Vildirect: IncomeTax-caselaws-2013-VIL-988-ITAT-HYD

2013-VIL-988-ITAT-HYD

Income Tax Appellate Tribunal HYDERABAD

ITA No.364/Hyd/2012

Date: 07.03.2013

M/s SIGMA CONSTRUCTIONS

INCOME TAX OFFICER

For the Appellant : Sri K Gopal
For the Respondent : Smt Amisha S Gupt

BENCH

Chandra Poojari and Saktijit Dey, JJ.

JUDGMENT

Per: Chandra Poojari:

This appeal by the assessee is directed against the order of the CIT(A)-IV, Hyderabad dated 21.12.2011 for assessment year 2008-09. 2. The grievance of the assessee in this appeal is with regard to non-granting of deduction u/s. 80IB(10) of Income-tax Act, 1961. 3. Brief facts of the issue are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed deduction of Rs. 62,85,119 u/s. 80IB(10) of the Act. By way of a note the assessee explained that it had undertaken construction of a residential complex 'Sri Niketan' at 7-1-39, Sham Karan Road, Ameerpet, Hyderabad on 5130 sq. yards of land belonging to M/s. Bestotin Printers on development basis. It was explained that the firm had commenced the business of construction of flats during the F.Y. 2004-05 thereon and the area of each flat was less than 1500 sq. ft. Accordingly, it was claimed that the assessee firm was eligible for exemption u/s. 80IB(10) of the Act in respect of its income from that project. 4. During the course of assessment proceedings, the Assessing Officer deputed his Inspector for taking physical dimensions of the plot. It was found that the physical dimension was 247.09 ft x 141 ft. = 34,839 s. ft. = 3871 sq. yards. Therefore, the total area of the plot of Sri Niketan project was less than 1 acre, i.e. 4840 sq. yards. Besides, from the sale deed executed by the assessee with the flat owners, he noticed that out of 5130 sq. yards, land to the extent of 1373 sq. yards had been affected by road widening, and therefore, the present extent of the property was 3575 sq. yards only, which was less than 1 acre. 5. The Assessing Officer opined that in view of the provisions of Sec. 80IB(10)(b) of the Act, the project should be on the size of a plot of land having minimum area of 1 acre. He, therefore, required the assessee to explain as to why its claim of deduction u/s. 80IB should not be disallowed. In response, the assessee submitted that the project had been executed on a plot of 5130 sq. yards (4291 sq. mts). It was submitted that the approved plan FSI of 1:1.75 had been granted on the entire land of 5130 sq. yards and additional area was also granted on the land to be utilised for the roads on the East and West sides. The assessee submitted that the land on which proposed roads are expected to be laid is still in their possession. It was claimed that since they had constructed 1,18,250 sq. ft., it establishes that the area of land used for the project was in excess of 1 acre. 6. On a consideration of the assessee's explanation, however, the Assessing Officer found it unacceptable on the following reasons:

(i)The approved municipal plan clearly earmarked the area of plot which is to be utilized for road widening. After taking out the area earmarked for road, the total area of the plot is less than one acre.

(ii) The assessee has received the extra FSI of 1153.6 sft., to compensate the area which is acquired by the government for road widening. The Assessee has utilised the extra FSI and constructed the building utilizing the extra FSI.

(iii) The Municipal authorities have clearly marked the road while sanctioning the plan. Just because, the assessee is in possession of the area, it cannot be considered as if, the assessee has executed project on area more than 1 acre. The vacant land which the assessee is claiming to be in possession is actually a road. The road may not be laid at present and the assessee may be utilizing the same, but, the fact that the land acquired for road will remain as road only.

(iv) Though the assessee is in possession of the plot earmarked for road, it does not imply the ownership of the plot.

(v) The assessee has not furnished completion certificate till date.

(vi) The valuation officer in his report at para No. 5 clearly mentioned that out of the total area of the plot 1032.7 sq. yards in the east and 77 sq. yards in the west totalling to 1379.7 sq. yds. are earmarked for roads and the extent of the plot is 3750.3 sq. yards, which is less than one acre.

7. From the above, the Assessing Officer concluded that the area of plot on which the project was executed being less than 1 acre, the assessee had violated the provisions of sec. 80IB(10). Accordingly, the claim of deduction of Rs. 62,83,119 u/s. 80IB(10) was disallowed.

8. During the course of 1st appellate proceedings, the representative of the assessee submitted that while denying the deduction u/s. 80IB(10) the Assessing Officer stated that a portion of the land had been earmarked for laying roads. However, the representative of the assessee contended that the entire land of 5130 sq. ft. is in possession of the assessee even today on which the construction was made and a portion of land had only been earmarked for the roads. He averred that possession of such earmarked land was not taken by any authorities even till date. He averred that the Municipal Authorities had granted approval for construction for FSI of 1:1.75 taking the entire land of 5130 sq. yards without excluding the portion of land earmarked for roads. Accordingly, he argued that it was clear that the land on which the flats were constructed was more than one acre, and therefore, the claim of deduction u/s. 80IB(10) could not have been denied on this ground.

9. The representative of the assessee reiterated that as per the approved plan, FSI was granted in the ratio of 1.75:1 on the total area of 5130 sq. yards, showing that the project was executed on an area exceeding 1 acre. He reiterated that 1373 sq. yards of land earmarked for roads, has till date not been acquired by the MCH and is in the possession of the Developer /flat owners, and is being used for parking/play ground.

10. With regard to the Completion Certificate, which could not be furnished before the Assessing Officer, the assessee submitted that after completing the project by 1.10.2007, the assessee had applied to the MCH Authorities for issue of completion certificate on 30.09.2008, which has been acknowledged by them on 17.10.2008. This fact has been acknowledged by the Departmental Valuation Officer also in para 4 of his report. However, the MCH authorities have not issued the said certificate so far for the project as a whole, but have issued 15 certificates individually, either in favour of the assessee or flat owners, stating that those have been completed. The representative averred that this establishes that the project has been completed. He also mentioned that such certificates specifically state that those have been issued in lieu of Occupancy certificate. He maintained that the flats had been handed over to the buyers on different dates during November - December, 2010, which shows that the project had been completed long back.

11. On appeal the CIT(A) observed that as per the provisions of sec. 80IB(10), it is mandatory that" the project is on the size of a plot of a land which has a minimum area of 1 acre. Even though the project 'Sri Niketan' had been initially planned on development basis on a plot admeasuring 5130 sq. yards, out of the same, land admeasuring 1373 sq. yards was earmarked for roads, on submission of plans for construction of the project itself. Therefore, even if the assessee was compensated by granting FSI in the ratio of 1: 1.75, and consequently, constructed a total area of 1,18,250 sq. ft. on the plot, it cannot be denied that all of such construction as on date stands on an area of 3575 sq. yards only, which is indeed less than 1 acre. It is clear that even if the land earmarked for road, 1373 sq. yards, is still date in the possession of the Developer or flat owners, and is being utilised by them for parking / play ground, it cannot be denied that the same cannot be legally claimed to be a part of the project. Having earmarked such land for roads at the time of approval itself, the MCH Authorities are well within their rights to take up such road construction at any point of time. Accordingly, the mere possession of the area earmarked for roads as on date cannot imply that such area is till date a part and parcel of the project itself. Since the final area on which the entire construction of 1,18,250 sq. ft. of the 'Sri Niketan' project is located, as on date, is on a plot having area less than 1 acre, it is clear that the assessee has not satisfied the condition laid down in clause (b) of sec. 80 IB(10). The claim of the assessee was rejected by the CIT(A). Against this, the assessee is in appeal before us.

12. We have heard both the parties and perused the material on record. In this case deduction u/s. 80IB(10) was denied on the reason that the project was executed in a plot area admeasuring less than one acre and there was no completion certificate obtained from MCH. The assessee pleaded before us that the project was executed on an area exceeding one acre and in the course of completion of the project 1373 sq. yards of land has been earmarked for acquisition of MCH for the purpose of making roads and this was not acquired by MCH and still in the possession of the assessee. Regarding completion certificate it was submitted that the assessee duly applied for completion certificate vide application dated 30.9.2008 and duly acknowledged by MCH vide acknowledgement dated 17.10.2008 and also flats are fully completed in all respects which are duly connected by electricity and water supply and individual Distinct Number was allotted by MCH and they are assessed to municipal tax. According to the AR the area of plot is exceeding one acre and the area earmarked for roads cannot be excluded from the area of plot as decided by the Tribunal in the case of Vidhi Builders, Mumbai vs. ITO in ITA No. 1212/Mum/2009 for A.Y. 2005-06 dated 8th April, 2011 wherein the Tribunal held that the area earmarked for road setback, recreation open space and internal road setback cannot be excluded for the purpose of calculating the total plot area. While deciding the issue, the Tribunal placed reliance on the earlier order of the Mumbai Bench in the case of Umiya Enterprises vs. ITO in ITA No. 2750/Mum/2009 for A.Y. 2004-05. In view of this, we are inclined to hold that as per provisions of section 80IB(10) of the Act, the housing project should be on the size of a plot of minimum one acre. If the building project was sanctioned by the Municipal Corporation for developing the project in the area of one acre land or more, the assessee is entitled for deduction u/s. 80IB(10) of the Act.

13. We have carefully gone through the approved building plan as per which total area of the project is 4310.89 sq. metres, East side road widening area is 1089.21 sq. metres, West side road widening area is 8439 sq. metres and the net plot area is 3127 sq. metres. The learned AR submitted before us that the total plot area is 5130 sq. yards which more than one acre. It is also pleaded before us that the assessee's plot is more than one acre and, beyond his control, a potion of the plot was earmarked for roads. Being so, liberal interpretation of section 80IB is to be considered. In our opinion, if a portion of the plot area is earmarked for roads after the assessee entered into development agreement and the plan was duly sanctioned by the competent authority, we cannot find fault with the assessee to deny the deduction u/s. 80IB(10) of the Act. Accordingly, we are of the opinion that the area of the plot available to the assessee for housing project is more than 1 acre. Accordingly, the claim of the assessee cannot be denied on this ground if it is available at the time of entering into development agreement and deduction u/s. 80IB(10) is to be given to the assessee.

14. Regarding non-production of completion certificate, the learned AR submitted that the circumstances brought on record show that the project is completed. He relied on judgement of Gujarat High Court in the case of Manan Corporation vs. ACIT in TA No. 1053 of 2011 dated 3.9.2012 wherein held that there is no necessity of strict interpretation of section 80IB(10) of the Act as it is a beneficial provision and the facts brought on record show the completion of the project and deduction has to be given. He also relied on the order of the Tribunal in the case of Keerthi Estates Pvt. Ltd. in ITA No. 478/Hyd/2011 dated 21st September, 2012 (paras 14 and 15, as given below), wherein held as follows:

"14. Now the objection of the Department is that the assessee has not produced the completion certificate. The assessee is following Percentage Completion Method. This method is recognised by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction u/s. 80IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction u/s. 80IB(10) has to be granted only a tax payer who follows only "Project Completion Method" it leads to an absurd situation as the developer who is following Percentage Completion Method is not entitled for deduction u/s. 80IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being final fact finding authority shall keep in mind an overall situation, factual as well as legal, so thereupon brings a dictum ought to be legally sustainable in the eyes of law. In the present situation, the Revenue is taxing the profit on Percentage Completion Method but suggesting to grant deduction only on completion of the project. If the stand of the Revenue is accepted then only on completion of project an assessee would be entitled for deduction u/s. 80IB(10), then undisputedly an anomaly shall arise as to how and when the tax should be charged. This is not the scheme of the Act, to first tax an income in a particular year and grant deduction on that very income in a different later year i.e., on completion of the project as was canvassed by the Department. The accepted principle is that the year of the assessment of income and connected deduction shall fall in the same assessment year. If the Revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting "Percentage Completion Method" then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the Revenue must not tax the profit of the project yearly on the basis of "Percentage Completion Method" but tax the entire profit on completion of the project by applying "Project Completion Method.

15. In view of the foregoing discussion, we direct the Assessing Officer to allow deduction u/s. 80IB(10) of the Act in the light of the order of the Tribunal in Hiranandani Akruti JV v. DCIT (39 SOT 498)."

15. Coming to the facts of the present case, the project was approved by the Municipal Corporation of Hyderabad vide their permit No. 48/49 f. No. 0069/CSC/TP-5/04 dated 3.11.2004. As per certificate of assessee's architect dated 3.9.2008, the project was completed on 1.10.2007. The learned AR submitted before us that the assessee has completed the project by this date and the assessee is following contract completion method. The claim for deduction u/s. 80IB(10) was made by the assessee for the first time which was denied by the authorities on the reason that there is no completion certificate.

16. The meaning of “date of completion” has been given in Explanation (ii) to clause (a) to section 80IB(10). Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority. To grant deduction u/s. 80IB(10) it is mandatory to furnish the completion certificate of the housing project but the persistent question here is whether for giving benefit of deduction u/s. 80IB(10), where an assessee is following the percentage completion method is it necessary to obtain such completion certificate for each year of assessee’s claim or it is sufficient that certificate is obtained on the completion of the housing project as a whole. Stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption u/s. 80IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and assessee returns its income based on percentage completion method. It would only mean that the assessee has to obtain such certificate on completion of the housing project, least it would lose the deduction already granted u/s. 80IB(10) for the earlier years if it is not so produced. As held by the Hon’ble Supreme Court in the case of Bajaj Tempo (196 ITR 188) a provision in the taxing statutes granting incentives for promoting growth and development of the nation should be construed liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate. Clause (a) of section 80IB(10) species that 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 [but not later than the 31st day of March, 2005], within four years from the end of the financial year in which the housing project is approved by the local authority;

17. Thus, a project can have a span of not more than 4 years from the end of the financial year it has received approval. Explanation under clause (a) only specified how to reckon the day of approval and date of completion. It would not mean that the assessee can have the benefit of section 80IB(10) only in the year of completion of the project, especially so, for an assessee not following project completion method for accounting its income. If otherwise interpreted, it would be equivalent to forcing an assessee to follow a particular method of accounting, which would never have been the intention of legislation. Intention would only have been that for the project as a whole, there should be certification from the relevant authority proving the commencement and completion, and not that a completion certificate should be there in every year of the project span. The certifications are for ensuring that the project span does not exceed the prescribed period and nothing more. Of course if such period exceeded the prescribed limit, Revenue would be well within its rights to withdraw the claims already allowed, following the procedure prescribed under the Act. Thus, the Assessing Officer cannot insist on the completion certificate in the impugned year. This view has also been taken by CBDT in its Instruction No. 4 of 2009 dt. 30.6.2009, paras 2 to 4 of which are reproduced hereunder:

"2. Clarifications have been sought by various Chief CITs on the issue whether the deduction under s. 80IB(10) would be available on a year-to-year basis where an assessee is showing profit on partial completion or if it would be available only in the year of completion of the project under s. 80-IB(10). 3. The above issue has been considered by the Board and it is clarified as under :

(a) The deduction can be claimed on a year-to-year basis where the assessee is showing profit from partial completion of the project in every year.

(b) In case it is late and it is found that the condition of completing the project within the specified time-limit of 4 years as stated in s. 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn.

4. The above instruction will override earlier clarification on this issue contained in Member (R.)’s D.O. Letter No. 58/Misc/2008/CIT (IT & CT), dt. 29th April, 2008 and Member (IT)’s D.O. Letter No. 279/Misc/46/ 2008-ITJ dt. 2nd May, 2008."

18. Now the objection of the Department is that the assessee has not produced the completion certificate. The assessee is following Percentage Completion Method. This method is recognised by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction u/s. 80IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction u/s. 80IB(10) has to be granted only a tax payer who follows only "Project Completion Method" it leads to an absurd situation as the developer who is following Percentage Completion Method is not entitled for deduction u/s. 80IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being final fact finding authority shall keep in mind an overall situation, factual as well as legal, so thereupon brings a dictum ought to be legally sustainable in the eyes of law. In the present situation, the Revenue is taxing the profit on Percentage Completion Method but suggesting to grant deduction only on completion of the project. If the stand of the Revenue is accepted then only on completion of project an assessee would be entitled for deduction u/s. 80IB(10), then undisputedly an anomaly shall arise as to how and when the tax should be charged. This is not the scheme of the Act, to first tax an income in a particular year and grant deduction on that very income in a different later year i.e., on completion of the project as was canvassed by the Department. The accepted principle is that the year of the assessment of income and connected deduction shall fall in the same assessment year. If the Revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting "Percentage Completion Method" then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the Revenue must not tax the profit of the project yearly on the basis of "Percentage Completion Method" but tax the entire profit on completion of the project by applying "Project Completion Method".

19. In view of the above discussion, the Assessing Officer is directed to consider the claim of the assessee in the light of the above observations.

20. In the result, appeal of the assessee is allowed.

Order pronounced in open court on 7.3.2013.

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