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2016 (5) TMI 1555
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..... Return declaring an income of Rs. 11,00,06,440/- was filed on 29.09.2008. In the assessment order passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter called 'the Act'), the AO determined the income of the assessee at Rs. 36,88,00,000/- after making an addition of Rs. 25,91,00,000/- by rejecting the project completion method of accounting followed by the assessee. The assessee is a partnership firm having two partners namely M/s Shipra Estate Ltd. (50% share) and M/s Jai Kishan Estate Developers (P) Ltd. (50% share). The assessee firm entered into joint venture with Ghaziabad Development Authority (GDA) for the construction and development of housing projects on two plots of land bearing plot no. 14 and plot no. 15 situated in Indirapuram at Ghaziabad. The firm had commenced development of 'Vista' project in the year 2005 and 'Shristi' project in the year 2007 on the two plots respectively as mentioned above. During the year, the assessee had carried on the work on both the projects. The method of accounting being followed by the assessee was Project Completion Method and the revenue was recognized at the time of registration of the residential unit in the name of the custo....
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....stem of accounting and that the profits that have been offered for taxation is a distorted figure for avoiding the assessee's tax liability. It is seen that the assessee has received Rs. 373.17 crores as advances from its customers. It is worth emphasizing that income has not only accrued but has also been received by the assessee. There is nothing to show that there is any uncertainty with regards to the ultimate receipts of the revenues since these payments have already been received by the assessee. A careful perusal of the chart of advances received from the customers shows that in most of the cases in which allotment has been made the payments have already been received. It is seen that in the Vista project the total Sales price of all the flats, as per the allotment letters issued to customers is Rs. 250.24 crores. As against this Rs. 228.25 crores have already been received as on 31.03.2008. Thus it is seen that 91.21% of the selling price has already been received by the assessee. It was also submitted that barring a few cases, 100% payments have been received for each flat. These facts go on to show that the Vista project has been substantially completed. It would be appre....
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....evelopers buy land, finance real estate deals, build or have builders build projects, create, imagine, control and orchestrate the process of development from the beginning to end. Developers usually take the greatest risk in the creation or renovation of real estate-and receive the greatest rewards. Typically, developers purchase a tract of land, determine the marketing of the property, develop the building program and design, obtain the necessary public approval and financing, build the structures, and rent out, manage, and ultimately sell it. Sometimes property developers will only undertake part of the process. For example, some developers source a property; get the plans and permits approved before on selling the property with the plans and permits to a builder at a premium price. Alternatively, a developer that is also a builder may purchase a property with the plans and permits in place so that they do not have the risk of failing to obtain planning approval and can start construction on the development immediately. Developers work with many different counterparts along each step of this process, including architects, city planners, engineers, surveyors, inspectors, contract....
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....Investment (2008) 299 ITR 1 for the preposition that every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. 9. On the ground raised in the CO by the assessee on the issue of deduction u/s 80-IB (10) of the Act, the ld. AR submitted that this ground was taken before the ld. CIT (A) as Ground no. 4. However, the ld. CIT(A) rejected the ground in para 22 of the impugned order by observing that since the method of accounting being regularly followed by the assessee has been accepted, this ground is rejected as having become in fructuous. It was submitted that this ground was not an alternate ground but on additional claim to which the assessee was entitled. 10. We have heard the rival submissions and perused the material on record. The following facts remain uncontroverted: 11. During the year under consideration, the assessee was developing two Projects namely Vista and Sristhi in joint venture with G....
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....ich prescribes Project Completion Method of accounting. It is established legal position that an assessee can follow any recognised method of accounting and the condition is that the same method has to be followed consistently. In case of a building project, the Institute of Chartered Accountants of India which is an authority on prescribing accounting standards had prescribed accounting standard AS-7 in 1983 for accounting of income in respect of real estate projects and in terms of AS-7 which was applicable to both contractor and real estate developer, a person is free to follow either of project completion method or percentage completion method depending upon the nature of project. The assessee, in this case, has followed project completion method which is one of the prescribed methods by the Institute of Chartered Accountants of India. Even in terms of the revised accounting standard which was applicable for most part of the work done by the assessee the income had been correctly declared as per project completion method in the year of completion. The assessee has followed project completion method which was one of the prescribed methods and the same method has been accepted by....
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....ment Authority (GDA) for development of housing projects on two parcels of land bearing Plot No. 14 and 15 situated in Indirapuram at Ghaziabad and had entered into a Memorandum of Understanding (MOU) with GDA on 08.01.2001. As per the MOU, GDA was to continue to be owner of the property and the assessee firm, after undertaking the construction, development and completion of the projects was to market the same. The conveyance deed with the buyers of the flats was to be executed by the GDA. During the year under consideration, the assessee had shown sales of Rs. 154.94 crores in respect of flats sold in the 'Vista' Project and the profit was shown at 53.82 crores. The assessee had been regularly following the Project Completion Method and the accrual system of accounting. The revenue was recognized by the assessee at the time of registration of the property by GDA in the buyer's name. Till the time of registration of the residential units, the amounts received from the customers were being treated as advances and were reflected in the Balance Sheet as liabilities. The cost associated with the development and construction of the residential units was being shown as work-in-progress. ....
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....s per the AO, the total built up area of the commercial establishment was 4896.2 sq. mts. or 52702 sq. feet. The third point of the AO's objection was that the Audit Report in Form 10CCB as per Rule 18BBB of the Income Tax Rules, 1962 had not been filed separately by the assessee in respect of Vista A&B and Vista D&E and also that the Profit/Loss Accounts and Balance Sheets of these two Towers had not been audited separately and hence it was difficult to rely on the claim of deduction u/s 80IB. The entire claim of deductions amounting to Rs. 29.68 crores was denied by the AO. 20. Subsequent to the disallowance of deduction, the AO referred the matter of determining the area of each flat to the DVO. The DVO submitted his report specifying the area of the flats as under: S. No. Floor Type of Flat No. of Flats in A, B, C & D Blocks Built up Area of Flat i/c Walls & covered Balcony (in sq. ft.) Area of Balcony (open to Sky) in sq. ft.) Total area (in Sq. Ft.) 1 1st Comer 16 1029.28 231.28 1260.56 2 1st Middle (Porch Side) 16 988.79 118.05 1106.84 3 1st Middle 32 988.79 255.96 1244.75 4 2nd to 1....
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....d. It was further emphasized that no profits from the sale of commercial space was claimed as deduction u/s 80IB and only the profits resulting from the sale of residential units was claimed as deduction. It was also submitted before the ld. CIT(A) that if the AO's view of the commercial establishment being included in the Vista Housing Project were to be held as correct, then the profits from the sale of commercial space would become an allowable deduction u/s 80IB(10) in AY 2010-11 as the provisions of the Act had been amended w.e.f. 1.4.2010 according to which a project approved after 1.4.2005 could be completed in five years from the end of the Financial Year in which the approval was obtained (Assessee's Project approved on 2.6.2005 and completed by 31.3.2011). The assessee also relied on the decision of ITAT, Delhi in its own case in ITA Nos. 2613, 2614, 2739 & 2741 in which it was held that when the total shopping area was below 5% of the total area and the project was approved and in conformity with GDA approval, then deduction u/s 80IB had to be allowed for the whole project. Regarding the AO's observation on the Audit Report, the assessee submitted before the ld. CIT (A) ....
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....y the assessee when the assesses did not fulfill all the conditions specified in the said section' 3 "On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in not considering the fact that No separate approval was taken from Ghaziabad Development authority (GDA in short) for the project named Vista (Blocks A & B; D&E) on which deduction u/s 80 IB (10) claimed and the map approved by GDA was for the entire project named Vista at Plot No. 14, Indirapuram, Ghaziabad (UP)." 4 "On the facts and in the circumstances of the case, the Ld CIT (A) order deserves to be cancelled and the assessment order needs to be confirmed." 26. ITA 5849 is the assessee's appeal and the grounds of appeal are as under: 1. That the project of the appellant company fulfills all the requirements of section 80IB (10) of the Act and as such, appellant company is entitled to the benefit of exemption under section 80IB (10) of the Act as claimed. The assessing officer went wrong on facts and in law in disallowing the claim of deduction of Rs. 29.68 crore under section 80IB (10) of the Act and consequently the Commissioner of Income Tax, (Appeal)-XXVII, New Delhi in principle allow....
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....re prepared for the commercial project as well as for each of the residential projects. It was the plea of the ld. AR that commercial project has been treated as a separate independent activity on which no deduction u/s 80IB (10) was ever claimed by the assessee. The ld. AR also referred to the Report of the DVO, wherein the DVO himself has admitted that the entrances and exits of the Vista Shopping Complex and Vista Residential Project were separate and not interconnected. It was submitted that the entire project comprised of six residential projects and one commercial project and no deduction had ever been claimed in respect of projects C, F and the Commercial Project and, therefore, there was no valid reason for denial of deduction for Projects A & B and D & E which contained each unit measuring less than 1000 sq. ft. The ld. AR reiterated that the commercial project was completely different, separate and distinct from each of the six residential projects and that there was no commercial office space or area in any of the housing projects in A & B and D & E. 29. As far as the issues of exclusion of projections that were open to sky and that of incorrect measurements by the DV....
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....level including the projections and balconies as increased by the thickness of the wall but does not include the common areas shared with other residential units. The Ld. AR submitted that in the construction industry, the outer walls are 9 inches walls whereas the internal walls are 4.50 inches. The area of the walls and the common walls has been arbitrarily applied by the DVO thus increasing the area by approximately 35 sq ft each. It was also submitted that the Ld. CIT (A) did not give sufficient opportunity to the assessee to rebut the findings of the DVO. In light of these anomalies, it was submitted, the full claim of deduction is to be allowed to the assessee. 32. The Ld. DR relied on the DVO's report and the impugned order and submitted that no interference was called for at this stage and that the deduction claim was prima facie incorrect in view of the detailed findings of the Assessing Officer and that even the relief allowed by the Ld. CIT(A) deserves to be reversed. 33. We have heard the rival submissions and carefully perused the relevant material placed on record. As far as ground no. 2 of the Department's appeal is concerned, it is seen that the issue of pro r....
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....ommissioner (Appeals) confirmed the order of the Assessing Officer. In second appeal, ITAT Chennai held - Further as regards revenue's contention that since some of the housing units exceeded 1500 sq. feet., no claim under section 80-111(10) could be allowed, it was to be held that the assessee was eligible for claiming deduction under section 80-IB(10), pro rata for the housing units having area of less than 1500 sq. ft. for both the year. [Para 15]" Keeping in view the Report of the DVO as well as the ratio of judgments as discussed above, we concur with the finding of the Ld. CIT(A) that the assessee was eligible to get proportionate deduction u/s 80IB(10) of the Act in respect of flats sold during the year on fulfilling the prescribed conditions. Hence ground no. 2 of the Department's appeal is dismissed and the findings of the Ld. CIT (A) are upheld. 34. As far as the issue of requirement of a separate approval for each housing project is concerned (corresponding to ground no 3 of the Department's appeal), we are of the considered opinion that section 80IB (10) prescribes approval of a housing project. A Housing Project may comprise of both eligible as well as ineligi....
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....al authority', so however, the phraseology of s. 80-IB (10) of the Act does not reflect a legislative intent that the project should be 'as approved' by a 'local authority'. The requirement of s. 80-IB (10) of the Act to the effect that project should be approved by a 'local authority' is fulfilled no sooner when the 'housing project' considered by an assessee is approved by a 'local authority'. Moreover, the expression 'housing project' is not defined in the Development Control Rules for PCMC i.e. the 'local authority' in the case before us and thus, the said enactment cannot be resorted to for the purpose of understanding the meaning of expression 'housing project' contained in s. 80-IB(10) of the Act. Therefore, so long as the claim of deduction is in relation to a 'housing project', which has been approved by the 'local authority', it would satisfy the requirement of s. 80- IB(10) of the Act. Pertinently, if the proposition of the Revenue is to be upheld, the same would be quite contrary to the manner in which the expression 'housing project' contained in s. 80-IB (10) of the Act has been understood by the Hon'ble Bombay High Court in the case of Vandana Properties (supra) and ....
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....cribed in clause (e) of section 80IB( 10) of the Act. Once the area of projected terrace (open to sky) is excluded then there is no dispute that the residual built-up area of six units in question falls within the prescribed limit of 1500 sq.ft. As a result, we hold that assessee fulfills the condition prescribed in clause (c) of section 80IB (10) of the Act with regard to the six units in question. Therefore, we set-aside the order of the CIT(A) and direct the Assessing Officer to consider that the six units in question fulfill the condition prescribed in clause (e) of section 80I B(10) of the Act and the assessee is entitled to the benefit of section 80IB(10) of the Act." 37. In the proceedings before us, the Department could not point out any judgment/judicial precedent to the contrary. We accordingly hold that the balconies open to the sky are to be excluded from the calculation of the built-up area of a particular residential unit. We, therefore, direct that the assessee be allowed the claim of deduction u/s 80IB (10) in respect of flats (at S. Nos. 2 & 3 as in the chart reproduced in on Para 28 of this order) which have been excluded from the benefit of deduction by includ....