TaxTMI 
TaxTMI 
2021 (7) TMI 554
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....aised 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 set aside and that of assessing officer may be restored." 2.1 The brief fact....
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....ndition 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 consideration for Land transfer on their behalf from the customers and building the apartment with a constructive risk. Since the company was only a builder....
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....ellant 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 to deduction u/s.80IB(10) of the Act and the disallowance made by the A.O. is deleted." 2.5 The Revenue being aggrieved, has filed these appeals before the Tribunal. The le....
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....endor 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 deliver possession to the purchaser or their nominee at the time of execution of the Deed of sale: 3. From the above agreements it is clear that M/s. SobhaInnercity Technopolis Pvt Ltd., was supposed to hand over possession of the property to the assessee at the time of execution of the deed of sale which implies that the posse....
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....ecuted 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) the assessee need not be the owner of the land. However, there is a fine distinction between the case of M/s. Sanghvi & Doshi Enterprise and that of the assessee (Sobha Developers Ltd.) that in the assessee's case it is not proved that it has received possession of the land from its sister concern for the purpose of developing the same. 8. It is therefore, prayed that the orders passed by the assessing officer may kindly be....
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....ha 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 never had possession of the property since the registered sale deed conveying the title were being executed by the assessee's sister concern, who was required to deliver possession only at the time of executing the sale deed to the assessee. The A.O. has further observed that the said sister concern of the assessee had entered into sale agreements to convey the undivided interest in land to the customers of the assessee who had purchased the flats. The A.O. noted that the plan appr....
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.... 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 of the lands on which the housing projects were developed. There are 3 Agreements for sale dated 03.01./2005, 09/0212005 and 31/0312005 that have been entered into by the assessee with SITPL for purchase of lands on which the housing projects have been developed. These agreements have been placed on record by the learned DR during the course of hearing on 24.03.2021. However, the Assessing Officer has refused to give any credence to the agreement of sale entered into by the assessee w....
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....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 Officer, the assessee has merely entered into a construction agreement for construction of the apartment with its customers. He has described a few of the agreements and the recitals therein that show that SITPL is the owner of the lands. The assessee has enclosed the following documents executed by it along with SITPL for sale of apartment to its customers in respect of various housing projects:- (i) Sobha Rose : - Agreement for sale dated 05/09/2012 and construction agreement dated 05/09/2012 with customer Mr. H....
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.... 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 as "Owner" in the construction agreements, which is necessary for conveying title to the customer, it cannot be said that the assessee is merely a contractor and SITPL has to be regarded as the developer of the housing project. 2.7.8 In view of the above factual matrix, we are of the view that the CIT [Appeals] has rightlyrelied upon the judgement of the Hon'ble Gujarat High Court in the case of Radhe Developers reported in 349 ITR 403 [Guj]. The ratio of the said judgement is squarely applicable in the present case in as much as, it has been held by the Hon'ble Gujara....
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.... 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 assessee has received the entire consideration from the customers and it has already discharged the consideration payable to SITPL in terms of the agreements entered into earlier. The learned DR has also commented on the fact that the commencement certificate and occupancy certificate was standing in the name of SITPL and that SITPL had provided the land as security for loans availed by the assessee. Here again, the mere name of SITPL in the sanctioned plans, commencement and occupancy certificates cannot convert the said company as developer. This is because the said SITPL has not....
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....essed. 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 u/s 14A of the Act in the return of income filed in response to notice u/s 153A of the Act is erroneous and the same ought not to be relied upon for computing the income assessable u/s 153A of the Act, under the facts and in the circumstances of the appellant's case." Ground No.3 3.2 The issue raised in ground No.3 was decided by the CIT(A) by directing the A.O. to modify the assessment order passed u/s 153A of the I.T.Act, by adopting income finally assessed in the original assessment proceedings after appeal effect is given. The relevant finding of the CIT(A) reads as follow:- "6.2 After considering the su....
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....o 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 regular assessment as regards the disallowance u/s 14A of the I.T.Act, the same shall be adopted in the assessment orders u/s 153A of the I.T.Act. Therefore, with the above directions, ground No.4 in ITA Nos.1204/Bang/2018 & 1206/Bang/2018, are disposed of. 3.7 In the result, the assessee's appeals are dismissed. ITA No.1205/Bang/2018 (Assessment Year 2009-2010) (Assessee's appeal) 4. This appeal at the instance of the assessee is directed against CIT(A)'s order dated 18.12.2017. The CIT(A)'s order arises out of the assessment order dated 29.12.2011 passed u/s 143(3) of the I.T.Act. The relevant assessment year is 2009-2010. 4.1 Five gr....
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....se. 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 Authorities. 4.6 We have heard rival submissions and perused the material on record. The balance sheet and profit and loss account for the relevant assessment year 2009-2010 is placed on record at pages 7 and 8 of the paper book filed by the assessee. On perusal of the balance sheet, it is seen that for the year ending 31.03.2009, the assessee has share capital, reserve and surplus to the tune of Rs. 108.94 crore whereas the total investment for the year ending is Rs. 36.16 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 ....
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....al 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 affirmed by the CIT(A), since no documentary evidence was produced by the assessee, in support of the claim of deduction u/s 80G of the I.T.Act to the extent of Rs. 61,20,000. 4.11 The assessee being aggrieved has raised this issue before the Tribunal. The limited prayer of the AR before the Tribunal is that the A.O. has restricted the claim to 50% of gross qualifying amount after arriving at the cap of 10% of adjusted gross total income whereas the total deduction allowable is 10% of adjusted gross total income as per the provisions of section 80G(4) of the I.T.Act. 4.12 We have heard rival submissions and perused the material on record. Section 80G(4) of the I.T.Act reads as follow:- "(4) Where the aggregate of the sums refer....
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....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 computing income u/s 115JB of the I.T.Act as per Special Bench order in the case of Vireet Investments Pvt. Ltd. 154 DTR 241. Further it was submitted that the wealth-tax is paid is not one of the items mentioned in Explanation 1 to section 115JB of the I.T.Act and hence, the same cannot be added back. 4.15 The learned DR supported the order of the A.O. and the CIT(A). 4.16 We have heard rival submissions and perused the material on record. We notice that the Special Bench of ITAT in the case of Vireet Investments Pvt. Ltd. reported in 154 DTR 241 has expressed the view that the amount disallowed u/s 14A of the I.T.Act cannot be adopted for the purpose of computation of book profit u/s 115JB of the I.T.Act and the disallowance to be made under clause (f) to Explanati....
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....ppreciate 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 the conditions mandated u/s 80IB(10)(f) of the I.T.Act. The A.O. held that the assessee cannot sell any flat in the housing project to non-individuals. 5.3 Aggrieved, the assessee preferred an appeal to the first appellate authority. The CIT(A) confirmed the disallowance of section 80IB of the I.T.Act, in respect of Sobha Ruby (Basil) and Sobha Sunbeam-2. The relevant finding of the CIT(A) reads as follow:- "9. Disallowance of deduction u/s 80IB(10)(f) in respect of Shoba Basil & Shobha Sunbeam - Perusal of assessment order shows that appellant company had allocated residential units to private limited companies which was in violation of section 80IB(10)(f). The AO has brought out in detail the private companies allotted residential units by appellant. It may be noted that no explanation was offered be....
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....ny 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 assessee had computed disallowance u/s 14A of the I.T.Act amounting to Rs. 40,96,467 as per the return of income filed. The A.O. computed the total disallowance in Annexure-1 of the assessment order at Rs. 93,08,935, both under Rule 80D(2)(ii) and 80D(2)(iii) of the I.T.Rules. Thus, the A.O. made a further disallowance of Rs. 52,12,468. On further appeal, the CIT(A) confirmed the view of the Assessing Officer. The relevant finding of the CIT(A) reads as follow:- "10. Disallowance u/s 14A amounting to Rs. 52,12,468/-. The A.O. has brought out the fact that the company had not disallowed any expenditure with respect to income not includible in total income. The AO rejected the appellant's argument that no expenditure was incurred on investment since investments flow from a common pool of funds i.e. current or cash credit or overdraft accounts. Since business recei....