460 (Placed on record) on similar facts held as follows:- ''27. Further, in the present case th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nly in the year of completion of the project, especially so, for an assessee not following project completion method for accounting its income. If otherwise interpreted, it would be equivalent to forcing an assessee to follow a particular method of accounting, which would never have been the intention of legislation. Intention would only have been that for the project as a whole, there should be certification from the relevant authority proving the commencement and completion, and not that a completion certificate should be there in every year of the project span. The certifications are for ensuring that the project span does not exceed the prescribed period and nothing more. Of course if such period exceeded the prescribed limit. Revenue would be well within its rights to withdraw the claims already allowed, following the procedure prescribed under the Act. Thus, the Assessing Officer need not insist on the completion certificate in this assessment year, this is the right meaning of the statute. This view has also been taken by CBDT in its Instruction No. 4 of 2009 dt. 30.6.2009, paras 2 to 4 of which are reproduced hereunder: - "2. Clarifications have been sought by vari....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsferred by way of sale within the meaning of Section 2(47) of I. T. Act, 61 and on not on project completion method and thus for the assessment pertaining to year ended on 31-3-2009 he was not required to submit completion certificate when housing project was to be completed by 31-3-2011 and completion certificate by local authority was to be issued thereafter. This view has been taken by CBDT in its instruction No. 4 of 2009 dated 30-6-2009 which was cited before Ld. A.O. but the same were not applied in its right perspective holding that completion certificate not filed even in assessment proceedings. It is submitted that the A.O. is to satisfy whether project completed in time or not which of course can be from completion certificate issued by local authority and when completion certificate is yet to be issued by local authority the A.O. cannot arrive such satisfaction without any material on record. The Ld. A.O. is thus unjustified in not applying these CBDT instruction for AY 2009-10. The assessee completed the housing project within the prescribed time and applied for completion certificate to JDA on 28-12-2009 i.e. soon after completion of housing project on 25-12-2009 but ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....velopment and construction of housing project on the impugned land from local authority which is undisputedly carried over by assessee over a period of time. These activities are fundamental and crucial for development of housing project. There is no dispute on these glaring facts. iii. Making the impugned land usable for the purpose the permission of development of housing construction by providing proper road and easy approach to the site which is precondition for sanction of plan. This work has been done by the assessee. iv. Assessee had not transferred the land to M/s UDB (Reality) and as per agreement retained the rights of jointly supervising the development and construction of the impugned housing project. v. The assessee apart from the said rights of supervision retaining the rights of transferring the flats falling in his share in the name of prospective purchasers. Since the project was big, it falls well within the commercial expediency that the project is jointly developed. Therefore, assessee's endeavor of making a joint venture with M/s UDB (Reality) cannot be looked at with suspicion. It is settled law that the revenue authorities should not step into the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... circumstance of M/s Indo Continental Hotels are similar to assessee's case and being a judgment of this bench only deserves to be followed. Hon'ble Karnataka High Court in case of CIT Vs. Shravanee Construction had occasion to decide the eligibility of claim u/s 80(IB) on similar facts. Hon'ble court held that - contention of the revenue that there is no eligibility to deduction u/s 80 (IB) as assessee did not undertake any developmental or building activity has no substance. That is not the requirement of law and keeping in mind, the object with which this provision is introduced when all persons who have made investments in this housing project and have complied with all the conditions prescribed under the aforesaid provision, both of them are entitled to hundred percent benefit of tax deduction as provided under the said provision". Similar view has been taken by other judicial authorities as under: i. Abdul Khader Vs. ACIT (2012) 137 ITD 188(Bang) ii. Kura Homes P. Ltd. Vs. I.T.O. (2012) 139 ITD 460(Hyd) iii. D.K. Construction Vs. ACIT (2010 ) 17 TTJ 1 (Indore) iv RNS Infrastructure Ltd. Vs. DCIT (Bang. Bench) (2012) 24 Taxman.com Hon'ble Karnataka High Courts c....