AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1790
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....uction of Rs. 4,09,79,023/- u/s 80IB(10) of the ITA, 1961 made by the learned DCIT, Circle-4, Pune. 2. The learned CIT(A)-II, Pune erred in law and on facts in concurring with the learned AO that the housing project of the appellant has commenced before 1/10/1998. 3. The learned CIT(A)-II, Pune erred in law and on facts in concurring with the learned AO that some of the tenements in the housing project of the appellant were exceeding built-up area of 1500 Square Feet, and hence violate conditions of section 80IB(10) of the ITA, 1961. 4. The learned CIT(A)-II, Pune erred in law and on facts in concurring with the learned AO that construction of tenements in B-1 and C-3 buildings of the housing project of the appellant were not fulfilling conditions laid down in section 80IB(10) of the ITA, 1961, leading to denial of deduction thereto. 5. The learned CIT(A)-II, Pune also erred in not appreciating that the appellant was denied the opportunity of cross verification of parties / customers, etc. of the appellant. He ought to have appreciated that under principles of natural justice, cross verification of evidences should have been ensured. 6. Alternatively and without prej....
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....ement of Mr. Vilas Parmar, Director on 05.12.2005 and 27.12.2005. The statement of Mr. Kantilal C. Parmar was recorded during survey under section 133A of the Act on 24.11.2005. Subsequently, statement of Mr. Kantilal C. Parmar was recorded on 27.12.2005 by the Investigation Wing. In this case, survey under section 133A of the Act was conducted by the Investigation Wing on 24.11.2005. The statements of certain customers were also recorded under section 131 of the Act during the course of assessment proceedings for assessment year 2003-04, who were the occupants of flats in C2, Marigold and Row House No.5, C-2 Marigold and 3-4 Row House No.6, C-1 Marigold, Row House No.1 and also flats of A-1 Tulip. The Assessing Officer noted the eligibility of deduction under section 80IB(10) of the Act and observed that primary condition for obtaining deduction under section 80IB(10) of the Act was that the same was allowable for only housing project approved by local authority. Further, development and construction of housing project should start after 01.10.1998 and the residential units should have maximum built up area of 1500 sq.ft. The Assessing Officer thereafter, analyzed the entire proje....
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....y 'Parmar Garden' had started and there was loss of Rs. 7,59,657/- during the year because the same was at initial stage. In the scrutiny proceedings for assessment year 1997-98, similar submissions were made that the company had started first project namely 'Parmar Garden' and the development work was going on. The Assessing Officer noted that in the return of income for assessment year 1997-98, work-in-progress was shown at Rs. 7,03,884/-, which did not include the land cost. The Assessing Officer thus, deduced the same as for construction expenses of this project. Similar disclosure was made in the Directors Report relating to assessment year 199697. The Assessing Officer further noted that the commencement certificate from Pune Municipal Corporation was received on 01.08.1996, under which permission was granted to carry out development at Wanawadi, Pune. The Assessing Officer was of the view that the assessee had received the permission for development on 01.08.1996. Thereafter, the Assessing Officer referred to the application made to MSEB dated 11.03.1997 and the NA order dated 30.12.1996. The Assessing Officer noted that the NA order referred to the commencement certificate ....
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....ion of Assessing Officer and also where the assessee had constructed godowns, site office and also carried out Bhoomipoojan for 'Parmar Garden' in financial year 1996-97. The Assessing Officer thus, concluded that the project 'Parmar Garden' had started in financial year 1996-97 itself. The contention of assessee that work-in-progress in earlier year's record were for area related works and not the building related works, was not accepted by the Assessing Officer as he was of the opinion that the assessee could not start the building related work unless the plot is developed. He held that development of plot was a pre-condition for starting construction work and since the assessee had started road work, had done excavation, plantation and even constructed borewell, these were all activities, which were essential activities before starting construction work. As per the Assessing Officer, the assessee had started development work which was integral part of construction of building prior to 01.10.1998 and hence, the assessee was not eligible to claim the deduction under section 80IB(10)(a) of the Act. The reliance placed upon by the learned Authorized Representative for the assessee o....
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....company confirm that these were row houses & 3 bedroom flats - Tulip & Marigold - exceeding 1500sq. ft. * Statement of flats holders recorded confirming the sale as single unit to them & that it was explained to them that 2 agreements would save registration & stamp duties. * All the flats in Tulip building - actual 33 on paper 66-in Marigold, actual 9 - on paper 22, are exceeding 1500 sq. ft. & there is not a single case where flats are actually constructed as 2 flats as per the building plan. There is single electricity meter. 2) Commercial area exceeding 2000 sq. ft. In the brochure a shopping mall is shown. On verification it was found to be actually constructed as a hall on ground & first floor, connected from inside, but used as a sales office - carpet area 2576 sq. ft. On paper it has been shown as 3 flats. This was referred to the PMC who have issued a Show cause notice to the assessee for construction in violation of sanctioned plan. Even if it is treated as residential unit, the area exceeds 1500 sq. ft. Final completion certificate is received on 20/03/2003 3) Project has Commenced prior to 01/10/1998 * First commencement certificate of PMC is dated ....
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....of the project which consisted various buildings with different tenements. As per the said certificate, demolition of existing structure on the land had to be carried out in addition to laying of drainage and sewage pipelines, electric poles, internal roads and construction of building up to plinth area, etc. The revised layout sanctioned plan was dated 24.06.1998 which also had pre-printed activities / conditions to be completed before building construction could be permitted. In this revised plan, there was change in number of floors and the total number of tenements were 93 along with proposal for club house and swimming pool. As per the assessee, no work was carried out consequent to layout sanction plan dated 01.08.1996 and the same lapsed after one year. 9. The next plea of the assessee before the CIT(A) was that whatever expenditure was made before 01.10.1998 on the project was to protect the land from encroachment and dispute, by way of boundary wall construction, shed for watchman, plantation, etc. and the expenditure related to the land / site / area and not the space in the project. The assessee further claimed that building construction had started only after the cons....
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....ction activity. Further, the assessee had received advances from buyers before 31.03.1998 and the receipt vouchers were impounded during the course of survey. The CIT(A) referred to the commencement certificate dated 01.08.1996 which clearly mentioned that "permission is hereby granted to carry out development of Survey No.66A, Hissa No.2A+2B/1, Village Wanawadi, Pune (plan enclosed) subject to the following conditions." As per the CIT(A), the assessee had received permission for development on 01.08.1996. Further, NA permission was received from Collector, Pune vide order dated 30.12.1996, which admittedly was pre-requisite for development and construction of any land. The CIT(A) concluded by holding as under:- "3.5 ......... From the details in Para 3.4 above, and facts discussed above, it is clear that by March, 1997 the land was fully developed and ready for construction activity to commence. Statements of Shri Ghuge, engineer of the company and Shri Laxman Thite, architect, confirm the fact that development had started prior to 1998. The site visit reports of Shri Azim Shaikh, junior of the architect of the appellant, are contemporaneous dated 01-08-1997 and 25-08....
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....bination was more than 1500 sq.ft. and also the buildings constructed did not conform with the plan approved by the local authority, the CIT(A) held that the assessee was not entitled to the claim of deduction under section 80IB(10) of the Act. Furthermore, the development of housing project had commenced prior to 01.10.1998 and on this account also, it was held that the assessee is not entitled to the claim of deduction under section 80IB(10) of the Act. 11. The assessee is in appeal against the order of CIT(A). 12. The learned Authorized Representative for the assessee elaborately took us through the factual aspects of the case and pointed out that both the authorities below had not allowed the deduction claimed under section 80IB(10) of the Act. The learned Authorized Representative for the assessee at the outset pointed out that it was not disputed that Lity-I i.e. B1 area was constituted of basement which was more than 1500 sq.ft. and was the shopping area and the assessee was not claiming any deduction in respect of the same. Further, it was also not claiming the deduction in respect of Marigold C3. The learned Authorized Representative for the assessee thereafter, took u....
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....f the Act. 13. With regard to second issue i.e. whether construction started prior to 01.10.1998 or after 01.10.1998, the learned Authorized Representative for the assessee pointed out that the Assessing Officer and CIT(A) referred to the permission granted on 01.10.1996 by the PMC which is not the material permission for construction of project. He stressed that first certificate dated 01.08.1996 was the layout plan which has been so accepted by the CIT(A) in para 3.1 of the appellate order. The second layout plan was dated 24.06.1998 under which the assessee had to carry out certain activities for making the plot ready for construction purpose. The building plans were sanctioned firstly for C1, C2 on 10.05.1998 and thereafter on 19.12.1998. Our attention was drawn to the list of expenses which are tabulated at pages 24 and 25 of CIT(A)'s order totaling Rs. 8,34,752/- and it was pointed out that the assessee is not disputing all the said facts but the development is not material development but activities undertaken to make the land suitable for development. The word 'development' used in section is material development and not activities undertaken to make the land suitable for....
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....and develop the building was sanctioned. The learned Authorized Representative for the assessee pointed out that there was no dispute to the date of completion i.e. the building had to be completed before 31.03.2003 and the assessee had completed the building by 20.03.2003. He further referred to the letters of PMC, Pune placed at page 344 of the Paper Book, where in respect of combination of flats, PMC asked to the assessee to file record plans for regularization. He stressed that as far as PMC is concerned, the assessee was not in default vis-à-vis the amalgamation of flats. 17. The next argument of learned Authorized Representative for the assessee was the dimension of violation by the assessee i.e. combination of two flats. He pointed out that even in case of violation, if any, where the area of combined flats was less than 1500 sq.ft., then the deduction under section 80IB(10) of the Act was to be allowed. In any case, prorata deduction is to be allowed to the assessee. He fairly admitted that the Assessing Officer may carry out the necessary verification exercise by deputing the DVO to verify the area of flats within boundaries and in case the same is found even afte....
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....its but where the assessee has constructed big flats and row-houses, no such benefit can be allowed to the assessee. He also pointed out that the buildings which were constructed by the assessee are not as per approved plans and hence, even prorata deduction is not to be allowed. The learned Departmental Representative for the Revenue stressed that the assessee is not even aware when the construction had started as in different documents different statements were made. However, the documents found during the course of Survey, established the case of Revenue. 20. The learned Authorized Representative for the assessee in rejoinder pointed out that the layout plan was passed without building plans being passed and till the same are passed, nothing can be constructed. He further stressed that laying of internal roads was part of layout plan. He further referred to the decision in Nirmiti Construction Vs. DCIT (supra) and pointed out that real ratio laid down was that the development would lead to material change in land and in the absence of the same, it cannot be said that the assessee had started construction. As far as the decision of Hon'ble High Court of Madras in Ravi Appasamy ....
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....le specifying the size of plot of land does not specify the size or the number of housing projects that are required to be undertaken on a plot having minimum area of one acre. The Hon'ble Bombay High Court held that as a result significance of size of plot of land is lost and therefore the assessee subject to fulfilling other conditions, becomes eligible to section 80IB(10) of the Act deduction on construction of housing project on a plot having minimum area of one acre irrespective of the fact that there existed other housing projects or not. 23. The Hon'ble Supreme Court in CIT Vs. Sarkar Builders (2015) 277 CTR 301 (SC) was abreast of the issue of restriction imposed by clause (d) to section 80IB(10) of the Act in respect of commercial space in a housing project. The Hon'ble Supreme Court observed that section 80IB(10) of the Act stipulates certain conditions which are to be satisfied in order to avail the benefit of said provisions. Further, it was held that the benefit was available to those undertakings which are developing and building housing projects approved by a local authority. The section was applicable in respect of housing projects but at the same time, certain co....
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....w conditions were incorporated for the first time including the conditions mentioned in clause (d) which was not on the Statute Book earlier when the projects were sanctioned. The Hon'ble Supreme Court further noted that another important amendment by this Act to sub-section (14) to section 80IB(10) of the Act w.e.f. 01.04.2005 and clause (a) was inserted in section 80IB(14) of the Act defining the words 'built-up area' to mean the inner measurements of residential units at the floor level. including the projections and balconies, as increased by thickness of walls, but did not include common area shared with other residential units. The Hon'ble Supreme Court further observed that in order to avail the benefit in assessment years after 01.04.2005 holding that the balconies should be removed though these were permitted earlier would lead to absurd results as one cannot expect an assessee to comply with a condition which was not part of Statute when housing project was approved. 26. The Hon'ble Supreme Court in CIT Vs. M/s. Veena Developers with SLP(C) No.24329/2011 along with bunch of appeals including the appeal against order of Hon'ble Bombay High Court in CIT Vs. Brahma Associa....
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.... to be composite activity of development and construction of housing project. The Hon'ble High Court held that the words of Statute have to be interpreted without taking an extraneous aid for definition of expression 'development'. It was further held by the Hon'ble High Court that the requirement under section 80IB(10) of the Act was twin requirement, which speaks both about development and construction of the housing project. It was further held that conjunction between development and construction, by the use of word "and", cannot be made a dead letter, by applying the definition of the expression "development" to the phrase "development and construction". The Hon'ble High Court held that the expenses incurred by the assessee in removing the hut dwellers, digging of bore wells, getting electricity connection, putting up compound walls and security cabins, etc. have all been taken by the Tribunal to be part of construction activity and accordingly, pre-pone date of development and construction. The Hon'ble High Court held that where the actual date of commencement of construction was 15.10.1998, the correct interpretation is to be then offered to the composite expression 'develop....
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....llowable. The Hon'ble High Court held that question of disallowance would arise only if and when the residential flats are beyond the limits provided under section 80IB(10) of the Act and not otherwise. The relevant findings of the Hon'ble High Court were as under:- "40. Thus, in the face of the clear provisions and going by the strict construction, one cannot read any limitation into the expression "housing project" to mean residential project alone and that if and when the projects have mixed built-up area of commercial and residential, the question of disallowance will arise only if and when the residential flats are beyond the limit as provided under sub-clause (c) of section 80IB(10) and not otherwise. Even herein, the disallowance could be only proportionate to the extent of units in violation of the area prescribed under clause (c). In a pure commercial housing project, the question of applicability of sub-clause (c) does not arise at all." 31. Now, coming to the facts of the present case, the assessee has filed exhaustive events chart, under which various transactions relating to the acquisition of the plot of land by the assessee from original landholder and also disp....
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....(Memorandum Of Understanding) between Sharda and Parmar 65 & 66 i) S.no.65 allocated to Sharda Group ii) S.no.66 allocated to Vilas Parmar iii) Accordingly, the parties may retain the possession iv) Suits shall be withdrawn by both the parties 252 254 9 18/03/1996 Cancellation Deed 65 As per above MOU Parmars rights in this land are cancelled. 255 263 9A (Free Translation) 264 265 10 20/03/1996 Cancellation Deed 66 As per the above MOU, Sharda's rights in this land are cancelled 266 273 10A (Free Translation) 274 276 11 20/03/1996 Development Agreement 66 That Sharda Group has left rights on Sr.no 66 and Parmars have left rights in Survey No.65. Hence, this new Development Agreement (between Parmar Properties & Kedari Family and others) 277 300 11A (Free Translation) 301 302 32. The assessee claims that in view of the above said scenario, it had to file a petition before the Civil Court, wherein an injunction was passed on 25.04.1995, under which the original landholder Mr. Kedari's family was directed not to create any disturbance in the ....
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....; 19 24/06/1998 Revised (2nd) Layout sanction by PMC 66 Land Layout approved. All probable use of the land confirmed. 330 330 19.1 24/06/1998 Commencement Certificate 66 Additional condition: Existing structure should be demolished. 331 332 20 30/11/1998 Letter to PMC pointing out the creeping delay in sanction of building plans Company stated that - i) Fresh demarcations of boundary are already submitted ii) That the Company is ready to do joint demarcation with Kedari (land lord) 333 337 21 19/12/1998 Commencement certificate 66 Various conditions stated (such as follow DC Rules, Ensure road alignments, plant four trees, debris to be cleared, etc.) 338 338 22 16/07/2002 Part Completion certificate 66 Flats Completed B-1: 5-10, 13-23, 25, 26,29,32 (total ---) C-1: 5-8 (total ---) C-2: 1-2 = 2 Total 27 Flats 339 339 22A (Free Translation) 340 340 23 20/03/2003 Final Completion certificate 66 Flats completed B-1: 1,3,4, 11-12, 24,28,30-31, 33-36 = 13 B-2: 37 - 61, 63 - 72= 35 B-3: 73-97, 100-108=35 A-1: 109-13....
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.... PMC free of cost. As per clause 20, corrected ULC order was to be produced before plinth checking and up to date Tax NOC should be produced in A.E.D.P before asking building permission. The perusal of the above said certificate reflects that the said permission granted by the PMC, Pune is not a building permission, it is a layout plan issued to the assessee to carry out certain basic activities and provide facilities and receive various permissions before asking for building permission. The perusal of plan which is annexed to the said commencement certificate which is placed at page 307 of Paper Book, very clearly mentions it to be a layout plan. Where the area of the land lays reservations are provided in the area statement of plot and balance area available for development of 8124 sq.mtrs.; undoubtedly, the project is mentioned as proposed building layout of survey No.66A, H.No.2/A/2B/1, Wanawadi, Pune. The perusal of said plan reflects the area calculation for H.C.M.T.R road Ring Railway, play ground, DP road and also FSI statement for various buildings and the area to be occupied. Further, it provides the plan for division of area available for development, but does not provid....
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....ent plan road passing to the land. The said commencement certificate also was valid for one year from the date of issue and as per clause 13, commencement certificate cancels all previous sanctions. Further, the other conditions of marking the area for HCMTR, Ring Railway before asking for building permission and also availing additional FAR against HCMTR Ring Railway area, corrected ULD order and upto date Tax clearance to be submitted before asking for building permission. One more clause which was in the revised plan was that the existing structure should be demolished before starting any development. The layout plan is also annexed, wherein it is mentioned that it is DP layout plan which makes the calculations and area statement under which the balance area which is available for development of plot is worked out at 8124.93 sq. mtrs. and all the conditions are also mentioned in the plan itself. 36. The above said clearly establishes that till date 24.06.1998, the assessee had not received the building plans but conditions were laid upon the assessee to carry out certain activities of clearance of the land and plotting of the land and also making the provisions for colony road....
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....ould be obtained from the assistant city engineer (Drainage) after submission of necessary plans. 11. You have to start the new construction work only after clearing the existing structure on the lands. 12. Applicant will only be responsible for NA, disputes in the land or land rights. 37. The said permission given by the PMC for construction of proposed building at the site of the assessee, which was given vide Certificate No.2098, dated 19.12.1998. All the earlier communications which are also called commencement certificate were for the layout of plot and are separate and distinct from the commencement certificate issued by the PMC for construction of the building. The assessee has been given the permission to construct the buildings which were plotted as per the layout plans. Accordingly, we hold that where the assessee has got permission on 19.12.1998 to construct the building, then the assessee has fulfilled the basic conditions laid down in section 80IB(10) of the Act in order to avail the benefits of the said section; since the deduction under the said section is available to such projects which commenced construction on or after 01.10.1998. The previous commencemen....
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....y the Assessing Officer and the CIT(A) that the advertisement and invitation cards for Bhoomi Puja in 1997 are rituals which are normally conducted before commencement of construction activity does not establish that the construction activities started thereafter itself. The assessee had further received certain advances from the buyers and such receipt vouchers were impounded during the course of Survey. However, the assessee has clarified that as the project did not take off, the said advances were returned. The Revenue has not brought on record anything to contrary. The Assessing Officer and the CIT(A) thereafter refers to the commencement certificate issued by the PMC on 01.08.1996 which mentions that the permission is granted to carry out the development of survey No.66 with plan, is subject to the following conditions. The conclusion of the authorities below is that the assessee had received permission for development on 01.08.1996, which is ironic that the authorities come to conclusion that the assessee had received the so-called permission on 01.08.1996 i.e. on the date when the land in question was an agricultural land. The NA permission for the said land was received fro....
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....ons of the building plans sanctioned by converting the residential units into commercial units and consequently, occupying the area more than 1500 sq.ft. The perusal of orders of Assessing Officer and the CIT(A) would show that extensive exercise has been carried out by them to establish the violation of building B1 and C3, wherein there is violation of not only usage but also the area occupied. The learned Authorized Representative for the assessee at the outset pointed out that despite the stand of assessee before the authorities below, but the assessee is withdrawing its claim of deduction under section 80IB(10) of the Act in respect of B1 and C3, the assessee has agreed that the total area on merger was more than stipulated area of 1500 sq.ft. and hence, the assessee was not entitled to claim the aforesaid deduction. In the first instance, where the assessee has withdrawn is claim, the same stands decided against the assessee. However, the next aspect of the same issue is that the authorities below are of the view that since the assessee has violated building plans in making the aforesaid construction, hence, the assessee should be denied the deduction under section 80IB(10) of....
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....he flats. Merely because the assessee has merged flats but in case the area of merged flats is within prescribed limit of 1500 sq.ft., then such flats are eligible for deduction under section 80IB(10) of the Act and in this regard of merger of flats, there is mechanism provided by the municipal authorities, wherein suitable fines and fees are levied after the assessee submits the record plans. Similar issue of combination of flats and entitlement to deduction to flats if the area of combined flats was within the prescribed limit of 1500 sq.ft. has been decided in following cases of various Benches of Tribunal and we place reliance on the same:- a) Kura Homes P. Ltd. Vs. ITO reported in 139 ITD 445 (Hyd) b) ITO Vs. Ashray Premises P. Ltd. reported in 54 SOT 209 (Mum) c) ITO Vs. Siddhivinayak Homes in ITA No.8726/MUM/2010 d) Kasturi Housing & Construction P Ltd. Vs. ACIT in ITA No.1370/PN/2007 41. Even if the assessee has made extra construction than the approval received from the local authority, then such extra construction has to be looked into by the municipal authorities and the Income Tax authorities are to ensure that the conditions laid down under section 80IB(1....
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....dential flats. The DVO has submitted the report, under which it is reported that the area of flats was less than 1500 sq.ft. However, the CIT(A) did not adopt the said report since in the preceding year, this issue was decided against the assessee. 44. The learned Authorized Representative for the assessee before us has pleaded that physical verification exercise of measurement of flats i.e. within boundaries of the flats and not the super built up area can be verified by the Assessing Officer by directing the DVO and after the verification, the claim of assessee may be looked into and decided on the basis of said verification. In the totality of the above said facts and circumstances of the case and because of conflicting reports of DVO in the two years i.e. assessment years 2003-04 and 2004-05, we find merit in the plea of the assessee. As per the provisions of the Statute in the relevant years, it is the area within four boundaries which has to be taken into consideration and if the same is up to 1500 sq.ft., then the assessee is entitled to avail the deduction, in case it exceeds 1500 sq.ft., then the deduction to such units can be denied. The denial of deduction under sectio....