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2010 (6) TMI 776

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....q.ft. in area, which more than the stipulated limit. (iii) The assessee failed to acquire completion certificate from the Local Authority for E-Wing, 1 to 12 floors up to 31.3.2008 which is a condition for allowing deduction u/s 80IB(10((a)(i) of the I.T.Act." 2. The assessee is a partnership firm consisting of two partners viz M/s Khyati Financial Services P.Ltd & Shri. Paresh Mohanlal Parekh. The appellant firm entered into a development agreement on 25.4.2003 with Hickson & Dadajee P.Ltd a company duly incorporated under the Companies Act, 1956 to develop property situated at Village Pahadi, Goregaon (E) owed by M/s Hickson & Dadajee P.Ltd In pursuance of said development agreement, the assessee firm undertook to construct residential building viz., "Acmee Armay" to be residential area constructed at 60,000 sq.ft. approx. comprising 200 flats in 7 wings in ground plus upper floors to be approved. The said residential building has to be constructed on a shopping complex comprising of approx.10,566 sq/ft/ built up area wherein the limited development right to construct shopping complex was assigned to a different concern viz Lakshadeep Investment & Finance P.Ltd hereinafter cal....

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..... 3. The AO after scrutinizing the facts of the case found certain lacuna which stood in the way of fulfilling the conditions given in sec 80IB(10). The first flaw pointed out by the AO was that the appellant has not received the completion certificate of the project till date. According to the AO since the entire project is not yet completed and the final date of obtaining the completion certificate is 31st March 2008 as per sec.80IB(10) the claim of deduction u/s 80IB is quite premature and is depended upon happening of an event on or before 31.3.2008 for completion of project and obtaining the completion certificate from the local authority. The AO found this as a disqualification for claiming deduction u/s 80IB(10). The second point mentioned by AO was that 8 flats were joined together and as a result 4 flats in this project are having built up area more than 1000 sq.ft. which is more than the stipulated limit. This was the second disqualification found by the AO coming in the way of claiming deduction u/s 80IB (10). Further the AO went on to find that the shopping complex was comprising of more than 10,000 sq.ft. in built up area which is beyond the upper limit of 2000 sq.ft.....

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.... applying for the occupancy certificate is equivalent to the completion will be issued by the BMC accordingly. In this connection reference was made of the decision of Saroj Sales Organisation v ITO Ward 25(2)(3) Mumbai in ITA No.4008/M/07 order dated 24th January 2008, wherein it was held that the occupation certificate issued fulfilled the condition relating to completion of construction as prescribed in sec.80IB(10)(a). I find that the claim of the appellant is in accordance with the finding given by the Hon'ble ITAT in the aforesaid decision. The AO in the assessment order appears to have given a finding that deduction u/s 80IB (10) cannot be given unless & until the completion certificate is issued before 31.3.2008. The AO has pointed out that since the completion of the building is subject to happening of future event of completion of building the deduction u/s 80IB(10) cannot be given until happening of such event. In my opinion the view of the AO is misconceived particularly in the cases where the profit has already been derived long before the completion of project for certain assessment years as it has happened in the present appeal for AY 2005-06. The AO has tried to b....

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....h separate kitchen and living room. It was also brought on record that as far as appellant is concerned each flat was constructed as per the approved plan and none of the two adjacently located flats were combined together. It was also claimed that prior to giving possession no alteration in the said flats had been made by the appellant developer. It was submitted that Mr & Mrs Picardo owners of flat No B/601 & 602 confirmed that two flats were independent in all respect at the time of giving possession. The owners of flat No. A/501 & 504 replied to AO that they removed the common wall for their convenience without taking any permission. Similarly as per the claim of the assessee the owner of flat No A/601 & 602 have also confirmed the independence of two adjacent flats. The crux of the argument of the appellant was that as far as developer is concerned they handed over independent flats to the purchasers and any subsequent alteration in the two adjacent flats should not make any material difference on the claim made by them as they have no authority to stop such alteration. The CIT(A) accepted the contention of the assessee observing as under: "I have perused facts available on ....

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....residential houses were built separately by two concerns i.e. LIFPL and the appellant in reality. According to the AO it was deliberately planned by the assessee and the sister concern of the appellant i.e. LIFPL to separate the construction of shopping complex and housing project to circumvent the provision of sec. 80IB(10)(d). The AO observed that entire arrangement was made only to hoodwink the department. According to the AO the entire construction was under only one project for both shop and residence in the name of Khyati Financial Services. The AO placed reliance on the commencement certificate issued by BMC dt 6.2.2004 showing the shopping complex as part and parcel of the same project. The AO stressed on the point that the BMC has rejected the artificial bifurcation of the same project by separating residential that from shopping complex. According to the AO the BMC has approved only one project consisting of both shops and residence in the hand of assessee only for a single project. In this way the AO has made a point that the shopping complex shown to have constructed by LIFPL and the residential flat constructed by the appellant should be together taken as a Single proj....

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....ty incorporated under Company Act. The appellant further stressed on the point that it is not possible to brush aside all these hard documentary evidences to dissolve the legal identity of two concerns viz assessee and LIFPL to hold the only one for the purpose of this particular project which is in question. The appellant also pointed out that the assessment of LIFPL has been passed u/s 143(3) accepting the sale on income of shop which supports the appellant's contention. The crux of the argument of the appellant is that the finding of the AO to consider a single project constituting the shopping complex and residential complex is misconceived and not supported by the facts. The appellant also tried to send an important point home that when the development plan was put up and got approved they have no inkling or any guess regarding the additional condition which was inserted by Finance Act. 2004 w.e.f. 1.4.2005 in form of sec 80IB(10)(d) which was heavily relied and applied by AO to disclaim the deduction u/s 80IB(10) to level allegation against them for colourable and dubious design to defraud the revenue. The appellant further has drawn the attention to the clarification issued ....

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....onse to query raised by the AO which was addressed to the AO himself. The AO has stated that BMC has disapproved the artificial bifurcation of shopping complex and residential complex. Holding the project under the single composite project. I have perused content of such letter. I find that this letter mentions about the application filed by the appellant firm and LIFPL for obtaining necessary approval for the project. This letter also gives reference about the copy of IOD dt 6.11.2003 with set of approved plan for ground floor shopping only dated 6.11.2003 and commencement certificate dt 13.11.2003 issued in the name of LIFPL. Further, it also mentions about the copy of IOD dt 29.1.2004 with set of approved plan dated 29.1.2004 and commencement certificate dt 6.2.2004 issued in the name of appellant's firm. At last, the letter gives the following remark. "In the instant case, the shops were approved and constructed by Lakshadeep Investment & Finance P.Ltd. Subsequently, he amended plan and revised IOD was issued in name of Khyati Financial Services on 29.1.2004 due to change of ownership. The said building is approved under the file No. CHE/8637/BP(WS) AP as housing project its ....

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....e undertakings. The present case is no way different than situation contemplated in the CBDT's clarification. Therefore, there is no taboo to have two projects on the same piece of land undertaken by two separate concerns. The view expressed by the CBDT also binds the AO and the AO cannot afford to have different view. In view of forgoing I hold that the housing project completed by the appellant firm has to be delinked from shopping complex constructed by LIFPL for the purpose of computing deduction u/s 80IB (10). As a logical corollary of this finding needless to say that the appellant's case cannot be hit by 80IB(10)(d) which is applicable from A.Y. 2005-06 as there is no shopping or commercial establishment indeed in the project undertaken by the appellant firm." 9. The next issue to be considered is whether the sub-clause (d) of sec 80IB(10) inserted by Finance Act, 2004 w.e.f. 1.4.2005 would be applicable to the present case. The AO, in the assessment order has given a finding that the provisions of sec 80IB(10)(d) are squarely applicable on the facts of the case being the A.Y. 2005-06. The AO, since, held that the entire building constituting shopping complex on ground fl....

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....0) for the AY 2004-05 even though the housing project has included some shopping and commercial establishment. But the same housing project may not get deduction u/s 80IB(10) on deriving certain profit for AY 2005-06 after prima facie applicability the post amended provisions of sec 80IB(10)(d) in case the built up area of shopping complex and commercial establishment exceeds 5% of aggregate area of built up area of project or 2000 sq.ft which ever is less. In this way it may be seen that a housing project which has been approved before 1.4.2005 may get disqualification of sec 80IB(10)(d), if his particular provision is applied w.e.f. AY 2005-06. Here, it is important to note that primary condition of application of sec 70IB(10) is with reference to the date of approval of housing project. Therefore, the question may arise as to whether the post amended provisions of sec 80IB(10)(d) are to be applicable with reference to assessment year or with reference to date of the approval of housing project. It is well accepted principles of jurisprudence that every legislation is to be regarded as prospective if it amends substantive law. The legislature should clearly specify its intention ....

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.... project. i.e. if the approval of housing project has been made on or after 1.4.2005,this particular condition should be applied in respect of any profit derived from such projects without having any reference to the assessment year. Such view also gets support from the decision of Saroj Sales Organization. The finding given by ITAT in para 13 of the order which reads as under. "As regards the objection of the AO that the permissible shopping area of Housing Project exceed 5% the assessee is not entitled to relief under sec 80IB(10). We are of the view that the Housing Project were approved before 31.3.2005 and for such project which were so approved. There was no stipulation as to the shopping complex area is permissible in the project / As already stated earlier that the amendments were subsequently made while extending the deduction in our view is clearly not in accordance of law " It may be seen that Hon. ITAT has given a finding that if the housing projects were approved before 31.3.2005 there was no stipulation as to the shopping complex area is permissible in the project in other words in respect of Housing Projects approved before 31.3.2005, the convenient shopping has ....

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.... favourable to the assessee has to be preferred. On this account also the benefit offered u/s 80IB(10) should go to the appellant in either way.. To summarise my finding, I hold that in first place, the deduction u/s 80IB(10) is well qualified on the ground that the appellant has constructed only housing complex being the shopping complex constructed and developed by LIFPL. Secondly, even if the housing complex and shopping complex are combined together to be part and parcel of same project belonging to the appellant, still, the deduction cannot be denied after applying ratio of decision in the case of M/s Saroj Sales Organization v ITO. In ITA No. 4007/M/07 decided by Mumbai ITAT 'E' bench dated 24.1.08 for AY 2005-06 being the housing project approved before 31.3.05. In any case, if there are two opinions of law or inferences the view favourable to the assessee should be followed as held by Hon. Supreme Court in the case of CIT v Podar Cement P. Ltd 226 ITR 625 (SC). The appellant gets relief on this ground also. Further, I also hold that the combining two adjacently located flats in case of 4 pair of flats by the purchasers on the facts of the case, does not affect the claim o....

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....sing Project and for the construction of commercial area. Further the BMC in their letter has clarified as under: "In the instant case, the shops were approved and constructed by Lakshadeep Investment & Finance P.Ltd. Subsequently, he amended plan and revised IOD was issued in name of Khyati Financial Services on 29.1.2004 due to change of ownership. The said building is approved under the file No.CHE/8637/BP(WS) AP as housing project its shops on the ground floor." Thus the BMC had also recognised that the ownership of the two projects are different. In the circumstances the claim of relief u/s 80 IB (10) by the Assessee should be considered only for the Housing project and the construction of commercial project is a separate undertaking. Profits from the construction of commercial areas was offered and assessed in the hands of the company. CBDT has also issued a clarification vide letter dated 4th May 2001 (F.No. 205/3/2001/ITA 11) which reads as under: "The undersigned is directed to refer to your letter No.MCIII.RSA m.388/19799/3 dated 1st January 2001 and to state that the additional housing project on existing housing project site can qualify as infrastructure facility ....

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....ffect from 1.4.2005, provisions of sec 80 IB were amended. Further restrictions on completion of project as well as maximum built up area of commercial establishments were imposed. In this view of the matter, the amendments are not clarificatory in nature and hence would apply only to projects approved after 1.4.2004 and not to the Housing project of the assessee, which was approved prior to 1.4.2004. However as we have found that construction of commercial establishments was done by another entity and is not part of the Housing project of the Assessee, this question becomes academic. 17. The next issue is regarding completion of the project before 31.3.2008 as required u/s 80IB (a)(i). Sub sec (a) of sec 80 IB (10), requires that an undertaking which undertakes a housing project which has been approved by the local authority before 1.4.2004 should complete construction before 31st day March 2008. The section does not require the completion certificate to be obtained before that date. It is well known that even after completion of a building it will take some time to obtain the completion certificate from the local authority who may inspect the building before giving the certifica....