Vildirect: IncomeTax-caselaws-2012-VIL-785--DT

2012-VIL-785--DT

Income Tax Appellate Tribunal, MUMBAI

ITA No. 1082/Mum/2010

Date: 13.06.2012

THE INCOME TAX OFFICER WARD 3(2), KALYAN

M/s KASTURI CONSTRUCTION

BENCH

SHRI VIJAY PAL RAO, & SHRI N K BILLAIYA, JJ.

JUDGMENT

PER VIJAY PAL RAO, JM

This appeal by the revenue and cross objection by the assessee are directed against the order dated 30.10. 2009 of Commissioner of Income Tax(Appeals) for the assessment year 2006-07.

2. The revenue has raised following grounds in this appeal.

1. The learned CIT(A) has erred in law and facts by deleting the addition made by the A.O. on account of rejection of project completion method.

2. The learned CIT(A) has erred in allowing the claim of deduction under section 80IB(10) of the Act rejecting the method of accounting and estimation of profit adopted by A.O.

3. The learned CIT(A) has erred in allowing the claim of deduction under section 80IB(10) of the Act by rejecting the issue of completion of project before 31.03.2008 and considering the assessee’s claim holding that the approval of the local authority to the original plan has been accorded prior to 01.04.2005 and four year limit for completion of project would not apply.

4. The learned CIT(A) has erred in relying on the ITAT, Mumbai’s decision in the case of Saroj Sales Organization Vs. ITO in 3 DTR 494 wherein it is held that the amendments which came into effect from 01.01.2005 would not apply to projects approved prior to that date.

3 Ground number 1 and 2 regarding project completion method rejected by the Assessing Officer.

3.1 The assessee is a firm engaged in the business of builder and developer. During the year under consideration the assessee firm has disclosed income under the head ‘miscellaneous income’, but has not offered any income from the business of construction and developer. The total expenses relating to the said project transferred to the balance sheet as work in progress of the undertaking. The assessee has shown work in progress of Rs. 2, 31,27,150 upto year ending on 31st of March 2006. The Assessing Officer noted that the assessee was following the project completion method of accounting. The assessee was asked by the Assessing Officer to show cause as to why its income should not be computed by adopting the percentage completion method. In response, the assessee vide its letter dated 16.12.2008 submitted that the assessee has been consistently following the method of accounting for profit on the project completion basis. The profits of the entire project is declared and offered in the last financial year during which the project is completed and necessary certificate obtained from the authorities concerned. It was further submitted by the assessee that as the year under consideration is not the final year of the project and therefore all the expenses on the said project has been carried forward as work in progress at the end of the year and therefore there is no income eligible to tax in this year. In support of his contention the assessee has relied upon various decisions of this Tribunal as well as decision of the Hon’ble jurisdictional High Court in case of CIT vs Dempo & company reported in 131 CTR 203. The Assessing Officer did not accept the contention of the assessee and expressed his view that the principle of res-judicata to income tax proceedings would not apply as law in this regard is well settled.

3.2 The Assessing Officer was of the view that by following the project completion method of accounting, the assessee has not been presenting the true, correct and fair picture of taxable income. After discussing the couple of decisions of this Tribunal, the Assessing Officer held that the percentage completion method of accounting is to be adopted in the proceedings of the assessee. Accordingly, the Assessing Officer estimated the profit at Rs. 49,74,650/- by adopting the profit percentage of 21.51% as the assessee itself has shown the same profit in the return for assessment year 2008-09.

3.3 On appeal the Commissioner of Income Tax(Appeals) has s held that the Assessing Officer is not correct in rejecting the project completion method .

4 Before us, the learned DR has submitted that though in the earlier years the assessee has been following the project completion method of accounting; however, it is not binding on the Assessing Officer, if the Assessing Officer finds that the assessee is not disclosing true and correct picture of its accounts to enable the assessing authority to ascertain its true income for the purpose of taxation. He has further submitted that by following the completion method of accounting, the assessee has postponed its liability to tax under the income tax Act. The Assessing Officer is not constrained by the method of accounting and he is bound to determine the taxability of the true income of the assessee in an assessment proceedings. The learned DR has relied upon the order of assessing officer.

4.1 On the other hand the learned AR of the assessee has submitted that the assessee is following the project completion method consistently from the assessment year 2005 – 06. The Assessing Officer has not pointed out any defect in the books of accounts before rejecting the method of accounting followed by the assessee. He has further submitted that the Assessing Officer has ignored to consider the decision of High Court in the case of CIT versus Dempo Auto Ltd as well as in case of CIT versus Rajesh Builders wherein it has been held that when the Assessing Officer does not find any defect resulting in understatement of income or profit in the project completion method, then the Assessing Officer cannot reject the books of account. The learned AR of the assessee has submitted that only 17 flats have been sold in the building number A and B up to the year ending 31st of March 2006 and not a single flat was sold in building number C.

4.2 Thus the learned AR of the assessee has pointed out that only 64 % of flats in building number A and 47% of flats in building number B were sold up to 31st of March 2006. In this way, only 30.25% of the construction work was completed up to 31 3 2006. The learned AR of the assessee has submitted that the Assessing Officer has relied upon the decision of this Tribunal wherein the work was completed more than 80% and the same were sold during the year. The facts of those cases cannot be compared to the facts of the assessee where 30% of the work was completed up to the end of the year under consideration. The learned A.R. of the assessee has supported and relied upon the order of the Commissioner of Income Tax(Appeals).

5 We have considered the rival contention as well as relevant material on record. The Assessing Officer has accepted the fact that the assessee has been consistently following the project completion method. The Assessing Officer has also recorded the fact that the project was not completed before 31st 3 2008 and the sale of flats as well as construction work were less than 30%. The relevant part of the assessment order in para 12 at page 20 of the assessment order reads as under:

“12 The working of profit

1. In the return of income filed on 15.10.2008, for AY 2008-09, assessee has shown the profit on the basis of project completion method at Rs. 1,42,32,105/- copy of E return filed on 15.10.2008 vide acknowledgement No. 33963. During the hearing proceeding on dated 02.12.2008 the assessee’s AR was asked to submit the copy of audit report of F.Y. 2007-8, till date he has not submitted the, same. The assessee has submitted the list of fiat sold along with details of flat area, value of agreement and date of agreement for entire project. From which it is found that, the total receipt up to the end of F.Y. 2007- 08 from sale of flats is of Rs. 6,61,60,866/- out of which up to the end of F.Y. 2005- 06 assessee has sold flats and received amount as advance against flat sold which is appears in the balance sheet is of Rs. 1.88,26,259/- and WIP up to to Rs. 2,31,27,150/-

2. From the above it is seen that from the total value as per agreement is Rs. 6,61,60,866/- up to end of F.Y. 2007-08, and out of which assessee has earned profit of Rs. 1,42,32,105/- Thus the profit percentage from the project works out to 21.51% as per income shown of AY 2008-09.

Accordingly the profit from the project up to 31.03.2006 is also estimated by adopting the said profit percentage of 21.51%, which the assessee has itself shown in the return of AY 2008-09.

3. The closing WIP has been shown at Rs. 2,31,27,150/-in the Profit and loss account and Balance sheet flied along with the return of Assessment Year 2006-07. Taking the profit at the rate 21.51% on the WIP, the profit up to 31.03.2006 comes to Rs. 49,74,650/”-.

5.1 When the Assessing Officer himself has given the facts that the project was completed only after 31st March 2008 and up to the end of the year on 31st of March 2006, only 30% of the work was completed. In these undisputed facts, the decisions relied upon by the assessing officer in adopting percentage completion method of accounting is misplaced. It is not a case of substantial completion of project during this year and selling out the same. Further the Assessing Officer accepted this fact that on completion of project, the assessee has offered the income to tax after claiming the deduction under section 80 IB(10). Therefore when the assessee offered the income to tax from the entire project for the assessment year 2008-09 which has been adopted by the Assessing Officer for estimation of the income for the year under consideration, then this fact goes to prove that there is no difference in the rate of profit declared by the assessee for the assessment year 2008-09 and the rate adopted by the assessing officer for the year under consideration. Thus there is no revenue effect and the income offered by the assessee on completion of the project is revenue neutral.

6 In view of the above discussions, we do not find any error or illegality in the order of Commissioner of Income Tax(Appeals), qua this issue.

7 Ground number 3 and 4 regarding rejection of claim of deduction under section 80 IB (10):

7.1 During the assessment proceedings the assessing officer obtained details from the local authority i.e. KDMC to ascertain the date of commencement of project.

From the details, the Assessing Officer noticed that the project was commenced on 12.9.2003 and as per clause (a) (i) of section 80 IB (10), the project approved by the local authority before the 1st April 2004 have to be completed before 31st of March 2008. The Assessing Officer further noted that the assessee’s project building “C” is not completed till 31st 3 2008. Since the completion certificate was issued by the local authority on 11.9.2008, the Assessing Officer held that the assessee failed to comply with the sub. clause (i)of sub. clause (a) of section 80 IB(10) and accordingly, the deduction under section 80IB(10) cannot be allowed.

7.2 On appeal Commissioner of Income Tax (Appeals) held that Assessing Officer is not justified in denying the deduction under section 80 IB(10) on this ground and accordingly allowed the claim of the assessee.

8 Before us the learned DR has submitted that the project was commenced on 12.9.2003 as per the commencement certificate issued by the local authority. He has referred the assessment order and submitted that the Assessing Officer has written a letter dated 17.6.2008 to the Assistant Director of Town Planning, Kalyan Dombivili Municipal Corporation (KDMC) requesting him to supply the completion certificate and a copy of approved plan in respect of the project in question. Vide letter dated 8.7.2008, the Assistant Director of Town Planning, Kallyan Dombivili Municipal Corporation has submitted the commencement certificate dated 13th June 2006 regarding D Wing as part completion and of A Wing dated 29.5.2007 for a part completion. The assessee itself vide its letter dated 2.12.2008 submitted the completion certificate was issued by the local authority on 11.9.2008 which shows that the project was not completed as on 31st of March 2008 and therefore, the provisions of section 80 IB(10(a) read with Explanation, the date of completion of construction of housing project shall be taken to be date on which the completion certificate issued by the local authority. He has further submitted that when the 1st approval of the project was given by the local authority on12.9.2003, then as per explanation to section 80 IB(10), the project deemed to have been approved on the date on which such project is 1st approved by the local authority. He has relied upon the order of the Assessing Officer.

8.1 On the other hand the learned A.R. of the assessee has submitted that the 1st plan put up by M/s Mohan Khedar Builders & Developers for approval and was approved on 12th Sept 2003 for the housing project consisting of four Wings of 4 floors each having total built-up area of 3379.76 sq.mtrs. Subsequently the assessee put up the plan of the project consisting of 3 wings having 8 floors comprising of ground + 7 upper floors and total built-up area of the project is 4079.50 sq.mtrs. The learned A.R. of the assessee has submitted that the project executed by the assessee is different from the project which was approved on 12.9.2003. The plans of the new project executed by the assessee were submitted on 8th Aug 2005 for approval and accordingly, the approval was granted by the local authority on 29 8 2005 after the assessee acquired the development rights of the project. Thus the learned A.R. of the assessee has submitted that the 1st plan sanctioned for the project implemented and executed by the assessee was approved on 28 9 2005 and hence, the date of approval of project should be reckoned from the date when the plans of this project were approved on 28 9 2005 and not from the date when the plans of the earlier projects were approved on to 12.9.2003. The learned A.R. of the assessee has submitted that when the project was approved on 28 9 2005, then the completion is within the time period prescribed under section 80 IB (10).

8.2 The learned A.R. of the assessee has also took an alternative plea that if the date of commencement of the project is to be taken as to 12.9.2003 as adopted by the Assessing Officer, then the provisions of section 80 IB(10) as it stood and applicable at that point of time are required to be considered for testing the fulfilment of conditions for deduction under section 80 IB(10). The learned A.R. of the assessee has submitted that prior to the amendment of section 80 IB(10) there was no such condition of completion of the project before 31 March 2008. In support of his contention he has relied upon the decision of coordinate bench of this Tribunal in case of Saroj sales Corporation vs Income Tax Officer reported in 3 DTR 494 and submitted that the Tribunal in the said case has held that the provisions of section 80 IB(10) as stood prior to 1.4.2005 would be applicable. He has supported the order of the not Commissioner of Income Tax(Appeals).

9 We have considered the rival contentions as well as relevant material on record. It is evident from the record that there are three sanctioned plans approved by the local authority at different point of time in respect of the housing project. No doubt that in case when more than one approval have been granted by the local authority, the 1st approval and sanction of building plan of the housing project shall be deemed to be the date of approval as per clause (i) of Explanation to section 80 IB (10). The Assessing Officer denied the deduction under section 80 IB(10)on the ground that the project was commenced prior to 1.4. 2004 and the assessee has not completed the project up to 31st of March 2008; therefore, the assessee failed to fulfil the conditions as per clause (a) of section 80IB(10). The Assessing Officer took the commencement date when the 1st approval was granted by the local authorities on 12.9.2003 in response to the plan put up by M/s Mohan Kheda Builders & Developers.

9.1 There is no doubt that there is more than one approval obtained from the local authorities at different point of time. However, it is to be seen whether all the approvals are for the same housing project or the project itself is changed which has necessitated subsequent approval.

10 In the case in hand, the first approval dated 12.9.2003 was obtained by the earlier owner M/s Mohan Kheda Builders & Developers for the project consisting of four wings of four flows, each having total built up area of 3379.76 sq.mtrs. On our directions, the assessee has filed all three approved plans and it is evident that the plant approved on 28.9.2005 was for a project consisting of 3 wings having 8 floors each and the total built up area of the project is 4079.50 sq. mtrs. Thus, it is clear that there is a substantial change in the housing project when the assessee obtained the approval of the local authorities on 28.9.2005.

10.1 The Explanation to Sec 80IB(10)(a) reads as under:

“Explanation.—For the purposes of this clause,—

(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;

(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;”

11 As it is clear from the language of the explanation that in case where the approval in respect of the housing project is obtained more than once, then the first approval shall be deemed to be the date of approval for the purpose of clause (a) of sec. 80IB(10). The material and relevant aspect is whether more than one approval are in respect of one housing project or the housing project itself has been changed and the change is not a minor or superficial but a substantial change from its original planned project. In the first case, the project shall be deemed to have been approved on the date of first approval whereas in the later case, the earlier approval cannot be said to be an approval in respect of the changed housing project. Therefore, the project, which was finally executed and developed by the assessee is the projected which was approved by the local authorities on 28.9.2005 and accordingly, the period of completion would reckoned from the approval dated 28.9.2005. Therefore, the conditions as provided under sub clause (ii) of clause (a) of section 80IB(10) would be applicable in the case of the assessee which contemplates that where a housing project has been or is approved by the local authorities on or after 1.4.2004 and completes such construction within 4 years from the end of the financial year in which the housing project is approved by the local authorities.

12 We quote the provisions of sec. 80IB(10(a) as existing at the relevant point of time as under:

[(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, [2008] by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,—

(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,—

(i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;

(ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority.

Explanation.—For the purposes of this clause,—

12.1 The Assessing Officer has recorded in the assessment order that the assessee offered the tax on completion of project for the Assessment Year 2008—09; though the completion certificate was issued by the local authorities on 11.9.2008. The project which was finally completed vide completion certificate dated 11.9.2008 was sanctioned vide sanction plan dated 28.9.2005. This fact was evident from the sanction plan dated 28.9.2005 as well as the completion certificate dated 11.9.2008.

The relevant portion of the completion certificate is reproduced as under:

“ KALYAN DOMBIVALI MUNICPAL CORPORATION, KALYAN

TOWN PLANNTING DEPARTMENT

No. KDMC/TDP/CC/ 281

Date: 11-9-2008

Sub (Part Construction Completion Certificate

……………….…………..

On application dated 11.03.2008 from Shri Subhash Athlye, Certificate is issued that they have within the limits of Kalyan Dombivali Municipal Corporation on Survey No.9, Hissa No. 5 to 9, City Survey No. Plot No. Village CHIKENGHAR, as per Municipal Corporation permission KDMC/TPD/C.P/ /328- 124 dated 28.09.2005, completed construction as per plans passed for Residence. Therefore, permission is granted for occupation of the construction as per attached plan and shown in green colour on the following terms:

12.2 Thus, when the project in question was sanction after 1.4.2004, then as per clause (a) (ii) of sec 80IB(10), it is required to be completed within four years from the end of the financial year in which it is approved by the local authorities. Since the project in question was sanctioned on 28.9.2005; therefore, the same was required to be completed on or before 31.3.2010. Accordingly, we hold that the assessee has complied with the conditions of completion within four years from the end of the financial year 2005-06.

12.3 As regards the alternative plea of the assessee is concerned, when the project in question was approved on 28.9.2005, then the alternative plea of the assessee has become irrelevant. Hence, we uphold the order of the Commissioner of Income Tax (Appeals), qua this issue.

CROSS OBJECTION No. 176/Mum/2010 ( by the assessee)

13 The assessee has raised the following ground in this cross objection:

“On the facts and in the circumstances of the case and in law, the ld Assessing Officer has erred in holding and the ld Commissioner of Income Tax(Appeals) has erred in confirming that area of the plot of the land of the project was less than one acre.”

14 There is a delay of 12 days in filing the cross objection. The assessee has filed an application for condonation of delay along with an affidavit.

15 We have heard the ld AR of the assessee as well as the ld DR and considered the averments made in the application and affidavit filed by the assessee. The assessee has stated in the affidavit that Shri Rohit Sikeria, a partner of the assessee firm, who was handling the accounts and income tax matters was not well during the period 5.8.2010 to 20.9.2010. A medical certificate has been placed on record in support of the reasons explained by the assessee.

16 In view of the facts and circumstances of the case and in the interest of justice, we condone the delay in filing the cross objection by the assessee.

ON MERITS:

17 The issue raised by the assessee in the cross objection is regarding the size of plot. The authorities below have denied the deduction u/s 80IB(10) on the ground that the size of plot on which the project has been developed by the assessee is less than one acre; therefore, the assessee is not entitled for deduction. The assessee has submitted before the authorities below that the actual size of the plot was 4100 sq.mtrs. In support of the contention, the assessee filed the report of the surveyor as well as the agreement executed in favour of the buyers of the flats. It was submitted before the Commissioner of Income Tax(Appeals) that the assessee has already applied for rectification of land record being 7/12 extract. The Commissioner of Income Tax (Appeals) has not accepted the contention of the assessee and held that the assessee has failed to satisfy one of the prime conditions of section 80IB(10).

18 Before us, the ld AR of the assessee has submitted that the actual size of the building is 4100 sq.mts; though it was shown in the 7/12 extract as 3940 sq.mtrs.

19 The assessee has also filed an application for admission of the additional evidence viz

i) copy of the letter dated 17.11.2011 from the Kasturi Lawns Coop. Housing Societies Federation to the Revenue department/Taluka;

ii) copies of 7/12 extract and survey report of Akar Associates- Engineer & Surveyor - copy of letter dated 12.4.2012 and 17.12.2011.

19.1 The ld AR of the assessee has submitted that the assessee has developed a housing project on a plot of land actually admeasuring 4100 sq. mtrs. The assessee has acquired the development rights for the said plot by registered documents where the actual size is recorded as 4100 sq.mtrs. However, the area of the plot as per the record of different government agencies i.e. 7/12 extract and Urban Land Ceiling Act is 3940 sq.mtrs and 3996 sq.,mtrs respectively. The assessee has got survey of the plot in question from the Surveyor who has confirmed the area of the plot is 4100 sq.mtrs. Thus, the ld AR pleaded that the additional evidence filed by the assessee may be admitted in support of the claim of the assessee.

19.2 The ld AR has relied upon the decision of the Pune Bench of the Tribunal in the case of Taurus Enterprises vs DCIT in ITA No. 85/PN/2011 and submitted that on the identical issue, the Tribunal has held that the size of the plot can be decided by demarcation by the competent authorities.

19.3 The ld DR, on the other hand has vehemently objected to the additional evidences filed by the assessee and submitted that when the project was sanctioned on the plot of land admeasuring 3940 sq.mtrs., then the assessee has failed to fulfil the conditions required u/s 80IB(10. He has relied upon the orders of the authorities below.

20 We have considered the rival contention as well as relevant material placed before us. It is evident that the area of the plot has been shown in the 7/12 extract as 3940 sq.mtrs whereas as per Urban Land Ceiling Act, it is 3996 sq.mrs. Thus, there is a discrepancy in the records of the Government agencies with regard to the actual size of the plot of land in question. What is relevant for the purpose of section 80IB(10) is the actual size of the plot of land and not area of plot shown by a particular record. The assessee has placed enough material to show that the actual area of the plot is 4100 sq.mtrs which is more than one acre. Even if the size of plot is shown in the 7/12 extract as 3940 sq.mtrs; but if the actual area on the size is more than 1 acre, then the fact remains that the size of the plot is more than 1 acre.

Further, it is not the case of any addition of the area in the existing plot of land after the project was approved and completed; but the size at the site remains the same and the only dispute is regarding the correct measurement of size of plot.

20.1 If it is ultimately found that the area of plot is more than one acre, then deduction u/s 80IB cannot be denied on the basis of the area of plot shown in the 7/12 extract as less than one acre. This factual aspect is required to be verified physically either by the competent revenue authorities or by the Assessing Officer through some agencies. The assessee is also directed to get the demarcation and correct measurement by the competent authority.

21 In view of the above facts and circumstances and in the interest of justice, we admit the additional evidence and remand the issue to the record of the Assessing Officer to verify the actual size of the plot either by physical verification or through some agencies.

22 In the result, the appeal filed by the revenue is dismissed whereas the Cross Objection filed by the assessee is allowed for statistical purpose.

Order pronounced on this 13th day of June 2012

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