TaxTMI 
TaxTMI 
2017 (3) TMI 1790
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....on facts in confirming the disallowance of deduction 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 ev....
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.... the same, Investigation Wing of Income Tax Department, Pune had recorded statement 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 a....
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....the Directors report, it was stated that the development of first project namely '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 Asse....
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....assessee was rejected in view of various contentions and in view of the conclusion 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 r....
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..... * Statement recorded of sales executive, site engineer, brochure obtained from site office & website of 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 comp....
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....nt plan sanctioned by the Municipal Corporation vide commencement certificate dated 01.08.1996. As per the said certificate after deducting the areas under reservations i.e. 3780 sq.mt., net area of 8124.05 sq.mt. was approved for development 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 wa....
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.... newspaper advertisements published in February, 1997, invitation cards for the Bhoomi Poojan on the site were printed in February, 1997, etc,. were incurred. As per the CIT(A), such rituals normally are conducted before commencement of construction 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,....
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....cted shopping plaza, whose built up area was more than 1500 sq.ft. and further the units B1, C1, C2, C3 and A1 Tulip were constructed in contravention of specific provisions of section 80IB(10) of the Act, wherein the area of residential units after combination 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 150....
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....ee pointed out that in such scenario, verification exercise can be carried out in order to determine the physical area of flats and if the claim of the assessee is found to be correct, then the assessee is entitled to proportionate deduction of 80IB(10) of 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 al....
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....ad to be demolished. Even on 30.11.1998, a communication was issued where it is clearly stated that building plans were not sanctioned, copy of which is placed at page 333 of the Paper Book. On 19.12.1998, the first building plan i.e. the commencement certificate to construct 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 ....
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....ence to the violations made by the assessee, wherein the commercial area i.e. B1 was more than 10% and then, there was merger of flats and even merger of row-houses. He stressed that in the claim of allowing deduction under section 80IB(10) of the Act, the same was for smaller units 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. DCI....
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....ing projects and so long as those housing projects are approved by the local authority and fulfill the conditions set out under section 80IB(10) of the Act, the deduction thereunder cannot be denied to those housing projects". It was further held that section 80IB(10) of the Act while 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 ....
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....to various amendments carried out to sub-section (10) to section 80IB(10) of the Act from time to time and noted the changes brought in to section 80IB(10) of the Act and also noted that significant amendment was carried out by the Finance (No.2) Act, 2004 w.e.f. 01.04.2005, several new 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....
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....t and construction on or after 01.10.1998, noted that the steps taken to remove the hut dwellers, digging of bore wells, getting electricity connection, putting up compound walls and security cabins, etc. were part of development activity but it was not correct to interpret such activity 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 ....
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....in CIT Vs. Arun Excello Foundations (P.) Ltd. (2013) 29 taxmann.com 149 (Madras) had laid down the proposition that where the housing project has both commercial and residential units, then proportionate deduction to the extent of compliance of provisions of section 80IB(10) of the Act is allowable. 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 questi....
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....able Civil Court 66 * 65 Petition filed seeking Court INJUNCTION and giving warning to Kedari not to create any obstacles over possession of both lands 243 246 7.1 25/04/1995 Injunction order passed by Honorable Civil Court Directing to Kedari not to create any disturbances in possession of Vilas Parma over the both land. 246 249 7A (Free Translation) 250 251 8 13/06/1995 MOU (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 S....
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....g some frivolous old complaints, the building plans not sanctioned 310 312 17 16/09/1997 Letter from Architect Mr. Laxman Thite Stating that not to start any development work till the sanctioning of plans 313 313 18 04/04/1998 Development Agreements with new land owners on S. No. 66 at Rs. 410,000/- 66 Agreement between Parmar Properties Limited & Jijaba Pandurang Jadhav and others giving rights in the said Property and also permitted to demolish old structure. 314 328 18A (Free Translation) 329 329 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 Kedar....
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....Paper Book reflects that various conditions were laid down in order to develop the plot of land which relate to the plotting of the land, sub-plotting, laying of roads and water lines, drainage, provision of septic tanks and also the development plan road i.e. DP road passing through the land to be demarcated. As per clause 12, certificate was valid for a period of one year commencing on the date of its issue. Further, as per clause 18, it is provided that the PMC would not be held responsible regarding plot boundaries, ownership, access, etc. if it arises in future. As per clause 19, area under H.C.M.T.R. Ring Railway and 40' - wide DP road should be handed over to the PMC before asking building permission. The additional FAR for 40' DP road should be granted only after the same is handed over to the 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 ....
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....and owner of piece of land, wherein for consideration, the rights in the said property were acquired and along with permission to demolish old structure. The copies of the said documents are placed at pages 315 to 328 of the Paper Book. The ownership rights in the said piece of land were transferred for sum of Rs. 4,10,000/- and the consent was given to demolish old construction. The assessee thereafter, received a revised layout sanction from the PMC dated 24.06.1998, copy of which is placed at pages 331 and 332 of the Paper Book. As per the revised layout of building sanction, the conditions as in the earlier layout sanction are same i.e. provision of colony roads, water lines, drainage and also the road to demarcation and sub-plotting of land. It is also one of the conditions to provide the development 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 ....
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....rmission has been given on the condition that road alignments is to be get checked from the office of the Assist Engineer (Lands). 5. This permission is being given at the back of the plans. 6. Before asking for the completion certificate , the owner of the plot should plant 4 trees within the compound wall & should take proper care of the same. 7. Before giving completion certificate all the debris should be cleared from the public road & within the compound of the building. 8. Before starting the work, permission should be obtained from assistant engineer (Drainage & Water) by submitting necessary plans. 9. Before starting the work is there are trees on the land the same should not be cutoff without the permission of the tree authority. 10. Even if permission is given for septic tank necessary permission should 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 permi....
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.... of expenses reflects that these are the preliminary expenses which have been incurred by the assessee in view of various conditions laid down for passing of layout plan. Undoubtedly, the first layout plan was sought by the assessee on 01.08.1996 and the expenses except the charges of PMC are incurred thereafter. The above said expenses incurred by the assessee are to make the land ready for construction and were necessitated because of the conditions laid down by the PMC. The advertisement expenses also are before start of construction. Where the assessee had already incurred expenditure on acquisition of cost of plot of land which in turn, was to be utilized for building the housing project purpose, the expenditure of Rs. 3,680/- incurred for Bhoomi Puja does not justify the conclusion of authorities below that the building plans have been sanctioned. The conclusion drawn by 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 certai....
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....inabove that there is distinction between the layout sanction and the building sanctioned plan and in the case of assessee, commencement certificate dated 19.12.1998 is the sanction granted by the local authority to construct the building and the date of start of project is dated 19.12.1998, which falls within pre-conditions laid down in section 80IB(10) of the Act and hence, the assessee is eligible to claim the deduction. 39. Now, coming to the next aspect of denial of deduction to the assessee by the Assessing Officer and confirmed by the CIT(A) is that the assessee has (a) not constructed the units as per sanctioned building plan; (b) the area of residential flats constructed by the assessee is more than 1500 sq.ft.; ànd (c) many flats have been merged together and the total area of the flats is more than 1500 sq.ft. and also the assessee has violated the conditions 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 build....
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....anctioned / approved and also pay fines and development charges for changes made in actual construction. The said communication dated 04.03.2006 is placed at page 343 of the Paper Book along with reply of the assessee dated 10.03.2006 to the PMC for adherence of all the compliances as directed by the PMC and if required to make the changes. 40. In the totality of the above said facts and circumstances, the question which arises is whether the assessee has deviated from the sanctioned building plans and had constructed the flats having area more than 1500 sq.ft. or change the usage of sanctioned flats from the residential to commercial, we hold that the assessee is entitled to claim the deduction in respect of such flats which fulfill the conditions laid down in section 80IB(10) of the Act i.e. having residential use and having total area of 1500 sq.ft. within boundaries of the 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, w....
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....eement talk about the super built up area i.e. the saleable area which is different from the covered area. It was also stressed by the assessee before the Assessing Officer that the DVO had not carried out any physical verification exercise by way of physically verifying the area within boundaries of individual residential flats whether merged or not. The claim of assessee was that except for B1 and C3, all the other units were fulfilling the conditions of being less than 1500 sq.ft. The Assessing Officer did not accept the plea of assessee in the instant assessment year and held the assessee to have violated the conditions of clause (c) of section 80IB(10) of the Act and denied the deduction to the assessee. Similar plea was made by the assessee in the succeeding year i.e. assessment year 2004-05 and the Assessing Officer directed the same DVO to file physical verification report of the constructed residential 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 Repr....