TaxTMI 
TaxTMI 
2011 (6) TMI 796
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....he appeals arise out of the reassessment orders. However, the facts in all the four years and the controversy arising out of those facts are the same and hence all the appeals were heard together and are disposed of by a single order. 2. In respect of the asst. yr. 2004-05, the assessee filed its return on 1st Nov., 2004, in which it claimed deduction of Rs. 22,07,52,051 under s. 80-IB(10) in respect of the profits from the project called "Evershine Project". The AO called upon the assessee to justify the claim. The assessee submitted that in terms of the development agreement entered into on 22nd Dec., 1999 with M/s Evershine Builders (P) Ltd. (hereinafter referred to as EBPL), it had undertaken the activities for development of the project, which activities entitled the assessee to claim deduction under s. 80-IB(10) and reference was made to the important terms of the agreement. It was submitted that under the terms of the agreement, the assessee developed the property by undertaking several responsibilities and activities relating to the construction of the buildings and EBPL were associated with the project as joint developers. It was also pointed out that the assessee contr....
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....(P) Ltd. in the ratio of 43 per cent and 57 per cent respectively, as maintained with the same bank. (d) The above facts confirm that the appellant was engaged to develop and build the housing project and as s. 80-IB(10) does not prescribe the proportion of developing and building housing project, the appellant is entitled for deduction under s. 80-IB to the extent of its business income as the appellant was a developer and builder for the Poisar Housing Project at Kandivli (E). Accordingly, the grounds of appeal are allowed and the AO is directed to grant the deduction under s. 80-IB to the appellant." 5. It is against the aforesaid order of the CIT(A) that the Revenue has come in appeal before the Tribunal. Since the original grounds of appeal filed by the Revenue were not properly framed, the following revised grounds of appeal were filed, which have been taken into consideration while disposing of the appeal : "1. Whether on the facts and in the circumstances of the case, the CIT(A) erred in directing the AO to allow the deduction under s. 80-IB(10) to the assessee as allowable to a developer and builder for the Poisar Housing Project at Kandivali (E) ? 1.1 Whether ....
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.... It is submitted that mere ownership of land by the assessee is not sufficient compliance with s. 80-IB(10) and the assessee has to undertake further activities for development of the housing project, in which case alone he would be entitled to the deduction. It is further contended by the learned CIT-Departmental Representative that this is a simple case of transfer of land by the assessee for consideration, which gives rise to capital gains and not business profits and that such transfer was camouflaged in the present case and put through as a development activity so as to claim deduction under s. 80-IB(10). In this connection it was submitted that the fact that the assessee was described as a developer or joint developer in the various agreements was not conclusive of the matter and that these agreements actually concealed the real intention of the assessee, which was only to transfer the land for a surplus. It was pointed out that no development work was undertaken by the assessee and that merely because the assessee was earlier considered as developer is not conclusive so far as the present transactions or present years are concerned and what the assessee was actually obliged ....
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....per (the assessee herein) under the agreement. The first obligation of the assessee was to remove at its own costs and expense the unauthorized persons/structures if any upon the land. Clause 6 provides that the assessee shall develop the land subject to all prevailing laws, Acts and enactments in force. Clause 7 says that the assessee shall obtain all the necessary or required permissions, orders or no objection certificates in writing from the competent authority under the provisions of the Urban Land (Ceiling & Regulation) Act, 1976 (hereinafter referred to as ULCRA) from the Collector or Dy. Collector of Bombay or the Government of India or the Government of Maharashtra or any other competent authority under any of the provisions of any of the applicable laws in relation to the land at the assessee's own costs and expenses. However, BJPL, wherever required, shall join in and sign such applications. Clause 8 provided for the obligation of the assessee to remove the unauthorized structures, hutments or occupants thereof and to take such steps in that behalf at its own costs and expenses. Any permission required to do so was also to be taken by the assessee at its own expense.....
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....nstruction work either as salary or wages or compensation or as payment in respect of suppliers of building materials or any other loss that may be suffered by BJPL as a result of the construction work being carried on by the assessee. 12. Clause 14 provides that the assessee shall bear all the expenses relating to the submission of the scheme or project to the Government of Maharashtra for sanction. Clause 18 states that the assessee as developer alone shall be entitled to enter into agreements for sale of flats, shops, garages, godowns, units and other premises comprised in the building to be constructed by the developer on the land on ownership basis. This obligation is further subject to the right of the BJPL under the agreement and shall also be subject to the terms and conditions and obligations on the part of the assessee. Clause 19 provides that the assessee alone shall be entitled to the rights as also be liable and responsible for the observance and performance of the terms and conditions of the agreements for sale of the flats, shops, etc. and the owners (BJPL) shall not be required to join and execute such agreements. The clause further states that the assessee agree....
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.... general power of attorney" given by NJPL to the assessee. Under the power of attorney, the following were the obligations of the assessee : (1) To look after and manage the property diligently. (2) To obtain the plans for construction of the buildings including sub-division and layout plans, submit them to the MCGM or other authorities for obtaining their approval/consent and to revise such plans if necessary and to obtain IOD, commencement, occupation and completion certificates from the MCGM. (3) To prepare layout plan or development scheme with all details and to submit the same for approval to the concerned authorities, including internal and main roads, water mains and also to design and plan dwelling units for weaker sections of the society. (4) To engage architects and engineers etc. for development of the property at their own expense. (5) To complete the construction in accordance with the approved plans and to sell the units. (6) To act and represent NJPL before the various authorities, public bodies, etc. in any inquiries and proceedings in connection with all matters relating to the development of the property. (7) To obtain all permissions under t....
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....espect of the said land. Clause 13 of the preamble refers to the supplementary MoU dt. 29th Jan., 1992 under which the assessee agreed to make available to M/s Thakur Brothers Agricultural Farm 40 per cent of the permissible FSI in respect of the land. Clause 14 of the preamble refers to the proposal of the assessee to construct several buildings on the land having an aggregate built-up area of 20,00,000 sq. ft. by utilizing not only the FSI available in respect of the land but also the FSI of other properties as may be available by way of transfer of development rights (TDR). Clause 15 of the preamble refers to the fact that pursuant to the scheme of development the assessee had already obtained IOD (intimation of disapproval) in respect of sanctioned FSI of 2,50,000 sq. ft. Clause 16 of the preamble states that the assessee and EBPL, who is referred to as "the joint developer", proposed to develop the said land jointly and the development work shall be carried out jointly with the consent of M/s Thakur Brothers Agricultural Farm and that the said M/s Thakur Brothers Agricultural Farm have granted unconditional and irrevocable consent. Clause 18 of the preamble states that the rev....
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....e made by EBPL by account payee cheques drawn in favour of BMC and these amounts can be recovered by EBPL from the purchasers of flats, shops, etc. at the time of delivery of possession. EBPL shall also be entitled to withdraw the deposits directly from BMC. Clause 6 provides that all premiums and charges payable to BMC for obtaining additional FSI shall be borne by the assessee alone. It is however provided that initially these amounts may be paid by EBPL to the assessee but the amount is subject to recovery later from the assessee. Clause 7 states that the expenses of obtaining additional FSI in the form of compensatory TDR and the cost of acquisition of the TDR shall be borne and paid by the assessee. The other obligations of the assessee under the aforesaid agreement are : (a) To obtain plinth commencement certificate from the BMC (cl. 8). (b) To pay premium for obtaining FSI in respect of staircase, lift and balconies (cl. 9). (c) To provide the requisite pipeline upto the boundary of the land for supply of potable water for construction purposes and drinking purposes at its own cost. It is the duty of the assessee to provide the pipeline in time so that the construct....
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....ng to the said clause, 43 per cent of the gross sale proceeds shall belong to the assessee and 57 per cent thereof shall belong to EBPL. This clause further refers to the fact that a sum of Rs. 20,00,00,000 which EBPL had earlier deposited with the assessee shall be first recovered out of the gross sale proceeds. Clause 22 defines "gross sale proceeds" to mean all proceeds of sales received from the sale of premises excluding certain deposits and other recoveries made from the purchasers of the flats. Clause 28 refers to the deposit made by EBPL to the assessee in the amount of Rs. 20,00,00,000. It is this deposit which can be recovered by EBPL from the assessee on priority basis from the sale proceeds as per cl. 21. The other clauses of this agreement are not very relevant for the purpose of the present appeals. 20. It is necessary to refer to a specimen agreement for sale of the flat (p. 117 of the paper book) only for the purpose of noting that in this agreement EBPL and the assessee are referred to as "joint developers". 21. From the above facts we are to decide whether the assessee can be described as a developer and builder so as to be entitled to the deduction under s.....
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....e referred to earlier, unmistakably show that the activities undertaken by the assessee are activities relating to development of the housing project. We are in complete agreement with the reasoning and findings of the CIT(A) in support of the conclusion that the various activities carried on by the assessee amounted to development activities within the meaning of s. 80-IB(10). In addition, the assessee has been in the business of developers and builders since many years and has undertaken and completed several housing projects such as Viceroy Park, Vasundhara, etc. and hitherto the AO has not raised any objection on the ground that the assessee is not a developer. The fact that the construction activity was financed by EBPL cannot obliterate or take away all the earlier responsibilities undertaken by the assessee to legally and factually prepare the land for putting up the housing projects. In business world it is common to find persons having different talents pooling them together. In the same way, the assessee which had the development rights over the land and which had undertaken the responsibility of obtaining all statutory clearances, permissions, etc. for putting up the hou....
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....ly prepare the land for construction was only incurred to preserve and maintain the assessee's title to the land. Right from the day on which the assessee obtained the development rights from BJPL, which was subsequently confirmed by NJPL, the assessee undertook all the developmental activities only with a view to putting up housing projects on the land. The very fact that the assessee was given development rights by BJPL over the land means that the assessee intended to develop the land by removing all unauthorized persons and structures and to obtain the necessary permissions from all concerned statutory authorities so that the construction of the housing project thereon can be commenced and proceeded with without any hitch. All the clauses in the agreement dt. 29th June, 1982 between BJPL and the assessee are calibrated only towards this end. We have already referred to this agreement in some detail and at the cost of repetition we may note that cl. 13 of the said agreement in particular states that the assessee shall develop the land at its entire risk as to costs and expenses and shall carry out the entire development work in accordance with the plans and specifications du....
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....orities. The only objection raised by the AO was that the assessee was not a developer. The above grounds however raise the point whether the receipts on account of development rights would be eligible for deduction under s. 80-IB of the Act. This objection was not raised by the AO. Even otherwise, factually the assessee has not claimed deduction in respect of sale proceeds of development rights. The profits have been shown only from the sale of the units in the housing project. Similarly, ground No. 1.3, which raises the point that the development of the project was started prior to 1st Oct., 1998, does not arise from the orders of the Departmental authorities because no such objection was taken by the AO. This point was not also argued before us by the Department. 27. As regards the asst. yr. 2003-04, the grounds are identical with those taken in the asst. yr. 2004-05. Our observations with regard to the revised grounds raised in this year are the same as in our decision in the appeal for the asst. yr. 2004-05. The appeal in ITA No. 4219/Mum/2009 is dismissed in line with our decision in the appeal for the asst. yr. 2004-05. 28. As regards the asst. yr. 2002-03, the only gr....
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....worked. Shri P.R. Mody is a chartered accountant from London and was earlier working for about ten years with M/s A.A. Ferguson & Co. The other two directors were stated to be not even graduates. Shri P.R. Mody, it was pointed out, was paid only 8 per cent of the profits and since the remuneration was linked to the profits, the same increased commensurate with the profits. It was accordingly submitted that it cannot be said to be unreasonable or excessive having regard to the legitimate needs of the business. 32. The CIT(A) found that there was nothing to show that the other two directors were equally capable as Shri P.R. Mody. He further found that the reasonableness of the payment should be compared to the payment for similar services in the open market. The AO has not compared the payment to Shri P.R. Mody with the payment made by other companies to similarly qualified and capable managing directors. According to the CIT(A), the AO was not justified in comparing the payment to Shri P.R. Mody with the payments made to other two directors, nor was he justified in comparing the payment with that made in the earlier year. In these circumstances he cancelled the disallowance. 3....
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....ng back the amount. In the case of Hemendra Sheth, he had become bankrupt. These facts were accepted by the CIT(A) and he therefore upheld the assessee's claim. 36. On a careful consideration of the matter we see no ground to interfere, especially when the factual findings of the CIT(A) are not disputed. The ground is accordingly dismissed. 37. The fourth ground relates to the disallowance of Rs. 7,48,734 under s. 40(a)(ia) of the Act. The AO noticed that the assessee paid professional fees of Rs. 6,03,692 and brokerage and commission of Rs. 1,45,042, aggregating to Rs. 7,48,734 during the year, from which tax of Rs. 43,801 was deducted in the months of February and March, 2005. The tax so deducted was not deposited by the assessee with the Government before the due dates. The relevant details are set out in para 5 of the assessment order in the form of a chart and they are not reproduced here for the sake of brevity and also because there is no dispute about them. Since s. 40(a)(ia) says that no deduction would be allowed in computing the business income if the assessee fails to deduct, or fails to deposit the tax after deduction, the tax which is deductible at source un....
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.... 41. Ground No. 5 relates to the disallowance of car expenses. Whereas the AO disallowed Rs. 7,85,375, the CIT(A) restricted the same to Rs. 2,00,000. After going through the orders of the Departmental authorities, we see no reason to interfere. The ground is rejected. 42. Ground No. 6 relates to the disallowance of the delayed employees' contribution to provident fund. The amount disallowed is Rs. 28,840. According to the assessment order, the due date for deposit of the amount was 15th June, 2004 and it was actually paid the next day, i.e. 16th June, 2004. The payment is within the grace period allowed as per the circular issued by CPDC which is referred to in para 9.1 of the order of the CIT(A). It gives a grace period of five days. The assessee has deposited the contribution within the grace period. Accordingly the decision of the CIT(A) to delete the disallowance is upheld and the ground is rejected. 43. Ground Nos. 7(a) and 7(b) relate to the disallowance under s. 14A of the Act, in respect of administrative expenses attributable to the exempt income. The AO disallowed Rs. 15,26,507 by invoking s. 14A, noting that the assessee received dividend income of Rs. 1,58,3....