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2021 (7) TMI 554
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.... 80IB(10) of the I.T.Act. Identical grounds are raised in all the appeals except for variance in figures. Hence, the grounds pertaining to assessment year 2007-2008 are reproduced:- "1. The ld.CIT(A) has erred in facts and in law in deleting the addition of Rs. 116,41,44,106/- being disallowance made under Section 80IB(10) of the Income Tax Act, 1961 holding that the assessee is a "builder" and not a "developer and builder" as per the provisions of section 80IB(10) of the Income Tax Act, 1961. 2. The ld.CIT(A) has erred on facts and in law in inferring that the assessee cannot be considered merely as a builder, based on submissions made by the assessee regarding its sister concern and ignoring the fact that the assessee has not made any attempt to bring out any clear evidence of undertaking development work of the projects to qualify as a developer. 3. The ld.CIT(A) has erred in relying on the Hon'ble Gujarat High Court decision in the case of Radhe Developers (341 ITR 403), wherein the facts of the case are distinct from the present case. 4. For these and such other grounds that may be urged at the time of hearing the orders of ld.CIT(A) may be ....
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....he undertaking "developing AND [emphasis supplied] building housing projects". Developing and building of housing projects are twin condition that have to be satisfied simultaneously in order to obtain deduction u/s.80IB(10). In other words, unless the undertaking carries out both developing as well as building activities, it is not entitled to the deduction. In thepresent case, the assessee has not done any development work but has only had the constructive risk. The assessee has not only been a builder in respect of the projects as is evident from the construction agreements with the customer. The development of land was done by the actual sellers of the Land to the sister concerns and not by the assessee and SDL only built / constructed the superstructure. While the assessee has shown the income from sale of flats as business income, the same however does not qualify for deduction u/s.80IB since this income has not accrued to the assessee due to development and building but only due to the risk taken as a builder. G. The assessee has derived this income, not by owning and developing, but by advancing business Loans to the sister concern, collecting the consider....
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.... 5.10 I also find that the appellant's sister concern is only entitled to the consideration as mentioned in the agreement to sell entered into between the appellant and its sister concern. Even the profit shown by the appellant's sister concern from sale of land to appellant has been offered to tax by the said sister concern and these facts are not disputed. The appellant has produced the financials of the sister concern before the A.O. to establish that the said sister concern did not carry out any activity for development and had not incurred any expenditure, did not have any employees on its rolls. All these factors point out to the inescapable conclusion that the appellant alone has to performed the role of the developer and hence, cannot be considered as mere builder simply because the land did not belong to the appellant. Infact, the A.O. has allowed deduction u/s.80IB(10) for this year in respect of other projects where the lands are owned by the appellant and has denied deduction for few projects where land was owned by the sister concern. Considering the totality of facts and circumstances and the position of law, I hold that the appellant is entitled ....
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....enty seven lakhs eighteen thousand nine hundred and two only)to the vendor, the receipt of which the vendor hereby accepts and acknowledges; 1.3) The balance of the sale price of Rs. 5,00,000/-(Rupees five lakhs only) shall be paid by the Purchaser to the vendor at the time of execution of Deed of Sale; 5) POSSESSION The vendor shall deliver possession to the purchaser or their nominee at the time of execution of the Deed of sale: (c) From the agreement dated 31.03.2005: 1) SALE PRICE 1.1) The price payable by the Purchaser to the Vendors for the Schedule Property shall be Rs. 12,39,60,117/-(Rupees twelve crores thirty nine lakhs sixty thousand one hundred and seventeen only) 1.2) The Purchased has already paid a sum of Rs. 12,38,60,117/-(Rupees twelve crores thirty eight lakhs sixty thousand one hundred and seventeen only)to the vendor, the receipt of which the vendor hereby accepts and acknowledges; 1.3) The balance of the sale price of Rs. 1,00,000/-(Rupees one lakh only} shall be paid by the Purchaser to the vendor at the time of execution of Deed of Sale; 5) POSSESSION The vendor shall de....
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....ssessee did not have any right to develop the said projects. (iii) The sale deed was never executed implying thereby, that the possession of land was never given to the assessee. (iv) The assessee's sister concern M/s. SobhaInnercity Technopolis Pvt Ltd.has given collateral security to bank for the projects which are now claimed to be belonging to the assessee. (v) The sale deed is executed between the assessee's sister concern M/s.SobhaInnercity Technopolis Pvt Ltd., and the ultimate buyers. (vi) The assessee has not taken any risk except the risk of construction. If certain defects were noticed in the construction undertaken by the assessee, it was responsibility of the assessee to rectify it. Beyond this, the assessee did not have any other risk. 7. In view of the above, it is abundantly clear that the assessee is not a developer but only a builder which has undertaken a work contract. It is reiterated that the decisions in case of M/s. Sanghvi & Doshi Enterprise and M/s. Radhe Developers are not applicable to the assessee case because these judgements were delivered in the context that for claims of deduction u/s. 80-IB(10) t....
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....at High Court in the case of Radhe Developers reported in 341 ITR 403 (Gujarat). (v) To go into the question as to who conceptualizes the scheme and ultimately executes the scheme and conveys the flats to the prospective buyers. 2.7.1 The A.O. after examining the aforesaid issues, the first ground on which the assessee has been considered as a builder and not a developer was due to the fact that the land on which 5 projects viz., Sobha Carnation, Sobha Primrose, Sobha Dahlia,Sobha Daisy and Sobha Daffodil, belonged to the sister concern of the assessee called SobhaInnercity Technopolis Private Limited and not the assessee. The A.O. has rejected the claim of the assessee that it was the owner of these lands as per the agreement to sell vide various dates, entered into with the sister concerns for purchase of these lands on which the projects were being developed. The A.O. has observed that the assessee cannot claim to have taken possession of these lands as per the agreement to sell, entered into by the assessee with its sister concern since the assessee did not get the registered sale deed in its favour. The A.O. observed that documentation showed that the assessee neve....
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....deduction claimed holding that the assessee was merely a builder and not a developer. 2.7.2 In other words, the major thrust of Revenue for holding that the assessee is a builder/contractor and not a developer is based on the fact that the land on which the aforesaid projects were developed belonged to the sister-concern SobhaInnercity Technopolis Private Limited (SITPL). The A.O. has also examined the construction agreement entered into by the assessee with the customers and has held that the assessee is only a contractor. That apart, the Assessing Officer has also noticed that the project permission like commencement certificate, plan sanctions and occupancy certificate are in the name of the sister concern, SITPL. He further observed that SITPL has provided the aforesaid lands as security for loans raised by the assessee. The above view of the A.O. has been overturned by the CIT(A) by holding that the assessee is not merely a builder / contractor but a developer of housing project. 2.7.3 During the assessment proceedings, it was claimed by the assessee that it had entered into agreements of sale for purchase of the lands from SITPL and thus, the assessee was the owner o....
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....ot arise.Further, it can be seen from the financials that SITPL has neither incurred any expenditure nor has it any employees etc., for undertaking development work. 2.7.5 From the above, it is clear that the role of SITPL was a limited one. They were title holders in respect of the lands on which the housing project was developed by the assessee. They were required to merely join in the documentation for sale of apartments developed by the assessee. The assessee has engaged architects for drawing up the plans. The assessee has undertaken the construction activities. The assessee has identified the customers to whom the apartments are sold. The assessee has collected the entire consideration for sale of apartment from the customers. The profit or loss from the housing project accrues to the assessee alone and SITPL has already received the fixed price for the sale of lands to the assessee. Thus, all activities relating to development of the housing project are undertaken by the assessee alone and there cannot be any manner of doubt in this regard. 2.7.6 We have to also address the issue relating to the manner of documentation for sale of apartments. According to the Assessing....
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....onstruction agreement dated 04/03/2006 with customer Mr.Ashok Varma as Annexure-SA and SB. Similarly, in respect of the sameproject another Agreement for sale dated 19/07/2008 and construction agreement dated 19/07/2008 with customer Mr. Kunal Kapur and Ms. MoneeshaKapur, as Annexure-BC and BD. 2.7.7 The A.O. had examined some of the above agreements especially, the Annexures 5C, 5D, 6A and 6B apart from a few others mentioned in the assessment order. According to the Assessing Officer, in the construction Agreement it was mentioned that SITPL is the landowner. However, the Assessing Officer failed to appreciate and read the construction agreement in entirety, which clearly brings out that the assessee is shown as the developer, who has formulated a scheme for construction of residential apartments. Further, the related agreement for sale entered into with the customer also clearly brings out that the assessee had entered into an agreement with SITPL for purchase of land and that the assessee is developing the property into an apartment complex for which the entire consideration is payable to the assessee. Thus, merely relying on a single line that describe SITPL ....
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....cussed about the process of development including the investment and risk element assumed and finally concluded that a developer is a person, who undertakes the development of the project alongwith the associated risks and rewards therefrom. The above order of the Chennai Bench of the Tribunal squarely applies the facts of the instant case as already set-out above. 2.7.9 The learned DR in his written submissions has mentioned that the assessee has not proved possession of the land since, the possession was to be delivered at the time of the execution of the sale deeds as per the 3 agreements of sale between the assessee and SITPL. Nothing turns much on this aspect of the matter as ownership of land is not a precondition for claiming deduction u/s.80IB[10] of the Act. Furthermore, without physical possession the assessee cannot enter into the property for undertaking the construction activity. There is no dispute that the assessee has constructed the housing project and has entered into the construction agreement as well as it is a party to the sale agreement for sale of undivided interest in land. Thus,whether possession in law is with the assessee or not is immaterial as the....
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....ng/2018 & 1206/Bang/2018 (Assessment Years2009-2010 &2010-2011) (Assessee's appeal) 3. The above appeals at the instance of the assessee are directed against consolidated order of the CIT(A) dated 06.02.2018. The CIT(A)'s order arises out of the orders passed by the A.O. u/s 143(3) r.w.s. 153A of the I.T.Act. The relevant assessment years are 2009-2010 and 2010-2011. 3.1 Identical grounds are raised in these appeals, except variance in figures. There are six grounds raised in each of the appeals, however, the AR did not press ground Nos.1, 2, 5 & 6, hence, these grounds are dismissed as not pressed. The surviving grounds, namely, ground Nos.3 and 4 pertaining to assessment year 2009-2010 read as follows:- "3. The learned CIT(A) is not justified in upholding the assessment made by the learned AO in adopting the total income of the appellant as per the original assessment order passed u/s 143(3) dated 29.12.2011 at Rs. 38,64,29,895/- and thereafter making the addition of Rs. 4,00,00,000/- disclosed by the appellant under the facts and in the circumstances of the appellant's case. 4. Without prejudice to the above, it is submitted that the disallowance computed....
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....mpleted u/s 143(3) of the I.T.Act for assessment year 2009-2010, the A.O. had made addition u/s 14A of the I.T.Act amounting to Rs. 1,28,13,850 instead of Rs. 26,55,305 offered for disallowance by the assessee. Similarly for assessment year 2010-2011, the total disallowance made by the A.O. u/s 14A of the I.T.Act was Rs. 93,08,935 instead of Rs. 40,96,467 offered for disallowance by the assessee. Against the original assessment orders, wherein the disallowances are made u/s 14A of the I.T.Act, the assessee preferred appeals to the first appellate authority. 3.5 Subsequently, there was a search u/s 132 of the I.T.Act. Consequent to the search, returns were filed pursuant to notice issued u/s 153A of the I.T.Act. It is stated that in the returns filed pursuant to notice issued u/s 153A of the I.T.Act, the assessee by mistake and sheer inadvertent, erroneously adopted the disallowance u/s 14A of the I.T.Act made in the original assessment. 3.6 We have heard rival submissions and perused the material on record. The disallowance u/s 14A of the I.T.Act in the original assessment order are subject matter of appeal in regular assessment. Depending upon the final outcome in the reg....
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....y the Assessing Officer. The relevant finding of the CIT(A) reads as follow:- "12. Disallowance of Rs. 1,28,13,850 u/s 14A : The A.O. has brought out the fact that the company had not disallowed any expenditure with respect of income not includible in total income. It may be noted that it is gross expenditure that needs to be considered for disallowance under Rule 8D and not net interest after reduction of interest received on bank margin. It is noted that AO had considered submissions made by appellant during assessment proceedings. Thereafter disallowance was made in accordance with Rule 8D. Therefore, no interference in AO's order is called for since no infirmity arose. The ground fails." 4.4 Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. The learned AR's limited prayer is that no disallowance can be made under Rule 8D(2)(ii), since own funds are much more than tax exempted investment. In this context, the learned AR relied on the judgment of the Hon'ble jurisdictional High Court in the case of CIT&Anr. v. Microlabs reported in (2016) 383 ITR 490 (Kar.) 4.5 The learned DR supported the orders of the Income Tax Authori....
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....Bom bay High Court in the case of CIT v. HDFC Bank Ltd., I. T. A. No. 330 of 2012, judgment dated July 23, 2014 - [2014] 366 ITR 505 (Bom)). Whenthe issue is already covered by a decision of the High Court of Bombay with which we concur, we do not find any substantial question of law would arise for consideration as canvassed." 4.7 In the instant case, this specific plea was not raised before the A.O. Therefore, in the light of the judgment of the Hon'ble jurisdictional High Court in the case of CIT &Anr. v. Microlabs (supra), we restore the case to the A.O. The A.O. shall re-compute the disallowance u/s 14A of the I.T.Actread with Rule 8D(2)(ii) of the I.T.Rulesfollowing the dictum laid down by the Hon'ble jurisdictional High Court in the case of CIT &Anr. v. Microlabs (supra). 4.8 Therefore, ground No.2 is allowed for statistical purposes. Ground No.3 4.9 During the course of assessment proceedings, it was noticed by the A.O. that the assessee has not produced receipt for donation paid to the tune of Rs. 61,20,000. Hence, he held that the total donation paid by the assessee to the private entities comes to only Rs. 6,86,15,000. 4.10 The view taken by the A.O. was a....
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....me is opposed the plain language of section 80G(1) of the I.T.Act, the A.O. is directed to allow the deduction u/s 80G(1) of the I.T.Actby restricting the aggregate of the sums to 10% of the gross total income. It is ordered accordingly. 4.12.2 In the result, ground No.3 is allowed for statistical purposes. Ground No.4 4.13 The above ground relates to re-computation of book profit u/s 115JB of the I.T.Act. The A.O. had made two additions to the book profits. First, the A.O. made addition of disallowance u/s 14A of the I.T.Act. The second addition is with regard to wealth-tax of Rs. 7,28,594. The CIT(A) confirmed the computation made u/s 115JB of the I.T.Act. The relevant finding of the CIT(A) reads as follow:- "15. Determining income of appellant u/s 115JB at Rs. 1,39,52,78,779/-. It may be noted that under section 115JB amount of deferred tax or provision thereof is to be added. It is noted AO had followed the section. Therefore, no interference in AO's order is called for since no infirmity arose." 4.14 Aggrieved, the assessee is in appeal before the Tribunal. The learned AR submitted that no disallowance u/s 14A of the I.T.Act can be made while computi....
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....ividuals and therefore, the denial of deduction in respect of these projects is unjustified. 2C. Without prejudice to the above, the learned CIT(A) failed to appreciate that the provisions of section 80IB(10)(f) of the Act, came into effect from 01/04/2010 and therefore, the said provisions of the Act, were inapplicable to the allotment of residential units made by the appellant in respect of the projects and from this view of the matter, there is no justification for denying the deduction claimed in respect of the profits derived from the aforesaid projects, which requires to be vacated. 3. The learned CIT(A) is not justified in upholding the disallowance u/s 14A of the Act amounting to Rs. 52,12,468/- under the facts and in the circumstances of the appellant's case. She failed to appreciate that the disallowance computed u/s 14A of the Act was highly excessive, opposed to law and facts of the appellant's case and therefore, the same deserves to be deleted." Ground No.2A, 2B and 2C 5.2 The A.O. concluded the assessment by denying a part claim of deduction u/s 80IB(10)of the I.T.Act amounting to Rs. 11,57,09,500 for the reason that the assessee has violated ....
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....B(10)(f) of the I.T.Act reads as follow:- "(f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely :- (i) the individual or the spouse or the minor children of such individual, (ii) the Hindu undivided family in which such individual is the karta, (iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta;" 5.6.2 It is clear from reading of above provision, that there is no restriction for the assessee to sell a flat to a company. Therefore, the A.O. and the CIT(A) has misconstrued section 80IB(10)(f) of the I.T.Act and taken a view that the assessee cannot sell any flat in the housing project to non-individuals, which is erroneous understanding of statutory provisions. Accordingly, we set aside the orders of the A.O. and the CIT(A) on this count. The A.O. is directed to recompute deduction u/s 80IB(10)(f) of the I.T.Act keeping in view the above direction. Ground No.3 5.7 The asse....
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....ending is Rs. 42.93 crore. The Hon'ble jurisdictional High Court in the case of CIT &Anr. v. Microlabs (supra) had held that when investments are made out of common pool of funds and non-interest bearing funds are much more than the investment in tax free securities, no disallowance of interest expenditure u/s 14A of the I.T.Act can be made. The relevant funding of the Hon'ble jurisdictional High Court reads as follow:- "We have heard the rival submissions. A copy of the availability of funds and investments made was filed before us which is at pages 38 to 42 of the assessee's paper book and the same is enclosed as annexure-III to this order. It is clear from the said statement that the avail ability of profit, share capital and reserves and surplus was much more than investments made by the assessee which could yield tax- free income. The hon'ble Bombay High Court in CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) has held that where the inter est-free funds far exceed the value of investments, it should be considered that investments have been made out of interest-free funds and no disallowance under section 14A towards any interest exp....