AI Drafter 
TaxTMI 
TaxTMI 
2011 (5) TMI 960
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....A) erred in confirming the finding of the Assessing Officer that built up area of residential unit for the purpose of section 80IB (10) includes open terrace. 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) erred in observing that appellant firm has developed and constructed residential project on lands having survey numbers which do not form part of the development agreement. The Ld. CIT(A) ought to have appreciated that entire development of housing project was carried out strictly and exclusively on the survey numbers which form part of relevant agreement with societies." 2. The facts noted in the impugned order are that the assessee firm is engaged in the business of construction and consist of the following partners: (i) Safal Infrastructure Pvt. Ltd. 50% (ii) Safal Constructions Pvt. Ltd. 25% (iii) Rajesh Brahmbhatt 12.5% (iv) Rupesh Brahmbhatt 12.5% It was informed that this was the first year of claim of deduction u/s 80 IB(10)of the IT Act. It was stated that the deduction had been claimed on the project named "Safal Parivesh", situated at mouje village Vejalpur, Taluka City, District Ahmed....
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.... order are reproduced as under: "5. Ground No.2 pertains to the disallowance of deduction of Rs. 9,73,02,426 u/s. 80IB (10). Perusal of the assessment order shows that as per reasons summarized in Para 3.37 of the assessment order the AO denied the deduction on the ground that the appellant was not both a developer and a builder. That it was not the owner of the land as approvals for construction etc. were not granted by AUDA to it. That it was merely a contractor who did construction work as per the agreements with the land owners - the societies. That the assessee had not sold any unit to the purchaser but the Societies had executed the sale deeds. That the assessee was merely a works contractor. In support of disallowance on the ground that the assessee is a works contractor the AO has relied upon Hon'ble Supreme Court decisions mentioned below: 1. HAL Ltd. vs. State of Orissa (SC) 55 STC 327 2. Tamilnadu vs. Anandam Vishwanatham 1 SCC 613 Most importantly the first reason which has been mentioned for disallowance by the AO is that the assessee exceeded 1500 sq. ft. built-up area limit for which reference was drawn by the AO to Para 3.12 o....
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....ishnodevi Cooperative Housing Society Ltd. Vibhag -6. He has stated that no proof of permission in the name of Sherin Cooperative Housing Society Ltd. was furnished in the appellate proceedings when asked the ld. ARs stated that the word used in the Development Permission is Jai Vaishnodevi Cooperative Housing Society Ltd. Vibhag-6 and other. According to them this word 'other' included Sherin Cooperative Housing Society Ltd. In my opinion this explanation does not suffice specially when the original Jai Vaishnodevi Cooperative Housing Society Ltd. had been sub-divided into several parts and it is with part - 6 that the appellant is dealing (please refer to the comments in para 3.3 of the assessment order. There is part-7 also. Sherin Cooperative Housing Society Ltd. is an independent society the whereabouts of which had not been explained. The Development permission is not in Sherin's name, and common sense interpretation of this word 'other' in the permissions is that it might include the other parts of Jai Vaishnodevi Cooperative Housing Society Ltd. The point is should the development agreement entered with Sherin Cooperative Housing Society Ltd. be treated as a valid ....
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.... 779, 938, 888 / P 817, 895, 794/2, 803 /1/ 3 937/P & others. BU permission dated 14.5.2008 given to Chairman, Shri Jai Vaishnodevi Cooperative Housing Society Ltd. Vibhag-6 mentions the following Revenue Survey Numbers: 937 / 5 paiki, (though development permission had been taken not for 1/5th part of this land but for full 937) 938 794/1, 779, 896, 885 /1, 935, 807, 817, 895, 794/2 803 /1/3, and 957 /1 . 11. Though Development permission shows revenue survey number 933 but no BU permission has been given with respect to construction on this 933. Development permission is for 937 but BU permission is for 1/5th part of 937 only. 12. From para 8 and 9 above it is clear that revenue survey numbers of land which had been entered into by the appellant through two Development agreements do not mention following survey numbers of land on which the appellant had constructed residential units and has claimed 801B deduction: 1 There is no Development Agreement with respect to land Surve....
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....ant for construction with the- two cooperative housing societies - Jai Vaishnodevi Vibhag - 6 and Sherin. The development agreements do not mention revenue survey numbers 896, 885 /1, 935, 807, 895, 794 12 but the appellant has constructed units without the fundamental authority. 4 The appellant did not fund the purchase of the survey numbers 885/1, 935, 807, 895, 79412 and carried out construction without owning the land, without funding the cost , without authority from the cooperative housing society as they do not find mention even in the two development agreements. (This point has been elaborated from para 25 to 28 below). 17. Now let us see whether the condition stipulated in clause (c) of Section 80IB(10) is fulfilled by the appellant. Clause (c) states that the residential unit should have a maximum built-up area of 1500 sq.ft. This section was introduced for the benefit of lower income group to facilitate them to own small houses / flats which they could afford. 18. The AO has observed in para 3.8 of the assessment order that the assessee has violated this condition - 80lB(10)(c) - because on 12th floor in Block numbers A, B, C & D flat numbers 1....
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.... the contention that the deduction to the entire project should not be denied and it should be allowed with respect to the balance qualifying units. With respect to additions noted by the DVO in the flats it was stated that the construction was made as per the approved plans and once the units were sold the appellant is not responsible. It was also stated that the additions / alterations were made by the buyers of the units only which was confirmed by them to the DVO. 22. After getting verifications made by the DVO of the private terraces attached to the flats in the project it is clear that flat numbers 1201 in various blocks (A, B, C and D) exceeded 1500 sq.ft. built-up area limit. The measurements in square feet lifted from the DVO's annexure enclosed as Annexure 3 of this order are reproduced below: "AREA STATAMENT OF PRIVATE TERRACES ATTACHED TO THE FUVT NO. 1201 ("SAFAL PARIVESH" AHMEDABAD) Built-up area of flat No. 1201 in sq.ft. as per measurement s. No Flat No. Biock No. Floor Level Flat area Additional extended Private open terrace Total ....
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....C 938 957/P 794/1 30,76,675 Page 5 of the Statement of facts states that the appellant's partners funded the two societies for purchase of additional land as under: Survey No. of Lands Amount Rs. JVC 938 24,67,640 957 IP 6,76,210 SHERIN 803/1/3 9,61,890 779 9,61,890 817 10,16,890 937 40.69.520 26. It is clear that the appellant did not fund the purchase of certain land revenue survey numbers on which it carried out construction which are: Land Revenue Survey number 885 /1, RS number 935, RS number 807, RS number 895 and RS number 79412. 27. As the appellant did not fund the purchase of the aforementioned revenue survey numbers it did not practically purchase the and is thus found violating the tests laid down by Hon'ble ITAT Bench 'A1 decision dated 7.11.2008 in the case of M/s. Shakti Corporation, Baroda in ITA No.1503/Ahd/2008 in AY 2005-06 wherein Hon'ble ITAT held that the Development Agreement should be referred to and where it is found that the assessee had practically purchased the land and acquired d....
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.... as Safal Parivesh and under such agreements, the assessee has purchased substantive development rights which includes all other rights for Rs. 30,76,675/- and Rs. 1,02,08,853/- respectively and the same is nothing but land and other costs incurred by the societies at the behest of the firm and the same has been debited in the profit & loss account as expenditure which is shown in the profit and loss account of the assessee -PB 141. The assessee has also entered into agreement to sell the land with the societies and such facts were also stated to the AO at Para 2.3 of the assessee's submission on record at page 18 of the assessment order, as well as in the statement of facts filed before the Tribunal at page 5. These documents are already on record of the AO. The development agreements entered by the assessee were over and above the agreement to sell to acquire the aforesaid full rights and domain over the land. The assessee filed copy of the confirmation account of the societies from their books of accounts as well as confirmation by them along with copy of the bank statement of the assessee for payments made for development rights referred to above and the bank statements of the ....
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....thers along with the name of the assessee is mentioned and address of the society is also mentioned. He has submitted that the word 'others' along with the name of JVCHSL along with address of the assessee is mentioned, therefore, permission is granted to develop 324 residential units. PB -131 to 136 is the annexure and details of the flats to be constructed. PB - 105 is the certificate for use in the name of JVCHSL by AUDA for the same area and for the same construction of 324 flats. He has submitted that since the area and residential flats constructed by the assessee are the same and tally with the sanction plan, therefore, even if name of the assessee is not mentioned in the certificate of use, it would be irrelevant and the AO cannot deny deduction u/s 80 IB (10) of the IT Act. He has further submitted that since in the permission for development PB - 121 permission is given in the name of parent societies and the name of the assessee is also mentioned and the income from sale of 324 flats has been offered in the return of income, therefore, non-mention of name in the certificate of use would not be relevant. He has further submitted that price to be charged from the customer ....
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.... has been made to the assessee as a developer. The learned Counsel for the assessee, therefore, submitted that since the residential units have been constructed as per building plan sanctioned and the built-up area was less than 1500 sq. ft. and possession is given to the purchasers on receipt of the entire sale consideration, thereafter the assessee is left with no right in the property. He has submitted that the word "others" in the sanctioned plan is relevant. PB-274 is the Brochure issued by the assessee for development of the residential scheme in its name. The learned Counsel for the assessee further submitted that even with regard to issue of discrepancy of survey numbers as mentioned in the approval and BU permission issued by the AUDA and development agreements, he has submitted that AUDA vide its approval dated 18- 7-2006 PB-121 has granted building permission for 324 residential units and on the same basis the assessee has developed housing project for 324 residential units. It was further submitted that on completion of housing project, the assessee has received building use permission on 14-5-2008 (PB-105) for 324 residential units developed by the assessee. In the bui....
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....ial provision provided under the IT Act for development of housing units, therefore, liberal approach has to be adopted while considering the above issue. He has relied upon the decisions of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. Vs CIT, 196 ITR 188 and CIT Vs South Arcot Dist. Cooperative Marketing Society Ltd., 176 ITR 117. He has also submitted that in alternate, pro-rata deduction may be allowed to the assessee and relied upon the order of the ITAT, Nagpur Bench in the case of ITO Vs. AIR Developers, 122 ITD 125 (Nagpur). 5. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that the assessee has not purchased the same land as per order of the learned CIT(A), therefore, no risk is conveyed to the assessee and decision in the case of Shakti Corporation (supra) would apply in the case of the assessee. He has submitted that since developed area exceeded the prescribed limit, therefore, built up area was more than the limit prescribed u/s 80 IB (10) of the IT Act. Therefore, the assessee would not be entitled for deduction even on pro rata basis. He has submitted that liberal interpretation of the provisions of law ....
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.... development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,- (i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008 ; (ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority. Explanation.-For the purposes of this clause,- (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 have been approved on the date on which the building plan of such housing project is first approved by the local authority ; (ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority ; (b) the project is on the size of a plot of land which has a minimum area of one acre : Provided that nothing contained in clause (a) or clau....
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....roject is approved by the local authority; (iii) the development and construction of housing project has commenced on or after 1st Oct., 1998; (iv) the housing project is on a size of a plot of land which has minimum area of one acre; and (v) the residential unit developed and built has a built up area of 1,000 sq. ft. if it is situated in Delhi and Mumbai or within 25 kms of municipal limit of these cities and 1,500 sq. ft. at any other place. There is no other condition, which is to be complied by an assessee for claiming the deduction on profits of the housing project. 28. The contention of the Revenue authorities that to claim deduction under s. 80-IB(l0), there is a condition precedent that the assessee must be owner of the land on which housing project is constructed has no force. We do not find any such condition as appearing in the provisions of the section extracted above. A plain reading of sub-s. (10) of s. 80-IB reveals and makes it evident that there must be an undertaking developing and building a housing project as approved by a local authority. It does not have any further condition that such development and building of the housing project should also be on a lan....
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....property. Throwing itself into the business of development and building of housing projects by taking all risks associated with the business by engaging architects, structural consultants, designing and planning of the housing schemes, payment of development charges, obtaining necessary permissions, approving plans, hiring machinery and equipments, hiring engineers, appointing contractors, etc. No doubt, the permission has been obtained in the name of the registered landowners, but the same have been obtained by the assessee firm through its partners who are holding power of attorney of the respective landowners. It is a fact that the assessee is a ' developer ' and not a ' contractor ' as held by the lower authorities. The developer is not working on remuneration for the landowners, but developer is working for himself in order to exploit the potential of its business in his own interest and, therefore, opted for all business risks associated with the business of development of real estate including developing and building of housing projects. As per the provisions of s. 2(1)(g) of Regulation of Employment and Conditions of Service Act (27 of 1996), the term ' Contractor ' means a....
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.... project by taking all risks associated with this business. The assessee is engaged in complete infrastructure including engaging architects, structural consultants, designing and planning of the housing schemes, payment of development charges, obtaining necessary permissions, on behalf of the landowners, got the plans approved, hiring of machinery and equipments, hiring engineers, appointing contractors, etc. As discussed above and in view of the case law of the Supreme Court in the case of Mysore Minerals Ltd. (supra), wherein it has been categorically observed as regards to ownership that anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title might not have been sale ' and ' Development agreement ' , the assessee has acquired dominion over the land to the exclusion of others and he has completed the project on terms and conditions laid down under s. 80-IB(10) of the Act, to claim deduction on the profit derived from construction and ....
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....anner in which he may like. Thus, the terms and conditions entered into, in our opinion, give all dominant control and rights over the land to the assessee. The assessee, in our opinion, will be constructing the building at its own cost and will remain the owner of the building at its own without any interference from the landowner. The landowner does not have any right to share the buildings. The agreement does not envisage that the assessee will be working as a contractor or agent on behalf of the landowner. The agreement cannot be regarded to be the joint venture or collaboration agreement. It is, in our opinion, the agreement for the sale of the land for a determined consideration under which the assessee is entitled to develop the project on the said land at its own cost in the manner in which he may decide. The facts involved in the case of the assessee are similar to the facts in the case of Radhe Developers & Ors. (supra) and, accordingly, we are of the view that the assessee has acquired the dominant over the land and has developed the housing project by incurring all the expenses and taking all the risks involved therein. We may mention here that, in our opinion, the deci....
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.... behalf. The agreement further provides that the assessee shall recommend the names of the members for allotment and land shall remain open for construction for the assessee and the assessee shall have all rights for using of all the terrace and open space in any manner. The agreement further provides that after implementation and completion of the project, whatever profit/surplus or loss/deficit to the assessee out of the project will rest with the assessee and the assessee shall be responsible and liable for all the losses suffered for the completion of the project and the assessee shall compensate in this behalf. The agreement further provides that the assessee shall incur all expenses for common facility like, lights, water, sewerage, lift, bore-well etc. The learned counsel for the assessee also filed copy of the agreement to sell dated 12-8-2003 through which the assessee purchased the property in question through agreement to sell for consideration of Rs. 3 lakhs and also filed copy of the ledger account and banking statement of the assessee as well as of the society to show that the amount of sale consideration of Rs. 3 lakhs is transferred in a sum of Rs. 2.50 lakhs and Rs....
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....d not provide that the assessee would be working as a contractor or agent on behalf of the land owner. The agreement in question would not be regarded to be the joint-venture or collaboration agreement. It was the agreement for sale of the land for determined consideration under which the assessee was entitled to develop the housing project on the said land in its own cost and in the manner in which the assessee might have decided. The authorities below rejected the claim of the assessee, because, originally, the assessee was authorized to construct 94 residential units, but as against the agreement, later on, the assessee constructed 110 units. However, we find that there is bar to construct more flats or units by the assessee in the given facts of the case. It is a matter between the land owner and the assessee. Once sanction plan is approved by the municipal authorities on the papers submitted by the real owner, it could be deemed approval of construction of housing flats in favour of the assessee, more so, when the assessee entered into an agreement to sell whole of the property. So the objection of the authorities below that the assessee constructed more facts is not sustainab....
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....ting gallery in places of amusements; as, the balcony in a theater. Sources: Webster's Revised Unabridged Dictionary (1913). 11. When the above meaning of "balcony" is taken into consideration with the definition of "built-up area" as provided in the Act, it is clear that finding of the authorities below are not sustainable in law. It is an admitted fact that the open terrace in front of pent-house was considered as balcony/verandah. The open terrace is not covered and is open to sky and would not be part of the inner measurement of the residential floor at any floor level. The definition of "built-up area" is inclusive of balcony which is not open terrace. The DVO has considered the open terrace as analogous to balcony/verandah without any basis. Therefore, the authorities below were not justified in rejecting the claim of the assessee by taking the open terrace as balcony/verandah. Therefore, the assessee has complied with all the requirements of section 80IB (10) of the Act in this regard. Moreover, the ITAT, Nagpur Bench in the case of AIR Developers (supra) has held as under: "In view of the decision of the Kolkata Bench of the Tribunal in the case of Bengal Ambuja Ho....
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....t case in the light of the decision in the case of M/s. Amaltas Associates (supra) and find that the assessee has satisfied all the requirements of section 80 IB (10) of the IT Act in the matter. The learned Counsel for the assessee referred to the terms of the development agreements extensively during the course of the arguments for the housing project PB -80 to 104 with both the societies for development and construction of residential housing project and it provides that the assessee has purchased all substantive development rights which includes all other rights for consideration of Rs. 30,76,675/- and Rs. 1,02,08,853/-. The same is also debited in the profit & loss account of the assessee. The sale consideration is not disputed and the confirmation of the societies from their accounts, copies of their bank account and copy of the bank account of the assessee and ledger accounts from the accounts of the assessee have been filed on record. It is also claimed that the assessee has also entered into agreement to sell the land with the societies on 23-5-2006 which is mentioned in the submission of the assessee reproduced in the assessment order as well as in the statement of facts ....
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....deration from the buyers. It would, therefore, prove that the assessee undertaken to develop the building housing project in question. These facts would show and prove that the assessee made the payments of sale consideration of the property in question and the details of the sale proceeds received from the buyers have also been mentioned in the total sale proceeds in the books of accounts of the assessee. The facts of the case and evidences on record would prove that the assessee entered into development agreements and agreement to sell with the societies for consideration. All the responsibilities for carrying out construction, permission and development of the project lie with the assessee. The real owner of the land i.e. societies was only to co-operate with the assessee in carrying out the development and to execute necessary documents whenever required by the assessee as a developer. The societies have handed over physical possession of the land to the assessee as a developer for carrying out development of housing project. The societies were not left with any right, interest or title in the development which was carried out by the assessee. The motives of the societies were ....
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....lso filed in the paper book. Therefore, additional construction carried out by the subsequent flat owners cannot be taken into consideration against the assessee for not complying with the provisions of law. With regard to issue of inclusion of open terrace in the built up area, the issue is considered in detail in the case of M/s. Amaltas Associates (supra) and it was held that the authorities below were not justified in rejecting the claim of the assessee by taking the open terrace as balcony/verandah. It was, therefore, held that open terrace cannot be included in the built up area. With regard to the discrepancy of survey numbers mentioned in the approval and B. U. permission issued by AUDA, learned Counsel for the assessee explained that there was inadvertent mistake in English translation and if the original is taken into consideration no discrepancy is noted. The learned Counsel for the assessee explained that development permission was received for various survey numbers which was jointly received by the assessee along with other persons for a greater area but the assessee was granted permission to construct in 17938 sq. m. of area for 324 residential units only. The survey....
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....pment agreements by incurring total expenditure and received the sale consideration. Therefore, the assessee is able to satisfy the requirement of section 80 IB (10) of the IT Act. We may also note that once plan is approved by AUDA on papers submitted by the assessee and others, it would be deemed approval of construction of housing units in favour of the assessee, more so, when the assessee entered into agreements for developing the whole of the property. Therefore, objection of the authorities below, the name of the assessee is not mentioned in the permission or survey numbers are different, are not sustainable in law. The facts of the case, if considered in the light of the decisions of ITAT Ahmedabad Bench in the cases of Radhe Developers, Shakti Corporation and M/s. Amaltas Associates (supra), we are of the view the issue is now fully covered in favour of the assessee for grant of deduction u/s 80 IB(10) of the IT Act because the assessee has acquired dominant right over the land and has developed the housing project by incurring all the expenses and taking all risks involved thereof. The crux of the matter would be that assessee has acquired the land in question and has deve....